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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D C 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2000
/ / Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Commission File Number 33-81890
Community Bankshares, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-1415887
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(State or other jurisdiction of (IRS. Employer
Incorporation or organization) Identification No.)
448 North Main Street, Cornelia, Georgia 30531
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 778-2265
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ____ .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Not applicable. Registrant is not required to be
registered under the Securities Exchange Act of 1934.
Aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 20, 2001: $29,967,,884 (based upon approximate market
value of $40.72 /share, the latest sales price known to the Registrant for the
Common Stock, for which there is no established trading market.
As of March 20, 2001, 2,181,830 shares of Common Stock, par value $1.00
per share, were issued and outstanding.
PART 1
ITEM 1. BUSINESS.
Community Bankshares, Inc. (the "Company") was organized under the laws
of Georgia in 1980 and commenced operations in 1981. The Company is a registered
bank holding company. All of the Company's activities are currently conducted by
or through its subsidiaries, Community Bank & Trust("Community"), Community Bank
& Trust-Alabama ("Community-Alabama") and Community Bank & Trust-Troup
("Community-Troup") (collectively, the "Community Banking Subsidiaries") and the
non-bank subsidiaries of Community, Financial Supermarkets, Inc. ("Financial
Supermarkets") and Financial Properties, Inc. ("Financial Properties"). During
the fourth quarter of 2000, there was a consolidation of Community - Habersham
and Community - Jackson which is known above as Community Bank & Trust
("Community").
All references herein to the Company include Community Bankshares,
Inc., the Community Banking Subsidiaries, Financial Supermarkets, and Financial
Properties unless the context indicates a different meaning.
Forward Looking Statements
This Form 10-K, both in the Management's Discussion and Analysis
section and elsewhere, contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Although we believe the assumptions underlying the forward-looking statements
contained in the discussions are reasonable, any of the assumptions could be
inaccurate; therefore, no assurance can be made that any of the forward-looking
statements included in this discussion will be accurate. Factors that could
cause actual results to differ from results discussed in forward-looking
statements include, but are not limited to: economic conditions (both generally
and in the markets where we operate); competition from other providers of
financial services; government regulation and legislation; changes in interest
rates; material unforeseen changes in the financial stability and liquidity of
our credit customers; and other risks detailed in our filings with the
Securities and Exchange Commission, all of which are difficult to predict and
which may be beyond our control. We undertake no obligation to revise
forward-looking statements to reflect events or changes after the date of this
discussion or to reflect the occurrence of unanticipated events.
Business Description of Community Banking Subsidiaries
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GENERAL. Each of the Community Banking Subsidiaries is community-
oriented and offers such customary banking services as consumer and commercial
commercial checking accounts, NOW accounts, savings accounts, certificates of
deposit, lines of credit and money transfers. Each Community Banking Subsidiary
finances commercial and consumer transactions, makes secured and unsecured
loans, and provides a variety of other banking services.
DEPOSITS. Each Community Banking Subsidiary offers a full range of
depository accounts and services to both consumers and businesses. At December
31, 2000, the Company's aggregate deposit base, totaling approximately $507.5
million, consisted of approximately $78.0 million in non-interest-bearing demand
deposits (15.37% of total deposits), approximately $101.5 million in
interest-bearing demand deposits (including money market accounts) (20.00% of
total deposits), approximately $21.9 million in savings deposits (4.31% of total
deposits), approximately $203.3 million in time deposits in amounts less than
$100,000 (40.07% of total deposits), and approximately $102.8 million in time
deposits of $100,000 or more (20.25% of total deposits).
LOANS. Each Community Banking Subsidiary makes both secured and
unsecured loans to individuals, firms and corporations, and both consumer and
commercial lending operations include various types of credit for customers. In
addition, the Company operates a loan production office in Gainesville, Georgia
through Community. The Gainesville loan production office funds and sells, on
the open market, loans guaranteed by the Small Business Administration (the
"SBA"). Each Community Banking Subsidiary also makes direct installment loans to
consumers on both a secured and unsecured basis. At December 31, 2000, consumer
and other, real estate (including mortgage and construction loans) and
commercial loans represented approximately 13.74%, 37.76% and 48.50%,
respectively, of the Company's total loan portfolio. The real estate loans made
by each Community Banking Subsidiary include residential real estate
construction, acquisition and development loans, as well as some loans for other
purposes, which are secured by real estate.
Commercial lending is directed principally toward businesses within the
defined market area of the Community Banking Subsidiaries or existing or
potential deposit customers of the Community Banking Subsidiaries. The
Gainesville loan production office, however, makes a large portion of loans to
individuals and businesses that are not located in its market area. Collateral
includes marketable securities, certificates of deposit, accounts receivable,
inventory and equipment. Commercial lending decisions are based upon a
determination of the borrower's ability to repay the loan, which in turn are
affected by such factors as the borrower's cash flow, sales trends and inventory
levels, as well as relevant economic conditions. This category includes loans
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made to individuals, partnerships or corporate borrowers and obtained for a
variety of purposes. Risks associated with these loans can be significant. Risks
include, but are not limited to, fraud, bankruptcy, economic downturn in
industry trends, deteriorated or non-existing collateral, and changes in
interest rates.
Some loans secured by real estate that are made to businesses are
categorized as real estate loans. Often, real estate collateral is deemed to be
superior to other collateral available to small- to medium-sized businesses. The
underwriting standards of and risks to the Community Banking Subsidiaries are as
described below with respect to real estate loans.
The Community Banking Subsidiaries offer traditional first mortgage
loans to individuals for single-family structures. These loans are sold in the
secondary market. Since the Community Banking Subsidiaries are originators of
mortgages rather than investors, they sell them servicing-released. They offer
loan-to-value amounts from 70% to 95%. Various types of fixed-rate and
variable-rate products are available. Risks involved with residential mortgage
lending include, but are not limited to, title defects, fraud, general real
estate market deterioration, inaccurate appraisals, interest rate fluctuations
and financial deterioration of the borrower.
The Community Banking Subsidiaries also make residential construction
loans, generally for one-to-four unit structures. The Community Banking
Subsidiaries require a first lien position on the loans associated with
construction projects and offer these loans only to bona fide professional
building contractors. Loan disbursements require independent, on-site
inspections to assure the project is on budget and that the loan proceeds are
being used in accordance with the plans, specifications, and survey for the
construction project and not being diverted to other uses. The loan-to-value
limit for such loans is 85% for non-owner occupied and 90% for owner occupied of
the as-built appraised value. Loans for construction can present a high degree
of risk depending on, among other things, whether the builder can sell the home
to a buyer and the nature of changing economic conditions. In addition, all
loans for development and construction projects should have a take-out
commitment from one of the Community Banking Subsidiaries or from another
qualified lender, which should be in writing prior to closing of the
construction loan.
Additionally, the Community Banking Subsidiaries make acquisition and
development loans to approved developers for the purpose of developing acreage
into single-family lots on which houses will be built. The loan-to-value ratio
for such loans does not exceed 75% of the value as defined by an independent
appraisal, or 100% of the cost, whichever is less. Loans for acquisition and
development can present a high degree of risk to the Community Banking
Subsidiaries, depending upon, among other things, whether the developer can find
builders to buy the lots, whether the builders can obtain financing, whether the
transaction produces income in the interim, and the nature of changing economic
conditions.
In addition, the Community Banking Subsidiaries make consumer loans,
consisting primarily of installment loans to individuals for personal, family
and household purposes, including loans for automobiles, home improvements and
investments. Consumer lending decisions are based on a determination of the
borrower's ability and willingness to repay the loan, which in turn are affected
by such factors as the borrower's income, job stability, previous credit history
and collateral for the loan. Risks associated with these loans include, but are
not limited to, fraud, deteriorated or non-existing collateral, a general
economic downturn, bankruptcy, layoffs and other consumer financial problems.
LENDING POLICY. The current lending strategy of each Community
Banking Subsidiary is to offer consumer, real estate and commercial credit
services to individuals and entities that meet the Company's credit standards.
Each Community Banking Subsidiary provides its lending officers with written
guidelines for lending activities. Lending authority is delegated by the Board
of Directors of the particular Community Banking Subsidiary to loan officers,
each of whom is limited in the amount of secured and unsecured loans which he or
she can make to a single borrower or related group of borrowers.
LOAN REVIEW AND NON-PERFORMING ASSETS. Each Community Banking
Subsidiary reviews its loan portfolio to determine deficiencies and corrective
action to be taken, and the Company reviews the loan portfolio of each Community
Banking Subsidiary. Senior lending officers conduct periodic reviews of
borrowers and ongoing reviews of all past due loans. Past due loans are reviewed
at least weekly by lending officers and a summary report is reviewed monthly by
the particular Community Banking Subsidiary's Board of Directors. Each Board of
Directors reviews all loans for Community over $400,000 and reviews samples of
loans below $400,000, all loans for Community - Alabama over $100,000 and
samples below $100,000, and all loans over $200,000 and samples below $200,000
whether current or past due, at least once annually. In addition, each Community
Banking Subsidiary maintains internal classifications of problem and potential
problem loans.
ASSET/LIABILITY MANAGEMENT. Each Community Banking Subsidiary's
Board of Directors is charged with establishing policies to manage the assets
and liabilities of its respective bank. Each Board's task is to manage asset
growth, net interest margin, liquidity and capital. The Board directs the bank's
overall acquisition and allocation of funds. At monthly meetings, a committee of
executives of the Company receives a report from each bank with regard to the
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monthly asset and liability funds budget and income and expense budget in
relation to the actual composition and flow of funds, the ratio of the amount of
rate-sensitive assets to the amount of rate-sensitive liabilities, the amount of
interest rate risk and equity market value exposure under varying rate
environments, the ratio of loan loss reserve to outstanding loans and other
variables, such as expected loan demand, investment opportunities, core deposit
growth within specified categories, regulatory changes, monetary policy
adjustments and the overall condition of the local and state economy.
INVESTMENT POLICY. The Company's investment portfolio policy is to
maximize income consistent with liquidity, asset quality and regulatory
constraints. The policy is reviewed from time to time by the Company's Board of
Directors. Individual transactions, portfolio composition and performance are
reviewed and approved monthly by the Board of Directors of each bank or a
committee thereof. The President of each Community Banking Subsidiary implements
the policy and reports to the bank's full Board of Directors on a monthly basis
information concerning sales, purchases, resultant gains or losses, average
maturity, federal taxable equivalent yields and appreciation or depreciation by
investment categories.
Business Description of Non-Banking Subsidiaries
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FINANCIAL SUPERMARKETS. Financial Supermarkets, formed as a Georgia
corporation in 1984, is a wholly-owned subsidiary of Community and has three
divisions. Financial Supermarkets' primary division, The Supermarket Bank,
provides various consulting and licensing services to financial institutions in
connection with the establishment of bank branches in supermarkets. These
services are marketed to international, national, regional and community
financial institutions. Financial Supermarkets enters into agreements with major
supermarket chains for the right to establish bank branches in particular sites.
Financial Supermarkets then licenses such rights, along with the right to
operate the "Supermarket Bank", to individual financial institutions, in
addition to providing consulting services to such institutions ranging from
providing alternative construction designs to coordinating employee training.
Since 1984, Financial Supermarkets has assisted clients with the
development of Supermarket Bank facilities in grocery stores throughout the
United States. Financial Supermarkets primarily competes in the in-store bank
branch consulting business with International Banking Technologies of Atlanta,
Georgia, and Memphis-based National Commerce Bank Services, Inc. a wholly owned
subsidiary of National Commerce Bancorporation.
Over its 16-year history, Financial Supermarkets has expanded the scope
of its business beyond the supermarket bank industry. In 1988, it formed a
consulting division for the financial services industry. The division is based
in Atlanta and works with financial institutions across the Southeastern United
States with regard to state and federal regulatory compliance issues and other
day-to-day operational matters.
In 1992, Financial Supermarkets formed a full-service marketing
consulting firm to consult with financial institutions primarily in the
Southeastern United States, in addition to working closely with Supermarket Bank
clients to develop related advertising and marketing programs.
In 1994, Financial Supermarkets formed a travel agency to provide
customers with a full range of travel services.
FINANCIAL PROPERTIES. Community acquired in March 1998 Financial
Properties, Inc. ("Financial Properties"). Financial Properties engages in real
estate brokerage and related activities primarily in Habersham County, Georgia.
Competition
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The banking business is highly competitive. Community competes with
four other institutions in Habersham County, Georgia, three institutions in
White County, Georgia, nine institutions in Hall County, Georgia five
institutions in Jackson County, Georgia and one institution in Banks County,
Georgia; Community-Alabama competes with one other depository institution in
Bullock County, Alabama, and eleven other depository institutions in Montgomery,
Alabama, and Community-Troup competes with eight other depository institutions
in Troup County, Georgia and 19 institutions in Muscogee County, Georgia. Each
Community Banking Subsidiary also competes with other financial service
organizations, including savings and loan associations, finance companies,
credit unions and certain governmental agencies. To the extent that banks must
maintain non-interest-earning reserves against deposits, they may be at a
competitive disadvantage when compared with other financial service
organizations that are not required to maintain reserves against substantially
equivalent sources of funds. Further, the increased competition from investment
bankers and brokers and other financial service organizations may have a
significant impact on the competitive environment in which each Community
Banking Subsidiary operates.
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Employees
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At December 31, 2000, the Company had 332 full-time employees and 50
part-time employees. Neither the Company nor any of its subsidiaries is a party
to any collective bargaining agreement, and management of the Company believes
that its employee relations are good.
Supervision and Regulation
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GENERAL. The Company is a registered financial holding company subject
to regulation by the Board of Governors of the Federal Reserve (the "Federal
Reserve") under the Bank Holding Company Act of 1956, as amended by the
Gramm-Leach-Bliley Act (the "GLB Act") (collectively, the "Bank Holding Act").
The Company is required to file financial information with the Federal Reserve
periodically and is subject to periodic examination by the Federal Reserve.
The Act requires every bank holding company to obtain the Federal
Reserve's prior approval before (1) it may acquire direct or indirect ownership
or control of more than 5% of the voting shares of any bank that it does not
already control; (2) it or any of its non-bank subsidiaries may acquire all or
substantially all of the assets of a bank; and (3) it may merge or consolidate
with any other bank holding company.
Financial holding companies have the authority to engage in activities
that are "financial in nature" that are not permitted for other bank holding
companies. Activities that are financial in nature include activities that the
Federal Reserve Board had determined by order or regulation, prior to the
adoption of the GLB Act, to be closely related to banking or managing or
controlling banks or to be a proper incident thereto. Some of the activities
that the Act provides are financial in nature are:
o lending, exchanging, transferring, investing for others or
safeguarding money or securities;
o insuring, guaranteeing, or indemnifying against loss, harm,
damage, illness, disability, or death, or providing and issuing
annuities, and acting as principal, agent, or broker with respect
thereto;
o providing financial, investment, or economic advisory services,
including advising an investment company;
o issuing or selling instruments representing interests in pools of
assets permissible for a bank to hold directly; and
o underwriting, dealing in, or making a market in securities.
The Company must also register with the Department of Banking and
Finance of the State of Georgia (the "DBF") and file periodic information with
the DBF. As part of such registration, the DBF requires information with respect
to the financial condition, operations, management and inter-company
relationships of the Company, Community and Community-Troup and related matters.
The DBF may also require such other information as is necessary to keep itself
informed as to whether the provisions of Georgia law and the regulations and
orders issued thereunder by the DBF have been complied with, and the DBF may
examine the Company and each of the Georgia Community Banking Subsidiaries.
The Company is an "affiliate" of the Community Banking Subsidiaries
under the Federal Reserve Act, which imposes certain restrictions on (i ) loans
by the Community Banking Subsidiaries to the Company, (ii) investments in the
stock or securities of the Company by the Community Banking Subsidiaries, (iii)
the Community Banking Subsidiaries taking the stock or securities of an
"affiliate" as collateral for loans by the Community Banking Subsidiaries to a
borrower and (iv) the purchase of assets from the Company by the Community
Banking Subsidiaries. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of services.
Community and Community-Troup, as Georgia banking associations, are
subject to the supervision of, and are regularly examined by, the Federal
Deposit Insurance Corporation (the "FDIC") and the DBF. Community-Alabama is
subject to the supervision and examination of the Alabama State Banking
Department (the "ABD") in addition to the FDIC. Both the FDIC and the DBF must
grant prior approval of any merger, consolidation or other corporate
reorganization involving Community or Community-Troup. The ABD must grant prior
approval of any merger, consolidation or other corporate reorganization
involving Community-Alabama. A bank can be held liable for any loss incurred by,
or reasonably expected to be incurred by, the FDIC in connection with the
default of a commonly-controlled institution.
PAYMENT OF DIVIDENDS. The Company is a legal entity separate and
distinct from the Community Banking Subsidiaries. Most of the revenues of the
Company result from dividends paid to it by the Community Banking Subsidiaries.
There are statutory and regulatory requirements applicable to the payment of
dividends by the Community Banking Subsidiaries, as well as by the Company to
its shareholders.
The Community Banking Subsidiaries are each state-chartered banks
regulated by the DBF or ABD, as applicable, and the FDIC. Under the regulations
of the DBF, dividends may not be declared out of the retained earnings of a
Georgia bank without first obtaining the written permission of the DBF unless
such bank meets all of the following requirements:
(a) Total classified assets as of the most recent examination of the
bank do not exceed 80% of equity capital (as defined by regulation);
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(b) The aggregate amount of dividends declared or anticipated to be
declared in the calendar year does not exceed 50% of the net profits
after taxes but before dividends for the previous calendar year; and
(c) The ratio of equity capital to adjusted assets is not less than 6%.
Under the regulations of the ABD, dividends may be declared by a state
bank without obtaining the prior written approval of the ABD only if (i) the
bank's surplus (as defined by regulation) is equal to at least 20% of its
capital (as defined by regulation) and (ii) the aggregate of all dividends
declared or anticipated to be declared in the calendar year does not exceed the
total of its net earnings (as defined by regulation) of that year combined with
its retained net earnings of the preceding two year, less any required transfers
to surplus. No dividends may be paid from an Alabama bank's surplus without the
prior written approval of the ABD.
The payment of dividends by the Company and the Community Banking
Subsidiaries may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory guidelines. In
addition, if, in the opinion of the applicable regulatory authority, a bank
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending upon the financial condition of the Community
Banking Subsidiaries, could include the payment of dividends) such authority may
require, after notice and hearing, that such bank cease and desist from such
practice. The FDIC has issued a policy statement providing that insured banks
should generally only pay dividends out of current operating earnings. In
addition to the formal statutes and regulations, regulatory authorities consider
the adequacy of each of the Community Banking Subsidiary's total capital in
relation to its assets, deposits and other such items. Capital adequacy
considerations could further limit the availability of dividends to the
Community Banking Subsidiaries. At December 31, 2000, retained earnings
available from the Community Banking Subsidiaries to pay dividends totaled
approximately $5.2 million. For 2000, the Company's cash dividend payout to
shareholders was 5.14% of net income.
MONETARY POLICY. The results of operations of the Community Banking
Subsidiaries are affected by credit policies of monetary authorities,
particularly the Federal Reserve. The instruments of monetary policy employed by
the Federal Reserve include open market operations in U.S. government
securities, changes in the discount rate on bank borrowings and changes in
reserve requirements against bank deposits. In view of changing conditions in
the national economy and in the money markets, as well as the effect of actions
by monetary and fiscal authorities, including the Federal Reserve, no prediction
can be made as to possible future changes in interest rates, deposit levels,
loan demand or the business and earnings of the Community Banking Subsidiaries.
CAPITAL ADEQUACY. The Federal Reserve and the FDIC have implemented
substantially identical risk-based rules for assessing bank and bank holding
company capital adequacy. These regulations establish minimum capital standards
in relation to assets and off-balance sheet exposures as adjusted for credit
risk. Banks and bank holding companies are required to have (1) a minimum level
of total capital (as defined) to risk-weighted assets of eight percent (8%); (2)
a minimum Tier One Capital (as defined) to risk-weighted assets of four percent
(4%); and (3) a minimum stockholders' equity to risk-risk-weighted assets of our
percent (4%). In addition, the Federal Reserve and the FDIC have established a
minimum three percent (3%) leverage ratio of Tier One Capital to total assets
for the most highly-rated banks and bank holding companies. "Tier One Capital"
generally consists of common equity not including unrecognized gains and losses
on securities, minority interests in equity accounts of consolidated
subsidiaries and certain perpetual preferred stock less certain intangibles. The
Federal Reserve and the FDIC will require a bank holding company and a bank,
respectively, to maintain a leverage ratio greater than three percent (3%) if
either is experiencing or anticipating significant growth or is operating with
less than well-diversified risks in the opinion of the Federal Reserve. The
Federal Reserve and the FDIC use the leverage ratio in tandem with the
risk-based ratio to assess the capital adequacy of banks and bank holding
companies. The FDIC, the Office of the Comptroller of the Currency (the "OCC")
and the Federal Reserve amended, effective January 1, 1997, the capital adequacy
standards to provide for the consideration of interest rate risk in the overall
determination of a bank's capital ratio, requiring banks with greater interest
rate risk to maintain adequate capital for the risk.
In addition, effective December 19, 1992, a new Section 38 to the
Federal Deposit Insurance Act implemented the prompt corrective action
provisions that Congress enacted as a part of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (the "1991 Act"). The "prompt corrective
action" provisions set forth five regulatory zones in which all banks are placed
largely based on their capital positions. Regulators are permitted to take
increasingly harsh action as a bank's financial condition declines. Regulators
are also empowered to place in receivership or require the sale of a bank to
another depository institution when a bank's capital leverage ratio reaches two
percent (2%). Better capitalized institutions are generally subject to less
onerous regulation and supervision than banks with lesser amounts of capital.
The FDIC has adopted regulations implementing the prompt corrective
action provisions of the 1991 Act, which place financial institutions in the
following five categories based upon capitalization ratios: (1) A "well
capitalized" institution has a total risk-based capital ratio of at least 10%, a
Tier One risk-based ratio of at least 6% and a leverage ratio of at least 5%;
(2) an "adequately capitalized" institution has a total risk-based capital ratio
of at least 8%, a Tier One risk-based ratio of at least 4% and a leverage ratio
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of at least 4%; (3) an "undercapitalized" institution has a total risk-based
capital ratio of under 8%, a Tier One risk-based ratio of under 4% or a leverage
ratio of under 4%; (4) a "significantly undercapitalized" institution has a
total risk-based capital ratio of under 6%, a Tier One risk-based ratio of under
3% or a leverage ratio of under 3%; and (5) a "critically undercapitalized"
institution has a leverage ratio of 2% or less. Institutions in any of the
three undercapitalized categories would be prohibited from declaring dividends
or making capital distributions. The FDIC regulations also establish procedures
for "downgrading" an institution to a lower capital category based on
supervisory factors other than capital. Under the FDIC's regulations, all of the
Community Banking Subsidiaries were "well capitalized" institutions at December
31, 2000.
Set forth below are pertinent capital ratios for the Company and the
Community Banking Subsidiaries as of December 31, 2000.
Minimum Capital Community- Community-
Requirement Community Alabama Troup The Company
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Tier One Capital to 11.34% 11.62% 11.26% 11.20%
Risk-based Assets:
4.00% (1)
Total Capital to 12.67% 12.87% 12.51% 12.45%
Risk-based Assets
8.00% (2)
(1) Minimum required ratio for "well capitalized" banks is 6%
(2) Minimum required ratio for "well capitalized" banks is 10%
RECENT LEGISLATIVE AND REGULATORY ACTION.
On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley
Act, a very significant piece of legislation intended to modernize the financial
services industry. The bill repeals the anti-affiliation provisions of the 1933
Glass-Steagall Act to allow for the merger of banking and securities
organizations and permits banking organizations to engage in insurance
activities including insurance underwriting. The bill also allows bank holding
companies to engage in financial activities that are "financial in nature or
complementary to a financial activity." The act lists the expanded areas that
are financial in nature and includes insurance and securities underwriting and
merchant banking among others. The bill also:
o Prohibits non-financial entities from acquiring or establishing a
thrift while grandfathering existing thrifts owned by non-financial
entities.
o Establishes state regulators as the appropriate functional
regulators for insurance activities but provides that state
regulators cannot "prevent or significantly interfere" with
affiliations between banks and insurance firms.
o Contains provisions designed to protect consumer privacy. The bill
requires financial institutions to disclose their policy for
collecting and protecting confidential information and allows
consumers to "opt out" of information sharing except with
unaffiliated third parties who market the institutions' own products
and services or pursuant to joint agreements between two or more
financial institutions.
o Provides for functional regulation of a bank's securities activities
by the Securities and Exchange Commission.
ITEM 2. PROPERTIES.
Community's main office is located at 448 North Main Street, Cornelia,
Georgia. Community-Alabama's main office is located at 202 N. Powell Street,
Union Springs, Alabama. Community-Troup's main office is located at 201 Broad
Street, LaGrange, Georgia. Community has twenty-five branch offices (five owned
and twenty leased, fifteen of which are operated in supermarkets) located in
Athens, Banks County, Cornelia, Clarkesville, Clayton, Cleveland, Commerce,
Demorest, Gainesville, Jefferson and Toccoa, Georgia. In addition, the Bank
leases the property occupied by the Loan Production Office in Gainesville.
Community-Alabama has one branch (leased and operated in a supermarket) in
Montgomery, Alabama. Community - Troup has one branch office (leased and
operated in a supermarket) in LaGrange, Georgia and one branch office (leased
and operated in a supermarket) in Columbus, Georgia. Financial Supermarkets owns
its main office located in Cornelia, Georgia, and leases a division office in
Atlanta, Georgia. Management of the Company believes that all of its properties
are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to, nor is any of its property the subject
of, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of its fiscal year.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Common Stock. As
of January 1, 2001, there were 491 holders of record of the Common Stock.
Management is aware of 41 and 32 trades of Company stock during 2000 and 1999,
respectively. During 2000, trades ranged from 4 shares to 13,849 shares at
prices ranging from $36.72 to $40.00 per share. During 1999, trades ranged from
25 shares to 6,090 shares at prices ranging from $33.00 to $40.00 per share.
In 2000, the Company paid a cash dividend of $0.18 per share. The
Company paid a cash dividend of $0.15 per share in 1999 and 1998. The Company
intends to continue to pay cash dividends. However, the amount and frequency of
dividends will be determined by the Company's Board of Directors in light of the
earnings, capital requirements and the financial condition of the Company, and
no assurances can be given that dividends will be paid in the future. The
Company's ability to pay dividends will also be dependent on cash dividends paid
to it by the Community Banking Subsidiaries. The ability of the Community
Banking Subsidiaries to pay dividends to the Company is restricted by applicable
regulatory requirements. See "ITEM 1 -- BUSINESS -- Supervision and Regulation."
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31,
2000 1999 1998 1997 1996
------------------------------------------------------
Dollars in Thousands, Except Per Share Amounts
SELECTED INCOME STATEMENT DATA:
Total interest income $ 47,039 $ 40,290 $ 34,613 $ 28,703 $ 24,465
Total interest expense 22,303 17,697 15,950 13,191 11,236
Net Interest income 24,736 22,593 18,663 15,512 13,229
Provision for loan losses 1,621 1,637 1,165 936 757
Non bank subsidiary income 8,915 6,720 9,043 8,820 5,559
Other income 5,678 4,790 4,338 3,599 2,833
Other expenses 27,085 23,831 20,402 18,724 14,950
Net income 7,622 6,076 7,032 5,647 4,044
Diluted earnings per share 3.46 2.80 3.20 2.60 1.93
Cash dividends per share 0.18 0.15 0.15 0.14 0.14
SELECTED BALANCE SHEET DATA:
Total assets $590,323 $516,150 $460,593 $377,080 $315,579
Total deposits 507,495 444,056 405,283 335,545 278,709
Other borrowings 10,844 16,054 5,808 462 616
Redeemable common stock held
by ESOP 15,088 13,982 14,254 10,622 6,177
Shareholders' equity 38,249 30,820 26,291 23,119 21,083
-7-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
The following is a discussion and analysis of the Company's financial
condition at December 31, 2000 and the results of operations for the three year
period ended December 31, 2000. The purpose of the discussion is to focus on
information about the Company's financial condition and results of operations
which are not otherwise apparent from the audited consolidated financial
statements included in this annual report. This discussion and analysis should
be read in conjunction with the consolidated financial statements and related
notes and the selected financial information and statistical data presented
elsewhere in this Annual Report.
BALANCE SHEET REVIEW. We experienced significant growth during 2000.
For the year ended December 31, 2000, consolidated total assets grew $74.2
million, or 14.37%, up from 1999 growth of $55.6 million or 12.06%. During 2000,
the Company's average assets were $546.4 million, compared with $494.7 million
during 1999. This represents a 10.45% increase in average total assets during
2000 compared with a 18.19% increase during 1999.
Our total earning assets, which include investment securities, loans,
Federal funds sold, and interest-bearing deposits in banks increased $62.7
million or 13.60% during 2000. During 1999, earning assets increased $50.2
million, or 12.21%. Average earning assets for 2000 were $498.0 million, an
increase of 12.34% over average earning assets in 1999 which were $443.3 million
or an increase of 19.38% over 1998.
Our total investments increased by $11.2 million or 13.79% over 1999.
Average investments were $88.4 million for 2000, a 11.13% increase over average
investments for 1999. This increase occurred mainly in the available for sale
portfolio.
Our total loans grew by $42.1 million during 2000 for an increase of
11.16% over 1999. During 2000 average loans were $395.2 million or an increase
of 12.82% over 1999 compared to an increase during 1999 of 22.56% to $350.3
million. The increase in loans is primarily the result of continued loan growth
in the Company's existing markets.
Federal funds sold increased by $9.2 million or 312.4% from year-end
1999 to 2000. Average Federal funds for 2000 were $14.1 million or an 8.01%
increase. During 1999, average Federal funds sold increased by $3.6 million or
37.73% as compared to 1998.
The growth in total assets for the year ended December 31, 2000 was
funded mainly by growth in deposits. Consolidated deposits grew $63.4 million or
14.29% in 2000 as compared to $38.8 million or 9.57% in 1999. Deposit growth was
concentrated in time deposits. We experienced a 2.32% increase in interest
bearing demand with an 18.45% growth in noninterest-bearing demand and a 5.33%
growth in savings. We repaid $5 million to the Federal Home Loan Bank to reduce
the $15 million outstanding in 1999.
As shown in Table 2 of the Selected Statistical Data, the average
yields on interest earning assets and interest bearing liabilities showed an
increase from 1999 to 2000 due to increases in interest rates during the year.
The net interest spread decreased by 24 basis points from 1999 to 2000, and the
net interest margin decreased by 13 basis points from 1999 to 2000.
At December 31, 2000, the Company reported net unrealized losses of
approximately $84,000 in the securities available for sale portfolio as compared
to net unrealized losses of approximately $2,212,000 at December 31, 1999. Net
unrealized gains (losses) represent the difference in the amortized cost of
those securities compared to the fair value at those dates and are included in
shareholders' equity, net of the tax effect. Management sells securities to meet
liquidity needs and may sell securities in rising interest-rate environments to
take advantage of higher returns in the long run. In 2000, we sold $1.2 million
of securities classified as available for sale, realizing net losses of $2,350
on a consolidated basis. The Company had no sales of securities during 1999. The
held to maturity securities portfolio included net unrealized gains of
approximately $790,000 at December 31, 2000 compared to net unrealized losses of
$590,000 in 1999. Table 4 of the Selected Statistical Data summarizes the
combined investment portfolios by types of securities. U.S. Treasury and other
U.S. Government agencies and corporations represent 39.53% of the total
portfolio, which typically provide reasonable returns with limited risk. The
remaining portfolio is comprised of municipal securities, mortgage-backed
securities, and equity securities, which provide, in general, higher returns on
a tax equivalent basis, with greater risk elements. Management regularly
monitors the Company's investment portfolios and utilizes forecasting models to
project the Company's net interest margin in various rising, flat, and falling
interest-rate scenarios. In a changing interest rate environment, management
would act to change the Company's asset or liability composition and interest
sensitivity in response to a definitive change in the direction of interest
rates. The Company actively manages the mix of asset and liability maturities to
control the effects of changes in the general level of interest rates on net
interest income. Except for the effect of inflation on interest rates, inflation
does not have a material impact on the Company due to variability and short-term
maturities of its earning assets repriced or matured within one year.
-8-
LIQUIDITY AND CAPITAL RESOURCES. The liquidity and capital resources of
the Company and the Community Banking Subsidiaries are monitored by management
and on a periodic basis by state and federal regulatory authorities. The
individual Community Banking Subsidiaries' liquidity ratios at December 31, 2000
were considered satisfactory under their own guidelines as well as regulatory
guidelines. At that date, the Community Banking Subsidiaries' short-term
investments were adequate to cover any reasonably anticipated immediate need for
funds.
The purpose of liquidity management is to ensure that cash flow is
sufficient to satisfy demands for credit, withdrawals, and other needs of the
Company. Traditional sources of liquidity include asset maturities and growth in
core deposits. A company may achieve its desired liquidity objectives from the
management of assets and liabilities, and through funds provided by operations.
Funds invested in short-term marketable instruments and the continuous maturing
of other earning assets are sources of liquidity from the asset perspective. The
liability base provides sources of liquidity through deposit growth and
accessibility to market sources of funds.
Scheduled loan payments are a relatively stable source of funds, but
loan payoffs and deposit flows are influenced by interest rates, general
economic conditions and competition and may fluctuate significantly. The Company
attempts to price its deposits to meet its asset/liability objectives consistent
with local market conditions.
Cash flows for the Company are of three major types. Cash flows from
operating activities consist primarily of interest and fees received on loans,
interest received on investment securities, Federal funds sold, and interest
bearing deposits less cash paid for interest and operating expenses. Investing
activities use cash for the purchase of interest-bearing deposits, investment
securities, fixed assets and to fund loans. Investing activities also generate
cash from the proceeds of matured interest-bearing deposits, matured investment
securities, sales of investment securities, loan repayments and principal
prepayments of securities. Cash flows from financing activities generate cash
from a net increase in deposit accounts, increases in other borrowed funds and
the issuance of common stock. Financing activities use cash for the payment of
cash dividends and the repayment of other borrowed funds.
At December 31, 2000, the Company's and Community Banking Subsidiaries'
capital ratios were considered adequate based on minimum capital requirements of
the Federal Reserve and the FDIC and applicable state regulatory agencies.
During 2000, the Company increased capital by retaining net earnings of $7.2
million and the issuance of $30,000 in common stock compared to an increase in
1999 of $5.7 million in retained net earnings and the issuance of $89,000 in
common stock. Management believes that the liquidity and capital ratios of the
Company and the Community Banking Subsidiaries are adequate based on regulatory
requirements.
The Company is capable of meeting its debt service requirements related
to existing long-term debt and other borrowings through dividends available from
its subsidiaries and current operations. Although the Company considers that it
has adequate capital to meet its short-term needs, the Company, at times, may
seek additional capital to support its long-term business goals, including
expansion of its fixed asset base, and for general corporate purposes.
For a tabular presentation of the Community Banking Subsidiaries'
capital ratios at December 31, 2000 see "SUPERVISION AND REGULATION".
The Company is not aware of any other trends, events or uncertainties
that will have or that are reasonably likely to have a material effect on the
Company's liquidity, capital resources or operations. The Company is not aware
of any current recommendations by the regulatory authorities, which if they were
implemented, would have such an effect.
EFFECTS OF INFLATION. Inflation impacts banks differently than
non-financial institutions. Banks, as financial intermediaries, have assets
which are primarily monetary in nature and which tend to fluctuate with
inflation. A bank can reduce the impact of inflation by managing its rate
sensitivity gap, which represents the difference between rate-sensitive assets
and rate-sensitive liabilities. The Company, through its asset-liability
committee, attempts to structure the assets and liabilities and manage the
rate-sensitivity gap, thereby seeking to minimize the potential effects of
inflation. See "Asset/liability Management".
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
NET INTEREST INCOME. The Company's results of operations are influenced
by management's ability to effectively manage interest income and expense, to
minimize loan and investment losses, to generate non-interest income and to
control operating expenses. Because interest rates are determined by market
forces and economic conditions beyond the control of the Company, the Company's
ability to generate net interest income is dependent upon its ability to obtain
an adequate net interest spread between the rate paid on interest-bearing
liabilities and the rate earned on interest-earning assets. The Company's net
interest income increased by $2.1 million for the year ended December 31, 2000
as compared to an increase of $3.9 million for the same period in 1999. The
increase in net interest income is attributable to increases in earning assets,
particularly loans, as well as, the increase in rates during 2000. The yield on
interest-earning assets increased 36 basis points in 2000 from 1999, while the
yield on interest earning liabilities increased by 60 basis points. The increase
in average interest earning assets of $54.7 million, net of the increase in
average interest-bearing liabilities of $44.4 million, accounts for the 9.48%
increase in net interest income. Net interest income increased for all Community
Banking Subsidiaries.
-9-
The 24 basis point decrease in the net interest spread in Table 2 is
due to the cost of interest bearing liabilities increasing faster than the
yields on earning assets which is primarily due to competition in the local
markets. Net interest income for 1999 increased $3.9 million over 1998. The
increase was also mainly attributable to growth in earning assets as shown in
Table 1.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year
ended December 31, 2000 decreased by $16,000 from $1,637,000 at December 31,
1999 to $1,621,000 at December 31, 2000. In 1999 the provision increased
$472,000 from the December 31, 1998 level of $1,165,000. The provision for loan
losses will fluctuate as the volume of loans changes and credit quality is
evaluated. Management maintains an allowance for loan losses based on the
evaluation of potential problem loans as well as minimal reserves for all loans
based on past net charge-off experience. The guaranteed portion of small
business loans generated by the loan production office are subsequently sold.
Because most loans retained by the loan production office consist of the portion
of SBA loans that are not guaranteed and are out-of market, these loans require
additional allowances due to the greater risk of loss in the event of default.
These loans, however, are subjected to the same underwriting standards and
periodic loan review procedures as other loans made by the Community Banking
Subsidiaries.
As shown in Table 8 of the Selected Statistical Data, nonaccrual and
restructured loans decreased $698,000 from December 31, 1999 compared to a
$894,000 increase over 1998. Delinquent and nonaccrual loans will fluctuate
depending on economic conditions, which effect not only conventional loans but
also the SBA loans. Management has reviewed these loans and determined that the
likelihood of any loss of principal is minimal because the loans are adequately
collateralized. The ratio of the allowance for loan losses to nonaccrual and
restructured loans increased from 220% at December 31, 1999 to 334% at December
31, 2000.
The allowances for loan losses as a percentage of total loans
outstanding at December 31, 2000 and 1999 was 1.51% both years. Net charge-offs
in 2000 were $997,000, an increase of $180,000 from $817,000 in 1999, and the
net charge-off ratio increased from .23 in 1999 to .25 in 2000. Based on
management's evaluation of the loan portfolio, including a review of past loan
losses, current conditions which may affect borrowers' ability to repay and the
underlying collateral value of the loans, management considers the allowance for
loan losses to be adequate.
OTHER INCOME. Other income consists of non-interest income from
operations of the Community Banking Subsidiaries and income from Financial
Supermarkets. Traditional non-interest income of the Community Banking
Subsidiaries accounts for 38.9%, or $5.7 million of total other income for 2000,
41.6% in 1999, and 32.4% in 1998. The majority of the increase in other income
of the Community Banking Subsidiaries is related to the continued growth in
deposits. Service charges on deposit accounts increased by $660,000 and
$337,000, respectively, for the years ended December 31, 2000 and 1999.Fees vary
with the number of accounts and increases in charges associated with deposit
accounts. Average demand deposit and savings accounts decreased 1.14% in 2000
compared to 23.2% increase in 1999 over 1998. Included in other income of the
Community Banking Subsidiaries are gains on sale of loans recognized by
Community of $358,000 and $319,000 for 2000 and 1999, respectively. This
represents a decrease from 1999 of $39,000.
The allocation of services as a percentage of total income for Financial
Supermarkets is shown below:
FINANCIAL SUPERMARKETS
Consulting Services provided for Supermarket
bank installation and opening 52%
Supermarket consulting and ancillary services 45
Other Miscellaneous Consulting Services 3
---
100%
The primary business of Financial Supermarkets is services offered in
connection with the establishment and operation of Supermarket Bank(R) service
centers. In 2000, Financial Supermarkets had net consulting revenue of $6.2
million compared to $3.9 million in 1999, a decrease of $2.2 million or 57% .
The decrease in net consulting revenues in 1999 over 1998 was $2.5 million, or
39%.
The Company has had in increase in installations of supermarket bank
units during 2000 as compared to 1999. This increase is primarily due to the
increase in activity associated with FSI's agreement with the Canadian Imperial
Bank of Commerce ("CIBC") to establish banking pavilions in Florida. Management
anticipates the level of activity associated with pavilion installations for
CIBC to continue for the foreseeable future.
NON-INTEREST EXPENSE. Other expenses increased for the year ended
December 31, 2000 by $3.3 million compared to the $3.4 million increase in 1999.
This represented a 13.65% increase in expenses for 2000 and 16.81% increase in
1999. Salaries and benefits increased $2,049,000 or 16.60% in 2000 over 1999 due
primarily to the staffing of new branches and general growth of the Company.
This compares to an increase of $1,669,000 or 15.63 % in 1999 over 1998.
Salaries and benefits continue to increase as a result of the growth in the
banking subsidiaries as well as incentive pay associated with FSI. For the years
ended 2000, 1999, and 1998 the Company had total employees (F.T.E.) of 357, 313,
and 282, respectively. Other expenses increased by 1.0 million in 2000 and 1.0
million in 1999 primarily due to growth of the banking subsidiaries, increased
costs associated with day-to-day operations and increased activity of FSI.
-10-
Equipment and occupancy expenses increased by $231,000 or 5.88% in 2000
over 1999 and $781,000 or 24.82% in 1999 over 1998. The growth is due to the
increased number of facilities operated by the Community banking subsidiaries as
well as additions of computer equipment necessary to operate the Company. The
Company operated 33, 29 and 26 locations at the year-end 2000, 1999, and 1998,
respectively. As 2000 closed, preparations were being made to open 4 additional
facilities during 2001. Management expects these locations to add to the
continued growth and profitability of the Company.
Other Expenses
-------------------- Increase/
2000 1999 (Decrease)
-------------------------------
(Dollars in Thousands)
The Company
Salaries and benefits $14,395 $12,346 $2,048
Equipment expenses 2,564 2,542 22
Occupancy expenses 1,595 1,386 209
Data processing expenses 833 886 (53)
Travel expenses 906 678 228
Office supply expenses 612 623 (11)
Other operating expenses 6,181 5,371 811
------ ------- ------
$27,086 $23,832 $3,254
======= ======= ======
INCOME TAXES. The Company incurred income tax expenses of $3.0 million
in 2000 which represented an effective tax rate of 28%, compared to tax expense
of $2.6 million in 1999, or an effective tax rate of 30%. Income tax expense
decreased $886,000 from 1998 to $2.6 million in 1999. The effective tax rate for
December 31, 1998 was 33%. The Company's effective tax rate is primarily
dependent on the level of tax exempt interest on bonds.
NET INCOME. The Company's net income for 2000 was $7.6 million, as
compared to $6.1 million in 1999, an increase of 25.44%. The increase in net
income between 2000 and 1999 is primarily attributable to the increase in net
interest income, as well as, an increase in non-bank subsidiary income. Net
income for 1999 decreased to $6.1 million or 14% over 1998's net income of $7.0
million.
ASSET/LIABILITY MANAGEMENT. The Company's objective is to manage assets
and liabilities to maintain satisfactory and consistent profitability. Officers
of each Community Banking Subsidiary are charged with monitoring policies and
procedures designed to ensure an acceptable asset/liability mix. Management's
philosophy is to support asset growth primarily through growth of core deposits
within the Community Banking Subsidiaries' market areas.
The Company's asset/liability mix is monitored regularly with a report
reflecting the interest rate sensitive assets and interest rate sensitive
liabilities is prepared and presented to the Board of Directors of each
Community Banking Subsidiary on at least a quarterly basis. Management's
objective is to monitor interest rate sensitive assets and liabilities so as to
minimize the impact on earnings of substantial fluctuations in interest rates.
An asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate-sensitivity gap is the difference between the interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
the relevant period. A gap is considered positive when the amount of interest
rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities.
A gap is considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income. If the
Company's assets and liabilities were equally flexible and moved concurrently,
the impact of any increase or decrease in interest rates on net interest income
would be minimal.
At December 31, 2000, the Company's cumulative one year interest rate
sensitivity gap ratio was 119%. The Company was cumulatively within its targeted
range of 80% to 120% for all time horizons.
-11-
The following table sets forth the distribution of the repricing of the
Company's earning assets and interest-bearing liabilities as of December 31,
2000, the interest rate sensitivity gap, the cumulative interest
rate-sensitivity gap, the interest rate-sensitivity gap ratio and the cumulative
interest rate-sensitivity gap ratio. The table also sets forth the time periods
in which earning assets and liabilities will mature or may reprice in accordance
with their contractual terms. However, the table does not necessarily indicate
the impact of general interest rate movements on the net interest margin since
the repricing of various categories of assets and liabilities is subject to
competitive pressures and the needs of the Company's customers. In addition,
various assets and liabilities indicated as repricing within the same period may
in fact, reprice at different times within such period and at different rates.
Community Bankshares, Inc.
Consolidated Gap Report
After After
Three One
Month Year but
Within But Within After
Three Within Five Five
Months One Year Years Years Total
(Dollars in
Thousands)
Interest earning assets:
Interest-bearing deposits 453 - - - 453
Federal funds sold 12,125 - - - 12,125
Investment securities 2,215 4,170 28,302 57,575 92,262
Loans 148,388 94,283 162,735 13,514 418,920
------------------------------------------------- ------------
163,181 98,453 191,037 71,089 523,7605
------------------------------------------------- ------------
Interest-bearing liabilities:
Interest-bearing demand 101,486 - - - 101,486
Savings 21,913 - - - 21,913
Time deposits, $100,000
and over 23,222 49,254 30,366 - 102,842
Time deposits, less than
$100,000 45,243 105,731 52,302 18 203,294
Other borrowings 844 10,000 10,844
------------------------------------------------- ------------
192,708 154,985 82,668 10,018 440,379
------------------------------------------------- ------------
Interest rate sensitivity
Gap (29,527) (56,532) 108,369 61,071 83,381
------------------------------------------------- ------------
Cumulative interest rate
Sensitivity gap (29,527) (86,059) 22,310 83,381
-------------------------------------------------
Interest rate sensitivity
Gap 0.85 0.64 2.31 7.10
-------------------------------------------------
Cumulative interest rate
Sensitivity gap 0.85 0.75 1.05 1.19
-------------------------------------------------
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the Company also evaluates how changes in interest rates
impacts the repayment of particular assets and liabilities. Income associated
with interest-earning assets and costs associated with interest-bearing
liabilities may not be affected uniformly by changes in interest rates. In
addition, the magnitude and duration of changes in interest rates may
significantly effect net interest income. For example, although certain assets
and liabilities may have similar maturities or periods of repricing, they may
react in different degrees to changes in market interest rates. Interest rates
on certain types of assets and liabilities fluctuate in advance of changes in
general market rates, while interest rates on other types may lag behind changes
in general market rates. In addition, certain assets have features (generally
referred to as "interest rate caps and floors") which limit changes in interest
rates. Also, prepayments and early withdrawal levels could deviate significantly
from those assumed in calculating the interest rate gap. Changes in interest
rates also effect the Company's liquidity position, if deposits are not priced
in response to market rates, a loss of deposits could occur which would
negatively effect the Company's liquidity position. The Company prepares a
report monthly that measures the potential impact on net interest margin by
rising or falling rates. This report is reviewed monthly by the Asset/Liability
Committee and quarterly by each Board of Directors. (See "QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK")
-12-
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed only to U.S. dollar interest rate changes and
accordingly, the Company manages exposure by considering the possible changes in
the net interest margin. The Company does not have any trading instruments nor
does it classify any portion of the investment portfolio as held for trading.
The Company does not engage in any hedging activities or enter into any
derivative instruments with a higher degree of risk than mortgage backed
securities, which are commonly pass through securities. Finally, the Company has
no exposure to foreign currency exchange rate risk, commodity price risk, and
other market risks.
Interest rates play a major part in the net interest income of a
financial institution. The sensitivity to rate changes is known as "interest
rate risk." The repricing of interest earning assets and interest-bearing
liabilities can influence the changes in net interest income. As part of the
Company's asset/liability management program, the timing of repriced assets and
liabilities is referred to as Gap management. It is the policy of the Company to
maintain Gap ratio in the one-year time horizon of .80 to 1.20. See
"ASSET/LIABILITY MANAGEMENT".
GAP management alone is not enough to properly manage interest rate
sensitivity, because interest rates do not respond at the same speed or at the
same level to market rate changes. For example, savings and money market rates
are more stable than loans tied to a "Prime" rate and thus respond with less
volatility to a market rate change.
The Company uses a simulation model to monitor changes in net interest
income due to changes in market rates. The model of rising, falling and stable
interest rate scenarios allows management to monitor and adjust interest rate
sensitivity to minimize the impact of market rate swings. The analysis of impact
on net interest margins as well as market value of equity over a twelve month
period is subjected to a 200 basis point increase and decrease in rate. The
December model reflects an increase of 5% in net interest income and a 12%
decrease in market value equity for a 200 basis point increase in rates. The
same model shows a 5% decrease in net interest income and a 12% increase in
market value equity for a 200 basis point decrease in rates. The Company's
policy is to allow no more than +- 8% change in net interest income and no more
than +- 25% change in market value equity for these scenarios. Therefore, the
Company is within its policy guidelines and is protected from any significant
impact due to market rate changes .
SELECTED STATISTICAL INFORMATION
The tables and schedules on the following pages set forth certain significant
financial information and statistical data with respect to the distribution of
assets, liabilities and shareholders' equity of the Company; the interest rates
and interest differentials experienced by the Company; the investment portfolio
of the Company; the loan portfolio of the Company, including types of loans,
maturities and sensitivity to changes in interest rates and information on
nonperforming loans; summary of the loan loss experience and reserves for loan
losses of the Company; types of deposits of the Company and the return on equity
and assets for the Company.
-13-
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIALS
Table 1 Average Balances
The condensed average balance sheets for the periods indicated are presented below.(1)
2000 1999 1998
-----------------------------------------
ASSETS
Cash and due from banks 25,402 28,757 25,330
Interest-bearing deposits in banks 336 390 747
Taxable securities 43,090 48,378 42,262
Nontaxable securities 45,270 31,134 32,991
Unrealized gains (losses) on securities
Available for sale (1,790) (645) 200
Federal Funds Sold 14,125 13,077 9,495
Loans (2)(3) 395,169 350,278 285,809
Allowance for loan losses (6,043) (5,287) (4,382)
Other assets 30,805 28,605 26,098
----------------------------------------
546,364 494,687 418,550
----------------------------------------
Total interest-earning assets 497,990 443,257 371,304
----------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand 66,760 66,719 52,966
Interest-bearing demand 100,094 102,770 83,422
Savings 22,506 21,540 18,672
Time 283,816 242,434 217,831
-----------------------------------------
Total deposits 473,176 433,463 372,891
Other borrowings 15,001 10,271 1,699
Other liabilities 11,862 8,181 6,633
-----------------------------------------
Total liabilities 500,039 451,915 381,223
-----------------------------------------
Shareholders' equity (4) 46,325 42,772 37,327
-----------------------------------------
546,346 494,687 418,550
-----------------------------------------
Total interest-bearing liabilities 421,417 377,015 321,624
-----------------------------------------
(1) Average balances calculated using daily averages during 2000 and using
month-end balances during 1999 and 1998
(2) Includes non-accrual loans
(3) Loans are net of unearned fees
(4) Unrealized gains & losses on securities available for sale, net of tax are
included in equity
-14-
TABLE 2 INTEREST INCOME AND INTEREST EXPENSE
The following tables set forth the amount of the Company's interest
income and interest expense for each category of interest-earning asset and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets.
Year Ended December 31,
2000 1999 1998
Average Average Average
Interest Rate Interest Rate Interest Rate
INTEREST INCOME:
Interest and fees on loans 41,189 10.42% 35,040 10.00% 29,767 10.41%
Interest on taxable securities 2,831 6.57% 2,378 4.92% 2,565 6.07%
Interest on nontaxable securities 2,162 4.78% 1,995 6.41% 1,710 5.18%
Interest on Federal Funds sold 842 5.96% 858 6.56% 535 5.63%
Interest on deposits in banks 15 4.46% 19 4.87% 36 4.82%
-------- -------- --------
Total interest income 47,039 9.45% 40,290 9.09% 34,613 9.32%
-------- -------- --------
INTEREST EXPENSE:
Interest expense on interest-bearing
demand deposits 3,022 3.02% 2,764 2.69% 2,511 3.01%
Interest on savings deposits 600 2.67% 566 2.63% 516 2.76%
Interest on time deposits 17,819 6.28% 13,838 5.71% 12,812 5.88%
Interest on other borrowings 862 5.74% 529 5.15% 111 6.53%
Total interest expense 22,303 5.29% 17,697 4.69% 15,950 4.96%
-------- -------- --------
NET INTEREST INCOME 24,736 22,593 18,663
-------- -------- --------
Net interest spread 4.16% 4.40% 4.36%
Net yield on average
Interest-earning assets 4.97% 5.10% 5.03%
-15-
TABLE 3 RATE AND VOLUME ANALYSIS
The following table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and expense during the
year indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(1) change in volume (change in volume multiplied by old rate); (2) change in
rate (change in rate multiplied by old volume); and (3) a combination of change
in rate and change in volume. The changes in interest income and interest
expense attributable to both volume and rate have been allocated proportionately
to the change due to volume and the change due to rate.
Year Ended December 31,
2000 vs. 1999
Changes Due to:
Increase
Rate Volume (decrease)
----------------------------------------------
(Dollars in Thousands)
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans 1,516 4,633 6,149
Interest on taxable securities 734 (281) 453
Interest on nontaxable securities (591) 758 167
Interest on Federal Funds sold (82) 66 (16)
Interest on deposits in banks (2) (2) (4)
-----------------------------------------
Total interest income 1,575 5,174 6,749
-----------------------------------------
Expense from interest-bearing liabilities:
Interest expense on interest-bearing deposits 332 (74) 258
Interest on savings deposits 8 26 34
Interest on time deposits 1,470 2,511 3,981
Interest on other borrowings 67 266 333
-----------------------------------------
Total interest expense 1,877 2,729 4,606
-----------------------------------------
Net interest income (302) 2,445 2,143
-----------------------------------------
Year Ended December 31,
1999 vs. 1998
Changes Due to:
Increase
Rate Volume (decrease)
----------------------------------------------
(Dollars in Thousands)
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans (1,216) 6,489 5,273
Interest on taxable securities (528) 341 (187)
Interest on nontaxable securities 386 (101) 285
Interest on Federal Funds sold 98 225 323
Interest on deposits in banks 0 (17) (17)
-----------------------------------------
Total interest income (1,260) 6,937 5,677
-----------------------------------------
Expense from interest-bearing liabilities:
Interest expense on interest-bearing deposits (286) 539 253
Interest on savings deposits (26) 76 50
Interest on time deposits (380) 1,406 1,026
Interest on other borrowings (29) 447 418
-----------------------------------------
Total interest expense (721) 2,468 1,747
-----------------------------------------
Net interest income (539) 4,469 3,930
-----------------------------------------
-16-
INVESTMENT PORTFOLIO
TABLE 4 TYPES OF INVESTMENTS
The carrying amounts of securities at the dates indicated are summarized as follows:
December 31,
2000 1999 1998
--------------------------------------------
(Dollars in Thousands)
U. S. Treasury and other U. S. Government
Agencies and corporations $36,473 $30,708 $25,987
Municipal securities 46,234 39,865 36,753
Mortgage-backed securities 7,668 8,785 8,979
Equity securities 1,887 1,725 1,721
--------------------------------------------
$92,262 $81,083 $73,440
--------------------------------------------
Securities include "held to maturity" securities carried at
amortized cost and "available-for-sale" securities carried at fair
value.
The Community Banking Subsidiaries' mortgage-backed portfolio consists
of thirty-four U.S. Government corporation collateralized mortgage obligations.
The actual maturity of these securities will differ from the contractual
maturity because borrowers on the underlying loans may have the right to prepay
obligations with or without prepayment penalties. Decreases in interest rates
will generally cause prepayments to increase while increases in the interest
rates will have the opposite effect on prepayments. Prepayments of the
underlying loans may shorten the life of the security, thereby adversely
effecting the yield to maturity. In an increasing interest rate, the Community
Banking Subsidiaries may have an obligation yielding a return less than the
current yields on securities. However, because the majority of these in
mortgage-backed securities have adjustable rates, negative effects of changes in
interest rates on earnings and carrying values of these securities are somewhat
mitigated.
TABLE 5 MATURITIES OF INVESTMENTS
The amounts of securities in each category as of December 31, 2000 are
shown in the following table according to maturity classifications of one year
or less, after one year through five years, after five years through ten years,
and after ten years.
U. S. Treasury and Other
U. S. Government agencies
and corporations (3) Municipal securities (2) Other Securities (4)
Amount Yield (1) Amount Yield (1) Amount Yield (1)
------------------------------------------------------------------------------------
One year or less 4,002 5.82% 496 5.87% 1,887 7.00%
After one year
Through five years 23,443 5.96% 4,859 4.46% - -
After five years
Through ten years 12,092 5.20% 11,053 4.90% - -
After ten years 4,604 6.51% 29,826 5.04% - -
------ ------ -----
Total 44,141 5.80% 46,234 4.96% 1,887 7.00%
------ ------ -----
(1) Yields were computed using book value, coupon interest, adding
discount accretion or subtracting premium amortization, as appropriate,
on a ratable basis over the life of each security. The weighted average
yield for each maturity range was computed using the carrying value of
each security in that range.
(2) Yields on municipal securities have not been computed on a tax
equivalent basis.
(3) The above schedule includes mortgage-backed securities based on
their contractual maturity date. In practice, cash flow in these
securities is significantly faster than their stated maturity
schedules.
(4) Other securities consists of equity securities and are included in
the under one year maturity range because the securities have no
contractual maturity date.
-17-
LOAN PORTFOLIO
TABLE 6 Types of Loans
The amount of loans outstanding at the indicated dates are in the
following table according to the type of loan.
December 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------------
(Dollars in Thousands)
Commercial, financial
and agricultural (1) $203,799 $206,505 $161,572 $118,376 $102,231
Real estate-construction 28,120 24,208 21,327 21,234 9,506
Real estate-mortgage 129,750 93,063 82,413 69,541 57,566
Consumer and other (2) 57,251 53,093 48,825 36,070 36,483
--------------------------------------------------------------------------
$418,920 $376,869 $314,137 $245,221 $205,786
Less allowance for loan losses (6,307) (5,683) (4,863) (4,024) (3,592)
--------------------------------------------------------------------------
Net loans $412,613 $371,186 $309,274 $241,197 $202,194
--------------------------------------------------------------------------
(1) Commercial, financial and agricultural loans include loans held
for sale which are disclosed separately in the consolidated balance
sheets.
(2) Amounts are disclosed net of unearned loan income.
See "Business Description of the Community Banking- Loans" for a
description of the composition of each loan, the underwriting criteria and risks
that are unique to each.
TABLE 7 MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
Total loans as of December 31, 2000 are shown in the following table
according to maturity classifications one year or less, after one year through
five years and after five years.
December 31, 2000
(Dollars in Thousands)
(1)
Maturity:
One year or less:
Commercial, financial and agricultural $110,238
Real estate-construction 26,134
All other loans 56,573
----------
$192,945
----------
After one year through five years:
Commercial, financial and agricultural $82,428
Real estate-construction 1,418
All other loans 93,639
----------
$177,485
----------
After five years:
Commercial, financial and agricultural $37,610
Real-estate construction 567
All other loans 9,302
----------
$47,479
----------
$417,909
==========
(1) Does not include loans held for sale.
The following table summarizes loans at December 31, 2000 with due
dates after one year which have predetermined and floating or adjustable
interest rates.
December 31, 2000
(Dollars in Thousands)
Predetermined interest rates $176,249
Floating or adjustable interest rates 48,715
-----------
$224,964
-----------
Records were not available to present the above information in each
loan category listed in the first paragraph above and could not be reconstructed
without undue burden and cost to the Company.
-18-
TABLE 8 Nonaccrual, Past Due and Restructured Loans
Information with respect to nonaccrual past due and restructured loans
at the indicated dates is as follows:
December 31,
2000 1999 1998 1997 1996
----------------------------------------------------------------
(Dollars in Thousands)
Nonaccrual loans $1,143 $1,743 $1,119 $714 $1,119
Loans contractually past due ninety days
or more as to interest or principal
Payments and still accruing 1,281 1,572 706 533 445
Loans, the terms of which have been Renegotiated
to provide a reduction or deferral of interest
or principal because of deterioration in the
financial position of the borrower 744 842 572 704 620
Loans, now current about which there are serious
doubts as to the ability of the borrower to
comply with present loan repayment terms - - - - -
The reduction in interest income associated with nonaccrual and
renegotiated loans as of December 31, 2000 is as follows:
December 31, 2000
Interest income that would have been recorded on nonaccrual
and restructured loans under original terms $160
-------
Interest income that was recorded on nonaccrual and restructured loans $38
-------
The Community Banking Subsidiaries' policy is to discontinue the
accrual of interest income when, in the opinion of management, collection of
such interest becomes doubtful. This status is accorded such interest when (1)
there is a significant deterioration in the financial condition of the borrower
and full repayment of principal and interest is not expected and (2) the
principal or interest is more than ninety days past due, unless the loan is both
well-secured and in the process of collection. Accrual of interest on such loans
is resumed, in management's judgment, the collection of interest and principal
become probable. Loans classified for regulatory purposes as loss, substandard,
or special mention that have not been included in the table above do not
represent or result from trends or uncertainties which management reasonably
expects will materially effect future operating results, liquidity or capital
resources. These classified loans do not represent material credits about which
management is aware and which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
-19-
COMMITMENTS AND LINES OF CREDIT
The Community Banking Subsidiaries will, in the normal course of
business, commit to extend credit in the form of letters of credit or lines of
credit. The amount of outstanding loan commitments and letters of credit at
December 31, 2000 and 1999 were $31,894,087 and $30,544,552, respectively.
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
SUMMARY OF LOAN LOSS EXPERIENCE
TABLE 9
The following table summarizes average loan balances for each year
determined using the daily average balances during the year; changes in the
reserve for possible loan losses arising from loans charged off and recoveries
on loans previously charged off; additions to the reserve which have been
charged to operating expense; and the ratio of net charge-offs during the year
to average loans.
December 31,
2000 1999 1998 1997 1996
------------------------------------------------------------------
(Dollars in Thousands)
Average amount of loans outstanding $395,169 $350,278 $285,809 $223,170 $191,180
------------------------------------------------------------------
Balance of allowance for loan losses
at beginning of year $5,683 $4,863 $4,024 $3,592 $3,060
------------------------------------------------------------------
Loans charged off
Commercial ($461) ($423) ($97) ($136) ($118)
Real estate mortgage - (23) (7) (35) -
Consumer (693) (632) (391) (424) (211)
------------------------------------------------------------------
($1,154) ($1,078) ($495) ($595) ($329)
------------------------------------------------------------------
Loans recovered
Commercial $16 $45 $20 $11 $5
Real estate mortgage - 4 19 28 35
Consumer 141 212 130 52 64
------------------------------------------------------------------
$157 $261 $169 $91 $104
------------------------------------------------------------------
Net charge-offs ($997) ($817) ($326) ($504) ($225)
------------------------------------------------------------------
Additions to allowance charged
to operating expense during year $1,621 $1,637 $1,165 $936 $757
------------------------------------------------------------------
Balance of allowance for loan losses
at end of year $6,307 $5,683 $4,863 $4,024 $3,592
------------------------------------------------------------------
Ratio of net loans charged off during
the year to average loans outstanding 0.25% 0.23% 0.11% 0.23% 0.12%
------------------------------------------------------------------
-20-
ALLOWANCE FOR LOAN LOSSES
The provision for possible loan losses is created by direct charges to
income. Losses on loans are charged against the allowance in the year in which
such loans, in management's opinion, become uncollectible. Recoveries during the
year are credited to this allowance. The factors that influence management's
judgment in determining the amount charged to income are past loan loss
experience, composition of the loan portfolio, evaluation of possible future
losses, current economic conditions and other relevant factors. The Company's
allowance for loan losses was $6,307,000 at December 31, 2000, representing
1.51% of total loans, compared with $5,683,000 at December 31, 1999, which
represented 1.51% of total loans. The allowance for loan losses is reviewed
regularly based on management's evaluation of current risk characteristics of
the loan portfolio, as well as the impact of prevailing and expected economic
business conditions. Management considers the allowance for loan losses adequate
to cover possible loan losses at December 31, 2000.
Historically, management has not allocated the Company's allowance for
loan losses to specific categories of loans. However, based on management's best
estimate and historical experience, the allocation of the allowance for loan
losses for December 31, 2000, 1999, 1998, 1997 and 1996 is summarized below:
December 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------
(Dollars in Thousands)
Commercial $2,523 $2,671 $2,160 $1,850 $1,830
Real estate 630 568 270 230 105
Consumer 3,154 2,444 2,433 1,944 1,657
--------------------------------------------------------------------
$6,307 $5,683 $4,863 $4,024 $3,592
--------------------------------------------------------------------
Percent of loans in Each Category of Total Loans
December 31,
2000 1999 1998 1997 1996
--------------------------------------------------------------------
(Dollars in Thousands)
Commercial 48% 55% 51% 49% 50%
Real estate 38% 31% 33% 35% 33%
Consumer 14% 14% 16% 16% 17%
--------------------------------------------------------------------
100% 100% 100% 100% 100%
--------------------------------------------------------------------
-21-
DEPOSITS
TABLE 10
Average amount of deposits and average rates paid thereon, classified
as to noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits, for the years indicated are presented below.
Year Ended December 31,
2000 1999 1998
Average Average Average
Balance Interest Balance Interest Balance Interest
Rate Rate Rate
----------------------------------------------------------------
Noninterest-bearing demand $66,760 $66,719 $52,966 -
Interest-bearing demand deposits 100,094 3.02% 102,770 2.69% 83,422 3.01%
Savings deposits 22,506 2.67% 21,540 2.63% 18,672 2.76%
Time deposits 283,816 6.28% 242,434 5.71% 217,831 5.88%
--------- -------- --------
Total deposits $473,176 $433,463 $372,891
--------- -------- --------
Average balances were determined using daily averages during 2000 and
using month-end balances during1999 and 1998 for each category.
The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 2000 are shown below by category, which is
based on time remaining until maturity of (1) three months or less, (2) over
three through six months, (3) over six through twelve months and (4) over twelve
months.
December 31, 2000
(Dollars in Thousands)
Three months or less $23,222
Over three through six months 14,942
Over six through twelve months 34,312
Over twelve months 30,366
------------
$102,842
------------
-22-
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
TABLE 11
The following rate of return information for the years is presented
below.
Year Ended December 31,
2000 1999 1998
---------------------------------------
Return on assets (1) 1.40% 1.23% 1.68%
Return on equity (2) 16.45% 14.21% 18.84%
Dividend payout ratio (3) 5.16% 5.36% 4.63%
Equity to assets ratio (4) 8.48% 8.65% 8.92%
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by basic earnings per share.
(4) Average equity divided by average total assets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the report of independent accountants are
included in this report beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the Company's two most recent fiscal years, the Company did not
change accountants and had no disagreement with its accountants on any matters
of accounting principles or practices or financial statement disclosure.
-23-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a brief description, as of December 31, 2000, of the
business experience of each of the directors and executive officers of the
Company who, except as otherwise indicated, has been or was engaged in his or
her present of last principal employment, in the same or a similar position, for
more than five years:
Steven C. Adams (52) Mr. Adams has been an attorney with the firm of
Adams, Ellard & Frankum, P.C. since 1973 and
President of Chatham Transport Company, a trucking
company, since 1994. He has been a director of the
Company, Community, and Financial Supermarkets
since 1990. He was named a director of Financial
Properties, Inc. in 1998.
Edwin B. Burr (67) Mr. Burr has served as a director of the Company
since April of 1995 and Financial Supermarkets
since 1992. Mr. Burr has been President of
Financial Solutions, a bank consulting firm since
1988. He has been a director of Community -
Alabama since 1997.
Wesley A. Dodd, Jr. Mr. Dodd has been Executive Vice President of the
(36) Company, Community and Financial Properties since
April 2000.
Annette R. Fricks (56) Mrs. Fricks has been an Executive Vice President
and Corporate Secretary of the Company and
Community since 1992 and 1996, respectively, and
has also served as Corporate Secretary of Financial
Supermarkets since 1984. She was named the
Executive Vice President and Corporate Secretary
for Financial Properties in 1998.
Charles M. Miller (59) Mr. Miller has served as an Executive Vice
President of Company, the President and Chief
Operating Officer and director of Community and the
Executive Vice President and director of Financial
Supermarkets since 1990. Mr. Miller has served as
a director of Community - Troup since November
1995. He was named a director of Financial
Properties in 1998.
Harry L. Stephens (54) Mr. Stephens has been an Executive Vice President
and the Chief Financial Officer of the Company and
Community since 1992 and has served as Senior Vice
President and Treasurer of Financial Supermarkets
since 1986. He was named Senior Vice President and
Treasurer of Financial Properties, Inc. in 1998.
H. Calvin Stovall, Mr. Stovall, who is retired, was the President and
Jr. (85) treasurer of Stovall Tractor Company, a retail farm
equipment dealer, from 1948 until November 1995.
He served as the Chairman of the Company's Board of
Directors 1981-1998 and was named Chairman Emeritus
in 1998. Mr. Stovall has also served as a director
of Community, Financial Supermarkets and Community
- Troup since 1963, 1984 and November 1994,
respectively. He was also named a director of
Financial Properties, Inc. in 1998.
Dean C. Swanson (69) Mr. Swanson was President of the Standard Group, a
telecommunications company until January 1999. He
is a director of Independent Telecommunications
Network. Mr. Swanson has served as a director of
the Company, Community and Financial Supermarkets
since 1981, 1972, and 1984, respectively. He was
named a director of Financial Properties, Inc. in
1998.
Dr. A. Dan Windham Mr. Windham is a physician at Habersham County
(63) Medical Center. Mr. Windham has served as a
Director of Community since 1996
and was elected to the Company's
Board of Directors in February
2001.
George D. Telford (80) Mr. Telford is a retired bank executive and has
served as a director of the Company and Community
since 1981 and 1965, respectively, as well as of
Financial Supermarkets since 1993. He was named a
director of Financial Properties, Inc. in 1998.
J. Alton Wingate (61) Mr. Wingate has served as a director and the
President and Chief Executive Officer of the
Company, Community and Financial Supermarkets since
1981, 1977 and 1984, respectively. Mr. Wingate was
named Chairman of the Board in 1998. He has also
been the Chairman of the Board of Directors and a
-24-
director of Community - Alabama, and Community -
Troup since 1990, and November 1994, respectively.
He was named President and Chief Executive Officer
of Financial Properties, Inc. in 1998. Mr. Wingate
has been Chairman and Chief Executive Officer of
Community since 1996 and has been Chairman,
President, and Chief Executive Officer of Financial
Supermarkets since 1984.
Lois M. Wood-Schroyer (62) Ms. Wood-Schroyer is the Chairman, Chief Executive
Officer, Director, and President of Woods Furniture
Co. Ms. Wood-Schroyer has served as a Director of
Community since 1990 and was elected to the
Company's Board of Directors in 1999.
Directors are elected at each annual meeting of shareholders and hold
office until the next annual meeting and until their successors are elected and
qualified. The executive officers are elected by the Board of Directors and
serve at the will of the Board. There are no family relationships between
executive officers and directors of the Company.
The Company is not subject to Section 16(a) of the Securities Exchange
Act of 1934.
-25-
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the annual and long-term compensation
paid by the Company to the Chief Executive Officer of the Company and the three
other most highly compensated officers of the Company whose salary and bonus
exceeded $100,000 during the last fiscal year (the "Named Executive Officers").
Summary Compensation Table
-------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------------------------------ ---------------------------------
Securities
Name and Underlying All Other
Principal Position Year Salary$ (1) Bonus (2) Options/SARS Compensation
(#)
J. Alton Wingate 2000 349,200 880,048 (3) 42,923 (4)
President and Chief 1999 347,950 1,222,960 (3) 41,966
Executive Officer 1998 245,500 1,360,258 (3) -- 30,499
Charles M. Miller 2000 146,800 35,000 -- 29,255 (5)
Executive Vice 1999 145,600 35,000 -- 27,512
President 1998 145,600 30,000 -- 23,512
Harry L. Stephens 2000 109,639 52,500 -- 25,059 (6)
Executive Vice 1999 105,960 52,500 -- 22,658
President and Chief 1998 98,000 52,500 -- 20,816
Financial Officer
Annette R. Fricks 2000 107,139 67,500 25,354 (7)
Executive Vice 1999 99,460 62,500 21,096
President and 1998 88,000 57,500 -- 17,844
Corporate Secretary
Wesley A. Dodd, Jr. 2000 87,116 42,000 -- 20,283 (8)
Executive Vice 1999 82,769 40,000 -- 18,965
President of 1998 78,812 32,500 -- 5,681
Corporate Finance
(1) Includes directors' fees.
(2) Bonuses are included in this report in the year paid.
(3) Mr. Wingate's bonus is contractually based on the performance of Financial
Supermarkets, with caps and guaranteed rates of return before the bonus can
be calculated and paid.
(4) Included premiums of $6,117 paid for Mr. Wingate's life insurance policies,
estimated employee stock ownership plan ("ESOP") contributions of $19,000
and 401(k) matching contributions by the Company in the amount of $2,379.
Final ESOP contributions have not yet been determined for 2000.
(5) Includes premiums of $4,384 paid for Mr. Miller's life insurance policies,
estimated ESOP contributions of $18,000 and 401(k) matching contributions
by the Company in the amount of $2,400. Final ESOP contributions have not
yet been determined for 2000.
(6) Includes premiums of $1,464 paid for Mr. Stephens' life insurance policies,
estimated ESOP contributions of $17,500 and 401(k) matching contributions
by the Company in the amount of $2,378. Final ESOP contributions have not
yet been determined for 2000.
(7) Includes premiums of $1,645 paid for Mrs. Fricks' life insurance policies,
estimated ESOP contributions of $17,000 and 401(k) matching contributions
by the Company in the amount of $2,397. Final ESOP contributions have not
yet been determined for 2000.
(8) Includes premiums of $179 paid for Mr. Dodd's life insurance policies and
estimated ESOP contributions of $17,000 and 401(k) matching contributions
by the Company in the amount of $1,442. Final ESOP contributions have not
yet been determined for 2000.
-26-
DIRECTOR'S COMPENSATION. The Chairman Emeritus of the Company's
Board of Directors, Calvin Stovall, currently receives a fee of $2,250 per month
for service as the Chairman of the Board and other directors of the Board of the
Company receive $2,000 a year for service on the Company's Board of Directors.
The directors of Community, Community - Alabama, Community - Troup and Financial
Supermarkets currently receive fees of $11,000, $3,900, $4,800, and $6,000 per
year, respectively.
AGREEMENTS WITH OFFICERS. In 1990, Community entered into an
employment agreement with Mr. Miller pursuant to which the parties agreed that
Mr. Miller would serve as the President, Chief Operating Officer and General
Manager of Community. The initial term of the agreement was one year, subject to
successive automatic renewals of one year each unless (i) either party gives
written notice at least 60 days prior to the annual renewal date of the desire
to terminate, or (ii) Community terminates for cause (as defined in the
agreement).
The agreement provides for Mr. Miller to receive an annual salary of
$125,000 plus certain benefits and perquisites. The agreement also entitles Mr.
Miller to certain severance payments following a change of control (as defined
in the agreement) of Community. Further, Mr. Miller agrees that he will not
compete with or solicit certain customers from Community within Habersham or
Jackson County (or any contiguous county) for a period of three years after
termination of Mr. Miller's employment with Community.
In 1987, Community and Mr. Wingate entered into a change-in-control
agreement for a three year term, renewable for an additional one year period
annually thereafter in the sole discretion of the compensation committee of the
Board of Directors of Community. The agreement also provides for the payment of
certain severance benefits to Mr. Wingate if there is a change in control (as
defined in the agreement) of Community and Mr. Wingate's employment is
involuntarily terminated other than for cause, disability or retirement or is
voluntarily terminated as a result of a material reduction of duties,
compensation or benefits or a forced relocation. Such benefits include the
continuation of salary payments to Mr. Wingate for a period of 36 months from
the date of termination, the payment of certain bonuses for the year in which
his employment is terminated and the following two calendar years, the
continuation of health and life insurance coverage and the continued
participation by Mr. Wingate in all employee retirement plans.
-27-
Aggregated Option Exercises In Last Fiscal Year And FY-End Option
Values
Number of
Securities Value of
Underlying Unexercised
Shares Acquired Value Unexercised In-The-Money
Name on Exercise (#) Realized ($) Options at Fiscal Options At Fiscal
---- --------------- ------------ Year-End Year-End ($)
(Exercisable/ (Exercisable/
Unexercisable) Unexercisable)
-------------- --------------
Charles M. Miller -0- -0- 0/2,500 0/3,800
Harry L. Stephens -0- -0- 6,000/2,500 185,220/3,800
Annette R. Fricks 3,000 $92,610 9,000/2,500 277,830/3,800
Wesley A. Dodd, Jr. -0- -0- 0/2,500 0/3,800
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the percent and number of shares of the
Common Stock beneficially owned as of January 1, 2001 by (i) each of the Named
Executive Officers; (ii) each of the directors of the Company; (iii) each
shareholder who owns greater than five percent (5%) of the Company's securities
and (iv) all executive officers and directors of the Company as a group, without
naming such individuals. There were 2,181,830 shares outstanding as of that
date.
Name of Amount of Shares Percent
Beneficial Owner Beneficially Owned Of Class
- ---------------- ------------------ --------
Joye H. Adams 136,720 (1) 6.10%
Steven C. 485,379 (2)(3)(4)(5)(6) 21.66%
Adams
Edwin B. 1,143 (7) *
Burr
Elton S. Collins 396,299 (3)(8)(16) 17.69%
Cfmmunity Bankshares, Inc. 370,539 (9) 16.54%
Employee Stock Ownership
Plan and Trust
Wesley A. Dodd, Jr. 42,595 (10) 1.90%
Annette R. Fricks 26,990 (19) 1.20%
Charles M. Miller 12,780 (11) *
Harry L. Stephens 10,248 (12) *
H. Calvin Stovall 166,359 (13)(14) 7.42%
Dean C. Swanson 30,000 1.34%
George D. Telford 81,817 3.65%
Dr. A. Dan Windham 5,187 *
J. Alton Wingate 719,904 (2)(3)(4)(15)(17) 32.13%
Lois M. Wood-Schroyer 3,030 *
All executive officers and 1,105,841 (18) 49.35%
directors as a group (12 Persons)
______________________________
* less than one percent
(1) Mrs. Adams' address is 664 Chenocetah Drive, Cornelia, Georgia 30531.
(2) Includes an aggregate of 48,000 shares held by the Taft Chatham Trusts
I and II with respect to which Messrs. Wingate and Adams are
co-trustees and share voting and investment power.
(3) Includes 370,539 shares held by Community Bankshares, Inc. ESOP
with respect to which Messrs. Wingate, Adams and Collins are
co-trustees and share voting and investment power.
(4) Includes 19,500 shares held by Chatham Transport company with respect
to which Messrs. Wingate and Adams share voting power.
(5) Includes 44,340 shares held by Mr. Adams as trustee for the F. Jack
Adams Testamentary Trust, as to which Mr. Adams has voting and
investment control.
(6) Mr. Adam's address is 148 North Main Street, Cornelia Georgia 30531.
(7) Does not include 750 shares of Common Stock owned by Mr. Burr's wife,
as to which he disclaims beneficial ownership.
(8) Mr. Collins' address is 1851 North Elm Street, Commerce, Georgia 30329.
(9) The address of the ESOP is 448 North Main Street, Cornelia, Georgia
30531.
(10) Includes presently-exercisable options to acquire 2,500 shares of
common stock.
(11) Includes presently-exercisable options to acquire 2,500 shares of
Common Stock.
(12) Includes presently-exercisable options to acquire 8,500 shares of
Common Stock.
(13) Mr. Stovall's address is 215 Grandview Circle, Cornelia, Georgia 30531.
(14) Does not include 250 shares of Common Stock owned by Mr. Stovall's
-28-
wife, as to which he disclaims beneficial ownership.
(15) Includes 16,500 shares held by the Estate of H. Milton Stewart, Sr., of
which Mr. Wingate is a co-trustee and has voting and investment
control.
(16) Includes presently-exercisable options to acquire 5,500 shares of
Common Stock.
(17) Mr. Wingate's address is 186 Hillcrest Heights, Cornelia, Georgia
30531.
(18) Includes presently-exercisable options to acquire 30,500 shares of
Common Stock.
(19) Includes presently-exercisable options to acquire 11,500 shares of
Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Each of the Community Banking Subsidiaries has had, and expects to have
in the future, banking transactions in the ordinary course of business with
directors and officers of the particular bank and the Company and their
associates, including corporations in which such officers or directors are
shareholders, directors and/or officers, on the same terms (including interest
rates and collateral) as those prevailing at the time for comparable
transactions with other persons. Such transactions have not involved more than
the normal risk of collectibility or presented other unfavorable features
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements.
The following financial statements and notes thereto of the Registrant
are included in the Report:
Independent Auditor's Report on the Financial Statement
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Income for the years ended December 31, 2000, 1999
and 1998
Consolidated Statements of Comprehensive Income for the years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Shareholder's Equity for the years ended December 31,
2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
(b) Exhibits.
The following exhibits are required to be filed with this Report by Item 601 of
Regulation S-K:
3.1 Articles of Incorporation of the Registrant, as amended (included as
Exhibit 3.1 to the Registrant's Form 10-K for the year ended December
31, 1995, previously filed with the Commission and incorporated herein
by reference).
3.2 By-Laws of the Registrant (included as Exhibit 3.3 to the Registrant's
Form S-4 Registration Statement, Commission File No. 33-81890,
previously filed with the Commission (the "S-4") and incorporated
herein by reference).
4.1 See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation
and Bylaws as amended, which define the rights of the holders of Common
Stock of the Registrant).
10.1 Incentive Stock Option Plan, as adopted August 17, 1987 (included as
Exhibit 10.1 to the Form S-4 and incorporated herein by reference).
10.2 Employment Agreement between Charles M. Miller and Community, dated
March 31, 1990(included as Exhibit 10.2 to the S-4 and incorporated
herein by reference).
10.3 Agreement Regarding Change in Control between J. Alton Wingate and
Community, dated August 17, 1987 (included as Exhibit 10.3 to the S-4
and incorporated herein by reference).
10.4 Master Consulting Agreement between Financial Supermarkets, Inc. and
NationsBanc Services, Inc.(included as Exhibit 10.1 to the Registrant's
Form 10-QSB for the period ended March 31, 1996 and incorporated herein
by reference).
-29-
10.5 Amendment to Master Consulting Agreement between Financial
Supermarkets, Inc. and NationsBanc Services, Inc. dated July 3, 1997.
(included as Exhibit 10.5 to the Registrant's Form 10-K for the year
ended December 31, 1997, previously filed with the Commission and
incorporated herein by reference).
10.6 Termination of Master Consulting Agreement between Financial
Supermarkets, Inc. and NationsBanc Services, Inc. (included as Exhibit
10.6 to the Registrant's Form 10-Q for the period ended September 30,
1998 and incorporated herein by reference).
10.7 Amended and Restated Revolving Credit/Term Loan Agreement between the
Registrant and SunTrust Bank dated July 31, 1999 (included as Exhibit
10.7 to the Registrant's Form 10-K for the year ended December 31,
1999, previously filed with the Commission (the "1999 10-K") and
incorporated herein by reference).
10.8 Community Bankshares, Inc. 1999 Stock Award Plan, as adopted December
22, 1999 (included as Exhibit 10.8 to the 1999 10-K and incorporated
herein by reference).
10.9 Consulting Agreement between Canadian Imperial Bank of Commerce and
Financial Supermarkets, Inc. dated March 2, 1999 (included as Exhibit
10.9 to the Registrant's Form 10-Q for the period ended June 30, 2000,
previously filed with the Commission and incorporated herein by
reference).
10.10 Amended and Restated Revolving Credit Term Loan Agreement between the
Registrant and SunTrust Bank dated July 31, 2000.
21 List of Subsidiaries of Registrant.
(c) No reports on Form 8-K were filed during the last quarter of 2000.
-30-
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2000
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT.................................................F-1
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS.............................................F-2
CONSOLIDATED STATEMENTS OF INCOME.......................................F-3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME.........................F-4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY.........................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS...........................F-6 and F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................F-8 to F-30
-i-
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CORNELIA, GEORGIA
We have audited the accompanying consolidated balance sheets of
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES as of December 31, 2000 and 1999,
and the related consolidated statements of income, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Community
Bankshares, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with generally accepted
accounting principles.
Atlanta, Georgia
January 12, 2001
F-1
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
-------------- ---------------
Assets
------
Cash and due from banks $ 38,410,247 $ 31,834,329
Interest-bearing deposits in banks 453,464 160,751
Federal funds sold 12,125,000 2,940,000
Securities available-for-sale 61,068,882 49,143,458
Securities held-to-maturity (fair value
$31,983,079 and $31,349,477) 31,193,386 31,939,177
Loans held for sale 1,011,458 1,274,927
Loans 417,908,844 375,593,370
6,306,620 5,682,612
-------------- --------------
Less allowance for loan losses
Loans, net 411,602,224 369,910,758
Premises and equipment 14,845,332 13,443,644
Other assets 19,612,796 15,502,518
-------------- --------------
$ 590,322,789 $ 516,149,562
Total assets ============== ==============
Liabilities, Redeemable Common Stock and
----------------------------------------
Shareholders' Equity
--------------------
Deposits:
Noninterest-bearing $ 77,959,985 $ 65,814,563
Interest-bearing 429,534,862 378,241,441
-------------- --------------
Total deposits 507,494,847 444,056,004
Other borrowings 10,843,975 16,054,100
Other liabilities 18,646,324 11,236,847
-------------- --------------
Total liabilities $ 536,985,146 $ 471,346,951
-------------- --------------
Commitments and contingencies:
Redeemable common stock held by ESOP, 370,539
and 380,780 shares outstanding at December 31,
2000 and 1999, respectively 15,088,348 13,982,242
-------------- -------------
Shareholders' equity:
Common stock, par value $1; 5,000,000 shares
authorized; 2,181,830 and 2,178,830 shares
issued and outstanding, respectively 2,181,830 2,178,830
Capital surplus 6,142,363 6,115,827
Retained earnings 29,975,786 23,853,170
Accumulated other comprehensive loss (50,684) (1,327,458)
-------------- --------------
Total shareholders' equity 38,249,295 30,820,369
-------------- --------------
Total liabilities, redeemable common stock
and shareholders' equity $ 590,322,789 $ 516,149,562
============== ==============
See Notes to Consolidated Financial Statements.
F-2
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------------- ----------------- ------------------
Interest income
Loans $ 41,189,439 $ 35,040,618 $ 29,767,173
Taxable securities 2,830,713 2,377,935 2,564,894
Nontaxable securities 2,161,814 1,994,814 1,710,141
Deposits in banks 14,891 18,653 35,973
------------- ------------- -------------
Federal funds sold 841,684 858,093 534,903
------------- ------------- -------------
Total interest income 47,038,541 40,290,113 34,613,084
Interest expense
Deposits 21,440,685 17,167,809 15,839,093
Other borrowings 862,202 529,052 111,411
------------- ------------- -------------
Total interest expense 22,302,887 17,696,861 15,950,504
------------- ------------- -------------
Net interest income 24,735,654 22,593,252 18,662,580
Provision for loan losses 1,620,500 1,636,900 1,164,950
------------- ------------- -------------
Net interest income after provision for
loan losses 23,115,154 20,956,352 17,497,630
------------- ------------- -------------
Other income
Service charges on deposits accounts 3,524,690 2,864,632 2,527,830
Other service charges, commissions and fees 933,462 649,378 523,438
Trust department fees 100,709 112,998 112,061
Nonbank subsidiary income 8,915,138 6,720,159 9,043,292
Gain on sale of loans 357,793 318,757 560,075
Net realized gains (losses) on sale of
securities available-for-sale (2,350) - 78,653
Other 763,654 844,053 535,636
------------- ------------- -------------
Total other income 14,593,096 11,509,977 13,380,985
------------- ------------- -------------
Other expenses
Salaries and employee benefits 14,394,565 12,345,498 10,676,957
Equipment expenses 2,564,049 2,541,601 1,840,529
Occupancy expenses 1,594,567 1,386,038 1,305,998
Other operating expenses 8,531,866 7,558,207 6,578,930
------------- ------------- -------------
Total other expenses 27,085,047 23,831,344 20,402,414
------------- ------------- -------------
Income before income taxes 10,623,203 8,634,985 10,476,201
Income tax expense 3,001,198 2,558,820 3,444,497
------------- ------------- -------------
Net income $ 7,622,005 $ 6,076,165 $ 7,031,704
------------- ------------- -------------
Basic earnings per share $ 3.50 $ 2.80 $ 3.24
------------- ------------- -------------
Diluted earnings per share $ 3.46 $ 2.80 $ 3.20
------------- ------------- -------------
See Notes to Consolidated Financial Statements.
F-3
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
-------------- -------------- --------------
Net income $ 7,622,005 $ 6,076,165 $ 7,031,704
------------ ------------ ------------
Other comprehensive income (loss):
Unrealized gains (losses) on securities
available-for-sale:
Unrealized holding gains (losses) arising
during period, net of taxes (benefits)
of $850,290, $(1,036,081), and $95,593,
respectively 1,275,364 (1,554,050) 143,388
Reclassification adjustment for (gains)
losses realized in net income, net of
taxes (benefits) of $(940), $0, and
$31,461, respectively 1,410 - (47,192)
------------ ------------ ------------
Other comprehensive income (loss) 1,276,774 (1,554,050) 96,196
------------ ------------ ------------
Comprehensive income $ 8,898,779 $ 4,522,115 $ 7,127,900
============ ============ ============
See Notes to Consolidated Financial Statements.
F-4
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Accumulated
Common Stock Other Total
----------------------- Capital Retained Comprehensive Shareholders'
Shares Par Value Surplus Earnings Income (Loss) Equity
------ --------- ------- -------- ------------- ------
Balance, December 31, 1997 $ 2,169,830 $ 2,169,830 $ 6,036,220 $ 14,782,733 $ 130,396 $ 23,119,179
Net income -- -- -- 7,031,704 -- 7,031,704
Cash dividends
declared, $.15 per
share -- -- -- (324,607) -- (324,607)
Adjustment for
shares owned by ESOP -- -- -- (3,631,856) -- (3,631,856)
Other comprehensive
income -- -- -- -- 96,196 96,196
----------- ----------- ----------- ------------ ------------ ------------
Balance, December 31, 1998 2,169,830 2,169,830 6,036,220 17,857,974 226,592 26,290,616
Net income -- -- -- 6,076,165 -- 6,076,165
Exercise of stock
options 9,000 9,000 79,607 -- -- 88,607
Cash dividends -- -- -- (352,474) -- (352,474)
declared, $.15 per share
Adjustment for shares -- -- -- 271,505 -- 271,505
owned by ESOP
Other comprehensive loss -- -- -- -- (1,554,050) (1,554,050)
----------- ------------ ----------- ------------ ------------ ------------
Balance, December 31, 1999 2,178,830 2,178,830 6,115,827 23,853,170 (1,327,458) 30,820,369
Net income -- -- -- 7,622,005 -- 7,622,005
Exercise of stock
options 3,000 3,000 26,536 -- -- 29,536
Cash dividends -- -- -- (393,283) -- (393,283)
declared, $.18 per share
Adjustment for
shares owned by ESOP -- -- -- (1,106,106) -- (1,106,106)
Other comprehensive
income -- -- -- -- 1,276,774 1,276,774
----------- ------------ ----------- ------------ ------------ ------------
Balance, December 31, 2000 $ 2,181,830 $ 2,181,830 $ 6,142,363 $ 29,975,786 $ (50,684) $ 38,249,295
=========== =========== =========== ============ ============ ============
See Notes to Consolidated Financial Statements.
F-5
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
-------------- --------------- ---------------
OPERATING ACTIVITIES
Net income $ 7,622,005 $ 6,076,165 $ 7,031,704
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 2,234,366 1,981,267 1,585,729
Amortization of intangibles 435,537 429,247 288,156
Provision for loan losses 1,620,500 1,636,900 1,164,950
Provision for other real estate losses 5,000 - 10,000
Deferred income tax benefits (367,660) (381,217) (292,525)
(Increase) decrease in loans held
for sale 263,469 (575,429) 1,861,417
Net (gains) losses on sale of
securities available-for-sale 2,350 - (78,653)
Loss on disposal of premises and
equipment 12,726 16,460 -
Net gains on sale of other real
estate (7,462) (54,132) (3,563)
(Increase) decrease in interest
receivable (1,641,043) 266,634 (1,187,060)
Increase (decrease) in interest payable 2,748,865 (655,877) 1,180,385
Increase in taxes payable 370,444 438,959 348,661
(Increase) decrease in accounts
receivable of nonbank subsidiary (1,188,664) (136,686) (618,731)
(Increase) decrease in work in process
of nonbank subsidiary (837,418) 145,959 (513,252)
Increase in accruals and payables of
nonbank subsidiary 3,978,464 2,303,101 325,031
Other operating activities (1,062,209) (171,219) (1,145,989)
------------- ------------- -------------
Net cash provided by operating
activities 14,189,270 11,320,132 9,956,260
------------- ------------- -------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (15,379,443) (18,271,344) (29,111,438)
Proceeds from sales of securities
available-for-sale 1,247,650 - 14,296,060
Proceeds from maturities of securities
available-for-sale 4,331,976 9,063,010 25,811,265
Purchases of securities held-to-maturity (3,486,045) (2,268,432) (3,323,556)
Proceeds from maturities of securities
held-to-maturity 4,231,836 1,244,269 1,127,193
Net (increase) decrease in Federal funds
sold (9,185,000) 19,950,000 (16,930,000)
Net (increase) decrease in
interest-bearing deposits in banks (292,713) 267,119 341,044
Net increase in loans (44,826,318) (63,874,282) (71,584,937)
Purchase of premises and equipment (3,686,780) (1,978,098) (2,931,496)
Proceeds from sale of premises and
equipment 38,000 - -
Net cash acquired in branch acquisition - - 170,667
Proceeds from sale of other real estate 1,514,352 821,387 252,492
------------- ------------- -------------
Net cash used in investing
activities (65,492,485) (55,046,371) (81,882,706)
------------- ------------- -------------
F-6
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------- ------------- --------------
FINANCING ACTIVITIES
Net increase in deposits $ 63,438,843 $ 38,773,131 $ 69,738,048
Increase (decrease) in FHLB advances (5,000,000) 10,000,000 5,000,000
Increase in notes payable - 400,000 500,000
Repayment of notes payable (210,125) (154,100) (154,099)
Proceeds from the issuance of common stock 29,536 88,607 -
(379,121) (343,072) (318,531)
Dividends paid ------------- ------------- --------------
57,879,133 48,764,566 74,765,418
Net cash provided by financing activities ------------- ------------- --------------
Net increase in cash and due from banks 6,575,918 5,038,327 2,838,972
31,834,329 26,796,002 23,957,030
Cash and due from banks at beginning of year ------------- ------------- --------------
$ 38,410,247 $ 31,834,329 $ 26,796,002
Cash and due from banks at end of year ------------- ------------- --------------
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 19,554,022 $ 18,352,738 $ 14,957,440
Income taxes $ 2,998,414 $ 2,501,078 $ 3,445,529
NONCASH TRANSACTIONS
Principal balances of loans transferred to
other real estate $ 1,514,352 $ 901,216 $ 481,806
BRANCH ACQUISITIONS
Net cash acquired $ - $ - $ 170,667
------------- ------------- --------------
Loans $ - $ - $ 2,981,087
Premises and equipment - - 10,085
Other assets - - 9,063
Core deposit intangible - - 760,597
Deposits - - (5,837,754)
Other liabilities - - (20,687)
------------- ------------- --------------
Net liabilities assumed, net of cash
and due from banks of $170,667 and
$99,612 $ - $ - $ (2,097,609)
------------- ------------- --------------
See Notes to Consolidated Financial Statements.
F-7
COMMUNITY BANKSHARES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Community Bankshares, Inc. (the "Company") is a multi-bank holding
company whose business is conducted by its wholly-owned subsidiaries:
Community Bank & Trust located in Cornelia, Georgia; Community Bank &
Trust - Alabama located in Union Springs, Alabama; and Community Bank &
Trust - Troup located in LaGrange, Georgia. Financial Supermarkets,
Inc. is a wholly-owned subsidiary of Community Bank & Trust which
provides a variety of bank related products and services to the
financial institution industry. Financial Properties, Inc. is a
wholly-owned subsidiary of Community Bank & Trust which is a real
estate sales agency which provides a variety of real estate related
services.
The banking subsidiaries are commercial banks operating independently
of one another in their respective market areas. The banking
subsidiaries in Georgia have identified their primary market areas to
be the counties in which they are located and all surrounding counties.
The Georgia banking subsidiaries are all located approximately 85 miles
from the metropolitan Atlanta area. Community Bank & Trust - Alabama is
located approximately 50 miles from Montgomery, Alabama. The Banks
provide a full range of banking services to individual and corporate
customers. Financial Supermarkets, Inc. provides products and services
primarily in the southeastern United States; however, their products
and services are marketed internationally. Financial Properties, Inc.
operates primarily in Cornelia, Habersham County, Georgia.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Significant intercompany transactions and
accounts are eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, the valuation of
foreclosed real estate, and deferred tax assets.
CASH, DUE FROM BANKS AND CASH FLOWS
For purposes of reporting cash flows, cash and due from banks includes
cash on hand, cash items in process of collection and amounts due from
banks. Cash flows from interest-bearing deposits in banks, loans,
Federal funds sold, other borrowings and deposits are reported net.
The Company maintains amounts due from banks which, at times, may
exceed federally insured limits. The Company has not experienced any
losses in such accounts.
SECURITIES
Debt securities that management has the intent and ability to hold to
maturity are classified as held-to-maturity and recorded at amortized
cost. Securities not classified as held-to-maturity, including equity
securities with readily determinable fair values, are classified as
available-for-sale and recorded at fair value with unrealized gains and
losses excluded from earnings and reported in other comprehensive
income. Equity securities, including restricted stock, without a
readily determinable fair value are classified as available-for-sale
and recorded at cost.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES (CONTINUED)
Interest and dividends on securities, amortization of premiums and
accretion of discounts are recognized in interest income. Gains and
losses on the sale of securities are determined using the specific
identification method. Declines in the fair value of held-to-maturity
and available-for-sale securities below their cost that are deemed to
be other than temporary are reflected in earnings as realized losses.
LOANS HELD FOR SALE
Loans held for sale include mortgage and other loans originated and
intended for sale in the secondary market, and are carried at the lower
of aggregate cost or estimated fair value. Net unrealized losses, if
any, are recognized through a valuation allowance by charges to income.
LOANS
Loans are reported at their outstanding unpaid principal balances less
unearned income and the allowance for loan losses. Interest income is
accrued on the unpaid balance.
Loan origination fees approximate the direct origination costs of
consumer and instalment loans and are recognized at the time the loan
is placed on the books. Loan origination fees net of certain direct
loan origination costs for all other loans are deferred and recognized
as an adjustment of the yield over the life of the loan.
The accrual of interest on loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become
due, unless the loan is well-secured. Interest income on nonaccrual
loans is subsequently recognized only to the extent cash payments are
received, until the loan is returned to accrual status.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance
when management believes the collectibility of the principal is
unlikely. Subsequent recoveries are credited to the allowance.
The allowance is an amount that management believes will be adequate to
absorb estimated losses in the loan portfolio. The allowance for loan
losses is evaluated on a regular basis by management and is based upon
management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral and prevailing
economic conditions. This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the
Company's allowance for loan losses, and may require the Banks to make
additions to the allowance based on their judgment about information
available to them at the time of their examinations.
A loan is considered impaired when it is probable the Company will be
unable to collect all principal and interest payments due in accordance
with the contractual terms of the loan agreement. Impaired loans are
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's observable
market price, or the fair value of the collateral if the loan is
collateral dependent. The amount of impairment, if any, and any
subsequent changes are included in the allowance for loan losses.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT
Land is carried at cost. Premises and equipment are carried at cost
less accumulated depreciation computed principally by the straight-line
method over the estimated useful lives of the assets.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned is held for sale and is carried at
the lower of cost or fair value less estimated costs of disposal. Any
write-down to fair value at the time of transfer to other real estate
owned is charged to the allowance for loan losses. Revenue and expenses
from operations and changes in the valuation allowance are included in
net expenses from foreclosed assets. The carrying amount of other real
estate owned at December 31, 2000 and 1999 was $1,183,842 and
$1,142,631, respectively.
TRANSFERS OF FINANCIAL ASSETS AND SALE OF LOANS
Transfers of financial assets are accounted for as sales, when control
over the assets has been surrendered. Control over transferred assets
is deemed to be surrendered when (1) the assets have been isolated from
the Company, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain
effective control over the transferred assets through an agreement to
repurchase them before their maturity.
The Banks originate and sell participations in certain loans. Gains are
recognized at the time the sale is consummated. The amount of gain
recognized on the sale of a specific loan is equal to the percentage
resulting from determining the fair value of the portion of the loan
sold relative to the fair value of the entire loan including servicing
rights.
INCOME TAXES
Deferred income tax assets and liabilities are determined using the
balance sheet method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the temporary
differences between the book and tax bases of the various balance sheet
assets and liabilities and gives current recognition to changes in tax
rates and laws.
TRUST DEPARTMENT
Trust income is recognized on the cash basis in accordance with
established industry practices. The results of operations are not
materially different than the results which would be obtained by
accounting for such fees on the accrual basis.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NONBANK SUBSIDIARY REVENUE RECOGNITION
Financial Supermarkets, Inc. recognizes revenue and costs on its
installation contracts on the completed-contract method of accounting.
Under this method, billings and costs are accumulated during the period
of installation, but no profits are recorded before the completion of
the work. Provisions for estimated losses on uncompleted contracts are
made at the time such losses are identified. The majority of all
installation contracts are completed within ten days. Operating
expenses, including indirect costs and administrative expenses, are
charged as incurred to periodic income and not allocated to contract
costs. Income from other consulting services is recognized as services
are provided and costs and expenses are incurred for each individual
contract.
STOCK COMPENSATION PLAN
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, encourages all entities to
adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation cost is measured at the grant
date based on the value of the award and is recognized over the service
period, which is usually the vesting period. However, it also allows an
entity to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date (or other
measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the Company's stock option plan have
no intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them. The Company has elected to
continue with the accounting methodology in Opinion No. 25 and, as a
result, has provided pro forma disclosures of net income and earnings
per share and other disclosures, as if the fair value based method of
accounting had been applied.
EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the
weighted-average number of shares of common stock outstanding. Diluted
earnings per share are computed by dividing net income by the sum of
the weighted-average number of shares of common stock outstanding and
potential common shares. Potential common shares consist of stock
options.
COMPREHENSIVE INCOME
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net income. Although certain
changes in assets and liabilities, such as unrealized gains and losses
on available-for-sale securities, are reported as a separate component
of the equity section of the balance sheet, such items, along with net
income, are components of comprehensive income.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
effective for fiscal years beginning after June 15, 2000. This
Statement establishes accounting and reporting standards for derivative
instruments and hedging activities, including certain derivative
instruments embedded in other contracts, and requires that an entity
recognize all derivatives as assets or liabilities in the balance sheet
and measure them at fair value. If certain conditions are met, an
entity may elect to designate a derivative as follows: (a) a hedge of
the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of an unrecognized firm
commitment, an available-for-sale security, a foreign currency
denominated forecasted transaction, or a net investment in a foreign
corporation. The Statement generally provides for matching the timing
of the recognition of the gain or loss on derivatives designated as
hedging instruments with the recognition of the changes in the fair
value of the item being hedged. Depending on the type of hedge, such
recognition will be in either net income or other comprehensive income.
For a derivative not designated as a hedging instrument, changes in
fair value will be recognized in net income in the period of change.
Management is currently evaluating the impact of adopting this
Statement on the consolidated financial statements, but does not
anticipate that it will have a material impact.
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- --------------- ----------------- --------------
SECURITIES AVAILABLE-FOR-SALE
December 31, 2000:
U. S. Government and agency
securities $ 36,474,711 $ 231,409 $ (233,294) $ 36,472,826
State and municipal securities 15,134,929 185,995 (280,215) 15,040,709
Mortgage-backed securities 7,655,964 37,698 (26,066) 7,667,596
Equity securities 722,451 - - 722,451
Restricted equity securities 1,165,300 - - 1,165,300
-------------- --------------- ----------------- --------------
$ 61,153,355 $ 455,102 $ (539,575) $ 61,068,882
============== =============== ================= ==============
December 31, 1999:
U. S. Government and agency
securities $ 31,705,707 $ 9,688 $ (1,007,814) $ 30,707,581
State and municipal securities 8,955,524 4,205 (1,033,338) 7,926,391
Mortgage-backed securities 8,969,973 23,170 (208,388) 8,784,755
Equity securities 559,431 - - 559,431
Restricted equity securities 1,165,300 - - 1,165,300
-------------- --------------- ---------------- --------------
$ 51,355,935 $ 37,063 $ (2,249,540) $ 49,143,458
============== =============== ================ ==============
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SECURITIES (CONTINUED)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- -------------- -------------- ----------------
SECURITIES HELD-TO-MATURITY
December 31, 2000:
State and municipal securities $ 31,193,386 $ 842,192 $ (52,499) $ 31,983,079
=============== ============== ============== ================
December 31, 1999:
State and municipal securities $ 31,939,177 $ 111,195 $ (700,895) $ 31,349,477
=============== ============== ============== ================
Securities with a carrying value of approximately $46,329,000 and
$39,626,000 at December 31, 2000 and 1999, respectively, were pledged
to secure public deposits and for other purposes required or permitted
by law.
Gross gains and losses on sales of securities available-for-sale
consist of the following:
YEARS ENDED DECEMBER 31,
---------------------------------------------
2000 1999 1998
------------- ------------- -------------
Gross gains $ 4,916 $ - $ 114,546
Gross losses (7,266) - (35,893)
------------- ------------- -------------
Net realized gains (losses) $ (2,350) $ - $ 78,653
============= ============= =============
The amortized cost and fair value of debt securities as of December 31,
2000 by contractual maturity are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or repaid without
penalty. Therefore, these securities are not included in the categories
in the following summary.
SECURITIES AVAILABLE-FOR-SALE SECURITIES HELD-TO-MATURITY
----------------------------------- ----------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------------- ---------------- ---------------- ----------------
Due in one year or less $ 3,451,153 $ 3,457,717 $ 590,677 $ 593,501
Due from one to five years 23,421,507 23,505,484 4,448,152 4,488,995
Due from five to ten years 11,366,966 11,304,019 9,302,517 9,558,680
Due after ten years 13,370,014 13,246,315 16,852,040 17,341,903
Mortgage-backed securities 7,655,964 7,667,596 - -
---------------- ---------------- ---------------- ----------------
$ 59,265,604 $ 59,181,131 $ 31,193,386 $ 31,983,079
================ ================ ================ ================
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS
The composition of loans is summarized as follows:
DECEMBER 31,
-------------------------------------
2000 1999
----------------- -----------------
Commercial, financial, and agricultural $ 202,787,862 $ 205,230,143
Real estate - construction 28,120,020 24,208,000
Real estate - mortgage 129,750,288 93,063,000
Consumer 55,971,078 50,956,000
Other 1,453,668 2,435,876
----------------- ----------------
418,082,916 375,893,019
Unearned income (174,072) (299,649)
Allowance for loan losses (6,306,620) (5,682,612)
----------------- ----------------
Loans, net $ 411,602,224 $ 369,910,758
================= ================
Changes in the allowance for loan losses are as follows:
YEARS ENDED DECEMBER 31,
------------------------------------------------------
2000 1999 1998
----------------- --------------- ---------------
Balance, beginning of year $ 5,682,612 $ 4,863,181 $ 4,024,171
Provision charged to operations 1,620,500 1,636,900 1,164,950
Loans charged off (1,153,867) (1,077,974) (495,008)
Recoveries of loans previously charged off 157,375 260,505 169,068
----------------- --------------- ---------------
Balance, end of year $ 6,306,620 $ 5,682,612 $ 4,863,181
================= =============== ===============
The following is a summary of information pertaining to
impaired loans:
DECEMBER 31,
----------------------------------
2000 1999
--------------- ---------------
Impaired loans without a valuation allowance $ 2,041,215 $ 2,737,255
Impaired loans with a valuation allowance - -
--------------- ---------------
Total impaired loans $ 2,041,215 $ 2,737,255
=============== ===============
Valuation allowance related to impaired loans $ - $ -
=============== ===============
Average investment in impaired loans $ 2,699,650 $ 2,289,057
=============== ===============
Interest income recognized on impaired loans $ 38,021 $ 105,867
=============== ===============
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS (CONTINUED)
In the ordinary course of business, the Banks have granted loans to
certain related parties, including directors, executive officers and
their affiliates. The interest rates on these loans were substantially
the same as rates prevailing at the time of the transaction and
repayment terms are customary for the type of loan. Changes in related
party loans for the year ended December 31, 2000 are as follows:
Balance, beginning of year $ 8,354,728
Advances, including renewals 2,934,391
Repayments, including renewals (8,082,936)
Changes in directors (223,095)
-------------
Balance, end of year $ 2,983,088
=============
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
DECEMBER 31,
-----------------------------------
2000 1999
---------------- ----------------
Land $ 2,423,915 $ 2,413,916
Buildings 12,206,776 9,809,767
Equipment 12,289,669 11,638,526
Construction in process 63,716 -
---------------- ----------------
26,984,076 23,862,209
Accumulated depreciation (12,138,744) (10,418,565)
---------------- ----------------
$ 14,845,332 $ 13,443,644
================ ================
NOTE 5. DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 or
more at December 31, 2000 and 1999 was $102,841,965 and $79,924,593,
respectively. The scheduled maturities of time deposits at December 31,
2000 are as follows:
2001 $ 223,449,963
2002 40,295,510
2003 20,612,633
2004 7,460,735
2005 14,299,109
Thereafter 17,917
----------------
$ 306,135,867
================
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following:
DECEMBER 31,
--------------------------------
2000 1999
-------------- --------------
Note payable to bank, principal of $56,026 due quarterly plus
interest at prime minus 1% or 8.50% at December 31, 2000,
collateralized by 50,000 shares of common stock of Community
Bank & Trust, matures July 31, 2004. $ 843,975 $ 1,054,100
Advance from the Federal Home Loan Bank with interest due quarterly
at 4.96%, due September 15, 2003, with a six month call option. - 5,000,000
Advance from the Federal Home Loan Bank with interest due quarterly at
4.95%, due August 7, 2009, with a six month call option. 10,000,000 10,000,000
-------------- --------------
$ 10,843,975 $ 16,054,100
============== ==============
Advances from the Federal Home Loan Bank are collateralized by blanket
floating liens on qualifying first mortgages. At December 31, 2000,
aggregate maturities of other borrowings are as follows:
2001 $ 224,100
2002 224,100
2003 224,100
2004 171,675
2009 10,000,000
---------------
$ 10,843,975
===============
NOTE 7. EMPLOYEE BENEFIT PLANS
INCENTIVE STOCK OPTION PLAN
The Company has an Incentive Stock Option Plan in which the Company can
grant to key personnel options for an aggregate of 225,000 shares of
the Company's common stock at not less than the fair market value of
such shares on the date the option is granted. If the optionee owns
shares of the Company representing more than 10% of the total combined
voting power, then the price shall not be less than 110% of the fair
market value of such shares on the date the option is granted. The
option period will not exceed ten years from date of grant. Other
pertinent information related to the options is as follows:
2000 1999 1998
------------------------ -------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ----------- ------------ ----------- ------------
Under option, beginning of year 59,500 $ 24.40 39,000 $ 9.85 39,000 $ 9.85
Granted 2,500 36.72 29,500 39.20 - -
Exercised (3,000) 9.85 (9,000) 9.85 - -
--------- --------- ---------
Under option, end of year 59,000 $ 25.66 59,500 $ 24.40 39,000 $ 9.85
========= ========= =========
Options exercisable at year-end 41,750 $ 20.22 30,000 $ 9.85 39,000 $ 9.85
========= ========= =========
Weighted-average fair value of
options granted during the year $ 15.31 $ 17.77 $ -
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
INCENTIVE STOCK OPTION PLAN (CONTINUED)
Information pertaining to options outstanding at December 31,
2000 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ---------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------------- -------------- ---------------- ------------- --------------- ------------
$9.85 27,000 4 years $ 9.85 27,000 $ 9.85
$36.72 - $39.20 32,000 9.03 years 39.01 14,750 39.20
--------- -------
Outstanding at end of year 59,000 6.73 years $ 25.66 41,750 $ 20.22
========= ========
The Company applies Opinion 25 and related Interpretations in
accounting for the stock option plan. Accordingly, no compensation cost
has been recognized. Had compensation cost for the stock option plan
been determined based on the fair value at the grant dates for awards
under the plan consistent with the method prescribed by SFAS No. 123,
net income and earnings per share would have been adjusted to the pro
forma amounts indicated below.
YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------
Net income As reported $ 7,622 $ 6,076 $ 7,032
Pro forma $ 7,597 $ 6,076 $ 7,032
Earnings per share As reported $ 3.50 $ 2.80 $ 3.24
Pro forma $ 3.49 $ 2.80 $ 3.24
Earnings per share - As reported $ 3.46 $ 2.80 $ 3.20
assuming dilution Pro forma $ 3.45 $ 2.80 $ 3.20
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
YEARS ENDED DECEMBER 31,
---------------------------------------
2000 1999 1998
---------- ------------ ---------
Dividend yield .49% .38% -
Expected life 10 YEARS 10 years -
Expected volatility .21% 6.37% -
Risk-free interest 6.35% 6.86% -
rate
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
401(K) PLAN
The Company has a contributory 401(k) retirement plan covering
substantially all employees. Contributions to the plan charged to
expense for the years ended December 31, 2000, 1999 and 1998 amounted
to $81,215, $86,478 and $77,668, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan (ESOP) for the benefit
of employees who meet certain eligibility requirements. Contributions
to the Plan are determined by the Board of Directors of the Company
taking into consideration the financial condition and fiscal
requirements of the Company and such other factors as the Board of
Directors may deem pertinent and applicable under the circumstances.
For the years ended December 31, 2000, 1999 and 1998, contributions to
the plan charged to expense were $698,873, $666,724 and $820,007,
respectively.
In accordance with the Plan, the Company is expected to honor the
rights of certain participants to diversify their account balances or
to liquidate their ownership of the common stock in the event of
distribution. The purchase price of the common stock would be based on
the fair market value of the Company's common stock as of the annual
valuation date which precedes the date the put option is exercised. No
participant has exercised these rights since the inception of the Plan,
and no significant cash outlay is expected during 2001. However, since
the redemption of common stock is outside the control of the Company,
the Company's maximum cash obligation based on the approximate market
prices of common stock as of the reporting date has been presented
outside of shareholders' equity. The amount presented as redeemable
common stock held by the ESOP in the consolidated balance sheet
represents the Company's maximum cash obligation and has been reflected
as a reduction of retained earnings.
At December 31, 2000, the ESOP held 370,539 shares. Shares held by the
ESOP are considered outstanding for purposes of calculating the
Company's earnings per share.
NOTE 8. INCOME TAXES
Income tax expense consists of the following:
YEARS ENDED DECEMBER 31,
---------------------------------------------------
2000 1999 1998
---------------- --------------- --------------
Current $ 3,414,384 $ 2,985,546 $ 3,782,531
Deferred (273,564) (381,217) (292,525)
Change in valuation allowance (94,113) - -
Current tax effect of net operating loss carryforward (45,509) (45,509) (45,509)
--------------- --------------- --------------
Income tax expense $ 3,001,198 $ 2,558,820 $ 3,444,497
=============== =============== ==============
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. INCOME TAXES (CONTINUED)
The Company's income tax expense differs from the amounts computed by
applying the federal income tax statutory rates to income before income
taxes. A reconciliation of the differences is as follows:
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------- ---------- ------------- ---------- ------------- --------
Tax provision at statutory rate $ 3,611,889 34 % $ 2,935,895 34 % $ 3,561,908 34 %
Tax-exempt interest (731,922) (7) (696,773) (8) (615,376) (6)
Disallowed interest 125,595 1 104,207 1 93,901 1
Change in valuation (94,113) (1)
allowance
Current tax effect of net
operating loss (45,509) - (45,509) - (45,509) -
carryforward
Nondeductible expenses 35,639 - 39,395 - 17,445 -
State income taxes 224,472 2 224,656 3 454,555 4
Other items (124,853) (1) (3,051) - (22,427) -
------------- --------- ------------- ------- -------------- -------
Income tax expense $ 3,001,198 28 % $ 2,558,820 30 % $ 3,444,497 33 %
============= ========= ============= ======= ============== =======
The components of deferred income taxes are as follows:
DECEMBER 31,
------------------------------------
2000 1999
--------------- ----------------
Deferred tax assets:
Loan loss reserves $ 2,127,474 $ 1,783,592
Net operating loss carryforward 48,603 94,113
Other - 9,292
Unrealized loss on securities available-for-sale 33,789 884,991
Valuation allowance - (94,113)
--------------- ----------------
2,209,866 2,677,875
--------------- ----------------
Deferred tax liabilities:
Depreciation - 17,859
Accretion 190,172 156,895
Other 98 -
--------------- ----------------
190,270 174,754
--------------- ----------------
Net deferred tax assets $ 2,019,596 $ 2,503,121
=============== ================
At December 31, 2000, the Company has available net operating loss
carryforwards of approximately $143,000 for Federal income tax
purposes. If unused, the carryforwards will expire in 2009.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. EARNINGS PER SHARE
Diluted earnings per share were computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding. The number of common shares was increased by
the number of shares issuable upon the exercise of the stock options
described in Note 7. This theoretical increase in the number of common
shares was reduced by the number of common shares which are assumed to
have been repurchased for the treasury with the proceeds from the
exercise of the options; these purchases were assumed to have been made
at the price per share that approximates average market price. The
treasury stock method for determining the amount of dilution of stock
options is based on the concept that common shares which could have
been purchased with the proceeds of the exercise of common stock
options at market price are not actually outstanding common shares.
Presented below is a summary of the components used to calculate basic
and diluted earnings per share.
YEARS ENDED DECEMBER 31,
------------------------------------------------------
2000 1999 1998
---------------- ----------------- ----------------
Net income $ 7,622,005 $ 6,076,165 $ 7,031,704
================ ================= ================
Weighted average common shares outstanding 2,178,838 2,171,983 2,169,830
Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market price for the year 23,465 - 28,029
---------------- ----------------- ----------------
Total weighted average common shares and
common stock equivalents outstanding 2,171,983 2,197,859
================ ================= ================
Diluted earnings per share $ 3.46 $ 2.80 $ 3.20
================ ================= ================
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company is 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 commitments to
extend credit and standby letters of credit. They involve, to varying
degrees, elements of credit risk and interest rate risk in excess of
the amount recognized in the consolidated balance sheets.
The Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. The Company uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance sheet instruments. A summary of the Company's commitments is
as follows:
DECEMBER 31,
-------------------------------
2000 1999
-------------- -------------
Commitments to extend credit $ 24,944,341 $ 24,265,552
Credit card lines 3,856,553 4,070,000
Standby letters of credit 3,093,193 2,209,000
------------- -------------
$ 31,894,087 $ 30,544,552
============= =============
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension
of credit, is based on management's credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Collateral is required in instances which the
Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management, any liability
resulting from such proceedings would not have a material effect on the
Company's financial statements.
The Company has leased various properties and equipment under
noncancelable agreements which expire at various times through 2011 and
require minimum annual rentals. The leases related to properties also
require the payment of property taxes, normal maintenance and
insurance.
The total minimum rental commitment at December 31, 2000 is due as
follows:
During the year ending December 31:
2001 $ 649,085
2002 541,263
2003 381,757
2004 277,959
2005 77,986
Due thereafter 90,541
------------
$ 2,018,591
============
The total rental expense for the years ended December 31, 2000, 1999
and 1998 was $654,790, $528,865 and $467,546, respectively.
NOTE 11. CONCENTRATIONS OF CREDIT
The banking subsidiaries originate primarily commercial, residential,
and consumer loans to customers in their local communities and
surrounding counties. The ability of the majority of the Banks'
customers to honor their contractual loan obligations is dependent on
their local economy as well as the economy in the metropolitan Atlanta
and Montgomery areas.
Thirty-eight percent of the Company's loan portfolio is concentrated in
loans secured by real estate. A substantial portion of these loans are
in the Banks' primary market areas. In addition, a substantial portion
of the other real estate owned is located in those same markets.
Accordingly, the ultimate collectibility of the Company's loan
portfolio and the recovery of the carrying amount of other real estate
owned is susceptible to changes in market conditions in the Banks'
primary market areas.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. CONCENTRATIONS OF CREDIT (CONTINUED)
The Company's loan portfolio also includes a concentration, 49% of the
total portfolio, of commercial, financial, and agricultural loans.
These loans represent loans made primarily to local businesses in the
Banks' market areas. A portion of these loans are small business loans
and residential loans originated by the loan production office, a
division of Community Bank & Trust, which are outside the Banks'
primary market areas. The Company's lending policies require loans of
all types to be adequately collateralized and supported by adequate
cash flows.
Other significant concentrations of credit by type of loan are set
forth in Note 3. The Banks, as a matter of policy, do not generally
extend credit to any single borrower or group of related borrowers in
excess of 25% of each individual Bank's statutory capital, or
approximately $4,325,000, $888,000, and $1,112,000 for Community Bank &
Trust; Community Bank & Trust - Alabama; and Community Bank & Trust -
Troup, respectively.
NOTE 12. REGULATORY MATTERS
The Banks are subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory approval. At
December 31, 2000, approximately $5,160,000 of retained earnings were
available for dividend declaration without regulatory approval.
The Company and Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Banks must meet
specific capital guidelines that involve quantitative measures of the
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. Prompt
corrective action provisions are not applicable to bank holding
companies. Quantitative measures established by regulation to ensure
capital adequacy require the Company and Banks to maintain minimum
amounts and ratios of Total and Tier I capital to risk-weighted assets
and Tier I capital to average assets. Management believes, as of
December 31, 2000, the Banks met all capital adequacy requirements to
which they are subject.
As of December 31, 2000, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Banks as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Banks must maintain minimum Total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth
in the following table. There are no conditions or events since that
notification that management believes have changed the Banks' category.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. REGULATORY MATTERS (CONTINUED)
The Company and Banks' actual capital amounts and ratios are presented
in the following tables.
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------------ ---------------------- -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------- --------- ------------ -------- ------------ -----------
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------------
AS OF DECEMBER 31, 2000
TOTAL CAPITAL TO RISK WEIGHTED ASSETS:
CONSOLIDATED $ 56,453 12.45% $ 36,276 8.00% N/A N/A
COMMUNITY BANK & TRUST $ 45,293 12.67% $ 28,610 8.00% $ 35,762 10.00%
COMMUNITY BANK & TRUST - ALABAMA $ 4,354 12.87% $ 2,706 8.00% $ 3,382 10.00%
COMMUNITY BANK & TRUST - TROUP $ 5,753 12.51% $ 3,678 8.00% $ 4,597 10.00%
TIER I CAPITAL TO RISK WEIGHTED ASSETS:
CONSOLIDATED $ 50,777 11.20% $ 18,138 4.00% N/A N/A
COMMUNITY BANK & TRUST $ 40,565 11.34% $ 14,305 4.00% $ 21,457 6.00%
COMMUNITY BANK & TRUST - ALABAMA $ 3,930 11.62% $ 1,353 4.00% $ 2,030 6.00%
COMMUNITY BANK & TRUST - TROUP $ 5,177 11.26% $ 1,839 4.00% $ 2,759 6.00%
TIER I CAPITAL TO AVERAGE ASSETS:
CONSOLIDATED $ 50,777 8.81% $ 23,062 4.00% N/A N/A
COMMUNITY BANK & TRUST $ 40,565 8.50% $ 19,094 4.00% $ 23,868 5.00%
COMMUNITY BANK & TRUST - ALABAMA $ 3,930 8.53% $ 1,843 4.00% $ 2,304 5.00%
COMMUNITY BANK & TRUST - TROUP $ 5,177 9.23% $ 2,243 4.00% $ 2,804 5.00%
As of December 31, 1999
Total Capital to Risk Weighted Assets:
Consolidated $ 48,685 11.97% $ 32,538 8.00% N/A N/A
Community Bank & Trust - Habersham $ 29,116 13.17% $ 17,693 8.00% $ 22,116 10.00%
Community Bank & Trust - Jackson $ 9,953 10.58% $ 7,524 8.00% $ 9,405 10.00%
Community Bank & Trust - Alabama $ 3,796 11.46% $ 2,650 8.00% $ 3,313 10.00%
Community Bank & Trust - Troup $ 4,934 12.48% $ 3,164 8.00% $ 3,955 10.00%
Tier I Capital to Risk Weighted Assets:
Consolidated $ 43,592 10.71% $ 10,435 4.00% N/A N/A
Community Bank & Trust - Habersham $ 26,346 11.91% $ 8,847 4.00% $ 13,270 6.00%
Community Bank & Trust - Jackson $ 8,775 9.33% $ 3,762 4.00% $ 5,643 6.00%
Community Bank & Trust - Alabama $ 3,381 10.21% $ 1,325 4.00% $ 1,988 6.00%
Community Bank & Trust - Troup $ 4,439 11.23% $ 1,582 4.00% $ 2,373 6.00%
Tier I Capital to Average Assets:
Consolidated $ 43,592 8.54% $ 20,418 4.00% N/A N/A
Community Bank & Trust - Habersham $ 26,346 8.65% $ 12,188 4.00% $ 15,235 5.00%
Community Bank & Trust - Jackson $ 8,775 6.82% $ 5,144 4.00% $ 6,430 5.00%
Community Bank & Trust - Alabama $ 3,381 7.27% $ 1,862 4.00% $ 2,327 5.00%
Community Bank & Trust - Troup $ 4,439 8.23% $ 2,157 4.00% $ 2,696 5.00%
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. REGULATORY MATTERS (CONTINUED)
During 2000, Community Bank & Trust - Habersham and Community Bank &
Trust - Jackson merged operations into one bank, Community Bank &
Trust.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that
would be exchanged between willing parties, other than in a forced
liquidation. Fair value is best determined based upon quoted market
prices. However, in many instances, there are no quoted market prices
for the Company's various financial instruments. 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. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the
instrument. SFAS No. 107, Disclosures about Fair Values of Financial
Instruments, excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly,
the aggregate fair value amounts presented may not necessarily
represent the underlying fair value of the Company.
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments.
CASH, DUE FROM BANKS, INTEREST-BEARING Deposits IN BANKS AND FEDERAL
FUNDS SOLD:
The carrying amounts of cash, due from banks, interest-bearing
deposits in banks, and federal funds sold approximate fair values.
SECURITIES:
Fair values for securities are based on available quoted market
prices. The carrying values of equity securities with no readily
determinable fair value approximate fair values.
LOANS:
For variable-rate loans that reprice frequently and have no
significant change in credit risk and loans held for sale, fair
values are based on carrying values. For other loans, the fair values
are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to
borrowers with similar credit quality. Fair values for impaired loans
are estimated using discounted cash flow analyses or underlying
collateral values.
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
OTHER BORROWINGS:
The fair values of the Company's other borrowings approximate the
recorded amounts.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair
values.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
REDEEMABLE COMMON STOCK:
The fair values of the Company's redeemable common stock approximates
the recorded amounts.
OFF-BALANCE SHEET INSTRUMENTS
Fair values of the Company's off-balance sheet financial instruments
are based on fees currently charged to enter into similar agreements.
Since the majority of the Company's off-balance sheet instruments
consist of nonfee-producing, variable-rate commitments, the Company
has determined they do not have a distinguishable fair value.
The estimated fair values and related carrying amounts of the
Company's financial instruments were as follows:
DECEMBER 31, 2000 December 31, 1999
----------------------------------- ------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
---------------- ---------------- ----------------- -----------------
Financial assets:
Cash, due from banks, interest-bearing
deposits in banks, and Federal funds $ 50,988,711 $ 50,988,711 $ 31,834,329 $ 31,834,329
sold
Securities available-for-sale 61,068,882 61,068,882 49,143,458 49,143,458
Securities held-to-maturity 31,193,386 31,983,079 31,939,177 31,349,477
Loans held for sale 1,011,458 1,011,458 1,274,927 1,274,927
Loans 411,602,224 427,854,542 369,910,758 374,536,073
Accrued interest receivable 7,085,083 7,085,083 5,522,280 5,522,280
Financial liabilities:
Deposits 507,494,847 511,858,713 444,056,004 443,605,128
Other borrowings 10,843,975 10,843,975 16,054,100 16,054,000
Accrued interest payable 6,352,513 6,352,513 3,470,199 3,470,199
Redeemable common stock 15,088,348 15,088,348 13,982,242 13,982,242
NOTE 14. SEGMENT INFORMATION
The Company's operations have been classified into two reportable
segments, banking and bank consulting services. The banking segment
involves traditional banking services offered through its three
wholly-owned bank subsidiaries. Financial Supermarkets, Inc. provides
various consulting and licensing services to financial institutions in
connection with the establishment of bank branches in supermarkets. In
connection with the establishment of a Supermarket Bank, Financial
Supermarkets provides consulting services ranging from providing
alternative construction designs to coordinating employee training.
Financial Solutions, a division of Financial Supermarkets, Inc. was
formed to provide various consulting services to the financial
institution industry including compliance, operational, advertising,
marketing and travel related services.
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. SEGMENT INFORMATION (CONTINUEd)
The Company's reportable segments are organizations that offer
different products and services. They are managed separately because of
products and services, marketing strategies, and the regulatory
environments in which the Banks operate. In addition, the Banks
geographically are located in the Southeast and employ similar business
strategies and are evaluated using similar performance expectations.
The bank consulting segment operates throughout the United States.
Total revenue by industry segment includes revenues from unaffiliated
customers and affiliates. Revenues from affiliates are eliminated in
consolidation. Interest income, interest expenses, data processing
fees, management fees and other various revenues and expenses between
affiliates are recorded on the accrual basis of accounting consistent
with similar transactions with customers outside the consolidated
group.
Selected segment information by industry segment is as follows:
REPORTABLE SEGMENTS
------------------------------------------------------------------------
FINANCIAL ALL
FOR THE YEAR ENDED DECEMBER 31, 2000 BANKING SUPERMARKETS OTHER TOTAL
------------------------------------------- ----------------- --------------- ---------------- ----------------
INTEREST INCOME 47,283,876 $ 813,208 12,254 $ 48,109,338
INTEREST EXPENSE 23,291,215 - 82,469 23,373,684
INTERSEGMENT NET INTEREST INCOME (EXPENSE) (810,927) 798,673 12,254 -
NET INTEREST INCOME (LOSS) 23,181,734 1,611,881 (57,961) 24,735,654
OTHER REVENUE FROM EXTERNAL CUSTOMERS 5,258,886 8,845,717 488,493 14,593,096
INTERSEGMENT OTHER REVENUES - 541,569 2,120,800 2,662,369
DEPRECIATION AND AMORTIZATION 1,582,541 208,817 648,783 2,440,141
PROVISION FOR LOAN LOSSES 1,620,500 - - 1,620,500
SEGMENT PROFIT (LOSS) 5,407,069 3,336,070 (1,071,968) 7,671,171
SEGMENT ASSETS 587,193,454 25,538,955 3,218,307 615,950,716
EXPENDITURES FOR PREMISES AND EQUIPMENT 2,681,650 901,234 445,552 4,028,436
REPORTABLE SEGMENTS
-----------------------------------------------------------------------
FINANCIAL ALL
FOR THE YEAR ENDED DECEMBER 31, 1999 BANKING SUPERMARKETS OTHER TOTAL
------------------------------------------- ----------------- --------------- ---------------- ----------------
Interest income $ 40,931,494 $ 541,673 $ 3,956 $ 41,477,123
Interest expense 18,806,249 - 77,622 18,883,871
Intersegment net interest income (expense) (531,089) 527,133 3,956 -
Net interest income (loss) 22,125,245 541,673 (73,666) 22,593,252
Other revenue from external customers 4,489,623 6,720,159 300,195 11,509,977
Intersegment other revenues - 250,493 1,575,600 1,826,093
Depreciation and amortization 1,684,949 151,485 574,080 2,410,514
Provision for loan losses 1,636,900 - - 1,636,900
Segment profit (loss) 5,199,897 2,082,464 (1,219,010) 6,063,351
Segment assets 519,898,791 18,187,824 2,712,601 540,799,216
Expenditures for premises and equipment 1,191,675 261,970 647,534 2,101,179
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. SEGMENT INFORMATION (CONTINUED)
REPORTABLE SEGMENTS
-------------------------------------------------------------------
FINANCIAL ALL
FOR THE YEAR ENDED DECEMBER 31, 1998 BANKING SUPERMARKETS OTHER TOTAL
---------------------------------------- ---------------- --------------- -------------- ---------------
Interest income $ 34,903,053 $ 434,067 $ 7,636 $ 35,344,756
Interest expense 16,651,395 - 30,781 16,682,176
Intersegment net interest income (expense) (403,187) 395,551 7,636 -
Net interest income (loss) 18,251,658 434,067 (23,145) 18,662,580
Other revenue from external customers 4,185,170 9,043,292 152,523 13,380,985
Intersegment other revenues - 126,195 1,451,520 1,577,715
Depreciation and amortization 1,476,554 132,464 264,867 1,873,885
Provision for loan losses 1,164,950 - - 1,164,950
Segment profit (loss) 4,505,680 3,485,106 (971,896) 7,018,890
Segment assets 470,906,187 13,756,048 2,195,710 486,857,945
Expenditures for premises and equipment 2,620,509 260,104 50,883 2,931,496
2000 1999 1998
--------------- ---------------- ---------------
Net Interest Income
-------------------
Total net interest income for reportable segments $ 24,793,615 22,666,918 $ 18,685,725
Non-reportable segment net interest income (57,961) (73,666) (23,145)
---------------- --------------- ----------------
Total consolidated net interest income $ 24,735,654 $ 22,593,252 $ 18,662,580
================ =============== ================
Other Income
------------
Total other income for reportable segments $ 14,646,172 11,460,275 $ 13,354,657
Non-reportable segment other income 2,609,293 1,875,795 1,604,043
Elimination of intersegment other income (2,662,369) (1,826,093) (1,577,715)
---------------- --------------- ----------------
Total consolidated other income $ 7,622,005 $ 11,509,977 $ 13,380,985
================ =============== ================
Net Income
----------
Total profit for reportable segments $ 8,743,139 7,282,361 $ 7,990,786
Non-reportable segment loss (1,071,968) (1,219,010) (971,896)
Elimination of intersegment (gains) losses (49,166) 12,814 12,814
---------------- ------------- ----------------
Total consolidated net income $ 7,622,005 $ 6,076,165 $ 7,031,704
================ ============= ================
Total Assets
Total assets for reportable segments $ 612,732,409 538,086,615 $ 484,662,235
Non-reportable segment assets 3,218,307 2,712,601 2,195,710
Elimination of intersegment assets (25,627,927) (24,649,654) (26,264,505)
---------------- ------------- ---------------
Total consolidated assets $ 590,322,789 $516,149,562 $ 460,593,440
================ ============= ===============
Expenditures for Premises and Equipment
---------------------------------------
Total expenditures for reportable segments $ 3,582,884 1,453,645 $ 2,880,613
Non-reportable segment assets 445,552 647,534 50,883
Elimination of intersegment gains (341,656) (123,081) -
---------------- ------------- ---------------
Total consolidated expenditures for
premises and equipment $ 3,686,780 $ 1,978,098 $ 2,931,496
================ ============= ===============
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total revenue
are as follows:
YEARS ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998
--------------- ------------- -------------
Data processing $ 833,335 $ 885,699 $ 948,644
Travel expenses 906,265 677,840 469,126
Office supply expenses 611,511 623,213 460,341
NOTE 16. PARENT COMPANY ONLY FINANCIAL INFORMATION
The following information presents the condensed balance sheets,
statements of income and cash flows for the years indicated:
CONDENSED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
--------------- --------------
Assets
Cash $ 1,296,024 $ 964,915
Investment in subsidiaries 52,289,928 43,950,731
Equipment 653,333 1,011,134
Other assets 1,268,950 634,960
--------------- --------------
Total assets 55,5008,235 $ 46,561,740
=============== ==============
Liabilities
Other borrowings $ 843,975 $ 1,054,100
Other liabilities 1,277,450 678,419
--------------- --------------
Total liabilities 2,121,425 1,732,519
--------------- --------------
Redeemable common stock 15,088,348 13,982,242
--------------- --------------
Shareholders' equity 38,298,462 30,846,979
--------------- --------------
Total liabilities, redeemable common stock,
and shareholders' equity $ 55,508,235 $ 46,561,740
=============== ==============
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. PARENT COMPANY ONLY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
--------------- ------------- --------------
Income
Dividends from subsidiaries $ 1,400,000 $ 1,400,000 $ 1,250,000
Interest 12,254 3,955 7,636
Other income 2,369,404 1,724,166 1,506,545
------------- ------------ ------------
3,781,658 3,128,121 2,764,181
------------- ------------ -------------
Expense
Interest 82,465 77,557 30,781
Salaries and employee benefits 1,780,983 1,565,019 1,335,771
Equipment expense 768,835 701,315 349,484
Other expense 1,139,014 1,145,766 1,027,698
------------ ------------ ------------
3,771,297 3,489,657 2,743,734
------------ ------------ ------------
Income (loss) before income tax benefits and
equity in undistributed income of 10,361 (361,536) 20,447
subsidiaries
Income tax benefits (571,777) (631,941) (280,000)
----------- ------------ ------------
Income before equity in undistributed income
of subsidiaries 582,138 270,405 300,447
Equity in undistributed income of subsidiaries 7,089,033 5,801,765 6,727,261
------------ ------------ ------------
Net income $ 7,671,171 $ 6,072,170 $ 7,027,708
============ ============ =============
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. PARENT COMPANY ONLY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
-------------- --------------- --------------
OPERATING ACTIVITIES
Net income $ 7,671,171 $ 6,072,170 $ 7,027,708
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 622,171 560,046 270,799
Undistributed income of subsidiaries (7,089,033) (5,801,765) (6,727,261)
Other operating activities (34,958) 251,949 367,725
--------------- --------------- --------------
Net cash provided by operating activities 1,169,351 1,082,400 938,971
--------------- --------------- --------------
INVESTING ACTIVITIES
Purchases of premises and equipment (264,370) (1,053,841) (22,856)
Investment in subsidiary - - (500,000)
Disposal of premises and equipment - 406,306 -
--------------- --------------- --------------
Net cash used in investing activities (264,370) (647,535) (522,856)
--------------- --------------- --------------
FINANCING ACTIVITIES
Increase in other borrowings - 400,000 500,000
Repayment of other borrowings (210,125) (154,100) (154,099)
Proceeds from exercise of stock options 29,536 88,607 -
Dividends paid (393,283) (352,143) (318,531)
--------------- --------------- --------------
Net cash provided by (used in) financing
activities (573,872) (17,636) 27,370
--------------- --------------- --------------
Net increase in cash 331,109 417,229 443,485
Cash at beginning of year 964,915 547,686 104,201
--------------- --------------- --------------
Cash at end of year $ 1,296,024 $ 964,915 $ 547,686
=============== =============== ==============
F-30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the, thereunto duly authorized, in the City of
Cornelia, State of Georgia, on the 28th of March, 2001.
COMMUNITY BANKSHARES, INC.
By: /s/ J. Alton Wingate
---------------------------------------
J. Alton Wingate
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints J. Alton Wingate or Harry L. Stephens and either
of them (with full power in each to act alone), as true and lawful
attorneys-in-fact, with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any amendments to this
Report on Form 10-K and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 28th day of March, 2001.
Signature Title
/s/ J. Alton Wingate President and Chief Executive Officer
J. Alton Wingate (Principal Executive Officer) and Director
___________________________ Director
Steven C. Adams
___________________________ Director
Edwin B. Burr
/s/ H. Calvin Stovall, Jr. Director
H. Calvin Stovall, Jr.
___________________________ Director
Dean C. Swanson
/s/ George D. Telford Director
George D. Telford
/s/ Dr. A. Dan Windham Director
Dr. A. Dan Windham
/s/ Lois M. Wood-Schroyer Director
Lois M. Wood-Schroyer
/s/ Harry L. Stephens Executive Vice President and
Harry L. Stephens Chief Financial Officer (Principal
Financial and Accounting Officer)
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The Registrant has furnished annual reports and proxy material to
security holders, and copies of such documents have been furnished to the
Commission for its information.
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
10.10 Amended and Restated Revolving Credit/Term Loan Agreement between
the Registrant and SunTrust Bank dated July 31, 2000.
21 List of Subsidiaries of Registrant.