<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 March 31, 1996
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 March 31, 1996 was 551,804 shares.
<PAGE>
First Cherokee Bancshares, Inc.
Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1996
Index
-----
Page No.
--------
Part I. Financial Information
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheet at March 31, 1996 2
Consolidated Statements of Earnings (unaudited)
for the three months ended March 31, 1996 and 1995 3
Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis or Plan of Operation 6
Part II. Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Item 7. Signatures 11
1
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
Consolidated Balance Sheet
March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash & due from banks, including $16,117,333
bearing interest $21,456,661
Federal funds sold 500,000
-----------
Total cash & cash equivalents 21,956,661
Investment securities available for sale,
at fair value 2,073,915
Loans, less allowance for loan losses
of $649,637 51,742,067
Premises and equipment 2,046,852
Accrued interest receivable and other assets 5,678,967
-----------
TOTAL ASSETS $83,498,462
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Interest-bearing deposits $68,354,551
Noninterest-bearing deposits 8,233,575
-----------
Total deposits 76,588,126
Accrued interest payable and other liabilities 580,449
-----------
TOTAL LIABILITIES 77,168,575
STOCKHOLDERS' EQUITY:
Common stock ($1 par value; 10,000,000
shares authorized, 561,044 shares issued) 561,044
Additional paid-in-capital 5,026,457
Retained earnings 820,817
Treasury Stock (9,240 shares acquired
at cost) (84,000)
Unrealized gains on available for
sale securities, net of tax effect 5,569
-----------
TOTAL STOCKHOLDERS' EQUITY 6,329,887
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $83,498,462
-----------
-----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
INTEREST INCOME: 1996 1995
------------ ------------
<S> <C> <C>
Interest and fees on loans $1,441,280 $1,359,472
Interest on investment securities 21,541 54,102
Interest on federal funds sold/overnight funds 186,939 75,622
------------ ------------
TOTAL INTEREST INCOME 1,649,760 1,489,196
INTEREST EXPENSE ON DEPOSITS 961,950 688,785
------------ ------------
NET INTEREST INCOME 687,810 800,411
Provision for loan losses 39,997 93,334
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 647,813 707,077
OTHER INCOME:
Gain on sale of investment securities 0 0
Gain on sales of loans 411,253 487,214
Service charges on deposit accounts
and other income 132,678 100,211
------------ ------------
TOTAL OTHER INCOME 543,931 587,425
OTHER EXPENSE:
Salaries and employee benefits 491,356 409,829
Occupancy 135,170 120,183
Other operating expense 277,719 237,501
------------ ------------
TOTAL OTHER EXPENSE 904,245 767,513
EARNINGS BEFORE INCOME TAXES 287,499 526,989
INCOME TAXES 109,000 180,000
NET EARNINGS $178,499 $346,989
------------ ------------
------------ ------------
NET EARNINGS PER SHARE (NOTE 2):
PRIMARY $ 0.31 $0.63
------------ ------------
------------ ------------
FULLY DILUTED $0.30 $0.63
------------ ------------
------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES AND EQUIVALENTS:
PRIMARY 662,324 551,804
------------ ------------
------------ ------------
FULLY DILUTED 662,324 551,804
------------ ------------
------------ ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
3
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $178,499 $346,989
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET CASH
PROVIDED (USED) IN OPERATING ACTIVITIES:
Depreciation, amortization and accretion 34,355 45,781
Provision for loan losses 39,997 93,334
Securities gains 0 0
Change in accrued interest payable and
other liabilities (2,077) 287,536
Change in accrued interest receivable and
other assets (568,746) (874,662)
------------ ------------
TOTAL ADJUSTMENTS (496,471) (448,011)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (317,972) (101,022)
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 (487,878) (127,546)
Net (increase) decrease in loans 2,454,449 (4,478,835)
Purchases of premises and equipment (63,623) (29,209)
------------ ------------
NET CASH USED BY INVESTING ACTIVITIES 1,902,948 (4,635,590)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits 467,125 3,648,617
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 467,125 3,648,617
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,052,101 (1,087,995)
BEGINNING CASH AND CASH EQUIVALENTS 19,904,560 8,084,965
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $21,956,661 $6,996,970
NONCASH INVESTING ACTIVITIES:
CHANGE IN UNREALIZED GAIN ON SECURITIES AVAILABLE
FOR SALE, NET OF TAX EFFECT $1,372 $64,795
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
INTEREST PAID $864,635 $685,323
INCOME TAXES PAID $0 $300,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1996
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 March 31, 1996, and the results of its
operations and its cash flows for the three-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 1995 Annual Report on Form 10-KSB.
NOTE (2) - NET EARNINGS PER SHARE
Net earnings per share are based on the weighted average number of shares
outstanding during each year including consideration of stock options and stock
warrants, which represent common stock equivalents. It is assumed that all
dilutive common stock equivalents are exercised at the beginning of the year and
that the proceeds are used to purchase shares of the Company's common stock. The
average market price during each period is used to compute equivalent shares
assumed to be acquired for primary earnings per share, whereas period end prices
are used for fully diluted per share amounts. The resulting difference in the
calculation of primary and fully diluted earnings per share is due to the
application of the modified treasury stock method, which is applied in instances
in which dilutive common stock equivalents exceed 20% of the outstanding common
stock.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996
The following narrative should be read in conjunction with the Company's
consolidated financial statements and the notes thereto.
FINANCIAL CONDITION
Assets of the Company decreased for the first time in several years during the
first quarter of 1996 as compared to an increase of $4.3 million during the
first quarter of 1995. Assets and deposits had increased substantially
(approximately $4 million) towards the end of December 1995. This was due to the
increase in balances of a few commercial accounts which returned to normal
balances during January 1996.
The Company also continued to experience good earnings. The average yield on
earning assets for the first three months of 1996 decreased to 9.62% as compared
to 10.57% for the first three months of 1995. The decrease was due to a higher
level of nonperforming loans in 1996 than 1995 as well as lower interest rates.
Many of the Bank's loan products are tied to the prime interest rate which was
lower in the first quarter of 1996 than 1995. The average cost of funds on
interest-bearing deposits increased for the first quarter of 1996 to 5.91%, as
compared to 5.23% for the first quarter of 1995, primarily as a result of
competition in the Bank's immediate market area. Consequently, the net interest
spread for the first quarter of 1996 decreased to 3.71% compared to 5.34% for
the first quarter of 1995.
Loans increased from $50.1 million at March 31, 1995 to $54.2 million at
December 31, 1995, but decreased to $51.7 million at March 31, 1996. The
decrease in the first quarter was primarily as a result of loan officer's
spending time resolving existing loan problems rather than producing new loans.
Management anticipates loan production will increase during the second quarter
of 1996 and for the remainder of the year. The following table presents major
classifications of loans at March 31, 1996:
<TABLE>
<CAPTION>
% of
Total
Total Loan
Loans Portfolio
----------- ---------
<S> <C> <C>
Commercial $10,006,789 19.10%
SBA - unguaranteed 10,526,020 20.09%
Real estate - mortgage 20,403,146 38.94%
Real estate - construction 7,025,436 13.41%
Installment and other consumer 4,430,313 8.46%
----------- ---------
Total loans 52,391,704 100.00%
Less: Allowance for loan losses (649,637)
-----------
Total net loans $51,742,067
</TABLE>
6
<PAGE>
As mentioned previously, deposits increased dramatically during December 1995
and remained relatively stable during the first quarter of 1996. Total deposits
were $76.6 million at March 31, 1996 compared to $76.1 million at December 31,
1995 and $60.7 million at March 31, 1995. While deposits are expected to
increase during the remainder of 1996 to approximately $82 million at December
31, 1996, no assurance can be given that this increase will take place.
A provision of $39,997 was added to the Allowance for Loan and Lease Losses
during the first quarter of 1996. The provisions are primarily attributable to
the increased level of nonperforming loans at March 31, 1996 compared to March
31, 1995. (See Nonaccrual, Past Due, and Restructured Loans). The allowance had
a balance of $649,637 at March 31, 1996, representing 1.23% of loans. Chargeoffs
were $81,686 while recoveries were $5,620, resulting in net chargeoffs of
$76,066 during the first quarter of 1996. 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 quarter of 1996. At
March 31, 1996, 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, 1996 $685,706
Chargeoffs: (81,686)
Recoveries: 5,620
Provision for Loan Losses: 39,997
--------
Balance, March 31, 1996 $649,637
--------
--------
</TABLE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
At March 31, 1996, the Bank had six borrowers classified as nonaccrual totaling
$1,387,813. One loan in the amount of $22,079 is secured by equipment and
inventory while the remaining loans are secured by real estate. Each of the
nonaccrual loans was greater than ninety days delinquent as of March 31, 1996
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 $85,000
as of March 31, 1996. Interest income on such loans, recorded only when
received, was approximately $6,000 during the first quarter of 1996. As of
March 31, 1996, the Bank had seven properties classified as Other Real Estate
Owned, totaling $1,325,369. The ratio of loans past due 30 days or more to total
loans improved slightly to 4.07% at March 31, 1996 from 4.20% at March 31, 1995.
There were two loans past due greater than 90 days that were on accrual status
as of March 31, 1996; both were renewed in
7
<PAGE>
April. There were no loans past due greater than 90 days on accrual status as of
March 31, 1995. There were no restructured loans as of March 31, 1996 or March
31, 1995.
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
that funding requirements will be satisfactorily met.
CAPITAL RESOURCES
At March 31, 1996, consolidated stockholders' equity was $6,329,887 or 7.58% of
total assets compared to $5,397,403 or 8.04% of total assets at March 31, 1995.
The Company's common stock had a book value of $11.28 per share at March 31,
1996 (adjusted for the 10% stock dividend declared on January 17, 1996 and
payable on April 1, 1996), compared to $10.76 book value per share at March 31,
1995. At the end of the first quarter of 1996, 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 risk-based capital guidelines for all
national banks and holding companies, respectively. To be "adequately
capitalized," 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).
The following table sets forth information with respect to the Bank's capital
ratios at March 31, 1996 and 1995 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.
8
<PAGE>
FIRST CHEROKEE BANCSHARES, INC.
CAPITAL CALCULATIONS
<TABLE>
<CAPTION>
TABLE 2
3/31/96 3/31/95
(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 $5,584 9.45% $5,017 9.47%
Minimum Requirement per regulations 2,362 4.00% 2,119 4.00%
---------- ------ ---------- ------
Excess $3,222 5.45% $2,898 5.47%
Tier 1 and Tier 2 Capital $6,234 10.55% $5,559 10.49%
Total Capital Minimum Requirement 4,724 8.00% 4,238 8.00%
---------- ------ ---------- ------
Excess $1,510 2.55% $1,321 2.49%
LEVERAGE RATIOS:
Tier 1 Capital $5,584 7.01% $5,017 7.48%
Minimum Requirement per regulations 3,186 4.00% 2,683 4.00%
---------- ------ ---------- ------
Excess $2,398 3.01% $2,334 3.48%
</TABLE>
RESULTS OF OPERATIONS
The Company recognized net earnings of $178,499 for the three months ended March
31, 1996. In comparison, net earnings for the three months ending March 31, 1995
were $346,989. Actual earnings for the first quarter of 1996 are slightly less
than projected. The primary reason for the decrease in net earnings is the
increase of costs relative to the increase in problem assets.
Net interest income for the first three months of 1996 was $1,649,760 as
compared to $1,489,196 for the first three months of 1995. Profitability from
retail operations of the Bank continues to improve. The annualized ratio of
operating expenses to average assets has improved from 4.75% for the first
quarter of 1995 to 4.53% for the first quarter of 1996. While management
expects this ratio to continue to improve during the remaining three quarters of
1996, no assurance can be given that it will do so.
9
<PAGE>
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
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 March 31, 1996.
c. Computation of Earnings Per Share.
Item 7. Signatures - attached
10
<PAGE>
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
1996 1995
-------- --------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Earnings: Net earnings $178,499 $346,989
Excess proceeds invested in U.S.
government securities @ 5.32% 26,444 0 *
-------- --------
Net earnings available to common stock 204,943 346,989
Shares: Weighted average number of common
shares outstanding 551,804 551,804
Additional shares assuming conversion of:
Stock warrants 196,350 0*
Stock options 24,531 0*
Less 20% limitation (110,361) 0*
-------- --------
Average common shares and equivalents outstanding 662,324 551,804
Primary earnings per share $0.31 $0.63
FULLY DILUTED EARNINGS PER SHARE
Earnings: Net earnings $178,499 $346,989
Excess proceeds invested in U.S.
government securities @ 5.32% 20,073 0 *
-------- --------
Net earnings available to common stock 198,572 346,989
Shares: Weighted average number of common
shares outstanding 551,804 551,804
Additional shares assuming conversion of:
Stock warrants 196,350 0*
Stock options 24,531 0*
Less 20% limitation (110,361) 0*
-------- --------
Average common shares and equivalents outstanding 662,324 551,804
Primary earnings per share $0.30 $0.63
</TABLE>
*The effect of common stock equivalents at March 31, 1995 did not result in
material dilution
11
<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: May 13, 1996 BY: /c/carl c. hames, jr.
------------ -----------------------------------
Carl C. Hames, Jr.
President & CEO/Principal
Executive Officer
DATE: May 13, 1996 BY: /c/kitty a. kendrick
------------ ----------------------------------
Kitty A. Kendrick
Principal Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 21,456,661
<INT-BEARING-DEPOSITS> 16,117,333
<FED-FUNDS-SOLD> 500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,073,915
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 51,742,067
<ALLOWANCE> 649,637
<TOTAL-ASSETS> 83,498,462
<DEPOSITS> 76,588,126
<SHORT-TERM> 0
<LIABILITIES-OTHER> 580,449
<LONG-TERM> 0
0
0
<COMMON> 561,044
<OTHER-SE> 5,768,843
<TOTAL-LIABILITIES-AND-EQUITY> 83,498,462
<INTEREST-LOAN> 1,441,280
<INTEREST-INVEST> 21,541
<INTEREST-OTHER> 186,939
<INTEREST-TOTAL> 1,649,760
<INTEREST-DEPOSIT> 961,950
<INTEREST-EXPENSE> 961,950
<INTEREST-INCOME-NET> 687,810
<LOAN-LOSSES> 39,997
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 904,245
<INCOME-PRETAX> 287,499
<INCOME-PRE-EXTRAORDINARY> 287,499
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178,499
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 9.62
<LOANS-NON> 1,387,813
<LOANS-PAST> 327,597
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 685,706
<CHARGE-OFFS> 81,686
<RECOVERIES> 5,620
<ALLOWANCE-CLOSE> 649,637
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 649,637
</TABLE>
