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, 1999
/ / 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, 2000: $27,762,595 (based upon
approximate market value of $40.00 /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, 2000, 2,178,830 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, Inc.
("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.
Forward Looking Statements
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This Form 10-K, both in the Management's Discussion and Analysis
section and elsewhere, contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Although we believe the assumptions underlying the forward-looking statements
contained in the discussions are reasonable, any of the assumptions could be
inaccurate; therefore, no assurance can be made that any of the forward-looking
statements included in this discussion will be accurate. Factors that could
cause actual results to differ from results discussed in forward-looking
statements include, but are not limited to: economic conditions (both generally
and in the markets where we operate); competition from other providers of
financial services; government regulation and legislation; changes in interest
rates; material unforeseen changes in the financial stability and liquidity of
our credit customers; and other risks detailed in our filings with the
Securities and Exchange Commission, all of which are difficult to predict and
which may be beyond our control. We undertake no obligation to revise
forward-looking statements to reflect events or changes after the date of this
discussion or to reflect the occurrence of unanticipated events.
Business Description of Community Banking Subsidiaries
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GENERAL. Each of the Community Banking Subsidiaries is
community-oriented and offers such customary banking services as consumer and
commercial checking accounts, NOW accounts, savings accounts, certificates of
deposit, lines of credit and money transfers. Each Community Banking Subsidiary
finances commercial and consumer transactions, makes secured and unsecured
loans, and provides a variety of other banking services.
DEPOSITS. Each Community Banking Subsidiary offers a full range of
depository accounts and services to both consumers and businesses. At December
31, 1999, the Company's aggregate deposit base, totaling approximately $444.1
million, consisted of approximately $65.8 million in non-interest-bearing demand
deposits (14.82% of total deposits), approximately $99.2 million in
interest-bearing demand deposits (including money market accounts) (22.34% of
total deposits), approximately $20.9 million in savings deposits (4.70% of total
deposits), approximately $178.2 million in time deposits in amounts less than
$100,000 (40.13% of total deposits), and approximately $80.0 million in time
deposits of $100,000 or more (18.01% of total deposits).
LOANS. Each Community Banking Subsidiary makes both secured and
unsecured loans to individuals, firms and corporations, and both consumer and
commercial lending operations include various types of credit for customers. In
addition, the Company operates a loan production office in Gainesville, Georgia
through Community-Habersham. The Gainesville loan production office funds and
sells on the open market loans guaranteed by the Small Business Administration
(the "SBA") and services rights with respect to those loans. Each Community
Banking Subsidiary also makes direct installment loans to consumers on both a
secured and unsecured basis. At December 31, 1999, consumer, real estate
(including mortgage and construction loans) and commercial loans represented
approximately 13.56%, 31.20% and 54.60%, 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 some loans for other purposes which are secured by real estate.
<PAGE>
Commercial lending is directed principally toward businesses within the
defined market area of the Community Banking Subsidiaries or which are existing
or potential deposit customers of the Community Banking Subsidiaries. The
Gainesville loan production office, however, makes a large portion of loans to
individuals and businesses that are not located in its market area. 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.
Some 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 lien position on the loans associated with
construction projects and offer these loans only to bona fide professional
building contractors. Loan disbursements require independent, on-site
inspections to assure the project is on budget and that the loan proceeds are
being used in accordance with the plans, specifications, and survey for the
construction project and not being diverted to other uses. The loan-to-value
ratio for such loans is usually 75% to 85% of the as-built appraised value.
Loans for construction can present a high degree of risk, 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.
<PAGE>
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 reviews 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 monthly meetings, a committee of
executives of the Company receives a report from each bank with regard to the
monthly asset and liability funds budget and income and expense budget in
relation to the actual composition and flow of funds, the ratio of the amount of
rate-sensitive assets to the amount of rate-sensitive liabilities, the amount of
interest rate risk and equity market value exposure under varying rate
environments, the ratio of loan loss reserve to outstanding loans and other
variables, such as expected loan demand, investment opportunities, core deposit
growth within specified categories, regulatory changes, monetary policy
adjustments and the overall condition of the local and state economy.
INVESTMENT POLICY. The Company's investment portfolio policy is to
maximize income consistent with liquidity, asset quality and regulatory
constraints. The policy is reviewed from time to time by the Company's Board of
Directors. Individual transactions, portfolio composition and performance are
reviewed and approved monthly by the Board of Directors of each bank 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
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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, national, 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,
Georgia, 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 Southeastern 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 in March 1998
Financial Properties, Inc. ("Financial Properties"). Financial Properties
engages in real estate brokerage and related activities.
Competition
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The banking business is highly competitive. Community-Habersham
competes with four 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, 1999, the Company had 290 full-time employees and 46
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 Act requires every bank holding company to obtain the Federal
Reserve's prior approval before (1) 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; (2) it or any of its non-bank subsidiaries may acquire all or
substantially all of the assets of a bank; and (3) 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 listed in the Act or found by the
Federal Reserve, by order or regulation, to be 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
closely related to banking are:
o making or servicing loans and certain types of leases;
o performing certain data processing services;
o acting as fiduciary or investment or financial advisor;
o providing brokerage services;
o underwriting bank eligible securities;
o underwriting debt and equity securities on a limited basis
through separately capitalized subsidiaries; and o making
investments in corporations or projects designed primarily to
promote community welfare.
In addition, bank holding companies whose banking subsidiaries are all
well-capitalized and well-managed may apply to become a financial holding
company. Financial holding companies have the authority to engage in activities
that are "financial in nature" that are not permitted for other bank holding
companies. Some of the activities that the Act provides are financial in nature
are:
<PAGE>
o lending, exchanging, transferring, investing for others or
safeguarding money or securities;
o insuring, guaranteeing, or indemnifying against loss, harm,
damage, illness, disability, or death, or providing and
issuing annuities, and acting as principal, agent, or broker
with respect thereto;
o providing financial, investment, or economic advisory
services, including advising an investment company; o issuing
or selling instruments representing interests in pools of
assets permissible for a bank to hold directly; and o
underwriting, dealing in, or making a market in securities.
Effective March 13, 2000, we were registered as a financial holding
company, but have no immediate plans to engage in new activities.
The Company must also register with the Department of Banking and
Finance of the State of Georgia (the "DBF") and file periodic information with
the DBF. As part of such registration, the DBF requires information with respect
to the financial condition, operations, management and intercompany
relationships of the Company and Community-Habersham, Community-Jackson and
Community-Troup and related matters. The DBF may also require such other
information as is necessary to keep itself informed as to whether the provisions
of Georgia law and the regulations and orders issued thereunder by the DBF have
been complied with, and the DBF may examine the Company and each of the Georgia
Community Banking Subsidiaries.
The Company is an "affiliate" of the Community Banking Subsidiaries
under the Federal Reserve Act, which imposes certain restrictions on (i ) loans
by the Community Banking Subsidiaries to the Company, (ii) investments in the
stock or securities of the Company by the Community Banking Subsidiaries, (iii)
the Community Banking Subsidiaries taking the stock or securities of an
"affiliate" as collateral for loans by the Community Banking Subsidiaries to a
borrower and (iv) the purchase of assets from the Company by the Community
Banking Subsidiaries. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
Community-Habersham, Community-Jackson and Community-Troup, as Georgia
banking associations, are subject to the supervision of, and are regularly
examined by, the Federal Deposit Insurance Corporation (the "FDIC") and the DBF.
Community-Alabama is subject to the supervision and examination of the Alabama
State Banking Department (the "ABD") in addition to the FDIC. Both the FDIC and
the DBF must grant prior approval of any merger, consolidation or other
corporate reorganization involving Community-Habersham, Community-Jackson or
Community-Troup. The ABD must grant prior approval of any merger, consolidation
or other corporate reorganization involving Community-Alabama. A bank can be
held liable for any loss incurred by, or reasonably expected to be incurred by,
the FDIC in connection with the default of a commonly-controlled institution.
PAYMENT OF DIVIDENDS. The Company is a legal entity separate and
distinct from the Community Banking Subsidiaries. Most of the revenues of the
Company result from dividends paid to it by the Community Banking Subsidiaries.
There are statutory and regulatory requirements applicable to the payment of
dividends by the Community Banking Subsidiaries, as well as by the Company to
its shareholders.
The Community Banking Subsidiaries are each state-chartered banks
regulated by the DBF or ABD, as applicable, and the FDIC. Under the regulations
of the DBF, dividends may not be declared out of the retained earnings of a
Georgia bank without first obtaining the written permission of the DBF unless
such bank meets all of the following requirements:
(a) Total classified assets as of the most recent examination of
the bank do not exceed 80% of equity capital (as defined by
regulation);
<PAGE>
(b) The aggregate amount of dividends declared or anticipated to
be declared in the calendar year does not exceed 50% of the
net profits after taxes but before dividends for the previous
calendar year; and
(c) The ratio of equity capital to adjusted assets is not less
than 6%.
Under the regulations of the ABD, dividends may be declared by a state
bank without obtaining the prior written approval of the ABD only if (i) the
bank's surplus (as defined by regulation) is equal to at least 20% of its
capital (as defined by regulation) and (ii) the aggregate of all dividends
declared or anticipated to be declared in the calendar year does not exceed the
total of its net earnings (as defined by regulation) of that year combined with
its retained net earnings of the preceding two year, less any required transfers
to surplus. No dividends may be paid from an Alabama bank's surplus without the
prior written approval of the ABD.
The payment of dividends by the Company and the Community Banking
Subsidiaries may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory guidelines. In
addition, if, in the opinion of the applicable regulatory authority, a bank
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending upon the financial condition of the Community
Banking Subsidiaries, could include the payment of dividends) such authority may
require, after notice and hearing, that such bank cease and desist from such
practice. The FDIC has issued a policy statement providing that insured banks
should generally only pay dividends out of current operating earnings. In
addition to the formal statutes and regulations, regulatory authorities consider
the adequacy of each of the Community Banking Subsidiary's total capital in
relation to its assets, deposits and other such items. Capital adequacy
considerations could further limit the availability of dividends to the
Community Banking Subsidiaries. At December 31, 1999, retained earnings
available from the Community Banking Subsidiaries to pay dividends totaled
approximately $4.3 million. For 1999, the Company's cash dividend payout to
shareholders was 5.36% of net income.
MONETARY POLICY. The results of operations of the Community Banking
Subsidiaries are affected by credit policies of monetary authorities,
particularly the Federal Reserve. The instruments of monetary policy employed by
the Federal Reserve include open market operations in U.S. government
securities, changes in the discount rate on bank borrowings and changes in
reserve requirements against bank deposits. In view of changing conditions in
the national economy and in the money markets, as well as the effect of actions
by monetary and fiscal authorities, including the Federal Reserve, no prediction
can be made as to possible future changes in interest rates, deposit levels,
loan demand or the business and earnings of the Community Banking Subsidiaries.
CAPITAL ADEQUACY. The Federal Reserve and the FDIC have implemented
substantially identical risk-based rules for assessing bank and bank holding
company capital adequacy. These regulations establish minimum capital standards
in relation to assets and off-balance sheet exposures as adjusted for credit
risk. Banks and bank holding companies are required to have (1) a minimum level
of total capital (as defined) to risk-weighted assets of eight percent (8%); (2)
a minimum Tier One Capital (as defined) to risk-weighted assets of four percent
(4%); and (3) a minimum stockholders' equity to risk-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.
<PAGE>
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, 1999.
Set forth below are pertinent capital ratios for the Company and the
Community Banking Subsidiaries as of December 31, 1999.
<TABLE>
<CAPTION>
Minimum Capital Community Community Community Community The
Requirement -Habersham -Jackson -Alabama -Troup Company
- --------------------- ----------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Tier One Capital 11.91% 9.33% 10.21% 11.23% 10.71%
to Risk-based
Assets: 4.00%<F1>
Total Capital to 13.17% 10.58% 11.46% 12.48% 11.97%
Risk-based
Assets 8.00%<F2>
Leverage Ratio 8.65% 6.82% 7.27% 8.23% 8.54%
(Tier One Capital
to Average Assets)
4.00%<F3>
<FN>
<F1> Minimum required ratio for "well capitalized" banks is 6%
<F2> Minimumrequired ratio for "well capitalized" banks is 10%
<F3> Minimum required ratio for "well capitalized" banks is 5%
</FN>
</TABLE>
<PAGE>
RECENT LEGISLATIVE AND REGULATORY ACTION.
On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley
Act, a very significant piece of legislation intended to modernize the financial
services industry. The bill repeals the anti-affiliation provisions of the 1933
Glass-Steagall Act to allow for the merger of banking and securities
organizations and permits banking organizations to engage in insurance
activities including insurance underwriting. The bill also allows bank holding
companies to engage in financial activities that are "financial in nature or
complementary to a financial activity." The act lists the expanded areas that
are financial in nature and includes insurance and securities underwriting and
merchant banking among others. The bill also:
o prohibits non-financial entities from acquiring or
establishing a thrift while grandfathering existing thrifts
owned by non-financial entities.
o establishes state regulators as the appropriate functional
regulators for insurance activities but provides that state
regulators cannot "prevent or significantly interfere" with
affiliations between banks and insurance firms.
o contains provisions designed to protect consumer privacy. The
bill requires financial institutions to disclose their policy
for collecting and protecting confidential information and
allows consumers to "opt out" of information sharing except
with unaffiliated third parties who market the institutions'
own products and services or pursuant to joint agreements
between two or more financial institutions.
o provides for functional regulation of a bank's securities
activities by the Securities and Exchange Commission.
Various portions of the bill have different effective dates, ranging
from immediately to more than a year for implementation.
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 fourteen branch
offices (four owned and ten leased, nine of which are operated in supermarkets)
located in Cornelia, Clarkesville, Clayton, Cleveland, Demorest, Gainesville,
and Toccoa, 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. Community - Troup has one
branch office (leased and operated in a supermarket) in LaGrange, Georgia.
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.
<PAGE>
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, 2000, there were 474 holders of record of the Common Stock.
Management is aware of 32 and 30 trades of Company stock during 1999 and 1998,
respectively. During 1999, trades ranged from 25 shares to 13,849 shares at
prices ranging from $33.00 to $40.00 per share. During 1998, trades ranged from
25 shares to 9,000 shares at prices ranging from $25.00 to $33.00 per share.
In 1999, the Company paid cash dividends of $.15 per share. The Company
paid cash dividends of $.15 and $.14 in 1998 and 1997, respectively. The Company
intends to continue to pay cash dividends. However, the amount and frequency of
dividends will be determined by the Company's Board of Directors in light of the
earnings, capital requirements and the financial condition of the Company, and
no assurances can be given that dividends will be paid in the future. The
Company's ability to pay dividends will also be dependent on cash dividends paid
to it by the Community Banking Subsidiaries. The ability of the Community
Banking Subsidiaries to pay dividends to the Company is restricted by applicable
regulatory requirements. See "ITEM 1 -- BUSINESS -- Supervision and Regulation."
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995
--------------------------------------------------------------
Dollars in Thousands, Except Per Share Amounts
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA:
Total interest income $40,290 $ 34,613 $ 28,703 $ 24,465 $ 21,871
Total interest expense 17,697 15,950 13,191 11,236 9,875
Net Interest income 22,593 18,663 15,512 13,229 11,996
Provision for loan losses 1,637 1,165 936 757 849
Non bank subsidiary income 6,720 9,043 8,820 5,559 3,780
Other operating income 4,790 4,338 3,599 2,833 2,432
Other operating expenses 23,831 20,402 18,724 14,950 12,970
Net income 6,076 7,032 5,647 4,044 3,125
Diluted earnings per share 2.80 3.20 2.60 1.93 1.54
Cash dividends per share 0.15 0.15 0.14 0.14 0.13
SELECTED BALANCE SHEET DATA:
Total assets $516,150 $ 460,593 $ 377,080 $ 315,579 $ 270,007
Total deposits 444,056 405,283 335,545 278,709 242,442
Other borrowings 16,054 5,808 462 616 787
Redeemable common stock held
by ESOP 13,982 14,254 10,622 6,177 -
Shareholders' equity 30,820 26,291 23,119 21,083 22,469
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
The following is a discussion and analysis of the Company's financial
condition at December 31, 1999 and the results of operations for the three year
period ended December 31, 1999. 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
1999. For the year ended December 31, 1999, consolidated assets grew $55.6
million, or 12.06%, up from 1998 growth of $83.5 million or 22.15%. During 1999,
the Company's average assets were $494.7 million, compared with $418.6 million
during 1998. This represents an 18.19% increase in average assets during 1999
compared with a 22.35% increase during 1998.
Total earning assets, which include investment securities, loans,
Federal Funds sold, and interest-bearing deposits in banks increased $50.0
million or 12.17% during 1999. During 1998, earning assets increased $76.9
million, or 23.04%. Average earning assets for 1999 were $443.3 million , an
increase of 19.38% over average earning assets in 1998 which were $371.3 million
or an increase of 19.95% over 1997.
Total investments increased by $7.6 million or 10.41% over 1998.
Average investments were $79.5 million for 1999, a 4.52% increase over average
investments for 1998. This increase occurred mainly in the available for sale
portfolio.
Total loans grew by $62.7 million during 1999 for an increase of 19.97%
over 1998. During 1999 average loans were $350.3 million or an increase of
22.57% over 1998 compared to an increase during 1998 of 28.07% to $285.8
million. The increase in loans is primarily the result of continued loan growth
in the Company's existing markets.
Federal Funds sold decreased by $19.9 million or 87.16% from year end
1998 to 1999. Average Federal Funds for 1999 were $13.1 million or a 37.73%
increase. During 1998, average Federal Funds sold decreased by of $.2 million or
2.15% as compared to 1997.
The growth in assets for the year ended December 31, 1999 was funded
mainly by growth in deposits and advances from the Federal Home Loan Bank.
Consolidated deposits grew $38.8 million or 9.57% in 1999 as compared to $69.7
million or 20.78% in 1998. Deposit growth was concentrated in time deposits. The
Company experienced a 5.00% increase in interest bearing demand with minimal
growth in noninterest-bearing demand and savings. The Company borrowed $10
million from the Federal Home Loan Bank to add to the $5 million advanced in
1998.
As shown in Table 2 of the Selected Statistical Data, the average
yields on interest earning assets and interest bearing liabilities showed a
slight decrease from 1998 to 1999 due to a fairly stable market. The net
interest spread increased by 4 basis points from 1998 to 1999, and the net
interest margin increased by 7 basis points from 1998 to 1999.
At December 31, 1999, the Company reported net unrealized losses of
approximately $1,327,000 in the securities available for sale portfolio as
compared to net unrealized gains of approximately $227,000 at December 31, 1998.
Net unrealized gains (losses) represent the difference in the amortized cost of
those securities compared to the fair value at those dates and are included in
shareholders' equity, net of the tax effect. Management sells securities to meet
liquidity needs and may sell securities in rising interest-rate environments to
take advantage of higher returns in the long run. In 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 company had no sales of securities during
1999. The held to maturity securities portfolio included net unrealized losses
of approximately $590,000 at December 31, 1999 compared to net unrealized gains
of $1,259,000 in 1998. Table 4 of the Selected Statistical Data summarizes the
<PAGE>
combined investment portfolios by types of securities. U.S. Treasury and other
U.S. Government agencies and corporations represent 37.87% of the total
portfolio, which typically provide reasonable returns with limited risk. The
remaining portfolio is comprised of municipal securities, mortgage-backed
securities, and other investments which provide, in general, higher returns on a
tax equivalent basis, with greater risk elements. Management regularly monitors
the Company's investment portfolios and utilizes forecasting models to project
the Company's net interest margin in various rising, flat, and falling
interest-rate scenarios. In a changing interest rate environment, management
would act to change the Company's asset or liability composition and interest
sensitivity in response to a definitive change in the direction of interest
rates. The Company actively manages the mix of asset and liability maturities to
control the effects of changes in the general level of interest rates on net
interest income. Except for the effect of inflation on interest rates, inflation
does not have a material impact on the Company due to variability and short-term
maturities of its earning assets repriced or matured within one year.
LIQUIDITY AND CAPITAL RESOURCES. The liquidity and capital resources of
the Company and the Community Banking Subsidiaries are monitored by management
and on a periodic basis by state and federal regulatory authorities. The
individual Community Banking Subsidiaries' liquidity ratios at December 31, 1999
were considered satisfactory under their own guidelines as well as regulatory
guidelines. At that date, the Community Banking Subsidiaries' short-term
investments were adequate to cover any reasonably anticipated immediate need for
funds.
The purpose of liquidity management is to ensure that cash flow is
sufficient to satisfy demands for credit, withdrawals, and other needs of the
Company. Traditional sources of liquidity include asset maturities and growth in
core deposits. A company may achieve its desired liquidity objectives from the
management of assets and liabilities, and through funds provided by operations.
Funds invested in short-term marketable instruments and the continuous maturing
of other earning assets are sources of liquidity from the asset perspective. The
liability base provides sources of liquidity through deposit growth and
accessibility to market sources of funds.
Scheduled loan payments are a relatively stable source of funds, but
loan payoffs and deposit flows are influenced by interest rates, general
economic conditions and competition and may fluctuate significantly. The Company
attempts to price its deposits to meet its asset/liability objectives consistent
with local market conditions.
Cash flows for the Company are of three major types. Cash flows from
operating activities consist primarily of interest and fees received on loans,
interest received on investment securities, federal funds sold, and interest
bearing deposits less cash paid for interest and operating expenses. Investing
activities use cash for the purchase of interest-bearing deposits, investment
securities, fixed assets and to fund loans. Investing activities also generate
cash from the proceeds of matured interest-bearing deposits, matured investment
securities, sales of investment securities, loan repayments and principal
prepayments of securities. Cash flows from financing activities generate cash
from a net increase in deposit accounts, the increases in other borrowed funds
and the issuance of common stock. Financing activities use cash for the payment
of cash dividends and the repayment of other borrowed funds.
For the year ended December 31, 1999, $40.3 million in cash flows from
operating activities were provided by interest and fees received from loans,
securities and federal funds. Approximately $11.5 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 $18.4 million of
interest paid on deposits and borrowings, $12.3 million paid for salaries and
other personnel benefits and $14.0 million paid for occupancy and equipment
<PAGE>
expenses, income taxes and other operating payments. Cash flows of $10.3 million
were provided by maturities of investment securities. Cash flows provided by
financing activities consisted primarily of $38.8 million in net increases in
deposits and an increase in other borrowings of $10 million. The increases in
deposits and other borrowings were primarily used to fund the $64.4 million in
net increase in loans. The net increase in cash and due from banks for the year
ended December 31, 1999 was $5.0 million.
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 $13.2 million paid for occupancy and equipment
expenses, income taxes and other operating payments. 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 $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 were primarily used to fund the $69.7
million net increase in loans. The net increase in cash and due from banks for
the year ended December 31, 1998 was $2.8 million.
At December 31, 1999, 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 1999, the Company
increased capital by retaining net earnings of $5.7 million and the issuance of
$.09 million in common stock compared to an increase in 1998 of $6.7 million in
retained net earnings. Management believes that the liquidity and capital ratios
of the Company and the Community Banking Subsidiaries are adequate based on
regulatory requirements.
The Company is capable of meeting its debt service requirements related
to existing long-term and other borrowings through dividends available from its
subsidiaries and current operations. Although the Company considers that it has
adequate capital to meet its 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, 1999 see "SUPERVISION AND REGULATION".
The Company is not aware of any other trends, events or uncertainties
that will have or that are reasonably likely to have a material effect on the
Company's liquidity, capital resources or operations. The Company is not aware
of any current recommendations by the regulatory authorities which, if they were
implemented, would have such an effect.
EFFECTS OF INFLATION. Inflation impacts banks differently than
non-financial institutions. Banks, as financial intermediaries, have assets
which are primarily monetary in nature and which tend to fluctuate with
inflation. A bank can reduce the impact of inflation by managing its rate
sensitivity gap, which represents the difference between rate-sensitive assets
and rate-sensitive liabilities. The Company, through its asset-liability
committee, attempts to structure the assets and liabilities and manage the
rate-sensitivity gap, thereby seeking to minimize the potential effects of
inflation. See "Asset/liability Management".
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 $3.9 million for the year ended December 31, 1999
as compared to an increase of $3.2 million for the same period in 1998 The
increase in net interest income is attributable to increases in earning assets,
particularly loans. The yield on interest-earning assets decreased 23 basis
points in 1999 from 1998, while the yield on interest earning liabilities
decreased by 27 basis points. The increase in average interest earning assets of
$72.0 million, net of the increase in average interest-bearing liabilities of
$55.4 million, accounts for the 21.06% increase in net interest income. Net
interest income increased for all Community Banking Subsidiaries.
The 4 basis point increase in the net interest spread in Table 2 is due
in part to the percentage on interest income earned from loans increasing
compared to 1998. In addition, the rates on deposits decreased slightly during
1999. The Company will continue to actively monitor and maintain the net
interest spread to counteract the current market trends. Net interest income for
1998 increased $3.2 million over 1997. The increase is mainly attributable to
growth in earning assets as shown in Table 1.
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year
ended December 31, 1999 increased by $472,000 from $1,165,000 at December 31,
1998. This compares to an increase of $229,000 in 1998 from the December 31,
1997 level of $936,000. The increase during both 1999 and 1998 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 loan production office are subsequently sold. Because most
loans generated by the loan production office are out-of market, the loans
generated by the loan production office 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, nonaccrual and
restructured loans, increased $789,000 from December 31, 1998 compared to a
$378,000 increase over 1997. The increase in delinquent nonaccrual loans is
attributable to an increase in delinquent SBA loans associated with interest
rate increases related to the aggressive loan growth in recent years. Although
management is aware of this increase, management has reviewed these loans and
determined that the likelihood of any loss of principal is minimal because the
loans are adequately collateralized. The ratio of the allowance for loan losses
to nonaccrual and restructured loans decreased from 271% at December 31, 1998 to
220% at December 31, 1999. 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, 1999 and 1998 was 1.51% and 1.55%, respectively. Net
charge-offs in 1999 were $817,469, an increase of $491,529 from $325,940 in
1998, and the net charge-off ratio increased from .11 in 1998 to .23 in 1999.
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.
OTHER INCOME. Other income consists of income from operations of the
Community Banking Subsidiaries and Financial Supermarkets. Traditional
non-interest income of the Community Banking Subsidiaries accounts for only
40.7%, or $4.6 million of total other income for 1999, 32.1% in 1998, and 28.5%
in 1997. The majority of the increase in other income of the Community Banking
Subsidiaries is the continued growth in deposits. Service charges on deposit
accounts increased by $ 336,802 and $510,919, respectively, for the years ended
December 31, 1999 and 1998. These increases normally have a direct relationship
with the change in demand deposit and savings accounts. Average demand deposit
and savings accounts increased 23.2% in 1999 compared to 30.9% increase in 1998
over 1997. Included in other income of the Community Banking Subsidiaries are
gains on sale of loans recognized by Community-Habersham and Jackson of $199,943
and $118,814, respectively. This represents a decrease from 1998 of $241,318.
The allocation of services as a percentage of total income for Financial
Supermarkets is shown below:
FINANCIAL SUPERMARKETS
Consulting Services provided for Supermarket
bank installation and opening 51%
Supermarket consulting and ancillary services 45
Other Miscellaneous Consulting Services 4
---
100%
The primary business of Financial Supermarkets is services offered in
connection with the establishment and operation of Supermarket Bank(R) service
centers. In 1999, Financial Supermarkets had net consulting revenue of $3.9
million compared to $6.4 million in 1998, a decrease of $2.5 million or 39%. The
decrease in net consulting revenues in 1998 over 1997 was $.2 million, or 3%.
<PAGE>
The Company has had fewer installations of supermarket bank units
during 1999 as compared to 1998, due to the decreased branching activity
directly related to the banking industry's efforts to prepare for the Year 2000.
In addition, FSI terminated its Master Consulting Agreement with NationsBanc
Services, Inc. ("NationsBanc") in 1998 and received non-recurring compensation
as a result of this agreement. Although the consulting service provided to
NationsBanc during 1997 and 1998 enhanced FSI's income and FSI is currently
collecting consulting fees on 69 supermarket branches in operation under this
agreement, management anticipates the establishment of Supermarket Bank(R)
service centers to increase in 2000 compared to 1999, due increased branching
activity in the industry as well as FSI's agreement with the Canadian Imperial
Bank of Commerce to establish banking pavilions in Florida.
NON-INTEREST EXPENSE. Other expenses increased for the year ended
December 31, 1999 by $3.4 million compared to the $1.7 million increase in 1998.
This represented a 16.81% increase in expenses for 1999 and 8.97% increase in
1998. Salaries and benefits increased $1,668,541 or 15.63% in 1999 over 1998 due
primarily to the staffing of new branches. This compares to an increase of
$202,492 or 1.93 % in 1998 over 1997. 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 during that period of time. For the years ended
1999, 1998, and 1997 the Company had total employees (F.T.E.) of 313, 282, and
249, respectively. Other expenses increased by 1.0 million in 1999 and .9
million in 1998 primarily due to growth of the banking subsidiaries, increased
costs associated with day-to-day operations and increased activity of FSI.
Equipment and occupancy expenses increased by $781,112 or 24.82% in
1999 over 1998 and $583,289 or 22.76% in 1998 over 1997. The growth is due to
the increased number of facilities operated by the Community banking
subsidiaries as well as additions of computer equipment necessary to operate the
Company. The Company operated 29, 26 and 23 locations at the year end 1999,
1998, and 1997, respectively. As 1999 closed, preparations were being made to
open three additional facilities during 2000. Management expects these locations
to add to the continued growth and profitability of the Company.
<TABLE>
Other Operating Increase/
Expenses (Decrease)
1999 1998
----------- ---------- -------------
(Dollars in Thousands)
<S> <S> <C> <C> <C>
The Company
Salaries and benefits $12,346 $ 10,677 $1,669
Equipment expenses 2,542 1,841 701
Occupancy expenses 1,386 1,306 80
Data processing expenses 886 949 (63)
Travel expenses 678 469 209
Office supply expenses 623 460 163
Other operating expenses 5,370 4,700 670
----------- ---------- -------------
$23,831 $ 20,402 $3,429
=========== ========== =============
</TABLE>
INCOME TAXES. The Company incurred income tax expenses of $2.6 million
in 1999 which represented an effective tax rate of 30%, compared to tax expense
of $3.4 million in 1998, or an effective tax rate of 33%. Income tax expense
increased $ .8 million from 1997 to $3.4 million in 1998. The effective tax rate
at December 31, 1997 was 32%. The decrease in the effective tax rate is related
to the decreased income of Financial Supermarkets, which does not have a portion
of its income tax-free as do the Community Banking Subsidiaries.
NET INCOME. The Company's net income for 1999 was $6.1 million , as
compared to $7.0 million in 1998, a decrease of 14%. The decrease in net income
between 1999 and 1998 is primarily attributable to the decrease in income from
FSI. Net income for 1998 increased to $7.0 million or 25% over 1997's net income
of $5.6 million. Although the Company experienced a decrease in income during
1999, management does not expect this trend to continue.
<PAGE>
ASSET/LIABILITY MANAGEMENT. The Company's objective is to manage assets
and liabilities to maintain satisfactory and consistent profitability. Officers
of each Community Banking Subsidiary are charged with monitoring policies and
procedures designed to ensure an acceptable asset/liability mix. Management's
philosophy is to support asset growth primarily through growth of core deposits
within the Community Banking Subsidiaries' market areas.
The Company's asset/liability mix is monitored regularly with a report
reflecting the interest rate sensitive assets and interest rate sensitive
liabilities is prepared and presented to the Board of Directors of each
Community Banking Subsidiary 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, usually one year or less. The
interest rate-sensitivity gap is the difference between the interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
the relevant period. A gap is considered positive when the amount of interest
rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities.
A gap is considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income. If the
Company's assets and liabilities were equally flexible and moved concurrently,
the impact of any increase or decrease in interest rates on net interest income
would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the Company also evaluates how changes in interest rates
impacts the repayment of particular assets and liabilities. Income associated
with interest-earning assets and costs associated with interest-bearing
liabilities may not be affected uniformly by changes in interest rates. In
addition, the magnitude and duration of changes in interest rates may
significantly effect net interest income. For example, although certain assets
and liabilities may have similar maturities or periods of repricing, they may
react in different degrees to changes in market interest rates. Interest rates
on 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 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 rate gap. 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, 1999, the Company's cumulative one year interest rate
sensitivity gap ratio was 91%. 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,
1999, the interest rate sensitivity gap, the cumulative interest
rate-sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative
interest rate-sensitivity gap ratio. The table also sets forth the time periods
in which earning assets and liabilities will mature or may reprice in accordance
with their contractual terms. However, the table does not necessarily indicate
the impact of general interest rate movements on the net interest margin since
the repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of the Company's customers. In addition,
various assets and liabilities indicated as repricing within the same period may
in fact, reprice at different times within such period and at different rates.
<PAGE>
Community Bankshares, Inc.
Consolidated Gap Report
<TABLE>
<CAPTION>
After After
Three One
Month Year but
Within But Within After
Three Within Five Five
Months One Year Years Years Total
------------------------------------------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits 160 160
Federal funds sold 2,940 2,940
Investment securities 2,211 5,195 22,627 53,262 83,295
Loans 153,872 77,566 134,055 11,375 376,868
------------------------------------------------- ------------
159,183 82,761 156,682 64,637 463,263
------------------------------------------------- ------------
Interest-bearing liabilities:
Interest-bearing demand 99,185 99,185
Savings 20,863 20,863
Time deposits, $100,000
and over 19,640 49,643 10,641 - 79,924
Time deposits, less than
$100,000 39,085 37,095 102,088 178,268
Other borrowings 1,054 5,000 10,000 16,054
------------------------------------------------- ------------
179,827 86,738 117,729 10,000 394,294
------------------------------------------------- ------------
Interest rate sensitivity
Gap (20,644) (3,977) 38,953 54,637 68,969
------------------------------------------------- ------------
Cumulative interest rate
Sensitivity gap (20,644) (24,621) 14,332 68,969
-------------------------------------------------
Interest rate sensitivity
Gap 0.89 0.95 1.33 6.46
-------------------------------------------------
Cumulative interest rate
Sensitivity gap 0.89 0.91 1.04 1.17
-------------------------------------------------
</TABLE>
YEAR 2000 COMPLIANCE
Based on a review of the Bank's and the Company's business since
January 1, 2000, the Company has not experienced any material effects of the
Year 2000 problem. Although the Company has not been informed of any material
risks associated with the Year 2000 problem from third parties, there can be no
assurance that the Company will not be impacted in the future. The Company will
continuously monitor its business applications and maintain contact with its
third party vendors and key business partners to resolve any Year 2000 problems
that may arise in the future.
<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
December model reflects an increase of 2% in net interest income and a 14%
decrease in market value equity for a 200 basis point increase in rates. The
same model shows a 1% decrease in net interest income and a 16% increase in
market value equity for a 200 basis point decrease in rates. The Company's
policy is to allow no more than +- 8% change in net interest income and no more
than +- 25% change in market value equity for these scenarios. Therefore, the
Company is within its policy guidelines and is protected from any significant
impact due to market rate changes.
SELECTED STATISTICAL INFORMATION
The tables and schedules on the following pages set forth certain significant
financial information and statistical data with respect to the distribution of
assets, liabilities and shareholders' equity of the Company; the interest rates
and interest differentials experienced by the Company; the investment portfolio
of the Company; the loan portfolio of the Company, including types of loans,
maturities and sensitivity to changes in interest rates and information on
nonperforming loans; summary of the loan loss experience and reserves for loan
losses of the Company; types of deposits of the Company and the return on equity
and assets for the Company.
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS
Table 1 Average Balances
<TABLE>
<CAPTION>
The condensed average balance sheets for the periods indicated are presented below.<F1>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 28,757 $ 25,330 $ 16,260
Interest-bearing deposits in banks 390 747 488
Taxable securities 48,378 42,262 50,957
Nontaxable securities 31,134 32,991 25,223
Unrealized gains (losses) on securities
Available for sale (645) 200 (93)
Federal Funds Sold 13,077 9,495 9,704
Loans<F2><F3> 350,278 285,809 223,170
Allowance for loan losses (5,287) (4,382) (3,873)
Other assets 28,605 26,098 20,243
---------------------------------------------
$ 494,687 $ 418,550 $ 342,079
==============================================
Total interest-earning assets $ 443,257 $ 371,304 $ 309,542
============================================-
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 66,719 $ 52,966 $ 41,472
Interest-bearing demand 102,770 83,422 61,638
Savings 21,540 18,672 15,387
Time 242,434 217,831 185,936
---------------------------------------------
Total deposits 433,463 372,891 304,433
Other borrowings 10,271 1,699 545
Other liabilities 8,181 6,633 6,894
---------------------------------------------
Total liabilities 451,915 381,223 311,872
---------------------------------------------
Shareholders' equity<F4> 42,772 37,327 30,207
---------------------------------------------
$ 494,687 $ 418,550 $ 342,079
=============================================
Total interest-bearing liabilities $ 377,015 $ 321,624 $ 263,506
=============================================
<FN>
<F1> Average balances calculated using month-end balances
<F2> Includes non-accrual loans
<F3> Loans are net of unearned fees
<F4> Unrealized gains & losses are included in equity
</FN>
</TABLE>
<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,
1999 1998 1997
------------------- ------------------- --------------------
Average Average Average
Interest Rate Interest Rate Interest Rate
------------------- ------------------- --------------------
INTEREST INCOME:
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans 35,040 10.00% 29,767 10.41% 23,562 10.56%
Interest on taxable securities 2,378 4.92% 2,565 6.07% 3,108 6.10%
Interest on nontaxable securities 1,995 6.41% 1,710 5.18% 1,327 5.26%
Interest on Federal Funds sold 858 6.56% 535 5.63% 673 6.94%
Interest on deposits in banks 19 4.87% 36 4.82% 33 6.76%
Total interest income 40,290 9.09% 34,613 9.32% 28,703 9.27%
------ ------ ------
INTEREST EXPENSE:
Interest expense on
interest-bearing
Demand deposits 2,764 2.69% 2,511 3.01% 2,009 3.26%
Interest on savings deposits 566 2.63% 516 2.76% 436 2.83%
Interest on time deposits 13,838 5.71% 12,812 5.88% 10,704 5.76%
Interest on other borrowings 529 5.15% 111 6.53% 42 7.71%
Total interest expense 17,697 4.69% 15,950 4.96% 13,191 5.01%
------ ------ ------
NET INTEREST INCOME 22,593 18,663 15,512
------ ------ ------
Net interest spread 4.40% 4.36% 4.26%
Net yield on average
Interest-earning assets 5.10% 5.03% 5.01%
</TABLE>
TABLE 3 RATE AND VOLUME ANALYSIS
The following table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and expense during the
year indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) change in volume (change in volume multiplied by old rate); (2) change in
rate (change in rate multiplied by old volume); and (3) a combination of change
in rate and change in volume. The changes in interest income and interest
expense attributable to both volume and rate have been allocated proportionately
to the change due to volume and the change due to rate.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1999 vs. 1998
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 (1,216) 6,485 5,273
Interest on taxable securities (528) 340 (187)
Interest on nontaxable securities 386 (101) 285
Interest on Federal Funds sold 98 225 323
Interest on deposits in banks 0 (17) (17)
-----------------------------------------------------
Total interest income (1,260) 6,937 5,677
-----------------------------------------------------
Expense from interest-bearing liabilities:
Interest expense on interest-bearing deposits (286) 539 253
Interest on savings deposits (26) 76 50
Interest on time deposits (380) 1,406 1,026
Interest on other borrowings (29) 447 418
-----------------------------------------------------
Total interest expense (728) 2,475 1,747
-----------------------------------------------------
Net interest income (532) 4,462 3,930
-----------------------------------------------------
Year Ended December 31,
1998 vs. 1997
Changes Due to:
Increase
Rate Volume (decrease)
-----------------------------------------------------
(Dollars in Thousands)
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
=====================================================
</TABLE>
<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,
1999 1998 1997
------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
U. S. Treasury and other U. S. Government
Agencies and corporations $30,708 $25,987 $29,094
Municipal securities 39,865 36,753 29,497
Mortgage-backed securities 8,785 8,979 21,962
Equity securities 1,725 1,721 1,448
------------------------------------------------
$81,083 $73,440 $82,001
------------------------------------------------
<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>
The amounts of securities in each category as of December 31, 1999 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 3,690 5.91% 2,466 4.76% 1,725 7.00%
After one year
through five years 19,643 5.80% 4,026 4.69% - -
After five years
through ten years 12,039 6.03% 10,069 4.78% - -
After ten years 4,121 6.26% 23,304 5.06% - -
-------------- -------------- --------------
Total 39,493 5.96% 39,865 5.08% 1,725 7.00%
-------------- -------------- --------------
<FN>
<F1> Yields were computed using book value, coupon interest, adding discount
accretion or subtracting premium amortization, as appropriate, on a
ratable basis over the life of each security. The weighted average
yield for each maturity range was computed using the carrying value of
each security in that range.
<F2> Yields on municipal securities have not been computed on a tax
equivalent basis.
<F3> The above schedule includes mortgage-backed securities based on their
contractual maturity date. In practice, cash flow in these securities
is significantly faster than their stated maturity schedules.
<F4> Other securities consists of equity securities and are included in the
under one year maturity range because the securities have no
contractual maturity date.
</FN>
</TABLE>
<PAGE>
LOAN PORTFOLIO
TABLE 6 Types of Loans
The amount of loans outstanding at the indicated dates are in the
following table according to the type of loan.
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural <F1> 206,505 $161,572 $118,376 $102,231 $77,871
Real estate-construction 24,208 21,327 21,234 9,506 8,036
Real estate-mortgage 93,063 82,413 69,541 57,566 63,312
Consumer and other <F2> 53,093 48,825 36,070 36,483 30,072
-------------------------------------------------------------------------------
$376,869 $314,137 $245,221 $205,786 $179,291
Less allowance for loan losses (5,683) (4,863) (4,024) (3,592) (3,060)
-------------------------------------------------------------------------------
Net loans $371,186 $309,274 $241,197 $202,194 $176,231
-------------------------------------------------------------------------------
<FN>
<F1> Commercial, financial and agricultural loans include loans held for
sale which are disclosed separately in the consolidated balance sheets.
<F2> Amounts are disclosed net of unearned loan income.
</FN>
</TABLE>
See "Business Description of the Community Banking- Loans" for a
description of the composition of each loan, the underwriting criteria and risks
that are unique to each.
<PAGE>
TABLE 7 MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
RATES
Total loans as of December 31, 1999 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, 1999
(Dollars in Thousands)
<S> <C>
Maturity:
One year or less:
Commercial, financial and agricultural $90,635
Real estate-construction 23,140
All other loans 46,665
---------------
$160,440
---------------
After one year through five years:
Commercial, financial and agricultural 479,433
Real estate-construction 560
All other loans 90,496
---------------
$170,489
---------------
After five years:
Commercial, financial and agricultural $35,670
All other loans 9,294
---------------
$44,964
---------------
$375,893
---------------
</TABLE>
The following table summarizes loans at December 31, 1999 with due
dates after one year which have predetermined and floating or adjustable
interest rates.
<TABLE>
<CAPTION>
December 31, 1999
(Dollars in Thousands)
<S> <C>
Predetermined interest rates $163,744
Floating or adjustable interest rates 51,709
-------------
$215,453
-------------
</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>
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,
1999 1998 1997 1996 1995
----------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,743 $1,119 $714 $1,119 $1,456
Loans contractually past due ninety days
or more as to interest or principal
Payments and still accruing 1,572 706 533 445 345
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 842 572 704 620 629
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, 1999 is as follows:
<TABLE>
<CAPTION>
December 31, 1999
<S> <C>
Interest income that would have been recorded on nonaccrual
and restructured loans under original terms
292,576
Interest income that was recorded on nonaccrual and restructured loans
105,867
</TABLE>
<PAGE>
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.
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, 1999 and 1998 were $30,544,552 and $28,756,057, 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,
1999 1998 1997 1996 1995
----------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average amount of loans outstanding $350,278 $285,809 $223,170 $191,180 $170,525
----------------------------------------------------------------------
Balance of allowance for loan losses
at beginning of year $4,863 $4,024 $3,592 $3,060 $2,686
----------------------------------------------------------------------
Loans charged off
Commercial ($423) ($97) ($136) ($118) ($221)
Real estate mortgage ($23) (7) (35) - -
Consumer ($632) (391) (424) (211) (331)
----------------------------------------------------------------------
($1,078) ($495) ($595) ($329) ($552)
----------------------------------------------------------------------
Loans recovered
Commercial $45 $20 $11 $5 $12
Real estate mortgage $4 19 28 35 12
Consumer $212 130 52 64 53
----------------------------------------------------------------------
$261 $169 $91 $104 $77
----------------------------------------------------------------------
Net charge-offs ($817) ($326) ($504) ($225) ($475)
----------------------------------------------------------------------
Additions to allowance charged
to operating expense during year $1,637 $1,165 $936 $757 $849
----------------------------------------------------------------------
Balance of allowance for loan losses
at end of year $5,683 $4,863 $4,024 $3,592 $3,060
======================================================================
Ratio of net loans charged off during
the year to average loans outstanding 0.23% 0.11% 0.23% 0.12% 0.28%
======================================================================
</TABLE>
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The provision for possible loan losses is created by direct charges to
income. Losses on loans are charged against the allowance in the year in which
such loans, in management's opinion, become uncollectible. Recoveries during the
year are credited to this allowance. The factors that influence management's
judgment in determining the amount charged to income are past loan loss
experience, composition of the loan portfolio, evaluation of possible future
losses, current economic conditions and other relevant factors. The Company's
allowance for loan losses was approximately $5,683,000 at December 31, 1999,
representing 1.51% of total loans, compared with approximately $4,863,000 at
December 31, 1998, which represented 1.55% 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, 1999.
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, 1999, 1998, 1997, 1996 and 1995 is summarized below:
<TABLE>
<CAPTION>
December 31,
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Commercial $2,671 $2,160 $1,850 $1,830 $1,347
Real estate 568 270 230 105 467
Consumer 2,444 2,433 1,944 1,657 1,246
-------------------------------------------------------------------------------
$5,683 $4,863 $4,024 $3,592 $3,060
===============================================================================
Percent of loans in Each Category of Total Loans
December 31,
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
(Dollars in Thousands)
Commercial 55% 51% 49% 50% 43%
Real estate 31% 33% 35% 33% 40%
Consumer 14% 16% 16% 17% 17%
-------------------------------------------------------------------------------
100% 100% 100% 100% 100%
===============================================================================
</TABLE>
<PAGE>
DEPOSITS
TABLE 10
<TABLE>
<CAPTION>
Average amount of deposits and average rates paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings deposits and time deposits,
for the years indicated are presented below. <F1>
Year Ended December 31,
1999 1998 1997
-------------------- ----------------- -----------------
Average Average Average
Balance Interest Balance Interest Balance Interest
Rate Rate Rate
-------------------- ----------------- -----------------
<S> <C> <C> <C>
Noninterest-bearing demand $66,719 $52,966 - $41,472 -
Interest-bearing demand deposits 102,770 2.69% 83,422 3.01% 61,638 3.26%
Savings deposits 21,540 2.63% 18,672 2.76% 15,387 2.83%
Time deposits 242,434 5.71% 217,831 5.88% 185,936 5.76%
---------- ---------- ----------
Total deposits $433,463 $372,891 $304,433
========== ========== ==========
<FN>
<F1> Average balances were determined using month-end 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, 1999 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, 1999
Dollars in Thousands)
<S> <C>
Three months or less $18,111
Over three through six months 16,996
Over six through twelve months 34,224
Over twelve months 10,593
------------
$79,924
------------
</TABLE>
<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,
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Return on assets <F1> 1.23% 1.68% 1.65%
Return on equity <F2> 14.21% 18.84% 18.69%
Dividend payout ratio <F3> 5.36% 4.69% 5.38%
Equity to assets ratio <F4> 8.65% 8.92% 8.83%
<FN>
<F1> Net income divided by average total assets.
<F2> Net income divided by average equity.
<F3> Dividends declared per share divided by net income per share.
<F4> Average equity divided by average total assets.
</FN>
</TABLE>
<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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a brief description, as of December 31, 1999, 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
(51) of 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
(66) Company 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.
Elton S. Collins Mr. Collins has been the President, Chief
(56) Executive Officer and a director of
Community - Jackson since 1982.
Annette R. Fricks Mrs. Fricks has been an Executive Vice
(55) President 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
(58) 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
of Financial Properties in 1998.
<PAGE>
Harry H. Purvis Mr. Purvis has been a director of the
(93) Company 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
(53) President 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
H. Calvin Stovall, Jr. Mr. Stovall, who is retired, was the
(84) President and treasurer of Stovall Tractor
Company, a retail farm equipment dealer,
from 1948 until November 1995. He served as
the Chairman of the Company's Board of
Directors 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
(68) Group, 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
(79) has 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
(60) 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,
President, and Chief Executive Officer of
Financial Supermarkets since 1984.
Lois M. Wood-Schroyer Ms. Wood-Schroyer is the Chairman, Chief
(61) Executive Officer, Director, and President
of Woods Furniture Co. Ms. Wood-Schroyer has
served as a Director of Community -
Habersham since 1990 and was elected to the
Company's Board of Directors in 1999.
<PAGE>
Directors are elected at each annual meeting of shareholders and hold
office until the next annual meeting and until their successors are elected and
qualified. The executive officers are elected by the Board of Directors and
serve at the will of the Board. There are no family relationships between
executive officers and directors of the Company.
The company is not subject to Section 16(a) of the Securities Exchange
Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the annual and long-term compensation
paid by the Company to the Chief Executive Officer of the Company and the three
other most highly compensated officers of the Company whose salary and bonus
exceeded $100,000 during the last fiscal year (the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
- ------------------------------------------------------------- ------------------------------------------------------
Annual Compensation Long-Term Compensation
- ------------------------------------------------------------- ------------------------------------------------------
Securities
Name and Principal Salary Underlying All Other
Position Year $<F1> Bonus <F2> Options/SARS (#) Compensation
- ---------------------------- ------ ------------- ------------- ------ ------------------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Alton Wingate 1999 347,950 1,222,960 <F7> 41,966 <F3>
President and Chief 1998 245,500 1,360,258 <F7> -- 30,499
Executive Officer 1997 243,200 728,981 <F7> -- 30,687
- ---------------------------- ------ ------------- ------------- ------ ------------------- ----------------- -------
Charles M. Miller 1999 145,600 35,000 -- 27,512 <F4>
Executive Vice 1998 145,600 30,000 -- 23,512
President 1997 145,600 20,000 -- 23,974
- ---------------------------- ------ ------------- ------------- ------ ------------------- ----------------- -------
Harry L. Stephens 1999 105,960 52,500 -- 22,658 <F5>
Executive Vice 1998 98,000 52,500 -- 20,816
President and Chief 1997 93,000 52,500 -- 19,811
Financial Officer
- ---------------------------- ------ ------------- ------------- ------ ------------------- ----------------- -------
Annette R. Fricks 1999 99,460 62,500 21,096 <F6>
Executive Vice 1998 88,000 57,500 -- 17,844
President and 1997 83,000 52,500 -- 17,088
Corporate Secretary
- ---------------------------- ------ ------------- ------------- ------ ------------------- ----------------- -------
<PAGE>
<FN>
<F1> Includes directors' fees.
<F2> Bonuses are included in this report in the year paid.
<F3> Included premiums of $4,397.03 paid for Mr. Wingate's life insurance
policies and estimated employee stock ownership plan ("ESOP")
contributions of $17,500. Final ESOP contributions have not yet been
determined for 1999.
<F4> Includes premiums of $3,171.9 paid for Mr. Miller's life insurance
policies and estimated ESOP contributions of $16,500.00. Final ESOP
contributions have not yet been determined for 1999.
<F5> Includes premiums of $912.00 paid for Mr. Stephens' life insurance
policies and estimated ESOP contributions of $16,000. ESOP
contributions have not yet been determined for 1999.
<F6> Includes premiums of $660.00 paid for Mrs. Fricks' life insurance
policies and estimated ESOP contributions of $15,500. Final ESOP
contributions have not yet been determined for 1999.
<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>
DIRECTOR'S COMPENSATION. The Chairman Emeritus of the Company's Board
of Directors, Calvin Stovall, 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
$11,000, $6,500, $3,850, $3,600, and $6,000 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
$125,000 plus certain benefits and perquisites. The agreement also entitles Mr.
Miller to certain severance payments following a change of control (as defined
in the agreement) of Community - Habersham. Further, Mr. Miller agrees that he
will not compete with or solicit certain customers from Community - Habersham
within Habersham or Jackson County (or any contiguous county) for a period of
three years after termination of Mr. Miller's employment with Community -
Habersham.
In 1987, Community - Habersham and Mr. Wingate entered into a
change-in-control agreement for a three year term, renewable for an additional
one year period annually thereafter in the sole discretion of the compensation
committee of the Board of Directors of Community - Habersham. The agreement also
provides for the payment of certain severance benefits to Mr. Wingate if there
is a change in control (as defined in the agreement) of Community - Habersham
and Mr. Wingate's employment is involuntarily terminated other than for cause,
disability or retirement or is voluntarily terminated as a result of a material
reduction of duties, compensation or benefits or a forced relocation. Such
benefits include the continuation of salary payments to Mr. Wingate for a period
of 36 months from the date of termination, the payment of certain bonuses for
the year in which his employment is terminated and the following two calendar
years, the continuation of health and life insurance coverage and the continued
participation by Mr. Wingate in all employee retirement plans.
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises In Last Fiscal Year And FY-End Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options at Fiscal Options At Fiscal
Year-End Year-End ($)
Shares Acquired on (Exercisable/ (Exercisable/
Name Exercise (#) Value Realized ($) Unexercisable) Unexercisable)
---- ------------ ------------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Charles M. Miller -3,000- $80,610 2,500/0 0/0
Harry L. Stephens -0- -0- 8,500/0 161,220/0
Annette R. Fricks -3,000- $80,610 14,500/0 322,440/0
</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, 2000 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 2,178,830 shares outstanding as of that
date.
<TABLE>
<CAPTION>
Name of Amount of Shares Percent
Beneficial Owner Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C>
Joye H. Adams 141,720 <F1> 6.50%
Steven C. Adams 495,620 <F2><F3><F4><F5><F6> 22.74%
Edwin B. Burr 1,080 <F7> *
Elton S. Collins 403,540 <F3><F8><F16> 18.52%
Community Bankshares, Inc. 380,780 <F9> 17.48%
Employee Stock Ownership
Plan and Trust
Annette R. Fricks 29,986 <F19> 1.23%
Emmett D. Hart 151,500 <F10> 6.95%
Charles M. Miller 12,360 <F11> *
Harry H. Purvis 40,510 1.90%
Harry L. Stephens 10,248 <F12> *
H. Calvin Stovall 166,660 <F13><F14> 7.65%
Dean C. Swanson 30,000 1.38%
George D. Telford 82,617 3.79%
J. Alton Wingate 724,780 <F2><F3><F4><F15><F17> 33.26%
Lois M. Wood-Schroyer 3,030 *
All executive officers and 1,145,611 <F18> 52.58%
directors as a group (12 Persons)
* less than one percent
<FN>
<F1> Mrs. Adams' address is 664 Chenocetah Drive, Cornelia, Georgia 30531.
<F2> Includes an aggregate of 48,000 shares held by the Taft Chatham Trusts
I and II with respect to which Messrs. Wingate and Adams are
co-trustees and share voting and investment power.
<F3> Includes 380,780 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 2,500 shares of
Common Stock.
<F12> Includes presently-exercisable options to acquire 8,500 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 presently-exercisable options to acquire 2,500 shares of
Common Stock.
<F17> Mr. Wingate's address is 186 Hillcrest Heights, Cornelia, Georgia
30531.
<F18> Includes presently-exercisable options to acquire 28,000 shares of
Common Stock.
<F19> Includes presently-exercisable options to acquire 14,500 shares of
Common Stock.
</FN>
</TABLE>
<PAGE>
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 this Report beginning at page F-1:
Independent Auditor's Report on the Financial Statement
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Shareholder's Equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
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:
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, 1999.
10.8 Community Bankshares, Inc. 1999 Stock Award Plan, as adopted December
22, 1999.
21 List of Subsidiaries of Registrant.
27 Financial Data Schedule (for SEC use only)
(c) No reports on Form 8-K were filed during the last quarter of 1999.
<PAGE>
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1999
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT...........................................F-1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS.......................................F-2
CONSOLIDATED STATEMENTS OF INCOME.................................F-3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME...................F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY...................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS.........................F-6 AND 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.....................F-8-35
<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, 1999 and 1998,
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, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Atlanta, Georgia
January 14, 2000
F-1
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS 1999 1998
------ ---------------------- ---------------------
<S> <C> <C>
Cash and due from banks $ 31,834,329 $ 26,796,002
Interest-bearing deposits in banks 160,751 427,870
Federal funds sold 2,940,000 22,890,000
Securities available-for-sale 49,143,458 42,525,208
Securities held-to-maturity (fair value $31,349,477 and $32,173,821) 31,939,177 30,915,014
Loans held for sale 1,274,927 699,498
Loans 375,593,370 313,437,773
Less allowance for loan losses 5,682,612 4,863,181
---------------------- ---------------------
Loans, net 369,910,758 308,574,592
Premises and equipment 13,443,644 13,463,273
Other assets 15,502,518 14,301,983
---------------------- ---------------------
TOTAL ASSETS $ 516,149,562 $ 460,593,440
====================== =====================
LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------
Deposits
Noninterest-bearing demand $ 65,814,563 $ 65,266,672
Interest-bearing demand 99,185,353 94,458,133
Savings 20,863,081 19,731,233
Time, $100,000 and over 79,924,593 67,003,184
Other time 178,268,414 158,823,651
---------------------- ---------------------
TOTAL DEPOSITS 444,056,004 405,282,873
---------------------- ---------------------
Federal Home Loan Bank advances 15,000,000 5,000,000
Notes payable 1,054,100 808,200
Other liabilities 11,236,847 8,958,004
---------------------- ---------------------
TOTAL LIABILITIES 471,346,951 420,049,077
---------------------- ---------------------
Commitments and contingent liabilities
Redeemable common stock held by ESOP, 380,780 and 363,616
shares outstanding at December 31, 1999 and 1998, respectively 13,982,242 14,253,747
---------------------- ---------------------
Shareholders' equity
Common stock, par value $1; 5,000,000 shares authorized;
2,178,830 and 2,169,830 shares issued and outstanding, respectively 2,178,830 2,169,830
Capital surplus 6,115,827 6,036,220
Retained earnings 23,853,170 17,857,974
Accumulated other comprehensive income (loss) -1,327,458 226,592
---------------------- ---------------------
TOTAL SHAREHOLDERS' EQUITY 30,820,369 26,290,616
---------------------- ---------------------
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND
SHAREHOLDERS' EQUITY $ 516,149,562 $ 460,593,440
====================== =====================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-2
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1999 1998 1997
----------- ----------- ------------
INTEREST INCOME
<S> <C> <C> <C>
Loans $35,040,618 $29,767,173 $ 23,562,784
Taxable securities 2,377,935 2,564,894 3,107,805
Nontaxable securities 1,994,814 1,710,141 1,326,884
Deposits in banks 18,653 35,973 33,523
Federal funds sold 858,093 534,903 672,915
----------- ----------- ------------
TOTAL INTEREST INCOME 40,290,113 34,613,084 28,703,911
----------- ----------- ------------
INTEREST EXPENSE
Deposits 17,167,809 15,839,093 13,149,225
Other borrowings 529,052 111,411 42,224
----------- ----------- ------------
TOTAL INTEREST EXPENSE 17,696,861 15,950,504 13,191,449
----------- ----------- ------------
NET INTEREST INCOME 22,593,252 18,662,580 15,512,462
PROVISION FOR LOAN LOSSES 1,636,900 1,164,950 936,216
----------- ----------- ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 20,956,352 17,497,630 14,576,246
----------- ----------- ------------
OTHER INCOME
Service charges on deposits accounts 2,864,632 2,527,830 2,016,911
Other service charges, commissions and fees 649,378 523,438 431,729
Trust department fees 112,998 112,061 93,450
Nonbank subsidiary income 6,720,159 9,043,292 8,819,919
Gain on sale of loans 318,757 560,075 614,060
Net realized gains (losses) on sale of securities 0 78,653 (3,992)
Other 844,053 535,636 447,053
----------- ----------- ------------
TOTAL OTHER INCOME 11,509,977 13,380,985 12,419,130
----------- ----------- ------------
OTHER EXPENSES
Salaries and employee benefits 12,345,498 10,676,957 10,474,465
Equipment expenses 2,541,601 1,840,529 1,487,528
Occupancy expenses 1,386,038 1,305,998 1,075,710
Other operating expenses 7,558,207 6,578,930 5,686,110
----------- ----------- ------------
TOTAL OTHER EXPENSES 23,831,344 20,402,414 18,723,813
----------- ----------- ------------
INCOME BEFORE INCOME TAXES 8,634,985 10,476,201 8,271,563
INCOME TAX EXPENSE 2,558,820 3,444,497 2,624,797
----------- ----------- ------------
NET INCOME $ 6,076,165 $ 7,031,704 $ 5,646,766
=========== =========== ============
BASIC EARNINGS PER COMMON SHARE $ 2.80 $ 3.24 $ 2.73
=========== =========== ============
DILUTED EARNINGS PER COMMON SHARE $ 2.80 $ 3.20 $ 2.60
=========== =========== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net income $ 6,076,165 $ 7,031,704 $5,646,766
----------- ----------- ----------
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during period, net of taxes (benefits) of $(1,036,081),
$95,593, and $134,777,
respectively (1,554,050) 143,388 202,167
Reclassification adjustment for (gains) losses realized
in net income, net of taxes (benefits) of $0, $31,461, and
$(1,597), respectively 0 (47,192) 2,395
----------- ----------- ----------
Other comprehensive income (loss) (1,554,050) 96,196 204,562
----------- ----------- ----------
Comprehensive income $ 4,522,115 $ 7,127,900 $5,851,328
=========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Common Stock
------------------------- Capital Retained
Shares Par Value Surplus Earnings
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
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
Net income - - - 6,076,165
Exercise of stock options 9,000 9,000 79,607 -
Cash dividends declared, $.15 per share - - - (352,474)
Adjustment for shares owned by ESOP - - - 271,505
Other comprehensive loss - - - -
--------- ---------- ---------- ------------
BALANCE, DECEMBER 31, 1999 2,178,830 $2,178,830 $6,115,827 $ 23,853,170
========= ========== ========== ============
<CAPTION>
Accumulated
Treasury Stock Other Total
--------------------- Comprehensive Shareholders'
Shares Amount Income (Loss) Equity
------ -------- ------------- ------------
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
Net income - - - 6,076,165
Exercise of stock options - - - 88,607
Cash dividends declared, $.15 per share - - - (352,474)
Adjustment for shares owned by ESOP - - - 271,505
Other comprehensive loss - - (1,554,050) (1,554,050)
------ -------- ----------- ------------
BALANCE, DECEMBER 31, 1999 - $ - $(1,327,458) $ 30,820,369
====== ======== =========== ============
</TABLE>
F-5
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,076,165 $ 7,031,704 $ 5,646,766
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,981,267 1,585,729 1,154,306
Amortization of intangibles 429,247 288,156 244,911
Provision for loan losses 1,636,900 1,164,950 936,216
Provision for other real estate losses 0 10,000 65,000
Deferred income tax benefits (381,217) (292,525) (195,033)
(Increase) decrease in loans held for sale (575,429) 1,861,417 (76,798)
Net (gains) losses on sale of securities available-for-sale 0 (78,653) 3,992
Loss on disposal of premises and equipment 16,460 0 0
Net losses (gains) on sale of other real estate (54,132) (3,563) 39,182
(Increase) decrease in interest receivable 266,634 (1,187,060) (690,955)
Increase (decrease) in interest payable (655,877) 1,180,385 277,325
Increase (decrease) in taxes payable 438,959 348,661 (661,580)
(Increase) decrease in accounts receivable of
nonbank subsidiary (136,686) (618,731) 1,314,629
(Increase) decrease in work in process of nonbank subsidiary 145,959 (513,252) 1,342,849
Increase (decrease) in accruals and payables of
nonbank subsidiary 2,303,101 325,031 (3,773,361)
Other operating activities (171,219) (1,145,989) 257,796
------------ ------------ ------------
Net cash provided by operating activities 11,320,132 9,956,260 5,885,245
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (18,271,344) (29,111,438) (25,373,331)
Proceeds from sales of securities available-for-sale 0 14,296,060 10,687,389
Proceeds from maturities of securities available-for-sale 9,063,010 25,811,265 9,158,723
Purchases of securities held-to-maturity (2,268,432) (3,323,556) (11,403,699)
Proceeds from maturities of securities held-to-maturity 1,244,269 1,127,193 1,338,890
Net (increase) decrease in Federal funds sold 19,950,000 (16,930,000) 2,385,000
Net (increase) decrease in interest-bearing deposits in banks 267,119 341,044 (560,690)
Net increase in loans (63,874,282) (71,584,937) (40,109,318)
Purchase of premises and equipment (1,978,098) (2,931,496) (5,334,330)
Net cash acquired in branch acquisition 0 170,667 99,612
Proceeds from sale of other real estate 821,387 252,492 383,638
------------ ------------ ------------
Net cash used in investing activities (55,046,371) (81,882,706) (58,728,116)
------------ ------------ ------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
--------------- --------------- ------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits $ 38,773,131 $ 69,738,048 $ 56,835,456
Increase in FHLB advances 10,000,000 5,000,000 -
Increase in notes payable 400,000 500,000 -
Repayment of notes payable (154,100) (154,099) (154,100)
Proceeds from the issuance of common stock 88,607 - 924,700
Dividends paid (343,072) (318,531) (285,728)
-------------- -------------- -----------------
Net cash provided by financing activities 48,764,566 74,765,418 57,320,328
-------------- -------------- -----------------
Net increase in cash and due from banks 5,038,327 2,838,972 4,477,457
Cash and due from banks at beginning of year 26,796,002 23,957,030 19,479,573
-------------- -------------- -----------------
Cash and due from banks at end of year $ 31,834,329 $ 26,796,002 $ 23,957,030
============== ============== =================
SUPPLEMENTAL DISCLOSURES Cash paid for:
Interest $ 18,352,738 $ 14,957,440 $ 12,914,124
Income taxes $ 2,501,078 $ 3,445,529 $ 3,526,919
NONCASH TRANSACTIONS
Unrealized (gains) losses on securities available-for-sale $ 2,590,131 $ (160,328) $ 340,936
Principal balances of loans transferred to other
real estate $ 901,216 $ 481,806 $ 426,273
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-7
<PAGE>
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Community Bankshares, Inc. (the "Company") is a multi-bank holding
company whose business is presently conducted by its wholly-owned
subsidiaries: Community Bank & Trust - Habersham located in
Cornelia, Georgia; Community Bank & Trust - Jackson located in
Commerce, Georgia; Community Bank & Trust - Alabama located in Union
Springs, Alabama; and Community Bank & Trust - Troup located in
LaGrange, Georgia. Financial Supermarkets, Inc. is a wholly-owned
subsidiary of Community Bank & Trust - Habersham which provides a
variety of bank related products and services to the financial
institution industry. 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 as
of the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, the valuation of
foreclosed real estate, and deferred tax assets.
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-8
<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
recorded at amortized cost. All other securities are classified as
available-for-sale and recorded at fair value with net unrealized
gains and losses reported in other comprehensive income (loss).
Equity securities without a readily determinable fair value are
classified as securities available-for-sale and recorded 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 originated and
intended for sale in the secondary market, and are carried at the
lower of aggregate cost or estimated fair value. Net unrealized
losses, if any, are recognized through a valuation allowance by
charges to income.
LOANS
Loans are reported at their outstanding principal balances less
unearned income and the allowance for loan losses. Interest income
is accrued based on the principal balance outstanding.
Loan origination fees and certain direct origination costs of most
loans are recognized at the time the loan is recorded. Because the
net origination loan fees and costs related to these loans are not
material, the results of operations are not materially different
than the results which would be obtained by accounting for the loan
fees and costs in accordance with generally accepted accounting
principles. Loan origination fees and costs incurred for other loans
are deferred and recognized as income over the life of the loan.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan is confirmed.
Subsequent recoveries are credited to the allowance. 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-9
<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 impaired when it is probable the Company will
be unable to collect all principal and interest payments due in
accordance with the contractual terms of the loan agreement.
Individually identified impaired loans are measured based on the
present value of expected payments using the contractual loan rate
as the discount rate, the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent. 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
Land is carried at cost. Premises and equipment are carried at cost
less accumulated depreciation computed principally by the
straight-line method over the estimated useful lives of the assets.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned is held for sale and is carried
at the lower of the recorded amount of the loan or fair value of the
properties less estimated selling costs. Any write-down to fair
value at the time of transfer to other real estate owned is charged
to the allowance for loan losses. Subsequent gains or losses on sale
and any subsequent adjustment to the value are recorded as other
expenses. The carrying amount of other real estate owned at December
31, 1999 and 1998 was $1,142,631 and $1,000,900, respectively.
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-10
<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 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 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-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK COMPENSATION PLAN
Statement of Financial Accounting Standards ("SFAS") No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, encourages all entities to
adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over
the service period, which is usually the vesting period. However, it
also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the grant
date (or other measurement date) over the amount an employee must
pay to acquire the stock. Stock options issued under the Company's
stock option plan have no intrinsic value at the grant date, and
under Opinion No. 25 no compensation cost is recognized for them.
The Company has elected to continue with the accounting methodology
in Opinion No. 25 and, as a result, has provided pro forma
disclosures of net income and earnings per share and other
disclosures, as if the fair value based method of accounting had
been applied. The pro forma disclosures include the effects of all
awards granted on or after January 1, 1995.
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 common 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
SFAS No. 130, "Reporting Comprehensive Income", describes
comprehensive income as the total of all components of comprehensive
income, including net income. Other comprehensive income refers 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 unrealized gains and losses on
available-for-sale securities.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The effective date of this statement has been deferred
by SFAS No. 137 until fiscal years beginning after June 15, 2000.
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, 2001. SFAS No. 133 requires the
Company to recognize all derivatives as either assets or liabilities
in the 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
designated 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.
There are no other recent accounting pronouncements that have had,
or are expected to have, a material effect on the Company's
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, 1999:
U. S. Government and agency
securities $ 31,705,707 $ 9,688 $ (1,007,814) $ 30,707,581
State and municipal securities 8,955,524 4,205 (1,033,338) 7,926,391
Mortgage-backed securities 8,969,973 23,170 (208,388) 8,784,755
Equity securities 1,724,731 - - 1,724,731
-------------- --------------- -------------- --------------
$ 51,355,935 $ 37,063 $ (2,249,540) $ 49,143,458
============== =============== ============== ==============
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
============== =============== ============== ==============
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1999:
State and municipal securities $ 31,939,177 $ 111,195 $ (700,895) $ 31,349,477
============== =============== ============== ==============
December 31, 1998:
State and municipal securities $ 30,915,014 $ 1,300,295 $ (41,488) $ 32,173,821
============== =============== ============== ==============
</TABLE>
Securities with a carrying value of $39,625,995 and $36,621,313 at
December 31, 1999 and 1998, 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,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Gross gains $ - $ 114,546 $ 47,843
Gross losses - (35,893) (51,835)
------------- ------------- -------------
Net realized gains (losses) $ - $ 78,653 $ (3,992)
============= ============= =============
</TABLE>
The amortized cost and fair value of debt securities as of December
31, 1999 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 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 $ 3,846,583 $ 3,823,146 $ 2,164,129 $ 2,165,931
Due from one to five years 19,837,872 19,246,669 4,076,980 4,079,784
Due from five to ten years 9,072,671 8,635,475 9,223,869 9,099,527
Due after ten years 7,904,105 6,928,682 16,474,199 16,004,235
Mortgage-backed securities 8,969,973 8,784,755 - -
--------------- --------------- --------------- ---------------
$ 49,631,204 $ 47,418,727 $ 31,939,177 $ 31,349,477
=============== =============== =============== ===============
</TABLE>
F-14
<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,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Commercial, financial, and agricultural $ 205,230,143 $ 160,872,954
Real estate - construction 24,208,000 21,327,303
Real estate - mortgage 93,063,000 82,413,280
Consumer 50,956,000 46,047,519
Other 2,435,876 3,042,663
------------- -------------
375,893,019 313,703,719
Unearned income (299,649) (265,946)
Allowance for loan losses (5,682,612) (4,863,181)
------------- -------------
Loans, net $ 369,910,758 $ 308,574,592
============= =============
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1999 1998 1997
---------------------------------------------
--- ---
<S> <C> <C> <C>
Balance, beginning of year $ 4,863,181 $ 4,024,171 $ 3,591,958
Provision charged to operations 1,636,900 1,164,950 936,216
Loans charged off (1,077,974) (495,008) (595,258)
Recoveries of loans previously charged off 260,505 169,068 91,255
------------- ------------- -------------
Balance, end of year $ 5,682,612 $ 4,863,181 $ 4,024,171
============= ============= =============
</TABLE>
The following is a summary of information pertaining to impaired
loans:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Impaired loans without a valuation allowance $ 2,737,255 $ 1,690,592
Impaired loans with a valuation allowance - -
-------------- --------------
Total impaired loans $ 2,737,255 $ 1,690,592
============== ==============
Valuation allowance related to impaired loans $ - $ -
============== ==============
Average investment in impaired loans $ 2,289,057 $ 1,404,191
============== ==============
</TABLE>
Interest income recognized on impaired loans was insignificant for
the years ended December 31, 1999, 1998, and 1997.
F-15
<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, 1999 are as follows:
BALANCE, BEGINNING OF YEAR $ 8,282,339
Advances, including renewals 996,968
Repayments, including renewals (902,238)
-------------
BALANCE, END OF YEAR $ 8,377,069
=============
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Land $ 2,413,916 $ 2,408,053
Buildings 9,809,767 9,750,436
Equipment 11,638,526 10,399,876
-------------- --------------
23,862,209 22,558,365
Accumulated depreciation (10,418,565) (9,095,092)
-------------- --------------
$ 13,443,644 $ 13,463,273
============== ==============
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5. DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are
as follows:
2000 $ 214,604,451
2001 14,411,756
2002 6,561,585
2003 14,289,354
2004 8,297,733
Thereafter 28,128
----------------
$ 258,193,007
================
At December 31, 1999, the Company has brokered time deposits of
$792,000.
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Note payable to bank, interest due quarterly at prime minus 1% or
7.50% at December 31, 1999, collateralized by 50,000 shares of common
stock of Community Bank & Trust-Habersham. Matures July 31, 2000 $ 1,054,100 $ 808,200
Advance from the Federal Home Loan Bank with interest due quarterly at 4.96%,
due September 15, 2003, with a six month call option 5,000,000 5,000,000
Advance from the Federal Home Loan Bank with interest due quarterly at
4.95%, due August 7, 2009, with a six month call option 10,000,000 --
----------- ----------
$16,054,100 $5,808,200
=========== ==========
</TABLE>
Advances from the Federal Home Loan Bank are collateralized by
blanket floating liens on qualifying first mortgages. At December
31, 1999, aggregate maturities of other borrowings are as follows:
2000 $ 1,054,100
2003 5,000,000
2009 10,000,000
-----------
$16,054,100
===========
F-17
<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>
------------------------ -------------------------- ---------------------------
1999 1998 1997
------------------------ -------------------------- ---------------------------
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 39,000 $ 9.85 204,000 $ 6.42
Granted 29,500 39.20 - - - -
Exercised (9,000) 9.85 - - (165,000) 5.60
---------- ----------- -----------
Under option, end of year 59,500 $ 24.40 39,000 $ 9.85 39,000 $ 9.85
========== =========== ===========
Options exercisable at year-end 30,000 $ 9.85 39,000 $ 9.85 39,000 $ 9.85
========== =========== ===========
Weighted-average fair value of
options granted during the year $ 17.77 $ - $ -
</TABLE>
Information pertaining to options outstanding at December 31, 1999
is as follows:
<TABLE>
<CAPTION>
-------------------------------------------- -----------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -----------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------------------ ------------- --------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$9.85 30,000 5 years $ 9.85 30,000 $ 9.85
$39.20 29,500 10 years 39.20 - -
------------- -------------
Outstanding at end of year 59,500 7.5 years $ 24.40 30,000 $ 9.85
============= =============
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
INCENTIVE STOCK OPTION PLAN (CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in
accounting for the stock option plan. Accordingly, no compensation
cost has been recognized. Had compensation cost for the stock option
plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the method prescribed by SFAS
No. 123, net income and earnings per share would have been adjusted
to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1999 1998 1997
--------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net income As reported $ 6,076 $ 7,032 $ 5,647
Pro forma $ 6,076 $ 7,032 $ 5,647
Earnings per share As reported $ 2.80 $ 3.24 $ 2.73
Pro forma $ 2.80 $ 3.24 $ 2.73
Earnings per share - As reported $ 2.80 $ 3.20 $ 2.60
assuming dilution Pro forma $ 2.80 $ 3.20 $ 2.60
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999
------------------------
<S> <C>
Dividend yield .38%
Expected life 10 years
Expected volatility 6.37%
Risk-free interest 6.86%
rate
</TABLE>
F-19
<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, 1999, 1998 and 1997
amounted to $86,478, $77,668 and $77,799, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan (ESOP) for the
benefit of employees who meet certain eligibility requirements.
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, 1999, 1998 and 1997,
the Company made cash contributions of $666,724, $820,007 and
$644,133, 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 2000. 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, 1999, the ESOP held 363,469 shares and 17,311
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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Current $ 2,985,546 $ 3,782,531 $ 2,865,339
Deferred (381,217) (292,525) (195,033)
Current tax effect of net operating loss carryforward (45,509) (45,509) (45,509)
----------- ----------- -----------
Income tax expense $ 2,558,820 $ 3,444,497 $ 2,624,797
=========== =========== ===========
</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>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
1999 1998 1997
------------------------ ---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ ---------- ------------ -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Tax provision at statutory $ 2,935,895 34 % $ 3,561,908 34 % $ 2,812,331 34 %
rate
Tax-exempt interest (696,773) (8) (615,376) (6) (477,425) (6)
Disallowed interest 104,207 1 93,901 1 70,054 1
Current tax effect of net
operating loss (45,509) -- (45,509) -- (45,509) --
carryforward
Nondeductible expenses 39,395 -- 17,445 -- 38,012 --
State income taxes 224,656 3 454,555 4 264,672 3
Other items (3,051) -- (22,427) -- (37,338) --
----------- -- ----------- -- ----------- --
Income tax expense $ 2,558,820 30 % $ 3,444,497 33 % $ 2,624,797 32 %
=========== == =========== == =========== ==
</TABLE>
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (CONTINUED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves $ 1,783,592 $ 1,506,432
Net operating loss carryforward 94,113 139,622
Other 9,292 --
Unrealized loss on securities available-for-sale 884,991 --
Valuation allowance (94,113) (139,622)
----------- -----------
2,677,875 1,506,432
----------- -----------
Deferred tax liabilities:
Depreciation 17,859 96,907
Accretion 156,895 141,942
Unrealized gain on securities available-for-sale -- 151,062
Other -- 30,670
----------- -----------
174,754 420,581
----------- -----------
Net deferred tax assets $ 2,503,121 $ 1,085,851
=========== ===========
</TABLE>
At December 31, 1999, the Company has available net operating loss
carryforwards of approximately $276,000 for Federal income tax
purposes. If unused, the carryforwards will expire in 2009.
NOTE 9. EARNINGS PER COMMON SHARE
Diluted earnings per common 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 7. 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>
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, 1999,
1998, and 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
Net income $ 6,076,165 $ 7,031,704 $ 5,646,766
================ ================= ================
Weighted average common shares outstanding 2,171,983 2,169,830 2,065,908
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
---------------- ----------------- ----------------
Total weighted average common shares and
common stock equivalents outstanding 2,171,983 2,197,859 2,173,111
================ ================= ================
Diluted earnings per share $ 2.80 $ 3.20 $ 2.60
================ ================= ================
</TABLE>
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,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Commitments to extend credit $ 24,265,552 $ 20,878,572
Credit card lines 4,070,000 3,144,000
Standby letters of credit 2,209,000 4,733,485
------------ ------------
$ 30,544,552 $ 28,756,057
============ ============
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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.
The Company has leased various properties and equipment under
noncancelable agreements which expire at various times through January
8, 2011 and require 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, 1999 is due as
follows:
During the year ending December 31:
2000 $ 523,305
2001 435,001
2002 280,657
2003 123,101
2004 76,086
Due thereafter 111,071
--------------
$ 1,549,221
==============
The total rental expense for the years ended December 31, 1999, 1998
and 1997 was $528,865, $467,546 and $512,293, respectively.
F-24
<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-one 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, 55% 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, 1999, approximately $4,251,000 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 involve quantitative measures of the
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding
companies.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 12. REGULATORY MATTERS (CONTINUED)
Quantitative measures established by regulation to ensure capital
adequacy require the Company and Banks 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,
1999, the Banks met all capital adequacy requirements to which they are
subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation 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, 1999
Total Capital to Risk Weighted Assets:
Consolidated $ 48,685 11.97% $ 32,538 8.00% $ N/A N/A
Community Bank & Trust - Habersham $ 29,116 13.17% $ 17,693 8.00% $ 22,116 10.00%
Community Bank & Trust - Jackson $ 9,953 10.58% $ 7,524 8.00% $ 9,405 10.00%
Community Bank & Trust - Alabama $ 3,796 11.46% $ 2,650 8.00% $ 3,313 10.00%
Community Bank & Trust - Troup $ 4,934 12.48% $ 3,164 8.00% $ 3,955 10.00%
Tier I Capital to Risk Weighted Assets:
Consolidated $ 43,592 10.71% $ 10,435 4.00% $ N/A N/A
Community Bank & Trust - Habersham $ 26,346 11.91% $ 8,847 4.00% $ 13,270 6.00%
Community Bank & Trust - Jackson $ 8,775 9.33% $ 3,762 4.00% $ 5,643 6.00%
Community Bank & Trust - Alabama $ 3,381 10.21% $ 1,325 4.00% $ 1,988 6.00%
Community Bank & Trust - Troup $ 4,439 11.23% $ 1,582 4.00% $ 2,373 6.00%
Tier I Capital to Average Assets:
Consolidated $ 43,592 8.54% $ 20,418 4.00% $ N/A N/A
Community Bank & Trust - Habersham $ 26,346 8.65% $ 12,188 4.00% $ 15,235 5.00%
Community Bank & Trust - Jackson $ 8,775 6.82% $ 5,144 4.00% $ 6,430 5.00%
Community Bank & Trust - Alabama $ 3,381 7.27% $ 1,862 4.00% $ 2,327 5.00%
Community Bank & Trust - Troup $ 4,439 8.23% $ 2,157 4.00% $ 2,696 5.00%
</TABLE>
F-26
<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, 1998
Total Capital to Risk Weighted Assets:
Consolidated $ 41,630 12.12% $ 27,479 8.00% $ N/A N/A
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% $ N/A N/A
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% $ 17,734 4.00% $ N/A N/A
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>
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, 1999
and 1998. 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 loans held for sale and 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-28
<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 models 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 and related carrying amounts of the
Company's financial instruments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 December 31, 1998
------------------------------- -------------------------------
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 $ 31,834,329 $ 31,834,329 $ 50,113,872 $ 50,113,872
funds sold
Securities available-for-sale 49,143,458 49,143,458 42,525,208 42,525,208
Securities held-to-maturity 31,939,177 31,349,477 30,915,014 32,173,821
Loans held for sale 1,274,927 1,274,927 699,498 699,498
Loans 369,910,758 374,536,073 308,574,592 312,879,502
Accrued interest receivable 5,522,280 5,522,280 5,788,914 5,788,914
Financial liabilities:
Deposits 444,056,004 443,605,128 405,282,873 403,726,281
Other borrowings 16,054,100 16,054,000 5,808,200 5,808,200
Accrued interest payable 3,470,199 34,701,990 4,126,076 4,126,076
Redeemable common stock 13,982,242 13,982,242 14,253,747 14,253,747
</TABLE>
F-29
<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.
Selected segment information by industry segment is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
REPORTABLE SEGMENTS
-----------------------------------------------------------------
FINANCIAL ALL
FOR THE YEAR ENDED DECEMBER 31, 1999 BANKING SUPERMARKETS OTHER TOTAL
--------------------------------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Interest income $ 40,931,494 $ 541,673 $ 3,956 $ 41,477,123
Interest expense 18,806,249 -- 77,622 18,883,871
Intersegment net interest income (531,089) 527,133 3,956 --
(expense)
Net interest income (loss) 22,125,245 541,673 (73,666) 22,593,252
Other revenue from external customers 4,489,623 6,720,159 300,195 11,509,977
Intersegment other revenues -- 250,493 1,575,600 1,826,093
Depreciation and amortization 1,684,949 151,485 574,080 2,410,514
Provision for loan losses 1,636,900 -- -- 1,636,900
Segment profit (loss) 5,199,897 2,082,464 (1,219,010) 6,063,351
Segment assets 519,898,791 18,187,824 2,712,601 540,799,216
Expenditures for premises and 1,191,675 261,970 647,534 2,101,179
equipment
</TABLE>
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 14. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------------------------------
REPORTABLE SEGMENTS
-----------------------------------------------------------------
FINANCIAL ALL
FOR THE YEAR ENDED DECEMBER 31, 1999 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 (403,187) 395,551 7,636 --
(expense)
Net interest income (loss) 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 (loss) 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
------------- ----------- ----------- ------------
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------- ------------- ----------- ----------- ------------
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 (334,340) 326,825 7,515 --
(expense)
Net interest income (loss) 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 (loss) 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>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 14. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
------------- ------------- -------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
NET INTEREST INCOME
Total net interest income for reportable segments $ 22,666,918 $ 18,685,725 $ 15,547,033
Non-reportable segment net interest income (73,666) (23,145) (34,571)
------------- ------------- -------------
Total consolidated net interest income $ 22,593,252 $ 18,662,580 $ 15,512,462
============= ============= =============
OTHER INCOME
Total other income for reportable segments $ 11,460,275 $ 13,354,657 $ 12,454,269
Non-reportable segment other income 1,875,795 1,604,043 1,447,282
Elimination of intersegment other income (1,826,093) (1,577,715) (1,482,421)
------------- ------------- -------------
Total consolidated other income $ 11,509,977 $ 13,380,985 $ 12,419,130
============= ============= =============
NET INCOME
Total profit for reportable segments $ 7,282,361 $ 7,990,786 $ 6,028,455
Non-reportable segment loss (1,219,010) (971,896) (394,503)
Elimination of intersegment (gains) losses 12,814 12,814 12,814
------------- ------------- -------------
Total consolidated other income $ 6,076,165 $ 7,031,704 $ 5,646,766
============= ============= =============
TOTAL ASSETS
Total assets for reportable segments $ 538,086,615 $ 484,662,235 $ 390,075,596
Non-reportable segment assets 2,712,601 2,195,710 2,055,595
Elimination of intersegment assets (24,649,654) (26,264,505) (15,051,675)
------------- ------------- -------------
Total consolidated assets $ 516,149,562 $ 460,593,440 $ 377,079,516
============= ============= =============
EXPENDITURES FOR PREMISES AND EQUIPMENT
Total expenditures for reportable segments $ 1,453,645 $ 2,880,613 $ 4,238,123
Non-reportable segment assets 647,534 50,883 1,096,207
Elimination of intersegment gains (123,081) -- --
------------- ------------- -------------
Total consolidated expenditures for
premises and equipment $ 1,978,098 $ 2,931,496 $ 5,334,330
============= ============= =============
</TABLE>
F-32
<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,
------------------------------------------------
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Data processing $ 885,699 $ 948,644 $ 385,795
Travel expenses 677,840 469,126 583,208
Office supply expenses 623,213 460,341 437,375
</TABLE>
NOTE 16. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following information presents the condensed balance sheets as of
December 31, 1999 and 1998 and the statements of income and cash flows
as of and for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
--------------- --------------
<S> <C> <C>
Assets
Cash $ 964,915 $ 547,686
Investment in subsidiaries 43,950,731 39,703,016
Equipment 1,011,134 923,645
Other assets 634,960 593,572
----------- -----------
Total assets $46,561,740 $41,767,919
=========== ===========
Liabilities
Other borrowings $ 1,054,100 $ 808,200
Other liabilities 678,419 385,082
----------- -----------
Total liabilities 1,732,519 1,193,282
----------- -----------
Redeemable common stock 13,982,242 14,253,747
----------- -----------
Shareholders' equity 30,846,979 26,320,890
----------- -----------
Total liabilities, redeemable common stock,
and shareholders' equity $46,561,740 $41,767,919
=========== ===========
</TABLE>
F-33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 16. PARENT COMPANY ONLY FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income
Dividends from subsidiaries $ 1,400,000 $ 1,250,000 $ 1,120,000
Interest 3,955 7,636 7,515
Other income 1,724,166 1,506,545 1,447,282
----------- ----------- -----------
3,128,121 2,764,181 2,574,797
----------- ----------- -----------
Expense
Interest 77,557 30,781 42,086
Salaries and employee benefits 1,565,019 1,335,771 1,174,798
Equipment expense 701,315 349,484 306,851
Other expense 1,145,766 1,027,698 425,565
----------- ----------- -----------
3,489,657 2,743,734 1,949,300
----------- ----------- -----------
Income (loss) before income tax benefits and
equity in undistributed earnings of subsidiaries (361,536) 20,447 625,497
Income tax benefits (631,941) (280,000) (100,000)
----------- ----------- -----------
Income before equity in undistributed income
of subsidiaries 270,405 300,447 725,497
Equity in undistributed income of subsidiaries 5,801,765 6,727,261 4,917,273
----------- ----------- -----------
Net income $ 6,072,170 $ 7,027,708 $ 5,642,770
=========== =========== ===========
</TABLE>
F-34
<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, 1999, 1998 AND 1997
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,072,170 $ 7,027,708 $ 5,642,770
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 560,046 270,799 65,836
Undistributed earnings of subsidiaries (5,801,765) (6,727,261) (4,917,273)
Other operating activities 251,949 367,725 (518,268)
----------- ----------- -----------
Net cash provided by operating activities 1,082,400 938,971 273,065
----------- ----------- -----------
INVESTING ACTIVITIES
Purchases of premises and equipment (1,053,841) (22,856) (1,115,771)
Investment in subsidiary -- (500,000) --
Disposal of premises and equipment 406,306 -- 19,564
----------- ----------- -----------
Net cash used in investing activities (647,535) (522,856) (1,096,207)
----------- ----------- -----------
FINANCING ACTIVITIES
Increase in other borrowings 400,000 500,000 --
Repayment of other borrowings (154,100) (154,099) (154,100)
Exercise of stock options 88,607 -- --
Proceeds from the issuance of common stock -- -- 924,700
Dividends paid (352,143) (318,531) (285,728)
----------- ----------- -----------
Net cash provided by (used in) financing (17,636) 27,370 484,872
activities
----------- ----------- -----------
Net increase (decrease) in cash 417,229 443,485 (338,270)
Cash at beginning of year 547,686 104,201 442,471
----------- ----------- -----------
Cash at end of year $ 964,915 $ 547,686 $ 104,201
=========== =========== ===========
</TABLE>
F-35
<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, 2000.
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, 2000.
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/ Lois M. Wood-Schroyer Director
Lois M. Wood-Schroyer
/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, 1999.
10.8 Community Bankshares, Inc. 1999 Stock Award Plan, as adopted December
22, 1999.
21 Subsidiaries of Community Bankshares, Inc.
24.0 A Power of Attorney is set forth on the signature pages to this Form
10-K.
27 Financial Data Schedule
AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT
---------------------------------------------------------
THIS AMENDED AND RESTATED REVOLVING CREDIT/TERM LOAN AGREEMENT is dated as of
July 31, 1999 between COMMUNITY BANKSHARES, INC., a Georgia corporation, whose
principal place of business is at 400 North Main Street, Cornelia, Georgia 30531
(the "Borrower") and SUNTRUST BANK, ATLANTA, a Georgia banking corporation whose
principal place of business is at 25 Park Place, Atlanta, Georgia 30303 (the
"Lender"). This Amended and Restated Revolving Credit/Term Loan Agreement renews
the Revolving Credit under and supersedes the Amended and Restated Revolving
Credit /Term Loan Agreement between the parties dated July 21, 1998. 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.
1
<PAGE>
"Call Reports" means, with respect to any Bank, such Bank's
Consolidated Reports of Condition and Income filed with such Bank's applicable
federal Regulatory Authority.
"Capital Lease" means all leases which have been or should be
capitalized on the books of the lessee in accordance with generally accepted
accounting principles.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations and published interpretations thereof.
"Collateral" means all property which is subject to the Lien granted by
any Loan Document, including, without limitation, the personal property
identified and described on EXHIBIT B attached hereto and incorporated herein.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Borrower within the meaning
of Section 414(b) or 414(c) of the Code.
"Debt" means without duplication (1) indebtedness or liability of
Borrower or any Subsidiaries for borrowed money; (2) obligations of Borrower or
any Subsidiaries evidenced by bonds, debentures, notes, or other similar
instruments; (3) obligations of Borrower or any Subsidiaries for the deferred
purchase price of property or services (including trade obligations); (4)
obligations of Borrower or any Subsidiaries as lessee under Capital Leases; (5)
liabilities of Borrower or any Subsidiaries in respect of unfunded vested
benefits under Plans covered by ERISA; (6) all guarantees, endorsements (other
than for collection or deposit in the ordinary course of business), interest
rate swaps, and other contingent obligations of Borrower or any Subsidiaries to
purchase, to provide funds for payment, to supply funds to invest in any Person
or entity, or otherwise to assure a creditor against loss (except loans or
letters of credit made or issued in the ordinary course of business); and (7)
obligations of Borrower or any Subsidiaries, other than obligations as a lender,
secured by any Liens, whether or not the obligations have been assumed. The term
"Debt" does not include any deposit liabilities of any Bank.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereof.
"Event of Default" means any of the events specified in Section 8.01,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
2
<PAGE>
"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, 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 Documents" 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.
3
<PAGE>
"Plan" means any pension plan which is covered by Title IV of ERISA and
in respect of which the Borrower or a Commonly Controlled Entity is an
"employer" as defined in Section 3(5) of ERISA.
"Prime Rate" means the rate of interest announced by the Lender from
time to time as its prime commercial lending rate, which rate is not necessarily
the lowest rate of interest charged by the Lender to its borrowers.
"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 31,2000.
"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.
4
<PAGE>
"Term Loan" means that portion of the credit established pursuant to
the 1996 Agreement which remains outstanding pursuant thereto and under the
Revolving/Credit Term Note.
"Tier I Capital" means those components of the equity capital of the
Borrower or of any Bank which, in the aggregate, constitute the core or primary
capital of the Borrower or Bank, as those components are determined and defined
from time to time by the Federal Regulatory Authority having primary
jurisdiction over the Borrower or any Bank.
"Tier II Capital" means those components of the equity capital of the
Borrower or of any Bank which, in the aggregate, constitute the supplementary
capital of the Borrower or Bank, as those components are determined and defined
from time to time by the Federal Regulatory Authority having primary
jurisdiction over the Borrower or any Bank.
"Total Capital" means the total of the amounts of Tier I Capital and
Tier II Capital that qualify, under the applicable regulations of the Federal
Regulatory Authority having primary jurisdiction over the Borrower or any Bank,
for inclusion in the computation of leverage capital requirements and
risk-weighted capital requirements.
"Total Non-Performing Assets" means the sum of (i) all loans that are
at least 90 days past due and (ii) all non-accrual loans.
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.
5
<PAGE>
Section 2.01.01. Note. The Borrower's obligation to pay interest and
repay principal under the Revolving Credit shall be evidenced by its Promissory
Note (the "Note") a copy of which is attached hereto and incorporated herein as
EXHIBIT D.
Section 2.02. Interest on the Revolving Credit. Interest shall accrue
on all advances under the Revolving Credit, shall be calculated on the basis of
actual days elapsed and a year of 360 days, and shall be computed at an annual
rate of interest equal to one percent 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, 1999 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.
6
<PAGE>
Section 2.07. Use of Proceeds. Advances under the Revolving Credit
shall be used by the Borrower for general corporate purposes. The Borrower will
not, directly or indirectly, use any part of such advances for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U of
the Board of Governors of the Federal Reserve System or to extend credit to any
Person for the purpose of purchasing or carrying any such margin stock, or for
any purpose which violates, or is inconsistent with, Regulation X of such Board
of Governors.
ARTICLE III
ADVANCES
Section 3.01. Advances. The Borrower shall give the Lender at least one
(1) Business Day's telephone notice of a requested disbursement under this
Agreement, specifying the date the disbursement is requested and the amount
thereof. The Lender may rely upon such telephone request for disbursements
received from the individual(s) identifying themselves as and purporting to be
Mr. Harry Stephens, Chief Financial Officer of the Borrower. The telephone
request for disbursement should be promptly confirmed in writing by Borrower by
mailing or transmitting by facsimile transmission a confirmation to the Lender
at the address designated hereinafter, as may be amended. Upon fulfillment of
the applicable conditions set forth below, and provided that the request for
disbursement does not cause the Borrower to exceed the aggregate principal
amount of the Revolving Credit, the Lender will make such disbursements
available to the Borrower in immediately available funds by crediting the amount
thereof to the Borrower's account, or other designated account, with the Lender.
Section 3.02. Conditions Precedent to Initial Advance. The obligation
of the Lender to make the initial advance under the Revolving Credit is subject
to the condition precedent that the Lender shall have received on or before the
day of such advance each of the following, in form and substance satisfactory to
the Lender and its counsel:
(1) Note. The Note duly executed by the Borrower;
7
<PAGE>
(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;
(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, 1998.
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
8
<PAGE>
hereof and each of the other Loan Documents shall be correct in all material
respects on and as of the date of the request for the advance and the date of
the advance (if applicable), with the same effect as though made on and as of
those dates, except to the extent that such representations and warranties
relate solely to an earlier date, and on each of such dates, no event, act, or
condition shall have occurred or be continuing, or would result from the advance
requested which constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse, or both.
The submission by the Borrower of an oral or written request for advance shall
constitute a representation and warranty as to the correctness of the above
facts, and if requested by the Lender with respect to the advance requested, the
Borrower shall furnish to the Lender a written certificate of an officer of the
Borrower, satisfactory in form and substance to the Lender, as to the
correctness of the above facts as a condition precedent to such advance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into the Agreement and to make
advances under the Revolving Credit, the Borrower represents and warrants to the
Lender that:
Section 4.01. Incorporation, Good Standing, and Due Qualification. The
Borrower and each of its non-bank Subsidiaries is a corporation duly
incorporated, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation. Each of the Banks set forth on EXHIBIT A is a
banking corporation and is duly organized, validly existing, and in good
standing under the laws of the state of incorporation listed on such EXHIBIT A.
The Borrower and each of its Subsidiaries has the corporate power and authority
to own its assets and to transact the business in which it is now engaged or
proposed to be engaged; and is duly qualified as a foreign corporation and in
good standing under the laws of each other jurisdiction in which such
qualification is required.
Section 4.02. Corporate Power and Authority. The execution, delivery,
and performance by the Borrower of the Loan Documents and the creation of the
security interest provided for under the Security Agreement are within the
Borrower's corporate powers and have been duly authorized by all necessary
corporate action and do not and will not (1) require any consent or approval of
the stockholders of the Borrower; (2) contravene the Borrower's charter or
bylaws; (3) violate any provision of any law, rule, regulation (including,
without limitation, Regulations U and X of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree, determination, or
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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; or (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.
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, 1998 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,
1998 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, 1998, 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, 1998. 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.
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Section 4.06. Other Agreements. Neither the Borrower nor any Subsidiary
is a party to any indenture, loan, credit agreement, regulatory agreement or
imposition, or to any lease or other agreement or instrument, or subject to any
charter or corporate restriction which could have a material adverse effect on
the business, properties, assets, operations, or conditions, financial or
otherwise, of the Borrower or any Subsidiary or the ability of the Borrower to
carry out its obligations under the Loan Documents to which it is a party.
Neither the Borrower nor any Subsidiary is in material 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, 1998, as provided to the Lender, includes a complete and accurate list of
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the Subsidiaries of the Borrower. All of the outstanding capital stock of each
Subsidiary has been validly issued, is fully paid and nonassessable, and is
owned by the Borrower free and clear of all Liens.
Section 4.11. ERISA. With respect to each Plan maintained by Borrower
and each Subsidiary, the Borrower and each Subsidiary are in compliance in all
material respects with all applicable provisions of ERISA. Neither a Reportable
Event nor a Prohibited Transaction has occurred and is continuing with respect
to any Plan; no notice of intent to terminate a Plan has been filed, nor has any
Plan been terminated; no circumstances exist which constitute grounds entitling
the PBGC to institute proceedings to terminate, or appoint a trustee to
administer, a Plan, nor has the PBGC instituted any 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 finally determined and satisfied
for all taxable years up to and including the taxable year ended December 31,
1998.
Section 4.14. Absence of Undisclosed Liabilities. Except as reflected
in the audited consolidated balance sheet of Borrower at December 31, 1998
(including the notes thereto), as of December 31, 1998, 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, 1998, neither Borrower nor any Subsidiary has incurred any material
liability or obligation, except for liabilities and obligations incurred in the
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ordinary course of business or that will not have a material adverse effect on
Borrower.
Section 4.15. Environment. The Borrower and each Subsidiary have duly
complied in all material respects with, and their businesses, operations,
assets, equipment, property, leaseholds, other real estate owned, or other
facilities are in compliance in all material respects with, the provisions of
all federal and state, environmental, health, and safety laws, codes, and
ordinances, and all rules and regulations promulgated thereunder. Neither the
Borrower nor any Subsidiary has received notice of, nor knows of or suspects,
facts which might constitute any violations of any federal or 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
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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.
Section 4.20. Year 2000 Compliance. The Borrower has developed a
comprehensive working plan (the "Y2K Plan") to insure that the Borrower's and
each Subsidiary's software and hardware systems which impact or affect in any
material way the business operations of the Borrower and its Subsidiaries will
be Year 2000 Compliant and Ready (defined below). The Borrower will provide to
the Lender any third party assessment of the Y2K Plan as soon as such assessment
is completed by such third party if such assessment is available. The Borrower
and its Subsidiaries have met all previous Y2K Plan milestones and will
hereafter meet all future Y2K Plan milestones so that all hardware and software
systems will be Year 2000 Compliant and Ready in accordance with the Y2K Plan,
except for any such failure to meet such milestones which would not have a
material adverse effect on the business, operations, assets or condition
(financial or otherwise) of the Borrower and its Subsidiaries on a consolidated
basis. As used herein, "Year 2000 Compliant and Ready" means that the Borrower's
and each Subsidiary's hardware and software systems with respect to the
operation of their business and their general business plan will: (i) handle
date information involving any and all dates before, during and/or after January
1, 2000, including accepting input, providing output and performing date
calculations in whole or in part; (ii) operate accurately without interruption
on and in respect of any and all dates before, during and/or after January 1,
2000 and without any change in performance; (iii) respond to and process two
digit year input without creating any ambiguity as to the century; and (iv)
store and provide input information without creating any ambiguity as to the
century. Borrower further represents and warrants that Borrower has formulated
and will promptly implement contingency plans in the event that any hardware or
software system of Borrower and/or Subsidiary is not Year 2000 Compliant and
Ready for any reason whatsoever.
Simultaneously with the delivery of each set of quarterly financial statements
pursuant to Section 5.10 hereof, Borrower shall provide Lender with a statement
of Borrower's Chief Executive Officer, Chief Financial Officer or any other
officer who has the responsibility for the Y2K Plan to the effect that nothing
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has come to his/her attention to cause him/her to believe that the Y2K Plan
milestones have not been met in a manner such that the Borrower's and its
Subsidiaries hardware and software systems are not Year 2000 Compliant and
Ready. The requirement to provide Lender with such statement shall terminate
with respect to the second set of quarterly financial statements delivered to
Lender in the year 2000 unless, as of the date the second set of quarterly
financial statements are required to be delivered to Lender, Borrower's and its
Subsidiaries hardware and software systems are not Year 2000 Compliant and
Ready, in which cause such reporting requirements shall continue until
Borrower's and its Subsidiaries hardware and software systems are Year 2000
Compliant and Ready.
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.
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Section 5.06. Maintenance of Insurance. Maintain and see that its
Subsidiaries maintain, or cause to be maintained, insurance coverages including,
but not limited to, bankers' blanket bonds, public liability insurance, and fire
and extended coverage insurance on all assets owned by them, all in such form
and amounts, and with such insurers, as are reasonably satisfactory to the
Lender.
Section 5.07. Compliance with Laws. Comply, and cause each Subsidiary
to comply, in all material respects with all applicable laws, rules,
regulations, orders, and material agreements to which they are subject, such
compliance to include, without limitation, maintaining adequate cash reserves
for the payment of, and paying before the same become delinquent, 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
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Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income, shareholder's equity, and cash flows of the
Borrower and its Subsidiaries for such fiscal year, all in reasonable detail and
stating in comparative form the respective figures for the corresponding date
and period in the prior fiscal year and all prepared in accordance with GAAP and
accompanied by an opinion thereon acceptable to the Lender by Mauldin & Jenkins
or other accountants selected by the Borrower and acceptable to the Lender;
(4) F.R.Y.-6 Annual Report. As soon as available, and in any event
within ten (10) days after the filing thereof, a copy of the Borrower's F.R.Y.-6
Annual Report to the Federal Reserve System.
(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;
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(9) Notice of Events of Default. The Borrower will notify the Lender
immediately if it becomes aware of the occurrence of any Event of Default or of
any fact, condition, or event that only with the giving of notice or passage of
time, or both, could become an Event of Default, or of the failure of the
Borrower to observe any of its undertakings hereunder;
(10) ERISA Reports. As soon as possible, and in any event within thirty
(30) days after the Borrower knows or has reason to know that any circumstances
exist that constitute grounds entitling the PBGC to institute proceedings to
terminate a Plan with respect to the Borrower or any Commonly Controlled Entity,
and promptly, but in any event within five (5) Business Days of receipt by the
Borrower or any Commonly Controlled Entity of notice that the PBGC intends to
terminate a Plan or appoint a trustee to administer the same, and promptly, but
in any event within five (5) Business Days of the receipt of notice concerning
the imposition of withdrawal liability in excess of ONE HUNDRED THOUSAND AND
NO/100 DOLLARS ($100,000.00) with respect to the Borrower or any Commonly
Controlled Entity, the Borrower will deliver to the Lender a certificate of the
chief financial officer of the Borrower setting forth all relevant details and
the action which the Borrower proposes to take with respect thereto;
(11) Proxy Statements, Etc. Promptly after the sending or filing
thereof, copies of all proxy statements, financial statements, and reports which
the Borrower or any Subsidiary sends to its stockholders, and copies of all
regular, periodic, and special reports, and all registration statements which
the Borrower or any Subsidiary files with the Securities and Exchange Commission
or any Governmental Authority which may be substituted therefor, or with any
national securities exchange;
(12) Reports to Regulatory Agencies. Promptly after the sending or
filing of the same, copies of all call reports and other reports, including
without limitation responses to administrative enforcement actions, and
modifications or amendments thereto, that the Borrower or its Subsidiaries sends
or files with any Regulatory Authority; and
(13) Notice of Regulatory Action. Promptly, written notice of (i) the
issuance of any notice of charges, cease-and-desist order (temporary or
otherwise), or order to take affirmative action by any Governmental Authority or
Regulatory Authority against the Borrower, any Bank or any other Subsidiary, or
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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:
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(1) Liens in favor of the Lender;
(2) Liens for taxes or assessments or other governmental charges or
levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings and for which appropriate
reserves are maintained;
(3) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, securing obligations incurred
in the ordinary course of business which are not yet due and payable or which
are 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
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(11) Liens for purchase money security interests or Liens
incurred in connection with any conditional sale or other title retention
agreement or capital lease.
Section 6.02. Debt. Create, incur, assume, or suffer to exist, or
permit any Subsidiary to create, incur, assume, or suffer to exist, any Debt,
except:
(1) Debt of the Borrower under this Agreement, the Note, or the
Revolving Credit/Term Note ;
(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.
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Section 6.04. Leases. Create, incur, assume, or suffer to exist, or
permit any Subsidiary to create, incur, assume, or suffer to exist, any
obligation as lessee for the rental or hire of any real or personal property,
except: (1) leases existing on the date of this Agreement and any extensions or
renewals thereof; (2) leases (other than Capital Leases) which do not in the
aggregate require the Borrower and its Subsidiaries on a consolidated basis to
make payments (including taxes, insurance, maintenance, and similar expense
which the Borrower or any Subsidiary is required to pay under the terms of any
lease) in any fiscal year of the Borrower in excess of FOUR HUNDRED THOUSAND AND
NO/100 DOLLARS ($400,000.00); (3) leases between the Borrower and any Subsidiary
or between any Subsidiaries. The Lender, in its sole discretion, may consent in
writing to additional exceptions.
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.
22
<PAGE>
Section 6.08. Guaranties, Etc. Assume, guarantee, endorse, or otherwise
be or become directly or contingently responsible or liable, or permit any
Subsidiary to assume, guarantee, endorse, or otherwise be or become directly or
contingently responsible or liable (including, but not limited to, an agreement
to purchase any obligation, stock, assets, goods, or services, or to supply or
advance any funds, assets, goods, or services, or an agreement to maintain or
cause such Person to maintain a minimum working capital or net worth, or
otherwise to assure the creditors of any person against loss) for obligations of
any Person, except guaranties by endorsement of negotiable instruments for
deposits or collection or similar transactions in the ordinary course of
business and except pursuant to letters of credit or other similar items
(banker's acceptances, etc.) issued by the Banks in the ordinary course of
business.
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.
23
<PAGE>
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. Section 7.04. Return on Equity. 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%).
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; provided,
however, that Community Bank & Trust located in Union Springs, Alabama shall
only be required to comply with the covenant contained in this Section after
December 31, 1999.
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%);
provided, however, that Community Bank & Trust located in Union Springs, Alabama
shall only be required to comply with the covenant contained in this Section
after December 31, 1999.
Section 7:10. Consolidated Tangible Equity. Consolidated Tangible
Equity for Borrower and its Subsidiaries shall be greater than or equal to
$38,000,000.00. For purposes of this Agreement, Tangible Equity shall mean
equity minus intangibles.
Section 7.11. Consolidated Tangible Equity to Total Assets.
Consolidated Tangible Equity for Borrower and its Subsidiaries shall be greater
than or equal to 8% of the total consolidated assets of Borrower and its
Subsidiaries.
Section 7.12. Minimum Liquidity Requirements. Borrower and each
Subsidiary shall maintain at least the minimum levels of liquidity required for
each such entity by any applicable Regulatory Authority.
24
<PAGE>
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;
(5) The Borrower or any of its Subsidiaries shall (a) fail to pay any
indebtedness for borrowed money (other than the Note or the Revolving
Credit/Term Note) in excess of TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($250,000.00) of the Borrower or such Subsidiary, as the case may be, when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise); or (b) fail to perform or observe any term, covenant, or condition
on its part to be performed or observed under any agreement or instrument
relating to any such indebtedness, when required to be performed or observed, if
the effect of such failure to perform or observe is to accelerate, or to permit
the acceleration of, after the giving of notice or passage of time, or both, the
maturity of such indebtedness, whether or not such failure to perform or observe
shall be waived by the holder of such indebtedness; or any such indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated maturity
thereof and Borrower or its Subsidiaries fails to pay such indebtedness in full;
(6) The Borrower or any of its Subsidiaries (a) shall generally not
pay, or shall be unable to pay, or shall admit in writing its inability to pay
its debts as such debts become due; or (b) shall make an assignment for the
25
<PAGE>
benefit of creditors, or petition or apply to any tribunal for the appointment
of a custodian, receiver, or trustee for it or a substantial part of its assets;
or (c) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution, or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (d) shall have had any
such petition or application filed or any such proceeding commenced against it
in which an order for relief is entered or an adjudication or appointment is
made, and which remains undismissed for a period of sixty(60) days or more; or
(e) shall take any corporate action indicating its consent to, approval of, or
acquiescence in any such petition, application, proceeding, or order for relief
or the appointment of a custodian, receiver, or trustee for all or any
substantial part of its properties; or (f) shall suffer any such custodianship,
receivership, or trusteeship to continue undischarged for a period of sixty (60)
days or more;
(7) One or more judgments, decrees, or orders for the payment of money
in excess of ONE MILLION AND NO/100 DOLLARS($1,000,000.00) in the aggregate
shall be rendered against the Borrower or any of its Subsidiaries, and the
amount of said judgment(s) not covered by Borrower's or Subsidiaries' insurance
is in excess of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00), and such
judgments, decrees, or orders shall continue unsatisfied and in effect for a
period of thirty (30) consecutive days without being vacated, discharged,
satisfied, or stayed or bonded pending appeal;
(8) The Security Agreement shall at any time after its execution and
delivery and for any reason cease (a) to create a valid and perfected first
priority security interest in and to the property purported to be subject to
such Security Agreement; or (b) to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by the Borrower, or the Borrower shall deny it has any further
liability or obligation under the Security Agreement, or the Borrower shall fail
to perform any of its obligations under the Security Agreement;
(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
26
<PAGE>
(10) If any Governmental Authority asserts or creates a Lien upon any
or all of the assets, equipment, property, leaseholds, or other facilities of
the Borrower by reason of the occurrence of a hazardous discharge or any
environmental complaint; or if any Governmental Authority asserts a claim
against the Borrower and/or its assets, equipment, property, leaseholds, or
other facilities for damages or cleanup costs relating to a hazardous discharge
or an environmental complaint; provided, however, that such claim shall not
constitute a default if, within ten (10) Business Days of the occurrence giving
rise to the claim, (a) the Borrower can prove to the Lender's satisfaction that
the Borrower has commenced and is diligently pursuing either: (i) a cure or
correction of the event which constitutes the basis for the claim, and continues
diligently to pursue such cure or correction to completion or (ii) proceedings
for any injunction, a restraining order, or other appropriate emergency relief
preventing such Governmental Authority from asserting such claim, which relief
is granted within ten (10) Business Days of the occurrence giving rise to the
claim and the injunction, order, or emergency relief is not thereafter resolved
or reversed on appeal; and (b) in either of the foregoing events, the Borrower
has posted a bond, letter of credit, or other security satisfactory in form,
substance, and amount to both the Lender and the Governmental Authority
asserting the claim to secure the proper and complete cure or correction of the
event which constitutes the basis for the claim;
(11) If the Borrower or any Bank, or the directors, officers, or
employees thereof, becomes subject to any regulatory enforcement action, which
includes without limitation, a memorandum of understanding, written agreement,
supervisory directive, capital directive, removal action, or cease and desist
order, which regulatory enforcement action limits or restricts the ability of
Borrower or any Bank to engage in its normal business;
(12) Borrower shall fail to maintain senior management having
sufficient skill and experience in Borrower's industry to manage Borrower and
each Subsidiary competently and efficiently.
(13) If the ownership of Borrower as presently constituted shall change
such that more than twenty-five percent (25%) of the outstanding voting stock
shall be transferred to any Person other than (i) an existing shareholder who
prior to the transfer owned not less than twenty-five (25%) of the outstanding
voting stock of Borrower or (ii) an immediate family member of the transferring
shareholder.
(14) Any Bank shall be unable or shall be deemed to be unable to
declare and distribute dividends as a result of restrictions imposed by
applicable regulation or by any Regulatory Authority.
27
<PAGE>
Section 8.02. Remedies upon Event of Default Upon the occurrence of an
Event of Default, the Lender may:
(1) By notice to the Borrower, declare the Note and/or the Revolving
Credit/Term Note all interest thereon, and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Note and/or the
Revolving Credit/Term Note, all such interest, and all such amounts shall become
and be forthwith due and payable, without presentment, demand, protest, or
further notice of any kind, all of which are hereby expressly waived by the
Borrower;
(2) At any time and from time to time, without notice to the Borrower
(any such notice being expressly waived by the Borrower), set off and apply (i)
any and all deposits (general or special, time or demand, provisional or final)
at any time held by the Lender, and (ii) other indebtedness at any time owing by
the Lender to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower, now or hereafter existing under this
Agreement, the Note, or the Revolving Credit/Term Note any other Loan Document,
irrespective of whether or not the Lender shall have made any demand under this
Agreement, the Note, the Revolving Credit/Term Note, or under any other of the
Loan Documents and although such obligations may be unmatured;
(3) Exercise from time to time any and all rights and remedies
available to a secured party when a debtor is in default under a security
agreement as provided in the Uniform Commercial Code of Georgia, or available to
Lender under any other applicable law or in equity, including without limitation
the right to any deficiency remaining after disposition of the Collateral;
(4) At its option, and without notice or demand of any kind, exercise
from time to time any and all other rights and remedies available to it under
this Agreement or any of the other Loan Documents;
(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
28
<PAGE>
(6) Any proceeds from disposition of any of the Collateral may
be applied by Lender first to the payment of all expenses and costs incurred by
Lender in enforcing the rights of Lender under each of the Loan Documents and in
collecting, retaking, holding, preparing the Collateral for and advertising the
sale or other disposition of and realizing upon the Collateral, including
without limitation reasonable attorneys' fees actually incurred, as well as all
other legal expenses and court costs. Any balance of such proceeds may be
applied by Lender toward the payment of the Loan and in such order of
application as the Lender may from time to time elect. Lender shall pay the
surplus, if any, to Borrower. Borrower shall pay the deficiency, if any, to
Lender.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Amendments, Etc. No amendment, modification, termination,
or waiver of any provision of any Loan Document to which the Borrower is a
party, nor consent to any departure by the Borrower from any Loan Document to
which it is a party, shall in any event be effective unless the same shall be in
writing and signed by the Lender , and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
Section 9.02. Notices, Etc. All notices and other communications
provided for under this Agreement and under the other Loan Documents shall be in
writing (including telex and facsimile transmissions) and mailed or transmitted
or delivered as follows:
If to the Borrower:
400 North Main Street
Cornelia, Georgia 30531
Attention:Mr. Harry Stephens
Executive Vice President & Chief Financial Officer
Facsimile:(706) 776-1423
If to the Lender:
25 Park Place
29
<PAGE>
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 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,
30
<PAGE>
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.
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.
31
<PAGE>
[REMAINDER OF PAGE INTENTIONALLY BLANK]
32
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above
written.
COMMUNITY BANKSHARES, INC.
By:__________________________________
Title:
And:_________________________________
Title:
SUNTRUST BANK, ATLANTA
By:__________________________________
Title:
And:__________________________________
Title:
33
<PAGE>
EXHIBIT A
---------
BANKS
-----
NAME OF INSTITUTION STATE OF INCORPORATION
------------------- ----------------------
1. Community Bank & Trust - Habersham Georgia
2. Community Bank & Trust - Jackson Georgia
3. Community Bank & Trust - Alabama Alabama
4. Community Bank & Trust - Troup Georgia
<PAGE>
EXHIBIT B
---------
COLLATERAL
----------
50,000 shares of the capital stock of Community Bank & Trust - Habersham more
particularly described in the Amended and Restated Stock Pledge and Security
Agreement dated July 21, 1997.
<PAGE>
EXHIBIT D
---------
REVOLVING CREDIT NOTE
---------------------
$3,000,000.00
July 31, 1999
Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, Community Bankshares, Inc., a
Georgia corporation (the "Borrower"), hereby promises to pay to the order of
SUNTRUST BANK, ATLANTA (the "Bank"), at its Principal Office located at 25 Park
Place, Atlanta, Georgia the principal amount of THREE MILLION AND NO/ ONE
HUNDRETHS DOLLARS ($3,000,000.00) or so much thereof as may be from time to time
disbursed hereunder, in lawful money of the United States and in immediately
available funds. This Revolving Credit Note is executed and delivered as a
renewal of the Revolving Credit under the Loan Agreement hereinafter defined.
Prior to the Revolving Maturity Date, the Borrower may request
Advances to be made pursuant to this Note and repay such Advances in accordance
with the Amended and Restated Revolving Credit Agreement of even date herewith
between Borrower and Bank (as amended from time to time, the "Loan Agreement").
Interest shall accrue and be paid upon such Advances in accordance with the Loan
Agreement. Accrued but unpaid interest shall be payable on the last day of each
calendar quarter starting September 30, 1999 and on the Revolving Maturity Date.
The entire principal balance shall be due and payable on the Revolving Maturity
Date.
Any amount of principal hereof which is not paid when due (giving
effect to any applicable grace period), whether at stated maturity, by
acceleration, or otherwise, shall bear interest from the date when due until
said principal amount is paid in full, payable on demand, at a rate per annum
equal at all times to two percent (2%) above the rate which would otherwise be
applicable. Any change in the interest rate resulting from a change in the Prime
Rate shall be effective at the beginning of the day on which such change in the
Prime Rate shall become effective.
If any payment under this Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day, and interest shall be payable thereon at the rate
herein specified during such extension.
Terms used herein which are defined in the Loan Agreement shall
have their defined meanings when used herein. The Loan Agreement, among other
things, contains provisions for acceleration of the maturity of this Note upon
the happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity of this Note upon the terms and
conditions specified in the Loan Agreement. This Note is secured by a Security
Agreement referred to in the Loan Agreement, reference to which is hereby made
for a description of the collateral provided for under the Security Agreement
and the rights of the Borrower and the Bank with respect to such collateral.
In addition to and not in limitation of the foregoing and the
provisions of the Loan Agreement, the Borrower further agrees to pay all
expenses of collection, including reasonable attorneys' fees, if this Note shall
be collected by law or through an attorney at law, or in bankruptcy,
receivership, or other court proceedings.
<PAGE>
TIME IS OF THE ESSENCE UNDER THIS NOTE. This Note has been
delivered in Atlanta, Georgia, and shall be governed by and construed under the
laws of Georgia.
PRESENTMENT, PROTEST, AND NOTICE OF DISHONOR ARE HEREBY WAIVED BY
THE BORROWER.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed and delivered by its duly authorized officer as of the date first above
written.
Community Bankshares, Inc.
By:________________________________
Title:__________________________
Attest:____________________________
Title:__________________________
<PAGE>
EXHIBIT F
---------
OFFICER'S CERTIFICATE
---------------------
The undersigned certifies that he is of Community Bankshares, Inc.
(the "Company") and that as such he is familiar with the business and affairs of
the Company and is authorized to execute this Certificate on behalf of the
Company, and, with reference to the Amended and Restated Revolving Credit/Term
Loan Agreement (the "Loan Agreement") dated as of July 31, 1999, between the
Company and SunTrust Bank, Atlanta, that he duly has made such investigations as
were necessary for the provision of this Certificate and the certifications,
representations, and warranties contained herein and that he hereby further
certifies, represents, and warrants as follows:
1. That the representations and warranties of the Company
contained in Article IV of the Loan Agreement and otherwise
made in writing by or on behalf of the Company in connection
with the transactions contemplated by the Loan Agreement,
and the schedules and exhibits attached to the Loan
Agreement, are true and correct on and as of the date
hereof; and
2. That the Company has performed and complied with all
agreements and conditions contained in the Loan Agreement
required to be performed or complied with by it, and that on
and as of the date hereof no condition or lapse of time, or
both, will constitute an Event of Default as defined in
Article VIII of the Loan Agreement.
3. That neither the execution, delivery, and performance
of the Loan Agreement or of the Note nor fulfillment of or
compliance with the terms and provisions thereof will
conflict with, or result in a breach of, the terms,
conditions, or provisions of or constitute a default under,
or result in any violation of, any other agreement to which
the Company or any of its Subsidiaries is subject. Neither
the Company nor any Subsidiary is a party to, or otherwise
subject to any provision contained in, any instrument
evidencing indebtedness of the Company or such Subsidiary,
any agreement relating thereto, or any other contract or
agreement which limits the amount of, or otherwise imposes
restrictions on the incurring of the type of debt to be
evidenced by the Note.
4. That there has been no material adverse change in the
assets, liabilities, financial positions, operations or
business prospects of Borrower since December 31, 1998.
Capitalized terms not otherwise defined herein are defined as set
forth in the Loan Agreement.
WITNESS the seal of the Company and the signature of the
undersigned, as of this _____ day of __________,_______________.
By:_________________________________
Title: _________________________
<PAGE>
EXHIBIT G
---------
SCHEDULE OF LITIGATION
----------------------
None
<PAGE>
EXHIBIT H
SCHEDULE OF REAL ESTATE OWNED
<TABLE>
<CAPTION>
Community Bankshares
Fixed Asset Schedule
Current Book Value
Buildings Land Total
HABERSHAM
<S> <C> <C> <C>
2 Irvin St., Cornelia (branch office) ............. 58,246 0 58,246
400 North Main St., Cornelia (main office) ........ 274,974 145,307 420,281
534 N. Main St., Cornelia (operations center) ..... 349,390 0 349,390
111 N. Washington St., Clarkesville (branch office) 138,439 50,652 189,091
536 N. Main St., Cornelia (future expansion) ...... 130,500 0 130,500
Hwy. 441 By-Pass, Cornelia (ATM property) ......... 0 75,424 75,424
Hwy. 441 N., Cornelia (unimproved property) ....... 0 242,372 242,372
-------
Habersham Total Buildings and Land ....... 1,465,304
JACKSON
17 N. Elm Street, Commerce (main office) .......... 585,145 2,500 587,645
TROUP
201 Broad St., LaGrange (main office) ............. 408,407 405,650 814,057
ALABAMA
202 N. Powell St., Union Springs (main office) .... 512,175 65,196 577,371
</TABLE>
<PAGE>
EXHIBIT I
CERTIFICATE OF NO DEFAULT AND RELATED MATTERS
The undersigned, being, respectively, the ______________ and
_______________ of , a ____________ corporation ("Borrower"), hereby give this
Certificate to SunTrust Bank, Atlanta ("Bank") pursuant to Section 5.10 of that
certain Amended and Restated Revolving Credit/Term Loan Agreement dated July 31,
1999 between Borrower and Bank (the "Loan Agreement"; unless otherwise defined
herein, the capitalized terms shall have the meanings ascribed thereto in the
Loan Agreement) hereby certify as follows:
1. They are, respectively, _____________________ and _____________________
of Borrower and, in such capacities, are authorized and empowered to
issue this Certificate for and on behalf of Borrower.
2. The representations and warranties of Borrower set forth in the Loan
Agreement and any other of the documents executed in connection
therewith, the terms of which are incorporated herein by reference, are
true and correct in all material respects on and as of the date hereof
with the same effect as though made and on as of the date hereof.
3. The Borrower is, on the date hereof, in compliance with all the terms
and provisions set forth in the Loan Agreement and the other documents
executed in connection therewith.
4. On the date hereof, no default or Event of Default, nor any event or
condition which with notice, lapse of time, or any combination thereof,
would constitute such an Event of Default, has occurred or is
continuing.
5. The quarterly financial statements delivered herewith pursuant to
Section 5.09 of the Loan Agreement present the financial condition of
Borrower and its Subsidiaries fairly and accurately and not misleading
in the context in which presented.
6. Borrower and its Subsidiaries are in compliance with the financial
covenants set forth in Article VII of the Loan Agreement and the
following computations demonstrate compliance therewith:
[list relevant financial covenants]
7. No regulatory or other impediment exists which would impair or prohibit
the payment of dividends by the Banking Subsidiaries to the Bank.
8. No litigation, investigation, proceeding, injunction, writ or
restraining order or regulatory enforcement action is pending or
threatened.
<PAGE>
IN WITNESS WHEREOF, the undersigned have set their hands and seals,
this _____ day of _____________, ___.
______________________________(SEAL)
Name/Title:___________________
______________________________(SEAL)
Name/Title:___________________
<PAGE>
EXHIBIT J
---------
PERMITTED LIENS
---------------
None
<PAGE>
EXHIBIT K
---------
PERMITTED DEBT
--------------
None
COMMUNITY BANKSHARES, INC.
1999 STOCK AWARD PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. Community Bankshares, Inc., a Georgia
corporation (hereinafter referred to as the "Company"), hereby establishes a
stock option and incentive award plan known as the "Community Bankshares, Inc.
1999 Stock Award Plan" (the "Plan"), as set forth in this document. The Plan
permits the grant of Incentive Stock Options, Nonqualified Stock Options,
Restricted Stock, Stock Awards, Performance Share Awards and Stock Appreciation
Rights.
The Plan shall become effective on the date it is approved by the Board
of Directors (the "Effective Date"), and shall remain in effect as provided in
Section 1.3. The Board may submit the Plan to the Company's shareholders for
approval in connection with the grant of any Incentive Stock Options.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to secure for the
Company and its shareholders the benefits of the incentive inherent in stock
ownership in the Company by employees, directors, and consultants or other
persons who perform services for the Company, who are responsible for its future
growth and continued success. The Plan promotes the success and enhances the
value of the Company by linking the personal interests of Participants (as
defined below) to those of the Company's shareholders, and by providing
Participants with an incentive for outstanding performance. The Plan is further
intended to provide flexibility to the Company in its ability to motivate,
attract and retain the services of Participants upon whose judgment, interest
and special effort the successful conduct of its operation largely depends.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective
Date, and shall remain in effect, subject to the right of the Board of Directors
to amend or terminate the Plan at any time pursuant to Article 14, until the day
prior to the tenth (10th) anniversary of the Effective Date.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below:
(a) "AGREEMENT" means an agreement entered into by each
Participant and the Company, setting forth the terms and
provisions applicable to Awards granted to Participants under
this Plan.
(b) "AWARD" means, individually or collectively, a grant under
this Plan of Incentive Stock Options, Nonqualified Stock
Options, Restricted Stock, Stock Awards, Performance Share
Awards or Stock Appreciation Rights.
(c) "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the
meaning ascribed to such term in Rule 13d-3 of the Exchange
Act.
<PAGE>
(d) "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors
of the Company.
(e) "CAUSE" means: (i) willful misconduct on the part of a
Participant that is materially detrimental to the Company; or
(ii) the conviction of a Participant for the commission of a
felony. The existence of "Cause" under either (i) or (ii)
shall be determined by the Committee. Notwithstanding the
foregoing, if the Participant has entered into an employment
agreement that is binding as of the date of employment
termination, and if such employment agreement defines "Cause,"
and/or provides a means of determining whether "Cause" exists,
such definition of "Cause" and means of determining its
existence shall supersede this provision.
(f) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor act thereto.
(g) "COMMITTEE" means the committee or individual appointed to
administer the Plan and to grant Awards under the Plan, as
specified in Article 3, and to perform the functions set forth
therein; provided that the Board may designate the Chief
Executive Officer (or other officer) to make grants of awards
with respect to certain persons (other than himself), in which
case the Chief Executive Office will have the power and
authority of the Committee hereunder, and the Board may retain
the authority with respect to the remainder of the Plan in a
Committee.
(h) "COMMON STOCK" means the common stock of the Company, par
value $____ per share.
(i) "COMPANY" means Community Bankshares, Inc., a Georgia
corporation, or any successor thereto as provided in Article
18.
(j) "CORRESPONDING SAR" means an SAR that is granted in relation
to a particular Option and that can be exercised only upon the
surrender to the Company, unexercised, of that portion of the
Option to which the SAR relates.
(k) "DIRECTOR" means any individual who is a member of the Board
of Directors of the Company.
(l) "DISABILITY" shall have the meaning ascribed to such term in
the Company's long-term disability plan covering the
Participant, or in the absence of such plan, a meaning
consistent with Section 22(e)(3) of the Code.
(m) "EMPLOYEE" means any employee of the Company or the Company's
Subsidiaries. Directors who are not otherwise employed by the
Company or the Company's Subsidiaries are not considered
Employees under this Plan.
(n) "EFFECTIVE DATE" shall have the meaning ascribed to such term
in Section 1.1.
(o) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2
<PAGE>
(p) "FAIR MARKET VALUE" shall be determined as follows:
(i) If, on the relevant date, the Shares are traded on a
national or regional securities exchange or on The
Nasdaq Stock Market ("Nasdaq") and closing sale
prices for the Shares are customarily quoted, on the
basis of the closing sale price on the principal
securities exchange on which the Shares may then be
traded or, if there is no such sale on the relevant
date, then on the immediately preceding day on which
a sale was reported;
(ii) If, on the relevant date, the Shares are not listed
on any securities exchange or traded on Nasdaq, but
nevertheless are publicly traded and reported on
Nasdaq without closing sale prices for the Shares
being customarily quoted, on the basis of the mean
between the closing bid and asked quotations in such
other over-the-counter market as reported by Nasdaq;
but, if there are no bid and asked quotations in the
over-the-counter market as reported by Nasdaq on that
date, then the mean between the closing bid and asked
quotations in the over-the-counter market as reported
by Nasdaq on the immediately preceding day such bid
and asked prices were quoted; and
(iii) If, on the relevant date, the Shares are not publicly
traded as described in (i) or (ii), on the basis of
the good faith determination of the Committee.
(q) "INCENTIVE STOCK OPTION" OR "ISO" means an option to purchase
Shares granted under Article 6 which is designated as an
Incentive Stock Option and is intended to meet the
requirements of Section 422 of the Code.
(r) "INITIAL VALUE" means, with respect to a Corresponding SAR,
the Option Price per share of the related Option, and with
respect to an SAR granted independently of an Option, the Fair
Market Value of one share of Common Stock on the date of
grant.
(s) "INSIDER" shall mean an Employee who is, on the relevant date,
an officer or a director, or a ten percent (10%) beneficial
owner of any class of the Company's equity securities that is
registered pursuant to Section 12 of the Exchange Act or any
successor provision, as "officer" and "director" are defined
under Section 16 of the Exchange Act.
(t) "NAMED EXECUTIVE OFFICER" means a Participant who, as of the
date of vesting and/or payout of an Award is one of the group
of "covered employees," as defined in the regulations
promulgated under Code Section 162(m), or any successor
statute.
(u) "NONQUALIFIED STOCK OPTION" OR "NQSO" means an option to
purchase Shares granted under Article 6, and which is not
intended to meet the requirements of Code Section 422.
(v) "OPTION" means an Incentive Stock Option or a Nonqualified
Stock Option.
3
<PAGE>
(w) "OPTION PRICE" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as
determined by the Committee.
(x) "PARTICIPANT" means an Employee, a Director, a consultant or
other person who performs services for the Company or a
Subsidiary, who has been determined by the Committee to
contribute significantly to the profits or growth of the
Company and who has been granted an Award under the Plan which
is outstanding.
(y) "PERFORMANCE SHARE AWARD" means an Award, which, in accordance
with and subject to an Agreement, will entitle the
Participant, or his estate or beneficiary in the event of the
Participant's death, to receive cash, Common Stock or a
combination thereof.
(z) "PERSON" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d)
and 14(d) thereof, including a "group" as defined in Section
13(d) thereof.
(aa) "RETIREMENT" shall mean retiring from employment with the
Company or any Subsidiary on or after attaining age 65.
(bb) "RESTRICTED STOCK" means an Award of Common Stock granted in
accordance with the terms of Article 8 and the other
provisions of the Plan, and which is nontransferable and
subject to a substantial risk of forfeiture. Shares of Common
Stock shall cease to be Restricted Stock when, in accordance
with the terms hereof and the applicable Agreement, they
become transferable and free of substantial risk of
forfeiture.
(cc) "SAR" means a stock appreciation right that entitles the
holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the amount determined
by the Committee and specified in an Agreement. In the absence
of such specification, the holder shall be entitled to receive
in cash, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the excess of the
Fair Market Value on the date of exercise over the Initial
Value. References to "SARs" include both Corresponding SARs
and SARs granted independently of Options, unless the context
requires otherwise.
(dd) "SHARES" means the shares of Common Stock of the Company
(including any new, additional or different stock or
securities resulting from the changes described in Section
4.3).
(ee) "STOCK AWARD" means a grant of Shares under Article 8 that is
not generally subject to restrictions and pursuant to which a
certificate for the Shares is transferred to the Employee.
(ff) "SUBSIDIARY" means any company during any period in which it
is a "subsidiary corporation" (as that term is defined in Code
Section 424(f)) with respect to the Company.
4
<PAGE>
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Board of
Directors or by a Committee of the Board, or by any other committee,
subcommittee or person appointed by the Board that is granted authority to
administer the Plan. The members of the Committee shall be appointed from time
to time by, and shall serve at the discretion of, the Board of Directors.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full power to select the Employees, Directors,
consultants and other persons who perform services for the Company or a
Subsidiary, who are responsible for the future growth and success of the Company
who shall participate in the Plan (who may change from year to year); determine
the size and types of Awards; determine the terms and conditions of Awards in a
manner consistent with the Plan (including conditions on the exercisability of
all or a part of an Option or SAR, restrictions on transferability and vesting
provisions on Restricted Stock or Performance Share Awards and the duration of
the Awards); construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend or waive rules and regulations for
the Plan's administration; and (subject to the provisions of Article 14) amend
the terms and conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided in the Plan,
including accelerating the time any Option or SAR may be exercised and
establishing different terms and conditions relating to the effect of the
termination of employment or other services to the Company. Further, the
Committee shall make all other determinations which may be necessary or
advisable in the Committee's opinion for the administration of the Plan. All
expenses of administering this Plan shall be borne by the Company.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all Persons,
including the Company, the shareholders, Employees, Participants and their
estates and beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to adjustment as provided in Section 4.3,
the total number of Shares available for grant of Awards under the Plan shall be
equal to Ten Percent (10%) of the total issued and outstanding Shares as of the
date of adoption of this Plan by the Board. The maximum number of Shares
available for grant as ISOs under the Plan shall equal an aggregate of 150,000
Shares. The Shares may, in the discretion of the Company, be either authorized
but unissued Shares or Shares held as treasury shares, including Shares
purchased by the Company, whether on the market or otherwise. The following
rules shall apply for purposes of the determination of the number of Shares
available for grant under the Plan:
(a) The grant of an Option, SAR, Stock Award, Restricted
Stock Award or Performance Share Award shall reduce
the Shares available for grant under the Plan by the
number of Shares subject to such Award.
5
<PAGE>
(b) While an Option, SAR, Stock Award, Restricted Stock
Award or Performance Share Award is outstanding, it
shall be counted against the authorized pool of
Shares, regardless of its vested status.
4.2 LAPSED AWARDS. If any Award granted under this Plan is canceled,
terminates, expires or lapses for any reason, or if Shares are withheld in
payment of the Option Price or for withholding taxes, any Shares subject to such
Award or that are withheld shall again be available for the grant of an Award
under the Plan. However, in the event that prior to the Award's cancellation,
termination, expiration or lapse, the holder of the Award at any time received
one or more "benefits of ownership" pursuant to such Award (as defined by the
Securities and Exchange Commission, pursuant to any rule or interpretation
promulgated under Section 16 of the Exchange Act), the Shares subject to such
Award shall not again be made available for regrant under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under the
Plan, and in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of Shares
subject to any Award shall always be a whole number and the Committee shall make
such adjustments as are necessary to insure Awards of whole Shares.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Any key Employee of the Company or any Subsidiary, including any such
Employee who is also a director of the Company or any Subsidiary, any
non-employee Director, and any consultant or other person who performs services
for the Company or a Subsidiary, whose judgment, initiative and efforts
contribute or may be expected to contribute materially to the successful
performance of the Company or any Subsidiary shall be eligible to receive an
Award under the Plan. In determining the individuals to whom such an Award shall
be granted and the number of Shares which may be granted pursuant to that Award,
the Committee shall take into account the duties of the respective individual,
his or her present and potential contributions to the success of the Company or
any Subsidiary, and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants at any time and from time to time as
shall be determined by the Committee. The Committee shall have discretion in
determining the number of Shares subject to Options granted to each Participant.
An Option may be granted with or without a Corresponding SAR. No Participant may
be granted ISOs (under the Plan and all other incentive stock option plans of
the Company and any Subsidiary) which are first exercisable in any calendar year
6
<PAGE>
for Common Stock having an aggregate Fair Market Value (determined as of the
date an Option is granted) that exceeds $100,000. The preceding annual limit
shall not apply to NQSOs. The Committee may grant a Participant ISOs, NQSOs or a
combination thereof, and may vary such Awards among Participants; provided that
only an Employee may be granted ISOs.
6.2 AGREEMENT. Each Option grant shall be evidenced by an Agreement
that shall specify the Option Price, the duration of the Option, the number of
Shares to which the Option pertains and such other provisions as the Committee
shall determine. The Option Agreement shall further specify whether the Award is
intended to be an ISO or an NQSO. Any portion of an Option that is not
designated as an ISO or otherwise fails or is not qualified as an ISO (even if
designated as an ISO) shall be a NQSO. If the Option is granted in connection
with a Corresponding SAR, the Agreement shall also specify the terms that apply
to the exercise of the Option and Corresponding SAR.
6.3 OPTION PRICE. The Option Price for each grant of an ISO shall not
be less than one hundred percent (100%) of the Fair Market Value of a Share on
the date the Option is granted. In no event, however, shall any Participant who
owns (within the meaning of Section 424(d) of the Code) stock of the Company
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company be eligible to receive an ISO at an Option Price
less than one hundred ten percent (110%) of the Fair Market Value of a share on
the date the ISO is granted. The Option Price for each grant of a NQSO shall be
established by the Committee and, in its discretion, may be less than the Fair
Market Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary date of its
grant; provided, further, however, that any ISO granted to any Participant who
at such time owns (within the meaning of Section 424(d) of the Code) stock of
the Company possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, shall not be exercisable later
than the fifth (5th) anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, including conditions related to
the employment of the Participant with the Company or any Subsidiary, which need
not be the same for each grant or for each Participant. Each Option shall be
exercisable for such number of Shares and at such time or times, including
periodic installments, as may be determined by the Committee at the time of the
grant. The Committee may provide in the Agreement for automatic accelerated
vesting and other rights upon the occurrence of a Change in Control (as defined
in Section 13.1) of the Company. Except as otherwise provided in the Agreement
and Article 13, the right to purchase Shares that are exercisable in periodic
installments shall be cumulative so that when the right to purchase any Shares
has accrued, such Shares or any part thereof may be purchased at any time
thereafter until the expiration or termination of the Option. The exercise or
partial exercise of either an Option or its Corresponding SAR shall result in
the termination of the other to the extent of the number of Shares with respect
to which the Option or Corresponding SAR is exercised.
7
<PAGE>
6.6 PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares. The Option Price upon exercise of any Option shall be payable to the
Company in full, either: (a) in cash, (b) cash equivalent approved by the
Committee, (c) if approved by the Committee, by tendering previously acquired
Shares (or delivering a certification of ownership of such Shares) having an
aggregate Fair Market Value at the time of exercise equal to the total Option
Price (provided that the Shares which are tendered must have been held by the
Participant for six months, if required for accounting purposes, and for the
period required by law, if any, prior to their tender to satisfy the Option
Price), or (d) by a combination of (a), (b) and (c). The Committee also may
allow cashless exercises as permitted under Federal Reserve Board's Regulation
T, subject to applicable securities law restrictions, or by any other means
which the Committee determines to be consistent with the Plan's purpose and
applicable law. As soon as practicable after receipt of a written notification
of exercise and full payment, the Company shall deliver to the Participant, in
the Participant's name, Share certificates in an appropriate amount based upon
the number of Shares purchased under the Option(s), and may place appropriate
legends on the certificates representing such Shares.
6.7 LIMITED TRANSFERABILITY. If permitted by the Committee in the
Agreement, a Participant may transfer an Option granted hereunder, including,
but not limited to, transfers to members of his or her Immediate Family (as
defined below), to one or more trusts for the benefit of such Immediate Family
members, or to one or more partnerships where such Immediate Family members are
the only partners, if (i) the Participant does not receive any consideration in
any form whatsoever for such transfer, (ii) such transfer is permitted under
applicable tax laws, and (iii) the Participant is an Insider, such transfer is
permitted under Rule 16b-3 of the Exchange Act as in effect from time to time.
Any Option so transferred shall continue to be subject to the same terms and
conditions in the hands of the transferee as were applicable to said Option
immediately prior to the transfer thereof. Any reference in any such Agreement
to the employment by or performance of services for the Company by the
Participant shall continue to refer to the employment of, or performance by, the
transferring Participant. For purposes hereof, "Immediate Family" shall mean the
Participant and the Participant's spouse, children and grandchildren. Any Option
that is granted pursuant to any Agreement that did not initially expressly allow
the transfer of said Option and that has not been amended to expressly permit
such transfer, shall not be transferable by the Participant other than by will
or by the laws of descent and distribution and such Option thus shall be
exercisable in the Participant's lifetime only by the Participant.
6.8 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder with respect to Shares subject to his Option until the issuance of
such Shares to the Participant pursuant to the exercise of such Option
ARTICLE 7. STOCK APPRECIATION RIGHTS
7.1 GRANTS OF SARS. The Committee shall designate Participants to whom
SARs are granted, and will specify the number of Shares of Common Stock subject
to each grant. An SAR may be granted with or without a related Option. All SARs
granted under this Plan shall be subject to an Agreement in accordance with the
8
<PAGE>
terms of this Plan. A payment to the Participant upon the exercise of a
Corresponding SAR may not be more than the difference between the Fair Market
Value of the Shares subject to the ISO on the date of grant and the Fair Market
Value of the Shares on the date of exercise of the Corresponding SAR.
7.2 DURATION OF SARS. The duration of an SAR shall be set forth in the
Agreement as determined by the Committee. An SAR that is granted as a
Corresponding SAR shall have the same duration as the Option to which it
relates. An SAR shall terminate due to the Participant's termination of
employment at the same time as the date specified in Article 6 with respect to
Options, regardless of whether the SAR was granted in connection with the grant
of an Option.
7.3 EXERCISE OF SAR. An SAR may be exercised in whole at any time or in
part from time to time and at such times and in compliance with such
requirements as the Committee shall determine as set forth in the Agreement;
provided, however, that a Corresponding SAR that is related to an Incentive
Stock Option may be exercised only to the extent that the related Option is
exercisable and only when the Fair Market Value of the Shares exceeds the Option
Price of the related ISO. An SAR granted under this Plan may be exercised with
respect to any number of whole shares less than the full number of shares for
which the SAR could be exercised. A partial exercise of an SAR shall not affect
the right to exercise the SAR from time to time in accordance with this Plan and
the applicable Agreement with respect to the remaining shares subject to the
SAR. The exercise of either an Option or Corresponding SAR shall result in the
termination of the other to the extent of the number of Shares with respect to
which the Option or its Corresponding SAR is exercised.
7.4 DETERMINATION OF PAYMENT OF CASH AND/OR COMMON STOCK UPON EXERCISE
OF SAR. At the Committee's discretion, the amount payable as a result of the
exercise of an SAR may be settled in cash, Common Stock, or a combination of
cash and Common Stock. A fractional share shall not be deliverable upon the
exercise of an SAR, but a cash payment shall be made in lieu thereof.
7.5 NONTRANSFERABILITY. Each SAR granted under the Plan shall be
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of the Participant to whom the SAR is granted, the SAR may
be exercised only by the Participant. No right or interest of a Participant in
any SAR shall be liable for, or subject to any lien, obligation or liability of
such Participant. A Corresponding SAR shall be subject to the same restrictions
on transfer as the ISO to which it relates. Notwithstanding the foregoing, if
the Agreement so provides, a Participant may transfer an SAR (other than a
Corresponding SAR that relates to an Incentive Stock Option) under the same
rules and conditions as are set forth in Section 6.7.
7.6 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder with respect to Shares subject to an SAR until the issuance of
Shares (if any) to the Participant pursuant to the exercise of such SAR.
ARTICLE 8. RESTRICTED STOCK; STOCK AWARDS
8.1 GRANTS. The Committee may from time to time in its discretion grant
Restricted Stock and Stock Awards to Participants and may determine the number
of Shares of Restricted Stock or Stock Awards to be granted. The Committee shall
determine the terms and conditions of, and the amount of payment, if any, to be
9
<PAGE>
made by the Employee for such Shares or Restricted Stock. A grant of Restricted
Stock may, in addition to other conditions, require the Participant to pay for
such Shares of Restricted Stock, but the Committee may establish a price below
Fair Market Value at which the Participant can purchase the Shares of Restricted
Stock. Each grant of Restricted Stock shall be evidenced by an Agreement
containing terms and conditions not inconsistent with the Plan as the Committee
shall determine to be appropriate in its sole discretion.
8.2 RESTRICTED PERIOD; LAPSE OF RESTRICTIONS. At the time a grant of
Restricted Stock is made, the Committee shall establish a period or periods of
time (the "Restricted Period") applicable to such grant which, unless the
Committee otherwise provides, shall not be less than one year. Subject to the
other provisions of this Article 8, at the end of the Restricted Period all
restrictions shall lapse and the Restricted Stock shall vest in the Participant.
At the time a grant is made, the Committee may, in its discretion, prescribe
conditions for the incremental lapse of restrictions during the Restricted
Period and for the lapse or termination of restrictions upon the occurrence of
other conditions in addition to or other than the expiration of the Restricted
Period with respect to all or any portion of the Restricted Stock. Such
conditions may, but need not, include the following:
(a) The death, Disability or Retirement of the Employee to whom
Restricted Stock is granted, or
(b) The occurrence of a Change in Control (as defined in Section
13.1).
The Committee may also, in its discretion, shorten or terminate the Restricted
Period, or waive any conditions for the lapse or termination of restrictions
with respect to all or any portion of the Restricted Stock at any time after the
date the grant is made.
8.3 RIGHTS OF HOLDER; LIMITATIONS THEREON. Upon a grant of Restricted
Stock, a stock certificate (or certificates) representing the number of Shares
of Restricted Stock granted to the Participant shall be registered in the
Participant's name and shall be held in custody by the Company or a bank
selected by the Committee for the Participant's account. Following such
registration, the Participant shall have the rights and privileges of a
shareholder as to such Restricted Stock, including the right to receive
dividends, if and when declared by the Board of Directors, and to vote such
Restricted Stock, except that the right to receive cash dividends shall be the
right to receive such dividends either in cash currently or by payment in
Restricted Stock, as the Committee shall determine, and except further that, the
following restrictions shall apply:
(a) The Participant shall not be entitled to delivery of a
certificate until the expiration or termination of the
Restricted Period for the Shares represented by such
certificate and the satisfaction of any and all other
conditions prescribed by the Committee;
(b) None of the Shares of Restricted Stock may be sold,
transferred, assigned, pledged, or otherwise encumbered or
disposed of during the Restricted Period and until the
satisfaction of any and all other conditions prescribed by the
Committee; and
10
<PAGE>
(c) All of the Shares of Restricted Stock that have not vested
shall be forfeited and all rights of the Participant to such
Shares of Restricted Stock shall terminate without further
obligation on the part of the Company, unless the Participant
has remained an employee of (or non-Employee Director of or
active consultant providing services to) the Company or any of
its Subsidiaries, until the expiration or termination of the
Restricted Period and the satisfaction of any and all other
conditions prescribed by the Committee applicable to such
Shares of Restricted Stock. Upon the forfeiture of any Shares
of Restricted Stock, such forfeited Shares shall be
transferred to the Company without further action by the
Participant and shall, in accordance with Section 4.2, again
be available for grant under the Plan. If the Participant paid
any amount for the Shares of Restricted Stock that are
forfeited, the Company shall pay the Participant the lesser of
the Fair Market Value of the Shares on the date they are
forfeited or the amount paid by the Participant.
With respect to any Shares received as a result of adjustments under
Section 4.3 hereof and any Shares received with respect to cash dividends
declared on Restricted Stock, the Participant shall have the same rights and
privileges, and be subject to the same restrictions, as are set forth in this
Article 8.
8.4 DELIVERY OF UNRESTRICTED SHARES. Upon the expiration or termination
of the Restricted Period for any Shares of Restricted Stock and the satisfaction
of any and all other conditions prescribed by the Committee, the restrictions
applicable to such Shares of Restricted Stock shall lapse and a stock
certificate for the number of Shares of Restricted Stock with respect to which
the restrictions have lapsed shall be delivered, free of all such restrictions
except any that may be imposed by law, to the holder of the Restricted Stock.
The Company shall not be required to deliver any fractional Share but will pay,
in lieu thereof, the Fair Market Value (determined as of the date the
restrictions lapse) of such fractional Share to the holder thereof. Concurrently
with the delivery of a certificate for Restricted Stock, the holder shall be
required to pay an amount necessary to satisfy any applicable federal, state and
local tax requirements as set out in Article 16 below.
8.5 NONASSIGNABILITY OF RESTRICTED STOCK. Unless the Committee provides
otherwise in the Agreement, no grant of, nor any right or interest of a
Participant in or to, any Restricted Stock, or in any instrument evidencing any
grant of Restricted Stock under the Plan, may be assigned, encumbered or
transferred except, in the event of the death of a Participant, by will or the
laws of descent and distribution.
ARTICLE 9. PERFORMANCE SHARE AWARDS
9.1 AWARD. The Committee may designate Participants to whom Performance
Share Awards will be granted from time to time for no consideration and specify
the number of shares of Common Stock covered by the Award.
11
<PAGE>
9.2 EARNING THE AWARD. A Performance Share Award, or portion thereof,
will be earned, and the Participant will be entitled to receive Common Stock, a
cash payment or a combination thereof, only upon the achievement by the
Participant, the Company, or a Subsidiary of such performance objectives as the
Committee, in its discretion, shall prescribe on the date of grant. The
determination as to whether such objectives have been achieved shall be made by
the Committee, and such determination shall be conclusive; provided, however,
that the period in which such performance is measured shall be at least one
year.
The Committee may in determining whether performance targets have been
met adjust the Company's financial results to exclude the effect of unusual
charges or income items or other events, including acquisitions or dispositions
of businesses or assets, restructurings, reductions in force, currency
fluctuations or changes in accounting, which are distortive of financial results
(either on a segment or consolidated basis). In addition, the Committee will
adjust its calculations to exclude the effect on financial results of changes in
the Code or other tax laws, or the regulations relating thereto.
9.3 PAYMENT. In the discretion of the Committee, the amount payable
when a Performance Share Award is earned may be settled in cash, by the grant of
Common Stock or a combination of cash and Common Stock. The aggregate Fair
Market Value of the Common Stock received by the Participant pursuant to a
Performance Share Award, together with any cash paid to the Participant, shall
be equal to the aggregate Fair Market Value, on the date the Performance Shares
are earned, of the number of Shares of Common Stock equal to each Performance
Share earned. A fractional Share will not be deliverable when a Performance
Share Award is earned, but a cash payment will be made in lieu thereof.
9.4 SHAREHOLDER RIGHTS. No Participant shall have, as a result of
receiving a Performance Share Award, any rights as a shareholder until and to
the extent that the Performance Shares are earned and Common Stock is
transferred to such Participant. If the Agreement so provides, a Participant may
receive a cash payment equal to the dividends that would have been payable with
respect to the number of Shares of Common Stock covered by the Award between (a)
the date that the Performance Shares are awarded and (b) the date that a
transfer of Common Stock to the Participant, cash settlement, or combination
thereof is made pursuant to the Performance Share Award. A Participant may not
sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of a
Performance Share Award or the right to receive Common Stock thereunder other
than by will or the laws of descent and distribution. After a Performance Share
Award is earned and paid in Common Stock, a Participant will have all the rights
of a shareholder with respect to the Common Stock so awarded.
ARTICLE 10. BENEFICIARY DESIGNATION
To the extent applicable, each Participant under the Plan may, from
time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his or her death before he or she receives any or all of such
benefit. Each such designation shall revoke all prior designations by the same
Participant, shall be in a form prescribed by the Company and shall be effective
12
<PAGE>
only when filed by the Participant, in writing, with the Company during the
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate. If required, the spouse of a married Participant domiciled in a
community property jurisdiction shall join in any designation of a beneficiary
or beneficiaries other than the spouse.
ARTICLE 11. DEFERRALS
The Committee may permit a Participant to defer to another plan or
program such Participant's receipt of Shares or cash that would otherwise be due
to such Participant by virtue of the exercise of an Option, the vesting of
Restricted Stock, or the earning of a Performance Share Award. If any such
deferral election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
ARTICLE 12. RIGHTS OF EMPLOYEES
12.1 EMPLOYMENT. Nothing in the Plan shall interfere with or limit in
any way the right of the Company or a Subsidiary to terminate any Participant's
employment by, or performance of services for, the Company at any time, nor
confer upon any Participant any right to continue in the employ or service of
the Company or a Subsidiary. For purposes of the Plan, transfer of employment of
a Participant between the Company and any one of its Subsidiaries (or between
Subsidiaries) shall not be deemed a termination of employment.
12.2 PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
ARTICLE 13. CHANGE IN CONTROL
13.1 DEFINITION. For purposes of the Plan, a "Change in Control" means
any of the following events:
(a) The acquisition (other than from the Company) by any Person of
Beneficial Ownership of twenty-five percent (25%) or more of
the combined voting power of the Company's then outstanding
voting securities; provided, however, that for purposes of
this Section 13.1, Person shall not include any person who on
the date hereof owns 10% or more of the Company's outstanding
securities, and a Change in Control shall not be deemed to
occur solely because twenty-five percent (25%) or more of the
combined voting power of the Company's then outstanding
securities is acquired by (i) a trustee or other fiduciary
holding securities under one or more employee benefit plans
maintained by the Company or any of its subsidiaries, or (ii)
any corporation, which, immediately prior to such acquisition,
is owned directly or indirectly by the shareholders of the
Company in the same proportion as their ownership of stock in
the Company immediately prior to such acquisition.
13
<PAGE>
(b) Approval by shareholders of the Company of (1) a merger or
consolidation involving the Company if the shareholders of the
Company, immediately before such merger or consolidation do
not, as a result of such merger or consolidation, own,
directly or indirectly, more than fifty percent (50%) of the
combined voting power of the then outstanding voting
securities of the corporation resulting from such merger or
consolidation in substantially the same proportion as their
ownership of the combined voting power of the voting
securities of the Company outstanding immediately before such
merger or consolidation, or (2) a complete liquidation or
dissolution of the Company or an agreement for the sale or
other disposition of all or substantially all of the assets of
the Company.
(c) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Board; provided, however, for purposes of
this Section 13.1 that any individual who becomes a member of
the Board subsequent to the Effective Date whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; but, provided, further, that
any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, including any successor to
such Rule), or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board, shall not be so considered as a member of the Incumbent
Board.
13.2 LIMITATION ON AWARDS. The Committee may provide in the Agreement
that, if the right to receive or benefit from any Award under this Plan, either
alone or together with payments that a Participant has the right to receive from
the Company or a Subsidiary, would constitute a "parachute payment" (as defined
in Section 280G of the Code), all such payments shall be reduced to the largest
amount that will result in no portion being subject to the excise tax imposed by
Section 4999 of the Code.
ARTICLE 14. AMENDMENT, MODIFICATION AND TERMINATION
14.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board may, at any
time and from time to time, alter, amend, suspend or terminate the Plan in whole
or in part; provided, that, the Board may determine that any such action should
become effective only if approved by the shareholders even if such shareholder
approval is not expressly required by the Plan or by law.
14.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
14
<PAGE>
Participant holding such Award. The Committee shall, with the written consent of
the Participant holding such Award, have the authority to cancel Awards
outstanding and grant replacement Awards therefor.
14.3 COMPLIANCE WITH CODE SECTION 162(M). At all times when the
Committee determines that compliance with Code Section 162(m) is required or
desired, all Awards granted under this Plan to Named Executive Officers shall
comply with the requirements of Code Section 162(m). In addition, in the event
that changes are made to Code Section 162(m) to permit greater flexibility with
respect to any Award or Awards under the Plan, the Committee may, subject to
this Article 14, make any adjustments it deem appropriate.
ARTICLE 15. WITHHOLDING
15.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising in connection with an Award under this Plan.
15.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options, or upon any other taxable event arising as a result of
Awards granted hereunder which are to be paid in the form of Shares,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All elections shall be irrevocable, made in writing, signed by the Participant,
and elections by Insiders shall additionally comply with all legal requirements
applicable to Share transactions by such Participants.
ARTICLE 16. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him in satisfaction of any judgment in
any such action, suit or proceeding against him, provided he shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall be in addition to any other rights of indemnification to
which such persons may be entitled under the Company's Articles of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
ARTICLE 17. SUCCESSORS
All obligations of the Company under the Plan, with respect to Awards
granted hereunder, shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation or otherwise, of all or substantially all of the business
and/or assets of the Company.
15
<PAGE>
ARTICLE 18. LEGAL CONSTRUCTION
18.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein shall also include the feminine; the
plural shall include the singular and the singular shall include the plural.
18.2 SEVERABILITY. If any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.4 REGULATORY APPROVALS AND LISTING. The Company shall not be
required to issue any certificate or certificates for Shares under the Plan
prior to (i) obtaining any approval from any governmental agency which the
Company shall, in its discretion, determine to be necessary or advisable, (ii)
the admission of such shares to listing on any national securities exchange or
Nasdaq on which the Company's Shares may be listed, and (iii) the completion of
any registration or other qualification of such Shares under any state or
federal law or ruling or regulation of any governmental body which the Company
shall, in its sole discretion, determine to be necessary or advisable.
Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant to the Plan to any Insider may not be sold or
transferred for at least six (6) months after the date of grant of such Award.
The terms "equity security" and "derivative security" shall have the meanings
ascribed to them in the then-current Rule 16(a) under the Exchange Act.
18.5 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provisions of
the Plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
18.6 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Georgia.
AS APPROVED BY THE BOARD OF DIRECTORS OF COMMUNITY BANKSHARES, INC. ON
DECEMBER 22, 1999.
EXHIBIT 21
ORGANIZATIONAL CHART
COMMUNITY BANKSHARES, INC.
Community Bank & Trust-Habersham, a wholly owned subsidiary of
Community Bankshares, Inc. Financial Supermarkets, Inc., a wholly owned
subsidiary of Community Bank & Trust-Habersham Financial Properties,
Inc. , a wholly owned subsidiary of Community Bank & Trust-Habersham
Community Bank & Trust-Alabama, a wholly owned subsidiary of Community
Bankshares, Inc.
Community Bank & Trust-Jackson, a wholly owned subsidiary of Community
Bankshares, Inc.
Community Bank & Trust-Troup, a wholly owned subsidiary of Community
Bankshares, Inc.
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