<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
For fiscal year ended December 31, 1998
-----------------
[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ___________ to ____________
Commission file number 0-22451
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CBC HOLDING COMPANY
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(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: $4,369,914
-----------
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:
$6,068,460 as of March 22, 1999
- -------------------------------
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 22, 1999
----------------------------
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, 1998 are incorporated by reference into Part II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders, held on
April 7, 1999, are incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C> <C>
PART I....................................................................................................................... 3
ITEM 1. DESCRIPTION OF BUSINESS........................................................................................ 3
ITEM 2. DESCRIPTION OF PROPERTIES...................................................................................... 7
ITEM 3. LEGAL PROCEEDINGS.............................................................................................. 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................................ 7
PART II..................................................................................................................... 7
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......................................... 7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 8
ITEM 7. FINANCIAL STATEMENTS........................................................................................... 8
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................... 8
PART III..................................................................................................................... 8
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.............................................................................. 8
ITEM 10. EXECUTIVE COMPENSATION......................................................................................... 9
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................. 9
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................. 9
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K........................................................................ 10
SIGNATURES................................................................................................................... 11
</TABLE>
2
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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.
3
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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.
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 60.8% of total loan portfolio, 81% of these dollars outstanding have
a fixed interest rate and 19% have a variable rate. The weighted average rate
for fixed rate real estate loans having a final maturity over 60 months, is
8.24%. 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.
4
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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.
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 (7.0% 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 17% of total loans. Of the Bank's commercial loans, 88% are
adjustable rate loans or mature within one year. Fixed rate loans with
maturities of 60 months or less equal 60% of commercial loans and loans with
fixed rate maturities of over 60 months equal less than 1/2 of 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. Virtually all 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.
5
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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.
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, 1998 the Bank had 26 full-time employees and 5 part-
time employees. The Bank had 27.5 full-time equivalent employees at December
31, 1998. 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, 1998 and 1997. 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
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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 1998 and 1997.
7
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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 23 through 30, 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 22, and are incorporated herein by reference:
Independent Auditors' Report
Financial Statements
Consolidated Balance Sheets dated as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31,
1998, 1997, and 1996.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
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 to be held on April 7, 1999,
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.
8
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ITEM 10. EXECUTIVE COMPENSATION
The responses to this Item are included in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on April 7, 1999,
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 to be held on April 7, 1999,
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 April 7, 1999, 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.
9
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ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(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 1998 Annual Report to Shareholders.
Except with respect to those portions specifically
incorporated by reference into this Report, the Company's
1998 Annual Report to Shareholders is not deemed to be
filed as part of this Report.
21.1 Subsidiaries of CBC Holding Company1/
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 1998: 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.
10
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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: /s/ George M. Ray
---------------------
George M. Ray
President and Chief
Executive Officer
Date: March 22, 1999
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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.
11
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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 March 22, 1999
- ------------------------------------
Sidney S. (Buck) Anderson, Jr.
/s/ James Thomas Casper, III Director March 22, 1999
- ------------------------------------
James Thomas Casper, III
/s/ Charles A. Clark, Sr. Director March 22, 1999
- ------------------------------------
Charles A. Clark, Sr.
/s/ John T. Croley, Jr. Secretary, Vice Chairman, March 22, 1999
- ------------------------------------ Director
John T. Croley, Jr.
/s/ A.B.C. (Chip) Dorminy, III Director March 22, 1999
- ------------------------------------
A.B.C. (Chip) Dorminy, III
/s/ John S. Dunn Director March 22, 1999
- ------------------------------------
John S. Dunn
/s/ William P. Herlovich Director March 22, 1999
- ------------------------------------
William P. Herlovich
/s/ Lee Phillip Liles Director March 22, 1999
- ------------------------------------
Lee Phillip Liles
/s/ Steven L. Mitchell Director March 22, 1999
- ------------------------------------
Steven L. Mitchell
/s/ James A. Parrott, II Director March 22, 1999
- ------------------------------------
James A. Parrott, II
/s/ Jack F. Paulk Director March 22, 1999
- ------------------------------------
Jack F. Paulk
/s/ George M. Ray President and Chief March 22, 1999
- ------------------------------------ Executive Officer,
George M. Ray Director (Principal
Executive, Financial
and Accounting Officer)
/s/ Robert E. Sherrell Director March 22, 1999
- ------------------------------------
Robert E. Sherrell
12
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/s/ John Edward Smith, III Director March 22, 1999
- ------------------------------------
John Edward Smith, III
Director --------------
- ------------------------------------
Wyndall L. Walters
13
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CBC HOLDING COMPANY AND SUBSIDIARY
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 1998
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TABLE OF CONTENTS
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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.................................... 23
</TABLE>
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 February 24, 1999 there were
650 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. The Company's dividend policy depends on the Bank's earnings,
capital requirements, financial condition and other factors considered relevant
by the Board of Directors of the Company. No assurance can be given that any
dividends will be declared by the Company, or if declared, what the amount of
the dividends will be. 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>
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>
1998 1997
------------------------------------- ----------------------------------
Interest Tax Interest Tax
Average Income/ Equivalent Average Income/ Equivalent
Balance Expense Yield Balance Expense Yield
--------- -------- ---------- --------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits and fed funds sold $ 2,294 $ 119 5.19% $ 1,773 $ 96 5.41%
Investment Securities:
Taxable investment securities 12,535 772 6.16% 16,021 1,011 6.31%
Tax-exempt investment securities 458 19 5.97% - - -
Loans (including loan fees) 32,552 3,063 9.41% 28,309 2,650 9.36%
------- ------ ---- ------- ------ ----
Total interest earning assets 47,839 3,973 8.30% 46,103 3,757 8.15%
------ ---- ------ ----
Allowance for loan losses (410) (374)
Cash & due from banks 1,562 1,356
Premises and equipment 2,044 2,135
Other assets 3,153 3,263
------- -------
Total assets $54,188 $52,483
======= =======
Interest bearing liabilities:
Deposits:
Demand deposits 8,964 177 1.97% 8,152 175 2.15%
Savings and Money Market 6,294 202 3.21% 6,108 197 3.23%
Time deposits 25,582 1,453 5.68% 26,351 1,560 5.92%
Other borrowings 130 12 9.23% 147 11 7.48%
------- ------ ---- ------- ------ ----
Total interest bearing liabilities 40,970 1,844 4.50% 40,758 1,943 4.77%
------ ---- ------ ----
Non-interest bearing deposits 6,201 4,976
Other liabilities 313 199
Stockholders' equity 6,704 6,550
------- -------
Total liabilities and stockholders' equity $54,188 $52,483
======= =======
Net interest income $2,129 $1,814
Net interest spread 3.80% 3.38%
==== ====
Net interest yield on average earning assets $47,839 $2,129 4.45% $46,103 $1,814 3.93%
======= ====== ==== ======= ====== ====
</TABLE>
Non-accruing loans are included in the average balances. For December 31, 1998
and 1997, average non-accruing loans were $2 thousand and $6 thousand,
respectively.
Loan fees are included in the interest income computation and were $96,551 and
$81,112 as of December 31, 1998 and 1997, respectively
<PAGE>
STATISTICAL INFORMATION, CONTINUED
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>
1997 to 1998 1996 to 1997
Increase(decrease) Increase(decrease)
due to changes in due to changes in
------------------ ------------------
Yield/ Yield/
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Amounts in Thousands)
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Interest earned on:
Interest earning deposits and fed funds sold 28 (5) 23 (228) (19) (247)
Investment securities:
Taxable investment securities (220) (19) (239) 309 (1) 308
Tax-exempt investment securities 19 - 19 - - -
Loans 397 16 413 1,074 39 1,113
---- ---- ---- ----- ----- ------
Total interest income 224 (8) 216 1,155 19 1,174
---- ---- ---- ----- ----- ------
Interest paid on:
Deposits:
Demand deposits 17 (15) 2 65 (4) 61
Savings 6 (1) 5 68 1 69
Time deposits (46) (61) (107) 430 5 435
Other borrowings (1) 2 1 6 (7) (1)
---- ---- ---- ----- ----- ------
Total interest expense (24) (75) (99) 569 (5) 564
---- ---- ---- ----- ----- ------
</TABLE>
II. INVESTMENT PORTFOLIO - CARRYING VALUE OF SECURITIES
The following tables summarize the investment portfolio by type and maturity:
<TABLE>
<CAPTION>
Available for Sale
---------------------------------
1998 1997
------- -------
(Amounts in Thousands)
<S> <C> <C>
U. S. Treasury $ 505 $ 1,507
U.S. Government Agencies 9,311 10,979
State, county and municipal 1,677 -
Mortgage-Backed Securities 2,795 1,008
------- -------
Total $14,288 $13,494
======= =======
</TABLE>
<PAGE>
STATISTICAL INFORMATION, CONTINUED
EXPECTED MATURITIES
<TABLE>
<CAPTION>
Available for Sale
---------------------------------------------------------------------------------------------
Within After One After Five
One But Within But Within After
Year Yield Five Years Yield Ten Years Yield Ten Years Yield Totals
---------- ------ ---------- ------ ---------- ------ --------- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury $ 505 6.0% $ - - $ - - $ - - $ 505
U.S. Government Agencies 2,004 5.8% 6,800 5.7% 507 6.0% - - 9,311
State, county and municipal - - - - 1,677 6.0% - - 1,677
Mortgage-Backed Securities - - 2,795 5.5% - 0.0% - - 2,795
------ --- ------ --- ------ --- --------- ----- -------
Total $2,509 5.8% $9,595 5.7% $2,184 6.0% $ - - $14,288
====== === ====== === ====== === ========= ===== =======
</TABLE>
The Company had no securities classified as held to maturity or trading as of
December 31, 1998 and 1997.
III. LOAN PORTFOLIO
The following tables summarize the breakdown of loans by type and the
contractual maturities of selected fixed and variable rate loans:
<TABLE>
<CAPTION>
1998 1997
---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial $12,742 39.6% $12,861 42.4%
Real Estate - Construction 989 3.1% 379 1.2%
Real Estate - Mortgage 12,738 39.5% 11,490 37.8%
Installment Loans to Individuals 5,725 17.8% 5,635 18.6%
------- ------- ------- ------
Total Loans 32,194 100.0% 30,365 100.0%
Less: Allowance for Loan losses (430) (387)
------- -------
Total $31,764 $29,978
======= =======
</TABLE>
<TABLE>
<CAPTION>
Rate Structure
Maturity Greater Than
One Year
-------- ------------
Over One Due Fixed Variable
One Year Through After Interest Interest
or Less Five Years Five Years Total Rate Rate
-------- ---------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 5,894 $ 4,740 $ 2,108 $ 12,742 $ 4,618 $ 2,230
Real estate - construction 728 250 11 989 261 -
-------- --------- --------- -------- --------- --------
Total $ 6,622 $ 4,990 $ 2,119 $ 13,731 $ 4,879 $ 2,230
======== ========= ========= ======== ========= ========
</TABLE>
<PAGE>
STATISTICAL INFORMATION, CONTINUED
IV. SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION> 1998 1997
---- ----
(Amounts in Thousands)
<S> <C> <C>
Allowance for possible loan losses, beginning of period $ 387 $ 359
------- -------
Charge-offs:
Commercial - -
Real estate - construction - -
Real estate - mortgage - -
Consumer loans 25 20
------- -------
Total 25 20
------- -------
Recoveries:
Commercial - -
Real estate - construction - -
Real estate - mortgage - -
Consumer loans 8 6
------- -------
Total 8 6
------- -------
Net charge-offs 17 14
------- -------
Additions charged to operations 60 42
Adjustments - -
------- -------
Allowance for possible loan losses, end of period 430 387
------- -------
Average loans outstanding, net of unearned income $32,552 $28,309
======= =======
Ratio of net charge-offs during the period to average loans
outstanding during the period 0.05% 0.05%
======= =======
</TABLE>
<TABLE>
<CAPTION>
RISK ELEMENTS
(Thousands)
1998 1997
---- ----
<S> <C> <C>
Loans 90 days past due $ 40 $ -
Loans on nonaccrual - 1
Other Real Estate - -
------- -------
Total Nonperforming assets $ 40 $ 1
------- -------
Total Nonperforming assets as a
Percentage of loans 0.2% 0.0%
======= =======
</TABLE>
The Company had no loans classified as nonaccrual as of December 31, 1998.
<PAGE>
STATISTICAL INFORMATION, CONTINUED
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. Exceptions are allowed for 90-
day past due loans when such loans are well secured and in process of
collection.
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.
The following table summarizes information concerning the allocation of the
allowance for loan losses as of December 31, 1998:
<TABLE>
<CAPTION>
Allocated % of Total
Amount Allowance
--------- ---------
<S> <C> <C>
Commercial 170 39.6%
Real Estate - Construction 13 3.1%
Real Estate - Mortgage 170 39.5%
Installment Loans to Individuals 77 17.8%
Unallocated - -
------- -------
Total 430 100.00%
======= =======
</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.
V. DEPOSITS
The following table summarizes the average balances and average rates for
deposit accounts:
<TABLE>
<CAPTION>
1998 1997
------------------ ---------------------
Average Average Average Average
Balance Rate Balance Rate
------- ---- ------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Non-interest bearing deposits 6,201 4,976
Interest bearing demand deposits 8,964 1.97% 8,152 2.15%
Savings and money market deposits 6,294 3.21% 6,108 3.23%
Time deposits 25,582 5.68% 26,351 5.92%
------- ---- ------- ----
Total average deposits $47,041 3.91% $45,587 4.24%
======= ==== ======= ====
</TABLE>
<PAGE>
STATISTICAL INFORMATION, CONTINUED
As of December 31, 1998 the amount outstanding of time certificates of deposit
of $100,000 or more was $7,115 thousand. Amounts by time remaining until
maturity on time deposits of $100,000 or more were:
<TABLE>
<CAPTION>
(Thousands)
<S> <C>
3 months or less $ 2,488
over 3 through 6 months 711
over 6 through 12 months 1,790
over 12 months 2,126
----------
Total $ 7,115
==========
</TABLE>
VI. SELECTED FINANCIAL DATA (amounts in thousands, except per share amounts)
The following represents selected financial data for the years ended December
31, 1998 and 1997. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes included elsewhere
in this report.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Interest Income 3,973 3,757
Interest Expense 1,845 1,944
Net Interest Income 2,128 1,813
Provision for Loan Losses (410) (374)
Net Earnings 264 108
Net Earnings Per Share 0.40 0.16
Total Average Stockholder's Equity 6,704 6,550
Total Average Assets 54,188 52,483
Return on average assets 0.49% 0.21%
Return on average equity 3.94% 1.65%
Dividend payout ratio 0% 0%
Average equity to average asset ratio 12.37% 12.48%
</TABLE>
VII. SHORT-TERM BORROWINGS
No category of short-term borrowings exceeds 30% of stockholders' equity.
<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 N/A
Holders. See Articles of Incorporation at
Exhibit 3.1 hereto and Bylaws at Exhibit 3.2
hereto.
13.1 CBC Holding Company 1998 Annual Report to
Shareholders. Except with respect to those
portions specifically incorporated by
reference into this Report, the Company's
1998 Annual Report to Shareholders is not
deemed to be filed as part of this Report.
21.1 Subsidiaries of CBC Holding Company1/ 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>
EXHIBIT 13.1
1998 ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
[LETTERHEAD OF THIGPEN, JONES, SEATON & CO., P.C. APPEARS HERE]
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, 1998 and 1997 and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
Thigpen, Jones, Seaton & Co., P.C.
January 12, 1999
Dublin, Georgia
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
As of December 31,
---------------------------
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,430,708 $ 1,383,896
Federal funds sold 4,450,000 1,800,000
----------- -----------
Total cash and cash equivalents 6,880,708 3,183,896
----------- -----------
Securities available for sale, at market value 14,287,599 13,494,030
Loans, net of unearned income 32,194,281 30,364,898
Less- allowance for loan losses (430,078) (386,717)
----------- -----------
Loans, net 31,764,203 29,978,181
----------- -----------
Bank premises and equipment, less accumulated depreciation 2,102,186 2,124,870
Intangible assets, net of amortization 2,316,564 2,543,044
Accrued interest receivable 624,225 537,221
Other assets and accrued income 51,962 60,689
----------- -----------
TOTAL ASSETS $58,027,447 $51,921,931
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 7,274,269 $ 5,198,927
Interest-bearing 43,378,990 39,603,641
----------- -----------
Total deposits 50,653,259 44,802,568
Short-term borrowings 111,500 73,000
Other liabilities and accrued expenses 350,684 369,916
----------- -----------
Total liabilities 51,115,443 45,245,484
----------- -----------
Commitments and contingencies
Shareholders' Equity
Commom 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
Retained earnings (accumulated deficit) 261,911 (2,177)
Accumulated other comprehensive income 9,123 37,654
----------- -----------
Total shareholders' equity 6,912,004 6,676,447
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $58,027,447 $51,921,931
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-2-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained Accumulated
Paid-in Earnings Other
Common Capital (Accumulated Comprehensive
Stock Surplus Deficit) Income Total
------------ ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ - $ - $ - $ - $ -
------------
Comprehensive income:
Net loss - - (110,439) - (110,439)
Valuation allowance adjustment on
securities available for sale - - - 24,511 24,511
------------
Total comprehensive income (85,928)
------------
Issuance of 664,097 shares of common stock 3,320,485 3,320,485 - - 6,640,970
------------ ------------ ------------- -------------- ------------
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
------------
Comprehensive income:
Net income - - 108,262 - 108,262
Valuation allowance adjustment on
securities available for sale - - - 13,143 13,143
------------
Total comprehensive income 121,405
------------ ------------ ------------- -------------- ------------
BALANCE, DECEMBER 31, 1997 664,097 5,976,873 (2,177) 37,654 6,676,447
------------
Comprehensive income:
Net income - - 264,088 - 264,088
Valuation allowance adjustment on
securities available for sale - - - (28,531) (28,531)
------------
Total comprehensive income 235,557
------------ ------------ ------------- -------------- ------------
BALANCE, DECEMBER 31, 1998 $ 664,097 $ 5,976,873 $ 261,911 $ 9,123 $ 6,912,004
============ ============ ============= ============== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-3-
<PAGE>
<TABLE>
<CAPTION>
CBC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------
1998 1997 1996
--------------- -------------- -------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 3,062,504 $ 2,650,129 $1,537,091
Interest on securities
Taxable income 771,906 1,010,852 703,077
Non-taxable income 19,174 - -
Income on federal funds sold 119,219 96,080 342,546
--------------- -------------- -----------
Total interest income 3,972,803 3,757,061 2,582,714
--------------- -------------- -----------
INTEREST EXPENSE:
Deposits 1,832,087 1,931,953 1,367,291
Other interest expense 12,030 11,419 11,861
--------------- ------------- -----------
Total interest expense 1,844,117 1,943,372 1,379,152
--------------- ------------- -----------
Net interest income before loan losses 2,128,686 1,813,689 1,203,562
Less - provision for loan losses 60,000 42,000 21,000
--------------- ------------- -----------
Net interest income after provision for loan losses 2,068,686 1,771,689 1,182,562
--------------- ------------- -----------
OTHER OPERATING INCOME:
Service charges on deposit accounts 280,839 247,388 136,456
Other service charges, commissions and fees 35,325 24,150 18,076
Gain on sales of investment securities available for sale 61,752 24,501 -
Other income 19,195 86,873 25,065
--------------- ------------- -----------
Total other operating income 397,111 382,912 179,597
--------------- ------------- -----------
OTHER OPERATING EXPENSE:
Salaries 664,927 698,663 510,458
Employee benefits 173,771 174,956 124,239
Net occupancy expenses 168,226 147,162 83,640
Equipment rental and depreciation of equipment 158,612 143,017 102,387
Amortization 226,480 225,001 153,706
Other expenses 688,191 598,869 555,937
--------------- ------------- -----------
Total other operating expenses 2,080,207 1,987,668 1,530,367
--------------- ------------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 385,590 166,934 (168,208)
Income tax provision (benefit) 121,502 58,672 (57,769)
--------------- ------------- -----------
NET INCOME (LOSS) $ 264,088 $ 108,262 $ (110,439)
=============== ============= ===========
EARNINGS (LOSS) PER SHARE:
Basic $ 0.40 $ 0.16 $ (0.17)
=============== ============= ===========
Diluted $ 0.40 $ 0.16 $ (0.17)
=============== ============= ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-4-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 264,088 $ 108,262 $ (110,439)
Adjustments to reconcile net income (loss) to net cash provided
by operating actitvities:
Provision for loan losses 60,000 42,000 21,000
Depreciation 139,475 123,364 85,961
Amortization 226,480 225,001 153,706
Gain on sale of securities (61,752) (24,501) -
Gain on sale of property and equipment 141 - -
Changes in accrued income and other assets (146,944) (47,033) (667,199)
Changes in accrued expenses and other liabilities 46,810 19,334 131,783
------------ ----------- ------------
Net cash provided by (used in) operating activities 528,298 446,427 (385,188)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net changes in loans made to customers (1,843,394) (6,841,865) (1,775,150)
Purchases of securities available for sale (10,502,903) (5,021,645) (19,400,701)
Proceeds from sales of available for sale securities 2,500,000 6,951,715 -
Proceeds from maturities of securities available for sale 7,242,556 2,521,016 1,500,000
Property and equipment expenditures (118,204) (91,579) (365,063)
Proceeds from sales of property and other assets 1,271 - -
------------ ----------- ------------
Net cash used in investing activities (2,720,674) (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 deposits 5,850,688 (1,858,532) 2,962,326
Proceeds from short-term borrowings 38,500 117,500 -
Payments on short-term borrowings - (44,500) -
------------ ----------- ------------
Net cash provided by (used in) financing activities 5,889,188 (1,785,532) 27,431,461
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,696,812 (3,821,463) 7,005,359
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,183,896 7,005,359 -
------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,880,708 $ 3,183,896 $ 7,005,359
============ =========== ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
-5-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
1. BASIS OF PRESENTATION AND CONSOLIDATION - The consolidated financial
---------------------------------------
statements include the accounts of CBC Holding Company (the "Company")
and its wholly-owned subsidiary, Community Banking Company of Fitzgerald
(the "Bank"). All significant intercompany balances and transactions
have been eliminated in consolidation.
2. 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 Bank provides a variety of financial services to
individuals and small businesses through its offices in South Georgia.
The Bank offers a full range of commercial and personal loans. The Bank
makes loans to individuals for purposes such as home mortgage financing,
personal vehicles and various consumer purchases, and other personal and
family needs. The Bank makes commercial loans to businesses for purposes
such as providing equipment and machinery purchases, commercial real
estate purchases and working capital. The Bank offers a full range of
deposit services that are typically available from financial
institutions, including NOW accounts, demand, savings and other time
deposits. In addition, retirement accounts such as Individual Retirement
Accounts are available. All deposit accounts are insured by the FDIC up
to the maximum amount currently permitted by law.
The consolidated financial statements include the accounts of the
Company and the Bank. All material intercompany accounts and
transactions have been eliminated in consolidation.
3. 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.
-6-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
4. 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 non-accrual 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 payments in arrears, 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.
5. 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 judgment, 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 including the effects of Year 2000.
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.
A loan is considered impaired when, based on current information and
events, it is probable that a creditor will not be able to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower's prior
payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan
basis by either the present value of expected future cash flows
discounted at the loan's effective interest rate, the loan's obtainable
market price, or the fair value of the collateral if the loan is
collateral dependent. Substantially all of the Bank's loans which have
been identified as impaired have been measured by the fair value of
existing collateral.
Large groups of smaller balance homogenous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately
identify individual consumer loans for impairment disclosures.
-7-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
6. 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.
7. 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.
8. 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, 1998 of
$486,225, resulting in an unamortized balance of $2,206,714.
Organizational costs are being amortized using the straight line method
over five years. Organizational costs totaled $228,827 and have an
accumulated amortization at December 31, 1998 of $118,977, resulting in
an unamortized balance of $109,850.
9. INCOME TAXES - The Company accounts for income taxes under Statement of
------------
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the differences
are expected to reverse.
The Company and the Bank file a consolidated income tax return. The
Bank computes its income tax expense as if it filed an individual
return except that it does not get any portion of the surtax
allocation. Any benefits or disadvantages of the consolidation are
absorbed by the Company. The Bank pays its allocation of federal income
taxes to the parent company or receives payment from the Company to the
extent that tax benefits are realized.
10. 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
11. 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.
-8-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
The Bank's loans are generally secured by specific items of collateral
including real property, consumer assets, and business assets. Although
the Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent on local economic
conditions.
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.
12. 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, 1998 and 1997 were $35,193 and
$33,493, respectively.
13. RECLASSIFICATIONS - Certain 1997 financial statement classifications have
-----------------
been changed to conform to those adopted in 1998.
14. EARNINGS PER COMMON SHARE - Basic earnings per share represents income
-------------------------
available to common shareholders divided by the weighted-average number
of common shares outstanding during the period. Diluted earnings per
share reflects additional common shares that would have been outstanding
if dilutive potential common shares had been issued, as well as any
adjustment to income that would result from the assumed conversion.
Potential common shares that may be issued by the Company relate solely
to outstanding stock options, and are determined using the treasury stock
method.
Earnings per common share have been computed based on the following:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Net income $ 264,088 $ 108,262 $ (110,439)
Less: Preferred stock dividends - - -
----------- ----------- ------------
Net income (loss) applicable to common stock $ 264,088 $ 108,262 $ (110,439)
=========== =========== ============
Average number of common shares outstanding 664,097 664,097 664,097
Effect of dilutive options, warrants, etc. - - -
----------- ----------- ------------
Average number of common shares outstanding
used to calculate diluted earnings per common share 664,097 664,097 664,097
=========== =========== ============
</TABLE>
15. COMPREHENSIVE INCOME - The Company adopted SFAS No. 130, "Reporting
--------------------
Comprehensive Income" as of January 1, 1998. Accounting principles
generally require that recognized revenue, expenses, gains and losses be
included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of
the balance sheet, such items, along with net income, are components of
comprehensive income. The adoption of SFAS No. 130 had no effect on the
Company's net income or shareholders' equity.
-9-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
The components of other comprehensive income and related tax effects are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Unrealized holding gains on
available-for-sale securities $ 67,746 $ 72,410 $ 37,138
Less: Reclassification adjustment for gains
realized in income (53,923) (15,359) -
----------- ----------- -----------
Net unrealized gains 13,823 57,051 37,138
Tax effect 4,700 19,397 12,627
----------- ----------- -----------
Net -of-tax amount $ 9,123 $ 37,654 $ 24,511
=========== =========== ===========
</TABLE>
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, 1998 and 1997. In addition, gross unrealized gains and gross
unrealized losses are disclosed as of December 31, 1998 and 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>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
December 31, 1998:
Non-mortgage backed debt securities of :
U.S. Treasury $ 501,875 $ 3,440 $ - $ 505,315
U.S. government agencies 9,309,671 1,303 - 9,310,974
State and Political Subdivisions 1,663,208 13,354 - 1,676,562
------------ ---------- ---------- ------------
Total non-mortgage backed securities 11,474,754 18,097 - 11,492,851
Mortgage backed securities 2,799,023 - 4,275 2,794,748
------------ ---------- ---------- ------------
Total $ 14,273,777 $ 18,097 $ 4,275 $ 14,287,599
============ ========== ========== ============
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
============ ========== ========== ============
</TABLE>
-10-
<PAGE>
CBC HOLDINGS COMPANY AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
The book and market values of pledged securities were $3,701,653 and
$3,710,330 respectively, at December 31,1998 and $2,591,060 and $2,603,366, at
December 31,1997. The amortized cost and estimated market value of debt
securities available for sale at December 31, 1998 and 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 prepayment or penalties.
<TABLE>
<CAPTION>
Available for Sale
--------------------------------
Estimated
December 31, 1998 Amortized Cost Market Value
------------------ ------------
<S> <C> <C>
Non-mortgage backed securities:
Due in one year or less $ 2,501,169 $ 2,508,920
Due after one year through five years 6,810,377 6,800,649
Due after five years through ten years 2,163,208 2,183,282
Due after ten years - -
----------- -----------
Total non-mortgage backed securities 11,474,754 11,492,851
Mortgage backed securities 2,799,023 2,794,748
----------- -----------
Total $14,273,777 $14,287,599
=========== ===========
December 31, 1997
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
=========== ===========
</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 December 31, 1998 and 1997, the Company did not hold investment securities
of any single issuer, other than obligations of the U.S. Treasury and other
U.S. Government agencies, whose aggregate book value exceeded ten percent of
shareholders' equity.
-11-
<PAGE>
CBC HOLDINGS COMPANY AND SUBSIDARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
C. LOANS
-----
The following is a summary of the loan portfolio by principal categories at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Commercial $ 12,741,691 $ 12,861,609
Real estate - Construction 989,070 379,404
Real estate - Mortgage 12,737,935 11,490,475
Installment loans to inividuals 5,725,585 5,633,410
-------------- --------------
Total loans 32,194,281 30,364,898
Less:
Allowance for loan losses (430,078) (386,717)
-------------- --------------
Loans, net $ 31,764,203 $ 29,978,181
============== ==============
</TABLE>
Overdrafts included in loans were $20,341 and $19,654 at December 31, 1998
and 1997.
D. ALLOWANCE FOR LOAN LOSSES
-------------------------
A summary of changes in allowance for loan losses of the Company for the
years ended December 31, 1998, and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Beginning Balance $ 386,717 $ 359,146
Add-Provision for possible loan losses 60,000 42,000
-------------- --------------
Subtotal 446,717 401,146
-------------- --------------
Less:
Loans charged off 25,519 20,719
Recoveries on loans previously charged off (8,880) (6,290)
-------------- --------------
Net loans charged off 16,639 14,429
-------------- --------------
Balance, end of year $ 430,078 $ 386,717
============== ==============
</TABLE>
Loans on which the accrual of interest has been discontinued or reduced
amounted to $0 and $1,011 at December 31, 1998 and 1997, respectively.
-12-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
E. BANK PREMISES AND EQUIPMENT
--------------------------
The following is a summary of asset classifications and depreciable lives for
the Bank:
<TABLE>
<CAPTION>
Useful Lives (Years) 1998 1997
------------------------- -------------------- ----------------------
<S> <C> <C> <C>
Land $ 565,000 $ 565,000
Banking house and improvements 8-40 1,222,012 1,222,564
Equipment, furniture, and fixtures 5-10 518,142 400,799
Software and capitalized conversion costs 3 145,832 145,832
-------------------- ----------------------
Total 2,450,986 2,334,194
Less - accumulated depreciation (348,800) (209,325)
-------------------- ----------------------
Bank premises and equipment, net $ 2,102,186 $ 2,124,870
==================== =======================
</TABLE>
Depreciation included in operating expenses amounted to $139,475 and $123,364
in 1998 and 1997, respectively.
F. DEPOSITS
--------
The aggregate amount of time deposits exceeding $100,000 at December 31, 1998
and 1997 was $7,115,070 and $6,558,158, respectively, and the Bank had
deposit liabilities in NOW accounts of $9,455,325 and $7,952,211 at December
31, 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1999 $ 18,993,484
2000 3,084,455
2001 2,085,001
2002 1,072,586
2003 and thereafter 1,029,317
---------------------
Total time deposits $ 26,264,843
=====================
</TABLE>
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, 1998. At
various times during the year the Bank was advanced funds against these
lines, however, at December 31, 1998, there was no outstanding balance.
The Company has a short-term note with a financial institution for $150,075.
This note is due May 1, 1999 and bears interest at Regions Bank's commercial
base rate which was 7.75% at December 31, 1998. Interest and principal are
payable at maturity. At December 31, 1998 the amount advanced to the Company
on this note was $111,500.
-13-
<PAGE>
H. PROVISION FOR INCOME TAXES
--------------------------
The provision for income taxes was computed as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- -----------
<S> <C> <C> <C>
Current tax expense $ 85,092 $ - $ -
Deferred tax expense (benefit) 36,410 58,672 (57,769)
--------- -------- ----------
Net income tax expense (benefit) $ 121,502 $ 58,672 $ (57,769)
========= ======== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ------------
<S> <C> <C> <C>
Tax on pretax income at statutory rate, $ 131,101 $ 56,757 $ (57,191)
including effect of loss carryforwards
Benefit of realized net operating loss carryovers (33,085) - -
Tax-exempt income (7,902) - (1,882)
Non-deductible interest expense related to tax-exempt income 3,635 9 175
Non-deductible business entertainment 112 178 96
Other differences 27,641 1,728 1,033
---------- --------- ------------
Total $ 121,502 $ 58,672 $ (57,769)
========== ========= ============
Net effective tax rate 32.0% 35.1% (34.3%)
========== ========= ============
</TABLE>
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>
1998 1997
------------------- ---------------
<S> <C> <C>
Deferred Income Tax Assets:
Net operating loss $ - $ 33,085
Provision for loan losses, net 15,327 584
------------------- ---------------
Total deferred tax asset 15,327 33,669
------------------- ---------------
Deferred Income Tax Liabilities:
Unrealized gain on available for sale securities (4,700) (19,398)
Depreciation (52,639) (34,572)
------------------- ---------------
Total deferred tax liability (57,339) (53,970)
------------------- ---------------
Net deferred tax liability $ (42,012) $ (20,301)
=================== ===============
</TABLE>
I. OTHER LIABILITIES
-----------------
Other liabilities at December 31, 1998 and 1997 included accrued interest
payable of $206,481 and $253,134, respectively.
-14-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
J. EMPLOYEE BENEFIT PLANS
----------------------
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 $1,824 and
$1,149 for 1998 and 1997, respectively. The Company made matching
contributions of $14,396 for the year ended December 31, 1998.
K. 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 have adopted a plan for bringing their systems into
compliance so that these potential problems should not occur. Amounts
expensed in 1998 for Year 2000 were $40,853 and additional expenditures of
$10,000 are anticipated.
L. 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.
3) The ratio of equity capital to adjusted total assets shall not be less
than six (6) percent.
As of January 1, 1999, the Bank could pay dividends of $146,402 to the
Company without regulatory consent pursuant to the foregoing conditions.
Dividends paid by the Bank are the primary source of funds available to the
Company.
M. FINANCIAL INSTRUMENTS
---------------------
The Bank 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 Bank'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 Bank 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.
-15-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contract or Notional Amount
---------------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $8,728,325 $7,429,882
Standby letters of credit 150,000 154,225
---------- ----------
Total $8,878,325 $7,584,107
========== ==========
</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 Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank 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 Bank 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.
N. COMMITMENTS AND CONTINGENCIES
-----------------------------
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. None of these expenditures
are in any way related to complying for the Year 2000.
O. LEASE COMMITMENT
----------------
The Bank leases an IBM AS400 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 1998
and 1997. The minimum future lease payments under capital leases as of
December 31, 1998, for each of the next five years and in the aggregate are:
<TABLE>
<S> <C>
1999 $20,808
2000 20,808
2001 1,858
-------
Total minimum lease payments $43,474
=======
</TABLE>
P. 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
1998 with respect to such loans to these individuals:
-16-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Balances at December 31, 1997 $ 1,969,020
New loans 491,008
Repayments (1,123,543)
-----------
Balances at December 31, 1998 $ 1,336,485
===========
</TABLE>
In addition to the above outstanding balances, there are loan commitments of
$2,040,314 available to certain executive officers and directors that were
unused as of December 31, 1998.
The Bank also had deposits from these related parties of approximately
$1,691,213 at December 31, 1998.
Q. DISCLOSURES RELATING TO STATEMENTS OF CASH FLOWS
------------------------------------------------
Interest - Cash paid during the year for interest was as follows:
--------
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest on deposits and short-term borrowings $1,890,395 $1,900,500
========== ==========
Income taxes, net $ 80,000 $ -
========== ==========
</TABLE>
Non-cash transactions- Other non-cash transactions relating to investing and
---------------------
financing activities were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Increase in unrealized gain on available for sale securities $ 25,831 $ $ 19,916
=========== ============
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)
=========== ============
Transfer of loans to Other Assets $ 2,630 $ -
=========== ============
</TABLE>
R. 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.
The Company's bank subsidiary maintains its cash balances in three financial
institutions. Accounts at each institution are secured by the Federal Deposit
Insurance Corporation up to $100,000. Uninsured balances aggregate to
$1,597,645 at December 31, 1998.
-17-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
S. 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 the 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.
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.
-18-
<PAGE>
CBC HOLDINGS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
The carrying amount and estimated fair values of the Bank's financial
instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments $ 6,880,708 $ 6,880,708 $ 3,183,896 $ 3,183,896
Securities available for sale 14,287,599 14,287,599 13,494,030 13,494,030
Loans 32,194,281 31,073,023 30,364,898 30,357,523
Liabilities:
Deposits 50,653,259 50,815,429 44,802,568 44,548,900
Other borrowings 111,500 111,500 73,000 73,000
Unrecognized financial instruments:
Commitments to extend credit 8,728,325 8,728,325 7,429,882 7,429,882
Standby letters of credit and financial guarantees written 150,000 150,000 154,225 154,225
</TABLE>
T. OPERATING EXPENSES
------------------
Components of other operating expenses greater than 1% of total interest
income and other income for the periods ended December 31, 1998, 1997 and
1996 are:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Supplies $49,142 $44,253 $85,728
Courier service 41,642 47,269 30,470
NCR processing 91,167 80,615 57,749
Advertising 35,193 33,943 34,032
Promotional 43,977 31,302 42,425
</TABLE>
U. 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 judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total risk-based 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, 1998, the Bank meets all capital adequacy requirements to which it is
subject. As of December 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.
-19-
<PAGE>
CBC HOLDINGS COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
The Bank's actual capital amounts and ratios are also presented in the
following 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, 1998
Total Risk-Based Capital To
(Risk Weighted Assets) 4,923,000 13.5% 2,917,000 * 8.0% 3,647,000 * 10.0%
Tier I Capital To
(Risk-Weighted Assets) 4,505,000 12.4% 1,453,000 * 4.0% 2,180,000 * 6.0%
Tier I Capital To
(Average Assets) 4,505,000 8.8% 2,048,000 * 4.0% 2,260,000 * 5.0%
As of December 31, 1997
Total Risk-Based Capital To
(Risk Weighted Assets) 4,543,000 13.6% 2,666,000 * 8.0% 3,332,000 * 10.0%
Tier I Capital To
(Risk-Weighted Assets) 4,157,000 12.5% 1,333,000 * 4.0% 1,999,000 * 6.0%
Tier I Capital To
(Average Assets) 4,157,000 8.3% 1,999,000 * 4.0% 2,498,000 * 5.0%
</TABLE>
* Greater than and equal to
-20-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
V. CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY)
----------------------------------------------------
Condensed parent company financial information on CBC Holding Company at
December 31, 1998, is as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS As of December 31,
------------------------------------------
1998 1997
--------------------- -------------------
<S> <C> <C>
ASSETS:
Cash in subsidiary $ 100,403 $ 2,209
Investment in subsidiary, at equity in underlying net assets 6,907,575 6,713,304
Accrued income and other assets 25,129 34,308
---------- ----------
Total Assets $7,033,107 $6,749,821
========== ==========
LIABILITIES:
Other borrowed funds $ 111,500 $ 73,000
Accrued expenses and other liabilities 9,603 374
---------- ----------
Total Liabilities 121,103 73,374
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; authorized 10,000,000 shares,
outstanding 664,097 shares 664,097 664,097
Additional paid-in surplus 5,976,873 5,976,873
Retained earnings (accumulated deficit) 261,911 (2,177)
Accumulated other conprehensive income 9,123 37,654
---------- ----------
Total shareholders' equity 6,912,004 6,676,447
---------- ----------
Total Liabilities and Shareholders' Equity $7,033,107 $6,749,821
========== ==========
<CAPTION>
STATEMENTS OF INCOME AND RETAINED EARNINGS Years Ended December 31,
------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
REVENUES:
Dividend from subsidiary $ 70,000 $ -
---------- ----------
EXPENSES:
Interest 6,714 3,616
Amortization 5,918 4,439
Other 46,849 37,958
---------- ----------
Total expenses 59,481 46,013
---------- ----------
INCOME (LOSS) BEFORE TAXES AND EQUITY INCOME OF SUBSIDIARY 10,519 (46,013)
Add - Benefit of income taxes 30,765 9,156
---------- ----------
INCOME (LOSS) BEFORE EQUITY INCOME OF SUBSIDIARY 41,284 (36,857)
Equity in undistributed income of subsidiary 222,804 145,119
---------- ----------
NET INCOME 264,088 108,262
RETAINED EARNINGS, (ACCUMULATED DEFICIT) BEGINNING (2,177) (110,439)
---------- ----------
RETAINED EARNINGS, (ACCUMULATED DEFICIT) ENDING $ 261,911 $ (2,177)
========== ==========
</TABLE>
-21-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS For The Years Ended December 31,
---------------------------------
1998 1997
-------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 264,088 $ 108,262
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization
Equity in undistributed income of subsidiary 5,918 4,439
Net change in operating assets and liabilities: (222,804) (145,119)
Accrued income and other assets
Accrued expenses and other liabilities 3,263 (38,746)
9,229 373
--------- ---------
Net cash provided by operating activities 59,694 (70,791)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from short-term notes
Principal paid on short-term borrowings 38,500 117,500
- (44,500)
-------- ---------
Net cash provided by investing activities 38,500 73,000
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 98,194 2,209
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,209 -
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 100,403 $ 2,209
========= =========
</TABLE>
-22-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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.
FINANCIAL CONDITION
- -------------------
The Company's total assets of $58,027,447 at December 31, 1998 is an increase of
11.8% from $51,921,931 at December 31, 1997. At December 31, 1998, total
deposits had increased 13.1% to $50,653,259 from $44,802,568 at December 31,
1997. Total loans had grown 6.0% to $32,194,281 from $30,364,898 at December 31,
1997. This represented a loan to deposit ratio at December 31, 1998 of 63.6%
compared to 67.8% at December 31, 1997. This decrease in the loan to deposit
ratio is due to deposits growing at a faster rate than loans. The deposit growth
has had a positive effect on the Bank's deposit mix as 35.5% of the increase in
deposits was attributable to non-interest bearing deposits. The Bank
experienced much of the growth in deposits in the fourth quarter of 1998. Based
on average loans of $32,552,207 and average deposits of $47,041,238 for the year
ended December 31, 1998, the average loan to deposit ratio was 69.2%. Based on
average loans of $28,308,710 and average deposits of $45,587,346 for the year
ended December 31, 1997, the average loan to deposit ratio was 62.1%. Earning
assets represented approximately 87.8% and 87.9% of total assets at December 31,
1998 and 1997, respectively.
CAPITAL
At December 31, 1998 and 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 December 31, 1998 and 1997, 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.
-23-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
LIQUIDITY
The Bank's internal and external liquidity resources are considered by
management to be adequate to handle expected growth and normal cash flow demands
from existing deposits and loans. At December 31, 1998, the securities
available for sale, exclusive of unrealized gains and losses, had increased from
$13,436,979 at December 31, 1997 to $14,273,777, an increase of $836,798 or
6.2%. The Bank had no securities classified as held to maturity as of December
31, 1998 and 1997. Federal funds sold had increased 147.2% to $4,450,000 at
December 31, 1998, up from $1,800,000 at December 31, 1997 due to large deposits
occurring just before year-end.
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 years ended December 31, 1998 and 1997, the Company had net income of
$264,088 ($0.40 per share) and $108,262 ($0.16 per share), respectively.
The following table shows the related ratios for Assets and Equity for the years
ended December 31,1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
<S> <C> <C>
Interest Income 3,973 3,757
Interest Expense 1,845 1,944
Net Interest Income 2,128 1,813
Provision for Loan Losses (410) (374)
Net Earnings 264 108
Net Earnings Per Share 0.40 0.16
Total Average Stockholder's Equity 6,704 6,550
Total Average Assets 54,188 52,483
Return on average assets 0.49% 0.21%
Return on average equity 3.94% 1.65%
Dividend payout ratio 0% 0%
Average equity to average asset ratio 12.37% 12.48%
</TABLE>
-24-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
INTEREST INCOME / INTEREST EXPENSE
For the period ended December 31, 1998, interest income from loans and
investments, including loan fees of $96,551, was $3,972,803, representing a
yield of 8.30% on average earning assets of $47,839,335. Interest expense was
$1,844,117, representing a cost of 4.50% on average interest bearing liabilities
of $40,970,278. Net interest income was $2,128,686, producing a net yield of
4.45% 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 years ended December 31, 1998 and 1997 was
$60,000 and $42,000, respectively. Total loan charge-offs were $25,285 and
$20,719 for the years ended December 31, 1998 and 1997, respectively, and were
related to the Bank's consumer loan portfolio. At December 31, 1998 and 1997,
the Bank had loans past due 90 days or more of $40,743 and $0, respectively. At
December 31, 1998 and 1997, the Bank had non-accrual loans of $0 and $1,011,
respectively. The allowance for loan losses at December 31, 1998 and 1997 was
$430,078 and $386,717, respectively. This represents 1.34% and 1.27% of total
loans at December 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. 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. Exceptions are allowed for 90-
day past due loans when such loans are well secured and in process of
collection.
-25-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
NON-INTEREST INCOME
Non-interest income for the years ended December 31, 1998 and 1997 was $397,111
and $382,912, respectively. This consisted primarily of service charges on
deposit accounts which were $280,839 and $247,388 for the years ended December
31, 1998 and 1997, respectively and gains on sales of investment securities
which was $61,752 and $24,501 for the years ended December 31, 1998 and 1997.
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.
NON-INTEREST EXPENSE
Non-interest expense for the years ended December 31, 1998 and 1997 was
$2,080,207 and $1,987,668, respectively. This consisted primarily of salaries
and benefits which were $838,698 and $873,619 for the years ended December 31,
1998 and 1997, respectively. Other major expenses included in non-interest
expense for the year ended December 31, 1998 included amortization of $226,480,
supplies of $49,142, data processing of $91,167, and promotional expense of
$43,977. 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 promotional expense of $31,302.
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 December 31, 1998 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 $10,878,229 $ 2,194,011 $ 3,692,622 $12,458,122 $ 2,971,297
Securities 1,498,606 501,875 - 8,337,053 3,936,243
Federal Funds Sold 4,450,000 - - - -
----------- ----------- ----------- ----------- -----------
Total Interest Rate Sensitive Assets $16,826,835 $ 2,695,886 $ 3,692,622 $20,795,175 $ 6,907,540
----------- ----------- ----------- ----------- -----------
INTEREST RATE SENSITIVE LIABILITIES:
Interest Bearing Demand Deposits $ - $ - $ - $ - $ 9,455,325
Savings and Money Market Deposits 4,680,841 - - - 2,977,981
Time Deposits 7,102,709 4,193,425 7,635,689 7,333,020 -
Other Borrowings - - - - -
----------- ----------- ----------- ----------- -----------
Total Interest Rate Sensitive Liabilities $11,783,550 $ 4,193,425 $ 7,635,689 $ 7,333,020 $12,433,306
----------- ----------- ----------- ----------- -----------
Interest Rate Sensitivity GAP $ 5,043,285 $(1,497,539) $(3,943,067) $13,462,155 $(5,525,766)
----------- ----------- ----------- ----------- -----------
Cumulative Interest Rate Sensitivity GAP $ 5,043,285 $ 3,545,746 $ (397,321) $13,064,834 $ 7,539,068
----------- ----------- ----------- ----------- -----------
Cumulative GAP as a % of total assets at
December 31, 1998 9.71% 6.83% -0.77% 25.16% 14.52%
----------- ----------- ----------- ----------- -----------
Cumulative GAP as a % of total assets at
December 31, 1997 5.35% -2.03% -6.74% 24.55% 11.55%
----------- ----------- ----------- ----------- -----------
</TABLE>
-26-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
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
targeted gap range. This would leave the Bank exposed to falling interest
rates, and unnecessarily reduce its net interest margin.
At December 31, 1998, the above gap analysis indicates a negative cumulative gap
position thru the one year time interval of $397,321. A negative gap position
indicates that the Company's rate sensitive liabilities will reprice faster than
its rate sensitive assets, with 54% of rate sensitive liabilities and 46% 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.
YEAR 2000 COMPLIANCE ISSUES
- ---------------------------
The Company utilizes and depends on data processing systems and software to
conduct its business. The approach of Year 2000 presents a problem because many
older computers were programmed to recognize only the last two digits of a year
i.e., "98" is for the year 1998. Accordingly, with the new millennium
approaching, these computers will potentially recognize the year 2000 - "00" as
the year 1900, or perhaps not be able to comprehend the date, potentially
affecting the accuracy of, or ability to process any date sensitive functions.
The Company's State of Readiness
The Company and the Bank do not use proprietary computer hardware or software.
(The Company has no hardware or software dependencies other than through the
Bank; hence, all further corporate references in this section will be to the
Bank.) The Bank adopted a plan in 1998 to make the Bank Year 2000 ready (the
"Year 2000 Plan"). Pursuant to the Bank's Year 2000 Plan, the Bank has completed
the installation of new personal computers which addressed a majority of the
known Year 2000 issues. The Bank has upgraded its primary internal system, an
IBM AS400, to a Year 2000 compliant version. The Bank has received certification
of Year 2000 compliance from all of its major vendors and logged those
certifications in a
-27-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Year 2000 readiness database created to inventory and track the compliance
efforts of all major vendors as well as their primary supporting vendors.
The Bank contracts with a third-party consultant to assist with its Year 2000
readiness efforts. The consultants have installed a second AS400 and loaded a
backup of the core data processing system of the Bank. This has enabled the Bank
to perform testing in a Year 2000 environment using actual data and transactions
of the Bank. Testing of the Bank's core data processing system has been
completed and found to be Year 2000 ready. Bank internal due-diligence testing
of vendor certified software commenced in early November 1998 and is expected to
be completed on or before March 31, 1999. Other items in the process of being
reviewed for Year 2000 readiness include the telephone system, utilities and the
ISDN connection to the remote teller location.
Management has completed its assessment of the Bank's significant commercial
loan relationships to determine how much Year 2000 risk may exist in the Bank's
customer base. To the extent that such risk has been identified, management is
requiring those customers to keep the Bank informed of their progress in
addressing Year 2000 problems. Management's current plans are to help the Bank's
customers understand the risks involved, to share the Bank's strategies and to
encourage those customers to satisfy their compliance requirements on time lines
that are consistent with those of the Bank. The Bank's credit review processes
have been modified to address this risk. The Bank's contingency plans for
customers who fail to adequately address this risk may include, but will not be
limited to, requiring such customers to pay off their loans.
Other third parties, with which the Bank has material relationships that may be
adversely impacted by Year 2000 risks, include its correspondent banks and the
utility companies.
The Bank's correspondent banks provide numerous services, including cash letter
settlements, federal funds sold and purchase lines, securities safekeeping
services, securities settlements, wire settlements, ACH settlements, and
ATM/debit card settlements. The Bank has received limited communications from
these correspondent banks regarding their Year 2000 efforts. In the fourth
quarter of 1998, more explicit communications was requested as to their current
state of readiness, their remediation plans and their contingency plans.
The Bank's electric, gas, telephone, water and sewer utility companies have
provided limited information on their Year 2000 efforts. The Bank is continuing
to request further information from the utility companies.
The Bank has identified its major risks of Year 2000 issues to be with its
deposit check processing vendor and areas of its primary internal processing
software that are not addressed by the software vendor's certification. The
possible risk in these two areas has been identified as top priority by the Year
2000 Committee and the Bank's Year 2000 Plan is already addressing these issues
through contacting other vendors for possible alternatives.
The Costs to Address the Company's Year 2000 Issues
Amounts expensed in 1998 for Year 2000 were $40,853 and additional expenditures
of $10,000 are anticipated. The majority of the Bank's costs for Year 2000
readiness are for outsourced Year 2000 project management. The Bank anticipates
that there may be additional costs associated with the upgrade of yet untested
software and hardware, however this amount has yet to be determined and will be
directly related to results of testing to be performed. Management believes that
due to the recent upgrades to their system, any additional costs of upgrading
software and hardware that are incurred would have been incurred in the normal
course of replacing equipment and technology updates and would not be
significant or have a material impact on the Company's financial statements as a
whole.
-28-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
The Risks of the Company's Year 2000 Issues
There can be no assurance that all hardware and software that the Bank will use,
or that the Bank's customers, vendors and utility companies will use, will be
Year 2000 compliant. The Bank's customers, vendors and utility companies may be
negatively affected by the Year 2000 issue, and any difficulties incurred by
them in solving Year 2000 issues could negatively affect their ability to
perform their agreements with the Bank. The failure of the Bank's computer
systems or other applications could have a material adverse effect on the
Company's results of operations and financial condition.
The most reasonably likely worst case Year 2000 scenario for the Bank appears to
be one in which electrical service or phone service were disrupted to the
community for an extended period. As noted above, the management of the risk
associated with the Bank's computer hardware and software, its commercial
customer risk and its correspondent bank risk is progressing as planned. The
most likely source of potential problems currently appears to be with the
utility companies. Electrical service is the most critical of the utilities.
The Bank cannot operate its systems without a continuous supply of electricity.
Short-term disruptions, such as occur with electrical storms, can be managed in
the ordinary course of business.
The foregoing are forward-looking statements reflecting management's current
assessment and estimates with respect to the Bank's Year 2000 compliance efforts
and the impact of Year 2000 issues on the Bank's business and operations.
Various factors could cause actual plans and results to differ materially from
those contemplated by such assessments, estimates and forward-looking
statements, many of which are beyond the control of the Bank. Some of these
factors include, but are not limited to representations by the Bank's vendors
and counterparties, technological advances, economic considerations, and
consumer perceptions. The Bank's Year 2000 compliance program is an ongoing
process involving continual evaluation and may be subject to change in response
to new developments.
The Company's Contingency Plans
The Bank has completed and the Board of Directors have approved a Year 2000
Business Resumption / Contingency Plan. The implementation of the plan is well
under way and involves the contacting of other vendors for possible alternatives
to items which may be determined not to be Year 2000 compliant as well as
interruption in telephone, electrical and other utility services. The Bank is
also requiring certification of Year 2000 compliance from contingency (backup)
vendors as well as the ability to immediately convert to their systems. The
contingency plan also addresses alternative testing procedures and the
interrelation of different items and modules of the Bank's system.
The Business Resumption / Contingency Plan is designed to achieve a level of
emergency preparedness that is broad in its scope, encompassing the risk of loss
or business disruption resulting from unexpected events ranging from equipment
failure to natural disasters. It is designed to enable management continuity,
designate alternative facilities, provide for alternative administrative,
communication and data processing support, establish policies for data backup,
record retention and retrieval, reinforce security policies, and establish
organizational responsibility.
The outline of the Business Resumption / Contingency Plan includes power
outages, cash & tellers, customer service, loans, operations, primary and
secondary liquidity, and security issues. The focus of the Plan is to give
direction to each area of the Bank on how to perform their duties over to next
year leading up to the year 2000 and in the event of possible disruption to
normal operations resulting from Year 2000 issues as well as other possible
disruptions. A particular emphasis of the Plan is to educate and inform
employees and customers about Year 2000 readiness.
As noted above, the Bank will attempt to obtain more information on the
readiness of the utilities in order to reduce the degree of uncertainty
surrounding the utility risk. To the extent that economically feasible
contingency plans for utility failures can be determined, management will
incorporate such plans in the Bank's policies.
-29-
<PAGE>
CBC HOLDING COMPANY AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Employee and Customer Awareness
The Bank believes it is extremely important to communicate information to
employees and customers about the Year 2000 issue. The Bank has conducted
customer and employee awareness seminars designed to provide information about
the Bank's efforts and contingency plans to ensure that the Bank will have a
problem-free transition into the next century.
The Bank continues its effort through communication in statements, phone calls,
direct contact, etc. to provide information and assistance to customers in
taking steps to minimize the risk of problems with the Year 2000. In addition,
the Bank regularly holds employee meetings to discuss the Bank's Year 2000
readiness and ways the employees can assist customers in becoming more
knowledgeable about the Year 2000.
-30-
<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
JOHN T. CROLEY, Vice Chairman and Secretary
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 FITGERALD
- ---------------------------------------------------------------------------
S.S. (BUCK) ANDERSON, JR., Chairman of the Board of the Company and the Bank;
General Manager - Dixie Peanut Co.
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
CHARLES A. CLARK, SR., Owner - C & S Aircraft Service, Inc. & Ewing Dusting
Service, Inc.
WYNDALL L. WALTERS, President - Fitzgerald Ford, Lincoln, Mercury
SHAREHOLDERS MAY OBTAIN, WITHOUT CHARGE, A COPY OF CBC HOLDING COMPANY 1998
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.
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