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, 1998.
[ ]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. [ ]
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, 1999
was $41,776,805. 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:
Part III. Portions of the Registrant's Proxy Statement relating to the
Registrant's Annual Meeting of Shareholders to be held on April 29, 1999 are
incorporated by reference into Items 10, 11, 12 and 13.
<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
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,
1998, the Corporation and its subsidiaries had combined total assets of
$275,004,977.
The Corporation currently has long-term indebtedness of approximately $2 million
in the form of notes payable to the Federal Home Loan Bank of Cincinnati. Note
G to the Corporation's Consolidated 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 financial institution in Giles County,
Tennessee, measured by county deposits. It has established two branches in
Lincoln County, Tennessee, where it is the second largest financial institution,
measured by county deposits.
As of February 15, 1999 the First National Bank of Pulaski had 165 employees, 40
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. Heritage Financial 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, and most of its business
thus far has been in the Giles County market. Heritage Financial is regulated
by the Tennessee Department of Financial Institutions and by the FRB.
COMPETITION
The Corporation operates principally in two market areas, Giles County,
Tennessee and Lincoln County, Tennessee. The following discussion of market
areas contains the most recent information available from reports filed with the
FDIC and the OTS in 1997, as compiled in "The Branches of Tennessee," 1998, by
Sheshunoff.
Giles County. The Bank competes in Giles County with five (5) commercial
banking organizations. Three (3) of the five (5) commercial banking competitors
are small community banking organizations. The other two (2) commercial banking
competitors are owned by large regional and super-regional multi-bank holding
companies. From 1995 to 1997, total deposits for all commercial banks in the
Giles County market have increased 8.3% from $383.7 million to $415.5 million.
The Bank has five (5) offices in Giles County and approximately 70% of its
deposits are located there. As of June 30, 1997, the bank had the largest
market share of banks in Giles County with a 41.2% share of the bank deposits,
more than twice the market share of its nearest competitor.
Giles County is located in southern Middle Tennessee, approximately 70 miles
from Nashville, Tennessee. Pulaski is the largest city in Giles County. As of
June 30, 1997, Giles County had an estimated population of 28,998, and an
average household income of $40,194.
Lincoln County. The Bank competes in Lincoln County with five (5) commercial
banking organizations. Three (3) of the five (5) commercial banking competitors
are small community banking organizations. The remaining two (2) commercial
banking competitors are owned by regional or national multi-bank holding
companies. From 1995 to 1997, total deposits for all commercial banks in
Lincoln County have increased 10% from $302.8 million to $334.7 million. The
Bank has two (2) branch offices located in this market, and approximately 30% of
its deposits are located there. As of June 30, 1997, the Bank had a 16.9% share
of the Lincoln County bank deposit market, the second largest market share in
the county after Lincoln County Bank.
Lincoln County is also located in southern Middle Tennessee approximately 80
miles from Nashville, Tennessee. The largest city in Lincoln County is
Fayetteville. As of June 30, 1997, Lincoln County had an estimated population
of 28,992, and an average household income of $37,279.
The Bank has substantial competition in attracting and retaining deposits and in
lending funds. The primary factors in competing for deposits are the range and
quality of financial services offered, the ability to offer attractive rates and
availability of convenient office locations. Direct competition for deposits
comes from other commercial banks (as well as from credit unions and saving
institutions in neighboring counties). Additional significant competition for
saving deposits may come from other investment alternatives, such as money
market mutual funds and corporate and government securities. The primary
factors in competing for loans are the range and quality of the lending services
offered, interest rates and loan origination fees. Competition for the
origination of loans normally comes from other savings and financial
institutions, commercial banks, credit unions, insurance companies and other
financial service companies. The Corporation believes that its strategy in
relationship banking and local autonomy in the communities it serves allows
flexibility in rates and products offered in response to local needs. The
Corporation believes this is its most effective method of competing with both
the larger regional bank holding companies and with smaller community banks.
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. An expansion and renovation of the
Bank's Industrial Park Road office, on the western edge of Pulaski, was
completed in early 1996. 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. The 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. The Lincoln County branch in Park City,
approximately seven miles south of Fayetteville was opened in the spring of
1993. 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. Most recently, a facility on Flower Street near the main
office in Pulaski was opened. The building, already owned by the Corporation
and previously used for storage, was renovated and completed in 1998 primarily
for the prupose of mortgage lending. The cost of the renovation amounted to
$136, 107, including furniture and fixtures. 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 1998 amounted to $62,167.
ITEM 3: LEGAL PROCEEDINGS
The Bank has filed suits in Giles County, Tennessee, Chancery Court against
Carroll M. Curry, John T. Curry, Connie Curry, Cathy Curry, C&C Partnership and
C&T Partnership (the "Curry Debtors") to collect promissory notes on which such
persons are liable as makers or guarantors. The Curry Debtors filed a counter-
complaint in March 1999 against the Bank alleging (i) that the Bank knew or
should have known of certain activities of Mike Curry, the Bank's former
Chairman and Chief Executive Officer, and that the Bank had a duty to inform the
Curry's of these activities, (ii) that the Bank was negligent and reckless in
placing Mike Curry in a position to commit fraud on the Currys and (iii) the
Bank, through its officers, directors and employees, intentionally, recklessly
and fraudulently concealed Mike Curry's fraudulent conduct from the Currys. The
Curry's counter-complaint seeks $8 million in compensatory and $20 million in
punitive damages. The Bank is actively seeking an out of court settlement with
all defendants in all these cases. The likelihood of settlement is unknown at
this time. If the settlement is not reached, the Bank will continue to
vigorously contest all claims asserted by the Currys in their counter-complaint,
which the Bank believes are totally without merit.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<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 1998 and 1997 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, 1998 $25.60 - $60.00 $0.38
2nd Quarter, 1998 $30.00 - $70.00 $0.40
3rd Quarter, 1998 $25.00 - $66.67 $0.40
4th Quarter, 1998 $27.60 - $50.00 $0.42
ANNUAL DIVIDEND, 1998..................... $1.60
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
</TABLE>
There are approximately 1,382 stockholders of the Corporation's common stock
as of February 15, 1999.
<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 1,560,113 shares for 1998, 1,539,866
shares for 1997, 1,522,591 shares for 1996, 1,532,245 shares for 1995, and
1,511,450 shares for 1994, after giving retroactive effect to the five-for-one
stock split which was effective on July 1, 1996. Note O 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,
1998 1997 1996 1995 1994
------ ------ ------- ------- -------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total interest income $22,506 $22,104 $21,245 $19,776 $16,715
Net interest income 13,061 12,809 12,484 11,342 10,750
Loan loss provision 1,652 508 783 259 225
Net income 3,803 4,320 4,063 3,705 3,848
Per Share Data:
Net income 2.44 2.81 2.67 2.42 2.55
Cash dividends paid 1.60 1.50 1.40 1.30 1.20
Total average equity 35,782 34,384 30,698 28,822 26,394
Total average assets 271,775 260,905 247,304 234,714 217,482
Total year-end assets 275,005 266,616 248,792 241,552 219,102
Total long-term debt 2,028 2,196 1,847 1,313 1,161
Ratios:
Assets to equity 7.50 7.71 7.80 7.96 8.24
Return on average
equity 10.63% 12.56% 13.24% 12.85% 14.58%
Return on average
assets 1.40% 1.66% 1.64% 1.58% 1.77%
</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 1998 was approximately $3.8 million or $2.43 per share, compared
with approximately $4.3 million or $2.81 per share in 1997 and approximately
$4.1 million or $2.67 per share in 1996. Return on average assets was 1.40% in
1998, 1.66% in 1997 and 1.64% in 1996. The return on average equity was 10.6%,
12.6% and 13.2% for 1998, 1997 and 1996, respectively. The decline in net
income and returns in 1998 was primarily the result of a substantial increase in
the provision for loan losses.
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 1998, net interest income
increased by 2.0 percent following an increase of 2.6 percent in 1997. The net
increase is attributable primarily to increased volumes of earning assets,
offsetting the reduction in earnings due to reduced interest rates. The total
1998 increase in net interest income of $317 thousand, on a taxable equivalent
basis, resulted from an increase of $664 thousand due to increased volumes which
offset a decrease of $347 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 1998, 1997
and 1996.
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
December 31,
1998 1997 1996
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.... $169,663 $17,805 10.49% $164,155 $17,610 10.73% $157,697 $17,179 10.89%
Taxable investment securities 53,345 3,378 6.33% 50,267 3,214 6.39% 47,453 2,992 6.31%
Non-taxable investment
securities................. 15,665 887 5.66% 13,476 764 5.67% 13,765 801 5.82%
Federal funds sold............. 13,477 717 5.32% 13,473 730 5.42% 9,365 505 5.39%
Time deposits in other banks.... 0 0 0.00% 0 0 0.00% 23 2 8.70%
-------- -------- ------- --------- ------- -------- -------- -------- --------
Total Interest-Earning Assets.. 252,150 22,787 9.04% 241,371 22,318 9.25% 228,303 21,479 9.41%
Non-interest Earning Assets:
Cash and due from banks..... 8,805 9,076 8,539
Premises and equipment, net. 7,432 7,396 7,185
Other Assets................ 6,303 5,593 5,482
Less allowance for loan losses (2,915) (2,531) (2,205)
-------- --------- ---------
Total Non-Interest-Earning Assets 19,625 19,534 19,001
-------- --------- ---------
TOTAL.................... $271,775 $260,905 $247,304
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
Interest-Bearing Liabilities:
Demand deposits............. $20,691 396 1.91% $19,392 371 1.91% $20,172 394 1.95%
Savings deposits.............. 29,303 749 2.56% 28,060 717 2.56% 28,953 732 2.53%
Time deposits................ 147,760 8,166 5.53% 144,337 8,075 5.59% 134,120 7,524 5.61%
Other borrowed money........ 2,107 137 6.50% 2,115 133 6.29% 1,838 111 6.04%
--------- -------- ------- --------- -------- -------- --------- -------- --------
Total Interest-Bearing
Liabilities................. 199,861 9,448 4.73% 193,904 9,296 4.79% 185,083 8,761 4.73%
Non-Interest-Bearing Liabilities:
Demand deposits.............. 33,389 30,868 28,659
Other liabilities............ 2,743 1,749 2,864
--------- --------- ---------
Total Non-Interest Bearing
Liabilities.................... 36,132 32,617 31,523
Shareholders' Equity............. 35,782 34,384 30,698
--------- --------- ---------
TOTAL.................... $271,775 $260,905 $247,304
========= ========= =========
Net interest earnings/spread,
on a taxable equivalent basis 13,339 5.29% 13,022 5.40% 12,718 5.57%
Taxable equivalent adjustments:
Loans....................... 44 48 60
Investment securities............ 193 165 174
-------- ------ --------
Total taxable equivalent adjustment 237 213 234
-------- -------- --------
Net interest earnings.............. $13,102 $12,809 $12,484
========== ========== ==========
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>
1998 Compared to 1997 1997 Compared to 1996
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.......... $591 (396) $195 704 ($273) $431
Taxable investment securities....... 197 (33) 164 177 45 222
Non-taxable investment securities... 124 (1) 123 (17) (20) (37)
Federal funds sold................... 0 (13) (13) 222 3 225
Time deposits....................... 0 0 0 (2) 0 (2)
----- ----- ----- ----- ----- -----
Total Interest-Earning Assets $912 ($443) $469 $1,084 ($245) $839
====== ====== ====== ======= ====== =======
Interest Paid On:
Demand deposits....................... $ 25 0 25 ($15) ($8) ($23)
Savings deposits....................... 32 0 32 (23) 8 (15)
Time deposits........................ 192 (101) 91 573 (22) 551
Other borrowed money............... (1) 5 4 17 5 22
------- ------ ------ ------- ------ ------
Total Interest-Bearing Liabilities..... $248 ($96) $152 $552 ($17) $535
======= ====== ====== ======= ======= =======
Net Interest Earnings, on a taxable
equivalent basis..................... $664 ($347) $317 $532 ($228) $304
======= ====== ======= ======
Less: taxable equivalent adjustment.. 24 (21)
------ ------
Net Interest Earnings................ $293 $325
====== ======
</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 1998, 1997 and 1996, with the percent of change in each category from
year to year.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------- ------------------------------------
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.................... $169,663 $5,508 3.4% $164,155 $6,458 4.1% $157,697
Taxable investment securities..... 53,345 3,078 6.1% 50,297 2,814 5.9% 47,453
Non-taxable investment
securities...................... 15,665 2,189 16.21% 13,476 (289) 2.1% 13,765
Federal funds sold................ 13,477 4 0.0% 13,473 4,108 43.9% 9,365
Time deposits in other
banks-domestic.................. .. 0 0 0% 0 (23) -100.0% 23
--------- -------- -------- -------- -------- -------- --------
Total Interest Earning Assets........ $252,150 $10,779 4.5% $241,371 $13,068 5.7% $228,303
========= ========= ========= ========= ========= ========= =========
FUNDING SOURCES:
Demand deposits - non-interest
bearing.......................... $33,389 $2,521 8.2% $30,868 $2,209 7.7% $28,659
Demand deposits - interest bearing... 20,691 1,299 6.7% 19,392 (780) -3.9% 20,172
Savings deposits.................... 29,303 1,243 4.4% 28,060 (893) -3.1% 28,953
Time deposits........................ 147,760 3,423 2.4% 144,337 10,217 7.6% 134,120
Other.............................. 21,007 2,293 12.3% 18,714 2,315 14.1% 16,399
--------- -------- -------- --------- --------- --------- ---------
Total Sources..................... $252,150 $10,779 4.5% $241,371 $13,068 5.7% $228,303
========= ========= ========= ========= ========= ========= =========
</TABLE>
NON-INTEREST INCOME
Non-interest income amounted to approximately $2.6 million in 1998, an increase
of 11.5 % from 1997, which increase is attributable primarily to increases in
mortgage banking fees, which resulted from the increase in volume of loans sold
due to the opening of a new mortgage office branch. Service charges on deposit
accounts also contributed to the increase in 1998. Non-interest income in 1997
increased by 10.8 % from 1996. There were no net gains or losses in security
transactions in 1998, though net losses realized totaled $30.8 thousand and
$95.4 thousand in 1997 and 1996, respectively.
NON-INTEREST EXPENSE
Non-interest expense in 1998 was approximately $8.3 million, up 2.5 % from 1997.
This increase is attributable primarily to increased operating costs, especially
from increases in collection and professional fees, and Directors' fees. These
increased fees were primarily related to and resulted from the investigationof
and board deliberation concerning matters involving the Corporation's former
CEO. Salaries, including employee benefits, were slightly lower than in 1997.
Non-interest expense for 1997 had increased by 5.9 % over the previous year.
This was due primarily to increases operating and personnel costs.
<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 $1.6 million in 1998 compared to $507.5
thousand in 1997 and $783.0 thousand in 1996. Net loan losses were $1.3 million
in 1998, $284.1 thousand in 1997, and $460.7 thousand in 1996. The 1998
provision for loan losses exceeded the current year loan losses by $331.5
thousand. In August of 1998, the Corporation discovered that R. Michael Curry,
its Chairman and Chief Executive Officer, had obtained several million dollars
of cashier's checks of the Corporation's subsidiary and deposited them in an
account at another bank over which he had signatory authority. Although he had
repaid a significant amount of these cashier's checks with the fund's deposited,
the ultimate shortfall to the Corporation was approximately $1.1 million, a
substantial portion of which has been ultimately covered by the Bank's fidelity
bond carrier. However, in investigating these matters, the Corporation
determined that the former CEO, Mr. Curry, had provided false information to it
in connection with loans made by the Bank to him and to two of his brothers and
their farming operation. As a result, the Bank charged off approximately $731
thousand of indebtedness to the CEO and his brothers and substantially increased
its provision to cover the chargeoff and the increased level of problem loans
associated with this indebtedness. A substantial portion of the indebtedness is
secured; however, the Corporation is currently engaged in litigation with the
debtors, who have filed various counter-claims against the Corporation (see Note
R of Notes to Consolidated Financial Statements). While the Corporation
believes the counter-claims are totally without merit, no assurance can be given
as to the ultimate amount collected on this indebtedness. Note C to Financial
Statements, Part II, Item 8 provides a detailed analysis of components of Loans
and Allowance for Loan Losses and is incorporated herein by reference.
Net loan losses for 1998 consists of agriculture loans, primarily those referred
to in the preceding paragraph, $692.7 thousand, personal loans $502.2 thousand,
real estate loans $22.5 thousand, and commercial and industrial loans $103.1
thousand. The allowance at the end of 1998 is $2.9 million, or 1.73 % of
outstanding loans and leases, as compared to $2.6 million or 1.54 % and $2.4
million or 1.51 % in 1997 and 1996, 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,
1998 1997 1996 1993 1992
-------- -------- -------- -------- --------
(amounts in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Allowance applicable to:
Real estate loans $319 $240 $422 $634 $482
Commercial loans 473 165 80 58 63
Agriculture loans 409 176 238 173 187
Individual loans 1,735 2,023 1,639 1,191 1,290
Other loans 0 0 2 2 2
-------- -------- -------- -------- --------
Total $2,936 $2,604 $2,381 $2,058 $2,024
======== ======== ======== ======== ========
Percentages of loans by
category to total loans:
Real estate loans 53.23% 52.66% 51.76% 51.11% 51.50%
Commercial loans 17.24% 15.42% 14.77% 13.34% 13.07%
Agriculture loans 5.83% 6.68% 7.33% 8.00% 7.88%
Individual loans 22.29% 23.25% 24.92% 26.00% 25.95%
Other loans 1.41% 1.99% 1.22% 1.55% 1.60%
------- ------ ------- ------- -------
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 $1,909,215, $2,215,867, and $2,095,836 in 1998, 1997 and 1996,
respectively. The effective tax rates were 33.4 %, 33.9 % and 34.0 %
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>
1998:
Total interest income....... $5,746 $5,840 $5,758 $5,162
Total interest expense...... 2,370 2,377 2,365 2,333
Net interest income......... 3,376 3,463 3,393 2,829
Provision for loan losses... 180 234 590 648
Other income................ 550 584 545 945
Other expense............... 1,995 2,013 2,117 2,196
Income before income tax.... 1,751 1,800 1,231 930
Income taxes................ 649 651 335 274
Net income.................. 1,102 1,149 896 656
Net income per share........ $0.71 $0.74 $0.57 $0.42
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
</TABLE>
The 1998 provisions for loan losses shown in the table above reflects the
decision of management in the latter part of the year to insure that provision
for loan losses reflect the increase in charge-offs and nonaccruals associated
with loans to family members of the former CEO of the Corporation. Note C to
Financial Statements, Part II, Item 8, provides more detailed analysis of loan
loss provision. In 1997, provisions for loan losses shown in the table were
increased each quarter, resulting from a system of monitoring loan payments past
due and identification by management of any additional exposure related to
problem loans as they arise.
<PAGE>
BALANCE SHEET
LOANS
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. Loan growth during 1998
resulted primarily from increases in construction and land development,
commercial and industrial loans and in real estate loans, including farm and
residential real estate. Loans to individuals secured by automobiles as well as
other loans also showed some growth as compared to 1997.
Over the last three years, average total loans and leases increased by $5.5
million or 3.4% in 1998, by $6.5 million or 4.1% in 1997 and by $14.9 million or
10.4% in 1996. 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,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Amount of net loans
and lease financing
outstanding at end
of period................ $169,651 $168,738 $157,903 $152,993 $136,371
======== ======== ======== ======== ========
Monthly average amount
of loans and leases...... $169,663 $164,155 $157,697 $142,825 $129,067
======== ======== ======== ======== ========
Balance of allowance
for possible loan
losses at beginning
of period................ $2,604 $2,381 $2,058 $2,024 $2,007
Loans charged off........ 1,577 708 740 433 367
Recoveries of loans
previously charged off... 257 424 280 209 159
-------- -------- -------- -------- --------
Net loans charged off.... 1,320 284 460 224 208
-------- -------- -------- -------- --------
Additions to allowance
charged to expense....... 1,652 507 783 258 225
-------- -------- -------- -------- --------
Balance at end of
period................... $2,936 $2,604 $2,381 $2,058 $2,024
======== ======== ======== ======== ========
Ratio of net charge
offs during period to
average loans
outstanding.............. 0.78% 0.17% 0.29% 0.16% 0.16%
======== ======== ======== ======== ========
</TABLE>
<PAGE>
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 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,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Construction and land
development $5,108 $3,341 $3,548 $2,929 $3,530
Commercial, industrial 24,606 23,122 20,219 17,911 14,650
Agricultural 10,053 11,461 11,799 12,503 10,956
Real est. farmland 19,577 19,142 17,314 15,615 13,535
Real est. residential 41,307 40,177 38,708 37,811 35,418
Real est. commercial 30,891 31,033 27,255 26,410 22,690
Installment-individuals 38,426 9,890 40,096 40,610 36,105
Lease financing 0 0 0 0 0
Other loans 2,445 3,426 1,943 2,402 2,229
-------- -------- -------- -------- --------
TOTAL $172,413 $171,592 $160,882 $156,191 $139,113
======== ======== ======== ======== ========
</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 $4,158 $950 $5,108
Commercial, industrial $16,399 $8,207 $24,606
Agricultural $6,585 $3,468 $10,053
Real estate farmland $12,729 $6,848 $19,577
Real estate commercial $ 8,198 $22,693 $30,891
-------- -------- --------
Total selected loans $48,069 $42,166 $90,235
======== ======== ========
</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...... 53.28% 46.72% 100.00%
Cumulative percent of total......... 53.28% 100.00%
Sensitivity of loans to changes
in interest rates - loans due after one year:
Fixed rate loans................... $41,356 $41,356
Variable rate loans................ 810 810
-------- --------
$42,166 $42,166
======== ========
</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 1997 to 1998, non-accruing loans increased by 352.0% to $3.2 million
following an increase of 56.1% in 1997 from 1996. Increases in non-accruing
loans in 1998 included approximately $2.1 million of loans to relatives and
certain entities of these relatives of the former CEO of the Corporation, as
discussed above and in more detail in Note C to Financial Statements, Part II,
Item 8. There were no restructured loans at year-end 1998 or 1997. Other real
estate owned, consisting of properties acquired through foreclosures or deeds in
lieu thereof, totaled $192.9 thousand for a decrease of 67.2%, following a
decrease of 47.3% in 1997. Loans past due ninety days or more totaled $252.6
thousand for an increase of 43.5% over same period last year, following a
decrease of 7.7% in 1997. All major credit lines and troubled loans are
reviewed regularly by a committee of the Board of Directors. Except for the
loans to the farming operation associated with family members of the former CEO
of the Corporation, 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,
1998 1997 1996
--------- --------- ---------
(in thousands of dollars)
<S> <C> <C> <C>
Non-accrual loans $3,173 $702 $449
Troubled debt restructurings $0 $0 $0
Other real estate owned $193 $115 $219
Loans past due ninety days or more as to
interest or principal payment $253 $176 $190
</TABLE>
As of December 31, 1998, 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 believes that it
maintains adequate audit standards, exercises appropriate 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 of the Board of Directors of the Bank. Also, as a matter
of bank policy, internal classifications of loans are performed on a routine and
continuing basis.
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,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Available-for-sale (in thousands of dollars)
- - -------------------
U. S. Treasury securities.......... $16,363 $18,311 $20,373
U.S. Government Agencies........... 29,610 32,701 23,385
--------- --------- ---------
$45,973 $51,012 $43,758
--------- --------- ---------
Held-to-maturity
- - -----------------
States and political subdivisions.. $17,937 $13,948 $14,404
Other securities................... 7,653 6,255 5,285
--------- --------- ---------
$25,590 $20,203 $19,689
--------- --------- ---------
TOTAL $71,563 $71,215 $63,447
========= ========= =========
</TABLE>
<PAGE>
The following table sets forth the maturities of securities at December 31,
1998 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 $13,158 $13,158
Yield 6.15% 6.15%
After one but within five years:
Amount $32,781 $32,781
Yield 6.21% 6.21%
After five through ten years:
Amount $34 $34
Yield 8.10% 8.10%
Held-to-maturity
- - -------------------
Within one year:
Amount $5,765 $5,765
Yield 6.63% 6.63%
After one but within five years:
Amount $16,863 $16,863
Yield 6.63% 6.63%
After five but within ten years:
Amount $2,853 $2,853
Yield 6.13% 6.13%
After ten years: $110 $110
7.65% 7.65%
</TABLE>
Total average securities increased by $5.3 million or 8.3% during 1998 as
compared to the previous year. Average taxable investment securities increased
by $3.1 million or 6.1% and average non-taxable investment securities increased
by $2.2 million or 16.3%, to account for the overall increase in average
investments. The total securities portfolio was $0.3 million or 0.5% more at
the end of 1998 than at the end of 1997. 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 $8.5 million
in 1998, by $10.8 million in 1997 and by $9.9 million in 1996. 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,
1998 1997 1996
--------- --------- ---------
(in thousands of dollars)
<S> <C> <C> <C>
Demand deposits - non-interest bearing.. $33,389 $30,868 $28,659
Demand deposits - interest bearing...... 20,691 19,392 20,172
Savings deposits........................ 29,303 28,060 28,953
Time deposits (excluding time CD's
of $100,000 or more).................. 100,848 102,211 92,392
Time CD's of $100,000 or more........... 46,912 42,126 41,728
--------- --------- ---------
TOTAL.............................. $231,143 $222,657 $211,904
========= ========= =========
</TABLE>
Remaining maturities of time certificates of deposits of $100,000 or more
outstanding at December 31, 1998, are summarized as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
<S> <C>
3 months or less............................. $17,555
Over 3 months through 12 months.............. 24,666
Over 1 year through 3 years.................. 7,438
Over 3 years................................. 580
---------
TOTAL........................................ $50,239
=========
</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 $18.9 million at December 31, 1998, representing 26.5% of the
investment securities portfolio, a slight decrease from the 24.6% level of 1997.
Additional sources of liquidity include federal funds sold, maturing loans and
time deposits in other banks .
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, 1998
the Bank had a total of $42.2 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, 1998 0-30 31-90 91-365 +1 - 3 +3 - 5 Over 5
$ in thousands Days Days Days years years years Total
- - --------------------- -------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Loans and leases........ $17,529 $12,590 $59,863 $62,844 $11,731 $3,808 $168,365
Taxable securities...... 1,001 1,997 11,301 23,109 15,547 339 $53,294
Nontaxable securities... 306 726 3,478 5,131 6,085 2,210 $17,936
Federal funds sold...... 12,970 0 0 0 0 6,180 $12,970
------- ------- ------- ------- ------- ------- --------
Total................... $31,806 $15,313 $74,642 $91,084 $33,363 $6,357 $252,565
Interest-sensitive liabilities:
Demand deposits......... $20,759 $0 $0 $0 $0 0 $20,759
Savings................. 27,157 0 0 0 0 0 $27,157
Time.................... 24,357 19,541 80,129 23,549 970 0 $148,546
Other borrowed funds.... 15 29 136 396 448 1,004 $2,028
------- ------- ------- ------- ------- ------- --------
Total................... $72,288 $19,570 $80,265 $23,945 $1,418 $1,004 $198,490
Interest sensitivity gap..($40,482) ($4,257) ($5,623) $67,139 $31,945 $5,353 $54,075
Cumulative gap............($40,482)($44,739)($50,362) $16,777 $48,722 $54,075
Ratio of cumulative gap to
earning assets.......... -16.03% -17.71% -19.94% 6.64% 19.29% 21.41%
</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 4.2% in 1998 and 5.5% in 1997. The corresponding percentage increase
in average equity amounted to 4.1% in 1998 and 12.0 percent in 1997.
The Corporation's equity capital was $36,686,195 at December 31, 1998,
$34,579,346 at December 31, 1997, and $31,887,402 at December 31, 1996, for an
increase of 15.1% over the two-year period. The Corporation's equity-to-average
asset ratio was 14.2%, as compared to 13.3% for 1997 and 12.9% for 1996. The
maintenance of this ratio during 1998 indicates that the Corporation's 1998
earnings were sufficient to keep pace with its 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 65.7% in 1998, 53.5% in 1997, and 52.5% in 1996.
As of December 31, 1998, the authorized number of common shares was 10 million
shares, with 1,573,515 shares issued and outstanding.
The FRB, the OCC 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 % to 100 % 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. Banking institutions
were expected to achieve a Tier I capital to risk-weighted assets ratio of at
least 4.00%, a total capital (Tier I plus Tier II) to risk-weighted assets ratio
of at least 8.00%, and a Tier I capital to total assets ratio (leverage ratio)
of at least 3.00%. As of December 31, 1998, 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 M
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 1998, 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
The Year 2000 issue is the result of computer programs and operating systems
using a two-digit format, as opposed to four-digits, to indicate the year.
These computer systems will be unable to interpret dates beyond the year 1999,
which could cause a system failure or other computer errors, leading to
disruptions in the Corporation's operations. The problem is not limited to
computer systems, or any particular industry, and Year 2000 issues will
potentially affect every system that has an embedded microchip containing this
flaw, such as alarm systems, vaults and elevators. The Corporation is
committed to addressing the Year 2000 challenges in a timely and responsible
manner. It has dedicated resources to accomplish this with the goal that
systems and service will not be compromised or otherwise negatively impacted by
computer-based entries and record keeping related to the century date change. A
Year 2000 Steering Committee was formed and has been active since 1997 to
identify, address, and mitigate key Year 2000 risks in the organization. This
committee meets regularly and reports to the Board of Directors quarterly. The
Corporation estimates that the total cost of the expenses associated with Year
2000 issues will be approximately $137,400, excluding internal personnel costs.
To date, the Corporation has paid approximately 24% of these projected costs
and, at this time, management does not believe these costs will have a material
effect on the operations or financial performance of the Corporation. For more
discussion on Year 2000, see Footnote Q to Financial Statements, Part II,
Item 8, which is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's primary place of exposure to market risk is interest rate
volatility of its loan portfolio, investment portfolio, and its interest bearing
deposit liabilities. Fluctuations in interest rates ultimately impact both the
level of income and expense recorded on a large portion of the Corporation's
assets and liabilities, and the market value of interest-earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity.
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>
More about market risk is included in Management's Discussion and Analysis under
the heading "Liquidity and Interest Rate Sensitivity Management." All market
risk sensitive instruments described within that section have been entered into
by the Corporation for purposes other than trading. The Corporation does not
hold market risk sensitive instruments for trading purposes. The Corporation is
not subject to any foreign currency exchange or commodity price risk.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements appear on the following pages for First
Pulaski National Corporation and its subsidiaries, First National Bank of
Pulaski and Heritage Financial of the Tennessee Valley, Inc.
<PAGE>
<TABLE>
<CAPTION>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<S> <C> <C>
ASSETS
1998 1997
Cash and due from banks $ 9,427,069 $ 10,111,703
Federal funds sold 12,970,075 6,180,468
Total cash and cash equivalents 22,397,144 16,292,171
Securities available for sale 45,972,651 51,012,300
Securities held to maturity (fair value - $25,880,236 and $20,353,971) 25,589,675 20,203,342
Loans 172,413,256 171,592,253
Unearned income (2,762,195) (2,854,697)
Loans net of unearned income 169,651,061 168,737,556
Allowance for loan losses (2,935,534) (2,604,080)
Total net loans 166,715,527 166,133,476
Bank premises and equipment 7,521,071 7,276,129
Accrued interest receivable 3,340,417 3,411,958
Prepayments and other assets 3,275,581 2,170,885
Other real estate owned 192,911 115,450
TOTAL ASSETS $ 275,004,977 $ 266,615,711
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing $ 36,187,911 $ 32,676,530
Interest bearing 197,611,615 194,488,964
Total deposits 233,799,526 227,165,494
Other borrowed funds 2,028,120 2,196,300
Accrued taxes 111,768 117,286
Accrued interest on deposits 1,909,612 2,009,066
Accrued profit sharing expense 120,392 132,582
Other liabilities 394,364 415,637
TOTAL LIABILITIES 238,318,782 232,036,365
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized - 10,000,000 shares;
1,573,515 and 1,550,994 shares issued and outstanding 1,573,515 1,550,994
Capital surplus 7,105,124 6,413,294
Retained earnings 27,590,464 26,285,955
Net unrealized gains on securities available for sale, net of tax 417,092 329,103
TOTAL STOCKHOLDERS' EQUITY 36,686,195 34,579,346
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 275,004,977 $ 266,615,711
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, 1998, 1997 and 1996
1998 1997 1996
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 17,718,313 $ 17,562,095 $ 17,119,358
Securities:
Taxable 3,377,514 3,214,076 2,991,819
Non-taxable 693,794 598,757 627,271
Interest bearing deposits with banks - - 1,823
Federal funds sold 716,654 729,412 505,161
Total Interest Income 22,506,275 22,104,340 21,245,432
INTEREST EXPENSE:
Interest on deposits:
Transaction accounts 393,518 370,503 394,080
Money market deposit accounts 262,149 247,501 269,117
Other savings deposits 486,654 469,337 462,830
Time certificates of deposit of $100,000 or more 2,687,855 2,756,024 2,391,284
All other time deposits 5,478,007 5,318,928 5,133,154
Borrowed funds 137,088 133,263 110,777
Total Interest Expense 9,445,271 9,295,556 8,761,242
NET INTEREST INCOME 13,061,004 12,808,784 12,484,190
Provision for loan losses 1,651,925 507,500 783,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 11,409,079 12,301,284 11,701,190
OTHER INCOME:
Service charges on deposit accounts 1,722,533 1,619,134 1,517,781
Commissions and fees 298,402 264,581 305,213
Other service charges and fees 126,569 114,808 109,005
Security gains (losses), net - (30,816) (95,491)
Gain on sale of other assets 11,962 18,419 3,166
Dividends 122,686 248,136 170,287
Mortgage banking fees 342,185 119,206 115,140
Total Other Income 2,624,337 2,353,468 2,125,101
OTHER EXPENSES:
Salaries and employee benefits 4,420,812 4,478,073 4,270,016
Occupancy expense, net 932,698 857,078 855,318
Furniture and equipment expense 778,409 741,509 757,748
Advertising and public relations 461,570 502,849 413,486
Other operating expenses 1,727,780 1,539,731 1,371,289
Total Other Expenses 8,321,269 8,119,240 7,667,857
Income before income taxes 5,712,147 6,535,512 6,158,434
Applicable income taxes 1,909,215 2,215,867 2,095,836
NET INCOME $ 3,802,932 $ 4,319,645 $ 4,062,598
Earnings per common share:
Basic $ 2.44 $ 2.81 $ 2.67
Diluted $ 2.43 $ 2.80 $ 2.67
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, 1998, 1997, and 1996
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,802,932 $ 4,319,645 $ 4,062,598
Adjustments to reconcile net income to net cash
provided by operating activities-
Provision for loan losses 1,651,925 507,500 783,000
Depreciation 771,879 754,002 745,720
Amortization and accretion of investment securities, net 105,438 165,380 225,283
Deferred income tax expense (benefit) (87,315) (62,304) (77,511)
Gain on sale of other assets (11,962) (18,419) (3,166)
Security gains (losses),net - 30,816 95,491
Loans originated for sale (14,452,933) (4,987,503) (4,911,920)
Proceeds from sale of loans 13,187,740 4,906,896 4,743,420
(Increase)decrease in interest receivable 71,541) (10,619) (17,541)
(Increase) in prepayments and other assets (1,063,009) (32,707) (147,728)
Increase (decrease) in accrued interest on deposits (99,454) 324,160) (107,654)
Increase (decrease) in accrued taxes (5,518) (229) 1,328
Increase (decrease) in other liabilities (78,463) (25,839) (19,392)
Cash Provided by Operating Activities, net 3,792,801 5,870,779 5,371,928
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in interest bearing deposits with banks - - 100,000
Purchases of securities available for sale (10,000,910) (26,282,664) (19,598,894)
Proceeds from sales of securities available for sale - 8,054,063 11,967,501
Proceeds from maturities of securities available for sale 15,160,001 11,108,064 5,021,968
Purchases of securities held to maturity (10,403,495) (7,176,105) (8,326,881)
Proceeds from maturities of securities held to maturity 4,925,600 6,505,000 5,915,125
Net increase in loans (1,221,664) (11,102,349) (5,322,675)
Capital expenditures (1,017,809) (878,255) (657,661)
Proceeds from sale of other real estate 188,670 186,432 14,000
Cash Used by Investing Activities, net (2,369,607) (19,585,814) (10,887,517)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - 500,000 660,000
Borrowings repaid (168,180) (150,513) (125,974)
Net increase in deposits 6,634,031 14,479,159 5,276,796
Cash dividends paid (2,498,423) (2,311,927) (2,130,927)
Proceeds from issuance of common stock 714,351 587,022 501,476
Common stock repurchased - - (761,484)
Cash Provided by Financing Activities, net 4,681,779 13,103,741 3,419,887
INCREASE (DECREASE) IN CASH, net 6,104,973 (611,294) (2,095,702)
CASH AND CASH EQUIVALENTS, beginning of year 16,292,171 16,903,465 18,999,167
CASH AND CASH EQUIVALENTS, end of year $ 22,397,144 $ 16,292,171 $ 16,903,465
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, 1998, 1997 and 1996
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, 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) - -
Comprehensive income:
Net income - - - 4,062,598 -
Change in unrealized gains
(losses) on AFS securities,
net of tax - - - - (179,056)
Less reclassification
Adjustment, net of deferred
Income tax benefit of $32,500 - - - 63,000
Comprehensive income - - - 3,946,542
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)
--------- --------- --------- ---------- --------- ----------
Balance at December 31, 1995 1,532,220 1,532,220 5,895,046 24,278,237 181,899 31,887,402
Comprehensive income:
Net income - - - 4,319,645 -
Change in unrealized gains
(losses) on AFS securities,
net of tax - - - - 126,904
Less reclassification
Adjustment, net of deferred
Income tax benefit of $10,500 - - - 20,300
Comprehensive income - - - 4,466,849
Cash dividends paid $1.50
per share - - - (2,311,927) - (2,311,927)
Common stock issued 18,774 18,774 518,248 - - 537,022
--------- --------- --------- ---------- ------- ----------
Balance at December 31, 1997 1,550,994 1,550,994 6,413,294 26,285,955 329,103 34,579,346
Comprehensive income:
Net income - - - 3,802,932
Net change in unrealized gains
on securities, net of tax
of $45,328 - - - - 87,989
Comprehensive income - - - 3,890,921
Cash dividends paid $1.60
per share - - - (2,498,423) - (2,498,423)
Common stock issued 22,521 22,521 691,830 - - 714,351
--------- --------- --------- ---------- ------- ----------
Balance at December 31, 1998 1,573,515 $ 1,573,515 $ 7,105,124 $27,590,464 $ 417,092 $36,686,195
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 general practices within
the financial services 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
Securities are classified at the time of purchase as either held to maturity or
available for sale. The Corporation defines held to maturity securities as
securities for which management has the positive intent and ability to hold to
maturity. Held to maturity securities are carried at amortized cost. 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
carried at fair value. Unrealized holding gains and losses for available for
sale securities are reported, net of tax, in other comprehensive income. The
amortized cost of all securities is adjusted for amortization of premium and
accretion of discount to maturity, or earlier call date if appropriate. Such
amortization and accretion is included in interest income from securities. Gains
and losses from sales of available for sale securities are computed using 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, 1998 and 1997, totaling
$1,606,298 and $341,105, 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
Note A - Summary of Significant Accounting Policies - (Continued)
Loans and Allowance for Loan Losses - (Continued)
Impaired loans are specifically reviewed loans for which it is probable that the
creditor will be unable to collect all amounts due according to the terms of the
loan agreement. Impairment of a loan is 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.
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
Note A - Summary of Significant Accounting Policies - (Continued)
Income Taxes
The Corporation files a consolidated Federal income tax return which includes
both of its subsidiaries. Income tax expense is allocated among the parent
company and its subsidiaries as if each had filed a separate return. 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. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the year in which those
temporary differences are expected to be realized or settled. Recognition of
certain deferred tax assets is based upon management's belief that, based upon
historical earnings and anticipated future earnings, normal operations will
continue to generate sufficient future taxable income to realize these benefits.
A valuation allowance is established for deferred tax assets when, in the
opinion of management, it is more likely than not, that the asset will not be
realized.
Statements of Cash Flows
Cash and cash equivalents as presented in the consolidated statements of cash
flows include cash and due from banks and federal funds sold. Cash flows from
operating activities reflect interest paid of $9,544,725, $8,971,397 and
$8,868,896 and income taxes paid of $2,206,102, $2,273,590 and $2,183,486 for
the years ended December 31, 1998, 1997, and 1996, 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 presents
on the income statement both Basic EPS and Diluted EPS for all periods
presented. 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. The most significant estimate relates to the adequacy of the
allowance for losses on loans. Actual results could differ from those
estimates.
Reclassifications
Certain 1997 and 1996 financial information has been reclassified to conform its
presentation with the 1998 financial statements. None of these
reclassifications had any effect on net income or earnings per share.
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.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies - (Continued)
Comprehensive Income
In June 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. The
Corporation adopted the provisions of this statement in 1998. These disclosure
requirements had no impact on financial position or results of operations.
Prior year financial statements have been reclassified to conform to the SFAS
No. 130 requirements.
Segments of an Enterprise and Related Information
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". The provisions of this statement require
disclosure of financial and descriptive information about an enterprise's
operating segments in annual and interim financial reports issued to
shareholders. The statement defines an operating segment as a component of an
enterprise that engages in business activities that generate revenue and incur
expense, whose operating results are reviewed by the chief operating decision
maker in the determination of resource allocation and performance, and for which
discrete financial information is available. The Corporation operates in only
one operating segment (banking) therefore, the disclosure requirements of this
statement are not applicable.
Effect of New Accounting Pronouncements
June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The provisions of this statement require that
derivative instruments be carried at fair value on the balance sheet. The
statement continues to allow derivative instruments to be used to hedge various
risks and sets forth specific criteria to be used to determine when hedge
accounting can be used. The statement also provides for offsetting changes in
fair value or cash flows of both the derivative and the hedged asset or
liability to be recognized in earnings in the same period; however, any changes
in fair value or cash flow that represent the ineffective portion of a hedge are
required to be recognized in earnings and cannot be deferred. For derivative
instruments not accounted for as hedges, changes in fair value are required to
be recognized in earnings. The provisions of this statement become effective
for quarterly and annual reporting beginning January 1, 2000. It is the policy
of the Corporation not to invest in derivative instruments. The adoption of the
provisions of this statement is not expected to have an impact on the
Corporation.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after The Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise". This statement is effective for the first
fiscal quarter beginning after December 15, 1998. Adoption of this statement
will have no impact on the Corporation's financial position or results of
operations.
<PAGE>
<TABLE>
<CAPTION>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross Gross Estimated
Unrealized Unrealized Fair
1998 Cost Gains Losses Value
Available for Sale
- - ----------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 16,030,692 $ 331,808 $ - $ 16,362,500
U.S. Government agencies 29,306,212 305,371 1,432 29,610,151
--------------- ---------------- ---------------- -----------------
45,336,904 637,179 1,432 45,972,651
-------------- ---------------- ---------------- ----------------
Held to Maturity
Obligations of states and
political subdivisions 17,936,798 231,553 5,628 18,162,723
Other debt securities 7,652,877 72,196 7,560 7,717,513
--------------- ---------------- ---------------- -----------------
25,589,675 303,749 13,188 25,880,236
--------------- ---------------- ---------------- -----------------
TOTAL $ 70,926,579 $ 940,928 $ 14,620 $ 71,852,887
========== ========== ========== ==========
1997
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
========== ========== ========== ==========
</TABLE>
The following is a summary of the amortized cost and estimated fair value of
debt securities by contractual maturity at December 31, 1998
<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 $13,045,367 $13,158,202 $ 5,764,539 $ 5,795,993
Due after one year through five years 32,258,792 32,780,528 16,862,792 17,118,840
Due after five years through ten years 32,745 33,921 2,852,719 2,851,213
Due after ten years - - 109,625 114,190
TOTAL $45,336,904 $45,972,651 $25,589,675 $25,880,236
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note B - Securities (Continued)
Net gains realized from securities transactions for 1998, 1997 and 1996 were:
<TABLE>
<CAPTION>
Book Gross Realized Net
<S> <C> <C> <C> <C> <C>
1998 Proceeds Value Gains Losses Realized
Securities matured or redeemed 20,085,601 20,085,601 - - -
========== ========== ======== ========= ===========
1997
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)
=========== ========== ========== ======== ===========
*Previously written off
</TABLE>
Income tax expense (benefit) attributable to securities transactions was $-0-,
$(12,326) and $(38,196) for 1998, 1997 and 1996, respectively.
Securities with a book value of $14,330,310 and $21,533,090 at December 31, 1998
and 1997, respectively, were pledged to secure public monies and for other
purposes as required or permitted by law.
There were no securities of a single issuer, other than U.S. Treasury and other
U.S. government agency securities, 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, 1998 or 1997.
Note C - Loans and Allowance for Loan Losses
Credit risk represents the maximum accounting loss that would be recognized at
the reporting date if counterparties failed completely to perform as contracted
and any collateral or security proved to be of no value. Concentrations of
credit risk or types of collateral arising from financial instruments exist in
relation to certain groups of customers. A group concentration arises when a
number of counterparties have similar economic characteristics that would cause
their ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions. The Corporation does not have a
significant concentration to any individual customer or counterparty. The major
concentrations of credit risk for the Corporation arise by collateral type in
relation to loans and credit commitments. The only significant concentrations
that exists is in loans secured by real estate and agricultural related loans.
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. A geographic concentration arises
because the Corporation grants commercial, real estate 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.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note C - Loans and Allowance for Loan Losses (Continued)
The following is a summary of loans at December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Construction and land development $ 5,108,089 $ 3,341,399
Commercial and industrial 24,605,702 23,121,605
Agricultural 10,052,890 11,461,326
Real estate loans secured by:
Farmland 19,576,951 19,141,458
Residential property 41,307,489 40,177,271
Nonresidential, nonfarm 30,890,897 31,033,314
Loans to individuals secured by:
Automobiles 20,954,132 20,686,443
Retail, consumer and personal expenditures 17,471,836 19,203,199
Other loans 2,445,270 3,426,238
172,413,256 171,592,253
Unearned income (2,762,195) (2,854,697)
TOTAL $169,651,061 $168,737,556
</TABLE>
The following is a summary of loan maturities carrying fixed and variable
interest rates as of December 31, 1998:
<TABLE>
<CAPTION>
Within Over
One Year One Year Total
<S> <C> <C> <C>
Fixed rate loans $ 81,202,421 $ 76,925,351 $158,127,772
Variable rate loans 12,783,023 1,502,461 14,285,484
TOTAL $ 93,985,444 $ 78,427,812 $172,413,256
</TABLE>
At December 31, 1998, 1997 and 1996, impaired, nonaccrual and restructured loans
totaled $3,173,107, $701,867 and $449,531, respectively. The amount of interest
income actually recognized on these loans during 1998, 1997 and 1996, was
$126,213, $7,971 and $5,625, respectively. The additional amount of interest
income that would have been recorded during 1998, 1997 and 1996, if the above
amounts had been current in accordance with their original terms was $177,994,
$44,427 and $26,139, respectively. Nonaccrual loans at December 31, 1998
include approximately $2,100,000 of loans to relatives of the former CEO of the
Corporation. Management has downgraded this credit line due to collateral
misrepresentations. See Note Q for additional contingencies related to this
matter. Approximately $731,000 of this credit line was charged off during 1998,
the balance placed on nonaccrual status and the loan loss provision increased
accordingly.
As of December 31, 1998, 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 $ 2,902,395 $ 339,995
No valuation allowance required 270,712 -
Total Impaired Loans $ 3,173,107 $ 339,995
</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
Note C - Loans and Allowance for Loan Losses (Continued)
The average recorded investments in impaired loans for the years 1998, 1997
and 1996 were $1,963,830, $535,018 and $373,579, respectively. At
December 31, 1998, 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 $252,637, $176,043 and
$190,761 at December 31, 1998, 1997 and 1996, 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 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance at beginning of year $ 9,322,014 $ 9,400,395
Additions 5,356,897 6,443,059
Repayments (6,329,186) (6,521,440)
No longer related
(3,374,568) -
Balance at end of year $ 4,975,157 $ 9,322,014
</TABLE>
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C> <C>
Balance at beginning of year $ 2,604,080 $ 2,380,700 $ 2,058,456
Less-Charge-offs:
Real estate -
Residential 45,133 31,028 -
Commercial 148,425 163,504 53,236
Agricultural 702,594 16,664 50,089
Individuals 681,310 496,788 637,280
1,577,462 707,984 740,605
Add-Recoveries:
Real estate -
Residential 22,668 23,020 1,810
Nonresidential, nonfarm - - 19,336
Commercial 45,298 50,717 12,941
Agricultural 9,866 2,975 2,683
Individuals 179,159 347,152 243,079
256,991 423,864 279,849
Net Charge-offs 1,320,471 284,120 460,756
Add-Provision charged to operations 1,651,925 507,500 783,000
Balance at end of year $ 2,935,534 $ 2,604,080 $ 2,380,700
Ratio of net charge-offs to average
loans outstanding during the year 0.78% 0.17% 0.29%
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note D - Bank Premises and Equipment
The following is a summary of bank premises and equipment at December 31:
<TABLE>
<CAPTION>
Accumulated
Depreciation & Carrying
1998 Cost Amortization Amount
<S> <C> <C> <C>
Land $ 708,480 $ - $ 708,480
Buildings 8,625,610 3,276,547 5,349,063
Furniture and equipment 5,147,896 4,005,687 1,142,209
Leasehold improvements 408,299 86,980 321,319
TOTAL $ 14,890,285 $ 7,369,214 $ 7,521,071
1997
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
</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>
1999 49,722 2004 - 2008 30,000
2000 49,532 2009 - 2013 30,000
2001 20,422 2014 2,500
2002 6,000
2003 6,000
</TABLE>
Rents charged to operations under operating lease agreements for the years
1998, 1997 and 1996 were $51,351, $55,014 and $53,704, respectively.
Note E - Prepayments and Other Assets
The following is a summary of prepayments and other assets at December 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Prepaid expenses $ 242,970 $ 126,970
Federal Home Loan Bank stock 883,798 822,300
Federal Reserve Bank stock 112,500 112,500
Investment in single premium whole life insurance contract 567,554 545,725
Insurance Receivable 858,003 -
Investment in insurance limited partnership and corporation 81,850 81,850
Deferred income tax benefits 518,087 476,100
Other 10,819 5,440
TOTAL $ 3,275,581 $ 2,170,885
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
Note F - Deposits
The following is a summary of deposits at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Noninterest bearing:
Demand $ 36,187,911 $ 32,676,530
Interest bearing:
Demand 20,759,927 19,572,520
Savings 28,305,283 28,563,877
Other time 98,306,908 98,800,222
Certificates of deposit $100,000 and over 50,239,497 47,552,345
TOTAL $ 233,799,526 $ 227,165,494
</TABLE>
Note G - Other Borrowed Funds
The following is a summary of other borrowed funds at December 31:
<TABLE>
<CAPTION>
1998 1997
<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% $ 151,875 $ 162,675
Dated 6-22-94, matures 7-01-04, payable
$11,077 per month including interest
at 5.95% 630,153 722,577
Dated 10-16-95, matures 11-01-05,
payable $2,750 per month including
interest at 6.70% 182,243 202,294
Dated 2-2-96, matures 3-01-16,
payable $2,237 per month including
interest at 6.50% 277,962 286,433
Dated 2-12-96, matures 3-01-11,
payable $3,087 per month including
interest at 6.25% 316,494 333,184
Dated 4-16-97, matures 5-1-2012,
payable $4,607 per month including
interest at 7.40% 469,392 489,137
TOTAL $ 2,028,120 $ 2,196,300
</TABLE>
The notes are secured by a pledge of Federal Home Loan Bank stock with a par
value of $883,798 and a blanket pledge of $3,042,180 first mortgage loans
against single family, 1-4 unit residential properties.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note G - Other Borrowed Funds (Continued)
Notes payable are scheduled to mature December 31:
<TABLE>
<CAPTION>
<S> <C>
1999 179,030
2000 190,585
2001 202,890
2002 215,995
2003 229,952
Thereafter 1,009,668
$ 2,028,120
</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>
1998 1997 1995
<S> <C> <C> <C>
Federal
Current $ 1,644,651 $ 1,913,280 $ 1,830,769
Deferred tax (benefit) (87,315) (62,304) (77,511)
1,557,336 1,850,976 1,753,258
State 351,879 364,891 342,578
Provision for Income Taxes $ 1,909,215 $ 2,215,867 $ 2,095,836
</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>
1998 1997 1996
<S> <C> <C> <C>
Federal taxes at statutory rate $ 1,942,130 $ 2,222,074 $ 2,093,868
Increase (decrease) resulting from
tax effect of:
Tax exempt interest on obligations
of states and political subdivisions (228,102) (202,983) (219,420)
State income taxes, net of federal
income tax benefit 232,224 240,828 226,101
Dividend received deduction (13,190) (43,863) (27,523)
Others, net (23,847) (189) 22,810
Provision for Income Taxes $ 1,909,215 $ 2,215,867 $ 2,095,836
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note I - Income Taxes (Continued)
Significant components of the Corporation's deferred tax assets and
liabilities on December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 812,637 $ 699,198
Other real estate 2,795 3,831
Deferred compensation - 18,633
Gross Deferred Tax Assets 815,432 721,662
Deferred tax liabilities:
Investment securities 25,103 39,152
Securities available for sale 216,154 170,826
Other securities 56,088 35,584
Gross Deferred Tax Liabilities 297,345 245,562
Net Deferred Tax Assets $ 518,087 $ 476,100
</TABLE>
Note J - Other Operating Expenses
The following table summarizes the components of other operating expenses
for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Directors' fees $ 228,870 $ 185,270 $ 153,275
Stationery and supplies 182,799 189,936 184,158
FDIC insurance 27,580 26,935 2,000
Other insurance 44,437 45,470 50,686
Collection and professional fees 260,796 165,473 116,938
Postage 133,017 132,474 126,971
Telephone 126,946 112,618 96,901
Other 723,335 681,555 640,360
$ 1,727,780 $ 1,539,731 $ 1,371,289
</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 1998
was $3,413,517. Contributions for the current year were calculated using the
base salary amount of $3,007,329. 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 $451,099, $461,674 and
$455,234 in 1998, 1997 and 1996, respectively.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note M - First Pulaski National Corporation (Parent Company Only) Financial
Information
<TABLE>
<CAPTION>
BALANCE SHEETS
December 31,
<S> <C> <C>
ASSETS 1998 1997
Cash $ 2,679,615 $ 2,623,627
Loans to subsidiary 738,560 150,000
Investment in subsidiaries, at equity 33,160,514 31,710,317
Other assets 107,506 95,402
TOTAL ASSETS $ 36,686,195 $ 34,579,346
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' Equity
Common stock, $1 par value; authorized - 10,000,000
shares; 1,573,515 and 1,550,994 shares issued
and outstanding $ 1,573,515 $ 1,550,994
Capital surplus 7,105,124 6,413,294
Retained earnings 27,590,464 26,285,955
Net unrealized gains on securities available for sale, net of tax 417,092 329,103
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,686,195 $ 34,579,346
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
Years Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $ 2,498,423 $ 2,311,927 $ 2,130,927
Other dividends 90,211 184,297 115,642
2,588,634 2,496,224 2,246,569
EXPENSES
Education 15,438 22,855 27,354
Directors' fees 69,700 47,400 33,100
Stockholder's meeting 15,902 16,528 17,477
Other 20,819 21,273 14,799
121,859 108,056 92,730
Income before applicable income taxes and equity in
undistributed earnings of subsidiaries 2,466,775 2,388,168 2,153,839
Reduction in consolidated income taxes arising from
parent company tax operating loss 23,950 17,941 19,733
Income before equity in undistributed earnings of
subsidiaries 2,490,725 2,406,109 2,173,572
Equity in undistributed earnings of subsidiaries 1,312,207 1,913,536 1,889,026
NET INCOME $ 3,802,932 $ 4,319,645 $ 4,062,598
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note M - First Pulaski National Corporation (Parent Company Only) Financial
Information (Continued)
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,802,932 $ 4,319,645 $ 4,062,598
Adjustments to reconcile net income to net cash provided
by operating activities -
Equity in undistributed earnings of subsidiary (1,312,207) (1,913,536) (1,889,026)
(Increase) decrease in other assets (12,105) 6,181 6,262
Cash Provided by Operating Activities 2,478,620 2,412,290 2,179,834
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in loans (588,560) (150,000) -
Investment in subsidiary (50,000) (50,000) -
Cash Used by Investing Activities (638,560) (200,000) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (2,498,423) (2,311,927) (2,130,927)
Proceeds from issuance of common stock 714,351 537,022 501,476
Common stock repurchased - - (761,484)
Cash Used by Financing Activities (1,784,072) (1,774,905) (2,390,935)
INCREASE (DECREASE) IN CASH, net 55,988 437,385 (211,101)
CASH, beginning of year 2,623,627 2,186,242 2,397,343
CASH, end of year $ 2,679,615 $ 2,623,627 $ 2,186,242
</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 $2,130,000 and $1,575,000 for the years ended
December 31, 1998 and 1997, 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, 1998, to the Parent Company was
$6,017,895.
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.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note M - 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, 1998.
As of March 23, 1998, 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 $ 35,080,000 $38,662,000 $15,221,760 $15,284,720 $19,027,200 $19,105,900
Tier I Capital
(to Risk-Weighted Assets 32,695,000 36,267,000 7,610,880 7,642,360 11,416,320 11,463,540
Tier I Capital
(to Adjusted Total Assets 32,695,000 36,267,000 8,222,700 8,246,010 13,704,500 13,743.350
Ratios:
Total Risk-Based Capital
(to Risk-Weighted Assets 18.44% 20.24% 8.00% 8.00% 10.00% 10.00%
Tier I Capital
(to Risk-Weighted Assets 17.18% 18.98% 4.00% 4.00% 6.00% 6.00%
Tier I Capital
(to Adjusted Total Assets 11.93% 13.19% 3.00% 3.00% 5.00% 5.00%
</TABLE>
<PAGE>
Note N - 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.
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note N - 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>
1998 1997 1996
<S> <C> <C> <C>
Net Income:
As reported $ 3,802,932 $ 4,319,645 $ 4,062,598
Pro forma 3,799,432 4,312,645 4,044,598
Earnings per Share:
As reported $ 2.43 $ 2.80 $ 2.67
Pro forma 2.43 2.79 2.66
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 1998, 1997
and 1996, respectively: dividend yield of 4.7 percent for all years; expected
volatility of 7.9, 8.3 and 6.3 percent; risk-free interest rates of 6.0 percent
in 1998 and 7.0 percent in 1997 and 1996; and expected lives of 4.4 years in all
years.
Shares available for grants of options or rights to purchase at December 31,
1998 include 55,000 shares under the 1987 stock option plan, 91,910 shares under
the 1994 outside directors stock option plan, 97,275 shares under the 1994
employee purchase plan and 85,000 shares under the 1997 stock option plan.
The 1987 and 1997 plans permit the Board of Directors to grant options to key
employees. A total of 100,000 shares were reserved under each plan of which
60,000 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.
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
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note N - Stock Option and Stock Purchase Plans (Continued)
The following is a summary of the stock option and purchase plans activity for
1998, 1997 and 1996:
</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, 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 -
Additions 100,000 - - -
Granted (9,750) 9,750 (8,453) 8,453
Exercised - (10,045) - (8,453)
-------- -------- -------- --------
Balance December 31, 1997 256,410 21,405 109,697 -
Granted (24,500) 24,500 (12,422) 12,422
Exercised - (9,836) - (12,422)
-------- -------- -------- --------
Balance December 31, 1998 231,910 36,069 97,275 -
======== ======== ======== ========
Exercisable at December 31, 1998 16,319
==========
</TABLE>
The weighted-average fair value of options, calculated using the Black-
Scholes option pricing model, granted during 1998, 1997 and 1996 is $3.33,
$4.79 and $4.50, respectively.
Note O - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Numerator for basic and diluted earnings
per share - income available to common
shareholders $3,802,932 $4,319,645 $4,062,598
Denominator for basic earnings per share -
weighted-average basis 1,560,113 1,539,866 1,522,591
Effect of dilutive stock options 6,365 3,356 1,356
Denominator for diluted earnings per share -
adjusted weighted-average shares 1,566,478 1,543,222 1,523,947
Basic earnings per share $2.44 $2.81 $2.67
Diluted earnings per share $2.43 $2.80 $2.67
</TABLE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note P - 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.
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 $ 22,397 $ 22,397 $ 16,292 $ 16,292
Securities 71,562 71,853 71,216 71,366
Loans 169,651 171,788 168,738 158,256
Less: allowance for loan losses (2,936) - (2,605) -
Financial liabilities:
Deposits 233,800 234,138 227,165 212,766
Other borrowed funds 2,028 2,432 2,196 1,785
Unrecognized financial instruments:
Standby letter of credit - (1) - (1)
</TABLE>
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note Q - 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 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
1998 1997
<S> <C> <C>
Commitments to extend credit $ 18,178,885 $ 14,811,580
Standby letters of credit 539,416 630,374
Mortgage loans sold with repurchase
requirements outstanding 3,023,651 1,737,347
</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 other 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.
The Year 2000 issue is the result of computer programs using a two-digit format,
as opposed to four-digits, to indicate the year. These computer systems will be
unable to interpret dates beyond the year 1999, which could cause a system
failure or other computer errors, leading to disruptions in operations. The
problem is not limited to computer systems, or any particular industry. Year
2000 issues will potentially affect every system that has an embedded microchip
containing this flaw, such as alarm systems, vaults and elevators. The
Corporation is committed to addressing the Year 2000 challenges in a timely and
responsible manner. It has dedicated resources to do so with the goal that
<PAGE>
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note Q - Other Financial Instruments, Commitments and Contingencies (Continued)
systems and services will not be compromised or otherwise negatively impacted by
computer-based entries and record keeping related to the century date change.
The Corporation organized a Year 2000 Steering Committee, that has been active
since 1997, to identify, address and mitigate key Year 2000 risks in the
organization.. This committee meets monthly and reports on a quarterly basis to
the Board of Directors The committee developed a Year 2000 Plan which has five
phases: awareness, assessment and planning, renovation, testing and
implementation. The awareness and assessment and planning phases were completed
in 1998. The Corporation expects the renovation and testing phases to be
completed in the first quarter of 1999. The Corporation's operations could be
materially affected if the operations of those companies who provide the
Corporation with mission-critical applications, systems and services are
materially affected by the Year 2000 issue. Failure of these parties to achieve
Year 2000 readiness could substantially affect the Corporation's operations. In
response to this concern, the Corporation is in constant dialogue with key
service providers and is performing due diligence over their remediation and
testing efforts. All mission-critical vendors have informed the Corporation that
they are Year 2000 compliant as of December 31, 1998. The Corporation's Year
2000 Contingency Plan was approved by the Board of Directors in January 1999.
The contingency plan has been designed to assure that mission-critical systems
will continue in the event that one or more systems should fail. The
Corporation intends to update and revise its contingency plans as the validation
process continues. The Corporation estimates that the total cost of the
expenses associated with year 2000 issues will be approximately $137,400. This
estimate excludes internal personnel costs, as the Corporation does not track
and specifically assign these costs. The Corporation has paid approximately
$32,400 of these costs to date, which represents 24% of the projected total
costs. At this time, management does not believe these costs will have a
material effect on the operations or financial performance of the Corporation.
The above discussion of Year 2000 issues includes numerous forward-looking
statements reflecting management's current assessment and estimates with respect
to the Corporation's Year 2000 compliance efforts and the impact of Year 2000
issues on the Corporation's business and operations. These statements are based
on information currently available to management. Various factors could cause
actual results to differ materially from those contemplated by such assessment,
estimates and forward-looking statements, including many factors that are beyond
the control of the Corporation. These factors include, but are not limited to:
(a) the success of the Corporation in identifying systems and programs that are
not Year 2000 compliant, (b) the continuing availability of experienced
consultants and information technology personnel, (c) the nature and amount
of programming required to upgrade or replace each of the affected programs,
(d) the ability of third parties to complete their own Year 2000
remediations on a timely basis, and (e) the ability of the Corporation to
implement contingency plans.
Note R - Pending Litigation
The Bank has filed suits for amounts owed on promissory notes and/or guaranty
agreements from relatives and certain entities of the relatives of the former
CEO of the Corporation. The defendants, in March 1999, filed a counter-
complaint against the Corporation's bank subsidiary (the "Bank") alleging (i)
that the Bank knew or should have known of certain activities of the former CEO,
and that the Bank had a duty to inform the defendants of these activities, (ii)
that the Bank was negligent and reckless in placing the CEO in a position to
commit fraud on the defendants and (iii) the Bank, through its officers,
directors and employees, intentionally, recklessly and fraudulently concealed
the CEO's fraudulent conduct from the defendants. The defendant's counter-
complaint seeks $8 million in compensatory and $20 million in punitive damages.
The Bank will continue to vigorously assert its rights in the cases and will
vigorously contest all claims asserted by the defendants in their counter-
complaint, which the Bank believes are totally without merit.
<PAGE>
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, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
[S] Putman & Hancock
Fayetteville, Tennessee
February 23, 1999, except for Note R, as to which the date is March 22, 1999
<PAGE>
ITEM 9: DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None required to be described.
PART III
The information required by Part III of this Form 10-K is incorporated by
Reference to the Corporation's definitive proxy statement to be file no later
than April 30, 1999.
<PAGE>
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, 1998 and 1997.
Consolidated Statement of Income--Years Ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997 and
1996.
Consolidated Statements of Changes in Stockholders' Equity-Years Ended
December 31, 1998, 1997 and 1996.
The following parent company only financial statements for the First Pulaski
National Corporation are included in Part II, Item 8:
Balance Sheets--December 31, 1998 and 1997.
Statements of Income--Years Ended December 31, 1998, 1997 and 1996.
Statements of Cash Flows--Years Ended December 31, 1998, 1997 and 1996.
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 1998, 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.
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: 3-24-99 By: /s/ James T. Cox
----------------- ---------------------------------------
James T. Cox, Acting President & Chief
Executive Officer
Date: 3-24-99 By: /s/ Harold Bass
----------------- --------------------------------------
Harold Bass, Acting Secretary/Treasurer
(The Corporation's Acting Principal
Financial Officer and Principal
Accounting Officer)
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/ James T. Cox
- - ------------------------------ ----------------------------
Joyce F. Chaffin, Director James T. Cox, Director
/s/ Parmenas Cox /s/ G. G. Dugger DDS
- - ------------------------------ ----------------------------
Parmenas Cox, Director Greg G. Dugger DDS, Director
/s/ Charles D. Haney MD /s/ Morris Ed Harwell
- - ------------------------------ ----------------------------
Charles D. Haney MD, Director Morris Ed Harwell, Director
/s/ James Rand Hayes /s/ D. Clayton Lee
- - ------------------------------ ----------------------------
James Rand Hayes, Director D. Clayton Lee, Director
/s/ Kenneth R. Lowry /s/ Beatrice J. McElroy
- - ------------------------------ ----------------------------
Kenneth R. Lowry, Director Beatrice J.McElroy, DirectoR
/s/ William A. McNairy /s/ W. Harwell Murrey MD
- - ------------------------------ ----------------------------
William A. McNairy, Director W. Harwell Murrey MD, Director
/s/ Bill Yancey
- - ------------------------------
Bill Yancey, Director
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER
3.1 Charter
3.2 Bylaws
11 Statement Regarding Computation of Per Share
Earnings -- Included in Note A to Financial
Statements, Part II, Item 8
21 Subsidiaries of the Registrant
24 Consent of Putman & Hancock, Certified Public
Accountants
27 Financial Data Schedule
<PAGE>
Exhibit 3.1
CHARTER
OF
FIRST PULASKI NATIONAL CORPORATION
THE UNDERSIGNED natural person, having capacity to contract and acting as the
incorporator of a corporation under the Tennessee General Corporation Act,
adopts for following Charter for such corporation:
1. Name. The name of the Corporation is FIRST PULASKI NATIONAL CORPORATION.
2. Duration. The duration of the Corporation is perpetual.
3. Address. The address of the principal office of the Corporation in the
State of Tennessee shall be 206 South First Street, Pulaski, Tennessee
38478.
4. Profit. The Corporation is for profit.
5. Purpose. The purpose or purposes for which the Corporation is organized
are:
To purpose, own and hold the stock of other corporations and associations,
and to do every act and thing covered generally by the term "holding company"
or "holding corporation," to direct the operations of banking or other
corportions or associations through the ownership of stock therein or through
any form of contract, trust or other agreement, and in connection therewith,
or in aid thereof;
To purchase, subscribe for, or otherwise acquire and own, hold, use, sell,
assign, transfer, mortgage, pledge, exchange, create security interests in, or
otherwise dispose of real and personal property of every kind and description,
including good will, trade names, rights and franchises, and including shares of
stock, certificates or other interests in voting trust for shares of stock, or
any bonds, debentures, notes, evidences of indebtedness or other securities,
contracts or obligations of any banking or other corporation or corporations,
association or associations, organized under the laws of the State of Tennessee
or the United States of America or any other state or district or country,
nation or government, and to pay therefor in whole or in part in cash or by
exchanging therefor, stocks, bonds or other evidences of indebtedness or
securities of this or any other corporation, and while the owner or holder of
any such real or personal property, stock, bonds, debentures, notes, evidences
of indebtedness or other securities, contracts, or obligations, to receive,
collect and dispose of the interest, dividends and income arising therefrom and
to possess and exercise in respect thereof, all of the rights, powers and
privileges of ownership, including all voting powers on any stocks, voting trust
certificates, or other securities so owned; and in connection with any
acquisition, disposition, pledge or other act of ownership with regard to any
such stocks, securities or other property, whether tangible or intangible, to
assume or guarantee performance of any liabilities, obligations or contracts of
any persons, firms, corporations or associations; To organize or promote or
facilitate, the organization of any corporation, association, partnership,
subsidiary or other entity, under the laws of Tennessee or the United States of
America or any other state or district or county, nation or government, for the
purpose of transacting, promoting or carrying on a banking or any other lawful
business or purpose or purposes; To merge, consolidate, dissolve, wind up or
liquidate any corporation, association or their entity which this corporation
may organize, purchase or otherwise acquire or have an interest in, or to cause
the same to be merged, consolidated, dissolved, wound up or liquidated;
To aid, either by loans or by guaranty of securities or in any other
manner, any corporation, association, building, enterprise, venture, or
voting trust, domestic or foreign, shares of stock in which or any bonds,
debentures, notes, securities, evidences of indebtedness, contracts or
obligations of which are held by this corporation, directly or indirectly, or
in which, or in the welfare of which, this corporation shall have any
interest, and to do any acts designed to protect, preserve, improve or
enhance the value of any property at any time held or controlled by it or in
which it may at any time be interested, directly or indirectly, through other
corporations or otherwise; and To engage in management consulting or to provide
management services for any corporation, association, business, enterprise,
venture or property in which, or in the welfare of which, this corporation shall
have any interest; and To carry on any business whatsoever that this corporation
may deem proper or convenient in connection with any of the foregoing purposes
or otherwise, or that it may deem calculated, directly or indirectly, to improve
the interests of this Corporation, and to do all things specified in the
Tennessee General Corporation Act, and to have and to exercise all powers
conferred by the laws of the State of Tennessee on corporations formed under the
laws pursuant to which and under which this Corporation is formed, as such laws
are now in effect or may at any time hereafter be amended and to do any and all
things hereinabove set forth to the same extent and as fully as natural persons
might or could do, either alone or in connection with other persons, firms,
associations or corporations, and in any part of the world.
The foregoing statement of purposes shall be construed as a statement of both
purposes and powers, shall be liberally construed in aid of the powers of this
Corporation, and the powers and purposes stated in each clause shall, except
where otherwise stated, be in nowise limited or restricted by an term or
provision of any other clause, and shall be regarded not only as independent
purposes, but the purposes and powers stated shall be construed distributively
as each object expressed, and the enumeration as to specific powers shall not
be construed as to limit in any manner the aforesaid general powers, but are in
furtherance of and in addition to an not in limitation of said general powers.
6. The Corporation shall have and exercise all powers necessary or
convenient to effect any and all of the purposes for which the Corporation is
organized and shall likewise have the powers provided by the Tennessee
General Corporation Act, as codified in Tennessee Code Annotated, Sections
48-101, et seq., or as the same shall hereinafter be amended.
7. The property, affairs and business of the Corporation shall be managed by
a Board of Directors. The number of Directors shall be as specified in the By-
Laws of the Corporation. The Directors shall be elected by the stockholders at
the annual meeting of the stockholders and each director shall be elected and
shall qualify. A director shall be a stockholder in order to serve on the Board
of Directors.
In furtherance and not in limitation of the powers conferred by the laws of
the State of Tennessee, the Board of Directors is expressly authorized and
empowered:
(a) To make, alter, amend and repeal the By-Laws, subject to the power of the
stockholders to alter or repeal the By-Laws made by the Board of Directors;
(b) To authorize and issue, without stockholder consent, obligations of the
Corporation, secured and unsecured, under such terms and conditions as the Board
in its sole discretion may determine, and to pledge or mortgage as security
therefor any real or personal property of the Corporation, including after
acquired property;
(c) To determine whether any and, if so, what part of the earned surplus of the
Corporation shall be paid in dividends to the stockholders, and to direct and
determine other use and disposition of any such earned surplus;
(d) To establish bonus, profit sharing, stock option, or other types of
incentive compensation plans for the employees, including officers and directors
of the Corporation; to fix the amount of profits to be shared or distributed;
and to determine the persons who participate in any such plans and the amount of
their respective participations;
(e) To designate by resolution or resolutions passed by a majority of the whole
Board one or more committees, each consisting of three (3) or more directors,
which, to the extent permitted by law and authorized by the resolution or the
By-Laws, shall have and may exercise the powers of the Board;
(f) To provide for the reasonable compensation of its own members in the By-
Laws and to fix the terms and conditions upon which such compensation will be
paid;
<PAGE>
(g) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon it, the Board of Directors may exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation,
subject nevertheless to the provisions of the laws of the State of Tennessee,
these Articles of Incorporation, and the By-Laws of the Corporation.
8. The private property of the stockholders shall not be subject to the payment
of any corporate debts to any extent whatever.
9. The maximum number of shares which the Corporation shall have the authority
to issue is 100,000 shares, having a par value of $1.00 per share. All stock
issued by the corporation shall not have any pre-emptive rights.
10. The Corporation will not commence business until consideration of $1,000.00
has been received from the issuance of shares.
11. The provisions of this Charter of Incorporation may be amended, altered, or
repealed from time to time to the extent, and in the manner prescribed b y the
laws of the State of Tennessee, and any additional provisions so authorized
maybe added. All rights herein conferred on the director, officers, and
stockholders are granted subject to this reservation.
THE UNDERSIGNED APPLIES TO THE STATE OF TENNESSEE BY VIRTUE OF THE LAWS OF THE
LAND FOR A CHARTER OF INCORPORATION FOR THE PURPOSES AND WITH THE POWERS
DECLARED IN THE FOREGOING INSTRUMENT.
DATED THIS 19TH DAY OF JANUARY, 1981.
/s/ William L. Small
William L. Small, Incorporator
<PAGE>
DESIGNATION OF REGISTERED AGENT
OF
FIRST PULASKI NATIONAL CORPORATION
TO THE SECRETARY OF STATE OF THE STATE OF TENNESSEE:
Pursuant to the provisions of Section 48-1201 of the Tennessee General
Corporation Act, the undersigned incorporator of a domestic corporation, being
authorized under the Act, submits the following statement for the purpose of
designating the registered agent for the corporation in the State of Tennessee.
FIRST: The name of the corporation is FIRST PULASKI NATIONAL CORPORATION.
SECOND: The name and street address of its registered agent in the State of
Tennessee shall be: Mr. R. E. Curry, 206 South First Street, Pulaski, Tennessee
38478.
DATED: This the 19th day of January, 1981.
/s/ William E. Small
William E. Small, Incorporator
<PAGE>
ARTICLES OF AMENDMENT TO THE CHARTER
OF
FIRST PULASKI NATIONAL CORPORATION
Pursuant to the provisions of Section 48-1-303 of the Tennessee General
Corporation Act, the undersigned Corporation adopts the following Articles of
Amendment to its Charter:
(1) The name of the Corporation is:
First Pulaski National Corporation
(2) The Amendment adopted is:
Paragraph #9 of the Chapter is deleted and the following is inserted:
9. The maximum number of shares which the Corporation shall have the
authority to issue is 200,000 shares, having a par value of $1.00
per share. All stock not having any pre-emptive rights.
(3) The Amendment was duly adopted at a meeting of the shareholders on
April 3, 1986.
(4) This amendment shall be effective when filed by the Secretary of State.
Dated the 4th day of April, 1986.
FIRST PULASKI NATIONAL CORPORATION
By: /s/ Robert E. Curry
Title: President
<PAGE>
ARTICLES OF AMENDMENT TO THE CHARTER
OF
FIRST PULASKI NATIONAL CORPORATION
Pursuant to the provisions of Sections 48-20-101 et seq of the Tennessee
Business Corporation Act, the undersigned Corporation adopts the following
Articles of Amendment to its Charter:
(1) The name of the Corporation is:
First Pulaski National Corporation
(2) The Amendment adopted is:
By adding paragraph #12 to the Charter as follows:
12. To the fullest extent permitted by the Tennessee Business Corporation Act
as the same may be amended from time to time, a director of the Company shall
not be liable to the Company or its shareholders for monetary damages for breach
of fiduciary duty as a director. If the Tennessee Business Corporation Act is
amended after approval by the Shareholders of the provision to authorize
corporate action further eliminating or limiting the personal liability of
directors, the liability of a director of the Company shall be eliminated or
limited to the fullest extent permitted by the Tennessee Business Corporation
Act, as so amended from time to time. Any repeal or modification of this
paragraph shall not adversely affect any right of protection of a director of
the Company existing at the time of such repeal or modification or with respect
to events occurring prior to such time.
(3) The Amendment was duly adopted at a meeting of the shareholders on April
7, 1998.
(4) This Amendment shall be effective when filed by the Secretary of State.
Dated the 8th day of April, 1988.
FIRST PULASKI NATIONAL CORPORATION
By: /s/ William R. Horne
William R. Horne
Title: President
<PAGE>
ARTICLES OF AMENDMENT TO THE CHARTER
OF
FIRST PULASKI NATIONAL CORPORATION
Pursuant to the provisions of Sections 48-20-101 et seq of the Tennessee
Business Corporation Act, the undersigned Corporation adopts the following
Articles of Amendment to its Charter:
(3) The name of the Corporation is:
First Pulaski National Corporation
(4) The Amendment adopted is:
Paragraph #9 of the Charter is deleted and the following is inserted:
9. The maximum number of shares which the Corporation shall have the
authority to issue is 500,000 shares, having a par value of $1.00 per share.
All stock not having any pre-emptive rights.
(3) The Amendment was duly adopted at a meeting of the shareholders on April
4, 1991.
(4) This Amendment shall be effective when filed by the Secretary of State.
Dated the 4th day of April, 1991.
FIRST PULASKI NATIONAL CORPORATION
By: /s/ William R. Horne
William R. Horne
Title: President
<PAGE>
ARTICLES OF AMENDMENT TO THE CHARTER
OF
FIRST PULASKI NATIONAL CORPORATION
Pursuant to the provisions of Section 48-20-101 of the Tennessee General
Corporation Act, the undersigned Corporation adopts the following Articles of
Amendment to its Charter:
(3) The name of the Corporation is:
First Pulaski National Corporation
(4) The Amendment adopted is:
Paragraph #9 of the Chapter is deleted and the following is inserted:
10. The maximum number of shares which the Corporation shall have the
authority to issue is 1,800,000 shares, having a par value of $1.00 per
share. All stock not having any pre-emptive rights.
(3) The Amendment was duly adopted at a meeting of the shareholders on
April 21, 1994.
(5) This Amendment shall be effective when filed by the Secretary of State.
Dated the 21st day of April, 1994.
FIRST PULASKI NATIONAL CORPORATION
By: /s/ William R. Horne
Title: President
<PAGE>
ARTICLES OF AMENDMENT TO THE CHARTER
OF
FIRST PULASKI NATIONAL CORPORATION
Pursuant to the provisions of Section 48-20-101 of the Tennessee General
Corporation Act, the undersigned Corporation adopts the following Articles of
Amendment to its Charter:
(5) The name of the Corporation is:
First Pulaski National Corporation
(6) The Amendment adopted is:
Paragraph #9 of the Chapter is deleted and the following is inserted:
11. The maximum number of shares which the Corporation shall have the
authority to issue is 10,000,000 shares, having a par value of $1.00
per share. All stock not having any pre-emptive rights.
(3) The Amendment was duly adopted at a meeting of the shareholders on
April 18, 1996.
(6) This Amendment shall be effective when filed by the Secretary of State.
Dated the 18th day of April, 1996.
FIRST PULASKI NATIONAL CORPORATION
By: /s/ William R. Horne
Title: President
<PAGE>
Exhibit 3.2
BY-LAWS
OF
FIRST PULASKI NATIONAL CORPORATION
ARTICLE I
OFFICES
The principal office of the corporation in the State of Tennessee shall be
located in the City of Pulaski, County of Giles. The corporation may have such
other offices, either within or without the State of incorporation as the Board
of Directors may designate or as the business of the corporation may from time
to time require.
ARTICLE II
STOCKHOLDERS
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be set annually by the Board of
Directors each year, beginning with the year 1981, for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the Chairman of the Board,
President or by the directors, and shall be called by the President at the
request of the holders of not less than 25 percent of all the outstanding shares
of the corporation entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the State unless
otherwise prescribed by statute, as the place of meeting for any annual meeting
or for any special meeting called by the directors. A waiver of notice signed
by all stockholders entitled to vote at a meeting may designate any place,
either within or without the State unless otherwise prescribed by statute, as
the place for holding such meeting. If no designation is made, or if a special
meeting be otherwise called, the place shall be the principal office of the
corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called and the person or persons calling the meeting, shall be delivered
either personally or by mail by or at the direction of the Chairman of the
Board, President, Secretary, officer, person or persons calling the meeting, to
each stockholder entitled to vote at the meeting. If mailed, such notice shall
be delivered not less than ten (10) nor more than sixty (60) days before the
date of the meeting, and shall be deemed to be delivered when deposited in the
United States Mail addressed to the stockholder at his address as it appears on
the stock transfer or membership books of the corporation, with postage thereon
pre-paid. If delivered personally, such notice shall be delivered not less than
five (5), nor more than sixty (60) days before the date of the meeting, and
shall be deemed delivered when actually received by the shareholder. A
certificate of the Secretary or other person giving the notice, or a transfer
agent of the corporation, that the notice required by the section has been
given, in the absence of fraud, shall be prima facie evidence of the facts
therein stated.
5. WAIVER OF NOTICE.
A stockholder, either before or after a stockholders' meeting, may waive notice
of the meeting; and his waiver shall be deemed the equivalent of giving notice.
Attendance at a stockholders' meeting, either in person or by proxy, of a person
entitled to notice, shall constitute a waiver of notice of the meeting unless he
attends for the express purpose of objecting to the transaction of business on
the ground that the meeting was not lawfully called or convened.
6. JUDGES OF ELECTIONS.
Every election of directors shall be managed by three judges, who shall be
appointed from among the stockholders by the Board of Directors. The judges of
elections shall hold and conduct the election at which they are appointed to
serve; and, after the election, they shall file with the Secretary a certificate
under their hands, certifying the result thereof and the name of the directors
elected. The judges of election, at the request of the chairperson of the
meeting, shall act as tellers of any other vote by ballot, taken at such
meeting, and shall certify the result thereof.
7. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or entitled to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the board of the corporation may
provide that the stock transfer books shall be closed for a stated period but
not to exceed, in any case, forty days. If the stock transfer books shall be
closed for the purpose of determining stockholders entitled to notice of or to
vote at a meeting of stockholders, such books shall be closed for at least ten
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the board may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not less than ten
days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof.
8. QUORUM AND ADJOURNMENTS.
At any meeting of stockholders fifty percent of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than said number of
the outstanding share are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time. Notice of the adjourned
meeting or of the business to be transacted there, other than by announcement at
the meeting at which the adjournment is taken, shall not be necessary. At such
adjournment meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
<PAGE>
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
9. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy executed in
writing by the stockholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the secretary of the corporation before or at the time
of the meeting. A proxy shall not be valid after eleven months from the date of
its execution unless a longer period is expressly stated in it.
10. VOTING.
Each stockholder entitled to vote in accordance with the terms and provisions of
the certificate of incorporation and these by-laws shall be entitled to one
vote, in person or by proxy, for each share of stock entitled to vote standing
in his name on the books of the corporation. Upon the demand of any
stockholder, the vote for directors and upon any question before the meeting
shall be by ballot. All elections for directors shall be decided by plurality
vote; all other questions shall be decided by majority vote except as otherwise
provided by the Certificate of Incorporation or by the laws of this State.
11. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders shall be as follows:
a. Proof of notice of meeting or waiver of notice.
b. Reading of minutes of preceding meeting.
c. Reports of Officers.
d. Election of Directors.
e. Unfinished Business.
f. New Business.
12. INFORMAL ACTION BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be taken at a meeting
of the shareholders, or any other action which may be taken at a meeting of the
shareholders, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by all of the shareholders entitled
to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed by its board of
directors. The directors shall in all cases act as a board, and they may adopt
such rules and regulations for the conduct of their meetings and the management
of the corporation, as they may deem proper, not inconsistent with these by-
laws, the Charter of Incorporation, and the laws of this State.
<PAGE>
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the Corporation shall be at least five (5) and not
more than thirty-five (35) as the Board of Directors shall from time to time
determine. Each director shall hold office until the next annual meeting of
stockholders and until his successor shall have been elected and qualified.
Only persons who are nominated in accordance with the procedures set forth in
this Section 2 shall be eligible for election as a Director. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
meeting of stockholders by or at the direction of the Board of Directors or by
any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this Section 2. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation within the time periods set forth in Rule 14a-8(a)(3) enacted
pursuant to the Securities Exchange Act of 1934, as amended. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a Director, (i) the name, age, business
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including without limitation such persons' written consent to being
named in the proxy statement as a nominee and to serving as a Director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the Corporation's books, of such stockholder and (ii)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder. Any nominations for directors not in accordance with this
requirement may be disregarded by the Chairman of the meeting, and upon
instruction by the chairman, votes cast for each such nominee shall be
disregarded. In the event, however, a person should be nominated by more than
one stockholder, and if one such nomination complies with this requirement, such
nomination shall be honored, and all shares voted for such nominees shall be
counted.
No person shall be nominated as a director who shall have attained the age of
seventy-five (75) years, on or before the annual meeting at which directors are
to be elected. However, the foregoing requirement, as to age, shall not apply
to any person holding directorship on March 1, 1983, that is on said date
seventy-five (75) years of age or older; however, the age restriction of
seventy-five (75) years shall not apply to Parmenas Cox, presently Senior
Chairman of the Board.
3. HONORARY DIRECTORS.
The stockholders may from time to time elect honorary directors who shall be
chosen from individuals who have previously served as directors of the
corporation and these honorary directors shall act in an advisory capacity only,
without power of final decision nor the power to vote in matters concerning the
business of the corporation.
4. REGULAR MEETINGS.
A regular meeting of the directors shall be held without other notice than this
by-law immediately after, and at the same place as, the annual meeting of
stockholders. The directors may provide, by resolution, the time and place for
the holding of additional regular meetings without other notice than such
resolution.
<PAGE>
5. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of the
Chairman of the Board, the President or any two directors. The person or
persons authorized to call special meetings of the directors may fix the place
for holding any special meeting of the directors called by them.
6. NOTICE.
Notice of any special meeting shall be given at least five days previously
thereto by written notice delivered personally, or by telegram mailed to each
director at his business address. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company.
7. WAIVER OF NOTICE.
A director may waive in writing notice of a special meeting of the Board either
before or after a meeting; and his waiver shall be deemed the equivalent of
giving notice. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
8. QUORUM.
At any meeting of the directors a majority of the directors in office shall
constitute a quorum for the transaction of business. If a quorum is present,
the acts of a majority of the directors in attendance shall be the acts of the
Board.
9. ADJOURNMENT.
A meeting of the Board of Directors may be adjourned. Notice of the adjourned
meeting or of the business to be transacted there, other than by announcement at
the meeting at which the adjournment is to be taken, shall not be necessary. At
an adjourned meeting at which a quorum is present, any business may be
transacted which could have been transacted at the meeting originally called.
10. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause may be filled by a vote of a majority of the
directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled by
vote of the stockholders. A director elected to fill a vacancy caused by
designation, death, or removal shall be elected to hold office for the unexpired
term of his predecessor.
11. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
stockholders. Directors may be removed without cause only by vote of a majority
of the stockholders entitled to vote at a regular or special meeting.
12. RESIGNATION.
A director may resign at any time by giving written notice to the board, the
president or the secretary of the corporation. Unless otherwise specified in
the notice, the resignation shall take effect upon receipt thereof by the board
<PAGE>
or such officer, and the acceptance of the resignation shall not be necessary to
make it effective.
13. COMPENSATION.
Directors shall not receive a salary for their services as a director; but by
resolution of the board, a fixed sum and expenses for each regular or special
meeting of the board may be authorized. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of standing and special
committees of the Board may also be compensated for their services and expenses
for attending committee meetings as the board may, by resolution, direct.
14. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the directors at
which action on any corporate matter is taken shall be presumed to have assented
to the action taken unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
15. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an executive
committee and other committees, each consisting of three or more directors.
Each such committee shall serve at the pleasure of the board.
16. INFORMAL ACTION.
If all the directors severally and collectively consent in writing to any action
taken or to be taken by the corporation and the writing or writings evidencing
their consent are filed with the Secretary of the corporation, the action shall
be as valid as though it had been authorized at a meeting of the Board.
ARTICLE IV
OFFICERS
1. NUMBER.
The officers of the corporation shall be a Chairman of the Board, President, one
or more vice-presidents, a secretary and a treasurer, each of whom shall be
elected by the directors. Such other officers and assistant officers as may be
deemed necessary may be elected or appointed by the directors. Any officer
other than the Chairman of the Board and President may be, but is not required
to be, a director of the corporation.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be elected
annually at the first meeting of the directors held after each annual meeting of
the stockholders. Each officer shall hold office until his successor shall have
been duly elected and shall have qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided.
<PAGE>
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be removed by the
directors whenever in their judgment the best interests of the corporation would
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
4. VACANCIES.
A vacancy in any office because of death, resignation, removal, disqualification
or otherwise, may be filled by the directors for the unexpired portion of the
term.
5. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall supervise the carrying out of the policies
adopted or approved by the Board. He shall have general executive powers, as
well as the specific power conferred by these By-laws. He shall also have and
may exercise such further powers and duties as from time to time may be
conferred upon, or assigned to him by the Board of Directors.
6. PRESIDENT.
The President shall be chief executive officer of the corporation and, subject
to the control of the directors, shall in general supervise and control all of
the business and affairs of the corporation. He shall, in the absence of the
Chairman of the Board, preside at all meetings of the stockholders and of the
directors. He may sign, with the secretary or any other proper officer of the
corporation, thereunto authorized by the directors, certificates for shares of
the corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the directors or
by these by-laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of president and such other duties as may be
prescribed by the directors from time to time.
7. VICE-PRESIDENT.
In the absence of the President or in event of his death, inability or refusal
to act, the vice-president designated by the board shall perform the duties of
the president, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the president. Such vice-president or other vice-
presidents shall perform such other duties as from time to time may be assigned
to him by the president or by the directors.
8. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the directors'
meetings in one or more books provided for that purpose, see that all notices
are duly given in accordance with the provisions of these by-laws or as
required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books for the corporation and in general perform
all duties incident to the office of secretary and such other duties as from
time to time may be assigned to him by the president or by the directors.
<PAGE>
9. TREASURER.
If required by the directors, the treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such surety or sureties as the
directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for monies due and payable to the corporation from any source
whatsoever, and deposit all such monies in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these by-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the President or by the directors.
10. SALARIES.
The salaries of the officers shall be fixed from time to time by the directors
and no officer shall be prevented from receiving such salary by reason of the
fact that he is also a director of the corporation. The salaries of other
agents or employees of the corporation may be fixed by the Board of Directors or
by an officer or committee to whom that function has been delegated by the
Board.
11. DELEGATION OF DUTIES.
Whenever an officer is absent or whenever for any reason the Board of Directors
may deem it desirable, the Board may delegate the powers and duties of an
officer to any other officer or officers or to any director or directors.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS.
The directors may authorize any officer or officer, agent or agents, to enter
into any contract or execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or confined to
specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and no evidences of
indebtedness shall be issued in its name unless authorized by a resolution of
the directors. Such authority may be general or confined to specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation, shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the directors.
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited from time
to time to the credit of the corporation in such banks, trust companies or other
depositories as the directors may select.
<PAGE>
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such form as
shall be determined by the directors. Such certificates shall be signed by the
President and by the secretary or by such other officers authorized by law and
by the directors. All certificates for shares shall be consecutively numbered
or otherwise identified. The name and address of the stockholders, the number
of shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer shall
be cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the corporation as the
directors may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, and
cancel the old certificate; every such transfer shall be entered on the transfer
book of the corporation which shall be kept at its principal office.
(b) The corporation shall be entitled to tract the holder of record of any
share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this State.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January in
each year.
ARTICLE VIII
DIVIDENDS
The directors may from time to time declare, and the corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions allowed by law.
ARTICLE IX
SEAL
The directors shall provide a corporate seal which shall be circular in form and
shall have inscribed thereon the name of the corporation, the state of
incorporation, year of incorporation and the words, "Corporate Seal", PROVIDED,
HOWEVER, that the validity of any corporate document shall not be affected by
the absence of the Corporate Seal.
ARTICLE X
INDEMNIFICATION
To the extent not inconsistent with the laws of the State of Tennessee as in
effect from time to time, every person (and the heirs, executors and
administrators of such person) who is a director or officer of the corporation
<PAGE>
shall in accordance with the provisions of this ARTICLE X be indemnified by the
corporation against any and all liability and reasonable expense that may be
incurred by him in connection with or resulting from any claim, action, suit or
proceeding; provided, however, that such person (or his heirs, executors or
administrators) is wholly successful with respect thereto or such director or
officer acted in good faith, in what he reasonably believed to be the best
interest of the Corporation and, in addition, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his conduct was
unlawful. The termination of any claim, action, suit or proceeding by judgment,
settlement (whether with or without court approval) or conviction or upon a plea
of guilty or of nolo contendere, or its equivalent, shall not create a
presumption that a director or officer did not meet the standards of conduct set
forth in this Article X.
For purposes of this ARTICLE X, the following terms shall have the meanings
specified:
(1) "claim, action, suit or proceeding" shall include any claim, action, suit
or proceeding (whether brought by or in the right of the corporation or any
other corporation or otherwise), civil, criminal, administrative or
investigative, or the threat thereof, in which any person (or the heirs,
executors or administrators of such person) who is or was a director of the
corporation may become involved as a party or otherwise;
(a) by reason of his being or having been a director or officer of the
corporation or of any subsidiary corporation of the corporation, or of any other
corporation which he served as such at the request of the corporation or of
which the corporation directly or indirectly is a stockholder or creditor, or
in which, or in the stocks, bonds, securities or other obligations of which it
is in any way interested; or
(b) by reason of his acting or having acted in any capacity in a partnership,
association, trust or other organization or entity in which he served as such at
the request of the corporation or of which the corporation directly or
indirectly is an owner or creditor, or in which, or in the shares, bonds,
securities or other obligations of which it is in any way interested;
(2) "liability" and "expense" shall include, but shall not be limited to,
counsel fees of, disbursements and amounts of judgments, fines or penalties
against, and amounts paid in settlement by or on behalf of, the person in
question, but shall not in any event include any liability on account of profits
realized by him in the purchase or sale of securities of the corporation or any
expense incurred in connection with such liability; and
(3) "wholly successful", with respect to any action, suit or proceeding against
the person in question, shall include termination thereof without any finding of
liability or guilt against such person and, with respect to any claim or threat
of an action, suit or proceeding against the person in question, shall include
the expiration of a reasonable period of time after the making thereof without
the institution of the same if no payment has been made to cause cancellation of
such claim or withdrawal of such threat.
Every person (and the heirs, executors and administrators of such person)
referred to in the first paragraph of ARTICLE X who has been wholly successful
with respect to any claim, action, suit or proceeding shall be entitled to
indemnification. Every other person claiming indemnification under the first
paragraph of this Article X (and the heirs, executors and administrators of such
person) shall be entitled to indemnification if independent legal counsel, other
than regular counsel of the corporation or other disinterested person or
persons, in either case selected and compensated by the board, whether or not a
disinterested quorum exists (such counsel of person or persons being hereinafter
<PAGE>
called a referee), shall deliver to the corporation his written finding that
such director or officer has met the standards of conduct set forth in the first
paragraph of this ARTICLE X. The person claiming indemnification shall at the
request of the referee appear before him and answer questions which the referee
deems relevant and shall be given ample opportunity to present to the referee
evidence upon which he relies for indemnification. The corporation shall at the
request of the referee, make available to him facts, opinions or other evidence
in any way relevant for his finding which are within the possession or control
of the corporation.
Expenses incurred with respect to any claim, action, suit or proceeding may be
advanced by the corporation (by action of the board whether or not a
disinterested quorum exists) prior to the final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount unless
he becomes entitled to indemnification under this ARTICLE X.
The rights of indemnification provided in this ARTICLE X shall be in addition to
any rights to which any such director or officer may otherwise be entitled by
contract or as a matter of law. Persons who are not directors or officers of
the corporation, but are or were employees of the corporation or any subsidiary
(or the heirs, executors and administrators of such person) may be indemnified
to the extent authorized at any time or from time to time by the board.
Notwithstanding the provisions of this ARTICLE X, the board may, at any time or
from time to time, approve indemnification of directors, officers or other
persons to the full extent permitted by the provisions of the laws of the State
of Tennessee at the time in effect, with respect to past transactions.
ARTICLE XI
VOTING SHARES HELD IN OTHER CORPORATIONS
In the absence of other arrangements by the Board of Directors, shares of stock
issued by any other corporation and owned or controlled by this corporation, may
be voted at any stockholders' meeting of the other corporation by the President
of this corporation or, if he is not present at the meeting, by the Vice
President of this corporation; and in the event neither the President or the
Vice President is to be present at a meeting, the shares may be voted by such
person as the President and Secretary of the corporation shall by duly executed
proxy designate to represent the corporation at the meeting.
ARTICLE XII
CORPORATE TRANSACTIONS IN WHICH
DIRECTORS OR OFFICERS HAVE AN INTEREST
1. Except as otherwise provided by law with reference to provisional directors
and loans to directors, no transaction in which a director or officer has a
personal or an adverse interest shall void or voidable solely for this reason or
solely because he is present at or participates in the meeting or his vote is
counted:
(a) If the material facts as to his interest and as to the transaction are
disclosed or are known to the Board or committee, and the fact of such interest
is noted in the minutes, and the Board or committee authorizes, approves or
ratifies the transaction by a vote sufficient for such purpose, without counting
the vote of the interested director or directors; or
(b) If the material facts as to his interest and as to the transaction are
disclosed and are known to the stockholders and the transaction is specifically
approved by vote of the stockholders without counting the votes of any shares
owned or controlled by the interested director or officer; or
<PAGE>
(c) If the transaction is fair and equitable as to the corporation at the time
it is authorized or approved, and the party asserting the fairness of the
transaction establishes fairness.
2. Except as otherwise provided by law with reference to provisional directors,
common or interested directors may always be counted in determining the presence
of a quorum at a meeting of the Board or of a committee which authorizes,
approves or ratifies a transaction. Shares owned by any interested party may be
counted in determining whether a quorum of shares is present at a meeting of
stockholders which ratifies or approves a transaction.
ARTICLE XIII
AMENDMENTS
These by-laws may be amended by a two-thirds majority vote of the Board of
Directors at any regular meeting or at a special meeting called for the purpose
of making such amendment.
AMENDMENTS TO THE BY-LAWS
OF
FIRST PULASKI NATIONAL CORPORATION
The Board of Directors of First Pulaski National Corporation, in a regularly
scheduled meeting on February 15, 1982 amended the By-Laws of the forenamed
corporation by the adoption of the following resolution:
"WHEREAS, Article III, Section 2 of the By-Laws of First Pulaski National
Corporation provides that the number of directors of the Corporation shall be at
least five (5) and not more than twenty-five (25); and WHEREAS, the Management
and Board of Directors of First Pulaski National Corporation have proposed that
twenty-nine (29) individuals serve on the Board of Directors for the fiscal year
1982; and WHEREAS, the Board of Directors of First Pulaski National Corporation
are desirous of amending Article III, Section 2 so as more than twenty-five (25)
individuals may serve on the Board of Directors."
NOW, THEREFORE, Be it resolved that the first sentence of Article III,
Section 2 of the By-Laws of First Pulaski National Corporation be and is
hereby amended to read as follows:
"The number of directors of the Corporation shall be at least five (5) and
not more than thirty (30) as the stockholders shall from time to time
determine."
FIRST PULASKI NATIONAL CORPORATION
By: /s/ Glen Lamar
Title: Secretary/Treasurer
<PAGE>
AMENDMENTS TO THE BY-LAWS
OF
FIRST PULASKI NATIONAL CORPORATION
The Board of Directors of First Pulaski National Corporation, in a regularly
scheduled meeting on March 8, 1983 was presented the following resolution for
its consideration:
"BE IT RESOLVED by the Board of Directors of First Pulaski National
Corporation that the following resolution be offered to the shareholders
at the annual meeting on April 7, 1983 whereby the first sentence of
Article III, Section 2 of the By-Laws of First Pulaski National
Corporation be and is hereby amended to read as follows:
"The number of directors of the Corporation shall be at least five (5) and
not more than thirty-five (35) as the stockholders shall from time to
time determine."
"BE IT RESOLVED by the Board of Directors of First Pulaski National
Corporation that the following resolution be offered to the shareholders
at the annual meeting on April 7, 1983 whereby the last paragraph
amending Article III, Section 2 of the By-Laws of First Pulaski National
Corporation be deleted in its entirety and substituting in lieu thereof
the following paragraph:
"No person shall be nominated as a director who shall have attained the
age of seventy-five (75) years on or before the annual meeting at which
Directors are to be elected. However, the foregoing requirement as to age
shall not apply to any person holding directorship on March 1, 1983, that
is on said date seventy-five (75) years of age or older."
The resolution was approved as presented by the Board of Directors. As the
wording of the resolution so required, the resolution was then offered to the
shareholders of the corporation at their Annual Meeting on April 7, 1983, in the
following form:
"BE IT RESOLVED by the stockholders of the First Pulaski National Corporation
that the first sentence of Article III, Section 2 of the By-Laws of First
Pulaski National Corporation be and is hereby amended to read as follows:
"The number of directors of the Corporation shall be at least five (5) and not
more than thirty-five (35) as the stockholders shall from time to time
determine."
BE IT FURTHER RESOLVED by the stockholders of the First Pulaski National
Corporation that the last paragraph of Article III, Section 2 of the By-Laws of
First Pulaski National Corporation be deleted in its entirety and substituting
in lieu thereof the following paragraph:
"No person shall be nominated as a director who shall have attained the age of
seventy-five (75) years on or before the annual meeting at which Directors are
to be elected. However, the foregoing requirement as to age shall not apply to
any person holding directorship on March 1, 1983, that is on said date seventy-
five (75) years of age or older."
FIRST PULASKI NATIONAL CORPORATION
By: /s/ Glen Lamar
Title: Secretary/Treasurer
AMENDMENTS TO THE BY-LAWS
OF
FIRST PULASKI NATIONAL CORPORATION
The Board of Directors of First Pulaski National Corporation, in a regularly
scheduled meeting on March 8, 1988 amended the By-Laws of the aforenamed
corporation by the adoption of the following resolution:
"WHEREAS, Article III, Section 2 of the By-Laws, adopted by the First
Pulaski National Corporation at a meeting on April 30, 1981, provided that "no
person shall be nominated as a director who shall have attained the age of
seventy (70) years on or before the annual meeting at which Directors are to be
elected. However, the foregoing requirement, as to age, shall not apply to any
person holding directorship on April 30, 1981, that is on said date seventy (70)
years of age or older, nor shall it apply to any person holding a directorship,
who shall attain the age of seventy (70) years during the calendar year 1981;
and
WHEREAS, Said Article III, Section 2 of the By-Laws was amended at a meeting of
the Board of Directors of First Pulaski National Corporation of Pulaski,
Tennessee on March 8, 1983 to the effect that "no person shall be nominated as a
director who shall have attained the age of seventy-five (75) years on or before
the annual meeting at which Directors are to be elected. However, the foregoing
requirement as to age shall not apply to any person holding directorship on
March 1, 1983, that is on said date seventy-five (75) years of age or older";
BE IT RESOLVED that the age restriction of seventy-five (75) years shall not
apply to the current President and Chairman of the Board of the Corporation, who
are Robert E. Curry and Parmenas Cox, respectively."
FIRST PULASKI NATIONAL CORPORATION
By: /s/ Glen Lamar
Title: Secretary/Treasurer
Exhibit 21
The Corporation has two wholly-owned subsidiaries:
(1) First National Bank of Pulaski, a state chartered bank incorporated under
the laws of the State of Tennessee and doing business under the same name; and
(2) Heritage Financial of the Tennessee Valley, Inc., a finance company
incorporated under the laws of the State of Tennessee and doing business under
the same name.
<PAGE>
EXHIBIT 24
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, 1998, of our reports (and to all references
to our firm) included in or made part of this Report.
[S] Putman and Hancock
February 23, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-K FOR PERIOD ENDING DECEMBER 31, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
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<ALLOWANCE> 2,935,534
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<DEPOSITS> 233,799,526
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0
0
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