SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999.
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
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Commission File No. 0-25846
CCF HOLDING COMPANY
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(Name of Small Business Issuer in Its Charter)
Georgia 58-2173616
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
101 North Main Street, Jonesboro, Georgia 30236
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (770) 478-8881
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
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(Title of Class)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO .
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $15.5 million.
As of March 16, 2000 there were issued and outstanding 986,849 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 16, 2000, 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, 1999. (Part II)
2. Portions of the Proxy Statement for the Annual Meeting of
Stockholders. (Part III)
<PAGE>
CCF Holding Company (the "Company") may from time to time make written or
oral "forward-looking statements", including statements contained in the
Company's filings with the Securities and Exchange Commission (including this
annual report on Form 10-KSB and the exhibits thereto), in its reports to
stockholders and in other communications by the Company, which are made in good
faith by the Company pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions, that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of Governors of the
Federal Reserve System, inflation, interest rate, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Company and the perceived overall value of these products and
services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Company's products and services; the
success of the Company in gaining regulatory approval of its products and
services, when required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking, securities and
insurance); technological changes, acquisitions; changes in consumer spending
and saving habits; and the success of the Company at managing the risks involved
in the foregoing.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statement, whether written or oral, that may be made from time to time by or on
behalf of the Company.
PART I
Item 1. Description of Business
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General
The Company is a Georgia-chartered corporation which was organized in March
1995 at the direction of Clayton County Federal Savings and Loan Association
(the "Association") in connection with the Association's conversion from a
mutual to stock form of organization (the "Conversion"). In July 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 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
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by single-family residential real estate. Since the early part of 1997, the Bank
has expanded 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, 1999, the Bank continued to significantly expand
the size of its commercial (primarily real estate mortgages) and construction
(primarily residential), and consumer (primarily indirect) 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.
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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.
At December 31,
---------------------------------------
1999 1998
----------------- ------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Loan Category
Residential (1-4 family) mortgage... $ 31,927 21.52% $ 39,300 31.86%
Commercial, primarily real estate
mortgage.......................... 61,366 41.37 44,687 36.23
Real estate construction............ 30,105 20.30 26,228 21.26
Consumer and other installment...... 24,939 16.81 13,142 10.65
------ ----- ------ -----
Total loans receivable.......... 148,337 100.00% 123,357 100.00%
------- ====== ------- ======
Less:
Unamortized loan fees and
costs, net...................... (547) (587)
Allowance for loan losses......... (1,237) (943)
------- -------
Total loans, net................ $146,553 $121,827
======= =======
Loan Maturity Tables. The following table sets forth the maturity of the
Bank's loan portfolio at December 31, 1999. The table does not include
prepayments. Prepayments and scheduled principal repayments on loans totaled
$113.0 million and $73.8 million for the years ended December 31, 1999 and
December 31, 1998, respectively. Adjustable-rate mortgage loans ("ARMs") are
shown as maturing based on repricing dates.
December 31, 1999
----------------------------------------
Within One to Five After Five
One Year Years Years Total
-------- ------- ------- -------
(In Thousands)
Residential (1-4 family) mortgage.. $ 365 $ 2,377 $29,185 $31,927
Commercial, primarily real estate
mortgage......................... 17,097 29,868 14,400 61,365
Real estate construction........... 28,766 1,340 -- 30,106
Consumer and other installment..... 1,035 5,526 18,378 24,939
----- ----- ------ ------
Total............................ $47,263 $39,111 $61,963 $148,337
====== ====== ====== =======
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The following table sets forth the dollar amount of all loans due after
December 31, 2000, 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.. $23,500 15.84% $ 8,427 5.68% $31,927
Commercial, primarily real estate
mortgage........................ 29,756 20.06 31,609 21.31 61,365
Real estate construction........... 2,377 1.60 27,729 18.69 30,106
Consumer and other installment..... 23,121 15.59 1,818 1.23 24,939
------ ----- ----- ---- ------
Total............................ $78,754 53.09% $69,583 46.91% $148,337
====== ====== ====== ====== =======
</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.
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While one- to four-family residential real estate loans are normally
originated with 15 to 30 year terms, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all of the fixed-rate residential
mortgage loans in the Bank's loan portfolio contain due-on-sale clauses
providing that the Bank may declare the unpaid amount due and payable upon the
sale of the property securing the loan. The Bank enforces these due-on-sale
clauses to the extent permitted by law. Thus, average loan maturity is a
function of, among other factors, the level of purchase and sale activity in the
real estate market, prevailing interest rates, and the interest rates payable on
outstanding loans.
Construction Lending. The Bank engages in construction lending involving
loans to qualified borrowers for construction of one- to four-family residential
properties and on a limited basis, for commercial properties. Almost all of the
Bank's construction loan properties are located in the Bank's market area and
nearby counties.
Construction loans are made to builders on a speculative 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, 1999, the Bank had $21.95 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, 1999, there was $1.4 million
outstanding in construction loans to owner/borrowers. The Bank originated and
$86.3 million and $62.9 million in construction loans on one- to four-family
properties during the fiscal years ended December 31, 1999 and December 31,
1998, respectively.
Commercial Loans. The Bank originates commercial loans, which represent a
growing portion of the Bank's lending activities. At December 31, 1999,
outstanding commercial loans amounted to $61 million. At December 31, 1999, the
largest commercial loan had a balance of $3 million (reduced to $1.7 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,
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apartment buildings, churches, and shopping centers. Commercial real estate
secured loans are generally originated in amounts up to 70% of the appraised
value of the property. Such appraised value is determined by an independent
appraiser which has been previously approved by the Bank. Commercial real estate
loans are generally originated on an adjustable-rate basis with the interest
rate adjusting annually and have terms of up to 20 years.
Consumer and Other Installment Loans. 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, 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
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<PAGE>
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.
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,
1999 1998
-------------------------
(In Thousands)
Total gross loans receivable at beginning of period $ 123,357 $ 98,847
-------- -------
Loans originated:
Residential (1 to 4 family) mortgage............... 6,033 14,515
Commercial, primarily real estate mortgage......... 34,323 23,641
Real estate construction........................... 86,259 62,910
Consumer and other installment..................... 20,039 14,071
------- -------
Total loans originated............................... 146,654 115,137
------- -------
Loans sold:
Residential (1 to 4 family)........................ 8,599 17,177
Loans purchased...................................... -- 370
Other loan activity:
Loan principal repayments.......................... 113,075 73,820
------- ------
Total gross loans receivable at end of period........ $148,337 $123,357
======= =======
Loan Delinquencies. Loans past due more than 90 days are placed on
nonaccrual and are individually examined for potential losses and the ultimate
collectibility of funds due. Loans are deemed to have no loss exposure if the
value of the property securing the loan exceeds the receivable balance on the
loan or collection is probable. Specific reserves are established to recognize
losses on nonaccruing loans on a case-by-case basis.
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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,
1999 1998
------ ------
(Dollars in Thousands)
Nonperforming loans:
Restructured......................................... $ -- $ --
Nonaccrual (more than 90 days past due).............. 293 112
--- ---
Total nonperforming loans........................ $ 293 $ 112
==== ====
Ratio of nonperforming loans as a percentage of total
loans, net............................................. .19% .09%
Ratio of nonperforming loans as a percentage of total
assets................................................. .15% .07%
During the years ended December 31, 1999 and December 31, 1998, gross
interest income of $5,997 and $3,540, 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, 1999 and December 31, 1998 was approximately
$40,041 and $98,000, respectively.
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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,
----------------------
1999 1998
--------- ---------
(Dollars in Thousands)
Total average loans outstanding .................... $133,021 $114,359
======== ========
Allowance balance (at beginning of period) ......... $ 943 $ 670
Provisions for loan losses ......................... 341 275
Charge-offs:
Real estate ...................................... -- --
Consumer ......................................... 71 3
Recoveries:
Consumer ......................................... 24 1
-------- --------
Allowance balance (at end of period) ............... $ 1,237 $ 943
======== ========
Allowance for loan losses as a percent of
net loans receivable at end of period ............ .84% .77%
Net loans charged off as a percent of
average loans outstanding ........................ .05% .001%
Ratio of allowance for loan losses to total
loans delinquent 90 days or more at end
of period ........................................ 422% 842%
Ratio of allowance for loan losses to total
loans delinquent 90 days or more and other
nonperforming assets at end of period ............ 312% 842%
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, 1999.
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
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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, 1999 and 1998 the Company sold $621,000
and $3.0 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.
At December 31,
--------------------------------------
1999 1998
----------------- -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
(In Thousands)
Securities available for sale:
U.S. Treasury and U.S. government
agency obligations .................. $28,374 $27,599 $29,138 $29,122
Equity security ....................... -- -- 64 134
Municipal securities .................. 787 779 -- --
------- ------- ------- -------
Total ............................... 29,161 28,378 29,202 29,256
------- ------- ------- -------
Mortgage-backed securities:
FHLMC ............................... -- -- -- --
FNMA ................................ 125 125 196 201
GNMA ................................ -- -- -- --
------- ------- ------- -------
Total ............................... 125 125 196 201
------- ------- ------- -------
Total investment and mortgage-backed
securities portfolio ............ $29,286 $28,503 $29,398 $29,457
======= ======= ======= =======
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<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, 1999. Expected maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------------------------------------------------------------------------
More than
One Year or Less One to Five Years Five to 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.
government agency obligations $2,000 5.16% $24,402 5.70% $1,972 5.94% $ -- 5.68% $28,374 5.68% $27,599
Mortgage-backed securities -- -- -- -- -- -- 125 4.41 125 4.41 125
Municipal securities(1) -- -- -- -- 552 4.79 235 4.88 787 4.87 779
----- ------- ------ ---- ------ ------
Total investment and mortgage-
backed securities portfolio $2,000 5.16% $24,402 5.70% $2,524 5.69% $360 4.71% $29,286 5.30% $28,503
===== ====== ===== === ====== ======
</TABLE>
- ------------------------------
(1) The weighted average yield for municipal securities has not been computed
on a tax equivalent basis.
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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 and correspondent
banks.
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, 1999.
Maturity Amount
- ------------------ --------
(In Thousands)
3 months or less ......................... $ 3,218
3-6 months ............................... 4,438
6-12 months .............................. 9,926
Over 12 months ........................... 2,750
-------
$20,332
======
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, 1999, the Bank had $13.1 million 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. The Bank has one wholly owned
subsidiary, CCF Financial Services, Inc. CCF Financial Services, Inc., a
Georgia-chartered corporation, was formed in 1996 and has remained inactive
since that time.
13
<PAGE>
Personnel
As of December 31, 1999, the Bank had 79 full-time and 17 part-time
employees. The Company does not have any employees other than officers. The
Bank's employees are not represented by a collective bargaining group.
Regulation
Set forth below is a brief description of certain laws which relate to the
regulation of the Company and the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
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
14
<PAGE>
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 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.
Changes to federal law that take effect in March 2000 allow qualifying bank
holding companies to become financial holding companies that can become
affiliated with securities firms and insurance companies and engage in other
activities that are financial in nature. Activities that are financial in nature
include securities underwriting, dealing and market making; sponsoring mutual
funds and investment companies; insurance underwriting and agency; merchant
banking activities; and activities that the Federal Reserve determines to be
closely related to banking. These changes do not immediately impact the Company
and the Company is evaluating whether these changes will ultimately affect its
operations.
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
15
<PAGE>
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.
The Company and the Bank were in compliance with applicable minimum capital
requirements as of December 31, 1999.
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.
16
<PAGE>
The capital levels established for each of the categories are as follows:
Total
Risk-Based Tier 1 Risk-
Capital Category Tier 1 Capital Capital Capital
---------------- -------------- ------- -------
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 -- --
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 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, 1999, 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.
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. Members of the SAIF and BIF pay
assessed fees to their respective fund so that the funds are maintained at
required levels. Assessments can
17
<PAGE>
be increased if the reserves fall below required levels. In 1996, a special
assessment of 0.657% of deposits was required of members of SAIF.
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, 1999 and December
31, 1998, such rental income was $9,500 and $21,240, respectively.
(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.
18
<PAGE>
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, 1999.
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, 1999 (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.
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.
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.
19
<PAGE>
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 26, 2000 (the "Proxy Statement") is
incorporated herein by reference.
Item 10. Executive Compensation
- --------------------------------
The information contained under the section captioned "Director and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and
Principal Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the section captioned "I - Information with
Respect to Nominees for Director, Directors Continuing in
Office, and Executive Officers" in the Proxy Statement.
(c) Management of the Company knows of no arrangements, including
any pledge by any person of securities of the Company, the
operation of which may at a subsequent date result in a change
in control of the Registrant.
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
20
<PAGE>
2. CCF Holding Company and Subsidiary
(a) Consolidated Balance Sheets at December 31, 1999 and December 31,
1998
(b) Consolidated Statements of Earnings for the years ended December
31, 1999 and December 31, 1998
(c) Consolidated Statements of Comprehensive Income for the years
ended December 31, 1999 and December 31, 1998
(d) Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999 and December 31, 1998
(e) Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and December 31, 1998
(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***
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****
10.5 Supplemental Retirement Plans and related Split Dollar Insurance
Plans for executives
13 Annual Report to Stockholders for the fiscal year ended December
31, 1999 (only those portions incorporated by reference in this
document are deemed filed)
21 Subsidiaries of the Registrant****
23 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).
**** Incorporated by reference to the identically numbered exhibit to the
Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998 (File No. 0-25846).
21
<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 29, 2000 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 29, 2000.
<TABLE>
<CAPTION>
<S> <C>
By: /s/David B. Turner By: /s/John B. Lee, Jr.
-------------------------------------- ------------------------------------
David B. Turner John B. Lee, Jr.
President, Chief Executive Officer, Chairman of the Board
and Director (Principal Executive
Officer)
By: /s/Edwin S. Kemp, Jr. By: /s/Charles S. Tucker
-------------------------------------- ------------------------------------
Edwin S. Kemp, Jr. Charles S. Tucker
Director Treasurer, Secretary, and Director
By: /s/Joe B. Mundy By: /s/ Mary Jo Rogers
-------------------------------------- ------------------------------------
Joe B. Mundy Mary Jo Rogers
Director Senior Vice President and Chief Financial
Officer (Principal Accounting and
Financial Officer)
By: /s/John T. Mitchell /s/ Leonard A. Moreland
-------------------------------------- ------------------------------------
John T. Mitchell Leonard A. Moreland
Director Executive Vice President and Director
</TABLE>
EXHIBIT 10.5
<PAGE>
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
EXECUTIVE AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of ____________
by and between Heritage Bank, a Bank organized and existing under the laws of
the State of Georgia, (hereinafter referred to as the, "Bank"), and
_______________ an Executive of the Bank (hereinafter referred to as the,
"Executive").
WHEREAS, the Executive is now in the employ of the Bank, and has for
many years faithfully served the Bank. It is the consensus of the Board of
Directors (hereinafter referred to as the, "Board") that the Executive's
services have been of exceptional merit, in excess of the compensation paid and
an invaluable contribution to the profits and position of the Bank in its field
of activity. The Board further believes that the Executive's experience,
knowledge of corporate affairs, reputation and industry contacts are of such
value, and the Executive's continued services so essential to the Bank's future
growth and profits, that it would suffer severe financial loss should the
Executive terminate their service on the Board;
ACCORDINGLY, the Board has adopted the Heritage Bank Executive
Supplemental Retirement Plan (hereinafter referred to as the, "Executive Plan")
and it is the desire of the Bank and the Executive to enter into this agreement
which the Bank will agree to make certain payments to the Executive upon the
Executive's retirement and to the Executive's beneficiary(ies) in the event of
the Executives's death pursuant to the Executive Plan;
FURTHERMORE, it is the intent of the parties hereto that this Executive
Plan be considered an unfunded arrangement maintained primarily to provide
supplemental retirement benefits for the Executive, and to be considered a
non-qualified benefit plan for purposes of the Employee Retirement Security Act
of 1974, as amended ("ERISA"). The Executive is fully advised of the bank's
financial status and has had substantial input in the design and operation of
this benefit plan; and
NOW THEREFORE, in consideration of services the Executive has performed
in the past and those to be performed in the future, and based upon the mutual
promises and covenants herein contained, the Bank and the Executive agree as
follows:
I. DEFINITIONS
A. Effective Date:
--------------
The Effective Date of the Plan shall be _____________________.
B. Plan Year:
---------
Any reference to the "Plan Year" shall mean a calendar year
from January 1st to December 31st. In the year of
implementation, the term the "Plan Year" shall mean the period
from the Effective Date to December 31st of the year of the
Effective Date.
C. Retirement Date:
---------------
Retirement Date shall mean retirement from service with the
Bank which becomes effective on the first day of the calendar
month following the month in which the Executive reaches age
sixty-five (65) or such later date as the Executive may
actually retire.
<PAGE>
D. Termination of Service:
----------------------
Termination of Service shall mean the Executive's voluntary
resignation of service by the Executive or the Bank's
discharge of the Executive without cause, prior to the Normal
Retirement Age [Subparagraph (J)].
E. Pre-Retirement Account:
----------------------
A Pre-Retirement Account shall be established as a liability
reserve account on the books of the Bank for the benefit of
the Executive. Prior to the Executive's Termination of Service
or the Executive's retirement, whichever event shall first
occur, such liability reserve account shall be increased or
decreased each Plan Year, until the aforestated event occurs,
by the Index Retirement Benefit [Subparagraph I (F)].
F. Index Retirement Benefit:
------------------------
The Index Retirement Benefit for each Executive in the
Executive Plan for each Plan Year shall be equal to the excess
(if any) of the Index [Subparagraph I (G)] for that Plan Year
over the Opportunity Cost [Subparagraph I (H)] for that Plan
Year, divided by a factor equal to 1.13 minus the marginal tax
rate.
G. Index:
-----
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contract(s) described
hereinafter as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contract(s) were
purchased on the Effective Date of the Executive Plan.
Insurance Company: Alexander Hamilton Life Insurance Co.
Policy Form: Flexible Premium Adjustable Life
Policy Name: Executive Security Plan IV
Insured's Age and Sex: ________________
Riders: None
Option: None
Face Amount: ________
Premiums Paid: ________
Number of Premium Payments: One
Assumed Purchase Date: ________________
2
<PAGE>
Insurance Company: Union Central Life Insurance Co.
Policy Form: Flexible Premium Adjustable Life
Policy Name: COLI UL
Insured's Age and Sex: ________________
Riders: None
Ratings: None
Option: Level
Face Amount: ________________
Premiums Paid: ________________
Number of Premiums Paid: One
Assumed Purchase Date: ________________
If such contracts of life insurance are actually purchased by
the Bank, then the actual policies as of the dates they were
actually purchased shall be used in calculations under this
Executive Plan. If such contracts of life insurance are not
purchased or are subsequently surrendered or lapsed, then the
Bank shall receive annual policy illustrations that assume the
above-described policies were purchased or had not
subsequently surrendered or lapsed, which illustration will be
received from the respective insurance companies and will
indicate the increase in policy values for purposes of
calculating the amount of the Index.
In either case, references to the life insurance contracts are
merely for purposes of calculating a benefit. The Bank has no
obligation to purchase such life insurance and, if purchased,
the Executives and their beneficiary(ies) shall have no
ownership interest in such policy and shall always have no
greater interest in the benefits under this Executive Plan
than that of an unsecured creditor of the Bank.
H. Opportunity Cost:
----------------
The Opportunity Cost Expense for any Plan Year shall be
calculated by taking the sum of the amount of premiums for the
life insurance policies described in the definition of "Index"
plus the amount of any after-tax benefits paid to any
Executive pursuant to the Executive Plan (Paragraph II
hereinafter) plus the amount of all previous years after-tax
Opportunity Cost, and multiplying that sum by the average
annualized after-tax yield of a one-year Treasury bill for the
Plan Year.
3
<PAGE>
I. Change of Control:
-----------------
Change of Control means the cumulative transfer of more than
fifty percent (50%) of the voting stock of the Bank from the
Effective Date of this Executive Plan. For the purposes of
this Executive Plan, transfers on account of deaths or gifts,
transfers between family members or transfers to a qualified
retirement plan maintained by the Bank shall not be considered
in determining whether there has been a Change of Control.
J. Normal Retirement Age:
---------------------
Normal Retirement Age shall mean the date on which the
Executive attains age sixty-five (65).
II. INDEX BENEFITS
A. Retirement Benefits:
-------------------
Subject to Subparagraph II (D) hereinafter, an Executive who
remains on the Board until the Normal Retirement Age
[Subparagraph I (J)] shall be entitled to receive the balance
in the Pre-Retirement Account in ten (10) equal annual
installments commencing thirty (30) days following the
Executive's retirement. In addition to these payments and
commencing in conjunction therewith, the Index Retirement
Benefit [Subparagraph I (F)] for each Plan year subsequent to
the Executive's retirement, and including the remaining
portion of the Plan Year following said retirement, shall be
paid to the Executive until the Executive's death.
B. Termination of Service:
----------------------
Subject to Subparagraph II (D) hereinbelow, should an
Executive suffer a Termination of Service the Executive shall
be entitled to receive the balance in the Pre-Retirement
Account payable to the Executive in ten (10) equal annual
installments commencing thirty (30) days following the
Executive's Normal Retirement Age [Subparagraph I (J)]. In
addition to these payments and commencing in conjunction
therewith, the Index retirement Benefit for each Plan Year
subsequent to the year in which the Executive attains Normal
Retirement Age, and including the remaining portion of the
Plan Year in which the Executive attains Normal Retirement
Age, shall be paid to the Executive until the Executive's
death.
C. Death:
-----
Should the Executive die prior to having received the balance
of the Pre-Retirement Account the Executive may be entitled to
under the terms of this Executive Plan, the entire unpaid
balance of the Executive's Pre-Retirement account shall be
paid in a lump sum to the individual or individuals the
Executive may have designated in writing and filed with the
Bank. In the absence of any effective designation of
beneficiary(ies), the unpaid balance shall be paid as set
forth herein to the duly qualified executor or administrator
of the Executive's estate. Said payment due hereunder shall be
made the first day of the
4
<PAGE>
second month following the decease of the Executive.
Provided, however, that anything hereinabove to the contrary
notwithstanding, no death benefit shall be payable hereunder
if the Executive dies on or before the 14th day of July,
2001.
D. Termination of Service and Discharge for Cause:
----------------------------------------------
Should the executive suffer a Termination of Service prior to
having been employed by the Bank for five (5) full years from
the date of first employment, or be Discharged for Cause at
any time, all benefits, under this Executive Plan, except the
Deferral Benefits (Paragraph III), shall be forfeited. the
term for "cause" shall mean any of the following that result
in an adverse effect on the Bank: (i) gross negligence or
gross neglect; (ii) the commission of a felony or gross
misdemeanor involving moral turpitude, fraud, or dishonesty;
(iii) the willful violation of any law, rule, or regulation
(other than a traffic violation or similar offense); (iv) an
intentional failure to perform stated duties; or (v) a breach
of fiduciary duty involving personal profit. If a dispute
arises as to discharge for "cause", such dispute shall be
resolved by arbitration as set forth in this Executive Plan.
(i) Deferral Benefits: As stated herein, if the Executive
should suffer a Termination of Service pursuant to this
Subparagraph II (D), the Executive shall be entitled to
Deferral Benefits as set forth in Paragraph III, and said
benefits shall be payable within thirty (30) days from the
date of said Termination of Service.
E. Disability Benefit:
------------------
In the event the Executive becomes disabled prior to
Termination of Service, and the Executive's employment is
terminated because of such disability, the Executive shall
immediately begin receiving the benefits in Subparagraph III
(A) above. Such benefit shall begin without regard to the
Executive's Normal Retirement Age and the Executive shall be
one hundred percent (100%) vested in the entire benefit
amount. If there is a dispute regarding whether the Executive
is disabled, such dispute shall be resolved by a physician
selected by the Bank and such resolution shall be binding upon
all parties to this Agreement.
F. Death Benefit:
-------------
Except as set forth above, there is no death benefit provided
under this Agreement.
III. DEFERRAL BENEFITS
A. Deferral Election:
-----------------
Any executive wishing to defer any portion or all of the
Executive's salary may elect to defer up to one hundred
percent (100%) each year for a maximum of five (5) years. At
the end of the five year period, the Board shall have the
option of extending the deferral period for any amount of time
it shall deem to be appropriate. The executive will make the
election to defer by filing with the Bank a written statement
setting forth the amount and timing of the deferrals. This
statement must be filed prior to having earned the deferred
income.
5
<PAGE>
B. Deferred Compensation Account:
-----------------------------
The Bank shall establish a Deferred Compensation Account in
the name of the Executive and credit that account with the
deferrals. The Bank shall also credit interest to the Deferred
Compensation Account balance on December 31st of each year.
The interest rate credited shall be 150% of the one-year
Treasury bill each year, with a minimum interest credited each
year of six percent (6%).
C. Retirement, Disability, Termination of Service or Death:
-------------------------------------------------------
Upon the Executive's Retirement Date or Disability, the
balance of the Executive's Deferred Compensation Account shall
be payable to the Executive as set forth in this Agreement
[Subparagraphs II (A) & (E)]. Should the Executive dies while
there is a balance in the Executive's Deferred Compensation
Account, such balance shall be paid pursuant to Subparagraph
II (C). If the Executive should suffer a Termination of
Service under the terms of this Agreement [Subparagraphs I(D)
and II (D)], then the Executive shall begin receiving the
balance in the Executive's Deferred Compensation Account
within thirty (30) days following said termination.
IV. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligation under this Executive
Plan. The Executive, their beneficiary(ies), or any successor in
interest shall be and remain simply a general creditor of the Bank in
the same manner as any other creditor having a general claim for
matured and unpaid compensation.
The Bank reserves the absolute right, at its sole discretion, to either
fund the obligations undertaken by this Executive Plan or to refrain
from funding the same and to determine the extent, nature and method of
such funding. Should the Bank elect to fund this Executive Plan, in
whole or in part, through the purchase of life insurance, mutual funds,
disability policies or annuities, the Bank reserves the absolute right,
in its sole discretion, to terminate such funding at any time, in whole
or in part. At no time shall any Executive be deemed to have any lien
nor right, title or interest in or to any specific funding investment
or to any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity
policy upon the life of the Executive, then the Executive shall assist
the Bank by freely submitting to a physical exam and supplying such
additional information necessary to obtain such insurance or annuities.
V. CHANGE IN CONTROL
Upon a Change of Control [Subparagraph I (I)], if the Executive
subsequently suffers a Termination of Service [Subparagraph I (D)],
then the Executive shall receive the benefits promised in this
Executive Plan upon attaining Normal Retirement Age, as if the
Executive had been continuously employed by the Bank until the
Executive's Normal Retirement Age. The Executive will also remain
eligible for all promised death benefits in this Executive Plan. In
addition, no sale, merger or consolidation of the Bank shall take place
unless the new or surviving entity expressly acknowledges the
obligations under this Executive Plan and agrees to abide by its terms.
6
<PAGE>
VI. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
---------------------------------------
Neither the Executive, nor the Executive's surviving spouse,
nor any other beneficiary(ies) under this Executive Plan shall
have any power or right to transfer, assign, anticipate,
hypothecate, mortgage, commute, modify or otherwise encumber
in advance any of the benefits payable hereunder nor shall any
of said benefits be subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the
Executive or the Executive's beneficiary(ies), nor be
transferable by operation of law in the event of bankruptcy,
insolvency or otherwise. In the event the Executive or any
beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Bank's
liabilities shall forthwith cease and terminate.
B. Binding Obligation of the Bank and any Successor in Interest:
------------------------------------------------------------
The Bank shall not merge or consolidate into or with another
bank or sell substantially all of its assets to another bank,
firm or person until such bank, firm or person expressly
agrees, in writing, to assume and discharge the duties and
obligations of the Bank under this Executive Plan. This
Executive Plan shall be binding upon the parties hereto, their
successors, beneficiaries, heir and personal representatives.
C. Amendment or Revocation:
-----------------------
It is agreed by and between the parties hereto that, during
the lifetime of the Executive, this Executive Plan may be
amended or revoked at any time or times, in whole or in part,
by the mutual written consent of the Executive and the Bank.
D. Gender:
------
Whenever in this Executive Plan words are used in the
masculine or neuter gender, they shall be read and construed
as in the masculine, feminine or neuter gender, whenever they
should so apply.
E. Effect on Other Bank Benefit Plans:
----------------------------------
Nothing contained in this Executive Plan shall affect the
right of the Executive to participate in or be covered by any
qualified or non-qualified pension, profit-sharing, group,
bonus or other supplemental compensation or fringe benefit
plan constituting a part of the Bank's existing or future
compensation structure.
F. Headings:
--------
Headings and subheadings in this Executive Plan are inserted
for reference and convenience only and shall not be deemed a
part of this Executive Plan.
7
<PAGE>
G. Applicable Law:
--------------
The validity and interpretation of this Agreement shall be
governed by the laws of the State of Georgia.
H. 12 U.S.C.ss.1828(k):
-------------------
Any payments made to the Executive pursuant to this Executive
Plan, or otherwise, are subject to and conditioned upon their
compliance with 12 U.S.C. ss.1828(k) or any regulations
promulgated thereunder.
I. Partial Invalidity:
------------------
If any term, provision, covenant, or condition of this
Executive Plan is determined by an arbitrator or a court, as
the case may be, to be invalid, void, or unenforceable, such
determination shall not render any other term, provision,
covenant, or condition invalid, void, or unenforceable, and
the Executive Plan shall remain in full force and effect
notwithstanding such partial invalidity.
J. Employment:
----------
No provision of this Executive Plan shall be deemed to
restrict or limit any existing employment agreement by and
between the Bank and the Executive, nor shall any conditions
herein create specific employment rights to the Executive nor
limit the right of the Employer to discharge the Executive
with or without cause. In an similar fashion, no provision
shall limit the Executive's rights to voluntarily sever the
Executive's employment at any time.
VII. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
--------------------------------------
The "Named Fiduciary and Plan Administrator" of this Executive
Plan shall be Heritage Bank until its resignation or removal
by the Board. As Named Fiduciary and Plan Administrator, the
Bank shall be responsible for the management, control and
administration of the Executive Plan. The Named Fiduciary may
delegate to others certain aspects of the management and
operation responsibilities of the Executive Plan including the
employment of advisors and the delegation of ministerial
duties to qualified individuals.
B. Claims Procedure and Arbitration:
--------------------------------
In the event a dispute arises over benefits under this
Executive Plan and benefits are not paid to the Executive (or
to the Executive's beneficiary(ies) in the case of the
Executive's death) and such claimants feel they are entitled
to receive such benefits, then a written claim must be made to
the Named Fiduciary and Plan Administrator named above within
sixty (60) days from the date payments are refused. The Named
Fiduciary and Plan Administrator shall review the written
claim and if the claim is denied, in whole or in part, they
shall provide in writing within sixty (60) days of receipt of
such claim its specific
8
<PAGE>
reasons for such denial, reference to the provisions of this
Executive Plan upon which the denial is based and any
additional material or information necessary to perfect the
claim. Such written notice shall further indicate the
additional steps to be taken by claimants if a further
review of the claim denial is desired. A claim shall be
deemed denied if the Named Fiduciary and Plan Administrator
fail to take any action within the aforesaid sixty-day
period.
If claimants desire a second review they shall notify the
Named Fiduciary and Plan Administrator in writing within
sixty (60) days of the first claim denial. Claimants may
review this Executive Plan or any documents relating thereto
and submit any written issues and comments it may feel
appropriate. In their sole discretion, the Named Fiduciary
and Plan Administrator shall then review the second claim
and provide a written decision within sixty (60) days of
receipt of such claim. This decision shall likewise state
the specific reasons for the decision and shall include
reference to specific provisions of the Plan Agreement upon
which the decision is based.
If claimants continue to dispute the benefit denial based
upon completed performance of this Executive Plan or the
meaning and effect of the terms and conditions thereof, then
claimants may submit the dispute to an Arbitrator for final
arbitration. The Arbitrator shall be selected by mutual
agreement of the Bank and the claimants. The Arbitrator
shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and
assigns shall be bound by the decision of such Arbitrator
with respect to any controversy properly submitted to it for
determination.
Where a dispute arises as to the Bank's discharge of the
Executive for "cause", such dispute shall likewise be
submitted to arbitration as above-described and the parties
hereto agree to be bound by the decision thereunder.
VIII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW,
RULES OR REGULATIONS
The Bank is entering into this Agreement upon the assumption that
certain existing tax laws, rules and regulations will continue in
effect in their current form. If any said assumptions should change and
said change has a detrimental effect on this Executive Plan, then the
Bank reserves the right to terminate or modify this Agreement
accordingly. Provided, however, that the Executive shall be entitled to
receive at least his/her Executive's Deferred Compensation Account
including interest earned. Upon a Change of Control [Subparagraph I
(I)], this paragraph shall become null and void effective immediately
upon said Change of Control.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto acknowledge that each has
carefully read this Agreement and executed the original thereof on the __ day of
__________________ and that, upon execution, each has received a conforming
copy.
HERITAGE BANK
Jonesboro, Georgia
- --------------------------------- -------------------------------
Witness Title
- --------------------------------- -------------------------------
Witness Title
<PAGE>
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer: Alexander Hamilton Life Insurance Co.
Union Central Life Insurance Co.
Policy Number: ________________
Bank: Heritage Bank
Insured: ________________
Relationship of Insured to Bank: Executive
The respective rights and duties of the Bank and the Insured in the above
referenced policy shall be pursuant to the terms set forth below:
I. DEFINITIONS
Refer to the policy contract for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the
use of the insured all in accordance with this Agreement. the Bank
alone may, to the extent of its interest, exercise the right to borrow
or withdraw on the policy cash values. Where the Bank and the Insured
(or assignee, with the consent of the Insured) mutually agree to
exercise the right to increase the coverage under the subject Split
Dollar policy, the, in such event, the rights, duties and benefits of
the parties to such increased coverage shall continue to be subject to
the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or assignee) shall have the right and power to designate a
beneficiary or beneficiaries to receive the Insured's share of the
proceeds payable upon the death of the Insured, and to elect and change
a payment option for such beneficiary, subject to any right or interest
the Bank may have in such proceeds, as provided in this Agreement.
1
<PAGE>
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any
other premium payments that might become necessary to keep the policy
in force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the
assumed cost of insurance as required by the Internal Revenue Service.
The Bank (or its administrator) will report to the Insured the amount
of imputed income each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraphs VII and IX herein, the division of the death
proceeds of the policy is as follows:
A. should the Insured by employed by the Bank and die on or before
the 14th day of July, 2001, the Insured's beneficiary(ies),
designated in accordance with Paragraph III, shall be entitled to
an amount equal to one hundred percent (100%) of the net at risk
insurance portion of the proceeds. The net at risk insurance
portion is the total proceeds less the cash value of the policy.
B. Should the Insured by employed by the Bank and die subsequent to
the 14th day of July, 20001, the Insured's beneficiary(ies),
designated in accordance with paragraph III, shall be entitled to
an amount equal to eighty percent (80%) of the net at risk
insurance portion of the proceeds. The net at risk insurance
portion is the total proceeds less the cash value of the policy.
C. Should the Insured not be employed by the Bank at the time of his
or her death and die on or before the 14th day of July, 2001, the
Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to the percentage as set forth
hereinbelow of the proceeds described in Subparagraph VI (A)
above that corresponds to the number of full years the Insured
has been employed by the Bank since the date of first employment.
Should the Insured not be employed by the Bank at the time of his
or her death and die subsequent to the 14th day of July, 2001,
the Insured's beneficiary(ies) shall be entitled to the following
percentage of the proceeds described in Subparagraph VI (B)
hereinabove:
Total Years of
Employment Vested
with the Bank (to a Maximum of 100%)
------------- ----------------------
0-4 0%
5 or more 100%
D. The Bank shall be entitled to the remainder of such proceeds.
2
<PAGE>
E. The Bank and the Insured (or assignees) shall share in any
interest due on the death proceeds on a pro rata basis as the
proceeds due each respectively bears to the total proceeds,
excluding any such interest.
VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY
The Bank shall at all times by entitled to an amount equal to the
policy's cash value, as that term is defined in the policy contract,
less any policy loans and unpaid interest or cash withdrawals
previously incurred by the Bank and any applicable surrender charges.
Such cash value shall be determined as of the date of surrender or
death as the case may be.
VIII. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity
benefits, on expiration of the deferment period, shall be determined
under the provisions of this Agreement by regarding such endowment
proceeds or the commuted value of such annuity benefits as the policy's
cash value. Such endowment proceeds or annuity benefits shall be
considered to be like death proceeds for the purposes of division under
this Agreement.
IX. TERMINATION OF AGREEMENT
This Agreement shall terminate upon the occurrence of any one of the
following:
1. The Insured shall leave the employment of the Bank (voluntarily
or involuntarily) prior to five (5) full years of employment
with the Bank, or
2. The Insured shall be discharged from employment with the Bank
for cause. The term for "cause" shall mean any of the
following that result in an adverse effect on the Bank: (i)
gross negligence or gross neglect; (ii) the commission of a
felony or gross misdemeanor involving moral turpitude, fraud,
or dishonesty; (iii) the willful violation of any law, rule,
or regulation (other than a traffic violation or similar
offense); (iv) an intentional failure to perform stated
duties; or (v) a breach of fiduciary duty involving personal
profit.
3. Surrender, lapse, or other termination of the Policy by the
Bank,
Upon such termination, the Insured (or assignee) shall have a
forty-five (45) day option to receive from the Bank an absolute
assignment of the policy in consideration of a cash payment to the
Bank, whereupon this Agreement shall terminate. Such cash payment
referred to hereinabove shall be the greater of:
1. The Bank's share of the cash value of the policy on the date
of such assignment, as defined in this Agreement; or
3
<PAGE>
2. The amount of the premiums which have been paid by the Bank
prior to the date of such assignment.
If, within said forty-five (45) day period, the Insured fails to
exercise said option, fails to procure the entire aforestated cash
payment, or dies, then the option shall terminate, and the Insured (or
assignee) agrees that all of the Insured's rights, interest and claims
in the policy shall terminate as of the date of the termination of this
Agreement.
The Insured expressly agrees that this Agreement shall constitute
sufficient written notice to the Insured of the Insured's option to
receive an absolute assignment of the policy as set forth herein.
Except as provided above, this Agreement shall terminate upon
distribution of the death benefit proceeds in accordance with Paragraph
VI above.
X. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the written consent of the Bank, assign to
any individual, trust or other organization, any right, title or
interest in the subject policy nor any rights, options, privileges or
duties created under this Agreement.
XI. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall bind the Insured and the Bank, their heirs,
successors, personal representatives and assigns.
XII. ERISA PROVISIONS
The following provisions are part of this Agreement and are intended to
meet the requirements of the employee Retirement Income Security Act of
1974 ("ERISA");
A. Named Fiduciary and Plan Administrator.
---------------------------------------
The "Named Fiduciary and Plan Administrator" of this
Endorsement Method Split Dollar Agreement shall be Heritage
Bank until resignation or removal by the Board of Directors.
As Named Fiduciary and Plan Administrator, the Bank shall be
responsible for the management, control and administration of
this Split Dollar Plan as established herein. the Named
Fiduciary may delegate to others certain aspects of the
management and operation responsibilities of the Plan,
including the employment of advisors and the delegation of any
ministerial duties to qualified individuals.
B. Funding Policy.
--------------
The funding policy for this Split Dollar Plan Shall be
maintain the subject policy in force by paying, when due, all
premiums required.
4
<PAGE>
C. Basis of Payment of Benefits.
----------------------------
direct payment by the Insurer is the basis of payment of
benefits under this Agreement, with those benefits in turn
being based on the payment of premiums as provided in this
Agreement.
D. Claim Procedures.
----------------
Claim forms or claim information as to the subject policy can
be obtained by contacting The Benefit Marketing Group, Inc.
(770-952-1529). When the Named Fiduciary has a claim which may
be covered under the provisions described in the insurance
policy, they should contact the office named above, and they
will either complete a claim form and forward it to an
authorized representative of the Insurer or advise the named
Fiduciary what further requirements are necessary. The Insurer
will evaluate and make a decision as to payment. If the claim
is payable, a benefit check will be issued in accordance with
this Agreement.
In the event that a claim is not eligible under the policy, the Insurer
will notify the Named Fiduciary or the denial pursuant to the
requirements under the terms of the policy. If the Named Fiduciary is
dissatisfied with the denial of the claim and wishes to contest such
claim denial, they should contact the office named above and they will
assist in making inquiry to the Insurer. all objections to the
Insurer's actions should be in writing and submitted to the office
named above for transmittal to the Insurer.
XIII. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should apply.
XIV. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as herein developed upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the policy provisions shall fully discharge the Insurer
for any and all liability.
XV. CHANGE OF CONTROL
Change of Control shall be deemed to be the cumulative transfer of more
than fifty percent (50%) of the voting stock of the Bank from the date
of this Agreement. For the purposes of this Agreement, transfers on
account of deaths or gifts, transfers between family members, or
transfers to a qualified retirement plan maintained by the Bank shall
not be considered in determining whether there has been a Change of
Control. Upon a Change of Control, if the Insured's employment is
subsequently terminated, except for cause, then the Insured shall be
one hundred percent (100%) vested in the benefits promised in this
Agreement and, therefore, upon the death
5
<PAGE>
of the Insured, the Insured's beneficiary(ies) (designated in
accordance with Paragraph III) shall receive the death benefit
provided herein as if the Insured had died while employed by the Bank
[See Subparagraphs VI (A) & (B)].
XVI. AMENDMENT OR REVOCATION
It is agreed by and between the parties hereto that, during the
lifetime of the Insured, this Agreement may be amended or revoked at
any time or times, in whole or in part, by the mutual written consent
of the Insured and the Bank.
XVII. EFFECTIVE DATE
The Effective Date of this Agreement shall be ________________________.
XVIII. SEVERABILITY AND INTERPRETATION
If a provision of this Agreement is held to be invalid or
unenforceable, the remaining provisions shall nonetheless be
enforceable according to their terms. Further, in the event that any
provision is held to be over broad as written, such provision shall be
deemed amended to narrow its application to the extent necessary to
make the provision enforceable according to law and enforced as
amended.
XIX. APPLICABLE LAW
The validity and interpretation of this Agreement shall be governed by
the laws of the State of Georgia.
Executed at Jonesboro, Georgia this ____ day of _________________.
HERITAGE BANK
Jonesboro, Georgia
- --------------------------------- -------------------------------
Witness Title
- --------------------------------- -------------------------------
Witness Title
6
EXHIBIT 13
<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
Report of Independent Certified Public Accountants 13
Consolidated Financial Statements 14
Notes to Consolidated Financial Statements 19
Office Locations and Other Corporate Information 33
<PAGE>
Dear Fellow Shareholder:
It is with a great deal of pride and pleasure that we disclose to you
the results of operations of CCF Holding Company and its subsidiary,
Heritage Bank, for the fiscal year ended December 31, 1999. For the
first time in the Company's history (and the Bank's) we are able to
report net earnings in excess of $1,000,000.
As you read the body of this document please note that while we have
more to accomplish to be considered a "high performing" bank, the
trends are very positive.
Total assets have increased by 16% to $196,782,000. In the all
important category of basic earnings per share, earnings improved from
$.67 per share in 1998 to $1.09 per share in 1999. Deposits in the new
markets we entered two years ago are now 43% of the Bank's total, while
loans in those areas are now 37% of our overall portfolio, a clear
indication to us that expansion has had its beneficial effects.
We pledge to stay focused. We appreciate your confidence in us and are
eagerly anticipating the new millennium.
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 it 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. 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 symbol "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.
Period High Low Dividends Dividends
Declared Paid
1998 First Quarter (1) $20.00 $18.64 $ .15 $ .25
1998 Second Quarter (1) 21.82 19.55 .15 .15
1998 Third Quarter (1) 20.00 15.23 .15 .15
1998 Fourth Quarter (1) 16.36 11.82 .15 .15
1999 First Quarter (1) 17.36 11.98 .08 .15
1999 Second Quarter 17.75 14.25 .08 .08
1999 Third Quarter 18.12 17.06 .08 .08
1999 Fourth Quarter 17.56 14.50 .08 .08
- -----------------
(1) Dividends declared and dividends paid were restated to reflect a 10% stock
dividend declared on April 2, 1999.
2
<PAGE>
The number of stockholders of record as of December 31, 1999,
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, 1999, there were 980,855 shares outstanding, net
of 7,615 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.
<TABLE>
<CAPTION>
SELECTED FINANCIAL AND OTHER DATA
---------------------------------
Financial Condition At December 31, At September 30,(1)
(Dollars in thousands)
------------------------------------------- ------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Amount of:
Assets 196,782 169,860 124,956 80,283 79,822
Loans receivable, net 146,553 121,827 97,541 51,500 45,196
Mortgage-backed securities 125 201 1,838 10,025 7,896
Investment securities 28,378 29,256 9,722 13,353 15,671
Liabilities 184,800 158,234 113,436 65,843 62,501
Deposits 165,526 154,977 91,201 61,822 61,132
Securities sold under
agreements to repurchase 3,998 1,117 2,393 -
FHLB advances 13,100 - 18,510 2,500
Stockholders' equity 11,982 11,626 11,519 14,440 17,322
Other Data:
Net income 1,003 619 137 473 604
Average assets 185,376 152,652 99,675 79,348 72,229
Average equity 12,186 10,499 11,934 16,733 8,973
Full service offices (2) 5 5 5 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>
Year Ended
Summary of Operations (Dollars in thousands) Year Ended December 31, September 30, (1)
---------------------------- ----------------
30, (1)
1999 1998 1997 1996 1995
------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Total interest income 14,671 12,437 8,090 (3) 5,573 5,021
Total interest expense 7,501 6,800 3,921 2,527 2,479
------- ------- ------- ------- -------
Net interest income 7,170 5,637 4,169 3,046 2,542
Provision for loan losses 341 275 126 130 5
------- ------- ------- ------- -------
Net interest income after provision for 6,829 5,362 4,043 2,916 2,537
loan losses
Other income 843 968 909 (3) 415 328
Other expenses (2) 6,143 5,380 4,743 2,715 1,668
------- ------- ------- ------- -------
Earnings before income taxes 1,529 950 206 616 897
Income tax expense 526 331 69 143 293
------- ------- ------- ------- -------
Net earnings $ 1,003 619 137 473 604
======= ======= ======= ======= =======
</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 year ended
September 30, 1995 was not material to the balances reports. 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>
For the Year Ended For the Year Ended
------------------ ------------------
December 31, September 30, (1)
------------ -----------------
Performance ratios: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on average assets (net earnings divided by
average total assets) 0.54% 0.40% 0.14% 0.60% 0.84%
Return on average equity (net earnings divided by
average total assets) 8.23% 5.92% 1.14% 2.83% 6.73%
Average interest earning assets to average
interest bearing liabilities 108.05% 107.14% 112.88% 122.83% 110.75%
Net interest rate spread 3.89% 3.61% 3.87% 3.15% 3.31%
Net yield on average interest-earnings assets 4.19% 3.95% 4.41% 4.04% 3.70%
Net interest income after provision
for loan losses
to total other expenses 111.17% 99.68% 74.97% 107.40% 128.93%
Basic earnings per share $1.09 $0.67 $0.15 $0.41 $0.15
Diluted earnings per share $1.04 $0.64 $0.14 $0.39 $0.15
Dividend payout (1) 30.77% 100.00% 305.88% 111.11% N/A
Capital Ratios
Book value per share $12.21 $12.98 $11.65 $12.14 $12.03
Average equity to average assets (average equity
to average total assets) 6.57% 6.87% 11.97% 21.09% 12.42%
Equity-to-assets (End of Period) 6.09% 6.84% 9.22% 17.99% 21.70%
Asset Quality Ratios
Non-performing loans to total loans, net 0.19% 0.09% 0.38% 1.17% 0.39%
Non-performing loans to total assets 0.15% 0.07% 0.29% 0.75% 0.22%
Allowance for loan losses to non-performing loans 421.89% 865.70% 182.93% 89.90% 233.71%
</TABLE>
- ---------------------------
(1) Dividends declared per share divided by net earnings per diluted 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.
Regulatory Capital. After the conversion from mutual to stock, the
-------------------
Company was confronted with issues new to its operating strategies,
specifically the managing of the excess capital in a manner that would
increase shareholder value while at the same time provide sufficient
capital levels to meet or exceed regulatory guidelines. The Company
originally repurchased more than 30% of its original outstanding
shares, most at less than book value. In addition, the Company
increased its dividend payout ratio as another means of excess capital
management.
As growth significantly outpaced management's projections, during the
conversion from the thrift to commercial bank and the expansion into
two new markets, the excess capital management plan switched to capital
shortfall management. In 1999, the Company established a borrowing
facility with a correspondent bank of $2.5 million for the purpose of
infusing capital into the Bank. This was done to maintain the minimum
capital levels for a well capitalized institution. As of December 31,
1999 the Company had drawn $900,000 of the $2.5 million. The Company
and the Bank continue to manage their respective capital positions in
order to support the healthy growth they are experiencing.
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.
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, 1999, the Bank's ratio of nonperforming loans
to total loans was 0.19% and to total assets was 0.15%.
6
<PAGE>
Product and Customer Base. The Bank increased the size of its loan
---------------------------
portfolio by approximately $25 million between December 31, 1998 and
December 31, 1999. The increase is attributed to a growth in commercial
real estate lending of 47%, residential construction lending of 15%,
consumer lending primarily through indirect lending activities of 90%.
The Bank's deposits increased by 7.1% from $155 million at December 31,
1998 to $166 million at December 31, 1999 to partially fund this loan
growth. In order to fund the difference in new loans and new deposits,
the Bank had total borrowings at December 31, 1999 of $13,100,000.
There were no borrowings outstanding as of December 31, 1998. The
ability to generate large amounts of new deposits during the fourth
quarter of 1999 was believed to be hampered by general public concern
around Y2K. It is expected that during 2000 loan growth will continue
to be strong considering the economic expansion within the Bank's
primary trade areas. 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 risk, and the ability of the
Bank to manage this risk will in large measure directly impact its
financial condition and operating results in future periods. The
transition the Bank has gone through over the past couple of years is
now complete and the maturing of the Bank's balance sheet is the next
challenge.
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 3.61% for the year ended
December 31, 1998 and 3.89% for the year ended December 31, 1999.
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 municipal securities and other 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
7
<PAGE>
by encouraging depositors to invest in longer term deposit products
offered by the Bank; 3) increase the amount of less rate-sensitive
deposits by actively seeking demand deposit accounts; and 4) encourage
long-term depositors to maintain their accounts with the Bank through
expanded customer products and services.
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 Years Ended December 31,
----------------------------------------------------------------------
1999 1998
------------------------------------ -------------------------------
Interest Interest
Average Income Average Income
Balance (4) Expense Yield Balance Expense Yield
----------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) interest and fees $ 133,021 12,450 9.36% 114,359 10,778 9.42%
Mortgage-backed securities 167 11 6.59% 585 34 5.81%
Investment securities 30,646 1,689 5.49% 17,663 1,044 5.91%
FHLB Stock 673 49 7.28% 1,013 75 7.40%
Interest-earning deposits in other
financial institutions and
federal funds sold 8,590 472 5.49% 9,053 506 5.58%
---------- ------ ------- ------
Total interest-earning assets 173,097 14,671 8.47% 142,673 12,437 8.72%
Other noninterest-earning assets 12,279 9,979
---------- -------
Total assets 185,376 152,652
========== =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Demand deposits 56,512 2,013 3.56% 34,346 1,318 3.84%
Regular savings 8,300 187 2.25% 9,590 235 2.45%
Time Deposits 90,891 5,056 5.56% 84,841 5,011 5.91%
FHLB Advances 2,696 163 6.04% 2,363 135 5.71%
Securities sold under agreements to
repurchase 1,753 82 4.68% 2,027 101 4.98%
---------- ----- ------- -----
Total interest-bearing liabilities 160,152 7,501 4.68% 133,167 6,800 5.11%
Non-interest bearing deposits 10,737 7,076
Other noninterest bearing liabilities 2,301 1,910
Stockholders' Equity 12,186 10,499
---------- -------
Total liabilities and stockholders'
equity 185,376 152,652
========== =======
Excess of interest-earning assets
over interest-bearing liabilities $ 12,945 9,506
========== =======
Ratio of interest-earning assets
to interest bearing liabilities 108.08% 107.14%
========== =======
Net interest income $ 7,170 5,637
===== =====
Net interest spread (2) 3.79% 3.61%
===== =====
Net yield on average interest-earning
assets (3) 4.14% 3.95%
===== =====
</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 average daily balances.
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,
----------------------------- ----------------------------
1999 and 1998 1998 and 1997
----------------------------- ----------------------------
1999 compared to 1998 1998 compared to 1997
----------------------------- ----------------------------
Changes due to
-------------------------------------------------------------
Volume Rate/Yield Total Volume Rate/Yield Total
------ ---------- ----- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 1,741 (69) 1,672 2,966 398 3,364
Mortgage-backed securities (27) 4 (23) (169) 20 (149)
Investment securities 716 (71) 645 1,128 -- 1,128
FHLB stock (25) (1) (26) -- 1 1
Interest-earning deposits in other
financial institutions (26) (8) (34) 14 (11) 3
------- ------- ------- ------- ------- -------
Total interest income $ 2,379 (145) 2,234 3,939 408 4,347
======= ======= ======= ======= ======= =======
Interest expense:
Demand deposits $ 791 (96) 695 724 121 845
Regular savings (29) (19) (48) (29) 33 4
Time deposits 384 (339) 45 2,184 106 2,290
FHLB advances 20 8 28 (388) 34 (354)
Securities sold under agreements to
repurchase (13) (6) (19) 94 -- 94
------- ------- ------- ------- ------- -------
Total interest expense 1,153 (452) 701 2,585 294 2,879
------- ------- ------- ------- ------- -------
Net interest income $ 1,226 307 1,533 1,354 114 1,468
======= ======= ======= ======= ======= =======
</TABLE>
Comparison of Financial Condition at December 31, 1999 and December 31,
1998
Total assets increased $27 million or 15.8% between the two dates due
to increased lending from funds provided from increased deposits. The
Bank invested $1.3 million in insurance policies as a means of funding
post employment benefits for certain officers of the Bank. Borrowings
of $13.1 million from the Federal Home Loan Bank by the Bank and
$900,000 from a correspondent by the Company were used to support the
growth of the assets. Stockholders' equity increased by approximately
$356,000 or 31% to $11.98 million at December 31, 1999 from $11.63
million at December 31, 1998. The increase was attributable to net
income of approximately $1 million that
9
<PAGE>
was partially offset by dividends declared of $290,000 and a reduction
of net unrealized holding gains on investment and mortgage backed
securities available for sale of approximately $547,000. 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 $142,000 and management stock bonus plan
compensation expense of $79,000.
Comparison of Operating Results For The Fiscal Years Ended December 31,
1999 and December 31, 1998
Net Earnings. The Company's net earnings increased by $384,000 or 62.1%
from $619,000 in 1998 to $1,003,000 in 1999. The increase was primarily
due to the 27.2% increase in net interest income from $5.6 million 1998
to $7.2 million in 1999. This increase in net interest income was
partially offset by a 14.2% increase in other expenses from $5.4
million in 1998 to $6.1 million in 1999. The net interest income
increase is primarily due to the increased lending activities. The
increase in other expenses is due primarily to increased personnel
expenses related to lending and technology support.
Net Interest Income. Net interest income (before provision for loan
losses) increased from $5.6 million in 1998 to $7.2 million in 1999.
This increase was primarily due to an increase in interest and fee
income on loans of $1.7 million, more than offsetting the increase in
interest expense on deposits and FHLB advances of $701,000. The
increases in lending were primarily in commercial, residential
construction and consumer loans. Commercial loans, including commercial
real estate loans, increased approximately $18 million, construction
loans increased approximately $4 million and consumer loans increased
approximately $12 million. Early in 1998 the Bank had an opportunity to
bring on board an established consumer indirect lender with a group of
dealers. The Bank decided this would be an excellent way of
diversifying the loan portfolio in two ways, one to diversify the risk
among numerous borrowers dependent on many different economic
conditions and secondly to stabilize the repayment stream to more
traditional short term installment payments. This has proved to be a
successful program to date with balances growing to approximately $19
million with a pretax yield of approximately 9.0%, while maintaining
quality ratios of equal or better than the direct consumer lending
portfolio.
Provision For Loan Losses. The Bank increased the provision for loan
losses from $275,000 in 1998 to $340,700 in 1999. 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 $943,000
at December 31, 1998 to $1.2 million at December 31, 1999. 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 continued monitoring of local economic conditions,
as well as, any other external factors. 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, 1999 At December 31, 1998
-------------------- --------------------
Percent of Percent of
Amount in Loans in each Loans in each
--------- Category to Category to
Thousands Total Loans Amount Total
--------- ----------- ------ -----
<S> <C> <C> <C> <C>
Loans
Balance at end of period applicable to:
Permanent residential mortgage $ 50 21.52% $ 70 31.86%
Construction 487 20.29% 337 21.26
Commercial and commercial real estate 430 41.37% 390 36.22
Consumer and other 270 16.82% 146 10.66
------ ------ ------ -----
Total $ 1,237 100.00% $ 943 100.00%
</TABLE>
Other Income. Other income decreased by $125,000 from $968,000 in 1998
to $843,000 in 1999. This decrease was due in part to a reduction of
$15,000 in the gain on sale of mortgages from $63,000 in 1998 to
$48,000 in 1999. In addition, the gain on sale of equity investments
decreased from $387,000 in 1998 to $68,000 in 1999. The reductions in
these gains were partially offset by a gain on sale of fixed assets in
1999 of $58,000 and increased ordinary other income items due to the
changing deposit structure of the bank. Of these items, included are
service charges on deposit accounts which increased $66,000 from
$437,000 in 1998 to $503,000 in 1999.
Other Expenses. Other expenses increased from $5.4 million during 1998
to $6.2 million during 1999, representing an approximate 15% increase.
Included in this increase is an increase of $438,000 in salaries and
benefits associated with the continuing expansion of the Bank's loan
production and technology areas. The remainder of the increases in
other expenses was associated with increased data processing expense as
a result of the increasing number of accounts and product line.
Income Tax Expense. Income tax expense as a percent of income before
taxes decreased slightly from 34.9% in 1998 to 34.4% in 1999. The
decrease in the effective rate is due to an increase 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, 1999 was 13.81%, well below its
goal of 25%. As discussed earlier the Bank's ability to attract
deposits during the fourth quarter was hurt by general Y2K concerns
along with competition from well performing mutual funds. The Bank
continues to search for deposits and other means of meeting its loan
demand. The Bank adjusts its liquidity level as appropriate to meet its
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 $18.5 million at
December 31, 1999 with $13.1 million 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>
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.
12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CCF Holding Company
We have audited the accompanying consolidated balance sheets of CCF Holding
Company and subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of earnings, comprehensive income, stockholders' equity,
and cash flows for the years then ended. 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, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/Porter Keadle Moore, LLP
Atlanta, Georgia
February 18, 2000
13
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets
------
1999 1998
---- ----
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $940,000 and $766,000 $ 5,035,910 7,275,835
Interest-bearing deposits in other financial institutions 535,920 756,687
Federal funds sold 5,760,000 2,320,000
------------ -------------
Cash and cash equivalents 11,331,830 10,352,522
Investment securities available for sale 28,503,446 29,457,412
Loans, net 146,553,417 121,827,463
Premises and equipment, net 5,825,367 5,422,602
Federal Home Loan Bank stock, at cost 655,200 1,013,200
Accrued interest receivable 1,306,698 1,114,880
Cash surrender value of life insurance 1,337,344 -
Other assets 1,268,578 671,863
----------- -----------
$ 196,781,880 169,859,942
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Noninterest-bearing deposits $ 10,639,993 8,501,973
Interest-bearing demand deposits 55,163,460 44,555,271
Savings accounts 7,529,549 9,089,074
Time deposits less than $100,000 71,861,450 74,388,954
Time deposits greater than $100,000 20,331,766 18,441,449
----------- -----------
Total deposits 165,526,218 154,976,721
Securities sold under agreement to repurchase 3,998,419 1,117,264
Federal Home Loan Bank advances 13,100,000
-
Line of credit 900,000 -
Other liabilities 1,274,901 2,139,844
------------ -----------
Total liabilities 184,799,538 158,233,829
----------- -----------
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; 988,470 issued and 980,855 shares
outstanding in 1999; 900,589 shares issued and
895,148 outstanding in 1998 98,847 90,059
Additional paid-in capital 9,102,457 7,783,384
Retained earnings 3,960,640 4,528,267
Unearned ESOP shares (396,000) (468,000)
Unearned compensation (199,190) (286,339)
Treasury stock, at cost; 7,615 and 5,441 shares in
1999 and 1998, respectively (75,876) (59,777)
Accumulated other comprehensive income (loss)
(508,536) 38,519
------
Total stockholders' equity 11,982,342 11,626,113
---------- ----------
$ 196,781,880 169,859,942
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 12,450,314 10,778,100
Interest bearing deposits in other financial institutions 139,320 87,321
Interest and dividends on taxable investment securities 1,745,554 1,151,744
Interest on federal funds sold 331,779 419,122
Interest on nontaxable investment securities 3,679 600
---------- ----------
Total interest income 14,670,646 12,436,887
---------- ----------
Interest expense:
Deposit accounts 7,257,269 6,563,637
Other borrowings 243,673 235,923
---------- ----------
Total interest expense 7,500,942 6,799,560
---------- ----------
Net interest income 7,169,704 5,637,327
Provision for loan losses 340,700 275,000
----------- ------------
Net interest income after provision for loan losses 6,829,004 5,362,327
----------- ------------
Other operating income:
Service charges on deposit accounts 502,878 436,886
Net gain on sale of assets 105,997 62,628
Net gain on sale of investment securities 68,201 387,282
Other 166,067 80,934
----------- ------------
Total other operating income 843,143 967,730
----------- ------------
Other operating expenses:
Salaries and employee benefits 3,520,808 3,083,362
Occupancy 1,174,266 1,017,073
Other 1,447,867 1,279,157
----------- ------------
Total other operating expenses 6,142,941 5,379,592
----------- ------------
Earnings before income taxes 1,529,206 950,465
Income tax expense 526,315 331,689
----------- ------------
Net earnings $ 1,002,891 618,776
=========== ============
Basic earnings per share $ 1.09 0.67
==== ====
Diluted earnings per share $ 1.04 0.64
==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net earnings $ 1,002,891 618,776
--------- -------
Other comprehensive income (loss):
Unrealized holding gains (losses) on investment securities
available for sale (813,577) 91,303
Less: reclassification adjustment for gains on sales of investment
securities available for sale (68,201) (387,282)
--------- -------
Total other comprehensive income (loss), before taxes (881,778) (295,979)
--------- -------
Income tax (expense) benefit related to other comprehensive income:
Unrealized holding gains (losses) on investment securities
available for sale 308,834 (34,695)
Less: reclassification adjustment for gains on sales of investment
securities available for sale 25,889 147,223
--------- -------
Total income tax benefit related to other comprehensive income 334,723 112,528
--------- -------
Total other comprehensive income (loss), net of tax (547,055) (183,451)
--------- -------
Total comprehensive income $ 455,836 435,325
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional Unearned
------------ Paid-in Retained ESOP Unearned
Shares Amount Capital Earnings Shares Compensation
------ ------ ------- -------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 906,710 $ 90,671 7,794,459 4,443,500 (540,000) (394,195)
Net earnings - - - 618,776 - -
Dividends declared ($.64 per share ) - - - (534,009) - -
Retirement of treasury stock (6,121) (612) (105,953) - - -
ESOP shares allocated - - 94,878 - 72,000 -
Forfeited shares under
management stock bonus plan - - - - - 25,692
Award of shares under
management stock bonus plan - - - - - (16,495)
Earned compensation under
management stock bonus plan - - - - - 98,659
Treasury stock purchased - - - - - -
Unrealized losses on investment
securities available for sale,
net of tax effect - - - - - -
------------ ---------- --------------- ----------- --------- ----------
Balance, December 31, 1998 900,589 90,059 7,783,384 4,528,267 (468,000) (286,339)
Net earnings - - - 1,002,891 - -
10 % stock dividend 89,824 8,983 1,271,845 (1,280,828) - -
Dividends declared ($.32 per share) - - - (289,690) - -
Retirement of common stock (1,943) (195) (30,499) - - -
ESOP shares allocated - - 70,148 - 72,000 -
Forfeited shares under
management stock bonus plan - - - - - 36,000
Awarded shares under
management stock bonus plan - - 7,579 - - (27,480)
Earned compensation under
management stock bonus plan - - - - - 78,629
Unrealized losses on investment
securities available for sale,
net of tax - - - - - -
------- ------ --------- --------- --------- --------
Balance, December 31, 1999 988,470 $ 98,847 9,102,457 3,960,640 (396,000) (199,190)
======= ====== ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Treasury Stock Comprehensive
Shares Amount Income (Loss) Total
------ ------ ------------- -----
<S> <C> <C> <C> <C>
Balance December 31, 1997 7,686 $ (96,800) 221,970 11,519,605
Net earnings - - - 618,776
Dividends declared ($.64 per share ) - - - (534,009)
Retirement of treasury stock (6,121) 106,565 - -
ESOP shares allocated - - - 166,878
Forfeited shares under
management stock bonus plan 2,357 (25,692) - -
Award of shares under
management stock bonus plan (1,500) 16,495 - -
Earned compensation under
management stock bonus plan - - - 98,659
Treasury stock purchased 3,019 (60,345) - (60,345)
Unrealized losses on investment
securities available for sale,
net of tax effect - - (183,451) (183,451)
--------- -------- --------- -------------
Balance, December 31, 1998 5,441 (59,777) 38,519 11,626,113
Net earnings - - - 1,002,891
10 % stock dividend 874 - - -
Dividends declared ($.32 per share) - - - (289,690)
Retirement of common stock - - - (30,694)
ESOP shares allocated - - - 142,148
Forfeited shares under
management stock bonus plan 3,300 (36,000) - -
Awarded shares under
management stock bonus plan (2,000) 19,901 - -
Earned compensation under
management stock bonus plan - - - 78,629
Unrealized losses on investment
securities available for sale,
net of tax - - (547,055) (547,055)
------ ------- ------- ------------
Balance, December 31, 1999 7,615 $ (75,876) (508,536) 11,982,342
===== ======= ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,002,891 618,776
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for loan losses 340,700 275,000
Depreciation, amortization and accretion 222,572 311,766
ESOP shares allocated 142,148 166,878
Compensation expense related to MSBP 78,629 98,659
Net gain on sale of investment securities available for sale (68,201) (387,282)
Deferred income tax benefit (19,862) (131,348)
Net gain on sale of loans (47,638) (62,628)
Net loss (gain) on sale of premises and equipment (58,359) 452
Increase in accrued interest (191,818) (330,028)
Increase in other assets (576,854) (468,313)
(Decrease) increase in other liabilities (508,167) 1,130,370
--------- -- ---------
Net cash provided by operating activities 316,041 1,222,302
------- -- ---------
Cash flows from investing activities:
Proceeds from maturities and called investment securities available for sale 27,502,315 29,328,303
Proceeds from sales of investment securities available for sale 620,858 3,021,729
Purchases of investment securities available for sale 27,683,395) (50,012,878)
Redemption of FHLB stock 358,000 -
Net increase in loans 33,618,250) (41,676,028)
Proceeds from sale of loans 8,599,234 17,177,424
Purchases of premises and equipment (961,873) (754,597)
Proceeds from sale of equipment 135,661 2,155
Purchase of life insurance policies (1,337,344) -
---------- -----------
Net cash used in investing activities (26,384,794) (42,913,892)
---------- ----------
Cash flows from financing activities:
Net increase in demand and savings deposits 11,186,684 25,450,793
Net (decrease) increase in time deposits (637,187) 38,324,588
Net increase (decrease) in securities sold under agreements to repurchase 2,881,155 (1,275,315)
Treasury stock purchased - (60,345)
Federal Home Loan Bank advances 13,100,000 -
Repayment of Federal Home Loan Bank advances - (18,510,000)
Proceeds from line of credit 900,000 -
Dividends paid (351,897) (626,925)
Retirement of common stock (30,694) -
---------- -----------
Net cash provided by financing activities 27,048,061 43,302,796
---------- ----------
Increase in cash and cash equivalents 979,308 1,611,206
Cash and cash equivalents at beginning of period 10,352,522 8,741,316
---------- ----------
Cash and cash equivalents at end of period $11,331,830 10,352,522
========== ==========
Supplemental disclosure of cash flow information and noncash investing and
financing activities:
Interest paid $ 7,559,075 6,533,149
========== =========
Income taxes paid $ 528,000 15,000
========== =========
Changes in unrealized losses on investment securities available for sale $ (547,055) (183,451)
========== =========
Retirement of treasury stock $ - 106,565
=========== =========
Changes in dividends payable $ (62,207) (92,916)
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<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.
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 1998 amounts have been
reclassified to conform to the 1999 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.
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.
<PAGE>
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.
19
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
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 principal 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.
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. 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
<PAGE>
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.
20
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Income Taxes, continued
------------
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
----------------------
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.
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, 1999 Net Common Per Share
Earnings Shares Amount
-------- ------ ------
<S> <C> <C> <C>
Basic earnings per share $ 1,002,891 922,120 $ 1.09
====
Effect of stock options - 38,849
--------- --------
Diluted earnings per share $ 1,002,891 960,969 $ 1.04
========= ======= ====
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1998 Net Common Per Share
Earnings Shares Amount
-------- ------ ------
<S> <C> <C> <C>
Basic earnings per share $ 618,776 923,605 $ 0.67
====
Effect of stock options - 47,846
------- ------
Diluted earnings per share $ 618,776 971,451 $ 0.64
======= ======= ====
</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. The above detail was adjusted to reflect the Company's 10%
1999 stock dividend.
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. In 1999, SFAS No. 137 was
issued which changed the implementation date of SFAS No. 133. SFAS No. 133
becomes effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000, 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 these standards will not have a material impact
on its financial position, results of operations or liquidity.
21
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) Investment Securities
At December 31, 1999 and 1998, investment securities available for sale
consisted of the following:
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
agency obligations $ 28,373,903 - 774,504 27,599,399
Municipal securities 787,230 - 8,426 778,804
Mortgage-backed securities 124,676 567 - 125,243
------------ --- ------------- ------------
$ 29,285,809 567 782,930 28,503,446
========== === ======= ==========
</TABLE>
<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>
For the years ended December 31, 1999 and 1998, the Company sold certain
investment securities available for sale for $620,858 and $3,021,729,
respectively with the following gross gains and losses recognized:
1999 1998
---- ----
Gross gains $ 68,201 392,479
Gross losses $ - 5,197
The amortized cost and fair values of securities available for sale at
December 31, 1999, 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.
Amortized Fair
Cost Value
---- -----
Due within one year $ 1,999,638 1,985,624
Due after one year through five years 24,402,040 23,687,839
Due after five years 2,759,455 2,704,740
Mortgage-backed securities 124,676 125,243
---------- ----------
$ 29,285,809 28,503,446
========== ==========
Investment securities with approximate aggregate carrying amounts of
$21,358,000 and $22,380,000 at December 31, 1999 and December 31, 1998,
respectively, were pledged to secure public deposits and securities sold
under agreements to repurchase.
22
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(3) Loans
Major classifications of loans at December 31, 1999 and 1998 are
presented below:
1999 1998
---- ----
Commercial real estate $ 57,442,687 39,050,751
Commercial 3,922,862 5,636,988
Real estate - mortgage 31,927,010 39,299,642
Real estate - construction 30,105,725 26,227,514
Installment and other consumer 24,938,924 13,142,301
---------- ----------
Total loans 148,337,208 123,357,196
Less: Unearned fees 546,769 586,584
Allowance for loan losses 1,237,022 943,149
----------- -----------
Total loans, net $146,553,417 121,827,463
=========== ===========
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.
An analysis of the activity in the allowance for loan losses is presented
below:
1999 1998
---- ----
Balance at beginning of period $ 943,149 669,505
Provision for losses on loans 340,700 275,000
Loan charge-offs (71,233) (2,674)
Loan recoveries 24,406 1,318
--------- -------
Balance at end of period $1,237,022 943,149
========= =======
As of December 31, 1999 and 1998, the Bank serviced loans for others with
approximate outstanding balances of $26,984,000 and $22,396,000,
respectively.
(4) Premises and Equipment
A summary of premises and equipment at December 31, 1999 and 1998 is as
follows:
1999 1998
---- ----
Land $ 756,655 803,927
Buildings and improvements 3,806,946 3,719,942
Furniture and equipment 3,039,631 2,286,524
Construction in progress 36,314 17,400
--------- ---------
7,639,546 6,827,793
Less: Accumulated depreciation 1,814,179 1,405,191
--------- ---------
$ 5,825,367 5,422,602
========= =========
Depreciation expense for the years ended December 31, 1999 and 1998 was
$481,806 and $441,726, respectively.
23
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(5) Deposits
At December 31, 1999, the scheduled maturities of time deposits are as
follows:
2000 $76,843,807
2001 8,971,720
2002 5,851,564
2003 526,125
----------
$92,193,216
===========
(6) Income Taxes
The components of income tax expense are as follows:
1999 1998
Current expense $ 546,177 463,037
Deferred benefit (19,862) (131,348)
------- --------
$ 526,315 331,689
======= =======
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:
1999 1998
---- ----
Tax expense at statutory rate $ 519,930 323,158
Add (deduct):
State income taxes, net of Federal tax effect 6,486 7,781
Other, net (101) (750)
-------- -------
$ 526,315 331,689
======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998, are presented below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 346,641 194,108
State tax credit carryforwards 70,111 58,893
Employee Stock Ownership Plan accrual 99,147 99,147
Net unrealized losses on investment securities available for 273,827 -
sale
Other 12,024 6,720
--------- -------
Total gross deferred tax assets 801,750 358,868
------- -------
Deferred tax liabilities:
Deferred loan fees 458,427 366,168
Net unrealized gains on investment securities available for sale - 20,741
Premises and equipment 117,089 23,084
Federal Home Loan Bank stock dividends 147,095 146,165
Other 30,419 28,696
------- -------
Total gross deferred tax liabilities 753,030 584,854
------- -------
Net deferred tax assets (liabilities) $ 48,720 (225,986)
======= =======
</TABLE>
24
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued
At December 31, 1999 and 1998, the Company had state gross receipts tax
credit carryforwards of approximately $106,000 and $89,000, 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, 1999 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 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, 1999 and 1998:
Approximate
Contract Amount
---------------
1999 1998
---- ----
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 33,894,000 22,209,000
Standby letters of credit $ 552,000 195,000
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.
25
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(8) Federal Home Loan Bank Advances and Line of Credit
At December 31, 1999 the Bank had advances outstanding from the Federal
Home Loan Bank (FHLB) of Atlanta amounting to $13,100,000 secured by a
blanket lien on residential mortgage loans. Principal is payable at
maturity and interest is due monthly based on interest rates as stated
below at December 31, 1999.
Advances Interest Rate Maturity
-------- ------------- --------
$ 5,000,000 5.98% January 2000
$ 5,000,000 5.96% March 2000
$ 3,100,000 4.55% August 2000
Additionally, during 1999 the Company entered into a line of credit with
a financial institution totaling $2,500,000 of which $900,000 was
outstanding as of December 31, 1999. The line accrues interest at prime
minus 50 basis points and matures September 30, 2001. The facility is
collateralized by the stock of the Bank.
(9) Preferred Stock
The Company is authorized to issue 1,000,000 shares of no par value
preferred stock. At December 31, 1999, there were no shares issued and
outstanding. The Board of Directors of the Company is authorized to issue
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 up to 5% of the employee's
compensation. 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, 1999 and 1998 totaled approximately $59,000 and $68,000,
respectively.
(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 87,120 shares of Company common stock at
approximately $8 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, 1999, 39,006 ESOP shares were allocated to the
participating employees. For purposes of computing net earnings per
share, the remaining 48,114 unallocated shares were not considered
outstanding until they are committed-to-be-released for allocation.
The Company recognized the fair market value of the Company's common
stock allocated to participating employees as compensation expense.
Compensation expense recognized by the Company during the years ended
December 31, 1999 and 1998 totaled $142,148, and $166,878
respectively. The fair value of the unallocated shares at December
31, 1999 was approximately $698,000.
26
<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 144,020 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 expires 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. At December 31, 1999,
there were 23,176 shares available under the Option Plan.
Stock option activity is as follows:
1999 1998
---- ----
Options outstanding at beginning of period 117,819 116,558
Options granted 10,000 9,900
Options canceled (14,175) (8,639)
------- -------
Options outstanding at end of period 113,644 117,819
======= =======
Options exercisable at end of period 58,227 44,953
======= =======
Weighted-average option prices per share:
Options granted during the period $ 16.52 18.40
Options canceled during the period $ 12.99 10.13
Options outstanding at end of period $ 11.56 11.03
The options outstanding at December 31, 1999 had a weighted-average
contractual maturity of 7.2 years and exercise prices ranging from
$10.01 to $19.82.
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:
1999 1998
---- ----
Net earnings As reported $ 1,002,891 618,776
Proforma $ 939,711 554,730
Basic earnings per share As reported $ 1.09 0.67
Proforma $ 1.02 0.60
Diluted earnings per share As reported $ 1.04 0.64
Proforma $ .98 0.57
The weighted average fair value of options granted was $3.20 and
$1.10 for the years ended December 31, 1999 and 1998, respectively,
based on estimates as of the date of grant using the Black Scholes
pricing model. The weighted average assumptions used for grants in
1999 and 1998 were as follows: dividend yield of 2.0% and 4.6%, a
risk free interest rate of 5.2% and 4.7%, expected volatility of 21%
and 20%, respectively, and an expected life of 7 years for both
years.
27
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(10) Employee Benefit Plans, continued
(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 57,608 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, 1999, the Company awarded
45,085 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 $78,629 and $98,659 for the
years ended December 31, 1999 and 1998 respectively.
(e) Life Insurance Policies
-----------------------
During 1999, the Company adopted a defined contribution post
retirement benefit plan to provide retirement benefits to certain of
the Company's executive officers and to provide death benefits for
the designated beneficiaries. Under this plan, single-premium,
split-dollar, whole-life insurance contracts were purchased on
certain executive officers. The increase in the cash surrender value
of the contracts, less the Bank's cost of funds, constitutes the
Company's contribution to the plan each year. In the event the
insurance contracts fail to produce positive returns, the Company has
no obligations to contribute to the plan. For the year ended December
31, 1999, the Company incurred expenses of $5,660 in connection with
this plan.
(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.
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.
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.
Cash surrender value of life insurance policies.
------------------------------------------------
Fair value for life insurance cash surrender value is based on cash
surrender values indicated by the insurance companies.
28
<PAGE>
CCF HOLDING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(11) Fair Values of Financial Instruments, continued
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 the 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 or represent short term maturities.
Line of credit
--------------
Advances on the line of credit bear interest on a floating basis, and
as such, the carrying amount approximates fair value.
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.
The estimated fair value of the Company's financial instruments as of
December 31, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 11,332 11,332 10,353 10,353
Investment securities available for sale $ 28,503 28,503 29,457 29,457
Loans, net $ 146,553 149,502 121,827 125,517
Federal Home Loan Bank stock $ 655 655 1,013 1,013
Cash surrender value of life insurance policies $ 1,337 1,337 - -
Liabilities:
Deposits $ 165,526 165,614 154,977 157,987
Securities sold under agreements to repurchase $ 3,998 3,998 1,117 1,117
Federal Home Loan Bank advances $ 13,100 13,100 - -
Line of credit $ 900 900 - -
Off-balance sheet financial instruments:
Commitments to extend credit $ 33,894 33,894 22,209 22,209
Standby letters of credit $ 552 552 195 195
</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, 1999 with respect
to such aggregate loans to these individuals and their associates:
Related party loan balances at beginning of year $ 2,042,753
New loans 959,344
Principal repayments (889,102)
---------
Related party loan balances at end of year $ 2,112,995
=========
Deposits from related parties totaled approximately $1,752,000 and
$1,005,000,at December 31, 1999 and 1998, respectively.
29
<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, 1999 and 1998
Assets
------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash $ 183,699 294,503
Investment in subsidiary 12,828,276 11,480,697
Investment securities available for sale - 134,000
Other assets 106,385 10,000
---------- ----------
$ 13,118,360 11,919,200
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Dividends payable $ 73,334 135,541
Line of credit 900,000 -
Other liabilities 162,684 157,546
---------- ----------
1,136,018 293,087
Stockholders' equity 11,982,342 11,626,113
---------- ----------
$ 13,118,360 11,919,200
========== ==========
</TABLE>
Condensed Statements of Earnings
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Dividends from subsidiary $ 50,000 -
Interest income from subsidiary 5,909 26,196
Gain on sale of investment securities 68,201 386,187
Other operating income - 9,386
Other operating expenses (299,144) (64,635)
Income tax (expense) benefit 78,500 (125,134)
---------- ----------
Earnings (loss) before equity in
undistributed earnings of subsidiary (96,534) 232,000
Equity in undistributed earnings of subsidiary 1,099,425 386,776
--------- -------
Net earnings $ 1,002,891 618,776
========= =======
</TABLE>
30
<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, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,002,891 618,776
Adjustment to reconcile net earnings
to net cash used in operating activities:
Equity in undistributed earnings of subsidiary (1,099,425) (386,776)
Compensation expense related to MSBP 78,629 98,659
ESOP shares allocated 142,148 166,878
Gain on sale of investment security (68,201) (386,187)
(Increase) decrease in other assets (72,049) 19,284
Decrease (increase) in other liabilities 5,138 (311,634)
-------------- ----------
Net cash used in operating activities (10,869) (181,000)
-------------- ----------
Cash flows from investing activities:
Proceeds from sale of investment security 132,656 1,565,203
Capital infusion in subsidiary (750,000) (750,000)
-------------- ----------
Net cash (used in) provided by investing activities (617,344) 815,203
-------------- ----------
Cash flows from financing activities:
Dividends paid (351,897) (626,925)
Treasury stock purchased - (60,345)
Retirement of common stock (30,694) -
Proceeds from notes payable 900,000 -
-------------- ----------
Net cash provided by (used in) financing activities 517,409 (687,270)
-------------- ----------
Change in cash and cash equivalents (110,804) (53,067)
Cash and cash equivalents at beginning of period 294,503 347,570
-------------- ----------
Cash and cash equivalents at end of period $ 183,699 294,503
============== ==========
</TABLE>
31
<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. At December 31, 1999, the Bank could pay approximately $550,000
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, 1999,
that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the 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 consolidated and Bank only actual capital amounts and ratios at
December 31, 1999 are presented in the table below. At December 31, 1998,
consolidated amounts did not materially differ from Bank-only capital
amounts and ratios.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
-------------------------- ----------------------------
Actual
-------------------------- -------------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total capital - risk-based
(to risk-weighted assets)
Bank $ 14,574,000 10% 11,998,000 =>8% 14,997,000 =>10%
Consolidated $ 13,728,000 9% 11,998,000 =>8% N/A N/A
Tier I capital - risk-based
(to risk-weighted assets)
Bank $ 13,336,812 9% 5,999,000 =>4% 8,998,000 => 6%
Consolidated $ 12,490,878 8% 5,999,000 =>4% N/A N/A
Tier I capital - leverage
(to average assets)
Bank $ 13,336,812 7% 7,819,000 =>4% 9,774,000 => 5%
Consolidated $ 12,490,878 6% 7,819,000 =>4% N/A N/A
As of December 31, 1998:
Total capital - risk-based
(to risk-weighted assets) $ 12,431,000 11% 9,370,000 =>8% 11,713,000 =>10%
Tier I capital - risk-based
(to risk-weighted assets) $ 11,487,000 10% 4,685,000 =>4% 7,028,000 => 6%
Tier I capital - leverage
(to average assets) $ 11,487,000 8% 6,106,000 =>4% 7,633,000 => 5%
</TABLE>
32
<PAGE>
CCF HOLDING COMPANY
101 N. Main Street
Jonesboro, Georgia 30236
(770) 478-8881
<TABLE>
<CAPTION>
HERITAGE BANK
<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
Joe B. Mundy David B. Turner
Retired (Former circuit court clerk) President and Chief Executive Officer
Leonard A. Moreland Charles S. Tucker
Executive Vice President Retired (former county agent for University of Georgia)
Administrative Officer
Roy Hall* John T. Mitchell
Certified Public Accountant Real Estae Developer
Adams Mitchell Realty
</TABLE>
------------------------------
*Director of Bank only
<TABLE>
<CAPTION>
Executive Officers of CCF Holding Company and
Heritage Bank
<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 and Senior Credit Officer Secretary and Treasurer
C. T. Segers* John C. Bowdoin*
Senior Vice President Senior Vice President
--------------------------------
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 & Fisch, PC
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
</TABLE>
--------------------------------
*Officer of Heritage Bank only
The Company's Annual Report for the year ended December 31, 1999 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 26, 2000 at
9:30 p.m. at the Fayetteville office.
33
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 18, 2000, accompanying the consolidated
financial statements included in the Annual Report of CCF Holding Company on
Form 10-KSB for the year ended December 31, 1999. We hereby consent to the
incorporation by reference of said report in the Registration Statement of CCF
Holding Company on Form S-8.
/s/Porter Keadle Moore, LLP
----------------------------
Atlanta, Georgia
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,036
<INT-BEARING-DEPOSITS> 536
<FED-FUNDS-SOLD> 5,760
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 28,503
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 147,790
<ALLOWANCE> 1,237
<TOTAL-ASSETS> 196,782
<DEPOSITS> 165,526
<SHORT-TERM> 17,998
<LIABILITIES-OTHER> 1,275
<LONG-TERM> 0
0
0
<COMMON> 99
<OTHER-SE> 11,883
<TOTAL-LIABILITIES-AND-EQUITY> 196,782
<INTEREST-LOAN> 12,450
<INTEREST-INVEST> 1,750
<INTEREST-OTHER> 471
<INTEREST-TOTAL> 14,671
<INTEREST-DEPOSIT> 7,257
<INTEREST-EXPENSE> 7,501
<INTEREST-INCOME-NET> 7,170
<LOAN-LOSSES> 341
<SECURITIES-GAINS> 68
<EXPENSE-OTHER> 6,143
<INCOME-PRETAX> 1,529
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,003
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 3.93
<LOANS-NON> 396
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 256
<ALLOWANCE-OPEN> 943
<CHARGE-OFFS> 71
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 1,237
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
