<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
__ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _____________ to ____________
Commission file number 0-18488
FIRST CHEROKEE BANCSHARES, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1807887
------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6395 EAST ALABAMA ROAD, WOODSTOCK, GEORGIA 30188
------------------------------------------------
(Address of principal executive offices)
770-591-9000
------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
X Yes __ No
The number of shares outstanding of registrant's common stock par value $1.00
per share at September 30, 1995 was 501,640 shares.
1
<PAGE>
First Cherokee Bancshares, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended September 30, 1995
Index
-----
Page No.
--------
Part I. Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet at September 30, 1995 3
Consolidated Statements of Earnings (unaudited)
for the nine months ended September 30, 1995 and 1994 4
Consolidated Statements of Earnings (unaudited)
for the three months ended September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis or Plan of Operation 8
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Item 7. Signatures 13
2
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
Consolidated Balance Sheet
September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Cash & due from banks, including $12,907,826
bearing interest $15,980,387
Federal funds sold 830,000
-----------
Total cash & cash equivalents 16,810,387
Investment securities available for sale,
at fair value 3,224,381
Loans, less allowance for loan losses
of $691,138 54,079,638
Premises and equipment 1,986,831
Accrued interest receivable and other assets 5,726,429
-----------
TOTAL ASSETS $81,827,666
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Interest-bearing deposits $67,678,631
Noninterest-bearing deposits 7,143,026
-----------
Total deposits 74,821,657
Accrued interest payable and other liabilities 1,106,840
-----------
TOTAL LIABILITIES 75,928,497
STOCKHOLDERS' EQUITY:
Common stock ($1 par value; 10,000,000
shares authorized, 510,040 shares issued) 510,040
Additional paid-in-capital 4,516,417
Retained earnings 948,778
Treasury Stock (8,400 shares acquired
at cost) (84,000)
Unrealized gains on available for
sale securities, net of tax effect 7,934
-----------
TOTAL STOCKHOLDERS' EQUITY 5,899,169
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $81,827,666
===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
NINE NINE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1995 30, 1994
--------- ---------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,401,522 $2,672,150
Interest on investment securities 159,463 173,574
Interest on federal funds sold/overnight funds 401,958 125,838
---------- ----------
TOTAL INTEREST INCOME 4,962,943 2,971,562
INTEREST EXPENSE ON DEPOSITS 2,549,639 1,237,452
---------- ----------
NET INTEREST INCOME 2,413,304 1,734,110
Provision for loan losses 255,471 65,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,157,833 1,669,110
OTHER INCOME:
Mortgage loan origination fees 24,287 92,327
Gain on sale of investment securities 0 0
Gain on sales of loans 1,109,813 900,083
Service charges on deposit accounts
and other income 287,609 196,382
---------- ----------
TOTAL OTHER INCOME 1,421,709 1,188,792
OTHER EXPENSE:
Salaries and employee benefits 1,217,061 1,051,928
Occupancy 370,243 349,226
Other operating expense 732,356 673,986
---------- ----------
TOTAL OTHER EXPENSE 2,319,660 2,075,140
EARNINGS BEFORE INCOME TAXES 1,259,882 782,762
INCOME TAXES 437,000 124,036
NET EARNINGS $ 822,882 $ 658,726
========== ==========
EARNINGS PER COMMON SHARE BASED UPON AVERAGE
OUTSTANDING SHARES OF 501,640 IN 1995 AND 1994:
NET EARNINGS PER SHARE $1.64 $1.31
===== =====
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
SEPTEMBER SEPTEMBER
30, 1995 30, 1994
--------- ---------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,590,384 $1,042,929
Interest on investment securities 52,401 55,584
Interest on federal funds sold/overnight funds 183,573 49,675
---------- ----------
TOTAL INTEREST INCOME 1,826,358 1,148,188
INTEREST EXPENSE ON DEPOSITS 969,639 470,082
---------- ----------
NET INTEREST INCOME 856,719 678,106
Provision for loan losses 107,001 50,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 749,718 628,106
OTHER INCOME:
Mortgage loan origination fees 9,549 28,982
Gain on sale of investment securities 0 0
Gain on sales of loans 310,371 221,157
Service charges on deposit accounts
and other income 95,879 66,862
---------- ----------
TOTAL OTHER INCOME 415,799 317,001
OTHER EXPENSE:
Salaries and employee benefits 414,482 367,680
Occupancy 127,803 126,191
Other operating expense 255,638 229,275
---------- ----------
TOTAL OTHER EXPENSE 797,923 723,146
EARNINGS BEFORE INCOME TAXES 367,594 221,961
INCOME TAXES 133,000 76,036
NET EARNINGS $ 234,594 $ 145,925
========== ==========
EARNINGS PER COMMON SHARE BASED UPON AVERAGE
OUTSTANDING SHARES OF 501,640 IN 1995 AND 1994:
NET EARNINGS PER SHARE $0.47 $0.29
===== =====
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $ 822,882 $ 658,726
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH
PROVIDED (USED) IN OPERATING ACTIVITIES:
Depreciation, amortization and accretion 139,925 133,856
Provision for loan losses 255,471 65,000
Securities gains 0 0
Change in accrued interest payable and
other liabilities 384,851 416,748
Change in accrued interest receivable and
other assets (2,012,597) (897,622)
----------- ----------
TOTAL ADJUSTMENTS (1,232,350) (282,018)
----------- ----------
NET CASH (PROVIDED) USED IN OPERATING ACTIVITIES (409,468) 376,708
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities 0 0
Proceeds from sale of investment securities 0 0
Proceeds from maturities and calls of investment securities
available for sale (40,661) 366,371
Net increase in loans (8,583,828) (9,356,331)
Purchases of premises and equipment (50,738) (200,050)
----------- ----------
NET CASH USED BY INVESTING ACTIVITIES (8,675,227) (9,190,010)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 17,810,117 6,625,958
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 17,810,117 6,625,958
NET CHANGE IN CASH AND CASH EQUIVALENTS 8,725,422 (2,187,344)
BEGINNING CASH AND CASH EQUIVALENTS 8,084,965 8,250,359
----------- ----------
ENDING CASH AND CASH EQUIVALENTS $16,810,387 $6,063,015
NONCASH INVESTING ACTIVITIES:
CHANGE IN UNREALIZED GAIN ON SECURITIES AVAILABLE
FOR SALE, NET OF TAX EFFECT $ 90,668 ($ 46,408)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
INTEREST PAID $ 2,544,891 $ 1,229,177
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1995
NOTE (1) - BASIS OF PRESENTATION
- --------------------------------
The consolidated financial statements include the accounts of First Cherokee
Bancshares, Inc. (the "Company") and its wholly-owned subsidiary, First
National Bank of Cherokee (the "Bank"). All significant accounts have been
eliminated in consolidation. Certain prior period amounts have been
reclassified to conform with current year presentation.
The accompanying unaudited interim consolidated financial statements reflect
all adjustments which, in the opinion of management, are necessary to present
fairly the Company's financial position as of September 30, 1995, and the
results of its operations and its cash flows for the nine-month period then
ended. All such adjustments are normal and recurring in nature. The financial
statements included herein should be read in conjunction with the
consolidated financial statements and the notes thereto and the report of
independent accountants included in the Company's 1994 Annual Report on Form
10-KSB.
NOTE (2) - CHANGE IN ACCOUNTING PRINCIPLE
- -----------------------------------------
Effective January 1, 1995, the Company changed its method of accounting for
impaired loans and adopted Statement of Financial Accounting Standards No.
114 "Accounting for Creditors for Impairment of a Loan" (SFAS No. 114). SFAS
114 requires that impaired loans be measured on the present value of expected
future cash flows discounted at the loan's effective interest rate, which is
the contractual interest rate adjusted for any deferred loan fee or cost,
premium or discount existing at the inception or acquisition of the loan, or
at the loan's observable market price, or the fair value of the collateral of
the loan if the loan is collateral dependent. The impact of the adoption of
SFAS 114 as of January 1, 1995 is not material to the consolidated financial
statements.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
The following narrative should be read in conjunction with the Company's
consolidated financial statements and the notes thereto.
FINANCIAL CONDITION
- -------------------
The Company continued to experience substantial growth during the third
quarter of 1995. Assets increased approximately $4.1 million during the
quarter as compared to $10.7 million during the second quarter of 1995 and $3
million during the third quarter of 1994. The Company also continued to
experience excellent earnings. The average yield on earning assets for the
first nine months of 1995 increased to 10.39% as compared to 8.84% for the
first nine months of 1994. The average cost of funds on interest-bearing
deposits also increased for the first three quarters of 1995 to 5.62%, as
compared to 4.20% for the first three quarters of 1994. The net interest
spread for the first three quarters of 1995 decreased slightly to 4.77%
compared to 4.83% for the first three quarters of 1994.
Loans have increased significantly from $40.4 million at September 30, 1994,
and $45.8 million at December 31, 1994, to $54.1 million at September 30,
1995 primarily due to increased commercial loan activity. The following table
presents major classifications of loans at September 30, 1995:
<TABLE>
<CAPTION>
% of
Total
Total Loan
Loans Portfolio
----- ---------
<S> <C> <C>
Commercial $ 9,517,813 17.38%
SBA - unguaranteed 9,567,092 17.47%
Real estate - mortgage 21,657,961 39.54%
Real estate - construction 9,610,801 17.55%
Installment and other consumer 4,417,109 8.06%
----------- -------
Total loans 54,770,776 100.00%
Less: Allowance for loan losses (691,138)
-----------
Total net loans $54,079,638
</TABLE>
Deposits increased steadily during the third quarter of 1995. Total deposits
were $48.6 million at September 30, 1994 as compared to $57 million at
December 31, 1994 and $74.8 million at September
8
<PAGE>
30, 1995. Actual total deposits at September 30, 1995 were 15% over total
deposits projected in the Bank's capital plan at that date. Deposits are
expected to stabilize during the fourth quarter of 1995.
A provision of $107,001 was added to the Allowance for Loan and Lease Losses
during the third quarter of 1995, bringing total provisions for the year to
$255,471. The provisions are attributable to loan growth as well as to
increase the ratio of the allowance to total loans. The allowance had a
balance of $691,138 at September 30, 1995, representing 1.25% of loans, the
target ratio projected in the Bank's capital plan by December 31, 1995. Year
to date chargeoffs were $54,565 while recoveries were $29,202, resulting in
net chargeoffs of $25,363. Management believes this allowance is adequate to
cover possible loan losses. The following table presents the activity in the
allowance for loan losses for the first three quarters of 1995. At September
30, 1995, the Bank had no loans that required specific allocations;
therefore, the allowance at that date was unallocated.
TABLE 1
FIRST CHEROKEE BANCSHARES, INC.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1994 $461,030
Chargeoffs: (54,565)
Recoveries: 29,202
Provision for Loan Losses: 255,471
--------
Balance, September 30, 1995 $691,138
========
</TABLE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
- -------------------------------------------
At September 30, 1995, the Bank had six loans classified as nonaccrual
totaling $375,892, all secured by real estate. Each of the nonaccrual loans
was ninety days delinquent as of September 30, 1995, except one, which was
classified as nonaccrual by management because the collection of interest
from the borrower is doubtful. No material loss is anticipated on any of the
nonaccrual loans so no specific reserves or writedowns are considered
necessary at this time. If interest income on the total nonaccrual loans had
been accrued, such income would have approximated $20,545 as of September 30,
1995. Interest income on such loans, recorded only when received, was $5,988
during the third quarter of 1995. As of September 30, 1995, the Bank had
three properties classified as Other Real Estate Owned, totaling $892,846.
The ratio of loans past due 30 days or more to total loans improved to 1.23%
at September 30, 1995 from 2.38% at September 30, 1994. There were no loans
past due greater than 90 days that were on accrual status, nor were there any
restructured loans, as of September 30, 1995 or September 30, 1994.
9
<PAGE>
LIQUIDITY
- ---------
The Company's primary sources of funds are increases in deposits, loan
repayments, and sales and maturities of investments. Liquidity refers to the
ability of the Company to meet its cash flow requirements and fund its
commitments. The Company manages the levels, types, and maturities of earning
assets in relation to the sources available to fund current and future needs
to ensure that adequate funding will be available at all times. The Company
monitors its compliance with regulatory liquidity requirements and
anticipates funding requirements to be satisfactorily met.
CAPITAL RESOURCES
- -----------------
At September 30, 1995, consolidated stockholders' equity was $5,899,169 or
7.21% of total assets compared to $4,888,052 or 9.03% of total assets at
September 30, 1994. The Company's common stock had a book value of $11.76 per
share at September 30, 1995, compared to $9.74 book value per share at
September 30, 1994, based on total outstanding shares of 501,640. At the end
of the third quarter of 1995, the Company had approximately 650 stockholders
of record.
The Bank and the Company are subject to the capital requirements of the
Office of the Comptroller of the Currency (the "OCC") and the Federal Reserve
Bank (the "FRB"). The OCC and FRB have adopted final risk-based capital
guidelines for all national banks and holding companies, respectively. All
national banks are expected to maintain a minimum ratio of total capital
(after deductions) to risk-weighted assets of 8% (of which at least 4% must
consist of Tier 1 Capital, as defined).
Table 2, on page 11, sets forth information with respect to the Bank's
capital ratios at September 30, 1995 and 1994 compared to minimum ratios
required by regulation. The Company's capital ratios are similar to those of
the Bank and exceed the minimum risk-weighted requirements of the FRB.
10
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
CAPITAL CALCULATIONS
TABLE 2
- -------
<TABLE>
<CAPTION>
9/30/95 9/30/94
(Bank Only) (Bank Only)
-----------------------------------------
Amount Amount
(in 000's) Ratio (in 000's) Ratio
--------- ----- --------- -----
<S> <C> <C> <C> <C>
RISK-BASED CAPITAL RATIOS:
Tier 1 Capital per regulations $5,286 8.88% $4,663 10.39%
Minimum Requirement per
regulations 2,381 4.00% 1,795 4.00%
------- ------ ------- -----
Excess $2,905 4.88% $2,868 6.39%
Tier 1 and Tier 2 Capital $5,977 10.04% $5,117 11.34%
Total Capital Minimum Requirement 4,763 8.00% 3,611 8.00%
------- ------ ------- -----
Excess $1,214 2.04% $1,506 3.34%
LEVERAGE RATIOS:
Tier 1 Capital $5,286 6.46% $4,663 8.61%
Minimum Requirement per
regulations 3,273 4.00% 2,166 4.00%
------- ------ ------- -----
Excess $2,013 2.46% $2,497 4.61%
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
The Company recognized net earnings of $822,882 for the nine months ended
September 30, 1995. In comparison, year to date net earnings through
September 30, 1994 were $658,726 with a minimal accrual for income taxes.
(The Bank became liable for federal income taxes during the second quarter of
1994 since the benefit of federal tax operating loss carryforwards became
fully utilized during the first quarter of 1994.) Actual earnings for the
first three quarters of 1995 are significantly higher than projected. Net
interest income for the first nine months of 1995 was $2,413,304 as compared
to $1,734,110 for the first nine months of 1994. The Company's additional
earnings have resulted primarily from net income from Small Business
Administration ("SBA") operations. During the first quarter of 1995, the Bank
began calculating excess service fees on SBA loans using a normal servicing
fee of 40 basis points. This change resulted in approximately $60,000,
$38,000 and $49,000 additional
11
<PAGE>
income, net of taxes, in the first, second and third quarters of 1995,
respectively. This change was a direct result of the application of Emerging
Issues Task Force Issue No. 94-9 ("EITF 94-9"). The EITF reached a consensus
that the normal servicing fee rate for all SBA loans is 40 basis points,
effective January 19, 1995. Prior to January 19, 1995, the Bank used 100
basis points as the normal servicing fee rate, which was the industry
standard used by most banks. Additionally, profitability from retail
operations of the Bank continues to improve. The ratio of operating expenses
to average assets has improved from 5.50% for 1994 to 4.24% for the first
three quarters of 1995. This improvement is due to increased efficiencies in
several areas including legal fees, SEC document preparation, and insurance
savings.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
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 - None
a. Exhibits filed in accordance with Item 601 of Regulation S-B:
27 Financial Data Schedules
b. The Company has not filed any reports on Form 8-K during the
three months ended September 30, 1995.
Item 7. Signatures - attached
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST CHEROKEE BANCSHARES, INC.
-------------------------------
(Registrant)
DATE: November 8, 1995 BY: /c/carl c. hames, jr.
---------------------
Carl C. Hames, Jr.
President & CEO/Principal
Executive Officer
DATE: November 8, 1995 BY: /c/kitty a. kendrick
--------------------
Kitty A. Kendrick
Principal Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRITY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 15,980,387
<INT-BEARING-DEPOSITS> 67,678,631
<FED-FUNDS-SOLD> 830,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,224,381
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 54,079,638
<ALLOWANCE> 691,138
<TOTAL-ASSETS> 81,827,666
<DEPOSITS> 74,821,657
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,106,840
<LONG-TERM> 0
<COMMON> 510,040
0
0
<OTHER-SE> 5,389,129
<TOTAL-LIABILITIES-AND-EQUITY> 81,827,666
<INTEREST-LOAN> 4,401,522
<INTEREST-INVEST> 159,463
<INTEREST-OTHER> 401,958
<INTEREST-TOTAL> 4,962,943
<INTEREST-DEPOSIT> 2,549,639
<INTEREST-EXPENSE> 2,549,639
<INTEREST-INCOME-NET> 2,413,304
<LOAN-LOSSES> 255,471
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,319,660
<INCOME-PRETAX> 1,259,882
<INCOME-PRE-EXTRAORDINARY> 1,259,882
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 822,882
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
<YIELD-ACTUAL> 10.39
<LOANS-NON> 375,892
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 461,030
<CHARGE-OFFS> 54,565
<RECOVERIES> 29,202
<ALLOWANCE-CLOSE> 691,138
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 691,138
</TABLE>
