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, 1998
/ / 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 of (I. R. S. Employer
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, 1999:
$33,993,135 (based upon approximate market value of $33 /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, 1999, 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 subsidiaries of Community-Habersham,
Financial Supermarkets, Inc. ("Financial Supermarkets") and Financial
Properties.
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 of 1995. 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,
competition in the geographic business areas in which the Company
conducts its operations, material unforeseen changes in the financial
stability and liquidity of the Company's credit customers and material
unforeseen complications arising from the year 2000 issue.
Business Description of Community Banking Subsidiaries
- ------------------------------------------------------
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, 1998, the Company's aggregate deposit
base, totaling approximately $405.2 million, consisted of
approximately $65.3 million in non-interest-bearing demand deposits
(16.11% of total deposits), approximately $94.4 million in interest-
bearing demand deposits (including money market accounts) (23.30% of
total deposits), approximately $19.7 million in savings deposits
(4.86% of total deposits), approximately $158.8 million in time
deposits in amounts less than $100,000 (39.19% of total deposits), and
approximately $67.0 million in time deposits of $100,000 or more
(16.54% of total deposits).
<PAGE>
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, 1998, consumer, real estate (including mortgage and
construction loans) and commercial loans represented approximately
14.68%, 33.07% and 51.28%, 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 LPO, 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 as 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
<PAGE>
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 NON-PERFORMING 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 review 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
<PAGE>
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 Subsidiaries
- ------------------------------------------------
FINANCIAL SUPERMARKETS. 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 international, interstate, regional and community
financial institutions. Financial Supermarkets enters into agreements
with major supermarket chains for the right to establish bank branches
in 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 14-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.
<PAGE>
FINANCIAL PROPERTIES. Community-Habersham acquired an additional
subsidiary in March 1998 which changed its name to Financial
Properties, Inc. ("Financial Properties"). Financial Properties
engages in real estate brokerage and related activities.
Competition
- -----------
The banking business is highly competitive. Community-Habersham
competes with three other institutions in Habersham County, Georgia,
three institutions in White County, Georgia, and nine 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 eleven other depository institutions in Montgomery,
Alabama, and Community-Troup competes with eight 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 non-interest-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, 1998, the Company had 260 full-time employees and
44 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
<PAGE>
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:
<PAGE>
(a) Total classified assets as of the most recent examination of
the bank do not exceed 80% of equity capital (as defined by
regulation);
(a) 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, 1998, retained
earnings available from the Community Banking Subsidiaries to pay
dividends totaled approximately $4.5 million. For 1998, the Company's
cash dividend payout ratio to shareholders was 4.69%.
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
<PAGE>
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-
risk-weighted assets of our 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,
1998.
<PAGE>
Set forth below are pertinent capital ratios for the Company and
the Community Banking Subsidiaries as of December 31, 1998.
<TABLE>
<CAPTION>
Minimum Capital Community- Community- Community- Community- The
Requirement Habersham Jackson Alabama Troup Company
- -------------- ---------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C>
Tier One Capital 11.76% 8.89% 10.44% 13.05% 10.87%
to Risk-based
Assets: 4.00%<F1>
Total Capital to 13.01% 10.14% 11.70% 14.30% 12.12%
Risk-based
Assets 8.00%<F2>
Leverage Ratio 8.58% 6.71% 7.19% 9.31% 8.42%
(Tier One Capital
to Average 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
<PAGE>
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
contains 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 amends 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
were 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 Company is subject to FDIC deposit insurance assessments for
the Bank Insurance Fund (the "BIF") which provides deposit insurance
coverage of up to $100,000 per bank customer (as defined by the FDIC).
There have been no BIF deposit insurance assessments for the highest-
rated depository institutions - which include all of the Community
Banking Subsidiaries - since 1995 when the BIF reached the target
funding level mandated by Congress. All depositary institutions
covered by the BIF are, however, required to pay a special assessment
to cover interest on the FICO bonds that were issued to fund the
Savings and Loan industry bailout. The Community Banking Subsidiaries
paid total FICO bond assessments of $43,341 in 1998, and expects to pay
total FICO bond assessments of approximately $11,607 in the first
quarter of 1999.
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. In addition, the Bank leases the property
occupied by the Loan Production Office in Gainesville. Community-
Jackson has five branch offices (one owned and four 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 owns its
main office located in Cornelia, Georgia, and leases a division office
in Atlanta, Georgia. 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, 1999, there were 475 holders of record of the
Common Stock. Management is aware of 30 and 9 trades of Company
stock during 1998 and 1997, respectively. During 1998, trades ranging
from 25 shares to 9,000 shares at prices ranging from $25.00 to $33.00
per share. During 1997 trades ranges from 100 shares to 2,850 shares
at prices ranging from $20.00 to $26.50 per share.
<PAGE>
In 1998, the Company declared cash dividends of $.15 per share.
The Company declared cash dividends of $.14 in 1997. 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>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION
Year Ended December 31,
1998 1997 1996 1995 1994
---------------------------------------------------------
Dollars in Thousands, Except Per Share Amounts
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Total interest income $ 34,613 $ 28,703 $ 24,465 $ 21,871 $ 17,911
Total interest expense 15,951 13,191 11,236 9,875 7,553
Net Interest income 18,663 15,512 13,229 11,996 10,358
Provision for loan losses 1,165 936 757 849 750
Non bank subsidiary income 9,043 8,820 5,559 3,780 3,007
Other operating income 4,338 3,599 2,833 2,433 2,325
Other operating expenses 20,402 18,724 14,950 12,970 11,606
Net income 7,032 5,647 4,044 3,125 2,419
Diluted earnings per share of common stock 3.20 2.60 1.93 1.54 1.21
Cash dividends per share 0.15 0.14 0.14 0.13 0.12
SELECTED BALANCE SHEET DATA:
Total assets $ 460,593 $ 377,080 $ 315,579 $ 270,007 $ 250,468
Total deposits 405,283 335,545 278,709 242,442 224,761
Other borrowings 5,808 462 616 787 2,233
Redeemable common stock held
by ESOP 14,254 10,622 6,177 - -
Shareholders' equity 26,291 23,119 21,083 22,469 19,004
</TABLE>
<PAGE>
<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, 1998 and the results of
operations for the three year period ended December 31, 1998. 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 1998. For the year ended December 31, 1998, consolidated
assets grew $83.5 million, or 22.15%, up from 1997 growth of $61.5
million or 19.49%. During 1998, the Company's average assets were
$416.6 million, compared with $342.1 million during 1997. This
represents an 22.35% increase in average assets during 1998 compared
with a 18.24% increase during 1997.
Total earning assets, which include investment securities, loans,
Federal Funds sold, and interest-bearing deposits in banks increased
$76.9 million or 23.04% during 1998. During 1997, earning assets
increased $53.5 million, or 19.09%. Average earning assets for 1998
were $371.3 million , an increase of 19.95% over average earning
assets in 1997 which were $309.5 million or an increase of 17.58% over
1996.
Total investments decreased by $8.6 million or 10.44% over
1997. Average investments were $75.3 million for 1998, a 1.22%
decrease compared to average investments for 1997. This decrease
occurred mainly in the available for sale portfolio and it was offset
by increased loan demand.
Total loans grew by $70.8 million during 1998 for an increase of
29.17% over 1997. During 1998 average loans were $285.8 million or an
increase of 28.07% over 1997 compared to an increase during 1997 of
16.73% to 223.2 million. The increase in loans is primarily the
result of loan growth in the new markets which the bank entered
in Hall and White Counties, along with the continued growth of the
LPO.
Federal Funds sold increased by $16.9 million or 284.06% from
year end 1997 to 1998. Average Federal Funds for 1998 were $9.5
million or an 2.20% decrease. During 1997, average Federal Funds sold
had shown a decrease of $2.2 million or 18.21% compared to 1996.
The growth in assets for the year ended December 31, 1998 was
funded mainly by growth in deposits and advances from the Federal Home
Loan Bank. Consolidated deposits grew $69.7 million or 20.78% as
compared to $56.8 million or 20.4% in 1997. This growth includes
the purchase and assumption of a branch of SunTrust Bank in Cleveland,
Georgia, which added approximately $5.8 million in deposits to the
Company's consolidated deposits. Deposit growth was evenly spread
over every deposit product offered by the Company as stable interest
rates did little to influence deposit movement during 1998. The
Company advanced $5 million in other borrowings from the Federal
Home Loan Bank.
<PAGE>
At December 31, 1998, the Company reported net unrealized gains
of approximately $378,000 in the securities available for sale
portfolio as compared to net unrealized gains of approximately
$217,000 at December 31, 1997. Net unrealized gains represent the
difference in the amortized cost compared to the fair value at those
dates and are included in shareholders' equity, net of the tax effect.
The Company 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 1998 the Company sold $14.2 million
of securities classified as available for sale, realizing net gains of
$78,653 on a consolidated basis. The held to maturity securities portfolio
included net unrealized gains of approximately $1,259,000 at December 31,
1998. 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 35.4% 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 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. Inflation does not have a material impact on the
Company due to the short-term maturities and the repricing of its earning
assets.
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, 1998 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.
<PAGE>
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, 1998, $33.4 million in cash flows
from operating activities were provided by interest and fees received
from loans, securities and federal funds. Approximately $13.4 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 $14.8 million of interest paid on deposits
and borrowings, $10.7 million paid for salaries and other personnel
benefits and $11.3 million paid for occupancy and equipment expenses,
income taxes and other operating expenses. Cash flows of $41.2
million were provided by the proceeds of sales and maturities of
investment securities. Cash flows provided by financing activities
consisted primarily of $69.7 million in net increases in deposits and
an increase in other borrowings of $5.5 million. The increases in
deposits and other borrowings was primarily used to fund the $71.6
million in net increase in loans. The net increase in cash and due
from banks for the year ended December 31, 1998 was $2.8 million.
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 expenses. 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 $56.8 million in net increases in deposits and were
primarily used to fund the $40.2 million net increase in loans. The
net increase in cash and due from banks for the year ended December 31,
1997 was $4.5 million.
At December 31, 1998, 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 1998, the Company increased capital by retaining net
earnings of $6.7 million compared to an increase in 1997 of $5.3
million in retained net earnings and $.9 million from issuance of
common stock. Management believes that the liquidity and capital ratios
of the Company and the Community Banking Subsidiaries are adequate.
<PAGE>
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, 1998 , approximately $4.5 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".
Except for Year 2000 concerns, 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, 1998 AND 1997
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 $3.2 million for the
year ended December 31, 1998 as compared to an increase of $2.3
million for the same period in 1997. The increase in net interest
income is attributable to increases in earning assets, particularly
loans. The yield on interest-earning assets increased 5 basis points
in 1998 from 1997. This increase combined with the increase in
average interest earning assets of $61.8 million, net of the increase
in average interest-bearing liabilities of $58.1 million, accounts
for the 20.31% increase in net interest income. Net interest income
increased for all Community Banking Subsidiaries as shown below, prior
to elimination entries:
<PAGE>
<TABLE>
<CAPTION>
Net interest income Increase/
1998 1997 (Decrease)
---- ---- ----------
<S> <C> <C> <C>
Community - Habersham $ 11,079 $ 9,546 1,533
Community - Jackson 4,288 3,290 998
Community - Alabama 1,775 1,332 443
Community - Troup 1,544 1,379 165
-------- ------- -----
18,686 15,547 3,139
</TABLE>
The 10 basis point increase in the net interest spread in Table 2
is due primarily to the increase in loans during 1998. In addition,
the rates on deposits have decreased slightly due to decreases in the
prime rate during 1998. The Company will continue to actively monitor
and maintain the net interest spread to counteract the current market
trends. Net interest income for 1997 increased $2.3 million over 1996
despite the 4 basis point decrease in net interest spread. 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, 1998 increased by $228,734 from $936,216 at
December 31, 1997. This compares to an increase of $178,954 in 1997
from the December 31, 1996 level of $757,262. The increase during
both 1998 and 1997 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 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,
increased $273,000 from December 31, 1997 compared to a $321,000
decrease over 1996. 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 288%
at December 31, 1997 to 387% at December 31, 1998. At December 31,
1998, impaired loans included all restructured loans, as well as 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, 1998 and 1997 was 1.55% and 1.64%,
respectively. Net charge-offs in 1998 were $325,940, a decrease of
$178,063 from $504,003 in 1997, and the net charge-off ratio
decreased from .23% in 1997 to .11% in 1998. 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.
<PAGE>
The Company continues to have a concentration in real estate
loans, representing 33.1% and 37.4%, respectively, of total loans at
December 31, 1998 and 1997. Management has implemented policies to
limit extensions of credit to one borrower and its affiliates. By utilizing
these policies, 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 (as shown in the following table prior to elimination entries)
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 32.4%, or $4.3 million of total other income for 1998, 29.0% in
1997, and 33.8% in 1996.
<TABLE>
<CAPTION>
Other operating income
---------------------- Increase
1998 1997 (Decrease)
---- ---- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Community Banking Subsidiaries
Community - Habersham $ 2,578 $ 1,918 $ 660
Community - Jackson 1,142 1,160 (18)
Community - Alabama 307 249 58
Community - Troup 256 189 67
-----------------------------------
$ 4,283 $ 3,516 $ 767
===================================
Financial Supermarkets(R) $ 9,068 $ 8,820 $ 248
===================================
</TABLE>
The majority of the increase in other operating income of the
Community Banking Subsidiaries is the continued growth in deposits.
Service charges on deposit accounts increased by $ 510,919 and
$473,204, respectively, for the years ended December 31, 1998 and
1997. 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 $14.8 million in
1998 compared to $10.7 million increase in 1997 over 1996. Included
in other operating income of the Community Banking Subsidiaries are
gains on sale of loans recognized by Community-Habersham and Jackson
of $301,196 and $258,879, respectively. This represents a slight
decrease from 1997 of $53,985.
The allocation of services as a percentage of total income for
Financial Supermarkets is shown below:
FINANCIAL SUPERMARKETS(R)
Consulting Services provided for Supermarket
bank installation and opening 68%
Supermarket consulting and ancillary services 28
Other Miscellaneous Consulting Services 4
---
100%
<PAGE>
The primary business of Financial Supermarket(R) "FSI" is
services offered in connection with the establishment and operation of
Supermarket Bank(R) service centers. In 1998, Financial Supermarkets(R)
had net consulting revenue of $6.4 million compared to $6.6 million in
1997, a decrease of $.2 million or 3%. The increase in net consulting
revenues in 1997 over 1996 was $2.4 million, or 56%.
In 1997, FSI entered into a contract with NationsBanc Services,
Inc. ("NationsBanc") to provide consulting 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 NationsBanc contract. Income
related to the NationsBanc 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, NationsBanc 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 NationsBanc 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 79 supermarket branches in operation
under this agreement.
Although the Company has had fewer installations of supermarket
bank units during 1998 as compared to 1997, the income increased due
to compensation received as a result of the termination of the
Company's Master Consulting Agreement with NationsBanc on August 14,
1998. Under the terms of the Agreement, Nationsbanc's on going obligation
under the Master Consulting Agreement are limited to paying monthly
consulting fees with respect to the seventy-nine supermarket locations
it will continue to operate in Winn-Dixie stores.
While the NationsBanc contract accounted for a significant
extraordinary increase in consulting revenue in 1998 and 1997, 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, 1998 by $1.7 million compared to the $3.8 million
increase in 1997. This represented a 8.97% increase in expenses for
1998 and 25.24% increase in 1997. Salaries and benefits increased
$202,492 or 1.93% in 1998 over 1997. This compares to an increase of
$2,208,689 or 26.72 % in 1997 over 1996. Although salaries and
benefits continue to increase as a result of the growth in the banking
subsidiaries, incentive pay in FSI decreased in 1998 as compared to
1997 resulting in a smaller increase in the overall salaries and
benefits. For the years ended 1998, 1997, and 1996 the Company had
total employees (F.T.E.) of 282, 249, and 216, respectively. Data
processing expenses included the costs associated with the decision
to change from a client based software provider to a more traditional
software system. The Company is attempting to recover some of the costs
associated with the setup of the client based system. However, no
assurance can be given that the Company's efforts will be successful.
Other expenses increased by .3 million in 1998 and 1.2 million in 1997
primarily due to growth of the banking subsidiaries, increased costs
associated with data processing upgrades and increased activity of
FSI.
<PAGE>
Equipment and occupancy expenses increased by $583,289 or 22.76%
in 1998 over 1997 and $381,906 or 17.51% in 1997 over 1996. The
increase is due to the additional number of facilities operated by the
Community banking subsidiaries as well as additions of data processing
equipment during 1998. The Company operated 26, 23 and 18 locations
at the year ends 1998, 1997, and 1996, respectively. As 1998 closed,
preparations were being made to open an additional facility in the
first quarter of 1999. Management expects this location to add to the
continued growth and profitability of the Company.
<TABLE>
<CAPTION>
Other Expenses
------------------- Increase/
1998 1997 (Decrease)
--------- -------- ----------
(Dollars in Thousands)
<S> <S> <C> <C> <C>
The Company
Salaries and benefits $ 10,677 $ 10,474 $ 203
Equipment expenses 1,841 1,488 353
Occupancy expenses 1,306 1,076 230
Data processing expenses 949 386 563
Travel expenses 469 583 (114)
Office supply expenses 460 437 23
Other operating expenses 4,700 4,280 420
--------------------------------
$ 20,402 $ 18,724 $ 1,678
================================
</TABLE>
INCOME TAXES. The Company incurred income tax expenses of $3.4
million in 1998 which represented an effective tax rate of 33%,
compared to tax expense of $2.6 million in 1997, or an effective tax
rate of 32%. Income tax expense increased $ .8 million from 1996 to
$2.6 million in 1997. The effective tax rate at December 31, 1996 was
32%. The increase in the effective tax rate is related to the
increased income of Financial Supermarkets, which does not have tax-free
income as do the Community Banking Subsidiaries.
NET INCOME. The Company's net income for 1998 was $7.0 million,
as compared to $5.6 million in 1997, an increase of 25%. The
increase in net income between 1998 and 1997 is primarily attributable
to the additional interest and fees on loans related to growth and the
performance of Financial Supermarkets. Net income for 1997 increased
to $5.6 million or 40% over 1996's net income of $ 4.0 million.
Although the Company has experienced significant increases in income
over the past several years, management does not anticipate this same
percentage increase to continue in the coming year.
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.
<PAGE>
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 on at least a quarterly
basis. 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. 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 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, 1998, 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, 1998, 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<PAGE>
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.
<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> <S> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits 428 - - - 428
Federal funds sold 22,890 - - - 22,890
Investment securities 3,016 4,031 27,859 38,534 73,440
Loans 115,763 69,658 93,823 34,893 314,137
------------------------------------------ -------
142,097 73,689 121,682 73,427 410,895
------------------------------------------ -------
Interest-bearing liabilities:
Interest-bearing demand 94,458 - - - 94,458
Savings 19,731 - - - 19,731
Time deposits, $100,000
and over 23,312 32,595 8,519 2,577 67,003
Time deposits, less than
$100,000 17,428 38,288 103,107 - 158,823
Other borrowings 808 0 5,000 - 5,808
------------------------------------------- -------
155,737 70,883 116,626 2,577 345,823
------------------------------------------- -------
Interest rate sensitivity
Gap (13,640) 2,806 5,056 70,850 65,072
------------------------------------------- -------
Cumulative interest rate
Sensitivity gap (13,640) (10,834) (5,778) 65,072
------------------------------------------- -------
Interest rate sensitivity
Gap 0.91 1.04 1.04 28.549
------------------------------------------- -------
Cumulative interest rate
Sensitivity gap 0.91 0.95 0.98 1.19
-------------------------------------------
</TABLE>
<PAGE>
YEAR 2000 COMPLIANCE
The following are forward-looking statements reflecting
management's current assessment and estimates with respect to the
Company's year 2000 compliance efforts and the impact of year 2000
issues on the Company's business and operations. Various factors
could cause actual plans and results to differ materially from those
contemplated by such assessments, estimates and forward-looking
statements, many of which are beyond the control of the Company. Some
of these factors include, but are not limited to representations by
the Company's vendors and counterparties, technological advances,
economic considerations, and consumer perceptions. The Company's year
2000 compliance program is an ongoing process involving continual
evaluation and may be subject to change in response to new
developments.
The Company utilizes and depends upon data processing systems and
software to conduct its business. 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 Company's State of Readiness
The Company views year 2000 readiness as not only an information
or technology problem, but as a corporate-wide challenge and has
placed the issue at the forefront of all strategic planning. The
Company's readiness plan has been designed to cover all aspects of its
operations, which include the current operations, the conversion
period and contingency planning in the event of the failure of a
mission critical system. Based on the complex nature of the Company's
operations, corporate wide objectives have been to: 1) minimize
disruptions of service to the institution and its customers, 2) ensure
timely resumption of operations, and 3) limit losses to earnings and
capital.
The Company began evaluating its information technology ("IT")
systems and non-IT systems, which include microcontrollers and other
embedded computers, to ascertain the impact of year 2000 issues in
June of 1997. In l997, a Year 2000 Task Force Committee was
organized and the Chief Financial Officer of the Company was appointed
to direct the Company's year 2000 remediation efforts. The Committee
believes that it has identified and remediated all major internal business
and operational functions that will be impacted by the date changes.
Remediation of the Company's IT and Non-IT Systems. The
--------------------------------------------------
Company's remediation program was implemented during the first quarter
of 1998. In general, the Company believes that because the majority
of IT equipment and software is relatively new, and has been certified
by the developers as being year 2000 compliant, such equipment and
software will only require minor modification to become year 2000
compliant.
During the fourth quarter of 1998, management of the Company
determined that it would be necessary to proceed with its traditional
software provider, as opposed to the client based software as<PAGE>
originally planned. As planned, modifications to the Company's IT
equipment and software were complete on March 8, 1999. With respect
to the Company's non-IT systems, no remediations were required.
Record retention policies have been amended to include all year
2000 due diligence documents and any new acquisition, upgrades to
existing systems, or written agreements are reviewed prior to
execution for year 2000 warrants or guarantees of readiness.
Year 2000 Testing. The Company considers the testing phase of
-----------------
its year 2000 program to be a significant phase of its year 2000
program. In May of l998, a Year 2000 Readiness-Key Milestones Testing
Plan was adopted that defined the Company's year 2000 testing strategy
<PAGE>
(the "Plan"). The Plan will continue to be modified to address any
change in the remediation plans as necessary. The Company anticipates
that the results of testing will be reviewed by employees independent
of in-house testing. In addition, test results will be presented to
the Board of Directors of each Community Banking Subsidiary for
evaluation. The Company estimates that its year 2000 testing will be
complete by May 30, 1999.
Assessment of Third Party Readiness. To the extent possible, the
-----------------------------------
Company has also evaluated the systems of its major business partners,
borrowers and suppliers of products and services. The Company has
sent out a letter and questionnaire to its major borrowers and
suppliers of products and services. The Company has received a
majority of responses from these parties and notes no significant year
2000 issues.
Costs to Address Year 2000 Issues
The Company does not anticipate that the related overall costs
will be material to the financial condition of the Company for any
single year or quarter. The Company estimates that costs of
assessing, testing, and remediation issues associated with the year
2000 will total approximately $1,200,000. Total costs incurred to date with
respect to year 2000 remediations are $900,000. The Company anticipates that
it will incur additional costs relating to the remaining modifications of
$300,000. A majority of these costs have been capitalized, with
62% incurred in connection with the purchase of new software and 38%
required as a result of the replacement of hardware. It is
anticipated that expenses relating to the independent audit of the
test results will be deducted from income.
The Company has not used any independent verification and
validation processes to assure the reliability of year 2000 cost
estimates. None of the Company's IT projects have been deferred due
to year 2000 efforts.
Risks of the Year 2000
The Company believes that all significant remediations with
respect to the Company's systems are complete. However, no assurance
can be given that the Company will not be exposed to potential
losses resulting from system problems associated with the change in date.
There can also be no assurance that the Company's systems that have been
designed to be year 2000 compliant contain all of the necessary date code
changes and that systems have been correctly modified, or will be correctly
modified in contemplation of the year 2000.
In addition to year 2000 compliance in the Company's internal
systems, the impact of year 2000 non-compliance by outside parties
with whom the Company may transact business cannot be accurately
gauged. The year 2000 issue may have a material impact on the
financial condition of the Company if borrowers of the Company become
insolvent and are, therefore, unable to repay loans as they become due
as a result of the borrowers' year 2000 non-compliance.
<PAGE>
Certain risk controls to manage the year 2000 related risks
posed by customers have been implemented and the broad categories of
customers have been identified. They are: 1) Funds Takers, 2) Funds
Providers and 3) Capital Market/Asset Management Counterparties.
Based on the analysis of the previously described groups, the Company
is able to look at different assumptions of risk, liquidity and
contingency. A high level program of awareness continues in this area
with sub-committees of the Board of Directors of each Community
Banking Subsidiary carefully monitoring year 2000 remediation efforts
to minimize financial risk. Lending officers have been asked to
identify any economic factors in the bank's trade or assessment areas
that would have an impact on customers as a result of a potential year
2000 problem.
In addition, the Company is reliant upon the Federal Reserve
Company of Atlanta (the "Atlanta Reserve Bank") for electronic funds
transfers. If the Atlanta Reserve Bank does not successfully complete
all modifications required by the date change, and is forced to
interrupt automated services to the Company, the Company could
experience difficulties with respect to making electronic funds
transfers. The Company believes that the Atlanta Reserve Bank is
aggressively pursuing a year 2000 compliance strategy, and that the
risk associated with year 2000 non-compliance by the Atlanta Reserve
Bank is insignificant. With the exception of the Atlanta Reserve
Bank, the Company is not aware of any other third party relationships
whose year 2000 non-compliance could result in a material adverse
effect on the Company's results of operations, liquidity and financial
condition due to the date change.
Another area of review for year 2000 potential liability has
been that of fiduciary services. Client assessment management through
the bank's trust department has been identified and will continued to
be monitored.
Contingency Plans
In order to fully recognize the risks presented to the Company,
"worse case scenarios" have been reasonably identified along with
estimated costs for recovery, personnel and other budget items. The
Company is in the process of finalizing its contingency planning with
respect to the year 2000 date change and believes that should its own
systems fail, it could convert to a manual entry system for a period
of approximately one month without significant losses. The Company
is in the process of contracting with a business recovery service for
a "hot site" location for disaster recovery or processing due to a
failure event.
In addition, the Company's preliminary contingency plan also
takes into account the risk that the Atlanta Reserve Bank will not
make the necessary modifications that will enable it to handle
electronic funds transfers and check clearing operations. Management
of the Company believes that so long as the Company is able to obtain
the necessary information from the Atlanta Reserve Bank in some
manner, such as by telephone or facsimile transmissions, and manually
post transactions, the resulting impact on the Company's financial
condition will not be material.
<PAGE>
<PAGE>
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 2% in net interest income and a 6%
decrease in market value equity for a 200 basis point increase in
rates. The same model shows a 2% decrease in net interest income and
a 7% 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.
<PAGE>
<PAGE>
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>
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS
Table 1 Average Balances
<TABLE>
<CAPTION>
The condensed average balance sheets for the periods indicated are
presented below. <F1>
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 25,330 $ 16,260 $ 13,539
Interest-bearing deposits in banks 747 488 364
Taxable securities 42,262 50,957 43,337
Nontaxable securities 32,991 25,223 16,520
Unrealized gains (losses) on securities
available for sale 200 (93) (130)
Federal Funds Sold 9,495 9,704 11,864
Loans <F2> 285,809 223,170 191,180
Allowance for loan losses (4,382) (3,873) (3,368)
Other assets 26,098 20,243 16,013
----------------------------------------
$ 418,550 $ 342,079 $ 289,319
========================================
Total interest-earning assets $ 371,304 $ 309,542 $ 263,265
========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 52,966 $ 41,472 $ 33,052
Interest-bearing demand 83,422 61,638 57,240
Savings 18,672 15,387 13,145
Time 217,831 185,936 153,814
----------------------------------------
Total deposits 372,891 304,433 257,251
Other borrowings 1,699 545 885
Other liabilities 6,633 6,894 6,489
----------------------------------------
Total liabilities 381,223 311,872 264,625
----------------------------------------
Shareholders' equity <F3> 37,327 30,207 24,694
----------------------------------------
$ 418,550 $ 342,079 $ 289,319
========================================
Total interest-bearing liabilities $ 321,624 $ 263,506 $ 225,084
========================================
<FN>
<F1> Average balances were determined using average daily balances
<F2> Average balances of loans include nonaccrual loans and are net of deferred interest and fees
<F3> Average unrealized gains (losses) on securities available for sale, net of tax, are
included in shareholders' equity
/TABLE
<PAGE>
<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,
-----------------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
Average Average Average
Interest Rate Interest Rate Interest Rate
-------- ---- -------- ---- -------- ----
INTEREST INCOME:
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans 29,767 10.41% 23,562 10.56% 20,440 10.69%
Interest on taxable securities 2,565 6.07% 3,108 6.10% 2,483 5.73%
Interest on nontaxable <F1> 1,710 5.18% 1,327 5.26% 908 5.50%
Interest on Federal Funds sold 535 5.63% 673 6.94% 625 5.27%
Interest on deposits in banks 36 4.82% 33 6.76% 9 2.47%
------ ------ ------
Total interest income 34,613 9.32% 28,703 9.27% 24,465 9.29%
------ ------ ------
INTEREST EXPENSE:
Interest expense on interest-
Demand deposits 2,511 3.01% 2,009 3.26% 1,797 3.14%
Interest on savings deposits 516 2.76% 436 2.83% 372 2.83%
Interest on time deposits 12,812 5.88% 10,704 5.76% 9,002 5.85%
Interest on other borrowings 111 6.53% 42 7.71% 65 7.34%
------ ------ ------
Total interest expense 15,950 4.96% 13,191 5.01% 11,236 4.99%
------ ------ ------
NET INTEREST INCOME 18,663 15,512 13,229
====== ====== =======
Net interest spread 4.36% 4.26% 4.30%
Net yield on average
Interest-earning assets 5.03% 5.01% 5.02%
<FN>
<F1> Yields on nontaxable securities are not presented on a tax equivalent basis
</FN>
</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>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1998 vs. 1997
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 $ (323) $ 6,528 $ 6,205
Interest on taxable securities (15) (528) (543)
Interest on nontaxable securities (20) 403 383
Interest on Federal Funds sold (124) (14) (138)
Interest on deposits in banks (11) 14 3
-------------------------------------------
Total interest income (493) 6,403 5,910
-------------------------------------------
Expense from interest-bearing liabilities:
Interest expense on interest-bearing deposits (163) 665 502
Interest on savings deposits (11) 91 80
Interest on time deposits 237 1,871 2,108
Interest on other borrowings (7) 76 69
-------------------------------------------
Total interest expense 56 2,703 2,759
-------------------------------------------
Net interest income (549) 3,700 3,151
===========================================
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 securities (40) 459 419
Interest on Federal Funds sold 175 (127) 48
Interest on deposits in banks 20 4 24
-------------------------------------------
Total interest income 65 4,173 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 $ 141 $ 2,142 $ 2,283
===========================================
/TABLE
<PAGE>
<PAGE>
INVESTMENT PORTFOLIO
TABLE 4 TYPES OF INVESTMENTS
<TABLE>
<CAPTION>
The carrying amounts of securities at the dates indicated are summarized
as follows <F1>:
December 31,
1998 1997 1996
-------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
U. S. Treasury and other U. S. Government
Agencies and corporations $25,987 $29,094 $27,561
Municipal securities 36,753 29,497 19,788
Mortgage-backed securities 8,979 21,962 17,806
Equity securities 1,721 1,448 917
-------------------------------------
$73,440 $82,001 $66,072
=====================================
<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 effecting 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>
<PAGE>
The amounts of securities in each category as of December 31,
1998 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 4,917 6.35% 409 5.04% 1,721 6.00%
After one year
through five years 22,572 5.95% 5,287 5.06% - -
After five years
through ten years 4,360 6.10% 7,160 5.24% - -
After ten years 3,117 6.05% 23,897 5.14% - -
------ ------ -----
Total 36,966 6.03% 36,753 5.18% 1,721 6.00%
====== ====== =====
<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>
<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,
1998 1997 1996 1995 1994
---------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural <F1> $161,572 $118,376 $102,231 $77,871 $77,439
Real estate-construction 21,327 21,234 9,506 8,036 8,703
Real estate-mortgage 82,413 69,541 57,566 63,312 50,856
Consumer and other <F2> 48,825 36,070 36,483 30,072 25,269
---------------------------------------------------------------------
$314,137 $245,221 $205,786 $179,291 $162,267
Less allowance for loan losses (4,863) (4,024) (3,592) (3,060) (2,686)
---------------------------------------------------------------------
Net loans $309,274 $241,197 $202,194 $176,231 $159,581
=====================================================================
<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>
<PAGE>
TABLE 7 MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
RATES
Total loans as of December 31, 1998 are shown in the following
table according to maturity classifications one year or less, after
one year through five years and after five years.
<TABLE>
<CAPTION>
December 31, 1998
(Dollars in Thousands)
----------------------
<S> <C>
Maturity:
One year or less:
Commercial, financial and agricultural $111,012
Real estate-construction 21,327
All other loans 41,380
--------
$173,719
--------
After one year through five years:
Commercial, financial and agricultural $22,604
Real estate-construction
All other loans 60,001
--------
$82,605
--------
After five years:
Commercial, financial and agricultural $27,956
Real estate-construction
All other loans 29,857
--------
$57,813
--------
$314,137
========
</TABLE>
The following table summarizes loans at December 31, 1998 with
due dates after one year which have predetermined and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
December 31, 1998
(Dollars in Thousands)
----------------------
<C> <C>
Predetermined interest rates $ 82,130
Floating or adjustable interest rates 58,288
--------
$140,418
--------
</TABLE>
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>
<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,
1998 1997 1996 1995 1994
--------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,119 $714 $1,119 $1,456 $640
Loans contractually past due ninety days
or more as to interest or principal
Payments and still accruing 706 533 445 345 310
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 572 704 620 629 64
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, 1998 is as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Interest income that would have been recorded on nonaccrual
and restructured loans under original terms $96,300
=======
Interest income that was recorded on nonaccrual and restructured loans $33,600
=======
</TABLE>
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>
<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, 1998 and 1997 were $28,756,057 and
$23,665,522, 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,
1998 1997 1996 1995 1994
---------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $285,809 $223,170 $191,180 $170,525 $150,426
==============================================================
Balance of allowance for loan losses
at beginning of year $ 4,024 $ 3,592 $ 3,060 $ 2,686 $ 2,457
--------------------------------------------------------------
Loans charged off
Commercial ($97) ($136) ($118) ($221) ($344)
Real estate mortgage (7) (35) - - -
Consumer (391) (424) (211) (331) (244)
--------------------------------------------------------------
($495) ($595) ($329) ($552) ($588)
--------------------------------------------------------------
Loans recovered
Commercial $ 20 $ 11 $ 5 $ 12 $ 11
Real estate mortgage 19 28 35 12 5
Consumer 130 52 64 53 51
-------------------------------------------------------------
$ 169 $ 91 $ 104 $ 77 $ 67
-------------------------------------------------------------
Net charge-offs ($326) ($504) ($225) ($475) ($521)
-------------------------------------------------------------
Additions to allowance charged
to operating expense during year $ 1,165 $ 936 $ 757 $ 849 $ 750
-------------------------------------------------------------
Balance of allowance for loan losses
at end of year $ 4,863 $ 4,024 $ 3,592 $ 3,060 $ 2,686
=============================================================
Ratio of net loans charged off during
the year to average loans 0.11% 0.23% 0.12% 0.28% 0.35%
=============================================================
</TABLE>
<PAGE>
<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 $4,863,181 at December 31,
1998, representing 1.55% of total loans, compared with $4,024,171
at December 31, 1997, which represented 1.64% 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, 1998.
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, 1998,
1997, 1996, 1995 and 1994 is summarized below:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial $2,160 $1,850 $1,830 $1,347 $1,508
Real estate 270 230 105 467 599
Consumer 2,433 1,944 1,657 1,246 579
-------------------------------------------------------------------
$4,863 $4,024 $3,592 $3,060 $2,686
===================================================================
Percent of loans in Each Category of Total Loans
December 31,
1998 1997 1996 1995 1994
-------------------------------------------------------------------
(Dollars in Thousands)
Commercial 51% 49% 50% 43% 48%
Real estate 33% 35% 33% 40% 37%
Consumer 16% 16% 17% 17% 15%
-------------------------------------------------------------------
100% 100% 100% 100% 100%
===================================================================
</TABLE>
<PAGE>
<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,
-------------------------------------------------------------
1998 1997 1996
-------------------- ------------------- -------------------
Average Average Average
Interest Rate Interest Rate Interest Rate
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 52,966 - $ 41,472 - $ 33,052 -
Interest-bearing demand deposits 83,422 3.01% 61,638 3.26% 57,240 3.14%
Savings deposits 18,672 2.76% 15,387 2.83% 13,145 2.83%
Time deposits 217,831 5.88% 185,936 5.76% 153,814 5.85%
-------- -------- --------
Total deposits $372,891 $304,433 $257,251
======== ======== ========
<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, 1998 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.
<TABLE>
<CAPTION>
December 31, 1998
(Dollars in Thousands)
<S> <C>
Three months or less $23,312
Over three through six months 12,630
Over six through twelve months 19,965
Over twelve months 11,096
-------
$67,003
=======
</TABLE>
<PAGE>
<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,
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Return on assets <F1> 1.68% 1.65% 1.40%
Return on equity <F2> 18.84% 18.69% 16.38%
Dividend payout ratio <F3><F5> 4.69% 5.38% 7.25%
Equity to assets ratio <F4> 8.92% 8.83% 8.54%
<FN>
<F1> Net income divided by average total assets.
<F2> Net income divided by average equity.
<F3> Dividends declared per share divided by diluted earnings per
share.
<F4> Average equity divided by average total assets.
<F5> Dividends declared per share as disclosed in the
consolidated financial statements are $0.15, $0.14, and $0.14 per
share for 1998, 1997 and 1996, respectively.
</FN>
</TABLE>
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the report of independent
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.
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a brief description, as of December 31, 1998, 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 of
(50) Adams, Ellard & Frankum, 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. He was
named a director of Financial Properties, Inc. in
1998.
Edwin B. Burr Mr. Burr has served as a director of the Company
(65) since April of 1995 and Financial Supermarkets
since 1992. Mr. Burr has been President of
Financial Solutions, a bank consulting firm since
1988. He has been a director of Community
Alabama since 1997 and President of Financial
Solutions since 1988.
Elton S. Collins Mr. Collins has been the President, Chief
(55) Executive Officer and a director of Community -
Jackson since 1982.
Annette R. Fricks Mrs. Fricks has been an Executive Vice President
(54) 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.
She was named the Executive Vice President and
Corporate Secretary for Financial Properties in
1998.
Charles M. Miller Mr. Miller has served as an Executive Vice
(57) 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 1995. He was named a
director and Executive Vice President of
Financial Properties in 1998.
Harry H. Purvis Mr. Purvis has been a director of the Company
(92) since 1981 and Community Habersham since 1956.
Mr. Purvis has also served as a director of
Financial Supermarkets since 1984. He was named
a director of Financial Properties, Inc. in 1998.
Harry L. Stephens Mr. Stephens has been an Executive Vice President
(52) and the Chief Financial Officer of the Company
and Community - Habersham since 1992 and has
served as Treasurer of Financial Supermarkets
since 1986. He has been Executive Vice President
and Chief Financial Officer of Community
Habersham since 1993. He was named Executive
Vice President and Treasurer of Financial
Properties, Inc. in 1998<PAGE>
H. Calvin Stovall, Jr. Mr. Stovall, who is retired, was the President
(83) and 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 1981-1998
and was named Chairman Emeritus in 1998.
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.
He was also named a director of Financial
Properties, Inc. in 1998.
Dean C. Swanson Mr. Swanson was President of the Standard Group,
(67) a telecommunications company until January 1999.
He 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. He was named a
director of Financial Properties, Inc. in 1998.
George D. Telford Mr. Telford is a retired bank executive and has
(78) served as a director of the Company and Community
- Habersham since 1981 and 1965, respectively, as
well as of Financial Supermarkets since 1993. He
was named a director of Financial Properties, Inc.
in 1998.
J. Alton Wingate Mr. Wingate has served as a director and the
(59) President and Chief Executive Officer of the
Company, Community - Habersham and Financial
Supermarkets since 1981, 1977 and 1984,
respectively. Mr. Wingate was named Chairman of
the Board in 1998. He 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. He was named President and
Chief Executive Officer of Financial Properties,
Inc. in 1998. Mr. Wingate has been Chairman and
Chief Executive Officer of Community - Habersham
since 1996 and has been Chairman and President
of Financial Supermarkets since 1984.
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.
<PAGE>
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 year (the "Named Executive
Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
----------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------------------------------- ------------------------------------------
Securities
Name and Principal Salary Bonus Underlying All Other
Position Year $<F1> <F2> Options/SARS (#) Compensation
------------------- ---- -------- --------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
J. Alton Wingate 1998 245,500 1,360,258 <F7> 30,499 <F3>
President and Chief 1997 243,200 728,981 <F7> -- 30,687
Executive Officer 1996 237,600 367,271 <F7> -- 19,203
Charles M. Miller 1998 145,600 30,000 -- 23,512 <F4>
Executive Vice 1997 145,600 20,000 -- 23,974
President 1996 141,000 20,000 -- 17,846
Harry L. Stephens 1998 98,000 52,500 -- 20,816 <F5>
Executive Vice 1997 93,000 52,500 -- 19,811
President and Chief 1996 88,000 43,000 -- 14,011
Financial Officer
Annette R. Fricks 1998 88,000 57,500 17,844 <F6>
Executive Vice 1997 83,000 52,500 -- 17,088
President and 1996 78,000 43,000 -- 12,959
Corporate Secretary
<F1> Includes directors' fees.
<F2> Bonuses are included in this report in the year paid.
<F3> Includes premiums of $4,144.84 paid for Mr. Wingate's life
insurance policies and estimated employee stock ownership plan
("ESOP") contributions of $16,500. Final ESOP contributions have
not yet been determined for 1998.
<F4> Includes premiums of $3,252.16 paid for Mr. Miller's life
insurance policies and estimated ESOP contributions of
$16,000.00. Final ESOP contributions have not yet been determined
for 1998.
<F5> Includes premiums of $912.00 paid for Mr. Stephens's life
insurance policies and estimated ESOP contributions of $15,500.
ESOP contributions have not yet been determined for 1998..
<F6> Includes premiums of $660.00 paid for Mrs. Fricks' life insurance
policies and estimated ESOP contributions of $15,000. Final
ESOP contributions have not yet been determined for 1998.
<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>
<PAGE>
DIRECTOR'S COMPENSATION. The Chairman Emeritus 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, $4,600, $3,300,
$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 $125,000 plus certain benefits and perquisites. The agreement also
entitles Mr. Miller to certain severance payments following a change
of control (as defined in the agreement) of Community - Habersham.
Further, Mr. Miller agrees that he will not compete with or solicit
certain customers from Community - Habersham within Habersham or
Jackson County (or any contiguous county) for a period of three years
after termination of Mr. Miller's employment with Community -
Habersham.
In 1987, Community - Habersham and Mr. Wingate entered into a
change-in-control agreement for a three year term, renewable for an
additional one year period annually thereafter in the sole discretion
of the compensation committee of the Board of Directors of Community -
Habersham. The agreement also provides for the payment of certain
severance benefits to Mr. Wingate if there is a change in control (as
defined in the agreement) of Community - Habersham and Mr. Wingate's
employment is involuntarily terminated other than for cause,
disability or retirement or is voluntarily terminated as a result of a
material reduction of duties, compensation or benefits or a forced
relocation. Such benefits include the continuation of salary
payments to Mr. Wingate for a period of 36 months from the date of
termination, the payment of certain bonuses for the year in which his
employment is terminated and the following two calendar years, the
continuation of health and life insurance coverage and the continued
participation by Mr. Wingate in all employee retirement plans.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises In Last Fiscal Year And FY-End Option Values
Number of
Securities Value of
Underlying Unexercised In-
Unexercised The-Money Options
Options at Fiscal At Fiscal Year-
Year-End End ($)
Shares Acquired (Exercisable/ (Exercisable/
Name on Exercise (#) Value Realized Unexercisable) Unexercisable)
---- --------------- -------------- -------------- --------------
($)
<S> <C> <C> <C> <C>
Charles M. Miller -0- -0- 3,000/0 88,050/0
Harry L. Stephens -0- -0- 6,000/0 176,100/0
Annette R. Fricks -0- -0- 15,000/0 440,250/0
</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, 1999 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> <S> <C>
Joye H. Adams 141,720 <F1> 6.53%
Steven C. Adams 478,456 <F2><F3><F4><F5><F6> 22.05%
Edwin B. Burr 1,080 <F7> *
Elton S. Collins 388,876 <F3><F8><F11> 17.92%
Community Bankshares, Inc. 363,616 <F9> 16.76%
Employee Stock Ownership
Plan and Trust
Annette R. Fricks 24,420 <F19> 1.13%
Emmett D. Hart 151,500 <F10> 6.98%
Charles M. Miller 9,860 <F11> *
Harry H. Purvis 41,450 1.86%
Harry L. Stephens 7,700 <F12> *
H. Calvin Stovall 166,660 <F13><F14> 7.68%
Dean C. Swanson 30,000 1.38%
George D. Telford 83,740 3.40%
J. Alton Wingate 725,265 <F2><F3><F4><F15><F16><F17> 33.42%
All executive officers and 1,139,735 <F18> 52.53%
directors as a group (11
Persons)
* less than one percent<PAGE>
<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 363,616 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. Adam's address is 148 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.
Does not include 420 shares owned by Mr. Miller's wife, as to which he disclaims
beneficial ownership.
<F12>Includes presently-exercisable options to acquire 6,000 shares of Common Stock.
<F13>Mr. Stovall's address is 215 Grandview Circle, Cornelia, Georgia 30531.
<F14>Does not include 250 shares of Common Stock owned by Mr. Stovall's wife, as to which
he disclaims beneficial ownership.
<F15>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.
<F16>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.
<F17>Mr. Wingate's address is 186 Hillcrest Heights, Cornelia, Georgia 30531.
<F18>Includes presently-exercisable options to acquire 24,000 shares of Common Stock.
<F19>Includes presently-exercisable options to acquire 15,000 shares of Common Stock.
</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
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
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholder's Equity for the years ended
December 31, 1998, 1997 and 1996
<PAGE>
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
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:
Exhibit
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 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).
10.5 Amendment to Master Consulting Agreement between Financial
Supermarkets, Inc. and NationsBanc Services, Inc. dated July 3,
1997.
10.6 Termination of Master Consulting Agreement between Financial
Supermarkets, Inc. and NationsBanc Services, Inc. (included as
Exhibit 10.1 to the Registrant's Form 10-Q for the period ended
September 30, 1998 and incorporated herein by reference).
10.7 Amended and Restated Revolving Credit/Term Loan Agreement between
the Registrant and SunTrust Bank dated July 31, 1998.
<PAGE>
21 List of Subsidiaries of Registrant
27 Financial Data Schedule
(c) No reports on Form 8-K were filed during the last quarter of
1998.
<PAGE>
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . F-1
FINANCIAL STATEMENTS
Consolidated balance sheets . . . . . . . . . . . . . . . . . . F-2
Consolidated statements of income . . . . . . . . . . . . . . . F-3
Consolidated statements of comprehensive income . . . . . . . . F-4
Consolidated statements of shareholders' equity . . . . . . . . F-5 and F-6
Consolidated statements of cash flows . . . . . . . . . . . . . F-7 and F-8
Notes to consolidated financial statements . . . . . . . . . . . F-8 through F-36
</TABLE>
<PAGE>
<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, 1998 and 1997, and the
related consolidated statements of income, comprehensive income,
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1998. 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, 1998 and
1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Mauldin & Jenkins, L.L.C.
Atlanta, Georgia
January 15, 1999
F-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
=========================================================================================================================
Assets 1998 1997
-------------- --------------
<S> <C> <C>
Cash and due from banks $ 26,796,002 $ 23,957,030
Interest-bearing deposits in banks 427,870 768,914
Federal funds sold 22,890,000 5,960,000
Securities available-for-sale 42,525,208 53,282,114
Securities held-to-maturity (fair value $32,173,821 and $29,557,804) 30,915,014 28,718,651
Loans held for sale 699,498 2,560,915
Loans 313,437,773 242,660,582
Less allowance for loan losses 4,863,181 4,024,171
--------------- --------------
Loans, net 308,574,592 238,636,411
Premises and equipment 13,463,273 12,115,026
Other assets 14,301,983 11,080,455
--------------- --------------
Total assets $ 460,593,440 $ 377,079,516
--------------- --------------
Liabilities, Redeemable Common Stock and Shareholders' Equity
Deposits
Noninterest-bearing demand $ 65,266,672 $ 50,768,168
Interest-bearing demand 94,458,133 72,854,181
Savings 19,731,233 16,275,911
Time, $100,000 and over 67,003,184 55,848,885
Other time 158,823,651 139,797,680
---------------- --------------
Total deposits 405,282,873 335,544,825
Other borrowings 5,808,200 462,299
Other liabilities 8,958,004 7,331,322
--------------- --------------
Total liabilities 420,049,077 343,338,446
--------------- --------------
Commitments and contingent liabilities
Redeemable common stock held by ESOP, 363,616 and 344,531 shares outstanding
at December 31, 1998 and 1997, respectively at fair value 14,253,747 10,621,891
--------------- --------------
Shareholders' equity
Common stock, par value $1; 5,000,000 shares authorized;
2,169,830 shares issued and outstanding 2,169,830 2,169,830
Capital surplus 6,036,220 6,036,220
Retained earnings 17,857,974 14,782,733
Accumulated other comprehensive income 226,592 130,396
--------------- --------------
Total shareholders' equity 26,290,616 23,119,179
--------------- --------------
Total liabilities, redeemable common stock and
shareholders' equity $ 460,593,440 $ 377,079,516
--------------- --------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-2<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
=========================================================================================================================
1998 1997 1996
---------------- ---------------- ----------------
<S> <S> <C> <C> <C>
Interest income
Loans $ 29,767,173 $ 23,562,784 $ 20,439,949
Taxable securities 2,564,894 3,107,805 2,482,767
Nontaxable securities 1,710,141 1,326,884 907,794
Deposits in banks 35,973 33,523 8,855
Federal funds sold 534,903 672,915 625,274
---------------- ---------------- ----------------
Total interest income 34,613,084 28,703,911 24,464,639
---------------- ---------------- ----------------
Interest expense
Deposits 15,839,093 13,149,225 11,170,833
Other borrowings 111,411 42,224 64,940
---------------- ---------------- ----------------
Total interest expense 15,950,504 13,191,449 11,235,773
---------------- ---------------- ----------------
Net interest income 18,662,580 15,512,462 13,228,866
Provision for loan losses 1,164,950 936,216 757,262
---------------- ---------------- ----------------
Net interest income after provision for
loan losses 17,497,630 14,576,246 12,471,604
---------------- ---------------- ----------------
Other income
Service charges on deposits accounts 2,527,830 2,016,911 1,543,707
Other service charges, commissions and fees 523,438 431,729 498,401
Trust department fees 112,061 93,450 103,085
Nonbank subsidiary income 9,043,292 8,819,919 5,558,705
Gain on sale of loans 560,075 614,060 381,636
Net realized gains (losses) on sale of securities
available-for-sale 78,653 (3,992) (13,749)
Other 535,636 447,053 320,342
---------------- ---------------- ----------------
Total other income 13,380,985 12,419,130 8,392,127
---------------- ---------------- ----------------
Other expenses
Salaries and employee benefits 10,676,957 10,474,465 8,265,776
Equipment expenses 1,840,529 1,487,528 1,373,968
Occupancy expenses 1,305,998 1,075,710 807,364
Other operating expenses 6,578,930 5,686,110 4,503,199
---------------- ---------------- ----------------
Total other expenses 20,402,414 18,723,813 14,950,307
---------------- ---------------- ----------------
Income before income taxes 10,476,201 8,271,563 5,913,424
Income tax expense 3,444,497 2,624,797 1,869,229
---------------- ---------------- ----------------
Net income $ 7,031,704 $ 5,646,766 $ 4,044,195
---------------- ---------------- ----------------
Basic earnings per common share $ 3.24 $ 2.73 $ 2.06
---------------- ---------------- ----------------
Diluted earnings per common share $ 3.20 $ 2.60 $ 1.93
---------------- ---------------- ----------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-3<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
=========================================================================================================================
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net income $ 7,031,704 $ 5,646,766 $ 4,044,195
------------- ------------- -------------
Other comprehensive income:
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains arising during period,
net of taxes of $95,593, $134,777, and
$675, respectively 143,388 202,167 1,013
Reclassification adjustment for (gains) losses
in net income, net of taxes (benefits) of $31,461
$(1,597), and $(5,500), respectively (47,192) 2,395 8,249
------------- ------------- -------------
Other comprehensive income 96,196 204,562 9,262
------------- ------------- -------------
Comprehensive income $ 7,127,900 $ 5,851,328 $ 4,053,457
------------- ------------- -------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
=========================================================================================================================
Common Stock
------------------------------ Capital Retained
Shares Par Value Surplus Earnings
---------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
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)
Other comprehensive income - - - -
---------- -------------- ------------- ---------------
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 -
Adjustment for shares owned by ESOP - - - (4,444,491)
Sale of treasury stock to ESOP - - - -
Other comprehensive income - - - -
---------- -------------- ------------- ---------------
BALANCE, DECEMBER 31, 1997 2,169,830 2,169,830 6,036,220 14,782,733
Net income - - - 7,031,704
Cash dividends declared, $.15 per share - - - (324,607)
Adjustment for shares owned by ESOP - - - (3,631,856)
Other comprehensive income - - - -
---------- -------------- ------------- ---------------
BALANCE, DECEMBER 31, 1998 2,169,830 $ 2,169,830 $ 6,036,220 $ 17,857,974
---------- -------------- ------------- ---------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-5
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
Accumulated
Other Total
Treasury Stock Comprehensive Shareholder's
Shares Amount Income (Loss) Equity
---------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
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)
Other comprehensive income - - 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
Adjustment for shares owned by ESOP - - - (4,444,491)
Sale of treasury stock to ESOP (35,661) 782,050 - 782,050
Other comprehensive income - - 204,562 204,562
---------- -------------- ------------- ---------------
BALANCE, DECEMBER 31, 1997 - - 130,396 23,119,179
Net income - - - 7,031,704
Cash dividends declared, $.15 per share - - - (324,607)
Adjustment for shares owned by ESOP - - - (3,631,856)
Other comprehensive income - - 96,196 96,196
---------- -------------- ------------- ---------------
BALANCE, DECEMBER 31, 1998 - $ - $ 226,592 $ 26,290,616
---------- -------------- ------------- ---------------
</TABLE>
F-6
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
=========================================================================================================================
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,031,704 $ 5,646,766 $ 4,044,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,585,729 1,154,306 926,807
Amortization of intangibles 288,156 244,911 8,911
Provision for loan losses 1,164,950 936,216 757,262
Provision for other real estate losses 10,000 65,000 110,000
Deferred income tax benefits (292,525) (195,033) (197,515)
(Increase) decrease in loans held for sale 1,861,417 (76,798) (2,034,117)
Net (gains) losses on sale of securities available-for-sale (78,653) 3,992 13,749
Net losses on sale of other real estate (3,563) 39,182 2,722
Increase in interest receivable (1,187,060) (690,955) (576,126)
Increase in interest payable 1,180,385 277,325 395,738
Increase (decrease) in taxes payable 348,661 (661,580) 274,814
(Increase) decrease in accounts receivable of
nonbank subsidiary (618,731) 1,314,629 (1,127,313)
(Increase) decrease in work in process of nonbank subsidiary (513,252) 1,342,849 (1,383,105)
Increase (decrease) in accruals and payables of
nonbank subsidiary 325,031 (3,773,361) 3,773,361
Other operating activities (1,145,989) 257,796 (437,924)
------------- ------------- -------------
Net cash provided by operating activities 9,956,260 5,885,245 4,551,459
------------- ------------- -------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (29,111,438) (25,373,331) (21,318,882)
Proceeds from sales of securities available-for-sale 14,296,060 10,687,389 3,465,702
Proceeds from maturities of securities available-for-sale 25,811,265 9,158,723 13,119,694
Purchases of securities held-to-maturity (3,323,556) (11,403,699) (7,042,587)
Proceeds from maturities of securities held-to-maturity 1,127,193 1,338,890 668,954
Net (increase) decrease in Federal funds sold (16,930,000) 2,385,000 3,850,000
Net (increase) decrease in interest-bearing deposits in banks 341,044 (560,690) (208,224)
Net increase in loans (71,584,937) (40,109,318) (24,980,798)
Purchase of premises and equipment (2,931,496) (5,334,330) (3,495,693)
Disposal of premises and equipment - - 194,650
Net cash acquired in branch acquisition 170,667 99,612 -
Proceeds from sale of other real estate 252,492 383,638 189,463
------------- ------------- -------------
Net cash used in investing activities (81,882,706) (58,728,116) (35,557,721)
------------- ------------- -------------
</TABLE>
F-7
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
=========================================================================================================================
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits $ 69,738,048 $ 56,835,456 $ 36,267,717
Increase in other borrowings 5,500,000 - 1,616,399
Repayment of other borrowings (154,099) (154,100) (1,786,939)
Proceeds from the issuance of common stock - 924,700 1,003,795
Dividends paid (318,531) (285,728) (261,023)
------------- ------------- -------------
Net cash provided by financing activities 74,765,418 57,320,328 36,839,949
------------- ------------- -------------
Net increase in cash and due from banks 2,838,972 4,477,457 5,833,687
Cash and due from banks at beginning of year 23,957,030 19,479,573 13,645,886
------------- ------------- -------------
Cash and due from banks at end of year $ 26,796,002 $ 23,957,030 $ 19,479,573
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 14,957,440 $ 12,914,124 $ 10,840,035
Income taxes $ 3,445,529 $ 3,526,919 $ 1,791,930
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities available- $ (160,328) $ 340,936 $ (12,031)
Principal balances of loans transferred to other
real estate $ 481,806 $ 426,273 $ 294,787
BRANCH ACQUISITIONS
Net cash acquired $ 170,667 $ 99,612
------------- -------------
Loans 2,981,087 4,357,901
Premises and equipment 10,085 608,071
Other assets 9,063 1,828
Core deposit intangible 760,597 2,190,765
Deposits (5,837,754) (12,387,583)
Other liabilities (20,687) (62,790)
------------- -------------
Net liabilities assumed, net of cash and due from
banks of $170,667 and $99,612 $ (2,097,609) $ (5,291,808)
------------- -------------
See Notes to Consolidated Financial Statements.
</TABLE>
F-8
<PAGE>
<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. Financial
Properties, inc. is a wholly-owned subsidiary of Community
Bank & Trust-Habersham which is a real estate sales agency
which provides a variety of real estate related services.
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. The Banks provide a full range
of banking services to individual and corporate customers.
Financial Supermarkets, Inc. currently provides products
and services primarily in the southeastern United States;
however, their products and services are marketed
internationally. Financial Properties, Inc. currently
operates primarily in Cornelia, Habersham County, Georgia.
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 preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the
date of the consolidated financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and Due From Banks
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-9
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities
Securities are classified based on management's intention
on the date of purchase. Securities which management has
the intent and ability to hold to maturity are classified
as held-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
included in securities available-for-sale and 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 sale 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 origination 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. This evaluation is inherently subjective as it
requires material estimates that are susceptible to
significant change including the amounts and timing of
future cash flows expected to be received on impaired
loans. In addition, regulatory agencies, 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.
F-10
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
The accrual of interest on 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 considered to be 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 in current operating income.
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 income tax
assets and liabilities are determined using the balance
sheet method. Under this method, the net deferred tax
asset or liability is determined based on the tax effects
of the differences between the book and tax bases of the
various balance sheet assets and liabilities and gives
current recognition to changes in tax rates and laws.
F-11
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
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.
Trust Department
Trust income is recognized on the cash basis in accordance
with established industry practices. The results of
operations are not materially different than the results
which would be obtained by accounting for such fees on the
accrual basis.
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.
F-12
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 are
computed by dividing net income 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.
Comprehensive Income
In 1998, the Company adopted Statement of Financial
Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income". This statement establishes
standards for reporting and display of comprehensive
income and its components in the financial statements.
This statement requires that all items that are required
to be recognized under accounting standards as components
of comprehensive income be reported in a financial
statement that is displayed in equal prominence with the
other financial statements. The Company has elected to
report comprehensive income in a separate financial
statement titled "Consolidated Statements of Comprehensive
Income". SFAS No. 130 describes comprehensive income as
the total of all components of comprehensive income
including net income. This statement uses other
comprehensive income to refer to revenues, expenses, gains
and losses that under generally accepted accounting
principles are included in comprehensive income but
excluded from net income. Currently, the Company's other
comprehensive income consists of items previously reported
directly in equity under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". As
required by SFAS No. 130, the financial statements for the
prior year have been reclassified to reflect application
of the provisions of this statement. The adoption of this
statement did not affect the Company's financial position,
results of operations or cash flows.
Recent Developments
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments
and Hedging Activities". This statement is required to be
adopted for fiscal years beginning after June 15, 1999.
However, the statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The
Company expects to adopt this statement effective January
1, 2000. SFAS No. 133 requires the Company to recognize
all derivatives as either assets or liabilities in the
consolidated balance sheet at fair value. For derivatives
that are not designated as hedges, the gain or loss must
be recognized in earnings in the period of change. For
derivatives that are designed as hedges, changes in the
fair value of the hedged assets, liabilities, or firm
commitments must be recognized in earnings or recognized
in other comprehensive income until the hedged item is
recognized in earnings, depending on the nature of the
hedge. The ineffective portion of a derivative's change
in fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption
of SFAS No. 133 will have on the Company's earnings or
financial position.
F-13
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
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, 1998:
U. S. GOVERNMENT AND AGENCY
SECURITIES $ 25,704,416 $ 324,048 $ (41,299) $ 25,987,165
STATE AND MUNICIPAL SECURITIES 5,791,730 67,382 (21,121) 5,837,991
MORTGAGE-BACKED SECURITIES 8,930,047 85,267 (36,623) 8,978,691
EQUITY SECURITIES 1,721,361 - - 1,721,361
-------------- ------------- ------------- --------------
$ 42,147,554 $ 476,697 $ (99,043) $ 42,525,208
============== ============= ============= ==============
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
============== ============= ============ =============
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------- ------------- --------------
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1998:
State and municipal securities $ 30,915,014 $ 1,300,295 $ (41,488) $ 32,173,821
============== ============= ============ =============
December 31, 1997:
State and municipal securities $ 28,718,651 $ 859,383 $ (20,230) $ 29,557,804
============== ============= ============ =============
</TABLE>
F-14
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31,
1998 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 summary.
<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 $ 2,701,759 $ 2,711,628 $ 788,916 $ 808,349
Due from one year to five 21,996,728 22,285,361 5,034,373 5,149,846
years
Due from five years to ten 2,037,504 2,037,059 6,797,865 7,099,498
years
Due after ten years 4,760,155 4,791,108 18,293,860 19,116,128
Mortgage-backed securities 8,930,047 8,978,691 - -
Equity securities 1,721,361 1,721,361 - -
------------- -------------- ------------- -------------
$ 42,147,554 $ 42,525,208 $ 30,915,014 $ 32,173,821
============= ============== ============= =============
</TABLE>
Securities with a carrying value of $36,621,313 and $36,160,837 at
December 31, 1998 and 1997, respectively, were pledged to secure
public deposits and for other purposes.
Gross gains and losses on sales of securities available-for-sale
consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Gross gains $ 114,546 $ 47,843 $ 21,143
Gross losses (35,893) (51,835) (34,892)
---------- ---------- ----------
Net realized gains (losses) $ 78,653 $ (3,992) $ (13,749)
========== ========== ==========
</TABLE>
F-15
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Commercial, financial, and agricultural $ 160,872,954 $ 115,815,084
Real estate - construction 21,327,303 21,234,000
Real estate - mortgage 82,413,280 69,541,000
Consumer 46,047,519 33,378,000
Other 3,042,663 3,011,992
--------------- ---------------
313,703,719 242,980,076
Unearned income (265,946) (319,494)
Allowance for loan losses (4,863,181) (4,024,171)
--------------- ---------------
Loans, net $ 308,574,592 $ 238,636,411
=============== ===============
</TABLE>
Changes in the allowance for loan losses for the years ended
December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year $ 4,024,171 $ 3,591,958 $ 3,060,479
Provision charged to operations 1,164,950 936,216 757,262
Loans charged off (495,008) (595,258) (329,592)
Recoveries of loans previously charged off 169,068 91,255 103,809
------------ ------------ ------------
Balance, end of year $ 4,863,181 $ 4,024,171 $ 3,591,958
============ ============ ============
</TABLE>
The total recorded investment in impaired loans was $1,690,592 and
$1,418,094 at December 31, 1998 and 1997, respectively. None of
these loans had a specific allowance for loan losses at December 31,
1998 and 1997 determined in accordance with generally accepted
accounting principles. The average recorded investment in impaired
loans for 1998 and 1997 was $1,404,191 and $1,577,977,
respectively. Interest income recognized by the Company on
impaired loans was not significant.
F-16
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
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, 1998 are as follows:
Balance, beginning of year $ 7,399,598
Advances, including renewals 6,834,520
Repayments, including renewals (5,921,748)
Changes in directors (30,031)
--------------
Balance, end of year $ 8,282,339
==============
NOTE 4.PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
1998 1997
------------- -------------
Land $ 2,408,053 $ 1,966,267
Buildings 9,749,186 7,080,247
Equipment 10,399,876 9,362,724
Construction in process 1,250 1,392,330
------------- -------------
22,558,365 19,801,568
Accumulated depreciation (9,095,092) (7,686,542)
------------- -------------
$ 13,463,273 $ 12,115,026
============= =============
F-17
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 5. DEPOSITS
At December 31, 1998, the scheduled maturities of time deposits
are as follows:
1999 $ 177,718,081
2000 21,890,436
2001 6,373,446
2002 5,261,078
2003 14,425,972
Thereafter 157,822
---------------
$ 225,826,835
===============
At December 31, 1998, the Company has brokered time deposits of
$1,584,000.
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
----------- ---------
<S> <C> <C>
Note payable to bank, interest due quarterly at prime minus 1% or
6.75% at December 31, 1998, collateralized by 50,000 shares of common
stock of Community Bank & Trust-Habersham. Matures July 31, 1999. $ 808,200 $ 462,299
Advance from the Federal Home Loan Bank with interest due
quarterly at 4.96%, due September 15, 2003. 5,000,000 -
----------- ---------
$ 5,808,200 $ 462,299
=========== =========
Advances are collateralized by blanket floating liens on qualifying
first mortgages. At December 31, 1998, aggregate maturities of other
borrowings are as follows:
<S> <C>
1999 $ 808,200
2003 5,000,000
------------
$ 5,808,200
============
</TABLE>
F-18
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 7. 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>
1998 1997 1996
---------------------- ----------------------- -----------------------
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 39,000 $ 9.85 204,000 $ 6.42 204,000 $ 6.42
Granted - - - - 330 11.50
Exercised - - (165,000) 5.60 (330) 11.50
------ --------- -------- --------- ------- ----------
Under option, and
exercisable, end of year 39,000 $ 9.85 39,000 $ 9.85 204,000 $ 6.42
====== ======== =======
</TABLE>
The weighted average remaining contractual life of options
and options exercisable at December 31, 1998 was six
years.
As permitted by Statement of Financial Accounting Standard
No. 123 "Accounting for Stock-Based Compensation", 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 year
ended December 31, 1996. The pro forma expense related to
the grant of options for the year ended December 31, 1996
was approximately $1,000, and would not have changed
earnings per share.
F-19
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 7. EMPLOYEE BENEFIT PLANS (Continued)
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,
1998, 1997 and 1996 amounted to $77,668, $77,799 and
$26,237, respectively.
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, 1998, 1997 and 1996, the Company
made cash contributions of $820,007, $644,133 and
$488,500, respectively, to the Plan.
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 1999. 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, 1998, the ESOP held 344,531 shares and
19,085 committed-to-be-released shares. Shares held by
the ESOP are considered outstanding for purposes of
calculating the Company's earnings per share.
F-20
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Current $ 3,782,531 $ 2,865,339 $ 2,112,253
Deferred (292,525) (195,033) (197,515)
Current tax effect of net operating loss carryforward (45,509) (45,509) (45,509)
------------ ------------- ------------
Income tax expense $ 3,444,497 $ 2,624,797 $ 1,869,229
</TABLE>
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,
-------------------------------------------------------------------------------
1998 1997 1996
------------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
-------------- -------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory $ 3,561,908 34 % $ 2,812,331 34 % $ 2,010,564 34 %
rate
Tax-exempt interest (615,376) (6) (477,425) (6) (351,027) (6)
Disallowed interest 93,901 1 70,054 1 47,859 1
Current tax effect of net
operating loss (45,509) - (45,509) - (45,509) (1)
carryforward
Nondeductible expenses 17,445 - 38,012 - 59,692 1
State income taxes 454,555 4 264,672 3 154,777 3
Other items (22,427) - (37,338) - (7,057) -
------------- ----- ------------ ----- ------------ -----
Income tax expense $ 3,444,497 33 % $ 2,624,797 32 % $ 1,869,299 32 %
============= ===== ============ ===== ============ =====
</TABLE>
F-21
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (Continued)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 1,506,432 $ 1,181,092
Net operating loss carryforward 139,622 185,131
Valuation allowance (139,622) (185,131)
------------- ------------
1,506,432 1,181,092
------------- ------------
Deferred tax liabilities:
Depreciation 96,907 90,688
Accretion 141,942 145,792
Unrealized gain on securities available-for-sale 151,062 86,930
Other 30,670 224
------------- ------------
420,581 323,634
------------- ------------
Net deferred tax assets $ 1,085,851 $ 857,458
============= ============
</TABLE>
At December 31, 1998, the Company has available net
operating loss carryforwards of approximately $410,000 for
Federal income tax purposes. If unused, the carryforwards
will expire in 2009.
NOTE 9. 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
average market price. 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 price are not actually outstanding common
shares.
F-22
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 9. EARNINGS PER COMMON SHARE (Continued)
Presented below is a summary of the components used to
calculate basic and diluted earnings per share for the years
ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
------------- -------------- -------------
<S> <C> <C> <C>
Basic Earnings Per Share:
Weighted average common shares outstanding 2,169,830 2,065,908 1,961,597
============= ============== =============
Net income $ 7,031,704 $ 5,646,766 $ 4,044,195
============= ============== =============
Basic earnings per share $ 3.24 $ 2.73 $ 2.06
============= ============== =============
Diluted Earnings Per Share:
Weighted average common shares outstanding 2,169,830 2,065,908 1,961,597
Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the year $ 28,029 $ 107,203 $ 129,822
------------- -------------- -------------
Total weighted average common shares and
common stock equivalents outstanding 2,197,859 2,173,111 2,091,419
============= ============== =============
Net income $ 7,031,704 $ 5,646,766 $ 4,044,195
============= ============== =============
Diluted earnings per share $ 3.20 $ 2.60 $ 1.93
============= ============== =============
</TABLE>
F-23
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 10. 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.
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:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
------------- --------------
<S> <C> <C>
Commitments to extend credit $ 24,022,572 $ 20,312,022
Standby letters of credit 4,733,485 3,353,500
------------- --------------
$ 28,756,057 $ 23,665,522
============= ==============
</TABLE>
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, crops, 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.
F-24
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
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.
The total minimum rental commitment at December 31, 1998 is due as
follows:
During the year ending December 31:
1999 $ 469,500
2000 408,684
2001 310,700
2002 186,706
2003 18,651
Due thereafter 85,467
-----------
$ 1,479,708
===========
The total rental expense for the years ended December 31, 1998, 1997
and 1996 was $467,546, $512,293 and $360,978, respectively.
Year 2000
The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. Systems that do not properly recognize the
year "2000" could generate erroneous data or cause systems
to fail. The Company is heavily dependent on computer
processing and telecommunication systems in the daily
conduct of business activities. In addition, the Company
must rely on intermediaries, vendors and customers to
appropriately modify their systems in order that all may
continue normal operations and operate without significant
disruptions. The Company has conducted a review of its
computer systems to identify the systems that could be
affected by the Year 2000 issue. The Company presently
believes that, with modifications to its computer systems
and conversions to new systems, the Year 2000 issue will not
pose significant operational problems for the Company or
have a material adverse effect on future operating results.
However, absolute assurance cannot be given that; (1) the
modifications and conversions will remedy all deficiencies,
(2) failure of any of the Company's systems will not have a
material impact on operations, or (3) failure of any other
companies' systems with whom the Company conducts business
will not have a material impact on operations.
F-25
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 11. 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 other 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,
51% 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
$3,000,000, $1,075,000, $500,000, and $987,500 for Community
Bank & Trust - Habersham; Jackson; Alabama; and Troup;
respectively.
NOTE 12. 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, 1998, approximately $4,503,000 of
retained earnings were available for dividend declaration
without regulatory approval.
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<PAGE>
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.
F-26
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 12. REGULATORY MATTERS (Continued)
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,
1998, the Company and the Banks meet all capital adequacy
requirements to which they are subject.
As of December 31, 1998, 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.
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, 1998
Total Capital
(to Risk Weighted Assets):
Consolidated $ 41,630 12.12% $ 27,474 8.00% $ 34,342 10.00%
Community Bank & Trust - Habersham $ 24,918 13.01% $ 15,321 8.00% $ 19,511 10.00%
Community Bank & Trust - Jackson $ 8,524 10.14% $ 6,724 8.00% $ 8,405 10.00%
Community Bank & Trust - Alabama $ 3,315 11.70% $ 2,267 8.00% $ 2,834 10.00%
Community Bank & Trust - Troup $ 4,389 14.30% $ 2,455 8.00% $ 3,069 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 37,330 10.87% $ 13,737 4.00% $ 20,605 6.00%
Community Bank & Trust - Habersham $ 22,521 11.76% $ 7,660 4.00% $ 11,491 6.00%
Community Bank & Trust - Jackson $ 7,470 8.89% $ 3,362 4.00% $ 5,043 6.00%
Community Bank & Trust - Alabama $ 2,960 10.44% $ 1,134 4.00% $ 1,700 6.00%
Community Bank & Trust - Troup $ 4,004 13.05% $ 1,228 4.00% $ 1,841 6.00%
Tier I Capital (to Average Assets):
Consolidated $ 37,330 8.42% $ 17,737 4.00% $ 22,171 5.00%
Community Bank & Trust - Habersham $ 22,521 8.58% $ 10,500 4.00% $ 13,125 5.00%
Community Bank & Trust - Jackson $ 7,470 6.71% $ 4,455 4.00% $ 5,569 5.00%
Community Bank & Trust - Alabama $ 2,960 7.19% $ 1,648 4.00% $ 2,059 5.00%
Community Bank & Trust - Troup $ 4,004 9.31% $ 1,721 4.00% $ 2,151 5.00%
</TABLE>
F-27
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 12. 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, 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-28
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 13. 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 models. Those models 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, 1998
and 1997. 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.
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 available 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 models
using current market interest rates offered for loans with
similar terms to borrowers of similar credit quality.
Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of
underlying collateral.
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 models, using current market interest rates
being offered on certificates with similar remaining
maturities.
F-29
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
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 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, 1998 December 31, 1997
--------------------------------- -----------------------------------
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 $ 50,113,872 $ 50,113,872 $ 30,685,944 $ 30,685,944
funds sold
Securities available-for-sale 42,525,208 42,525,208 53,282,114 53,282,114
Securities held-to-maturity 30,915,014 32,173,821 28,718,651 29,557,804
Loans held for sale 699,498 699,498 2,560,915 2,560,915
Loans 308,574,592 312,879,502 238,636,411 244,449,085
Accrued interest receivable 5,976,235 5,976,235 4,789,175 4,789,175
Financial liabilities:
Deposits 405,282,873 403,726,281 335,544,825 335,320,418
Other borrowings 5,808,200 5,808,200 462,299 462,299
Accrued interest payable 4,313,396 4,313,396 3,133,011 3,133,011
Redeemable common stock 14,253,747 14,253,747 10,621,891 10,621,891
</TABLE>
F-30
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 14. SEGMENT INFORMATION
The Company's operations have been classified into two
reportable 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.
The Company's reportable segments are organizations that
offer different products and services. They are managed
separately because of products and services, marketing
strategies, and the regulatory environments in which the
Banks operate. In addition, the Banks geographically are
located in the Southeast and employ similar business
strategies and are evaluated using similar performance
expectations. The bank consulting segment operates
throughout the United States.
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.
<PAGE>
Selected segment information by industry segment for the
years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Reportable Segments
------------------------------------------------------------
Financial All
For the Year Ended December 31, 1998 Banking Supermarkets Other Total
------------------------------------------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income $ 34,903,053 $ 434,067 $ 7,636 $ 35,344,756
Interest expense 16,651,395 - 30,781 16,682,176
Intersegment net interest income (expense) (403,187) 395,551 7,636 -
Net interest income 18,251,658 434,067 (23,145) 18,662,580
Other revenue from external customers 4,185,170 9,043,292 152,523 13,380,985
Intersegment other revenues - 126,195 1,451,520 1,577,715
Depreciation and amortization 1,476,554 132,464 264,867 1,873,885
Provision for loan losses 1,164,950 - - 1,164,950
Segment profit 4,505,680 3,485,106 (971,896) 7,018,890
Segment assets 470,906,187 13,756,048 2,195,710 486,857,945
Expenditures for premises and equipment 2,620,509 260,104 50,883 2,931,496
</TABLE>
F-31
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 14. SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
Reportable Segments
-------------------------------------------------------------
Financial All
For the Year Ended December 31, 1997 Banking Supermarkets Other Total
------------------------------------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Interest income $ 28,484,716 $ 360,350 $ 7,515 $ 28,852,581
Interest expense 13,298,033 - 42,086 13,340,119
Intersegment net interest income (expense) (334,340) 326,825 7,515 -
Net interest income 15,186,683 360,350 (34,571) 15,512,462
Other revenue from external customers 3,517,131 8,819,917 82,082 12,419,130
Intersegment other revenues - 117,221 1,365,200 1,482,421
Depreciation and amortization 1,203,921 129,460 65,836 1,399,217
Provision for loan losses 936,216 - - 936,216
Segment profit 3,480,412 2,548,043 (394,503) 5,633,952
Segment assets 380,142,578 9,933,018 2,055,595 392,131,191
Expenditures for premises and equipment 4,074,703 163,420 1,096,207 5,334,330
</TABLE>
<TABLE>
<CAPTION>
Reportable Segments
-------------------------------------------------------------
Financial All
For the Year Ended December 31, 1996 Banking Supermarkets Other Total
------------------------------------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Interest income $ 24,457,630 $ 166,820 $ 4,641 $ 24,629,091
Interest expense 11,336,860 - 63,365 11,400,225
Intersegment net interest income (expense) (162,606) 157,965 4,641 -
Net interest income 13,120,770 166,820 (58,724) 13,228,866
Other revenue from external customers 2,794,059 5,544,966 53,102 8,392,127
Intersegment other revenues - 221,476 1,155,600 1,377,076
Depreciation and amortization 762,328 112,218 61,172 935,718
Provision for loan losses 757,262 - - 757,262
Segment profit 3,211,433 1,342,933 (388,335) 4,166,031
Segment assets 311,705,177 9,299,430 1,200,572 322,205,179
Expenditures for premises and equipment 3,266,025 168,461 61,207 3,495,693
</TABLE>
F-32
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 14. SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
------------ -------------- -------------
<S> <C> <C> <C>
Net Interest Income
-------------------
Total net interest income for reportable segments $ 18,685,725 $ 15,547,033 $ 13,287,590
Non-reportable segment net interest income (23,145) (34,571) (58,724)
------------ -------------- -------------
Total consolidated net interest income $ 18,662,580 $ 15,512,462 $ 13,228,866
============ ============== =============
Other Income
------------
Total other income for reportable segments $ 14,806,177 $ 12,454,269 $ 8,560,501
Non-reportable segment other income 152,523 1,447,282 1,208,702
Elimination of intersegment other income (1,577,715) (1,482,421) (1,377,076)
------------ -------------- -------------
Total consolidated other income $ 13,380,985 $ 12,419,130 $ 8,392,127
============ ============== =============
Net Income
----------
Total profit for reportable segments $ 7,990,786 $ 6,028,455 $ 4,554,366
Non-reportable segment loss (971,896) (394,503) (388,335)
Elimination of intersegment (gains) losses 12,814 12,814 (121,836)
------------ -------------- -------------
Total consolidated other income
$ 7,031,704 $ 5,646,766 $ 4,044,195
============ ============== =============
Total Assets
Total assets for reportable segments $484,662,235 $ 390,075,596 $ 321,004,607
Non-reportable segment assets 2,195,710 2,055,595 1,200,572
Elimination of intersegment assets (26,264,505) (15,051,675) (6,626,265)
------------ -------------- -------------
Total consolidated assets $460,593,440 $ 377,079,516 $ 315,578,914
============ ============== =============
</TABLE>
F-33
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 15. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of
total revenue are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1997 1996
------------ ---------- -----------
<S> <C> <C> <C>
Data processing $ 948,644 $ 385,795 $ 422,188
Travel expenses 469,126 583,208 531,488
Office supply expenses 460,341 437,375 373,163
</TABLE>
NOTE 16. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following information presents the condensed balance sheets
as of December 31, 1998 and 1997 and the statements of income
and cash flows as of and for the years ended December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
-------------- -------------
<S> <C> <C>
Assets
Cash $ 547,686 $ 104,201
Investment in subsidiaries 39,703,016 32,379,558
Equipment 923,645 1,162,677
Other assets 593,572 788,717
-------------- -------------
Total assets $ 41,767,919 $ 34,435,153
============== =============
Liabilities
Other borrowings $ 808,200 $ 462,299
Other liabilities 385,082 197,515
-------------- -------------
Total liabilities 1,193,282 659,814
-------------- -------------
Redeemable common stock 14,253,747 10,621,891
-------------- -------------
Shareholders' equity 26,320,890 23,153,448
-------------- -------------
Total liabilities, redeemable common stock,
and shareholders' equity $ 41,767,919 $ 34,435,153
============== =============
</TABLE>
F-34
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 16. PARENT COMPANY ONLY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income
Dividends from subsidiaries $ 1,250,000 $ 1,120,000 $ 800,000
Interest 7,636 7,515 4,641
Other income 1,506,545 1,447,282 1,208,703
------------ ------------ -------------
2,764,181 2,574,797 2,013,344
------------ ------------ -------------
Expense
Interest 30,781 42,086 63,365
Salaries and employee benefits 1,335,771 1,174,798 1,109,826
Equipment expense 349,484 306,851 213,985
Other expense 1,027,698 425,565 367,183
------------ ------------ -------------
2,743,734 1,949,300 1,754,359
------------ ------------ -------------
Income before income tax benefits and
equity in undistributed earnings of 20,447 625,497 258,985
subsidiaries
Income tax benefits (280,000) (100,000) (152,680)
------------ ------------ -------------
Income before equity in undistributed
income of subsidiaries 300,447 725,497 411,665
Equity in undistributed income of subsidiaries 6,727,261 4,917,273 3,754,367
------------ ------------ -------------
Net income $ 7,027,708 $ 5,642,770 $ 4,166,032
============ ============ =============
</TABLE>
F-35
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 16. PARENT COMPANY ONLY FINANCIAL INFORMATION (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 ,1997 AND 1996
1998 1997 1996
------------- ------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,027,708 $ 5,642,770 $ 4,166,032
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 270,799 65,836 61,172
Undistributed earnings of subsidiaries (6,727,261) (4,917,273) (3,754,367)
Other operating activities 367,725 (518,268) 60,433
------------- ------------- --------------
Net cash provided by operating activities 938,971 273,065 533,270
------------- ------------- --------------
INVESTING ACTIVITIES
Purchases of premises and equipment (22,856) (1,115,771) (61,207)
Investment in subsidiary (500,000) - (1,000,000)
Disposal of premises and equipment - 19,564 167,979
------------- ------------- --------------
Net cash used in investing activities (522,856) (1,096,207) (893,228)
------------- ------------- --------------
FINANCING ACTIVITIES
Increase in other borrowings 500,000 - 1,616,399
Repayment of other borrowings (154,099) (154,100) (1,786,939)
Proceeds from the issuance of common stock - 924,700 1,003,795
Dividends paid (318,531) (285,728) (261,023)
------------- ------------- --------------
Net cash provided by financing activities 27,370 484,872 572,232
------------- ------------- --------------
Net increase (decrease) in cash 443,485 (338,270) 212,274
Cash at beginning of year 104,201 442,471 230,197
------------- ------------- --------------
Cash at end of year $ 547,686 $ 104,201 $ 442,471
============= ============= ==============
SUPPLEMENTAL DISCLOSURE
Cash paid during the year for interest $ 30,781 $ 42,086 $ 63,365
NONCASH TRANSACTION
Unrealized (gains) losses on securities available- $ 96,196 $ (204,562) $ (9,262)
for-sale
</TABLE>
F-36
<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, 1999.
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, 1999.
Signature Title
--------- -----
/s/ J. Alton Wingate President and Chief Executive
J. Alton Wingate Officer (Principal Executive
Officer) and Director
/s/ Steven C. Adams Director
Steven C. Adams
/s/ Edwin B. Burr Director
Edwin B. Burr
/s/ Harry H. Purvis Director
Harry H. Purvis
/s/ H. Calvin Stovall, Jr. Director
H. Calvin Stovall, Jr.
/s/ Dean C. Swanson Director
Dean C. Swanson
/s/ George D. Telford Director
George D. Telford
/s/ Harry L. Stephens Executive Vice President and
Harry L. Stephens Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
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
10.7 Amended and Restated Revolving Credit/Term Loan Agreement
between the Registrant and SunTrust Bank dated July 31,
1998.
21.0 List of Subsidiaries of Registrant
24.0 A Power of Attorney is set forth on the signature pages to
this Form 10-K.
27 Financial Data Schedule (for SEC use only).
_________________________________________________________________
_________________________________________________________________
AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT
By and Between
COMMUNITY BANKSHARES, INC.
and
SUNTRUST BANK, ATLANTA
Dated: July 31, 1998
_________________________________________________________________
_________________________________________________________________
<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
i
<PAGE>
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
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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
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EXHIBITS
--------
EXHIBIT TITLE REFERENCED UNDER
A Banks Section 1.01
B Collateral Section 1.01
C [Intentionally Omitted]
D Note Section 2.03
D-1 Revolving Credit/Term Note Section 1.01
E [Intentionally Omitted]
F Officer's Certificate Section 3.02
G Litigation Section 4.07
H Real Estate Owned Section 4.15
I Certificate of No Default Section 5.10
J Permitted Liens Section 6.01
K Permitted Debt Section 6.02
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AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT
---------------------------------------------------------
THIS AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT
is dated July 31, 1998 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 Park Place, Atlanta, Georgia 30303 (the "Lender").
This Amended and Restated Revolving Credit/Term Loan Agreement renews
the Revolving Credit under and supersedes the Amended and Restated
Revolving Credit /Term Loan Agreement between the parties dated July
21, 1997. 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.
"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.
<PAGE>
"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.
"Governmental Authority" means any nation or government, any
state or political subdivision thereof and any entity exercising executive,
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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
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necessarily the lowest rate of interest charged by the Lender to its
borrowers.
"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 31, 1999.
"Security Agreement" means the Amended and Restated Stock Pledge
and Security Agreement executed by Borrower in favor of Lender dated July
21, 1997.
"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
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<PAGE>
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
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<PAGE>
computed at an annual rate of interest equal to the Prime Rate, minus
one percent (1.0%). 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, 1998 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
Rate shall 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 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
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<PAGE>
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 shall remain in
full force and effect.
(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;
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<PAGE>
(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. [Intentionally Omitted]
(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
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<PAGE>
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.
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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, 1997 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, 1997 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, 1997, 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, 1997. 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
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Borrower nor any Subsidiary is in material 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, 1997, 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
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the PBGC to institute proceedings to terminate, or appoint a trustee
to administer, a Plan, nor has the PBGC instituted any 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, 1997 (including the notes thereto), as of December 31,
1997, 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, 1997,
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
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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 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.
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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
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subject, such compliance to include, without limitation, maintaining
adequate cash reserves for the payment of, and paying before the same
become delinquent, 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;
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(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.
(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
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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
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
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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 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 "Well 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
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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 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.
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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;
(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
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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.
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
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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.
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 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 "Well Capitalized," as such
term is defined by the applicable Regulatory Authority.
SECTION 7.03. RETURN ON ASSETS. Income from operations after taxes,
divided by average assets, on a consolidated basis shall not be less than one
and one-tenth percent (1.10%).
SECTION 7.04. RETURN ON EQUITY. Income from operations after taxes,
divided by average equity, on a consolidated basis shall not be less than
twelve percent (12%).
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SECTION 7.05. [INTENTIONALLY OMITTED].
SECTION 7.06. [INTENTIONALLY OMITTED].
SECTION 7.07. [INTENTIONALLY OMITTED].
SECTION 7.08. RESERVES. Each Bank shall maintain at all times
reserves equal to the greater of (i) one and thirty-five one hundredths percent
(1.35%) of total loans, (ii) one hundred fifty percent (150%) 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 one and five tenths percent
(1.5%).
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;
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(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
($0,000.00) 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;
24
<PAGE>
(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;
(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;
25
<PAGE>
(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.
(13) If the ownership of Borrower as presently constituted shall
change such that more than twenty-five percent (%) 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 (%) 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;
26
<PAGE>
(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;
(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
27
<PAGE>
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
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
28
<PAGE>
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.
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.
29
<PAGE>
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.
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: /s/ J. Alton Wingate
-------------------------------------
Title: Pres. & CEO
-----------------------------
And: /s/ Harry L. Stephens
------------------------------------
Title: EVP & CFO
-----------------------------
SUNTRUST BANK, ATLANTA
By: /s/ James E. Rountree
-------------------------------------
Title: First Vice President
------------------------------
And: [blank]
-----------------------------------
Title: [blank]
----------------------------
Exhibit 21
Community Bankshares, Inc. - Subsidiaries
Community Bank & Trust - Habersham, Habersham County,Georgia
Community Bank & Trust - Alabama, Bullock County, Alabama
Community Bank & Trust - Jackson, Jackson County, Georgia
Community Bank & Trust - Troup, Troup County, Georgia
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000927478
<NAME> COMMUNITY BANKSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 26,796
<INT-BEARING-DEPOSITS> 428
<FED-FUNDS-SOLD> 22,890
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,525
<INVESTMENTS-CARRYING> 30,915
<INVESTMENTS-MARKET> 32,174
<LOANS> 314,137
<ALLOWANCE> 4,863
<TOTAL-ASSETS> 460,593
<DEPOSITS> 405,283
<SHORT-TERM> 5,808
<LIABILITIES-OTHER> 8,958
<LONG-TERM> 0
14,254
0
<COMMON> 2,170
<OTHER-SE> 24,121
<TOTAL-LIABILITIES-AND-EQUITY> 460,593
<INTEREST-LOAN> 29,767
<INTEREST-INVEST> 4,275
<INTEREST-OTHER> 571
<INTEREST-TOTAL> 34,613
<INTEREST-DEPOSIT> 15,839
<INTEREST-EXPENSE> 15,950
<INTEREST-INCOME-NET> 18,663
<LOAN-LOSSES> 1,165
<SECURITIES-GAINS> 79
<EXPENSE-OTHER> 20,402
<INCOME-PRETAX> 10,476
<INCOME-PRE-EXTRAORDINARY> 10,476
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,032
<EPS-PRIMARY> 3.24
<EPS-DILUTED> 3.20
<YIELD-ACTUAL> 4.54
<LOANS-NON> (1,119)
<LOANS-PAST> 706
<LOANS-TROUBLED> 572
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,024
<CHARGE-OFFS> 495
<RECOVERIES> 169
<ALLOWANCE-CLOSE> 4,863
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,863
</TABLE>
