SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1998,
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to .
Commission File No. 0-25846
CCF HOLDING COMPANY
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Georgia 58-2173616
- ----------------------------------------- ------------------------
(State or Other Jurisdiction of I.R.S. Employer
Incorporation 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
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
- --------------------------------------------------------------------------------
(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 .
--- ---
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. $13.4 million
As of March 8, 1999 there were issued and outstanding 890,085 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 22, 1999, was $11.8
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, 1998. (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
- --------------------------------
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 bank holding company and the Bank
is a commercial bank chartered by the State of Georgia. Prior to September 1,
1998, the Company was a savings and loan holding company and the Bank was a
federally chartered savings bank. 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.
The Bank, through its predecessors, 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
2
<PAGE>
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. During the
fiscal year ended December 31, 1998, the Bank continued to significantly expand
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.
The Bank is subject to examination and comprehensive regulation by the
Georgia Department of Banking and Finance (the "GDBF") and the Federal Deposit
Insurance Corporation ("FDIC") and its deposits are insured by the Savings
Association Insurance Fund ("SAIF") of the FDIC. 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 operates five offices within its primary market area in
Clayton, Fayette and Henry Counties, Georgia. This market area is part of the
Atlanta, Georgia metropolitan statistical area and home to a portion of
Atlanta's Hartsfield International Airport. To a much lesser extent, the Bank
also makes loans in the adjacent Georgia counties.
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.
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.
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
various forms of collateral.
3
<PAGE>
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,
-----------------------------------------------------
1998 1997
------------------------ ------------------------
Amount Percent Amount Percent
------ ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Loan Category
Residential (1-4 family) mortgage........... $ 37,638 30.51% $49,031 49.50%
Commercial, primarily real estate
mortgage.................................. 45,378 36.78 31,111 31.41
Real estate construction.................... 26,187 21.22 16,231 16.39
Consumer and other installment.............. 14,154 11.49 2,680 2.70
------- ----- ------- ------
Total loans receivable.................. 123,357 100.00% 99,053 100.00%
------- ====== ------- ======
Less:
Undisbursed proceeds on
loans in process........................ -- (206)
Unamortized loan fees and
costs, net.............................. (587) (636)
Allowance for loan losses................. (943) (670)
-------- -------
Total loans, net........................ $121,827 $97,541
======= ======
</TABLE>
Loan Maturity Tables. The following table sets forth the maturity of
the Bank's loan portfolio at December 31, 1998. The table does not include
prepayments. Prepayments and scheduled principal repayments on loans totalled
$73.8 million and $28.1 million for the years ended December 31, 1998 and
December 31, 1997, respectively. Adjustable-rate mortgage loans ("ARMs") are
shown as maturing based on repricing dates.
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------
Within One to Five After Five
One Year Years Years Total
-------- ----------- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C>
Residential (1-4 family) mortgage......... $ 133 $ 1,885 $35,620 $ 37,638
Commercial, primarily real estate
mortgage................................ 7,726 23,481 14,171 45,378
Real estate construction.................. 24,402 1,785 -- 26,187
Consumer and other installment............ 1,588 4,958 7,608 14,154
------ ------ ------ ------
Total................................... $33,849 $32,109 $57,399 $123,357
====== ====== ====== =======
</TABLE>
4
<PAGE>
The following table sets forth the dollar amount of all loans due after
December 31, 1999, which have fixed interest rates and which have floating or
adjustable interest rates.
<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............. $26,434 21.42% $11,071 8.97% $37,505
Commercial, primarily real estate
mortgage................................... 20,616 16.71 17,036 13.81 37,652
Real estate construction...................... 136 0.11 1,649 1.33 1,785
Consumer and other installment................ 12,366 10.02 200 .16 12,566
------ ----- ------ ----- ------
Total....................................... $59,552 48.26% $29,956 24.27% $89,508
====== ===== ====== ===== ======
</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, on loans made prior to 1998, the interest rate adjustments on
ARMs were 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 made after January 1, 1998 are based on the 1 year treasury index.
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 or released 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.
The Bank's lending policies 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.
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.
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
5
<PAGE>
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 and pre-sale
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 80% 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 75% 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, 1998, the Bank had $24.9 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, 1998, there was $1.3
million outstanding in construction loans to owner/borrowers. The Bank
originated $62.9 million and $24.9 million in construction loans on one- to
four-family properties during the fiscal years ended December 31, 1998 and
December 31, 1997, respectively.
Commercial Loans. The Bank originates commercial loans, which represent
a growing portion of the Bank's lending activities. At December 31, 1998,
outstanding commercial loans amounted to $45.3 million. At December 31, 1998,
the largest commercial loan had a balance of $3.1 million (reduced to $1.6
million because of the participation in loan funding by other lenders) and was
secured by a condominium complex.
Most of the bank's commercial lending activities are in loans secured
by commercial properties. Such loans consist primarily of permanent loans
secured 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.
6
<PAGE>
Consumer and Other Installment Loans. Consumer loans consist of savings
account loans, personal secured and unsecured loans, automobile loans,
watercraft loans, recreational vehicle loans, and home improvement loans.
Substantially all of the Bank's consumer loans have fixed rates of interest.
Loan Underwriting Risks. 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, 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.
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.
7
<PAGE>
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 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 FNMA. Loans are generally sold with servicing retained and
without recourse. The portion of the fixed rate mortgage loan portfolio that was
eligible for sale was sold to the secondary market. Loans that will be sold in
future periods will be loans that are originated in the future (new production)
rather than loans in the existing portfolio.
The table below indicates the Bank's origination and sales of loans
during the periods indicated.
Year Ended December 31,
-----------------------
1998 1997
--------- ---------
(In Thousands)
Total gross loans receivable at beginning of period.... $ 98,847 $56,330
------- ------
Loans originated:
Residential (1 to 4 family) mortgage................. 14,515 15,554
Commercial, primarily real estate mortgage........... 23,641 30,333
Real estate construction............................. 62,910 23,688
Consumer and other installment....................... 14,071 2,235
------- ------
Total loans originated................................. 115,137 71,810
------- ------
Loans sold:
Residential (1 to 4 family).......................... 17,177 1,854
Loans purchased........................................ 370 750
Other loan activity:
Loan principal repayments............................ 73,820 28,189
------- ------
Total gross loans receivable at end of period.......... $123,357 $98,847
======= ======
8
<PAGE>
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.
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,
----------------------
1998 1997
---- ----
(Dollars in Thousands)
Nonperforming loans:
Restructured........................................ $ -- $ --
Nonaccrual (more than 90 days past due)............. 112 366
--- ----
Total nonperforming loans....................... $ 112 $ 366
=== ====
Ratio of nonperforming loans as a percentage
of total loans, net................................... .09% 0.38%
Ratio of nonperforming loans as a percentage
of total assets....................................... .07% 0.29%
During the years ended December 31, 1998 and December 31, 1997, gross
interest income of $3,540 and $30,000, 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, 1998 and December 31, 1997 was approximately
$98,000 and $14,000, respectively.
9
<PAGE>
Analysis of the Allowance for Loan Losses. The following table sets
forth the analysis of the allowance for loan losses for the periods indicated.
Year ended
December 31,
-------------------------
1998 1997
---- ----
(Dollars in Thousands)
Total average loans outstanding.................... $114,457 $82,973
======= ======
Allowance balance (at beginning of period)......... $ 670 $ 547
Provisions for loan losses......................... 275 127
Charge-offs:
Real estate...................................... -- --
Consumer......................................... 3 4
Recoveries:
Consumer......................................... 1 --
------- ------
Allowance balance (at end of period)............... $ 943 $ 670
======= ======
Allowance for loan losses as a percent of
net loans receivable at end of period............ .77% 0.7%
Net loans charged off as a percent of
average loans outstanding........................ .001% .004%
Ratio of allowance for loan losses to total
loans delinquent 90 days or more at end
of period........................................ 842% 183%
Ratio of allowance for loan losses to total
loans delinquent 90 days or more and other
nonperforming assets at end of period............ 842% 183%
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.
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, 1998.
10
<PAGE>
Investment Securities Activities
The Bank invests in specified short term securities, mortgage backed
securities, certain other investments and the common stock of the Federal Home
Loan Bank of Atlanta. 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.
The Bank's equity investment in the Federal Home Loan Bank of Atlanta is a
requirement of membership and allows the bank to borrow at favorable overnight
and longer term rates.
During the years ended December 31, 1998 and 1997 the Company sold $3.0
million and $9.0 million, respectively, of available for sale investment
securities. The table sets forth certain information relating to the Company's
investment securities portfolio at the dates indicated. All of the Company's
securities are classified as available for sale.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1998 1997
------------------ ------------------
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 ................... $29,138 $29,122 $ 7,984 $ 7,983
Equity security ........................ 64 134 1,244 1,580
Municipal securities ................... -- -- 158 159
------- ------- ------- -------
Total ................................ 29,202 29,256 9,386 9,722
------- ------- ------- -------
Mortgage-backed securities:
FHLMC ................................ -- -- 235 234
FNMA ................................. 196 201 1,597 1,604
GNMA ................................. -- -- -- --
------- ------- ------- -------
Total ................................ 196 201 1,832 1,838
------- ------- ------- -------
Total investment and mortgage-backed
securities portfolio ............. $29,398 $29,457 $11,218 $11,560
======= ======= ======= =======
</TABLE>
11
<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, 1998. 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>
At December 31, 1998
----------------------------------------------------------------------------------------------------
One Year One to Five to More than
or Less Five Years Ten Years 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> <C>
Securities available for sale:
U.S. Treasury and U.S. govern-
ment agency obligations ....... $7,954 4.99% $20,674 5.70% $510 5.93% $ -- --% $29,138 5.32% $29,122
Mortgage-backed securities ..... -- -- -- -- -- -- 196 7.2 196 7.2 201
Equity security ................ -- -- -- -- -- -- -- -- -- -- --
Municipal securities(1) ........ -- -- -- -- -- -- 64 -- 64 -- 134
----- ------ ---- ---- ------ ------
Total investment and mortgage-
backed securities portfolio .... $7,954 4.99% $20,674 5.70% $510 5.93% $ 260 7.2% $29,398 5.51% $29,457
===== ====== === ==== ====== ======
</TABLE>
- ------------------------
(1) The weighted average yield for municipal securities has not been
computed on a tax equivalent basis.
12
<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 demand deposit accounts, checking accounts, 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 following table indicates the amount of the Bank's time deposits of
$100,000 or more by time remaining until maturity at December 31, 1998.
Maturity Amount
--------------------------------------- --------------
(In Thousands)
3 months or less........................ $ 4,030
3-6 months.............................. 1,828
6-12 months............................. 9,638
Over 12 months.......................... 2,945
------
$18,441
======
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. At December 31, 1998, the Bank had $0 in secured FHLB
advances.
Subsidiary Activity
The Company has one wholly owned subsidiary, the Bank, which is
chartered under the laws of the State of Georgia. At December 31, 1998, the Bank
had one wholly owned subsidiary, CCF Financial Services, Inc. CCF Financial
Services, Inc., a Georgia-chartered 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 totaled $1,000 at December 31, 1998.
Personnel
As of December 31, 1998, the Bank had 65 full-time and 18 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.
13
<PAGE>
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.
General. The Company is a bank holding company registered with the
Board of Governors of the Federal Reserve System (the "Federal Reserve") under
the Bank Holding Company Act of 1956, as amended (the "BHC Act") and with the
Georgia Department of Banking and Finance (the "GDBF") under the Georgia Bank
Holding Company Act (the "Georgia BHC Act"). As such, the Company is subject to
the supervision, examination, and reporting requirements of the BHC Act and the
Georgia BHC Act, in addition to the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of the convenience and needs issues generally focuses
on the parties' performance under the Community Reinvestment Act. Consideration
of financial resources generally focuses on capital adequacy, which is discussed
below.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible non-banking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order
14
<PAGE>
a holding company or its subsidiaries to terminate any activity or to terminate
its ownership or control of any subsidiary when it has reasonable cause to
believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
The FDIC and the GDBF regularly examine the operations of the Bank and
are given authority to approve or disapprove mergers, consolidations, the
establishment of branches, and similar corporate actions. The FDIC and the GDBF
also have the power to prevent the continuance or development of unsafe or
unsound banking practices or other violations of law.
Payment of Dividends. The Company is a legal entity separate and
distinct from its banking subsidiary. The principal sources of cash flow of the
Company, including cash flow to pay dividends to its shareholders, are dividends
by the Bank. There are federal and state statutory and regulatory limitations on
the payment of dividends by the Bank to the Company as well as by the Company to
its shareholders.
The payment of dividends by the Company and the Bank may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines and the requirement that the Bank
maintain capital at least equal to a liquidation account created at the time a
predecessor to the Bank converted from mutual to stock form.
Capital Adequacy. The Company and the Bank are required to comply with
the substantially identical capital adequacy standards established by the
Federal Reserve and the FDIC in the case of the Bank. There are two basic
measures of capital adequacy: a risk-based measure and a leverage measure.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets is 8%. At
least half of that capital level must consist of common stock, minority
interests in the equity accounts of consolidated subsidiaries, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less goodwill and certain other intangible assets ("Tier 1
Capital"). The remainder may consist of subordinated debt, other preferred
stock, and a limited amount of loan loss reserves ("Tier 2 Capital").
In addition, the Federal Reserve and the FDIC have adopted
substantially identical regulations that supplement the risk-based guidelines to
include a minimum leverage ratio of 3% of Tier 1 capital to total assets less
goodwill (the "leverage ratio"). Depending on the risk profile of the
institution and other factors, the regulatory agencies may require a leverage 1%
to 2% higher than the minimum 3% level. The guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve has indicated that it will consider a "tangible
Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other indicia of
capital strength in evaluating proposals for expansion or new activities.
15
<PAGE>
The Company and the Bank were in compliance with applicable minimum
capital requirements as of December 31, 1998.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and other restrictions on its business.
Support of Subsidiary Institutions. Under Federal Reserve policy, the
Company is expected to act as a source of financial strength for, and to commit
resources to support, the Bank. This support may be required at times when,
absent such Federal Reserve policy, the Company may not be inclined to provide
it. In addition, any capital loans by a bank holding company to any of its
banking subsidiaries are subordinate in right of payment to deposits and to
certain other indebtedness of such banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Prompt Corrective Action. Federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed.
The capital levels established for each of the categories are as
follows:
<TABLE>
<CAPTION>
Total
Risk-Based Tier 1 Risk-
Capital Category Tier 1 Capital Capital Based Capital
- ---------------- ----------------------- ----------------------- ------------------
<S> <C> <C> <C>
Well Capitalized 5% or more 10% or more 6% or more
Adequately
Capitalized 4% or more 8% or more 4% or more
Undercapitalized less than 4% less than 8% less than 4%
Significantly
Undercapitalized less than 3% less than 6% less than 3%
Critically 2% or less
Undercapitalized tangible equity -- --
</TABLE>
For purposes of the regulation, the term "tangible equity" includes
core capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock (including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency. A
bank holding company must guarantee that a subsidiary depository institution
meets its capital restoration plan, subject to certain limitations. The
obligation of a controlling holding company
16
<PAGE>
to fund a capital restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of the
FDIC.
At December 31, 1998, the Bank had the requisite capital levels to
qualify as well capitalized.
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.
Previously, 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. The Bank did not become a member of
the BIF in connection with its conversion from a federal thrift to a
Georgia-chartered commercial bank. 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.
Proposed Legislation and Regulatory Action. New regulations and
statutes are regularly proposed that contain wide-ranging proposals for altering
the structures, regulations and competitive relationships of the nation's
financial institutions. It cannot be predicted whether or what form any proposed
regulation or statute will be adopted or the extent to which the business of the
Company may be affected by such regulation or statute.
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. During the fiscal years ended December 31, 1998 and December
31, 1997, such rental income was $21,240 and $43,000, respectively.
17
<PAGE>
(b) Investment Policies.
See "Item 1. Description of 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. Description of Business - Lending Activities," and "Item 2. Description of
Property. (a) Properties" above.
(2) Investments in Real Estate Mortgages. See "Item 1. Description of
Business - Lending Activities."
(3) Investments in Securities of or Interests in Persons Primarily
Engaged in Real Estate Activities. See "Item 1. Description of Business -
Lending Activities."
(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, 1998.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------
The information contained under the section captioned "Stock Market
Information" on page 2 of the Company's Annual Report for the fiscal year ended
December 31, 1998 (the "Annual Report"), is incorporated herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
- -------------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis" in the Annual Report is incorporated herein by
reference.
18
<PAGE>
Item 7. Financial Statements
- ------------------------------
The Company's consolidated financial statements in the Annual Report
are incorporated herein by reference. These statements are listed under Item 13
of this report. The audit report of the prior independent auditors is provided
below.
19
<PAGE>
[KPMG LLP LETTERHEAD]
Independent Auditors' Report
The Board of Directors
CCF Holding Company
We have audited the consolidated balance sheet of CCF Holding Company and
subsidiary (the "Company") as of December 31, 1997 and the related consolidated
statements of earnings, comprehensive income, stockholders' equity, and cash
flows for the years ended December 31, 1997 and September 30, 1996, and for the
three-month period ended December 31, 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 the results of their operations and
their cash flows for the years ended December 31, 1997 and September 30, 1996,
and for the three-month period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG LLP
- ------------
KPMG LLP
Atlanta, Georgia
February 6, 1998
20
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
On June 11, 1998, the board of directors of the Company determined to
engage Porter Keadle Moore, LLP as its independent auditors for the fiscal year
ended December 31, 1998. On June 15, 1998, the Company notified KPMG LLP
("KPMG"), its independent auditors for the fiscal years ended December 31, 1997
and September 30, 1996 and the three- month period ended December 31, 1996, of
this determination and that KPMG would not be engaged for the fiscal year ending
December 31, 1998. On May 7, 1998, the Company had orally advised KPMG that the
audit committee of the board of directors of the Company would likely consider
this matter during a meeting on June 11, 1998 and would thereafter report on
this matter to the board of directors. The determination to replace KPMG was
approved by the full board of directors of the Company.
The reports of KPMG for the fiscal years ended December 31, 1997 and
September 30, 1996 and the three-month period ended December 31, 1996 contained
no adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principles. During the fiscal years
ended December 31, 1997 and September 30, 1996 and the three-month period ended
December 31, 1996 and during the period from January 1, 1998 to June 15, 1998,
there were no disagreements between the Company and KPMG concerning accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement. On December 10, 1996, the Company changed its fiscal
year end from September 30th to December 31st.
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 27, 1999 (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.
21
<PAGE>
(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.
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. Report of Certified Public Accountants
2. CCF Holding Company and Subsidiary
(a) Consolidated Balance Sheets at December 31, 1998
and December 31, 1997
(b) Consolidated Statements of Earnings for the years
ended December 31, 1998 and December 31, 1997, the
three months ended December 31, 1996 and the year
ended September 30, 1996
(c) Consolidated Statements of Comprehensive Income for
the years ended December 31, 1998 and December 31,
1997, the three months ended December 31, 1996, and
the year ended September 30, 1996
(d) Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1998 and December 31,
1997, the three months ended December 31, 1996 and
the year ended September 30, 1996
(e) Consolidated Statements of Cash Flows for the years
ended December 31, 1998 and December 31, 1997, the
three months ended December 31, 1996 and the year
ended September 30, 1996
(f) 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***
22
<PAGE>
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, 1998
21 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Porter Keadle Moore, LLP
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 exhibit 3(i) of the Registrant's Quarterly
Report on Form 10-QSB for the quarterly period ended September 30, 1998
(File No. 0-25846).
** Incorporated by reference to exhibit 3.2 of the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997
(File No. 0-25846).
*** 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).
23
<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 26, 1999 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 indicated on March 26, 1999.
By: /s/David B. Turner By: /s/John B. Lee, Jr.
------------------------------- -------------------------------
David B. Turner John B. Lee, Jr.
President, Chief Executive Chairman of the Board
Officer and Director (Principal
Executive Officer)
By: /s/Edwin S. Kemp, Jr. By:
------------------------------- ------------------------------
Edwin S. Kemp, Jr. Charles S. Tucker
Director Treasurer, Secretary,
and Director
By: By: /s/ Mary Jo Rogers
------------------------------- ------------------------------
Joe B. Mundy Mary Jo Rogers
Director Senior Vice President and Chief
Financial Officer (Principal
Accounting and Financial
Officer)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 1st day of January, 1999 ("Effective
Date"), by and between Heritage Bank (the "Bank") and David B. Turner (the
"Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as Chief
Executive Officer and is experienced in all phases of the business of the Bank;
and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the Chief
Executive Officer of the Bank. The Employee shall render such administrative and
management services to the Bank and any to- be-formed parent savings and loan
holding company ("Parent") as are currently rendered and as are customarily
performed by persons situated in a similar executive capacity. The Employee
shall also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of the Bank and Parent. The Employee's other
duties shall be such as the Board of Directors for the Bank (the "Board of
Directors" or "Board") may from time to time reasonably direct, including normal
duties as an officer of the Bank.
2. Base Compensation. As of the Effective Date, the Bank agrees to pay
the Employee during the term of this Agreement a salary at the rate of $110,000
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 Employee shall be entitled
to receive annually an increase in base salary at such percentage or in such an
amount as the Board of Directors in its sole discretion may decide at such time
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 such base salary shall be increased. .
3. Discretionary Bonus. The Employee shall be entitled to participate
in an equitable manner with all other senior management employees of the Bank 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 Bank relating to pension,
profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Bank may adopt for the benefit of its employees.
<PAGE>
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Bank's senior management employees, including by example, participation in any
stock option or incentive plans adopted by the Board of Directors of Bank or
Parent, club memberships, a reasonable expense account, and any other benefits
which are commensurate with the responsibilities and functions to be performed
by the Employee under this Agreement. The Bank shall reimburse Employee for all
reasonable out-of-pocket expenses which Employee shall incur in connection with
his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending three years
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 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.
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 Bank
or Parent.
(b) Nothing contained in this Paragraph 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 Bank 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 Board of
Directors shall in its discretion permit, the Employee shall be entitled,
without loss of pay, to absent himself voluntarily from the performance of his
employment under this Agreement, with all such voluntary absences to count as
vacation time; provided that:
(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 Bank.
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank 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 Bank.
<PAGE>
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors in its discretion may
determine. Further, the Board of Directors shall be entitled to grant to the
Employee a leave or leaves of absence with or without pay at such time or times
and upon such terms and conditions as the Board of Directors in its discretion
may determine.
(d) 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 Bank. In the event that any sick leave benefit shall not have been used
during any year, such leave shall accrue to subsequent years only to the extent
authorized by the Board of Directors for employees of the Bank.
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 Bank shall be obligated to continue to pay the
Employee the salary provided pursuant to Section 2 herein, up to the date of
termination of the term (including any renewal term) of this Agreement 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 Bank'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 Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
<PAGE>
(e) If the Bank 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 Bank: (i) by the Georgia Department of Banking and
Finance, or their designee, at the time that the Federal Deposit Insurance
Corporation ("FDIC") enters into an agreement to provide assistance to or on
behalf of the Bank under the authority contained in Section 13(c) of FDIA; or
(ii) by the Director of the FDIC, or his or her designee, at the time that the
Director of the FDIC, or his or her designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Director of the FDIC 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 Bank'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 Bank'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 Bank shall, (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 nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Employee during such period
under the provisions of disability insurance coverage in effect for Bank
employees. Thereafter, Employee shall be eligible to receive benefits provided
by the Bank under the provisions of disability insurance coverage in effect for
Bank 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
<PAGE>
returns to active employment on other than a full-time basis, then his
compensation (as set forth in Paragraph 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 Bank 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 Bank 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 Bank's
voting stock, the control of the election of a majority of the Parent's or
Bank's directors, or the exercise of a controlling influence over the management
or policies of the Parent or Bank 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 Bank 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 Bank or Parent,
Employee would be required to report to a person or persons other than the Board
of the Bank or Parent; (iii) if the Bank 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
<PAGE>
elected or reelected to the Board of Directors of the Bank; 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
Bank 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 Bank or Parent, the Bank 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 Bank or the Parent may include a provision for the
reimbursement by the Bank 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 Bank 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 Bank or the Parent. Such reimbursement shall be paid
within ten (10) days of Employee furnishing to the Bank 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 Bank 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 Bank or Parent.
(b) Since the Bank 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
Bank.
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 by 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.
<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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
Heritage Bank
ATTEST: By:/s/ Leonard Moreland
--------------------------------------
/s/ Charles S. Tucker
- -----------------------------
Secretary
WITNESS:
/s/ Jenny Owen /s/ David B. Turner
- ----------------------------- --------------------------------------
David B. Turner, Employee
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 1st day of January, 1999 ("Effective
Date"), by and between Heritage Bank (the "Bank") 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 Bank; and
WHEREAS, the parties desire by this writing to set forth the employment
relationship of the Bank 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 Bank reporting
directly to the President of the Bank. The Employee shall render such
administrative and management services to the Bank 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 Bank and Parent. The Employee's other duties shall be such
as the President or the Board of Directors for the Bank (the "Board of
Directors" or "Board") may from time to time reasonably direct, including normal
duties as an officer of the Bank.
2. Base Compensation. As of the Effective Date, the Bank agrees to pay
the Employee during the term of this Agreement a salary at the rate of $100,000
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 Bank 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 Bank relating to pension,
profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Bank may adopt for the benefit of its employees.
<PAGE>
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Bank's senior management employees. The Bank shall reimburse Employee for all
reasonable out-of-pocket expenses which Employee shall incur in connection with
his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending thirty-six 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 Bank
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 Bank 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 Bank.
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank 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 Bank.
(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 Bank.
<PAGE>
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 Bank 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 Bank'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 Bank 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 Bank 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 Bank: (i) by the Georgia Department of Banking and
Finance, or his or her designee, at the time that the Federal Deposit Insurance
Corporation ("FDIC") enters into an agreement to provide assistance to or on
behalf of the Bank under the authority contained in Section 13(c) of FDIA; or
(ii) by the Director of the FDIC, or his or her designee, at the time that the
Director of the FDIC, or his or her designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Director of the FDIC to be in an unsafe or unsound
<PAGE>
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 Bank'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 Bank'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 Bank 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 Bank 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 Bank 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.
<PAGE>
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 Bank 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 Bank's voting stock, the control of the
election of a majority of the Parent's or Bank's directors, or the exercise of a
controlling influence over the management or policies of the Parent or Bank 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 Bank 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 Bank or Parent,
Employee would be required to report to a person or persons other than the
President or the Board of the Bank or Parent; (iii) if the Bank 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 Bank; 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
Bank 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 Bank or Parent, the Bank 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 Bank or the Parent may include a provision for the
reimbursement by the Bank 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 Bank 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 Bank or the Parent. Such reimbursement shall be paid
within ten (10) days of Employee furnishing to the Bank or Parent evidence,
which may
<PAGE>
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 Bank 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 Bank or Parent.
(b) Since the Bank 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
Bank.
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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
Heritage Bank
ATTEST: By:/s/ David B. Turner, President
--------------------------------------
/s/ Charles S. Tucker
- -----------------------------
Secretary
WITNESS:
/s/ Jenny Owen /s/ Leonard Moreland
- ------------------------------ ----------------------------------------
Leonard Moreland, Employee
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") entered into
this 1st day of January, 1999 ("Effective Date"), by and between Heritage Bank
(the "Bank") and Richard P. Florin (the "Employee").
WHEREAS, the Employee is currently employed by the Bank as Senior Vice
President and is experienced in all phases of the financial services industry
and the business of the Bank; and
WHEREAS, the parties desire by this writing to set forth the rights and
responsibilities of the Bank and Employee if the Bank 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 Bank. The Employee shall render such administrative and
management services to the Bank 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 Bank (the "Board of Directors" or
"Board") may from time to time reasonably direct, including normal duties as an
officer of the Bank 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 twelve (12) months after, any
Change in Control of the Bank or Parent, Employee shall be paid an amount equal
to 100% of the taxable compensation paid to Employee by the Bank 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 Bank'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
<PAGE>
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 Bank 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 Bank or the Parent; (ii) the execution of an
agreement for a merger or recapitalization of the Bank or the Parent or any
merger or recapitalization whereby the Bank or the Parent is not the surviving
entity; (iii) a change in control of the Bank 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 Bank 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 Bank 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 (35) miles from the Employee's primary office as of the signing of
this Agreement; (ii) if in the organizational structure of the Bank or Parent,
Employee would be required to report to a person or persons other than the
Executive Vice President and Chief Administrative Officer; (iii) if the Bank 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 Bank 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
<PAGE>
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 Bank'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 Bank 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 Bank 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 Bank: (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 Bank 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 ofthe Bank or when the Bank 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 Bank'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 Bank'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 Bank 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.
<PAGE>
6. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) The Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Bank.
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.
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 Bank, 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 Bank 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 Bank or the Parent may include a
provision for the reimbursement by the Bank 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 Bank 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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and first hereinabove written.
Heritage Bank
ATTEST: By:/s/ David B. Turner, President
--------------------------------------
/s/ Charles S. Tucker
- -----------------------------
Secretary
WITNESS:
/s/ Leonard Moreland /s/ Richard Florin
- ----------------------------- ----------------------------------------
Richard P. Florin, Employee
CCF HOLDING COMPANY
and its wholly owned subsidiary
Heritage Bank
ANNUAL REPORT TO STOCKHOLDERS
Year Ended December 31, 1998
<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 3
Management's Discussion and Analysis 6
Independent Auditor's Report 14
Consolidated Financial Statements 15
Notes to Consolidated Financial Statements 22
Office Locations and Other Corporate Information 40
<PAGE>
Dear Fellow Shareholder:
It is with a great deal of pride and pleasure that we report to you the results
of operations of CCF Holding Company and its subsidiary, Heritage Bank, for the
fiscal year ended December 31, 1998. As you will see when you read the details,
the year proved to be successful as market share and earnings grew dramatically.
The banking talent assembled by the Board of Directors has successfully
transformed us from our "traditional thrift" roots to a vibrant, full service
financial institution capable of competing equally against financial giants and
other community institutions. For that we take pride. The results contained in
the body of this report will show a strong positive trend in almost all the
important areas.
Last year's annual report disclosed our intentions of entering into new markets.
By the end of 1998 those new markets have now grown to $54.6 million in deposits
and $42.6 million in loans outstanding. We accomplished this substantial growth
by focusing on customer service, hiring and maintaining good employees and
applying sound banking principals.
Thank you for your continuing support. We are eagerly anticipating 1999.
Very truly yours,
/s/D. B. Turner
- ------------------
D. B. Turner
President & CEO
1
<PAGE>
CCF HOLDING COMPANY
Corporate Profile and Related Information
CCF Holding Company (the "Company") is a bank holding company chartered by the
State of Georgia. Heritage Bank (the "Bank") is a commercial bank that is the
wholly owned subsidiary of the Company. Prior to September 1, 1998, the Company
was a savings and loan holding company and the Bank was a federally chartered
savings bank. The Company was organized in 1995 in connection with the
conversion from a mutual to stock form of organization (the "Conversion") of a
predecessor of the Bank in July 1995. The Bank, through its predecessors,
commenced business in 1955.
The Bank operates five offices within its primary market area in Clayton,
Fayette and Henry Counties. The market area is part of the Atlanta, Georgia
metropolitan statistical area. The Bank is subject to examination and
comprehensive regulation by the State of Georgia and the Federal Deposit
Insurance Corporation ("FDIC") and its deposits are federally insured by the
Savings Association Insurance Fund ("SAIF") of the 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 Company is also subject
to state and federal regulation.
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 prices paid on actual transactions as
well as dividend information. The quotations reflect inter-dealer prices, and
may not include retail mark-up, mark-down, or commission.
<TABLE>
<CAPTION>
Dividends Dividends
Period High Low Declared Paid
------ ---- --- --------- -----
<S> <C> <C> <C> <C>
1997 - First Quarter(1) $15.00 $13.40 $ --- $ .45
1997 - Second Quarter(1) 15.23 14.31 .25 ---
1997 - Third Quarter(1) 15.45 15.00 --- .25
1997 - Fourth Quarter(1) 21.00 15.56 .27 ---
1998 - First Quarter $22.00 $20.50 $ .16 $ .27
1998 - Second Quarter 24.00 21.50 .16 .16
1998 - Third Quarter 22.00 16.75 .16 .16
1998 - Fourth Quarter 18.00 13.00 .16 .16
</TABLE>
- -----------------
(1) Dividends declared and Dividends Paid were restated to reflect a 10%
stock dividend declared on December 16, 1997.
2
<PAGE>
The number of stockholders of record as of December 31, 1998 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,
1998, there were 895,148 shares outstanding, net of 5,441 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 and to a lesser
extent the amount of cash on hand. 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 (up to $6.6
million), or (2) the regulatory capital requirements.
SELECTED FINANCIAL AND OTHER DATA
---------------------------------
<TABLE>
<CAPTION>
Financial Condition At December 31, At September 30,(1)
(Dollars in thousands) ------------------------ ----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Amount of:
Assets $169,860 124,956 80,283 79,822 69,080
Loans receivable, net 121,827 97,541 51,500 45,196 44,244
Mortgage-backed securities 201 1,838 10,025 7,896 6,804
Investment securities 29,256 9,722 13,353 15,671 12,795
Liabilities 158,234 113,436 65,843 62,501 62,866
Deposits 154,977 91,201 61,822 61,132 61,598
Securities sold under
agreements to repurchase 1,117 2,393 - - -
FHLB advances - 18,510 2,500 - -
Stockholders' equity 11,626 11,519 14,440 17,322 6,214
Other Data:
Net income 619 137 473 604 431
Average assets 152,652 99,675 79,348 72,229 70,533
Average equity 10,499 11,934 16,733 8,973 6,061
Full service offices (2) 5 5 1 1 1
</TABLE>
- ------------------------
(1) The Company changed its fiscal year end from September 30 to December
31 during December 1996.
(2) During 1997, the Bank opened two new offices and converted two existing
customer service facilities into full service offices.
3
<PAGE>
<TABLE>
<CAPTION>
Summary of Operations (Dollars in thousands) Year Ended December 31, Year Ended September 30,(1)
----------------------- ----------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total interest income $ 12,437 8,090(3) 5,573 5,021 4,872
Total interest expense 6,800 3,921 2,527 2,479 2,245
------- ------- ------- ------- -------
Net interest income 5,637 4,169 3,046 2,542 2,627
Provision for loan losses 275 126 130 5 69
------- ------- ------- ------- -------
Net interest income after provision for loan losses 5,362 4,043 2,916 2,537 2,558
Other income 968 909(3) 415 328 346
Other expenses(2) 5,380 4,746 2,715 1,968 1,904
------- ------- ------- ------- -------
Income before income taxes and cumulative
effect of change in accounting principle 950 206 616 897 1,000
Income tax expense 332 69 143 293 363
------- ------- ------- ------- -------
Income before cumulative effect of change in accounting
principle 619 137 473 604 637
Cumulative effect of change in
accounting principle -- -- -- -- 206
------- ------- ------- ------- -------
Net income $ 619 137 473 604 431
======= ======= ======= ======= =======
</TABLE>
- ------------------------
(1) The Company changed its fiscal year end from September 30 to December
31 during December 1996.
(2) In 1996, the Company included a $398,000 one time assessment to
recapitalize the Savings Association Insurance Fund ("SAIF") of the
FDIC.
(3) Number has been adjusted to include fee income reported in 1997 as
other income and now changed to interest income. The fee income in
years ended September 30, 1994, 1995 and 1996 was not material to the
balances reported. The fees in almost all cases are prepaid interest
that is amortized over the life of the loan or taken into income up
front to offset loan booking expense per FASB 91.
4
<PAGE>
Key Operating Ratios
<TABLE>
<CAPTION>
At or for the Year Ended At or for the Year Ended
------------------------ -------------------------
December 31, September 30,(1)
------------ -------------------------
Performance Ratios: 1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets (net income
divided by average total assets) 0.40% 0.14% 0.60% 0.84% 0.61%
Return on average equity (net income
divided by average equity) 5.34% 1.14% 2.83% 6.73% 7.11%
Average interest-earning assets to
average interest-bearing liabilities 107.14% 112.88% 122.83% 110.75% 106.50%
Net interest rate spread 3.61% 3.87% 3.15% 3.31% 3.68%
Net yield on average interest-earning assets 3.95% 4.41% 4.04% 3.70% 3.89%
Net interest income after provision for loan
losses to total other expenses 99.68% 74.97 107.40% 128.93% 134.38%
Basic earnings per share (2) $ 0.74 $0.17 $0.45 $0.17 N/A
Diluted earnings per share (2) $ 0.70 $0.16 $0.43 $0.17 N/A
Dividend payout (3) 86.49% 305.88% 111.11% N/A N/A
Capital Ratios
Book value per share (2) $12.99 $12.81 $13.35 $13.23 N/A
Average equity to average assets
(average equity divided by average total
assets) 7.45% 11.97% 21.09% 12.42% 8.59%
Equity-to-assets (End of Period) 6.84% 9.22% 17.99% 21.7% 9.00%
Asset Quality Ratios:
Non-performing loans to total loans, net 0.09% 0.38% 1.17% 0.39% 0.41%
Non-performing loans to total assets 0.07% 0.29% 0.75% 0.22% 0.26%
Allowance for loan losses to nonperforming loans 865.70% 182.93% 89.90% 233.71% 237.63%
</TABLE>
- --------------------------------
(1) The Company changed its fiscal year end from September 30 to December
31 during December 1996.
(2) 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.
(3) Dividends declared per share divided by net income per share.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 loan fees and interest expense, and
other income derived primarily from service fees on deposit accounts.
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, Georgia areas. The
management of the Bank has identified and sought to pursue four primary
strategic objectives: (1) to maintain an adequate amount of regulatory capital;
(2) to reduce interest rate risk; (3) to maintain good asset quality through
continued emphasis on well underwritten consumer, commercial, and residential
lending; and (4) to broaden our product and customer base to become a more
diversified financial institution.
1. Regulatory Capital. After the Conversion from mutual to stock, the Bank
was confronted with issues new to its operating strategies. The primary
issues were that of managing the excess capital and doing so in a safe
and sound long term manner. The ensuing strategy was to repurchase
shares, grow market share and increase the dividend payout. The results
of this strategy have been the repurchase of more than 30% of the
original outstanding shares, a growth of 140% in deposits and the payment
of $2.11 per share in dividends since the Conversion. Indications are
that shareholder value per share has increased and 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 continues to be to increase
the volume of loans that reprice at least annually, this will match the
repricing of its liabilities.
3. Asset Quality. The Bank continues to seek to maintain its asset quality
through detailed underwriting and through analysis of its loan requests.
At December 31, 1998, the Bank's ratio of nonperforming loans to total
loans was .09% and to total assets was .07%.
4. Product and Customer Base. The Bank increased the size of its loan
portfolio by approximately $25 million between December 31, 1997 and
December 31, 1998. The increase is attributed to a growth in commercial
lending (primarily real estate mortgages) of 47%, residential
construction
6
<PAGE>
lending of 100%, and consumer lending primarily through indirect lending
activities of 235%. This growth more than offset the sale of seasoned
residential mortgage loans that caused a 25% reduction in the residential
mortgage loan portfolio. The Bank's deposits increased by nearly 70% from
$91 million at December 31, 1997 to $155 million at December 31, 1998 as
a way to fund this loan growth. The Bank has also repaid all borrowings
of funds from the Federal Home Loan Bank. During 1999, it is expected
that the Bank's commercial and consumer lending will continue to increase
in relation to its residential mortgage lending. 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
operating results 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 on achieving a positive interest rate spread that can be
sustained during fluctuations in prevailing interest rates. The Bank, like many
other financial institutions, is subject to interest rate risk resulting from
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 many
types of loans, increases in interest rates may have an adverse effect on the
Bank's earnings. The Bank reduces this exposure by diversifying the loan
portfolio to include more loans at primarily variable rates.
The Bank's net interest rate spread was 3.87% for the year ended December 31,
1997 and 3.61% for the year ended December 31, 1998. Results of the Company's
cumulative interest sensitivity gap analysis indicate that a fluctuation in
interest rates would 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 on 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
mortgage-backed securities and 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
7
<PAGE>
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.
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.
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------------------
1998 1997
---------------------------------- ------------------------------------
Interest Interest
Average Income/ Average(4) Income/
Balance Expense Yield Balance Expense Yield
------- ------- ----- ------- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans(1) interest and fees $114,359 10,778 9.42% 82,973 7,414(5) 8.94%
Mortgage-backed securities 585 34 5.81% 3.483 183 5.25%
Investment securities 25,519 1,463 5.73% 5,679 335 5.90%
FHLB Stock 1,013 75 7.40% 1,013 74 7.31%
Interest-earning deposits in
other financial institutions 1,197 87 7.27% 1,309 84 6.42%
------- ------ ------ ------
Total interest-earning assets 142,673 12,437 8.72% 94,457 8,090 8.56%
------ ------
Other noninterest-earning assets 9,979 5,218
------- ------
Total assets $152,652 99,675
======= ======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Demand deposits $ 34,346 1,318 3.84% 15,477 473 3.06%
Regular savings 9,590 235 2.45% 10,771 231 2.14%
Time deposits 84,841 5,011 5.91% 48,143 2,721 5.65%
FHLB advances 2,363 135 5.71% 9,154 489 5.34%
Securities sold under agreements to
repurchase 2,027 101 4.98% 135 7 5.19%
------- ------ ------ ------
Total interest-bearing liabilities 133,167 6,800 5.11% 83,680 3,921 4.69%
------- ------ ------ ------
Non-interest-bearing deposits 7,076 3,758
Other noninterest-bearing liabilities 1,910 303
Stockholders' equity 10,499 11,934
------- ------
Total liabilities and
stockholders' equity $152,652 99,675
======= ======
Excess of interest-earning assets
over interest-bearing liabilities $ 9,506 10,777
======= ======
Ratio of interest-earning assets
to interest-bearing liabilities 107.14% 112.88%
======= ======
Net interest income 5,637 4,169
====== ======
Net interest spread(2) 3.61% 3.87%
==== ====
Net yield on average
interest-earning assets(3) 3.95% 4.41%
==== ====
</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.
(4) Average balances are derived from month end balances. Management does not
believe the use of month end balances rather than average daily balances
has caused any material difference in the information presented.
(5) Number has been adjusted to include fee income reported in 1997 separate
from interest income.
8
<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, Years Ended December 31,
---------------------------------- -------------------------------------
1998 and 1997 1997 and September 30, 1996
---------------------------------- -------------------------------------
1998 compared to 1997 1997 compared to 1996
---------------------------------- -------------------------------------
Changes due to Changes due to
---------------------------------- -------------------------------------
Rate/ Rate/
Volume Yield Total Volume Yield Total
------ ----- ----- ------ ----- -----
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $2,966 398 3,364 3,449 80 3,529
Mortgage-backed securities (169) 20 (149) (312) (123) (435)
Investment securities 1,128 - 1,128 (585) - (585)
FHLB Stock - 1 1 - - -
Interest-earning deposits in other financial
institutions 14 (11) 3 (31) (2) (33)
----- ---- ----- ----- ----- -----
Total interest income $3,939 408 4,347 2,521 (45) 2,476
===== ==== ===== ===== ===== =====
Interest expense:
Demand deposits $ 724 121 845 65 172 237
Regular savings (29) 33 4 (21) (22) (43)
Time deposits 2,184 106 2,290 708 12 720
FHLB advances (388) 34 (354) 467 6 473
Securities sold under
agreements to repurchase 94 - 94 7 - 7
----- ---- ----- ----- ----- -----
Total interest expense 2,585 294 2,879 1,226 168 1,394
----- ---- ----- ----- ----- -----
Net interest income $1,354 114 1,468 1,295 (213) 1,082
===== ==== ===== ===== ===== =====
</TABLE>
Comparison of Financial Condition at December 31, 1998 and December 31, 1997
Total assets increased approximately $45 million between the two dates due to
increased lending from funds provided from increased deposits. Stockholders'
equity increased by approximately $107,000 to $11.6 million at December 31, 1998
from $11.5 million at December 31, 1997. The increase was attributable to net
income of approximately $619,000 that was partially offset by dividends declared
of
9
<PAGE>
$534,000 and a reduction of net unrealized holding gains on investment and
mortgage backed securities available for sale of approximately $183,000. 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 the Company's portfolio of securities is
classified as available for sale, volatility in the fair value of such
securities could continue during periods of changing market interest rates.
Other items contributing to the change were employee stock ownership plan shares
allocated totaling $72,000 and management stock bonus plan compensation expense
of $98,659.
Comparison of Operating Results For The Fiscal Years Ended December 31, 1998 and
December 31, 1997
Net Income. The Company's net income increased by $482,000 from $137,000 in 1997
to $619,000 in 1998. The increase was primarily due to the increase in net
interest income from $4,169,000 in 1997 to $5,637,000 in 1998. This increase in
net interest income was partially offset by an increase in other expenses from
$4,746,000 in 1997 to $5,380,000 in 1998. The net interest income increase is
primarily due to the increased lending activities and the increase in other
expenses is due primarily to the opening and staffing of our permanent branch
facility in Henry County.
Net Interest Income. Net interest income (before provision for loan losses)
increased from $4.2 million in 1997 to $5.6 million in 1998. This increase was
primarily due to an increase in interest and fee income on loans of $3.4
million, more than offsetting the increase in interest expense on deposits and
FHLB advances of $2.9 million. Interest income on investment securities and
mortgage backed securities also increased by $1.0 million as these portfolios
increased in size. The increases in lending were primarily in commercial,
residential construction and consumer loans. Commercial loans increased
approximately $12 million, construction loans increased approximately $10
million and consumer loans increased approximately $11 million.
Provision For Loan Losses. The Bank increased the provision for loan losses from
$127,000 in 1997 to $275,000 in 1998. The increase was due to management's
assessment of the risk inherent in the portfolio and the assessment of the risk
relative to the changes in the size of the portfolio. The Bank's allowance for
loan losses increased from $670,000 at December 31, 1997 to $943,000 at December
31, 1998. 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.
10
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
------------------------ ------------------------
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. . . . . . $ 70 29.74% $ 42 49.97%
Construction . . . . . . . . . . . . . . 337 17.68 288 14.30
Commercial. . . . . . . . . . . . . . . . 390 40.44 294 31.33
Consumer and other. . . . . . . . . . . . 146 12.14 46 4.40
---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . $943 100% $670 100%
</TABLE>
Other Income. Other income increased from $909,000 in 1997 to $968,000 in 1998.
This increase was attributable primarily to an increase in service charges on
deposit accounts of $166,000 which was partially offset by a decrease in gains
from sales of investment securities primarily by equity securities in the amount
of $107,000. Gains on sale of mortgage loans increased from $25,000 to $63,000.
The portion of the fixed rate mortgage loan portfolio of the Bank that was
eligible for sale was sold to the secondary market. Loans that will be sold in
future periods will be loans that are originated in the future (new production)
rather than loans in the existing portfolio.
Other Expenses. Other expenses increased from $4.7 million during 1997 to $5.4
million during 1998, representing an approximate 13.4% increase. Included in
this increase is $247,000 in salaries and benefits associated with the
continuing expansion of the Bank's product line. Of the $229,000 increase in
occupancy expense, almost all was associated with the opening of our permanent
Henry County facility and related utilities, furniture, fixtures and equipment
depreciation expense. The remainder of the increases in other expenses was
associated with increased advertising and upgrades associated with the Bank's
technology.
Income Tax Expense. Income tax expense as a percent of income before taxes
increased slightly from 33.5% in 1997 to 34.9% in 1998. The increase in the
effective rate is due to a reduction of tax free municipal investments held in
the investment portfolio.
Liquidity
The Bank is required to maintain minimum levels of liquid assets as defined by
the State of Georgia and the FDIC regulations. Short-term liquidity at December
31, 1998 was 20.05%. 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 and other correspondent banks. These
commitments totaled $13.5 million at December 31, 1998 with zero drawn at that
time. 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.
11
<PAGE>
Year 2000
The Company recognized early in 1997 the need to assess and remedy the effects
of the Year 2000 on operations and automated systems. Many computer programs
that can only distinguish the final two digits of the year entered (a common
programming practice in prior years) are expected to read entries for the Year
2000 as the year 1900 or as zero and incorrectly attempt to compute payment
amounts, interest accruals, delinquency and other data. Management has been
evaluating both information technology (computer hardware and software systems)
and non-information technology (e.g. vault timers, electronic door locks,
elevators and heating, ventilation and air conditioning controls) systems. These
systems and functions have been divided into two categories, mission critical
and non-mission critical. This work has been conducted by a task force organized
in 1997 and chaired by a member of the executive management team.
The Year 2000 project is broken down into five phases; Awareness, Assessment,
Renovation, Validation and Implementation. The awareness phase was completed at
CCF Holding Company prior to September 30, 1997. As each new employee is hired
the importance placed on satisfactory compliance is stressed. The assessment
phase was completed in early 1998 and included the identification of mission
critical items as discussed in the previous paragraph. The renovation phase is
approximately 85% complete as of year end 1998. All core processing, ancillary
communications and micro-computer software and hardware have been renovated.
Those areas lacking renovation at this time include vendors such as power,
telephone and data communications and some federal government agencies. The
validation, commonly called the "certification" phase, is 85% complete as well.
Management has certified, through the internal certification committee, all
systems listed as renovated at December 31, 1998. The implementation phase has
progressed well with all core system applications and micro computer
applications implemented with year 2000 upgrades. The only items certified and
not implemented to date are micro-computer hardware already scheduled for
replacement in 1999. Non-mission critical items are in various levels of
renovation, validation and implementation with all scheduled for completion
prior to June 30, 1999.
Costs associated with the Year 2000 project have been negligible and have mostly
been absorbed in the expansion expenses taking place over the past 24 months.
The new technologies and processing systems installed during that period were
certified Y2K compliant at management's insistence, as they were added.
Management has designed contingency and business resumption plans that will
allow basic services to be provided to our customers, in the event of unexpected
disruptions.
If the Company fails to significantly address the Year 2000 issues of the Bank,
the following negative factors, among others, could occur:
(a) utility service companies may be unable to provide
the necessary service to drive the Bank's data
systems or provide sufficient sanitary conditions for
the offices;
(b) the primary software provider could have a major
malfunction in its system or their service could be
disrupted due to its utility providers, or some
combination of the two; or
(c) business may have to be transacted manually.
12
<PAGE>
The Company will attempt to monitor these uncertainties by continuing to request
an update on all critical and important vendors throughout the remainder of
1999. If any concerns are identified related to any critical vendor, the
contingency plans will be implemented immediately to assure continued service to
the Bank's customers.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of testing
plans and the readiness of all vendors, suppliers and customers.
Despite the best efforts of management to address this issue, the vast number of
external entities that have direct and indirect business relationships with the
Company, such as customers, vendors, payment system providers and other
financial institution, makes it impossible to assure that a failure to achieve
compliance by one or more of these entities would not have material adverse
impact on 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.
13
<PAGE>
[PORTER KEADLE MOORE, LLP LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CCF Holding Company
We have audited the accompanying consolidated balance sheet of CCF Holding
Company and subsidiary as of December 31, 1998 and the related consolidated
statements of earnings, comprehensive income, stockholders' equity, and cash
flows for the year ended December 31, 1998. 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 audit. The consolidated financial statements of CCF
Holding Company and subsidiary as of December 31, 1997, the year ended December
31, 1997, the three month period ended December 31, 1996 and the year ended
September 30, 1996 were audited by other auditors whose report, dated February
6, 1998, expressed an unqualified opinion on those statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1998 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, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/Porter Keadle Moore, LLP
----------------------------------------
Porter Keadle Moore, LLP
Atlanta, Georgia
February 12, 1999
14
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $766,000 and $458,000 $ 7,275,835 4,357,626
Interest-bearing deposits in other financial institutions 756,687 4,383,690
Federal funds sold 2,320,000
----------- -----------
Cash and cash equivalents 10,352,522 8,741,316
Investment securities available for sale 29,457,412 11,559,557
Loans, net 121,827,463 97,541,231
Premises and equipment, net 5,422,602 5,112,338
Federal Home Loan Bank stock, at cost 1,013,200 1,013,200
Accrued interest and dividends receivable 1,114,880 784,852
Other assets 671,863 203,550
----------- -----------
$169,859,942 124,956,044
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Noninterest-bearing deposits $ 8,501,973 4,895,855
Interest-bearing deposits 44,555,271 21,837,258
Savings accounts 9,089,074 9,962,412
Time deposits less than $100,000 74,388,954 46,072,815
Time deposits greater than $100,000 18,441,449 8,433,000
----------- -----------
Total deposits 154,976,721 91,201,340
Securities sold under agreements to repurchase 1,117,264 2,392,579
Federal Home Loan Bank advances -- 18,510,000
Other liabilities 2,139,844 1,332,520
----------- -----------
Total liabilities 158,233,829 113,436,439
----------- -----------
Commitments
Stockholders' equity:
Preferred stock, no par value; 1,000,000
shares authorized; none issued and outstanding - -
Common stock, $.10 par value, 4,000,000 shares
authorized; 900,589 shares issued and 895,148
shares outstanding in 1998; 906,710 shares
issued and 899,024 shares outstanding in 1997 90,059 90,671
Additional paid-in capital 7,783,384 7,794,459
Retained earnings 4,528,267 4,443,500
Unearned ESOP shares (468,000) (540,000)
Unearned compensation (286,339) (394,195)
Treasury stock, at cost; 5,441 and 7,686 shares
in 1998 and 1997, respectively (59,777) (96,800)
Accumulated other comprehensive income 38,519 221,970
----------- -----------
Total stockholders' equity 11,626,113 11,519,605
----------- -----------
$169,859,942 124,956,044
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1998 and 1997,
the Three Months Ended December 31, 1996 and the Year Ended September 30, 1996
<TABLE>
<CAPTION>
Three
Year ended Year ended months ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $10,778,100 7,413,839 1,265,291 3,884,901
Interest-bearing deposits in other
financial institutions 87,321 84,196 18,727 116,986
Interest and dividends on taxable
investment securities 1,570,866 582,336 288,901 1,600,604
Interest on nontaxable investment securities 600 9,720 7,110 11,152
---------- --------- --------- ---------
Total interest and dividend income 12,436,887 8,090,091 1,580,029 5,613,643
---------- --------- --------- ---------
Interest expense:
Deposit accounts 6,563,637 3,424,439 631,824 2,510,350
Other borrowings 235,923 496,458 64,263 16,444
---------- --------- --------- ---------
Total interest expense 6,799,560 3,920,897 696,087 2,526,794
---------- --------- --------- ---------
Net interest income 5,637,327 4,169,194 883,942 3,086,849
Provision for loan losses 275,000 126,505 6,851 129,831
---------- --------- --------- ---------
Net interest income after provision
for loan losses 5,362,327 4,042,689 877,091 2,957,018
---------- --------- --------- ---------
Other operating income:
Service charges on deposit accounts 436,886 270,679 64,501 249,067
Net gain on sale of loans 62,628 24,647 -- 36,435
Net gain on sale of investment securities 387,282 494,651 1,955 15,119
Other 80,934 118,970 27,613 73,316
---------- --------- --------- ---------
Total other operating income 967,730 908,947 94,069 373,937
---------- --------- --------- ---------
Other operating expenses:
Salaries and employee benefits 3,083,362 2,836,395 471,213 1,171,405
Occupancy 1,017,073 788,147 94,939 427,826
Savings Association Insurance Fund
assessment -- -- -- 397,568
Other 1,279,157 1,121,442 266,667 718,320
---------- --------- --------- ---------
Total other operating expenses 5,379,592 4,745,984 832,819 2,715,119
---------- --------- --------- ---------
Earnings before income taxes 950,465 205,652 138,341 615,836
Income tax expense 331,689 69,052 48,760 142,500
---------- --------- --------- ---------
Net earnings 618,776 136,600 89,581 473,336
========== ========= ========= =========
Basic earnings per share $ 0.74 0.17 0.10 0.45
========== ========= ========= =========
Diluted earnings per share $ 0.70 0.16 0.09 0.43
========== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 1998 and 1997,
the Three Months Ended December 31, 1996 and
the Year Ended September 30, 1996
<TABLE>
<CAPTION>
Three
Year ended Year ended months ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 618,776 136,600 89,581 473,336
-------- -------- ------- -------
Other comprehensive income, net of tax:
Unrealized gains (losses) on investment
securities available for sale:
Holding gains arising during the
period, net of taxes of $34,695,
$149,363, $148,901 and $19,293 56,608 243,698 242,943 31,532
Less: Reclassification adjustments for
gains included in earnings, net
of taxes of $147,223,$187,769,
$742 and $5,140 (240,059) (306,882) (1,213) (9,979)
Other comprehensive income (loss) (183,451) (63,184) 241,730 21,553
-------- -------- ------- -------
Comprehensive income $ 435,325 73,416 331,311 494,889
======== ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998 and
1997, the Three Months Ended December 31, 1996 and the Year
Ended September 30, 1996
<TABLE>
<CAPTION>
Common Stock Additional Unearned
---------------------------- Paid-In Retained ESOP
Shares Amount Capital Earnings Shares
--------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 1,190,250 $ 119,025 10,964,983 6,935,879 (720,000)
Net earnings - - - 473,336 -
Dividends declared ($.50 per share) - - - (600,161) -
Treasury stock purchased - - - - -
ESOP shares allocated - - 11,372 - 90,000
Unrealized gains on investment
securities available for
sale, net of tax effect - - - - -
Purchase of treasury stock and
award of shares under
management stock bonus plan - - (4,641) - -
--------- ------- ---------- --------- --------
Balance, September 30, 1996 1,190,250 119,025 10,971,714 6,809,054 (630,000)
Net earnings - - - 89,581 -
Dividends declared ($.45 per share) - - - (422,850) -
Treasury stock purchased - - - -
Retirement of treasury stock (274,350) (27,435) (3,500,796) - -
ESOP shares allocated - - - - 18,000
Unrealized gains on investment
securities available for sale,
net of tax effect - - - - -
--------- ------- ---------- --------- --------
Balance, December 31, 1996 915,900 $ 91,590 7,470,918 6,475,785 (612,000)
========= ======= ========== ========= ========
</TABLE>
SECOND HALF OF TABLE CONTINUED BELOW
<TABLE>
<CAPTION>
Accumulated
Treasury Stock Other
Unearned ---------------------------- Comprehensive
Compensation Shares Amount Income Total
------------ ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1995 - - $ - 21,871 17,321,758
Net earnings - - - - 473,336
Dividends declared ($.50 per share) - - - - (600,161)
Treasury stock purchased - 190,250 (2,299,490) - (2,299,490)
ESOP shares allocated - - - - 101,372
Unrealized gains on investment
securities available for
sale, net of tax effect - - - 21,553 21,553
Purchase of treasury stock and
award of shares under
management stock bonus plan (371,304) 16,668 (202,519) - (578,464)
--------- ------- ---------- --------- ----------
Balance, September 30, 1996 (371,304) 206,918 (2,502,009) 43,424 14,439,904
Net earnings - - - - 89,581
Dividends declared ($.45 per share) - - - - (422,850)
Treasury stock purchased - 84,100 (1,228,741) - (1,228,741)
Retirement of treasury stock - (274,350) 3,528,231 - -
ESOP shares allocated - - - - 18,000
Unrealized gains on investment
securities available for sale,
net of tax effect - - - 241,730 241,730
--------- ------- ---------- --------- ----------
Balance, December 31, 1996 (371,304) 16,668 $ (202,519) 285,154 13,137,624
========= ======= ========== ========= ==========
</TABLE>
18
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity, continued
For the Years Ended December 31, 1998 and
1997, the Three Months Ended December 31, 1996 and the Year
Ended September 30, 1996
<TABLE>
<CAPTION>
Common Stock Additional Unearned
---------------------------- Paid-In Retained ESOP
Shares Amount Capital Earnings Shares
--------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 915,900 $ 91,590 7,470,918 6,475,785 (612,000)
Net earnings - - - 136,600 -
Dividends declared ($.52 per share) - - - (438,485) -
Treasury stock purchased - - - - -
Retirement of treasury stock (91,590) (9,159) (1,447,894) - -
ESOP shares allocated - - 51,153 - 72,000
Award of shares under management
stock bonus plan - - (1,878) - -
Earned compensation under
management stock bonus plan - - - - -
Unrealized losses on investment
securities available for
sale, net of tax effect - - - - -
10% stock dividend declared on
December 16, 1997 82,400 8,240 1,722,160 (1,730,400) -
--------- ------- ---------- --------- --------
Balance, December 31, 1997 906,710 90,671 7,794,459 4,443,500 (540,000)
Net earnings - - - 618,776 -
Dividends declared ($.64 per share) - - - (534,009) -
Retirement of treasury stock (6,121) (612) (105,953)
ESOP shares allocated - - 94,878 - 72,000
Forfeited awards of shares
under management
stock bonus plan - - - - -
Award of shares under management
stock bonus plan - - - - -
Earned compensation under
management stock bonus plan - - - - -
Treasury stock purchased - - - - -
Unrealized losses on investment
securities available for
sale, net of tax effect - - - - -
--------- ------- ---------- --------- --------
Balance, December 31, 1998 900,589 $ 90,059 7,783,384 4,528,267 (468,000)
========= ======= ========== ========= ========
</TABLE>
[SECOND HALF OF TABLE CONTINUED ON FOLLOWING PAGE]
<PAGE>
[SECOND HALF OF TABLE CONTINUED BELOW]
<TABLE>
<CAPTION>
Accumulated
Treasury Stock Other
Unearned ---------------------------- Comprehensive
Compensation Shares Amount Income Total
------------ ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 (371,304) 16,668 $(202,519) 285,154 13,137,624
Net earnings - - - - 136,600
Dividends declared ($.52 per share) - - - - (438,485)
Treasury stock purchased - 2,820 (46,159) - (46,159)
Retirement of treasury stock - - - - (1,457,053)
ESOP shares allocated - - - - 123,153
Award of shares under management
stock bonus plan (150,000) (12,500) 151,878 - -
Earned compensation under
management stock bonus plan 127,109 - - - 127,109
Unrealized losses on investment
securities available for
sale, net of tax effect - - - (63,184) (63,184)
10% stock dividend declared on
December 16, 1997 - 698 - - -
------- ------ -------- ------- ----------
Balance, December 31, 1997 (394,195) 7,686 (96,800) 221,970 11,519,605
Net earnings - - - - 618,776
Dividends declared ($.64 per share) - - - - (534,009)
Retirement of treasury stock (6,121) 106,565 - -
ESOP shares allocated - - - - 166,878
Forfeited awards of shares
under management
stock bonus plan 25,692 2,357 (25,692) - -
Award of shares under management
stock bonus plan (16,495) (1,500) 16,495 - -
Earned compensation under
management stock bonus plan 98,659 - - - 98,659
Treasury stock purchased - 3,019 (60,345) - (60,345)
Unrealized losses on investment
securities available for
sale, net of tax effect - - - (183,451) (183,451)
------- ------ -------- ------- ----------
Balance, December 31, 1998 (286,339) 5,441 $ (59,777) 38,519 11,626,113
======= ====== ======== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997,
the Three Months Ended December 31, 1996 and
the Year Ended September 30, 1996
<TABLE>
<CAPTION>
Three
Year ended Year ended months ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 618,776 136,600 89,581 473,336
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Provision for loan losses 275,000 126,505 6,851 129,831
Depreciation, amortization and accretion 311,766 196,538 14,329 14,768
ESOP shares allocated 166,878 123,153 18,000 101,372
Compensation expense related to MSBP 98,659 127,109 22,555 37,591
Net gain on sale of investment securities
available for sale (387,282) (494,651) (1,955) (15,119)
Deferred income tax expense (benefit) (131,348) 61,418 94,939 (308,683)
Net gain on sale of loans (62,628) (24,647) - (36,435)
Net loss (gain) on sale of equipment 452 (36,898) - -
(Increase) decrease in accrued
interest and dividends receivable (330,028) (346,852) 73,072 13,776
Decrease (increase) in other assets (468,313) 78,924 (163,803) 16,658
(Decrease) increase in Savings Association
Insurance Fund assessment payable - - (397,568) 397,568
Increase (decrease) in other liabilities 1,091,540 381,228 (327,338) 144,083
---------- --------- --------- ---------
Net cash provided by (used in)
operating activities 1,183,472 328,427 (571,337) 968,746
---------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from maturities and called
investment securities available for sale 29,328,303 2,568,034 1,005,458 1,781,760
Proceeds from sales of investment
securities available for sale 3,021,729 8,998,129 6,967,872 3,372,017
Proceeds from maturities and called
investment securities held to maturity - - - 5,739,276
Purchases of investment securities
available for sale (50,012,878) (6,958,537) - (3,455,874)
Purchases of investment securities
held to maturity - - - (7,216,111)
Net increase in loans (41,676,028) (34,977,793) (12,847,320) (8,735,992)
Proceeds from sale of loans 17,177,424 1,854,185 - 2,455,221
Purchases of premises and equipment (754,597) (3,669,458) (791,386) (366,169)
Proceeds from sale of equipment 2,155 120,906 - -
Sale of real estate owned - - - 75,626
---------- --------- --------- ---------
Net cash used in investing
activities (42,913,892) (32,064,534) (5,665,376) (6,350,746)
---------- ---------- --------- ---------
</TABLE>
20
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1998 and
1997, the Three Months Ended December 31, 1996 and the Year
Ended September 30, 1996
<TABLE>
<CAPTION>
Three months
Year ended Year ended ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in demand and savings deposits $ 25,450,793 8,967,499 2,029,967 1,317,457
Net increase (decrease) in time deposits 38,324,588 15,467,001 2,915,199 (627,298)
Net increase (decrease) in securities sold
under agreements to repurchase (1,275,315) 2,392,579 - -
Increase (decrease) in advance payments by
borrowers for property taxes and insurance 38,830 (11,023) (377,971) (131,745)
Treasury stock purchased (60,345) (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 (18,510,000) (2,500,000) - -
Dividends paid (626,925) (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 43,341,626 35,729,937 8,338,454 (419,701)
---------- ---------- --------- ----------
Increase (decrease) in cash and
cash equivalents 1,611,206 3,993,830 2,101,741 (5,801,701)
Cash and cash equivalents at beginning of
period 8,741,316 4,747,486 2,645,745 8,447,446
---------- ---------- --------- ----------
Cash and cash equivalents at end of period $ 10,352,522 8,741,316 4,747,486 2,645,745
========== ========== ========= ==========
Supplemental disclosure of cash flow information:
Interest paid $ 6,533,149 3,806,229 684,795 2,531,331
========== ========== ========= ==========
Income taxes paid $ 15,000 82,500 165,000 297,368
========== ========== ========= ==========
Supplemental disclosures of noncash
investing and financing activities:
Transfer of investment securities from
held to maturity to available for sale $ - - - 17,554,822
========== ========== ========= ==========
Changes in dividends payable $ (92,916) (200,581) 429,038 -
========== ========== ========= ==========
Changes in unrealized gains (losses) on
investment securities available for sale $ (183,451) (63,184) 241,730 21,553
========== ========== ========= ==========
Retirement of treasury stock $ 106,565 1,457,053 3,528,231 -
========== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Organization
------------
CCF Holding Company (the "Company") is incorporated in the state of Georgia
as a state chartered bank holding company whose business is conducted by
its wholly owned bank subsidiary, Heritage Bank (the "Bank"). The Company
converted its charter effective September 1, 1998 from a federally
chartered stock savings and loan association to a state chartered
commercial bank. The Company and the Bank are primarily regulated by the
State of Georgia Department of Banking and Finance (the "DBF") and the
Federal Deposit Insurance Corporation (the "FDIC") and are subject to
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.
The Bank 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
Bank primarily competes with other financial institutions in its market
area, which it considers to be South Metropolitan Atlanta.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company
and the Bank. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain 1997 and 1996 amounts have been
reclassified to conform to the 1998 presentation.
The accounting principles followed by the Company and the methods of
applying these principles, conform with generally accepted accounting
principles ("GAAP") and with general practices within the banking industry.
In preparing financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ significantly from
those estimates. Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term include,
but are not limited to, the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with or in lieu of
foreclosure on loans.
Cash and Cash Equivalents
-------------------------
For purposes of the consolidated statements of cash flows, the Company
considers amounts due from banks, interest-bearing deposits in other
financial institutions and federal funds sold to be cash equivalents.
Investment Securities
---------------------
The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and
held principally for sale in the near term. Held to maturity securities are
those securities for which the Company has the ability and intent to hold
until maturity. All other securities not included in trading or held to
maturity are classified as available for sale. The Company's current
investment policy prohibits trading activity.
Held to maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Unrealized holding gains or losses associated with transfers of securities
from held to maturity to available for sale are recorded as a separate
component of stockholders' equity.
Available for sale securities consist of investment securities not
classified as trading securities or held to maturity securities and are
recorded at fair value. Unrealized holding gains and losses on securities
available for sale are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
22
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Investment Securities, continued
---------------------
A decline in the market value of any available for sale or held to maturity
investment below cost that is deemed other than temporary is charged to
earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
Federal Home Loan Bank Stock
----------------------------
Investment in Federal Home Loan Bank stock is required of federally insured
financial institutions that utilize their services. No ready market exists
for the stock and it has no quoted market value.
Loans
-----
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity are reported at the principal amount
outstanding, net of the allowance for loan losses and any deferred fees or
costs on originated loans. Interest on all loans is calculated principally
by using the simple interest method on the daily balance of the principal
amount outstanding.
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.
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.
A loan is considered impaired when, based on current information and
events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. 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 at the fair value of the collateral of the loan
if the loan is collateral dependent. Interest income from impaired loans is
recognized using a cash basis method of accounting.
Allowance for Loan Losses
-------------------------
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collection of principle is
unlikely. The Bank has established a loan grading system whose
classifications are consistent with those used by the Bank's regulators.
Management utilizes this system to evaluate the adequacy of its allowance
for loan losses. Allocations of loss are calculated based on expected loss
ratios for each loan classification. These ratios have been determined
considering the Bank's historical loss rates and consideration of losses
experienced by its peer group. For individually significant loans deemed to
be impaired, a specific allowance is established based on the expected
collectibility considering the borrower's cash flow and the adequacy of the
collateral coverage. The results of the Bank's evaluation are compared to
the recorded allowance for loan losses and significant deviations are
adjusted by increasing or decreasing the provision for loan losses.
Additionally, management utilizes the services of an independent third
party loan reviewer to validate its internal grading system and to provide
additional analysis in determining the adequacy of the allowance.
23
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Allowance for Loan Losses, continued
-------------------------
Management believes 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 allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments of information available to them at the
time of their examination.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Major additions and improvements are charged to the asset accounts while
maintenance and repairs that do not improve or extend the useful lives of
the assets are expensed currently. When assets are retired or otherwise
disposed, the cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is reflected in earnings for the period.
Depreciation is recorded on a straight-line basis over the following
estimated useful lives of the related assets:
Building and improvements 5 - 40 years
Furniture and equipment 2 - 10 years
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the 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 the
assets and liabilities 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 tax expense in the period that includes the enactment
date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities result in deferred tax assets, an evaluation of the probability
of being able to realize the future benefits indicated by such asset is
required. A valuation allowance is provided for the portion of the deferred
tax asset when it is more likely than not that some portion or all of the
deferred tax asset will not be realized. In assessing the realizability of
the deferred tax assets, management considers the scheduled reversals of
deferred tax liabilities, projected future taxable income, and tax planning
strategies.
Net Earnings Per Share
----------------------
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS No. 128) became effective for the Company for the year ended December
31, 1997. This standard specifies the computation, presentation and
disclosure requirements for earnings per share and is designed to simplify
previous earnings per share standards and to make domestic and
international practices more compatible. Basic earnings per share are based
on the weighted average number of common shares outstanding during the
period while the effects of potential shares outstanding during the period
are included in diluted earnings per share.
24
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Net Earnings Per Share, continued
----------------------
SFAS No. 128 requires the presentation on the face of the statement of
earnings of earnings per share with and without the dilutive effects of
potential common stock issuances from instruments such as options,
convertible securities and warrants. Additionally, the statement requires
the reconciliation of the amounts used in the computation of both "basic
earnings per share" and "diluted earnings per share" for each period an
earnings statement is presented as follows:
<TABLE>
<CAPTION>
For the year ended December 31, 1998 Net Common Per Share
Earnings Shares Amount
-------- ------ ------
<S> <C> <C> <C>
Basic earnings per share $ 618,776 839,641 $ 0.74
====
Effect of stock options - 43,496
------- ---------
Diluted earnings per share $ 618,776 883,137 $ 0.70
======= ========= ====
For the year ended December 31, 1997 Net Common Per Share
Earnings Shares Amount
-------- ------ ------
Basic earnings per share $ 136,600 800,299 $ 0.17
====
Effect of stock options - 56,363
------- ---------
Diluted earnings per share $ 136,600 856,662 $ 0.16
======= ========= ====
For the three months ended December 31, 1996 Net Common Per Share
Earnings Shares Amount
-------- ------ ------
Basic earnings per share $ 89,581 940,671 $ 0.10
====
Effect of stock options - 72,275
------- ---------
Diluted earnings per share $ 89,581 1,012,946 $ 0.09
====== ========= ====
For the year ended September 30, 1996 Net Common Per Share
Earnings Shares Amount
-------- ------ ------
Basic earnings per share $ 473,336 1,055,402 $ 0.45
====
Effect of stock options - 34,036
------- ---------
Diluted earnings per share $ 473,336 1,089,438 $ 0.43
======= ========= ====
</TABLE>
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.
25
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Recent Accounting Pronouncements
--------------------------------
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards for hedging activities
and for derivative instruments including derivative instruments embedded
in other contracts. It requires the fair value recognition of derivatives
as assets or liabilities in the financial statements. The accounting for
the changes in the fair value of derivatives depends on the intended use
of the derivative instruments at inception. Instruments used as fair value
hedges account for the change in fair value in the earnings of the period
simultaneous with accounting for the fair value change of the item being
hedged. Cash flow hedges account for the change in fair value of the
effective portion in comprehensive income rather than earnings, and
foreign currency hedges are accounted for in comprehensive income as part
of the translation adjustment. Derivative instruments that are not
intended as a hedge account for the change in fair value in the earnings
of the period of the change. SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999, but initial
application of the statement must be made as of the beginning of the
quarter. At the date of initial application, an entity may transfer any
held to maturity security into the available for sale or trading
categories without calling into question the entity's intent to hold other
securities to maturity in the future. The Company believes the adoption of
SFAS No. 133 will not have a material impact on its financial position,
results of operations or liquidity.
(2) Investment Securities
At December 31, 1998 and 1997, investment securities available for sale
consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agency obligations $29,137,872 13,964 29,894 29,121,942
Equity security 64,455 69,545 - 134,000
Mortgage-backed securities 195,825 5,645 - 201,470
---------- ------ ------ ----------
$29,398,152 89,154 29,894 29,457,412
========== ====== ====== ==========
</TABLE>
<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
Municipal securities 157,990 489 - 158,479
Equity security 1,243,471 336,857 - 1,580,328
Mortgage-backed securities 1,832,454 12,600 7,545 1,837,509
---------- ------- ------ ----------
$11,218,064 360,197 18,704 11,559,557
========== ======= ====== ==========
</TABLE>
For the years ended December 31, 1998 and 1997, the Company sold certain
investment securities available for sale for $3,021,729 and $8,998,129,
respectively, and recognized gross gains of $392,479 and gross losses of
$5,197 in 1998 and gross gains of $516,041 and gross losses of $21,390 in
1997. For the three months ended December 31, 1996, the Company sold
certain investment securities available for sale for $6,967,872 and
recognized gross gains of $10,801 and gross losses of $8,846. For the year
ended September 30, 1996, the Company sold certain investment securities
available for sale for $3,372,017 and recognized gross gains of $11,959 and
gross losses of $3,965.
26
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) Investment Securities, continued
The amortized cost and fair values of securities available for sale at
December 31, 1998 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>
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
U.S. Treasury and agencies:
Due within one year $ 7,954,713 7,952,899
Due after one year through five years 20,673,660 20,660,137
Due after five years 509,499 508,906
---------- ----------
Total securities other than mortgage-backed
securities and equity securities 29,137,872 29,121,942
Equity securities 64,455 134,000
Mortgage-backed securities 195,825 201,470
---------- ----------
$ 29,398,152 29,457,412
========== ==========
</TABLE>
Investment securities with approximate aggregate carrying amounts of
$22,380,000 and $9,979,000 at December 31, 1998 and December 31, 1997,
respectively, were pledged to secure public deposits and securities sold
under agreements to repurchase.
(3) Loans
Major classifications of loans at December 31, 1998 and 1997 are
presented below.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Commercial $ 14,487,698 2,531,962
Real estate - mortgage 68,527,720 77,403,708
Real estate - construction 26,187,280 16,231,115
Installment and other consumer 14,154,498 2,680,145
----------- ----------
Total loans 123,357,196 98,846,930
Less: Unearned fees 586,584 636,194
Allowance for loan losses 943,149 669,505
----------- ----------
Total loans, net $121,827,463 97,541,231
=========== ==========
</TABLE>
Included in real estate-mortgage at December 31, 1998 and 1997, was
approximately $30,890,000 and $28,373,000, respectively, related to
commercial real estate lending. The Company extends credit to customers
throughout its market area, which includes the Georgia counties of
Clayton, Henry, and Fayette. Most of the Company's loans are
collateralized 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.
27
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(3) Loans, continued
An analysis of the activity in the allowance for loan losses is presented
below:
<TABLE>
<CAPTION>
Three
Year ended Year ended months ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 669,505 547,142 540,291 408,848
Provision for losses on loans 275,000 126,505 6,851 129,831
Loan charge-offs (2,674) (4,142) - -
Loan recoveries 1,318 - - 1,612
------- ------- ------- -------
Balance at end of period $ 943,149 669,505 547,142 540,291
======= ======= ======= =======
</TABLE>
As of December 31, 1998 and 1997, the Bank serviced loans for others with
approximate outstanding balances of $22,396,000 and $8,459,000,
respectively.
(4) Premises and Equipment
A summary of premises and equipment at December 31, 1998 and 1997 is as
follows:
1998 1997
---- ----
Land $ 803,927 803,927
Buildings and improvements 3,719,942 2,392,646
Furniture and equipment 2,286,524 2,102,817
Construction in progress 17,400 1,143,739
--------- ---------
6,827,793 6,443,129
Less accumulated depreciation 1,405,191 1,330,791
--------- ---------
$ 5,422,602 5,112,338
========= =========
Depreciation expense for the years ended December 31, 1998 and 1997 was
$441,726 and $344,529, respectively. Depreciation expense for the three
months ended December 31, 1996 was $39,597. Depreciation expense for
the year ended September 30, 1996 was $112,357.
(5) Deposits
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
1999 $ 45,673,595
2000 36,876,025
2001 4,962,887
2002 84,632
2003 5,199,127
2004 and thereafter 34,137
------------
$ 92,830,403
============
28
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(6) Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Three months
Year ended Year ended ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current expense (benefit) $ 463,037 7,634 (46,179) 451,183
Deferred tax (benefit) expense (131,348) 61,418 94,939 (308,683)
------- ------ ------ -------
$ 331,689 69,052 48,760 142,500
======= ====== ====== =======
</TABLE>
Income tax expense of the Company differed from the amounts computed by
applying the statutory Federal income tax rate to income before income
taxes as follows:
<TABLE>
<CAPTION>
Three months
Year ended Year ended ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tax expense at statutory rate $ 323,158 69,922 47,036 209,384
Add (deduct):
State income taxes, net of Federal
tax effect 7,781 6,061 9,369 (24,053)
Municipal investments - (2,645) (2,063) (3,792)
Other, net 750 (4,286) (5,582) (39,039)
------- ------ ------ -------
$ 331,689 69,052 48,760 142,500
======= ====== ====== =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are presented below:
1998 1997
---- ----
Deferred tax assets:
Allowance for loan losses $ 194,108 8,225
State tax credit carryforwards 58,893 55,164
Employee Stock Ownership Plan accrual 99,147 62,713
Management stock bonus plan - 23,790
Other 6,720 9,600
-------- -------
Total gross deferred tax assets 358,868 159,492
-------- -------
Deferred tax liabilities:
Deferred loan fees 366,168 315,183
Net unrealized gains on investment
securities available for sale 20,741 119,523
Premises and equipment 23,084 17,963
Federal Home Loan Bank stock dividends 146,165 146,165
Other 28,696 16,774
-------- -------
Total gross deferred tax liabilities 584,854 615,608
-------- -------
Net deferred tax liabilities $ 225,986 456,116
======= =======
29
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued
At December 31, 1998 and 1997, the Company had state gross receipts tax
credit carryforwards of approximately $89,000 and $84,000, respectively,
which are available to reduce future state income taxes payable, if any,
through 2003.
Prior to January 1, 1996, the Company was permitted under the Internal
Revenue Code (the "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, 1998 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.
(7) Commitments
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.
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.
The Company's exposure to credit loss, in the event of nonperformance by
the customer for commitments to extend credit and standby letters of
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.
The following summarizes commitments as of December 31, 1998 and 1997:
Approximate
Contract Amount
---------------------------
1998 1997
---- ----
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 22,209,000 5,606,000
Standby letters of credit $ 195,000 69,000
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.
The Company has entered into contracts with certain members of management
which stipulate a term and annual base salary. The contract includes
provisions to terminate the agreement for "just cause" which is defined
in the contracts. If such members of management are relieved of their
position without just cause, the employee is entitled to a continuation
of salary from the termination date through the remaining term of the
agreement. Certain of these employment agreements contain 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 distribution equal to 2.99
times the individual's base compensation.
30
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(8) Federal Home Loan Bank Advances
Federal Home Loan Bank advances at December 31, 1997 consisted of a
$18,510,000 term loan secured by a blanket lien on residential mortgage
loans. Principal was payable at maturity on June 26, 1998 and interest
was due monthly based on a floating daily interest rate of 6.50% at
December 31, 1997.
(9) Preferred Stock
The Company is authorized to issue 1,000,000 shares of no par value
serial preferred stock. At December 31, 1998, 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.
(10) Employee Benefit Plans
(a) 401(k) Profit Sharing Plan
--------------------------
The Company has 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. 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, 1998 and 1997 and September 30, 1996 totaled $67,774,
$43,200 and $29,116, respectively. Contributions by the Company to
the Plan during the three months ended December 31, 1996 totaled
$8,792.
(b) Employee Stock Ownership Plan
The Company also has 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.
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 paid 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, 1998, 27,720 ESOP shares have been allocated to the
participating employees. For purposes of computing net earnings per
share, the remaining 51,480 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, 1998 and 1997 and September 30, 1996 totaled
$166,878, $123,153 and $83,372, respectively. Compensation expense
recognized by the Company during the three months ended December 31,
1996 totaled $18,000. The fair value of the unallocated shares at
December 31, 1998 was approximately $753,000.
31
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(10) Employee Benefit Plans, continued
(c) 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 non qualified
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 expire or are terminated unexercised will again be
available for issuance. The Option Plan has a term of ten years,
unless sooner terminated. The exercise price per share for
nonqualified and incentive 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.
Stock option activity is as follows:
<TABLE>
<CAPTION>
Three
Year ended Year ended months ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Options outstanding at
beginning of period 106,053 112,599 85,099 -
Options granted 9,000 - 27,500 85,099
Options canceled (7,854) (6,546) - -
-------- -------- -------- ------
Options outstanding
at end of period 107,199 106,053 112,599 85,099
======== ======== ======== ======
Options exercisable
at end of period 40,458 21,211 - -
======== ======== ======== ======
Weighted-average option prices
per share:
Options granted during
the period $ 20.44 - 12.18 11.25
Options canceled during
the period $ 11.25 11.25 - -
Options outstanding at end
of period $ 12.26 11.49 11.48 11.25
</TABLE>
The options outstanding at December 31, 1998 had a weighted-average
contractual maturity of 7.2 years and exercise prices ranging from
$11.02 to $21.00.
32
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(10) Employee Benefit Plans, continued
(c) Stock Option Plan, continued
-----------------
The Company is encouraged, but not required, to compute the fair
value of options at the date of grant and to recognize such costs as
compensation expense immediately if there is no vesting period, or
ratably over the vesting period of the options. The Company has
chosen not to adopt these cost recognition principles and accounts
for all options under Accounting Principles Board Opinion No. 25 and
its related interpretations. No compensation expense has been
recognized related to the Option Plan. Had compensation cost been
determined based upon the fair value of the options at the grant
dates, the Company's net earnings and net earnings per share would
have been reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
Year ended Year ended Three months Years ended
December December December September
31, 1998 31, 1997 31, 1996 30, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net earnings As reported $ 618,776 136,600 89,581 473,336
Proforma $ 554,730 62,324 71,722 431,502
Basic earnings per share As reported $ .74 .17 .10 .45
Proforma $ .66 .08 .08 .41
Diluted earnings As reported $ .70 .16 .09 .43
per share Proforma $ .63 .07 .07 .40
</TABLE>
The weighted average grant-date fair value of options granted was
$1.10, $5.74 and $5.29 for the periods ended December 31, 1998 and
1996 and September 30, 1996, respectively, based on estimates as of
the date of grant using the Black Scholes pricing model. The
weighted average assumptions used for grants in 1998 and 1996 were
as follows: dividend yield of 4.6% and 2.0%, a risk free interest
rate of 4.7% and 5.5%, expected volatility of 20% and 42%,
respectively, and an expected life of 7 years for both years.
(d) Management Stock Bonus Plan
---------------------------
In January 1996, the Company adopted a Management Stock Bonus Plan
(the "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. Through December 31, 1998, the Company awarded
42,169 of such treasury shares to employees. 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. Compensation expense with
respect to the foregoing MSBP awards was $98,659, $131,242, $22,555,
and $37,591 for the years ended December 31, 1998 and 1997, the three
months ended December 31, 1996, and the year ended September 30,
1996, respectively.
(11) Fair Values of Financial Instruments
SFAS No. 107, "Disclosure 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.
33
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(11) Fair Values of Financial Instruments, continued
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 cash equivalents
-------------------------
The carrying amounts of cash and cash equivalents approximate fair
values.
Investment securities available for sale
----------------------------------------
Fair values for investment securities available for sale are based on
quoted market prices, where available.
Federal Home Loan Bank stock
----------------------------
The carrying amount is considered a reasonable estimate of fair value.
Loans
-----
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.
Deposits
--------
Fair values for fixed-rate time deposits 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.
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. Because these instruments are primarily
variable rate instruments, the contract value is a reasonable estimate of
fair value.
34
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(11) Fair Values of Financial Instruments, continued
The estimated fair value of the Company's financial instruments as of
December 31, 1998 and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 10,353 10,353 8,741 8,741
Investment securities available for sale $ 29,457 29,457 11,560 11,560
Loans, net $ 121,827 125,517 97,541 95,711
Federal Home Loan Bank stock $ 1,013 1,013 1,013 1,013
Liabilities:
Deposits $ 154,977 157,987 91,201 91,326
Securities sold under agreements to
repurchase $ 1,117 1,117 2,393 2,393
Federal Home Loan Bank advances $ - - 18,510 18,510
Unrecognized financial instruments:
Commitments to extend credit $ 22,209 22,209 - -
Standby letters of credit $ 195 195 - -
</TABLE>
(12) Related Party Transactions
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. The following is a
summary of activity during the year ended December 31, 1998 with respect
to such aggregate loans to these individuals and their associates:
Related party loan balances at beginning of year $ 1,709,476
New loans 1,152,964
Principal repayments (819,690)
---------
Related party loan balances at end of year $ 2,042,750
=========
Deposits from related parties totaled approximately $1,005,000 at
December 31, 1998.
35
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(13) Parent Company Financial Information
The following represents condensed financial information of the Parent.
Condensed Balance Sheets
December 31, 1998 and 1997
Assets
------
1998 1997
---- ----
Cash $ 294,503 347,570
Investment securities available for sale 134,000 1,580,328
Investment in subsidiary 11,480,697 10,353,620
Other assets 10,000 29,284
---------- ----------
$11,919,200 12,310,802
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deferred income taxes $ 104,407 117,900
Dividends payable 135,541 228,457
Other liabilities 53,139 444,840
---------- ----------
293,087 791,197
Stockholders' equity 11,626,113 11,519,605
---------- ----------
$11,919,200 12,310,802
========== ==========
Condensed Statements of Earnings
For the Years Ended December 31, 1998 and
1997, Three Months Ended December 31, 1996 and the Year
Ended September 30, 1996
<TABLE>
<CAPTION>
Three
Year ended Year ended months ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dividends from subsidiary $ - $2,000,000 - -
Interest income from subsidiary 26,196 25,231 10,092 203,450
Gain on sale of investment securities 386,187 477,691 - -
Other operating income 9,386 12,244 5,750 9,775
Other operating expenses (64,635) (54,676) (33,334) (14,647)
Income tax (expense) benefit (125,134) (160,943) 6,140 (62,047)
--------- ---------- -------- ---------
Earnings (loss) before equity in
undistributed earnings (distributions
in excess of earnings) of subsidiary 232,000 2,299,547 (11,352) 136,531
Equity in undistributed earnings
(distributions in excess of earnings)
of subsidiary 386,776 (2,162,947) 100,933 336,805
--------- ---------- -------- ---------
Net earnings $ 618,776 136,600 89,581 473,336
======== ========== ======== =========
</TABLE>
36
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(13) Parent Company Financial Information, continued
Condensed Statements of Cash Flows
For the Years Ended December 31, 1998 and
1997, Three Months Ended December 31, 1996 and the Year
Ended September 30, 1996
<TABLE>
<CAPTION>
Three
Year ended Year ended months ended Year ended
December 31, December 31, December 31, September 30,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 618,776 136,600 89,581 473,336
Adjustment to reconcile net earnings
to net cash provided (used) by
operations:
(Equity in undistributed earnings)
distributions in excess of earnings
of subsidiary (386,776) 2,162,947 (100,933) (336,805)
Compensation expense related to
MSBP 98,659 127,109 22,555 37,591
ESOP shares allocated 166,878 123,153 18,000 101,372
Gain on sale of investment security (386,187) (477,691) - -
Decrease (increase) in other assets 19,284 44,147 53,504 (148,840)
(Decrease) increase in other
liabilities (311,634) (173,595) 578,464 -
--------- --------- --------- ---------
Net cash provided (used) by
operating activities (181,000) 1,942,670 661,171 126,654
--------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of investment
security 1,565,203 993,329 - -
Purchase of investment security - (976,321) - (138,240)
Capital infusion in subsidiary (750,000) - - -
Purchase of land - - - (10,000)
Net change in loan to subsidiary - 484,011 567,570 3,499,701
--------- --------- --------- ---------
Net cash provided by
investing activities 815,203 501,019 567,570 3,351,461
--------- --------- --------- ---------
Cash flows from financing activities:
Dividends paid (626,925) (639,066) - (600,161)
Treasury stock purchased (60,345) (1,457,053) (1,228,741) (2,299,490)
Contribution to management stock
bonus plan - - - (578,464)
--------- --------- --------- ---------
Net cash used in financing
activities (687,270) (2,096,119) (1,228,741) (3,478,115)
--------- --------- --------- ---------
Change in cash and cash equivalents (53,067) 347,570 - -
Cash and cash equivalents at
beginning of period 347,570 - - -
--------- --------- --------- ---------
Cash and cash equivalents at
end of period $ 294,503 347,570 - -
========= ========= ========= =========
</TABLE>
37
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(14) Regulatory Matters
Dividends paid by the Bank are the primary source of funds available to
the Company. Banking regulations limit the amount of dividends that may
be paid without prior approval of the regulatory authorities. These
restrictions are based on the level of regulatory classified assets, the
prior years' net earnings, and the ratio of equity capital to total
assets. The Bank has specific requirements to maintain its ratio of Tier
I capital to adjusted assets of 6.22%. At December 31, 1998 the Bank
could pay approximately $193,000 in dividends without obtaining prior
regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the 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 Company and the Bank to maintain minimum amounts and
ratios of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 1998,
that the Company and the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1998, the most recent notification from the Federal
Deposit Insurance Corporation 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. At December 31, 1998, consolidated amounts do not materially
differ from Bank-only capital amounts and ratios.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ----------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total capital - risk-based
(to risk-weighted assets) $12,430,531 11% $9,370,240 >8% $11,712,800 >10%
Tier I capital - risk-based - -
(to risk-weighted assets) $11,487,382 10% $4,685,120 >4% $ 7,027,680 > 6%
Tier I capital - leverage - -
(to average assets) $11,487,382 8% $6,106,077 >4% $ 7,632,597 > 5%
- -
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%
- -
</TABLE>
38
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(15) 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.
39
<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 John T. Mitchell
Executive Vice President* 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
Sr. Vice President and Chief Financial Officer Sr. Vice President and Chief Operating Officer
Richard P. Florin Charles S. Tucker
Senior Vice President Secretary and Treasurer
</TABLE>
----------------------------------
Independent Auditors Corporate Counsel
Porter Keadle Moore, LLP Edwin S. Kemp, Jr., Esquire
235 Peachtree Street, N.W. 101 North Main Street
Suite 1800 Suite 203
Atlanta, GA 30303 Jonesboro, Georgia 30236
Transfer Agent and Registrar Special Counsel
Registrar & Transfer Company Malizia, Spidi, Sloane & Fisch, P.C.
10 Commerce Drive One Franklin Square
Cranford, New Jersey 07016 1301 K Street, N.W., Suite 700 East
(908) 272-8511 Washington, D.C. 20005
----------------------------------
The Company's Annual Report for the year ended December 31, 1998 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 27, 1999 at
4:30 p.m. at the main office.
40
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of
- ---- Incorporation or Organization
Heritage Bank(1) -----------------------------
Georgia
- -------------------------
(1) This subsidiary conducts business under this name and has its own
subsidiary, CCF Financial Services, Inc., a Georgia-chartered
corporation.
[KPMG LLP LETTERHEAD]
Independent Auditors' 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 sheet of CCF Holding Company and
subsidiary as of December 31, 1997 and the related consolidated statements of
earnings, comprehensive income, stockholders' equity and cash flows for the
years ended December 31, 1997 and September 30, 1996, and for the three-month
period ended December 31, 1996, which report appears in the December 31, 1998
annual report on Form 10-KSB of CCF Holding Company.
- ------------
/s/ KPMG LLP
KPMG LLP
Atlanta, Georgia
March 26, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 12, 1999, accompanying the consolidated
financial statements included in the Annual Report of CCP Holding Company on
Form 10-KSB for the year ended December 31, 1998. We hereby consent to the
incorporation by reference of said report in the Registration Statements of CCF
Holding Company on Form S-8.
Porter Keadle Moore, LLP
/s/Porter Keadle Moore, LLP
Atlanta, Georgia
March 26, 1999
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,276
<INT-BEARING-DEPOSITS> 757
<FED-FUNDS-SOLD> 2,320
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,457
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 122,770
<ALLOWANCE> 943
<TOTAL-ASSETS> 169,860
<DEPOSITS> 154,977
<SHORT-TERM> 1,117
<LIABILITIES-OTHER> 2,140
<LONG-TERM> 0
0
0
<COMMON> 90
<OTHER-SE> 11,536
<TOTAL-LIABILITIES-AND-EQUITY> 169,860
<INTEREST-LOAN> 10,778
<INTEREST-INVEST> 1,571
<INTEREST-OTHER> 88
<INTEREST-TOTAL> 12,437
<INTEREST-DEPOSIT> 6,564
<INTEREST-EXPENSE> 6,800
<INTEREST-INCOME-NET> 5,637
<LOAN-LOSSES> 275
<SECURITIES-GAINS> 387
<EXPENSE-OTHER> 5,380
<INCOME-PRETAX> 950
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 619
<EPS-PRIMARY> .74
<EPS-DILUTED> .70
<YIELD-ACTUAL> 3.95
<LOANS-NON> 112
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 787
<ALLOWANCE-OPEN> 670
<CHARGE-OFFS> 3
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 943
<ALLOWANCE-DOMESTIC> 943
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
