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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, 1999
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[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from ______________to _______________
Commission file number ______
CHEROKEE BANKING COMPANY, INC.
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(Name of small business issuer in its charter)
Georgia 58-2432974
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1275 Riverstone Parkway, Canton, Georgia 30114
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(Address of Principal Executive Offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
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
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Check if there is no 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 a
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year: $424,260
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State the aggregate market value of the voting and non-voting common equity 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 common equity, as of a
specified date within the past 60 days: $5,451,080
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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. 738,658 as of March 20, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure format (check one): Yes No X
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TABLE OF CONTENTS
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS.............................................................. 3
ITEM 2. DESCRIPTION OF PROPERTIES............................................................ 13
ITEM 3. LEGAL PROCEEDINGS.................................................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................. 13
PART II ..................................................................................... 14
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................ 14
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
ITEM 7. FINANCIAL STATEMENTS................................................................. 15
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 15
PART III ..................................................................................... 16
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.................................................... 16
ITEM 10. EXECUTIVE COMPENSATION............................................................... 17
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....................... 19
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................... 21
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 10-KSB........................................... 22
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Cherokee Banking Company
Cherokee Banking Company (the "Company") was incorporated as a Georgia
corporation on October 9, 1998, and became a bank holding company by acquiring
all of the issued and outstanding common stock of Cherokee Bank, Canton, Georgia
(the "Bank"). The Bank is the only subsidiary of the Company.
The Company was organized to facilitate the Bank's ability to serve its
customers' banking needs. Specifically, the holding company structure provides
us with the flexibility to expand our banking business through possible future
acquisitions of other financial institutions and the ability to acquire or
establish banking-related services that cannot be engaged in by national banks
directly, but are permissible for bank holding companies. Additionally, the
holding company structure makes it easier to raise capital for the Bank because
the Company will be able to issue securities without the need for prior banking
regulatory approval, and the proceeds of debt securities issued by the Company
can be invested in the Bank as primary capital.
The Company has no present plans to acquire or establish any additional
operating subsidiaries. We may, however, make acquisitions in the future in the
event that the acquisitions are deemed to be in the best interests of the
Company and its shareholders. Any acquisition would, however, be subject to
specific regulatory approvals and requirements.
Cherokee Bank
General
Cherokee Bank began business in July of 1999 as a full-service commercial
bank. The Bank offers personal and business checking accounts, interest-bearing
checking accounts, savings accounts and various types of certificates of
deposit. Cherokee Bank also offers commercial loans, installment and other
consumer loans, home equity loans, home equity lines of credit, construction
loans and mortgage loans. In addition, the Bank provides such services as
official bank checks and money orders, traveler's checks, Mastercard(R) and
Visa(R) credit cards, MasterMoney(R) debit cards, internet banking and bill-pay,
bank-by-mail, direct deposit and United States Savings Bonds.
Philosophy
Our philosophy is to operate as a community-oriented bank emphasizing
prompt, personalized customer service to individuals and businesses located
primarily in Cherokee County, Georgia. We have adopted this philosophy in order
to attract customers and to acquire market share now controlled by other
financial institutions operating in our market. We believe that local ownership
and control allows the Bank to serve its customers more efficiently, helping us
to grow both our deposit base and loan portfolio.
Market Area and Competition
The Bank's primary service area is Cherokee County, Georgia, which includes
the cities of Ball Ground, Canton, Holly Springs, Waleska, and Woodstock.
Cherokee County lies northwest of the city of Atlanta with Interstate 575
providing convenient access for many Cherokee County residents to employment
opportunities in the northern metropolitan Atlanta area.
The Bank competes with other commercial banks, savings and loan
associations, credit unions, and money market mutual funds serving Cherokee
County, many of which have equal or greater financial or banking-related
resources than the Company or the Bank. Cherokee County is currently served by
at
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least 12 other bank and thrift institutions. These competitors offer the
same or similar products and services as the Bank. Currently, the Bank's three
largest competitors are Regions Bank, Wachovia (through its acquisition of the
Bank of Canton), and Synovus Financial Corp.
Loan Portfolio
Lending Policy. The Bank aggressively seeks creditworthy borrowers within
its primary service area. Currently, the Bank's loan portfolio is comprised of:
Loan Classification Percentage
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Real estate-related loans 44.2
Commercial loans 45.5
Consumer loans 10.3
Loan Approval and Review. The Bank's loan approval policies provide for
various levels of officer lending authority. When the total amount of loans to
a single borrower exceeds an individual officer's lending authority, an officer
with a higher lending limit or the Bank's loan committee determines whether to
approve the loan request. As part of its lending policy, the Bank does not make
loans to its directors or executive officers unless a majority of its
disinterested board members approves the loan and the terms of the loan are no
more favorable than would be available to any other borrower similarly situated.
Lending Limits. The Bank's lending activities are subject to a variety of
lending limits imposed by federal law. Differing limits apply based on the type
of loan and the nature of the borrower, including the borrower's relationship to
the Bank. In general, however, the Bank is able to loan any one borrower a
maximum amount equal to either: (1) 15% of the Bank's capital and surplus or
(2) 25% of its capital and surplus if the excess over 15% is within federal
guidelines, which provide an exception to the 15% limit for debt secured by
readily marketable collateral, as defined by OCC regulations. The Bank has
established an internal maximum loan limit of $750,000, which is separate from
its statutory lending limits described above. These limits will increase or
decrease as the Bank's capital increases or decreases as a result of its
earnings or losses, among other reasons. The Bank will continue to sell loan
participations to other financial institutions to meet the needs of customers
requiring loans above these limits.
Real Estate Loans. The Bank makes and holds real estate-related loans,
consisting primarily of mortgage loans and single-family residential
construction loans for one-to-four unit family structures. The Bank is involved
in both the originating and servicing of its first and second mortgage loans,
and generally requires an aggregated loan-to-value ratio of no more than 85%.
For construction loans, the Bank requires a first lien position on the land
associated with the project. Loan disbursements on construction loans require
on-site inspections to assure the project is on budget and that the loan
proceeds are being used for the construction project and not being diverted to
another project. The loan-to-value ratios for construction loans are
predominantly 80% of the lower of the as-built appraised value or project cost,
and a maximum of 85% if the loan is amortized. Loans for construction can
present a high degree of risk to the lender and depend upon, among other things,
the builder's ability to sell the home to a buyer, the buyer's ability to obtain
permanent financing and the construction project's ability to produce income in
the interim.
Commercial Loans. The Bank's commercial lending is directed principally
toward small- to medium-size businesses whose demand for funds falls within the
legal lending limits of the Bank. This category of loans includes loans made to
individual, partnership or corporate borrowers, and are obtained for a variety
of business purposes. 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.
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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 improvements and investments. Risks
associated with consumer loans include, but are not limited to, fraud,
deteriorated or non-existing collateral, general economic downturn and customer
financial problems.
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 held by the Bank exceeds any applicable limitation imposed by law or
regulation. Our asset and liability management committee reviews the investment
portfolio on an ongoing basis to ascertain investment profitability and to
verify compliance with the Bank's investment policies.
Deposits. The Bank's core deposits include checking accounts, money market
accounts, a variety of certificates of deposit and IRA accounts. To attract
deposits, the Bank has employed an aggressive marketing plan in Cherokee County,
and offers broad array of competitive products and services. The Bank's primary
sources of deposits are residents of, and businesses and their employees located
in, Cherokee County. The Bank has obtained its deposits primarily through
personal solicitation by its officers and directors, direct mail solicitations,
television advertisements and advertisements published in the local media. We
plan to continue generating deposits by offering competitively priced deposit
services, including demand deposits, regular savings accounts, money market
deposits, certificates of deposit, retirement accounts and other legally
permitted deposit or funds transfer services.
Asset and Liability Management. The Bank has established an asset and
liability management committee to manage its assets and liabilities. The goal
of this committee is to maintain an optimum and stable net interest margin, a
profitable after-tax return on assets and return on equity and adequate
liquidity. The committee conducts these management functions within the
framework of written loan and investment policies that the Bank has adopted.
The committee also attempts to maintain a balanced position between rate
sensitive assets and rate sensitive liabilities. Specifically, the committee
charts the Bank's assets and liabilities on a matrix by maturity, effective
duration and interest adjustment period and attempts to manage any gaps in
maturity ranges.
Employees
At December 31, 1999, the Bank employed ten full-time employees, and the
Company had no employees who were not also employees of the Bank. The Company
considers the Bank's relationship with its employees to be excellent.
Supervision and Regulation
The following discussion sets forth the material elements of the regulatory
framework applicable to banks and bank holding companies and provides certain
specific information related to the Company.
Cherokee Banking Company
Since The Company owns all of the issued and outstanding capital stock of the
Bank, it is be a bank holding company under the federal Bank Holding Company
Act. As a result, the Company is primarily subject to the supervision,
examination, and reporting requirements of the Bank Holding Company Act and the
regulations of the Federal Reserve.
Acquisitions of Banks. The Bank Holding Company Act requires every bank
holding company to obtain the Federal Reserve's prior approval before:
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. Acquiring direct or indirect ownership or control of any voting shares
of any bank if, after the acquisition, the bank holding company will
directly or indirectly own or control more than 5% of the bank's voting
shares;
. Acquiring all or substantially all of the assets of any bank; or
. Merging or consolidating with any other bank holding company.
Additionally, the Bank Holding Company Act provides that the Federal
Reserve may not approve any of these transactions if it would result in or tend
to create a monopoly or, substantially lessen competition or otherwise function
as a restraint of trade, unless the anticompetitive effects of the proposed
transaction are clearly outweighed by the public interest in meeting the
convenience and needs of the community to be served. The Federal Reserve is
also required to consider the financial and managerial resources and future
prospects of the bank holding companies and banks involved in the proposed
transaction and the convenience and needs of the communities to be served. The
Federal Reserve's consideration of financial resources generally focuses on
capital adequacy, which is discussed below.
Under the Bank Holding Company Act, if adequately capitalized and
adequately managed, the Company or any other bank holding company located in
Georgia may purchase a bank located outside of Georgia. Conversely, an
adequately capitalized and adequately managed bank holding company located
outside of Georgia may purchase a bank located inside Georgia. In each case,
however, restrictions may be placed on the acquisition of a bank that has only
been in existence for a limited amount of time or will result in specified
concentrations of deposits. For example, Georgia law prohibits a bank holding
company from acquiring control of a financial institution until the target
financial institution has been incorporated for five years. As a result, no
bank holding company may acquire control of the Company until after the fifth
anniversary date of the Bank's incorporation.
Change in Bank Control. Subject to various exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with related
regulations, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person or company acquires 10%or more, but less than 25%, of any class of
voting securities and either:
. the bank holding company has registered securities under Section 12 of
the Securities Exchange Act, or
. no other person owns a greater percentage of that class of voting
securities immediately after the transaction.
We have registered our common stock under the Securities Exchange Act. The
regulations provide a procedure for challenge of the rebuttable control
presumption.
Permitted Activities. On November 12, 1999 President Clinton signed the
Gramm-Leach-Bliley Act, which amends the Bank Holding Company Act and greatly
expands the activities in which bank holding companies and affiliates of banks
are permitted to engage. The Act eliminates many federal and state law barriers
to affiliations among banks and securities firms, insurance companies and other
financial service providers. The provisions of the Act relating to permitted
activities of bank holding companies and affiliates of banks became effective on
March 11, 2000. The following discussion describes the activities in which the
Company will be permitted to engage under the Bank Holding Company Act, as
amended by the Gramm-Leach-Bliley Act.
Generally, if the Company qualifies and elects to become a financial
holding company, which is described below, it may engage in activities that are:
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. financial in nature,
. incidental to a financial activity, or
. complementary to a financial activity and do not pose a substantial risk
to the safety or soundness of depository institutions or the financial
system generally.
In determining whether a particular activity is financial in nature or
incidental or complementary to a financial activity, the Federal Reserve must
consider (1) the purpose of the Bank Holding Company and Gramm-Leach-Bliley
Acts, (2) changes or reasonable expected changes in the marketplace in which
financial holding companies compete and in the technology for delivering
financial services, and (3) whether the activity is necessary or appropriate to
allow financial holding companies to effectively compete with other financial
service providers and to efficiently deliver information and services. The Act
expressly lists the following activities as financial in nature:
. lending, trust and other banking activities;
. insuring, guaranteeing, or indemnifying against loss or harm, or
providing and issuing annuities, and acting as principal, agent, or
broker for these purposes, in any state;
. providing financial, investment, or advisory services;
. issuing or selling instruments representing interests in pools of assets
permissible for a bank to hold directly;
. underwriting, dealing in or making a market in securities;
. other activities that the Federal Reserve may determine to be so closely
related to banking or managing or controlling banks as to be a proper
incident to managing or controlling banks;
. foreign activities permitted outside of the United States if the Federal
Reserve has determined them to be usual in connection with banking
operations abroad;
. merchant banking through securities or insurance affiliates; and
. insurance company portfolio investments.
To qualify to become a financial holding company, our depository
institution subsidiaries must be well capitalized and well managed and must have
a Community Reinvestment Act rating of at least "satisfactory." Additionally, we
must file an election with the Federal Reserve to become a financial holding
company and provide the Federal Reserve with 30 days written notice prior to
engaging in a permitted financial activity. Although we do not have any
immediate plans to file an election with the Federal Reserve to become a
financial holding company, one of the primary reasons we selected the holding
company structure was to have increased flexibility. Accordingly, if deemed
appropriate in the future, we may elect to become a financial holding company.
Under the Bank Holding Company Act, a bank holding company, which has not
qualified or elected to become a financial holding company, is generally
prohibited from engaging in or acquiring direct or indirect control of more than
5% of the voting shares of any company engaged in nonbanking activities unless,
prior to the enactment of the Gramm-Leach-Bliley Act, the Federal Reserve found
those activities to be so closely related to banking as to be a proper incident
to the business of banking. Activities that the Federal Reserve has found to
be so closely related to banking as to be a proper incident to the business of
banking include:
. factoring accounts receivable;
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. acquiring or servicing loans;
. leasing personal property;
. conducting discount securities brokerage activities;
. performing selected data processing services;
. acting as agent or broker in selling credit life insurance and other
types of insurance in connection with credit transactions; and
. performing selected insurance underwriting activities.
Despite prior approval, the Federal Reserve may order a bank holding
company or its subsidiaries to terminate any of these activities or to terminate
its ownership or control of any subsidiary when it has reasonable cause to
believe that the bank holding company's continued ownership, activity or control
constitutes a serious risk to the financial safety, soundness, or stability of
any of its bank subsidiaries.
Support of Subsidiary Institutions. Under Federal Reserve policy, the
Company is expected to act as a source of financial strength for the Bank and to
commit resources to support the Bank. This support may be required at times
when, without this Federal Reserve policy, the Company might not be inclined to
provide it. In addition, any capital loans made by the Company to the Bank will
be repaid only after its deposits and various other obligations are repaid in
full. In the unlikely event of the Company's bankruptcy, any commitment by it
to a federal bank regulatory agency to maintain the capital of the Bank will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Cherokee Bank
Since the Bank is chartered as a national bank, it is primarily subject to
the supervision, examination and reporting requirements of the National Bank Act
and the regulations of the Office of the Comptroller of the Currency. The
Office of the Comptroller of the Currency regularly examines the Bank's
operations and has the authority to approve or disapprove mergers, the
establishment of branches and similar corporate actions. The Office of the
Comptroller of the Currency also has the power to prevent the continuance or
development of unsafe or unsound banking practices or other violations of law.
Additionally, the Bank's deposits are insured by the FDIC to the maximum extent
provided by law. The Bank is also subject to numerous state and federal
statutes and regulations that will affect its business, activities and
operations.
Branching. National banks are required by the National Bank Act to adhere
to branching laws applicable to state banks in the states in which they are
located. Under current Georgia law, the Bank may open branch offices throughout
Georgia with the prior approval of the Office of the Comptroller of the Currency
and the Georgia Department of Banking and Finance. In addition, with prior
regulatory approval, the Bank will be able to acquire branches of existing banks
located in Georgia. The Bank and any other national or state-chartered bank
generally may branch across state lines by merging with banks in other states if
allowed by the applicable states' laws. Georgia law, with limited exceptions,
currently permits branching across state lines through interstate mergers.
Under the Federal Deposit Insurance Act, states may "opt-in" and allow out-
of-state banks to branch into their state by establishing a new start-up branch
in the state. Currently, Georgia has not opted-in to this provision.
Therefore, interstate merger is the only method through which a bank located
outside of Georgia may branch into Georgia. This provides a limited barrier of
entry into the Georgia banking market, which protects us from an important
segment of potential competition. However, because Georgia has elected not to
opt-in, our ability to establish a new start-up branch in another state may be
limited. Many states that have elected to opt-in have done so on a reciprocal
basis, meaning that
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an out-of-state bank may establish a new start-up branch only if their home
state has also elected to opt-in. Consequently, until Georgia changes its
election, the only way we will be able to branch into states that have elected
to opt-in on a reciprocal basis will be through interstate merger.
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act establishes a system of prompt corrective action to resolve the
problems of undercapitalized financial institutions. Under this system, the
federal banking regulators have established five capital categories (well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) in which all institutions are
placed. Federal banking regulators are required to take various mandatory
supervisory actions and are authorized to take other discretionary actions with
respect to institutions in the three undercapitalized categories. The severity
of the action depends upon the capital category in which the institution is
placed. Generally, subject to a narrow exception, the banking regulator must
appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the
relevant capital level for each category.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
A bank holding company must guarantee that a subsidiary depository institution
meets its capital restoration plan, subject to various limitations. The
controlling holding company's obligation to fund a capital restoration plan is
limited to the lesser of 5% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches or engaging in any new
line of business, except under an accepted capital restoration plan or with FDIC
approval. The regulations also establish procedures for downgrading an
institution and a lower capital category based on supervisory factors other than
capital.
The Bank currently has a capital rating of well capitalized.
FDIC Insurance Assessments. The FDIC has adopted a risk-based assessment
system for insured depository institutions that takes into account the risks
attributable to different categories and concentrations of assets and
liabilities. The system assigns an institution to one of three capital
categories: (1) well capitalized; (2) adequately capitalized; and (3)
undercapitalized. These three categories are substantially similar to the
prompt corrective action categories described above, with the "undercapitalized"
category including institutions that are undercapitalized, significantly
undercapitalized, and critically undercapitalized for prompt corrective action
purposes. The FDIC also assigns an institution to one of three supervisory
subgroups based on a supervisory evaluation that the institution's primary
federal regulator provides to the FDIC and information that the FDIC determines
to be relevant to the institution's financial condition and the risk posed to
the deposit insurance funds. Assessments range from 0 to 27 cents per $100 of
deposits, depending on the institution's capital group and supervisory subgroup.
Effective January 1, 1997, the FDIC imposed assessments to help repay the
$780 million in annual interest payments on the $8 billion of Financing
Corporation ("FICO") bonds issued in the late 1980s as part of the government
rescue of the thrift industry. The FICO assessment rate is adjusted quarterly
to reflect changes in the assessment bases of the Bank Insurance Fund and the
Savings Association Insurance Fund. The FDIC assessed national banks at a rate
of 1.184 cents per $100 of deposits during the fourth quarter of 1999.
The FDIC may terminate its insurance of deposits if it finds that the
institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.
Community Reinvestment Act. The Community Reinvestment Act requires that,
in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve, the FDIC, or the Office of the
Comptroller of the Currency, shall evaluate the record of each financial
institution in meeting the credit needs of its local community, including low
and moderate income
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neighborhoods. These facts are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility. Failure to
adequately meet these criteria could impose additional requirements and
limitations on The Bank. Under the Gramm-Leach-Bliley Act, banks with aggregate
assets of not more than $250 million will be subject to a Community Reinvestment
Act examination only once every 60 months if the bank receives an outstanding
rating, once every 48 months if it receives a satisfactory rating and as needed
if the rating is less than satisfactory. Additionally, banks will be required to
publicly disclose the terms of various Community Reinvestment Act-related
agreements.
Currently, the Bank has a Community Reinvestment Act rating of
satisfactory.
Other Regulations. Interest and other charges collected or contracted for
by the Bank are subject to state usury laws and federal laws concerning interest
rates. The Bank's loan operations are also subject to federal laws applicable
to credit transactions, such as:
. the federal Truth-In-Lending Act, governing disclosures of credit terms
to consumer borrowers;
. the Home Mortgage Disclosure Act, requiring financial institutions to
provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation
to help meet the housing needs of the community it serves;
. the Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending credit;
. the Fair Credit Reporting Act, governing the use and provision of
information to credit reporting agencies;
. the Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and
. the rules and regulations of the various federal agencies charged with
the responsibility of implementing these federal laws.
The deposit operations of the Bank are subject to:
. the Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records; and
. the Electronic Funds Transfer Act and Regulation E issued by the Federal
Reserve to implement that act, which govern automatic deposits to and
withdrawals from deposit accounts and customers' rights and liabilities
arising from the use of automated teller machines and other electronic
banking services.
Capital Adequacy
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve, in the case of the Company, and
the Office of the Comptroller of the Currency, in the case of the Bank. The
Federal Reserve has established a risk-based and a leverage measure of capital
adequacy for bank holding companies. The Bank is also subject to risk-based and
leverage capital requirements adopted by the Office of the Comptroller of the
Currency, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-
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balance-sheet exposure, and to minimize disincentives for holding liquid assets.
Assets and off-balance-sheet items, such as letters of credit and unfunded loan
commitments, are assigned to broad risk categories, each with appropriate risks
weights. The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier
2 Capital. Tier 1 Capital generally consist of common stock, minority interests
in the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and other specified intangible assets. Tier 1 Capital must equal
at least 4% of risk-weighted assets. Tier 2 Capital generally consists of
subordinated debt, other preferred stock, and a limited amount of loan loss
reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1
Capital. Currently, the Bank's ratio of total capital to risk-weighted assets is
63.1%.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and other specified
intangible assets, of 3% for bank holding companies that meet specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve's risk-based capital measure for market risk. All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4%. The guidelines also provide that bank holding companies experiencing
internal growth, as is the case for the Company, or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels. Furthermore, the Federal Reserve has indicated that it
will consider a bank holding company's Tier 1 Capital leverage ratio, after
deducting all intangibles and other indicators of capital strength in evaluating
proposals for expansion or new activities. Currently, the Company's
consolidated Tier 1 ratio is 77.9%.
We are also subject to capital guidelines issued by our respective primary
regulators, which provide for minimum ratios of total capital to total assets.
Currently, both the Company and the Bank are within their respective capital
guideline ratios.
Failure to meet capital guidelines could subject a bank or bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
accepting brokered deposits, and other restrictions on its business. As
described above, significant additional restrictions can be imposed on FDIC-
insured depository institutions that fail to meet applicable capital
requirements.
Payment of Dividends
The Company is a legal entity separate and distinct from the Bank. The
principal sources of the Company's cash flow, including cash flow to pay
dividends to its shareholders, are dividends that the Bank pays to its sole
shareholder, the Company. Statutory and regulatory limitations apply to the
Bank's payment of dividends to the Company as well as to the Company' payment of
dividends to its shareholders.
The Bank is required by federal law to obtain the prior approval of the
Office of the Comptroller of the Currency for payments of dividends if the total
of all dividends declared by our board of directors in any year will exceed (1)
the total of the Bank's net profits for that year, plus (2) the Bank's retained
net profits of the preceding two years, less any required transfers to surplus.
The payment of dividends by the Company and the Bank may also be affected
by other factors, such as the requirement to maintain adequate capital above
regulatory guidelines. If, in the opinion of the Office of the Comptroller of
the Currency, the Bank were engaged in or about to engage in an unsafe or
unsound practice, the Office of the Comptroller of the Currency could require,
after notice and a hearing, that the Bank stop or refrain engaging in the
practice. The federal banking agencies have indicated that paying dividends
that deplete a depository institution's capital base to an inadequate level
would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement
11
<PAGE>
Act, a depository institution may not pay any dividend if payment would cause it
to become undercapitalized or if it already is undercapitalized. Moreover, the
federal agencies have issued policy statements that provide that bank holding
companies and insured banks should generally only pay dividends out of current
operating earnings.
Restrictions on Transactions with Affiliates
The Company and the Bank are subject to the provisions of Section 23A of
the Federal Reserve Act. Section 23A places limits on the amount of:
. a bank's loans or extensions of credit to affiliates;
. a bank's investment in affiliates;
. assets a bank may purchase from affiliates, except for real and personal
property exempted by the Federal Reserve;
. the amount of loans or extensions of credit to third parties
collateralized by the securities or obligations of affiliates; and
. a bank's guarantee, acceptance or letter of credit issued on behalf of
an affiliate.
The total amount of the above transactions is limited in amount, as to any
one affiliate, to 10% of a bank's capital and surplus and, as to all affiliates
combined, to 20% of a bank's capital and surplus. In addition to the limitation
on the amount of these transactions, each of the above transactions must also
meet specified collateral requirements. The Bank must also comply with other
provisions designed to avoid the taking of low-quality assets.
The Company and the Bank are also subject to the provisions of Section 23B
of the Federal Reserve Act which, among other things, prohibits an institution
from engaging in the above transactions with affiliates unless the transactions
are on terms substantially the same, or at least as favorable to the institution
or its subsidiaries, as those prevailing at the time for comparable transactions
with nonaffiliated companies.
The Bank is also subject to restrictions on extensions of credit to its
executive officers, directors, principal shareholders and their related
interests. These extensions of credit (1) must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with third parties, and (2) must not involve
more than the normal risk of repayment or present other unfavorable features.
Privacy
Financial institutions are required to disclose their policies for
collecting and protecting confidential information. Customers generally may
prevent financial institutions from sharing personal financial information with
nonaffiliated third parties except for third parties that market the
institutions' own products and services. Additionally, financial institutions
generally may not disclose consumer account numbers to any nonaffiliated third
party for use in telemarketing, direct mail marketing or other marketing through
electronic mail to consumers.
Proposed Legislation and Regulatory Action
New regulations and statutes are regularly proposed that contain wide-
ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.
12
<PAGE>
Effect of Governmental Monetary Policies
Our earnings are affected by domestic economic conditions and the monetary
and fiscal policies of the United States government and its agencies. The
Federal Reserve's monetary policies have had, and are likely to continue to
have, an important impact on the operating results of commercial banks through
its power to implement national monetary policy in order, among other things, to
curb inflation or combat a recession. The monetary policies of the Federal
Reserve affect the levels of bank loans, investments and deposits through its
control over the issuance of United States government securities, its regulation
of the discount rate applicable to member banks and its influence over reserve
requirements to which member banks are subject. We cannot predict the nature or
impact of future changes in monetary and fiscal policies.
Selected Statistical Information
The Bank opened for business on July 26, 1999. As a result, the Bank's
historical financial information is limited and is insufficient to cause the
selected statistical information required under Guide 3 of the Securities Act to
be meaningful. Consequently, the selected statistical information has been
omitted. For information concerning the Company's and the Bank's historical
financial performance, see "Part II--Item 6. Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 14 and "Part
II--Item 7. Financial Statements" on page 15.
ITEM 2. DESCRIPTION OF PROPERTIES
The Bank is located at 1275 Riverstone Parkway, Canton, Georgia, which is
part of the new Riverstone Plaza Development near Interstate 575. Riverstone
Parkway is also Georgia Business Highway 5--one of the major thoroughfares
through Cherokee County and the city of Canton. Because the Bank is easily
accessible from Interstate 575, our location allows us to reach small business
customers throughout Cherokee County and consumers traveling to Riverstone
Plaza, the newest major retail area in Cherokee County and the primary
destination point in the market. The Bank's primary facility, which is also the
location of the Company's executive offices, is a 7,800 square foot building
with three drive-up lanes and one drive-up ATM. The facility was completed in
February 2000 and was financed by the Company's initial capitalization of the
Bank. As a result, the property is free from any mortgage liens or
encumbrances.
Other than the Bank's primary facility described in the preceding paragraph
and the real estate-related loans funded by the Bank previously described in "--
Item 1. Description of Business--Cherokee Bank--Loan Portfolio" on page 4, the
Company 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. Additionally, the Company is unaware of any material proceedings,
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.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
All sales of securities by the Company in 1999 were registered under the
Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company was organized on October 9, 1998, and from that date until July
26, 1999, its principal activities have been related to its organization, the
conducting of its initial public offering, the pursuit of approvals from the
Office of the Comptroller of the Currency and Federal Deposit Insurance
Corporation of its application to charter the Bank, and the pursuit of approvals
from the Federal Reserve Board for the Company to acquire control of the Bank.
On May 28, 1999, the Company concluded its offering in which it sold
738,658 shares of common stock at $10.00 per share. The offering provided the
Company with $7,330,505 in capital revenue after deducting offering expenses of
$56,075. After receiving all applicable regulatory approvals and satisfying pre-
opening examination procedures, the Bank opened on July 26, 1999 in a temporary
banking facilities located on Riverstone Parkway in Canton, Georgia. These
facilities are leased and will serve as the main office of the Company and the
Bank until the opening of the permanent facilities in the Riverstone
Development.
Financial Condition at December 31, 1999
Total assets at December 31, 1999 were $18,816,000, principally composed of
$4,727,000 in cash and cash equivalents, $6,848,000 in investment securities,
and $5,424,000 in loans. In addition to the Company's equity of $6,713,000,
these assets are funded by $11,996,000 in deposits. Deposit composition at
December 31, 1999 included $1,187,000 of demand deposits, $3,721,000 in interest
bearing demand and savings deposits, and $7,088,000 in certificates of deposit.
Results of Operations
The results of operations of the Company and the Bank depend on net
interest income, which is the difference between interest earned on earning
assets and the interest paid on interest bearing liabilities, and the ability to
minimize loan losses and to control operation expenses.
The Company's net loss was $544,069 for the year ended December 31, 1999.
Interest income for the period was $415,041, while interest expense was
$155,399.
Management provided $68,663 for loan losses based on loan growth since
opening. The estimate for loan losses represents an amount, in management's
judgment, which will be adequate to absorb possible losses on existing loans
that may become uncollectible.
Other expenses totaled $744,267 and primarily consisted of salaries and
employee benefits of $355,971 and other operating expenses of $291,064. Some of
the most significant amounts of other operating expenses were for professional
fees ($107,153), advertising ($13,235), public relations ($18,869), insurance
($17,805) and supplies ($41,054).
No income tax benefit was provided for the tax effect of the net loss, as
the recognition of this benefit depends heavily on future taxable income. For
more information about the tax attributes of the Company at December 31, 1999,
see note 6 to the Audited Financial Statements.
14
<PAGE>
Liquidity
The Bank must maintain a certain portion of its assets in funds that are
readily available to pay deposit withdrawals and to meet expected loan demands.
Cash and cash equivalents totaled $4,727,000 at December 31, 1999. Cash
outflows from operations totaled $462,333, while outflows from investing
activities totaled $14,086,885, including $6,925,042 in purchases of investment
securities and $5,493, 078 in increases in loans. Inflows from financing
activities totaled $19,266,564 resulting primarily from increases in deposits
($11,996,069) and stock sales ($7,330,505). For more detailed information about
the cash sources and uses for the period ended December 31, 1999, see the
Statement of Cash Flows included in the Audited Financial Statements.
Capital Resources
The Company and the Bank are required to maintain minimum amounts of
capital to total "risk weighted" assets, as defined by the banking regulators.
At December 31, 1999, the Company and the Bank were required to have Tier 1 and
Total Capital to "risk weighted" assets ratios of 4% and 8%, respectively. The
Company's and the Bank's ratios as of December 31, 1999 were in excess of these
requirements. Additionally, the Company and the Bank are required to maintain a
Tier 1 leverage ratio of at least 4%. At December 31, 1999, the leverage ratio
was in excess of 57%. For more information about the actual and required capital
ratios of the Company and the Bank, see note 12 to the Audited Financial
Statements. While the current level of capital meets the regulatory requirements
and the Company's current and foreseeable needs, management will continue to
evaluate the capital needs of the Company as the Bank experiences growth.
ITEM 7. FINANCIAL STATEMENTS
See the Company's annual report (comprised of the Company's consolidated
financial statements and report of independent certified public accountants) at
exhibit 13.1 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth for each director and executive officer of the
Company (1) the person's name, (2) his or her age at December 31, 1999, (3) the
year he or she was first elected as a director of the Company, and (4) his or
her positions with the Company other than as a director and his or her other
business experience for the past five years.
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND
NAME (AGE) DIRECTOR SINCE BUSINESS EXPERIENCE
--------- -------------- -------------------
<S> <C> <C>
Dennis W. Burnette (53) 1998 President and Chief Executive Officer,
Cherokee Banking Company and Cherokee Bank;
Former Executive Search Consultant,
Sanford Rose Associates;
Former President, Pickens County Bank
William L. Early (46) 1998 Physician;
Founder, President and Managing Partner,
Medical Associates of North Georgia
Albert L. Evans, Jr. (53) 1998 Chief Financial Officer,
Emergency Medicine Associates, P.C.;
Education Committee Member,
Walker School of Marietta
J. Calvin Hill, Jr. (52) 1998 President, Gila Distributing--GA, Inc.
(window film distributor);
Director, Cherokee County Chamber of Commerce;
Board of Advisors, Reinhardt College;
President, Rotary Club of Canton;
Former Mayor, Ball Ground
Roger M. Johnson (57) 1998 Partner, Bray & Johnson
(attorneys)
J. David Keller (52) 1998 President, L.A. T Sportswear, Inc.
(sportswear manufacturer);
Advisory Board Member,
Cherokee County Children's Advocacy Council
Wanda P. Roach (51) 1998 Secretary and Treasurer, Cherokee
Association of Realtors;
Real Estate Agent;
Board Member, City of Canton Downtown Development
Authority Board
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND
NAME (AGE) DIRECTOR SINCE BUSINESS EXPERIENCE
--------- -------------- -------------------
<S> <C> <C>
A. R. (Rick) Roberts, III (46) 1998 Secretary, Cherokee Banking Company;
Chief Financial Officer and
Chief Operations Officer, Cherokee Bank;
Mayor, Ball Ground;
Former Executive Vice President and
Chief Financial Officer, Citizens Bank
Donald F. Stevens (56) 1998 President, Terry & Stevens, Inc. (homebuilder);
President, 84 West, Inc.;
Board of Advisors, Reinhardt College;
Former Pilot and Captain, Delta Air Lines, Inc.
Former Chairman, Cherokee County
Chamber of Commerce;
Edwin I. Swords, III (40) 1998 Dentist, Swords, Swords and Phelps
</TABLE>
- -----------------
The Company is filing this Annual Report on Form 10-KSB pursuant to Section
15(d) of the Securities and Exchange Act and is not subject to filings required
by Section 16 of the Securities and Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
Compensation of Executive Officers
Summary Compensation Table. The following table presents the total
compensation of the Company paid during fiscal years 1999 and 1998 (since the
Company's inception in October 1998) to its chief executive officer. No other
executive officer of the Company earned over $100,000 in salary and bonus during
fiscal years 1999 and 1998.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------------- --------------------------------------------------
Awards Payouts
--------------------------------------------------
Other Restricted All
Annual Stock Options/ LTIP Other
Salary Compensation Awards SARs Payouts Compensation
Name and Position Year ($) Bonus ($) ($) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dennis W. Burnette 1999 100,000 0 0(2) 0 0 0 0
President &
Chief Executive 1998(1) 0 0 0(2) 0 0 0 0
Officer
</TABLE>
- ----------------
(1) From the Company's inception in October 1998.
(2) We have omitted information on "perks" and other personal benefits because
the aggregate value of these items does not meet the minimum amount
required for disclosure under the Securities and Exchange Commission's
regulations.
17
<PAGE>
Employment Agreement. Effective January 1, 1999, we entered into an
employment agreement with Dennis W. Burnette regarding his service as President
and Chief Executive Officer of the Company and the Bank. Under the terms of the
employment agreement, the Bank has paid Mr. Burnette a salary of $90,000 per
year until the Bank opened for business in July of 1999, at which time his
salary increased to $120,000 per year. Additionally, beginning in the year
2000, and for each calendar year thereafter during the term of the agreement,
Mr. Burnette may be eligible for a cash bonus based on pre-established
performance standards determined by the Bank's board of directors.
Also under the terms of Mr. Burnette's employment agreement, the Company
has granted Mr. Burnette a nonqualified stock option to purchase 30,000 shares
of common stock. The option vests in annual increments of 6,000 shares and has
an exercise price of $10.00 per share. The first annual increment vested on
January 1, 2000.
When the Bank opened for business in July 1999, the Bank provided Mr.
Burnette with a $600 per month automobile allowance. Prior to that time, the
Company reimbursed Mr. Burnette for any business mileage at the IRS-approved
rate.
The initial term of Mr. Burnette's employment began on January 1, 1999 and
will continue for a period of three years. At the end of the initial term, and
at the end of each succeeding 12-month term, the agreement will automatically
extend for an additional 12-month period unless the Bank or Mr. Burnette elects
not to extend it. The Company and the Bank will have no further obligations
under the agreement if Mr. Burnette's employment is terminated:
. by the Bank for cause, as defined in the agreement,
. by Mr. Burnette if the Bank breaches any material provision of the
agreement or if it materially lessens Mr. Burnette's powers,
responsibilities or duties, or
. upon Mr. Burnette's death or disability.
If, however, the Bank terminates Mr. Burnette's employment without cause or
elects not to extend the term of the agreement, or if Mr. Burnette terminates
his employment with cause, the Bank will be required to pay Mr. Burnette's base
salary for a period of 12 months. During the term of the agreement, and for 12
months following its termination, Mr. Burnette will be prohibited from
soliciting the Bank's customers or employees. In addition, if the agreement is
not terminated by the Bank for cause, and not terminated by Mr. Burnette because
of a change in control, as defined in the agreement, Mr. Burnette will be
prohibited from competing with the Bank in Cherokee County for a period of 12
months following his termination.
18
<PAGE>
Option Grants in Fiscal Year 1999
The following table presents the options granted by the Company during the
fiscal year 1999 to its executive officers.
<TABLE>
<CAPTION>
Number Of
Securities Percent Of Total
Underlying Options/SARS Granted
Options/SARs to Employees In Fiscal Exercise Or Base
Name Granted (#) Year Price ($/Sh) Expiration Date
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dennis W. Burnette, 30,000 100% $10.00 January 1, 2009
President & Chief
Executive Officer
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See "--Employment Agreement" above on page 18 for more information
regarding the option granted to Mr. Burnette during fiscal year 1999.
Options Exercised in Fiscal Year 1999
No options were exercised by our executive officers in fiscal year 1999.
Compensation of Directors
The Company and the Bank do not separately compensate their directors for
their service as directors, nor will their directors receive directors
compensation until the Company and the Bank have recovered all of their losses.
Thereafter, the Company and the Bank will adopt director compensation policies
that conform to applicable law.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's common
stock beneficially owned as of March 20, 2000 by (a) each director of the
Company and (b) all executive officers and directors, as a group. The
information shown below is based upon information furnished to the Company by
the named persons. Unless otherwise indicated, each person is the record owner
and has sole voting and investment power with respect to his or her shares.
Additionally, the holders of 5% or more of the Company's outstanding common
stock are required to file reports with the Securities and Exchange Commission
and with the Company. We have not received any of these reports and, therefore,
are unaware of any holder of more than 5% of the Company's outstanding common
stock.
Information relating to beneficial ownership of the Company is based upon
"beneficial ownership" concepts set forth in the rules promulgated under the
Securities Exchange Act. Under these rules a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of a security, or
"investment power," which includes the power to dispose or to direct the
disposition of a security. Under the rules, more than one person may be deemed
to be a beneficial owner of the same securities. A person is also deemed to be
a beneficial owner of any security as to which that person has the right to
acquire beneficial ownership within sixty (60) days from the record date.
19
<PAGE>
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS NUMBER OF SHARES OF CLASS
---------------- ---------------- --------
<S> <C> <C>
(a) Directors
Dennis W. Burnette (53) 21,600(1) 2.9
7007 Wilderness Parkway/
656 Big Canoe
Big Canoe, Georgia 30143
William L. Early (46) 35,000(2) 4.7
173 Indian River Trail
Ball Ground, Georgia 30107
Albert L. Evans, Jr. (53) 25,000 3.4
2268 Reinhardt College Parkway
Canton, Georgia 30114
J. Calvin Hill (52) 12,000 1.6
817 Clubhouse Pointe
Woodstock, Georgia 30188
Roger M. Johnson (57) 12,500 1.7
1300 Tom Hulsey Drive
Canton, Georgia 30115
J. David Keller (52) 10,000 1.4
1237 Indian Bunting Trail
Big Canoe, Georgia 30143
Wanda P. Roach (51) 10,000 1.4
229 Breeze Hill Court
Canton, Georgia 30114
A. R. Roberts, III (46) 23,450(3) 3.2
3030 Canton Highway
Ball Ground, Georgia 30107
Donald F. Stevens (56) 25,000 3.4
9295 E. Cherokee Drive
Canton, Georgia 30115
Edwin I. Swords, III (40) 25,200(4) 3.4
891 Ivey Drive
Canton, Georgia 30114
(b) All Directors and Executive 199,750 27.0
Officers, as a Group
</TABLE>
- ------------------
* Messrs. Burnette and Roberts are the only executive officers of the
Company.
(1) Includes 6,000 shares obtainable through the unexercised, vested portion of
Mr. Burnette's nonqualified stock option.
(2) Consists of 10,000 shares owned by Etowah Regional Medical Services PC 401K
Profit Sharing Plan for which Mr. Early has voting and investment powers as
trustee.
20
<PAGE>
(3) Consists of 1,700 shares owned jointly between Mr. Robert and his two minor
children.
(4) Consists of 200 shares owned by Swords and Swords, DDS, PC, Profit Sharing
Plan for which Mr. Swords has voting and investment powers as trustee.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and the Bank have banking and other business transactions in
the ordinary course of business with directors and officers of the Company and
the Bank, including members of their families or corporations, partnerships or
other organizations in which such directors and officers have a controlling
interest. These transactions are on substantially the same terms (including
price, or interest rate and collateral) as those prevailing at the time for
comparable transactions with unrelated parties, and any banking transactions do
not involve more than the normal risk of collectibility or present other
unfavorable features to the Company and the Bank, and are on terms no less
favorable than could be obtained from an unaffiliated third party and are
approved by a majority of the directors, including a majority of the
disinterested directors.
21
<PAGE>
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 10-KSB
(a) Exhibits
Exhibit
Number Exhibit
------ -------
3.1 Articles of Incorporation/(1)/
3.2 Bylaws/(1)/
4.1 Instruments Defining the Rights of Security Holders. See Articles of
Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2
hereto
10.1 Purchase and Sale Agreement (main office property), dated
December 11, 1998/(1)/
10.2* Employment Agreement, dated as of January 1, 1999, among Cherokee
Bank, N.A., Cherokee Banking Company and Dennis W. Burnette/(1)/
10.3 Form of Cherokee Banking Company Organizers' Warrant Agreement/(1)/
10.4 Escrow Agreement, dated as of April 1, 1999, among Cherokee Banking
Company and The Bankers Bank/(1)/
10.5 Construction Agreement dated September 29, 1999 by and between
Cherokee Banking Company, Inc. and W. H. Bass, Inc.
13.1 1999 Annual Report sent to security holders of Cherokee
Banking Company
22.1 Subsidiaries of Cherokee Banking Company
24.1 Power of Attorney (appears on the signature pages to this
Annual Report on 10-KSB)
27.1 Financial Data Schedule (for SEC purposes only)
99.1 2000 Proxy Statement sent to security holders of Cherokee
Banking Company
- -----------------
* Compensatory plan or arrangement.
/(1)/ Incorporated herein by reference to exhibit of same number to the
Company's Registration Statement on Form SB-2, Registration No.
333-71571, filed March 18, 1999.
(b) Reports on Form 8-K filed in the fourth quarter of 1999: None.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.
The Company's 1999 Annual Report to security holders is included in this
Annual Report on Form 10-KSB at exhibit 13.1, and the Company's Proxy Statement
for its annual meeting of shareholders is included in this Annual Report on Form
10-KSB at exhibit 99.1.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CHEROKEE BANKING COMPANY
By: /s/ Dennis W. Burnette
----------------------
Dennis W. Burnette
President and Chief
Executive Officer
Date: March 22, 2000
<PAGE>
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 Dennis W. Burnette
and A. R. Roberts, III, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or her and in his or
her 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, 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
they might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dennis W. Burnette President and Chief Executive Officer, 3/22/00
- --------------------------------------- Director (Principal Executive Officer)
Dennis W. Burnette
/s/ William L. Early Director 3/22/00
- ---------------------------------------
William L. Early
/s/ Albert L. Evans, Jr. Director 3/22/00
- ---------------------------------------
Albert L. Evans, Jr.
/s/ J. Calvin Hill, Jr. Director 3/22/00
- ---------------------------------------
J. Calvin Hill, Jr.
/s/ Roger M. Johnson Director 3/22/00
- ---------------------------------------
Roger M. Johnson
/s/ J. David Keller Director 3/22/00
- ---------------------------------------
J. David Keller
/s/ Wanda P. Roach Director 3/22/00
- ---------------------------------------
Wanda P. Roach
/s/ A.R. Roberts, III Secretary, Director 3/22/00
- --------------------------------------- (Principal Financial and Accounting Officer)
A. R. Roberts, III
/s/ Donald F. Stevens Director 3/22/00
- ---------------------------------------
Donald F. Stevens
/s/ Edwin I. Swords, III Director 3/22/00
- ---------------------------------------
Edwin I. Swords, III
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Page Number in
Exhibit Sequentially
Number Exhibit Numbered Copy
- ------- ------- --------------
<S> <C> <C>
3.1 Articles of Incorporation/(1)/ N/A
3.2 Bylaws/(1)/ N/A
4.1 Instruments Defining the Rights of Security Holders. N/A
See Articles of Incorporation at Exhibit 3.1 hereto and
Bylaws at Exhibit 3.2 hereto
10.1 Purchase and Sale Agreement (main office property), N/A
dated December 11, 1998/(1)/
10.2* Employment Agreement, dated as of January 1, 1999, N/A
among Cherokee Bank, N.A. , Cherokee Banking
Company and Dennis W. Burnette/(1)/
10.3 Form of Cherokee Banking Company Organizers' N/A
Warrant Agreement/(1)/
10.4 Escrow Agreement, dated as of April 1, 1999, among
Cherokee Banking Company and The Bankers Bank/(1)/ N/A
10.5 Construction Agreement dated September 29, 2000 by and
between Cherokee Banking Company, Inc. and W. H. Bass, Inc. N/A
13.1 1999 Annual Report sent to security holders of Cherokee N/A
Banking Company
22.1 Subsidiaries of Cherokee Banking Company N/A
24.1 Power of Attorney (appears on the signature pages to N/A
this Annual Report on 10-KSB).
27.1 Financial Data Schedule (for SEC purposes only) N/A
99.1 2000 Proxy Statement sent to security holders of N/A
Cherokee Banking Company
</TABLE>
- ------------------------
* Compensatory plan or arrangement.
/(1)/ Incorporated herein by reference to exhibit of same number to the
Company's Registration Statement on Form SB-2, Registration No.
333-71571, filed March 18, 1999.
<PAGE>
EXHIBIT 10.5
AIA DOCUMENT A101-1997
Standard Form of Agreement Between Owner and Contractor
where the basis of payment is a STIPULATED SUM
AGREEMENT made as of the Twenty-Ninth day of September in the year Nineteen
Hundred and Ninety-Nine
(In words, indicate day, month and year)
BETWEEN the Owner: Cherokee Bank
(Name, address and other information) 1275 Riverstone Parkway
Canton, Georgia 30114
and the Contractor: W. H. Bass, Inc.
(Name, address and other information) 5664-D Peachtree Parkway
Norcross, Georgia 30092
The Project is: New Main Office
(Name and location) Cherokee Bank
Canton, Georgia
The Architect is: H. Lloyd Hill Architects & Assoc., Inc.
(Name, address and other information) 3300 Northeast Expressway, Suite 3R
Atlanta, Georgia 30341
ARTICLE 1 THE CONTRACT DOCUMENTS
The Contract Documents consist of this Agreement, Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, Addenda issued prior to execution of this Agreement, other
documents listed in this Agreement and Modifications issued after execution of
this Agreement; these form the Contract, and are as fully a part of the Contract
as if attached to this Agreement or repeated herein. The Contract represents
the entire and integrated agreement between the parties hereto and supersedes
prior negotiations, representations or agreements, either written or oral. An
enumeration of the Contract Documents, other than Modifications, appears in
Article 8.
<PAGE>
ARTICLE 2 THE WORK OF THIS CONTRACT
The Contractor shall fully execute the Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others.
ARTICLE 3 DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
3.1 The date of commencement of the Work shall be the date of this Agreement
unless a different date is stated below or provision is made for the date to be
fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed.)
The Contract commencement date is October 11, 1999.
(A Building Permit will be required at that time)
If, prior to the commencement of the Work, the Owner requires time to file
mortgages, mechanic's liens and other security interests, the Owner's time
requirement shall be as follows:
3.2 The Contract Time shall be measured from the date of commencement.
3.3 The Contractor shall achieve Substantial Completion of the entire Work not
later than 112 Calendar days from the date of commencement, or as follows:
(Insert number of calendar days. Alternatively, a calendar date may be used
when coordinated with the date of commencement. Unless stated elsewhere in the
Contract Documents, insert any requirements for earlier Substantial Completion
of certain portions of the Work.)
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time or for bonus payments for early completion of the Work.)
The Contractor and the Contractor's Surety, if any, shall be liable for and
shall pay the Owner the sums hereinafter stipulated as liquidated damages for
each calendar day of delay until the work is substantially complete in the
amount of Five Hundred Dollars ($ 500.00).
ARTICLE 4 CONTRACT SUM
4.1 The Owner shall pay the Contractor the Contract Sum in current funds for
the Contractor's performance of the Contract. The Contract Sum shall be One
Million Three Hundred Two Thousand One Hundred Sixty Dollars ($1,302,160.00)
subject to additions and deductions as provided in the Contract Documents.
-2-
<PAGE>
4.2 The Contract Sum is based upon the following alternates, if any, which are
described in the Contract Documents and are hereby accepted by the Owner:
(State the numbers or other identification of accepted alternates. If decisions
on other alternates are to be made by the Owner subsequent to the execution of
this Agreement, attach a schedule of such other alternates showing the amount
for each and the date when that amount expires.)
Alternate No. 3 - Bomex wiring accepted by the Owner for a Deduct of Four
Thousand Dollars ($ 4,000.00)
<TABLE>
<CAPTION>
4.3 Unit prices, if any, are as follows:
ADD DEDUCT
----- ---------
<S> <C> <C> <C>
1. General Earth Excavation--------------------------- 12.00/c.y.----------------- 0.00/c.y.
2. Excess Earth Excavation---------------------------- 12.00/c.y.----------------- 0.00/c.y.
3. Off-Site Fill ------------------------------------- 10.00/c.y.----------------- 0.00/c.y.
4. Trench Earth Excavation---------------------------- 15.00/c.y.----------------- 0.00/c.y.
5. General Rock Excavation---------------------------- 35.00/c.y.----------------- 0.00/c.y.
6. Trench Rock Excavation----------------------------- 75.00/c.y.----------------- 0.00/c.y.
</TABLE>
ARTICLE 5 PAYMENTS
5.1 PROGRESS PAYMENTS
5.1.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
5.1.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
5.1.3 Provided that an Application for Payment is received by the Architect not
later than the Twenty-Fifth (25th) day of a month, the Owner shall make payment
to the Contractor not later than the Tenth (10th) day of the Next month. If an
Application for Payment is received by the Architect after the application date
fixed above, payment shall be made by the Owner not later than Fifteen (15) days
after the Architect receives the Application for Payment.
5.1.4 Each Application for Payment shall be based on the most recent schedule
of values submitted by the Contractor in accordance with the Contract Documents.
The schedule of values shall allocate the entire Contract Sum among the various
portions of the Work. The schedule of values shall be prepared in such form and
supported by such data to substantiate its accuracy as the Architect may
require. This schedule, unless objected to by the Architect, shall be used as a
basis for reviewing the Contractor's Application for Payment.
-3-
<PAGE>
5.1.5 Applications for Payment shall indicate the percentage of completion of
each portion of the Work as of the end of the period covered by the Application
for Payment.
5.1.6 Subject to other provisions of the Contract Documents, the amount of each
progress payment shall be computed as follows:
.1 Take that portion of the Contract Sum properly allocable to completed
Work as determined by multiplying the percentage completion of each
portion of the Work by the share of the Contract Sum allocated to that
portion of the Work in the schedule of values, less retainage of Ten
percent (10%). Pending final determination of cost to the Owner of
changes in the Work, amounts not in dispute shall be included as
provided in Subparagraph 7.3.8 of AIA Document A201-1997;
.2 Add that portion of the Contract Sum properly allocable to materials
and equipment delivered and suitably stored at the site for subsequent
incorporation in the completed construction (or, if approved in
advance by the Owner, suitably stored off the site at a location
agreed upon in writing), less retainage of Ten percent (10%);
.3 Subtract the aggregate of previous payments made by the Owner; and
.4 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of
AIA Document A201-1997.
5.1.7 The progress payment amount determined in accordance with Subparagraph
5.1.6 shall be further modified under the following circumstances:
.1 Add, upon Substantial Completion of the Work, a sum sufficient to
increase the total payments to the full amount of the Contract Sum,
less such amounts as the Architect shall determine for incomplete
Work, retainage applicable to such work and unsettled claims; and
(Subparagraph 9.8.5 of AIA Document A201-1997 requires release of
applicable retainage upon Substantial Completion of Work with consent
of surety, if any.)
.2 Add, if final completion of the Work is thereafter materially delayed
through no fault of the Contractor, any additional amounts payable in
accordance with Subparagraph 9.10.3 of AIA Document A201-1997.
5.1.8 Reduction or limitation of retainage, if any, shall be as follows:
(If it is intended, prior to Substantial Completion of the entire Work, to
reduce or limit the retainage resulting from the percentages inserted in Clauses
5.1.6.1 and 5.1.6.2 above, and this is not explained elsewhere in the Contract
Documents, insert here provisions for such reduction or limitation.)
Retainage shall be reduced 5% on completed work at 75% completion of project.
5.1.9 Except with the Owner's prior approval, the Contractor shall not make
advance payments to suppliers for materials or equipment which have not been
delivered and stored at the site.
-4-
<PAGE>
5.2 FINAL PAYMENT
5.2.1 Final payment, constituting the entire unpaid balance of the Contract
Sum, shall be made by the Owner to the Contractor when:
.1 the Contractor has fully performed the Contract except for the
Contractor's responsibility to correct Work as provided in
Subparagraph 12.2.2 of AIA Document A201-1997, and to satisfy other
requirements, if any, which extend beyond final payment; and
.2 a final Certificate for Payment has been issued by the Architect.
5.2.2 The Owner's final payment to the Contractor shall be made no later than
30 days after the issuance of the Architect's final Certificate for Payment, or
as follows:
ARTICLE 6 TERMINATION OR SUSPENSION
6.1 The Contract may be terminated by the Owner or the Contractor as provided
in Article 14 of AIA Document A201-1997.
6.2 The Work may be suspended by the Owner as provided in Article 14 of AIA
Document A201-1997.
ARTICLE 7 MISCELLANEOUS PROVISIONS
7.1 Where reference is made in this Agreement to a provision of AIA Document
A201-1997 or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
7.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, or in the absence thereof, at the
legal rate prevailing from time to time at the place where the Project is
located.
(Insert rate of interest agreed upon, if any.)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
7.3 The Owner's representative is: Dennis Burnette, C.E.O.
(Name, address and other information) Cherokee Bank
1275 Riverstone Parkway
Canton, Georgia 30114
-5-
<PAGE>
7.4 The Contractor's representative is: Keith Hawthorne, Project Manager
(Name, address and other information) W. H. Bass, Inc.
5664-D Peachtree Parkway
Norcross, Georgia 30092
7.5 Neither the Owner's nor the Contractor's representative shall be changed
without ten days' written notice to the other party.
7.6 Other provisions:
ARTICLE 8 ENUMERATION OF CONTRACT DOCUMENTS
8.1 The Contract Documents, except for Modifications issued after execution of
this Agreement, are enumerated as follows:
8.1.1 The Agreement is this executed 1997 edition of the Standard Form of
Agreement Between Owner and Contractor, AIA Document A101-1997.
8.1.2 The General Conditions are the 1997 edition of the General Conditions of
the Contract for Construction, AIA Document A201-1997.
8.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated August 20, 1999, and are as follows:
Document Title Pages
- -------- ----- -----
Division A Condition of the Contract A1-A3
- Supplementary Conditions
Division A Conditions of the Contract A4-A7
- Insurance Requirements
8.1.4 The Specifications are those contained in the Project Manual dated as in
Subparagraph 8.1.3, and are as follows: See Exhibit "A".
(Either list the Specifications here or refer to an exhibit attached to this
Agreement.)
Section Title Pages
- ------- ----- -----
See Exhibit A
8.1.5 The Drawings are as follows, and are dated ____________________ unless a
different date is shown below:
(Either list the Drawings here or refer to an exhibit attached to this
Agreement.)
-6-
<PAGE>
Number Title Date
- ----------- ------------- -------
C1-C6 Sitework 8-20-99
A1-A11 Architectural 8-20-99
S1.1-S4.2 Structural 8-20-99
P1-P3 Plumbing 8-20-99
AC1-AC2 H.V.A.C. 8-20-99
E1-E7 Electrical 8-20-99
8.1.6 The Addenda, if any, are as follows:
Number Date Pages
------ ---- -----
Addendum No. 1 August 30, 1999 Page 1 (Drawing AD #1-1 and Revised
Painting Section 9B)
Addendum No. 2 September 13, 1999 Page 1 (Drawings AD #2-1 Thru AD #2-4)
Addendum No. 3 September 14, 1999 Page 1 (Vault Work Shop Drawings V1-V8)
Addendum No. 4 September 23, 1999 Page 1 (Drawings AD #4-1 Thru AD #4-7
And Updated Survey Sept. 19, 1999)
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 8.
8.1.7 Other documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents that are intended to form part of the
Contract Documents. AIA Document A201-1997 provides that bidding requirements
such as advertisement or invitation to bid, Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to be
part of the Contract Documents.)
Invitation to Bid - Page i
Instruction to Bidders - Pages ii and iii
Bid Form - Pages iv - vi
Application and Certificate for payment: AIA Doc. G702 and G703, 1983 Edition.
9-29-99 Notes of Clarification (Items 1-10 General, Items 1-9 Site and Items
1-12 Building)
Bid Tally Sheet Dated 9-29-99
Recap Sheet
-7-
<PAGE>
This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies, of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
/s/ Dennis Burnette /s/ David E. Carr
- --------------------------------- ---------------------------------
OWNER (Signature) CONTRACTOR (Signature)
Dennis W. Burnette, Pres. and CEO David E. Carr, VP Finance
- --------------------------------- ---------------------------------
(Printed name and title) (Printed name and title)
Cherokee Bank W.H. Bass, Inc.
Canton, Georgia Norcross, Georgia
CAUTION: You should sign an original AIA document or a licensed reproduction.
Originals contain the AIA logo printed in red; licensed reproductions are those
produced in accordance with the Instructions to this document.
-8-
<PAGE>
EXHIBIT 13.1
CHEROKEE BANKING COMPANY
Consolidated Financial Statements
December 31, 1999 and 1998
(with Independent Accountants' Report thereon)
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Cherokee Banking Company
Canton, Georgia
We have audited the accompanying consolidated balance sheets of Cherokee Banking
Company and subsidiary as of December 31, 1999 and 1998, and the related
statements of operations, changes in shareholders' equity, comprehensive income
and cash flows for the year ended December 31, 1999 and the period from
October 9, 1998 (inception) to 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 Cherokee Banking
Company and subsidiary as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the year ended December 31, 1999 and the
period from October 9, 1998 (inception) to December 31, 1998 in conformity with
generally accepted accounting principles.
PORTER KEADLE MOORE, LLP
Atlanta, Georgia
February 4, 2000
-2-
<PAGE>
CHEROKEE BANKING COMPANY
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets
------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash and due from banks $ 556,942 9,596
Federal funds sold 4,170,000 -
----------- ------
Cash and cash equivalents 4,726,942 9,596
Interest bearing deposits 200,000 -
Investment securities available for sale 6,848,323 -
Other investments 180,000 -
Loans, net 5,424,415 -
Premises and equipment, net 1,290,032 -
Accrued interest receivable and other assets 146,440 10,000
----------- ------
$18,816,152 19,596
=========== ======
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 1,187,120 -
Money market and NOW accounts 3,562,002 -
Savings 159,173 -
Time 5,589,400 -
Time over $100,000 1,498,374 -
----------- -------
Total deposits 11,996,069 -
Note payable - 60,000
Accrued interest payable and other liabilities 106,942 -
----------- -------
Total liabilities 12,103,011 60,000
----------- -------
Commitments
Shareholders' equity:
Preferred stock, no par value, 2,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, no par value; 10,000,000 shares authorized;
738,658 and 10 issued and outstanding, respectively 7,330,505 10
Accumulated deficit (584,483) (40,414)
Accumulated other comprehensive income (loss) (32,881) -
----------- -------
Total shareholders' equity 6,713,141 (40,404)
----------- -------
$18,816,152 19,596
=========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
CHEROKEE BANKING COMPANY
Consolidated Statements of Operations
For the Year Ended December 31, 1999
and the Period from October 9, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 73,186 -
Interest on investment securities 135,764 -
Interest on federal funds sold 152,320 -
Interest on deposits with other banks 952 -
Interest on escrow account 52,819 -
--------- ------------
Total interest income 415,041 -
--------- ------------
Interest expense:
Interest on money market and NOW accounts 52,787 -
Interest on savings and time deposits 102,612 -
--------- ------------
Total interest expense 155,399 -
--------- ------------
Net interest income 259,642 ( -)
Provision for loan losses 68,663 -
--------- ------------
Net interest income after provision for loan losses 190,979 ( -)
--------- ------------
Other income:
Service charges on deposit accounts 1,664 -
Other income 7,555 -
--------- ------------
Total other income 9,219 -
--------- ------------
Other expenses:
Salaries and employee benefits 355,971 -
Occupancy and equipment 97,232 -
Other operating 291,064 40,414
--------- ------------
Total other expenses 744,267 40,414
--------- ------------
Net loss $(544,069) (40,414)
========= ============
Net loss per share $(.74) (.05)
========= ============
Outstanding shares 738,658 738,658
========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
CHEROKEE BANKING COMPANY
Consolidated Statements of Changes in Shareholders' Equity
For the Year Ended December 31, 1999
and the Period from October 9, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
--------------------- Accumulated Comprehensive
Shares Amount Deficit Income (Loss) Total
-------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Proceeds from the sale of
organizational shares 10 $ 10 - - 10
Net loss - - (40,414) - (40,414)
------- ---------- ----------- ------------ ---------
Balance, December 31, 1998 10 10 (40,414) - (40,404)
Proceeds from stock offering,
net of offering costs of $56,075 738,658 7,330,505 - - 7,330,505
Redemption of organizational
shares (10) (10) - - (10)
Change in unrealized loss on
investment securities available
for sale, net of tax - - - (32,881) (32,881)
Net loss - - (544,069) - (544,069)
------- ---------- ----------- ------------ ---------
Balance, December 31, 1999 738,658 $7,330,505 (584,483) (32,881) 6,713,141
======= ========== =========== ============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
CHEROKEE BANKING COMPANY
Consolidated Statements of Comprehensive Income
For the Year Ended December 31, 1999
and the Period from October 9, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Net loss $(544,069) (40,414)
--------- -------
Other comprehensive income:
Unrealized holding losses on investment securities
available for sale (53,034) -
Less income tax benefit related to investment securities
available for sale 20,153 -
--------- -------
Total other comprehensive income (loss), net of tax (32,881) -
--------- -------
Total comprehensive income (loss) $(576,950) (40,414)
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
CHEROKEE BANKING COMPANY
Consolidated Statements of Cash Flows
For the Year Ended December 31, 1999
and the Period from October 9, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
------------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (544,069) (40,414)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, amortization and accretion 22,418 -
Provision for loan losses 68,663 -
Change in:
Accrued interest receivable (85,653) -
Other assets (30,634) (10,000)
Accrued payable interest 99,646 -
Other liabilities 7,296 -
------------ -------
Net cash used by operating activities (462,333) (50,414)
------------ -------
Cash flows from investing activities:
Proceeds from calls and maturities of investment
securities available for sale 28,146 -
Purchases of investment securities available for sale (6,925,042) -
Change in interest bearing deposits (200,000) -
Purchases of other investments (180,000) -
Net change in loans (5,493,078) -
Purchase of premises and equipment (1,316,911) -
------------ -------
Net cash used by investing activities (14,086,885) -
------------ -------
Cash flows from financing activities:
Net change in deposits 11,996,069 -
Net change in line of credit (60,000) 60,000
Proceeds from the sale of common stock 7,330,505 -
Sale of (redemption of) organizational shares (10) 10
------------ -------
Net cash provided by financing activities 19,266,564 60,010
------------ -------
Net increase in cash and cash equivalents 4,717,346 9,596
Cash and cash equivalents at beginning of period 9,596 -
------------ -------
Cash and cash equivalents at end of year $ 4,726,942 9,596
============ =======
Supplemental schedule of noncash investing and
financing activities:
Change in unrealized loss on investment
securities available for sale, net of tax $ (32,881) -
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 55,210 -
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE>
CHEROKEE BANKING COMPANY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Cherokee
Banking Company (the "Company") and its wholly owned subsidiary, Cherokee
Bank, N.A. (the "Bank"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Company was incorporated for the purpose of becoming a bank holding
company. The Bank commenced business on July 26, 1999 upon receipt of its
banking charter from the Office of the Comptroller of Currency ("OCC"). The
Bank is primarily regulated by the OCC and undergoes periodic examinations
by this regulatory agency. The Company is regulated by the Federal Reserve
and also is subject to periodic examinations. The Bank provides a full
range of commercial and consumer banking services throughout the city of
Canton and the Cherokee County area in Georgia.
Operations through June 30, 1999 related primarily to expenditures by the
organizers for incorporating and organizing the Company. The Company was
reported on as a development stage corporation for the period ended
December 31, 1998.
The accounting principles followed by the Company and the Bank, and the
methods of applying these principles, conform with generally accepted
accounting principles (GAAP) and with general practices in the banking
industry. In preparing the financial statements in conformity with GAAP,
management is required to make estimates and assumptions that affect the
reported amounts in the financial statements. Actual results could differ
significantly from these estimates. Material estimates common to the
banking industry that are particularly susceptible to significant change in
the near term include, but are not limited to, the determination of the
allowance for loan losses, the valuation of real estate acquired in
connection with or in lieu of foreclosure on loans, and valuation
allowances associated with the realization of deferred tax assets, which
are based on future taxable income.
Investment Securities
---------------------
The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and
held principally for the purpose of selling them in the near term. Held to
maturity securities are those securities for which the Company has the
ability and intent to hold until maturity. All securities not included in
trading or held to maturity are classified as available for sale. At
December 31, 1999, there were no trading securities.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost, adjusted for the amortization or accretion
of premiums or discounts. Unrealized holding gains and losses, net of the
related tax effect, on securities available for sale are excluded from
earnings and are reported as a separate component of shareholders' equity
until realized. Transfers of securities between categories are recorded at
fair value at the date of transfer.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary is charged to
earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related securities as adjustments to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
Other Investments
-----------------
Other investments include equity securities with no readily determinable
fair value. These investments are carried at cost.
Loans and Allowance for Loan Losses
-----------------------------------
Interest on other loans is calculated by using the simple interest method
on daily balances of the principal amount outstanding.
-8-
<PAGE>
CHEROKEE BANKING COMPANY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Loans and Allowance for Loan Losses, continued
----------------------------------------------
A loan is considered impaired when, based on current information and
events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. Impaired loans are
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's
observable market price, or at the fair value of the collateral of the loan
if the loan is collateral dependent. Accrual of interest is discontinued on
a loan when management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial condition
is such that collection of interest is doubtful.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance represents an amount which, in management's
judgment, will be adequate to absorb probable losses on existing loans that
may become uncollectible.
Management's judgment in determining the adequacy of the allowance is based
on evaluations of the collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality and review of specific problem
loans.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to recognize additions to
the allowance based on judgments different than those of management.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized on the
straight-line method over the shorter of the estimated useful lives of the
improvements or the terms of the related leases. Costs incurred for
maintenance and repairs are expensed currently.
Depreciation expense is computed over the following estimated useful lives:
Leasehold improvements 10 - 25 years
Furniture and equipment 5 - 10 years
Income Taxes
------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the assets and liabilities
results in deferred tax assets, an evaluation of the probability of being
able to realize the future benefits indicated by such asset is required. A
valuation allowance is provided for the portion of the deferred tax asset
when it is more likely than not that some portion or all of the deferred
tax asset will not be realized. In assessing the realizability of the
deferred tax assets, management considers the scheduled reversals of
deferred tax liabilities, projected future taxable income, and tax planning
strategies.
Line of Credit
--------------
Organization, offering and pre-opening costs, as well as costs for
modification of the buildings, incurred prior to opening for business were
funded under a $250,000 line of credit. The line of credit, which was
guaranteed by the organizers, was repaid upon consummation of the stock
offering.
-9-
<PAGE>
CHEROKEE BANKING COMPANY
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Net Loss Per Share
------------------
Earnings per share are based on the weighted average number of common
shares outstanding during the period while the effects of potential common
shares outstanding during the period are included in diluted earnings per
share. The presentation of earnings per share is required on the face of
the statement of operations with and without the dilutive effects of
potential common stock issuances from instruments such as options,
convertible securities and warrants. Additionally, the reconciliation of
the amounts used in the computation of both "earnings per share" and
"diluted earnings per share" is required.
For 1999, the potential effect of outstanding options would be anti-
dilutive, and therefore is not presented.
For 1999 and 1998, net loss per share is calculated by dividing net loss by
the number of common shares sold in the initial public offering, which are
considered outstanding for all periods presented.
Recent Accounting Pronouncements
--------------------------------
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established accounting
and reporting standards for hedging activities and for derivative
instruments including derivative liabilities in the financial statements.
SFAS No. 133 is effective for all fiscal quarters in fiscal years beginning
after June 15, 2000, but initial application of the statement must be made
as of the beginning of the quarter. At the date of initial application, an
entity may transfer any held to maturity security into the available for
sale or trading categories without calling into question the entity's
intent to hold other securities to maturity in the future. The Company
believes the adoption of SFAS No. 133 will not have a material impact on
its financial position, results of operations or liquidity.
Reclassifications
-----------------
Certain 1998 amounts have been reclassified to conform to the presentation
used in 1999.
(2) Investment Securities
Investment securities available for sale at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. Treasuries and
U.S. Government agencies $5,941,295 - (38,680) 5,902,615
Mortgage backed securities 960,062 - (14,354) 945,708
---------- ---------- ------- ---------
$6,901,357 - (53,034) 6,848,323
========== ========== ======= =========
</TABLE>
The amortized cost and estimated fair value of investment securities
available for sale at December 31, 1999, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers have the right to call or prepay obligations with or without call
or prepayment penalties.
Amortized Estimated
Cost Fair Value
---------- ----------
U.S. Treasuries and U.S.
Government agencies:
1 to 5 years $5,446,707 5,418,552
5 to 10 years 494,588 484,063
Mortgage backed securities 960,062 945,708
---------- ---------
$6,901,357 6,848,323
========== =========
There were no sales of securities available for sale during 1999.
-10-
<PAGE>
CHEROKEE BANKING COMPANY
Notes to Consolidated Financial Statements, continued
(3) Loans
Major classifications of loans at December 31, 1999 are summarized as
follows:
Commercial, financial and agricultural $2,428,034
Real estate - mortgage 2,028,029
Real estate - construction 473,007
Consumer 564,008
----------
5,493,078
Less: Allowance for loan losses 68,663
----------
$5,424,415
==========
The Bank grants loans and extensions of credit to individuals and a variety
of businesses and corporations located in its general trade area of the
city of Canton, Cherokee County, Georgia and adjoining counties. Although
the Bank has a diversified loan portfolio, a substantial portion of the
loan portfolio is collateralized by improved and unimproved real estate and
is dependent upon the real estate market.
The Bank provided $68,663 for the year ended December 31, 1999 to the
allowance for loan losses for potential problem loans.
(4) Premises and Equipment
Major classifications of premises and equipment as of December 31, 1999 are
summarized as follows:
Land $ 450,000
Leasehold improvements 18,030
Furniture and equipment 185,006
Construction in process 663,875
----------
1,316,911
Less: Accumulated depreciation 26,879
----------
$1,290,032
==========
Depreciation expense amounted to $26,879 in 1999.
(5) Deposits
All time deposits at December 31, 1999 mature in 2000.
(6) Income Taxes
At December 31, 1999, the Company had federal and state net operating loss
carryforwards for tax purposes of approximately $299,000 and $415,000,
respectively, which will expire beginning in 2014 if not previously
utilized. No income tax expense or benefit was recorded for the periods
ended December 31, 1999 or 1998 due to this loss carryforward.
-11-
<PAGE>
CHEROKEE BANKING COMPANY
Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued
The following summarizes the components of deferred taxes at December 31,
1999 and 1998.
1999 1998
---------- --------
Deferred income tax assets:
Allowance for loan losses $ 19,218 -
Pre-opening expenses 89,613 15,516
Unrealized loss on available for sale securities 20,153 -
Operating loss carryforwards 117,626 -
--------- -------
Total gross deferred income tax assets 246,610 15,516
Less valuation allowance (226,457) (15,516)
--------- -------
Net deferred tax assets $ 20,153 -
========= =======
The future tax consequences of the differences between the financial
reporting and tax basis of the Company's assets and liabilities resulted in
a net deferred tax asset. A valuation allowance was established for the net
deferred tax asset, as the realization of these deferred tax assets is
dependent on future taxable income.
(7) Commitments
The Company entered into an employment agreement with its President and
Chief Executive Officer, providing for an initial term of three years
commencing January 1, 1999. The agreement provides for a base salary, an
incentive bonus, and an award of 30,000 stock options, which will be earned
equally over five years at $10 per share. The agreement further provides
for other perquisites commensurate with his employment, and subjects the
President to certain non-compete restrictions.
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 in excess of the amount recognized in the
consolidated balance sheet. The contractual amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. In most cases, the Bank requires collateral to support
financial instruments with credit risk. At December 31, 1999, the Bank has
commitments to extend credit of $1,788,000, but no standby letters of
credit.
The Bank is in the process of constructing a building which will serve as
the main office. In relation to this construction in process, the Bank has
spent $663,875 on this building and has committed to spend an additional
$1,070,000.
(8) Employee and Director Benefit Plans
As a condition of employment, the President was granted options to purchase
30,000 shares of common stock. The shares were granted at an exercise price
of $10 per share, vest evenly over a five-year period, and are exercisable
no later than ten years from the date of grant.
In connection with the Company's formation and initial offering, warrants
for 183,550 shares were issued to the organizers. The warrants allow each
holder to purchase one additional share of common stock for each share
purchased in connection with the initial offering and were issued as of the
date of issuance of the common stock sold in the offering. The warrants
will be exercisable for a period of ten years following issuance, but
generally no later than three months after ceasing to serve as a director,
at the initial offering price of $10 per share.
-12-
<PAGE>
CHEROKEE BANKING COMPANY
Notes to Consolidated Financial Statements, continued
(8) Employee and Director Benefit Plans, continued
The Company is encouraged, but not required, to compute the fair value of
options at the date of grant and to recognize such costs as compensation
expense immediately if there is no vesting period or ratably over the
vesting period of the options. The Company has chosen not to adopt the cost
recognition principles, and therefore no compensation expense has been
recognized in 1999 related to the stock option plan. Had compensation cost
been determined and recognized based upon the fair value of the options at
the grant dates, the Company's net loss and net loss per share would have
been increased to the pro forma amounts indicated below for the year ended
December 31, 1999:
Basic loss Diluted loss
Net loss per share per share
As reported $544,069 $0.74 $0.74
Pro forma 710,927 0.96 0.96
The fair value of each option is estimated on the date of grant using the
Minimum Value pricing model with the following weighted average
assumptions: dividend yield of 0%; risk free interest rate of 6.92% and an
expected life of 10 years.
A summary of activity in the directors' warrants and stock option plans for
the year ended December 31, 1999 is presented below:
Option Weighted Average
Shares Option Price Per Share
------- ----------------------
Outstanding, beginning of year - $ -
Granted during the year 213,550 10.00
Exercised during the year - -
------- ------
Outstanding, end of year 213,550 $10.00
=======
Exercisable at year end 42,710 $10.00
=======
The weighted average grant-date fair value of options granted in 1999 was
$4.77. For these employee and director stock options, options outstanding
at December 31, 1999 are exercisable at the price of $10 as presented in
the table above. Such options have a weighted average remaining contractual
life of approximately 9.5 years as of December 31, 1999.
(9) Shareholders' Equity
Shares of preferred stock may be issued from time to time in one or more
series as established by resolution of the Board of Directors of the
Company, up to a maximum of 2,000,000 shares. Each resolution shall include
the number of shares issued, preferences, special rights and limitations as
determined by the Board.
(10) Related Party Transactions
The Bank conducts transactions with directors and officers, including
companies in which they have a beneficial interest, in the normal course of
business. It is the Bank's policy to comply with federal regulations that
require that loan and deposit transactions with directors and executive
officers be made on substantially the same terms as those prevailing at the
time made for comparable loans and deposits to other persons. As of
December 31, 1999, there were $1,293,241 of related party deposits.
Following is a summary of related party loans:
New Loans/Advances $1,003,814
Less: Repayments (106,138)
---------
Balance at December 31, 1999 $ 897,676
=========
-13-
<PAGE>
CHEROKEE BANKING COMPANY
Notes to Financial Statements, continued
(11) Miscellaneous Operating Expenses
Components of other operating expenses which are greater than 1% of
interest income and other operating income are as follows:
Supplies $41,054
Telephone 10,415
Other outside services 87,755
Advertising 13,235
Public relations 18,869
Insurance 17,805
Legal fees 19,398
(12) Regulatory Matters
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the financial statements. Under certain
adequacy guidelines and the regulatory framework for prompt corrective
action, specific capital guidelines that involve quantitative measures of
the assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices must be met. The capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of Total and Tier 1 Capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1
Capital (as defined) to average assets (as defined). Management believes,
as of December 31, 1999, that the Company and the Bank meet all capital
adequacy requirements to which they are subject.
As of December 31, 1999, the most recent notification from the Federal
Deposit Insurance Corporation 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, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the
table below. There are no conditions or events since that notification that
management believes have changed the Bank's category.
The actual capital amounts (in thousands) and ratios are also presented in
the table below.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
(to Risk Weighted Assets)
Consolidated $6,762 78.7% 687 8% N/A N/A
Bank $5,424 63.1% 687 8% 859 10%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $6,693 77.9% 344 4% N/A N/A
Bank $5,356 62.3% 344 4% 515 6%
Tier 1 Capital
(to Average Assets)
Consolidated $6,693 42.1% 635 4% N/A N/A
Bank $5,356 33.7% 635 4% 794 5%
</TABLE>
-14-
<PAGE>
CHEROKEE BANKING COMPANY
Notes to Consolidated Financial Statements, continued
(12) Regulatory Matters, continued
Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends that may be paid
without prior approval of the regulatory authorities. These restrictions
are based on the level of regulatory classified assets, the prior years'
net earnings, and the ratio of equity capital to total assets. The Bank is
currently not allowed to pay dividends to the Company until it becomes
cumulatively profitable.
(13) CHEROKEE BANKING COMPANY (Parent Company Only) Financial Information
Balance Sheets
December 31, 1999 and 1998
Assets
------
1999 1998
---- ----
Cash and interest bearing deposits $1,338,333 9,596
Investment in Bank 5,375,763 -
Other assets - 10,000
---------- -------
$6,714,096 19,596
========== =======
Liabilities and Shareholders' Equity
------------------------------------
Other liabilities $ 955 60,000
Shareholders' equity 6,713,141 (40,404)
---------- -------
$6,714,096 19,596
========== =======
Statements of Operations
For the Year Ended December 31, 1999
and the Period from October 8, 1998 (inception) to December 31, 1998
1999 1998
----------- --------
Interest income $ 52,819 -
Other operating expense 5,532 40,414
--------- -------
Earnings (loss) before equity in
undistributed loss of Bank 47,287 (40,414)
Equity in undistributed loss of Bank (591,356) -
--------- -------
Net loss $(544,069) (40,414)
========= =======
-15-
<PAGE>
CHEROKEE BANKING COMPANY
Notes to Consolidated Financial Statements, continued
(13) CHEROKEE BANKING COMPANY (Parent Company Only) Financial Information,
continued
Statements of Cash Flows
For the Year Ended December 31, 1999
and the Period from October 8, 1998 (inception) to December 31, 1998
<TABLE>
<CAPTION>
1999 1998
------------ --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (544,069) (40,414)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Equity in undistributed loss of Bank 591,356 -
Change in other 10,955 (10,000)
----------- -------
Net cash provided (used) by operating activities 58,242 (50,414)
----------- -------
Cash flows from investing activities, consisting of
capital infusion into Bank (6,000,000) -
----------- -------
Cash flows from financing activities:
Change in line of credit (60,000) 60,000
Sale of (redemption of) organization shares (10) 10
Proceeds from sale of common stock 7,330,505 -
----------- -------
Net cash provided by financing activities 7,270,495 60,010
----------- -------
Net increase in cash 1,328,737 9,596
Cash at beginning of period 9,596 -
----------- -------
Cash at end of year $ 1,338,333 9,596
=========== =======
Supplemental schedule of noncash financing and investing activities:
Change in net unrealized loss on securities available for sale of Bank $ (32,881) -
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 6,762 -
</TABLE>
-16-
<PAGE>
EXHIBIT 22.1
Subsidiary of Cherokee Banking Company
Cherokee Bank,
Organized under the laws of the United States
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 557
<INT-BEARING-DEPOSITS> 200
<FED-FUNDS-SOLD> 4,170
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,848
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,493
<ALLOWANCE> (69)
<TOTAL-ASSETS> 18,816
<DEPOSITS> 11,996
<SHORT-TERM> 0
<LIABILITIES-OTHER> 107
<LONG-TERM> 0
0
0
<COMMON> 7,331
<OTHER-SE> (617)
<TOTAL-LIABILITIES-AND-EQUITY> 18,816
<INTEREST-LOAN> 73
<INTEREST-INVEST> 136
<INTEREST-OTHER> 206
<INTEREST-TOTAL> 415
<INTEREST-DEPOSIT> 155
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 260
<LOAN-LOSSES> 69
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 744
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> (544)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (544)
<EPS-BASIC> (0.74)
<EPS-DILUTED> (0.74)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 69
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
CHEROKEE BANKING COMPANY
1275 Riverstone Parkway
P. O. Box 4250
Canton, Georgia 30114
(770) 479-3400
March 1, 2000
To the Shareholders of Cherokee Banking Company:
You are cordially invited to attend the annual meeting of shareholders of
Cherokee Banking Company (the "Company") to be held at the Cherokee County
Chamber of Commerce, 3605 Marietta Highway, Canton, Georgia 30114, on Wednesday,
March 22, 2000 at 4:00 p.m. The official Notice of the Meeting, the Company's
Proxy Statement and the Company's Annual Report accompany this letter.
The principal business of the meeting will be (1) to elect three persons to
serve as Class I Directors for a three-year term and (2) to review the
operations of the Company and its wholly-owned subsidiary, Cherokee Bank.
We cannot take any action at the meeting unless the holders of a majority
of the outstanding shares of common stock of the Company are represented, either
in person or by proxy. Therefore, whether or not you plan to attend the
meeting, please mark, date, and sign the enclosed proxy card, and return it to
the Company in the envelope provided as soon as possible.
Following the shareholder's meeting, you are invited to attend an open
house at our new main office from 5 - 7 p.m. Refreshments and hors d'oeuvres
will be served. Please call Cindy Clark at (770) 479-3400, Ext. 104, if you
will be able to attend the open house.
The formal ribbon cutting for our new main office will be at 2:00 p.m. on
Tuesday, March 14th. We would love to have you there.
Sincerely,
Dennis W. Burnette
President
<PAGE>
CHEROKEE BANKING COMPANY
1275 Riverstone Parkway
P. O. Box 4250
Canton, Georgia 30114
(770) 479-3400
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 22, 2000
To the Shareholders of Cherokee Banking Company:
The Annual Meeting of Shareholders of Cherokee Banking Company will be held
on Wednesday, March 22, 2000, at 4:00 p.m. at the Cherokee County Chamber of
Commerce, 3605 Marietta Highway, Canton, Georgia 30114 for the following
purposes:
(1) To elect three persons to serve as Class I directors for a three-year
term; and
(2) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on February 25,
2000, as the record date for determining the shareholders who are entitled to
notice of, and to vote at, the meeting.
To ensure the greatest number of shareholders will be present either in
person or by proxy, we ask that you mark, date, sign, and return the enclosed
proxy card as soon as possible. If you attend the meeting in person, you may
revoke your proxy at the meeting and vote in person. You may revoke your proxy
at any time before the proxy is exercised.
By Order of the Board of Directors,
A. R. Roberts, III
Secretary
March 1, 2000
<PAGE>
CHEROKEE BANKING COMPANY
1275 Riverstone Parkway
Canton, Georgia 30114
(770) 479-3400
__________________________________________________________
PROXY STATEMENT FOR 2000 ANNUAL MEETING
__________________________________________________________
INTRODUCTION
------------
The Board of Directors of Cherokee Banking Company (the "Company") is
furnishing this Proxy Statement in connection with its solicitation of proxies
for use at the Annual Meeting of Shareholders to be held on Wednesday, March 22,
2000, and at any adjournments thereof. In addition to this solicitation by
mail, the officers and employees of the Company and its wholly-owned subsidiary,
Cherokee Bank (the "Bank"), without additional compensation, may solicit proxies
in favor of the proposal discussed below, if deemed necessary, by personal
contact, letter, telephone or other means of communication. Brokers, nominees
and other custodians and fiduciaries will be requested to forward proxy
solicitation material to the beneficial owners of the shares of the Company's
common stock, where appropriate, and the Company will reimburse them for their
reasonable expenses incurred in connection with such transmittals. The Company
will bear the cost of soliciting proxies for the Annual Meeting.
This Proxy Statement and the proxy card are first being mailed to
shareholders on or about March 1, 2000. If the enclosed proxy card is properly
executed, returned, and not revoked, it will be voted in accordance with the
specifications made by the shareholder. If the proxy card is signed and
returned but specifications are not made, the proxy will be voted FOR the
election of the nominees to the Board of Directors.
You can revoke your proxy at any time before it is voted by delivering to
A. R. Roberts, III, the Secretary of the Company, at the main office of the
Company, either a written revocation of the proxy or a duly executed proxy
bearing a later date or by attending the meeting and voting in person.
PROPOSALS TO BE CONSIDERED AT THE ANNUAL MEETING
------------------------------------------------
Shareholders will be asked to consider the following proposal at the Annual
Meeting:
Proposal. To elect three persons to serve as Class I directors for a
three-year term (see page 2 for a discussion of this proposal).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL.
VOTING AT THE ANNUAL MEETING
----------------------------
The close of business on February 25, 2000 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting. As of the close of business on the record date, the authorized
common stock, no par value, of the Company consisted of 10,000,000 shares, with
738,658 shares issued and outstanding. Each issued and outstanding share is
entitled to one vote.
<PAGE>
Directors are elected by a plurality of the shares cast in person or by
proxy at the Annual Meeting. Only those votes actually cast will be counted for
the purpose of determining whether a particular nominee received sufficient
votes to be elected. Accordingly, any abstentions and broker non-votes, which
occur when a broker submits a proxy card without exercising discretionary voting
authority on a non-routine matter, will not be included in vote totals and will
not be considered in determining the outcome of the vote.
Approval of any other matter that may properly come before the Annual
Meeting requires the affirmative vote of a majority of shares of common stock
present in person or by proxy and entitled to vote on the matter. Abstentions
will be counted in determining the minimum number of votes required for approval
and will, therefore, have the effect of negative votes. Broker non-votes will
not be counted as votes for or against approval of any other matter properly
brought before the Annual Meeting.
PROPOSAL: ELECTION OF DIRECTORS
--------------------------------
The Company's Articles of Incorporation provide that the Board of Directors
of the Company will be divided into three (3) classes, Class I, Class II and
Class III, each of which is as nearly equal in number as possible. The
directors in each class serve for staggered terms of three (3) years each. The
Board recommends that the shareholders elect the nominees identified below as
director nominees. The following tables set forth for each nominee and each
continuing director: (a) his or her name, (b) his or her age at December 31,
1999, (c) how long he or she has been a director of the Company, (d) his or her
position(s) with the Company, and (e) his or her principal occupation and recent
business experience. The Board recommends that the shareholders elect the
director nominees identified below as directors.
CLASS I--DIRECTOR NOMINEES
(For Three-Year Term Expiring 2003)
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY
NAME (AGE) DIRECTOR SINCE AND BUSINESS EXPERIENCE
- ---------- -------------- -------------------------
<S> <C> <C>
Dennis W. Burnette (53) 1998 President and Chief Executive Officer,
Cherokee Banking Company and Cherokee Bank;
Former Executive Research Consultant,
Sanford Rose Associates;
Former President, Pickens County Bank
William L. Early, MD (46) 1998 Physician;
Founder, President and Managing Partner,
Medical Associates of North Georgia
Albert L. Evans, Jr., PhD (53) 1998 Chief Financial Officer,
Emergency Medicine Associates, P.C.;
Education Committee Member,
Walker School of Marietta
</TABLE>
2
<PAGE>
CLASS II--CONTINUING DIRECTORS
(Term Expiring 2001)
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY
NAME (AGE) DIRECTOR SINCE AND BUSINESS EXPERIENCE
- ---------- -------------- --------------------------
<S> <C> <C>
J. Calvin Hill, Jr. (52) 1998 President, Gila Distributing--GA, Inc.
(window film distributor);
Director, Cherokee County Chamber of Commerce;
Board of Advisors, Reinhardt College;
President, Rotary Club of Canton;
Former Mayor, Ball Ground
Roger M. Johnson (57) 1998 Partner, Bray & Johnson
(attorneys)
J. David Keller (52) 1998 President, L.A. T Sportswear, Inc.
(sportswear manufacturer);
Advisory Board Member,
Cherokee County Children's Advocacy Council
</TABLE>
CLASS III--CONTINUING DIRECTORS
(Term Expiring 2002)
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY
NAME (AGE) DIRECTOR SINCE AND BUSINESS EXPERIENCE
- ---------- -------------- -------------------------
<S> <C> <C>
Wanda P. Roach (51) 1998 Secretary and Treasurer, Cherokee
Association of Realtors;
Real Estate Agent;
Board Member, City of Canton Downtown
Development Authority Board
A. R. (Rick) Roberts, III (46) 1998 Secretary, Cherokee Banking Company;
Chief Financial Officer and
Chief Operations Officer, Cherokee Bank;
Mayor, Ball Ground;
Former Executive Vice President and
Chief Financial Officer, Citizens Bank
Donald F. Stevens (55) 1998 President, Terry & Stevens, Inc. (homebuilder);
President, 84 West, Inc.;
Board of Advisors, Reinhardt College;
Former Pilot and Captain, Delta Air Lines, Inc.
Former Chairman, Cherokee County
Chamber of Commerce;
Edwin I. Swords, III (40) 1998 Dentist, Swords, Swords and Phelps
</TABLE>
3
<PAGE>
Meetings and Committees of the Board
------------------------------------
During the year ended December 31, 1999, the Board of Directors of the
Company held six meetings and committees of the Board held eight meetings. Each
director attended at least 75% of the Board of Directors meetings and his or her
respective committee meetings.
The Board of Directors established an Audit Committee, which recommends to
the Board of Directors the independent public accountants to be selected to
audit the Company's annual financial statements and determines that all audits
and exams required by law are performed fully, properly and in a timely fashion.
The Audit Committee evaluates internal accounting controls, reviews the adequacy
of the internal audit budget, personnel and audit plan. Until July of 1999, The
Audit Committee consisted of Albert L. Evans, Jr., PhD, Roger M. Johnson and
Wanda P. Roach, at which time the committee was dissolved and reorganized as a
committee of Cherokee Bank. During the year ended December 31, 1999, the Audit
Committee held two meetings at the Company level.
The Board of Directors also established a Compensation Committee, which is
responsible for establishing targets and awards under the management
compensation plan, granting stock options, reviewing salary ranges and fringe
benefits, and reviewing and approving compensation of the President and Chief
Executive Officer. The Compensation Committee consists of William L. Early, MD,
Albert L. Evans, Jr., PhD, and J. David Keller. During the year ended December
31, 1999, the Compensation Committee held one meeting.
The Board of Directors of the Company has no nominating committee. The
Board of Directors will consider shareholders' nominations of individuals to
serve as directors if the shareholder furnishes in writing to the Chairman of
the Board of the Company information concerning the nominees, including the
person's name and a description of his or her qualifications.
The directors of the Bank are the same as those of the Company.
EXECUTIVE OFFICERS
------------------
The following table shows for each executive officer of the Company: (a)
his name, (b) his age at December 31, 1999, (c) how long he has been an officer
of the Company, and (d) his positions with the Company and the Bank:
<TABLE>
<CAPTION>
POSITION WITH THE
NAME (AGE) OFFICER SINCE COMPANY AND THE BANK
---------- ------------- ----------------------
<S> <C> <C>
Dennis W. Burnette (53) 1999 President and Chief Executive Officer
of Cherokee Banking Company and
Cherokee Bank;
Director
A. R. (Rick) Roberts, III (46) 1999 Secretary, Cherokee Banking Company;
Chief Financial Officer and Chief
Operations Officer of Cherokee Bank;
Director
</TABLE>
4
<PAGE>
RELATED PARTY TRANSACTIONS
--------------------------
The Company and the Bank have banking and other business transactions in
the ordinary course of business with directors and officers of the Company and
the Bank and their affiliates, including members of their families,
corporations, partnerships or other organizations in which such directors and
officers have a controlling interest. These transactions take place on
substantially the same terms (including price, interest rate and collateral) as
those prevailing at the same time for comparable transactions with unrelated
parties. In the opinion of management, these transactions do not involve more
than the normal risk of collectibility or present other unfavorable features to
the Company or the Bank.
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
The Company has selected the accounting firm of Porter Keadle Moore, LLP to
serve as auditors for the Company for the current year. The firm of Porter
Keadle Moore, LLP has served as the Company's auditors since 1998. A
representative of the firm is expected to be present at the meeting and will be
given the opportunity to make a statement if he or she desires to do so and will
be available to respond to appropriate questions from shareholders.
OTHER MATTERS
-------------
The Board of Directors of the Company knows of no other matters that may be
brought before the meeting. If, however, any matter other than the election of
directors, or matters incidental to the election of directors, should properly
come before the meeting, votes will be cast pursuant to the proxies in
accordance with the best judgment of the proxyholders.
Whether or not you plan to attend the Annual Meeting, please complete,
sign, date and return the enclosed proxy card promptly. An envelope has been
provided for that purpose. No postage is required if the proxy card is mailed
in the United States.
March 1, 2000
5
<PAGE>
CHEROKEE BANKING COMPANY
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, MARCH 22, 2000
The undersigned hereby appoints Dennis W. Burnette or A. R. Roberts, III, or
either of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them or either of them to represent and to vote, as designated
below, all of the Common Stock of Cherokee Banking Company (the "Company"),
which the undersigned would be entitled to vote if personally present at the
Annual Meeting of Shareholders (the "Annual Meeting") to be held at the Cherokee
Chamber of Commerce, located at 3605 Marietta Highway, Canton, Georgia 30114,
and at any adjournments thereof, upon the proposal described in the accompanying
Notice of the Annual Meeting and the Proxy Statement relating to the Annual
Meeting, receipt of which are hereby acknowledged.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL.
PROPOSAL: To elect the three (3) persons listed below to serve as Class I
directors of the Company for a term of three years:
. Dennis W. Burnette . William L. Early, MD . Albert L. Evans, Jr., PhD
[ ] FOR all nominees listed above (except as [ ] WITHHOLD authority to vote
indicated below) for all nominees listed
above
INSTRUCTION: To withhold authority for any individual nominee, mark "FOR"
above, and write the nominee's name in this space
- ----------------------------------------------------------------------.
(CONTINUED ON THE REVERSE SIDE)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION TO THE CONTRARY IS INDICATED, IT
WILL BE VOTED FOR THE PROPOSAL.
DISCRETIONARY AUTHORITY IS HEREBY CONFERRED AS TO ALL OTHER MATTERS WHICH
MAY COME BEFORE THE ANNUAL MEETING.
------------------------------------------
Signature(s) of Shareholder(s)
[LABEL]
------------------------------------------
Name(s) of Shareholders(s)
Date:____________________________, 2000
(Be sure to date your Proxy)
Please mark, sign and date this Proxy, and
return it in the enclosed return-addressed
envelope. No postage is necessary. If
stock is held in the name of more than one
person, all must sign. Signatures should
correspond exactly with the name or names
appearing on the stock certificate(s). When
signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If a corporation,
please sign in full corporate name by
president or other authorized officer. If a
partnership, please sign in partnership name
by authorized person.
I WILL __________ WILL NOT ___________ ATTEND THE ANNUAL SHAREHOLDERS MEETING.
PLEASE RETURN PROXY AS SOON AS POSSIBLE
---------------------------------------
