<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1998
------------------------------
[ ] Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from __________________ to _________________
Commission file number 0-22451
--------------------------------------------------------
CBC HOLDING COMPANY
_________________________________________________
(Exact Name of Small Business Issuer as Specified in Its Charter)
GEORGIA 58-2311557
------------- ---------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
102 West Roanoke Drive, Fitzgerald, GA 31750
-----------------------------------------------
(Address of Principal Executive Offices)
(912) 423-4321
--------------------
(Issuer"s Telephone Number, Including Area Code)
Not Applicable
--------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--------------- ________________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer=s classes of
common equity, as of the latest practicable date: Common Stock $1 par value,
--------------------------
664,097 shares outstanding at March 31, 1998
- --------------------------------------------
Transitional Small Business Disclosure Format (check one):
Yes No X
________________ ________________
-1-
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are provided for CBC Holding Company and the
subsidiary bank, Community Banking Company of Fitzgerald (the "Bank").
A. Consolidated Balance Sheets - March 31, 1998 and December 31, 1997.
B. Consolidated Statements of Income - For the Three Months Ended
March 31, 1998 and 1997.
C. Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 1998 and 1997.
The consolidated financial statements furnished have not been examined by
independent certified public accountants, but reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the results of
operations for the periods presented.
The results of operations for the three month period ended March 31, 1998 are
not necessarily indicative of the results to be expected for the full year.
-2-
<PAGE>
<TABLE>
<CAPTION>
CBC HOLDING COMPANY
BALANCE SHEETS
(Unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
As of March 31, As of December 31,
1998 1997
- -------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 1,934,503 $ 1,383,896
Federal funds sold 2,270,000 1,800,000
- -------------------------------------------------------------------------------------------
Total cash and cash equivalents 4,204,503 3,183,896
- -------------------------------------------------------------------------------------------
Securities available for sale, at fair value 13,405,853 13,494,030
Loans, net of unearned income 31,488,410 30,364,898
Allowance for loan losses (398,682) (386,717)
- -------------------------------------------------------------------------------------------
Loans, net 31,089,728 29,978,181
- -------------------------------------------------------------------------------------------
Bank premises and equipment, less
accumulated depreciation 2,109,804 2,124,870
Accrued interest receivable 520,460 537,221
Intangible assets, net of amortization 2,486,424 2,543,044
Other assets and accrued income 79,114 60,689
- ------------------------------------------------------------------------------------------
Total Assets $ 53,895,886 $ 51,921,931
- -------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand deposits $ 6,137,013 $ 5,198,927
Interest-bearing demand deposits 12,219,692 11,396,685
Savings deposits 2,903,026 2,762,434
Time deposits $100,000 or more 6,692,004 6,558,157
Other time deposits 18,785,693 18,886,365
- ------------------------------------------------------------------------------------------
Total deposits 46,737,428 44,802,568
- ------------------------------------------------------------------------------------------
Accrued interest payable 204,578 253,134
Other liabilities and accrued expenses 142,515 116,782
Other borrowings 83,000 73,000
- ------------------------------------------------------------------------------------------
Total liabilities 47,167,521 45,245,484
- ------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock, $1.00 par value, authorized 10,000,000
shares, issued and outstanding 664,097 shares 664,097 664,097
Paid-in capital surplus 5,976,873 5,976,873
Accumulated earnings (deficit) 37,755 (2,177)
Unrealized holding losses on securities, net of tax 49,640 37,654
- -------------------------------------------------------------------------------------------
Total Shareholders' Equity 6,728,365 6,676,447
- -------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 53,895,886 $51,921,931
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CBC HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Three Months Ended March 31,
1998 1997
- ---------------------------------------------------------------------------------------------
Interest Income:
Interest and fees on loans $718,616 $581,925
Interest on federal funds sold 34,346 37,872
Interest on securities - U.S. Governmental agencies
and corporations 215,869 287,462
- ---------------------------------------------------------------------------------------------
Total interest income 968,831 907,259
- ---------------------------------------------------------------------------------------------
Interest Expense:
Interest on NOW and money market deposits 72,345 73,379
Interest on savings deposits 21,149 18,135
Interest on time deposits 354,553 403,952
Other interest expense 3,128 1,727
- --------------------------------------------------------------------------------------------
Total interest expense 451,175 497,193
- --------------------------------------------------------------------------------------------
Net interest income before loan losses 517,656 410,066
Less - provision for loan losses 15,000 10,500
- ---------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 502,656 399,566
- ---------------------------------------------------------------------------------------------
Other Operating Income:
Service charges on deposit accounts 68,696 60,408
Other service charges, commissions and fees 11,371 10,322
Other income 4,196 2,143
- ---------------------------------------------------------------------------------------------
Total other operating income 84,263 72,873
- ---------------------------------------------------------------------------------------------
Other Operating Expenses:
Salaries 172,155 171,435
Employee benefits 43,627 45,766
Net occupancy expenses 41,006 39,310
Equipment rental and depreciation of equipment 38,381 30,310
Amortization 56,620 55,140
Other expenses 169,322 118,740
- ---------------------------------------------------------------------------------------------
Total other operating expenses 521,111 460,701
- ---------------------------------------------------------------------------------------------
Income Before Income Taxes 65,808 11,738
Income tax provision 25,877 3,997
- ---------------------------------------------------------------------------------------------
Net Income $ 39,931 $ 7,741
- ---------------------------------------------------------------------------------------------
Income Per Share - based on weighted average
outstanding shares of 664,097 $ 0.06 $ 0.01
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CBC HOLDING COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended March 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 39,931 $ 7,741
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 15,000 10,500
Depreciation 33,714 29,727
Amortization of intangible assets 56,620 55,140
(Gain) loss on sale of securities (2,214) -
Changes in accrued income and other assets (1,663) (20,874)
Changes in accrued in expenses and other liabilities (22,823) (87,362)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 118,565 (5,128)
Cash Flows from Investing Activities:
Net change in loans made to customers (1,126,547) (2,248,998)
Purchases of available for sale securities (1,405,000) (1,504,192)
Proceeds from sales and maturities of available for sale securities 1,507,377 995,331
Purchase of property and equipment (18,648) (14,255)
Net cash used in investing activities (1,042,818) (2,772,114)
- ---------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net change in demand and savings accounts 1,901,685 (526,038)
Proceeds from short-term borrowings 10,000 25,000
Net change in other time deposits 33,175 (303,261)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,944,860 (804,299)
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,020,607 (3,581,541)
Cash and Cash Equivalents, Beginning of Period 3,183,896 7,005,359
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $4,204,503 $3,423,818
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The accounting and reporting policies of CBC Holding Company conform with
generally accepted accounting principles and practices within the banking
industry. The policies that materially affect financial position and the
results of operations are summarized as follows:
1. REPORTING ENTITY - CBC Holding Company (the "Company") was incorporated as
----------------
a Georgia corporation on October 15, 1996 for the purpose of acquiring all
of the issued and outstanding shares of common stock of Community Banking
Company of Fitzgerald (the "Bank"). The Company became the holding
company of the Bank pursuant the Plan of Reorganization, dated October 25,
1996, by and among the Company, the Bank and Interim Fitzgerald Company, a
wholly-owned subsidiary of the Company ("Interim"). Pursuant to the terms
of the Plan of Reorganization, Interim merged with and into the Bank and
the shareholders of the Bank received one share of Company common stock
for each share of Bank common stock.
On March 31, 1997, the Company acquired Community Banking Company of
Fitzgerald in a business combination accounted for as a pooling of
interests. Community Banking Company of Fitzgerald which engages in
banking, became a wholly owned subsidiary of the Company through the
exchange of 664,097 shares of the Company's common stock for all of the
outstanding stock of Community Banking Company of Fitzgerald. The
accompanying financial statements are based on the assumption that the
companies were combined for the full year, and the financial statements of
prior years have been restated to give effect to the combination.
2. SECURITIES - The classification of securities is determined at the date of
----------
purchase. Gains or losses on the sale of securities are recognized on a
specific identification basis.
Securities available for sale, primarily debt securities, are recorded at
fair value with unrealized gains or losses (net of tax effect) excluded
from earnings and reported as a component of shareholders' equity.
Securities available for sale will be used as a part of the Corporation's
interest rate risk management strategy and may be sold in response to
changes in interest rates, changes in prepayment risk, and other factors.
Investment securities, primarily debt securities, are stated at cost, net
of the amortization of premium and the accretion of discount. The Company
intends and has the ability to hold such securities on a long-term basis
or until maturity.
The market value of securities is generally based on quoted market prices.
If a quoted market price is not available, market value is estimated using
quoted market prices for similar securities.
3. LOANS AND INTEREST INCOME - Loans are stated at the amount of unpaid
-------------------------
principal, reduced by net deferred loan fees, unearned discount, and a
valuation allowance for possible loan losses. Interest on simple interest
installment loans and other loans is calculated by using the simple
interest method on daily balances of the principal amount outstanding.
Loans are generally placed on nonaccrual status when full payment of
principal or interest is in doubt, or when they are past due 90 days as to
either principal or interest. Senior management may grant a waiver from
nonaccrual status if a past due loan is well secured and in process of
collection. A nonaccrual loan may be restored to accrual status when all
principal and interest amounts contractually due, including arrearages,
are reasonably assured of repayment within a reasonable period, and there
is a sustained period of performance by the borrower in accordance with
the contractual terms of the loan. When interest accrual is discontinued,
all unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
4. ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is available to
-------------------------
absorb losses inherent in the credit extension process. The entire
allowance is available to absorb losses related to the loan and lease
portfolio and other extensions of credit, including off-balance sheet
credit exposures. Credit exposures deemed to be uncollectible are charged
against the allowance for loan losses. Recoveries of previously charged-
off amounts are credited to the allowance for loan losses. The adequacy of
the allowance for loan losses is reviewed regularly by management.
Additions to the allowance for loan losses are made by charges to the
provision for loan losses. On a quarterly basis, a comprehensive review of
the adequacy of the allowance for loan losses is performed. This
assessment is made in the context of historical losses, as well as
existing economic conditions.
Management believes that the allowance for possible loan losses is
adequate. While management uses available information to recognize losses
on loans and other real estate, future additions to the allowance may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically
-6-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
review the bank's allowance for possible loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgment of information available to them at the time of their
examination.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses
for the period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to
significant change in an operating cycle of one year relate to the
determination of the allowance for possible loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction
of loans. In connection with the determination of the allowance for
possible loans losses and real estate owned, management obtains
independent appraisals for significant properties.
In 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS 114), which was amended in 1994 by Statement
of Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure" (SFAS 118).
These standards address the accounting for certain loans when it is
probable that all amounts due pursuant to the contractual terms of the
loan will not be collected. The Bank evaluates a loan for impairment when
it is placed on non-accrual status and all or a portion is internally risk
rated as substandard or doubtful. Individually identified impaired loans
are measured based on the present value of payments expected to be
received, using the historical effective loan rate as the discount rate.
Loans that are to be foreclosed or that are solely dependent on the
collateral for repayment may alternatively be measured based on the fair
value of the collateral for such loans. Measurement may also be based on
observable market prices. If the recorded investment in the loan exceeds
the measure of fair value, a valuation allowance is established as a
component of the allowance for loan losses. These standards do not apply
to larger groups of smaller-balance, homogenous loans and therefore are
principally relevant to commercial loans. For purposes of applying these
standards, the Bank considers consumer loans and other collateral based
loans of less than $41,000 to be smaller-balance, homogeneous loans.
5. PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
----------------------
accumulated depreciation. Depreciation is charged to operating expenses
over the estimated useful lives of the assets and is computed on the
straight-line method. Costs of major additions and improvements are
capitalized. Expenditures for maintenance and repairs are charged to
operations as incurred. Gains or losses from disposition of property are
reflected in operations and the asset account is reduced.
6. OTHER REAL ESTATE OWNED - Other real estate owned, acquired principally
-----------------------
through foreclosure, is stated at the lower of cost or net realizable
value. Loan losses incurred in the acquisition of these properties are
charged against the allowance for possible loan losses at the time of
foreclosure. Subsequent write-downs of other real estate owned are
charged against the current period's expense.
7. INCOME TAXES - The liability method of accounting is used for income
------------
taxes. Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of existing
differences between financial reporting and tax reporting bases of assets
and liabilities, as well as for operating losses and tax credit carry-
forwards, using enacted laws and rates. Deferred tax expense represents
the net change in the deferred tax asset or liability balance during the
year. This amount, together with income taxes currently payable or
refundable for the current year, represents the total income tax expense
for the year.
8. CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash and
-------------------------
cash equivalents include cash on hand, amounts due from banks, highly
liquid debt instruments purchased with an original maturity of three
months or less, and federal funds sold. Generally, federal funds are
purchased and sold for one-day periods. Interest bearing deposits in
other banks with original maturities of less than three months are
included.
9. USE OF ESTIMATES - The preparation of financial statements in conformity
----------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
10. 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 three months ended March 31, 1998 and 1997 were $9,355 and $6,284,
respectively.
-7-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
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 March 31,
1998 and December 31, 1997. In addition, gross unrealized gains and gross
unrealized losses are disclosed as of March 31, 1998 and December 31, 1997, in
accordance with Statement of Position 90-11 of the American Institute of
Certified Public Accountants, which is effective for financial statements
covering fiscal years ending after December 15, 1990.
The book and market values of securities available for sale were:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
- --------------------------------------------------------------------------------------------
March 31, 1998:
Non-mortgage backed debt securities of:
U.S. Treasury $ 1,002,218 $ 5,282 $ - $ 1,007,500
U.S. government agencies 12,328,423 77,733 7,803 12,398,353
- --------------------------------------------------------------------------------------------
Total $13,330,641 $83,015 $ 7,803 $13,405,853
- --------------------------------------------------------------------------------------------
December 31, 1997:
Non-mortgage backed debt securities of:
U.S. Treasury $ 1,502,573 $ 4,772 $ - $ 1,507,345
U.S. government agencies 11,934,406 54,859 2,580 11,986,685
- --------------------------------------------------------------------------------------------
Total $13,436,979 $59,631 $ 2,580 $13,494,030
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</TABLE>
The amortized cost and estimated market value of debt securities available for
sale at March 31, 1998 and December 31, 1997, 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>
<S> <C> <C>
Available for Sale
- ---------------------------------------------------------------------
Estimated
March 31, 1998 Amortized Cost Market Value
- ---------------------------------------------------------------------
Due in one year or less $ 3,992,947 $4,001,600
Due after one year through five years 8,837,694 8,906,168
Due after five years through ten years 500,000 498,085
Due after ten years - -
- ----------------------------------------------------------------------
Total $13,330,641 $13,405,853
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Available for Sale
- -----------------------------------------------------------------------------
Estimated
December 31, 1997 Amortized Cost Market Value
- -----------------------------------------------------------------------------
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 1,010,509 1,007,929
Due after ten years - -
- -----------------------------------------------------------------------------
Total $13,436,979 $13,494,030
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</TABLE>
The market value is established by an independent pricing service as of the
approximate dates indicated. The differences between the book value and
market value reflect current interest rates and represent the potential loss
(or gain) had the portfolio been liquidated on that date. Security losses (or
gains) are realized only in the event of dispositions prior to maturity.
At March 31, 1998, the Company did not hold investment securities of any
single issuer, other than obligations of the U.S. Treasury and other U.S.
Government agencies, whose aggregate book value exceeded ten percent of
shareholders' equity.
-8-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
C. LOANS
-----
The following is a summary of the loan portfolio by principal categories at
March 31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------
Loans secured by 1 to 4-family residential properties $11,650,905 $11,490,475
Loans secured by multi-family and non-farm,
non-residential properties 4,844,906 4,766,638
Other loans secured by real estate 2,037,535 1,200,950
Commercial and industrial loans 7,503,483 7,273,425
Consumer loans 5,428,937 5,599,490
Other loans 27,188 38,971
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Subtotal 31,492,954 30,369,949
Less: Unearned income (4,544) (5,051)
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Total $31,488,410 $30,364,898
- -----------------------------------------------------------------------------------------------------
</TABLE>
D. ALLOWANCE FOR LOAN LOSSES
-------------------------
A summary of changes in allowance for loan losses of the Company for the three
months ended March 31, 1998 and the year ended December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------
Allowance for possible loan losses, beginning of period 386,717 359,146
Charge-offs (4,278) (20,719)
Recoveries 1,243 6,290
- -------------------------------------------------------------------------------------------
Net charge-offs (3,035) (14,429)
Additions charged to operations 15,000 42,000
- -------------------------------------------------------------------------------------------
Allowance for possible loan losses, end of period 398,682 386,717
- -------------------------------------------------------------------------------------------
Average loans outstanding, net of unearned income 30,612,561 30,777,872
- -------------------------------------------------------------------------------------------
Ratio of net charge-offs during the period to average loans
outstanding during the period 0.01% 0.05%
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nonaccrual, Past Due and Restructured Loans as of March 31, 1998 and December 31, 1997 is as follows:
<S> <C> <C>
March 31, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------
Nonaccrual loans - 1,011
Accruing loans contractually past due 90 days or more - -
Troubled debt restructurings - -
- ----------------------------------------------------------------------------------------
</TABLE>
E. 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.
-9-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
The Company and the Bank have adopted 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 March 31, 1998.
F. REGULATORY MATTERS
------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
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 March 31, 1998, the
Bank meets all capital adequacy requirements to which it is subject. As of
March 31, 1998, the most recent notification from the FDIC categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Bank must maintain minimum
total risk-based, and Tier I leverage ratios as set forth in the table. There
are no conditions or events since that notification that management believes
have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the Table.
<TABLE>
<CAPTION>
To Be Well Capitralized
Actual For Capital Under Prompt Corrective
Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of March 31, 1998
Total Capital To greater than greater than
(Risk Weighted Assets) 4,661,000 13.5% 2,770,000 or 8.0% 3,462,500 or 10.0%
equal to equal to
Tier I Capital To greater than greater than
(Risk-Weighted Assets) 4,262,000 12.3% 1,385,000 or 4.0% 2,077,500 or 6.0%
equal to equal to
Tier I Capital To greater than greater than
(Average Assets) 4,262,000 8.4% 2,025,720 or 4.0% 1,731,250 or 5.0%
equal to equal to
As of December 31, 1997
Total Capital To greater than greater than
(Risk Weighted Assets) 4,543,000 13.6% 2,666,000 or 8.0% 3,332,000 or 10.0%
equal to equal to
Tier I Capital To greater than greater than
(Risk-Weighted Assets) 4,157,000 12.5% 1,333,000 or 4.0% 1,999,000 or 6.0%
equal to equal to
Tier I Capital To greater than greater than
(Average Assets) 4,157,000 8.3% 1,999,000 or 4.0 2,498,000 or 5.0%
equal to equal to
</TABLE>
-10-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
ITEM 2. Management's Discussion and Analysis of Financial Condition 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 and the FDIC of its application to
charter the Bank.
On April 18, 1996, the Bank completed its offering of shares of the Bank's
common stock by receiving subscriber deposits for 664,097 shares at $10.00 per
share. The Bank was capitalized with $3,320,485 of common stock, par value
$5.00 per share and $3,154,461 of paid-in capital and a reserve for initial
operating losses of $166,024, as required by the DBF.
On April 19, 1996, the Bank commenced operations after receiving all regulatory
approvals and insurance on its deposits from the FDIC.
On October 25, 1996, the Bank entered into a Plan of Reorganization with the
Company and Interim Fitzgerald Company, a wholly-owned subsidiary of the
Company ("Interim"). Pursuant to the terms of the Plan of Reorganization,
Interim merged with and into the Bank (the "Merger") and the shareholders of
the Bank exchanged their shares of Bank common stock for Company common stock.
As a result of the Merger, the Company became the sole shareholder of the Bank,
effective March 31, 1997.
FINANCIAL CONDITION
At December 31, 1997, the Bank had $51,921,931 in total assets and for the
three months ended March 31, 1998 total assets had increased 3.80% to
$53,895,886. For the three months ended March 31, 1998, total deposits had
increased 4.32% to $46,737,428 from $44,802,568 at December 31, 1997 and total
loans had grown 3.71% to $31,089,728 from $29,978,181 at December 31, 1997.
This represented a loan to deposit ratio at March 31, 1998 of 66.52%.
Capital
At March 31, 1998 and December 31, 1997, 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 March 31, 1998 and
December 31, 1997, the Bank had $1 million more capital than necessary to
satisfy the "well-capitalized" criteria. The Bank's capital adequacy is
monitored quarterly by the Bank's Asset/Liability Committee, as assets and
liabilities grow, mix and pricing strategies are developed.
Liquidity
The Bank's internal and external liquidity resources are considered by
management to be adequate to handle expected growth and normal cash flow
demands from existing deposits and loans. For the three months ended March 31,
1998, the securities available for sale had decreased .65% to $13,405,853 from
$13,494,030 at December 31, 1997. The Bank had no securities classified as held
to maturity as of March 31, 1998. At March 31, 1998, federal funds sold had
increased 26.11% to $2,270,000 from $1,800,000 at December 31, 1997.
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
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate non-interest income and to control non-interest expense.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Company, the ability to generate interest income is
dependent upon the Bank's ability to obtain an adequate spread between the rate
earned on earning assets and the rate paid on interest-bearing 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.
-11-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
The Bank had net income of $7,741 ($.01 per share) for the three months ended
March 31, 1997 as compared to net income of $39,931 ($.06 per share) for the
three months ended March 31, 1998.
For the three months ended March 31, 1997, interest income from loans and
investments, including loan fees of $21,671, was $907,259, representing a yield
of 7.83% on average earning assets of $46,353,299. Interest expense was
$497,193 representing a cost of 4.77% on average interest bearing liabilities
of $41,698,066. Net interest income was $410,066, producing a net yield of
3.54% on average earning assets.
For the three months ended March 31, 1998, interest income from loans and
investments, including loan fees of $47,695, was $968,831 representing a yield
of 8.32% on average earning assets of $46,584,566. Interest expense was
$451,175 representing a cost of 4.50% on average interest bearing liabilities
of $40,083,248. Net interest income was $517,656, producing a net yield of
4.44% on average earning assets.
The provision for loan losses for the three months ended March 31, 1998 and
1997 was $15,000 and $10,500, respectively. Total loan charge-offs were $4,278
and $8,603 for the three months ended March 31, 1998 and 1997, respectively,
and were related to the Bank's consumer loan portfolio. At March 31, 1998 and
1997, the Bank had non-accrual loans of $0 and $7,500, respectively. The
allowance for loan losses at March 31, 1998 and 1997 was $398,682 and $361,068,
respectively. This represents 1.282% and 1.204% of total loans for the three
months ended March 31, 1998 and 1997, respectively.
Management takes a number of factors into consideration when determining the
additions to be made to the loan loss allowance. Since the Bank is approaching
the end of its first year of operations, it does not have a sufficient history
of portfolio performance on which to base additions. Accordingly, additions to
the reserve are primarily based on maintaining a ratio of the allowance for
loan losses to total loans in a range of 1.00% to 1.50%. This is based on
national peer group ratios and Georgia ratios which reflect average ratios of
0.99% (national peer) and 1.50% (Georgia). Under this methodology, charge-
offs will increase the amount of additions to the allowance and recoveries will
reduce additions.
In addition, management performs an on-going loan review process. All new
loans are risk rated under loan policy guidelines. On a monthly basis, the
composite risk ratings are evaluated in a model which assesses the adequacy of
the current allowance for loan losses, and this evaluation is presented to the
Board of Directors each month. Large loans are reviewed periodically. Risk
ratings may be changed if it appears that new loans may not have received the
proper initial grading or, if on existing loans, credit conditions have
improved or worsened.
As the Bank matures, the additions to the loan loss allowance will be based
more on historical performance, the detailed loan review and allowance adequacy
evaluation.
The Bank's policy is to place loans on non-accrual status when it appears that
the collection of principal and interest in accordance with the terms of the
loan is doubtful. Any loan which becomes 90 days past due as to principal or
interest is automatically placed on non-accrual.
Non-interest income for the three months ended March 31, 1998 and 1997 was
$84,263 and $72,873, respectively. This consisted primarily of service charges
on deposit accounts which were $68,696 and $60,408 for the three months ended
March 31, 1998 and 1997, respectively.
Service charges on deposit accounts are evaluated annually against service
charges from other banks in the local market and against the Bank's own cost
structure in providing the deposit services. This income should grow with the
growth in the Bank's demand deposit account base. The credit life and
disability insurance premium income is sold primarily on consumer installment
debt and should grow with the growth in the Bank's consumer loan portfolio.
Non-interest expenses for the three months ended March 31, 1998 and 1997 was
$521,111 and $460,701, respectively. This consisted primarily of salaries and
benefits which were $215,782 for the three months ended March 31, 1998 and
$217,201 for the three months ended March 31, 1997. Other major expenses
included in non-interest expense for the three months ended March 31, 1998
included amortization of $56,620, supplies of $14,917, data processing of
$33,544, and courier service of $12,403. Other major expenses included in non-
interest expense for the three months ended March 31, 1997 included
amortization of $55,140, supplies of $12,699, data processing of $21,139, and
courier service of $11,588.
-12-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
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.
The Bank's interest rate sensitivity position at March 31, 1998 is set forth in
the table below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
0-90 91-180 181-365 Over 1 Year Over
Days Days Days thru 5 Years 5 Years
-------------------------------------------------------------------------------
Interest Rate Sensitive Assets:
Loans $10,250,193 $1,914,262 $4,294,160 $11,749,438 $ 3,280,357
Securities - 517,701 2,010,649 9,366,100 1,511,403
Federal Funds Sold 2,270,000 - - - -
-------------------------------------------------------------------------------
Total Interest Rate
Sensitive Assets $12,520,193 $2,431,963 $6,304,809 $21,115,538 $ 4,791,760
-------------------------------------------------------------------------------
Interest Rate Sensitive
Liabilities:
Interest Bearing Demand Deposits $ - $ - $ - $ - $ 8,767,580
Savings and Money Market
Deposits 3,452,112 - - - 2,903,026
Time Deposits 6,081,703 4,438,806 8,415,674 6,541,514 -
Other Borrowings - - - - -
-------------------------------------------------------------------------------
Total Interest Rate
Sensitive Liabilities $9,533,815 $4,438,806 $8,415,674 $6,541,514 $11,670,606
-------------------------------------------------------------------------------
Interest Rate Sensitivity GAP $2,986,378 ($2,006,843) ($2,110,865) $14,574,024 ($6,878,846)
-------------------------------------------------------------------------------
Cumulative Interest Rate
Sensitivity GAP $2,986,378 $ 979,535 ($1,131,330) $13,442,694 $6,563,848
-------------------------------------------------------------------------------
Cumulative GAP as a % of total
Assets at March 31, 1998 5.75% 1.89% -2.18% 25.89% 12.64%
-------------------------------------------------------------------------------
Cumulative GAP as a % of total
Assets at December 31, 1997 5.35% -2.03% -6.74% 24.55% 11.55%
===============================================================================
</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.
-13-
<PAGE>
CBC HOLDING COMPANY
NOTES AND MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
- --------------------------------------------------------------------------------
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
targeted gap range. This would leave the Bank exposed to falling interest
rates, and unnecessarily reduce its net interest margin.
At March 31, 1998, the above gap analysis indicates a negative cumulative gap
position thru the one year time interval of $1,131,330. A negative gap position
indicates that the Company's rate sensitive liabilities will reprice faster than
its rate sensitive assets, with 55% of rate sensitive liabilities and 45% 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company is a
party or of which any of their property is the subject.
Item 2. Changes in Securities
(a) Not Applicable
(b) Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to security holders for a vote during the
three months ended March 31, 1998.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits - 27.1 Financial Data Schedule
B. There have been no reports filed on form 8-K for the three months ended
March 31, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
CBC HOLDING COMPANY
05/08/98............................../s/ George Ray
Date ____________________ _________________________________
George Ray
PRESIDENT/CHIEF EXECUTIVE OFFICER
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,934,503
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,270,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 13,330,641
<INVESTMENTS-MARKET> 13,405,853
<LOANS> 31,488,410
<ALLOWANCE> 398,682
<TOTAL-ASSETS> 53,895,886
<DEPOSITS> 46,737,428
<SHORT-TERM> 83,000
<LIABILITIES-OTHER> 347,093
<LONG-TERM> 0
0
0
<COMMON> 664,097
<OTHER-SE> 6,064,268
<TOTAL-LIABILITIES-AND-EQUITY> 53,895,886
<INTEREST-LOAN> 718,616
<INTEREST-INVEST> 215,869
<INTEREST-OTHER> 34,346
<INTEREST-TOTAL> 968,831
<INTEREST-DEPOSIT> 448,047
<INTEREST-EXPENSE> 451,175
<INTEREST-INCOME-NET> 517,656
<LOAN-LOSSES> 15,000
<SECURITIES-GAINS> 2,214
<EXPENSE-OTHER> 521,111
<INCOME-PRETAX> 65,808
<INCOME-PRE-EXTRAORDINARY> 39,931
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,931
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
<YIELD-ACTUAL> 8.32
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 528,000
<ALLOWANCE-OPEN> 386,717
<CHARGE-OFFS> (4,278)
<RECOVERIES> 1,243
<ALLOWANCE-CLOSE> 398,682
<ALLOWANCE-DOMESTIC> 398,682
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
