<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 1997
---------------------
[_] Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from __________________ to _______________
Commission file number 0-22451
---------------------------------------------------
CBC HOLDING COMPANY
---------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
GEORGIA 58-2311557
- ------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
102 West Roanoke Drive, Fitzgerald, GA 31750
--------------------------------------------
(Address of Principal Executive Offices)
(912) 423-4321
--------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: Common Stock $1 par value,
--------------------------
664,097 shares outstanding at September 30, 1997
- ------------------------------------------------
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
-1-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are provided for CBC Holding Company and the
subsidiary bank, Community Banking Company of Fitzgerald (the "Bank").
A. Consolidated Balance Sheets - September 30, 1997 and December 31,
1996.
B. Consolidated Statements of Income - For the Nine Months Ended
September 30, 1997 and the Period Ended September 30, 1996 and For
the Three Months Ended September 30, 1997 and the Three Months Ended
September 30, 1996.
C. Consolidated Statements of Cash Flows - For the Nine Months Ended
September 30, 1997 and the Period Ended September 30, 1996.
The consolidated financial statements furnished have not been examined by
independent certified public accountants, but reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the results of
operations for the periods presented.
The results of operations for the nine month period ended September 30, 1997 are
not necessarily indicative of the results to be expected for the full year.
Since the Bank began operations on April 18, 1996, the statement of income for
the period ended September 30, 1996 reflects operations from April 18, 1996 to
September 30, 1996.
-2-
<PAGE>
CBC HOLDING COMPANY
BALANCE SHEETS
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
As of September 30, As of December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 1,365,846 $ 1,955,359
Federal funds sold 940,000 5,050,000
- -------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 2,305,846 7,005,359
- -------------------------------------------------------------------------------------------------------------------
Securities available for sale, at fair value 12,477,967 17,900,701
Loans, net of unearned income 31,655,761 23,537,462
Allowance for loan losses (383,390) (359,146)
- -------------------------------------------------------------------------------------------------------------------
Loans, net 31,272,371 23,178,316
- -------------------------------------------------------------------------------------------------------------------
Bank premises and equipment, less accumulated depreciation 2,123,636 2,156,655
Accrued interest receivable 607,944 548,427
Intangible assets, net of amortization 2,573,032 2,565,772
Other assets and accrued income 95,274 324,993
- -------------------------------------------------------------------------------------------------------------------
Total Assets $ 51,456,070 $ 53,680,223
===================================================================================================================
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits $ 5,136,640 $ 5,148,136
Interest-bearing demand deposits 10,792,875 11,291,918
Savings deposits 2,659,129 2,490,421
Time deposits $100,000 or more 6,491,079 6,240,653
Other time deposits 19,350,431 21,489,972
- -------------------------------------------------------------------------------------------------------------------
Total deposits 44,430,154 46,661,100
Accrued interest payable 235,109 330,532
Federal funds purchased -- --
Other liabilities and accrued expenses 123,305 133,549
Other borrowings 55,000 --
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 44,843,568 47,125,181
- -------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock, $1.00 par value, authorized 10,000,000 shares,
issued and outstanding 664,097 shares 664,097 664,097
Paid-in capital surplus 5,976,873 5,976,873
Accumulated deficit (86,124) (110,439)
Unrealized holding losses on securities, net of tax 57,656 24,511
- -------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 6,612,502 6,555,042
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 51,456,070 $ 53,680,223
===================================================================================================================
</TABLE>
-3-
<PAGE>
CBC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Nine Months Period Three Months Three Months
Ended Ended Ended Ended
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 1,919,307 $ 979,008 $ 707,071 $ 567,422
Interest on federal funds sold 66,725 263,880 9,541 63,722
Interest on securities - U.S. Governmental agencies
and corporations 800,405 430,654 231,806 261,879
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 2,786,437 1,673,542 948,418 893,023
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on NOW and money market deposits 216,227 121,671 70,878 66,763
Interest on savings deposits 56,499 31,439 19,805 17,328
Interest on time deposits 1,183,861 715,854 379,128 403,959
Other interest expense 6,212 7,930 2,594 146
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,462,799 876,894 472,405 488,196
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income before loan losses 1,323,638 796,648 476,013 404,827
Less - provision for loan losses 31,500 10,500 10,500 10,500
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 1,292,138 786,148 465,513 394,327
- ------------------------------------------------------------------------------------------------------------------------------------
Other Operating Income:
Service charges on deposit accounts 180,225 78,796 62,863 45,772
Other service charges, commissions and fees 34,526 18,653 11,100 6,486
Other income 18,497 9,095 14,240 2,016
- ------------------------------------------------------------------------------------------------------------------------------------
Total other operating income 233,248 106,544 88,203 54,274
- ------------------------------------------------------------------------------------------------------------------------------------
Other Operating Expenses:
Salaries 516,676 336,236 174,803 181,694
Employee benefits 129,797 80,472 42,406 43,547
Net occupancy expenses 134,388 61,755 47,665 39,872
Equipment rental and depreciation of equipment 94,163 47,641 33,517 26,640
Amortization 168,381 98,565 55,140 54,838
Other expenses 429,486 372,646 135,605 231,486
- ------------------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 1,472,891 997,315 489,136 578,077
- ------------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 52,495 (104,623) 64,580 (129,476)
Less - provision (benefit) for income taxes 28,180 (36,125) 21,957 (44,597)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 24,315 $ (68,498) $ 42,623 $ (84,879)
====================================================================================================================================
Income Per Share - based on weighted average
outstanding shares of 664,097 $ 0.04 $ (0.10) $ 0.06 $ (0.13)
====================================================================================================================================
</TABLE>
-4-
<PAGE>
CBC HOLDING COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Nine Months Ended Period Ended
September 30, September 30,
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) $ 24,315 $ (68,489)
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 31,500 10,500
Depreciation 92,363 47,641
Amortization of intangible assets 168,381 98,565
Changes in accrued income and other assets (5,439) (656,903)
Changes in accrued in expenses and other liabilities (105,667) (149,353)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 205,453 (718,039)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net change in loans made to customers (8,125,555) (3,653,515)
Purchases of available for sale securities (2,508,672) (18,180,483)
Proceeds from sales and maturities of available for sale securities 7,964,551 500,000
Purchase of property and equipment (59,344) 276,294
Proceeds from issuance of short term borrowings and federal funds purchased 55,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,674,020) (21,057,704)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock -- 6,640,970
Assumption of deposits on acquisition, net of reduction for purchased assets -- 17,828,165
Net change in demand and savings accounts (341,831) 1,887,362
Net change in other time deposits (1,889,115) 58,169
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (2,230,946) 26,414,666
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (4,699,513) 4,638,923
Cash and Cash Equivalents, Beginning of Period 7,005,359 --
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 2,305,846 $ 4,638,923
===================================================================================================================================
</TABLE>
-5-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1997
================================================================================
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The accounting and reporting policies of CBC Holding Company conform with
generally accepted accounting principles and practices within the banking
industry. The policies that materially affect financial position and the
results of operations are summarized as follows:
1. Reporting Entity - CBC Holding Company (the "Company") was
----------------
incorporated as a Georgia corporation on October 15, 1996 for the
purpose of acquiring all of the issued and outstanding shares of
common stock of Community Banking Company of Fitzgerald (the "Bank").
The Company became the holding company of the Bank pursuant the Plan
of Reorganization, dated October 25, 1996, by and among the Company,
the Bank and Interim Fitzgerald Company, a wholly-owned subsidiary of
the Company ("Interim"). Pursuant to the terms of the Plan of
Reorganization, Interim merged with and into the Bank and the
shareholders of the Bank received one share of Company common stock
for each share of Bank common stock.
On March 31, 1997, the Company acquired Community Banking Company of
Fitzgerald in a business combination accounted for as a pooling of
interests. Community Banking Company of Fitzgerald which engages in
banking, became a wholly owned subsidiary of the Company through the
exchange of 664,097 shares of the Company's common stock for all of
the outstanding stock of Community Banking Company of Fitzgerald. The
accompanying financial statements are based on the assumption that
the companies were combined for the full year, and the financial
statements of prior years have been restated to give effect to the
combination.
2. Securities - The classification of securities is determined at the
----------
date of purchase. Gains or losses on the sale of securities are
recognized on a specific identification basis.
Securities available for sale, primarily debt securities, are
recorded at fair value with unrealized gains or losses (net of tax
effect) excluded from earnings and reported as a component of
shareholders' equity. Securities available for sale will be used as a
part of the Corporation's interest rate risk management strategy and
may be sold in response to changes in interest rates, changes in
prepayment risk, and other factors. Investment securities, primarily
debt securities, are stated at cost, net of the amortization of
premium and the accretion of discount. The Company intends and has
the ability to hold such securities on a long-term basis or until
maturity.
The market value of securities is generally based on quoted market
prices. If a quoted market price is not available, market value is
estimated using quoted market prices for similar securities.
3. Loans and Interest Income - Loans are stated at the amount of unpaid
-------------------------
principal, reduced by net deferred loan fees, unearned discount, and
a valuation allowance for possible loan losses. Interest on simple
interest installment loans and other loans is calculated by using the
simple interest method on daily balances of the principal amount
outstanding. Loans are generally placed on nonaccrual status when
full payment of principal or interest is in doubt, or when they are
past due 90 days as to either principal or interest. Senior
management may grant a waiver from nonaccrual status if a past due
loan is well secured and in process of collection. A nonaccrual loan
may be restored to accrual status when all principal and interest
amounts contractually due, including arrearages, are reasonably
assured of repayment within a reasonable period, and there is a
sustained period of performance by the borrower in accordance with
the contractual terms of the loan. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest
income is subsequently recognized only to the extent cash payments
are received.
4. Allowance for Loan Losses - The allowance for loan losses is
-------------------------
available to absorb losses inherent in the credit extension process.
The entire allowance is available to absorb losses related to the
loan and lease portfolio and other extensions of credit, including
off-balance sheet credit exposures. Credit exposures deemed to be
uncollectible are charged against the allowance for loan losses.
Recoveries of previously charged-off amounts are credited to the
allowance for loan losses. The adequacy of the allowance for loan
losses is reviewed regularly by management. Additions to the
allowance for loan losses are made by charges to the provision for
loan losses. On a quarterly basis, a comprehensive review of the
adequacy of the allowance for loan losses is performed. This
assessment is made in the context of historical losses, as well as
existing economic conditions.
Management believes that the allowance for possible loan losses is
adequate. While management uses available information to recognize
losses on loans and other real estate, future additions to the
allowance may be necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of
their examination process, periodically
-6-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1997
================================================================================
review the bank's allowance for possible loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on
their judgment of information available to them at the time of their
examination.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly
from those estimates. Material estimates that are particularly
susceptible to significant change in an operating cycle of one year
relate to the determination of the allowance for possible loan losses
and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowance for possible loans losses and real
estate owned, management obtains independent appraisals for
significant properties.
In 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS 114), which was amended in 1994 by
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosure" (SFAS 118). These standards address the accounting for
certain loans when it is probable that all amounts due pursuant to
the contractual terms of the loan will not be collected. The Bank
evaluates a loan for impairment when it is placed on non-accrual
status and all or a portion is internally risk rated as substandard
or doubtful. Individually identified impaired loans are measured
based on the present value of payments expected to be received, using
the historical effective loan rate as the discount rate. Loans that
are to be foreclosed or that are solely dependent on the collateral
for repayment may alternatively be measured based on the fair value
of the collateral for such loans. Measurement may also be based on
observable market prices. If the recorded investment in the loan
exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. These
standards do not apply to larger groups of smaller-balance,
homogenous loans and therefore are principally relevant to commercial
loans. For purposes of applying these standards, the Bank considers
consumer loans and other collateral based loans of less than $41,000
to be smaller-balance, homogeneous loans.
5. Premises and Equipment - Premises and equipment are stated at cost,
----------------------
less accumulated depreciation. Depreciation is charged to operating
expenses over the estimated useful lives of the assets and is
computed on the straight-line method. Costs of major additions and
improvements are capitalized. Expenditures for maintenance and
repairs are charged to operations as incurred. Gains or losses from
disposition of property are reflected in operations and the asset
account is reduced.
6. Other Real Estate Owned - Other real estate owned, acquired
-----------------------
principally through foreclosure, is stated at the lower of cost or
net realizable value. Loan losses incurred in the acquisition of
these properties are charged against the allowance for possible loan
losses at the time of foreclosure. Subsequent write-downs of other
real estate owned are charged against the current period's expense.
7. Income Taxes - The liability method of accounting is used for income
------------
taxes. Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of existing
differences between financial reporting and tax reporting bases of
assets and liabilities, as well as for operating losses and tax
credit carry-forwards, using enacted laws and rates. Deferred tax
expense represents the net change in the deferred tax asset or
liability balance during the year. This amount, together with income
taxes currently payable or refundable for the current year,
represents the total income tax expense for the year.
8. Cash and Cash Equivalents - For purposes of reporting cash flows,
-------------------------
cash and cash equivalents include cash on hand, amounts due from
banks, highly liquid debt instruments purchased with an original
maturity of three months or less, and federal funds sold. Generally,
federal funds are purchased and sold for one-day periods. Interest
bearing deposits in other banks with original maturities of less than
three months are included.
9. Use of Estimates - The preparation of financial statements in
----------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
-7-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1997
================================================================================
B. INVESTMENT SECURITIES
---------------------
Debt and equity securities have been classified in the balance sheet
according to management's intent. The following table reflects the
amortized cost and estimated market values of investments in debt
securities held at September 30 1997 and December 31, 1996. In addition,
gross unrealized gains and gross unrealized losses are disclosed as of
September 30 1997 and December 31, 1996, in accordance with Statement of
Position 90-11 of the American Institute of Certified Public Accountants,
which is effective for financial statements covering fiscal years ending
after December 15, 1990.
The book and market values of securities available for sale were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1997:
Non-mortgage backed debt securities of:
U.S. Treasury $ 1,503,014 $ 5,901 $ -- $ 1,508,915
U.S. government agencies 10,887,593 81,459 -- 10,969,052
- ----------------------------------------------------------------------------------------------------------------
Total $12,390,607 $ 87,360 $ -- $12,477,967
================================================================================================================
December 31, 1996:
Non-mortgage backed debt securities of:
U.S. Treasury $ 4,006,354 $ 9,122 $ -- $ 4,015,476
U.S. government agencies 13,857,211 28,014 -- 13,885,225
- ----------------------------------------------------------------------------------------------------------------
Total $17,863,565 $ 37,136 $ -- $17,900,701
================================================================================================================
</TABLE>
The amortized cost and estimated market value of debt securities available for
sale at September 30, 1997 and December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale
- ---------------------------------------------------------------------------------------
Estimated
September 30, 1997 Amortized Cost Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 997,328 $ 1,000,220
Due after one year through five years 10,893,384 10,976,977
Due after five years through ten years 499,895 500,770
Due after ten years -- --
- ---------------------------------------------------------------------------------------
Total $12,390,607 $12,477,967
=======================================================================================
<CAPTION>
Available for Sale
- ---------------------------------------------------------------------------------------
Estimated
December 31, 1996 Amortized Cost Market Value
- ---------------------------------------------------------------------------------------
Due in one year or less $ 3,500,718 $ 3,505,941
Due after one year through five years 13,858,392 13,890,307
Due after five years through ten years 504,455 504,453
Due after ten years -- --
- ---------------------------------------------------------------------------------------
Total $17,863,565 $17,900,701
=======================================================================================
</TABLE>
The market value is established by an independent pricing service as of the
approximate dates indicated. The differences between the book value and market
value reflect current interest rates and represent the potential loss (or gain)
had the portfolio been liquidated on that date. Security losses (or gains) are
realized only in the event of dispositions prior to maturity.
At September 30, 1997, the Company did not hold investment securities of any
single issuer, other than obligations of the U.S. Treasury and other U.S.
Government agencies, whose aggregate book value exceeded ten percent of
shareholders' equity.
-8-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1997
================================================================================
C. LOANS
-----
The following is a summary of the loan portfolio by principal categories at
September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans secured by 1 to 4-family residential properties $ 11,460,384 $ 8,422,710
Loans secured by multi-family and non-farm, non-residential properties 4,422,974 3,385,410
Other loans secured by real estate 2,229,322 1,205,876
Commercial and industrial loans 7,617,562 4,495,961
Consumer loans 5,634,995 5,976,108
Other loans 297,063 54,109
- ---------------------------------------------------------------------------------------------------------------
Subtotal 31,662,300 23,540,174
Less: Unearned income (6,539) (2,712
Total $ 31,655,761 $ 23,537,462
===============================================================================================================
</TABLE>
D. ALLOWANCE FOR LOAN LOSSES
-------------------------
A summary of changes in allowance for loan losses of the Company for the
nine months ended September 30, 1997 and the period ended September 30,
1996 is as follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for possible loan losses, beginning of period 359,146 385,000
Charge-offs (13,436) (7,942)
Recoveries 6,180 221
- ----------------------------------------------------------------------------------------------------------
Net charge-offs (7,256) (7,721)
Additions charged to operations 31,500 10,500
- ----------------------------------------------------------------------------------------------------------
Allowance for possible loan losses, end of period 383,390 387,779
- ----------------------------------------------------------------------------------------------------------
Average loans outstanding, net of unearned income 27,454,084 23,730,800
- ----------------------------------------------------------------------------------------------------------
Ratio of net charge-offs during the period to average loans
outstanding during the period 0.03% 0.03%
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
Nonaccrual, Past Due and Restructured Loans as of September 30,
1997 and December 31, 1996 is as follows:
September 30, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans 6,887 -
Accruing loans contractually past due 90 days or more - -
Troubled debt restructurings - -
</TABLE>
E. REGULATORY MATTERS
------------------
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the
-9-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1997
================================================================================
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of September 30, 1997,
the Bank meets all capital adequacy requirements to which it is subject. As
of September 30, 1997, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank
must maintain minimum total risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's
category.
The Bank's actual capital amounts and ratios are also presented in the
Table.
<TABLE>
<CAPTION>
To Be Well Capitalized
Actual For Capital Under Prompt Corrective
Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997
Total Capital To Greater Than Greater Than
(Risk Weighted Assets) 4,536,000 13.2% 2,750,880 or Equal to 8.0% 3,438,600 or Equal to 10.0%
-------------------------------------------------------------------------------------------------------------------------------
Tier I Capital To Greater Than Greater Than
(Risk-Weighted Assets) 4,153,000 12.1% 1,375,440 or Equal to 4.0% 2,063,160 or Equal to 6.0%
-------------------------------------------------------------------------------------------------------------------------------
Tier I Capital To Greater Than Greater Than
(Average Assets) 4,153,000 8.3% 2,001,280 or Equal to 4.0% 2,501,600 or Equal to 5.0%
-------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------------------------------------------------------------
As of September 30, 1996
Total Capital To Greater Than Greater Than
(Risk Weighted Assets) 4,158,000 13.7% 2,428,400 or Equal to 8.0% 3,035,500 or Equal to 10.0%
-------------------------------------------------------------------------------------------------------------------------------
Tier I Capital To Greater Than Greater Than
(Risk-Weighted Assets) 3,778,000 12.5% 1,214,200> or Equal to 4.0% 1,821,300 or Equal to 6.0%
-------------------------------------------------------------------------------------------------------------------------------
Tier I Capital To Greater Than Greater Than
(Average Assets) 3,778,000 7.5% 2,028,320> or Equal to 4.0% 2,535,400 or Equal to 5.0%
</TABLE>
-10-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1997
================================================================================
ITEM 2. Management's Discussion and Analysis of Financial Condition and
results of Operation
GENERAL
The Bank was incorporated on January 19, 1996 (the "Inception Date"). From
the inception date to April 18, 1996, the Bank's principal activities related
to its organization, the conducting of its initial public offering, the
pursuit of approvals from the Georgia Department and the FDIC of its
application to charter the Bank.
On April 18, 1996, the Bank completed its offering of shares of the Bank's
common stock by receiving subscriber deposits for 664,097 shares at $10.00
per share. The Bank was capitalized with $3,320,485 of common stock, par
value $5.00 per share and $3,154,461 of paid-in capital and a reserve for
initial operating losses of $166,024, as required by the DBF.
On April 19, 1996, the Bank commenced operations after receiving all
regulatory approvals and insurance on its deposits from the FDIC.
On October 25, 1996, the Bank entered into a Plan of Reorganization with the
Company and Interim Fitzgerald Company, a wholly-owned subsidiary of the
Company ("Interim"). Pursuant to the terms of the Plan of Reorganization,
Interim merged with and into the Bank (the "Merger") and the shareholders of
the Bank exchanged their shares of Bank common stock for Company common
stock. As a result of the Merger, the Company became the sole shareholder of
the Bank, effective March 31, 1997.
FINANCIAL CONDITION
At December 31, 1996, the Bank had concluded eight months of banking
operations with $53,680,223 in total assets and for the nine months ended
September 30, 1997 total assets had decreased 4.14% to $51,456,070. At
December 31, 1996, total deposits had grown to $46,661,100 and total loans
had grown to $23,537,462. This represented a loan to deposit ratio at year
end of 50.4%. For the nine months ended September 30, 1997, total deposits
had decreased 4.78%to $44,430,154 and total loans had grown 34.49% to
$31,655,761. This represented a loan to deposit ratio at September 30, 1997
of 71.25%.
Capital
At September 30, 1997 and December 31, 1996, the Bank's capital position was
well in excess of FDIC guidelines to meet the definition of "well-
capitalized". Based on the level of the Bank's risk weighted assets at
September 30, 1997 and December 31, 1996, the Bank had $1 million more
capital than necessary to satisfy the "well-capitalized" criteria. The Bank's
capital adequacy is monitored quarterly by the Bank's Asset/Liability
Committee, as asset and liability growth, mix and pricing strategies are
developed.
Liquidity
The Bank's internal and external liquidity resources are considered by
management to be adequate to handle expected growth and normal cash flow
demands from existing deposits and loans. At December 31, 1996, the
securities available for sale had grown from $0 at April 18, 1996 (date of
acquisition) to $17,900,701. For the nine months ended September 30, 1997,
the securities available for sale had decreased 30.29% to $12,477,967. The
Bank had no securities classified as held to maturity as of September 30,
1997 and December 31, 1996. Federal funds sold were $5,050,000 at year-end,
down from $23,828,875 at April 18, 1996 (the acquisition date) due to
investing of these funds in investment securities. At September 30, 1997,
federal funds sold were $940,000.
Current deposits provide the primary liquidity resource for loan
disbursements and Bank working-capital. Despite the anticipated losses in the
first years of operations, the Bank expects earnings from loans and
investments and other banking services as well as the current loan to deposit
position to provide sufficient liquidity for both the short and long term.
The Bank intends to manage its loan growth such that deposit flows will
provide the primary funding for all loans as well as cash reserves for
working capital and short to intermediate term marketable investments.
Results of Operations
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and
investment losses, to generate non-interest income and to control
non-interest expense. Since interest rates are determined by market forces
and economic conditions beyond the control of the Company, the ability to
generate interest income is dependent upon the Bank's ability to obtain an
adequate spread between the rate earned on earning assets and the rate paid
on interest-bearing
-11-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1997
================================================================================
liabilities. Thus, a key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
The Bank had a net loss of $68,948 ($0.10 per share) from the date it began
operations to September 30,1996. For the nine months ended September 30,
1997, the Company had net income of $24,315 ($0.04 per share). Net loss for
the three months ended September 30, 1996 was $84,879 ($0.13 per share) as
compared to net income of $42,423 ($0.07 per share) for the three months
ended September 30, 1997.
For the period ended September 30, 1996, interest income from loans and
investments, including loan fees of $26,817, was $1,673,542, representing a
yield of 7.74% on average earning assets of $47,204,501. Interest expense was
$876,894, representing a cost of 5.21% on average interest bearing
liabilities of $40,368,442. Net interest income was $786,148, producing a net
yield of 3.40% on average earning assets.
For the nine months ended September 30, 1997, interest income from loans and
investments, including loan fees of $75,617, was $2,786,437, representing a
yield of 8.07% on average earning assets of $46,054,678. Interest expense was
$1,462,799, representing a cost of 4.79% on average interest bearing
liabilities of $40,702,461. Net interest income was $1,292,138, producing a
net yield of 3.74% on average earning assets.
For the three months ended September 30, 1996, interest income from loans and
investments, including loan fees of $17,182, was $893,023, representing a
yield of 7.60% on average earning assets of $47,204,501. Interest expense was
$488,196, representing a cost of 4.84% on average interest bearing
liabilities of $40,368,442. Net interest income was $394,327, producing a net
yield of 3.34% on average earning assets.
For the three months ended September 30, 1997, interest income from loans and
investments, including loan fees of $12,047, was $948,418, representing a
yield of 8.24% on average earning assets of $46,054,678. Interest expense was
$472,405, representing a cost of 4.64% on average interest bearing
liabilities of $40,702,461. Net interest income was $465,513, producing a net
yield of 4.04% on average earning assets.
The provision for loan losses for the nine months ended September 30, 1997
and the period ended September 30, 1996 and was $31,500 and $10,500,
respectively. Total loan charge-offs were $13,436 and $7,942 for the nine
months ended September 30, 1997 and the period ended September 30, 1996,
respectively, and were related to the Bank's consumer loan portfolio. At
September 30, 1997 and September 30, 1996, the Bank had non-accrual loans of
$6,887 and $0, respectively. The allowance for loan losses at September 30,
1997 and September 30, 1996 was $383,390 and $387,779, respectively. This
represents 1.22% and 1.56% of total loans at September 30, 1997 and September
30, 1996, respectively.
Management takes a number of factors into consideration when determining the
additions to be made to the loan loss allowance. Since the Bank is
approaching the end of its first year of operations, it does not have a
sufficient history of portfolio performance on which to base additions.
Accordingly, additions to the reserve are primarily based on maintaining a
ratio of the allowance for loan losses to total loans in a range of 1.00% to
1.50%. This is based on national peer group ratios and Georgia ratios which
reflect average ratios of 0.99% (national peer) and 1.50% (Georgia). Under
this methodology, charge-offs will increase the amount of additions to the
allowance and recoveries will reduce additions.
In addition, management performs an on-going loan review process. All new
loans are risk rated under loan policy guidelines. On a monthly basis, the
composite risk ratings are evaluated in a model which assesses the adequacy
of the current allowance for loan losses, and this evaluation is presented to
the Board of Directors each month. Large loans are reviewed periodically.
Risk ratings may be changed if it appears that new loans may not have
received the proper initial grading or, if on existing loans, credit
conditions have improved or worsened.
As the Bank matures, the additions to the loan loss allowance will be based
more on historical performance, the detailed loan review and allowance
adequacy evaluation.
The Bank's policy is to place loans on non-accrual status when it appears
that the collection of principal and interest in accordance with the terms of
the loan is doubtful. Any loan which becomes 90 days past due as to principal
or interest is automatically placed on non-accrual.
Non-interest income for the nine months ended September 30, 1997 and the
period ended September 30, 1996 was $233,248 and $106,544, respectively. This
consisted primarily of service charges on deposit accounts which were
$180,226 for the nine months
-12-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1997
================================================================================
ended September 30, 1997 and $78,796 the period ended September 30, 1996 and
credit life and disability insurance premium income which was $16,088 for the
nine months ended September 30, 1997 and $7,996 for the period ended
September 30, 1996.
Non-interest income for the three months ended September 30, 1997 and the
three months ended September 30, 1996 was $88,204 and $54,274, respectively.
This consisted primarily of service charges on deposit accounts which were
$62,864 for the three months ended September 30, 1997 and $45,773 the three
months ended September 30, 1996 and credit life and disability insurance
premium income which was $4,225 for the three months ended September 30, 1997
and $4,790 for the three months ended September 30, 1996.
Service charges on deposit accounts are evaluated annually against service
charges from other banks in the local market and against the Bank's own cost
structure in providing the deposit services. This income should grow with the
growth in the Bank's demand deposit account base. The credit life and
disability insurance premium income is sold primarily on consumer installment
debt and should grow with the growth in the Bank's consumer loan portfolio.
Non-interest expenses for the nine months ended September 30, 1997 and the
period ended September 30, 1996 was $1,472,891 and $997,315, respectively.
This consisted primarily of salaries and benefits which were $646,473 for the
nine months ended September 30, 1997 and $416,708 for the period ended
September 30, 1996. Other major expenses included in non-interest expense for
the nine months ended September 30, 1997 included amortization of $168,381,
supplies of $31,229, data processing of $36,327, and professional fees of
$37,973. Other major expenses included in non-interest expense for the period
ended September 30, 1996 included amortization of $98,565, supplies of
$64,476, data processing of $37,037, and professional fees of $61,819.
Non-interest expenses for the three months ended September 30, 1997 and the
period ended September 30, 1996 was $489,136 and $578,077, respectively. This
consisted primarily of salaries and benefits which were $217,208 for the
three months ended September 30, 1997 and $223,243 for the three months ended
September 30, 1996. Other major expenses included in non-interest expense for
the three months ended September 30, 1997 included amortization of $55,140,
supplies of $12,187, data processing of $22,192 and professional fees of
$20,671. Other major expenses included in non-interest expense for the period
ended September 30, 1996 included amortization of $54,838, supplies of
$23,113, data processing of $32,250, and professional fees of $56,182.
Interest Rate Sensitivity
Improvement in earnings of the Bank depend upon continued earning asset
growth, good asset quality and a relatively stable economic environment.
Management feels it is reasonable for the Bank to continue to experience
steady earning asset growth as long as interest rates remain relatively
stable. The Bank is asset sensitive (meaning that rising rates tend to be
beneficial) in the near and long term and is liability sensitive at the one
year time horizon (meaning that falling rates tend to be beneficial) to the
Bank's net interest margin. If interest rates were to rise in excess of 200
basis points, the Bank could experience improved earnings in the near term,
but such a rate increase might significantly reduce the demand for loans in
the Bank's local market, thus diminishing the prospects for improved
earnings. If interest rates were to fall in excess of 200 basis points, the
Bank could experience a short term decline in net interest margin and may
even have difficulty retaining maturing certificates of deposit without
having to pay above market rates.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company is a
party or of which any of their property is the subject.
Item 2. Changes in Securities
(a) Not Applicable
(b) Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to security holders for a vote during the
three months ended September 30, 1997.
-13-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1997
================================================================================
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits - 27.1 Financial Data Schedule
B. There have been no reports filed on form 8-K for the three months
ended September 30, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, there unto
duly authorized.
CBC HOLDING COMPANY
11/06/97..................../s/ L. Wayne Lowery
Date
--------------------- ---------------------------------
L. WAYNE LOWERY
PRESIDENT/CHIEF EXECUTIVE OFFICER
-14-
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,305,846
<SECURITIES> 12,477,967
<RECEIVABLES> 31,655,761
<ALLOWANCES> 383,390
<INVENTORY> 0
<CURRENT-ASSETS> 46,759,402
<PP&E> 2,301,960
<DEPRECIATION> 178,324
<TOTAL-ASSETS> 51,456,070
<CURRENT-LIABILITIES> 44,843,568
<BONDS> 0
0
0
<COMMON> 664,097
<OTHER-SE> 5,976,873
<TOTAL-LIABILITY-AND-EQUITY> 51,456,070
<SALES> 2,786,437
<TOTAL-REVENUES> 3,019,685
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,472,891
<LOSS-PROVISION> 31,500
<INTEREST-EXPENSE> 1,462,799
<INCOME-PRETAX> 52,495
<INCOME-TAX> 28,180
<INCOME-CONTINUING> 24,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,315
<EPS-PRIMARY> .037
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