U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-K
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997.
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________.
Commission File Number 0-10974
FIRST PULASKI NATIONAL CORPORATION
State of incorporation: Tennessee IRS Employer ID No.: 62-1110294
206 South First Street, Pulaski, Tennessee 38478
Registrant's telephone number: 931-363-2585
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock Par Value $1.00 Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K. [X]
The aggregate market value (computed on the basis of the most recent trades
of which the Registrant was aware) of shares of Common Stock, par value $1
per share, held by nonaffiliates of the Registrant as of February 15, 1998
was $36,943,401. The market value calculation assumes that all shares
beneficially owned by members of the Board of Directors of the Registrant
are shares owned by "affiliates", a status which each of the directors
individually disclaims.
Documents Incorporated by Reference: None
<PAGE>
PART I
ITEM 1: BUSINESS
First Pulaski National Corporation, (the Corporation) is a financial
corporation engaged in general commercial and retail banking business which
operates through one subsidiary bank. The Corporation also has engaged
recently in consumer finance through one nonbank subsidiary, Heritage
Financial of the Tennessee Valley, Inc.(Heritage Financial), which was
opened on November 24, 1997.
The Corporation was organized under the laws of the State of Tennessee in
1981 and its only significant asset is the common stock of First National
Bank of Pulaski (the Bank), headquartered in Pulaski, Tennessee.
All of the common stock of the Bank is owned by the Corporation. At December
31, 1997, the Corporation and its subsidiaries had combined total assets of
$266,615,711.
The Corporation currently has long-term indebtedness of $2,196,300 in the
form of notes payable to the Federal Home Loan Bank of Cincinnati. Note G
to Financial Statements, Part II, Item 8, includes a detailed analysis of
this debt. The Bank derives its primary source of funds from deposits and
is the largest independent financial institution in Giles County, Tennessee.
It has established two branches in Lincoln County, Tennessee.
As of February 15, 1998 the First National Bank of Pulaski had 160
employees, 33 of whom were part-time. Heritage Financial had 2 full-time
employees. The Corporation has no employees other than those employed by the
Bank and Heritage Financial.
FIRST PULASKI NATIONAL CORPORATION
The Corporation is a bank holding company within the meaning of the Bank
Holding Company Act of 1956 (BHC Act), and is registered as such with the
Board of Governors of the Federal Reserve System (FRB). The Corporation is
subject to examination by the FRB and is restricted in its acquisitions.
Under the BHC Act, a bank holding company is, with limited exceptions,
prohibited from (i) acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company which is not a bank or (ii)
engaging in any activity other than managing or controlling banks. With the
prior approval of the FRB, however, a bank holding company may own more than
5% of the voting shares of a company engaged in activities which the FRB
determines to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
The Corporation, through its subsidiaries, projects a diversified range of
financial services to its customers. These include activities related to
general banking business with complete services in the commercial, corporate
and retail banking field, as well as a full range of services in consumer
finance through Heritage Financial.
FIRST NATIONAL BANK OF PULASKI
The First National Bank of Pulaski is subject to the supervision of and
regular examination by the Office of the Comptroller of the Currency (OCC)
and the FDIC. The OCC has broad supervisory authority over national banks
and conducts regular periodic examinations of the Bank. The Bank is also
subject to provisions of the Federal Reserve Act which limits loans or
extensions of credit to, and investments in the stock of, the Corporation,
as well as the amount of loans or advances that may be made to third parties
secured by the securities or obligations of the Corporation and its
subsidiary. The Securities Exchange Act of 1934 imposes regulatory
requirements on various securities activities conducted by banks. First
National Bank of Pulaski is registered with the Securities Exchange
Commission as a transfer agent for First Pulaski National Corporation's
stock and must comply with various recordkeeping and reporting requirements.
<PAGE>
HERITAGE FINANCIAL OF THE TENNESSEE VALLEY, INC.
Heritage Financial of the Tennessee Valley, Inc. is a wholly owned
subsidiary of the Corporation formed in 1997 as a finance company. The
finance company is engaged in extending credit and servicing loans to
consumers and small businesses in the Tennessee Valley. Heritage Financial
is a Tennessee chartered corporation operating under the Tennessee
Industrial Thrift and Loan Companies Act. The company began operations
November 24, 1997. Heritage Financial is regulated by the Tennessee
Department of Financial Institutions and as a subsidiary of First Pulaski
National Corporation by the FRB.
ITEM 2: PROPERTIES
The Corporation, the Bank, and Heritage Financial are headquartered at 206
South First Street, Pulaski, Tennessee, in Giles County. The banking
facility housing the headquarters was completed in 1966 and has undergone
several major renovation and expansion projects over the years. The most
recent expansion at this facility was completed in early 1995, at a cost of
approximately $2,700,000 for building construction, parking facilities and
landscaping. Furniture and equipment expense, which included the new
imaging system and a new IBM AS/400 computer system, amounted to an
additional $1,060,000. An expansion and renovation of the Bank's Industrial
Park Road office, on the western edge of Pulaski, was completed in early
1996 at a cost of approximately $114,000, including furniture and fixtures.
The Minor Hill Road office, in the southern part of Pulaski, operates in a
facility that was completed in 1985. Other banking facilities operated by
the Bank include offices at Ardmore in the southeastern corner of Giles
County and at Fayetteville and Park City in adjacent Lincoln County,
Tennessee. The Ardmore office, in existence since 1963, has also undergone
several major expansions, with the most recent being completed in early 1993
at a cost of approximately $453,000, including furniture and fixtures. A
new Lincoln County office, located on West College Street in Fayetteville,
Tennessee, was opened in September of 1991 in a leased facility that the
bank enlarged and renovated at a cost of approximately $775,000, including
furniture and fixtures. A second Lincoln County branch was opened in the
spring of 1993 in Park City, approximately seven miles south of
Fayetteville. Rapid growth in the Park City operation led to a decision to
build a significantly larger building. Construction began in mid-1996 and
was completed in the summer of 1997. The total cost of the new building,
including furnishings, landscaping and paving was approximately $854,000.
Additional properties for parking, storage and expansion in the various
locations are leased through the year 2015. Rental expenses for these
properties during the year 1997 amounted to $55,916.60.
ITEM 3: LEGAL PROCEEDINGS
Neither the Corporation nor either of its subsidiaries is a party to any
legal proceedings, which in management's judgement would have a material
adverse effect on the consolidated financial position of the Corporation and
its subsidiaries.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None required to be described.
<PAGE>
PART II
ITEM 5: MARKET AND DIVIDEND INFORMATION
Common stock of First Pulaski National Corporation is not traded through an
organized exchange but is traded between local individuals. The following
trading prices for 1997 and 1996 represent trades of which the Corporation
was aware, primarily through its officers and directors and those of the
Bank, and do not necessarily include all trading transactions for the period
and may not necessarily reflect actual stock values.
<TABLE>
<CAPTION>
Trading Dividends
Prices Paid
<S> <C> <C> <C> <C>
1st Quarter, 1997 $25.60 - $50.00 $0.36
2nd Quarter, 1997 $25.60 - $50.00 $0.36
3rd Quarter, 1997 $25.00 - $66.67 $0.36
4th Quarter, 1997 $27.60 - $50.00 $0.42
ANNUAL DIVIDEND, 1997..................... $1.50
1st Quarter, 1996 $27.60 - $30.00 $0.32
2nd Quarter, 1996 $27.60 - $50.00 $0.32
3rd Quarter, 1996 $25.60 - $40.00 $0.35
4th Quarter, 1996 $25.60 - $50.00 $0.41
ANNUAL DIVIDEND, 1996..................... $1.40
</TABLE>
The following sales of securities were made by the Corporation without
registration with the Securities and Exchange Commission in reliance upon
the exemption from registration contained in Section 3(a)(11) of the
Securities Act of 1933, as amended, and Rule 147 promulgated thereunder.
Each of the purchasers set forth in the table below was a resident of the
state of Tennessee at the time of the transaction, and the Corporation is a
resident of and does business within the state of Tennessee.
<TABLE>
<CAPTION>
Transaction # of Shares Aggregate Purchaser
Date of Common Stock Offering Price
<C> <C> <C> <S>
04/01/97 50 $1,500.00 Mahlon Larry Garner
05/06/97 25 $750.00 Joe R. Fite, Jr.
05/06/97 25 $750.00 Jeff Martin
05/08/97 1 $30.00 Thomas H.Ward
05/28/97 25 $750.00 Robert H. Wynne, Jr.
08/08/97 50 $1,500.00 Foster Garrett
08/08/97 50 $1,500.00 Tina Haney
08/08/97 50 $1,500.00 Johnny Jackson
</TABLE>
There are approximately 1,200 stockholders of the Corporation's common stock
as of February 15, 1998.
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
Basic earning per share figures in the tables which follow are based on
weighted average numbers of shares outstanding of 1,539,866 shares for 1997,
1,522,591 shares for 1996, 1,532,245 shares for 1995, 1,511,450 shares for
1994, and 1,481,735 shares for 1993, after giving retroactive effect to the
five-for-one stock split which was effective on July 1, 1996. Note P in Part
II, Item 8 of the financial statements which follow shows figures for basic
earnings per share and gives effect to dilutive stock options in determining
diluted earnings per share.
<TABLE>
<CAPTION>
For Year Ended December 31,
1997 1996 1995 1994 1993
------ ------ ------- ------- -------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total interest income $22,104 $21,245 $19,776 $16,715 $15,842
Net interest income 12,809 12,484 11,342 10,750 10,472
Loan loss provision 508 783 259 225 365
Net income 4,320 4,063 3,705 3,848 3,811
Per Share Data:
Net income 2.81 2.67 2.42 2.55 2.57
Cash dividends paid 1.50 1.40 1.30 1.20 1.00
Total average equity 34,384 30,698 28,822 26,394 23,977
Total average assets 260,905 247,304 234,714 217,482 201,022
Total year-end assets 266,616 248,792 241,552 219,102 207,415
Total long-term debt 2,196 1,847 1,313 1,161 200
Ratios:
Assets to equity 7.71 7.80 7.96 8.24 8.38
Return on average
equity 12.56% 13.24% 12.85% 14.58% 15.89%
Return on average
assets 1.66% 1.64% 1.58% 1.77% 1.90%
</TABLE>
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
First Pulaski National Corporation is a one-bank holding company with its
only subsidiary bank being First National Bank of Pulaski, Tennessee. The
Corporation in late November of 1997 opened its first nonbank subsidiary,
Heritage Financial of the Tennessee Valley, Inc., which is a consumer
finance company. The following analysis reviews important factors affecting
the financial condition and results of operations of the Corporation for the
periods indicated. This review should be read in conjunction with the
consolidated financial statements and related notes.
The following discussion and this Annual Report on Form 10-K contains
forward-looking statements and should be read in conjunction with the
Corporation's Consolidated Financial Statements and Notes thereto included
elsewhere herein. Any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements. Numerous
factors could cause the Corporation's actual results to differ materially
from those indicated by such forward-looking statements.
RESULTS OF OPERATIONS
OVERVIEW
Net income for 1997 was $4,320 thousand or $2.81 per share, compared with
$4,063 thousand or $2.67 per share in 1996 and $3,705 thousand or $2.42 per
share in 1995. Return on average assets was 1.66% in 1997, 1.64% in 1996
and 1.58% in 1995. The return on average equity was 12.6%, 13.2% and 12.9%
for 1997, 1996 and 1995, respectively.
NET INTEREST INCOME
Net interest income is the difference between interest and fees earned on
loans, securities and other interest-earning assets (interest income) and
interest paid on deposits and borrowed funds (interest expense). In 1997,
net interest income increased by 2.6 percent following an increase of 10.1
percent in 1996. The net increase is attributable primarily to increased
volumes, offsetting the reduction in earnings due to reduced rates. The
total 1997 increase in net interest income of $304 thousand, on a taxable
equivalent basis, resulted from an increase of $532 thousand due to
increased volumes and a decrease of $228 thousand due to decreased rates.
Net interest earnings is a function of the average balances of
interest-earning assets and interest-bearing liabilities and the yields
earned and rates paid on those balances. Management must maintain the spread
between the yields earned and rates paid in managing the margin.
The following tables summarize the changes in interest earned and interest
paid for the given time periods and indicate the factors affecting these
changes. The first table presents, by major categories of assets and
liabilities, the average balances, the components of the taxable equivalent
net interest earnings/spread, and the yield or rate for the years 1997, 1996
and 1995.
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
December 31,
1997 1996 1995
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- --------- ----- --------- -------- -------- -------- -------- --------
ASSETS
- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans and lease financing.... $164,155 $17,610 10.73% $157,697 $17,179 10.89% $142,825 $15,719 11.01%
Taxable investment securities 50,267 3,214 6.39% 47,453 2,992 6.31% 47,148 2,809 5.96%
Non-taxable investment
securities................. 13,476 764 5.67% 13,765 801 5.82% 10,057 654 6.50%
Federal funds sold............. 13,473 730 5.42% 9,365 505 5.39% 13,280 816 6.14%
Time deposits in other banks.... 0 0 0.00% 23 2 8.70% 44 1 2.27%
-------- -------- ------- --------- ------- -------- -------- -------- --------
Total Interest-Earning Assets.. 241,371 22,318 9.25% 228,303 21,479 9.41% 213,354 19,999 9.37%
Non-interest Earning Assets:
Cash and due from banks..... 9,076 8,539 8,583
Premises and equipment, net. 7,396 7,185 7,312
Other Assets................ 5,593 5,482 7,563
Less allowance for loan losses (2,531) (2,205) (2,098)
-------- --------- ---------
Total Non-Interest-Earning Assets 19,534 19,001 21,360
-------- --------- ---------
TOTAL.................... $260,905 $247,304 $234,714
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Interest-Bearing Liabilities:
Demand deposits............. $19,392 371 1.91% $20,172 394 1.95% $20,407 560 2.74%
Savings deposits.............. 28,060 717 2.56% 28,953 732 2.53% 28,562 776 2.72%
Time deposits................ 144,337 8,075 5.59% 134,120 7,524 5.61% 126,164 7,029 5.57%
Other borrowed money........ 2,115 133 6.29% 1,838 111 6.04% 1,165 69 5.92%
--------- -------- ------- --------- -------- -------- --------- -------- --------
Total Interest-Bearing
Liabilities................. 193,904 9,296 4.79% 185,083 8,761 4.73% 176,298 8,434 4.78%
Non-Interest-Bearing Liabilities:
Demand deposits.............. 30,868 28,659 26,885
Other liabilities............ 1,749 2,864 2,709
--------- --------- ---------
Total Non-Interest Bearing
Liabilities.................... 32,617 31,523 29,594
Shareholders' Equity............. 34,384 30,698 28,822
--------- --------- ---------
TOTAL.................... $260,905 $247,304 $234,714
========= ========= =========
Net interest earnings/spread,
on a taxable equivalent basis 13,022 5.40% 12,718 5.57% 11,565 5.42%
Taxable equivalent adjustments:
Loans....................... 48 60 66
Investment securities............ 165 174 157
-------- ------ --------
Total taxable equivalent adjustment 213 234 223
-------- -------- --------
Net interest earnings.............. $12,809 $12,484 $11,342
========== ========== ==========
Note: The taxable equivalent adjustment has been computed based on a 34%
federal income tax rate and has given effect to the disallowance of interest
expense, for federal income tax purposes, related to certain tax-free
assets. Loans include nonaccrual loans for all years presented.
</TABLE>
<PAGE>
The following table shows the change from year to year for each component of
the taxable equivalent net interest margin separated into the amount
generated by volume changes and the amount generated by changes in the
yields earned or rates paid.
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------- ---------------------------
Volume Rate Net Volume Rate Net
------- ------ ----- ------- ------ -----
(in thousands of dollars) (in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest Earned on:
Loans and lease financing.......... $704 (273) $431 1,637 ($177) $1,460
Taxable investment securities....... 177 45 222 18 165 183
Non-taxable investment securities... (17) (20) (37) 241 (94) 147
Federal funds sold................... 222 3 225 (241) (70) (311)
Time deposits....................... (2) 0 (2) 0 1 1
----- ----- ----- ----- ----- -----
Total Interest-Earning Assets $1,084 ($245) $839 $1,655 ($175) $1,480
====== ====== ====== ======= ====== =======
Interest Paid On:
Demand deposits....................... $(15) (8) ($23) ($6) ($160) ($166)
Savings deposits....................... (23) 8 (15) 11 (55) (44)
Time deposits........................ 573 (22) 551 443 52 495
Other borrowed money............... 17 5 22 40 2 42
------- ------ ------ ------- ------ ------
Total Interest-Bearing Liabilities..... $552 ($17) $535 $488 ($161) $327
======= ====== ====== ======= ======= =======
Net Interest Earnings, on a taxable
equivalent basis..................... $532 ($228) $304 $1,167 ($14) $1,153
======= ====== ======= ======
Less: taxable equivalent adjustment.. (21) 11
------ ------
Net Interest Earnings................ $325 $1,142
====== ======
</TABLE>
<PAGE>
The change in interest due to volume has been determined by applying the
rate from the earlier year to the change in average balances outstanding
from one year to the next. The change in interest due to rate has been
determined by applying the change in rate from one year to the next to the
average balances outstanding in the later year. The computation of the
taxable equivalent adjustment has given effect to the disallowance of
interest expense, for federal income tax purposes, related to certain tax-
free assets.
<PAGE>
SOURCES AND USES OF FUNDS
The following table outlines the sources and uses of funds for each of the
years 1997, 1996 and 1995, with the percent of change in each category from
year to year.
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------- ------------------------------------
Increase Increase
Average ( Decrease) Percent Average (Decrease) Percent Average
Balance Amount Change Balance Amount Change Balance
--------- --------- --------- --------- --------- --------- ---------
(in thousands of dollars, except percents)
<S> <C> <C> <C> <C> <C> <C> <C>
FUNDING USES:
Interest earning assets:
Loans-domestic.................... $164,155 $6,458 4.1% $157,697 $14,872 10.4% $142,825
Taxable investment securities..... 50,267 2,814 5.9% 47,453 305 0.6% 47,148
Non-taxable investment
securities...................... 13,476 (289) -2.1% 13,765 3,708 36.9% 10,057
Federal funds sold................ 13,473 4,108 43.9% 9,365 (3,915) -29.5% 13,280
Time deposits in other
banks-domestic.................. .. 0 (23) -100.0% 23 (21) -47.7% 44
--------- -------- -------- -------- -------- -------- --------
Total Interest Earning Assets........ $241,371 $13,068 5.7% $228,303 $14,949 7.0% $213,354
========= ========= ========= ========= ========= ========= =========
FUNDING SOURCES:
Demand deposits - non-interest
bearing.......................... $30,868 $2,209 7.7% $28,659 $1,774 6.6% $26,885
Demand deposits - interest bearing... 19,392 (780) -3.9% 20,172 (235) -1.2% 20,407
Savings deposits.................... 28,060 (893) -3.1% 28,953 391 1.4% 28,562
Time deposits........................ 144,337 10,217 7.6% 134,120 7,956 6.3% 126,164
Other.............................. 18,714 2,315 14.1% 16,399 5,063 44.7% 11,336
--------- -------- -------- --------- --------- --------- ---------
Total Sources..................... $241,371 $13,068 5.7% $228,303 $14,949 7.0% $213,354
========= ========= ========= ========= ========= ========= =========
</TABLE>
NON-INTEREST INCOME
Non-interest income amounted to $2,353 thousand in 1997, an increase of 10.8
percent from 1996, which increase is attributable primarily to increases in
other service charges on deposit accounts and dividends. Non-interest
income in 1996 increased by 2.1 percent from 1995. Included in non-interest
income in all three years were losses on security transactions. Net losses
realized totaled $30.8 thousand, $95.4 thousand, and $56.2 thousand in 1997,
1996, and 1995, respectively.
NON-INTEREST EXPENSE
Non-interest expense in 1997 was $8,119 thousand, up 5.9 percent from 1996.
This increase is attributable primarily to increased operating and
personnel costs. Non-interest expense for 1996 had increased by only 1.7
percent over the previous year. This was due primarily to a decrease in FDIC
Insurance cost.
<PAGE>
LOAN LOSS PROVISION
The provision for loan losses is the charge to earnings which management
feels is necessary to maintain the allowance for loan losses at a level
considered adequate to absorb potential future losses on existing loans.
The adequacy of the allowance for loan losses is determined by a continuous
evaluation of the loan portfolio. The Bank utilizes an independent loan
review function which considers loans on their own merits based on factors
which include past loan experience, collateral value, off-balance sheet
credit risk, and possible effects of prevailing economic conditions.
Findings are presented regularly to management, where other factors such as
actual loan loss experience relative to the size and characteristics of the
loan portfolio, deteriorations in concentrations of credit, trends in
portfolio volumes, delinquencies and non-performing loans and, when
applicable, reports of the regulatory agencies are considered. Bank
management performs calculations for the minimum allowance level needed and
a final evaluation is made.
The provision for loan losses was $507.5 thousand in 1997 compared to $783.0
thousand in 1996 and $258.6 thousand in 1995. Net loan losses were $284.1
thousand in 1997, $460.7 thousand in 1996, and $223.9 thousand in 1995. The
1997 provision for loan losses exceeded the current year loan losses by
$223.4 thousand. In 1996, the Bank anticipated a deterioration in the
quality of consumer loans and increased the loan loss provision for consumer
loans accordingly. In 1997, while consumer loans continued to be a concern,
a lesser provision was deemed necessary related to these loans.
Net loan <losses> recoveries for 1997 consists of agriculture loans <$13.7
thousand>, personal loans <$149.6 thousand>, real estate loans $<8.0
thousand>, and commercial and industrial loans <$112.8 thousand>. The
allowance at the end of 1997 is $2,604 thousand, or 1.54 percent of
outstanding loans and leases, as compared to $2,381 thousand or 1.51 percent
and $2,058 thousand or 1.35 percent in 1996 and 1995, respectively.
The following table sets out respectively the allocation of the Allowance for
Loan Losses and the percentage of loans by category to total loans outstanding
at the end of each of the years indicated.
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(amounts in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Allowance applicable to:
Real estate loans $240 $422 $634 $482 $575
Commercial loans 165 80 58 63 58
Agriculture loans 176 238 173 187 174
Individual loans 2,023 1,639 1,191 1,290 1,198
Other loans 0 2 2 2 2
-------- -------- -------- -------- --------
Total $2,604 $2,381 $2,058 $2,024 $2,007
======== ======== ======== ======== ========
Percentages of loans by
category to total loans:
Real estate loans 52.66% 51.76% 51.11% 51.50% 55.12%
Commercial loans 15.42% 14.77% 13.34% 13.07% 11.71%
Agriculture loans 6.68% 7.33% 8.00% 7.88% 7.55%
Individual loans 23.25% 24.92% 26.00% 25.95% 23.83%
Other loans 1.99% 1.22% 1.55% 1.60% 1.79%
------- ------ ------- ------- -------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
</TABLE>
<PAGE>
INCOME TAXES
Income tax expense includes federal and state taxes on earnings. Income
taxes were $2,215,867, $2,095,836, and $1,920,362 in 1997, 1996 and 1995,
respectively. The effective tax rates were 33.91 percent, 34.03 percent
and 34.14 percent respectively. Note I to Financial Statements, Part II,
Item 8, provides a detailed analysis of the components of income tax
expense.
QUARTERLY RESULTS OF OPERATIONS
Quarter-by-quarter income and expense data for the years 1997 and 1996 are
presented in the following table.
<TABLE>
<CAPTION>
For The Three Months Ended
Mar 31 Jun 30 Sep 30 Dec 31
--------- --------- --------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1997:
Total interest income....... $5,294 $5,577 $5,655 $5,578
Total interest expense...... 2,206 2,293 2,381 2,415
Net interest income......... 3,088 3,284 3,274 3,163
Provision for loan losses... 75 105 137 191
Other income................ 482 678 499 695
Other expense............... 1,844 1,946 2,042 2,287
Income before income tax.... 1,651 1,911 1,594 1,380
Income taxes................ 600 640 557 419
Net income.................. 1,051 1,271 1,037 961
Net income per share........ $0.69 $0.83 $0.67 $0.62
1996:
Total interest income....... $5,232 $5,356 $5,419 $5,238
Total interest expense...... 2,219 2,205 2,154 2,183
Net interest income......... 3,013 3,151 3,265 3,055
Provision for loan losses... 100 153 300 230
Other income................ 459 500 521 645
Other expense............... 1,809 1,885 1,854 2,119
Income before income tax.... 1,563 1,613 1,632 1,351
Income taxes................ 575 573 567 381
Net income.................. 988 1,040 1,065 970
Net income per share........ $0.65 $0.69 $0.70 $0.63
</TABLE>
The 1997 provisions for loan losses shown in the table above were increased
each quarter as the year progressed as compared to prior quarters of the
year. This was a result of a system of monitoring past dues and
identification by management of any additional exposure related to some
problem loans. In addition, net charge-offs were higher during the latter
part of the year, resulting in a decision by the Bank's management to
increase the provision for loan losses accordingly.
<PAGE>
BALANCE SHEET
LOANS
Loan growth during 1997 resulted primarily from increases in commercial and
industrial loans and in real estate loans, including farm, residential, and
commercial real estate. Loans to individuals secured by automobiles as well
as other loans also showed some growth as compared to 1996. Management's
focus is to promote loan growth in the bank's target market, emphasizing the
expansion of business and the enhancement of the quality of life in the
bank's trade area. Efforts are taken to maintain a fairly diversified
portfolio without significant concentration of risk.
A comparison over the last three years showed that average total loans and
leases increased by $6.5 million or 4.1 percent in 1997, by $14.9 million or
10.4 percent in 1996 and by $13.8 million or 10.7 percent in 1995. The
growth in deposits has been used to support the continuing increase in loan
demand.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan and lease balances at the end of each
period and monthly averages, changes in the allowance for possible losses
arising from loans charged off and recoveries on loans previously charged
off, and additions to the allowance which have been charged to expense.
<PAGE>
<TABLE>
<CAPTION>
For Year Ended December 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Amount of net loans
and lease financing
outstanding at end
of period................ $168,738 $157,903 $152,993 $136,371 $121,504
======== ======== ======== ======== ========
Monthly average amount
of loans and leases...... $164,155 $157,697 $142,825 $129,067 $117,336
======== ======== ======== ======== ========
Balance of allowance
for possible loan
losses at beginning
of period................ $2,381 $2,058 $2,024 $2,007 $1,847
Loans charged off........ 708 740 433 367 380
Recoveries of loans
previously charged off... 424 280 209 159 175
-------- -------- -------- -------- --------
Net loans charged off.... 284 460 224 208 205
-------- -------- -------- -------- --------
Additions to allowance
charged to expense....... 507 783 258 225 365
-------- -------- -------- -------- --------
Balance at end of
period................... $2,604 $2,381 $2,058 $2,024 $2,007
======== ======== ======== ======== ========
Ratio of net charge
offs during period to
average loans
outstanding.............. 0.17% 0.29% 0.16% 0.16% 0.18%
======== ======== ======== ======== ========
</TABLE>
Reference is made to Note C to Financial Statements, Part II, Item 8, for
further detail regarding charge - offs and recoveries by category.
LOAN QUALITY
The loan portfolio has been diversified so that there is no concentration of
loans by category or within a category. In general, loan loss risks have
been minimized by extending loans within the trade area of the Bank, only
with adequate cash flow to service the debt, upon sufficient collateral, and
with short maturities. The loan portfolio does not include loans secured
only by speculative collateral. Because the local economy is not
concentrated in any particular industry, the loan portfolio is not subjected
to significant risks when one industry is experiencing problems.
<PAGE>
The amounts of loans and leases outstanding at the indicated dates are shown
in the following table according to type of loan.
<TABLE>
<CAPTION>
LOAN PORTFOLIO
December 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Construction and land
development $3,341 $3,548 $2,929 $3,530 $1,429
Commercial, industrial 23,122 20,219 17,911 14,650 13,058
Agricultural 11,461 11,799 12,503 10,956 9,341
Real est. farmland 19,142 17,314 15,615 13,535 10,232
Real est. residential 40,177 38,708 37,811 35,418 35,829
Real est. commercial 31,033 27,255 26,410 22,690 22,106
Installment-individuals 39,890 40,096 40,610 36,105 29,453
Lease financing 0 0 0 0 23
Other loans 3,426 1,943 2,402 2,229 2,202
-------- -------- -------- -------- --------
TOTAL $171,592 $160,882 $156,191 $139,113 $123,673
======== ======== ======== ======== ========
</TABLE>
Loans included in the other loans category above include student loans,
non-taxable loans, overdrafts, and all other loans not included in any of
the designated categories.
<PAGE>
The following table presents the maturity distribution and interest
sensitivity of selected loan categories (excluding residential mortgage,
home equity, consumer loans, and lease financing).
<TABLE>
<CAPTION>
Due in
1 year Due after
or less 1 year Total
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Construction, land development $3,154 $187 $3,341
Commercial, industrial $15,561 $7,561 $23,122
Agricultural $9,387 $2,074 $11,461
Real estate farmland $12,269 $6,872 $19,141
Real estate commercial $13,251 $17,782 $31,033
-------- -------- --------
Total selected loans $53,622 $34,476 $88,098
======== ======== ========
</TABLE>
The table below summarizes the percentages of the loans selected for use in the
preceding table falling into each of the indicated maturity ranges, and the
sensitivity of such loans to interest rate changes for those with maturities
greater than one year.
<TABLE>
<CAPTION>
Due in
1 year Due after
or less 1 year Total
-------- -------- --------
<S> <C> <C> <C>
Percent of total selected loans...... 60.87% 39.13% 100.00%
Cumulative percent of total......... 60.87% 100.00%
Sensitivity of loans to changes
in interest rates - loans due after one year:
Fixed rate loans................... $29,353 $29,353
Variable rate loans................ 5,123 5,123
-------- --------
$34,476 $34,476
======== ========
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets include non-accrual loans, loans restructured because
of debtor's financial difficulties, other real estate owned, and loans past
due ninety days or more as to interest or principal payment.
From 1996 to 1997, non-accruing loans increased by 56.13 percent to $701.9
thousand following an increase of 116.1 percent in 1996 from 1995.
Increases in non-accruing loans over these periods have been largely due to
a rise in consumer bankruptcies. There were no restructured loans at
year-end 1997 or 1996. Other real estate owned, consisting of properties
acquired through foreclosures or deeds in lieu thereof, totaled $115.4
thousand for a decrease of 47.3 percent, following an increase of 98.9
percent in 1996. The decrease in other real estate owned over the last year
has been the result of loan officers making more quality loans and following
better guidelines to secure loans. Loans past due ninety days or more
totaled $176.0 thousand for a decrease of 7.7 percent over same period last
year, following a decrease of 9.2 percent in 1996. All major credit lines
and troubled loans are reviewed regularly by a committee of the Board of
<PAGE>
Directors. Non-performing loans are not concentrated in any particular
category of loans and contain no losses that would materially affect the
allowance.
The following table summarizes the company's non-performing assets and loans
past due ninety days or more.
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
--------- --------- ---------
(in thousands of dollars)
<S> <C> <C> <C>
Non-accrual loans $702 $449 $208
Troubled debt restructurings $0 $0 $0
Other real estate owned $115 $219 $110
Loans past due ninety days or more as to
interest or principal payment $176 $190 $210
</TABLE>
As of December 31, 1997, management was not aware of any specifically
identified loans, other than those included in the categories discussed
above, that represent significant potential problems. The Corporation
maintains high audit standards, exercises extensive internal controls and
conducts regular and thorough loan reviews. However, the risk inherent in
the lending business results in periodic charge-offs of loans. The
corporation maintains an allowance for loan losses which it believes to be
adequate to absorb reasonably foreseeable losses in the loan portfolio. The
executive officers of the subsidiary bank evaluate, on a quarterly basis,
the risk in the portfolio to determine an adequate allowance for loan
losses.
The evaluation includes analyses of historical performance, the level of
nonperforming and rated loans, specific analyses of problem loans, loan
activity since the previous quarter, loan review reports, consideration of
current economic conditions and other pertinent information. The evaluation
is reviewed by the Audit Committee.
As a matter of bank policy, internal classifications of loans are performed
on a routine and continuing basis. Relative to the classification of loans
for regulatory purposes, it is management's position that those loans
classified, internally or externally, as loss, doubtful, substandard or
special mention (i) do not represent or result from trends or uncertainties
which they expect to materially impact operating results, liquidity, or
capital resources, and (ii) do not represent material credits about which
there is any information which would cause serious doubts as to the ability
of such borrowers to comply with the loan repayment terms.
SECURITIES
The securities portfolio consists primarily of U.S. Treasury obligations,
federal agency securities and marketable bonds of states, counties and
municipalities. Management uses investment securities to assist in
maintaining proper interest rate sensitivity in the balance sheet, to
provide securities to pledge as collateral for certain public funds and to
provide an alternative investment for available funds.
<PAGE>
The following table sets forth the carrying amount of securities at the
dates indicated:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Available-for-sale (in thousands of dollars)
- -------------------
U. S. Treasury securities.......... $18,311 $20,373 $20,406
U.S. Government Agencies........... 32,701 23,385 21,128
--------- --------- ---------
$51,012 $43,758 $41,534
--------- --------- ---------
Held-to-maturity
- -----------------
States and political subdivisions.. $13,948 $14,404 $13,347
Other securities................... 6,255 5,285 4,042
--------- --------- ---------
$20,203 $19,689 $17,389
--------- --------- ---------
TOTAL $71,215 $63,447 $58,923
========= ========= =========
</TABLE>
The Corporation adopted statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", on January 1, 1994. Prior to the adoption of SFAS 115, the
investment securities were treated similarly to the held-to-maturity
classification.
<PAGE>
The following table sets forth the maturities of securities at December 31,
1997 and the average yields of such securities (calculated on the basis of
the cost and effective yields).
<TABLE>
<CAPTION>
US Treasuries, State and Political
and Government Subdivisions &
Agencies Other Total
-------------- ------------------ ------
(in thousands of dollars)
<S> <C> <C> <C>
Available-for-sale
- ---------------------
Within one year:
Amount $12,659 $12,659
Yield 6.33% 6.33%
After one but within five years:
Amount $37,338 $37,338
Yield 6.38% 6.38%
After five through ten years:
Amount $1,015 $1,015
Yield 6.58% 6.58%
Held-to-maturity
- -------------------
Within one year:
Amount $4,889 $4,889
Yield 5.22% 5.22%
After one but within five years:
Amount $14,194 $14,194
Yield 4.99% 4.99%
After five but within ten years:
Amount $1,120 $1,120
Yield 4.55% 4.55%
</TABLE>
Total average securities increased by $2.5 million or 4.1 percent during
1997 as compared to the previous year. Average taxable investment
securities increased by $2.8 million or 5.9 percent and average non-taxable
investment securities decreased by $0.3 million or 2.1 percent, to account
for the overall increase in average investments. The total securities
portfolio was $7.8 million or 12.2 percent more at the end of 1997 than at
the end of 1996. This increase resulted primarily from the increase in
deposit growth.
<PAGE>
DEPOSITS
The Bank's primary source of funds is customer deposits, including large
certificates of deposits. Aggregate average deposits increased by $10.8
million in 1997, by $9.9 million in 1996 and by $13.2 million in 1995.
Continuing a trend which began with deregulation and the advent of
interest-bearing demand deposit accounts, most of the deposit growth
experienced by the Bank has been in accounts which are interest sensitive.
The average amount of deposits for the periods indicated is summarized in
the following table:
<TABLE>
<CAPTION>
For Year Ended December 31,
1997 1996 1995
--------- --------- ---------
(in thousands of dollars)
<S> <C> <C> <C>
Demand deposits - non-interest bearing.. $30,868 $28,659 $26,885
Demand deposits - interest bearing...... 19,392 20,172 20,407
Savings deposits........................ 28,060 28,953 28,562
Time deposits (excluding time CD's
of $100,000 or more).................. 102,211 92,392 87,643
Time CD's of $100,000 or more........... 42,126 41,728 38,520
--------- --------- ---------
TOTAL.............................. $222,657 $211,904 $202,017
========= ========= =========
</TABLE>
Remaining maturities of time certificates of deposits of $100,000 or more
outstanding at December 31, 1997, are summarized as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
<S> <C>
3 months or less............................. $18,457
Over 3 months through 12 months.............. 24,750
Over 1 year through 3 years.................. 4,150
Over 3 years................................. 195
---------
TOTAL........................................ $47,552
=========
</TABLE>
Other funds were invested in other earning assets such as federal funds and
bank time deposits at minimum levels necessary for operating needs for
liquidity.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest sensitive
earning assets and interest bearing liabilities. Liquidity management
involves the ability to meet the cash flow requirements of customers who may
be either depositors wanting to withdraw funds or borrowers needing
assurance that sufficient funds will be available to meet their credit
needs. Interest rate sensitivity management seeks to avoid fluctuating net
interest margins and to enhance consistent growth of net interest income
through periods of changing interest rates.
<PAGE>
Marketable investment securities, particularly those of shorter maturities,
are the principal source of asset liquidity. Securities maturing in one
year or less amounted to $17.5 million at December 31, 1997, representing
24.6 percent of the investment securities portfolio, a slight decrease from
the 27.9 percent level of 1996. Other assets such as federal funds sold and
maturing loans and time deposits in other banks are additional sources of
liquidity.
Interest rate sensitivity varies with different types of interest earning
assets and interest bearing liabilities. Overnight federal funds on which
rates change daily and loans which are tied to the prime rate differ
considerably from long term investment securities and fixed rate loans.
Similarly, time deposits over $100,000 and money market certificates are
much more interest sensitive than are savings accounts. Regular savings and
NOW accounts are classified by management as immediately rate sensitive. At
December 31, 1997 the Bank had a total of $47.4 million in certificates of
$100,000 or more which would mature in one year or less. In addition,
consumer certificates of smaller amounts generally mature every six months,
while money market deposit accounts mature on demand.
Interest rate sensitivity gaps by maturities are summarized in the following
table:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY GAPS
December 31, 1997 0-30 31-90 91-365 1 - 5 Over 5
$ in thousands Days Days Days years years Total
- -------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Loans and leases........ $24,076 $25,158 $48,836 $68,862 $4,660 $171,592
Taxable securities...... 1,001 1,005 9,454 42,902 2,904 57,266
Nontaxable securities... 0 504 2,075 10,064 1,306 13,949
Federal funds sold...... 6,180 0 0 0 0 6,180
------- ------- ------- ------- ------- -------
Total................... $31,257 $26,667 $60,365 $121,828 $8,870 $248,987
Interest-sensitive liabilities:
Demand deposits......... $19,573 $0 $0 $0 $0 $19,573
Savings................. 28,564 0 0 0 0 28,564
Time.................... 27,547 16,179 86,183 16,443 0 146,352
Other borrowed funds.... 14 27 127 788 1,240 2,196
------- ------- ------- ------- ------- -------
Total................... $75,698 $16,206 $86,310 $17,231 $1,240 $196,685
Interest sensitivity gap..($44,441) $10,461 ($25,945)$104,597 $7,630 $52,302
Cumulative gap............($44,441)($33,980)($59,925) $44,672 $52,302 $104,604
Ratio of cumulative gap to
earning assets.......... -17.85% -13.65% -24.07% 17.94% 21.01% 42.01%
</TABLE>
The primary interest sensitive assets and liabilities in this maturity range are
commercial loans, which are included in loans and leases above and large
certificates of deposit, included above in time deposits. The Bank is in a
negative gap position in each of the intervals, with the exception of those with
maturities of one year or more, indicating that it has more rate sensitive
liabilities which it can reprice in the indicated time span than it has rate
sensitive assets. This normally indicates that the Bank would be in position
to reprice its rate-sensitive liability accounts (deposits)more quickly than it
would its rate-sensitive assets (loans and investments). During periods of
declining interest rates the negative gap works to the Bank's advantage,
widening the net interest spread between assets and liabilities. To the
contrary, however, during periods of rising rates the negative gap would be to
the Bank's disadvantage, with the net interest spread shrinking. Theoretically,
a gap position of near zero would produce minimum fluctuations of the net
interest spread over long periods of time, negating the effect of rising and
falling interest rate environments. A positive gap position would essentially
reverse the effects of rising and falling rates.
<PAGE>
It is management's objective to minimize this gap through the asset/liability
management process. The gap position is closely monitored, and investment
decisions and deposit and loan pricing structures are configured with the gap
position in mind. The gap table is updated at least monthly or more often if
considered necessary. Asset/Liability management limits the ratio of rate
sensitive assets to rate sensitive liabilities with maturities of one year or
less to not less than 0.50 and not more than 1.50. If the RSA/RSL ratio is
outside this parameter, management will take action to review asset and
liability mixes, maturities, yields, and costs, review objectives and
strategies, and determine if changes are needed. Currently the RSA/RSL ratio
with maturities of one year or less is within the range the committee has
established.
CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
Regulatory requirements place certain constraints on the Corporation's capital.
In order to maintain appropriate ratios of equity to total assets, a
corresponding level of capital growth must be achieved. Growth in total average
assets was 5.5 percent in 1997 and 5.4 percent in 1996. The corresponding
percentage increase in average equity amounted to 12.0 percent in 1997 and 6.5
percent in 1996.
The Corporation's equity capital was $34,579,346 at December 31, 1997,
$31,887,402 at December 31, 1996, and $30,331,795 at December 31, 1995, for an
increase of 14.0 percent over the two-year period. The Corporation's equity-to-
average asset ratio was 13.3 percent, as compared to 12.9 percent for 1996 and
12.9 percent for 1995. The maintenance of this ratio during the year 1997
reflects the fact that the earnings the company experienced during the year were
sufficient to keep pace with the growth in total assets. The Corporation plans
to maintain a capital to asset ratio which reflects financial strength and
conforms to current regulatory guidelines. The ratio of dividends to net income
was 53.5 percent in 1997, 52.5 percent in 1996, and 53.8 percent in 1995.
The authorized number of common shares was 10 million shares, with 1,550,994
shares issued and outstanding.
The Federal Reserve Board, the Office of the Comptroller of the Currency and the
FDIC have issued risk-based capital guidelines for U.S. banking organizations.
These guidelines provide a uniform capital framework that is sensitive to
differences in risk profiles among banking companies.
Under these guidelines, total capital consists of Tier I capital (core capital,
primarily stockholders' equity) and Tier II capital (supplementary capital,
including certain qualifying debt instruments and the loan loss reserve).
Assets are assigned risk weights ranging from 0 percent to 100 percent depending
on the level of credit risk normally associated with such assets. Off-balance
sheet items (such as commitments to make loans) are also included in assets
through the use of conversion factors established by regulators and are assigned
risk weights in the same manner as on-balance sheet items. By the end of 1992,
banking institutions were expected to achieve a Tier I capital to risk-weighted
assets ratio of at least 4.00 percent, a total capital (Tier I plus Tier II) to
risk-weighted assets ratio of at least 8.00 percent, and a Tier I capital to
total assets ratio (leverage ratio) of at least 3.00 percent. As of December
31, 1997, the Company and its subsidiary, First National Bank of Pulaski, had
ratios which exceeded the regulatory requirements to be classified as "well
capitalized," the highest regulatory capital rating. The Company's and
subsidiary's ratios are illustrated in Note N to the financial statements.
FINANCIAL ACCOUNTING STANDARDS BOARD RELEASES
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards("SFAS") No.115 as explained in Note A to Financial Statements,
Part II, Item 8. Management has classified a majority of the investment
portfolio in the available-for-sale category and reports these investments at
fair value. Management does not anticipate the sale of a material amount of
investment securities classified as available-for-sale in the foreseeable
future. However, these securities may be sold in response to changes in the
interest rates, changes in prepayment risk, the need to increase regulatory
capital or asset/liability strategy.
On January 1, 1995, the Company adopted FASB Statements No. 114 and No. 118,
both of which deal with accounting by creditors for impairment of loans.
Statements No. 114 and No. 118, explained in Note A to Financial Statements,
Part II, Item 8, provide new rules for measuring impairment losses on loans.
As of the fourth quarter of 1997, the Company has identified those loans which
it deems to be impaired and has computed allowances which management believes to
be sufficient for those loans. The adoption of these statements had no material
effect on the earnings or financial condition of the Company.
Management is not aware of any known trends, events, uncertainties or current
recommendations by the regulatory authorities which will have a material effect
on the Corporation's liquidity, capital resources or operations.
YEAR 2000
Certain of the Corporation's internal computer systems are not Year 2000 ready
(i.e., such systems use only two digits to represent the year in date data
fields and, consequently, may not accurately distinguish between the 20th and
21st centuries or may not function properly at the turn of the century).
Failure to correct these programs could cause a system failure or miscalculation
and disrupt operations or inhibit the corporation's ability to conduct normal
business activities. The Corporation has been taking actions intended to either
correct such systems or replace them with Year 2000 ready systems. The
Corporation expects to implement successfully the systems and programming
changes necessary to address Year 2000 issues and does not believe that the cost
of such actions will have a material effect on the Corporation's results of
operations or financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table presents, as of December 31, 1997, interest-rate sensitive
assets and liabilities categorized by expected maturity and weighted average
rate. Expected maturites are contractual maturities adjusted for amortization
of principal. For adjustable-rate instruments, contractual maturity is deemed
to be the earliest possible interest rate adjustment date:
<PAGE>
<TABLE>
<CAPTION>
0-1 1-2 2-3 3-4 4-5 Over 5
yr yrs yrs yrs yrs years Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Variable rate loans 18,751 18,751
Average interest rate 9.92% 9.92%
Fixed rate loans 96,686 26,658 20,453 3,701 2,118 3,225 152,841
Average interest rate 10.31% 10.78% 10.45% 11.59% 11.25% 9.55% 10.44%
Taxable securities 11,460 14,467 13,260 8,550 6,625 2,904 57,266
Average interest rate 6.31% 6.14% 6.44% 6.46% 6.49% 6.10% 6.33%
Non-taxable securities 2,579 4,081 2,818 1,562 1,603 1,306 13,949
Average interest rate 6.53% 6.51% 6.65% 6.66% 6.78% 6.66% 6.60%
Federal funds sold 6,180 6,180
Average interest rate 5.35% 5.35%
----------------------------------------------------------------------
Total 135,656 45,206 36,531 13,813 10,346 7,435 248,987
9.62% 8.91% 8.70% 7.86% 7.51% 7.70% 9.11%
Interest-bearing
liabilities:
Demand Deposits 19,573 19,573
Average interest rate 1.92% 1.92%
Savings 28,564 28,564
Average interest rate 2.54% 2.54%
Time 132,665 11,521 1,345 389 432 146,352
Average interest rate 5.53% 6.03% 6.49% 6.46% 6.24% 5.58%
Other borrowed funds 170 181 193 205 218 1,229 2,196
Average interest rate 6.13% 6.13% 6.13% 6.13% 6.14% 6.25% 6.20%
---------------------------------------------------------------------
Total 180,972 11,702 1,538 594 650 1,229 196,685
4.67% 6.03% 6.44% 6.35% 6.21% 6.25% 4.78%
</TABLE>
Simulation modeling is used to evaluate both the level of interest rate
sensitivity as well as potential balance sheet strategies. Important
elements in this modeling process include the mix of floating rate versus
fixed rate assets and liabilities; the repricing/maturing volumes and rates
of the existing balance sheet; and assumptions regarding future volumes,
maturity patterns and pricing under varying interest rate scenarios.
<PAGE>
Further discussion concerning market risk is included in Management's
Discussion and Analysis under the heading "Liquidity and Interest Rate
Sensitivity Management."
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements for First Pulaski National Corporation and
its subsidiary, First National Bank of Pulaski, appear on the following
pages.
<PAGE>
<TABLE>
<CAPTION>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<S> <C> <C>
ASSETS
1997 1996
Cash and due from banks $ 10,111,703 $ 8,411,810
Federal funds sold 6,180,468 8,491,655
Total cash and cash equivalents 16,292,171 16,903,465
Securities available for sale 51,012,300 43,757,815
Securities held to maturity (fair value - $20,353,971 and $19,781,371) 20,203,342 19,689,343
Loans 171,592,253 160,882,496
Unearned income (2,854,697) (2,979,171)
Loans net of unearned income 168,737,556 157,903,325
Allowance for loan losses (2,604,080) (2,380,700)
Total net loans 166,133,476 155,522,625
Bank premises and equipment 7,276,129 7,151,876
Accrued interest receivable 3,411,958 3,401,339
Prepayments and other assets 2,170,885 2,147,073
Other real estate owned 115,450 218,901
TOTAL ASSETS $ 266,615,711 $ 248,792,437
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing $ 32,676,530 $ 30,479,710
Interest bearing 194,488,964 182,206,625
Total deposits 227,165,494 212,686,335
Other borrowed funds 2,196,300 1,846,814
Accrued taxes 117,286 113,041
Accrued interest on deposits 2,009,066 1,684,906
Accrued profit sharing expense 132,582 158,699
Other liabilities 415,637 415,240
TOTAL LIABILITIES 232,036,365 216,905,035
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized - 10,000,000 shares;
1,550,994 and 1,532,220 shares issued and outstanding 1,550,994 1,532,220
Capital surplus 6,413,294 5,895,046
Retained earnings 26,285,955 24,278,237
Net unrealized gains on securities available for sale, net of tax 329,103 181,899
TOTAL STOCKHOLDERS' EQUITY 34,579,346 31,887,402
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 266,615,711 $ 248,792,437
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 17,562,095 $ 17,119,358 $ 15,652,718
Securities:
Taxable 3,214,076 2,991,819 2,809,325
Non-taxable 598,757 627,271 496,781
Interest bearing deposits with banks - 1,823 919
Federal funds sold 729,412 505,161 816,498
Total Interest Income 22,104,340 21,245,432 19,776,241
INTEREST EXPENSE:
Interest on deposits:
Transaction accounts 370,503 394,080 560,093
Money market deposit accounts 247,501 269,117 313,385
Other savings deposits 469,337 462,830 462,729
Time certificates of deposit of $100,000 or more 2,756,024 2,391,284 2,275,145
All other time deposits 5,318,928 5,133,154 4,754,481
Borrowed funds 133,263 110,777 68,756
Total Interest Expense 9,295,556 8,761,242 8,434,589
NET INTEREST INCOME 12,808,784 12,484,190 11,341,652
Provision for loan losses 507,500 783,000 258,649
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,301,284 11,701,190 11,083,003
OTHER INCOME:
Service charges on deposit accounts 1,619,134 1,517,781 1,367,109
Commissions and fees 264,581 305,213 357,945
Other service charges and fees 114,808 109,005 153,819
Security gains (losses), net (30,816) (95,491) (56,198)
Gain on sale of other assets 18,419 3,166 32,067
Dividends 248,136 170,287 177,658
Mortgage banking fees 119,206 115,140 48,343
Total Other Income 2,353,468 2,125,101 2,080,743
OTHER EXPENSES:
Salaries and employee benefits 4,478,073 4,270,016 3,877,850
Occupancy expense, net 857,078 855,318 880,265
Furniture and equipment expense 741,509 757,748 699,622
Advertising and public relations 502,849 413,486 521,528
Other operating expenses 1,539,731 1,371,289 1,558,725
Total Other Expenses 8,119,240 7,667,857 7,537,990
Income before income taxes 6,535,512 6,158,434 5,625,756
Applicable income taxes 2,215,867 2,095,836 1,920,362
NET INCOME $ 4,319,645 $ 4,062,598 $ 3,705,394
Earnings per common share:
Basic $ 2.81 $ 2.67 $ 2.42
Diluted $ 2.80 $ 2.67 $ 2.42
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,319,645 $ 4,062,598 $ 3,705,394
Adjustments to reconcile net income to net cash
provided by operating activities-
Provision for loan losses 507,500 783,000 258,649
Depreciation 754,002 745,720 742,772
Amortization and accretion of investment securities, net 165,380 225,283 371,685
Deferred income tax expense (benefit) (62,304) (77,511) 62,388
Gain on sale of other assets (18,419) (3,166) (32,067)
Security gains, net 30,816 95,491 56,198
Loans originated for sale (4,987,503) (4,911,920) (2,593,755)
Proceeds from sale of loans 4,906,896 4,743,420 2,685,755
(Increase) in interest receivable (10,619) (17,541) (1,035,868)
(Increase) in prepayments and other assets (32,707) (147,728) (100,580)
Increase (decrease) in accrued interest on deposits 324,160 (107,654) 822,903
Increase (decrease) in accrued taxes (229) 1,328 58,060
Increase (decrease) in other liabilities (25,839) (19,392) 398,143
Cash Provided by Operating Activities, net 5,870,779 5,371,928 5,399,677
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in interest bearing deposits with banks - 100,000 (100,000)
Purchases of securities available for sale (26,282,664) (19,598,894) (18,983,237)
Proceeds from sales of securities available for sale 8,054,063 11,967,501 11,100,506
Proceeds from maturities of securities available for sale 11,108,064 5,021,968 14,510,359
Purchases of securities held to maturity (7,176,105) (8,326,881) (6,851,464)
Proceeds from maturities of securities held to maturity 6,505,000 5,915,125 5,064,636
Net increase in loans (11,102,349) (5,322,675) (16,945,597)
Capital expenditures (878,255) (657,661) (946,806)
Proceeds from sale of other real estate 186,432 14,000 115,392
Cash Used by Investing Activities, net (19,585,814) (10,887,517) (13,036,211)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 500,000 660,000 240,000
Borrowings repaid (150,513) (125,974) (87,797)
Net increase in deposits 14,479,159 5,276,796 17,740,414
Cash dividends paid (2,311,927) (2,130,927) (1,994,868)
Proceeds from issuance of common stock 587,022 501,476 428,928
Common stock repurchased - (761,484) -
Cash Provided by Financing Activities, net 13,103,741 3,419,887 16,326,677
INCREASE (DECREASE) IN CASH, net (611,294) (2,095,702) 8,690,143
CASH AND CASH EQUIVALENTS, beginning of year 16,903,465 18,999,167 10,309,024
CASH AND CASH EQUIVALENTS, end of year $ 16,292,171 $ 16,903,465 $ 18,999,167
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
Unrealized
Gains/(Losses)
Common Stock Capital Retained on Securities,
Shares Amount Surplus Earnings Net of Taxes Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 304,910 $ 304,910 $ 5,720,392 $21,869,084 $ (845,360) $27,049,026
Net income - - - 3,705,394 - 3,705,394
Cash dividends paid $1.30
per share - - - (1,994,868) - (1,994,868)
Common stock issued 3,351 3,351 425,577 - - 428,928
Change in unrealized gains
(losses) on securities,
net of tax - - - - 1,143,315 1,143,315
--------- --------- --------- ---------- --------- ----------
Balance at December 31, 1995 308,261 308,261 6,145,969 23,579,610 297,955 30,331,795
Five-for one stock split 1,233,044 1,233,044 - (1,233,044) - -
Net income - - - 4,062,598 - 4,062,598
Cash dividends paid $1.40
per share - - - (2,130,927) - (2,130,927)
Common stock issued 18,505 18,505 482,971 - - 501,476
Common stock repurchased (27,590) (27,590) (733,894) - - (761,484)
Change in unrealized gains (losses)
on securities,
net of tax - - - - (116,056) (116,056)
--------- --------- --------- ---------- ------- ----------
Balance at December 31, 1996 1,532,220 1,532,220 5,895,046 24,278,237 181,899 31,887,402
Net income - - - 4,319,645 - 4,319,645
Cash dividends paid $1.50
per share - - - (2,311,927) - (2,311,927)
Common stock issued 18,774 18,774 518,248 - - 537,022
Change in unrealized gains
(losses) on securities,
net of tax - - - - 147,204 147,204
--------- --------- --------- ---------- ------- ----------
Balance at December 31, 1997 1,550,994 $ 1,550,994 $ 6,413,294 $26,285,955 $ 329,103 $34,579,346
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
First Pulaski National Corporation (the "Corporation") was organized under
the laws of Tennessee in 1981 and is registered under the Bank Holding
Company Act of 1956, as amended. The Corporation through its bank
subsidiary provides domestic financial services in Giles and Lincoln County,
Tennessee, to customers who are predominantly small and middle-market
businesses and middle-income individuals. The Corporation's finance company
subsidiary, organized in November 1997, provides consumer financing services
in Giles County, Tennessee. The accounting and reporting policies of the
Corporation and its subsidiaries conform to generally accepted accounting
principles and, as to its bank subsidiary, to general practices within the
banking industry. A description of the significant accounting policies is
presented below.
Note A - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of First Pulaski
National Corporation and its wholly-owned subsidiaries, First National Bank
of Pulaski and Heritage Financial of the Tennessee Valley, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Securities
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Under this statement, the Corporation's securities
are classified as either held to maturity or available for sale.
Held to maturity securities are securities for which management has the
ability and intent to hold on a long-term basis or until maturity. These
securities are carried at amortized cost, adjusted for amortization of
premiums and accretion of discounts.
Securities available for sale represent those securities intended to be held
for an indefinite period of time, including securities that management
intends to use as part of its asset/liability strategy, or that may be sold
in response to changes in interest rates, changes in prepayment risk, the
need to increase regulatory capital or other similar factors. Securities
available for sale are recorded at fair value with unrealized gains and
losses net of any tax effect, added or deducted directly from shareholders'
equity.
Realized and unrealized gains and losses are based on the specific
identification method.
Loans and Allowance for Loan Losses
Loans which the Corporation has the positive intent and ability to hold to
maturity are stated at the principal amount outstanding, net of unearned
income. Loans include loans held for sale at December 31, 1997 and 1996,
totaling $341,105 and $260,500, respectively. These loans are recorded at
cost, which approximates market value.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the nature
of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. Allowances
for impaired loans are generally determined based on collateral values or
the present value of estimated cash flows. Because of uncertainties
associated with the regional economic conditions, collateral values, and
future cash flows on impaired loans, it is reasonably possible that
management's estimate of credit losses inherent in the loan portfolio and
the related allowance may change materially in the near term. The allowance
is increased by a provision for loan losses, which is charged to expense and
reduced by charge-offs, net of recoveries.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note A - Summary of Significant Accounting Policies - (Continued)
Loans and Allowance for Loan Losses - (Continued)
The Corporation adopted Statement of Financial Accounting Standards ("SFAS"
No. 114), "Accounting by Creditors for Impairment of a Loan", as amended by
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure", on January 1, 1995. These standards address
the accounting for certain loans when it is probable that all amounts due
pursuant to the contractual terms of the loan will not be collected.
Individually identified impaired loans are measured based on the present
value of payments expected to be received, using the historical effective
loan rate as the discount rate. Loans that are to be foreclosed or that are
solely dependent on the collateral for repayment may alternatively be
measured based on the fair value of the collateral for such loans.
Measurement may also be based on observable market prices. If the recorded
investment in the loan exceeds the measure of fair value, a valuation
allowance is established as a component of the allowance for loan losses.
The adoption of these statements resulted in no additional allowance for
loan losses at January 1, 1995.
Loans, including impaired loans, are generally placed on nonaccrual when
principal or interest is delinquent for 90 days or more or when doubt as to
timely collection of principal or interest exists unless such loans are well
secured and in the process of collection. The decision to place a loan on
nonaccrual status is based on an evaluation of the borrower's financial
condition, collateral, liquidation value, and other factors that affect the
borrower's ability to pay. Generally, at the time a loan is placed on a
nonaccrual status, all interest accrued and uncollected on the loan in the
current fiscal year is reversed from income, and all interest accrued and
uncollected from the prior year is charged off against the allowance for
loan losses. Thereafter, interest on nonaccrual loans is recognized in
interest income only to the extent that cash is received and future
collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed on the straight-
line and various accelerated methods at rates calculated to amortize the
cost of assets over their estimated useful lives. Cost of major additions
and improvements are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred. Estimated useful lives are twenty to
thirty nine years for premises and five to seven years for equipment.
Other Real Estate Owned
Other real estate owned consists of properties acquired through foreclosures
and premises not used for business operations. These properties are valued
at the lower of cost or estimated net realizable value. Cost includes loan
principal, accrued interest, and foreclosure expense. Estimated net
realizable value is the estimated selling price in an orderly disposition
reduced by estimated selling costs and future carrying costs. The excess of
cost over net realizable value at the time of foreclosure is charged to the
allowance for loan losses. The estimated net realizable fair value is
reviewed periodically and any write-downs are charged against current
earnings as market adjustments.
Advertising Costs
The Corporation expenses the costs of advertising when these costs are
incurred.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note A - Summary of Significant Accounting Policies - (Continued)
Income Taxes
The provision for income taxes is based on income reported for consolidated
financial statement purposes and includes deferred taxes resulting from the
recognition of certain revenues and expenses in different periods for tax
reporting purposes.
The current income tax provision approximates taxes to be paid or refunded
for the applicable period.
Balance sheet amounts of deferred taxes are recognized on the temporary
differences between the basis of assets and liabilities as measured by tax
laws and their basis as reported in the financial statements. Deferred tax
expense or benefit is then recognized for the change in deferred tax
liabilities or assets between periods.
Recognition of deferred tax assets is based on management's belief that it
is more likely than not that the tax benefit associated with certain
temporary differences will be realized.
First Pulaski National Corporation files a consolidated income tax return.
However, income taxes are computed by the subsidiaries on a separate basis,
and taxes currently payable are remitted to First Pulaski National
Corporation.
Statements of Cash Flows
Cash and cash equivalents as presented in the consolidated statements of
cash flows includes cash and due from banks and federal funds sold. Cash
flows from operating activities reflect interest paid of $8,971,397,
$8,868,896 and $7,611,656 and income taxes paid of $2,273,590, $2,183,486
and $1,899,000 for the years ended December 31, 1997, 1996, and 1995,
respectively.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share" (EPS), effective for fiscal periods ending after
December 15, 1997. This standard requires presentation of both basic and
diluted EPS on the face of the earnings statement. Primary EPS has been
replaced with Basic EPS which is calculated by dividing net income by the
weighted average number of shares of common stock outstanding during the
year. No dilution for any potentially diluted securities is included.
Fully diluted EPS is now called Diluted EPS and assumes the conversion of
all options. The Corporation adopted SFAS No. 128 in its December 31, 1997
financial statements and has presented Diluted EPS for the years 1996 and
1995 which were previously not required as the dilutive effect of options
was less than 3%.
All references to per share amounts for all years presented have been
adjusted for the five-for-one stock split on July 1, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications
Certain 1996 and 1995 financial information has been reclassified to conform
its presentation with the 1997 financial statements. None of these
reclassifications had any effect on net income or earnings per share.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note A - Summary of Significant Accounting Policies - (Continued)
Transfer and Servicing of Financial Assets and Extinguishments of
Liabilities
Effective January 1, 1997, the Corporation Adopted SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". The statement, which supersedes SFAS No. 122, provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers of assets that
are secured borrowings. The adoption of SFAS 125 did not have a material
effect on the Corporation's financial position or results of operations.
Effect of New Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure". The statement establishes standards for
disclosing information about an entity's capital structure and applies to
all entities. This statement continues the previous requirements to
disclose certain information about an entity's capital structure found in
Accounting Principles Board ("APB") Opinions No. 10, "Omnibus Opinion -
1966", and No. 15, "Earnings Per Share", and SFAS No. 47, "Disclosure of
Long- Term Obligations", for entities that were subject to those standards.
This statement is effective for financial statements for periods ending
after December 15, 1997. This statement contains no change in disclosure
requirements for entities that were previously subject to the requirements
of APB Opinions Nos. 10 and 15 and SFAS No. 47. The adoption of the
provisions of this statement is not expected to have a material impact on
the Corporation.
In July 1997, the FASB issued SFAS No. 130, "Comprehensive Income". The
statement establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general - purpose financial statements. It
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is presented with the same prominence as other financial
statements. This statement requires that companies (i) classify items of
other comprehensive income by their nature in a financial statements and
(ii) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid in capital in the
equity section of the statement of financial position. This statement is
effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comprehensive purposes is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and related Information". The statement establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise". This statement
becomes effective for the Corporation's fiscal year ending December 31,
1998, and requires that comparative information from earlier years be
restated to conform to its requirements. The adoption of the provisions of
this statement is not expected to have a material impact on the Corporation.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note B - Securities
The following is a summary of the amortized cost and estimated fair value of
securities at December 31:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
<S> <C> <C> <C> <C>
1997 Cost Gains Losses Value
Available for Sale
U.S. Treasury securities $18,072,701 $ 243,314 $ 5,356 $18,310,659
U.S. Government agencies 32,437,169 264,472 - 32,701,641
50,509,870 507,786 5,356 51,012,300
Held to Maturity
Obligations of states and
political subdivisions 13,948,459 118,588 20 14,067,027
Other debt securities 6,254,883 32,128 67 6,286,944
20,203,342 150,716 87 20,353,971
TOTAL $70,713,212 $ 658,502 $ 5,443 $71,366,271
1996
Available for Sale
U.S. Treasury securities $20,239,156 $ 134,174 $ - $20,373,330
U.S. Government agencies 23,239,267 146,118 900 23,384,485
43,478,423 280,292 900 43,757,815
Held to Maturity
Obligations of states and
political subdivisions 14,403,708 74,326 4,338 14,473,696
Other debt securities 5,285,635 22,618 578 5,307,675
19,689,343 96,944 4,916 19,781,371
TOTAL $63,167,766 $ 377,236 $ 5,816 $63,539,186
</TABLE>
The following is a summary of the amortized cost and estimated fair value of
debt securities by contractual maturity at December 31, 1997
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
Due in one year or less $12,625,011 $12,659,194 $ 4,889,119 $ 4,908,485
Due after one year through five years 36,884,859 37,337,854 14,194,030 14,316,092
Due after five years through ten years 1,000,000 1,015,252 1,120,193 1,129,394
TOTAL $50,509,870 $51,012,300 $20,203,342 $20,353,971
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note B - Securities (Continued)
Net gains realized from securities transactions for 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
Book Gross Realized Net
<S> <C> <C> <C> <C> <C>
1997 Proceeds Value Gains Losses Realized
Securities sold $ 8,054,063 $ 8,084,879 $ - $ 30,816 $ (30,816)
Securities matured or redeemed 17,613,064 17,613,064 - - -
$ 25,667,127 $25,697,943 $ - $ 30,816 $ (30,816)
1996
Securities sold $ 11,967,501 $12,068,117 $ - $ 100,616 $ (100,616)
Securities matured or redeemed 10,931,968 10,931,968 - - -
Securities recovered* 5,125 - 5,125 - 5,125
$ 22,904,594 $23,000,085 $ 5,125 $ 100,616 $ (95,491)
1995
Securities sold $ 11,100,506 $11,166,340 $ - $ 65,834 $ (65,834)
Securities matured or redeemed 19,569,659 19,565,359 4,300 - 4,300
Securities recovered* 5,336 - 5,336 - 5,336
$ 30,675,501 $30,731,699 $ 9,636 $ 65,834 $ (56,198)
*Previously written off
</TABLE>
Income tax expense (benefit) attributable to securities transactions was
$(12,326), $(38,196) and $(22,479) for 1997, 1996 and 1995, respectively.
Securities with a book value of $21,533,090 and $27,708,698 at December 31,
1997 and 1996, respectively, were pledged to secure public monies and for
other purposes as required or permitted by law.
There were no investments in obligations of state and political subdivisions
that were payable from and secured by the same source of revenue or taxing
authority that exceeded 10% of consolidated shareholders' equity at December
31, 1997 or 1996.
Note C - Loans and Allowance for Loan Losses
Although the Corporation has a loan portfolio diversified by type of risk,
the ability of its customers to honor their contracts is to some extent
dependent upon their regional economic condition. The Corporation grants
commercial and consumer loans primarily to customers in Giles and Lincoln
County, Tennessee. In order to mitigate the impact of credit risk,
management strives to identify loans experiencing difficulty early enough to
correct the problems and to maintain an allowance for loan losses to cover
inherent losses in the loan portfolio. At December 31, 1997, the
Corporation had no concentrations of 10 percent or more of total loans in
any single industry.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note C - Loans and Allowance for Loan Losses (Continued)
The following is a summary of loans at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Construction and land development $ 3,341,399 $ 3,547,794
Commercial and industrial 23,121,605 20,219,218
Agricultural 11,461,326 11,799,313
Real estate loans secured by:
Farmland 19,141,458 17,313,993
Residential property 40,177,271 38,708,335
Nonresidential, nonfarm 31,033,314 27,254,908
Loans to individuals secured by:
Automobiles 20,686,443 20,129,271
Retail, consumer and personal expenditures 19,203,199 19,966,371
Other loans 3,426,238 1,943,293
171,592,253 160,882,496
Unearned income (2,854,697) (2,979,171)
TOTAL $168,737,556 $157,903,325
</TABLE>
The following is a summary of loan maturities carrying fixed and variable
interest rates as of December 31, 1997
<TABLE>
<CAPTION>
Within Over
One Year One Year Total
<S> <C> <C> <C>
Fixed rate loans $ 80,923,522 $ 72,101,231 $153,024,753
Variable rate loans 17,146,991 1,420,509 18,567,500
TOTAL $ 98,070,513 $ 73,521,740 $171,592,253
</TABLE>
At December 31, 1997, 1996 and 1995, impaired, nonaccrual and restructured
loans totaled $701,867, $449,531 and $208,063, respectively. The amount of
interest income actually recognized on these loans during 1997, 1996 and
1995, was $7,971, $5,625 and $937, respectively. The additional amount of
interest income that would have been recorded during 1997, 1996 and 1995, if
the above amounts had been current in accordance with their original terms
was $44,427, $26,139 and $16,962, respectively.
As of December 31, 1997, the Corporation's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 are
as follows:
<TABLE>
<CAPTION>
Recorded Valuation
Investment Allowance
<S> <C> <C> <C> <C>
Impaired Loans-
Valuation allowance required $ 252,881 $ 153,218
No valuation allowance required 448,986 -
Total Impaired Loans $ 701,867 $ 153,218
</TABLE>
The valuation allowance is included in the allowance for loan losses on the
balance sheet.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note C - Loans and Allowance for Loan Losses (Continued)
The average recorded investment in impaired loans for the year 1997 was
$535,018. At December 31, 1997, there were no outstanding commitments to
advance funds to customers whose loans were not performing.
Loans past due 90 days or more and accruing interest were $176,043, $190,761
and $210,137 at December 31, 1997, 1996 and 1995, respectively.
Certain related parties (principally directors, including their families and
companies in which they are principal owners) are loan customers of the
Corporation's bank subsidiary. Related party loans are made on substantially
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with unrelated persons and do not
involve more than a normal risk of collectibility. The following table
summarizes the changes in related party loans for 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Balance at beginning of year $ 9,400,395 $ 8,506,931
Additions 6,443,059 4,844,908
Repayments (6,521,440) (3,951,444)
Balance at end of year $ 9,322,014 $ 9,400,395
</TABLE>
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C>
Balance at beginning of year $ 2,380,700 $ 2,058,456 $ 2,023,681
Less-Charge-offs:
Real estate -
Residential 31,028 - 4,287
Commercial 163,504 53,236 63,659
Agricultural 16,664 50,089 22,276
Individuals 496,788 637,280 342,459
707,984 740,605 432,681
Add-Recoveries:
Real estate -
Residential 23,020 1,810 10,720
Nonresidential, nonfarm - 19,336 1,657
Commercial 50,717 12,941 73,721
Agricultural 2,975 2,683 16,252
Individuals 347,152 243,079 106,457
423,864 279,849 208,807
Net Charge-offs 284,120 460,756 223,874
Add-Provision charged to operations 507,500 783,000 258,649
Balance at end of year $ 2,604,080 $ 2,380,700 $ 2,058,456
Ratio of net charge-offs to average
loans outstanding during the year 0.17% 0.29% 0.16%
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note D - Bank Premises and Equipment
The following is a summary of bank premises and equipment at December 31:
<TABLE>
<CAPTION>
Accumulated
Depreciation & Carrying
1997 Cost Amortization Amount
<S> <C> <C> <C>
Land $ 573,180 $ - $ 573,180
Buildings 7,992,786 2,995,308 4,997,478
Furniture and equipment 4,937,917 3,568,743 1,369,174
Leasehold improvements 408,299 72,002 336,297
TOTAL $ 13,912,182 $ 6,636,053 $ 7,276,129
1996
Land $ 573,180 $ - $ 573,180
Buildings 7,521,898 2,721,112 4,800,786
Furniture and equipment 4,613,105 3,178,803 1,434,302
Leasehold improvements 402,311 58,703 343,608
TOTAL $ 13,110,494 $ 5,958,618 $ 7,151,876
</TABLE>
The following is a summary of non-cancelable minimum operating lease
commitments for real property, excluding cancelable short-term commitments,
principally for equipment.
<TABLE>
<CAPTION>
Annual Annual
Year Commitments Year Commitments
<S> <C> <S> <C>
1998 $49,722 2003 - 2007 $30,000
1999 49,722 2008 - 2012 30,000
2000 49,532 2013 - 2014 8,500
2001 20,422
2002 6,000
</TABLE>
Rents charged to operations under operating lease agreements for the years
1997, 1996 and 1995 were $55,014, $53,704 and $48,122, respectively.
Note E - Prepayments and Other Assets
The following is a summary of prepayments and other assets at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Prepaid expenses $ 126,970 $ 136,218
Federal Home Loan Bank stock 822,300 765,400
Federal Reserve Bank stock 112,500 112,500
Investment in single premium whole life insurance contract 545,725 524,669
Investment in insurance limited partnership and corporation 81,850 81,850
Deferred income tax benefits 476,100 489,629
Other 5,440 36,807
TOTAL $ 2,170,885 $ 2,147,073
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note F - Deposits
The following is a summary of deposits at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Noninterest bearing:
Demand $ 32,676,530 $ 30,479,710
Interest bearing:
Demand 19,572,520 19,416,565
Savings 28,563,877 27,146,886
Other time 98,800,222 95,048,254
Certificates of deposit $100,000 and over 47,552,345 40,594,920
TOTAL $ 227,165,494 $ 212,686,335
</TABLE>
Note G - Other Borrowed Funds
The following is a summary of other borrowed funds at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Notes payable to Federal Home Loan Bank:
Dated 11-17-93, matures 12-01-08,
payable $1,682 per month including
interest at 5.95% $ 162,675 $ 172,853
Dated 6-22-94, matures 7-01-04, payable
$11,077 per month including interest
at 5.95% 722,577 809,674
Dated 10-16-95, matures 11-01-05,
payable $2,750 per month including
interest at 6.70% 202,294 221,048
Dated 2-2-96, matures 3-01-16,
payable $2,237 per month including
interest at 6.50% 286,433 294,374
Dated 2-12-96, matures 3-01-11,
payable $3,087 per month including
interest at 6.25% 333,184 348,865
Dated 4-16-97, matures 5-1-2012,
payable $4,607 per month including
interest at 7.40% 489,137 -
TOTAL $ 2,196,300 $ 1,846,814
</TABLE>
The notes are secured by a pledge of Federal Home Loan Bank stock with a par
value of $822,300 and a blanket pledge of $3,294,450 first mortgage loans
against single family, 1-4 unit residential properties
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note G - Other Borrowed Funds (Continued)
Notes payable are scheduled to mature December 31:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 168,180
1999 179,030
2000 190,585
2001 202,890
2002 215,995
Thereafter 1,239,620
$ 2,196,300
</TABLE>
Note H - Common Stock and Related Matters
The authorized number of common shares was increased from 1,800,000 to
10,000,000 shares as of April 18, 1996.
In March 1996, the Board of Directors authorized a five-for-one stock split
of common shares effected in the form of a dividend as of July 1, 1996. The
par value of the new shares issued totaled $1,233,044, and this amount was
transferred from retained earnings to the common stock account. Common stock
options outstanding and exercised have been increased five-for-one and the
exercise price reduced by one-fifth. All references in the consolidated
financial statements with regard to dividends and earnings per share have
been restated to reflect the five-for-one stock split.
Note I - Income Taxes
The components of income taxes for the three years ended December 31 are as
follows
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal
Current $ 1,913,280 $ 1,830,769 $ 1,553,931
Deferred tax (benefit) (62,304) (77,511) 62,388
1,850,976 1,753,258 1,616,319
State 364,891 342,578 304,043
Provision for Income Taxes $ 2,215,867 $ 2,095,836 $ 1,920,362
</TABLE>
Income taxes varied from the amount computed at the statutory federal income
tax rate for the years ended December 31 as follows
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal taxes at statutory rate $ 2,222,074 $ 2,093,868 $ 1,912,757
Increase (decrease) resulting from
tax effect of:
Tax exempt interest on obligations
of states and political subdivisions (202,983) (219,420) (168,405)
State income taxes, net of federal
income tax benefit 240,828 226,101 200,668
Dividend received deduction (43,863) (27,523) (27,171)
Excess capital loss - - (12,354)
Others, net (189) 22,810 14,867
Provision for Income Taxes $ 2,215,867 $ 2,095,836 $ 1,920,362
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note I - Income Taxes (Continued)
Significant components of the Corporation's deferred tax assets and
liabilities on December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 699,198 $ 623,249
Other real estate 3,831 4,867
Deferred compensation 18,633 18,633
Gross Deferred Tax Assets 721,662 646,749
Deferred tax liabilities:
Investment securities 39,152 45,890
Securities available for sale 170,826 94,993
Other securities 35,584 16,237
Gross Deferred Tax Liabilities 245,562 157,120
Net Deferred Tax Assets $ 476,100 $ 489,629
</TABLE>
Note J - Other Operating Expenses
The following table summarizes the components of other operating expenses
for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Directors' fees $ 185,270 $ 153,275 $ 159,030
Stationery and supplies 189,936 184,158 184,332
FDIC insurance 26,935 2,000 225,087
Other insurance 45,470 50,686 57,465
Postage 132,474 126,971 122,308
Telephone 112,618 96,901 97,758
Other 847,028 757,298 712,745
$ 1,539,731 $ 1,371,289 $ 1,558,725
</TABLE>
Note K - Profit Sharing Plan
The Corporation's bank subsidiary has a non-contributory trusteed profit
sharing retirement plan covering all officers and employees who have
completed a year of service and are over the age of 21. The bank
subsidiary's total payroll in 1997 was $3,452,590. Contributions for the
current year were calculated using the base salary amount of $3,077,829.
The bank subsidiary's contribution is based, in general, on 10% of earnings
before taxes, not to exceed 15% of the total salary of all the participants.
The plan expense was $461,674, $455,234 and $404,188 in 1997, 1996 and
1995, respectively.
Note L - Other Financial Instruments, Commitments and Contingencies
The Corporation's bank subsidiary 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, standby letters of credit and residential
mortgage loans sold with certain repurchase requirements. Those instruments
involve, to varying degrees, elements of credit risk in excess of the amount
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note L - Other Financial Instruments, Commitments and Contingencies
(Continued)
recognized in the balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the bank subsidiary has in
those particular financial instruments.
The following summarizes the bank subsidiary's involvement in financial
instruments with off-balance-sheet risk as of December 31:
<TABLE>
<CAPTION>
Contract or Notional
Amount
1997 1996
<S> <C> <C>
Commitments to extend credit $ 14,811,580 $13,334,204
Standby letters of credit 630,374 873,937
Mortgage loans sold with repurchase
requirements outstanding 1,737,347 1,604,758
</TABLE>
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 many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The bank subsidiary
evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained upon extension of credit is based on
management's credit evaluation. Collateral held varies but may include
certificates of deposits, accounts receivable, inventory, property, plant
and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the bank
subsidiary to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and
similar transactions. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers.
The bank subsidiary may be required to repurchase residential mortgage loans
sold if a default occurs with respect to the payment of any of the first
four installments of principal and interest after a loan is sold and the
default continues for a period of 90 days. These loans are considered in
the computation of the allowance for loan losses to cover future defaults.
In the normal course of business, the Corporation and its subsidiaries are
involved in various legal proceedings. Management has concluded, based upon
advice of legal counsel, that the result of these proceedings will not have
a material effect on the consolidated financial statements of the
Corporation and its subsidiaries.
Certain of the Corporation's internal computer systems are not Year 2000
ready (i.e., such systems use only two digits to represent the year in date
data fields and, consequently, may not accurately distinguish between the
20th and 21st centuries or may not function properly at the turn of the
century). Failure to correct these programs could cause a system failure or
miscalculation and disrupt operations or inhibit the corporation's ability
to conduct normal business activities. The Corporation has been taking
actions intended to either correct such systems or replace them with Year
2000 ready systems. The Corporation expects to implement successfully the
systems and programming changes necessary to address Year 2000 issues and
does not believe that the cost of such actions will have a material effect
on the Corporation's results of operations or financial condition.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note M - First Pulaski National Corporation (Parent Company Only) Financial
Information
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
<S> <C> <C>
ASSETS 1997 1996
Cash $ 2,623,627 $ 2,186,242
Loans to subsidiary 150,000 -
Investment in subsidiaries, at equity 31,710,317 29,599,577
Other assets 95,402 101,583
TOTAL ASSETS $ 34,579,346 $ 31,887,402
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' Equity
Common stock, $1 par value; authorized - 10,000,000
shares; 1,550,994 and 1,532,220 shares issued
and outstanding $ 1,550,994 $ 1,532,220
Capital surplus 6,413,294 5,895,046
Retained earnings 26,285,955 24,278,237
Net unrealized gains on securities available for sale, net of tax 329,103 181,899
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,579,346 $ 31,887,402
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $ 2,311,927 $ 2,130,927 $ 1,994,868
Other dividends 184,297 115,642 114,166
2,496,224 2,246,569 2,109,034
EXPENSES
Education 22,855 27,354 22,012
Directors' fees 47,400 33,100 52,200
Stockholder's meeting 16,528 17,477 15,277
Other 21,273 14,799 21,986
108,056 92,730 111,475
Income before applicable income taxes and equity in
undistributed earnings of subsidiaries 2,388,168 2,153,839 1,997,559
Reduction in consolidated income taxes arising from
parent company tax operating loss 17,941 19,733 25,995
Income before equity in undistributed earnings of
subsidiaries 2,406,109 2,173,572 2,023,554
Equity in undistributed earnings of subsidiaries 1,913,536 1,889,026 1,681,840
NET INCOME $ 4,319,645 $ 4,062,598 $ 3,705,394
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note M - First Pulaski National Corporation (Parent Company Only) Financial
Information (Continued)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,319,645 $ 4,062,598 $ 3,705,394
Adjustments to reconcile net income to net cash provided
by operating activities -
Equity in undistributed earnings of subsidiary (1,913,536) (1,889,026) (1,681,840)
(Increase) decrease in other assets 6,181 6,262 (4,782)
Cash Provided by Operating Activities 2,412,290 2,179,834 2,018,772
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in subsidiary (50,000) - -
Cash Used by Investing Activities (50,000) - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in loans (150,000)
Cash dividends paid (2,311,927) (2,130,927) (1,994,868)
Proceeds from issuance of common stock 537,022 501,476 428,928
Common stock repurchased - (761,484) -
Cash Used by Financing Activities (1,924,905) (2,390,935) (1,565,940)
INCREASE (DECREASE) IN CASH, net 437,385 (211,101) 452,832
CASH, beginning of year 2,186,242 2,397,343 1,944,511
CASH, end of year $ 2,623,627 $ 2,186,242 $ 2,397,343
</TABLE>
Note N - Regulatory Requirements and Restrictions
The Corporation's bank subsidiary is required to maintain average reserve
balances with the Federal Reserve Bank. The average amount of those reserve
requirements was approximately $1,575,000 and $1,348,000 for the years ended
December 31, 1997 and 1996, respectively.
The primary source of funds for payment of dividends by the Corporation to
its shareholders is dividends received from its bank subsidiary. The amount of
dividends that a bank subsidiary may pay in any year is subject to certain
regulatory restrictions. The amount available for payment of dividends without
prior regulatory approval at December 31, 1997, to the Parent Company was
$6,064,715.
<PAGE>
The Corporation is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Comptroller of
the Currency (OCC). Failure to meet the minimum regulatory capital
requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators, that if undertaken, could have a
direct material affect on the consolidated financial statements. Under the
regulatory capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation must meet specific capital
guidelines involving quantitative measures of the Corporation's assets,
liabilities, and certain off balance-sheet items as calculated under
regulatory accounting practices. The Corporation's capital amounts and
classification under the prompt corrective action guidelines are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note N - Regulatory Requirements and Restrictions (Continued)
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios
of total risk-based capital and Tier I capital to risk-weighted assets (as
defined in the regulations), and Tier I capital to adjusted total assets (as
defined). Management believes the Corporation and the Bank meet all the
capital adequacy requirements to which they are subject as of December 31,
1997.
As of March 24, 1997, the most recent notification from regulatory
authorities categorized First Pulaski National Corporation and First
National Bank as well capitalized under the regulatory framework for prompt
corrective action. To remain categorized as well capitalized, the
Corporation will have to maintain minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as disclosed in the table below. There are
no conditions or events since the most recent notification that management
believes have changed the Corporation's category.
<TABLE>
<CAPTION>
To Be Well Capitalized
under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
------ ----------------- ----------
First First First
First Pulaski First Pulaski First Pulaski
National National National National National National
Bank Corporation Bank Corporation Bank Corporation
<S> <C> <C> <C> <C> <C> <C>
Amount:
Total Risk-Based Capital
(to Risk-Weighted Assets $ 33,643,000 $36,555,000 $14,726,080 $14,747,000 $18,408,000 $18,434,000
Tier I Capital
(to Risk-Weighted Assets 31,338,000 34,247,000 7,363,040 7,374,000 11,045,000 11,061,000
Tier I Capital
(to Adjusted Total Assets 31,338,000 34,247,000 7,990,530 7,998,000 13,318,000 13,330.750
Ratios:
Total Risk-Based Capital
(to Risk-Weighted Assets 18.28% 19.83% 8.00% 8.00% 10.00% 10.00%
Tier I Capital
(to Risk-Weighted Assets 17.02% 18.58% 4.00% 4.00% 6.00% 6.00%
Tier I Capital
(to Adjusted Total Assets 11.77% 12.85% 3.00% 3.00% 5.00% 5.00%
</TABLE>
<PAGE>
Note O - Stock Option and Stock Purchase Plans
Under the Corporation's stock option and employee stock purchase plans, non-
employee directors and bank subsidiary employees may be granted options or
rights to purchase shares of the Corporation's common stock. The option or
purchase price under all plans is equal to the fair market value of the
stock at the date of grant. The Corporation applies Accounting Principles
Board (APB) Opinion 25 in computing compensation costs related to its stock
option plans. Under this method, compensation is the excess, if any, of the
market price of the stock at grant date over the amount that must be paid to
acquire the stock. The Corporation's stock option plans have no intrinsic
value at grant date, therefore no compensation cost has been recognized.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note O - Stock Option and Stock Purchase Plans (Continued)
However, under SFAS No. 123, "Accounting for Stock-Based Compensation,"
corporations which follow APB Opinion 25 are required to disclose the pro
forma amount for compensation costs for its stock option plans based on the
fair value at the grant dates for awards under those plans. Accordingly,
the Corporation's net income and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net Income:
As reported $ 4,319,645 $ 4,062,598 $ 3,705,394
Pro forma 4,312,645 4,044,598 3,692,894
Earnings per Share:
As reported $ 2.80 $ 2.67 $ 2.42
Pro forma 2.79 2.66 2.41
In calculating the pro forma disclosures, the fair value of options granted
is estimated as of the date granted using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants in
1997, 1996 and 1995, respectively: dividend yield of 4.7 percent for all
years; expected volatility of 8.3, 6.3 and 5.3 percent; risk-free interest
rates of 7.0 percent in all years; and expected lives of 4.4 years in all
years.
Shares available for grants of options or rights to purchase at December 31,
1997 include 55,000 shares under the 1987 stock option plan, 101,410 shares
under the 1994 outside directors stock option plan and 109,697 shares under
the 1994 employee purchase plan.
The 1987 plan permits the Board of Directors to grant options to key
employees. A total of 100,000 shares were reserved under this plan of which
45,000 shares have been granted and 40,000 shares have been exercised.
These options expire 10 years from the date of grant.
The 1994 outside directors stock option plan permits the granting of stock
options to non-employee directors. A total of 150,000 shares were reserved
under this plan. An option to purchase 500 shares is granted upon becoming
a member of the Board of Directors, of which 250 shares is immediately
exercisable and the remaining 250 shares are exercisable upon the first
annual meeting of shareholders following the date of grant provided the
optionee is still serving as an outside director. In addition, each outside
director receives an immediately exercisable option to purchase 2,500
shares, less the number of shares of stock previously beneficially owned.
These options expire ten years from the date of grant.
<PAGE>
The 1994 employee stock purchase plan permits the granting of stock options
to eligible employees of the Corporation. A total of 150,000 shares were
reserved under this plan. The Board has established the following
guidelines as to the number of shares employees are allowed to purchase on
July 1, each year:
Number of Shares
Years of Service Under 10 years Over 10 years
Vice-Presidents and above 200 250
All other Officers 125 175
Non-Officers 75 125
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note O - Stock Option and Stock Purchase Plans (Continued)
The following is a summary of the stock option and purchase plans activity
for 1997, 1996 and 1995:
</TABLE>
<TABLE>
<CAPTION>
Stock Option Plans Employee Purchase Plan
Shares Shares Shares
Available Under Available Shares
for Option Option for Purchase Purchased
<S> <C> <C> <C> <C>
Balance December 31, 1994 191,500 10,500 137,875 -
Granted (12,340) 12,340 (9,735) (9,375)
Exercised - (6,350) - (9,735)
-------- -------- -------- --------
Balance December 31, 1995 179,160 16,490 128,140 -
Granted (13,000) 13,000 (9,990) 9,990
Exercised - (7,790) - (9,990)
-------- -------- -------- --------
Balance December 31, 1996 166,160 21,700 118,150 -
Granted (9,750) 9,750 (8,453) 8,453
Exercised - (10,045) - (8,453)
-------- -------- -------- --------
Balance December 31, 1997 156,410 21,405 109,697 -
======== ======== ======== ========
Exercisable at December 31, 1997 16,405
==========
</TABLE>
The weighted-average fair value of options, calculated using the Black-
Scholes option pricing model, granted during 1997, 1996 and 1995 is $4.79,
$4.50 and $3.44, respectively.
Note P - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Numerator for basic and diluted earnings
per share - income available to common
shareholders $4,319,645 $4,062,598 $3,705,394
Denominator for basic earnings per share -
weighted-average basis 1,539,866 1,522,591 1,532,245
Effect of dilutive stock options 3,356 1,356 1,212
Denominator for diluted earnings per share -
adjusted weighted-average shares 1,543,222 1,523,947 1,533,457
Basic earnings per share $2.81 $2.67 $2.42
Diluted earnings per share $2.80 $2.67 $2.42
</TABLE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
Note Q - Fair Values of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires entities to disclose the estimated fair value of its financial
instrument assets and liabilities. Management is concerned that the
required disclosures under SFAS No. 107 may lack reasonable comparability
between financial institutions due to the wide range of permitted valuation
techniques and numerous estimates which must be made given the absence of
active secondary markets for many of the financial instruments. This lack
of uniform valuation methodologies also introduces a greater degree of
subjectivity to these estimated fair values.
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate those assets' fair
values.
Securities: Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, savings, and certain types of money
market accounts) are, by definition, equal to the amount payable on demand
at the reporting date (i.e., their carrying amounts). The carrying amounts
for variable-rate, fixed-term money market accounts and certificates of
deposits approximate their fair values at the reporting date. Fair values
for fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits.
Other borrowed funds: Market quotes are used for Federal Home Loan Bank
borrowings.
<PAGE>
Standby letters of credit: All standby letters of credit have original
terms, at their issuance of one year or less; therefore, the fair value of
these instruments does not materially differ from their stated value.
The estimated fair values of the Corporation's financial instruments on
December 31 were (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
Carrying Amount Fair Value Carrying Amount Fair Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 16,292 $ 16,292 $ 16,903 $ 16,903
Securities 71,216 71,366 63,447 63,539
Loans 168,738 169,004 157,903 158,256
Less: allowance for loan losses (2,604) - (2,381) -
Financial liabilities:
Deposits 227,165 227,336 212,686 212,766
Other borrowed funds 2,196 2,173 1,847 1,785
</TABLE>
<PAGE>
PUTMAN & HANCOCK
CERTIFIED PUBLIC ACCOUNTANTS
506 West College Street 118 North Third Street
P.O. Box 722 P.O. Box 724
Fayetteville, TN 37334 Pulaski, TN 38478
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
First Pulaski National Corporation
Pulaski, Tennessee
We have audited the accompanying consolidated balance sheets of First Pulaski
National Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Pulaski
National Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
[S] Putman & Hancock
Fayetteville, Tennessee
February 27, 1998
<PAGE>
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of First Pulaski National Corporation and its only subsidiaries,
First National Bank of Pulaski and Heritage Financial of the Tennessee Valley,
Inc., is responsible for the content and integrity of the financial statements
and all other financial information included in this annual report. Management
believes that the statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and judgements of management with respect to certain events and
transactions.
Management is further responsible for maintaining a system of internal
accounting controls, designed to provide reasonable assurance that the books and
records reflect the transactions of the Corporation and that its established
policies and procedures are carefully followed. Management reviews and modifies
the system of internal accounting controls to improve its effectiveness, and the
system is augmented by written policies, the careful selection and training of
qualified personnel, and a program of internal audit. Management believes that
the system of internal accounting control provides reasonable assurance that
assets are safeguarded and the financial information is objective and reliable.
Independent public accountants are engaged to audit the financial statements of
the Corporation and issue a report thereon. They have informed management that
the audits were conducted in accordance with generally accepted auditing
standards which require a review of and evaluation of internal accounting
controls to determine the nature, timing and extent of audit testing.
The Board of Directors, through its Audit Committee (comprised of four non-
management directors), is responsible for providing reasonable assurance that
management fulfills its responsibilities in the preparation of the financial
statements and in the maintenance of the system of internal accounting control.
The Audit Committee annually selects the independent public accountants and
submits its selection to the Board of Directors for approval. The Audit
Committee meets with management, the independent public accountants and the
internal auditors, approves the overall scope of audit work and reviews audit
reports and findings.
/s/ Robert M. Curry /s/ William R. Horne /s/Glen Lamar
Robert M. Curry William R. Horne Glen Lamar
Chairman & CEO President Secretary/Treasurer
<PAGE>
ITEM 9: DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None required to be described.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
10(a) Identification of Directors
The following named persons are current directors. The table includes
names, ages, date of original election to the Board of Directors of the
Corporation or of the Bank which pre-existed the Corporation, and the
position held with the Corporation. All directors are elected to an annual
term.
<TABLE>
<CAPTION>
Served as Principal Occupation
Director Office in or Employment for
Directors Age Since Corporation Last Five (5) Years
- ------------------------------------------------------------------------
<S> <C> <C> <S> <S>
David E. Bagley 44 4-22-93 Director President, Bagley &
Bagley Ins., Inc.
Johnny Bevill 62 2-05-70 Director Owner, Davis &
Eslick Market
James K. Blackburn, IV 55 4-07-83 Director Owner, Lairdland
Farm; Real Estate
Broker
Wade Boggs 34 4-20-95 Director Owner WashMaster
Car Wash and Boggs'
Properties
James H. Butler 51 4-05-84 Director Real Estate Agent,
Butler Realty
Thomas L. Cardin 66 2-05-70 Director President,
Cardin Distrib.
Company
Joyce F. Chaffin 66 4-01-82 Director Retired Vice-
President, First
National Bank
Parmenas Cox 86 1-13-44 Director Retired Senior Chairman,
First National Bank
Robert M. Curry 48 4-02-81 Chairman Board Chairman, CEO,
& Director First National Bank
Gregory G. Dugger 48 4-22-93 Director Dentist
Joe Dunavant 74 2-05-70 Director Farmer, Dunavant &
Dunavant
Charles D. Haney 43 4-22-93 Director Physician
<PAGE>
Gary Harrison 47 4-02-87 Director Vice-President,
First National Bank
Morris Ed Harwell 67 4-07-83 Director President, Harwell
Enterprises, Inc.
R.M. Harwell 94 1-13-49 Director Vice-President, Harwell
Enterprises, Inc.
James Rand Hayes 61 4-07-83 Director Owner, Hayes
Properties
William R. Horne 50 4-02-81 President President,
& Director First National Bank
Glen Lamar 51 10-19-81 Sec/Treas Senior Vice-Pres.,
& Director and Cashier,
First National Bank
D. Clayton Lee 73 1-09-62 Director Attorney-at-Law,
Retired
Kenneth R. Lowry 68 2-06-69 Director Retired Supt.,
Genesco, Pulaski,
Tennessee Plant
Beatrice J. McElroy 73 4-05-79 Director Real Estate
Investments
William A. McNairy 65 4-04-91 Director Owner, McNairy's
Flowerama & Gifts
W. Harwell Murrey, MD 63 2-05-70 Director Physician;
President,
Physicians &
Surgeons, Inc.
Stephen F. Speer 52 10-19-81 Director Attorney, Partner
Henry, Henry, &
&Speer,P.C.and County
Attorney for Giles County
Bill Yancey 53 4-04-91 Director Farmer
</TABLE>
Director Stephen F. Speer and other members of the law firm of Henry, Henry,
& Speer, P.C., rendered legal services to the Corporation and its subsidiary
during the current year.
10(b) Identification of Executive Officers
Robert M. Curry, Chairman of the Board and CEO, is 48 years old and came to
work for First National Bank in June, 1973. Prior to his employment with
the Subsidiary Bank, he worked at Hamilton National Bank, Knoxville,
Tennessee as Assistant Cashier and Assistant Branch Manager from March, 1972
until May, 1973. He is a 1972 graduate of the University
of Tennessee with a degree in business. In January, 1974, he was elected
Assistant Cashier and was promoted to Assistant Vice-President in January,
1975. In December, 1976, he was promoted to Vice-President and was elected
Executive Vice-President of First National Bank in December, 1977. He was
elected Treasurer of First Pulaski National Corporation in October of 1981, and
was elevated to the position of Vice-Chairman in April, 1988. In April of 1990
he was named Chairman of the Board and CEO for both First Pulaski National
Corporation and First National Bank. He is a graduate of the School of Banking
of the South, Louisiana State University.
<PAGE>
William R. Horne, President, is 50 years old and has been with the
subsidiary bank since June, 1969, when he graduated from college. He worked
part-time with the Bank while a student. On February 4, 1971 he was named
Assistant Cashier. On February 1, 1973 he was named Assistant
Vice-President. In January, 1974 he was promoted to Vice-President and in
December, 1977 was made Executive Vice-President of First National Bank. In
October, 1981 he was named Vice-President of First Pulaski National
Corporation. In April, 1988 he was elevated to the position of President of
First Pulaski National Corporation. Since April 5, 1990 he has also served
as President of First National Bank. He is a graduate of the School of
Banking of the South, Louisiana State University.
Glen Lamar, Secretary-Treasurer, is 51 years old and joined the staff of
First National Bank in July, 1976. Prior to that time, he was a financial
auditor for the Dekalb County Board of Education in Atlanta, Georgia. He is
a 1972 graduate of Oglethorpe University, Atlanta, with a degree in business
administration. He was elected Comptroller in 1976 and was promoted to
Cashier in December, 1977. In October, 1981, he was elected Secretary of
First Pulaski National Corporation. In April, 1988 he was named
Secretary-Treasurer. He also currently serves as Senior Vice-President and
Cashier of First National Bank. He is a graduate of the School of Banking
of the South, Louisiana State University.
Jo Ann Martin, Assistant Secretary-Treasurer, is 40 years of age and was
employed by First National Bank in October, 1994. Prior to that time, she
was employed with Third National Bank of South Central Tennessee where she
worked as a loan secretary from May, 1978 until October, 1994. She was
elected Assistant Secretary-Treasurer of First Pulaski National Corporation
in April, 1997.
10(c) Identification of Certain Significant Employees
None requiring identification.
10(d) Family Relationships
None requiring identification.
10(e) Business Experience
See table given in part 10(a).
10(f) Involvement in Certain Legal Proceedings
None requiring description.
10(g) Promoters and Control Persons
Not applicable
Section (16a) Beneficial Ownership Reporting Compliance
None requiring identification.
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Corporation during the fiscal years 1997, 1996 and 1995 for (i) the Chief
Executive Officer of the Corporation and (ii) the President of the
Corporation (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and Fiscal All Other
Principal Position Year Salary Bonus Compensation(1)
- ---------------------- ------ -------- ------ ---------------
<S> <C> <C> <C> <C>
Robert M. Curry, 1997 $108,957 $8,350 $19,049
Chief Executive Office 1996 $105,786 $6,904 $18,307
of the Corporation 1995 $102,708 $ 0 $16,749
William R. Horne, 1997 $108,957 $8,350 $19,362
President of the 1996 $105,786 $6,927 $18,278
Corporation 1995 $102,708 $ 0 $16,755
(1)Represents (i) Corporation contributions to a defined contribution plan
in the amount of $17,203, $16,597, and $15,110 for Mr. Curry in fiscal
1997, 1996 and 1995, respectively, and $17,345,$16,683, and $15,181 for
Mr. Horne in fiscal 1997, 1996 and 1995, respectively; (ii) premiums paid
by the Corporation with respect to life insurance policies on the life of
the Named Executive Officers payable to beneficiaries designated by the
Named Executive Officers of $1,452, $1,431, and $1,410 in fiscal 1997,
1996 and 1995, respectively, for Mr. Curry and $2,017, $1,595, and $1,574
in fiscal 1997, 1996 and 1995, respectively, for Mr. Horne; and (iii)
interest paid by the Bank (for which the named Executive Officers serve
as Executive Officers) on loans to the named Executive Officers arranged
by the Bank, the proceeds of which were used to purchase Common Stock of
the Corporation, in the amount of $394, $279, and $229 in fiscal 1997,
1996 and 1995, respectively, for Mr. Curry.
</TABLE>
DIRECTOR COMPENSATION
The Directors of the Corporation are compensated at the rate of $300.00, for
each Directors meeting attended. Those Directors of the Corporation who
serve on the Board of Directors of the First National Bank of Pulaski,
Tennessee also serve on the Executive and Loan Committee for the Bank and
are compensated at the rate of $300.00 per Directors meeting and Executive
and Loan Committee meeting. Additionally, Directors who serve on the Audit
Committee of First National Bank of Pulaski receive $150.00 per meeting.
All other Directors who serve on other committees for the Bank receive
$100.00 per meeting. Inside Directors (Bank employees) only receive
Director fees for regular Board of Directors meetings and Executive and Loan
Committee meetings.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists all current directors, executive officers, the
number of shares of common stock(the Corporation's only class of voting
securities) beneficially owned and the nature of beneficial ownership, and
the percent of class.
<PAGE>
<TABLE>
<CAPTION>
Shares beneficially owned Percentage of
Directors as of Feb. 15, 1998 class owned
- ---------------------- ------------------------- -------------
<S> <C> <C> <C> <C>
David E. Bagley 4,450 (1) * 0.29%
Johnny Bevill 20,630 (2) * 1.33%
James K. Blackburn, IV 8,480 (3) * 0.55%
Wade Boggs 3,750 (4) 0.24%
James H. Butler 5,252 (5) * 0.34%
Thomas L. Cardin 23,565 (6) * 1.52%
Joyce F. Chaffin 6,000 (7) 0.39%
Parmenas Cox 27,865 * 1.79%
Robert M. Curry 40,660 (8) * 2.62%
Gregory G. Dugger 5,080 (9) 0.33%
Joe Dunavant 11,160 (10) 0.72%
Charles D. Haney 15,350 (11) 0.99%
W. Gary Harrison 23,275 (12) * 1.50%
Morris Ed Harwell 13,840 (13) * 0.89%
R.M. Harwell 15,180 (14) 0.98%
James Rand Hayes 11,600 (15) 0.75%
William R. Horne 31,080 (16) * 2.00%
Glen Lamar 28,670 (17) * 1.85%
D. Clayton Lee 52,000 (18) 3.35%
Kenneth R. Lowry 12,340 (19) 0.79%
Beatrice J. McElroy 17,205 (20) 1.11%
William A. McNairy 500 (21) 0.03%
W. Harwell Murrey, M. D. 37,684 (22) * 2.43%
Stephen F. Speer 24,180 (23) * 1.56%
Bill Yancey 4,250 (24) * 0.27%
TOTAL 428,866 27.48%
(1) Shares held by Ameritrade, Inc. for benefit of David Bagley.
(2) Includes 10,315 shares held by wife.
(3) Includes 1,730 shares held by wife.
<PAGE>
(4) Includes 1,665 shares held by wife and 420 shares held with father.
(5) Includes 4,802 shares held jointly with wife and 450 shares held
jointly with three children.
(6) Includes 10,865 shares held by Ameritrade, Inc. for benefit of
Thomas L. Cardin IRA, 2,500 shares held by James Clarence Cardin
Testamentary Trust, and 2,345 shares held by wife.
(7) Includes 2,625 shares held by husband.
(8) Includes 7,780 shares held jointly with wife, 6,180 shares held jointly
with two brothers as equal partners, and 630 shares held jointly with
wife as Trustee for four children.
(9) Includes 100 shares held jointly with wife as Trustee for child and
1,665 shares held by Ameritrade, Inc. for benefit of Gregory G. Dugger
IRA.
(10) Includes 2,590 shares held jointly with wife.
(11) Includes 4,740 shares held jointly with wife, 300 shares held jointly
with wife as Trustee for three children, and 10,310 shares held in
trust for employees of Physicians and Surgeons, Inc.
(12) Includes 90 shares held by wife as Trustee for child, and 22,935 shares
held jointly with wife.
(13) Includes 100 shares held by wife and 1,000 shares held by Ameritrade
for benefit of Morris Ed Harwell.
(14) Includes 650 shares held by wife.
(15) Includes 10,850 shares held jointly with wife.
(16) Includes 5,260 shares held jointly with wife.
(17) Includes 23,740 shares held jointly with wife and 640 shares held as
custodian for child.
(18) Includes 28,090 shares held by wife.
(19) Includes 6,040 shares held jointly with wife.
(20) Includes 540 shares held by husband, 1,059 shares held jointly with
husband, 11,906 shares held jointly with two children and 2,640 shares
held as trustee for two children.
(21) Held jointly with wife.
(22) Includes 17,475 shares held by wife and 10,310 shares held in trust for
employees of Physicians & Surgeons, Inc.
(23) Includes 360 shares held by Henry, Henry, Stack, Garner & Speer, P.C.
Retirement Plan.
(24) Held jointly with wife.
*Serves on the Board of Directors of First National Bank of Pulaski,
Tennessee.
</TABLE>
<PAGE>
The following table sets forth information concerning persons who are the
beneficial owners of more than five percent of the Corporation's common
stock (its only class of voting securities). The information shown below is
as of February 15, 1997 and is based on the Corporation's stock records or
the ownership data filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Name and address of Number of shares Percentage
beneficial owner(s) beneficially owned of class
- ------------------- ------------------ ----------
<S> <C> <C>
First National Bank 79,275 5.10%
of Pulaski, Tennessee
Profit Sharing Plan
P.O. Box 289
Pulaski, TN 38478
</TABLE>
The following table shows the ownership of the Corporation's equity
securities beneficially owned by all directors and executive officers of the
Corporation and its subsidiary (a total of 26 persons including those listed
before) as a group on February 15, 1997.
<TABLE>
<CAPTION>
Title of Number of shares Percentage
class beneficially owned of class
- -------------- -------------------- ----------
<S> <C> <C>
Common Stock 433,736 27.92%
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997 the Corporation paid the law firm of Henry, Henry, and Speer legal
fees of just over $34,000.00. Stephen F. Speer is a partner in the above
firm and is also a director of the Corporation.
Some of the Corporation's officers and directors are at present, as in the
past, customers of the Corporation's subsidiary bank, and some of the
Corporation's officers and directors are directors or officers of
corporations or members of partnerships which are customers of the
Corporation's subsidiary bank. As such customers, they had transactions in
the ordinary course of business in 1997 with said bank, including
borrowings, all of which were substantially on the same terms, including
interest rates and collateral, as those prevailing at the same time for
comparable transactions with other persons and did not involve more than
normal risk of collectability or present any other unfavorable features.
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a) (1) and (2) Financial Statements and Financial Statement Schedules
The following consolidated financial statements of the Corporation and its
subsidiary are included in Part II, Item 8:
Consolidated Balance Sheets--December 31, 1997 and 1996.
Consolidated Statement of Income--Years Ended December 31, 1997, 1996 and
1995.
Consolidated Statements of Cash Flows--Years Ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Changes in Stockholders' Equity-Years Ended
December 31, 1997, 1996 and 1995.
The following parent company only financial statements for the First Pulaski
National Corporation are included in Part II, Item 8:
Balance Sheets--December 31, 1997 and 1996.
Statements of Income--Years Ended December 31, 1997, 1996 and 1995.
Statements of Cash Flows--Years Ended December 31, 1997, 1996 and 1995.
14(a) (3) Listing of Exhibits
Statement Regarding Computation of Per Share Earnings - Included in Note A
to Financial Statements, Part II, Item 8.
Consent of Putman & Hancock, Certified Public Accountants - Included in
items referenced in paragraph (c) of this item, on following pages.
Financial Data Schedule
14(b) Reports on Form 8-K
During the last quarter of 1997, no Form 8-K reports were required to be
filed.
14(c) Exhibits
Exhibits are attached following signature pages.
14(d) Other Financial Statement Schedules
All other schedules to the consolidated financial statements required by
Article 9 of Regulation S-X and all other schedules to the financial
statements of the registrant required by Article 5 of Regulation S-X are not
required under the related instructions or are inapplicable and therefore
have been omitted.
<PAGE>
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.
First Pulaski National Corporation
----------------------------------
(Registrant)
Date: 3-10-98 By: /s/ Robert M. Curry
----------------- -------------------------------
Robert M. Curry, Chairman
Date: 3-10-98 By: /s/ Glen Lamar
----------------- -------------------------------
Glen Lamar, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below and on the succeeding page by the following
persons on behalf of the registrant and in the capacities indicated.
/s/ David E. Bagley /s/ Johnny Bevill
- ------------------------------ ------------------------------
David E. Bagley, Director Johnny Bevill, Director
/s/ James K. Blackburn IV /s/ Wade Boggs
- ------------------------------ ------------------------------
James K. Blackburn IV, Director Wade Boggs, Director
/s/ James H. Butler /s/ Thomas L. Cardin
- ------------------------------ ------------------------------
James H. Butler, Director Thomas L. Cardin, Director
/s/ Joyce F. Chaffin /s/ Parmenas Cox
- ------------------------------ ------------------------------
Joyce F. Chaffin, Director Parmenas Cox, Director
/s/ Robert M. Curry /s/ G. G. Dugger DDS
- ------------------------------ ------------------------------
Robert M. Curry, Director Greg G. Dugger DDS, Director
<PAGE>
/s/ Joe Dunavant /s/ Charles D. Haney MD
- ------------------------------ ------------------------------
Joe Dunavant, Director Charles D. Haney MD, Director
/s/ Gary Harrison /s/ Morris Ed Harwell
- ------------------------------ ------------------------------
Gary Harrison, Director Morris Ed Harwell, Director
/s/ R.M. Harwell /s/ James Rand Hayes
- ------------------------------ ------------------------------
R.M. Harwell, Director James Rand Hayes, Director
/s/ William R. Horne /s/ Glen Lamar
- ------------------------------ ------------------------------
William R. Horne, Director Glen Lamar, Director
/s/ D. Clayton Lee /s/ Kenneth R. Lowry
- ------------------------------ ------------------------------
D. Clayton Lee, Director Kenneth R. Lowry, Director
/s/ Beatrice J. McElroy /s/ William A. McNairy
- ------------------------------ ------------------------------
Beatrice J. McElroy, Director William A. McNairy, Director
/s/ W. Harwell Murrey MD /s/ Stephen F. Speer
- ------------------------------ ------------------------------
W. Harwell Murrey MD, Director Stephen F. Speer, Director
/s/ Bill Yancey
- ------------------------------
Bill Yancey, Director
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER
11 Statement Regarding Computation of Per Share
Earnings -- Included in Note A to Financial
Statements, Part II, Item 8
24 Consent of Putman & Hancock, Certified Public
Accountants
27 Financial Data Schedule
<PAGE>
</TABLE>
EXHIBIT 24
PUTMAN & HANCOCK
Certified Public Accountants
506 West College Street 118 North Third Street
P.O. Box 722 P.O. Box 724
Fayetteville, Tennessee 37334 Pulaski, Tennessee 38478
(931)433-1040 (931) 424-1040
Fax (931)433-9290 Fax (931)363-5222
CONSENT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
First Pulaski National Corporation
Pulaski, Tennessee
As independent public accountants, we hereby consent to the incorporation by
reference to First Pulaski National Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, of our reports (and to all
references to our firm) included in or made part of this Registration
Statement.
[S] Putman and Hancock
February 27, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-K FOR PERIOD ENDING DECEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE NOTES
THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-30-1997
<CASH> 10,111,703
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,180,468
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,012,300
<INVESTMENTS-CARRYING> 20,203,342
<INVESTMENTS-MARKET> 20,353,971
<LOANS> 168,737,556
<ALLOWANCE> 2,604,080
<TOTAL-ASSETS> 266,615,711
<DEPOSITS> 227,165,494
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,674,571
<LONG-TERM> 2,196,300
0
0
<COMMON> 1,550,994
<OTHER-SE> 33,028,352
<TOTAL-LIABILITIES-AND-EQUITY> 266,615,711
<INTEREST-LOAN> 17,562,095
<INTEREST-INVEST> 3,812,833
<INTEREST-OTHER> 729,412
<INTEREST-TOTAL> 22,104,340
<INTEREST-DEPOSIT> 9,162,293
<INTEREST-EXPENSE> 9,295,556
<INTEREST-INCOME-NET> 12,808,784
<LOAN-LOSSES> 507,500
<SECURITIES-GAINS> (30,816)
<EXPENSE-OTHER> 8,119,240
<INCOME-PRETAX> 6,535,512
<INCOME-PRE-EXTRAORDINARY> 4,319,645
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,319,645
<EPS-PRIMARY> 2.81
<EPS-DILUTED> 2.80
<YIELD-ACTUAL> 5.20
<LOANS-NON> 701,867
<LOANS-PAST> 176,043
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,380,700
<CHARGE-OFFS> 707,984
<RECOVERIES> 423,864
<ALLOWANCE-CLOSE> 2,604,080
<ALLOWANCE-DOMESTIC> 2,604,080
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
