SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to .
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Commission File No. 0-25846
CCF HOLDING COMPANY
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(Name of Small Business Issuer in Its Charter)
Georgia 58-2173616
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(State or Other Jurisdiction of Incorporation I.R.S. Employer
or Organization) Identification No.
101 North Main Street, Jonesboro, Georgia 30236
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(Address of Principal Executive Offices (Zip Code)
Issuer's Telephone Number, Including Area Code: (770) 478-8881
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES X NO .
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $8.4 million
As of March 16, 1998 there were issued and outstanding 899,024 shares
of the registrant's common stock.
The registrant's voting stock trades on the SmallCap market of The
Nasdaq Stock Market under the symbol "CCFH." The aggregate market value of the
voting stock held by non-affiliates of the registrant, based on the average bid
and asked price of the registrant's common stock on March 24, 1998, was $14.8
million.
Transition Small Business Disclosure Format (check one)
YES NO X
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to Stockholders for the fiscal
year ended December 31, 1997 (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of
Stockholders. (Part III)
<PAGE>
CCF Holding Company (the "Company") may from time to time make written
or oral "forward- looking statements", including statements contained in the
Company's filings with the Securities and Exchange Commission (including this
annual report on Form 10-KSB and the exhibits thereto), in its reports to
stockholders and in other communications by the Company, which are made in good
faith by the Company pursuant to the "safe harbor" provisions of the private
securities litigation reform act of 1995.
These forward-looking statements involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the board of governors of the
federal reserve system, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
PART I
Item 1. Description of Business
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General
The Company is a Georgia-chartered corporation which was organized in
March 1995 at the direction of Clayton County Federal Savings and Loan
Association (the "Association") in connection with the Association's conversion
from a mutual to stock form of organization (the "Conversion"). On July 11,
1995, the Association completed its conversion and became a wholly owned
subsidiary of the Company. In February 1997, the Association changed its name to
Heritage Bank (the "Bank"). The Company is a unitary savings and loan holding
company which, under existing laws, generally is not restricted in the types of
business activities in which it may engage provided the Bank retains a specified
amount of its assets in housing-related investments. The Company is not an
operating company and has not engaged in any significant business to date. As
such, references herein to the Bank include the Company unless the context
otherwise indicates. In December 1996, the Company changed its fiscal year end
from September 30th to December 31st. The Company did not recast prior year
financial statements on a calendar year basis so as to compare operating results
for the year ended December 31, 1997 to the year ended December 31, 1996 because
operating results for 1996 on a calendar year basis and comparative discussions
of operating results would not have differed significantly from what is
presented in this report.
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<PAGE>
The Bank is a federally chartered stock savings association which
originally commenced business in 1955. Prior to 1997, the Bank operated a
traditional savings and loan business, attracting deposit accounts from the
general public and using these deposits, together with other funds, primarily to
originate and invest in long-term conventional loans secured by single-family
residential real estate. Since the early part of 1997, the Bank has begun to
expand its loan and deposit activities in an attempt to position itself to offer
more of the products and services of a commercial bank and compete on a broader
scale in the highly competitive financial services industry. Between September
30, 1996 and December 31, 1997 the Bank significantly expanded the size of its
commercial (primarily real estate mortgages) and construction (primarily
residential) lending portfolios as well as the amount of the deposits it holds
and the level of borrowing from the Federal Home Loan Bank. During 1997, the
Bank also opened two new branch offices and converted two existing customer
service facilities into full service branch offices.
The Bank is subject to examination and comprehensive regulation by the
Office of Thrift Supervision ("OTS") and its deposits are insured by the Savings
Association Insurance Fund ("SAIF") and have been insured by the SAIF and its
predecessor, the Federal Savings and Loan Insurance Corporation, since 1955. The
principal sources of funds for the Bank's lending activities are deposits and
the amortization, repayment, and maturity of loans and investment securities.
The Bank does not rely on brokered deposits. Principal sources of income are
interest on loans and investment securities.
The Bank's principal expense is interest paid on deposits.
Market Area and Competition
The Bank's primary market area is Clayton County, Georgia, where the
Bank operates three offices. Clayton County is part of the Atlanta, Georgia
metropolitan statistical area and home to a portion of Atlanta's Hartsfield
International Airport. The Bank also solicits deposits and makes loans in the
adjacent market area of Fayette and Henry counties in Georgia, where the Bank
operates one office in each county. To a much lesser extent, the Bank also makes
loans in Coweta, Rockdale, Spalding, and Lamar counties, Georgia.
The Bank competes for deposits with financial institutions located in
metropolitan Atlanta, super-regional banks, and several fairly new local
financial institutions. Loan competition comes from the same sources and
mortgage companies. The Bank is the only savings association headquartered in
any of the three counties of Clayton, Henry, or Fayette.
Due to their size, many of the Bank's competitors possess greater
financial and marketing resources. The Bank competes for deposit accounts by
offering depositors competitive interest rates and a high level of personal
service. The Bank competes for loans primarily through the interest rates and
loan fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers, and contractors.
Lending Activities
General. The principal lending activity of the Bank has been the
origination for its portfolio of adjustable-rate and fixed-rate loans secured by
one- to four-family residential real estate with many of them conforming to
secondary market guidelines. However, the increase in the loan portfolio during
1997 was mainly due to the increase in commercial lending (primarily real estate
mortgages) and, to a lesser extent, construction lending (primarily residential)
as the Bank begins to provide more of the products and services that are offered
by its competitors, including commercial banks. During 1997, the
3
<PAGE>
Bank hired several local area lending officers whose primary experience is in
commercial lending. This experience was needed as the Bank seeks to broaden its
product base, particularly commercial lending.
Analysis of Loan Portfolio. The following table sets forth information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the loan portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At December 31, At September 30,
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1997 1996
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Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Loan Category
Residential (1-4 family) mortgage........... $49,031 49.50% $45,510 80.79%
Commercial, primarily real estate
mortgage.................................. 29,822 30.11 -- --
Real estate construction.................... 16,231 16.39 7,056 12.53
Other mortgage.............................. 1,289 1.30 2,698 4.79
Consumer and other installment.............. 2,680 2.70 1,066 1.89
------- ------ ------- ------
Total loans receivable.................. 99,053 100.00% 56,330 100.00%
------- ====== ------- ======
Less:
Undisbursed proceeds on
loans in process........................ (206) (3,790)
Unamortized loan fees and
costs, net.............................. (636) (500)
Allowance for loan losses................. (670) (540)
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Total loans, net........................ $97,541 $ 51,500
======= ========
</TABLE>
Loan Maturity Tables. The following table sets forth the maturity of
the Bank's loan portfolio at December 31, 1997. The table does not include
prepayments. Prepayments and scheduled principal repayments on loans totalled
$28.1 million and $15.2 million for the years ended December 31, 1997 and
September 30, 1996, respectively. Adjustable-rate mortgage loans are shown as
maturing based on repricing dates.
<TABLE>
<CAPTION>
December 31, 1997
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Within One to Five After Five
One Year Years Years Total
-------- ----------- ---------- -------
(In Thousands)
<S> <C> <C> <C> <C>
Residential (1-4 family) mortgage......... $25,986 $ 1,618 $21,427 $49,031
Commercial, primarily real estate
mortgage................................ 4,473 16,402 8,947 29,822
Real estate construction.................. 16,231 -- -- 16,231
Other mortgage............................ 1,030 259 -- 1,289
Consumer and other installment............ 402 2,010 268 2,680
------- ------- ------- -------
Total................................... $48,122 $20,289 $30,642 $99,053
======= ======= ======= =======
</TABLE>
4
<PAGE>
The following table sets forth the dollar amount of all loans due after
December 31, 1998, which have fixed interest rates and which have floating or
adjustable interest rates. Adjustable-rate mortgage- loans ("ARMs") are shown
based on repricing dates.
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
----------------------- ------------------------
Amount Percent Amount Percent Total
------ ------- ------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Residential (1-4 family) mortgage............... $19,811 20.0 $ 3,234 3.3 $23,045
Commercial, primarily real estate
mortgage..................................... 16,983 17.1 8,366 8.4 25,349
Real estate construction........................ -- -- -- -- --
Other mortgage.................................. 173 0.2 86 0.1 259
Consumer and other installment.................. 1,526 1.5 752 0.8 2,278
------- ---- ------- ---- -------
Total......................................... $38,493 38.8 $12,438 12.6 $50,931
------- ---- ------- ---- -------
</TABLE>
One- to Four-Family Residential Mortgage Loans. The Bank's residential
real estate lending activity consists of the origination of one- to four-family,
owner-occupied, residential mortgage loans secured by property located in the
Bank's primary market area. The Bank originates both adjustable-rate and
fixed-rate residential mortgage loans.
The Bank offers ARMs that adjust every year and have terms of up to 30
years. Generally, the interest rate adjustments on ARMs are based on the
National Average Contract Rate for the Purchase of Previously Occupied Homes as
announced by the Federal Home Loan Bank ("FHLB") of Atlanta. ARMs have interest
rate floors of one-half percentage point below the initial interest rate and
carry an interest rate ceiling of 5% above the initial rate of the loans. The
maximum change on any adjustment date is 2%. The Bank considers the market
factors and competition's rate on loans as well as its own cost of funds when
determining the rates on the loans that it offers.
ARMs may be made at up to 95% of the loan to value ratio. The Bank does
not originate ARMs with negative amortization.
The Bank also offers conventional fixed-rate mortgage loans with terms
of up to 30 years. The fixed-rate mortgages may be sold in the secondary
mortgage market with servicing retained by the Bank.
The Bank offers home equity lines of credit, which are revolving lines
of credit secured by a first or second mortgage on an owner occupied property,
and which are accessible to the customers by either writing a check or
requesting an advance at a branch office of the Bank. The rate on such loans is
adjustable monthly, based on the highest prime rate published in The Wall Street
Journal plus 1.5%, with a ceiling of 18%.
Regulations limit the amount which a savings association may lend in
relationship to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
permit a maximum loan-to-value ratio of 100% for residential property and 90%
for all other real estate loans. The Bank's lending policies, however, generally
limit the maximum loan-to-value ratio to 80% of the appraised value of the
property, based on an independent appraisal. When the Bank makes a loan in
excess of 80% of the appraised value or purchase price, private mortgage
insurance is required for at least the amount of the loan in excess of 80% of
the appraised value.
5
<PAGE>
The loan-to-value ratio, maturity, and other provisions of the
residential real estate loans made by the Bank reflect the policy of making
loans generally below the maximum limits permitted under applicable regulations.
The Bank requires an independent appraisal, title insurance or an attorney's
opinion, flood hazard insurance (if applicable), and fire and casualty insurance
on all properties securing real estate loans made by the Bank. The Bank reserves
the right to approve the selection of which title insurance companies' policies
are acceptable to insure the real estate in the loan transactions.
While one- to four-family residential real estate loans are normally
originated with 15 to 30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all of the fixed-rate residential
mortgage loans in the Bank's loan portfolio contain due-on-sale clauses
providing that the Bank may declare the unpaid amount due and payable upon the
sale of the property securing the loan. The Bank enforces these due-on-sale
clauses to the extent permitted by law. Thus, average loan maturity is a
function of, among other factors, the level of purchase and sale activity in the
real estate market, prevailing interest rates, and the interest rates payable on
outstanding loans.
Construction Lending. The Bank engages in construction lending
involving loans to qualified borrowers for construction of one- to four-family
residential properties and on a limited basis, for commercial properties. Almost
all of the Bank's construction loan properties are located in the Bank's market
area and nearby counties.
Construction loans are made to builders on a speculative basis and to
owners for construction of their primary residence. Loans for speculative
housing construction are made to area builders after a background check has been
made. Construction loans on one- to four-family properties are limited to a
maximum loan-to-value ratio of 90% and have a maximum maturity of 12 months
after which the loan can be converted to a permanent mortgage loan. Whether or
not the construction of the property is complete or the property securing the
loan has been sold, construction loans on nonresidential properties are
generally limited to a maximum loan-to-value ratio of 70% and also have a
maximum maturity of 12 months after which the loan can be converted to a
permanent mortgage loan.
Construction loan proceeds are disbursed in increments as construction
progresses and only after a physical inspection of the project is made by a Bank
representative. At December 31, 1997, the Bank had $14.1 million in construction
loans outstanding secured by unsold properties.
Construction loans to owner/borrowers have either fixed or adjustable
rates and are underwritten in accordance with the same terms and requirements as
the Bank's permanent mortgages on existing properties, except that the builder
must qualify as an approved contractor by the Bank, and the loans generally
provide for disbursement of loan proceeds in stages during the construction
period. An approved contractor is one who has been approved by a title insurance
company that will insure the Bank against mechanics' liens or whose credit,
financial statements, and experience have been approved by the Bank. Borrowers
are typically required to pay accrued interest on the outstanding balance
monthly during the construction phase. At December 31, 1997, there was $1.1
million outstanding in construction loans to owner/borrowers. The Bank
originated $24.9 million and $9.2 million in construction loans on one- to
four-family properties during the fiscal years ended December 31, 1997 and
September 30, 1996, respectively.
Commercial Real Estate Loans. The Bank originates commercial real
estate loans, which represent a growing portion of the Bank's lending
activities. At December 31, 1997, outstanding
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<PAGE>
commercial real estate loans amounted to $27.7 million. At December 31, 1997,
the largest commercial real estate loan had a balance of $1.5 million and was
secured by a shopping center.
Commercial real estate loans consist of permanent loans secured
primarily by small office buildings, apartment buildings, churches, and shopping
centers. Commercial real estate secured loans are generally originated in
amounts up to 70% of the appraised value of the property. Such appraised value
is determined by an independent appraiser which has been previously approved by
the Bank. Commercial real estate loans are generally originated on an
adjustable-rate basis with the interest rate adjusting annually and have terms
of up to 20 years.
Consumer and Other Installment Loans. Regulations permit federally
chartered savings associations to make secured and unsecured consumer loans up
to 35% of the Bank's assets. In addition, the Bank has lending authority above
the 35% limit for certain consumer loans, such as home improvement loans and
loans secured by savings accounts. The Bank offers consumer loans in order to
provide its customers a wider range of products and to reduce its interest rate
risk.
Consumer loans consist of savings account loans, personal secured and
unsecured loans, automobile loans, and home improvement loans. As of December
31, 1997, these consumer loans totaled $2.7 million, or 2.7% of the Bank's total
loan portfolio. Substantially all of the Bank's consumer loans have fixed rates
of interest.
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and an
assessment of ability to meet existing obligations and payments on the proposed
loan. In addition, the stability of the applicant's monthly income from primary
employment is considered during the underwriting process. Creditworthiness of
the applicant is of primary consideration; however, the underwriting process
also includes a comparison of the value of the security, if any, in relation to
the proposed loan amount.
Loan Underwriting Risks. The retention of ARMs in the Bank's portfolio
helps to reduce the Bank's exposure to changes in interest rates. However, there
are unquantifiable credit risks that could result from potential increased
payments to the borrower as a result of the repricing of ARMs. It is possible
that during periods of rapidly rising interest rates, the risk of default on
ARMs may increase due to the upward adjustment of interest cost to the borrower.
In addition, although ARMs allow the Bank to increase the sensitivity of its
asset base to changes in the interest rates, the extent of this interest rate
sensitivity is limited by the periodic and lifetime interest rate adjustment
limits. Because of these considerations, the Bank has no assurance that yields
on ARM loans will be sufficient to offset increases in the Bank's cost of funds.
Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction cost proves to be
inaccurate, it may be necessary for the Bank to advance funds beyond the amount
originally committed to permit completion of the construction. If the estimate
of value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan, with collateral having a value which is insufficient to
assure full repayment. As a result of the foregoing, construction lending often
involves the disbursement of substantial funds with repayment dependent, in
part, on the success of the project. If the Bank is forced to foreclose on a
property prior to or at completion due to a default, there can be no assurance
that the Bank will be able to recover all of the unpaid balance of, and accrued
interest on,
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<PAGE>
the loan as well as related foreclosure and holding costs. The Bank has sought
to lessen this risk by limiting construction lending to qualified borrowers in
the Bank's market area and by limiting the number of construction loans
outstanding at any time.
Loans secured by commercial real estate generally involve a greater
degree of risk than one- to four-family mortgage loans and carry larger loan
balances. This increased credit risk is a result of several factors, including
the concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income producing properties, and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by commercial real estate is
typically dependent upon the successful operation or management of the related
project or company. If the cash flow from the project or company is reduced, the
borrower's ability to repay the loan may be impaired. The Bank seeks to reduce
these risks in a variety of ways, including limiting the size of such loans and
analyzing the financial condition of the borrower, the quality of the
collateral, and the management of the property securing the loan. The Bank also
obtains personal guarantees and appraisals on each property.
Consumer loans entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans that are unsecured or secured
by assets that depreciate rapidly. In such cases, repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In particular, amounts
realizable on the sale of repossessed automobiles may be significantly reduced
based upon the condition of the collateral and the lack of demand for used
automobiles.
Loan Purchases and Sales. Generally, if the Bank determines that loan
sales are desirable for interest rate risk management or other purposes, the
Bank may sell its 15 to 30 year, fixed-rate 80% or more loan-to-value
conventional loans. The Bank uses standard Federal Home Loan Mortgage
Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA")
documentation for its conventional loans. The Bank sells loans directly to FHLMC
and FNMA. Loans are generally sold with servicing retained and without recourse.
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The table below indicates the Bank's origination and sales of loans
during the periods indicated.
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------
December 31, 1997 September 30, 1996
----------------- ------------------
(In Thousands)
<S> <C> <C>
Total gross loans receivable at beginning of period........... $ 56,330 $ 47,975
-------- --------
Loans originated:
Residential (1 to 4 family) mortgage........................ 15,554 11,645
Commercial, primarily real estate mortgage.................. 30,333 --
Real estate construction.................................... 23,894 9,221
Consumer and other installment.............................. 2,235 1,675
Other mortgage.............................................. -- 3,443
-------- --------
Total loans originated........................................ 72,016 25,984
-------- --------
Loans sold:
Residential (1 to 4 family)................................. 1,854 2,455
Loans purchased............................................... 750 --
Other loan activity:
Loan principal repayments................................... 28,189 15,174
-------- --------
Total gross loans receivable at end of period................. $ 99,053 $ 56,330
======== ========
</TABLE>
Loans to One Borrower. Savings associations are subject to the same
loans-to-one borrower limits as those applicable to national banks, which under
federal law and OTS regulations, generally limit loans-to-one borrower to the
greater of $500,000 or an amount equal to 15% of unimpaired capital and
unimpaired surplus on an unsecured basis and an additional amount equal to 10%
of unimpaired capital and unimpaired surplus if the loan is secured by readily
marketable collateral (generally, financial instruments, not real estate). The
largest amount outstanding to one borrower at December 31, 1997 was a loan for
which the net retained participation interest of the Bank totalled approximately
$1.5 million.
Loan Delinquencies. Loans past due more than 90 days are placed on
nonaccrual and are individually examined for potential losses and the ultimate
collectibility of funds due. Loans are deemed to have no loss exposure if the
value of the property securing the loan exceeds the receivable balance on the
loan or collection is probable. Specific reserves are established to recognize
losses on nonaccruing loans on a case-by-case basis.
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<PAGE>
Nonperforming Loans. The following table sets forth the aggregate
amount of restructured loans and loans which were contractually past due more
than 90 days as to principal or interest payments as of the dates indicated and
which are considered impaired loans.
At December 31, At September 30,
--------------- ----------------
1997 1996
--------------- ----------------
(Dollars in Thousands)
Nonperforming loans:
Restructured ............................. $ -- $ --
Nonaccrual (more than 90 days past due) .. 366 601
------- -------
Total nonperforming loans ............ $ 366 $ 601
======= =======
Ratio of nonperforming loans as a percentage
of total loans, net ........................ 0.38% 1.17%
Ratio of nonperforming loans as a percentage
of total assets ............................ 0.29% 0.75%
During the years ended December 31, 1997 and September 30, 1996, gross
interest income of $30,000 and $18,000, respectively, would have been recorded
on nonperforming loans, under their original terms, if the loans had been
current throughout those periods. Interest income recognized on nonperforming
loans during the years ended December 31, 1997 and September 30, 1996 was
approximately $14,000 and $35,000, respectively.
Classified Assets. OTS regulations provide for a classification system
for problem assets of insured institutions which covers all problem assets.
Under this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful," or "loss." An asset is considered
substandard if it is inadequately protected by the then current net worth and
paying capacity of the obligor or of the collateral pledged, if any. Substandard
assets include those characterized by the "distinct possibility" that the
insured institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of existing
facts, conditions, and values, "highly questionable and improbable." Assets
classified as loss are those considered "uncollectible" and of such little value
that their continuance as assets without the establishment of a specific loss
reserve is not warranted. Assets designated "special mention" by management are
assets included on the Bank's internal watch list because of potential weakness
but which do not warrant classification in one of the aforementioned categories.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. An institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which may recommend the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for credit losses generally do not
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<PAGE>
qualify as regulatory capital. At December 31, 1997 the Bank had a general loan
loss allowance of $670,000.
At December 31, 1997, the Bank had approximately $1.3 million of
special mention and classified loans, $762,000 of which were classified as
substandard and none of which were classified as doubtful or loss. As of
December 31, 1997, the Bank had $564,000 of loans which were classified as
special mention. Substandard and special mention assets consist of 18
residential real estate loans, only two of which exceeded $100,000, one consumer
loan totalling approximately $1,400, and two commercial real estate loans
totalling approximately $450,000. The Company considers its substandard loans as
potential problem loans; however, management does not anticipate any significant
losses on these loans as these assets are adequately secured by real estate. The
Bank believes that its allowance for loan losses is adequate to cover potential
losses on loans. Management will continue to monitor and adjust the allowance as
necessary in future periods based on growth in the loan portfolio, loss
experience and the continued expected changing mix of loans in the loan
portfolio. If the size of the loan portfolio continues to increase and the
relevant proportion in that portfolio of commercial and construction loans
increases, it is expected that the provision for loan losses will increase in
order to maintain the allowance at an adequate level.
Analysis of the Allowance for Loan Losses. The following table sets
forth the analysis of the allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year ended Year ended
December 31, September 30,
------------ -------------
1997 1996
------------ -------------
(Dollars in Thousands)
<S> <C> <C>
Total average loans outstanding........................... $ 82,973 $ 47,293
======== ========
Allowance balance (at beginning of period)................ $ 547 $ 409
Provisions for loan losses................................ 127 130
Charge-offs:
Real estate............................................. -- --
Consumer................................................ 4 --
Recoveries:
Consumer................................................ -- 1
-------- --------
Allowance balance (at end of period)...................... $ 670 $ 540
======== ========
Allowance for loan losses as a percent of
net loans receivable at end of period................... 0.7% 1.0%
Net loans charged off as a percent of
average loans outstanding............................... --% --%
Ratio of allowance for loan losses to total
loans delinquent 90 days or more at end
of period............................................... 55.0% 89.9%
Ratio of allowance for loan losses to total
loans delinquent 90 days or more and other
nonperforming assets at end of period................... 55.0% 89.9%
</TABLE>
The allowance is an amount that management has determined to be
adequate, through its allowance for loan losses methodology, to absorb losses
inherent in existing loans and commitments to
11
<PAGE>
extend credit. The allowance is determined through consideration of such factors
as changes in the nature and volume of the portfolio, overall portfolio quality,
delinquency trends, adequacy of collateral, loan concentrations, specific
problem loans, and economic conditions that may affect the borrowers' ability to
pay.
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the allowance for loan losses by loan category and the percent
of loans in each loan category to total loans for the periods indicated.
<TABLE>
<CAPTION>
At December 31, At September 30,
1997 1996
-------------------------------- ----------------------------
Percent of Percent of
Loans in each Loans in each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Residential (1-4 family) mortgage.................... $ 42 49.50% $316 80.79%
Real estate construction............................. 288 16.39 52 12.53
Commercial, primarily real estate mortgage........... 294 30.11 -- --
Consumer and other................................... 46 4.00 172 6.68
------ ------ ---- ------
Total ........................................... $ 670 100.00% $540 100.00%
====== ====== ==== ======
</TABLE>
Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure, judgment, or deed in lieu of foreclosure is classified as real
estate owned until it is sold. When property is so acquired it is recorded at
the lower of the cost or fair value. The Bank had no real estate owned at
December 31, 1997.
Investment and Mortgage-backed Securities Activities
Investment Securities. The Bank is required under federal regulations
to maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments, such as the common stock of
the FHLB of Atlanta. The Bank has generally maintained a liquidity portfolio
well in excess of regulatory requirements. Liquidity levels may be increased or
decreased depending upon the yields on investment alternatives and upon
management's judgment as to the attractiveness of the yields then available in
relation to other opportunities and its expectation of future yield levels, as
well as management's projections as to the short-term demand for funds to be
used in the Bank's loan origination, deposit withdrawals, and other activities.
Mortgage-backed Securities. The Bank's mortgage-backed securities
portfolio consists of participation certificates issued by FHLMC and FNMA and
secured by interests in pools of conventional mortgages originated by other
financial institutions.
Mortgage-backed securities provide for monthly payments of principal
and interest and generally have contractual maturities ranging up to 30 years.
However, due to expected repayment terms being significantly less than the
underlying mortgage loan pool contractual maturities, the estimated lives of
these securities could be significantly shorter.
12
<PAGE>
At September 30, 1996, the Company transferred all mortgaged-backed
securities from held to maturity to available for sale. During the years ended
December 31, 1997 and September 30, 1996, the Company sold $6.3 million and
$372,000, respectively, of available for sale mortgage-backed securities.
The following table sets forth certain information relating to the
Company's investment and mortgage-backed securities portfolios at the dates
indicated, which are all classified as available for sale.
<TABLE>
<CAPTION>
At December 31, At September 30,
------------------ -----------------
1997 1996
------------------ -----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------ --------- -----
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury and U.S. government
agency obligations ................... 7,984 7,983 11,405 11,334
Equity security ........................ 1,244 1,580 783 1,170
Municipal securities ................... 158 159 869 849
------- ------- ------- -------
Total ................................ 9,386 9,722 13,057 13,353
------- ------- ------- -------
Mortgage-backed securities:
FHLMC ................................ 235 234 3,229 3,201
FNMA ................................. 1,597 1,604 5,357 5,239
GNMA ................................. -- -- 1,665 1,585
------- ------- ------- -------
Total ................................ 1,832 1,838 10,251 10,025
------- ------- ------- -------
Total investment and mortgage-backed
securities portfolio ............. $11,218 $11,560 $23,308 $23,378
======= ======= ======= =======
</TABLE>
13
<PAGE>
Investment and Mortgage-backed Securities Portfolio Maturities. The
following table sets forth certain information regarding the amortized cost,
weighted average yields, and maturities of the Company's investment and
mortgage-backed securities portfolio at December 31, 1997. Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
As of December 31, 1997
-------------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total
------------------- -------------------- ------------------ -------------------- --------------------------
Weighted Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average Fair
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield Value
--------- --------- ---------- --------- --------- -------- --------- ---------- --------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available
for sale:
U.S. Treasury and
U.S. government
agency obligations.. $1,000 5.36% $5,991 6.16% $993 6.66% $ -- --% $7,984 6.12% $7,983
Mortgage-backed
securities.......... 236 5.05 1,224 6.10 -- -- 372 7.37 1,832 6.22 1,838
Equity security..... -- -- -- -- -- -- 1,244 -- 1,244 -- 1,580
Municipal
securities(1)....... -- -- -- -- -- -- 158 4.00 158 4.00 159
Total investment and
mortgage-backed
securities portfolio 1,236 5.30 6,718 6.16 993 6.66 1,774 6.35 11,218 6.13 11,560
</TABLE>
(1) The weighted average yield for municipal securities has not been computed
on a tax equivalent basis.
14
<PAGE>
Sources of Funds
General. The major sources of the Bank's funds for lending and other
investment purposes are deposits, scheduled principal repayments, and prepayment
of loans and mortgage-backed securities, maturities of investment securities,
and operations. Scheduled loan principal repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and market conditions. The
Bank also has access to advances from the FHLB of Atlanta.
Deposits. Customer deposits are attracted principally from within the
Bank's primary market area through the offering of a broad selection of deposit
instruments including noninterest-bearing demand deposit accounts, negotiable
order of withdrawal ("NOW") accounts, passbook savings, money market deposit,
term certificate accounts, and individual retirement accounts ("IRAs"). Deposit
account terms vary according to the minimum balance required, the time period
the funds must remain on deposit and the interest rate.
The interest rates paid by the Bank on deposits are set weekly based
upon an evaluation of the following factors: (i) the Bank's anticipated need for
cash and the timing of that desired cash flow; (ii) the interest rates offered
by other local financial institutions and the degree of competition the Bank
wishes to maintain; (iii) the cost of borrowing from other sources versus the
cost of acquiring funds through customer deposits; and (iv) the Bank's
anticipation of future economic conditions and related interest rates.
The following table indicates the amount of the Bank's time deposits of
$100,000 or more by time remaining until maturity at December 31, 1997.
Maturity Amount
- ---------------------------------------- -------------
(In Thousands)
3 months or less........................ $2,923
3-6 months.............................. 525
6-12 months............................. 3,120
Over 12 months.......................... 1,865
------
$8,433
======
Borrowings
Deposits are the primary source of funds of the Bank's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Atlanta to supplement its supply of lendable funds.
Advances from the FHLB of Atlanta may be secured by a pledge of the Bank's stock
in the FHLB of Atlanta and a portion of the Bank's first mortgage loans and
certain other assets. The Bank, if the need arises, may also access the Federal
Reserve Bank discount window to supplement its supply of lendable funds and to
meet deposit withdrawal requirements. At December 31, 1997, the Bank had $18.5
million in secured FHLB advances.
Subsidiary Activity
The Company has one wholly owned subsidiary, the Bank, which is
chartered under the laws of the United States. The Bank is permitted to invest
up to 2% of its assets in the capital stock of, or secured or unsecured loans
to, subsidiary corporations, with an additional investment of 1% of assets
15
<PAGE>
when such additional investment is utilized primarily for community development
purposes. At December 31, 1997, the Bank had one wholly-owned subsidiary, CCF
Financial Services, Inc. CCF Financial Services, Inc., a Georgia corporation,
was formed in 1996 to enter into a leasing arrangement with a third party
corporation to offer nondeposit investment products to customers of the Bank.
The Bank's investment in its subsidiary totalled $1,000 at December 31, 1997.
Personnel
As of December 31, 1997, the Bank had 64 full-time and nine part-time
employees. The Company does not have any employees other than officers. None of
the Bank's employees are represented by a collective bargaining group.
Regulation
Set forth below is a brief description of certain laws which relate to
the regulation of the Company and the Bank. The description does not purport to
be complete and is qualified in its entirety by reference to applicable laws and
regulations.
Company Regulation
General. The Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Company is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Company and its non-savings association subsidiaries, should such subsidiaries
be formed, which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association. This
regulation and oversight is intended primarily for the protection of the
depositors of the Bank and not for the benefit of stockholders of the Company.
Qualified Thrift Lender Test. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions, provided
the Bank satisfies the Qualified Thrift Lender ("QTL") test or a somewhat
similar test for domestic building and loan associations. If the Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Company and any of its subsidiaries (other than the Bank or any other
SAIF-insured savings association) would become subject to restrictions
applicable to bank holding companies unless such other associations each also
qualifies as a QTL or domestic building and loan association and were acquired
in a supervisory acquisition. See "- Regulation of the Bank - Qualified Thrift
Lender Test."
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings association,
the Bank is subject to extensive regulation by the OTS and the Federal Deposit
Insurance Corporation ("FDIC"). Lending activities and other investments must
comply with various federal statutory and regulatory requirements. The Bank is
also subject to certain reserve requirements promulgated by the Federal Reserve
Board.
16
<PAGE>
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's operations. The Bank's relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law, especially in such matters as the ownership of savings accounts
and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such regulations, whether by the OTS, the FDIC, or the
Congress could have a material adverse impact on the Company, the Bank, and
their operations.
Insurance of Deposit Accounts. The deposit accounts held by the Bank
are insured by the SAIF to a maximum of $100,000 for each insured member (as
defined by law and regulation). Insurance of deposits may be terminated by the
FDIC upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by the
FDIC or the institution's primary regulator.
As a member of the SAIF, the Bank paid an insurance premium to the FDIC
equal to a minimum of 0.23% of its total deposits. The FDIC also maintains
another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures
commercial bank deposits. In 1996, the annual insurance premium for most BIF
members was lowered to $2,000. The lower insurance premiums for BIF members
placed SAIF members at a competitive disadvantage to BIF members.
Effective September 30, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Bank of approximately
.657% of deposits held on March 31, 1995. Beginning January 1, 1997, the deposit
insurance assessment for SAIF members was reduced to .064% of deposits on an
annual basis through the end of 1999. During this same period, BIF members will
be assessed approximately .013% of deposits. After 1999, assessments for BIF and
SAIF members should be the same. It is expected that these continuing
assessments for both SAIF and BIF members will be used to repay outstanding
Financing Corporation bond obligations. As a result of these changes, beginning
January 1, 1997, the rate of deposit insurance assessed the Bank declined by
approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require
savings associations to meet three capital standards: (1) a tangible capital
requirement of 1.5% of total adjusted assets, (2) a leverage ratio (core
capital) requirement of 3% of total adjusted assets and (3) a risk-based capital
requirement equal to 8% of total risk-weighted assets.
17
<PAGE>
As shown below, the Bank's regulatory capital exceeded all minimum
regulatory capital requirements applicable to it as of December 31, 1997:
<TABLE>
<CAPTION>
Percent of
Adjusted
Amount Assets
------ ------
(Dollars in Thousands)
<S> <C> <C>
Tangible Capital:
Regulatory requirement............................... $ 1,868 1.50%
Regulatory capital................................... 10,350 10.17
------- ----
Excess............................................. $ 8,482 8.67%
======= ====
Core Capital:
Regulatory requirement............................... $ 3,737 3.00%
Regulatory capital................................... 10,350 10.17
------- ----
Excess............................................. $ 6,613 7.17%
======= ====
Risk-Based Capital:
Regulatory requirement............................... $ 6,676 8.00%
Regulatory capital................................... 11,020 13.19
------- ----
Excess............................................. $ 4,344 5.19%
======= ====
</TABLE>
Net Portfolio Value. In recent years, the Bank has measured its
interest rate sensitivity by computing the "gap" between the assets and
liabilities which were expected to mature or reprice within certain periods,
based on assumptions regarding loan prepayment and deposit decay rates formerly
provided by the OTS. However, the OTS now requires the computation of amounts by
which the net present value of an institution's cash flows from assets,
liabilities, and off balance sheet items (the institution's net portfolio value,
or "NPV") would change in the event of a range of assumed changes in market
interest rates. The OTS also requires the computation of estimated changes in
net interest income over a four-quarter period. These computations estimate the
effect on an institution's NPV and net interest income of instantaneous and
permanent 100 to 400 basis point increases and decreases in market interest
rates.
NPV is the difference between incoming and outgoing discounted cash
flows from assets, liabilities, and off-balance sheet contracts. An
institution's interest rate risk is measured as the change to its NPV as a
result of a hypothetical 200 basis point change in market interest rates. A
resulting change in NPV of more than 2% of the estimated market value of its
assets will require the institution to deduct from its capital 50% of that
excess change. At December 31, 1997, had the rule applied to the Bank, a
deduction would have been required. Institutions, such as the Bank, with less
than $300 million in total assets and a risk-based capital ratio in excess of
12% are exempt from filing information with the OTS and are exempt from making a
deduction from capital. Because the Bank is not subject to the rule, the
following table presents the Bank's NPV at December 31, 1997, as calculated by a
third party for the Bank.
18
<PAGE>
The Bank utilizes the NPV calculations to manage its interest rate risk
by establishing a maximum decrease in net interest income and maximum decreases
in NPV given these instantaneous changes in interest rates. The greater the
change in NPV, positive or negative, the more interest rate risk is assumed to
exist with the institution. However, computations of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including
relative levels of market interest rates, loan prepayments and deposit run-offs,
and should not be relied upon as indicative of actual results. Further, the
computations do not contemplate any actions the Bank may undertake in response
to changes in interest rates.
<TABLE>
<CAPTION>
Change in Estimated Amount of Percent of NPV Change (basis
Rates (basis points) NPV($) Change ($) (1) NPV Change (2) Ratio (%) (3) points) (4)
- ------------------------- ----------- -------------- -------------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+400 22,498 (4,717) (17) 18.30 -384
+300 23,537 (3,678) (14) 19.15 -299
+200 24,664 (2,551) (9) 20.07 -207
+100 25,887 (1,328) (5) 21.06 -108
-- 27,215 -- -- 22.14 --
-100 28,658 1,443 5 23.31 117
-200 30,225 3,010 11 24.59 245
-300 31,929 4,714 17 25.98 384
-400 33,781 6,566 24 27.48 534
</TABLE>
- -----------------
(1) Represents the excess (deficiency) of the estimated NPV assuming the
indicated change in interest rates minus the estimated NPV assuming no
change in interest rates.
(2) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
(3) Calculated as estimated NPV divided by present value of total assets.
(4) Calculated as the excess (deficiency) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio
assuming no change in interest rates.
The Bank is exempt from deducting the interest rate risk component from
its risk-based capital due to its asset size and level of risk-based capital.
Based on the table, net interest income should decline with instantaneous
increases in interest rates while net interest income should increase with
instantaneous declines in interest rates.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to the Conversion.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out merger and other distributions charged against capital. The rule
establishes three tiers of institutions, based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision
19
<PAGE>
can, after prior notice but without the approval of the OTS, make capital
distributions during a calendar year equal to the greater of (i) 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year, or (ii)
75% of its net income over the most recent four quarter period. Any additional
capital distributions require prior regulatory approval. As of December 31,
1997, the Bank was a Tier 1 institution. In the event the Bank's capital fell
below its fully phased-in requirement or the OTS notified it that it was in need
of more than normal supervision, the Bank's ability to make capital
distributions could be restricted. In addition, the OTS could prohibit a
proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
Finally, a savings association is prohibited from making a capital
distribution if, after making the distribution, the savings association would be
undercapitalized (not meet any one of its minimum regulatory capital
requirements).
In contrast, the Company has fewer restrictions on dividends. During
the fiscal years ended December 31, 1997 and September 30, 1996, the dividend
payout ratio (dividends declared per share divided by net income per share) of
the Company was 305.88% and 111.11%, respectively.
Qualified Thrift Lender Test. Savings institutions must meet either the
QTL test pursuant to OTS regulations or the definition of a domestic building
and loan association in section 7701 of the Code. If the Bank maintains an
appropriate level of certain specified investments (primarily residential
mortgages and related investments, including certain mortgage-related
securities) and otherwise qualifies as a QTL or a domestic building and loan
association, it will continue to enjoy full borrowing privileges from the FHLB
of Atlanta. The required percentage of investments under the QTL test is 65% of
assets while the Code requires investments of 60% of assets. A bank must be in
compliance with the QTL test or definition of domestic building and loan
association on a monthly basis in nine out of every 12 months. As of December
31, 1997, the Bank was in compliance with its QTL requirement and met the
definition of a domestic building and loan association.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW, and Super
NOW checking accounts) and non-personal time deposits. The balances maintained
to meet the reserve requirements imposed by the Federal Reserve Board may be
used to satisfy the liquidity requirements that are imposed by the OTS. However,
at December 31, 1997, the Bank was in compliance with this requirement.
Item 2. Description of Property
- ---------------------------------
(a) Properties.
The Company owns no real property but utilizes the offices of the Bank.
The Bank operates from its main office and four branch offices, all of which are
owned by the Bank.
The Bank obtains rental income through the leasing of space in its main
office building and an office building adjacent to its Forest Park branch office
and its former Riverdale branch office. During the fiscal years ended December
31, 1997 and September 30, 1996, such rental income was $43,000 and $49,000,
respectively.
20
<PAGE>
(b) Investment Policies.
See "Item 1. Business" above for a general description of the Bank's
investment policies and any regulatory or Board of Directors' percentage of
assets limitations regarding certain investments. All of the Bank's investment
policies are reviewed and approved by the Board of Directors of the Bank, and
such policies, subject to regulatory restrictions (if any), can be changed
without a vote of stockholders. The Bank's investments are primarily acquired to
produce income, and to a lesser extent, possible capital gain.
(1) Investments in Real Estate or Interests in Real Estate. See "Item
1. Business - Lending Activities," "Item 1. Business - Regulation of the Bank,"
and "Item 2. Description of Property. (a) Properties" above.
(2) Investments in Real Estate Mortgages. See "Item 1. Business -
Lending Activities" and "Item 1. Business - Regulation of the Bank."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Business - Lending Activities,"
and "Item 1. Business - Regulation of the Bank."
(c) Description of Real Estate and Operating Data.
Not Applicable.
Item 3. Legal Proceedings
- ---------------------------
The Company and the Bank, from time to time, are party to ordinary
routine litigation, which arises in the normal course of business, such as
claims to enforce liens, condemnation proceedings, on properties in which the
Bank holds security interests, claims involving the making and servicing of real
property loans, and other issues incident to the business of the Company and the
Bank. In the opinion of management, no material loss is expected from any of
such pending claims or lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1997.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The information contained under the section captioned "Stock Market
Information" in the Company's Annual Report for the fiscal year ended December
31, 1997 (the "Annual Report"), is incorporated herein by reference.
21
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis or Plan of Operation" in the Annual Report is
incorporated herein by reference.
Item 7. Financial Statements
- ------------------------------
The Company's consolidated financial statements in the Annual Report
are incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
- --------------------------------------------------------------------------------
Financial Disclosure
- --------------------
Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
- --------------------------------------------------------------------------------
with Section 16(a) of the Exchange Act
- --------------------------------------
The information contained under the section captioned "I - Information
with Respect to Nominees for Director, Directors Continuing in Office, and
Executive Officers" in the Company's definitive proxy statement for the
Company's Annual Meeting of Stockholders to be held on April 21, 1998 (the
"Proxy Statement") is incorporated herein by reference.
Item 10. Executive Compensation
- --------------------------------
The information contained under the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "I - Information with
Respect to Nominees for Director, Directors Continuing in
Office, and Executive Officers" in the Proxy Statement.
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the Registrant.
22
<PAGE>
Item 12. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Certain Relationships and Related
Transactions" and "Voting Securities and Principal Holders Thereof" in the Proxy
Statement.
Item 13. Exhibits, List and Reports on Form 8-K
- ------------------------------------------------
(a)(1) The Consolidated Financial Statements, including the notes thereto, and
Independent Auditors' Report included in the Annual Report, listed
below, are incorporated herein by reference.
1. Independent Auditors' Report
2. CCF Holding Company and Subsidiary
(a) Consolidated Balance Sheets at December 31, 1997 and
September 30, 1996
(b) Consolidated Statements of Income for the year ended
December 31, 1997, the three months ended December
31, 1996, and the years ended September 30, 1996 and
1995
(c) Consolidated Statements of Stockholders' Equity for
the year ended December 31, 1997, the three months
ended December 31, 1996, and the years ended
September 30, 1996 and 1995
(d) Consolidated Statements of Cash Flows for the year
ended December 31, 1997, the three months ended
December 31, 1996, and the years ended September 30,
1996 and 1995
(e) Notes to Consolidated Financial Statements
(a)(2) All schedules have been omitted because the required information is
either inapplicable or included in the Notes to Consolidated Financial
Statements.
(a)(3) Exhibits are either filed or attached as part of this Report or
incorporated herein by reference.
3.1 Articles of Incorporation of CCF Holding Company*
3.2 Bylaws of CCF Holding Company
10.1 Management Stock Bonus Plan**
10.2 1995 Stock Option Plan**
10.3 Employment Agreement with David B. Turner***
10.4 Employment or Change in Control Agreements with other
executive officers
13 Annual Report to Stockholders for the fiscal year
ended December 31, 1997.
21 Subsidiaries of the Registrant
23 Consent of KPMG Peat Marwick LLP
23
<PAGE>
27 Financial Data Schedule
(b) Reports on Form 8-K.
None.
(c) Exhibits to this Form 10-KSB are attached or incorporated by reference
as stated above.
- ----------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 declared effective by the Commission on May 15, 1995 (File No.
33-90612).
** Incorporated by reference to the Registrant's proxy statement for the
annual meeting of stockholders held January 23, 1996 as filed with the
Commission on December 15, 1995 (File No. 0-25846).
*** Incorporated by reference to Exhibit 10.3 of the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended September 30, 1996 as
filed with the Commission on December 30, 1996 (File No. 0-25846).
24
<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 to be signed on
its behalf by the undersigned, thereunto duly authorized.
CCF HOLDING COMPANY
Dated: March 30, 1998 By: /s/David B. Turner
------------------
David B. Turner
President, Chief Executive
Officer, and Director (Duly
Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/David B. Turner By: /s/John B. Lee, Jr.
----------------------------------- ------------------------------
David B. Turner John B. Lee, Jr.
President, Chief Executive Officer, Chairman of the Board
and Director (Principal Executive
Officer)
Date: March 30, 1998 Date: March 30, 1998
By: /s/Edwin S. Kemp, Jr. By: /s/Charles S. Tucker
---------------------------------- -----------------------------
Edwin S. Kemp, Jr. Charles S. Tucker
Director Treasurer, Secretary, and
Director
Date: March 30, 1998 Date: March 30, 1998
By: /s/Joe B. Mundy By: /s/ Mary Jo Rogers
--------------------------------- -----------------------------
Joe B. Mundy Mary Jo Rogers
Director Vice President and Chief
Financial Officer (Principal
Accounting and Financial
Officer)
Date: March 30, 1998 Date: March 30, 1998
EXHIBIT 3.2
<PAGE>
BYLAWS
OF
CCF HOLDING COMPANY
ARTICLE I
Home Office
The home office of CCF Holding Company (the "Corporation") shall be at
101 North Main Street, City of Jonesboro, County of Clayton, in the State of
Georgia. The Corporation may also have offices at such other places within or
without the State of Georgia as the board of directors shall from time to time
determine.
ARTICLE II
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at the home office of the Corporation or at such
other place within or without the State of Georgia as the board of directors may
determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders for
any purpose or purposes may be called at any time by the majority of the board
of directors or the chief executive officer, and only such persons as are
specifically permitted to call meetings by the Georgia Business Corporation Code
in accordance with the provisions of the Corporation's Articles of
Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. Voting. At each election for directors, every stockholder
entitled to vote at such election shall be entitled to one vote for each share
of stock held by him. Unless otherwise provided in the Articles of
Incorporation, by Statute, or by these Bylaws, a majority of those votes cast by
stockholders at a lawful meeting shall be sufficient to pass on a transaction or
matter.
SECTION 6. Notice of Meetings. Written notice stating the place, day,
and hour of the meeting and the purpose or purposes for which the meeting is
called shall be mailed by the secretary or the officer performing his duties,
not less than ten days nor more than sixty days before the meeting to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books or records of the Corporation as of the record date prescribed in Section
7 of this Article II, with postage thereon prepaid. If a stockholder is present
at a meeting, or in writing waives notice thereof before or after the meeting,
notice of the meeting to such stockholder shall be unnecessary. When any
stockholders' meeting, either annual or special, is adjourned for 120 days,
notice of the adjourned meeting shall be given as in the case of an original
meeting. It shall not be
<PAGE>
necessary to give any notice of the time and place of any meeting adjourned for
less than 120 days or of the business to be transacted at such adjourned
meeting, other than an announcement at the meeting at which such adjournment is
taken.
SECTION 7. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than seventy days, and in case of a meeting of stockholders, not less
than ten days prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
SECTION 8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
SECTION 9. Proxies. A shareholder may cast or authorize the casting of
a vote by filing a written appointment of a proxy with an officer of the
Corporation at or before the meeting at which the appointment is to be
effective. A written appointment of a proxy may be signed by the shareholder or
authorized by the shareholder by transmission of a telegram, cablegram, or other
means of electronic transmission, provided that the corporation has no reason to
believe that the telegram, cablegram, or other electronic transmission was not
authorized by the shareholder. Any reproduction of the writing or transmission
may be substituted or used in lieu of the original writing or transmission for
any purpose for which the original transmission could be used, provided that the
copy, facsimile telecommunication, or other reproduction is a complete and
legible reproduction of the entire original writing or transmission. Proxies
solicited on behalf of the management shall be voted as directed by the
stockholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid after eleven months from the
date of its execution unless otherwise provided in the proxy.
SECTION 10. Voting of Shares in the Name of Two or More Persons. When
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such stockholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
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<PAGE>
SECTION 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, trustee, or conservator may be voted by him,
either in person or by proxy, without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee
and thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation,
nor shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting. This
provision does not limit the power of the Corporation to vote any shares,
including its own shares, held by it in a fiduciary capacity.
SECTION 12. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board or the president may make such
appointment at the meeting. In case any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment by
the board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the right to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all stockholders.
SECTION 13. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least twenty days prior to the
date of the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Articles of Incorporation.
- 3 -
<PAGE>
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its board of directors. The board of directors
shall annually elect a president and a chief executive officer from among its
members and may also elect a chairman of the board from among its members. The
board of directors shall designate, when present, either of the chairman of the
board or president to preside at its meetings.
SECTION 2. Number, Term, and Election. The board of directors shall
initially consist of six members and shall be divided into three classes as
nearly equal in number as possible. The members of each class shall be elected
for a term of three years and until their successors are elected or qualified.
The board of directors shall be classified in accordance with the provisions of
the Corporation's Articles of Incorporation. Directors are to be elected by a
plurality of votes cast by the shares entitled to vote in the election at a
meeting of stockholders at which a quorum is present. The board of directors may
increase the number of members of the board of directors but in no event shall
the number of directors be increased in excess of fifteen.
SECTION 3. Age Limitation on Directors. No person 70 years of age shall
be eligible for election, reelection, appointment, or reappointment to the board
of directors of the Corporation. No director shall serve as such beyond the
annual meeting of the Corporation immediately following his or her becoming 70
years of age, except that a director serving on the date of adoption of these
Bylaws shall not be subject to this limitation. This age limitation does not
apply to an advisory director.
SECTION 4. Place of Meetings. All annual and special meetings of the
board of directors shall be held at the home office of the Corporation or at
such other place within or without the State in which the home office of the
Corporation is located as the board of directors may determine and as designated
in the notice of such meeting.
SECTION 5. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this Bylaw at such time and
date as the board of directors may determine.
SECTION 6. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board or president, or
by two-thirds of the directors. The persons authorized to call special meetings
of the board of directors may fix any place within or without the State of
Georgia as the place for holding any special meeting of the board of directors
called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other.
SECTION 7. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the nominees for election as directors.
Except in the case of a nominee substituted as a result of the death or other
incapacity of a management nominee, the nominating committee shall deliver
written nominations to the secretary at least twenty days prior to the date of
the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other
- 4 -
<PAGE>
nominations by stockholders are made in writing and delivered to the secretary
of the Corporation in accordance with the provisions of the Corporation's
Articles of Incorporation.
SECTION 8. Notice. Written notice of any special meeting shall be given
to each director at least two days previous thereto delivered personally or by
telegram or at least five days previous thereto delivered by mail at the address
at which the director is most likely to be reached. Such notice shall be deemed
to be delivered when deposited in the United States mail so addressed, with
postage thereon prepaid if mailed or when delivered to the telegraph company if
sent be telegram. Any director may waive notice of any meeting by a writing
filed with the secretary. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any meeting of the board of directors need
be specified in the notice or waiver of notice of such meeting.
SECTION 9. Quorum. A majority of the number of directors fixed by
Section 2 of Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 8 of Article III.
SECTION 10. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these Bylaws, the
Articles of Incorporation, or the laws of Georgia.
SECTION 11. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 12. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the Corporation
addressed to the chairman of the board or the board of directors. Unless
otherwise specified therein, such resignation shall take effect upon receipt
thereof.
SECTION 13. Vacancies. Any vacancy occurring in the board of directors
shall be filled in accordance with the provisions of the Corporation's Articles
of Incorporation. Any directorship to be filled by reason of an increase in the
number of directors may be filled by the affirmative vote of two-thirds of the
directors then in office. The term of such director shall be in accordance with
the provisions of the Corporation's Articles of Incorporation. A vacancy that
will occur a late date may be filled before the vacancy date occurs, however,
the new director may not take office until the vacancy occurs.
SECTION 14. Removal of Directors. Any director or the entire board of
directors may be removed for cause and then only in accordance with the
provisions of the Corporation's Articles of Incorporation.
SECTION 15. Compensation. Directors, as such, may receive a stated fee
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors.
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<PAGE>
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine. Nothing herein shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
remuneration therefor.
SECTION 16. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting, unless
he objects at the beginning of the meeting (or promptly upon his arrival) to
holding such meeting or transacting business at such meeting, or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who votes in favor of such action.
ARTICLE IV
Committees of the Board of Directors
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, as they may determine to be
necessary or appropriate for the conduct of the business of the Corporation, and
may prescribe the duties, constitution, and procedures thereof. Each committee
shall consist of one or more directors of the Corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
The board of directors shall have power, by the affirmative vote of a
majority of the authorized number of directors, at any time to change the
members of, to fill vacancies in, and to discharge any committee of the board.
Any member of any such committee may resign at any time by giving notice to the
Corporation provided, however, that notice to the board, the chairman of the
board, the chairman of such committee, or the secretary shall be deemed to
constitute notice to the Corporation. Such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the board called for
that purpose.
ARTICLE V
Officers
SECTION 1. Positions. The officers of the Corporation shall be a
president, a chief executive officer, one or more vice presidents, a secretary,
and a treasurer, each of whom shall be elected by the board of directors. The
offices of the secretary and treasurer may be held by the same person and a vice
president may also be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors may designate the treasurer as
chief financial officer. The board may designate the president as chief
executive officer. The board of directors may also elect or authorize the
appointment of such other officers as the business of the Corporation may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the
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<PAGE>
absence of action by the board of directors, the officers shall have such powers
and duties as generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of the stockholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as possible. Each officer shall hold office until his successor
shall have been duly elected and qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
or appointment of an officer, employee, or agent shall not of itself create
contract rights. The board of directors may authorize the Corporation to enter
into an employment contract with any officer in accordance with state law; but
no such contract shall impair the right of the board of directors to remove any
officer at any time in accordance with Section 4 of this Article V.
SECTION 3. Age Limitation on Officers. No person 70 years of age shall
be eligible for election, reelection, appointment, or reappointment as an
officer of the Corporation. No officer shall serve beyond the annual meeting of
the Corporation immediately following his or her becoming 70 years of age except
that an officer serving on the date of adoption of these Bylaws shall not be
subject to this limitation.
SECTION 4. Removal. Any officer may be removed by vote of the majority
of the board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
SECTION 6. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE VI
Contracts, Loans, Checks, and Deposits
SECTION 1. Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Articles of Incorporation or these Bylaws
with respect to certificates for shares, the board of directors may authorize
any officer, employee, or agent of the Corporation to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Corporation. Such authority may be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. Checks, Drafts, Etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one
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<PAGE>
or more officers, employees, or agents of the Corporation in such manner as
shall from time to time be determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the board of directors may select.
ARTICLE VII
Certificates for Shares and Their Transfer
SECTION 1. Certificates for Shares. The shares of the Corporation shall
be represented by certificates signed by the chairman of the board of directors,
by the president or vice president, by the treasurer/chief financial officer, or
by the secretary of the Corporation, and may be sealed with the seal of the
Corporation or a facsimile thereof. Any or all of the signatures upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation and such countersignature may also be either
manually signed or by facsimile. If any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of its
issue.
SECTION 2. Form of Share Certificates. All certificates representing
shares issued by the Corporation shall set forth upon the face or back that the
Corporation will furnish to any shareholder upon request and without charge a
full statement of the designations, preferences, limitations, and relative
rights of the shares of each class authorized to be issued, the variations in
the relative rights and preferences between the shares of each such series so
far as the same have been fixed and determined, and the authority of the board
of directors to fix and determine the relative rights and preferences of
subsequent series.
Each certificate representing shares shall state upon the face thereof:
that the Corporation is organized under the laws of the State of Georgia; the
name of the person to whom issued; the number and class of shares; the date of
issue; the designation of the series, if any, which such certificate represents;
the par value of each share represented by such certificate, or a statement that
the shares are without par value. Other matters in regard to the form of the
certificates shall be determined by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for any
shares until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
issuance of shares shall be paid in accordance with the provisions of Georgia
law.
SECTION 5. Transfer of Shares. Transfer of shares of capital stock of
the Corporation shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of such authority, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Corporation. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name shares
of capital stock stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
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<PAGE>
SECTION 6. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Georgia law or the books of the Corporation, or to
vote in person or by proxy at any meeting of stockholders.
SECTION 7. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 8. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the last day of
December of each year. The Corporation shall be subject to an annual audit as of
the end of its fiscal year by independent public accountants appointed by and
responsible to the board of directors.
ARTICLE IX
Dividends
Subject to the provisions of the Articles of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Corporation's outstanding capital stock. Dividends may
be paid in cash, in property, or in the Corporation's own stock and as provided
for the Corporation's Articles of Incorporation.
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<PAGE>
ARTICLE X
Corporate Seal
The corporate seal of the Corporation shall be in such form as the
board of directors shall prescribe.
ARTICLE XI
Amendments
The Bylaws may be altered, amended or repealed or new Bylaws may be
adopted in the manner set forth in the Articles of Incorporation.
EXHIBIT 10.4
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into this 15th day of July, 1996 ("Effective
Date"), by and between Clayton County Federal Savings and Loan Association (the
"Association") and Mr. Leonard Moreland (the "Employee").
WHEREAS, the Employee is experienced in all phases of the management
and operations of a insured financial institution and is experienced in all
phases of the business of the Association; and
WHEREAS, the parties desire by this writing to set forth the employment
relationship of the Association and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. Upon the Effective Date, the Employee shall be employed
in the capacity as the Chief Administrative Officer of the Association reporting
directly to the President of the Association. The Employee shall render such
administrative and management services to the Association and CCF Holding
Company ("Parent") as are customarily performed by persons situated in a similar
executive capacity. The Employee shall promote to the extent permitted by law
the business of the Association and Parent. The Employee's other duties shall be
such as the President or the Board of Directors for the Association (the "Board
of Directors" or "Board") may from time to time reasonably direct, including
normal duties as an officer of the Association.
2. Base Compensation. As of the Effective Date, the Association agrees
to pay the Employee during the term of this Agreement a salary at the rate of
$80,000.00 per annum, payable in cash not less frequently than semi-monthly;
provided, that the rate of such base salary and total compensation shall be
reviewed by the Board of Directors not less often than annually, and such salary
shall be subject to revision from time to time within the sole discretion of the
President and the Board upon a determination that the performance of the
Employee has met the requirements and standards of the President and the Board,
and that such base salary shall be adjusted.
3. Discretionary Bonus. The Employee shall be entitled to participate
in an equitable manner with all other senior management employees of the
Association in discretionary bonuses that may be authorized and declared by the
Board of Directors to its senior management employees from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Employee's right to participate in such discretionary bonuses when and
as declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee
shall be entitled to participate in any plan of the Association relating to
pension, profit-sharing, or other
<PAGE>
retirement benefits and medical coverage or reimbursement plans that the
Association may adopt for the benefit of its employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Association's senior management employees. The Association shall reimburse
Employee for all reasonable out-of-pocket expenses which Employee shall incur in
connection with his service for the Association.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending twenty-four months
thereafter. Additionally, not later than on each annual anniversary date from
the Effective Date, the term of employment under this Agreement shall be
extended for up to an additional one year period beyond the then effective
expiration date so that the remaining term of the Agreement shall be for
twenty-four months thereafter upon a determination and resolution of the Board
of Directors that the performance of the Employee has met the requirements and
standards of the Board, and that the term of such Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the
Association or Parent.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the right of Employee to invest in the capital stock or other securities
of any business dissimilar from that of the Association or Parent, or, solely as
a passive or minority investor, in any business.
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards expected of employees
with comparable positions in comparable organizations and as may be established
from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the President
or the Board of Directors shall in its discretion permit, the Employee shall be
entitled to absent himself voluntarily from the performance of his employment
under this Agreement as follows:
(a) The Employee shall be entitled to annual vacation leave in
accordance with the policies as are periodically established by the Board of
Directors for senior management employees of the Association.
2
<PAGE>
(b) The Employee shall not be entitled to receive any additional
compensation from the Association on account of his failure to take vacation
leave and Employee shall not be entitled to accumulate unused vacation from one
fiscal year to the next, except in either case to the extent authorized by the
Board of Directors for senior management employees of the Association.
(c) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Association.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon
any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the last day of the calendar month in which Employee's
death shall have occurred.
(b) The Board of Directors may terminate the Employee's employment at
any time, but any termination by the Board of Directors other than termination
for Just Cause, shall not prejudice the Employee's right to compensation or
other benefits under the Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
Termination for "Just Cause" shall include termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event
Employee's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Association shall be obligated to continue to
pay the Employee the salary provided pursuant to Section 2 herein in effect as
of the date prior to such date of termination of employment for a period of
twenty-four months thereafter and the cost of Employee obtaining all health,
life, disability, and other benefits which the Employee would be eligible to
participate in through such date based upon the benefit levels substantially
equal to those being provided Employee at the date of termination of employment.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)),
3
<PAGE>
all obligations of the Association under this Agreement shall terminate, as of
the effective date of the order, but the vested rights of the parties shall not
be affected.
(e) If the Association is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(f) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Association: (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Association under the authority contained in Section 13(c) of FDIA; or (ii)
by the Director of the OTS, or his or her designee, at the time that the
Director of the OTS, or his or her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the Association
is determined by the Director of the OTS to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 12(b), in which case the Employee
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
(h) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Association's
affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) and (g)(1)), the Association's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Association may in
its discretion (i) pay the Employee all or part of the compensation withheld
while its contract obligations were suspended and (ii) reinstate any of its
obligations which were suspended.
11. Disability. If the Employee shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of
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<PAGE>
Directors, Employee shall receive the compensation and benefits provided under
the provisions of disability insurance coverage in effect for Association
employees. Upon returning to active full-time employment, the Employee's full
compensation as set forth in this Agreement shall be reinstated as of the date
of commencement of such activities. In the event that the Employee returns to
active employment on other than a full-time basis, then his compensation (as set
forth in Section 2 of this Agreement) shall be reduced in proportion to the time
spent in said employment, or as shall otherwise be agreed to by the parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment under this Agreement,
absent Just Cause, in connection with, or within twelve (12) months after, any
change in control of the Association or Parent, Employee shall be paid an amount
equal to the product of 2.99 times the Employee's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder. Said sum shall be paid, at the option of
Employee, either in one (1) lump sum within thirty (30) days of such termination
discounted to the present value of such payment using as the discount rate the
"prime rate" as published in the Wall Street Journal Eastern Edition as of the
date of such payment, or in periodic payments over the next 36 months or the
remaining term of this Agreement whichever is less, as if Employee's employment
had not been terminated, and such payments shall be in lieu of any other future
payments which the Employee would be otherwise entitled to receive under Section
9 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder
shall be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Employee by
the Association or the Parent shall be deemed an "excess parachute payment" in
accordance with Section 280G of the Code and be subject to the excise tax
provided at Section 4999(a) of the Code. The term "control" shall refer to the
ownership, holding or power to vote more than 25% of the Parent's or
Association's voting stock, the control of the election of a majority of the
Parent's or Association's directors, or the exercise of a controlling influence
over the management or policies of the Parent or Association by any person or by
persons acting as a group within the meaning of Section 13(d) of the Securities
Exchange Act of 1934. The term "person" means an individual other than the
Employee, or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Employee may voluntary terminate his employment under this Agreement
within twelve (12) months following a change in control of the Association or
Parent, and Employee shall thereupon
5
<PAGE>
be entitled to receive the payment described in Section 12(a) of this Agreement,
upon the occurrence, or within ninety (90) days thereafter, of any of the
following events, which have not been consented to in advance by the Employee in
writing: (i) if Employee would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Employee's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Association or Parent, Employee would be
required to report to a person or persons other than the President or the Board
of the Association or Parent; (iii) if the Association or Parent should fail to
maintain Employee's base compensation in effect as of the date of the Change in
Control and the existing employee benefits plans, including material fringe
benefit, stock option and retirement plans; (iv) if Employee would be assigned
duties and responsibilities other than those normally associated with his
position as referenced at Section 1, herein; (v) if Employee would not be
reelected to the Board of Directors of the Association; or (vi) if Employee's
responsibilities or authority have in any way been materially diminished or
reduced.
(c) In the event any dispute shall arise between the Employee and the
Association as to the terms or interpretation of this Agreement, including this
Section 12, whether instituted by formal legal proceedings or otherwise,
including any action taken by Employee to enforce the terms of this Section 12
or in defending against any action taken by the Association or Parent, the
Association or Parent shall reimburse Employee for all costs and expenses,
including reasonable attorneys' fees, arising from such dispute, proceedings or
actions following issuance of a legal judgement by a court of competent
jurisdiction finding in favor of the Employee or the settlement of the dispute
by the parties. Such settlement to be approved by the Board of the Association
or the Parent may include a provision for the reimbursement by the Association
or Parent to the Employee for all costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions, or the Board
of the Association or the Parent shall authorize such reimbursement of such
costs and expenses by separate action upon a written action and determination of
the Board that payment of such costs and expenses is not detrimental to the
Association or the Parent. Such reimbursement shall be paid within ten (10) days
of Employee furnishing to the Association or Parent evidence, which may be in
the form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Employee.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Association or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Association or
Parent.
6
<PAGE>
(b) Since the Association is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Association.
14. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
15. Applicable Law. This agreement shall be governed in all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Georgia, the extent that Federal law shall be deemed to
apply.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
7
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into this 1st day of November 1996 ("Effective
Date"), by and between Clayton County Federal Savings and Loan Association (the
"Association") and Mr. Gary D. McGaha (the "Employee").
WHEREAS, the Employee is experienced in all phases of the management
and operations of a insured financial institution and is experienced in all
phases of the business of the Association; and
WHEREAS, the parties desire by this writing to set forth the employment
relationship of the Association and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. Upon the Effective Date, the Employee shall be employed
in the capacity as an Executive Vice President of the Association reporting
directly to the Chief Administrative Officer of the Association. The Employee
shall render such administrative and management services to the Association and
CCF Holding Company ("Parent") as are customarily performed by persons situated
in a similar executive capacity. The Employee shall promote to the extent
permitted by law the business of the Association and Parent. The Employee's
other duties shall be such as the President or the Board of Directors for the
Association (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Association.
2. Base Compensation. As of the Effective Date, the Association agrees
to pay the Employee during the term of this Agreement a salary at the rate of
$90,000.00 per annum, payable in cash not less frequently than semi-monthly;
provided, that the rate of such base salary and total compensation shall be
reviewed by the Board of Directors not less often than annually, and such salary
shall be subject to revision from time to time within the sole discretion of the
President and the Board upon a determination that the performance of the
Employee has met the requirements and standards of the President and the Board,
and that such base salary shall be adjusted.
3. Discretionary Bonus. The Employee shall be entitled to participate
in an equitable manner with all other senior management employees of the
Association in discretionary bonuses that may be authorized and declared by the
Board of Directors to its senior management employees from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Employee's right to participate in such discretionary bonuses when and
as declared by the Board of Directors.
<PAGE>
4. (a) Participation in Retirement and Medical Plans. The Employee
shall be entitled to participate in any plan of the Association relating to
pension, profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Association may adopt for the benefit of its
employees.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Association's senior management employees. The Association shall reimburse
Employee for all reasonable out-of-pocket expenses which Employee shall incur in
connection with his service for the Association.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending twenty-four months
thereafter. Additionally, not later than on each annual anniversary date from
the Effective Date, the term of employment under this Agreement shall be
extended for up to an additional one year period beyond the then effective
expiration date so that the remaining term of the Agreement shall be for
twenty-four months thereafter upon a determination and resolution of the Board
of Directors that the performance of the Employee has met the requirements and
standards of the Board, and that the term of such Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the
Association or Parent.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the right of Employee to invest in the capital stock or other securities
of any business dissimilar from that of the Association or Parent, or, solely as
a passive or minority investor, in any business.
(c) In consideration of entering into this Agreement and the sums
payable by the Association under this Agreement, Employee agrees that for a
period of not less than one year from the date of termination of employment with
the Association in accordance with Section 9 hereinafter, whether such
termination is initiated by the Employee or the Association, Employee shall not
engage in providing professional service or employment as an employee, director,
consultant, representative, or similar relationship to any financial services
enterprise (including but not limited to a savings and loan association, bank,
credit union, or insurance company) with offices or business activities located
in Fayette County in the State of Georgia. Breach of this provision not to
compete with the business of the Association shall result in the
2
<PAGE>
forfeiture of all compensation and benefits eligibility to be provided in
accordance with Section 9(c) herein, as may be applicable, as well as the
Association seeking such other legal remedies, including but not limited to
seeking injunctive relief and monetary damages for such contract breach. This
limitation on future activities shall not affect the payment of compensation
payable in accordance with Section 12 of the Agreement.
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards expected of employees
with comparable positions in comparable organizations and as may be established
from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the President
or the Board of Directors shall in its discretion permit, the Employee shall be
entitled to absent himself voluntarily from the performance of his employment
under this Agreement as follows:
(a) The Employee shall be entitled to annual vacation leave in
accordance with the policies as are periodically established by the Board of
Directors for senior management employees of the Association.
(b) The Employee shall not be entitled to receive any additional
compensation from the Association on account of his failure to take vacation
leave and Employee shall not be entitled to accumulate unused vacation from one
fiscal year to the next, except in either case to the extent authorized by the
Board of Directors for senior management employees of the Association.
(c) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Association.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon
any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the last day of the calendar month in which Employee's
death shall have occurred.
3
<PAGE>
(b) The Board of Directors may terminate the Employee's employment at
any time, but any termination by the Board of Directors other than termination
for Just Cause, shall not prejudice the Employee's right to compensation or
other benefits under the Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
Termination for "Just Cause" shall include termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event
Employee's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Association shall be obligated to continue to
pay the Employee the salary provided pursuant to Section 2 herein in effect as
of the date prior to such date of termination of employment for a period of
twenty-four months thereafter and the cost of Employee obtaining all health,
life, disability, and other benefits which the Employee would be eligible to
participate in through such date based upon the benefit levels substantially
equal to those being provided Employee at the date of termination of employment.
Payments hereunder shall be subject to the limitations set forth at Section
6(c), herein.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Association under this
Agreement shall terminate, as of the effective date of the order, but the vested
rights of the parties shall not be affected.
(e) If the Association is in default (as defined in Section 3(x)(1) of
FDIA) all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
(f) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Association: (i) by the Director of the Office of
Thrift Supervision ("Director of OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Association under the authority contained in Section 13(c) of FDIA; or (ii)
by the Director of the OTS, or his or her designee, at the time that the
Director of the OTS, or his or her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the Association
is determined
4
<PAGE>
by the Director of the OTS to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by such
action.
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 12(b), in which case the Employee
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
(h) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Association's
affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12
U.S.C. 1818(e)(3) and (g)(1)), the Association's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Association may in
its discretion (i) pay the Employee all or part of the compensation withheld
while its contract obligations were suspended and (ii) reinstate any of its
obligations which were suspended.
11. Disability. If the Employee shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall receive the compensation and
benefits provided under the provisions of disability insurance coverage in
effect for Association employees. Upon returning to active full-time employment,
the Employee's full compensation as set forth in this Agreement shall be
reinstated as of the date of commencement of such activities. In the event that
the Employee returns to active employment on other than a full-time basis, then
his compensation (as set forth in Section 2 of this Agreement) shall be reduced
in proportion to the time spent in said employment, or as shall otherwise be
agreed to by the parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment under this Agreement,
absent Just Cause, in connection with, or within twelve (12) months after, any
change in control of the Association or Parent, Employee shall be paid an amount
equal to the product of 2.99 times the Employee's "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder. Said
5
<PAGE>
sum shall be paid, at the option of Employee, either in one (1) lump sum within
thirty (30) days of such termination discounted to the present value of such
payment using as the discount rate the "prime rate" as published in the Wall
Street Journal Eastern Edition as of the date of such payment, or in periodic
payments over the next 36 months or the remaining term of this Agreement
whichever is less, as if Employee's employment had not been terminated, and such
payments shall be in lieu of any other future payments which the Employee would
be otherwise entitled to receive under Section 9 of this Agreement.
Notwithstanding the forgoing, all sums payable hereunder shall be reduced in
such manner and to such extent so that no such payments made hereunder when
aggregated with all other payments to be made to the Employee by the Association
or the Parent shall be deemed an "excess parachute payment" in accordance with
Section 280G of the Code and be subject to the excise tax provided at Section
4999(a) of the Code. The term "control" shall refer to the ownership, holding or
power to vote more than 25% of the Parent's or Association's voting stock, the
control of the election of a majority of the Parent's or Association's
directors, or the exercise of a controlling influence over the management or
policies of the Parent or Association by any person or by persons acting as a
group within the meaning of Section 13(d) of the Securities Exchange Act of
1934. The term "person" means an individual other than the Employee, or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Employee may voluntary terminate his employment under this Agreement
within twelve (12) months following a change in control of the Association or
Parent, and Employee shall thereupon be entitled to receive the payment
described in Section 12(a) of this Agreement, upon the occurrence, or within
ninety (90) days thereafter, of any of the following events, which have not been
consented to in advance by the Employee in writing: (i) if Employee would be
required to move his personal residence or perform his principal executive
functions more than thirty-five (35) miles from the Employee's primary office as
of the signing of this Agreement; (ii) if in the organizational structure of the
Association or Parent, Employee would be required to report to a person or
persons other than the Chief Administrative Officer, the President or the Board
of the Association or Parent; (iii) if the Association or Parent should fail to
maintain Employee's base compensation in effect as of the date of the Change in
Control and the existing employee benefits plans, including material fringe
benefit, stock option and retirement plans; (iv) if Employee would be assigned
duties and responsibilities other than those normally associated with his
position as referenced at Section 1, herein; or (v) if Employee's
responsibilities or authority have in any way been materially diminished or
reduced.
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<PAGE>
(c) In the event any dispute shall arise between the Employee and the
Association as to the terms or interpretation of this Agreement, including this
Section 12, whether instituted by formal legal proceedings or otherwise,
including any action taken by Employee to enforce the terms of this Section 12
or in defending against any action taken by the Association or Parent, the
Association or Parent shall reimburse Employee for all costs and expenses,
including reasonable attorneys' fees, arising from such dispute, proceedings or
actions following issuance of a legal judgement by a court of competent
jurisdiction finding in favor of the Employee or the settlement of the dispute
by the parties. Such settlement to be approved by the Board of the Association
or the Parent may include a provision for the reimbursement by the Association
or Parent to the Employee for all costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions, or the Board
of the Association or the Parent shall authorize such reimbursement of such
costs and expenses by separate action upon a written action and determination of
the Board that payment of such costs and expenses is not detrimental to the
Association or the Parent. Such reimbursement shall be paid within ten (10) days
of Employee furnishing to the Association or Parent evidence, which may be in
the form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by Employee.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Association or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Association or
Parent.
(b) Since the Association is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Association.
14. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
15. Applicable Law. This agreement shall be governed in all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Georgia, the extent that Federal law shall be deemed to
apply.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
7
<PAGE>
17. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into
this 2nd day of December 1996 ("Effective Date"), by and between Clayton County
Federal Savings and Loan Association (the "Savings Association") and Richard P.
Florin (the "Employee").
WHEREAS, the Employee is currently employed by the Savings Association
as Senior Vice President and is experienced in all phases of the financial
services industry and the business of the Savings Association; and
WHEREAS, the parties desire by this writing to set forth the rights and
responsibilities of the Savings Association and Employee if the Savings
Association should undergo a change in control (as defined hereinafter in the
Agreement) after the Effective Date.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the Senior
Vice President of the Savings Association. The Employee shall render such
administrative and management services to the Savings Association and CCF
Holding Company ("Parent") as are currently rendered and as are customarily
performed by persons situated in a similar executive capacity. The Employee's
other duties shall be such as the President or the Board of Directors for the
Savings Association (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Savings
Association and the Parent.
2. Term of Agreement. The term of this Agreement shall be for the
period commencing on the Effective Date and ending twenty-four (24) months
thereafter ("Term"). Additionally, on, or before, each annual anniversary date
from the Effective Date, the Term of this Agreement may be extended for up to an
additional one year period beyond the then effective expiration date upon a
determination and resolution of the Board of Directors that the performance of
the Employee has met the requirements and standards of the Board, and that the
Term of such Agreement shall be extended.
3. Termination of Employment in Connection with or Subsequent to
a Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment under this Agreement,
absent Just Cause, in connection with, or within twenty-four (24) months after,
any Change in Control of the Savings Association or Parent, Employee shall be
paid an amount equal to 100% of the taxable compensation paid to Employee by the
1
<PAGE>
Savings Association for the twelve month period prior to the date of termination
of employment (whether said amounts were received or deferred by the Employee)
and the costs associated with maintaining coverage under the Savings
Association's medical and dental insurance reimbursement plans similar to that
in effect on the date of termination of employment for a period of one year
thereafter. Said sum shall be paid, at the option of Employee, either in one (1)
lump sum within thirty (30) days of such termination discounted to the present
value of such payment using as the discount rate the "prime rate" as published
in the Wall Street Journal Eastern Edition as of the date of such payment minus
100 basis points, or in periodic payments over the next 12 months, and such
payments shall be in lieu of any other future payments which the Employee would
be otherwise entitled to receive. Notwithstanding the forgoing, all sums payable
hereunder shall be reduced in such manner and to such extent so that no such
payments made hereunder when aggregated with all other payments to be made to
the Employee by the Savings Association or the Parent shall be deemed an "excess
parachute payment" in accordance with Section 280G of the Internal Revenue Codes
of 1986, as amended (the "Code") and be subject to the excise tax provided at
Section 4999(a) of the Code. The term "Change in Control" shall mean: (i) the
execution of an agreement for the sale of all, or a material portion, of the
assets of the Savings Association or the Parent; (ii) the execution of an
agreement for a merger or recapitalization of the Savings Association or the
Parent or any merger or recapitalization whereby the Savings Association or the
Parent is not the surviving entity; (iii) a change in control of the Savings
Association or the Parent, as otherwise defined or determined by the Office of
Thrift Supervision or regulations promulgated by it; or (iv) the acquisition,
directly or indirectly, of the beneficial ownership (within the meaning of that
term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder) of twenty-five percent (25%)
or more of the outstanding voting securities of the Savings Association or the
Parent by any person, trust, entity or group. The term "person" means an
individual other than the Employee, or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary except as provided at Sections 4(b), 4(c), 4(d), 4(e) and 5, Employee
may voluntarily terminate his employment under this Agreement within twenty-four
months following a Change in Control of the Savings Association or Parent, and
Employee shall thereupon be entitled to receive the payment and benefits
described in Section 3(a) of this Agreement, upon the occurrence, or within
ninety (90) days thereafter, of any of the following events, which have not been
consented to in advance by the Employee in writing: (i) if Employee would be
required to move his personal residence or perform his principal executive
functions more than thirty-five
2
<PAGE>
(35) miles from the Employee's primary office as of the signing of this
Agreement; (ii) if in the organizational structure of the Savings Association or
Parent, Employee would be required to report to a person or persons other than
the EVP and chief admin. officer; (iii) if the Savings Association or Parent
should fail to maintain the Employee's base compensation in effect as of the
date of the Change in Control and existing employee benefits plans, including
material fringe benefit, stock option and retirement plans, except to the extent
that such reduction in benefit programs is part of an overall adjustment in
benefits for all employees of the Savings Association or Parent and does not
disproportionately adversely impact the Employee; (iv) if Employee would be
assigned duties and responsibilities other than those normally associated with
his position as referenced at Section 1, herein; or (v) if Employee's
responsibilities or authority have in any way been materially diminished or
reduced.
4. Other Changes in Employment Status.
(a) Except as provided for at Section 3, herein, the Board of Directors
may terminate the Employee's employment at any time with or without Just Cause
within its sole discretion. This Agreement shall not be deemed to give Employee
any right to be retained in the employment or service of the Bank, or to
interfere with the right of the Bank to terminate the employment of the Employee
at any time. The Employee shall have no right to receive compensation or other
benefits for any period after termination for Just Cause. Termination for "Just
Cause" shall include termination because of the Employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of the
Agreement.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Savings Association's affairs by an order
issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings
Association under this Agreement shall terminate, as of the effective date of
the order, but the vested rights of the parties shall not be affected.
(c) If the Savings Association is in default (as defined in Section
3(x)(1) of FDIA) all obligations under this Agreement shall terminate as of the
date of default, but this paragraph shall not affect any vested rights of the
contracting parties.
(d) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Savings Association: (i) by the Director of the
Office of Thrift
3
<PAGE>
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Savings Association under the authority contained in Section 13(c) of FDIA;
or (ii) by the Director of the OTS, or his or her designee, at the time that the
Director of the OTS, or his or her designee approves a supervisory merger to
resolve problems related to operation of the Savings Association or when the
Savings Association is determined by the Director of the OTS to be in an unsafe
or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
(e) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
5. Suspension of Employment . If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Savings
Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Association's obligations
under the Agreement shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Savings Association may within its discretion (i) pay the Employee all or part
of the compensation withheld while its contract obligations were suspended and
(ii) reinstate any of its obligations which were suspended.
6. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Savings Association which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Savings Association.
(b) The Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Savings Association.
7. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
8. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Georgia, except to the extent that Federal law shall be
deemed to apply.
4
<PAGE>
9. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
10. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Savings
Association, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof, except to the extend that the parties may otherwise
reach a mutual settlement of such issue. The Savings Association shall reimburse
Employee for all reasonable costs and expenses, including reasonable attorneys'
fees, arising from such dispute, proceedings or actions, following the delivery
of the decision of the arbitrator finding in favor of the Employee. Further, the
settlement of the dispute to be approved by the Board of the Savings Association
or the Parent may include a provision for the reimbursement by the Savings
Association or Parent to the Employee for all reasonable costs and expenses,
including reasonable attorneys' fees, arising from such dispute, proceedings or
actions, or the Board of the Savings Association or the Parent may authorize
such reimbursement of such reasonable costs and expenses by separate action upon
a written action and determination of the Board following settlement of the
dispute.
11. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
5
EXHIBIT 13
<PAGE>
CCF HOLDING COMPANY
ANNUAL REPORT
For the Year Ended
December 31, 1997
<PAGE>
CCF HOLDING COMPANY
ANNUAL REPORT
TABLE OF CONTENTS
Letter to Stockholders 1
Corporate Profile and Stock Market Information 2
Selected Financial and Other Data 4
Management's Discussion and Analysis or Plan of Operation 7
Independent Auditors' Report 16
Consolidated Financial Statements 17
Notes to Consolidated Financial Statements 22
Office Locations and Other Corporate Information 49
<PAGE>
[CCF HOLDING COMPANY LOGO]
March 18, 1998
Dear Fellow Stockholders:
We are proud to report that 1997 has been a very successful year for Heritage
Bank.
The Bank has undergone many changes during the year, the most obvious perhaps
was our name. We feel that the "Heritage Bank" name more accurately reflects our
new approach to business and reflects favorably on our past success.
Accomplishments since our last annual report include asset growth of over
$44,000,000, the opening of two new offices in neighboring counties of Fayette
and Henry, an increase in stock price of more than $7.00 per share, a payment of
$0.70 (restated for a 10% stock dividend) per share in dividends and a Bank now
positioned to compete on a much broader scale in the highly competitive
financial services industry.
The Board of Directors appreciates your continued support and confidence.
Through the collective efforts of our loyal management team, and employees, we
are pleased to report the financial results that are detailed in the following
pages.
We are eagerly looking forward to 1998. Banking has never been brighter at
Heritage Bank.
Very truly yours,
/s/D.B. Turner
- --------------
D.B. Turner
President and CEO
<PAGE>
CCF HOLDING COMPANY
Corporate Profile and Related Information
CCF Holding Company (the "Company") is a Georgia corporation organized in March
1995 at the direction of Heritage Bank (the "Bank") in connection with the
Bank's conversion from a mutual to stock form of organization (the
"Conversion"). On July 11, 1995, the Bank completed the Conversion and became a
wholly owned subsidiary of the Company. The Company is a unitary savings and
loan holding company which, under existing laws, generally is not restricted in
the types of business activities in which it may engage provided the Bank
retains a specified amount of its assets in housing-related investments.
The Bank is a federally chartered stock savings and loan association which
originally commenced business in 1955. The Bank's primary market area is
currently Clayton, Fayette and Henry Counties, where the Bank operates five
offices. The market area is part of the Atlanta, Georgia metropolitan
statistical area. To a much lesser extent, the Bank also makes loans in the
surrounding Georgia counties of Coweta, Rockdale, Spalding, and Lamar. The Bank
is subject to examination and comprehensive regulation by the Office of Thrift
Supervision ("OTS") and its deposits are federally insured by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC"). The Bank is a member of and owns capital stock in the Federal Home
Loan Bank ("FHLB") of Atlanta, which is one of the 12 regional banks in the FHLB
System.
The Bank attracts deposits from the general public and uses such deposits
primarily to invest in and originate commercial, residential and consumer loans
and, to a lesser extent, to invest in investment securities. The principal
sources of funds for the Bank's lending activities are deposits, Federal Home
Loan Bank borrowings and the amortization, repayment, and maturity of loans and
investment securities. The Bank does not rely on brokered deposits. Principal
sources of income are interest on loans and investment securities. The Bank's
principal expense is interest paid on deposits.
Stock Market Information
Since its issuance in July 1995, the Company's common stock ("Common Stock") has
been traded on the Nasdaq SmallCap Market under the trading symbol of "CCFH."
The daily stock quotation for the Company is published under the symbols "CCF."
The following table reflects high and low bid quotations as published by USA
Today and The Wall Street Journal as well as dividend information. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission, and may not represent actual transactions.
2
<PAGE>
<TABLE>
<CAPTION>
Dividends Dividends
Date High Low Declared(1) Paid(1)
- ---- ---- --- ----------- -------
<S> <C> <C> <C> <C>
October 1, 1995 to December 31, 1995 $12.75 $11.25 $.32 $ --
January 1, 1996 to March 31, 1996 12.75 11.50 -- .32
April 1, 1996 to June 30, 1996 12.50 11.31 .18 --
July 1, 1996 to September 30, 1996 13.25 11.50 -- .18
October 1, 1996 to December 31, 1996 13.40 11.70 .45 --
January 1, 1997 to March 31, 1997 15.00 13.40 -- .45
April 1, 1997 to June 30, 1997 15.23 14.31 .25 --
July 1, 1997 to September 30, 1997 15.45 15.00 -- .25
October 1, 1997 to December 31, 1997 21.00 15.56 .27 --
</TABLE>
- ----------------------------
(1) Restated to reflect a 10% stock dividend declared on December 16, 1997.
The number of shareholders of record of Common Stock as of December 31, 1997,
was approximately 400, inclusive of the number of persons or entities who held
stock in nominee or "street" name through various brokerage firms. At December
31, 1997, there were 899,024 shares outstanding, net of 7,686 shares held as
treasury shares. The Company's ability to pay dividends to stockholders is
primarily dependent upon the dividends it receives from the Bank. The Bank may
not declare or pay a cash dividend on any of its stock if the effect thereof
would cause the Bank's regulatory capital to be reduced below (1) the amount
required for the liquidation account established in connection with the
Conversion, or (2) the regulatory capital requirements imposed by the OTS. As a
result of these regulatory limitations, at December 31, 1997, approximately
$8,182,000 of the Company's investment in the Bank was restricted from transfer
by the Bank to the Company in the form of cash dividends.
Change in Reporting Periods
On December 10, 1996, the Company's Board of Directors approved a change in the
Company's year end from September 30 to December 31. The Company filed a
transition report on Form 10-QSB for the period from October 1, 1996 to December
31, 1996. The Company did not recast prior year financial statements on a
calendar year basis so as to compare operating results for the year ended
December 31, 1997 to the year ended December 31, 1996 due to the fact that
operating results for 1996 on a calendar year basis and comparative discussions
of operating results would not have differed significantly from what is
currently presented in "Management's Discussion and Analysis or Plan of
Operation."
3
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OTHER DATA
---------------------------------
At December 31, At September 30,
--------------- -------------------------------------------------------
1997 1996 1995 1994 1993
---- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Financial Condition (Dollars in thousands)
Total Amount of:
Assets $124,956 $80,283 $79,822 $69,080 $71,115
Loans receivable, net 97,541 51,500 45,196 44,244 47,255
Mortgage-backed securities 1,838 10,025 7,896 6,804 7,079
Investment securities 9,722 13,353 15,671 12,795 9,528
Liabilities 113,436 65,843 62,501 62,866 65,214
Deposits 91,201 61,822 61,132 61,598 64,050
Securities sold under agreements to
repurchase 2,393 -- -- -- --
FHLB advances 18,510 2,500 -- -- --
Stockholders' equity 11,520 14,440 17,322 6,214 5,901
Other Data:
Net income 137 473 604 431 739
Average assets 99,675 79,348 72,229 70,533 71,627
Average equity 11,934 16,733 8,973 6,061 5,540
Full service offices(1) 5 1 1 1 1
</TABLE>
- ----------------------
(1) During 1997, the Bank opened two new offices and converted two existing
customer service facilities into full service offices.
4
<PAGE>
<TABLE>
<CAPTION>
Year Ended
December 31, Year Ended September 30,
------------------ ---------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
(Dollars in thousands)
Total interest income $7,605 5,573 $5,021 $4,872 $5,248
Total interest expense 3,921 2,527 2,479 2,245 2,637
----- ----- ----- ----- -----
Net interest income 3,684 3,046 2,542 2,627 2,611
Provision for loan losses 126 130 5 69 98
------ ------ ------ ------ ------
Net interest income after provision
for loan losses 3,558 2,916 2,537 2,558 2,513
Other income 1,394 415 328 346 362
Other expenses(1) 4,746 2,715 1,968 1,904 1,750
----- ----- ----- ----- -----
Income before income taxes and cumulative
effect of change in accounting principle 206 616 897 1,000 1,125
Income tax expense 69 143 293 363 386
------ ----- ------ ------ ------
Income before cumulative effect of change
in accounting principle 137 473 604 637 739
Cumulative effect of change in
accounting principle -- -- -- 206 --
------- ------ ------ ------ -------
Net income $ 137 $ 473 $ 604 $ 431 $ 739
======= ====== ====== ====== ======
</TABLE>
(1) For 1996, included a $398,000 one time assessment to recapitalize the
Savings Association Insurance Fund ("SAIF") of the FDIC.
5
<PAGE>
<TABLE>
<CAPTION>
At or for
the Year
Ended
December 31, At or for the Year Ended September 30,
------------ -------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Key Operating Ratios
Performance Ratios:
Return on average assets (net income
divided by average total assets) 0.14% 0.60% 0.84% 0.61% 1.03%
Return on average equity (net income
divided by average equity) 1.14% 2.83% 6.73% 7.11% 13.34%
Average interest-earning assets to
average interest-bearing liabilities 112.88% 122.83% 110.75% 106.50% 106.69%
Net interest rate spread 3.36% 3.15% 3.31% 3.68% 3.52%
Net yield on average interest-earning
assets 3.90% 4.04% 3.70% 3.89% 3.77%
Net interest income after provision for
loan losses to total other expenses 74.97% 107.40% 128.93% 134.38% 143.59%
Basic earnings per share (1) $ 0.17 $ 0.45 $0.17 N/A N/A
Diluted earnings per share(1) $ 0.16 $0.43 $0.17 N/A N/A
Capital Ratios:
Book value per share (1) $12.81 $13.35 $13.23 N/A N/A
Average equity to average assets
(average equity divided by average
total assets) 11.97% 21.09% 12.42% 8.59% 7.73%
Equity-to-assets (End of Period) 9.22% 17.99% 21.7% 9.00% 8.30%
Asset Quality Ratios:
Non-performing loans to total loans, net 0.38% 1.17% 0.39% 0.41% 2.31%
Non-performing loans to total assets 0.29% 0.75% 0.22% 0.26% 1.53%
Allowance for loan losses to
nonperforming loans 182.93% 89.90% 233.71% 237.63% 33.15%
</TABLE>
- ------------------------
(1) There were no shares outstanding prior to the consummation of the
Company's initial public offering on July 11, 1995. For purposes of
presenting net income per share for the year ended September 30, 1995,
only post Conversion net income is considered. All per share data has
been restated to reflect a 10% stock dividend declared on December 16,
1997 and paid on January 2, 1998.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
General
The earnings of the Company depend primarily on the earnings of the Bank. The
largest components of the Bank's net income are net interest income, which is
the difference between interest income and interest expense, and other income
derived primarily from loan origination and commitment fees. Consequently, the
Bank's earnings are dependent on its ability to originate loans, net interest
income, and the relative amounts of interest-earning assets and interest-bearing
liabilities. The Bank's net income is also affected by its provision for loan
losses and foreclosed real estate as well as the amount of other expenses, such
as salaries and employee benefits, occupancy and equipment, and federal deposit
insurance premiums. Earnings of the Bank also are affected significantly by
general economic and competitive conditions, particularly changes in market
interest rates, government policies, and actions of regulatory authorities.
Business Strategy
The Bank's business strategy is to endeavor to be a flexible, efficient, and
financially stable community financial services institution providing a range of
real estate lending services, commercial lending, and consumer financial
products primarily to the Clayton, Fayette, and Henry County, areas of Georgia.
The management of the Bank has identified and sought to pursue four primary
strategic objectives: (1) maintain an adequate amount of regulatory capital; (2)
reduce interest rate risk; (3) maintain good asset quality through continued
emphasis on well underwritten consumer, commercial, and residential lending; and
(4) broaden our product and customer base to become a more diversified financial
institution.
1. Regulatory Capital. Prior to the Conversion, the Bank sought to
manage its size and asset quality in order to allow its capital
ratios to increase in order to comply with and safely exceed the
regulatory capital requirements. During this period, management
did not price its deposits competitively by increasing interest
rates paid, which to a limited extent, allowed the deposit base
to shrink. To further this strategy, the Bank did not
aggressively seek to increase its market share of loans nor to
expand the market area for lending. This strategy resulted in the
Bank increasing its capital ratios, and when combined with the
proceeds from the Conversion, the Bank's capital was well in
excess of all of its risk-based capital requirements. The Bank
has used the proceeds from the Conversion to expand its product
line and branch network in order to increase deposit and loan
growth. In addition, the Company has, on occasion, repurchased
shares of its common stock in order to manage excess capital and
increase stockholder value. The Bank continues to exceed all
regulatory capital guidelines.
2. Reduction of Interest Rate Risk. The Bank manages its interest
rate risk through the origination of adjustable-rate loans when
market conditions permit. The emphasis in the loan portfolio will
be to increase the volume of loans that reprice at least
annually, which will generally match the repricing of its
liabilities.
7
<PAGE>
3. Asset Quality. The Bank continues to seek to maintain its asset
quality through detailed underwriting and thorough analysis of
its loan requests. At December 31, 1997, the Bank's ratio of
nonperforming loans to total loans was .4% and to total assets
was .3%.
4. Product and Customer Base. The Bank opened two new offices and
increased the size of its loan portfolio by approximately $44
million between September 30, 1996 and December 31, 1997. The
Bank also expanded the activities of its customer service
facilities so that all five of our locations are now full service
branches. As a result of these changes, loans receivable, net
increased 89% between September 30, 1996 and December 31, 1997.
These increases were mainly in commercial lending (primarily real
estate mortgages) and, to a lesser extent, construction lending
(primarily residential) as the Bank begins to provide more of the
products and services that are offered by its competitors,
including commercial banks. Likewise, the Bank's deposits
increased by nearly 48% from $61.8 million at September 30, 1996
to $91.2 million at December 31, 1997 as a way to fund some of
this loan growth. The Bank has also funded some of this loan
growth by borrowing more funds as it strives to provide its
increasing number of loan products to more customers in its
market area. During 1998, it is expected that the Bank's
commercial and consumer lending will continue to increase in
relation to its residential mortgage lending and will include
some indirect lending, primarily loans for home improvement and
water craft. The Bank will seek to continue to expand its
customer base through advertising, direct mail and one on one
personal visits with prospective customers.
The management of the Bank believes that there are opportunities for growth
within the Bank's primary market area and adjacent market areas, and the Bank
intends to manage the growth of deposits and loans in a manner that will ensure
its ability to comply with current and future capital requirements as well as
manage interest rate risk. As is discussed below, with this growth comes new
risks, and the ability of the Bank to successfully complete the dramatic changes
it has begun will in large measure directly impact its financial condition and
results of operation in future periods. This growth is designed to allow the
Bank to become more like a commercial bank and compete on a broader scale in the
highly competitive financial services industry.
Asset and Liability Management
Interest Rate Sensitivity. The ability to maximize net interest income is
largely dependent upon achieving a positive interest rate spread that can be
sustained during fluctuations in prevailing interest rates. The Bank, like many
other thrift institutions, is subject to interest rate risk as a result of the
difference in the maturity of interest-bearing liabilities (including deposits)
and interest-earning assets (including loans) and the volatility of interest
rates. Because most deposit accounts, given their shorter terms to maturity,
react more quickly to market interest rate movements than do traditional
mortgage loans, increases in interest rates may have an adverse effect on the
Bank's earnings. The Bank is reducing this exposure by diversifying the loan
portfolio to include more consumer and commercial loans at primarily variable
rates. Consumer and commercial loans by their nature have shorter maturities.
The Bank's net interest rate spread was 3.31% for the year ended September 30,
1995, 3.15% for the year ended September 30, 1996 and 3.36% for the year ended
December 31, 1997. Results of the Company's cumulative interest sensitivity gap
analysis indicate that a fluctuation in interest rates would
8
<PAGE>
have only a slight impact on the Bank's net interest rate spread and earnings as
the ratio of interest sensitive assets to interest sensitive liabilities in the
one year time frame approximates one.
The Bank attempts to manage the interest rates it pays on deposits while
maintaining a stable deposit base and providing quality services to its
customers. The Bank has continued to rely primarily upon deposits as its source
of funds. To the extent the Bank is unable to invest these funds in loans
originated in the Bank's market area, it will continue to purchase (i)
mortgage-backed securities and (ii) high quality investment securities.
In an effort to manage interest rate risk and protect it from the negative
effect of increases in interest rates, the Bank has instituted certain asset and
liability management measures, including the following: 1) reduce the maturities
or terms to reprice interest-earning assets by emphasizing the origination of
adjustable rate loans and the purchase of relatively short-term interest-earning
investments and mortgage-backed securities; 2) lengthen the maturities of
interest-bearing liabilities by encouraging depositors to invest in longer term
deposit products offered by the Bank; 3) increase the amount of less
rate-sensitive deposits by actively seeking demand deposit accounts; and 4)
encourage long-term depositors to maintain their accounts with the Bank through
expanded customer products and services.
9
<PAGE>
Average Balance Sheets. The following table sets forth certain information
relating to the Bank's average balance sheets and reflects the average yield on
assets and average cost of liabilities for the periods indicated. Such yields
and costs are derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods presented. Average balances
are derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
differences in the information presented.
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
At December 31, December 31, September 30,
---------------------- ------------------------- ----------------------------
1997 1997 1996
---------------------- ------------------------- ----------------------------
Weighted Interest Interest
Historical Average Average Income/ Average Income/
Balance Rates Balance Expense Yield Balance Expense Yield
------- ----- ------- ------- ----- ------- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans(1) $ 97,541 8.36% $82,973 $6,937 8.36% $47,293 $3,844 8.13%
Mortgage-backed securities 1,838 6.17 3,483 183 5.25 9,526 618 6.49
Investment securities 9,722 6.15 5,679 335 5.90 15,597 920 5.90
FHLB Stock 1,013 1,013 74 7.31 1,013 74 7.31
Interest-earning deposits in other
financial institutions 4,384 5.43 1,309 76 5.81 1,986 117 5.89
------- ------ ------ ---- ------ ----- ----
Total interest-earning assets 114,498 94,457 7,605 8.05 75,415 5,573 7.39
------ ---- ----- ----
Other noninterest-earning assets 10,458 5,218 3,933
------- ------ ------
Total assets $124,956 $99,675 $79,348
======= ====== ======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Demand deposits $22,240 3.82 $15,477 473 3.06 11,240 236 2.10
Passbook savings -- -- -- -- -- 11,817 274 2.32
Regular savings 9,962 2.50 10,771 231 2.14 -- -- --
Time deposits 54,451 5.67 48,143 2,721 5.65 36,140 2,001 5.54
FHLB advances 18,510 6.50 9,154 489 5.34 423 16 3.78
Securities sold under agreements to
repurchase 2,393 5.15 135 7 5.15 -- -- --
-------- ---- ------ ---- ------ ------ -----
Total interest-bearing liabilities 107,556 83,680 3,921 4.69 59,620 2,527 4.24
------- ------ ------ ---- ------ ----- ----
Other noninterest-bearing liabilities 5,880 4,061 2,995
Stockholders' equity 11,520 11,934 16,733
------- ------ ------
Total liabilities and stockholders' equity $124,956 $99,675 $79,348
======= ====== ======
Excess of interest-earning assets
over interest-bearing liabilities $6,942 $10,777 $14,019
===== ====== ======
Ratio of interest-earning assets
over interest-bearing liabilities 106.45% 112.88% 122.83%
====== ====== ======
Net interest income $3,684 $3,046
===== =====
Net interest spread(2) 3.36% 3.15%
===== =====
Net yield on average 3.90% 4.04%
===== =====
interest-earning assets(3)
</TABLE>
- ------------------------------
(1) Average balances include nonaccrual loans.
(2) Net interest spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on average interest-earning assets represents net interest income
as a percentage of average interest-earning assets.
10
<PAGE>
Rate/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 Bank's interest income and
expense during the periods indicated. For each category of interest-earning
asset and interest-bearing liability, information is provided as to changes in
volume (change in volume multiplied by old rate) and changes in rates (change in
rate multiplied by old volume). The net change attributable to changes in both
volume and rate has been allocated proportionately to the change due to volume
and the change due to rate.
<TABLE>
<CAPTION>
Years Ended December 31, 1997 and
September 30, 1996 and 1995
----------------------------------------------------------------
1997 compared to 1996 1996 compared to 1995
-------------------------------- ------------------------------
Changes due to Changes due to
-------------------------------- ------------------------------
Rate/ Rate/
Volume Yield Total Volume Yield Total
------ ----- ----- ------ ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 3,013 $ 80 $ 3,093 $ 240 $ 26 $ 266
Mortgage-backed securities (312) (123) (435) 190 -- 190
Investment securities (585) 0 (585) 146 51 197
FHLB Stock -- -- -- -- -- --
Interest-earning deposits in other
financial institutions (39) (2) (41) (104) 3 (101)
------- ------- ------- ------- ------- -------
Total interest income $ 2,077 $ (45) $ 2,032 $ 472 $ 80 $ 552
======= ======= ======= ======= ======= -------
Interest expense:
Demand deposits $ 65 $ 172 $ 237 $ 10 $ (45) $ (35)
Passbook savings (21) (22) (43) (52) (41) (93)
Time deposits 708 12 720 21 139 160
FHLB advances 467 6 473 16 -- 16
Securities sold under
agreements to repurchase 7 -- 7 -- -- --
------- ------- ------- ------- ------- -------
Total interest expense $ 1,226 $ 168 $ 1,394 $ (5) $ 53 $ 48
======= ======= ======= ======= ======= =======
Net interest income $ 851 $ (213) $ 638 $ 477 $ 27 $ 504
======= ======= ======= ======= ======= =======
</TABLE>
Comparison of Financial Condition at December 31, 1997 and September 30, 1996
Total assets increased $44.7 million between the two dates due to increased
lending from funds provided from increased deposits and use of FHLB advances.
Stockholders' equity decreased by $2.9 million to $11.5 million at December 31,
1997 from $14.4 million at September 30, 1996. The decrease was attributable to
repurchases of Common Stock totaling $2.7 million and dividends declared
totaling $861,000, that were only partially offset by net income of $226,000.
Other items contributing to the
11
<PAGE>
change were employee stock ownership plan shares allocated totaling $141,000,
management stock bonus plan compensation expense of $127,000, and unrealized
gains on the fair value of securities available for sale of $179,000. The
Company carries at fair value its securities available for sale, with unrealized
gains and losses, net of income tax effects, recorded as a separate component of
stockholders' equity in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115. Because of the Company's portfolio of securities
classified as available for sale, the Company could continue to experience
volatility in the fair value of such securities during periods of changing
market interest rates. During fiscal year 1996, the Company decided to transfer
approximately $9.3 million of investment securities and $8.3 million of mortgage
backed securities from held to maturity to available for sale. Management
decided to make this transfer in order to provide additional liquidity for the
purpose of funding its new commercial loan product line.
Comparison of Operating Results For The Fiscal Years Ended December 31, 1997 and
September 30, 1996
General. As noted previously, the Company changed its year end from
September 30 to December 31. The Company filed a transition report on Form
10-QSB for the period from October 1, 1996 to December 31, 1996. The results for
this period are presented separately in the audited financial statements. The
Company did not recast prior year financial statements on a calendar year basis
so as to compare operating results for the year ended December 31, 1997 to the
year ended December 31, 1996 due to the fact that operating results for 1996 on
a calendar year basis and comparative discussions of operating results would not
have differed significantly from what is currently presented below. The quarter
ended December 31, 1995 and the quarter ended December 31, 1996 did not differ
significantly except for increases in other expenses due to the Company's
expansion into the Fayette and Henry county markets which are also discussed
below and in the transition report on Form 10-QSB.
Net Income. The Company's net income decreased by $337,000 from
$473,000 in 1996 to $136,000 in 1997. This decrease was primarily due to the
expansion into the Fayette and Henry county markets; the staffing, marketing and
supplies associated with these start-up locations considerably increased other
expenses. The decrease in net income during 1997 was partially offset by a
$480,000 increase in gains from sales of investment securities and a $4,000
decrease in the provision for loan losses. The decrease in net income during
1997 was expected due to the expansion and change in business strategy. The
Company believes that this expansion should enhance long term shareholder value
and does not expect the decrease in earnings to be as great in the future. This
statement of beliefs concerning this expansion and the impact of this expansion
on the Company is a forward looking statement. The Private Securities Litigation
Reform Act of 1995 (the "Act") provides protection to the Company in making
certain forward looking statements that are accompanied by meaningful cautionary
statements that identify important factors that could cause actual results to
differ materially from the forward looking statement. As described more fully in
the following sections entitled "Net Interest Income," "Other Income" and "Other
Expenses," the expansion resulted in both increased net interest income after
provision for loan losses and increased other income between 1996 and 1997.
However, the increase in other expenses more than offset these other increases.
If the expansion is successful, net interest income after provision for loan
losses and other income will increase during 1998 in greater dollar amounts than
the expected increase in other expense. However, as with any expansion, if new
offices or additional personnel do not ultimately result in sufficient increased
loan and deposit activity and increased net interest and other income, these
expenses would continue to have an adverse effect on net income during 1998 and
in future periods.
12
<PAGE>
Net Interest Income. Net interest income (before provision for loan
losses) increased from $3.0 million in 1996 to $3.6 million in 1997. This
increase was primarily due to an increase in interest income on loans of $3.1
million, more than offsetting the increase in interest expense on deposits and
FHLB advances of $1.4 million. Interest income on investment securities and
mortgage backed securities also declined by $1.0 million as these securities
were liquidated to fund lending activities. These changes were due primarily to
the higher volume of average loan balances during 1997. The increases in lending
were primarily in commercial real estate and residential construction loans both
on a contract and speculative basis. Commercial loans (primarily real estate)
increased approximately $29 million and construction loans increased by
approximately $8.5 million from September 30, 1996 to December 31, 1997.
Provision For Loan Losses. The Bank decreased slightly the provision
for loan losses from $130,000 in 1996 to $126,000 in 1997. This decrease was due
to management's reassessment of the risk inherent in the residential real estate
portfolio and the assessment of the risk relative to the change in the type of
loans in the loan portfolio as the Bank's level of commercial and construction
lending has increased. Management's reassessment of the inherent risk in the
residential real estate portfolio, which was primarily based on the Company's
excellent historical loss experience in residential real estate lending,
revealed an excess in the unallocated general reserve. This excess was
reallocated to the remainder of the portfolio and resulted in a lower provision
expense in 1997. The Bank's allowance for loan losses increased from $540,000 at
September 30, 1996, to $669,000 at December 31, 1997. The adequacy of the
allowance for loan losses is evaluated periodically based on a review of all
significant loans, with particular emphasis on impaired, non-accruing, past due,
and other loans that management believes require special attention. The Bank
also utilized an independent loan review process in assessing the overall
adequacy of the allowance for loan losses. Management believes that its
allowance for loan losses is adequate. Management will continue to monitor and
adjust the allowance as necessary in future periods based on growth in the loan
portfolio, loss experience and the continued expected changing mix of loans in
the loan portfolio. If the size of the loan portfolio continues to increase and
the relative proportion in that portfolio of commercial and construction loans
increases, it is expected that the provision for loan losses will increase in
order to maintain the allowance for loan losses at an adequate level.
The following table sets forth the allocation of the allowance for loan
losses by loan category and the percent of loans in each loan category to total
loans for the periods indicated.
<TABLE>
<CAPTION>
At December 31, 1997 At September 30, 1996
------------------------------------ -----------------------------------
Percent of Percent of
Loans in each Loans in each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Balance at end of period applicable to:
Permanent residential mortgage................... $ 42 49.50% $316 80.79%
Construction..................................... 288 16.39 52 12.53
Commercial real estate........................... 294 30.11 155 4.79
Consumer and other............................... 46 4.00 17 1.89
------ ------ --- ------
Total.......................................... $ 669 100.00% $540 100.00%
====== ====== === ======
</TABLE>
13
<PAGE>
Other Income. Other income increased from $415,000 in 1996 to
$1,393,000 in 1997. This increase was attributable primarily to an increase in
loan fees of $444,000 generated on new loan originations, centered primarily in
commercial real estate, single family residential construction and non mortgage
consumer loans. The Company also experienced a net increase of $480,000 on gains
from sales of investment securities, primarily related to the liquidation of a
portion of its holdings of equity securities.
Other Expenses. Other expenses increased from $2.72 million during 1996
to $4.75 million during 1997, representing an approximate 74.6% increase.
Included in this increase is $1.7 million in salaries and benefits associated
with the expansion into the new markets and the expansion of the Bank's product
line. Of the $468,000 increase in occupancy expense, $281,000 was associated
with the opening of two temporary office facilities and related utilities,
leasehold improvements, furniture, fixtures and equipment depreciation expense.
The remainder of the increases in other expenses was associated with the name
change, significantly increased advertising and upgrades associated with the
Bank's technology. The increase in other expenses is partially offset by a
$100,000 decrease in federal insurance premiums and $398,000 in non-recurring
SAIF assessments which occurred in 1996.
Income Tax Expense. Income tax expense as a percent of income before
taxes increased from 23.1% in 1996 to 33.5% in 1997. This increase is due in
part to costs associated with an attempt in 1995 at establishing a mutual
holding company and its effect on the 1996 taxes.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as defined by
the OTS regulations. The OTS minimum required liquidity ratio is 4%. Short-term
liquidity at December 31, 1997 was 21.10%. The Bank adjusts its liquidity levels
in order to meet funding needs for deposit outflows, payment of real estate
taxes from escrow accounts on mortgage loans, loan funding commitments, and
repayment of borrowings, when applicable. The Bank adjusts its liquidity level
as appropriate to meets it asset/liability objectives. The primary source of
funds are deposits, amortization and prepayments of loans and mortgage-backed
securities, maturity of investments, and funds provided from operations. As an
alternative to supplement liquidity needs, the Bank has the ability to borrow
from the Federal Home Loan Bank of Atlanta. Scheduled loan amortization and
maturing investment securities are a relatively predictable source of funds,
however, deposit flow and loan prepayments are greatly influenced by, among
other things, market interest rates, economic conditions, and competition. The
Bank's liquidity, represented by cash, cash equivalents, and securities
available for sale, is a product of its operating, investing, and financing
activities.
Year 2000
The Company recognizes that there is a business risk in computerized systems as
the calendar rolls into the next century. The Federal Financial Institutions
Examination Council ("FFIEC") issued an interagency statement on May 5, 1997,
providing an outline for institutions to effectively manage the Year 2000
challenges. The Company has developed an ongoing plan to ensure that its
operational and financial systems will not be adversely affected by year 2000
software failures due to processing errors arising from calculations using the
year 2000 date. The Company has an internal task force assigned to this project
and the Board of Directors and management of the Company have established year
2000 compliance as a strategic initiative.
14
<PAGE>
The Year 2000 Task Force of the Company has broken this project down into five
phases: 1) Awareness; 2) Assessment; 3) Renovation; 4) Validation and 5)
Implementation. The task force has identified to date all mission critical
issues and has taken a proactive and aggressive stance of monitoring progress
with all vendors' Year 2000 Compliance initiatives. The task force will make all
necessary recommendations for the renovation and validation phases prior to June
30, 1998. All validation and implementation procedures are expected to be
completed by June 30, 1999.
Rapid and accurate data processing is essential to our operation. Data
processing is also essential to most other financial institutions and many other
companies. All of our material data processing that could be affected by this
problem is provided by FISERV Solutions, Inc. (FISERV), a third party service
bureau. FISERV has advised us that it expects to resolve this potential problem
before the year 2000. However, if FISERV is unable to resolve this potential
problem in a timely manner, the Bank will activate all contingency plans in an
attempt to avoid what would otherwise be significant data processing delays,
mistakes or failures. Any delays, mistakes or failures could have a significant
adverse impact on our financial condition and our results of operations.
Impact of Inflation and Changing Prices
The financial statements and related data have been prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars, without
consideration for changes in the relative purchasing power of money over time
caused by inflation.
Unlike industrial companies, nearly all of the assets and liabilities of a
financial institution are monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the price of goods and services, since
such goods and services are affected by inflation. In the current interest rate
environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of acceptable performance levels.
Other Material Changes
In December 1997, the Company declared a semiannual cash dividend of $.27 per
share for stockholders of record as of January 1, 1998 and a 10% stock dividend
for stockholders of record as of January 2, 1998.
15
<PAGE>
[Letterhead]
Independent Auditors' Report
The Board of Directors
CCF Holding Company:
We have audited the accompanying consolidated balance sheets of CCF Holding
Company and subsidiary (the "Company") as of December 31, 1997 and September 30,
1996, and the related consolidated statements of income, stockholders' equity,
and cash flows for the year ended December 31, 1997, the three-month period
ended December 31, 1996, and for each of the years in the two-year period ended
September 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 CCF Holding Company
and subsidiary as of December 31, 1997 and September 30, 1996, and the results
of their operations and their cash flows for the year ended December 31, 1997,
the three-month period ended December 31, 1996, and for each of the years in the
two-year period ended September 30, 1996, in conformity with generally accepted
accounting principles.
/s/KPMG Peat Marwick LLP
Atlanta, Georgia
February 6, 1998
16
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and September 30, 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Cash and due from banks (note 16) $ 4,357,626 2,133,135
Interest-bearing deposits in other financial institutions 4,383,690 512,610
Investment securities available for sale (note 2) 9,722,048 13,353,381
Mortgage-backed securities available for sale (note 3) 1,837,509 10,024,936
Federal Home Loan Bank stock, at cost (note 7) 1,013,200 1,013,200
Loans receivable, net (note 4) 97,541,231 51,499,574
Accrued interest and dividends receivable (note 5) 784,852 511,072
Premises and equipment, net (note 6) 5,112,338 1,119,628
Other assets 203,550 115,004
------------- ------------
Total assets $ 124,956,044 80,282,540
============= ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits (note 8) $ 91,201,340 61,821,674
Securities sold under agreements to repurchase (note 9) 2,392,579 -
Federal Home Loan Bank advances (note 11) 18,510,000 2,500,000
Advance payments by borrowers for property taxes and insurance 142,111 531,105
Deferred income taxes (note 10) 456,116 206,536
Savings Association Insurance Fund assessment
payable (note 18) - 397,568
Other liabilities 734,293 385,753
----------- ----------
Total liabilities 113,436,439 65,842,636
Stockholders' equity (notes 15 and 16):
Preferred stock, no par value; 1,000,000 shares
authorized; none issued and outstanding (note 12) - -
Common stock, $.10 par value, 4,000,000 shares
authorized; 906,710 shares issued and 899,024 shares
outstanding in 1997; 1,190,250 shares issued and
983,332 shares outstanding in 1996 (note 13) 90,671 119,025
Additional paid-in capital 7,794,459 10,971,714
Retained earnings (note 10) 4,443,500 6,809,054
Unearned ESOP shares (note 13) (540,000) (630,000)
Unearned compensation (note 13) (394,195) (371,304)
Treasury stock, at cost; 7,686 and 206,918 shares in
1997 and 1996, respectively (96,800) (2,502,009)
Net unrealized holding gains on investment and
mortgage-backed securities available for sale 221,970 43,424
------------- ------------
Total stockholders' equity 11,519,605 14,439,904
Commitments and contingencies (notes 4, 13, and 17)
Total liabilities and stockholders' equity $ 124,956,044 80,282,540
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Income
Year ended December 31, 1997, Three Months
ended December 31, 1996, and Years ended
September 30, 1996 and 1995
<TABLE>
<CAPTION>
Three months
Year ended ended Year ended
December 31, December 31, September 30,
------------ ------------ -----------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 6,937,407 1,208,917 3,844,033 3,577,601
Interest-bearing deposits in other financial institutions 75,804 18,727 116,986 217,758
Investment securities - taxable 325,795 116,636 909,504 722,758
Investment securities - nontaxable 9,720 7,110 11,152 -
Mortgage-backed securities 182,630 153,800 617,592 428,325
Dividends on Federal Home Loan Bank stock 73,907 18,465 73,508 74,399
---------- ---------- ---------- ----------
Total interest and dividend income 7,605,263 1,523,655 5,572,775 5,020,841
--------- --------- --------- ---------
Interest expense:
Deposit accounts (note 8) 3,424,439 631,824 2,510,350 2,478,869
Federal Home Loan Bank advances and securities
sold under agreements to repurchase 496,458 64,263 16,444 -
---------- ---------- ---------- ----------
Total interest expense 3,920,897 696,087 2,526,794 2,478,869
--------- ---------- --------- ---------
Net interest income 3,684,366 827,568 3,045,981 2,541,972
Provision for loan losses (note 4) 126,505 6,851 129,831 5,040
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 3,557,861 820,717 2,916,150 2,536,932
--------- ---------- --------- ---------
Other income:
Loan fees 484,449 56,374 40,868 46,375
Service charges on deposit accounts 227,394 57,552 227,912 211,313
Rental income 42,790 10,900 49,279 51,335
Gain on sale of loans 24,647 - 36,435 -
Net gain on sale of investment and
mortgage-backed securities 494,651 1,955 15,119 -
Net gain on sale of equipment 36,898 - - -
Other 82,944 23,662 45,192 18,256
---------- ---------- ---------- ----------
Total other income 1,393,773 150,443 414,805 327,279
--------- ---------- ---------- ----------
Other expenses:
Salaries and employee benefits (note 13) 2,879,088 483,099 1,188,265 1,031,018
Occupancy 934,775 117,212 466,760 440,920
Federal insurance premiums 44,055 26,948 146,693 140,858
Savings Association Insurance Fund assessment (note 18) - - 397,568 -
Other 888,064 205,560 515,833 354,867
---------- ---------- ---------- ----------
Total other expenses 4,745,982 832,819 2,715,119 1,967,663
--------- ---------- --------- ---------
Income before income taxes 205,652 138,341 615,836 896,548
Income tax expense (note 10) 69,052 48,760 142,500 293,000
---------- ---------- ---------- ----------
Net income $ 136,600 89,581 473,336 603,548
========== ========== ========== ==========
Basic net income per share (notes 1 and 15) $ .17 .10 .45 .17
========== ========== ========== ==========
Diluted net income per share (notes 1 and 15) $ .16 .09 .43 .17
========== ========== ========== ==========
Weighted-average shares outstanding - basic (notes 1,
13, and 15) 800,299 940,671 1,055,402 1,230,405
========== ========== ========= =========
Weighted-average shares outstanding - diluted (notes 1,
13, and 15) 856,662 1,012,946 1,089,438 1,230,405
========== ========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Year ended December 31, 1997, Three Months ended December 31, 1996,
and Years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Net unrealized
holding
gains (losses)
Additional Unearned on securities
Preferred stock Common stock paid-in Retained ESOP Unearned Treasury stock available
Shares Amount Shares Amount capital earnings shares compensation Shares Amount for sale Total
------ ------ ------ ------ ------- -------- ------ ------------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September
30, 1994 - $ - - $ - - 6,332,331 - - - $ -(118,289) 6,214,042
Proceeds
from sale
of common
stock, net
of issuance
costs
(note 15) - - 1,190,250 119,025 10,964,983 - (720,000) - - - - 10,364,008
Unrealized
gains on
investment
and
mortgage-
backed
securities
available
for sale,
net of
tax effect - - - - - - - - - - 140,160 140,160
Net income - - - - - 603,548 - - - - - 603,548
-- -- -------- ------- --------- -------- ------- ------- ------ -------- ------ --------
Balance,
September
30, 1995 - - 1,190,250 119,025 10,964,983 6,935,879 (720,000) - - - 21,871 17,321,758
Treasury
stock
purchased - - - - - - - - 190,250 (2,299,490) - (2,299,490)
Unrealized
gains on
investment
and
mortgage-
backed
securities
available
for sale,
net of
tax effect - - - - - - - - - - 21,553 21,553
Dividends
declared,
$0.50
per share - - - - - (600,161) - - - - - (600,161)
ESOP shares
allocated - - - - 11,372 - 90,000 - - - - 101,372
Purchase of
treasury
stock
and award
of shares
under
management
stock
bonus plan - - - - (4,641) - - (371,304) 16,668 (202,519) - (578,464)
Net income - - - - - 473,336 - - - - - 473,336
-- -- -------- ------- --------- -------- ------- ------- ------ -------- ------ --------
Balance,
September
30, 1996 - - 1,190,250 119,025 10,971,714 6,809,054 (630,000) (371,304) 206,918 (2,502,009) 43,424 14,439,904
Net income - - - - - 89,581 - - - - - 89,581
Dividends
declared
($.45
per share) - - - - - (422,850) - - - - - (422,850)
Treasury stock
purchased - - - - - - - - 84,100 (1,228,741) - (1,228,741)
Retirement of
treasury
stock - - (274,350) (27,435)(3,500,796) - - - (274,350) 3,528,231 - -
ESOP shares
allocated - - - - - - 18,000 - - - - 18,000
Unrealized
gains on
investment
and
mortgage-
backed
securities
available
for sale,
net of
tax effect - - - - - - - - - - 241,730 241,730
-- -- --------- -------- ---------- --------- ---- ---- ----- ------- ------- ----------
Balance,
December
31, 1996 - - 915,900 91,590 7,470,918 6,475,785 (612,000) (371,304) 16,668 (202,519)285,154 13,137,624
Net income - - - - - 136,600 - - - - - 136,600
Dividends
declared
($.52
per share) - - - - - (438,485) - - - - - (438,485)
Treasury
stock
purchased - - - - - - - - 2,820 (46,159) - (46,159)
Purchase and
retirement
of treasury
stock - - (91,590) (9,159)(1,447,894) - - - - - - (1,457,053)
ESOP shares
allocated - - - - 51,153 - 72,000 - - - - 123,153
Award of
shares
under
management
stock
bonus plan - - - - (1,878) - - (150,000) (12,500) 151,878 - -
Earned
compensation
under
management
stock
bonus plan - - - - - - - 127,109 - - - 127,109
Unrealized
losses on
investment
and
mortgage-
backed
securities
available
for sale,
net of tax
effect - - - - - - - - - - (63,184) (63,184)
10% stock
dividend
declared on
December
16, 1997 - - 82,400 8,240 1,722,160 (1,730,400) - - 698 - - -
-- -- -------- ------- --------- --------- ------- ------- ------ -------- ------ --------
Balance,
December
31, 1997 - $ - 906,710 $ 90,671 7,794,459 4,443,500 (540,000) (394,195) 7,686 $ (96,800)221,970 11,519,605
== == ======== ======= ========= ========= ======= ======= ====== ======== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
Year ended December 31, 1997, Three Months ended December 31, 1996,
and Years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Three months
Year ended ended Year ended
December 31, December 31, September 30,
------------ ------------ -------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 136,600 89,581 473,336 603,548
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 126,505 6,851 129,831 5,040
Depreciation expense 344,529 39,597 112,357 109,019
Net (accretion) amortization of premiums and
discounts on investment and mortgage-backed
securities (4,865) 11,044 18,267 14,341
ESOP shares allocated 123,153 18,000 101,372 -
Compensation expense related to MSBP 127,109 22,555 37,591 -
Net gain on sale of investment and
mortgage-backed securities (494,651) (1,955) (15,119) -
Amortization of deferred loan fees (143,126) (36,312) (115,856) (83,683)
Deferred income tax expense (benefit) 61,418 94,939 (308,683) 4,784
Gain on sale of loans (24,647) - (36,435) -
Net gain on sale of equipment (36,898) - - -
(Increase) decrease in accrued interest and
dividends receivable (346,852) 73,072 13,776 (38,011)
Decrease (increase) in other assets 75,257 (163,803) 16,658 (8,388)
(Decrease) increase in dividend payable to
management stock bonus plan 3,667 - 6,188 -
(Decrease) increase in Savings Association
Insurance Fund assessment payable - (397,568) 397,568 -
Increase (decrease) in other liabilities 381,228 (327,338) 137,895 (97,673)
----------- ---------- ---------- ----------
Net cash provided by (used in)
operating activities 328,427 (571,337) 968,746 508,977
----------- ---------- ---------- ----------
Cash flows from investing activities:
Proceeds from maturing and called investment securities
available for sale and certificates of deposit 1,423,077 500,000 1,576,924 2,000,000
Proceeds from sales of investment securities
available for sale 2,691,063 6,489,946 3,000,312 -
Proceeds from maturing and called investment
securities held to maturity - - 3,992,875 -
Purchases of investment securities available for sale (6,958,537) - (1,632,419) -
Purchases of investment securities held to maturity - - (4,363,209) (4,658,756)
Principal repayments on mortgage-backed securities
available for sale 1,144,957 505,458 204,836 96,647
Proceeds from sales of mortgage-backed securities
available for sale 6,307,066 477,926 371,705 -
Principal repayments on mortgage-backed securities
held to maturity - - 1,746,401 793,193
Purchases of mortgage-backed securities available for sale - - (1,823,455) -
Purchases of mortgage-backed securities held to maturity - - (2,853,402) (1,988,836)
Net loan originations (34,977,793) (12,847,320) (8,735,992) (949,176)
Proceeds from sale of loans 1,854,185 - 2,455,221 -
Purchases of premises and equipment (3,669,458) (791,386) (366,169) (62,848)
Proceeds from sale of equipment 120,906 - - 6,770
Sale of real estate owned - - 75,626 -
----------- ---------- ---------- ----------
Net cash used in investing activities (32,064,534) (5,665,376) (6,350,746) (4,763,006)
---------- --------- --------- ----------
</TABLE>
(Continued)
-20-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months
Year ended ended Year ended
December 31, December 31, September 30,
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in savings and demand
deposit accounts $ 8,967,499 2,029,967 1,317,457 (2,908,149)
Net increase (decrease) in certificates of deposit 15,467,001 2,915,199 (627,298) 2,441,430
Net increase in securities sold under agreements
to repurchase 2,392,579 - _ -
(Decrease) increase in advance payments by
borrowers for property taxes and insurance (11,023) (377,971) (131,745) 109,342
Treasury stock purchased (1,457,053) (1,228,741) (2,299,490) -
Federal Home Loan Bank advances 13,510,000 5,000,000 2,500,000 -
Repayment of Federal Home Loan Bank advances (2,500,000) - - -
Proceeds from sale of common stock, net of
issuance costs - - - 10,364,008
Dividends paid (639,066) - (600,161) -
Contribution to management stock bonus plan for the
purchase of treasury shares - - (578,464) -
----------- ---------- ---------- -----------
Net cash provided by (used in) financing
activities 35,729,937 8,338,454 (419,701) 10,006,631
---------- --------- ---------- ----------
Increase (decrease) in cash and cash
equivalents 3,993,830 2,101,741 (5,801,701) 5,752,602
Cash and cash equivalents at beginning of period 4,747,486 2,645,745 8,447,446 2,694,844
----------- --------- --------- -----------
Cash and cash equivalents at end of period $ 8,741,316 4,747,486 2,645,745 8,447,446
=========== ========= ========= ===========
Supplemental disclosure of cash flow information:
Interest paid $ 3,806,229 684,795 2,531,331 2,480,389
=========== ========== ========= ===========
Income taxes paid $ 82,500 165,000 297,368 295,000
=========== ========== ========== ===========
Supplemental disclosures of noncash investing and financing activities:
Real estate acquired through foreclosure of
the loan receivable $ - - - 75,626
=========== ========== ========== ===========
Transfer of investment securities from held to
maturity to available for sale at September 30,
1996 (note 2) $ - - 9,270,179 -
=========== ========== ========= ===========
Transfer of mortgage-backed securities from held
to maturity to available for sale at September 30,
1996 (note 3) $ - - 8,284,643 -
=========== ========== ========= ===========
Treasury stock obtained to satisfy employee tax
withholding liability under MSBP $ 46,159 - - -
=========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-21-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and September 30, 1996 and 1995
(1) Summary of Significant Accounting Policies
------------------------------------------
CCF Holding Company (the "Parent"), a federally chartered thrift holding
company, is a Georgia corporation organized in March 1995 to acquire all of
the common stock of Clayton County Federal Savings and Loan Association
(the "Association"). On July 11, 1995, the Parent completed an initial
public offering of common stock and raised $10,364,008 in net proceeds
through the issuance of 1,190,250 common shares, at $10 per share.
Concurrently, the Association completed a conversion from a Federally
chartered mutual savings and loan association to a Federally chartered
stock savings and loan association. Upon the conversion, the Parent
acquired all of the outstanding common stock of the Association for
$5,182,004, at which time the Association became a wholly owned subsidiary
of the Parent. Since the Parent and the Association were under common
control, the transaction was accounted for at historical cost in a manner
similar to a pooling-of-interests. The Parent and the Association (the
"Company") are primarily regulated by the Office of Thrift Supervision
("OTS") and the Federal Deposit Insurance Corporation ("FDIC"), and undergo
periodic examinations by these regulatory authorities.
On December 10, 1996, the Company's Board of Directors approved a change in
the Company's year-end from September 30 to December 31.
Effective February 4, 1997, the OTS gave approval for the Association to
change its name to Heritage Bank (the "Bank").
The Company provides a full range of banking services to individual and
corporate customers through its main office in Jonesboro, Georgia and four
Georgia branch offices located in Clayton, Fayette, and Henry Counties. The
Company primarily competes with other financial institutions in its market
area, which it considers to be South Metropolitan Atlanta.
(a) Basis of Presentation
---------------------
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and to prevailing practices
within the financial institutions industry. The following is a summary
of the significant accounting policies that the Company follows in
preparing and presenting its consolidated financial statements.
The consolidated financial statements include the accounts of the
Parent and the Bank. All significant intercompany accounts and
transactions are eliminated in preparing the consolidated financial
statements.
-22-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities as of the date of the balance sheet and
revenues and expenses for the period. Actual results could differ
significantly from those estimates. One estimate that is particularly
susceptible to a significant change in the near term relates to the
determination of the allowance for loan losses. In connection with the
determination of the allowance for loan losses, management obtains
independent appraisals for significant properties. Management believes
that the allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future additions
to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based on their judgment about
information available to them at the time of their examination.
(b) Cash and Cash Equivalents
-------------------------
For purposes of the consolidated statements of cash flows, the Company
considers amounts due from banks and interest-bearing deposits in
other financial institutions to be cash equivalents. Generally,
interest-bearing deposits in other financial institutions are for
one-day periods.
(c) Investment and Mortgage-Backed Securities
-----------------------------------------
All investment and mortgage-backed securities have been classified by
management as available for sale. The Company does not hold any
derivative investments.
Available-for-sale securities are reported at fair value, as
determined by independent quotations, with unrealized holding gains or
losses, net of the related income taxes, excluded from income and
reported as a separate component of stockholders' equity, until
realized. Any unrealized holding gains or losses included in the
separate component of stockholders' equity relating to securities
subsequently transferred from available for sale to held to maturity
are maintained and amortized into income over the remaining life of
the security as an adjustment to yield in a manner consistent with the
amortization or accretion of the premium or discount on the associated
security. A decline in the market value below cost of any investment
or mortgage-backed security that is deemed other than temporary is
charged to income, resulting in the establishment of a new cost basis
for the security.
Purchase premiums and discounts are amortized or accreted to interest
income over the life of the related security as an adjustment to yield
using the effective interest method. For mortgage-backed securities,
such amortization and accretion is determined taking into
consideration assumed prepayment patterns. Dividend and interest
income are recognized when earned. Realized gains and losses for
securities sold are included in income on the trade date, and are
derived using the specific identification method for determining the
cost of securities sold.
(Continued)
-23-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(d) Loans
-----
Loans are stated at their unpaid principal balances, less, where
applicable, undisbursed proceeds on loans in process, unamortized
loan origination fees, and allowance for loan losses.
Loan origination fees collected, net of certain direct loan
origination costs, are deferred and recognized into income using
the interest method as an adjustment of the yield over the lives
of the underlying loans.
Interest income is recognized using the simple interest method on
the balance of the principal amount outstanding. The accrual of
interest income is discontinued on loans which become
contractually past due by 90 days. Interest previously accrued
but not collected is reversed against current period interest
income when such loans are placed on nonaccrual status. Interest
accruals are recorded on such loans only when they are brought
fully current with respect to interest and principal and when, in
the judgment of management, the loans are estimated to be fully
collectible as to both principal and interest.
The Company extends credit to customers throughout its market
area, which includes Clayton, Henry, and Fayette Counties. Most
of the Company's loans are secured by real estate in these
Georgia counties and a substantial portion of its borrowers'
ability to repay such loans is dependent upon the economy in the
Company's market area.
The allowance for loan losses is established through provisions
for loan losses charged to operations. Loans are charged off
against the allowance for loan losses when management believes
that the collection of the principal is unlikely. Subsequent
recoveries are added to the allowance. The allowance is an amount
that management has determined to be adequate through its
allowance for loan losses methodology to absorb losses inherent
in existing loans and commitments to extend credit. The allowance
is determined through consideration of such factors as changes in
the nature and volume of the portfolio, overall portfolio
quality, delinquency trends, adequacy of collateral, loan
concentrations, specific problem loans, and economic conditions
that may affect the borrowers' ability to pay.
Impaired loans are measured based on the present value of
expected future cash flows, discounted at the loan's effective
interest rate, or at the loan's observable market price, or the
fair value of the collateral if the loan is collateral dependent.
Loans that are determined to be impaired require a valuation
allowance equivalent to the amount of impairment. The valuation
allowance is to be established by a charge to the provision for
loan losses.
A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the
note agreement. Cash receipts on impaired loans which are
accruing interest are applied to principal and interest under the
contractual terms of the loan agreement. Cash receipts on
impaired loans for which the accrual of interest has been
discontinued are applied to reduce the principal amount of such
loans until all required contractual principal payments have been
made and are recognized as interest income thereafter.
(Continued)
-24-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Additional funds for lending are provided by selling whole and
participating interests in real estate loans. Gains or losses on
the sale of such loans are recognized at settlement dates and are
computed as the difference between the sales proceeds and the
carrying value of the loans. No servicing asset is recognized
because the Company estimates that the benefits of servicing are
just adequate to compensate for the Company's servicing
responsibilities.
(e) Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is recorded on a straight-line basis
over the estimated useful lives of the related assets which are
from three to forty years.
(f) Real Estate Owned
-----------------
Real estate acquired through foreclosure, consisting of
properties obtained through foreclosure proceedings or acceptance
of a deed in lieu of foreclosure, is reported on an individual
asset basis at the lower of cost or fair value, less disposal
costs. Fair value is determined on the basis of current
appraisals, comparable sales, and other estimates of value
obtained principally from independent sources. When properties
are acquired through foreclosure, any excess of the loan balance
at the time of foreclosure over the fair value of the real estate
held as collateral is charged to the allowance for loan losses.
Subsequent write-downs are charged to operations. Gains
recognized on the disposition of the properties are recorded in
other income.
Costs of improvements to real estate are capitalized, while costs
associated with holding the real estate are charged to
operations.
(g) Income Taxes
------------
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
(h) Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, Earnings Per Share. SFAS No. 128 supersedes
Accounting Principles Board Opinion No. 15, Earnings Per Share,
and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS). SFAS No. 128 replaces
the presentation of primary EPS and fully diluted EPS with a
presentation of basic EPS and diluted EPS, respectively. SFAS No.
128 also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex
capital structures. All prior period EPS data has been restated
to conform with SFAS No. 128.
(Continued)
-25-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Basic EPS excludes dilution and is computed by dividing net
income by weighted-average shares outstanding. Diluted EPS is
computed by dividing net income by weighted-average shares
outstanding plus potential common stock resulting from dilutive
stock options and Management Stock Bonus Plan shares that have
not yet vested. There were no options outstanding at September
30, 1995.
For purposes of computing weighted-average shares outstanding,
unallocated shares under the Company's employee stock ownership
plan are not considered outstanding until they are committed to
be released for allocation.
All average share and per share data in the accompanying
consolidated financial statements and all share and per share
data in note 13 have been restated to reflect the 10% stock
dividend declared in December 1997, which was effected on January
15, 1998.
(i) Reclassifications
-----------------
Certain 1996 and 1995 amounts have been reclassified for
comparative purposes in order to conform the prior periods to the
1997 presentation. Such reclassifications had no impact on net
income or stockholders' equity.
(j) Recent Accounting Pronouncements
------------------------------------
In June 1997, the FASB issued SFAS No. 130, Reporting
Comprehensive Income. This statement establishes standards for
reporting and displaying comprehensive income and its components
in a full set of general purpose financial statements. SFAS No.
130 requires all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal
prominence with the other financial statements. The term
"comprehensive income" is used in the statement to describe the
total of all components of comprehensive income including net
income. "Other comprehensive income" refers to revenues,
expenses, gains, and losses that are included in comprehensive
income but excluded from earnings under current accounting
standards. Currently, "other comprehensive income" for the
Company consists of items previously recorded directly in equity
under SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities. SFAS No. 130 is effective for financial
statements for years beginning after December 15, 1997. The
Company will adopt SFAS No. 130 effective January 1, 1998.
(Continued)
-26-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) Investment Securities
---------------------
At December 31, 1997 and September 30, 1996, investment securities
available for sale consisted of the following:
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agency obligations $ 7,984,149 10,251 11,159 7,983,241
Equity security 1,243,471 336,857 - 1,580,328
Municipal securities 157,990 489 - 158,479
---------- --------- -------- ------------
$ 9,385,610 347,597 11,159 9,722,048
========== ========= ======== ============
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agency obligations $ 11,405,631 11,699 83,549 11,333,781
Equity security 782,790 387,335 - 1,170,125
Municipal securities 868,807 - 19,332 849,475
---------- ---------- ---------- -------------
$ 13,057,228 399,034 102,881 13,353,381
========== ========== ========== =============
</TABLE>
At September 30, 1996, the Company transferred all investment securities
held to maturity to available for sale.
For the years ended December 31, 1997 and September 30, 1996, the Company
sold certain investment securities available for sale for $2,691,063 and
$3,000,312, respectively, and recognized gross and net gains of $480,379 in
1997 and gross gains of $2,065 and gross losses of $3,880 in 1996. For the
three months ended December 31, 1996, the Company sold certain investment
securities available for sale for $6,489,946 and recognized gross gains of
$5,033 and gross losses of $8,846. In addition, the Company recognized a
gain of $7,125 on an investment security held to maturity and called during
the year ended September 30, 1996. The Company did not sell any investment
securities in 1995.
(Continued)
-27-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
The amortized cost and fair values of investments in debt securities at
December 31, 1997 by contractual maturity are shown below. Expected
maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Investments
available for sale
-----------------------------
Amortized
cost Fair value
---- ----------
<S> <C> <C>
Due within one year $ 1,000,061 996,640
Due after one year through five years 5,991,199 5,990,039
Due after five years 1,150,879 1,155,041
--------- ---------
$ 8,142,139 8,141,720
========= =========
</TABLE>
Investment securities with aggregate carrying amounts of $8,141,720
and $487,650 at December 31, 1997 and September 30, 1996, respectively,
were pledged to secure public deposits and securities sold under
agreements to repurchase.
(3) Mortgage-Backed Securities
--------------------------
At December 31, 1997 and September 30, 1996, mortgage-backed securities
available for sale consisted of the following:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation Participation Certificate with an
interest rate of 5.5%, with a
scheduled principal maturity in 1998 $ 234,972 -- 1,358 233,614
Federal National Mortgage Association Participation Certificates, with
interest rates ranging from 5.5% to 7.8% with scheduled principal
maturities at various
times through 2023 1,597,482 12,600 6,187 1,603,895
---------- ---------- ---------- ----------
$1,832,454 12,600 7,545 1,837,509
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Government National Mortgage Association Participation Certificates with
interest rates primarily ranging from 6.5% to 10.5%, with scheduled
principal maturities at various times through 2024 $ 1,664,651 12,057 92,152 1,584,556
Federal Home Loan Mortgage Corporation Participation Certificates with
interest rates ranging from 5.5% to 10.0%, with scheduled principal
maturities at various times through 2009 3,229,350 41,309 69,656 3,201,003
Federal National Mortgage Association Participation Certificates, with
interest rates ranging from 5.5% to 7.8% with scheduled principal
maturities at various times through 2023 5,357,364 2,199 120,186 5,239,377
----------- ----------- ----------- -----------
$10,251,365 55,565 281,994 10,024,936
=========== =========== =========== ===========
</TABLE>
(Continued)
-28-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
At September 30, 1996, the Company transferred all mortgage-backed
securities held to maturity to available for sale.
Mortgage-backed securities with aggregate carrying amounts of $1,837,477
at December 31, 1997 were pledged to secure public deposits and
securities sold under agreements to repurchase. There were no
mortgage-backed securities pledged at September 30, 1996.
For the years ended December 31, 1997 and September 30, 1996, the Company
sold for $6,307,066 and $371,705 certain mortgage-backed securities
available for sale and recognized gross gains of $35,662 and gross losses
of $21,390 in 1997 and gross gains of $9,894 and gross losses of $85 in
1996. For the three months ended December 31, 1996, the Company sold for
$477,926 certain mortgage-backed securities available for sale and
recognized gross and net gains of $5,768. The Company did not sell any
mortgage-backed securities in 1995.
(4) Loans Receivable
----------------
At December 31, 1997 and September 30, 1996, loans receivable consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
First mortgage loans, substantially secured
by single family residential dwellings $ 49,031,131 45,509,936
Real estate construction loans 16,231,115 7,056,182
Commercial loans, primarily real estate mortgages 29,822,333 -
Other mortgage loans 1,287,926 2,698,314
Consumer and other installment loans 2,680,145 1,065,437
------------- -------------
99,052,650 56,329,869
Less:
Undisbursed proceeds on loans in process 205,720 3,789,924
Unamortized loan origination fees, net 636,194 500,080
Allowance for loan losses 669,505 540,291
------------- -------------
Loans receivable, net $ 97,541,231 51,499,574
========== ==========
</TABLE>
At December 31, 1997 and September 30, 1996, loan participations sold
to, without recourse, and serviced for others amounted to approximately
$8,459,000 and $8,320,000, respectively.
The following is a summary of transactions in the allowance for loan
losses:
<TABLE>
<CAPTION>
Three months
Year ended ended Year ended
December 31, December31, September 30,
------------ ----------- ------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 547,142 540,291 408,848 430,103
Provision for losses on loans 126,505 6,851 129,831 5,040
Loan charge-offs (4,142) - - (26,295)
Loan recoveries - - 1,612 -
------- -------- -------- -------
Balance at end of period $ 669,505 547,142 540,291 408,848
======= ======= ======= =======
</TABLE>
(Continued)
-29-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Company adopted the provisions of SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures, effective October 1, 1995. Prior periods have not been
restated.
Impaired loans at December 31, 1997 totaled $152,000, all of which were
classified as non-accrual. Impairment is measured based on the fair value
of the loan's collateral. There are no impairment allowances required for
impaired loans at December 31, 1997. There were no impaired loans at
September 30, 1996.
The average balance of impaired loans for the year ended December 31,
1997 was approximately $13,000. No interest income on impaired loans
after determination as impaired was recognized for the year ended
December 31, 1997.
Loans are made to officers, directors, and their associates in the
ordinary course of business on substantially the same terms as those
prevailing at the time for comparable transactions with other persons,
and do not involve more than the normal credit risk nor present other
unfavorable features. The following is a summary of activity during the
year ended December 31, 1997 with respect to such aggregate loans to
these individuals and their associates:
Balance at beginning of year $ 1,545,457
Adjustment for executive officer and director changes (73,727)
----------
Adjusted balance at beginning of year 1,471,730
New loans 568,911
Principal repayments (331,170)
Balance at end of year $ 1,709,471
==========
At December 31, 1997 and September 30, 1996, the Company had
approximately $366,000 and $601,000, respectively, of nonaccrual loans
primarily consisting of residential first mortgage loans. Interest income
on nonaccrual loans for the years ended December 31, 1997 and September
30, 1996 and 1995, which would have been reported on an accrual basis,
amounted to approximately $30,000, $18,000, and $6,000, respectively.
Interest income on nonaccrual loans for the three months ended December
31, 1997 was not considered significant.
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include standby letters of credit
and commitments to extend credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated financial statements. The contract
or notional amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial
instruments.
(Continued)
-30-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Standby letters of credit are conditional commitments issued by the
Company guaranteeing the performance of a customer to a third party.
These 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. The Company holds collateral supporting these
commitments, as deemed necessary. At December 31, 1997, commitments under
standby letters of credit aggregated $69,000.
The Company's exposure to credit loss, in the event of nonperformance by
the customer for commitments to extend credit is represented by the
contractual or notional amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as
it does for recorded loans.
A summary of the Company's commitments to extend credit at December 31,
1997 is as follows:
Financial instruments whose contract amounts
represent credit risk -- commitments:
Mortgage loans:
Fixed rate $ 722,000
Adjustable rate -
Commercial loans:
Fixed rate 49,000
Adjustable rate 3,081,000
Acquisition and development loans:
Fixed rate -
Adjustable rate 1,554,000
Construction loans:
Fixed rate -
Adjustable rate 200,000
Total commitments $ 5,606,000
=========
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. 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 borrower.
At December 31, 1997, the Company had outstanding commitments to purchase
variable rate loans of $1,000,000 and outstanding commitments to sell
variable rate loans of $200,000.
(Continued)
-31-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
In the origination of mortgage loans, the Company enters into adjustable
interest rate contracts with caps and floors written with the intent of
managing its interest rate exposure. Interest rate caps and floors enable
customers and the Company to transfer, modify, or reduce their interest
rate risk. At December 31, 1997, adjustable rate mortgage loans with
interest rate caps and floors amounted to approximately $25,617,000.
(5) Accrued Interest and Dividends Receivable
-----------------------------------------
At December 31, 1997 and September 30, 1996, accrued interest and
dividends receivable consisted of the following:
1997 1996
---- ----
Loans $ 645,635 257,252
Investment securities 129,609 180,100
Mortgage-backed securities 9,608 73,720
---------- ----------
$ 784,852 511,072
========== ==========
(6) Premises and Equipment
----------------------
A summary of premises and equipment at December 31, 1997 and September
30, 1996 is as follows:
1997 1996
---- ----
Land 803,927 248,273
Landscaping - 32,258
Office buildings $ 2,392,646 1,043,487
Furniture and equipment 2,102,817 805,338
Construction in progress 1,143,739 91,856
--------- ---------
6,443,129 2,221,212
Less accumulated depreciation 1,330,791 1,101,584
--------- ---------
$ 5,112,338 1,119,628
========= =========
During 1997, the Company capitalized interest cost of approximately
$23,000 as a component of construction in progress in conjunction with
branch construction during 1997.
(7) Required Investment
-------------------
Investment in stock of a Federal Home Loan Bank is required of federally
insured financial institutions who utilize their services. No ready
market exists for the stock and it has no quoted market value. In
accordance with SFAS No. 115, Accounting for Certain Investments in Debt
and Equity Securities, the investment is carried at cost.
(Continued)
-32-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Deposits
--------
At December 31, 1997 and September 30, 1996, deposits consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
Weighted Weighted
average average
Range interest Range interest
Amount of rates rate Amount of rates rate
------ -------- ---- ------ -------- ----
<S> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits $ 4,548,285 - % -% $ 3,139,469 - %- %
Passbook savings accounts 9,962,412 2.50 2.50 11,659,255 2.03 2.03
Negotiable order of withdrawal
accounts/money market
accounts 22,240,116 2.25-5.29 3.82 10,954,623 1.67-2.99 2.12
Certificates of deposit 54,450,527 2.10-6.37 5.67 36,068,327 2.03-6.46 5.49
---------- ----------
$ 91,201,340 4.58% $ 61,821,674 3.96%
========== ==== ========== ====
</TABLE>
A summary of certificates of deposit by scheduled maturities as of
December 31, 1997 follows:
Maturing in:
Less than one year $ 39,598,175
1-2 years 13,054,766
2-3 years 1,720,372
3-4 years 77,214
-------------
$ 54,450,527
=================
At December 31, 1997, the Company had approximately $8,433,000 in time
deposits that were greater than or equal to $100,000.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Three
Year ended months ended Year ended
December 31, December 31, September 30,
------------ ------------ -------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Passbook savings accounts $ 230,671 58,089 274,209 366,507
Negotiable order of withdrawal
accounts/ money market
accounts 473,043 61,831 235,225 271,371
Certificates of deposit 2,720,725 511,904 2,000,916 1,840,991
--------- ------- --------- ---------
$ 3,424,439 631,824 2,510,350 2,478,869
========= ======= ========= =========
</TABLE>
(Continued)
-33-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) Securities Sold Under Agreements to Repurchase
----------------------------------------------
The Company's activity related to securities sold under agreements to
repurchase at December 31, 1997 is summarized as follows:
Balance at year-end $ 2,392,579
Maximum outstanding during the year 3,698,746
Average outstanding during the year 2,240,096
Average interest rate during the year 5.15%
At December 31, 1997, the securities sold under agreements to repurchase
renew daily and bear interest at a variable rate. All securities sold
under repurchase agreements are held by independent trustees. There were
no securities sold under agreements to repurchase at September 30, 1996.
(10) Income Taxes
------------
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Three
Year ended months ended Year ended
December 31, December 31, September 30,
------------ ------------ ---------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current expense (benefit) - Federal $ 7,634 (46,179) 451,183 288,216
Deferred tax (benefit) expense - Federal 52,235 80,743 (272,239) 8,365
Deferred tax (benefit) expense - State 9,183 14,196 (36,444) (3,581)
------- ------ --------- ---------
$ 69,052 48,760 142,500 293,000
====== ====== ======= =======
</TABLE>
The Company has not incurred current state income taxes due to net
operating loss and credit carryforwards for state income tax purposes.
Income tax expense of the Company differed from the amounts computed by
applying the statutory Federal income tax rate of 34% to income before
income taxes as follows:
<TABLE>
<CAPTION>
Three
Year ended months ended Year ended
December 31, December 31, September 30,
------------ ------------ ---------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tax expense at statutory rate $ 69,922 47,036 209,384 304,826
Increase (decrease) in tax expense resulting from:
State income taxes, net of Federal tax effect 6,061 9,369 (24,053) (2,363)
Municipal investments (2,645) (2,063) (3,792) -
Other, net (4,286) (5,582) (39,039) (9,463)
------ ------ ------- --------
$ 69,052 48,760 142,500 293,000
====== ====== ======= =======
</TABLE>
(Continued)
-34-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and September 30, 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Loans receivable, due to allowance for loan losses $ 8,225 -
State tax credit carryforwards 55,164 51,121
Savings Association Insurance Fund assessment payable - 149,963
Employee Stock Ownership Plan accrual 62,713 38,261
Management stock bonus plan 23,790 14,179
Other 9,600 9,420
---------- ----------
Total gross deferred tax assets 159,492 262,944
Less valuation allowance - -
---------- ----------
Net deferred tax assets 159,492 262,944
---------- ----------
Deferred tax liabilities:
Loans receivable, due to allowance for loan losses - 67,357
Deferred loan fees 315,183 194,926
Unrealized holding gains on securities available
for sale 119,523 26,300
Premises and equipment, primarily due to
differences in depreciation 17,963 19,660
Federal Home Loan Bank stock dividends 146,165 146,165
Prepaid expenses 16,774 15,072
---------- ----------
Total gross deferred tax liabilities 615,608 469,480
---------- ----------
Net deferred tax liabilities $ 456,116 206,536
========== ==========
</TABLE>
There was no valuation allowance for deferred tax assets as of December
31, 1997 and September 30, 1996. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which
the temporary differences resulting in the deferred tax assets become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies
in making the assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods which
the related temporary differences are deductible, management believes it
is more likely than not the Company will realize the benefits of these
deductible differences.
At December 31, 1997 and September 30, 1996, the Company has state gross
receipts tax credit carryforwards of approximately $83,582 and $77,455,
respectively, which are available to reduce future state income taxes, if
any, through 2002.
(Continued)
-35-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Prior to January 1, 1996, the Company was permitted under the Internal
Revenue Code ("Code") a special bad debt deduction related to additions
to tax bad debt reserves established for the purpose of absorbing losses.
The provisions of the Code permitted the Company to deduct from taxable
income an allowance for bad debts based on the greater of a percentage of
taxable income before such deduction or actual loss experience. Retained
earnings at December 31, 1997 include approximately $675,000 for which no
deferred Federal income tax liability has been recognized. The amounts
represent an allocation of income for bad debt deductions for tax
purposes only. Reduction of amounts so allocated for purposes other than
tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only, which would
be subject to the then current corporate income tax rate.
(11) Federal Home Loan Bank Advances
-------------------------------
Federal Home Loan Bank advances at December 31, 1997 consist of a
$18,510,000 term loan secured by a blanket lien on residential mortgage
loans. Principal is payable at maturity on June 26, 1998 and interest is
due monthly based on a floating daily interest rate of 6.50% at December
31, 1997.
Federal Home Loan Bank advances at September 30, 1996 consist of
unsecured term loans with principal payable at maturity and interest
due monthly based on floating daily interest rates, as follows:
6.05% maturing June 26, 1997 $ 500,000
6.05% maturing July 17, 1997 500,000
6.05% maturing August 15, 1997 500,000
6.05% maturing September 19, 1997 1,000,000
---------------
$ 2,500,000
===============
(12) Preferred Stock
---------------
The Company is authorized to issue 1,000,000 shares of no par value
serial preferred stock. At December 31, 1997, there were no shares issued
and outstanding. The Board of Directors of the Company is authorized to
issue serial preferred stock and to fix and state voting powers,
designations, preferences, or other special rights of such shares and the
qualifications, limitations, and restrictions thereof, subject to
regulatory approval but without stockholder approval.
(Continued)
-36-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13) Employee Benefit Plans
----------------------
(a) 401(k) Profit Sharing Plan
--------------------------
During fiscal 1995, the Company adopted a tax-qualified defined
contribution profit sharing plan (the "Plan") for the benefit of its
employees. All full-time employees become eligible to participate
under the Plan after completing one year of service. Under the Plan,
employees may voluntarily elect to defer up to 15% of their
compensation, not to exceed applicable limits. The first 5% of
employees' savings were matched during 1995 by a Company contribution
of $2.00 for each $1.00 of employee contribution. Effective October
1, 1995, such Company contributions were $1.00 for each $1.00 of
employee contribution. Such matching contributions begin to vest
after three years at a rate of 20% per year with full vesting after
seven years. Additionally, the Company may contribute an annual
discretionary contribution to the Plan based upon a number of
factors, such as the Company's retained earnings, profits, regulatory
capital, and employee performance.
Contributions by the Company to the Plan during the years ended
December 31, 1997 and September 30, 1996 and 1995 totaled $43,200,
$29,116, and $60,247, respectively. Contributions by the Company to
the Plan during the three months ended December 31, 1996 totaled
$8,792.
(b) Pension Plan
------------
The Company formerly maintained a noncontributory pension plan which
covered substantially all full-time employees of the Company. The
benefits were based on years of service and the employee's five
highest years of compensation. The Company's philosophy was to fund
annually the maximum amount allowable as a deduction for Federal
income tax purposes. During fiscal 1995, the Board of Directors of
the Company approved the termination of the defined benefit pension
plan and the establishment of the 401(k) plan. The defined benefit
pension plan went through the process of termination and settlement
during 1995, and the plan assets for those participants who were
still active employees at time of termination were distributed
primarily through deposits into individual retirement plan accounts,
with the remainder transferred to the 401(k) plan, or paid in cash.
These distributions occurred March 1, 1995. In conjunction with the
termination, the Company reversed previously accrued pension cost
totaling $84,000, which was recognized as a reduction in salaries and
employee benefits expense in 1995.
(c) Employee Stock Ownership Plan
-----------------------------
During 1995, the Company also established an employee stock ownership
plan (the "ESOP"), for the exclusive benefit of participating
employees, who have completed one year of service with the Company
and have attained age 21.
(Continued)
-37-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
The ESOP is funded by periodic contributions made by the Company in
cash or common stock. Benefits to participants may be paid either in
shares of the Company's common stock or in cash. The ESOP was
approved to borrow funds from the Company to acquire up to 10% of the
common stock of the Company. During 1995, the ESOP borrowed $720,000
from the Company to acquire 79,200 shares of Company common stock at
approximately $9 per share. The loan is secured by the shares
purchased and earnings of the ESOP assets, and is at an interest rate
equal to a published prime rate, adjusted quarterly. The loan is to
be repaid over a ten-year period at $72,000 per year. The shares
purchased are held in a suspense account for allocation among
participants as the loan is repaid.
At December 31, 1997, 19,800 ESOP shares have been allocated to the
participating employees. For purposes of computing net income per
share, the remaining 59,400 unallocated shares are not considered
outstanding until they are committed-to-be-released for allocation.
The Company is recognizing as compensation expense the fair market
value of the Company's common stock allocated to participating
employees. Compensation expense recognized by the Company during the
years ended December 31, 1997 and September 30, 1996 and 1995 totaled
$123,153, $83,372, and $18,000, respectively. Compensation expense
recognized by the Company during the three months ended December 31,
1996 totaled $18,000.
(d) Stock Option Plan
-----------------
In January 1996, the Company approved a stock option plan (the
"Option Plan") whereby 130,928 authorized shares are reserved for
issuance by the Company upon exercise of stock options granted to
officers, directors, and employees of the Company from time to time.
Options constitute both incentive stock options and nonqualified
stock options. Options awarded to officers and directors are
exercisable at a rate of 20% annually with the first 20% exercisable
on the one-year anniversary of the date of grant. Any shares subject
to an award which expires or is terminated unexercised will again be
available for issuance. The Option Plan has a term of ten years,
unless sooner terminated. The exercise price for the purchase of
shares subject to an incentive stock option may not be less than 100
percent of the fair market value of the common stock on the date of
grant of such option. The exercise price per share for nonqualified
stock options shall be the price as determined by an option
committee, but not less than the fair market value of the common
stock on the date of grant.
(Continued)
-38-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Stock option activity is as follows:
<TABLE>
<CAPTION>
Three
Year ended months ended Year ended
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Options outstanding at beginning
of period 112,599 85,099 -
Options granted - 27,500 85,099
Options exercised - - -
Options canceled 6,546 - -
---------- ---------- --------
Options outstanding at end of period 106,053 112,599 85,099
======= ======= ======
Options exercisable at end of period 21,211 - -
========== ========== ========
Weighted-average option prices per share:
Options granted during
the period $ - 12.18 11.25
Options exercised during
the period - - -
Options canceled during
the period 11.25 - -
Options outstanding at
end of period 11.49 11.48 11.25
</TABLE>
The options outstanding at December 31, 1997 had a weighted-average
contractual maturity of 8.1 years and exercise prices ranging from
$11.02 to $13.47.
The per share weighted-average fair value of stock options granted with
an exercise price equal to market during the three months ended December
31, 1996 and the year ended September 30, 1996 was $5.74 and $5.29,
respectively, using the Black Scholes option-pricing model with the
following weighted-average assumptions: expected life of seven years,
expected annual dividend rate of 2%, risk-free interest rate of 5.45%,
and an expected volatility of 42%.
(Continued)
-39-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for stock options. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company's net income would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Three months
Year ended ended Year ended
December 31, December 31, September 30,
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Net income:
As reported 136,600 89,581 473,336
Pro forma 62,324 71,722 431,502
Net income per share:
As reported:
Basic net income per share .17 .10 .45
Diluted net income per share .16 .09 .43
Pro forma:
Basic net income per share .08 .08 .41
Diluted net income per share .07 .07 .40
</TABLE>
(e) Management Stock Bonus Plan
---------------------------
In January 1996, the Company adopted a Management Stock Bonus Plan
("MSBP"). Under the terms of the MSBP, a total of 52,371 shares of
the Company's common stock is available for the granting of awards
during a period of up to ten years. In connection with the adoption
of the MSBP, the Company purchased treasury shares in the open market
at a total cost of $578,464 to cover the total shares available for
grant under the MSBP and subsequently awarded 34,036 of such treasury
shares to employees during the year ended September 30, 1996. The
market value of the common stock at the date of award is included as
a reduction of stockholders' equity in the consolidated balance
sheets and is recorded as compensation expense using the
straight-line method over the vesting period of the awards. The
awards vest pro rata over five years at each anniversary of the
award. Aggregate compensation expense with respect to the foregoing
MSBP awards was approximately $131,242, $22,555, and $37,591 for the
year ended December 31, 1997, the three months ended December 31,
1996, and the year ended September 30, 1996, respectively.
Dividends paid on the MSBP shares granted are held by the Company in
a trust account and may be distributed upon the vesting of the shares
awarded. Dividends payable on the MSBP shares totaled $9,855 and
$6,188 at December 31, 1997 and September 30, 1996, respectively.
(Continued)
-40-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Summary information regarding outstanding MSBP awards at December 31,
1997 is presented below:
<TABLE>
<CAPTION>
Period in which Market value Shares Vesting
awards granted at award date awarded period
-------------- ------------- ------- ------
<S> <C> <C> <C>
Year ended September 30, 1996 $ 371,304 34,036 5 years
Three months ended December 31, 1996 150,000 13,750 5 years
</TABLE>
(14) Fair Values of Financial Instruments
------------------------------------
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it
is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount
rate 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. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot
be determined with precision. Changes in assumptions would significantly
affect the estimates. SFAS No. 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements.
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments and other recorded assets and liabilities without
attempting to estimate the fair value of anticipated future business. In
addition, tax ramifications related to the realization of unrealized
gains and losses can have a significant effect on fair value estimates
and have not been considered in any of the estimates. Accordingly, the
aggregate fair value amounts presented do not represent the underlying
value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments and
certain other assets and liabilities:
Cash and due from banks: The carrying amounts of cash and due from
banks approximate those assets' fair values.
Interest-bearing deposits in other financial institutions: The
carrying amounts of interest-bearing deposits in other financial
institutions approximate their fair value, due to the short-term
nature of these instruments.
Investment and mortgage-backed securities: Fair values for investment
and mortgage-backed securities are based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Federal Home Loan Bank stock: The carrying amount is considered a
reasonable estimate of fair value.
(Continued)
-41-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Loans receivable: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for all other loans are estimated
based upon a discounted cash flow analysis, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
Accrued interest and dividends receivable: The carrying amount
approximates fair value, due to the short-term nature of these
receivables.
Off-balance-sheet instruments: Fair values for the Company's
off-balance-sheet instruments are based on a comparison with terms,
including interest rate and commitment period currently prevailing to
enter into similar agreements, taking into account credit standings.
These instruments approximate fair value considering they are
primarily variable rate instruments.
Deposits: Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow analysis that applies interest
rates currently being offered on deposits of similar terms of
maturity. The carrying amounts of all other deposits, due to their
short-term nature, approximate their fair values.
Securities sold under agreements to repurchase: Fair value
approximates carrying value of such liabilities due to their short-
term nature.
Federal Home Loan Bank advances: The carrying amounts of the Federal
Home Loan Bank advances approximate their fair values as the advances
are based on a floating interest rate.
The estimated fair value of the Company's financial instruments as of
December 31, 1997 and September 30, 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1996
--------------------- ----------------------
Carrying Fair Carrying Fair
value value value value
----- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 4,358 4,358 2,133 2,133
Interest-bearing deposits in other financial institutions 4,384 4,384 513 513
Investment and mortgage-backed securities 11,560 11,560 23,378 23,378
Federal Home Loan Bank stock 1,013 1,013 1,013 1,013
Loans receivable, net 97,541 95,711 51,500 52,548
Accrued interest receivable 785 785 511 511
Liabilities:
Deposits:
Noninterest-bearing demand deposits 4,548 4,548 3,139 3,139
Interest-bearing demand and savings 32,203 32,203 22,614 22,614
Certificates of deposit 54,451 54,575 36,068 36,145
Securities sold under agreements to repurchase 2,393 2,393 - -
Federal Home Loan Bank advances 18,510 18,510 2,500 2,500
</TABLE>
(Continued)
-42-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(15) Parent Company Financial Information
------------------------------------
The following represents condensed financial information of the Parent.
Condensed Balance Sheets
December 31, 1997 and September 30, 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Cash $ 347,570 -
Investment securities available for sale, at fair value 1,580,328 1,170,125
Note receivable from subsidiary - 1,064,136
Investment in subsidiary, at equity 10,353,620 12,214,811
Land - 10,000
Other assets 29,284 126,935
---------- ----------
Total assets $ 12,310,802 14,586,007
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deferred income taxes $ 117,900 146,103
Dividends payable 228,457 -
Other liabilities 444,840 -
---------- ----------
791,197 146,103
---------- ----------
Stockholders' equity:
Common stock 90,671 119,025
Additional paid-in capital 7,794,459 10,971,714
Retained earnings 4,443,500 6,809,054
Unearned ESOP shares (540,000) (630,000)
Unearned compensation (394,195) (371,304)
Treasury stock, at cost (96,800) (2,502,009)
Net unrealized holding gains on investment and
mortgage-backed securities available for sale 221,970 43,424
---------- ----------
Total stockholders' equity 11,519,605 14,439,904
---------- ----------
Total liabilities and stockholders' equity $ 12,310,802 14,586,007
========== ==========
</TABLE>
(Continued)
-43-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Condensed Statements of Income
Year ended December 31, 1997, Three Months ended
December 31, 1996, and Years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Three
Year ended months ended Year ended
December 31, December 31, September 30,
------------ ------------ ----------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dividends from subsidiary $ 2,000,000 - - -
Interest income from subsidiary 25,231 10,092 203,450 63,974
Gain on sale of investment securities 477,691 - - -
Other operating income 12,244 5,750 9,775 -
Other operating expenses (54,676) (33,334) (14,647) -
Income tax (expense) benefit (160,943) 6,140 (62,047) (21,905)
---------- ------- -------- -------
Income before equity in undistributed
income (distributions in excess of
income) of subsidiary 2,299,547 (11,352) 136,531 42,069
Equity in undistributed income (distributions in
excess of income) of subsidiary (2,162,947) 100,933 336,805 561,479
--------- ------- ------- -------
Net income $ 136,600 89,581 473,336 603,548
========== ======= ======= =======
</TABLE>
(Continued)
-44-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Condensed Statements of Cash Flows
Year ended December 31, 1997, Three Months ended
December 31, 1996, and Years ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Three months
Year ended ended Year ended
December 31, December 31, September 30,
------------ ------------ --------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 136,600 89,581 473,336 603,548
Adjustment to reconcile net income to net cash
provided by operations:
Distributions in excess of income (equity in
undistributed income) of subsidiary 2,162,947 (100,933) (336,805) (561,479)
Compensation expense related to MSBP 127,109 22,555 37,591 -
ESOP shares allocated 123,153 18,000 101,372 -
Gain on sale of investment security (477,691) - - -
Decrease (increase) in other assets 44,147 53,504 (148,840) -
(Decrease) increase in other liabilities (173,595) 578,464 - 21,905
---------- ---------- --------- -----------
Net cash provided by operating activities 1,942,670 661,171 126,654 63,974
--------- ---------- --------- -----------
Cash flows from investing activities:
Purchase of investment security (976,321) - (138,240) (644,550)
Purchase of land - - (10,000) -
Acquisition of subsidiary - - - (5,182,004)
Proceeds from sale of investment security 993,329 - - -
Net change in loan to subsidiary 484,011 567,570 3,499,701 (4,601,428)
---------- ---------- --------- -----------
Net cash provided by (used in)
investing activities 501,019 567,570 3,351,461 (10,427,982)
---------- ---------- --------- -----------
Cash flows from financing activity:
Treasury stock purchased (1,457,053) (1,228,741) (2,299,490) -
Dividends paid (639,066) - (600,161) -
Contribution to management stock bonus plan - - (578,464) -
Proceeds from sale of common stock, net of
issuance costs - - - 10,364,008
---------- ---------- --------- ----------
Net cash used in financing activities (2,096,119) (1,228,741) (3,478,115) 10,364,008
---------- ---------- --------- ----------
Increase in cash and cash equivalents 347,570 - - -
Cash and cash equivalents at beginning of period - - - -
---------- ---------- --------- -----------
Cash and cash equivalents at end of year $ 347,570 - - -
========== ========== ========= -----------
Supplemental disclosures of noncash investing activities:
Contribution of land to subsidiary $ - 10,000 - -
========== ========== ========= ===========
Treasury stock obtained to satisfy employee
tax withholding liability under MSBP $ 46,159 - - -
========== ========== ========= ===========
</TABLE>
(Continued)
-45-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
On December 16, 1997, the Company declared a 10% stock dividend effective
January 15, 1998 to shareholders of record January 2, 1998. Average share
and per share data for all periods presented in the accompanying
consolidated financial statements and all share and per share data in
note 13 have been restated to reflect the additional shares outstanding
resulting from the stock dividend.
On July 11, 1995, the Parent completed an initial public offering of
common stock and raised $10,364,008 in proceeds, net of issuance costs
of $818,492. For purposes of presenting net income per share, only
postconversion net income is considered.
At the time of conversion, the Bank established a "liquidation account"
in an amount equal to the regulatory capital of the Bank as shown on its
latest statement of financial condition contained in the final prospectus
used in connection with the conversion. The liquidation account will be
maintained for the benefit of depositors, as of the eligibility record
date, June 30, 1993, or supplemental eligibility record date, March 31,
1995, who continue to maintain their deposits in the Bank after
conversion. In the event of a complete liquidation (and only in such an
event), each eligible depositor will be entitled to receive a liquidation
distribution from the liquidation account, in the proportionate amount of
the then current adjusted balance for deposits then held, before any
liquidation distribution may be made with respect to the stockholders.
Except for the repurchase of stock and payment of dividends by the Bank,
the existence of the liquidation account will not restrict the use or
application of regulatory capital.
The amount of dividends paid to the Parent from the Bank is limited by
various regulatory agencies. Under the regulations of the Office of
Thrift Supervision ("OTS"), the Bank is not permitted to pay dividends on
its stock after the conversion if its regulatory capital would thereby be
reduced below (i) the amount then required for the aforementioned
liquidation account or (ii) the Bank's regulatory capital requirements.
Under the Bank's regulatory capital requirements, the Bank can pay a
dividend during a calendar year equal to the greater of (1) 100% of its
net income to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" at the beginning of the
calendar year or (2) 75% of its net income over the most recent
four-quarter period. As a result of these regulatory limitations, at
December 31, 1997, approximately $8,182,000 of the Parent's investment in
the Bank was restricted from transfer by the Bank to the Parent in the
form of cash dividends.
(16) Regulatory Matters
------------------
The Company is required to maintain noninterest-bearing cash reserve
balances. The aggregate average cash reserve balances to be maintained at
December 31, 1997 and September 30, 1996 to satisfy the regulatory
requirement was $458,000 and $195,000, respectively.
(Continued)
-46-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Bank is 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 Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1997, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1997, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed the Bank's capital category.
The Bank's actual capital amounts and ratios are also presented in the
table below.
<TABLE>
<CAPTION>
Minimum to be well
Minimum for capitalized under
capital prompt corrective
Actual adequacy purposes action provisions
------------------------ ----------------------- ----------------------
Amount Ratio Amount Ratio(1) Amount Ratio(1)
------ ----- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital - risk-based
(to risk-weighted assets) $ 11,020,111 13% $ 6,676,002 8% $ 8,345,003 10%
Tier I capital - risk-based
(to risk-weighted assets) 10,350,606 12 3,338,001 4 5,007,002 6
Tier I capital - leverage
(to average assets) 10,350,606 10 4,069,905 4 5,087,381 5
As of September 30, 1996:
Total capital - risk-based
(to risk-weighted assets) 12,951,093 38 2,755,360 8 3,444,200 10
Tier I capital - risk-based
(to risk-weighted assets) 12,412,619 36 1,377,680 4 2,066,520 6
Tier I capital - leverage
(to average assets) 12,412,619 16 3,136,880 4 3,921,100 5
</TABLE>
(1) Compliance with the requirement results from a value that must be greater
than or equal to the ratio shown.
(Continued)
-47-
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17) Commitments and Contingencies
-----------------------------
(a) Employment Agreements
---------------------
The Company entered into an employment agreement with its president
and chief executive officer on January 26, 1995. As renewed, the
employment agreement is for a term of three years with a base salary
of $103,000. The agreement may be terminated by the Company for "just
cause" as defined in the agreement. If the Company terminates without
just cause, the president will be entitled to a continuation of
salary from the date of termination through the remaining term of the
agreement. The employment agreement contains a provision stating that
in the event of involuntary termination of employment in connection
with, or within one year after, any change in control of the Company,
the president will be paid a lump-sum equal to 2.99 times his "base"
salary (five-year average). The agreement may be renewed annually by
the Board of Directors upon a determination of satisfactory
performance within the Board's sole discretion.
The Company entered into an employment agreement with its Chief
Administrative Officer on July 15, 1996. The employment agreement is
for a term of two years with a base salary of $80,000. The agreement
may be terminated by the Company for "just cause" as defined in the
agreement. If the Company terminates without just cause, this officer
will be entitled to a continuation of salary from the date of
termination through the remaining term of the agreement. The
employment agreement contains a provision stating that in the event
of involuntary termination of employment in connection with, or
within one year after, any change in control of the Company, the
officer will be paid a lump sum equal to 2.99 times his "base salary"
(five-year average). The agreement may be renewed annually by the
Board of Directors upon a determination of satisfactory performance
within the Board's sole discretion.
(18) Savings Association Insurance Fund Assessment
---------------------------------------------
On September 30, 1996, the Deposit Insurance Funds Act of 1996 was passed
which, among other provisions, empowered the Federal Deposit Insurance
Corporation to impose a special assessment on Savings Association
Insurance Fund ("SAIF") assessable deposits of depository institutions.
This special assessment was based on SAIF-assessable deposits at March
31, 1995. Based on the Company's level of insured deposits held on March
31, 1995, the Company recorded a charge against earnings for its accrual
of the assessment totaling $397,568 at September 30, 1996.
-48-
<PAGE>
CCF HOLDING COMPANY
101 N. Main Street
Jonesboro, Georgia 30236
(770) 478-8881
HERITAGE BANK
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Main Office Forest Park Office Morrow Office McDonough Office Fayetteville Office
101 N. Main Street 822 Main Street 2236 Lake Harbin Road 203 Keys Ferry Street 440 N. Jeff Davis Drive
Jonesboro, Georgia Forest Park, Georgia Morrow, Georgia McDonough, Georgia Fayetteville, Georgia
</TABLE>
Board of Directors of CCF Holding Company
and
Heritage Bank
<TABLE>
<CAPTION>
<S> <C>
John B. Lee, Jr. Edwin S. Kemp, Jr.
Chairman of the Board Attorney at Law
Public Relations Consultant to Spartan
Lincoln-Mercury, Inc. and Loewen Group David B. Turner
International, Inc. President and Chief Executive Officer
Joe B. Mundy Charles S. Tucker
Retired (Former circuit court clerk) Retired (former county agent for
University of Georgia)
Leonard A. Moreland Gary D. McGaha
Executive Vice President Executive Vice President*
and Chief Administrative Officer*
John T. Mitchell
Adams Mitchell Realty, Inc.*
</TABLE>
* Director of Bank only
Executive Officers of CCF Holding Company and
Heritage Bank
<TABLE>
<CAPTION>
<S> <C>
David B. Turner Leonard A. Moreland
President and Chief Executive Officer Executive Vice President
Mary Jo Rogers Edith W. Stevens
Vice President and Chief Financial Officer Vice President and Chief Operating Officer
Richard P. Florin Charles S. Tucker
Senior Vice President Secretary and Treasurer
Gary D. McGaha
Executive Vice President
</TABLE>
--------------------------------
<TABLE>
<CAPTION>
<S> <C>
Corporate Counsel Independent Auditors
Edwin S. Kemp, Jr., Esquire KPMG Peat Marwick LLP
101 North Main Street 303 Peachtree Street, N.W.
Suite 203 Suite 2000
Jonesboro, Georgia 30236 Atlanta, Georgia 30308
Special Counsel Transfer Agent and Registrar
Malizia, Spidi, Sloane & Fisch, P.C. Registrar & Transfer Company
One Franklin Square 10 Commerce Drive
1301 K Street, N.W., Suite 700 East Cranford, New Jersey 07016
Washington, D.C. 20005 (908) 272-8511
</TABLE>
The Company's Annual Report for the year ended December 31, 1997 on Form 10-KSB
is available without charge upon written request. For a copy of the Form 10-KSB
or any other investor information, please write or call David B. Turner,
President and Chief Executive Officer at the Company's Office in Jonesboro,
Georgia. The Annual Meeting of Stockholders will be held on April 21, 1998 at
4:00 p.m. at the Fayetteville office of the Company.
49
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of
---- Incorporation or Organization
-----------------------------
Heritage Bank(1) United States
(1) This subsidiary conducts business under this name and has its own
subsidiary, CCF Financial Services, Inc., a Georgia corporation.
Exhibit 23
- ----------
Independent Accountants' Consent
--------------------------------
The Board of Directors
CCF Holding Company
We consent to incorporation by reference in the registration statement (No.
333-4194) on Form S-8 of CCF Holding Company of our report dated February 6,
1998, relating to the consolidated balance sheets of CCF Holding Company and
subsidiary as of December 31, 1997 and September 30, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year ended December 31, 1997, the three-month period ended December 31, 1996,
and for each of the years in the two-year period ended September 30, 1996, which
report appears in the December 31, 1997 annual report on Form 10-K of CCF
Holding Company.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM
THE ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,358
<INT-BEARING-DEPOSITS> 4,384
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,722
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 98,211
<ALLOWANCE> 670
<TOTAL-ASSETS> 124,956
<DEPOSITS> 91,201
<SHORT-TERM> 20,903
<LIABILITIES-OTHER> 1,332
<LONG-TERM> 0
0
0
<COMMON> 91
<OTHER-SE> 11,429
<TOTAL-LIABILITIES-AND-EQUITY> 124,956
<INTEREST-LOAN> 6,937
<INTEREST-INVEST> 518
<INTEREST-OTHER> 150
<INTEREST-TOTAL> 7,605
<INTEREST-DEPOSIT> 3,424
<INTEREST-EXPENSE> 3,921
<INTEREST-INCOME-NET> 3,684
<LOAN-LOSSES> 127
<SECURITIES-GAINS> 495
<EXPENSE-OTHER> 4,746
<INCOME-PRETAX> 206
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137
<EPS-PRIMARY> .17
<EPS-DILUTED> .16
<YIELD-ACTUAL> 3.22
<LOANS-NON> 366
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 762
<ALLOWANCE-OPEN> 547
<CHARGE-OFFS> 4
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 670
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
