<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________________ to
Commission file number 000-30511
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Cherokee Banking Company
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Georgia 6711 58-2432974
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(State of Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or organization) Classification Code Number)
1275 Riverstone Parkway
Canton, Georgia 30114
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(Address of principal executive (Zip Code)
offices)
</TABLE>
770-479-3400
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( Telephone Number)
Not Applicable
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(Former name, former address
and former fiscal year,
if changed since last report)
Check whether the issurer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES XX NO
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
738,658 shares of common stock, no par value per share, issued and
outstanding as of August 10, 2000.
Transitional Small Business Disclosure Format (check one): YES NO XX
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CHEROKEE BANKING COMPANY
INDEX
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<CAPTION>
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheet (unaudited) at June 30, 2000 3
Statement of Operations (unaudited) for the Three Months
and the Six Months Ended June 30, 2000 and 1999 4
Statement of Comprehensive Income (unaudited) for the Six
Months Ended June 30, 2000 and 1999 5
Statement of Cash Flows (unaudited) for the Six
Months Ended June 30, 2000 and 1999 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
This Report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (1) the Company's financing plans; (2) trends affecting
the Company's financial condition or results of operations; (3) the Company's
growth strategy and operating strategy; and (4) the declaration and payment of
dividends. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the forward-
looking statements as a result of various factors discussed herein and those
factors discussed in detail in the Company's filings with the Securities and
Exchange Commission.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHEROKEE BANKING COMPANY
Consolidated Balance Sheet
June 30, 2000
(Unaudited)
Assets
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<CAPTION>
<S> <C>
Cash and due from banks $ 1,101,388
Federal funds sold 5,730,000
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Cash and cash equivalents 6,831,388
Interest bearing deposits 1,590,000
Investment securities available for sale 11,643,948
Other investments 236,100
Loans, net 12,590,327
Premises and equipment, net 2,451,402
Accrued interest receivable and other assets 283,061
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$35,626,226
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Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Demand $ 3,305,004
Money market and NOW accounts 10,445,575
Savings 583,443
Time 14,647,064
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Total deposits 28,981,086
Accrued interest payable and other liabilities 347,696
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Total liabilities 29,328,782
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Stockholders' equity:
Common stock, no par value; authorized
10,000,000 shares; 738,658 issued and outstanding 7,330,505
Accumulated deficit (947,446)
Unrealized loss on securities available for sale, net of tax (85,615)
-----------
Total stockholders' equity 6,297,444
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$35,626,226
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</TABLE>
See accompanying notes to financial statements.
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CHEROKEE BANKING COMPANY
Consolidated Statements of Operations
For the Three Months and the Six Months Ended March 31, 2000 and 1999
(Unaudited)
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<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 241,990 - 396,614 -
Interest on federal funds sold 86,319 - 149,814 -
Investment securities 174,274 - 305,620 -
Interest on deposits with other banks 13,198 49,136 20,510 49,244
--------- -------- -------- --------
Total interest income 515,781 49,136 872,558 49,244
--------- -------- -------- --------
Interest expense:
Deposits 284,176 - 466,254 -
Other borrowed money - 5,477 - 6,762
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Total interest expense 284,176 5,477 466,254 6,762
--------- -------- -------- --------
Net interest income 231,605 43,659 406,304 42,482
Provision for loan losses 61,940 - 92,098 -
--------- -------- -------- --------
Net interest income after provision
for loan losses 169,665 43,659 314,206 42,482
--------- -------- -------- --------
Other income:
Service charges on deposit accounts 16,878 - 20,926 -
Other operating income 18,365 - 23,232 -
--------- -------- -------- --------
Total other income 35,243 - 44,158 -
--------- -------- -------- --------
Other expense:
Salaries and other personnel expense 206,271 63,816 374,553 95,307
Net occupancy and equipment expense 52,604 15,318 100,018 17,796
Other operating expense 136,994 69,183 246,756 104,016
--------- -------- -------- --------
Total other expense 395,869 148,317 721,327 217,119
--------- -------- -------- --------
Net earnings (loss) $(190,961) (104,658) (362,963) (174,637)
========= ======== ======== ========
Loss per common share based on average outstanding
shares of 738,658 in 2000 and 1999:
Net loss per share $ (0.26) (0.14) (0.49) (0.24)
========= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
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CHEROKEE BANKING COMPANY
Consolidated Statements of Comprehensive Income
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
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<CAPTION>
2000 1999
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<S> <C> <C>
Net loss $(362,963) (174,637)
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Other comprehensive income:
Unrealized holding losses on investment
securities available for sale (85,055) -
Less income tax benefit related to investment
securities available for sale 32,321 -
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Total other comprehensive income (loss), net of tax (52,734) -
--------- --------
Total comprehensive income (loss) $(415,697) (174,637)
========= ========
</TABLE>
See accompanying notes to financial statements.
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CHEROKEE BANKING COMPANY
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
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<CAPTION>
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (362,963) (174,637)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for loan losses 92,098 -
Depreciation, amortization and accretion 45,039 -
Gain on paydowns and calls of securities (1,455) -
Change in:
Accrued interest receivable and other assets (104,300) (31,952)
Accrued interest payable and other liabilities 240,754 -
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Net cash used by operating activities (90,827) (206,589)
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Cash flows from investing activities:
Proceeds from sales, maturities and paydowns
of investment securities held to maturity 517,825 -
Purchases of investment securities available for sale (5,381,377) -
Net change in interest bearing deposits (1,390,000) -
Net change in other investments (56,100) -
Change in loans (7,258,010) -
Deferred offering expenses - (25,000)
Purchase of premises and equipment (1,222,744) (500,963)
Proceeds from sale of premises and equipment 662 -
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Net cash used by investing activities (14,789,744) (525,963)
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Cash flows from financing activities:
Net change in deposits 16,985,017 -
Repayment of credit line (60,000)
Sale of common stock - 7,386,580
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Net cash provided by financing activities 16,985,017 7,326,580
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Net change in cash and cash equivalents 2,104,446 6,594,028
Cash and cash equivalents at beginning of the period 4,726,942 9,596
------------ ---------
Cash and cash equivalents at end of the period $ 6,831,388 6,603,624
============ =========
Noncash investing activities:
Change in unrealized loss on securities available for sale, net of tax $ (52,734) -
Supplemental cas flow information:
Cash paid for interest $ 223,484 5,477
</TABLE>
See accompanying notes to financial statements.
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CHEROKEE BANKING COMPANY
Notes to Financial Statements
(1) Organization
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Cherokee Banking Company (the Company), a bank holding company, owns 100%
of the outstanding common stock of Cherokee Bank, N.A. (the Bank), which
operates in the Canton, Georgia area. Prior to the Bank opening for
business on July 26, 1999, the activities of the Company were devoted
solely to securing banking facilities, raising capital and procuring
management and other personnel.
The consolidated financial statements include the accounts of the Company
and the Bank. All intercompany accounts and transactions have been
eliminated in consolidation.
The interim financial statements included herein are unaudited but reflect
all adjustments which, in the opinion of management, are necessary for a
fair presentation of the financial position and results of operations for
the interim period presented. All such adjustments are of a normal
recurring nature. The results of operations for the period ended June 30,
2000 are not necessarily indicative of the results of a full year's
operations.
The accounting principles followed by the Company and the methods of
applying these principles conform with generally accepted accounting
principles (GAAP) and with general practices within the banking industry.
In preparing 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
those 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 determinations 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 deferred
tax assets, the recognition of which are based on future taxable income.
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Item 2.
CHEROKEE BANKING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the Six Months Ended June 30, 2000 and 1999
Financial Condition
Total assets at June 30, 2000 were $35,626,226 representing a $16,810,074
(89%) increase from December 31, 1999. Deposits increased $16,985,017 (142%)
from December 31, 1999. Net loans outstanding increased $7,165,912 (132%) over
year-end 1999. The allowance for loan losses at June 30, 2000 totaled $159,371,
representing 1.25% of total loans at June 30, 2000 compared to the December 31,
1999 total of $68,663, which represented 1.25% of total loans. Cash and cash
equivalents at June 30, 2000 increased $2,104,446 from December 31, 1999.
There were no loans which were considered nonperforming at June 30, 2000.
Results of Operations
For the six months ended June 30, 2000, the Bank's annualized yield on
earning assets was 6.52%. The cost of funding sources for the six month period
ended June 30, 2000 was 3.93%. While the Bank's net interest spread was 2.59%,
the net interest margin, which considers the effect of non-interest bearing
deposits, was 3.04%.
For the six months ended June 30, 2000, interest income was $873,000,
primarily from loans ($397,000) and investment securities ($306,000). Interest
expense of $466,000 related to the Bank's deposits.
The Bank provided $92,000 for potential loan losses for the six months ended
June 30, 2000 in management's efforts to maintain the allowance for loan losses
at an appropriate level.
Other expense of $721,000 was primarily made up of salaries and employee
costs of $375,000 and other operating expense of $247,000.
Capital
The following tables present Cherokee Banking Company's regulatory capital
position at June 30, 2000:
Risk-Based Capital Ratios
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Tier 1 Tangible Capital, Actual 27.12%
Tier 1 Tangible Capital minimum requirement 4.00%
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Excess 23.12%
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Total Capital, Actual 28.00%
Total Capital minimum requirement 8.00%
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Excess 20.00%
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Leverage Ratio
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Tier 1 Tangible Capital to adjusted total assets
("Leverage Ratio") 16.52%
Minimum leverage requirement 4.00%
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Excess 12.52%
=====
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material, pending legal proceedings to which the Company or any
of its subsidiaries is a party or of which any of their property is the subject.
Item 2. Changes in Securities
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following documents are incorporated by reference and made a part of
this report.
Exhibit
Number Exhibit
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3.1 Articles of Incorporation (incorporated herein by reference to
exhibit 3.1 to the Company's Registration Statement on Form
SB-2, as amended, Registration No. 333-71571)
3.2 Bylaws (incorporated herein by reference to exhibit 3.2 to the
Company's Registration Statement on Form SB-2, as amended,
Registration No. 333-71571)
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 (incorporated herein by reference to exhibit
10.1 to the Company's Registration Statement on Form SB-2, as
amended, Registration No. 333-71571)
10.2* Employment Agreement, dated as of January 1, 1999, among
Cherokee Bank, N.A., Cherokee Banking Company and Dennis W.
Burnette (incorporated herein by reference to exhibit 10.3 to
the Company's Registration Statement on Form SB-2, as amended,
Registration No. 333-71571)
10.3 Form of Cherokee Banking Company Organizers' Warrant Agreement
(incorporated herein by reference to exhibit 10.5 to the
Company's Registration Statement on Form SB-2, as amended,
Registration No. 333-71571)
10.4 Escrow Agreement, dated as of April 1, 1999, among Cherokee
Banking Company and The Bankers Bank (incorporated herein by
reference to exhibit 10.6 to the Company's Registration
Statement on Form SB-2, as amended, Registration No. 333-
71571)
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10.5 Construction Agreement dated September 29, 1999 by and between
Cherokee Banking Company, Inc. and W. H. Bass, Inc.
(incorporated herein by reference to exhibit 10.5 to the
Company's Form 10-KSB filed on March 27, 2000)
27.1 Financial Data Schedule (for SEC purposes only)
___________________________________
* Compensatory plan or arrangement.
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements 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
Date: August 14, 2000 By: /s/ Dennis W. Burnette
-------------------------------
Dennis W. Burnette
President, Chief Executive
Officer and Director
Date: August 14, 2000 By: /s/ A.R. Roberts, III
-------------------------------
A.R. Roberts, III
Chief Financial Officer, Chief
Operations Officer and Director
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