<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to _____________
Commission File Number ____________
THE PB FINANCIAL SERVICES CORPORATION
(Name of small business issuer in its charter)
GEORGIA 58-2466560
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
9570 MEDLOCK BRIDGE ROAD, DULUTH, GEORGIA 30097
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (770) 814-8100
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, Par Value $5 Per Share
- ------------------------------------
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or Section 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 requirement for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $3,324,687
Aggregate market value of the voting stock held by non-affiliates computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within the past 60 days:
$5,555,000
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date. 775,375 as of March 15, 2000
Transitional Small Business Disclosure format (check one): Yes [ ] No [X]
<PAGE> 2
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-KSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements general can be identified by
the use of forward-looking terminology such as "may", "will", "expect",
"estimate", "anticipate", "believe", "target", "plan", "project", or "continue"
or the negatives hereof or other variations thereon or similar terminology and
are subject to risks and uncertainties, including, but not limited to, economic
conditions, competition, interest rate sensitivity and exposure to regulatory
and legislative changes. The above factors, in some cases, have affected, and
in the future could affect, the Company's financial performance and could cause
actual results for fiscal 2000 and beyond to differ materially from those
expressed or implied in such forward-looking statements. The Company does not
undertake to publicly update or revise its forward-looking statements even if
experience or future changes make it clear that any projected results expressed
or implied therein will not be realized.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
In July 1999, The PB Financial Services Corporation (the "Company") became
effective as the holding company for The Peachtree Bank (the "Bank") upon
regulatory approvals by the FDIC, the Georgia Department of Banking and
Finance, and the Federal Reserve, followed by shareholder approval. The Company
was organized to serve as a bank holding company for and the sole shareholder
of The Peachtree Bank. The holding company structure provides flexibility for
expansion of the Company's banking business through the possible acquisition of
other financial institutions and the provision of additional banking-related
services that a traditional commercial bank may not provide under present laws.
In addition, the holding company structure makes it easier to raise capital for
the Bank. For example, banking regulations require the Bank to maintain a
minimum ratio of capital to assets. In the event that the Bank's growth
prevents it from maintaining this minimum ratio, the Company may borrow funds,
subject to capital adequacy guidelines of the Federal Reserve, and contribute
them to the capital of the Bank and otherwise raise capital in a manner
unavailable to the Bank under the existing banking regulations.
The Company has no present plans to acquire any additional operating
subsidiaries. The Company may, however, make additional acquisitions in the
future in the event that the acquisitions are deemed to be in the best
interests of the Company and its shareholders. Any future acquisitions would be
subject to certain regulatory approvals and requirements. See "Business - Bank
Holding Company Regulation."
1
<PAGE> 3
THE BANK
GENERAL
In January, 1998, the Georgia Department of Banking and Finance and the FDIC
granted final approval to the organizers of The Peachtree Bank to organize the
Bank as a state-chartered commercial bank and for FDIC insurance of the Bank's
deposits. The Bank began its banking operations on October 5, 1998.
The Bank is a full-service commercial bank, specializing in the banking needs
of individuals and small-to medium-sized businesses and professional
affiliations. The Bank offers personal and business checking accounts, money
market accounts, interest-bearing accounts, savings accounts, and various types
of certificates of deposit. The Bank also offers installment loans, real estate
loans, construction loans, second mortgage loans, commercial loans and home
equity lines of credit. It also acts as an issuing agent for U.S. Savings
Bonds, travelers checks, money orders and cashier's checks. It offers ATM
cards, debit cards, official bank checks, telephone banking, bank by mail,
direct deposit of payroll and social security checks and wire transfer
facilities. The Bank has a drive-in teller facility, and automatic teller
machine offering 24-hour transactions, safe deposit boxes and night depository
facilities.
MARKET AREA AND COMPETITION
The Bank competes with other commercial banks, savings and loan associations,
credit unions, and money market mutual funds operating in the Bank's market
area. Currently, 27 financial institutions, with 11 offices, operate in the
Bank's primary market area of northeast Fulton County and western Gwinnett
County, Georgia. Several of the financial institutions located in the Bank's
market area are large regional banks, such as Wachovia, SunTrust, SouthTrust,
First Union and Bank of America. The larger regional banks' presence in the
area is through branch offices, however, with many of the customer service
functions, as well as authority for loan approval, being located outside of the
Bank's primary market area. The Bank competes with the larger regional banks as
well as other financial institutions in its market area by emphasizing its
local management and ownership and by focusing on personal service to its
customers and strong community involvement.
DEPOSITS
The bank offers a wide range of commercial and consumer deposit accounts,
including checking accounts, money market accounts, a variety of certificates
of deposit, and IRA accounts. The Bank attracts deposits with an aggressive
marketing plan, a broad product line, and competitive products and services.
The Bank pays competitive interest rates on money market accounts and
certificates of deposit and has implemented a service charge fee schedule
competitive with other financial institutions in the Bank's market area. The
primary sources of deposits are northeast Fulton County, Georgia and western
Gwinnett County, Georgia residents and businesses and their employees.
2
<PAGE> 4
LOAN PORTFOLIO
GENERAL. The Bank engages in a broad range of lending activities, including
real estate-related loans, construction loans for residential and commercial
properties, consumer/installment loans and home equity lines of credit to
individuals, and commercial loans with particular emphasis on small-and medium
sized businesses and professional concerns. The principal economic risk
associated with each category of loans is the creditworthiness of the borrower.
General economic conditions and the strength of the services and retail market
segments affect borrower creditworthiness. Risks associated with real estate
loans also include fluctuations in the value of real estate, new job creation
trends, tenant vacancy rates and, in the case of commercial borrowers, the
quality of the borrower's management. In addition, a commercial borrower's
ability to properly evaluate changes in the supply and demand characteristics
affecting its markets for products and services, and to respond effectively to
these changes, are significant factors in determining risks associated with the
creditworthiness of a commercial borrower. Other economic factors affecting a
commercial borrower's ability to repay a loan include interest, inflation,
employment rates, customers, suppliers and employees.
LOAN CATEGORIES. The Bank makes commercial real estate loans, construction and
development loans, and residential real estate loans in and around its primary
market area. The Bank also makes commercial loans where the Bank takes a
security interest in real estate out of an abundance of caution, but not as the
principal collateral for the loan. The Bank also makes home equity loans which
are classified as consumer loans.
COMMERCIAL REAL ESTATE LOANS. Commercial real estate loan terms are generally
limited to five years or less. Although payments may be structured on a longer
amortization basis. Interest rates may be fixed or adjustable, although rates
generally will not be fixed for a period exceeding 60 months. The Bank
generally charges an origination fee on this type of loan. Credit risk on
commercial real estate loans is managed by: 1) emphasizing loans on
owner-occupied office and retail buildings; 2) limiting the ratio of the
principal amount of the loan to the value of the collateral, as established by
an independent appraisal, to generally no more than 80%, and 3) requiring that
the net projected cash flow available for debt service comfortably exceed the
debt service requirement.
In addition, the Bank may require personal guarantees from the property owners
supported by the Bank's review of the owners' personal financial statements.
Risks associated with commercial real estate loans include fluctuations in the
value of real estate, new job creation trends, tenant vacancy rates and the
quality of the borrower's management. The Bank tries to limit its risk by
analyzing borrowers' cash flow and collateral value on an ongoing basis.
CONSTRUCTION AND DEVELOPMENT LOANS. Construction and development loans are made
both on a pre-sold and speculative basis. If the borrower has entered into an
agreement to sell the property prior to beginning construction, the loan is
considered to be made on a pre-sold basis. If the borrower has not entered into
an agreement to sell the property prior
3
<PAGE> 5
to beginning construction, then the loan is considered to be made on a
speculative basis. Construction and development loans made on a pre-sold basis
are generally made with a term of nine months and interest is paid monthly.
Typically the ratio of the principal amount of the loan to the discounted cash
flow value of the collateral, as established by independent appraisal,
generally does not exceed 75%. Speculative loans are based on the borrower's
financial strength and cash flow position. The ratio of the principal amount of
the loan to the discounted cash flow value of the collateral generally does not
exceed 75% on speculative loans. Speculative loans, as of December 31, 1999,
were 56% of total construction loans. Loan proceeds are disbursed as the
project is completed and only after the project has been inspected by an
experienced construction lender or board approved appraiser. Risks associated
with construction loans include fluctuations in the value of real estate and
new job creation trends.
COMMERCIAL LOANS. The bank makes commercial loans to small-and medium-sized
businesses and professional concerns. The terms of these loans vary by their
purpose and underlying collateral. The Bank typically makes equipment loans for
a term of seven years or less at fixed or variable rates, with the loan being
fully amortized over the term. The financed equipment generally secures
equipment loans, and the ratio of the amount of the loan to the value of the
financed equipment generally or other collateral is generally 75% or less.
Loans to support working capital typically have terms of one year or less and
usually are secured by accounts receivable, inventory and/or personal
guarantees of the principals of the business. For loans secured by accounts
receivable or inventory, the principal is typically repaid as the assets
securing the loan are converted into cash, and for loans secured with other
types of collateral, principal is typically due at maturity. The quality of the
commercial borrower's management, its ability to properly evaluate changes in
the supply and demand characteristics affecting its markets for products and
services, and its ability to respond effectively to such changes are
significant factors in a commercial borrower's continued creditworthiness.
CONSUMER LOANS. The Bank makes a variety of loans to individuals for personal,
family and household purposes, including secured and unsecured lines of credit.
Consumer loan repayments follow standard banking practices for repayment
considering local area market conditions and competition. Because depreciable
assets such as boats, cars and trailers secure many consumer loans, the Bank
amortizes these loans over the useful life of the asset. The loan officer
reviews the borrower's past credit history, past income level, debt history
and, when applicable, cash flow to determine the impact of all of these factors
on the borrower's ability to make future payments as agreed.
INVESTMENTS
At December 31, 1999, investment securities comprised approximately 11% of the
Bank's assets, with net loans comprising approximately 64% of assets. The Bank
invests primarily in obligations of the United States or obligations guaranteed
as to principal and interest by the United States. The Bank also engages in
Federal funds transactions with its principal correspondent banks and acts as a
net seller of such funds. The sale of Federal funds amounts to a short-term
loan from the Bank to another bank.
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<PAGE> 6
ASSET/LIABILITY MANAGEMENT
The Bank's objective is to manage its assets and liabilities to provide a
satisfactory and consistent level of profitability within the framework of
established cash, loan, investment, borrowing, and capital policies. Certain
Bank officers are responsible for developing and monitoring policies and
procedures that ensure acceptable composition of the asset/liability mix.
Management's overall philosophy is to support asset growth primarily through
the growth of core deposits, which include deposits of all categories made by
individuals, partnerships, and corporations. Management seeks to invest the
largest portion of the Bank's assets in commercial, construction, and consumer
loans.
The Bank's asset/liability mix is monitored daily, and a report reflecting
interest-sensitive assets and interest-sensitive liabilities is prepared and
presented to the Bank's Board of Directors monthly. The objective of this
regular review is to control interest-sensitive assets and liabilities so as to
minimize the impact of substantial movements in interest rates on the Bank's
earnings.
EMPLOYEES
At December 31, 1999, the Company employed 15 full time employees and 6
part-time employees through its subsidiary, the Bank. The Company considers its
relationship with its employees to be excellent.
SELECTED STATISTICAL INFORMATION
The following statistical information is provided for The PB Financial Services
Corporation for the year ended December 31, 1999 and for The Peachtree Bank for
the year ended December 31, 1998. The data is presented using daily average
balances. This data should be read in conjunction with the financial statements
appearing elsewhere in this Annual Report.
AVERAGE BALANCE SHEETS AND INTEREST RATES
The tables below show the year-end average balances for each category of
interest earning assets and interest-bearing liabilities for the year ended
December 31, 1999 and for the period from inception (October 5, 1998) through
December 31, 1998, and the average rate of interest earned or paid thereon.
5
<PAGE> 7
<TABLE>
<CAPTION>
December 31, 1999
(Dollars in Thousands)
----------------------------------
Average Yield/
Balance Interest Rate
--------- -------- ------
<S> <C> <C> <C>
AVERAGE ASSETS
Interest-earning assets:
Investment securities $ 4,002 $ 233 5.82%
Interest-earning due from banks 82 4 4.88%
Federal funds sold 5,432 269 4.95%
Net loans (including loan fees)(1) 25,142 2,507 9.97%
--------- ------- ----
Total interest-earning assets 34,658 3,013 8.69%
------- ----
Cash and due from banks 1,263
Other assets 4,190
---------
Total average assets $ 40,111
=========
AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $ 14,401 639 4.44%
Savings 124 3 2.42%
Time 14,946 815 5.45%
Repurchase agreements and borrowings 75 4 5.33%
--------- ------- ----
Total interest-bearing liabilities 29,546 1,461 4.94%
------- ----
Noninterest-bearing deposits 3,596
Other liabilities 254
---------
Total average liabilities 33,396
Stockholders' equity 6,715
---------
Total average liabilities and
stockholders' equity $ 40,111
=========
Excess of interest-bearing assets over
interest-bearing liabilities $ 5,112
---------
Ratio of interest-earning assets to
interest-bearing liabilities 117.30%
=========
Net interest income $ 1,552
=======
Net interest spread 3.75%
====
Net yield on average interest-earning assets 4.48%
====
</TABLE>
(1) All loans are accruing interest. Interest earned on net loans includes
$357,008 in loan fees.
6
<PAGE> 8
<TABLE>
<CAPTION>
December 31, 1998
(Dollars in Thousands)
-------------------------------------
Average Yield/
Balance Interest Rate
------- -------- ------
<S> <C> <C> <C>
AVERAGE ASSETS
Interest-earning assets:
Investment securities $ 882 $ 12 5.44%
Interest-earning due from banks -- --
Federal funds sold 6,701 85 5.07%
Net loans (including loan fees) (1) 3,382 104 12.30%
---------- --------- -----
Total interest-earning assets 10,965 201 7.32%
--------- ----
Cash and due from banks 1,026
Other assets 1,460
----------
Total average assets $ 13,451
==========
AVERAGE LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Interest-bearing demand $ 3,124 32 4.10%
Savings 41 -- 2.25%
Time 3,624 51 5.63%
Repurchase agreements 489 7 5.73%
---------- --------- -----
Total interest-bearing liabilities 7,278 90 4.95%
--------- -----
Noninterest-bearing deposits 540
Other liabilities 311
----------
Total average liabilities 8,129
Stockholders' equity 5,322
----------
Total average liabilities and
stockholders' equity $ 13,451
==========
Excess of interest-bearing assets over
interest-bearing liabilities $ 3,687
----------
Ratio of interest-earning assets to
interest-bearing liabilities 150.66%
==========
Net interest income $ 111
=========
Net interest spread 2.37%
-----
Net yield on average interest-earning assets 1.01%
-----
</TABLE>
(1) All loans are accruing interest. Interest earned on net loans includes
$33,119 in loan fees.
7
<PAGE> 9
RATE AND VOLUME ANALYSIS. The following table reflects the changes in net
interest income resulting from changes in interest rates and from asset and
liability volume. The change in interest attributable to rate has been
determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to change in average
balance outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 VS. 1998
----------------------------------------------
INCREASE CHANGES DUE TO
(DE- ---------------------------
CREASE) RATE VOLUME
-------- -------- --------
(DOLLARS IN THOUSANDS)
----------------------------------------------
<S> <C> <C> <C>
Income from interest-earning assets:
Interest on taxable investment securities $ 221 $ 4 $ 217
Interest on deposits at other banks 4 -- 4
Interest on federal funds sold 184 21 (292)
Interest and fees on loans 2,403 (84) 2,487
-------- -------- --------
Total interest income 2,812 (59) 2,416
Expense from interest-bearing liabilities:
Demand and money market 607 8 593
Savings 3 0 3
Time deposits of $100,000 or more 764 (5) 769
Repurchase agreements and borrowings (3) (4) (45)
-------- -------- --------
Total interest expense 1,371 (1) 1,321
Net interest income $ 1,441 $ (58) $ 1,095
======== ======== ========
</TABLE>
ASSET/LIABILITY MANAGEMENT. The following table sets forth the distribution of
the repricing of the Company's interest-earning assets and interest-bearing
liabilities as of December 31, 1999, the interest rate sensitivity gap (i.e.,
interest rate sensitive assets less interest rate sensitive liabilities), the
cumulative interest rate sensitivity gap, the interest rate sensitivity gap
ratio (i.e., interest rate sensitive assets divided by interest rate sensitive
liabilities) and the cumulative sensitivity gap ratio. The table also sets
forth the time periods in which earning assets and liabilities will mature or
may reprice in accordance with their contractual terms. However, the table does
not necessarily indicate the impact of general interest rate movements on the
net interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of the Bank's
customers. In addition, various assets and liabilities indicted as repricing
within the same period may in fact reprice at different times within such
period and at different rates.
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<TABLE>
<CAPTION>
At December 31, 1999
Maturing or Repricing in
------------------------------------------------------------------------
Four
Three Months One to
Months to 12 Five Over 5
or Less Months Years Years Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 7,476 $ -- $ -- $ -- $ 7,476
Investment securities -- -- 6,799 -- 6,799
Loans 20,191 1,281 17,953 873 40,298
-------- -------- -------- -------- --------
Total interest-earning assets $ 27,667 $ 1,281 $ 24,752 $ 873 $ 54,573
======== ======== ======== ======== ========
Interest-bearing liabilities
Deposits
Interest-bearing demand and
savings $ 18,225 $ -- $ -- $ -- $ 18,225
Time deposits 16,355 12,683 1,412 -- 30,450
Short term borrowings 1,797 -- -- -- 1,797
Other borrowings -- 73 -- -- 73
-------- -------- -------- -------- --------
Total interest-bearing
liabilities $ 36,377 $ 12,756 $ 1,412 $ -- $ 50,545
======== ======== ======== ======== ========
Interest sensitivity difference
per period $ (8,710) $(11,475) $ 23,340 $ 873 $ 4,028
======== ======== ======== ======== ========
Cumulative interest sensitivity
difference $ (8,710) $(20,185) $ 3,155 $ 4,028
======== ======== ======== ========
Cumulative difference to total
assets -13.9% -32.2% 5.0% 6.4%
======== ======== ======== ========
</TABLE>
The above schedule excludes stock in Federal Home Loan Bank of
$120,100 which has no contractual maturity.
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react, in different
degrees, or at different points in time, to changes in market interest rates.
Changes in interest rates, prepayment rates, early withdrawal levels and the
ability of borrowers to service their debt, among other factors, may vary
significantly from the assumptions made in the table.
The Company actively manages the mix of asset and liability maturities to
control the effects of changes in the general level of interest rates on net
interest income. Except for its effect on the general level of interest rates,
inflation does not have a material impact on the Company due to the rate
variability and short-term maturities of its earning assets. In
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<PAGE> 11
particular, approximately 53% of the loan portfolio is comprised of loans that
are variable rate terms or short-term obligations.
TYPES OF LOANS. The amount of loans outstanding at the indicated dates is shown
in the following table according to type of loans. Management is not aware of
any additional concentrations.
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Commercial $ 5,645,589 $ 4,390,348
Real estate-construction 11,910,797 1,941,946
Real estate-commercial and residential 18,453,654 719,795
Installment loans to individuals 2,956,114 1,060,415
Real estate-home equity 1,331,965 49,561
------------ ------------
Total loans 40,298,119 8,162,065
Less: Allowance for loan losses 399,991 81,621
Net deferred loan fees 134,686 32,535
Loans, net $ 39,763,442 $ 8,047,909
------------ ------------
</TABLE>
Loans are reported at the gross amount outstanding, reduced by the net deferred
loan fees and a valuation allowance for loan losses. Interest income is
recognized over the term of the loans based on the unpaid daily principal
amount outstanding. Loan origination fees are deferred and recognized as income
over the actual life of the loan using the interest method. Loans are generally
placed on nonaccrual status when the payment of principal and/or interest is
past due 90 days or more.
Through December 31, 1999, loan charge-offs totaled $458, and there were no
nonaccrual or nonperforming loans.
As of December 31, 1999, there were no loans that are classified for regulatory
purposes as doubtful, substandard or special mention which (1) represent or
result from trends or uncertainties that management reasonably expects will
materially impact future operating results, liquidity or capital resources, or
2) represent material credits about with management is aware of any information
that causes management to have serious doubts as to the ability of such
borrowers to comply with the loan repayment terms. Accrual of interest is
discontinued on a loan when management of the Bank determines upon
consideration of economic and business factors affecting collection efforts
that collection of interest is doubtful. During 1999, all loans had accrued
interest.
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<PAGE> 12
Maturities of loans were as follows at December 31, 1999: (Dollars in
thousands)
<TABLE>
<CAPTION>
<S> <C>
Maturity:
Within 1 year $ 21,472
1 to 5 years 17,953
Over 5 years 873
---------
Total $ 40,298
=========
</TABLE>
For the above loans, the following is a presentation of an analysis of
sensitivities to changes in interest rates at December 31, 1999:
<TABLE>
<CAPTION>
Due After
Due in 1 Year but
1 Year Less Than Due After
or Less 5 Years 5 Years Total
--------- ---------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest category:
Predetermined interest rate $ 2,754 $ 17,953 $ 873 $ 21,580
Floating interest rate 18,718 -- -- 18,718
Total $ 21,472 $ 17,953 $ 873 $ 40,298
========= ========= ======= ========
</TABLE>
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<PAGE> 13
The following summarizes the activity in the allowance for loan losses for the
following periods:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Average amount of loans outstanding $ 25,142,297 $ 3,382,000
============ ============
Balance at beginning of period $ 81,621 $ --
Charge-offs:
Commercial -- --
Real estate-construction -- --
Real estate-commercial and residential -- --
Installment loans to individuals (458) --
Real estate-home equity -- --
------------ ------------
Total charge-offs (458) --
------------ ------------
Recoveries:
Commercial -- --
Real estate-construction -- --
Real estate-commercial and residential -- --
Installment loans to individuals -- --
Real estate-home equity -- --
------------ ------------
Total recoveries --
------------ ------------
Net charge-offs (458) --
Provision charged to operations 318,828 81,621
------------ ------------
Balance at end of year $ 399,991 $ 81,621
============ ============
Ratio of net charge-offs during the period
to average loans outstanding during the
period 0.002% 0.000%
============ ============
</TABLE>
The allowance was allocated as follows at December 31, 1999:
<TABLE>
<CAPTION>
Percentage of
Loans in Each
Category to
Amount Total Loans
------ ------------
(Dollars in Thousands)
<S> <C> <C>
Commercial $ 56 14%
Real estate-construction 120 30%
Real estate-commercial and residential 184 46%
Installment loans to individuals 28 7%
Real estate-home equity 12 3%
Unallocated -- --
---- ---
Total $400 100%
---- ---
</TABLE>
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<PAGE> 14
SUMMARY OF LOAN LOSS EXPERIENCE. The provision for possible loan losses is
created by direct charges to operations. Losses on loans are charged against
the allowance in the period in which such loans, in management's opinion,
become uncorrectable. Recoveries during the period are credited to this
allowance. The factors that influence management's judgment in determining the
amount charged to operating expense are past loan experience, composition of
the loan portfolio, evaluation of possible future losses, current economic
conditions, and other relevant factors. The Company's allowance for loan losses
was approximately $400,000 at December 31, 1999, representing .99% of year end
total loans outstanding, compared with $82,000 at December 31, 1998,
representing 1.00% of year end total loans outstanding. The allowance for loan
losses is reviewed continuously based on management's evaluation of current
risk characteristics of the loan portfolio, as well as the impact of prevailing
and expected economic business conditions. Management considers the allowance
for loan losses adequate to cover possible loan losses on the loans
outstanding.
Based on management's best estimate, approximately 14% of the allowance should
be allocated to commercial loans, 30% to real estate-construction loans, 46% to
real estate-commercial and residential loans, 7% to installment loans, and 3%
to home equity loans as of December 31, 1999.
13
<PAGE> 15
TYPES OF INVESTMENTS
The amortized cost and estimated market value of securities available for sale
are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1999:
U.S. Government agencies $3,499,068 $ -- $ 94,273 $3,404,795
Mortgage-backed securities 3,299,550 -- 51,182 3,248,368
Equity securities 120,100 -- -- 120,100
$6,918,718 $ -- $ 145,455 $6,773,263
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ----------- ----------
December 31, 1998:
U.S. Government agencies $1,000,000 $ 2,030 $ 7,810 $ 994,220
Mortgage-backed securities 533,124 -- 1,266 531,858
$1,533,124 $ 2,030 $ 9,076 $1,526,078
</TABLE>
The Company does not have investments to one issuer totaling more than 10% of
equity.
MATURITIES. The carrying amounts of investment securities in each category as
of December 31, 1998 and 1999 are shown in the following tables according to
maturity:
14
<PAGE> 16
<TABLE>
<CAPTION>
United States Weighted Mortgage Weighted
Government Average Backed Average
December 31. 1999 Agencies Yield Securities Yield
------------- -------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Maturities
Within one year $ -- 0% $ -- 0%
After 1 through 5 years 3,499 5.62% 3,300 6.50%
After 5 years -- 0% -- 0%
------ ---- ------ ----
Total $3,499 5.62% $3,300 6.50%
====== ==== ====== ====
</TABLE>
The above schedule excludes stock in Federal Home Loan Bank of $120,100 which
has no contractual maturity. Mortgage backed security maturities are based on
the average life at the projected repayment speed.
DEPOSITS
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand deposits, savings
deposits, and time deposits, for the periods indicated are presented below:
15
<PAGE> 17
<TABLE>
<CAPTION>
Average Average
December 31, 1999 Amount Rate Paid
-------- ---------
<S> <C> <C>
Deposits:
Noninterest-bearing demand $ 3,596 0.00%
Interest-bearing demand 14,401 4.44%
Savings 124 2.42%
Time 14,946 5.45%
--------
Total $ 33,067
========
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding and
other time deposits at December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Months to maturity:
3 or less $ 16,355
3 to 6 3,862
6 to 12 8,821
Over 12 1,412
--------
Total $ 30,450
========
</TABLE>
RETURN ON ASSETS AND SHAREHOLDERS' EQUITY
The following rate of return information for the periods indicated is presented
below.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998
---- ----
<S> <C> <C>
Return on assets(1) (.91%) (5.5%)
Return on equity(2) (5.5%) (13.9%)
Dividend payout ratio(3) -- --
Equity to assets ratio(4) 16.7% 39.6%
</TABLE>
(1) Net income (loss) divided by average total assets
(2) Net income (loss) divided by average equity
(3) Dividends declared per share
(4) Average equity divided by average total assets
16
<PAGE> 18
SUPERVISION AND REGULATION
Both the Company and the Bank are subject to extensive state and
federal banking regulations that impose restrictions on and provide for general
regulatory oversight of our operations. These laws are generally intended to
protect depositors and not shareholders. The following discussion describes the
material elements of the regulatory framework that applies to us.
BANK HOLDING COMPANIES
Since the Company owns all of the capital stock of The Peachtree Bank,
it is a bank holding company under the federal Bank Holding Company Act of
1956. As a result, the Company is primarily subject to the supervision,
examination, and reporting requirements of the Bank Holding Company Act and the
regulations of the Federal Reserve.
ACQUISITIONS OF BANKS. The Bank Holding Company Act requires every
bank holding company to obtain the Federal Reserve's prior approval before:
- - Acquiring direct or indirect ownership or control of any voting shares
of any bank if, after the acquisition, the bank holding company will
directly or indirectly own or control more than 5% of the bank's voting
shares;
- - Acquiring all or substantially all of the assets of any bank; or
- - Merging or consolidating with any other bank holding company.
Under the Bank Holding Company Act, an adequately capitalized and
adequately managed bank holding company located in Georgia may purchase a bank
located outside of Georgia. Conversely, an adequately capitalized and
adequately managed bank holding company located outside of Georgia may purchase
a bank located inside Georgia. In each case, however, restrictions may be
placed on the acquisition of a bank which has only been existence for a limited
amount of time or an acquisition which may result in specified concentrations
of deposits.
CHANGE IN BANK CONTROL. Subject to various exceptions, the Bank
Holding Company Act and the Change in Bank Control Act, together with related
regulations, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of
voting securities of the bank holding company. Control is rebuttably presumed
to exist if a person or a company acquires 10% or more, but less than 25%, of
any class of voting securities and either the bank holding company has
registered securities under Section 12 of the Securities Act of 1934, or no
other person owns a greater percentage of that class of voting securities
immediately after the transaction.
PERMITTED ACTIVITIES. Under the Bank Holding Company Act, a bank
holding company, which has not qualified or elected to become a financial
holding company is generally
17
<PAGE> 19
prohibited from engaging in or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in nonbanking activities
unless prior to the enactment of the Gramm-Leach-Bliley Act the Federal Reserve
found those activities to be so closely related to banking as to be a proper
incident to the business of a banking. Activities that the Federal Reserve has
found to be so closely related to banking to be a proper incident to the
business of banking include:
- - factoring accounts receivable,
- - acquiring or servicing loans,
- - leasing personal property,
- - conducting discount securities brokerage activities,
- - performing selected data processing services,
- - acting as agent or broker in selling credit life insurance and other
types of insurance in connection with credit transactions, and
- - performing selected insurance underwriting activities.
Despite prior approval, the Federal Reserve may order a bank holding company or
its subsidiaries to terminate any of these activities or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that the bank holding company's continued ownership, activity or control
constitutes a serious risk to the financial safety, soundness, or stability of
any of its bank subsidiaries.
On November 12, 1999 President Clinton signed the Gramm-Leach-Bliley
Act, which amends the Bank Holding Company Act and greatly expand the
activities in which bank holding companies and affiliates of banks are
permitted to engage. The Gramm-Leach-Bliley Act eliminates many federal and
state law barriers to affiliations among banks and securities firms, insurance
companies, and other financial service providers. The provisions of the
Gramm-Leach-Bliley Act relating to permitted activities of bank holding
companies and affiliates of banks will become effective on March 11, 2000.
Generally, if the Company qualifies and elects to become a financial
holding company, it may engage in activities that are financial in nature or
incidental or complementary to a financial activity. Activities that the
Gramm-Leach-Bliley Act expressly lists as financial in nature include insurance
activities, providing financial, investment and advisory services, underwriting
securities and limited merchant banking activities.
To qualify to become a financial holding company, The Peachtree Bank
and any other depository institution subsidiary of the Company must be well
capitalized and well managed and must have a Community Reinvestment Act rating
of at least satisfactory. Additionally, the Company must file an election with
the Federal Reserve to become a financial holding company and must provide the
Federal Reserve with 30 days written notice prior to engaging in a permitted
financial activity. Although we are eligible to elect to become a financial
holding company, we currently have no plans to make such an election.
SUPPORT OF SUBSIDIARY INSTITUTIONS. Under Federal Reserve policy, bank
holding companies are expected to act as a source of financial strength for,
and to commit resources to support, their depository institution subsidiaries.
This support may be required at times when, without this Federal Reserve
policy, the bank holding company might not be
18
<PAGE> 20
inclined to provide it. In addition, any capital loans by a bank holding
company to a bank will be repaid only after its deposits and other indebtedness
are repaid in full. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a banking subsidiary will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
THE PEACHTREE BANK
The Peachtree Bank is a commercial bank charted under the laws of the
State of Georgia. Accordingly, the FDIC and the Georgia Department of Banking
and Finance regularly examine the operations of Peachtree Bank and have the
authority to approve or disapprove mergers, the establishment of branches, and
similar corporate actions. Both regulatory agencies also have the power to
prevent the continuance or development of unsafe or unsound banking practices
or other violations of law. Additionally, The Peachtree Bank's deposits are
insured by the FDIC to the maximum extent provided by law. The Peachtree Bank
is also subject to numerous state and federal statutes and regulations that
affect its business, activities and operations, and it is supervised and
examined by one or more state or federal bank regulatory agencies.
PROMPT CORRECTIVE ACTION. The Federal Deposit Insurance Corporation
Improvement Act of 1991 establishes a system of prompt corrective action to
resolve the problems of undercapitalized financial institutions. Under this
system, federal banking regulators have established five capital categories,
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized, in which all institutions are
placed. The federal banking agencies have also specified by regulation the
relevant capital levels for each of the other categories. At December 31, 1999,
the Bank and the Company qualified for the well-capitalized category.
Federal banking regulators are required to take some mandatory
supervisory actions and are authorized to take other discretionary actions with
respect to institutions in the three undercapitalized categories. The severity
of the action depends upon the capital category in which the institution is
placed. Generally, subject to a narrow exception, the banking regulator must
appoint a receiver or conservator for an institution that is critically
undercapitalized. An institution in any of the undercapitalized categories is
required to submit an acceptable capital restoration plan to its appropriate
federal banking agency. A bank holding company must guarantee that a subsidiary
depository institution meets its capital restoration plan up to the lesser of
5% of an undercapitalized subsidiary's assets or the amount required to meet
regulatory capital requirements. An undercapitalized institution is also
generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches or engaging in any new line of
business, except under an accepted capital restoration plan or with FDIC
approval. The Federal Reserve regulations also establish procedures for
downgrading an institution to a lower capital category based on supervisory
factors other than capital.
FDIC INSURANCE ASSESSMENTS. The FDIC has adopted a risk-based
assessment system for determining an insured depository institutions' insurance
assessment rate. The system that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. An
institution is placed into one of three capital categories: (1) well
capitalized; (2) adequately capitalized; and (3) undercapitalized. These three
categories are substantially
19
<PAGE> 21
similar to the prompt corrective action categories described above, with the
"undercapitalized" category including institutions that are undercapitalized,
significantly undercapitalized and critically undercapitalized. The FDIC also
assigns an institution to one of three supervisory subgroups based on a
supervisory evaluation that the institution's primary federal regulator
provides to the FDIC and information that the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds. Assessments range from 0 to 27 cents per $100 of deposits,
depending on the institution's capital group and supervisory subgroup.
The FDIC may terminate its insurance of deposits if it finds that the
institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act requires
the appropriate federal regulator, in connection with their examinations of
financial institutions within their jurisdiction, to evaluate the record of
each financial institution in meeting the credit needs of its local community,
including low and moderate-income neighborhoods. The appropriate federal
regulator considers these factors in evaluating mergers, acquisitions, and
applications to open a branch or facility. Failure to adequately meet these
criteria could impose additional requirements and limitations on The Peachtree
Bank. Under the Gramm-Leach-Bliley Act, banks with aggregate assets of not more
than $250 million will be subject to a Community Reinvestment Act examination
only once every 60 months if the bank receives an outstanding rating, once
every 48 months if it receives a satisfactory rating and as needed if the
rating is less than satisfactory. Additionally, under the Gramm-Leach-Bliley
Act, banks will be required to publicly disclose the terms of various Community
Reinvestment Act-related agreements.
OTHER REGULATIONS. Interest and other charges collected or contracted
for by The Peachtree Bank are subject to state usury laws and federal laws
concerning interest rates. The Peachtree Bank's loan operations are also
subject to federal laws applicable to credit transactions, such as:
- - The federal Truth-In-Lending Act, governing disclosures of credit
terms to consumer borrowers;
- - The Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it
serves;
- - The Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending credit;
- - The Fair Credit Reporting Act of 1978, governing the use and provision
of information to credit reporting agencies;
20
<PAGE> 22
- - The Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and
- - The rules and regulations of the various federal agencies charged with
the responsibility of implementing these federal laws.
The deposit operations of The Peachtree Bank are subject to:
- - The Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records; and
- - The Electronic Funds Transfer Act and Regulation E issued by the
Federal Reserve to implement that act, which governs automatic deposits
to and withdrawals from deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines and other
electronic banking services.
CAPITAL ADEQUACY
The Company and The Peachtree Bank are required to comply with the
capital adequacy standards established by the Federal Reserve, in the case of
the Company, and FDIC and Georgia Department of Banking and Finance, in the
case of the Bank. The Federal Reserve has established a risk-based and a
leverage measure of capital adequacy for bank holding companies that is
substantially similar to that adopted by the FDIC for banks under its
jurisdiction.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items, such as letters of credit and unfunded loan commitments, are assigned to
broad risk categories, each with appropriate risk weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier
2 Capital. Tier 1 Capital generally consist of common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries,
qualifying noncumulative perpetual preferred stock, and a limited amount of
qualifying cumulative perpetual preferred stock, less goodwill and other
specified intangible assets. Tier 1 Capital must equal at least 4% of
risk-weighted assets. Tier 2 Capital generally consist of subordinated debt,
other preferred stock and hybrid capital and a limited amount of loan loss
reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1
Capital. At December 31, 1999, our consolidated ratio of total capital to
risk-weighted assets was 11.5% and our consolidated ratio of Tier 1 Capital to
risk-weighted assets was 10.9%.
In addition, the Federal Reserve has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier 1 Capital to average assets, less goodwill and other
specified intangible assets, of 3% for bank holding
21
<PAGE> 23
companies that meet certain specified criteria, including having the highest
regulatory rating and implementing the Federal Reserve's risk-based capital
measure for market risk. All other bank holding companies generally are
required to maintain a leverage ratio of at least 4%. At December 31, 1999, our
consolidated leverage ratio was 16.4%. The guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets. The
Federal Reserve considers the leverage ratio and other indicators of capital
strength in evaluating proposals for expansion or new activities.
The Bank and the Company are also both subject to other capital
guidelines issued by the Georgia Department of Banking and Finance and the
Federal Reserve, respectively, which provide for minimum ratios of total
capital to total assets. As a condition to granting the Bank's charter, the
Georgia Department of Banking and Finance required The Peachtree Bank to commit
to maintain its capital ratio at not less than 8% during the first three years
of its operation. After the first three years of its operations, The Peachtree
Bank must continue to satisfy the capital ratios established by the Georgia
Department of Banking and Finance. The Georgia Department of Banking and
Finance requires that financial institutions maintain a capital-to-assets ratio
of 5% or $1,000,000, whichever is greater. Financial institutions having less
than $1,000,000 in capital must maintain a ratio of at least 6% and those with
capital of less than $500,000 must maintain a ratio of at least 7%.
Failure to meet capital guidelines could subject a bank or bank
holding company to a variety of enforcement remedies, including issuance of a
capital directive, the termination of deposit insurance by the FDIC, a
prohibition on the taking of brokered deposits, and certain other restrictions
on its business. As described above, substantial additional restrictions can be
imposed on FDIC-insured depository institutions that fail to meet applicable
capital requirements. See "--Prompt Corrective Action."
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from the Bank. The
principal source of the Company's cash flow, including cash flow to pay
dividends to its shareholders, is dividends that the Bank pays to it. Statutory
and regulatory limitations apply to the Bank's payment of dividends to the
Company as well as to the Company's payment of dividends to its shareholders.
If, in the opinion of the federal banking regulator, The Peachtree
Bank were engaged in or about to engage in an unsafe or unsound practice, the
federal banking regulator could require, after notice and a hearing, that it
cease and desist from its practice. The federal banking agencies have indicated
that paying dividends that deplete a depository institution's capital base to
an inadequate level would be an unsafe and unsound banking practice. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991, a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. Moreover, the federal
agencies have issued policy statements that provide that bank holding companies
and insured banks should generally only pay dividends out of current operating
earnings. See "--Prompt Corrective Action."
22
<PAGE> 24
The Georgia Department of Banking and Finance also regulates the
Bank's dividend payments and must approve dividend payments that would exceed
50% of the Bank's net income for the prior year. Our payment of dividends may
also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
At December 31, 1999, the Bank was not allowed to pay dividends to the
Company due to the net loss incurred.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES
The Company and the Bank are subject to the provisions of Section 23A
of the Federal Reserve Act. Section 23A places limits on the amount of:
- - loans or extensions of credit to affiliates;
- - investment in affiliates;
- - the purchase of assets from affiliates, except for real and personal
property exempted by the Federal Reserve;
- - loans or extensions of credit to third parties collateralized by the
securities or obligations of affiliates; and
- - any guarantee, acceptance or letter of credit issued on behalf of an
affiliate.
The aggregate of all of the above transactions is limited in amount,
as to any one affiliate, to 10% of a bank's capital and surplus and, as to all
affiliates combined, to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these transactions, each of the above transactions
must also meet specified collateral requirements. The Company must also comply
with certain provisions designed to avoid the taking of low-quality assets.
The Company and the Bank are also subject to the provisions of Section
23B of the Federal Reserve Act which, among other things, prohibits an
institution from engaging in the above transactions with affiliates unless the
transactions are on terms substantially the same, or at least as favorable to
the institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies.
The Peachtree Bank is also subject to restrictions on extensions of
credit to its executive officers, directors, certain principal shareholders and
their related interests. These extensions of credit (1) must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with third parties, and (2)
must not involve more than the normal risk of repayment or present other
unfavorable features.
PRIVACY
The Gramm-Leach-Bliley Act also contains provisions regarding consumer
privacy. These provisions require financial institutions to disclose their
policy for collecting and
23
<PAGE> 25
protecting confidential information. Customers generally may prevent financial
institutions from sharing personal financial information with nonaffiliated
third parties except for third parties that market the institutions' own
products and services. Additionally, financial institutions generally may not
disclose consumer account numbers to any nonaffiliated third party for use in
telemarketing, direct mail marketing or other marketing through electronic mail
to the consumer.
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the
extent to which our business may be affected by any new regulation or statute.
EFFECT OF GOVERNMENTAL MONETARY POLICES
Our earnings are affected by domestic economic conditions and the
monetary and fiscal policies of the United States government and its agencies.
The Federal Reserve Bank's monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial
banks through its power to implement national monetary policy in order, among
other things, to curb inflation or combat a recession. The monetary policies of
the Federal Reserve Board have major effects upon the levels of bank loans,
investments and deposits through its open market operating in United States
government securities and through its regulation of the discount rate on
borrowings of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature or impact of future changes
in monetary and fiscal policies.
ITEM 2. DESCRIPTION OF PROPERTY
The Peachtree Bank is located on a 1.2-acre tract of land in northeast Fulton
County, Georgia, which was purchased at a price of approximately $610,000. The
Bank's operations are conducted through its main office, which is located at
this site. The Bank operates its business in a building of approximately 16,000
square feet in size which was constructed and furnished at cost, including all
furnishings, site preparation, landscaping, paving, security equipment and
automatic teller machine, of approximately $3,297,000. Currently, the Bank
utilizes approximately 10,300 square feet of the space in the building.
Additional space over and above that required to operate the Bank is leased and
generates lease income for the Bank. The Bank will continue to lease this space
until such time as the Bank requires use of the space. The building is of brick
construction and has six inside teller windows, four drive-in lanes and one
drive-up ATM.
Other than normal real estate commercial lending activities of the Bank, the
Company generally does not invest in real estate, interests in real estate,
real estate mortgages, or securities of or interests in persons primarily
engaged in real estate activities.
24
<PAGE> 26
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party
or of which any of its properties is subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer, or affiliate or any principal
security holder of the Company or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is not traded on an established trading market. As a
result, sales prices known to the Company do not necessarily reflect the price
that would be paid for the common stock in an active market. Based on the
limited trading information available to the Company, the sales price of The PB
Financial Services Corporation common stock sold during the year ended December
31, 1999 has been $10.00 per share. As of March 15, 2000, the number of holders
of record of the Company's common stock was 578.
It is the policy of the Board of Directors of the Company to reinvest earnings
for such period of time as is necessary to ensure the success of the operations
of the Company. There are no current plans to initiate payment of cash
dividends, and future dividend policy will depend on the Company's earnings,
capital requirements, financial condition and other factors considered relevant
by the Board of Directors. The Company declared no dividends in 1999.
The Company did not issue or sell any unregistered shares of its Common Stock
during 1999.
25
<PAGE> 27
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion of the Company's financial condition and results of
operations should be used in conjunction with the Company's financial
statements, related notes and statistical information included herein.
The Bank has operated as a commercial banking business based in Duluth, Georgia
since October 5, 1998. On July 15, 1999, the Company was formed for the purpose
of becoming a bank holding company by acquiring and owning the capital stock of
the Bank. Because the primary activity of the Company is the ownership and
operation of the Bank, the Company's financial performance has been determined
primarily by the operation of the Bank. Accordingly, the discussion below
relates principally to the operations of the Bank.
RESULTS OF OPERATIONS
GENERAL
<TABLE>
<CAPTION>
Balance at Balance at
December 31, 1999 December 31, 1998 $ Change % Change
----------------- ----------------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Total Assets $62,552 $19,760 $42,792 217%
Net Loans $39,763 $ 8,048 $31,715 394%
Total Deposits $54,010 $12,608 $41,402 328%
</TABLE>
At December 31, 1999, the Company's total assets were approximately
$62,552,000, compared to approximately $19,760,000 at December 31, 1998. The
increase in total assets from 1998 to 1999 was approximately $42,792,000 or
217%. The increase in total assets was due to a full year of operations in
1999, as compared to less than three months of operations in 1998. In its first
full year of operations, the Bank was able to implement a strong marketing
program in its primary market area of northeast Fulton County and western
Gwinnett County.
The Company's total loans (net of the reserve for possible loan losses and
deferred loan fees) increased to approximately $39,763,000 at December 31, 1999
from approximately $8,048,000 at December 31, 1998. This increase in net loans
of 394% can be attributed to a full year of lending activities in a relatively
high growth area of metropolitan Atlanta where new residential construction and
commercial development continues to be strong.
26
<PAGE> 28
The Company's total deposits increased to approximately $54,010,000 at December
31, 1999, a 328% increase from the December 31, 1998 balance of approximately
$12,608,000. The strong increase in deposits reflects a full year of operations
in 1999 compared to less than three months in 1998, driven by a successful
marketing program. While the marketing program was directed at all types of
deposit accounts, the primary emphasis was on money market accounts and
certificates of deposit. Money market accounts are offered at tiered rates that
are competitive with similar products offered by investment brokerages. In
addition, certificates of deposit offered by the Bank continue to be a strong
deposit product, with interest rates competitive within the local market.
NET INTEREST INCOME
The Company's results of operations are impacted by its ability to effectively
manage interest income and expense to minimize loan and investment losses, to
generate noninterest income and to control noninterest expense. Because
interest rates are determined by market forces and economic conditions beyond
the control of the Company, the ability to generate net interest income depends
on the Company's ability to maintain an adequate spread between the rate earned
on interest-earning assets and the rate paid on interest-bearing liabilities,
such as deposits and borrowings. Thus, net interest income is the key
performance measure of income.
Net interest income in 1999 was approximately $1,552,000 compared to
approximately $111,000 in 1998. This increase can be attributed to the $23.7
million increase in average interest-earning assets and especially to the $21.8
million increase in average loans outstanding. The average balance sheet for
1999 grew $26.7 million due primarily to a full year of strong loan demand in
the Company's primary market area. In addition to the increase in interest and
fees on loans, interest income increased on federal funds sold and on U.S.
Agency Securities due to a larger volume of funds invested in 1999 compared to
1998. The yield on average interest-earning assets was 8.69% in 1999, compared
with 7.32% in 1998, reflecting an increase in interest rates on loans over the
year.
The increases in average loans outstanding, investments and federal funds sold
in 1999 were funded primarily with deposits. Average interest-bearing deposits
and other borrowings increased by $22.3 million in 1999 over 1998, while
average noninterest-bearing deposits grew by $3.1 million in the same period.
Interest expense of approximately $1,461,000 offset the interest income of
approximately $3,013,000 in 1999, resulting in net interest income of
approximately $1,552,000. While interest expense increased due to a large
volume of interest-bearing deposits, reflecting a full year of operations in
1999 compared to less than three months of operations in 1998, the rate of
interest on average deposits and other borrowings did not change significantly.
The interest rate paid on average interest-bearing liabilities was 4.94% in
1999 compared to 4.95% in 1998. Net yield on average interest-earning assets
was 4.48 percent in 1999 versus 1.01 percent in 1998.
27
<PAGE> 29
The provision for loan losses was $318,828 in 1999 compared to $81,621 in 1998.
The provision for loan losses was attributable to the increase in the loan
portfolio and anticipated loan growth. The provision for loan losses reflects
management's estimate of potential loan losses inherent in the portfolio and
the creation of an allowance for loan losses adequate to absorb such losses.
The allowance for loan losses represented approximately .99 percent of total
loans outstanding at December 31, 1999 compared to 1.0 percent of total loans
outstanding at December 31, 1998. In 1999, charge-offs totaled $458, and there
were no charge-offs during 1998.
A dedicated loan review function is utilized by the Company which is
supplemented by the use of an outside loan review specialist. All loans of
$50,000 or more are reviewed at least annually and placed into various loan
grading categories which assists in developing lists of potential problem
loans. These loans are regularly monitored by the loan review process to ensure
early identification of repayment problems so that adequate allowances can be
made through the provision for loan losses. Management believes that this level
of allowance is appropriate based upon the Bank's loan portfolio and the
current economic conditions.
NONINTEREST INCOME
Noninterest income for 1999 was $311,990 compared to $11,366 for the period
from inception to December 31, 1998. The primary components of noninterest
income for both 1999 and 1998 consisted of mortgage referral fees and service
charges on deposits. Mortgage referral fees are generated when the Bank
processes mortgage applications which are qualified and serviced by another
lender.
NONINTEREST EXPENSE
Noninterest expense for 1999 totaled $1,913,055, compared to $780,286 in 1998.
Other operating expenses include $72,799 of start-up and organizational
expenses attributable to organizing the Company in 1999, compared with $311,894
in organizational expenses attributable to organizing the Bank in 1998. The
efficiency ratio (noninterest expense divided by total income) was 57.5% at
December 31, 1999. As a percentage of total average assets, noninterest expense
was 4.8 percent at December 31, 1999. Below are the components of noninterest
expense at December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------
Salaries and employee benefits $ 1,060,413
- ---------------------------------------------------------
Occupancy expense 332,365
- ---------------------------------------------------------
Other operating expenses 520,277
- ---------------------------------------------------------
- ---------------------------------------------------------
Total noninterest expense $ 1,913,055
- ---------------------------------------------------------
</TABLE>
28
<PAGE> 30
The Company's net operating loss was $368,069 in 1999. Due to the net operating
loss carry-forward and the recognition of the tax benefit being dependent upon
future earnings, there was no tax provision made in 1999.
INVESTMENTS
The investment portfolio consists of U.S. Agency and Agency sponsored debt
securities, federal funds sold, and Federal Home Loan Bank stock that provide
the Bank with a source of liquidity and a long-term and relatively stable
source of income. Additionally, the investment portfolio provides a balance to
interest rate and credit risk in other categories of the balance sheet while
providing a vehicle for the investment of available funds, furnishing
liquidity, and supplying securities to pledge as required collateral for
certain deposits.
LIQUIDITY
The Bank must maintain, on a daily basis, sufficient funds to cover the
withdrawals from depositors' accounts and to supply new borrowers with funds.
To meet these obligations, the Bank keeps cash on hand, maintains account
balances with its correspondent banks, and purchases and sells federal funds
and other short-term investments. Asset and liability maturities are monitored
in an attempt to match these to meet liquidity needs. It is the policy of the
Bank to monitor its liquidity to meet regulatory requirements and their local
funding requirements.
Liquidity represents the ability to provide steady sources of funds for loan
commitments and investment activities, as well as to maintain sufficient funds
to cover deposit withdrawals and payment of debt and operating obligations.
These funds can be obtained by converting assets to cash or by attracting new
deposits. The Company's primary source of liquidity comes from its ability to
maintain and increase deposits through the Bank. Deposits grew by $41 million
in 1999.
The following are the key liquidity balances and ratios for the year ended
December 31, 1999:
<TABLE>
<S> <C>
Cash and cash equivalents $11,819,849
Investment securities available for sale $ 6,653.163
CDs over $100,000 to total deposits ratio 39.6%
Loan to deposit ratio 74.4%
</TABLE>
Cash and cash equivalents are the primary source of liquidity. At December 31,
1999, cash and cash equivalents amounted to $11.8 million, representing 18.9
percent of total assets. Securities available for sale provide a secondary
source of liquidity, amounting to $6.7 million carrying value at December 31,
1999.
At December 31, 1999, certificates of deposit over $100,000 represented 39.6%
of total deposits. Certificates of deposit over $100,000 are generally more
volatile than other
29
<PAGE> 31
deposits. As a result, management continually monitors the competitiveness of
the rates it pays on certificates of deposit over $100,000 and periodically
adjusts its rates in accordance with market demands. Significant withdrawals of
the large certificates of deposit may have a material adverse effect on the
Bank's liquidity. Management believes that since a majority of the above
certificates of deposit were obtained by Bank customers in its market area, the
volatility of the deposits is lower than if such deposits were obtained from
depositors outside its market area, as outside depositors are more likely to be
interest rate sensitive.
The Bank maintains relationships with correspondent banks that can provide
funds to it on short notice, if needed. The Bank currently has arrangements
with correspondent banks for short-term unsecured advances up to $3,900,000.
CAPITAL ADEQUACY
The following table presents the Bank's regulatory capital position at December
31, 1999.
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
December 31, 1999
-------------------------
<S> <C>
Tier 1 Capital 10.9%
Tier 1 Capital minimum requirement 4.0%
-----
Excess 6.9%
-----
Total Capital 11.5%
Total Capital minimum requirement 8.0%
-----
Excess 3.5%
-----
Tier 1 Capital to adjusted average assets
("Leverage Ratio") 16.4%
Minimum leverage requirement 4.0%
-----
Excess 12.4%
-----
</TABLE>
The above ratios indicate that the capital position of the Bank is sound and
that the Bank is well positioned for future growth. For a more complete
discussion of the actual and required ratios of the Bank as of December 31,
1999, see note 12 to the financial statements.
30
<PAGE> 32
ASSET/LIABILITY MANAGEMENT
It is the Bank's objective to manage assets and liabilities to provide a
satisfactory, consistent level of profitability within the framework of
established cash, loan, and investment, borrowing and capital policies. Certain
officers are charged with the responsibility of monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix. It is the overall philosophy of management to support
asset growth primarily through the growth of core deposits, which include
deposits of all categories made by local individuals, partnerships and
corporations. The objective of the policy is to control interest-sensitive
assets and liabilities so as to minimize the impact of substantial movements in
interest rates on earnings.
The asset/liability mix is monitored on a regular basis. A report reflecting
the interest-sensitive assets and interest-sensitive liabilities is prepared
and presented to the Board of Directors on a periodic basis.
One method to measure a bank's interest rate exposure is through its repricing
gap. The gap is calculated by citing all liabilities that reprice or taking all
assets that reprice or mature within a given time frame and subtracting all
liabilities that reprice or mature with in that time frame. The difference
between these two amounts is called the "gap", the amount of either liabilities
or assets that will reprice without a corresponding asset or liability
repricing.
A negative gap (more liabilities repricing that assets) generally indicates
that the bank's net interest income will decrease if interest rates rise and
will increase if interest rates fall. A positive gap generally indicates that a
bank's net interest income will decrease if interest rates fall and will
increase if interest rates rise.
The table on page 9 summarizes the amounts if interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1999 that are expected
to mature, prepay or reprice in each of the future time periods shown. Except
as stated in the table, the amount of assets or liabilities that mature or
reprice during a particular period was determined in accordance with the
contractual terms of the asset or liability. Adjustable rate loans are included
in the period in which interest rates are next scheduled to adjust rather than
in the period in which they are due, and fixed rate loans and mortgage backed
securities are included in the periods in which they are anticipated to be
repaid based on scheduled maturities. The Bank's savings accounts and
interest-bearing demand accounts (NOW and money market deposit accounts), which
are generally subject to immediate withdrawal, are included in the "Three
Months or Less" category, although historical experience has proven these
deposits to be more stable over the course of a year.
31
<PAGE> 33
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included in the Company's Annual Report
to Shareholders:
Independent Auditor's Report
Financial Statements
Consolidated Balance Sheets dated as of December 31, 1999 and 1998
Consolidated Statements of Income for the years ended December 31,
1999 and 1998
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
1999 and 1998
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The responses to this Item are included in the Company's proxy statement for
the Annual Meeting of Shareholders to be held May 16, 2000, under the headings,
"Directors and Executive Officers - Election of Directors - Nominees and
Continuing Directors." At pages __ through __, "Security Ownership of Certain
Beneficial Owners and Management" at pages __ through __, and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" at page __ and are
incorporated herein by reference.
32
<PAGE> 34
ITEM 10. EXECUTIVE COMPENSATION
The responses to this Item are included in the Company's proxy statement for
the Annual Meeting of Shareholders to be held May 16, 2000, under the heading.
"Compensation of Executive Officers and Directors," at pages __ through __, and
are incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The responses to this Item are included in the Company's proxy statement for
the Annual Meeting of Shareholders to be held May 16, 2000, under the headings,
"Security Ownership of Certain Beneficial Owners," at pages__ through __, and
are incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to this Item are included in the Company's proxy statement for
the Annual Meeting of Shareholders to be held May 16, 2000, under the headings,
"Certain Relationships and Related Transactions," at page __, and "Compensation
of Executive Officer and Directors," at pages ___ through ___, and are
incorporated herein by reference.
ITEM 13. EXHIBITS, LISTS, AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
3.1 Articles of Incorporation(1)
3.2 Bylaws(2)
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 Employment Agreement between Monty G. Watson and The
Peachtree Bank dated as of January 13, 1998.
10.2 The PB Financial Services 1998 Outside Directors Option Plan.
</TABLE>
33
<PAGE> 35
<TABLE>
<S> <C>
21.1 Subsidiaries of The PB Financial Services Corporation.
24.1 Power of Attorney (appears on the signature pages to this Annual
Report on 10-KSB).
27 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------
(1) Incorporated herein by reference to Exhibit 2(a) in The PB
Financial Services Corporation's Registration Statement on
Form 8-A, Commission File No. 000-26725, filed July 15, 1999.
(2) Incorporated herein by reference to Exhibit 2(b) in The PB
Financial Services Corporation's Registration Statement on
Form 8-A, Commission File No. 000-26725, filed July 15, 1999.
(b) Reports on Form 8-K filed in the fourth quarter of 1999: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE PB FINANCIAL SERVICES CORPORATION
By: /s/ Monty G. Watson
---------------------------------------------------
Monty G. Watson
President and Chief
Executive Officer
Date: March 28, 2000
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on the
signature page to this Report constitutes and appoints Monty G. Watson and
Kelly J.
34
<PAGE> 36
Johnson, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits hereto, and other
documents in connection herewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ Robert D. Cheeley DATE: March 28, 2000
- ------------------------------------------------------------------------------
Robert D. Cheeley, Director
/s/ Daniel B. Cowart DATE: March 28, 2000
- ------------------------------------------------------------------------------
Daniel B. Cowart, Director
/s/ Paul D. Donaldson DATE: March 28, 2000
- ------------------------------------------------------------------------------
Paul D. Donaldson, Director
/s/ Charles L. Douglas DATE: March 28, 2000
- ------------------------------------------------------------------------------
Charles L. Douglas, Director
/s/ Dexter R. Floyd DATE: March 28, 2000
- ------------------------------------------------------------------------------
Dexter R. Floyd, Director
/s/ J. Edwin Howard DATE: March 28, 2000
- ------------------------------------------------------------------------------
J. Edwin Howard, Director
/s/ John J. Howard DATE: March 28, 2000
- ------------------------------------------------------------------------------
John J. Howard, Director
/s/ J. Stephen Hurst DATE: March 28, 2000
- ------------------------------------------------------------------------------
J. Stephen Hurst, Director
/s/ Kelly J. Johnson DATE: March 28, 2000
- ------------------------------------------------------------------------------
Kelly J. Johnson, Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Charles Machemehl, III DATE: March 28, 2000
- ------------------------------------------------------------------------------
Charles Machemehl, III, Director
</TABLE>
35
<PAGE> 37
<TABLE>
<S> <C>
/s/ J. Paul Maggard DATE: March 28, 2000
- ------------------------------------------------------------------------------
J. Paul Maggard, Director
/s/ Monty G. Watson DATE: March 28, 2000
- ------------------------------------------------------------------------------
Monty G. Watson, Director, President, and
Chief Executive Officer
</TABLE>
36
<PAGE> 38
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
3.1 Articles of Incorporation(1)
3.2 Bylaws(2)
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 Employment Agreement between Monty G. Watson and The
Peachtree Bank dated as of January 13, 1998.
10.2 The PB Financial Services 1998 Outside Directors Option Plan.
21.1 Subsidiaries of The PB Financial Services Corporation.
24.1 Power of Attorney (appears on the signature pages to this Annual
Report on 10-KSB).
27 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------
(1) Incorporated herein by reference to Exhibit 2(a) in The PB Financial
Services Corporation's Registration Statement on Form 8-A, Commission
File No. 000-26725, filed July 15, 1999.
(2) Incorporated herein by reference to Exhibit 2(b) in The PB Financial
Services Corporation's Registration Statement on Form 8-A, Commission
File No. 000-26725, filed July 15, 1999.
37
<PAGE> 39
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
The PB Financial Services Corporation
Duluth, Georgia
We have audited the accompanying consolidated balance sheets of The PB Financial
Services Corporation and subsidiary (see Note 1) as of December 31, 1999 and
1998, and the related consolidated statements of loss, changes in stockholders'
equity and cash flows for the year ended December 31, 1999, and the period from
inception (October 5, 1998) to December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The PB
Financial Services Corporation and subsidiary as of December 31, 1999 and 1998,
and the results of their operations and cash flows for the year ended December
31, 1999, and the period from inception (October 5, 1998) to December 31, 1998,
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
March 16, 2000
35
<PAGE> 40
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
(Note 1)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 2) $ 4,343,721 $ 699,291
Federal funds sold 7,476,128 5,490,000
Investment securities available for sale (Note 3) 6,653,163 1,526,078
Other investments 120,100 --
Loans, net of deferred loan fees (Note 4) 40,163,433 8,129,530
Less: Allowance for loan losses (Note 4) 399,991 81,621
- -----------------------------------------------------------------------------------------------------------------------------
Loans, net 39,763,442 8,047,909
Premises and equipment, net (Note 5) 3,819,279 3,880,737
Accrued interest receivable 289,671 39,349
Other assets 86,382 76,269
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 62,551,886 $ 19,759,633
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $ 5,335,482 $ 1,415,664
Interest-bearing demand and money market 18,079,670 5,013,418
Savings 144,957 76,437
Time deposits of $100,000 or more (Note 10) 21,367,001 3,808,375
Other time deposits (Note 10) 9,082,782 2,294,510
- -----------------------------------------------------------------------------------------------------------------------------
Total deposits 54,009,892 12,608,404
Repurchase agreements (Note 6) 1,797,141 --
Borrowings (Note 7) 72,799 --
Accrued interest payable 149,045 30,748
Other liabilities 37,211 125,810
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities 56,066,088 12,764,962
- -----------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 14 and 15)
STOCKHOLDERS' EQUITY (Note 12)
Common stock, par value $5.00; 10,000,000 shares authorized, 775,375
shares issued and outstanding 3,876,875 3,876,875
Surplus 3,861,784 3,861,784
Accumulated deficit (1,107,406) (739,337)
Accumulated other comprehensive loss - market valuation reserve on
investment securities available for sale (Note 3) (145,455) (4,651)
- -----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 6,485,798 6,994,671
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,551,886 $ 19,759,633
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE> 41
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
(Note 1)
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
For the period
from inception
FOR THE YEAR ENDED (October 5, 1998) to
DECEMBER 31, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans, including fees $ 2,507,285 $ 103,696
Investment securities:
U.S. Government agencies 230,646 11,693
Other investments 5,950 --
Federal funds sold 268,816 85,469
- ----------------------------------------------------------------------------------------------------------------------
Total interest income 3,012,697 200,858
- ----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing demand and money market 638,961 31,551
Savings 2,711 232
Time deposits of $100,000 or more 499,782 31,295
Other time deposits 315,385 19,713
Repurchase agreements 4,034 6,863
- ----------------------------------------------------------------------------------------------------------------------
Total interest expense 1,460,873 89,654
- ----------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 1,551,824 111,204
PROVISION FOR LOAN LOSSES (Note 4) 318,828 81,621
- ----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,232,996 29,583
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 49,116 3,655
Mortgage referral commissions 192,520 5,798
Other 70,354 1,913
- ----------------------------------------------------------------------------------------------------------------------
Total other income 311,990 11,366
- ----------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE
Salaries and employee benefits 1,060,413 228,708
Net occupancy 332,365 72,959
Professional services 28,752 15,018
Start-up and organization 72,799 311,894
Other 418,726 151,707
- ----------------------------------------------------------------------------------------------------------------------
Total other expense 1,913,055 780,286
- ----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (368,069) (739,337)
INCOME TAX BENEFIT (Note 9) -- --
- ----------------------------------------------------------------------------------------------------------------------
NET LOSS $ (368,069) $(739,337)
======================================================================================================================
BASIC LOSS PER COMMON SHARE $ (.47) $ (.95)
======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 42
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
(Note 1)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive
Common Accumulated Loss-Market Comprehensive
Stock Surplus Deficit Valuation Reserve Loss Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION
(OCTOBER 5, 1998) $ -- $ -- $ -- $ -- $ --
Proceeds from issuance
of common stock 3,876,875 3,861,784 -- -- 7,738,659
Comprehensive loss
Net loss -- -- (739,337) -- $ (739,337) (739,337)
Other comprehensive
loss,
Market valuation
adjustment on
investment
securities
available for sale -- -- -- (4,651) (4,651) (4,651)
-----------
Comprehensive loss $ (743,988)
===========
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 3,876,875 3,861,784 (739,337) (4,651) 6,994,671
Comprehensive loss
Net loss -- -- (368,069) -- $ (368,069) (368,069)
Other comprehensive loss:
Market valuation
adjustment on
investment
securities
available for sale -- -- -- (140,804) (140,804) (140,804)
-----------
Comprehensive loss $ (508,873)
===========
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1999 $ 3,876,875 $3,861,784 $(1,107,406) $(145,455) $6,485,798
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE> 43
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
(Note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
from inception
FOR THE YEAR ENDED (October 5, 1998) to
DECEMBER 31, 1999 December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (368,069) $ (739,337)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation of premises and equipment 256,332 66,472
Provision for loan losses 318,828 81,621
Gain on sale of premises and equipment (3,235) --
Amortization and accretion, net 2,504 --
Increase in net deferred loan fees 102,151 32,535
Increase in accrued interest receivable (250,322) (39,349)
Increase in other assets (12,508) (73,874)
Increase in accrued interest payable 118,297 30,748
(Decrease) increase in other liabilities (88,599) 125,810
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 75,379 (515,374)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for sale (5,461,773) (1,533,124)
Purchase of other investments (120,100) --
Principal repayments of investment securities available for sale 193,775 --
Loans originated, net of principal repayments (32,136,512) (8,162,065)
Acquisition of premises and equipment (205,613) (4,177,869)
Proceeds from sales of premises and equipment 13,974 230,660
- -----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (37,716,249) (13,642,398)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in borrowings 72,799 --
Increase in repurchase agreements 1,797,141 --
Net proceeds from issuance of common stock -- 7,738,659
Net increase in demand, money market and savings deposits 17,054,590 6,505,519
Time deposits, net of repayments 24,346,898 6,102,885
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 43,271,428 20,347,063
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,630,558 6,189,291
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,189,291 --
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 11,819,849 $ 6,189,291
=======================================================================================================================
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 1,342,576 $ 58,906
Noncash transactions:
Unrealized losses on investment securities available for sale 140,804 4,651
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 44
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The PB Financial Services Corporation and subsidiary provide a full range of
banking services to individual and corporate customers located primarily in
north Fulton County, Georgia, and within the surrounding metropolitan Atlanta
area. The PB Financial Services Corporation and subsidiary are subject to the
regulations of certain government agencies and undergo periodic examinations by
regulatory authorities.
The accounting and reporting policies of The PB Financial Services Corporation
and subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. The following is a summary of the
more significant of these policies.
ORGANIZATION AND FORMATION
In January 1998, The Peachtree Bank (the "Bank") was organized as a
state-chartered commercial bank and began banking operations on October 5, 1998
("inception"). On July 15, 1999, the Bank became a subsidiary of The PB
Financial Services Corporation (the "Parent Company") as a result of a tax-free
reorganization in which the stockholders of the Bank exchanged all outstanding
Bank stock for stock in the Parent Company. The accompanying consolidated
financial statements reflect the reorganization similar to a pooling of
interests and are presented as if the reorganization occurred at inception.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Parent Company and the Bank, collectively referred to as the "Company," after
elimination of all significant intercompany balances and transactions.
USE OF ESTIMATES
In preparing the accompanying consolidated financial statements in conformity
with generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates. For
instance, material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for loan
losses. Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the adequacy of the allowance for
loan losses. Such agencies may require the recognition of additions to the
allowance based on their judgments about information available to them at the
time of their examination.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
INVESTMENT SECURITIES
Investment securities available for sale are reported at market value, with
unrealized gains and losses reported as a separate component of stockholders'
equity. No tax effect is considered for these
40
<PAGE> 45
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
unrealized gains or losses because the Parent Company has a tax loss
carryforward. Other investments are reported at cost, and accordingly, earnings
are reported when interest is accrued or when dividends are received.
Premium and discount on all investment securities are amortized (deducted) and
accreted (added), respectively, to interest income on the interest method over
the period to the maturity of the related securities. Premium and discount on
mortgage-backed securities are amortized (deducted) and accreted (added),
respectively, to interest income using a method which approximates a level yield
over the period to maturity or call date, whichever is earlier, of the related
securities, taking into consideration assumed prepayment patterns.
Gains or losses on disposition are computed by the specific identification
method for all securities.
LOANS
Loans are reported at the gross amount outstanding, less a valuation allowance
for loan losses and net of deferred loan fees. Interest income on loans is
generally recognized over the terms of the loans based on the principal amount
outstanding. If the collectibility of interest appears doubtful, accrual is
discontinued. Accrued interest which appears doubtful of collection is reversed
against interest income if accrued in the current year or charged to the
allowance for loan losses if accrued in prior years. Loan origination fees, net
of direct loan origination costs, are deferred and recognized as income over the
life of the related loan on a level-yield basis.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
charged to expense. The allowance represents an amount which, in management's
judgment, will be adequate to absorb probable losses on existing loans that may
become uncollectible. Management's judgment in determining the adequacy of the
allowance is based on evaluations of the collectibility of loans and takes into
consideration such factors as the balance of impaired loans, changes in the
nature and volume of the loan portfolio, current economic conditions that may
affect the borrower's ability to pay, overall portfolio quality and review of
specific problem loans. Periodic revisions are made to the allowance when
circumstances which necessitate such revisions become known. Recognized losses
are charged to the allowance for loan losses, while subsequent recoveries are
added to the allowance.
A loan is impaired when it is probable the Company will be unable to collect all
principal and interest payments due in accordance with the terms of the loan
agreement. Individually identified impaired loans are measured based on the
present value of payments expected to be received, using the contractual loan
rate as the discount rate. Alternatively, measurement may be based on observable
market prices, or for loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the collateral. If the
recorded investment in the impaired loan exceeds the measure of fair value, a
valuation allowance is established as a component of the allowance for loan
losses. Changes to the valuation allowance are recorded as a component of the
provision for loan losses.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due.
Interest income is subsequently recognized only to the extent cash payments are
received.
41
<PAGE> 46
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses, and may
require the Company to record additions to the allowance based on their
judgement about information available to them at the time of their examinations.
PREMISES AND EQUIPMENT
Premises and equipment are reported at cost less accumulated depreciation and
amortization. For financial reporting purposes, depreciation is computed using
primarily straight-line methods over the estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to operations as incurred,
while major renewals and betterments are capitalized. When property is disposed
of, the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in income. For federal tax reporting purposes,
depreciation is computed using primarily accelerated methods.
INCOME TAXES
The tax effects of transactions are recorded at current tax rates in the periods
the transactions are reported for financial statement purposes. Deferred income
taxes are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. Recognition of deferred tax asset balance sheet amounts is based on
management's belief that it is more likely than not that the tax benefit
associated with certain temporary differences, tax operating loss carryforwards
and tax credits will be realized. A valuation allowance is recorded for those
deferred tax assets for which it is more likely than not that realization will
not occur in the near term.
The Company and the Bank file a consolidated income tax return. Each entity
provides for income taxes based on its contribution to the income taxes
(benefits) of the consolidated entity.
MORTGAGE REFERRAL COMMISSIONS
The Company earns commissions from third party investors who fund residential
mortgage loans for which the Company performs certain loan origination services.
Accordingly, the loans are not funded or recorded by the Company and the
commissions are recorded as they are earned in the accompanying consolidated
statements of loss as mortgage referral commissions.
START-UP AND ORGANIZATION COSTS
The Company expenses all start-up and organization costs as incurred.
NET LOSS PER COMMON SHARE
Basic loss per common share is computed by dividing net loss by the
weighted-average number of shares outstanding, which totaled 775,375 shares for
the year ended December 31, 1999, and for the period from inception to December
31, 1998. As the Company was in a net loss position at December 31, 1999 and
1998, the inclusion of any potential common shares related to stock options
(Note 13) would have an antidilutive effect on the Company's loss per common
share.
42
<PAGE> 47
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company uses the following methods and assumptions in estimating fair values
of financial instruments (see Note 17):
Cash and cash equivalents - The carrying amount of cash and cash equivalents
approximates fair value.
Investment securities - The fair value of investment securities available for
sale is estimated based on bid quotations received from independent pricing
services. The carrying value of other investments approximates fair value.
Loans - For variable rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For all other
loans, fair values are calculated by discounting the contractual cash flows
using estimated market discount rates which reflect the credit and interest rate
risk inherent in the loan, or by using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Deposits - The fair value of deposits with no stated maturity, such as demand,
NOW and money market, and savings accounts, is equal to the amount payable on
demand at year-end. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows using the rates currently offered for
deposits of similar remaining maturities.
Repurchase agreements and borrowings - The carrying values of repurchase
agreements and other borrowings approximate fair value.
Accrued interest - The carrying amounts of accrued interest receivable and
payable approximate fair value.
Off-balance-sheet instruments - The fair value for off-balance-sheet lending
commitments is equal to the amount of commitments outstanding at December 31,
1999. This is based on the fact that the Company generally does not offer
lending commitments or standby letters of credit to its customers for long
periods, and therefore, the underlying rates of the commitments approximate
market rates.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 financial statements to
conform with the 1999 presentation.
NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 (SFAS 133) "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 is effective for fiscal years beginning after
June 15, 2000. Under SFAS 133, a company will recognize all free-standing
derivative instruments in the statement of financial position as either assets
or liabilities and will measure them at fair value. The difference between a
derivative's previous carrying amount and its fair value shall be reported as a
transition adjustment presented in net income or other comprehensive income, as
appropriate, in a manner similar to the cumulative effect of a change in
accounting principle. This statement also determines the accounting for the
changes in fair value of a derivative, depending on the intended use of the
derivative and resulting designation. The adoption of SFAS 133 will not have a
significant impact on the financial condition or results of operations of the
Company.
43
<PAGE> 48
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. CASH AND DUE FROM BANKS
The Federal Reserve Board requires that banks maintain reserve balances with the
Federal Reserve Bank or in cash on hand, based on the institution's deposit
balances. At December 31, 1999, the Bank's reserve requirement had not been
required to be computed or reported to the Federal Reserve Bank.
3. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities available
for sale are as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1999 COST GAINS LOSSES VALUE
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies $3,499,068 $ -- $ 94,273 $3,404,795
Mortgage-backed securities 3,299,550 -- 51,182 3,248,368
---------------------------------------------------------------------------------------------------------------------
$6,798,618 $ -- $145,455 $6,653,163
======================================================================================================================
Amortized Unrealized Unrealized Market
December 31, 1998 Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies $1,000,000 $ 2,030 $ 7,810 $ 994,220
Mortgage-backed securities 533,124 -- 1,266 531,858
---------------------------------------------------------------------------------------------------------------------
$1,533,124 $ 2,030 $ 9,076 $1,526,078
======================================================================================================================
</TABLE>
The amortized cost and estimated market value of investment securities available
for sale at December 31, 1999, by contractual maturity, are shown as follows.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations without call or prepayment
penalties.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
AVAILABLE FOR SALE
-----------------------------
AMORTIZED MARKET
DECEMBER 31, 1999 COST VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ -- $ --
Due after one year through five years 4,837,405 4,714,693
Due after five years 1,961,213 1,938,470
- ----------------------------------------------------------------------------------------------------------------------
$6,798,618 $6,653,163
======================================================================================================================
</TABLE>
There were no sales, calls or maturities of investment securities in 1999 or
1998. At December 31, 1999 and 1998, there were no investment securities
required to be pledged to secure public funds as required by law. Investment
securities with a carrying value of $1,941,357 at December 31, 1999, were
allocated by the Bank for collateral under repurchase agreements (see Note 6).
44
<PAGE> 49
At December 31, 1999 and 1998, the Company had no off-balance-sheet derivative
financial instruments, such as swaps, options, futures, or forward contracts.
Other investments consist of stock in the Federal Home Loan Bank of Atlanta.
4. LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 5,645,589 $4,390,348
Real estate--construction 11,910,797 1,941,946
Real estate--commercial and residential 18,453,654 719,795
Real estate--home equity 1,331,965 49,561
Installment 2,956,114 1,060,415
- ----------------------------------------------------------------------------------------------------------------------
Total loans 40,298,119 8,162,065
Less: Net deferred loan fees 134,686 32,535
Allowance for loan losses 399,991 81,621
- ----------------------------------------------------------------------------------------------------------------------
Loans, net $ 39,763,442 $8,047,909
======================================================================================================================
</TABLE>
At December 31, 1999 and 1998, the Bank had no loans classified as impaired or
nonaccrual.
The following is a summary of transactions in the allowance for loan losses:
<TABLE>
<CAPTION>
For the period
from inception
FOR THE YEAR ENDED (October 5, 1998) to
DECEMBER 31, 1999 December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 81,621 $ --
Provision for loan losses 318,828 81,621
Loans charged off (458) --
Recoveries -- --
- ----------------------------------------------------------------------------------------------------------------------
Balance, end of year $399,991 $81,621
======================================================================================================================
</TABLE>
45
<PAGE> 50
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 610,482 $ 604,201
Building 2,628,051 2,513,513
Furniture, fixtures and equipment 871,864 783,230
Vehicles 33,321 46,265
-----------------------------------------------------------------------------------------------------------------------
4,143,718 3,947,209
Less accumulated depreciation (324,439) (66,472)
-----------------------------------------------------------------------------------------------------------------------
Premises and equipment, net $3,819,279 $3,880,737
=======================================================================================================================
</TABLE>
The Bank leases certain office facilities to third parties. During 1999, rental
income totaled $58,118 (see Note 11).
6. REPURCHASE AGREEMENTS
Securities sold under repurchase agreements include agreements with commercial
account holders whereby the Bank sweeps the customer's accounts on a daily basis
and pays interest on these amounts. Borrowings under these agreements are
collateralized by federal agencies with an aggregate carrying value of
$1,941,357 at December 31, 1999. The maximum amount of outstanding repurchase
agreements at any month-end during 1999 was $1,797,141. All securities
underlying these repurchases were under the Bank's control.
7. BORROWINGS
The Company has $100,000 available under an unsecured line of credit with
another bank. At December 31, 1999, the Company had $72,799 outstanding under
this line of credit. Amounts outstanding bear interest equal to the prime rate
(8.5 percent at December 31, 1999) minus .5 percent per annum. Interest is
payable monthly with principal due January 1, 2001.
The Bank has unsecured lines of credit for federal funds purchased from other
banks totaling $3,900,000 at December 31, 1999 and 1998. There are no amounts
outstanding under these lines at December 31, 1999 and 1998.
8. EMPLOYEE BENEFIT PLANS
The Bank has a contributory 401(k) employee profit sharing plan (the "Plan"),
with employee eligibility subject to certain minimum age and service
requirements. Under the provisions of the Plan, employees may contribute from 2
to 15 percent of their salaries, up to the legal contribution limit. At its
discretion, the Bank may match a portion of participants' salary deferral
contributions. The Bank may also make a year-end discretionary profit sharing
contribution to the Plan. The Bank did not make any contributions to the Plan in
1999 or 1998.
46
<PAGE> 51
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
The following are the components of income tax expense as provided:
<TABLE>
<CAPTION>
For the period
from inception
FOR THE YEAR ENDED (October 5, 1998) to
DECEMBER 31, 1999 December 31, 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax provision $ 179,313 $ 282,771
Change in valuation allowance (179,313) (282,771)
-----------------------------------------------------------------------------------------------------------------------
$ -- $ --
=======================================================================================================================
</TABLE>
A reconciliation of income taxes computed at the federal statutory income tax
rate to total income taxes is as follows:
<TABLE>
<CAPTION>
For the period
from inception
FOR THE YEAR ENDED (October 5, 1998) to
DECEMBER 31, 1999 December 31, 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pretax loss $(368,069) $(739,337)
-----------------------------------------------------------------------------------------------------------------------
Income taxes (benefit) computed at federal statutory tax rate $(125,143) $(251,375)
Increase (decrease) resulting from:
Nondeductible meals and entertainment 2,729 247
State income tax (benefit) (12,279) (28,674)
Other 1,371 (2,969)
Valuation reserve 133,322 282,771
-----------------------------------------------------------------------------------------------------------------------
$ -- $ --
=======================================================================================================================
</TABLE>
47
<PAGE> 52
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes the tax effects of temporary differences which comprise
net deferred tax assets:
<TABLE>
<CAPTION>
December 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Allowance for loan losses $130,835 $ 10,019
Net operating loss carryforward 179,463 192,306
Unrealized loss on investment securities available for sale 49,455 2,395
Deferred organizational costs 111,891 79,750
Deferred loan fees 51,127 12,350
Other 1,477 38
-----------------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 524,248 296,858
-----------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Accumulated depreciation (62,167) (14,087)
-----------------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities (62,167) (14,087)
-----------------------------------------------------------------------------------------------------------------------
Valuation reserve 462,081 282,771
-----------------------------------------------------------------------------------------------------------------------
Net deferred income tax asset $ - $ -
=======================================================================================================================
</TABLE>
As of December 31, 1999, the Company has available net operating loss
carryforwards of approximately $473,000 for tax purposes to offset future
taxable income. The carryforwards expire between 2018 and 2019.
10. TIME DEPOSITS
At December 31, 1999, the scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
-----------------------------------------------------------------------------------------------------------------------
<S> <C>
2000 $29,037,448
2001 928,567
2002 116,403
2003 156,210
2004 211,155
-----------------------------------------------------------------------------------------------------------------------
$30,449,783
=======================================================================================================================
</TABLE>
At December 31, 1999, the Bank had approximately $11,800,000 in time deposits
from two unrelated customers, which mature in 2000.
48
<PAGE> 53
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, the Bank had direct and indirect loans of
$3,346,241 and $515,598, respectively, outstanding to or for the benefit of
certain Bank officers, directors and their related interests. During 1999 and
1998, $4,681,272 and $599,450 of such loans were made and repayments totaled
$1,850,629 and $83,852, respectively. These loans were made in the ordinary
course of business in conformity with normal credit terms, including interest
rates and collateral requirements prevailing at the time for comparable
transactions with other borrowers. These individuals and their related interests
also maintain customary demand and time deposit accounts with the Bank.
During 1999, the Bank executed a lease agreement with one of its directors for
office space located in the Bank's building (see Note 5). The lease expires
December 31, 2001, and requires monthly lease payments of $1,069 per month plus
certain executory costs.
During 1998, the Bank sold a parcel of land, adjacent to its premises, to one of
its directors for a total proceeds of $230,660. The land was sold at the Bank's
cost, which approximated fair market value, and no gain or loss was recorded as
a result of the sale.
12. STOCKHOLDERS' EQUITY
The Company and the Bank are subject to various regulatory capital requirements
administered by federal and state banking agencies. Failure to meet minimum
capital requirements result in certain discretionary actions by regulators that
could have an effect on the Company's operations. The regulations require the
Company and the Bank to meet specific capital adequacy guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
As of December 31, 1999, the most recent notification from the State of Georgia
Department of Banking and Finance categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. There are no conditions
or events since those notifications that management believes has changed the
Company's or Bank's category. To be considered well capitalized and adequately
capitalized (as defined) under the regulatory framework for prompt corrective
action, the Company and Bank must maintain minimum Tier 1 leverage, Tier 1
risk-based, and total risk-based ratios as set forth in the following tables.
The actual capital amounts and ratios are also presented in the following
tables.
49
<PAGE> 54
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ADEQUATELY
CAPITALIZED WELL CAPITALIZED
DECEMBER 31, 1999 REQUIREMENT REQUIREMENT ACTUAL
-----------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Average
Assets)
Consolidated $1,203 4.0% > $2,006 > 5.0% $6,486 16.2%
- -
Bank $1,203 4.0% > $2,006 > 5.0% $6,559 16.4%
- -
Tier 1 Capital (to Risk
Weighted Assets)
Consolidated $2,411 4.0% > $3,617 > 6.0% $6,486 10.8%
- -
Bank $2,411 4.0% > $3,617 > 6.0% $6,559 10.9%
- -
Total Capital (to Risk Weighted
Assets)
Consolidated $4,822 8.0% > $6,028 >10.0% $6,886 11.4%
- -
Bank $4,822 8.0% > $6,028 >10.0% $6,959 11.5%
- -
<CAPTION>
Adequately
Capitalized Well Capitalized
December 31, 1998 Requirement Requirement Actual
------------------------------------------ ----------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
(Amounts in thousands)
Tier 1 Capital (to Average
Assets) $ 790 4.0% > $ 988 > 5.0% $6,995 35.4%
- -
Tier 1 Capital (to Risk
Weighted Assets) $ 543 4.0% > $ 814 > 6.0% $6,995 51.5%
- -
Total Capital (to Risk Weighted
Assets) $1,086 8.0% > $1,357 > 10.0% $7,077 52.1%
- -
</TABLE>
Management believes that, as of December 31, 1999, the Company and Bank meet all
capital requirements to which they are subject.
Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends which the Bank may
pay without obtaining prior regulatory approval. These restrictions are based on
the level of regulatory classified assets, the prior years' net earnings, and
the ratio of equity capital to total assets. In addition, the Georgia Department
of Banking and Finance required as a condition to approving the Bank's charter,
that the Bank for regulatory reporting purposes, transfer $500,000 from surplus
to retained earnings to establish an expense fund to cover pre-opening expenses
and potential losses in the first year of operation. This transfer is not
available for dividends and is not to be returned to surplus until start-up
losses are recovered and a cumulative profit is made. At December 31, 1999 and
1998, total stockholders' equity of the Bank was $6,558,596 and $6,994,671,
respectively, and was not available for dividends.
50
<PAGE> 55
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS
During 1998, the Company's Board of Directors and stockholders approved a stock
option plan (the "Plan"). The terms of the Plan were assumed by the Parent
Company as a result of the reorganization of the Bank until a holding company
structure in July 1999. As defined by the Plan, the Company may grant stock
options to persons who are now or who during the term of the Plan become
employees of the Company. Stock options granted under the Plan may either be
incentive stock options or nonqualified stock options for federal income tax
purposes. Subject to the provisions of the Plan, the maximum number of shares of
common stock of the Company that may be optioned or sold is 100,000 shares.
The exercise price for each option shall not be less than the fair market value
of the stock at the time the option is granted. The exercise price of an option
granted to a person owning stock in the Company that is more than 10 percent of
the total common stock outstanding of the Company must equal at least 110
percent of the fair market value at the date of grant, and such option is not
exercisable for five years from the date the incentive stock option was granted.
The Board of Directors may, at its discretion, provide that an option not be
exercised in whole or in part for any period or periods of time as specified in
the option agreements. No option may be exercised after the expiration of ten
years from the date it is granted.
Summarized information related to these options is as follows:
<TABLE>
<CAPTION>
Exercise Price Weighted-Average
Shares Range Exercise Price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at inception (October 5, 1998) -- $ -- $ --
Granted 38,500 10.00 10.00
Exercised -- -- --
Expired -- -- --
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 38,500 10.00 10.00
Granted -- -- --
Exercised -- -- --
Expired -- -- --
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 38,500 $10.00 $10.00
=======================================================================================================================
Options exercisable at December 31, 1999 27,700 $10.00
Options exercisable at December 31, 1998 15,000 10.00
Weighted-average fair value of options granted during
1999 $ --
Weighted-average fair value of options granted during
1998 $ 5.08
=======================================================================================================================
</TABLE>
51
<PAGE> 56
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1998, the Board of Directors adopted an additional plan to provide incentive
to eligible directors to stimulate their efforts towards the success of the
Company. Subject to the provisions of the plan, the maximum number of shares of
common stock of the Company that may be optioned or sold is 157,612 shares.
The exercise price for each option shall not be less than the fair market value
of the stock at the time the option is granted. The exercise price of an option
granted to a person owning stock in the Company that is more than 10 percent of
the total common stock outstanding of the Company must equal at least 110
percent of the fair market value at the date of grant, and such option is not
exercisable for five years from the date the incentive stock option was granted.
The Board of Directors may, at its discretion, provide that an option not be
exercised in whole or in part for any period or periods of time as specified in
the option agreements. No option may be exercised after the expiration of ten
years from the date it is granted.
Summarized information related to these options is as follows:
<TABLE>
<CAPTION>
Exercise Price Weighted-Average
Shares Range Exercise Price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at inception (October 5, 1998) -- $ -- $ --
Granted 157,579 10.00 10.00
Exercised -- -- --
Expired -- -- --
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 157,579 10.00 10.00
Granted -- -- --
Exercised -- -- --
Expired -- -- --
-----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 157,579 $10.00 $10.00
=======================================================================================================================
Options exercisable at December 31, 1999 52,526 $10.00
Options exercisable at December 31, 1998 -- --
Weighted-average fair value of options granted during
1999 $ --
Weighted-average fair value of options granted during
1998 $ 5.08
=======================================================================================================================
</TABLE>
The Board of Directors may, at its discretion, provide that an option not be
exercisable, in whole or in part, for any period or periods of time, as
specified in the option agreements. No option may be exercised after the
expiration of ten years from the date it was granted. Summarized information
regarding outstanding stock options under both plans is as follows:
52
<PAGE> 57
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------------------------
Outstanding Options Options Exercisable
----------------------------------------------------- ------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price December 31, 1999 Life Price December 31, 1999 Price
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.00 196,079 8.89 $10.00 80,226 $10.00
=======================================================================================================================
<CAPTION>
December 31, 1998
-----------------------------------------------------------------------------------------------------------------------
Outstanding Options Options Exercisable
----------------------------------------------------- ------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price December 31, 1998 Life Price December 31, 1998 Price
-----------------------------------------------------------------------------------------------------------------------
$10.00 196,079 9.89 $10.00 15,000 $10.00
=======================================================================================================================
</TABLE>
The Company implemented Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation," in 1998. As permitted by
SFAS 123, the Company accounts for stock-based compensation by applying the
provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees." If the accounting provisions of SFAS 123 had
been adopted net loss and loss per share would have been as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998
- ----------------------------------------------------------------
<S> <C> <C>
Net loss
As reported $(368,069) $(739,337)
Pro forma (699,175) (815,481)
Basic loss per common share
As reported $ (.47) $ (.95)
Pro forma (.90) (1.05)
</TABLE>
The fair value of each option grant, under both plans, is estimated on the
respective dates of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 1998: annual dividend
yield of 0 percent, expected volatility of 25 percent, risk-free interest rate
of 5.63 percent, and expected life of ten years. There were no options granted
during 1999.
14. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheet. The contract
amounts of these instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amounts of these instruments. The Company uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
53
<PAGE> 58
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. At December 31, 1999 and 1998, commitments
to extend credit totaled approximately $14,080,000 and $3,909,000, respectively.
The Company evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company, upon
extension of credit is based on management's credit evaluation of the other
party. Collateral held varies but may include accounts receivable; inventory;
property, plant and equipment; and income-producing commercial properties on
those commitments for which collateral is deemed necessary.
15. COMMITMENT
The Company maintains an employment agreement with the president of the Bank
which provides for an annual base salary, plus medical insurance premiums, and
such other benefits which are generally made available to other senior
executives of the Bank. The agreement includes certain noncompete provisions and
severance benefits to be paid upon termination of employment.
16. SUPPLEMENTAL FINANCIAL DATA
Components of other income and other expense in excess of 1 percent of total
interest and other income are as follows:
<TABLE>
<CAPTION>
For the period
from inception
FOR THE YEAR ENDED (October 5, 1998) to
DECEMBER 31, 1999 December 31, 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other expenses:
Advertising $35,166 $43,012
Appraisal fees 19,389 3,775
Blanket bond insurance 9,180 2,150
Courier 13,455 4,243
Dues and subscriptions 19,146 3,300
Meals and entertainment 16,051 4,789
Miscellaneous expense 26,361 19,547
Commercial loan expenses 2,246 2,168
Postage 12,688 2,421
Supplies 38,144 49,197
Telephone 33,558 10,441
Data processing 70,430 1,971
</TABLE>
54
<PAGE> 59
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- ------------------------------------
CARRYING ESTIMATED Carrying Estimated
December 31, VALUE FAIR VALUE Value Fair Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $11,819,849 $11,819,849 $6,189,291 $6,189,291
Investment securities available
for sale 6,653,163 6,653,163 1,526,078 1,526,078
Other investments 120,100 120,100 -- --
Loans, net 39,763,942 39,301,259 8,047,909 8,042,316
Accrued interest receivable 289,671 289,671 39,349 39,349
Financial liabilities:
Noncontractual deposits 23,560,109 23,560,109 $6,505,519 $6,505,519
Contractual deposits 30,449,783 30,550,389 6,102,885 6,180,828
Repurchase agreements 1,797,142 1,797,142 -- --
Borrowings 72,799 72,799 -- --
Accrued interest payable 149,045 149,045 30,748 30,748
Off-balance-sheet instruments:
Undisbursed credit lines 14,080,000 $3,909,000
</TABLE>
55
<PAGE> 60
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. CONDENSED FINANCIAL STATEMENTS ON THE PB FINANCIAL SERVICES CORPORATION
CONDENSED BALANCE SHEET
(PARENT ONLY)
<TABLE>
<CAPTION>
December 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in subsidiary $ 6,558,596 $6,994,671
-----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 6,558,596 $6,994,671
=======================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Borrowings $ 72,799 $ --
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 72,799 --
-----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock 3,876,875 3,876,875
Surplus 3,861,784 3,861,784
Retained earnings (1,107,407) (739,337)
Market valuation reserve on investment securities available
for sale (145,455) (4,651)
-----------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 6,485,797 6,994,671
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,558,996 $6,994,071
=======================================================================================================================
</TABLE>
56
<PAGE> 61
THE PB FINANCIAL SERVICES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENT OF OPERATIONS
(PARENT ONLY)
<TABLE>
<CAPTION>
For the period
from inception
FOR THE YEAR ENDED (October 5, 1998) to
DECEMBER 31, 1999 December 31, 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING INCOME $ -- $ --
-----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE
Organization costs 72,799 --
-----------------------------------------------------------------------------------------------------------------------
Total operating expense 72,799 --
-----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EQUITY IN UNDISTRIBUTED LOSS OF SUBSIDIARY (72,799) --
EQUITY IN UNDISTRIBUTED LOSS OF SUBSIDIARY (295,270) (739,337)
-----------------------------------------------------------------------------------------------------------------------
NET LOSS $(368,069) $(739,337)
=======================================================================================================================
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
(PARENT ONLY)
<TABLE>
<CAPTION>
For the period
from inception
FOR THE YEAR ENDED (October 5, 1998) to
DECEMBER 31, 1999 December 31, 1998
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(368,069) $ (739,337)
Equity in undistributed loss of subsidiary 295,270 739,337
-----------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (72,799) --
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of common stock -- 7,738,659
Investment in bank subsidiary -- (7,738,659)
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities -- --
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in borrowings 72,799 --
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 72,799 --
-----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH -- --
CASH, BEGINNING OF YEAR -- --
-----------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ -- $ --
=======================================================================================================================
</TABLE>
57
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into on the 13th day of January, 1998,
by and between THE PEACHTREE BANK, a bank organized under the laws of the State
of Georgia (the "Bank"), and MONTY G. WATSON (hereinafter "Executive");
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Bank believe that it is in the
best interest of the Bank to arrange terms of employment for Executive so as to
reasonably induce Executive to remain in his capacities with the Bank for the
term hereof; and
WHEREAS, Executive is willing to provide services to the Bank in
accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual premises and
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. For the Term of Employment, as hereinafter defined,
the Bank agrees to employ Executive as its President and Chief Executive
Officer and Executive agrees to accept such employment and to perform such
duties and functions as the Board of Directors of the Bank may assign to
Executive from time to time, but only administrative and managerial functions
commensurate with Executive's past experience and performance level. Executive
agrees to devote his full business time, attention, skill and efforts to the
business of the Bank, and shall perform his duties in a trustworthy and
businesslike manner, all for the purpose of advancing the interests of the Bank.
2. TERM OF EMPLOYMENT. The "Term of Employment" referred to in
Section 1 hereof and hereinafter shall be deemed to have commenced as of the
date first above mentioned and shall continue for a period of three (3) years,
unless sooner terminated pursuant to this Agreement, and shall include any
extension of the period of employment in accordance with this paragraph. The
period of employment shall automatically be extended without further action by
the parties for an additional twelve (12) full calendar months, beginning on the
third anniversary hereof, and on each succeeding anniversary thereafter,
respectively, unless (i) either party shall have served written notice upon the
other of its intention that this Agreement shall not be extended on or before
90 days prior to any such anniversary date, or (ii) the Executive's employment
hereunder shall have been terminated pursuant to Section 4 hereof. Failure to
renew this Agreement by the Bank if followed by the subsequent voluntary
termination of employment
<PAGE> 2
hereunder by the Executive prior to the end of the Term of Employment shall be
deemed a termination "without cause" under Section 4.3 below, effective as of
the date of the written notice of nonrenewal by the Bank for purposes of the
twelve (12) months severance compensation under Section 4.3 provided that the
severance compensation shall be reduced by any Base Salary paid after the
written notice of nonrenewal.
3. COMPENSATION.
3.1 Base Salary. During the Term of Employment, Executive shall be
paid an annual base salary (hereinafter "Base Salary") of $125,000.00 which
shall be paid in equal installments in accordance with the Bank's normal pay
practices, but not less frequently than monthly. Executive's salary shall be
reviewed by the Board of Directors of Bank annually, and Executive shall be
entitled to receive annually an increase (but in no event a decrease) in such
amount, if any, as may be determined by the Board of Directors of the Bank.
3.2. Management Incentives and Discretionary Bonuses. During the
Term of Employment, the Executive shall be entitled, in an equitable manner
based on the terms of any bonus and incentive plans that have been approved, or
may from time to time be approved, by the Board of Directors, with all other key
management personnel of the Bank, to such incentives and discretionary bonuses
as may be authorized, declared and paid by the Board of Directors to the Bank's
key management employees. No other compensation provided for in this Agreement
shall be deemed a substitute for the Executive's right to such incentives and
discretionary bonuses when and as declared by the Board.
3.3 Additional Benefits. During the Term of Employment, Executive
shall be provided with such employee benefits and benefit levels, including
health, life and disability insurance, the exclusive use of an automobile and a
club membership, etc. as may be provided by the Board of Directors of the Bank.
These benefits shall be provided and maintained at a level of not less than what
is in effect at the time this Agreement is executed.
Throughout the Term of Employment, Executive shall also be entitled to
reimbursement for reasonable business expenses incurred by him in the
performance of his duties hereunder, as approved from time to time by the Board
of Directors of the Bank.
4. TERMINATION.
4.12 Death or Disability. This Agreement may be terminated before
the expiration of the Term of Employment upon the occurrence of any one of the
following events:
(a) Upon Executive's death, this Agreement shall terminate
immediately. Any salary and any other amounts that may be due
Executive from Bank at the time of his death (whether pursuant to
benefits plans or otherwise) shall be paid to the executor or
administrator of his estate.
-2-
<PAGE> 3
(b) The Bank may terminate this Agreement upon Executive's
"Total Disability." As used in this Agreement, "Total
Disability" means any physical or mental disorder that
renders Executive incapable of performing his normal duties
and services under this Agreement for a period of one
hundred twenty (120) days in any consecutive twelve (12)
month period, as determined by a licensed physician selected
by mutual agreement of the Bank and the Executive or the
Executive's legal representative. If this Agreement is
terminated as a result of the Executive's "Total
Disability", the Executive's compensation hereunder shall
terminate and the Executive shall be paid in accordance with
such long-term disability plans of the Bank as may be in
effect. The Executive's compensation, title and status shall
continue during any such period of disability until the date
of termination except that the Bank may provide disability
insurance to cover the Executive during any part of such
disability period and the Bank's obligation for the
Executive's compensation for any such period shall be
reduced by the amount of any such insurance proceeds which
the Executive receives.
4.2 For Cause. This Agreement may be terminated by the Board of
Directors of the Bank for cause for any of the following reasons:
(a) failure of Executive to follow reasonable written
instructions or policies of the Board of Directors of the Bank;
(b) gross negligence or willful misconduct of Executive
materially damaging to the business of the Bank;
(c) conviction of Executive of a crime involving breach of
trust, moral turpitude, theft or fraud;
(d) the willful failure by the Executive to perform
substantially his duties other than any failure resulting from incapacity due to
physical or mental illness;
(e) willful commission of (A) acts involving dishonesty or
fraud with respect to the Bank or (B) acts causing harm to the Bank;
(f) a willful misrepresentation by the Executive to the
stockholders or the Board of Directors of the Bank which causes substantial
injury to the Bank; or
(g) a request by any state or federal authority regulating
the Bank that the Executive be removed from his office as President of the Bank.
For purposes of this Agreement, no act, or failure to act, on the part of the
Executive shall be considered "willful" unless done, or omitted to be done, by
him in good faith and without reasonable belief that his action or omission was
in the best interest of the Bank and the stockholders of the Company. The Bank
shall notify the Executive in writing of the specific reasons for the
termination for "Cause" and the Executive will be allowed thirty (30) days to
-3-
<PAGE> 4
reply in writing to the accusation before any termination for "Cause". If the
Employee is terminated for "Cause," he shall receive only his salary and any
other amounts due to him from the Bank (whether pursuant to benefit plans or
otherwise) through the date of termination.
4.3 Without Cause. The Bank may immediately terminate this
Agreement at any time "without Cause" by giving the Executive written notice of
the termination date. If this Agreement is terminated pursuant to this provision
the Executive shall be paid severance compensation in an amount equal to his
annual "Base Salary" (as defined in Section 3.1) then in effect which shall be
paid over a twelve (12)-month period in such installments and intervals as if
the Executive had remained employed, and (ii) any other amounts owing to the
Executive by the Bank under this Agreement at such termination date. If this
Agreement is terminated "without cause," the Bank will continue all insurance
benefits in effect at such termination for the Executive and his dependents with
the Bank paying the same amount of premiums on behalf of the Executive and his
dependents as when the Executive was employed for a period of twelve (12)
months from the termination date or until such time as the Executive is employed
by another employer (which shall exclude self-employment), whichever period of
time is shorter. Anything in this Agreement to the contrary notwithstanding,
upon a termination without cause pursuant to this paragraph 4.3, Executive's
sole rights and remedies against the Bank arising out of any such termination of
his employment hereunder are to receive the severance compensation and the other
amounts and benefits as are explicitly set forth in this paragraph 4.3.
5. CHANGE IN CONTROL OF THE BANK OR THE COMPANY. In the event of a
"Change in Control" of the Bank during the Term of Employment, as defined
herein, and if as a result of any such Change in Control Executive either (i) is
terminated, during the Term of Employment, (except "for cause" as defined in
Section 4.2 above) from his employment hereunder and before he reaches age 65 or
(ii) has a "Change in Duties or Salary" as defined below and resigns, during the
Term of Employment, as a result of such change, then Executive shall be entitled
to receive severance compensation in an amount equal to his Base Salary then in
effect which shall be paid in a lump sum within 14 days following the date of
termination or resignation.
For purposes of this Section 5, "Change in Control" of the Bank or
the Company shall mean:
(i) any transaction, whether by merger, consolidation, asset
sale, tender offer, reverse stock split or otherwise, which results
in the acquisition of beneficial ownership (as such term is defined
under rules and regulations promulgated under the Securities
Exchange Act of 1934, as amended) by any person or entity or any
group of persons or entities acting in concert, with the exception
of the Bank's or Company's Board of Directors or the Company's
shareholders, of 50% or more of the outstanding shares of common
stock of the Bank or the Company;
(ii) the sale of all or substantially all of the assets of the
Bank or the Company; or
-4-
<PAGE> 5
(iii) the liquidation of the Bank or the Company.
For purposes of this Agreement, "Change in Duties or Salary" of
Executive shall mean any of: (i) a change in duties and responsibilities of
Executive from those duties and responsibilities of Executive for the Bank in
effect at the time a Change in Control occurs, which change results in the
assignment of duties and responsibilities inferior to those duties and
responsibilities of Bank at the time such Change in Control occurs; (ii) a
reduction in rate of annual salary from such rate in effect at the time of
Change in Control; or (iii) a change in the place of assignment of Bank from
Duluth, Georgia, to any other city or geographical location that is located
further than 25 miles from the principal office of the Bank of Duluth, Georgia.
6. NONCOMPETE AND NON-SOLICITATION COVENANTS.
6.1 Definitions. In this Agreement the following terms shall have
the meanings set forth below:
(a) Affiliate shall be used to indicate a relationship to a
specified person, firm, corporation, partnership, association or entity, and
shall mean any person, firm, corporation, partnership, association or entity
that, directly or indirectly or through one or more intermediaries, controls, is
controlled by or is under common control with such person, firm, corporation,
partnership, association or entity.
(b) Applicable Period shall mean twelve (12) months
following the effective date of the termination of this Agreement.
(c) Area shall mean the geographic area within 10 miles of
the Bank's principal location in Duluth, Georgia.
(d) Competing Business shall mean a federally insured
financial institution.
(e) Proprietary Information shall mean information with
respect to the Bank or its Affiliates which (i) derives economic value, actual
or potential, from not being generally known to or readily ascertainable by any
persons (outside the Bank or its Affiliates) who can obtain economic value from
its disclosure or use, and (ii) is the subject of efforts by the Bank or it's
Affiliates that are reasonable under the circumstances to maintain its secrecy
or confidentiality. Assuming the foregoing criteria are met, Proprietary
Information includes, but is not limited to, technical or nontechnical data
related to compilations, programs, methods, techniques, processes, finances,
actual or potential customers and suppliers, existing and future products, and
employees of the Bank or its Affiliates, and all physical embodiments of the
foregoing. Proprietary Information also includes information disclosed to the
Bank or its Affiliates by a third party which the Bank or its Affiliates are
obliged to treat as confidential.
6.2 Agreement Not to Compete. The Executive hereby agrees that
during his employment by the Bank, and for the Applicable Period thereafter, he
will not (except on behalf
- 5 -
<PAGE> 6
of, or with the prior written consent of, the Bank) for a Competing Business
located within the Area, either directly or indirectly, on his own behalf, or
in the service or on behalf of others, as a principal, partner, officer,
director, manager, supervisor, administrator, consultant, executive employee or
in any other capacity which involves the duties and responsibilities similar to
those undertaken for the Bank as described in Section 1, engage or participate
in, or control or own (other than ownership of less than five percent (5%) of
the outstanding voting securities of an entity whose voting securities are
traded on a national securities exchange or quoted on the National Association
of Securities Dealers, Inc. Automated Quotation System), a beneficial interest
in, any Competing Business.
6.3 Agreement Not to Solicit Customers. The Executive agrees that
during his employment by the Bank and for the Applicable Period thereafter, he
will not, without the prior written consent of the Bank, either directly or
indirectly, on his own behalf or in the service or on behalf of others,
solicit, divert or appropriate, or attempt to solicit, divert or appropriate,
to any Competing Business any customer or client or actively sought prospective
customer or client of the Bank or any Affiliate located in the Area who was
serviced by or under the supervision of the Executive in the course of his
employment within the one (1) year period immediately prior to the termination
of the Executive's employment with the Bank.
6.4 Agreement Not to Solicit Employees. The Executive agrees that
during his employment by the Bank and for the Applicable Period thereafter, he
will not, either directly or indirectly, on his own behalf or in the service or
on behalf of others, solicit, divert or hire away, or attempt to solicit, divert
or hire away, any person employed by the Bank or any of its Affiliates, whether
or not such employee is a full-time, a part-time or a temporary employee and
whether or not such employment is pursuant to a written agreement and whether or
not such employment is for a determined period or is at will.
7. OWNERSHIP AND PROTECTION OF PROPRIETARY INFORMATION.
7.1 Confidentiality. All Proprietary Information and all physical
embodiments thereof received or developed by the Executive while employed by
the Bank are confidential to and are and will remain the sole and exclusive
property of the Bank. Except to the extent necessary to perform the duties
assigned to him by the Bank, the Executive will hold such Proprietary
Information in trust and strictest confidence, and will not use, reproduce,
distribute, disclose or otherwise disseminate the Proprietary Information or
any physical embodiments thereof and may in no event take any action causing or
fail to take the action necessary in order to prevent, any Proprietary
Information disclosed to or developed by the Executive to lose its character or
cease to qualify as Proprietary Information.
7.2 Return of Property. Upon request by the Bank, and in any
event upon termination of the employment of the Executive with the Bank for any
reason, the Executive will promptly deliver to the Bank all property belonging
to the Bank, including, without limitation, all Proprietary Information (and
all physical embodiments thereof) then in his custody, control or possession.
-6-
<PAGE> 7
7.3 Termination. The Executive shall maintain and observe the
obligations of confidentiality contained in this Agreement with respect to
Proprietary Information during the term of his employment with the Bank and at
all times following the termination of such employment for any reason
whatsoever.
8. INJUNCTIVE RELIEF. The Executive agrees that the covenants and
agreements contained in Sections 6 and 7 of this Agreement, and the subsections
of these Sections, are of the essence of this Agreement; that each of such
covenants is reasonable and necessary to protect and preserve the interests and
properties of the Bank and the business of the Bank; that the Bank is engaged in
and throughout the Area in the business of the Bank; that irreparable loss and
damage will be suffered by the Bank should the Executive breach any of such
covenants and agreements; and that, in addition to other remedies available to
it, the Bank shall be entitled to both temporary and permanent injunctions to
prevent a breach or contemplated breach by the Executive of any of such
covenants or agreements.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto regarding employment of Executive, and supersedes
and replaces any prior agreement between the parties.
10. ASSIGNMENT. Neither of the parties hereto may assign this
Agreement without the prior written consent of the other party hereto.
11. SEVERABILITY. Each section and subsection of this Agreement
constitutes a separate and distinct understanding, covenant and
provision hereof. In the event that any provision of this Agreement shall
finally be determined to be unlawful, such provision shall be deemed to be
severed from this Agreement, but every other provision of this Agreement shall
remain in full force and effect.
12. GOVERNING LAW. This Agreement shall in all respects be
interpreted, construed and governed by and in accordance with the laws of the
State of Georgia.
13. RIGHTS OF THIRD PARTIES. Nothing herein expressed or implied is
intended to or shall be construed to confer upon or give to any person, firm or
other entity, other than the parties hereto and their permitted assigns, any
rights or remedies under or by reason of this Agreement.
14. AMENDMENT. This Agreement may not be amended orally but only by an
instrument in writing duly executed by the parties hereto.
15. NOTICES. Any notice or other document or communication permitted
or required to be given to Executive pursuant to the terms hereof shall be
deemed given if personally delivered to Executive or sent to him postage
prepaid, by registered or certified mail, at 5717 Fairly Hall Court, Norcross,
Georgia 30092, or at any such other address as Executive shall have notified the
Bank in writing. Any notice or other document or other communication permitted
or required to be given to the Bank pursuant to the terms hereof shall be deemed
given
-7-
<PAGE> 8
if personally delivered or sent to the Bank, postage prepaid, by registered or
certified mail, at 9570 Medlock Bridge Road, Duluth, Georgia 30096, or at such
other address as the Bank shall have notified Executive in writing.
16. WAIVER. The waiver by either party hereto of a breach of any
provision of this Agreement by the other shall not operate or be construed as a
waiver of any subsequent breach of the same or any other provision of this
Agreement by the breaching party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
THE PEACHTREE BANK
[BANK SEAL]
By: /s/ John Howard
-------------------------------------
Chairman of the Board of Directors
Attest:
/s/ Kelly Johnson
----------------------------------
Secretary
EXECUTIVE
By: /s/ Monty G. Watson (SEAL)
------------------------------------
Monty G. Watson
-8-
<PAGE> 1
EXHIBIT 10.2
THE PB FINANCIAL SERVICES CORPORATION
1998 OUTSIDE DIRECTOR STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1 DEFINITIONS............................................................................................1
1.1 DEFINITIONS..............................................................................................1
SECTION 2 GENERAL PROVISIONS.....................................................................................2
2.1 THE PURPOSE OF THE PLAN..................................................................................2
2.2 STOCK SUBJECT TO THE PLAN................................................................................2
2.3 ADMINISTRATION OF THE PLAN...............................................................................2
2.4 ELIGIBILITY..............................................................................................2
SECTION 3 OPTION AWARDS..........................................................................................2
3.1 GENERAL..................................................................................................2
3.2 OPTION AWARDS............................................................................................2
3.3 EXERCISE AND PAYMENT OF OPTION AWARDS....................................................................2
3.4 NON-TRANSFERABILITY......................................................................................3
SECTION 4 MISCELLANEOUS PROVISIONS...............................................................................3
4.1 CHANGES IN CAPITALIZATION; MERGER; LIQUIDATION...........................................................3
4.2 RIGHT TO REMOVE DIRECTOR.................................................................................3
4.3 RESTRICTIONS ON DELIVERY AND SALE OF SHARES; LEGENDS.....................................................3
4.4 NON-ALIENATION OF BENEFITS...............................................................................4
4.5 TERMINATION AND AMENDMENT OF THE PLAN....................................................................4
4.6 CHOICE OF LAW............................................................................................4
4.7 EFFECTIVE DATE OF PLAN...................................................................................4
</TABLE>
-i-
<PAGE> 3
THE PB FINANCIAL SERVICES CORPORATION
1998 OUTSIDE DIRECTOR STOCK INCENTIVE PLAN
SECTION 1 DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun shall be
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "Board of Directors" means the board of directors of
the Company.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Committee" means a committee of the Board of
Directors or, in lieu of the designation of any such committee, the Board of
Directors.
(d) "Company" means The PB Financial Services Corporation, a
Georgia corporation.
(e) "Director" means a member of the Board of Directors.
(f) "Disability" means that condition described in Code
Section 22(e)(3), as amended from time to time. In the event of a dispute, the
determination of Disability shall be made by the Board of Directors and shall be
supported by advice of a physician competent in the area to which such
Disability relates.
(g) "Eligible Director" means a Director who is not an
Employee.
(h) "Employee" means any person who is employed by the
Company or an affiliate for purposes of the Federal Insurance Contributions Act.
(i) "Fair Market Value" refers to the determination of
the value of a share of Stock. If the Stock is actively traded on any national
securities exchange or any Nasdaq quotation or market system, Fair Market Value
shall mean the closing price at which shares of Stock shall have been sold on
the most recent trading date immediately prior to the date of determination, as
reported by any such exchange or system selected by the Committee on which the
shares of Stock are then traded. If the shares of Stock are not actively traded
on any such exchange or system, Fair Market Value shall mean the arithmetic mean
of the bid and asked prices for the shares of Stock on the most recent trading
date or dates within a reasonable period prior to the determination date as
reported by such exchange or system. If there are no bid and asked prices within
a reasonable period or if the shares of Stock are not traded on any exchange or
system as of the determination date, Fair Market Value shall mean the fair
market value of a share of Stock as determined by the Committee taking into
account such facts and circumstances deemed to be material by the Committee to
the value of the Stock in the hands of the Eligible Director.
(j) "Option" means a non-qualified stock option granted
under the Plan to buy shares of Stock as set forth in Plan Section 3.
(k) "Option Exercise Price" refers to the per share
purchase price for Stock subject to each Option granted under Section 3 and that
per share purchase price shall be one hundred percent (100%) of the Fair Market
Value of the Stock as of the date the Option is granted.
<PAGE> 4
(l) "Plan" means The PB Financial Services Corporation
1998 Outside Director Stock Incentive Plan.
(m) "Stock" means the Company's common stock, $5.00 par\
value.
(n) "Stock Option Agreement" means an agreement between
the Company and an Eligible Director or other documentation evidencing an award
of an Option.
SECTION 2 GENERAL PROVISIONS
2.1 The Purpose of the Plan. The Plan is intended to provide
incentive to Eligible Directors to stimulate their efforts toward the success of
the Company and to manage the business of the Company in a manner that will
provide for the long-term growth and profitability of the Company. Accordingly,
the Plan is intended to promote a close identity of interests among the Company,
Eligible Directors and its stockholders, as well as to provide a means to retain
well-qualified directors.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance
with Section 4.1, 157,612 shares of Stock (the "Maximum Plan Shares") are hereby
reserved exclusively for issuance pursuant to Options. At no time shall the
aggregate of (a) shares of Stock issuable pursuant to outstanding Options; and
(b) shares of Stock issued pursuant to Options exceed the Maximum Plan Shares.
If an Option expires or terminates for any reason without being exercised in
full, the unpurchased shares subject to such Option shall again be available for
purposes of the Plan.
2.3 Administration of the Plan. The Plan shall be administered by
the Committee. Subject to the provisions of the Plan, the Committee shall have
full and conclusive authority to interpret the Plan; to prescribe, amend and
rescind rules and regulations relating to the Plan; to determine the terms and
provisions of the respective Stock Option Agreements consistent with the
provisions of the Plan and to make all other determinations necessary or
advisable for the proper administration of the Plan. The Committee's decisions
shall be final and binding on all Eligible Directors.
2.4 Eligibility. Only Eligible Directors are eligible to receive
awards pursuant to Section 3.2.
SECTION 3 OPTION AWARDS
3.1 General. Each Option contemplated by this Section 3 shall be
evidenced by a Stock Option Agreement which shall incorporate the applicable
terms of the Plan. The terms of each Stock Option Agreement shall provide: (a)
that the per share purchase price for each share of Stock subject to the Option
shall be the Option Exercise Price; and (b) that the Option shall expire upon
the earlier of the tenth (10th) anniversary following the date of grant or sixty
(60) days from the date the Director ceases to serve upon the Board of Directors
and the board of directors of any affiliate for any reason.
3.2 Option Awards. Each Eligible Director shall be granted an
Option to purchase shares of Stock at such time and upon such terms as
determined by the Board of Directors in its sole discretion.
3.3 Exercise and Payment of Option Awards. All Options may be
exercised to the extent vested. All Options may be exercised only by written
notice to the Company. Payment for all shares of Stock purchased pursuant to
exercise of an Option shall be made (a) in cash; (b) by delivery to the Company
of a number of shares of Stock which have been beneficially owned by the
Eligible Director for at least six (6) months prior to the date of exercise
having an aggregate Fair Market Value of not less than the product of the
exercise price multiplied by the number of shares the Eligible Director intends
to purchase upon exercise of the Option on the date of delivery; or (c) to the
extent available, in a cashless exercise through a broker. Payment shall be made
at the time that the Option or any part thereof is
-2-
<PAGE> 5
exercised, and no shares shall be issued or delivered upon exercise of an Option
until full payment has been made by the Eligible Director. The holder of an
Option, as such, shall have none of the rights of a stockholder.
3.4 Non-Transferability. An Option shall not be transferable or
assignable except by will or by the laws of descent and distribution and shall
be exercisable, during the Eligible Director's lifetime, only by the Eligible
Director, or in the event of the Eligible Director's Disability, by his or her
legal representative.
SECTION 4 MISCELLANEOUS PROVISIONS
4.1 Changes in Capitalization; Merger; Liquidation
(a) The number of shares of Stock reserved with respect
to Options that may be granted under the Plan, the number of shares of Stock
reserved for issuance upon the exercise of each outstanding Option, and the
exercise price of each outstanding Option shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Stock resulting from
a subdivision or combination of shares or the payment of an ordinary stock
dividend in shares of Stock to holders of outstanding shares of Stock or any
other increase or decrease in the number of shares of Stock outstanding effected
without receipt of consideration by the Company.
(b) If the Company shall be the surviving corporation in
any merger or consolidation, extraordinary dividend (including a spin-off),
reorganization or other change in the corporate structure of the Company or its
Stock, an appropriate adjustment shall be made in each Stock Option Agreement
such that the Eligible Director shall be entitled to purchase or receive the
number and class of securities to which a holder of the number of shares of
Stock subject to the Stock Option Agreement at the time of such transaction
would have been entitled to receive as a result of such transaction, and a
corresponding adjustment shall be made in the exercise price of each outstanding
Option. A dissolution or liquidation of the Company shall cause Options to
terminate as to any portion thereof not exercised as of the effective date of
the dissolution or liquidation. In the event of a sale of substantially all the
Stock or property of the Company or the merger or consolidation of the Company
into another corporation where the survivor does not agree to the assumption of
the Options, each Option shall be terminated in consideration of the payment to
the Eligible Directors of the difference between the then Fair Market Value of
the Stock subject to the unexercised portion of the Option and the aggregate
Option Exercise Price.
(c) The existence of the Plan and the Options granted
pursuant to the Plan shall not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification, reorganization or
other change in its capital or business structure, any merger or consolidation
of the Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or liquidation
of the Company, any sale or transfer of all or any part of its business or
assets, or any other corporate act or proceeding.
4.2 Right to Remove Director. Nothing in the Plan or in any
Stock Option Agreement shall confer upon any Eligible Director the right to
continue as a member of the Board of Directors or affect the right of the
Company or any affiliate to terminate an Eligible Director's directorship at any
time.
4.3 Restrictions on Delivery and Sale of Shares; Legends. Each
Option is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares of Stock covered by such Option upon any securities exchange or under
any state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Option or the purchase or delivery of
shares of Stock thereunder, the delivery of any or all shares pursuant to such
-3-
<PAGE> 6
Option may be withheld unless and until such listing, registration or
qualification shall have been effected. If a registration statement is not in
effect under the Securities Act of 1933 or any applicable state securities laws
with respect to the shares of Stock purchasable or otherwise deliverable under
Options then outstanding, the Eligible Director shall, as a condition of
exercise of any Option or as a condition to any other delivery of Stock pursuant
to an Option, represent, in writing, that the shares received pursuant to the
Option are being acquired for investment and not with a view to distribution and
agree that the shares will not be disposed of except pursuant to an effective
registration statement, unless the Company shall have received an opinion of
counsel satisfactory to the Company that such disposition is exempt from such
requirement under the Securities Act of 1933 and any applicable state securities
laws. The Company may include on certificates representing shares of Stock
delivered pursuant to an Option such legends referring to the foregoing
representations or restrictions or any other applicable restrictions on resale
as the Company, in its discretion, shall deem appropriate.
4.4 Non-alienation of Benefits Other than as specifically provided
with regard to the death of an Eligible Director, no benefit under the Plan
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge; and any attempt to do so shall be
void. No such benefit shall, prior to receipt by the Eligible Director, be in
any manner liable for or subject to the debts, contracts, liabilities,
engagements or torts of the Eligible Director.
4.5 Termination and Amendment of the Plan. The Board of Directors
at any time may amend or terminate the Plan without stockholder approval;
provided, however, that the Board of Directors may condition any amendment on
the approval of stockholders of the Company if such approval is necessary or
advisable with respect to tax, securities or other applicable laws. No
termination, modification or amendment of the Plan, without the consent of an
Eligible Director who has been awarded an Option shall adversely affect the
rights of that Eligible Director under such Option.
4.6 Choice of Law. The laws of the State of Georgia shall govern
the Plan, to the extent not preempted by federal law.
4.7 Effective Date of Plan. The Plan shall become effective as of
December 14, 1998.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed as
of December 14, 1998.
THE PB FINANCIAL SERVICES CORPORATION
By:
----------------------------------------
Print Name:
--------------------------------
[CORPORATE SEAL]
Title:
--------------------------------------
ATTEST:
- --------------------------------
Print Name:
----------------------
Secretary
-4-
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Registrant
The PB Financial Services Corporation
The Peachtree Bank
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