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, 1999
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.)
9860 Highway 92, 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, 1999 was 588,420 shares.
Traditional Small Business Disclosure Format (check one): ___ Yes X No
<PAGE>
First Cherokee Bancshares, Inc.
Consolidated Balance Sheet
September 30, 1999
(Unaudited)
Assets
Cash & due from banks, including $800,011
bearing interest $4,671,197
Federal funds sold 500,000
-------
Total cash & cash equivalents 5,171,197
Investment securities available for sale,
at fair value 682,811
Loans, less allowance for loan losses
of $1,374,175 100,795,304
Premises and equipment, net 4,291,961
Accrued interest receivable and other assets 8,528,745
---------
Total Assets $119,470,018
============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Interest-bearing deposits $90,681,334
Noninterest-bearing deposits 17,337,474
----------
Total deposits 108,018,808
Accrued interest payable and other liabilities 3,000,738
---------
Total Liabilities 111,019,546
-----------
Stockholders' Equity:
Common stock ($1 par value; 10,000,000
shares authorized, 617,725 shares issued) 617,725
Additional paid-in-capital 5,564,529
Retained earnings 2,800,033
Treasury Stock (29,305 shares acquired
at cost) (526,042)
Accumulated other comprehensive
loss, net of tax (5,773)
------
Total Stockholders' Equity 8,450,472
---------
Total Liabilities and Stockholders' Equity $119,470,018
============
See notes to consolidated financial statements
<PAGE>
First Cherokee Bancshares, Inc.
Consolidated Statements of Earnings
For the nine months ended September 30,
(Unaudited)
Interest income: 1999 1998
---- ----
Interest and fees on loans $7,188,983 $5,920,810
Interest on investment securities 32,934 36,533
Interest on federal funds sold/overnight funds 180,839 238,418
------- -------
Total interest income 7,402,756 6,195,761
Interest expense on deposits 3,523,661 2,937,749
--------- ---------
Net interest income 3,879,095 3,258,012
Provision for loan losses 140,019 374,921
------- -------
Net interest income after provision
for loan losses 3,739,076 2,883,091
--------- ---------
Other income:
Gain on sale of investment securities 0 0
Gain on sales of loans 919,698 1,029,760
Service charges on deposit accounts
and other income 904,694 774,001
Gain on sale of other assets 0 40,036
- ------
Total other income 1,824,392 1,843,797
--------- ---------
Other expense:
Salaries and employee benefits 2,255,293 2,022,948
Occupancy 657,459 506,784
Other operating expense 1,618,633 1,288,336
--------- ---------
Total other expense 4,531,385 3,818,068
--------- ---------
Earnings before income taxes 1,032,083 908,820
Income Tax expense 386,080 348,015
------- -------
Net earnings $646,003 $560,805
======== ========
Basic earnings per share $1.13 $0.98
===== =====
Diluted earnings per share $0.99 $0.85
===== =====
See notes to consolidated financial statements
<PAGE>
First Cherokee Bancshares, Inc.
Consolidated Statements of Earnings
For the three months ended September 30,
(Unaudited)
Interest income: 1999 1998
---- ----
Interest and fees on loans $2,597,456 $2,008,289
Interest on investment securities $11,498 12,130
Interest on federal funds sold/overnight funds $23,413 111,089
------- -------
Total interest income 2,632,367 2,131,508
Interest expense on deposits $1,198,416 1,027,575
---------- ---------
Net interest income 1,433,951 1,103,933
Provision for loan losses 11,486 101,811
------ -------
Net interest income after provision
for loan losses 1,422,465 1,002,122
--------- ---------
Other income:
Gain on sale of investment securities 0 0
Gain on sales of loans 348,831 268,669
Service charges on deposit accounts
and other income 337,602 230,569
Gain on sale of other assets 0 55,807
- ------
Total other income 686,433 555,045
------- -------
Other expense:
Salaries and employee benefits 770,193 727,141
Occupancy 228,795 191,734
Other operating expense 604,483 444,701
------- -------
Total other expense 1,603,471 1,363,576
--------- ---------
Earnings before income taxes 505,427 193,591
Income Tax expense 187,000 75,715
------- ------
Net earnings $318,427 $117,876
======== ========
Basic earnings per share $0.54 $0.21
===== =====
Diluted earnings per share $0.47 $0.18
===== =====
See notes to consolidated financial statements
<PAGE>
First Cherokee Bancshares, Inc.
Consolidated Statements of Comprehensive Income
For the nine months ended September 30,
(Unaudited)
1999 1998
---- ----
Net earnings $646,003 $560,805
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) arising during the period, net
of tax of $4,964 and $667, respectively (8,006) 1,093
------ -----
Other comprehensive income 637,997 561,898
------- -------
Comprehensive income $637,997 $561,898
======== ========
See Notes to Consolidated Financial Statements
<PAGE>
First Cherokee Bancshares, Inc.
Consolidated Statements of Comprehensive Income
For the three months ended September 30,
(Unaudited)
1999 1998
---- ----
Net earnings $318,427 $117,876
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized gains (losses) arising during the period, net
of tax of $4,115 and $831, respectively (6,637) 1,362
------ -----
Other comprehensive income 311,790 119,238
------- -------
Comprehensive income $311,790 $119,238
======== ========
See Notes to Consolidated Financial Statements
<PAGE>
First Cherokee Bancshares, Inc.
Consolidated Statements of Cash Flows
For the nine months ended September 30,
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $646,003 $560,805
Adjustments to reconcile net earnings to net cash
provided (used) in operating activities:
Depreciation, amortization and accretion 252,067 147,883
Provision for loan losses 140,019 374,921
Provision for losses on other real estate 0 0
Securities gains 0 0
Change in accrued interest payable and
other liabilities 1,587,370 (956,813)
Change in accrued interest receivable and
other assets (3,097,246) (39,373)
---------- -------
Total adjustments (1,117,790) (473,382)
---------- --------
Net Cash provided (used) by operating
activities (471,787) 87,423
Cash flows from investing activities:
Purchases of investment securities 0 (500,000)
Proceeds from sale of investment securities 0 0
Proceeds from maturities and calls of investment (126,650) 533,102
securities available for sale
Net change in loans (15,763,420) (7,668,779)
Purchases of premises and equipment (801,820) (647,348)
-------- --------
Net Cash used by investing activities (16,691,890) (8,283,025)
Cash flows from financing activities:
Net change in deposits 6,621,011 12,253,981
Proceeds from exercise of stock warrants 317,453 0
Proceeds from sale of treasury stock 76,674 (518,716)
------ --------
Net Cash provided by financing activities 7,015,138 11,735,265
Net change in cash and cash equivalents (10,148,539) 3,539,663
Beginning cash and cash equivalents 15,319,736 5,832,924
---------- ---------
Ending cash and cash equivalents $5,171,197 $9,372,587
========== ==========
Noncash investing activities:
Change in accumulated other comprehensive
income, net of tax ($8,006) $1,093
Transfer of loans to other real estate $0 $100,112
Supplemental disclosure of cash flow information:
Interest Paid $3,457,019 $2,955,138
Income Taxes Paid $271,000 $160,000
See notes to consolidated financial statements
<PAGE>
FIRST CHEROKEE BANCSHARES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1999
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, 1999 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 related notes and the report of independent accountants
included in the Company's 1998 Annual Report on Form 10-KSB.
Note (2) - Net Earnings Per Share
Basic earnings per share is 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 average market price during the year is used to compute equivalent shares.
All net earnings per share amounts have been restated to conform to the
provisions of SFAS No. 128.
Reconciliation of the amounts used in the computation of both "basic earnings
per share" and "diluted earnings per share" for the periods ended September 30,
1999 and 1998 are as follows:
<PAGE>
For the nine months ended September 30, 1999:
- ---------------------------------------------
Net Earnings Common Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share $646,003 569,227 $1.13
Effect of dilutive securities
Stock options 0 5,093
Warrants 0 79,405
- ------
Diluted earnings per share $646,003 653,725 $0.99
======== ======= =====
For the nine months ended September 30, 1998
Net Earnings Common Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share $560,805 572,103 $0.98
Effect of dilutive securities
Stock options 0 10,333
Warrants 0 80,851
- ------
Diluted earnings per share $560,805 663,287 $0.85
======== ======= =====
For the three months ended September 30, 1999:
- ----------------------------------------------
Net Earnings Common Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share $318,427 587,303 $0.54
Effect of dilutive securities
Stock options 0 5,675
Warrants 0 79,379
- ------
Diluted earnings per share $318,427 672,357 $0.47
======== ======= =====
For the three months ended September 30, 1998
- ---------------------------------------------
Net Earnings Common Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic earnings per share $117,876 562,358 $0.21
Effect of dilutive securities
Stock options 0 13,353
Warrants 0 83,130
- ------
Diluted earnings per share $117,876 658,841 $0.18
======== ======= =====
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Forward Looking Statements
Certain statements contained in this Quarterly Report on Form 10-QSB and the
exhibits to this Quarterly Report which are not statements of historical fact
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act (the "Act"). In addition, certain statements in
future filings by the Company with the Securities and Exchange Commission, in
press releases, and in oral and written statements made by or with the approval
of the Company which are not statements of historical fact constitute
forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to:
(1) projections of revenues, income or loss, earnings or loss per share,
the payment or non-payment of dividends, capital structure and other
financial items;
(2) statements of plans and objectives of the Company or its management or
Board of Directors, including those relating to products or services;
(3) statements of future economic performance; and
(4) statements of assumptions underlying such statements.
Words such as "believes," "anticipates," "expects," "intends," "targeted," and
similar expressions are intended to identify forward-looking statements but are
not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Facts that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to:
(1) the strength of the U.S. economy in general and the strength of the local
economies in which operations are conducted;
(2) the effects of and changes in trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal
Reserve System;
(3) inflation, interest rate, market and monetary fluctuations;
(4) the timely development of and acceptance of new products and services and
perceived overall value of these products and services by users;
(5) changes in consumer spending, borrowing and saving habits;
(6) technological changes;
(7) acquisitions;
(8) the ability to increase market share and control expenses;
(9) the effect of changes in laws and regulations (including laws and
regulations concerning taxes, banking, securities and insurance) with which
the Company and its subsidiary must comply;
(10)the effect of changes in accounting policies and practices, as may be
adopted by the regulatory agencies as well as the Financial Accounting
Standards Board;
(11)changes in the Company's organization, compensation and benefit plans;
(12)the costs and effects of litigation and of unexpected or adverse outcomes
in such litigation; and
(13)the success of the Company at managing the risks involved in the foregoing.
Forward-looking statements speak only as of the date on which they are made, and
the Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which a statement is made to
reflect the occurrence of unanticipated events.
<PAGE>
The following narrative should be read in conjunction with the Company's
consolidated financial statements and the notes thereto.
Financial Condition
Total assets as of September 30, 1999 were $119.5 million compared to $110.2
million as of December 31, 1998. Assets of the Company decreased approximately
$2.1 million during the third quarter of 1999 as compared to increases of
approximately $4.9 million and $6.4 million during the first and second quarters
of 1999, respectively. The decrease is primarily due to the sale of
approximately $6.1 million in loan participations during the third quarter. The
loan participations were sold in order to control growth for both capital and
liquidity purposes. Had the participations not been sold, the increase in assets
would have been approximately $4 million.
Loans increased from $85.2 million at December 31, 1998 to $100.8 million at
September 30, 1999. The following table presents major classifications of loans
at September 30, 1999:
% of
Total
Total Loan
Loans Portfolio
----- ---------
Commercial $ 8,609,648 8.43%
SBA - unguaranteed 25,896,067 25.34%
Real estate - mortgage 41,599,558 40.72%
Real estate - construction 18,095,888 17.71%
Installment and other consumer 7,968,318 7.80%
------------- ---------
Total loans 102,169,479 100.00%
=======
Less: Allowance for loan losses (1,374,175)
-----------
Total net loans $100,795,304
============
Net premises and equipment were $4.3 million at September 30, 1999 compared to
$3.8 million at December 31, 1998. Other assets increased from $5.4 million as
of December 31, 1998 to $8.5 million as of September 30, 1999. The increase was
primarily attributable to SBA guarantees of approximately $2.0 million on sold
SBA loans pending cash receipt as of September 30, 1999 as compared to $0 as of
December 31, 1998. Cash is normally received within fourteen days of a sale.
Additionally, other assets increased due to the investment in life insurance
benefits for certain officers of the Bank.
Total deposits were $108.0 million at September 30, 1999 compared to $101.4
million at December 31, 1998. This growth is due to normal business
transactions. As of September 30, 1999, interest-bearing deposits and non
interest-bearing deposits were $90.7 million and $17.3 million, respectively. As
of December 31, 1998, interest-bearing deposits and non interest-bearing
deposits were $86.5 million and $14.9 million, respectively.
<PAGE>
A provision of $140,019 was added to the allowance for loan losses during the
first three quarters of 1999. The provision is primarily attributable to loan
growth. The allowance had a balance of $1,374,175 at September 30, 1999,
representing 1.35% of loans. Chargeoffs were $285,871 while recoveries were
$3,322 resulting in net chargeoffs of $282,549 during the first nine months of
1999. Management believes this allowance is adequate to cover possible loan
losses. The following table presents the activity in the allowance for the first
three quarters of 1999. At September 30, 1999, management determined that no
loans required specific reserves. For allocation purposes, the Y2K risk factor
identified by management is considered unallocated. The remaining allowance is
allocated among the loan categories based on the relative percentage of the
particular category to total loans and not according to risk.
FIRST CHEROKEE BANCSHARES, INC.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Balance, December 31, 1998 $1,516,705
Chargeoffs (285,871)
Recoveries 3,322
Provision for Loan Losses 140,019
-------
Balance, September 30, 1999 $1,374,175
==========
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
At September 30, 1999, the Bank had nine loans classified as nonaccrual totaling
$257,493, all of which are secured by real estate, vehicles, equipment or
inventory. The Bank's impaired loans consist of these nonaccrual loans that are
either greater than 90 days delinquent as of September 30, 1999 or are
classified as nonaccrual by management because the collection of interest from
the borrower is doubtful. No specific reserves were allocated on nonaccrual
loans as of September 30, 1999. Interest income from impaired loans is
recognized using a cash basis method of accounting for the time period during
which the loans were impaired. If interest income on the total nonaccrual loans
had been accrued, such income would have approximated $6,769 as of September 30,
1999. Interest income on such loans, recorded only when received, was
approximately $45,575 for the first nine months of 1999. As of September 30,
1999, the Bank had one property classified as Other Real Estate Owned, totaling
$27,652. The ratio of loans past due 30 days or more to total loans was 2.10% at
September 30, 1999 compared to 1.61% at December 31, 1998. There was one loan
totaling $990,689 past due greater than 90 days that was on accrual status as of
September 30, 1999 which was brought current during October 1999. There was one
loan totaling $35,466 past due greater than 90 days that was on accrual status
as of December 31, 1998. There were no material restructured loans as of
September 30, 1999 and no restructured loans as of December 31, 1998.
LIQUIDITY
The Company's primary sources of funds are increases in deposits, Federal Home
Loan Bank advances, 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. As a precautionary measure, the Company sold $6.1 million in loan
participations during the third quarter of 1999 in order to keep funding lines
available for potential cash needs surrounding the new millennium.
<PAGE>
CAPITAL RESOURCES
At September 30, 1999, consolidated stockholders' equity was $8,450,472 or 7.07%
of total assets compared to $7,475,431 or 6.73% of total assets at December 31,
1998. Warrants exercised during the quarter resulted in the issue of 2,350 new
shares. The Company's common stock had a book value of $14.36 per share at
September 30, 1999 compared to a book value of $13.40 per share at December 31,
1998. At the end of the third quarter of 1999, the Company had approximately 500
stockholders of record.
The Bank and the Company are subject to the capital requirements of the Office
of the Comptroller of the Currency ("OCC") and the Federal Reserve Bank (the
"FRB"), respectively. The OCC and FRB have adopted risk-based capital guidelines
for all national banks and bank 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 risk-based and
leverage ratios for the Company and Bank at September 30, 1999 and 1998 compared
to minimum ratios required by regulation.
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount Ratio Amount Ratio Amount Ratio
As of September 30, 1999:
Total Capital (to Risk-Weighted Assets)
Consolidated $9,634 9.54% 8,079 8.00% 10,099 10.00%
Bank $10,657 10.55% 8,079 8.00% 10,099 10.00%
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated $8,370 8.29% 4,040 4.00% 6,059 6.00%
Bank $9,393 9.30% 4,040 4.00% 6,059 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $8,370 6.87% 4,875 4.00% 6,094 5.00%
Bank $9,393 7.71% 4,875 4.00% 6,094 5.00%
As of September 30, 1998:
Total Capital (to Risk-Weighted Assets)
Consolidated $8,003 9.93% 6,447 8.00% 8,059 10.00%
Bank $8,519 10.57% 6,447 8.00% 8,059 10.00%
Tier 1 Capital (to Risk-Weighted Assets)
Consolidated $6,984 8.67% 3,224 4.00% 4,835 6.00%
Bank $7,500 9.31% 3,224 4.00% 4,835 6.00%
Tier 1 Capital (to Average Assets)
Consolidated $6,984 7.24% 3,859 4.00% 4,824 5.00%
Bank $7,500 7.77% 3,859 4.00% 4,824 5.00%
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
The Company recognized earnings of $646,003 for the first three quarters of
1999. In comparison, net earnings for the first three quarters of 1998 were
$560,805.
Net interest income for the first nine months of 1999 was $3,879,095 as compared
to $3,258,012 for the first nine months of 1998. The average yield on earning
assets for the first three quarters of 1999 decreased to 9.80% as compared to
9.96% for the first three quarters of 1998. The decrease is primarily due to
lower prime lending rates during the first three quarters of 1999 as compared to
prime lending rates during the first three quarters of 1998. Also, during the
first half of 1998, approximately $70,000 was collected on nonaccrual loans
which increased the yield during that period. The average cost of funds on
interest-bearing deposits decreased for the first nine months of 1999 to 4.96%,
as compared to 5.42% for the first nine months of 1998. The improvement is
primarily a result of the Bank's on-going effort to restructure the deposit base
from higher rate institutional certificates of deposit to core deposits.
Consequently, the net interest spread for the first six months of 1999 increased
to 4.84% compared to 4.54% for the first nine months of 1998.
Total other income for the first three quarters of 1999 was $1,824,392 compared
to $1,843,797 for the first three quarters of 1998. The decrease is primarily
due to decreased premiums from the sale of SBA loans.
Total other expense for the first three quarters of 1999 was $4,531,385 compared
to $3,818,068 for the first three quarters of 1998. The increase is primarily
due to data processing costs relative to the change in core systems during April
1999. Although monthly operating costs have remained stable, deconversion costs
from the former system are being written off during 1999. Additionally,
personnel and occupancy expenses have increased due to the opening of the Bank's
third branch in June 1998.
<PAGE>
YEAR 2000
The Company recognizes the operational risk from technology as the Year 2000
("Y2k") approaches. The Company has established an internal committee to
identify and address how the century change may affect its operations. A Y2k
Plan has been approved by the Board of Directors detailing the steps the
committee plans to take to comply with regulatory directives. The Company has
developed a tracking report which identifies and monitors the areas that the
century change is expected to impact, including the Company's data processor,
its computer hardware and software, its telephone system, etc. The tracking
report also documents whether the area is "mission-critical", the individual
responsible for confirming compliance, and testing dates. The Y2k Plan also
addresses the potential risk to the Company from the impact of Y2k on Company
customers.
The Company has identified the two most mission-critical information technology
areas to be (1) the core processing system for loans, deposits, and general
ledger, and (2) the wide area computer network. The Company successfully
converted to a new core processor during April 1999 in order to improve
efficiencies from new technology. Proxy testing performed by the core processor
and the service bureau was accepted by the Company. Management reviewed the test
results and believes the software is Y2k compliant.
The Company has identified the most significant non-information technology areas
to be liquidity, customer impact including potential loan losses, and loss of
power, telephone, and water. Management has amended its liquidity contingency
plan to address Y2k issues specifically. As a precautionary measure, the Company
sold $6.1 million in loan participations during the third quarter of 1999 in
order to keep funding lines available for potential cash needs surrounding the
new millennium. The Company has established a methodology for defining Y2k risk
in the loan portfolio, including assessing the specific risk of each commercial
customer with total debt in excess of $100,000. Currently, the allowance for
loan losses includes a factor of approximately $51,000 based on the assessment
of loans currently in the portfolio. This factor will be adjusted as necessary
as changes occur in the portfolio. Y2k risk from deposit customers has been
determined to be minimal and is considered in the liquidity contingency plan.
The Company has received written documentation from its local power, telephone
and water companies assuring successful transition to the Year 2000. The Company
has also approved a business resumption contingency plan.
The Company has identified third-parties with which it has a significant
relationship to include its core processor and its correspondent bank. The core
processing system has been successfully tested by proxy. The Company's
correspondent bank reports that its organization has achieved full Year 2000
compliance.
The Company has incurred approximately $15,000 during the first nine months of
1999 toward Y2k issues and has $35,000 remaining in the 1999 budget for future
Y2k expenses. Based on information currently available, management does not
believe that the Company will incur significant additional costs in connection
with the Y2k issue. Nevertheless, there can be no assurance that all hardware
and software that the Company uses will be Y2k compliant, and the Company cannot
predict with any certainty the costs the Company will incur to respond to any
Y2k issues. Further, the business of the Company's customers and vendors may be
negatively affected by the Y2k issue, and any financial difficulties incurred by
the Company's customers and vendors in solving Y2k issues could negatively
affect their ability to perform their agreements with the Company. Therefore,
even if the Company does not incur additional significant direct costs in
connection with responding to the Y2k issue, there can be no assurance that the
failure or delay of the Company's customers, vendors, or other third parties in
addressing the Y2k issue or the costs involved in such process will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
As a result of the successful completion of the majority of Y2k testing, the
Company believes the risk from areas under its control to be minimal. While the
worst case scenario could include a loss of power and/or loss of communications
with its core processor, the Company is reasonably assured that this will not
occur. The Company's contingency plans address these potential issues.
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings- None
Item 2. Changes in Securities and Use of Proceeds - 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
Exhibit
Number Description
------ -----------
3.1(1) Articles of Incorporation
3.2(2) Bylaws, as amended through March 29, 1994
10.1(3)(4) Employment Agreement (Carl Hames) dated
May 11, 1995
10.2(1) Form of Organizers' Stock Warrant Agreement
10.3(1) Agreement for Lease/Purchase of Real Property
for Bank Premises
10.4(1)(3) Form of Key Employee Stock Option Plan
10.5(3)(5) Form of Incentive Stock Option Certificate to
Purchase Stock of First Cherokee Bancshares,
Inc., issued under the Key Employee Stock
Option Plan effective October 13, 1988
10.6(3)(5) Form of Directors' Non-Qualified Stock Option
Agreement
27 Financial Data Schedule (for SEC use only)
for quarter ended September 30, 1999
- ------------------------
(1) Incorporated herein by reference to Exhibit of the same number
in the Company's Registration Statement No.33-25075-A.
(2) Incorporated herein by reference to Exhibit of the same number
in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994.
(3) The indicated exhibits are management contracts or
compensatory plans or arrangements required to be filed or
incorporated by reference herein.
(4) Incorporated herein by reference to Exhibit of the same number
in the Company's Form 10QSB for the period ended June 30,
1995.
(5) Incorporated herein by reference to Exhibit of the same number
in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998.
(b) The Company has not filed any reports on Form 8-K during
the nine months ended September 30, 1999.
Item 7. Signatures - attached
<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 12, 1999 BY: /s/Carl C. Hames, Jr.
----------------- ----------------------
Carl C. Hames, Jr.
President & CEO/Principal
Executive Officer
DATE: November 12, 1999 BY: /s/Kitty A. Kendrick
----------------- ----------------------
Kitty A. Kendrick
Principal Financial Officer
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