<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee required]
For fiscal year ended December 31, 1997
[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No fee required]
For the transition period from ___________ to ____________
Commission file number 0-22451
----------------------------------------------------
CBC HOLDING CO.
- -------------------------------------------------------------------------------
(Name of Small Business Issuer 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, Georgia 31750
- ------------------------------------------- -----------------------
(Address of Principal Executive Offices) (Zip Code)
(912) 423-4321
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par
--------------------
Value $1 Per Share
- ----------------------
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 past 90 days. Yes X No
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $4,139,973
----------
Aggregate market value of the voting stock held by non-affiliates computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within the past 60 days: $7,305,067
----------
as of March 19, 1998
- --------------------
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 664,097 as of March 19, 1998
----------------------------
Transitional Small Business Disclosure format (check one): Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1997 are incorporated by reference into Part II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders,
held on March 25, 1998, are incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
Page
----
PART I ........................................................... 3
ITEM 1. DESCRIPTION OF BUSINESS.................................... 3
ITEM 2. DESCRIPTION OF PROPERTIES..................................13
ITEM 3. LEGAL PROCEEDINGS..........................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS....................................................13
PART II ...........................................................13
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND..................13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............14
ITEM 7. FINANCIAL STATEMENTS.......................................14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................14
PART III ...........................................................14
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT..................................14
ITEM 10. EXECUTIVE COMPENSATION.....................................15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT......................................15
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............15
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 10-KSB.................16
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company
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. The
merger became effective on March 31, 1997.
The purpose for creating a holding company structure was to facilitate
the Bank's ability to serve its customers' requirements for financial services.
The holding company structure also provides flexibility for expansion of the
Company's banking business through the possible acquisition of other financial
institutions and the provision for additional banking-related services that a
traditional commercial bank cannot provide under present laws.
Any additional future non-banking activities to be conducted by the
Company may include financial and other activities permitted by law, and such
activities could be conducted by subsidiary corporations that have not yet been
organized. Commencement of non-banking operations by the Company or by its
subsidiaries, if they are organized, will be contingent upon the appropriate
regulatory authority.
Except for two officers of the Bank who serve as officers of the Company,
the Company does not have any employees.
The Company's main office is located at 102 West Roanoke Drive, Fitzgerald,
Georgia. The Company opened a drive-through facility on Main Street in
Fitzgerald, Georgia in January 1998. The Company does not have any immediate
plans to establish additional offices.
The Bank
General
The Bank was incorporated on January 19, 1996 and began operations on April
19, 1996. The Bank purchased certain loans and assumed certain deposits from
Bank South N.A. (now known as NationsBank of Georgia, N.A.) ("Bank South")
pursuant to a Purchase and Assumption Agreement, dated October 18, 1995. The
Bank also purchased its current facilities and property from Bank South pursuant
to the Purchase and Assumption Agreement.
The Bank is located in Fitzgerald, Georgia and its trade area includes all
of Ben Hill County, Georgia. Fitzgerald serves as the county seat of Ben Hill
County and is the center of banking in Ben Hill County.
The Bank was established in the Bank South branch located at 102 West
Roanoke Drive in Fitzgerald. Additionally, the Bank operates a two-lane drive
through located on Main Street in downtown Fitzgerald.
3
<PAGE>
Market Area
In 1996, Fitzgerald, Georgia had a population of 9,461 and Ben Hill County
had a population of 17,676. The per capita income of Ben Hill County for 1996
was estimated by the Selig Center for Economic Growth to be $18,268, with a
growth rate from 1991 of 5.3%. The estimated per capita income for 2001 is
$22,846. Employment rates have increased at a rate of 4.4% since 1991, with
7,749 persons employed as of March 1996. As a regional commercial center,
Fitzgerald has over 100 retail shops and an 80-bed full service medical center.
There are over 40 manufacturing businesses in Ben Hill County with concentration
in apparel and timberwood products. Additionally, agriculture is a major
industry segment in Ben Hill County.
Lending Activities
The Bank was established to support Ben Hill County and portions of
immediately surrounding counties. It's primary lending function is to provide
short and intermediate term credit to individuals, local businesses, and
agricultural enterprises. The Bank mitigates credit risks by maintaining
conservative underwriting standards, continuing training of lenders and support
personnel, and constant management of its loan and collateral portfolio.
Interest rate risk is actively managed through variable-rate pricing and/or
utilizing short amortizing terms (3-5 years) or balloon maturities to facilitate
loan rate adjustment. Occasionally, the bank may allow longer term (over 5
years) loans at fixed interest rates. These loans are approved only when the
interest rate is clearly advantageous to the bank or when the overall customer
relationship indicates that it is in the bank's best economic interest to
accommodate the customer.
Real Estate Loans. The Bank makes and holds Real Estate loans, including
construction loans, both residential and commercial, permanent financing of
residential, commercial and agricultural real estate, equity line consumer loans
and occasional closed and junior mortgages. These loans constitute 57% total
loan portfolio, 74% of these dollars outstanding have a fixed interest rate and
26% have a variable rate. The weighted average rate for fixed rate real estate
loans having a final maturity over 60 months, is 8.58%. Presently longer term
fixed rate residential loans outstanding are slightly higher, as a percentage of
total, than might be considered optimal; however, virtually all of these loans
originated from the portfolio purchased from Bank South and long-term financing
is no longer considered a desirable product of the Bank. The rate impact of
these loans will continue to diminish as the bank expands it's overall portfolio
and as these loans amortize and/or pay out through other means. Meanwhile they
provide a quality source of income and an asset that may be leveraged through
borrowing from FHLB should it become advantageous to do so. Current real estate
lending is provided on a 3 to 5 year balloon basis or, when acceptable on
variable rates.
Real estate loans are normally provided to customers with acceptable credit
and ability to repay the debt at 80% loan to value as determined by outside
evaluation. Commercial real estate may require higher margins depending on the
type and quality of property under consideration. Construction loans are based
on "as built" evaluations and funds are disbursed upon officer inspection. Due
to local market characteristics, requests for speculative construction are rare.
Equity Line credits are generally underwritten to the same criteria as
other residential real estate loans. Due to the nature of these credits as
consumer products a loan/value ratio at 90% is often acceptable. Over 99% of
equity line credits bear a rate that is variable at some function of prime.
4
<PAGE>
Real Estate loans approved under reasonable underwriting standards present
a relatively low level of risk, especially in the absence of speculative
lending. The most prominent risks in this market are those associated with
declining economic conditions resulting in loss of industrial employment. Such
conditions may diminish the ability of individuals and commercial enterprises to
service real estate debt.
Consumer Loans. The Bank makes consumer loans consisting primarily of
installment loans to individuals for personal, family and household purposes,
including loans for automobiles, home improvement, education loans and
investments. Approximately 99% of the consumer loans are fixed rate loans
generally with maturity of 3 to 5 years. The Bank currently offers home equity
lines of credit (5.0% of total loans), which have a variable rate consumer
product. The Bank expects that most of its consumer loans will remain fixed rate
loans with maturities of 3 to 5 years. Risks associated with consumer loans
include, but are not limited to, fraud, deteriorated or non-existing collateral,
general economic downturn and customer financial problems.
Commercial Loans. Commercial lending is directed principally toward small
businesses whose demand for funds fall within the legal lending limits of the
Bank. This category of loans includes loans to individual, partnership or
corporate borrowers, for a variety of business purposes. Currently, commercial
loans equal 21% of total loans. Of the Bank's commercial loans, 77% are
adjustable rate loans or mature within one year. Fixed rate loans with
maturities of 60 months or less equal 22% of commercial loans and loans with
fixed rate maturities of over 60 months equal only 1% of commercial loans. Risks
associated with these loans can be significant and include, but are not limited
to, fraud, bankruptcy, economic downturn, deteriorated or non-existing
collateral and changes in interest rates.
The Bank also makes loans to businesses under programs administered by the
Small Business Administration ("SBA"). Generally SBA guarantees repayment of up
to 90% of the loan amount subject to certain limitations. Normally these loans
have a variable interest rate. The guaranteed portion of these loans may be sold
to investors in the secondary market or held by the Bank depending upon income
and liquidity needs. Risks associated with the loans include, but are not
limited to, credit risk, e.g., fraud, bankruptcy, economic downturn,
deteriorated or non-existing collateral and operational risk, e.g., failure to
adhere to SBA funding and servicing requirements in order to maintain the SBA
guarantees and servicing rights.
Agricultural Loans. The Bank makes loans to agricultural producers and to
agriculture-related businesses. While approximately 94% of the production
agriculture-related loans are fixed rate, terms are generally 12 months or less
for operating line. Most other loans to agricultural producers are 3 to 5 year
fixed rate loans. The Bank expects that it will continue to have a majority of
its agricultural loans with fixed rates and maturities of 12 months or less for
operating lines and 3 to 5 years for other agricultural loans. Risks associated
with such loans include, but are not limited to, inclement weather, general
economic downturn, changes in market prices of the underlying commodities
produced, fraud, bankruptcy, deteriorated and non-existing collateral and
adverse fluctuations in interest.
Investments
In addition to loans, the Bank makes other investments primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States and other taxable securities. No investment in any
of those instruments exceeds any applicable limitation imposed by law or
regulation.
5
<PAGE>
Deposits
The Bank offers core deposits, including checking accounts, money market
accounts, a variety of certificates of deposit, and IRA accounts. The Bank uses
an aggressive marketing plan in the overall service area, a broad product line,
and competitive services to attract deposits. The primary sources of deposits
are residents of, and businesses and their employees located in Ben Hill County,
obtained through personal solicitation by the Bank's employees, officers and
directors, direct mail solicitations and advertisements published in the local
media. Deposits are generated by offering a broad array of competitively priced
deposit services, including demand deposits, regular savings accounts, money
market deposits (transaction and investment), certificates of deposit,
retirement accounts, and other deposit or funds transfer services which may be
permitted by law or regulation and which may be offered to remain competitive in
the market.
Asset and Liability Management
The Bank manages its assets and liabilities to provide an optimum and
stable net interest margin, a profitable after-tax return on assets and return
on equity, and adequate liquidity. These management functions are conducted
within the framework of written loan and investment policies. Management's
overall philosophy is to support asset growth primarily through growth of core
deposits, which includes deposits of all categories made by individuals,
partnerships and corporations. The Bank maintains a balanced position between
rate sensitive assets and rate sensitive liabilities. Specifically, it charts
assets and liabilities on a matrix by maturity, effective duration, and interest
adjustment period, and endeavors to manage any gaps in maturity ranges.
Employees
At December 31, 1997 the Bank had 26 full-time employees and 5 part-time
employees. The Bank had 27.5 full-time equivalent employees at December 31,
1997. The Company considers its relationship with its employees to be excellent.
Competition
Ben Hill County has offices of four other commercial banks. The commercial
banks include branch offices of NationsBank and SouthTrust, and First State Bank
of Ocilla, as well as the locally owned Bank of Fitzgerald.
Selected Statistical Information
The following statistical information is provided for CBC Holding Company
for the years ended December 31, 1997 and 1996. The data is presented using
daily average balances. This data should be read in conjunction with the
financial statements appearing elsewhere in this Annual Report.
6
<PAGE>
193925 STATISTICAL INFORMATION
I. Distribution of Assets, Liabilities, and Stockholder's Equity; Interest Rates
and Interest Differential
The following table reflects the tax-equivalent yields of interest earning
assets and interest bearing liabilities:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Average Interest Tax-Equivalent
Balance Income/Expense Yield
------------ -------------- --------------
<S> <C> <C> <C>
Loans $ 28,308,710 $ 2,650,129 9.36%
Taxable investment securities 16,021,235 1,010,852 6.31%
Tax-exempt investment securities - -
Federal funds sold 1,772,605 96,080 5.42%
------------ ------------ ----
Average earning assets $ 46,102,550 $ 3,757,061 8.15%
------------ ----
Cash & due from banks 1,356,385
Fixed assets 2,134,991
Other assets 2,888,616
------------
Average total assets $ 52,482,542
============
Interest bearing demand deposits 8,152,109 174,860 2.14%
Savings and money market deposits 6,108,311 196,552 3.22%
Time deposits 26,350,570 1,560,541 5.92%
Other borrowings 146,600 11,419 7.79%
------------ ------------ ----
Average interest bearing liabilities 40,757,590 1,943,372 4.77%
------------ ----
Non-interest bearing deposits 4,976,356
Other liabilities 199,095
Stockholders' equity 6,549,501
------------
Average total liabilities and equity $ 52,482,542
============
Net interest income yield on average
earning assets 46,102,550 1,813,689 3.93%
------------ ------------ ----
<CAPTION>
Period Ended December 31, 1996
------------------------------
Average Interest Tax-Equivalent
Balance Income/Expense Yield
------------ -------------- --------------
<S> <C> <C> <C>
Loans $ 23,806,046 $ 1,537,091 9.22%
Taxable investment securities 15,894,325 703,077 6.32%
Tax-exempt investment securities - -
Federal funds sold 7,574,239 342,546 6.46%
------------ -------------- ----
Average earning assets 47,274,610 $ 2,582,714 7.80%
-------------- ----
Cash & due from banks 1,363,146
Fixed assets 2,123,536
Other assets 3,140,019
------------
Average total assets $ 53,901,311
============
Interest bearing demand deposits 7,421,015 114,325 2.20%
Savings and money market deposits 5,707,675 127,910 3.20%
Time deposits 27,239,752 1,125,056 5.90%
Other borrowings 142,150 11,861 11.92%
------------- -------------- -----
Average interest bearing liabilities 40,510,592 1,379,152 4.86%
-------------- ----
Non-interest bearing deposits 6,507,751
Other liabilities 349,313
Stockholders' equity 6,533,655
------------
Average total liabilities and equity $ 53,901,311
============
Net interest income yield on average
earning assets 47,274,610 1,203,562 3.64%
------------ -------------- ----
</TABLE>
Rate and Volume Analysis
The following table reflects the change in net interest income resulting from
changes in interest rates and from asset and liability volume. Federally
tax-exempt interest is presented on a taxable-equivalent basis assuming a 34%
Federal tax rate. The change in interest attributable to rate has been
determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
Interest Income/Expense
----------------------------------------------------------------------------
Change Attributable to
Annualized Increase --------------------------------
1997 1996 (Decrease) Volume Changes Rate Changes
---- ---- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Loans 2,650,129 2,195,844 454,285 415,321 38,964
Taxable investment securities 1,010,852 1,004,396 6,456 8,020 (1,563)
Tax-exempt investment securities - - - - -
Federal funds sold 96,080 489,351 (393,271) (374,828) (18,443)
----------- ----------- ----------- ----------- ----------
Total interest income 3,757,061 3,689,591 67,470 48,512 18,957
----------- ----------- ----------- ----------- ----------
Interest bearing demand deposits 174,860 163,321 11,539 16,090 (4,551)
Savings and money market deposits 196,552 182,729 13,823 12,826 997
Time deposits 1,560,541 1,607,223 (46,682) (52,464) 5,782
Short term borrowings 11,419 16,944 (5,525) 530 (6,056)
----------- ----------- ----------- ----------- ----------
Total interest expense 1,943,372 1,970,217 (26,845) (23,018) (3,827)
----------- ----------- ----------- ----------- ----------
</TABLE>
Notes:
1. Non-accruing loans are included in the average balances. For December 31,
1997 and 1996, average non-accruing loans were $5,705 and $0, respectively.
2. Loan Fees are included in the interest income computation and were $81,112
and $37,793 as of December 31, 1997 and 1996, respectively.
3. Yield for Period Ended December 31, 1996 is calculated based on Bank
operations beginning April 18, 1996.
4. Rate and Volume Analysis not presented prior to December 31, 1996 as 1996
was the first year of operation.
5. Interest income and expense for 1996 was annualized for Rate and Volume
analysis as period ended December 31, 1996 represented only 8.4 months.
<PAGE>
STATISTICAL INFORMATION, continued
II. Investment Portfolio
The following tables summarize the investment portfolio by type and
maturity:
<TABLE>
<CAPTION>
Available for Sale
--------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
---- ----- ------ ------------
<S> <C> <C> <C> <C>
As of December 31, 1997
U. S. Treasury $ 1,502,573 $ 4,772 $ - $ 1,507,345
U.S. Government Agencies 10,923,897 54,859 - 10,978,756
Mortgage-Backed Securities 1,010,509 - 2,580 1,007,929
----------- ----------- ----------- ------------
Total $ 13,436,979 $ 59,631 $ 2,580 $ 13,494,030
============ =========== =========== ============
As of December 31, 1996
U. S. Treasury $ 4,006,354 $ 9,122 $ - $ 4,015,476
U.S. Government Agencies 13,857,211 28,014 - 13,885,225
Mortgage-Backed Securities - - - -
------------ ---------- ----------- ------------
Total $ 17,863,565 $ 37,136 $ - $ 17,900,701
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
U.S. Treasury and Other Mortgage-Backed
U.S. Government Agencies Securities
------------------------ ----------
Tax-Equivalent Tax-Equivalent
Amortized Estimated Weighted Amortized Estimated Weighted
Cost Market Value Avg Yield Cost Market Value Avg Yield
------------ ------------ -------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Due in one year or less $ 1,495,341 $ 1,498,500 6.02% $ - $ -
Due after one year through five years 10,931,129 10,987,601 6.42% - -
Due after five years through ten years - - 0.00% - -
Due after ten years - - 0.00% 1,010,509 1,007,929 5.94%
------------ ------------ ----- ----------- ----------- -----
Total $ 12,426,470 $ 12,486,101 6.31% $ 1,010,509 $ 1,007,929 5.94%
============ ============ ----- =========== =========== -----
As of December 31, 1996
Due in one year or less 3,500,718 3,505,941 5.63% - - n/a
Due after one year through five years 13,858,392 13,890,307 6.39% - - n/a
Due after five years through ten years 504,455 504,453 7.11% - - n/a
Due after ten years - - 0.00% - - n/a
------------ ------------ ----- ----------- -----------
Total $ 17,863,565 $ 17,900,701 6.26% $ - $ - n/a
============= ============ ----- =========== ===========
</TABLE>
Note:
1. The Company had no securities classified as held to maturity or trading as
of December 31, 1997 and 1996.
<PAGE>
STATISTICAL INFORMATION, continued
III. Loan Portfolio
The following table summarizes the breakdown of loans by type:
<TABLE>
<CAPTION>
As of As of
December 31, 1997 December 31, 1996
<S> <C> <C>
Loans secured by 1 to 4 family residential properties $ 11,490,475 $ 8,422,710
Loans secured by multi-family and non-farm, non-residential properties 4,766,638 3,385,410
Other loans secured by real estate 1,200,950 1,205,876
Commercial and industrial loans 6,359,904 3,668,418
Loans to finance agricultural production 913,521 827,543
Consumer loans 5,599,490 5,976,108
Other loans 38,971 54,109
----------------- -----------------
Subtotal 30,369,949 23,540,174
Less: Unearned income 5,051 2,712
----------------- -----------------
Total $ 30,364,898 $ 23,537,462
================= =================
</TABLE>
The following tables summarize the contractual maturities of fixed and
variable rate loans:
<TABLE>
<CAPTION>
Classified based on Contractual Maturity
Due in one Due after one
year or less through five years
---------------------------- ---------------------------
Fixed Rate Variable Rate Fixed Rate Variable Rate
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
December 31, 1997
Loans secured by 1 to 4 family residential properties $ 1,278,513 $ 1,545,189 $ 4,436,496 $ 44,188
Loans secured by multi-family and non-farm, non-residential properties 519,678 317,906 1,489,211 1,563,580
Other loans secured by real estate 313,201 240,758 126,368 -
Commercial and industrial loans 716,168 3,631,902 1,369,121 201,927
Loans to finance agricultural production 710,044 53,615 149,862 -
Consumer loans 1,318,710 113,195 3,902,598 -
Other loans 38,971 - - -
------------- ------------- ------------ -------------
Total $ 4,895,285 $ 5,902,565 $ 11,473,656 $ 1,809,695
============= ============= ============= =============
December 31, 1996
Loans secured by 1 to 4 family residential properties 916,493 639,853 2,525,527 18,298
Loans secured by multi-family and non-farm, non-residential properties 665,451 15,065 578,862 1,377,594
Other loans secured by real estate 514,259 22,453 346,194 -
Commercial and industrial loans 902,118 1,245,852 1,288,897 69,597
Loans to finance agricultural production 173,520 390,142 263,881 -
Consumer loans 1,693,994 1,551,661 2,493,604 -
Other loans - - 53,927 -
------------- ------------- ------------ -------------
Total 4,865,835 3,865,026 7,550,892 1,465,489
============= ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
Classified based on Contractual Maturity
Due after
five years
----------------------------
Fixed Rate Variable Rate
------------- -------------
<S> <C> <C>
December 31, 1997
Loans secured by 1 to 4 family residential properties $ 4,186,089 $ -
Loans secured by multi-family and non-farm, non-residential properties 428,072 448,191
Other loans secured by real estate 195,300 325,323
Commercial and industrial loans 82,965 357,821
Loans to finance agricultural production - -
Consumer loans 259,936 -
Other loans - -
------------- -------------
Total $ 5,152,362 $ 1,131,335
============= =============
December 31, 1996
Loans secured by 1 to 4 family residential properties 4,322,539 -
Loans secured by multi-family and non-farm, non-residential properties 483,412 265,026
Other loans secured by real estate 322,970 -
Commercial and industrial loans 156,013 5,941
Loans to finance agricultural production - -
Consumer loans 234,319 -
Other loans - -
------------- -------------
Total 5,519,253 270,967
============= =============
</TABLE>
Risk Elements
<TABLE>
<CAPTION>
As of As of
Nonaccrual, Past Due and Restructured Loans December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Nonaccrual loans 1,011 -
- ----------------
Accruing loans contractually past due 90 days or more - -
Troubled debt restructurings - -
</TABLE>
The amount of interest that would have been included in income on the above
nonaccrual loan if it had been current in accordance with its original term was
$100. The amount of interest that was included in interest on the above loan for
the Year Ended December 31, 1997 was $0.
The Bank's policy is to place loans on nonaccrual 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 nonaccrual.
Potential Problem Loans
- -----------------------
Management expects to incur losses on loans from time to time when borrowers'
financial conditions deteriorate.
Where feasible, loans charged down or charged off will continue to be collected.
Management considers the current allowance adequate to cover potential losses in
the loan portfolio.
<PAGE>
STATISTICAL INFORMATION, continued
IV. Summary of Loan Loss Experience
<TABLE>
<CAPTION>
As of As of
December 31, 1997 December 31, 1996
<S> <C> <C>
Allowance for possible loan losses, beginning of period $ 359,146 $ 385,000
----------------- -----------------
Charge-offs:
Commercial - 5,270
Real estate - construction - -
Real estate - mortgage - -
Consumer loans 20,719 41,855
----------------- -----------------
Total 20,719 47,125
----------------- -----------------
Recoveries:
Commercial - -
Real estate - construction - -
Real estate - mortgage - -
Consumer loans 6,290 271
----------------- -----------------
Total 6,290 271
----------------- -----------------
Net charge-offs 14,429 46,854
----------------- -----------------
Additions charged to operations 42,000 21,000
Adjustments - -
----------------- -----------------
Allowance for possible loan losses, end of period 386,717 359,146
----------------- -----------------
Average loans outstanding, net of unearned income $ 28,308,710 $ 23,806,046
================= =================
Ratio of net charge-offs during the period to average loans
outstanding during the period 0.05% 0.20%
===== =====
</TABLE>
Allocation of Allowance for Loan Losses
The Company has allocated the allowance for loan losses according to the amount
deemed to be reasonably necessary to absorb potential losses within the loan
categories summarized in the table below:
<TABLE>
<CAPTION>
As of As of
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Allocation of Allowance for Loan Losses by Loan Type:
Loans secured by 1 to 4 family residential properties $ 146,314 $ 128,503
Loans secured by multi-family and non-farm, non-residential properties 60,696 51,650
Other loans secured by real estate 15,292 18,398
Commercial and industrial loans 80,984 55,968
Loans to finance agricutural production 11,632 12,626
Consumer loans 71,301 91,176
Other loans 498 825
Unallocated - -
----------------- -----------------
Total $ 386,717 $ 359,146
================= =================
</TABLE>
<PAGE>
STATISTICAL INFORMATION, continued
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses as a As of As of
Percent of Total Allowance December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Loans secured by 1 to 4 family residential properties 38% 36%
Loans secured by multi-family and non-farm, non-residential properties 16% 14%
Other loans secured by real estate 4% 5%
Commercial and industrial loans 21% 16%
Loans to finance agricutural production 3% 4%
Consumer loans 18% 25%
Other loans 0% 0%
Unallocated 0% 0%
-- --
Total 100% 100%
==== ====
Year-End Loan Types as a Percent of Total Loans
Loans secured by 1 to 4 family residential properties 38% 36%
Loans secured by multi-family and non-farm, non-residential properties 16% 14%
Other loans secured by real estate 4% 5%
Commercial and industrial loans 21% 16%
Loans to finance agricutural production 3% 4%
Consumer loans 18% 25%
Other loans 0% 0%
Unallocated 0% 0%
-- --
Total 100% 100%
==== ====
</TABLE>
Management takes a number of factors into consideration when determining the
additions to be made to the loan loss allowance. As a new institution, the Bank
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 .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 an 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.
<PAGE>
STATISTICAL INFORMATION, continued
V. Deposits
The following table summarizes the average rate for deposit accounts:
<TABLE>
<CAPTION>
Average Average Average Average
Balance Rate Balance Rate
December 31, 1997 December 31, 1997 December 31, 1996 December 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Non-interest bearing deposits 4,976,356 6,507,751
Interest bearing demand deposits 8,152,109 2.14% 7,421,015 2.20%
Savings and money market deposits 6,108,311 3.22% 5,707,675 3.20%
Time deposits 26,350,570 5.92% 27,239,752 5.90%
----------------- ----- ----------------- -----
Total average deposits $ 45,587,346 4.26% $ 46,876,193 4.17%
================= ===== ================= =====
</TABLE>
As of December 31, 1997 and 1996 the amount outstanding of time certificates of
deposit of $100,000 or more was $6,558,157 and $6,240,653, respectively. Amounts
by time remaining until maturity on time deposits of $100,000 or more were:
As of As of
December 31, 1997 December 31, 1996
----------------- -----------------
3 months or less $ 2,540,795 $ 838,716
over 3 through 6 months 1,538,940 1,682,762
over 6 through 12 months 1,435,556 1,170,828
over 12 months 1,042,866 2,548,347
----------------- -----------------
Total $ 6,558,157 $ 6,240,653
================= =================
VI. Return on Equity and Assets
Ratio Ratio
Year Ended Period Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Return on average assets 0.21% -0.29%
Return on average equity 1.65% -2.41%
Dividend payout ratio 0% 0%
Average equity to average asset ratio 12.48% 12.12%
VII. Short-term Borrowings
No category of short-term borrowings exceeds 30% of stockholders' equity.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Bank owns the property on which its main office is located in
Fitzgerald, Georgia, at 102 West Roanoke Drive. The two-story brick building
contains approximately 11,152 square feet, with an attached drive-up canopy of
approximately 1,400 square feet. The Bank is located on approximately 1,408
acres of land and contains 39 regular parking spaces and two handicap spaces.
The building has seven teller stations inside the building, three drive-up
teller stations, and one ATM station. The drive-up window is located behind the
teller stations. The banking platform, with four personal banker positions, is
across the lobby area from the teller stations, and behind this area are six
offices for lending functions. The facility contains a training room, operations
space, and a board room on the upper level, with significant room for expansion.
The Bank opened a two-lane drive-through facility located on South Main Street
in Fitzgerald in January 1998.
Other than normal real estate commercial lending activities of the Bank,
the Company generally does not invest in real estate, interests in real estate,
real estate mortgages, or securities of or interests in persons primarily
engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The response to this item is partially included in the Company's Annual
Report to shareholders at page 1, and is incorporated herein by reference.
The Company did not issue or sell any unregistered shares of its Common
Stock during 1997 and 1996.
13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The response to this item is included in the Company's Annual Report to
Shareholders under the heading, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" at pages 21 through 26, and is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included in the Company's Annual Report
to Shareholders at pages 1 through 20, and are incorporated herein by reference:
Independent Auditors' Report
Financial Statements
Consolidated Balance Sheets dated as of December 31, 1997 and 1996
Consolidated Statements of Income for the years ended December 31,
1997, 1996, and 1995.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The responses to this Item are included in the Company's proxy statement
for the Annual Meeting of Shareholders held on March 25, 1998, under the
headings, "Directors and Executive Officers - Election of Directors" at pages 2
through 3, "Security Ownership of Certain Beneficial Owners and Management," at
pages 5 through 8, and are incorporated herein by reference.
14
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders held on March 25, 1998, under the
heading, "Compensation of Executive Officers and Directors," at pages 4 through
5, and are incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The responses to this item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders held on March 25, 1998, under the
heading, "Security Ownership of Certain Beneficial Owners and Management," at
pages 5 through 8, and are incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to this Item are included in the Company's Proxy Statement
for the Annual Meeting of Shareholders held on March 25, 1998, under the
headings, "Certain Relationships and Related Transactions," at page 8, and
"Compensation of Executive Officers and Directors," at pages 4 through 5, and
are incorporated herein by reference.
15
<PAGE>
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 10-KSB
(a) Exhibits
Exhibit Number Exhibit
- -------------- -------
3.1 Articles of Incorporation./1//
3.2 Bylaws./1//
4.1 Instruments Defining the Rights of Security
Holders. See Articles of Incorporation at
Exhibit 3.1 hereto and Bylaws at Exhibit 3.2
hereto.
13.1 CBC Holding Company 1997 Annual Report to
Shareholders. Except with respect to those
portions specifically incorporated by reference
into this Report, the Company's 1997 Annual
Report to Shareholders is not deemed to be
filed as part of this Report.
21.1 Subsidiaries of CBC Holding Company/1//
24.1 Power of Attorney (appears on the signature pages to
this Annual Report on 10-KSB).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K filed in the fourth quarter of 1997: None.
/1// Incorporated herein by reference to exhibit of same number in the Company's
Registration Statement on Form 10-SB, as amended, registration No. 0-22451.
* The indicated exhibit is a compensatory plan required to be filed as an
exhibit to this Form 10-KSB.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CBC HOLDING COMPANY
By:
---------------------------------
George M. Ray
President and Chief
Executive Officer
Date:
-----------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears on the signature page to this Report constitutes and appoints George M.
Ray and Sidney S. (Buck) Anderson, Jr., and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place, and stead, in any and all
capacities, to sign any and all amendments to this Report, and to file the same,
with all exhibits hereto, and other documents in connection herewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
-17-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Sidney S. (Buck) Anderson, Jr. Chairman, Director
- ---------------------------------- -----------------
Sidney S. (Buck) Anderson, Jr.
/s/ James Thomas Casper, III Director
- ---------------------------------- -----------------
James Thomas Casper, III
/s/ John T. Croley, Jr. Secretary, Vice
- ---------------------------------- Chairman, Director -----------------
John T. Croley, Jr.
/s/ A.B.C. (Chip) Dorminy, III Director
- ---------------------------------- -----------------
A.B.C. (Chip) Dorminy, III
/s/ John S. Dunn Director
- ---------------------------------- -----------------
John S. Dunn
/s/ William P. Herlovich Director
- ---------------------------------- -----------------
William P. Herlovich
/s/ Lee Phillip Liles Director
- ---------------------------------- -----------------
Lee Phillip Liles
/s/ Steven L. Mitchell Director
- ---------------------------------- -----------------
Steven L. Mitchell
/s/ James A. Parrott, II Director
- ---------------------------------- -----------------
James A. Parrott, II
/s/ Jack F. Paulk Director
- ---------------------------------- -----------------
Jack F. Paulk
/s/ George M. Ray President and Chief
- ---------------------------------- Executive Officer, ----------------
George M. Ray Director (Principal
Financial and
Accounting Officer)
/s/ Robert E. Sherrell Director
- ---------------------------------- -----------------
Robert E. Sherrell
/s/ John Edward Smith, III Director
- ---------------------------------- -----------------
John Edward Smith, III
-18-
<PAGE>
EXHIBIT INDEX
-------------
Page Number in
Exhibit Sequentially
Number Exhibit Numbered Copy
- ------ ------- -------------
3.1 Articles of Incorporation./1// N/A
3.2 Bylaws./1// N/A
4.1 Instruments Defining the Rights of Security
Holders. See Articles of Incorporation at
Exhibit 3.1 hereto and Bylaws at Exhibit 3.2
hereto. N/A
13.1 CBC Holding Company 1997 Annual Report to
Shareholders. Except with respect to those
portions specifically incorporated by reference
into this Report, the Company's 1997 Annual
Report to Shareholders is not deemed to be
filed as part of this Report.
21.1 Subsidiaries of CBC Holding Company/1// N/A
24.1 Power of Attorney (appears on the signature
pages to this Annual Report on 10-KSB).
27.1 Financial Data Schedule.
/1// Incorporated herein by reference to exhibit of same number in the
Company's Registration Statement on Form 10-SB, as amended,
registration No. 0-22451.
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
TABLE OF CONTENTS
-----------------
Page
----
INDEPENDENT AUDITORS' REPORT....................................... 1
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets..................................... 2
Consolidated Statements of Changes in Shareholders' Equity...... 3
Consolidated Statements of Income............................... 4
Consolidated Statements of Cash Flows........................... 5
Notes to Consolidated Financial Statements...................... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS............................... 21
CBC Holding Company, a Georgia corporation (the "Company") is a holding
company engaged in commercial banking primarily in Ben Hill County, Georgia. The
Company currently has one subsidiary, Community Banking Company of Fitzgerald
(the "Bank"), which is active in retail and commercial banking.
The Company's common stock, $1.00 par value (the "Common Stock"), is not
traded on an established trading market. As of March 2, 1998 there were 636
holders of record of the Company's Common Stock. The Company has not paid a
dividend since its incorporation in 1996. Currently, the Company's sole source
of income is dividends from the Bank. The Bank is subject to regulation by the
Georgia Department of Banking and Finance (the "DBF"). Statutes and regulations
enforced by the DBF include parameters which define when the Bank may or may not
pay dividends. It is the current policy of the Company to retain earnings to
permit future expansion if deemed desirable. As a result, the Company has no
current plan to initiate the payment of cash dividends, and its future dividend
policy will depend on the Bank's earnings, capital requirements, financial
condition and other factors considered relevant by the Board of Directors of the
Company. All FDIC insured institutions, regardless of their level of
capitalization, are prohibited from paying any dividend or making any other kind
of distribution, if following the payment or distribution, the institution would
be undercapitalized.
This statement has not been reviewed, or confirmed for accuracy or
relevance by the Federal Deposit Insurance Corporation.
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
CBC Holding Company and Subsidiary
We have audited the accompanying consolidated balance sheets of CBC
Holding Company and Subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for the years then ended. 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 CBC Holding
Company and Subsidiary at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
January 7, 1998
Dublin, Georgia
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
================================================================================
As of December 31,
----------------------------
1997 1996*
- --------------------------------------------------------------------------------
Assets
Cash and due from banks $ 1,383,896 $ 1,955,359
Federal funds sold 1,800,000 5,050,000
- --------------------------------------------------------------------------------
Total cash and cash equivalents 3,183,896 7,005,359
- --------------------------------------------------------------------------------
Securities available for sale, at fair value 13,494,030 17,900,701
Loans, net of unearned income 30,364,898 23,537,462
Less- allowance for loan losses (386,717) (359,146)
- --------------------------------------------------------------------------------
Loans, net 29,978,181 23,178,316
- --------------------------------------------------------------------------------
Bank premises and equipment,
less accumulated depreciation 2,124,870 2,156,655
Accrued interest receivable 537,221 548,427
Intangible assets, net of amortization 2,543,044 2,738,454
Other assets and accrued income 60,689 32,041
- --------------------------------------------------------------------------------
Total Assets $ 51,921,931 $ 53,559,953
================================================================================
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand $ 5,198,927 $ 5,148,136
Interest-bearing demand 11,396,685 11,291,918
Savings 2,762,434 2,502,799
Time deposits over $100,000 6,558,157 6,240,653
Other time deposits 18,886,365 21,477,594
- --------------------------------------------------------------------------------
Total deposits 44,802,568 46,661,100
Accrued interest payable 253,134 210,262
Other liabilities and accrued expenses 116,782 133,549
Other borrowed funds 73,000 -
- --------------------------------------------------------------------------------
Total liabilities 45,245,484 47,004,911
- --------------------------------------------------------------------------------
Shareholders' Equity:
Common stock, $1 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 (2,177) (110,439)
Unrealized holding gains on available
for sale securities, net of tax 37,654 24,511
- --------------------------------------------------------------------------------
Total shareholders' equity 6,676,447 6,555,042
- --------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $ 51,921,931 $ 53,559,953
================================================================================
* As restated for pooling of interest.
See Accompanying Notes to Consolidated Financial Statements
-2-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
====================================================================================================================================
Retained Unrealized
Paid-in Earnings Holding
Common Capital (Accumulated Gains
Stock Surplus Deficit) on Securities Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ - $ - $ - $ - $ -
Issuance of 664,097 shares of common stock 3,320,485 3,320,485 - - 6,640,970
Net loss - - (110,439) - (110,439)
Valuation allowance adjustment on
securities available for sale - - - 24,511 24,511
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996, as previously reported 3,320,485 3,320,485 (110,439) 24,511 6,555,042
Adjustments in connection with pooling of interests
Issuance of 664,097 shares of CBC Holding
Company common stock 664,097 5,976,873 - - 6,640,970
Cancellation of 664,097 shares of Community
Banking Company of Fitzgerald common stock
pursuant to merger effective March 31, 1997 (3,320,485) (3,320,485) - - (6,640,970)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996, as restated 664,097 5,976,873 (110,439) 24,511 6,555,042
Net income - - 108,262 - 108,262
Changes in allowance for unrealized gains on
available securities - - - 13,143 13,143
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 664,097 $ 5,976,873 $ (2,177) $ 37,654 $ 6,676,447
====================================================================================================================================
</TABLE>
See Accompanying Note to Consolidated Financial Statements
-3-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
Years ended December 31,
--------------------------
1997 1996*
- --------------------------------------------------------------------------------
Interest Income:
Interest and fees on loans $ 2,650,129 $ 1,537,091
Income on federal funds sold 96,080 342,546
Interest on securities - U.S. Governmental
agencies and corporations 1,010,852 703,077
- --------------------------------------------------------------------------------
Total interest income 3,757,061 2,582,714
- --------------------------------------------------------------------------------
Interest Expense:
Interest on NOW and money market deposits 294,425 192,993
Interest on savings deposits 76,987 49,242
Interest on time deposits greater than $100,000 382,789 250,451
Interest on other time deposits 1,177,752 874,605
Other interest expense 11,419 11,861
- --------------------------------------------------------------------------------
Total interest expense 1,943,372 1,379,152
- --------------------------------------------------------------------------------
Net interest income before loan losses 1,813,689 1,203,562
Less - provision for loan losses 42,000 21,000
- --------------------------------------------------------------------------------
Net interest income after provision
for loan losses 1,771,689 1,182,562
- --------------------------------------------------------------------------------
Other Operating Income:
Service charges on deposit accounts 247,388 136,456
Other service charges, commissions and fees 24,150 18,076
Gain on sales of investment securities
available for sale 24,501 -
Other income 86,873 25,065
- --------------------------------------------------------------------------------
Total other operating income 382,912 179,597
- --------------------------------------------------------------------------------
Other Operating Expense:
Salaries 698,663 510,458
Employee benefits 174,956 124,239
Net occupancy expenses 147,162 83,640
Equipment rental and depreciation of equipment 143,017 102,387
Amortization 225,001 153,706
Other expenses 598,869 555,937
- --------------------------------------------------------------------------------
Total other operating expenses 1,987,668 1,530,367
- --------------------------------------------------------------------------------
Income (Loss) Before Income Taxes 166,934 (168,208)
Income tax provision (benefit) 58,672 (57,769)
- --------------------------------------------------------------------------------
Net Income (Loss) $ 108,262 $ (110,439)
- --------------------------------------------------------------------------------
Income (Loss) Per Share** $ 0.16 $ (0.17)
================================================================================
* As restated for pooling of interest.
** Net Income (Loss) / weighted average outstanding shares of 664,097.
See Accompanying Notes to Consolidated Financial Statements
-4-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
=========================================================================================================================
Years ended December 31,
----------------------------------
1997 1996*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 108,262 $ (110,439)
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 42,000 21,000
Depreciation 123,364 85,961
Amortization of intangible assets 225,001 153,706
(Gain) loss on sale of securities (24,501) -
Changes in accrued income and other assets (47,033) (667,199)
Changes in accrued expenses and other liabilities 19,334 131,783
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 446,427 (385,188)
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net change in loans made to customers (6,841,865) (1,775,150)
Purchase of securities available for sale (4,009,427) (19,400,701)
Proceeds from sales of available for sale securities 6,951,715 -
Proceeds from maturities of securities available for sale 2,521,016 1,500,000
Purchases of property and equipment (91,579) (365,063)
Purchase of mortgage backed securities (1,012,218) -
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,482,358) (20,040,914)
- -------------------------------------------------------------------------------------------------------------------------
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 account 428,820 2,293,341
Net change in other time deposits (2,287,352) 668,985
Proceeds from short-term borrowings 117,500 -
Payments on short-term borrowings (44,500) -
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,785,532) 27,431,461
- -------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (3,821,463) 7,005,359
Cash and Cash Equivalents, Beginning of Year 7,005,359 -
- -------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 3,183,896 $ 7,005,359
=========================================================================================================================
</TABLE>
* As restated for pooling of interest.
See Accompanying Notes to Consolidated Financial Statements
-5-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The accounting and reporting policies of the CBC Holding Company (the
"Company") and Subsidiary, Community Banking Company of Fitzgerald (the
"Bank"), 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 - 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 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.
Pursuant to the Plan of Reorganization, the merger of Interim
with and into the Bank was accounted for as a pooling of
interests. The Bank, which engages in banking, became a
wholly-owned subsidiary of the Company on March 31, 1997 through
the exchange of 664,097 shares of the Company's common stock for
all of the outstanding stock of the Bank. The financial
statements of prior years have been restated to give effect to
the reorganization. The consolidated financial statements include
the accounts of the Company and the Bank. All material
intercompany accounts and transactions have been eliminated in
consolidation.
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 Company's interest rate risk management strategy
and may be sold in response to changes in interest rates, changes
in prepayment risk, and other factors.
Held to maturity 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.
Mortgage-backed securities represent participating interests in
pools of long-term first mortgage loans originated and serviced
by issuers of the securities. Mortgage-backed securities are
carried at unpaid principal balances, adjusted for unamortized
premiums and unearned discounts.
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. Premiums and discounts are recognized in interest
income using the interest method over the period to maturity.
3. Loans and Interest Income - Loans are stated at the amount of
-------------------------
unpaid principal, reduced by net deferred loan fees, unearned
discounts, 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
non-accrual status if a past due loan is well secured and in
process of collection. A non-accrual 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
-6-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
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. Additions
to the allowance for credit losses are made by charges to the
provision for credit losses.
The allowance for loan losses is maintained at a level which, in
management's judgement, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance is
based on management's evaluation of the collectibility of the
loan portfolio, including the nature of the portfolio, credit
concentrations, trends in historical loss experience, specific
impaired loans, economic conditions, and other risks inherent in
the portfolio. Allowances for impaired loans are generally
determined based on collateral values or the present value of
estimated cash flows. Although management uses available
information to recognize losses on loans because of uncertainties
associated with local economic conditions, collateral values, and
future cash flows on impaired loans, it is reasonably possible
that a material change could occur in the allowance for loan
losses in the near term. However, the amount of the change that
is reasonably possible cannot be estimated.
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. 115, "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 credit 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. Intangible Assets - Goodwill is being amortized using the
-----------------
straight line method over fifteen years. The original amount of
goodwill was $2,692,939 and has an accumulated amortization at
December 31, 1997 of $306,696, resulting in an unamortized
balance of $2,386,243. Organizational costs are being amortized
using the straight line method over five years. Organizational
costs for the Bank totaled $199,237 and have an accumulated
-7-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
amortization at December 31, 1997 of $67,588, resulting in an
unamortized balance of $131,649. Organizational costs for the
Company totaled $29,590 and have an accumulated amortization at
December 31, 1997 of $4,438, resulting in an unamortized balance
of $25,152.
8. 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.
9. 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
10. 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.
The determination of the adequacy of the allowance for loan
losses is based on estimates that are particularly susceptible to
significant changes in the economic environment and market
conditions. In connection with the determination of the estimated
losses on loans, management obtains independent appraisals for
significant collateral.
While management uses available information to recognize losses
on loans, further reductions in the carrying amounts of loans may
be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the estimated losses on
loans. Such agencies may require the Bank to recognize additional
losses based on their judgments about information available to
them at the time of their examination. Because of these factors,
it is reasonably possible that the estimated losses on loans may
change materially in the near term. However, the amount of the
change that is reasonably possible cannot be estimated.
11. Advertising Costs - It is the policy of the Company to expense
-----------------
advertising costs as they are incurred. The Company does not
engage in any direct-response, advertising and accordingly has no
advertising costs reported as assets on its balance sheet.
Amounts charged to advertising expense for the years ended
December 31, 1997 and 1996 were $33,493 and $76,457,
respectively.
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 December 31, 1997 and 1996. In addition, gross
unrealized gains and gross unrealized losses are disclosed as of December
31, 1997 and 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 classified as available for sale
were:
-8-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997:
Non-mortgage backed debt securities of:
U.S. Treasury $ 1,502,573 $ 4,772 $ - $ 1,507,345
U.S. government agencies 10,923,897 54,859 - 10,978,756
-----------------------------------------------------------------------------------------------------------
Total non-mortgage backed securities 12,426,470 59,631 - 12,486,101
Mortgage backed securities 1,010,509 - (2,580) 1,007,929
-----------------------------------------------------------------------------------------------------------
Total $ 13,436,979 $ 59,631 $ (2,580) $ 13,494,030
-----------------------------------------------------------------------------------------------------------
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 book and market values of pledged securities were $2,591,060 and $2,603,366
respectively, at December 31,1997 and $2,091,751 and $2,094,690, at December
31, 1996. The amortized cost and estimated market value of debt securities
available for sale at December 31, 1997 and 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>
-----------------------------------------------------------------------------------
Estimated
December 31, 1997 Amortized Cost Market Value
-----------------------------------------------------------------------------------
<S> <C> <C>
Non-mortgage backed securities:
Due in one year or less $ 1,495,341 $ 1,498,500
Due after one year through five years 10,931,129 10,987,601
Due after five years through ten years - -
Due after ten years - -
-----------------------------------------------------------------------------------
Total non-mortgage backed securities $ 12,426,470 $ 12,486,101
Mortgage backed securities 1,010,509 1,007,929
-----------------------------------------------------------------------------------
Total $ 13,436,979 $ 13,494,030
-----------------------------------------------------------------------------------
<CAPTION>
Estimated
December 31, 1996 Amortized Cost Market Value
-----------------------------------------------------------------------------------
<S> <C> <C>
Non-mortgage backed securities:
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
-9-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
portfolio been liquidated on that date. Security losses (or gains) are
realized only in the event of dispositions prior to maturity.
At December 31, 1997 and 1996, 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.
C. LOANS
-----
The following is a summary of the loan portfolio by principal categories at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans secured by 1 to 4-family residential properties $ 11,490,475 $ 8,422,710
Loans secured by multi-family, non-farm, non-residential properties 4,766,638 3,385,410
Other loans secured by real estate 1,200,950 1,205,876
Commercial and industrial loans 7,273,425 4,495,961
Consumer loans 5,599,490 5,976,108
Other loans 38,971 54,109
-------------------------------------------------------------------------------------------------------------
Subtotal 30,369,949 23,540,174
Less: Unearned income (5,051) (2,712)
-------------------------------------------------------------------------------------------------------------
Total $ 30,364,898 $ 23,537,462
-------------------------------------------------------------------------------------------------------------
</TABLE>
Loans on which the accrual of interest has been discontinued or reduced
amounted to $1,011 and $-0- at December 31, 1997 and 1996, respectively.
-10-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
D. ALLOWANCE FOR LOAN LOSSES
-------------------------
A summary of changes in allowance for loan losses of the Company for the
years ended December 31, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
1997 1996
--------------------------------------------------------------------------------
<S> <C> <C>
Beginning Balance $ 359,146 $ 385,000
Add-Provision for possible loan losses 42,000 21,000
--------------------------------------------------------------------------------
Subtotal 401,146 406,000
Less:
Loans charged off 20,719 47,125
Recoveries on loans previously charged off (6,290) (271)
--------------------------------------------------------------------------------
Net loans charged off 14,429 46,854
--------------------------------------------------------------------------------
Balance, end of year $ 386,717 $ 359,146
--------------------------------------------------------------------------------
</TABLE>
E. BANK PREMISES AND EQUIPMENT
---------------------------
The following is a summary of asset classifications and depreciable lives
for the Bank:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Useful Life 1997 1996
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 565,000 $ 552,175
Banking house and improvements 8-40 1,222,564 1,181,614
Equipment, furniture, and fixtures 5-10 400,799 367,738
Software and capitalized conversion costs 3 145,832 141,089
--------------------------------------------------------------------------------------------
Total 2,334,194 2,242,616
Less - accumulated depreciation (209,325) (85,961)
--------------------------------------------------------------------------------------------
Bank premises and equipment, net $ 2,124,870 2,156,655
--------------------------------------------------------------------------------------------
</TABLE>
Depreciation included in operating expenses amounted to $123,364 and
$85,961 in 1997 and 1996, respectively.
F. DEPOSITS
--------
The Bank had deposit liabilities in NOW accounts of $7,952,211 and
$7,494,483 at December 31, 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of time deposits are as
follows:
-----------------------------------------------------------------------
1998 $ 19,642,223
1999 2,587,010
2000 2,163,508
2001 179,012
2002 and thereafter 872,769
-----------------------------------------------------------------------
Total time deposits $ 25,444,522
-----------------------------------------------------------------------
-11
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
G. SHORT-TERM BORROWINGS
---------------------
The Bank had a line of credit for federal funds purchased of $1,000,000 and
$1,500,000 with correspondent institutions as of December 31, 1997. At
various times during the year the Bank was advanced funds against these
lines, however, at December 31, 1997, there was no outstanding balance.
The Company has a short-term note with a financial institution for
$100,075. This note is due November 13, 1998 and bears interest at First
State Bank and Trust Company's prime rate which was 8.5% at December 31,
1997. Interest and principal are payable at maturity. At December 31, 1997
the amount advanced to the Company on this note was $73,000.
H. PROVISION FOR INCOME TAXES
--------------------------
The provision for income taxes was computed as follows:
-------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------
Current tax expense $ - $ -
Deferred tax expense (benefit) 58,672 (57,769)
-------------------------------------------------------------------------
Net income tax expense (benefit) $ 58,672 $ (57,769)
-------------------------------------------------------------------------
Deferred income taxes are reflected for certain timing differences between
book and taxable income and will be reduced in future years as these timing
differences reverse. The reasons for the difference between the actual tax
expense (benefit) and tax expense (benefit) computed at the federal income
tax rate are as follows:
-------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------
Tax on pretax income at statutory rate,
including effect of loss carryforwards $ 56,757 $ (57,191)
Tax-exempt interest income - (1,882)
Non-deductible interest expense related
to tax-exempt income 9 175
Non-deductible business entertainment 178 96
Other differences 1,728 1,033
-------------------------------------------------------------------------
Total $ 58,672 $ (57,769)
-------------------------------------------------------------------------
Net effective tax rate 35.1% (34.3%)
-------------------------------------------------------------------------
12
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
The sources and tax effects of temporary differences that give rise to
significant portions of deferred income tax assets (liabilities) are as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Income Tax Assets:
Net operating loss $ 33,085 $ 74,521
Provision for loan losses, net 584 -
---------------------------------------------------------------------------------------------
Total deferred tax asset 33,669 74,521
---------------------------------------------------------------------------------------------
Deferred Income Tax Liabilities:
Unrealized (gain) loss on available for sale securities (19,398) (12,627)
Depreciation (34,572) (7,962)
Provision for loan losses, net - (8,790)
---------------------------------------------------------------------------------------------
Total deferred tax liability (53,970) (29,379)
---------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (20,301) $ 45,142
---------------------------------------------------------------------------------------------
</TABLE>
The Bank has available at December 31, 1997, $97,310 of unused operating
loss carryforwards that may be applied against future taxable income and
that expire in 2012. No allowance was recorded against the deferred tax
asset because the Bank expects to generate sufficient future taxable income
against which its loss carryforward can be offset.
I. RETIREMENT PLAN
---------------
The Company has a 401(k) plan covering substantially all of its employees
meeting age and length-of-service requirements. Matching contributions to
the plan are at the discretion of the Board of Directors. Retirement plan
expenses for administrative fees charged to operations amounted to $1,149
and $2,645 for 1997 and 1996, respectively. No matching contributions were
made by the Company for the years ended December 31, 1997 and 1996.
J. YEAR 2000 COMPLIANCE ISSUES
---------------------------
The Company and the Bank are in the process of evaluating the potential
effects of the Year 2000 problem on its operating and environmental
systems. This potential problem exists due to many older computers having
been programmed to recognize only the last two digits of a year i.e., "98"
is for the year 1998. Accordingly, with the new millenium approaching,
these computers will potentially recognize the year 2000 - "00" as the year
1900, or just not be able to comprehend the date, thus, potentially
affecting the accuracy of, or ability to process any date sensitive
functions.
The Company and the Bank will adopt a plan during 1998 for bringing their
systems into compliance so that the potential problems should not occur.
The costs of achieving Year 2000 compliance for the Company and the Bank
had not been determined at December 31, 1997.
K. LIMITATION ON DIVIDENDS
-----------------------
The Board of Directors of any state-chartered bank in Georgia may declare
and pay cash dividends on its outstanding capital stock without any request
for approval of the Bank's regulatory agency if the following conditions
are met:
1) Total classified assets at the most recent examination of the bank do
not exceed eighty (80) percent of equity capital.
2) The aggregate amount of dividends declared in the calendar year does
not exceed fifty (50) percent of the prior year's net income.
-13-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
3) The ratio of equity capital to adjusted total assets shall not be less
than six (6) percent.
As of January 1, 1998, the Bank could pay dividends of $72,560 to the
Company without regulatory consent. Dividends paid by the Bank are the
primary source of funds available to the Company.
L. FINANCIAL INSTRUMENTS
---------------------
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve, to varying
degrees, elements of credit risk and interest rate risk in excess of the
amount recognized in the balance sheet. The contract or notional amounts of
those instruments reflect the extent of involvement the Bank has in those
particular financial instruments.
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 notional
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. The Bank does require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
Contract Amount
--------------------------------------------------------------------------------------------------------
1997 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 7,429,882 $ 8,535,834
Standby letters of credit 154,225 165,000
--------------------------------------------------------------------------------------------------------
Total $ 7,584,107 $ 8,700,834
--------------------------------------------------------------------------------------------------------
</TABLE>
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.
Commitments 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. 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. Collateral
held varies but may include accounts receivable, inventory, property,
plant, and equipment, and income-producing commercial properties.
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, including commercial paper, bond financing, and similar
transactions. All letters of credit are due within one year of the original
commitment date. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
-14-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
M. LEASE COMMITMENT
----------------
The Bank leases the equipment which processes and transmits all of the
Bank's daily transactions. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset. The assets are depreciated over
the lower of their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation
expense for 1997 and 1996. The minimum future lease payments under capital
leases as of December 31, 1997, for each of the next five years and in the
aggregate are:
-----------------------------------------------------------------------
For Year Ended December 31,
-----------------------------------------------------------------------
1998 $ 20,808
1999 20,808
2000 20,808
2001 929
-----------------------------------------------------------------------
Total minimum lease payments $ 63,353
-----------------------------------------------------------------------
N. RELATED PARTY TRANSACTIONS
--------------------------
In the ordinary course of business, the Company, through the Bank, has
direct and indirect loans outstanding to or for the benefit of certain
executive officers and directors. These loans were made on substantially
the same terms as those prevailing, at the time made, for comparable loans
to other persons and did not involve more than the normal risk of
collectibility or present other unfavorable features. The following is a
summary of activity during 1997 with respect to such loans to these
individuals:
-----------------------------------------------------------------------
Balances at December 31, 1996 $ 1,502,965
New loans 1,759,773
Repayments (2,064,049)
-----------------------------------------------------------------------
Balances at December 31, 1997 $ 1,198,689
-----------------------------------------------------------------------
In addition to the above outstanding balances, there are loan commitments
of $1,321,683 available to certain executive officers and directors that
were unused as of December 31, 1997.
O. FAIR VALUES OF FINANCIAL INSTRUMENTS
------------------------------------
SFAS No. 107, Disclosures about Fair Value of Financial Instruments
-----------------------------------------------------
requires disclosure of fair value information about financial instruments,
whether or not recognized on the face of the balance sheets, for which it
is practicable to estimate that value. The assumptions used in the
estimation of the fair value of Bank's financial instruments are detailed
below. Where quoted prices are not available, fair values are based on
estimates using discounted cash flows and other valuation techniques. The
use of discounted cash flows can be significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. The following disclosures should not be considered as representative
of the liquidation value of the Bank, but rather a good-faith estimate of
the increase or decrease in value of financial instruments held by the Bank
since purchase, origination, or issuance.
Cash and Short-Term Investments - For cash, due from banks, federal funds
-------------------------------
sold and interest-bearing deposits with other banks, the carrying amount is
a reasonable estimate of fair value.
Investment Securities Held to Maturity and Securities Available for Sale -
------------------------------------------------------------------------
Fair values for investment securities are based on quoted market prices.
-15-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
Loans and Mortgage Loans Held for Sale - The fair value of fixed rate loans
--------------------------------------
is estimated by discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit
ratings. For variable rate loans, the carrying amount is a reasonable
estimate of fair value.
Deposit Liabilities - The fair value of demand deposits, savings accounts
-------------------
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed maturity certificates of deposit is
estimated by discounting the future cash flows using the rates currently
offered for deposits of similar remaining maturities.
Federal Funds Purchased - The carrying value of federal funds purchased
-----------------------
approximates their fair value.
FHLB Advances - The fair value of the Bank's fixed rate borrowings are
-------------
estimated using discounted cash flows, based on Bank's current incremental
borrowing rates for similar types of borrowing arrangements.
Long-Term Debt and Convertible Subordinated Debentures - Rates currently
------------------------------------------------------
available to the Bank for debt with similar terms and remaining maturities
are used to estimate fair value of existing debt.
Commitments to Extend Credit, Standby Letters of Credit and Financial
---------------------------------------------------------------------
Guarantees Written - Because commitments to extend credit and standby
------------------
letters of credit are made using variable rates, the contract value is a
reasonable estimate of fair value.
Limitations - Fair value estimates are made at a specific point in time,
-----------
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire holdings
of a particular financial instrument. Because no market exists for a
significant portion of the Bank's financial instruments, fair value
estimates are based on many judgements. These estimates are subjective in
nature and involve uncertainties and matters of significant judgement and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include the
mortgage banking operation, brokerage network, deferred income taxes,
premises and equipment and goodwill. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in
the estimates.
-16-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments $ 3,183,896 $ 3,183,896 $ 7,005,359 $ 7,005,359
Securities available for sale 13,494,030 13,494,030 17,900,701 17,900,701
Loans 30,364,898 30,357,523 23,537,462 23,271,456
-----------------------------------------------------------------------------------------------
Liabilities -
Deposits 44,802,568 44,548,900 46,661,100 52,144,150
Other borrowings 73,000 73,000 - -
-----------------------------------------------------------------------------------------------
Unrecognized financial instruments:
Commitments to extend credit 7,429,882 7,429,882 8,535,834 8,535,834
Standby letters of credit and
financial guarantees written 154,225 154,225 165,000 165,000
-----------------------------------------------------------------------------------------------
</TABLE>
P. DISCLOSURES RELATING TO STATEMENTS OF CASH FLOWS
------------------------------------------------
Interest - Cash paid during the years ended December 31, 1997 and 1996 for
--------
interest was as follows:
------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------
Interest on deposits and short-term borrowings $ 1,900,500 $ 1,391,884
------------------------------------------------------------------------------
Non-cash transactions - Other non-cash transactions relating to investing
---------------------
and financing activities were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in unrealized gain on available for sale securities $ 19,916 $ 37,136
------------------------------------------------------------------------------------------------------
Issuance of 664,097 shares of CBC Holding Company common stock in
exchange for Community Banking Company of Fitzgerald common stock $ 6,640,970 $ -
------------------------------------------------------------------------------------------------------
Cancellation of 664,097 shares of Community Banking Company of
Fitzgerald common stock pursuant to merger effective March 31, 1997 $(6,640,970) $ -
------------------------------------------------------------------------------------------------------
</TABLE>
Q. CREDIT RISK CONCENTRATION
-------------------------
The Bank grants agribusiness, commercial, and residential loans to its
customers. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent on the area's economic stability. The primary trade area for the
Bank is generally that area within fifty miles in each direction.
The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of credit
were granted primarily to commercial borrowers. The Bank, as a matter of
policy, does not extend credit in excess of the legal lending limit to any
single borrower or group of related borrowers.
R. REGULATORY MATTERS
------------------
-17-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997,
the Bank meets all capital adequacy requirements to which it is subject. As
of December 31, 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>
Requirement To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital To
(Risk Weighted Assets) 4,543,000 13.6% 2,666,000 greater than or equal to 8.0% 3,332,000 greater than or equal to 10.0%
Tier I Capital To
(Risk-Weighted Assets) 4,157,000 12.5% 1,333,000 greater than or equal to 4.0% 1,999,000 greater than or equal to 6.0%
Tier I Capital To
(Average Assets) 4,157,000 8.3% 1,999,000 greater than or equal to 4.0% 2,498,000 greater than or equal to 5.0%
As of December 31, 1996
Total Capital To
(Risk Weighted Assets) 4,323,000 16.3% 2,121,000 greater than or equal to 8.0% 2,652,000 greater than or equal to 10.0%
Tier I Capital To
(Risk-Weighted Assets) 3,964,000 14.9% 1,064,000 greater than or equal to 4.0% 1,596,000 greater than or equal to 6.0%
Tier I Capital To
(Average Assets) 3,964,000 7.7% 2,048,000 greater than or equal to 4.0% 2,560,000 greater than or equal to 5.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
S. CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY)
----------------------------------------------------
Condensed parent company financial information on CBC Holding Company as of
and for the year ended December 31, 1997, is as follows:
<TABLE>
<CAPTION>
BALANCE SHEET
-------------------------------------------------------------------------------
<S> <C>
Assets:
Cash in subsidiary $ 2,209
Investment in subsidiary, at equity in underlying net assets 6,713,304
Accrued income and other assets 34,308
-------------------------------------------------------------------------------
Total Assets $ 6,749,821
-------------------------------------------------------------------------------
Liabilities:
Accrued interest payable $ 374
Other borrowed funds 73,000
-------------------------------------------------------------------------------
Total liabilities 73,374
-------------------------------------------------------------------------------
Shareholders' Equity:
Common stock, $1 par value; authorized 10,000,000 shares,
outstanding 664,097 shares 664,097
Paid-in capital surplus 5,976,873
Accumulated deficit (2,177)
Allowance for unrealized gain on available for sale securities 37,654
-------------------------------------------------------------------------------
Total shareholders' equity 6,676,447
-------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 6,749,821
-------------------------------------------------------------------------------
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
-------------------------------------------------------------------------------
Revenues - Dividend from subsidiary $ -
-------------------------------------------------------------------------------
Expenses:
Interest 3,616
Other 42,397
-------------------------------------------------------------------------------
Total expenses 46,013
-------------------------------------------------------------------------------
Income (Loss) Before Taxes and Equity Income of Subsidiary (46,013)
Income tax benefit 9,156
-------------------------------------------------------------------------------
Loss Before Equity Income of Subsidiary (36,857)
Equity in undistributed income of subsidiary 145,119
-------------------------------------------------------------------------------
Net Income 108,262
Accumulated Deficit, Beginning (110,439)
-------------------------------------------------------------------------------
Accumulated Deficit, Ending $ (2,177)
-------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 108,262
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Amortization 4,439
Equity investment income (145,119)
Increase (decrease) in accrued income and other assets (38,746)
(Decrease) increase in accrued interest and other expenses 373
--------------------------------------------------------------------------------------------
Net cash used in operating activities (70,791)
--------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from short-term notes 117,500
Principal paid on short-term borrowings (44,500)
--------------------------------------------------------------------------------------------
Net cash provided by financing activities 73,000
--------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 2,209
Cash and cash equivalents at beginning of year -
--------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 2,209
============================================================================================
</TABLE>
As mentioned in Note A, CBC Holding 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. As of December 31, 1996, CBC Holding Company had not acquired the
common stock of Community Banking Company of Fitzgerald and thus was not
consolidated with the Bank financial statements as of December 31, 1996. CBC
Holding Company's operations as of December 31, 1996 were minimal and there
were no material transactions or balances. Thus, we have not shown any
financial information for CBC Holding Company as of December 31, 1996 in the
above parent only financial statements.
-20-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
================================================================================
Management's Discussion and Analysis and Results of Operations
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 of Banking and Finance (the "DBF") and the
FDIC of its application to charter the Bank.
On April 18, 1996, the Bank completed the offering of its 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. The Bank purchased certain loans and
assumed certain deposits from Bank South, N.A. (now known as NationsBank of
Georgia, N.A.) pursuant to a Purchase and Assumption Agreement dated October 18,
1995. The Bank also purchased its current facilities and property from Bank
South pursuant to the Purchase and Assumption Agreement.
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.
Management's discussion which follows relates to the Bank.
FINANCIAL CONDITION
- -------------------
Total assets of $51,921,931 at December 31, 1997 is a decrease of 3.06% from
$53,559,953 at December 31, 1996. At December 31, 1997, total deposits had
decreased 3.98% to $44,802,568 from $46,661,100 at December 31, 1996. The
decreases are primarily attributable to management's decision to not retain
higher yielding certificates of deposits as they matured. This decision was
based on the Bank's desire to achieve a higher loan to deposit ratio as well as
to reduce the Bank's cost of funds. Total loans had grown 29.01% to $30,364,898
from $23,537,462 at December 31, 1996. This represented a loan to deposit ratio
at December 31, 1997 of 67.77% compared to 50.44% at December 31, 1996. Earning
assets represented approximately 87.9% and 86.8% of total assets at December 31,
1997 and 1996, respectively.
Capital
- -------
At December 31, 1997 and 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 December 31, 1997 and 1996, the Bank had
$1.2 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.
-21-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
================================================================================
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. Investment securities, exclusive of unrealized
gains and losses, declined $4,426,586 or 24.78% during 1997. Funds from the net
principal paydowns, maturities, calls, and sales of these securities were used
to fund loan demand. At December 31, 1997, the securities available for sale,
exclusive of unrealized gains and losses, had decreased from $17,863,565 at
December 31, 1996 to $13,436,979. The Bank had no securities classified as held
to maturity as of December 31, 1997 and 1996. Federal funds sold had deceased
64.36% to $1,800,000 at December 31, 1997, down from $5,050,000 at December 31,
1996 due to investing of these funds in securities and loans.
Current deposits provide the primary liquidity resource for loan disbursements
and Bank working-capital. 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
- ---------------------
General
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 noninterest income and to control noninterest 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 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.
Net Income
For the year ended December 31, 1997, the Company had net income of $108,262
($0.16 per share). The Bank had a net loss of $110,439 ($0.17 per share) from
January 19, 1996 (Inception Date) to December 31, 1996.
The following table shows the related ratios for Assets and Equity for the year
ended December 31,1997 and the period ended December 31, 1996:
-------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------
Return on average assets 0.21% -0.29%
Return on average equity 1.65% -2.41%
Dividend pay-out ratio 0% 0%
Average equity to average asset ratio 12.48% 12.12%
-------------------------------------------------------------------------
-22-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
================================================================================
Interest Income / Interest Expense
For the period ended December 31, 1996, interest income from loans and
investments, including loan fees of $37,793, was $2,582,714, representing a
yield of 7.80% on average earning assets of $47,274,610. Interest expense was
$1,379,152, representing a cost of 4.86% on average interest bearing liabilities
of $40,510,592. Net interest income was $1,203,562, producing a net yield of
3.64% on average earning assets.
For the year ended December 31, 1997, interest income from loans and
investments, including loan fees of $81,112, was $3,757,061, representing a
yield of 8.15% on average earning assets of $46,102,550. Interest expense was
$1,943,372, representing a cost of 4.77% on average interest bearing liabilities
of $40,757,590. Net interest income was $1,813,689, producing a net yield of
3.93% on average earning assets.
Asset Quality
The provision for loan losses for the year ended December 31, 1997 and the
period ended December 31, 1996 and was $42,000 and $21,000, respectively. Total
loan charge-offs were $20,719 and $47,125 for the year ended December 31, 1997
and the period ended December 31, 1996, respectively, and were related to the
Bank's consumer loan portfolio. At December 31, 1997 and 1996, the Bank had no
loans past due 90 days or more. At December 31, 1997 and 1996, the Bank had
non-accrual loans of $1,011 and $0, respectively . The allowance for loan losses
at December 31, 1997 and 1996 was $386,717 and $359,146, respectively. This
represents 1.27% and 1.53% of total loans at December 31, 1997 and 1996,
respectively.
Management takes a number of factors into consideration when determining the
additions to be made to the loan loss allowance. As a new institution, the Bank
does not yet 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.
-23-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
================================================================================
Non-Interest Income
Non-interest income for the year ended December 31, 1997 and the period ended
December 31, 1996 was $382,912 and $179,597, respectively. This consisted
primarily of service charges on deposit accounts which were $247,388 for the
year ended December 31, 1997 and $136,456 for the period ended December 31, 1996
and credit life and disability insurance premium income which was $17,806 for
the year ended December 31, 1997 and $14,054 for the period ended December 31,
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 Expense
Non-interest expense for the year ended December 31, 1997 and the period ended
December 31, 1996 was $1,987,668 and $1,530,367, respectively. This consisted
primarily of salaries and benefits which were $873,619 for the year ended
December 31, 1997 and $634,697 for the period ended December 31, 1996. Other
major expenses included in non-interest expense for the year ended December 31,
1997 included amortization of $225,001, supplies of $44,253, data processing of
$80,615, and professional fees of $50,866. Other major expenses included in
non-interest expense for the period ended December 31, 1996 included
amortization of $153,706, supplies of $85,728, data processing of $57,749, and
professional fees of $85,121.
INTEREST RATE SENSITIVITY
- -------------------------
The objective of interest rate sensitivity management is to minimize the effect
of interest rate changes on net interest margin while maintaining net interest
income at acceptable levels. The Company attempts to accomplish this objective
by structuring the balance sheet so that repricing opportunities exist for both
assets and liabilities in roughly equivalent amounts at approximately the same
time intervals. Imbalances in these repricing opportunities at any time
constitute interest rate sensitivity. An indicator of interest rate sensitivity
is the difference between interest rate sensitive assets and interest rate
sensitive liabilities; this difference is known as the interest rate sensitivity
gap.
-24-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
================================================================================
The Bank's interest rate sensitivity position at December 31, 1997 is set forth
in the table below:
<TABLE>
<CAPTION>
0-90 91-180 181-365 Over 1 Year Over
Days Days Days thru 5 Years 5 Years
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Rate Sensitive Assets:
Loans $ 11,706,208 $ 1,741,829 $ 2,832,490 $ 11,126,865 $ 2,957,506
Securities 500,301 - 995,040 10,931,129 1,010,509
Federal Funds Sold 1,800,000 - - - -
----------------------------------------------------------------------------------
Total Interest Rate
Sensitive Assets $ 14,006,509 $ 1,741,829 $ 3,827,530 $ 22,057,994 $ 3,968,015
----------------------------------------------------------------------------------
Interest Rate Sensitive Liabilities:
Interest Bearing Demand Deposits $ - $ - $ - $ - $ 7,952,511
Savings and Money Market Deposits 3,444,174 - - - 2,762,434
Time Deposits 7,783,544 5,576,300 6,271,473 5,813,205 -
Other Borrowings - - - - -
----------------------------------------------------------------------------------
Total Interest Rate
Sensitive Liabilities $ 11,227,718 $ 5,576,300 $ 6,271,473 $ 5,813,205 $ 10,714,945
----------------------------------------------------------------------------------
Interest Rate Sensitivity GAP $ 2,778,791 $ (3,834,471) $ (2,443,943) $ 16,244,789 $ (6,746,930)
----------------------------------------------------------------------------------
Cumulative Interest Rate
Sensitivity GAP $ 2,778,791 $ (1,055,680) $ (3,499,623) $ 12,745,166 $ 5,998,236
----------------------------------------------------------------------------------
Cumulative GAP as a % of total
Assets at December 31, 1997 5.35% -2.03% -6.74% 24.55% 11.55%
----------------------------------------------------------------------------------
Cumulative GAP as a % of total
Assets at December 31, 1996 3.90% -5.28% -12.52% 21.40% 9.50%
----------------------------------------------------------------------------------
</TABLE>
Distribution of maturities for available for sale securities is based on
amortized cost. Additionally, distribution of maturities for mortgage-backed
securities is based on expected final maturities which may be different from the
contractual terms.
The interest rate sensitivity table presumes that all loans and securities will
perform according to their contractual maturities when, in many cases, actual
loan terms are much shorter than the original terms and securities are subject
to early redemption. In addition, the table does not necessarily indicate the
impact of general interest rate movements on net interest margin since the
repricing of various categories of assets and liabilities is subject to
competitive pressures and customer needs. The Bank monitors and adjusts its
exposure to interest rate risks within specific policy guidelines based on its
view of current and expected market conditions.
The Bank has established an asset/liability committee which monitors the Bank's
interest rate sensitivity and makes recommendations to the board of directors
for actions that need to be taken to maintain a targeted gap range of plus or
minus 10%. An analysis is made of the Bank's current cumulative gap each month
and presented to the board for review.
It is the policy of the Bank to include savings and NOW accounts in the over
five year repricing period in calculating cumulative gap. This methodology is
based on the Bank's experience that these deposits represent "core" deposits of
the Bank and the repricing of these deposits does not move with the same
magnitude as general market rates. The Bank's rates for these deposits are
consistently in the mid-range for the market area and this has not had an
adverse effect on the Bank's ability to maintain these deposit accounts. The
Bank believes that placing these deposits in an earlier repricing period would
force the Bank to inappropriately shorten its asset maturities to obtain the
-25-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
================================================================================
targeted gap range. This would leave the Bank exposed to falling interest rates,
and unnecessarily reduce its net interest margin.
At December 31, 1997, the above gap analysis indicates a negative cumulative gap
position thru the one year time interval of $3,499,623. A negative gap position
indicates that the Company's rate sensitive liabilities will reprice faster than
its rate sensitive assets, with 58% of rate sensitive liabilities and 43% of
rate sensitive assets repricing within one year. 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 three-month and one-year time horizons, 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.
-26-
<PAGE>
OFFICERS OF CBC HOLDING COMPANY
- -------------------------------
Sidney S. (Buck) Anderson, Jr., Chairman of the Board
George M. Ray, President and Chief Executive Officer
John T. Croley, Vice Chairman and Secretary
EXECUTIVE OFFICERS OF COMMUNITY BANKING COMPANY OF FITZGERALD
- -------------------------------------------------------------
Sidney S. (Buck) Anderson, Jr., Chairman of the Board
George M. Ray, President and Chief Executive Officer
Rebecca H. Powell, Vice President and Chief Operations Officer
DIRECTORS OF CBC HOLDING COMPANY AND COMMUNITY BANKING COMPANY OF FITZGERALD
- ----------------------------------------------------------------------------
S.S. (Buck) Anderson, Jr., Chairman of the Board of the Company and the Bank;
General Manager - Dixie Peanut Company
James T. Casper, III, Certified Public Accountant, Worthington and Casper CPA
John T. Croley, Jr., Vice Chairman and Secretary of the Company and the Bank;
Attorney, sole practitioner
A.B.C. Dorminy, III, President ABCD Farms, Inc. ,CEO - Farmers Quality Peanut
Co. and D&F Grain Co.
John S. Dunn, Owner - Shep Dunn Construction
William P. Herlovich, Retired Banker
Lee Phillip Liles, Agency Manager - Georgia Farm Bureau Mutual Insurance Co.
Steven L. Mitchell, President Mitchell Bros. Timber Co.
James A. Parrott, II, Owner - Standard Supply Co. & Building Materials, Inc.
Jack F. Paulk, Agency Field Executive - State Farm Insurance
George M. Ray, President and Chief Executive Officer of the Company and the Bank
Robert E. Sherrell, Attorney, Jay, Sherrell & Smith
John Edward Smith, III, Attorney, Jay, Sherrell & Smith
Shareholders may obtain, without charge, a copy of CBC Holding Company 1997
Annual Report to the Securities and Exchange Commission on Form 10-KSB. Written
requests should be addressed to George M. Ray, President, CBC Holding Company,
102 West Roanoke Drive, Fitzgerald, Georgia 31750.
-27-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,383,896
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 13,494,030
<INVESTMENTS-MARKET> 13,494,030
<LOANS> 30,364,898
<ALLOWANCE> 386,717
<TOTAL-ASSETS> 51,921,931
<DEPOSITS> 44,802,568
<SHORT-TERM> 73,000
<LIABILITIES-OTHER> 369,916
<LONG-TERM> 0
0
0
<COMMON> 664,097
<OTHER-SE> 6,012,350
<TOTAL-LIABILITIES-AND-EQUITY> 51,921,931
<INTEREST-LOAN> 2,650,129
<INTEREST-INVEST> 1,010,852
<INTEREST-OTHER> 96,080
<INTEREST-TOTAL> 3,757,061
<INTEREST-DEPOSIT> 1,931,953
<INTEREST-EXPENSE> 1,943,372
<INTEREST-INCOME-NET> 1,813,689
<LOAN-LOSSES> 42,000
<SECURITIES-GAINS> 24,501
<EXPENSE-OTHER> 1,987,668
<INCOME-PRETAX> 166,934
<INCOME-PRE-EXTRAORDINARY> 108,262
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108,262
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
<YIELD-ACTUAL> 8.15
<LOANS-NON> 1,011
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 669,711
<ALLOWANCE-OPEN> 359,146
<CHARGE-OFFS> 20,719
<RECOVERIES> 6,290
<ALLOWANCE-CLOSE> 386,717
<ALLOWANCE-DOMESTIC> 386,717
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
