<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 September 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
------------------------------- ---------------------------- ------------------------------------
(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
------------------------------- ------------------------------------
(Address of principal executive (Zip Code)
offices)
</TABLE>
770-479-3400
------------
(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
------
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 November 9, 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
Consolidated Balance Sheet (unaudited) at September 30, 2000 3
Consolidated Statements of Operations (unaudited) for the
Three Months and the Nine Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Comprehensive Income (unaudited)
for the Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows (unaudited)
for the Nine Months Ended September 30, 2000 and 1999 6
Notes to Consolidated 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
September 30, 2000
(Unaudited)
Assets
------
Cash and due from banks $ 732,466
Federal funds sold 5,810,000
-----------
Cash and cash equivalents 6,542,466
Interest bearing deposits 1,779,000
Investment securities available for sale 13,990,586
Other investments 236,100
Loans, net 17,106,840
Premises and equipment, net 2,485,898
Accrued interest receivable and other assets 408,221
-----------
$42,549,111
===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Demand $ 4,883,881
Money market and NOW accounts 12,679,812
Savings 577,003
Time 17,718,125
-----------
Total deposits 35,858,821
Accrued interest payable and other liabilities 429,990
-----------
Total liabilities 36,288,811
-----------
Stockholders' equity:
Common stock, no par value; authorized
10,000,000 shares; 738,658 issued and outstanding 7,330,505
Accumulated deficit (1,031,697)
Unrealized loss on securities available for sale, net of tax (38,508)
-----------
Total stockholders' equity 6,260,300
-----------
$42,549,111
===========
See accompanying notes to consolidated financial statements.
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CHEROKEE BANKING COMPANY
Consolidated Statements of Operations
For the Three Months and the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
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<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 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 $362,114 8,557 758,728 8,557
Interest on federal funds sold 113,661 79,618 263,475 79,618
Investment securities 236,127 35,352 541,747 35,352
Escrowed stock subscriptions 3,683 52,927
Interest on deposits with other banks 31,311 - 51,821 -
-------- -------- --------- --------
Total interest income 743,213 127,210 1,615,771 176,454
-------- -------- --------- --------
Interest expense:
Deposits 432,810 37,401 899,064 37,401
Other borrowed money - - - 6,762
-------- -------- --------- --------
Total interest expense 432,810 37,401 899,064 44,163
-------- -------- --------- --------
Net interest income 310,403 89,809 716,707 132,291
Provision for loan losses 57,171 17,505 149,269 17,505
-------- -------- --------- --------
Net interest income after provision
for loan losses 253,232 72,304 567,438 114,786
-------- -------- --------- --------
Other income:
Service charges on deposit accounts 26,383 - 47,309 -
Other operating income 34,489 602 57,721 602
-------- -------- --------- --------
Total other income 60,872 602 105,030 602
-------- -------- --------- --------
Other expense:
Salaries and other personnel expense 206,294 121,372 580,847 216,679
Net occupancy and equipment expense 52,404 30,342 152,422 48,138
Other operating expense 139,657 145,378 386,413 249,394
-------- -------- --------- --------
Total other expense 398,355 297,092 1,119,682 514,211
-------- -------- --------- --------
Net earnings (loss) $(84,251) (224,186) (447,214) (398,823)
======== ========= ========= ========
Loss per common share based on average outstanding
shares of 738,658 in 2000 and 1999:
Net loss per share $ (0.11) (0.30) (0.61) (0.54)
======== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
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CHEROKEE BANKING COMPANY
Consolidated Statements of Comprehensive Income
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
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<CAPTION>
2000 1999
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Net loss $(447,214) (398,823)
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Other comprehensive income:
Unrealized holding losses on investment
securities available for sale (9,074) (25,285)
Less income tax benefit related to investment
securities available for sale 3,447 9,608
--------- --------
Total other comprehensive income (loss), net of tax (5,627) (15,677)
--------- --------
Total comprehensive income (loss) $(452,841) (414,500)
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
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CHEROKEE BANKING COMPANY
Consolidated Statements of Cash Flows
For the Nine Months Ended September 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 $ (447,214) (398,823)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for loan losses 149,269 17,505
Depreciation, amortization and accretion 68,595 9,873
Gain on paydowns and calls of securities (10,839) -
Change in:
Accrued interest receivable and other assets (258,334) (107,967)
Accrued interest payable and other liabilities 323,048 28,125
------------ ----------
Net cash used by operating activities (175,475) (451,287)
------------ ----------
Cash flows from investing activities:
Proceeds from sales, maturities and paydowns
of investment securities available for sale 728,097 -
Purchases of investment securities available for sale (7,839,920) (4,734,707)
Net change in interest bearing deposits (1,579,000) -
Net change in other investments (56,100) -
Change in loans (11,831,694) (1,400,423)
Purchase of premises and equipment (1,293,798) (731,473)
Proceeds from sale of premises and equipment 662 -
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Net cash used by investing activities (21,871,753) (6,866,603)
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Cash flows from financing activities:
Net change in deposits 23,862,752 6,453,098
Repayment of credit line (60,000)
Sale of common stock - 7,386,580
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Net cash provided by financing activities 23,862,752 13,779,678
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Net change in cash and cash equivalents 1,815,524 6,461,788
Cash and cash equivalents at beginning of the period 4,726,942 9,596
------------ ----------
Cash and cash equivalents at end of the period $ 6,542,466 6,471,384
============ ==========
Noncash investing activities:
Change in unrealized loss on securities available for sale, net of tax $ (5,627) (15,677)
Supplemental cash flow information:
Cash paid for interest $ 583,153 -
</TABLE>
See accompanying notes to consolidated financial statements.
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CHEROKEE BANKING COMPANY
Notes to Consolidated 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 September
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 Nine Months Ended September 30, 2000 and 1999
Financial Condition
Total assets at September 30, 2000 were $42,549,111 representing a
$23,732,959 (126%) increase from December 31, 1999. Deposits increased
$23,862,752 (199%) from December 31, 1999. Net loans outstanding increased
$11,682,425 (215%) over year-end 1999. The allowance for loan losses at
September 30, 2000 totaled $216,543, representing 1.25% of total loans at
September 30, 2000 compared to the December 31, 1999 total of $68,663, which
represented 1.25% of total loans. Cash and cash equivalents at September 30,
2000 increased $1,815,524 from December 31, 1999.
There were no loans which were considered nonperforming at September 30,
2000.
Results of Operations
For the nine months ended September 30, 2000, the Bank's annualized yield
on earning assets was 6.98%. The cost of funding sources for the nine month
period ended September 30, 2000 was 4.55%. While the Bank's net interest spread
was 2.44%, the net interest margin, which considers the effect of non-interest
bearing deposits, was 3.10%.
For the nine months ended September 30, 2000, interest income was
$1,616,000, primarily from loans ($759,000) and investment securities
($542,000). Interest expense of $899,000 related to the Bank's deposits.
The Bank provided $149,000 for potential loan losses for the nine months
ended September 30, 2000 in management's efforts to maintain the allowance for
loan losses at an appropriate level.
Other expense of $1,120,000 was primarily made up of salaries and employee
costs of $581,000 and other operating expense of $386,000.
Capital
The following tables present Cherokee Banking Company's regulatory capital
position at September 30, 2000:
Risk-Based Capital Ratios
-------------------------
Tier 1 Tangible Capital, Actual 20.55%
Tier 1 Tangible Capital minimum requirement 4.00%
-----
Excess 16.55%
=====
Total Capital, Actual 21.45%
Total Capital minimum requirement 8.00%
-----
Excess 13.45%
=====
Leverage Ratio
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Tier 1 Tangible Capital to adjusted total assets
("Leverage Ratio") 12.45%
Minimum leverage requirement 4.00%
-----
Excess 8.45%
=====
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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
------- -------
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: November 10, 2000 By: /s/ Dennis W. Burnette
------------------------ --------------------------------------
Dennis W. Burnette
President, Chief Executive Officer
and Director
Date: November 10, 2000 By: /s/ A.R. Roberts
------------------------ --------------------------------------
A.R. Roberts, III
Chief Financial Officer, Chief
Operations Officer and Director
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