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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 1998
Commission file number 0-25422
PAB BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
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Georgia 58-1473302
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(State or other jurisdiction of incorporation or (I.R.S. Employer ID Number)
organization)
3102 North Oak Street Extension, Valdosta, Georgia 31602
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(Address of principal executive office)
Registrant's telephone number, including area code 912/241-2775
Securities registered pursuant to Section 12(b) of the Act:
No par value Common Stock The American Stock Exchange
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(Title of Class) (Name of Exchange on which Registered)
Securities registered pursuant to Section 12(g) of the Act
None
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(Title of Class)
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Indicate by check mark whether 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 preceding 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
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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 of the voting stock held by non-affiliates of
Registrant at March 8, 1999 was $91,472,872 based on a recent trading price of
$16.00 per share.
The number of shares outstanding of Registrant's common stock at March 8, 1999
was 8,289,998 shares.
Documents Incorporated by Reference: Portions of the Proxy Statement for the
1999 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of Registrant's fiscal year-end are incorporated by
reference in Part III.
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PAB BANKSHARES, INC.
TABLE OF CONTENTS
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Page
PART I
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ITEM 1. DESCRIPTION OF BUSINESS............................. 1
ITEM 2. DESCRIPTION OF PROPERTY............................. 10
ITEM 3. LEGAL PROCEEDINGS................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS........................................... 11
ITEM 6. SELECTED FINANCIAL DATA............................. 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK........................................ 37
ITEM 8. FINANCIAL STATEMENTS................................ 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................ 37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS..................... 37
ITEM 11. EXECUTIVE COMPENSATION............................... 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................... 37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....... 38
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K..................... 38
SIGNATURES........................................... 40
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
Business Development
The primary business of the Company, as a bank holding company, is to
manage the business and affairs of its four commercial bank subsidiaries, The
Park Avenue Bank in Valdosta, Georgia, Farmers & Merchants Bank in Adel,
Georgia, First Community Bank of Southwest Georgia in Bainbridge, Georgia, and
Eagle Bank and Trust in Statesboro, Georgia (the four banking subsidiaries are
sometimes individually and collectively referred to herein as the "Banks").
Unless otherwise indicated by the context, the term "Company" shall refer to PAB
Bankshares, Inc. and its subsidiaries.
The Company was organized in 1982 to own 100% of the stock of The Park
Avenue Bank, a state-chartered commercial bank. Effective December 31, 1982,
the Company became a bank holding company, registered with the Federal Reserve
Board and the Georgia Department of Banking and Finance. In 1985, the Company
acquired 87% of the stock and control of Farmers & Merchants Bank, a state-
chartered commercial bank. The Company subsequently increased its ownership to
99.9% of the stock of Farmers & Merchants Bank. Effective January 1, 1995, the
Company acquired 100% of the stock of First Federal Savings Bank of Bainbridge
(the "Savings Bank"), a federal stock savings bank. The Savings Bank was
converted to a commercial bank charter and the name changed to First Community
Bank of Southwest Georgia ("First Community") in 1997. Effective June 19, 1998,
the Company acquired 100% of the stock of Investors Financial Corporation
("Investors") and its wholly-owned subsidiary, Bainbridge National Bank.
Bainbridge National Bank was merged into First Community Bank of Southwest
Georgia in August, 1998. Effective December 10, 1998, the Company acquired 100%
of the stock of Eagle Bancorp, Inc, and its wholly-owned subsidiary, Eagle Bank
and Trust.
The Company's offices are located in The Park Avenue Bank's main office at
3102 North Oak Street Extension, Valdosta, Georgia 31602, and its telephone
number is (912) 241-2775.
Business of Issuer
The Company is authorized to engage in any activity permitted by law to a
corporation, subject to applicable federal and state regulatory restrictions on
the activities of bank holding companies. The Company's holding company
structure provides it with greater flexibility than the respective Banks would
otherwise have to expand and diversify their business activities, through newly
formed subsidiaries, or through acquisitions. Although the Company has no
present plans to engage in other business activities, management from time to
time studies the feasibility of establishing or acquiring subsidiaries to engage
in other business activities to the extent permitted by law.
The Park Avenue Bank
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The Park Avenue Bank commenced operations in 1971 as a state-chartered
commercial bank; previously, The Park Avenue Bank was a regulated certificated
bank which commenced operations in 1967 and a private bank which was organized
in 1956. The Park Avenue Bank is located in Valdosta, Lowndes County, Georgia,
its primary service area. The Park Avenue Bank had approximately $217.7 million
in total assets, deposits of approximately $178.3 million and net worth of
approximately $16.6 million at December 31, 1998. Customer deposits with The
Park Avenue Bank are insured to the maximum extent provided by law through the
Federal Deposit Insurance Corporation ("FDIC").
The Valdosta Chamber of Commerce estimates the current population of
Valdosta to be approximately 40,000 and the population of Lowndes County to be
approximately 76,000. Valdosta is the county seat of Lowndes County and is
approximately 18 miles north of the Georgia-Florida border.
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Farmers & Merchants Bank
Farmers & Merchants Bank commenced operations in 1947 as a state-chartered
commercial bank. Customer deposits with the Farmers & Merchants Bank are
insured to the maximum extent provided by law through the FDIC. The Farmers &
Merchants Bank is located in Adel, Cook County, Georgia, its primary service
area.
Farmers & Merchants Bank had approximately $51.3 million in total assets,
deposits of approximately $42.6 million and net worth of approximately $4.9
million at December 31, 1998.
The Cook County Chamber of Commerce estimates the current population of
Adel to be approximately 6,000 and the population of Cook County to be
approximately 13,000. Adel is approximately 25 miles north of Valdosta,
Georgia.
First Community Bank of Southwest Georgia (formerly First Federal Savings Bank
of Bainbridge)
First Community was chartered in 1934 as a federal mutual savings and loan
association. In June 1990, First Community was converted from a federal mutual
savings and loan association to a federal stock savings bank through the sale
and issuance of common stock. First Community was converted to a commercial
bank in 1997. Bainbridge National Bank was merged with First Community on
August 31, 1998. Customer savings accounts are insured to the maximum extent
provided by law through the FDIC.
First Community had approximately $165.2 million in total assets, deposits
of approximately $131.3 million and net worth of approximately $16.9 million at
December 31, 1998.
The Decatur County Chamber of Commerce estimates the current population of
Bainbridge to be approximately 14,000 and the population of Decatur County to be
approximately 28,000. Bainbridge is approximately 90 miles west of Valdosta,
Georgia.
Eagle Bank and Trust
Eagle Bank and Trust commenced operations in 1991 as a state-chartered
commercial bank. Customer deposits with Eagle Bank and Trust are insured to the
maximum extent provided by law through the FDIC. The Bank is located in
Statesboro, Bulloch County, Georgia, its primary service area.
Eagle Bank and Trust had approximately $78.2 million in total assets,
deposits of approximately $65.5 million and net worth of approximately $7.2
million at December 31, 1998.
The Bulloch County Chamber of Commerce estimates the current population of
Statesboro be approximately 32,000 and the population of Bulloch County to be
approximately 43,000. Statesboro is approximately 155 miles northeast of
Valdosta, Georgia.
Banking Services and Operations
Each Bank offers a full range commercial banking services to individuals,
professional and business customers in their respective primary service areas.
These services include personal and business checking accounts and savings and
other type certificates of deposit. The Park Avenue Bank issues credit cards
and acts as a merchant depository for cardholder drafts under both VISA and
MasterCard. Eagle Bank and Trust provides credit cards in association with The
Bankers Bank and acts as a merchant depository for cardholder drafts under both
VISA and MasterCard. The Banks offer night depository and bank-by-mail services
and sell bank drafts and travelers checks (issued by an independent entity).
The Banks do not presently offer trust and fiduciary services.
The principal sources of income for the Banks are interest and fees
collected on loans and interest on investment securities. The principal
expenses of the Banks are interest paid on savings deposits, interest paid on
other borrowings by the Banks, employee compensation, office expenses, and other
operating expenses.
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Lending
The Banks seek to attract deposits from the general public and use such
deposits, together with borrowings and other sources of funds, to originate and
purchase loans. The Banks each offer a full range of short and medium
commercial, consumer and real estate loans. Commercial lending activities are
directed principally toward businesses whose demand for funds falls within the
respective Bank's lending limits. Consumer lending has been oriented primarily
to the needs of the respective Bank's customers for such purposes as home
remodeling, education and automobiles. Real estate lending is oriented toward
construction loans and short-term commercial loans. Each Bank also originates
fixed and variable-residential and other mortgage loans for its own account.
The lending policies and procedures of each Bank are established and
periodically reviewed by each Bank's Board of Directors.
The Park Avenue Bank's loan portfolio totaled $150.6 million at
December 31, 1998, which was comprised of approximately 52.81% commercial loans,
commercial real estate and agri-business loans, 17.14% consumer loans, 23.87%
residential real estate mortgage loans and 6.18% construction loans. The Park
Avenue Bank's loan to deposit ratio at December 31, 1998 was approximately
84.45%.
Farmers & Merchants Bank's loan portfolio totaled $35.8 million at December
31, 1998, which was comprised of approximately 53.52% commercial loans,
commercial real estate and agri-business loans, 13.53% consumer loans, 27.11%
residential real estate mortgage loans and 5.84% construction loans. Farmers &
Merchants Bank's loan to deposit ratio at December 31, 1998 was approximately
83.86%.
First Community's loan portfolio totaled $114.6 million at December 31,
1998, which was comprised of approximately 39.95% residential real estate
mortgage loans, 44.52% commercial loans, commercial real estate and agri-
business loans, 12.16% consumer loans and 3.37% construction loans. First
Community's loan to deposit ratio at December 31, 1998 was approximately 87.33%.
Eagle Bank and Trust's loan portfolio totaled $50.7 million at December 31,
1998, which was comprised of approximately 35.95% residential real estate
mortgage loans, 40.88% commercial loans, commercial real estate and agri-
business loans, 9.52% consumer loans and 13.65% construction loans. Eagle Bank
and Trust's loan to deposit ratio at December 31, 1998 was approximately 77.41%.
Deposits
Checking, savings, money market accounts, and other time deposits are the
principal sources of the Banks' funds for loans and investments. Most of the
Banks' deposits are obtained from individuals and small businesses. At December
31, 1998, The Park Avenue Bank had deposits of approximately $178.3 million,
Farmers & Merchants Bank had deposits of approximately $42.6 million, First
Community had deposits of approximately $131.3 million and Eagle Bank and Trust
had deposits of approximately $65.5 million.
The Banks seek to attract new deposits by paying rates of interest on
certificates of deposit and money market accounts which are competitive in their
respective primary service areas. The Banks generally do not pay brokers'
commissions in connection with the obtaining of deposits.
Asset and Liability Management
The primary assets of each Bank consists of its loan portfolio and
investment account. Consistent with the requirements of prudent banking
necessary to maintain liquidity, management seeks to match maturities and rates
of loans and the investment portfolio with those of deposits, although exact
matching generally is not possible. Management seeks to invest the largest
portion of each Bank's assets in commercial and agri-business, consumer and
residential real estate loans. Each Bank anticipates that loans will be limited
to approximately 75% to 85% of deposits, capital funds and other borrowings.
The Company anticipates that each Bank's investment account will consist
primarily of marketable securities of the United States government, federal
agencies and state and municipal governments, generally with varied maturities.
The investment policy of each Bank provides for a portfolio divided among
issues purchased to meet one or more of the following objectives: (i) to
complement strategies developed in assets/liquidity management, including
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desired liquidity levels; (ii) to maximize after tax income from funds not
needed for day-to-day operations and loan demands; and (iii) to provide
collateral necessary for acceptance of public funds. Management anticipates
that this policy will allow each Bank to deal with seasonal deposits
fluctuations and to provide for basic liquidity consistent with the Bank's loan
demand. When possible, maturation will match anticipated liquidity demands.
Longer term securities may be selected for a combination of yield and exemption
from federal income taxation when appropriate.
Deposit accounts are expected to represent the majority of the liabilities
of the Banks. These will include transaction accounts, savings accounts, time
deposits and certificates of deposit.
The Banks derive their income principally from interest charged on loans
and, to a lesser extent, from interest earned on investments, from fees received
in connection with the origination of loans and from other services. The Banks'
principal expenses are anticipated to be interest expense on deposits and
operating expenses. The funds for such activities are provided principally by
operating revenues, deposit growth, purchase of federal funds from other banks,
repayment of outstanding loans and sale of loans and investment securities.
Supervision and Regulation
General
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The following discussion summarizes material elements of the federal and
state regulatory framework applicable to commercial banks, savings banks
(sometimes referred to herein as "thrifts"), bank holding companies, and savings
bank holding companies. Such discussion is qualified in its entirety by
reference to applicable federal and state statutes and regulations.
Furthermore, the statutes and regulations affecting the Company and the Banks
may change after the date of this Annual Report on Form 10-K, and any such
changes may have a material adverse effect on the Banks or the Company.
Regulation of the Company
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The Company is a bank holding company registered with the Federal Reserve
Board (the "Federal Reserve") and the Georgia Department of Banking and Finance
("Georgia Department") under the federal Bank Holding Company Act of 1956 ( the
"BHC Act") and the Georgia Bank Holding Company Act (the "Georgia BHC Act"). As
such, the Company is subject to the supervision, examination, and reporting
requirements of the BHC Act and the regulations of the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all the assets
of any bank; or (iii) it may merge or consolidate with any other bank holding
company. Similar federal statutes require a savings and loan holding company to
obtain prior approval of the Office of Thrift Supervision before acquiring
direct or indirect ownership or control of a savings bank or savings
association.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the United States, or that in any other manner would be a restraint
of trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the Riegle-
Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Banking Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that the Company, and any other bank holding company located in
Georgia, may now acquire a bank located in any other
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state, and any bank holding company located outside Georgia may lawfully acquire
a Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, after
June 1, 1997, national and state chartered banks may branch interstate through
acquisitions of banks in other states. By adopting legislation prior to that
date, a state has the ability either to "opt in" and accelerate the date after
which interstate branching is permissible or "opt out" and prohibit interstate
branching altogether.
In response to the Interstate Banking Act, the Georgia Legislature adopted
the Georgia Interstate Banking Act, effective July 1, 1995. The Georgia
Interstate Banking Act provides that (i) interstate acquisitions of institutions
located in Georgia will be permitted in states which also allow national
interstate acquisitions, and (ii) interstate acquisitions of institutions
located in Georgia will be permitted by institutions located in states which
allow national interstate acquisitions.
Additionally, in February 1996, the Georgia Legislature adopted the
"Georgia Interstate Branching Act" which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all non-
Georgia banks and bank holding companies owning or acquiring banks in Georgia
the right to merge any lawfully-acquired bank into an interstate branch network.
Beginning July 1, 1998, the Georgia Interstate Branching Act also allows banks
to establish de novo branches throughout Georgia.
The BHC Act generally prohibits a bank holding company from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those determined by
the Federal Reserve to be closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as a greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices.
Each of the Banks is a member of the FDIC, and as such, its deposits are
insured to the maximum extent provided by law. Each of the Banks is also
subject to numerous state and federal statutes and regulations that affect its
business, activities and operations and each is supervised and examined by one
or more state or federal bank regulatory agencies.
The Banks are subject to regulation, supervision and examination by the
FDIC and the Georgia Department. The Federal Reserve and the Georgia Department
regularly examine the operations of the Banks and are given authority to approve
or disapprove mergers, consolidations, the establishment of branches, and
similar corporate actions. The federal banking regulators and the Georgia
Department also have the power to prevent the continuance or development of
unsafe or unsound banking practices or other violations of the law.
Payment of Dividends
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The Company is a legal entity separate and distinct from its bank
subsidiaries. The principal sources of revenues to the Company, including cash
flow to pay dividends to its shareholders, are dividends from the Banks. There
are statutory and regulatory limitations on the payment of dividends by the
Banks, as well as by the Company to its shareholders.
If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution could include the payment of dividends), such regulator
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking regulators have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. Moreover, the federal
banking regulators have issued policy statements that provide that bank holding
companies and insured banks should generally only pay dividends out of current
operating earnings. The
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payment of dividends by the Company and its banking subsidiaries may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
Capital Adequacy
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The Company and each of the Banks are required to comply with capital
adequacy standards established by the Federal Reserve in the case of the
Company, and the appropriate federal banking regulator in the case of its Bank
subsidiaries. There are two basic measures of capital adequacy for bank holding
companies that have been promulgated by the Federal Reserve: (1) a risk-based
measure and (2) a leverage measure. All applicable capital standards must be
satisfied for a bank holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital Ratio")
of total capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%. At least
half of Total Capital must be comprised of common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier I Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves ("Tier II Capital"). At December 31, 1998, the
Company's consolidated Total Risk-Based Capital Ratio and its Tier I Risk-Based
Capital Ratio (i.e., the ratio of Tier I Capital to risk-weighted assets) were
13.8% and 12.6% respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier I Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including those having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis
points. The Company's Leverage Ratio at December 31, 1998 was 9.6%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "Tangible Tier I Capital Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities.
The Banks are subject to risk-based and leverage capital requirements
adopted by their federal banking regulator, which are substantially similar to
those adopted by the Federal Reserve for bank holding companies.
Each of the Banks was in compliance with applicable minimum capital
requirements as of December 31, 1998. The Company has not been advised by any
regulator of any specific minimum capital ratio requirement applicable to it or
any Bank.
Failure to meet capital guidelines could subject a Bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking institutions beyond their current levels. In
this regard, the Federal Reserve and the FDIC have, pursuant to FDICIA, proposed
an amendment to the risk-based capital standards that would calculate the change
in an institution's net economic value attributable to increases and decreases
in market interest rates and would require banks with excessive interest rate
risk exposure to hold additional amounts of capital against such exposures.
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Support of Subsidiary Institutions
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Under Federal Reserve policy, the Company is expected to act as a source of
financial strength for, and to commit resources to support each of its banking
subsidiaries. This support may be required at times when, absent such Federal
Reserve policy, the Company may not be inclined to provide it. In addition, any
capital loans by a bank holding company to any of its banking subsidiaries are
subordinate in right of payment to deposits and to certain other indebtedness of
such banks. In the event of a bank holding company's bankruptcy, any commitment
by the bank holding company to a federal bank regulatory agency to maintain the
capital of a banking subsidiary will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIC"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(i) the default of a commonly controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally
as the appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of shareholders of the insured
depository institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution. As a
result, any loss suffered by the FDIC in respect of any of these subsidiaries
would likely result in assertion of the cross-guarantee provisions, the
assessment of such estimated losses against the depository institution's banking
affiliates, and a potential loss of the investment in such other subsidiary
depository institution.
Prompt Corrective Action
------------------------
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to
a narrow exception, FDICIA requires the banking regulator to appoint a receiver
or conservator for an institution that is critically undercapitalized. The
federal banking regulators have specified by regulation the relevant capital
level for each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a Total Risk-Based Capital Ratio of 10%
or greater, a Tier I Risk-Based Capital Ratio of 6% or greater, and a Leverage
Ratio of 5% or greater and (ii) is not subject to any written agreement, order,
capital directive, or prompt corrective action directive issued by the
appropriate federal banking regulator is deemed to be well capitalized. An
institution with a total Risk-Based Capital Ratio of 8% or greater, a Tier I
Risk-Based Capital Ratio of 4% or greater, and a Leverage Ratio of 4% or greater
is considered to be adequately capitalized. A depository institution that has a
Total Risk-Based Capital Ratio of less than 8%, a Tier I Risk-Based Capital
Ratio of less than 4%, or a Leverage Ratio of less than 4% is considered to be
undercapitalized. A depository institution that has a Total Risk-Based Capital
Ratio of less than 6%, a Tier I Risk-Based Capital Ratio of less than 3%, or a
Leverage Ratio of less than 3% is considered to be significantly
undercapitalized, and an institution that has a tangible equity capital to
assets ratio equal to or less than 2% is deemed to be critically
undercapitalized. For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier I Capital for purposes of the
risk-based capital standards, plus the amount of outstanding cumulative
perpetual preferred stock (including related surplus), minus all intangible
assets with certain exceptions. A depository institution may be deemed to be in
a capitalized category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking
regulator. Under FDICIA, a bank holding company must guarantee that a
subsidiary depository institution meets its capital restoration plan, subject to
certain limitations. The obligation of a controlling holding company under
FDICIA to fund a capital restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount
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required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches, or engaging in any new
line of business, except in accordance with an accepted capital restoration plan
or with the approval of the FDIC. In addition, the appropriate federal banking
regulator is given authority with respect to any undercapitalized depository
institution to take any of the actions it is required to or may take with
respect to a significantly undercapitalized institution as described below if it
determines "that those actions are necessary to carry out the purpose" of
FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking regulator must require the institution to take one or more of
the following actions: (i) sell enough shares, including voting shares, to
become adequately capitalized; (ii) merge with (or be sold to) another
institution (or holding company), but only if grounds exist for appointing a
conservator or receiver; (iii) restrict certain transactions with banking
affiliates as if the "sister bank" exception to the requirements of Section 23A
of the Federal Reserve Act did not exist; (iv) otherwise restrict transactions
with bank or non-bank affiliates; (v) restrict interest rates that the
institution pays on deposits to "prevailing rates" in the institution's
"region;" (vi) restrict asset growth or reduce total assets; (vii) alter,
reduce, or terminate activities; (viii) hold a new election of directors; (ix)
dismiss any director or senior executive officer who held office for more than
180 days immediately before the institution became undercapitalized, provided
that in requiring dismissal of a director or senior officer, the regulator must
comply with certain procedural requirements, including the opportunity for an
appeal in which the director or officer will have the burden of proving his or
her value to the institution; (x) employ "qualified" senior executive officers;
(xi) cease accepting deposits from correspondent depository institutions; (xii)
divest certain nondepository affiliates which pose a danger to the institution;
or (xiii) be divested by a parent holding company. In addition, without the
prior approval of the appropriate federal banking regulator, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such officer.
At December 31, 1998, each Bank had the requisite capital levels to qualify
as "well capitalized."
FDIC Insurance Assessments
Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, assigns an institution to one
of three capital categories: (i) well capitalized; (ii) adequately capitalized;
and (iii) undercapitalized. These three categories are substantially similar to
the prompt corrective action categories described above, with the
"undercapitalized" category including institutions that are undercapitalized,
significantly undercapitalized, and critically undercapitalized for prompt
corrective action purposes. An institution is also assigned by the FDIC to one
of three supervisory subgroups within each capital group. An institution's
insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for members of both the Bank
Insurance Fund ("BIF") and the SAIF for the first half of 1995 ranged from 23
basis points (0.23% of deposits) for an institution in the highest category
(i.e., "well capitalized" and "healthy") to 31 basis points (0.31% of deposits)
for an institution in the lowest category (i.e., "undercapitalized" and
"substantial supervisory concern"). These rates were established for both funds
to achieve a designated ratio of reserves to insured deposits (i.e., 1.25%)
within a specified period of time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC was
authorized to reduce the minimum assessment rate below the 23 basis points and
to set future assessment rates at such levels that would maintain the fund's
reserve ratio at the designated level. In August 1995, the FDIC adopted
regulations reducing the assessment rates for BIF-member banks. Subsequently,
on November 14, 1995, the FDIC announced that, beginning in 1997, it would
further reduce the deposit insurance premiums for 92% of all BIF members that
are in the highest capital and supervisory categories to $2,000 per year,
regardless of deposit size. At the same time, the FDIC elected to retain the
existing assessment rate range for SAIF members for the foreseeable future given
the undercapitalized nature of that insurance fund. Thrift industry
representatives argued that this significant premium disparity resulted in
savings associations having to operate at a competitive disadvantage to their
BIF insured bank counterparts.
8
<PAGE>
On September 30, 1996, the President signed the Deposit Insurance Fund Act
of 1996 ("DIFA"). DIFA mandated that the FDIC impose a one-time special
assessment on the SAIF-assessable deposits of each insured depository
institution at a rate applicable to all such institutions that the FDIC
determined would cause the SAIF to achieve its designated reserve ratio of 1.25%
as of October 1, 1996. The assessment was based on the amount of SAIF-insured
deposits owned by each institution as of March 31, 1995. DIFA provides that the
FDIC may not set semi-annual assessments with respect to SAIF or BIF in excess
of the amount needed to maintain the 1.25% designated reserve ratio or, if the
reserve ratio is less than the designated reserve ratio, to increase the reserve
ratio to the designated reserve ratio. On October 10, 1996, the FDIC adopted a
final rule governing the payment of the SAIF special assessment to recapitalize
the fund in the amount of 65.7 basis points for SAIF members.
In addition, DIFA mandates the merger of the SAIF and BIF, effective
January 1, 1999, but only if no insured depository institution is a savings
association on that date. The combined deposit insurance fund would be called
the "deposit insurance fund" or "DIF."
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
Safety and Soundness Standards
------------------------------
The FDIA, as amended by FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation and compensation, fees and benefits,
and such other operational and managerial standards as the agencies deem
appropriate. The federal bank regulatory agencies have adopted, effective
August 9, 1995, a set of guidelines prescribing safety and soundness standards
pursuant to FDICIA, as amended. The guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth
and compensation, fees, and benefits. In general, the guidelines require, among
other things, appropriate systems and practices to identify and manage the risks
and exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director, or principal
shareholders. The federal banking agencies determined that stock valuation
standards were not appropriate. In addition, the agencies adopted regulations
that authorize, but do not require an agency to order an institution that has
been given notice by an agency that it is not satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the agency must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized association is
subject under the "prompt corrective action" provisions of FDICIA. If an
institution fails to comply with such an order, the agency may seek to enforce
such order in judicial proceedings and to impose civil money penalties. The
federal bank regulatory agencies also proposed guidelines for asset quality and
earnings standards.
Competition
The Banks experience competition in attracting and retaining business and
personal checking and savings accounts and in making commercial, consumer and
real estate loans in their respective primary service area. Direct competition
for such accounts comes from other commercial banks, savings institutions,
credit unions, brokerage firms and money market funds. The primary factors in
competing for loans are interest rates, loan origination fees and the range of
lending services offered. The competition for origination of loans normally
comes from other commercial banks, savings institutions, credit unions and
mortgage banking firms. Such entities may have competitive advantages as a
result of greater resources and higher lending limits (by virtue of greater
capitalization) or being subject to different regulations.
In order to compete with other financial institutions in their respective
primary service areas, each Bank relies principally upon personal contacts of
their officers and directors, and upon local advertising and promotional
9
<PAGE>
activities, to attract potential customers with the personalized and wide range
of financial services offered by an independent, locally-owned and managed
financial institution.
Employees
As of December 31, 1998, the Company employed 17 full-time employees and 8
part-time employees, The Park Avenue Bank employed 67 full-time employees and 14
part-time employees, Farmers & Merchants Bank employed 24 full-time employees
and 3 part-time employees, First Community employed 53 full-time employees and
13 part-time employees and Eagle Bank and Trust employed 33 full-time employees
and 5 part-time employees. The Company and each Bank considers their respective
relationships with their employees to be good.
Cautionary Notice Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements, including
statements regarding, among other items, (i) the Company's or one or more Bank's
plans, intentions or expectations, (ii) general competitive conditions, and
(iii) the Company's management information systems. The words "expect,"
"anticipate," "intend," "plan," "believe," "estimate," and similar expressions
are intended to identify such forwardlooking statements; however, this Annual
Report also contains other forward looking statements in addition to historical
information. This notice is intended to take advantage of the "safe harbor"
provided by the Private Securities Litigation Reform Act of 1995 with respect to
such forward-looking statements. These forward-looking statements involve a
number of risks and uncertainties, accordingly, there can be no assurance that
such indicated results will be realized. Among others, factors that could cause
actual results to differ materially are the following: development of trends in
the general economy; the highly competitive nature of the banking industry; the
dependence on key personnel who have been hired or retained by the Company;
changes in regulatory requirements which are applicable to the Company's
business; and the risk factors listed from time to time in the Company's
Commission reports, including but not limited to, its Annual Reports on Form 10-
K. By making these forward-looking statements, the Company does not undertake
to update them in any manner except as may be required by the Company's
disclosure obligations in filings it makes with the Securities and Exchange
Commission under the Federal securities laws.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's offices are located in The Park Avenue Bank's main office at
3102 North Oak Street Extension, Valdosta, Georgia 31602, and its telephone
number is (912) 241-2775.
The Park Avenue Bank's business is conducted at the following locations:
(1) Main office - 3102 North Oak Street Extension, Valdosta, Georgia
31602;
(2) Downtown branch - 124 West Hill Avenue, Valdosta, Georgia 31601;
(3) Francis Lake Shopping Center branch - Highway 376, Lake Park, Georgia
31636; and
(4) Baytree branch 1517 Baytree Road, Valdosta, Georgia 31602
The Park Avenue Bank owns all of its office locations.
Farmers & Merchants Bank's business is conducted at 301 West Fourth Street,
Adel, Georgia 31620, which building it owns.
First Community's business is conducted at the following locations:
(1) Main office 226 South Broad Street, Bainbridge, Georgia 31717;
(2) Cairo branch - 800 N. Broad Street, Cairo, Georgia 31728; and
10
<PAGE>
(3) Shotwell branch 400 E. Shotwell Street, Bainbridge, Georgia 31717
First Community owns all of its office locations.
Eagle Bank and Trust's business is conducted at the following locations:
(1) Main office 335 South Main Street, Statesboro, Georgia 33458; and
(2) Mall office -726 Northside Drive, Statesboro, Georgia 33458
Eagle Bank and Trust owns all of its office locations.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of the Banks is a party to any pending legal
proceedings, other than routine litigation incidental to each Bank's business,
which management believes would have a material effect upon the operations or
financial condition of the Company or the Banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of December 31, 1998 there were approximately 2,500 shareholders of
record of the Company's common stock. Prior to July 9, 1996 there was no
established trading market for the Company's common stock. The Company's common
stock began trading on the American Stock Exchange on July 9, 1996 under the
symbol "PAB." The following table shows the high and low prices for each
quarter of the 1997 and 1998 fiscal year:
<TABLE>
<CAPTION>
Sales
Prices Per
Share of PAB
Common Stock
--------------
High Low
---- ---
<S> <C> <C>
1997
First Quarter $10.69 $ 9.44
Second Quarter 11.00 10.13
Third Quarter 11.38 10.50
Fourth Quarter 12.06 10.56
1998
First Quarter 27.38 11.75
Second Quarter 23.75 20.00
Third Quarter 23.38 18.13
Fourth Quarter 21.50 17.25
</TABLE>
The Company has declared and paid cash dividends on the common stock since
1983 (its first full year of operations). The Company paid cash dividends of
$.175 per share ($988,423 in the aggregate) in fiscal year 1997 and
11
<PAGE>
$.275 per share ($1,997,476 in the aggregate) in fiscal year 1998. Per share
amounts have been adjusted to reflect a two-for-one stock split in 1998.
The primary source of funds available for the payment of cash dividends by
the Company is dividends from the Banks. The ability of the Banks to pay
dividends are subject to the provisions of the Financial Institutions Code of
Georgia, the rules of the Georgia Department.
If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution could include the payment of dividends), such regulator
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking regulators have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be unsafe and unsound banking practice. Under the FDICIA, a
depository institution may not pay any dividend if payment would cause it to
become undercapitalized or if it already is undercapitalized. Moreover, the
federal banking regulators have issued policy statements that provide that bank
holding companies and insured banks should generally only pay dividends out of
current operating earnings. The payment of dividends by the Company and its
banking subsidiaries may also be affected or limited by other factors, such as
the requirement to maintain adequate capital above regulatory guidelines.
Recent Sales of Unregistered Securities
Pursuant to the PAB Bankshares, Inc. 1994 Directors' Deferred Stock
Purchase Plan, directors of the Company and the Banks may elect to receive
Company common stock in lieu of cash compensation otherwise payable to the
directors for their service as members of the Board of Directors of the Company
and any Bank, or any committee thereof. The table below sets forth the number
of shares of common stock the Company issued on January 15, 1998 in lieu of fees
payable in connection with meetings held in 1997.
<TABLE>
<CAPTION>
Name Total Number of Shares of Price per
Common Stock Share
------------------------- ---------
<S> <C> <C>
John Clark 285 $21.375
James L. Dewar, Jr. 570 21.375
F. Ferrell Scruggs, Sr. 519 21.375
D. Ramsay Simmons, Jr. 318 21.375
Joe P. Singletary, Jr. 594 21.375
Charles O. Templeton 102 21.375
Kenneth Scruggs, Sr. 112 21.375
T. Lavelle Webb 121 21.375
David Brown 98 21.375
Joseph Durrenberger 107 21.375
Richard Nijem 102 21.375
W.F. Bozeman 80 21.375
Howard McClain 25 21.375
Larry Griner 95 21.375
Roger Watson 95 21.375
Fleming Williams 91 21.375
Raleigh Rollins 252 21.375
Oscar Jackson 198 21.375
</TABLE>
12
<PAGE>
In addition, Robert McDaniel, a former loan officer of First Community,
purchased 250 shares of Company common stock upon the exercise of options
granted to him under the Company 1994 Employee Stock Option Plan. Mr. McDaniel
purchased these shares on November 3, 1998, prior to terminating his employment
with First Community.
All of the shares of common stock were acquired by the directors and Mr.
McDaniel described above for investment purposes and with no present intention
toward resale or distribution thereof. The sales were made without public
solicitation, and the stock certificates bear restrictive legends. No
underwriter was involved in the transactions, and no commissions were paid. As
a result, each of the transactions was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
---------------------------------------------
<TABLE>
<CAPTION>
Operating Results:
- ------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues $ 45,320 40,374 36,442 32,810 22,844
======== ======= ======= ======= =======
Interest income $ 39,697 36,064 32,591 29,630 20,542
Interest expense (19,004) (16,970) (16,010) (14,206) (8,622)
-------- ------- ------- ------- -------
Net interest income before
provision for loan losses 20,693 19,094 16,581 15,424 11,920
Provision for loan losses (903) (793) (633) (593) (538)
Securities gains (losses) 11 (13) 131 127 (63)
Other income 5,612 4,323 3,721 3,053 2,365
Merger related expenses (before tax) (620) (119) -0- -0- -0-
SAIF assessment -0- -0- (385) -0- -0-
Other expenses (14,795) (13,327) (12,145) (11,622) (9,298)
-------- ------- ------- ------- -------
Income before taxes 9,998 9,165 7,270 6,389 4,386
Income taxes (3,347) (3,162) (2,451) (2,083) (1,356)
-------- ------- ------- ------- -------
Net income $ 6,651 6,003 4,819 4,306 3,030
======== ======= ======= ======= =======
Basic earnings per share: (1)
Net income $ .80 .73 .60 .53 .42
Merger related expenses .05 .01 .00 .00 .00
SAIF assessment .00 .00 .03 .00 .00
-------- ------- ------- ------- -------
Net income before merger expenses
and SAIF assessment $ .85 .74 .63 .53 .42
======== ======= ======= ======= =======
Diluted earnings per share: (1)
Net income $ .78 .72 .59 .53 .42
Merger related expenses .05 .01 .00 .00 .00
SAIF assessment .00 .00 .03 .00 .00
-------- ------- ------- ------- -------
Net income before merger expenses
and SAIF assessment $ .83 .73 .62 .53 .42
======== ======= ======= ======= =======
Dividends per share (1) $ .275 .175 .135 .103 .088
======== ======= ======= ======= =======
<CAPTION>
Financial Condition:
- --------------------
DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Loans, net $347,305 317,269 282,493 246,789 188,283
Interest-bearing deposits 1,934 6,669 5,605 3,437 3,083
Investments 95,209 83,439 89,499 93,401 59,341
Federal funds sold and securities
purchased under agreements to
resell 15,630 15,848 16,984 9,817 4,371
Assets 513,743 471,901 433,549 393,543 290,233
Deposits 413,256 386,643 367,359 338,924 248,672
Federal funds purchased 3,824 -0- 200 -0- 870
Advances from Federal Home
Loan Bank 39,058 31,812 17,645 8,941 5,629
Other long-term indebtedness -0- 2,184 3,384 5,157 4,730
Other borrowed funds 2,339 1,005 170 -0- -0-
Stockholders' equity 51,102 46,065 40,875 36,483 27,839
<CAPTION>
Asset Quality:
- --------------
DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Foreclosed real estate $ 438 434 371 443 71
Non-accrual loans 1,251 520 527 306 280
Loans 90 days or more past due and
still accruing 199 178 265 722 35
-------- ------- ------- ------- -------
Total non-performing assets and loans
90 days or more past due $ 1,888 1,132 1,163 1,471 386
======== ======= ======= ======= =======
</TABLE>
(1) Earnings per share have been adjusted to reflect a 2-for-1 stock split in
1996 and 1998.
(2) All data for prior periods has been restated to reflect mergers accounted
for as poolings of interests occurring in 1998.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This analysis has been prepared to provide insight into the consolidated
financial condition of the Company and to address the factors which the Company
believes have affected the Company's results of operations. Unless otherwise
noted, the financial and other information presented with respect to the Company
in this discussion and elsewhere in this annual report generally includes the
accounts of the Banks. The Company's consolidated financial statements and
accompanying notes which follow are an integral part of this review and should
be read in conjunction with it.
Results of Operations
The Company, including operations of the Banks, reported consolidated net
income of $6,651,050 ($.80 and $.78 basic and diluted earnings per share) for
the year ended December 31, 1998 compared to $6,002,894 ($.73 and $.72 basic and
diluted earnings per share) for the year ended December 31, 1997 and $4,818,603
($.60 and $.59 basic and diluted earnings per share) for the year ended December
31, 1996. Net interest income after provision for loan losses was $19,790,078,
$18,300,673 and $15,948,806 for the three years ended December 31, 1998, 1997,
and 1996, respectively. The provision for loan losses was $903,404, $792,900
and $632,842 for the three years ended December 31, 1998, 1997 and 1996,
respectively. Non-interest income totalled $5,623,055, $4,310,047 and
$3,850,515 for the three years ended December 31, 1998, 1997 and 1996,
respectively and non-interest expenses totalled $15,414,632, $13,446,200 and
$12,530,008 for the three years ended December 31, 1998, 1997 and 1996,
respectively.
During the year ended December 31, 1998 and 1997, the Company incurred
merger related expenses related to the merger of Investors and Eagle Bancorp,
Inc., both of which were accounted for by the pooling of interests method of
accounting. Theses expenses aggregated approximately $620,000 for 1998 and
$119,000 for 1997. Additionally, during the year ended December 31, 1996, First
Community (a thrift subsidiary now converted to a commercial bank subsidiary)
was assessed a charge of approximately $385,000 to recapitalize the thrift
industry insurance fund. Excluding the effects of these expenses, including
related tax benefits, would have resulted in an increase in the Company's
earnings per share of $.05 for 1998, $.01 for 1997 and $.03 for 1996. This
would have resulted in basic and diluted earnings per share of $.85 and $.83 for
1998, $.74 and $.73 for 1997 and $.63 and $.62 for 1996.
The following table summarizes the results of operations of the Company for
the three years ended December 31, 1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
(Dollars in thousands)
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Interest income $ 39,697 36,064 32,591
Interest expense (19,004) (16,970) (16,010)
-------- ------- -------
Net interest income 20,693 19,094 16,581
Provision for loan losses (903) (793) (633)
Non-interest income 5,623 4,310 3,851
Special SAIF assessment -0- -0- (385)
Other non-interest expense (15,415) (13,446) (12,145)
-------- ------- -------
Income before taxes 9,998 9,165 7,269
Income taxes (3,347) (3,162) (2,450)
-------- ------- -------
Net income $ 6,651 6,003 4,819
======== ======= =======
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Return on assets (net income divided
by average total assets) 1.35% 1.33% 1.17%
Return on equity (net income divided
by average equity) 13.69% 13.81% 12.48%
Dividend payout ratio (dividends
declared per share divided by diluted
net income per share) 35.26% 24.31% 22.88%
Equity to assets ratio at December 31
(average equity divided by average
total assets) 9.95% 9.76% 9.43%
Book value per share at December 31 $ 6.17 $ 5.57 $ 5.00
Net interest margin as percentage of
average interest-earning assets 4.64% 4.62% 4.39%
Efficiency ratio, excluding merger expenses
and SAIF assessment 55.54% 56.31% 58.78%
Non-performing assets and loans 90 days
or more past due as percentage of
total loans at December 31 .54% .35% .41%
</TABLE>
Comparison of Years Ended December 31, 1998 and 1997
Operations for the year ended December 31, 1998 resulted in net income of
approximately $6.7 million compared to a net income of approximately $6.0
million for the year ended December 31, 1997.
Interest Income
---------------
Total interest income increased approximately $3.6 million for 1998
compared to 1997. This increase is attributed to the factors explained in the
following paragraphs.
Interest earned on loans increased from approximately $30.0 million in 1997
to approximately $33.1 million in 1998, an increase of $3.1 million. This
increase was the combined effect of an increase in the average loan portfolio
balance from approximately $314.7 million in 1997 to $328.1 million in 1998 and
an increase in the rate earned on the loan portfolio from 9.54% in 1997 to 10.1%
in 1998.
Interest earned on taxable investment securities decreased from
approximately $5.1 million in 1997 to approximately $4.7 million in 1998, a
decrease of $447,000. This decrease was the net effect of an increase in the
average taxable investment portfolio balance from approximately $80.8 million in
1997 to approximately $81.5 million in 1998 and a decrease in the rate earned on
the taxable investment portfolio from 6.31% in 1997 to 5.71% in 1998.
Interest earned on nontaxable investment securities increased from
approximately $247,000 in 1997 to approximately $316,000 in 1998, an increase of
$69,000. This increase was the net effect of an increase in the average non-
taxable investment portfolio balance from approximately $5.6 million in 1997 to
approximately $7.5 million in 1998 and a decrease in the rate earned on the non-
taxable investment portfolio from 4.41% in 1997 to 4.2% in 1998.
Interest earned on interest-bearing deposits in banks decreased from
approximately $236,000 in 1997 to approximately $206,000 in 1998, a decrease of
$30,000. This decrease was the combined effect of a decrease in the
16
<PAGE>
average interest-bearing deposits balance from $4.7 million in 1997 to $4.3
million in 1998 and a decrease in the rate earned on the interest-bearing
deposits from 5.0% in 1997 to 4.78% in 1998.
Interest earned on federal funds sold increased from approximately $448,000
in 1997 to approximately $1.3 million in 1998, an increase of $934,000. This
increase was the net effect of an increase in the average federal funds sold
balance from approximately $7.1 million in 1997 to approximately $24.3 million
in 1998 and a decrease in the rate earned on the federal funds sold from 6.32%
in 1997 to 5.69% in 1998.
Interest Expense
----------------
Total interest expense increased approximately $2.03 million in 1998
compared to 1997. This increase is attributed to the factors explained in the
following paragraphs.
The increase in total interest expense was the combined effect of an
increase in the average balance of interest-bearing deposits from approximately
$315.5 million in 1997 to approximately $331.3 million in 1998 and an increase
in the average rate paid on deposits from 4.85% in 1997 to 4.9% in 1998. The
Company's interest expense on interest-bearing deposits increased $950,000 from
approximately $15.3 million for the year ended December 31, 1997 to
approximately $16.2 million for the year ended December 31, 1998. The increase
in interest-bearing deposits came from the local communities served by the
Banks.
All other interest expense consisting principally of interest on notes and
mortgages payable, increased from approximately $1.7 million for the year ended
December 31, 1997 to approximately $2.8 million for the year ended December 31,
1998, an increase of $1.1 million. This increase was the combined effect of an
increase in the average balance of Federal Home Loan Bank advances from
approximately $23.2 million in 1997 to approximately $35.4 million in 1998 and
an increase in the average rate from 5.79% in 1997 to 6.75% in 1998. These
advances were to match fund mortgage loans made. Additionally, the Company had
a note payable to a correspondent bank which had a balance of approximately $2.2
million at December 31, 1997, which was repaid prior to maturity during the year
ended December 31, 1998. The interest rate was a variable interest rate (7.65%
at December 31, 1997). The note provided for equal semi-annual installments in
the amount of $36,500 with a maturity date in 2005. Interest on notes payable
decreased from approximately $240,000 for the year ended December 31, 1997 to
approximately $152,000 for the year ended December 31, 1998, a decrease of
$88,000.
Interest of approximately $128,000 was paid on federal funds purchased
during the year ended December 31, 1998 and approximately $76,000 during the
year ended December 31, 1997, an increase of $52,000. Federal funds purchased
outstanding totalled $3.8 million at December 31, 1998. There were no balances
outstanding at December 31, 1997.
Interest of approximately $28,000 was paid on other borrowed funds during
the year ended December 31, 1997 and approximately $98,000 during the year ended
December 31, 1998, an increase of $70,000. This represented interest expense on
sweep agreements. This increase was the combined effect of an increase in the
average balance of sweep agreements from approximately $500,000 for the year
ended December 31, 1997 to approximately $1.7 million for the year ended
December 31, 1998 and an increase in the average rate paid from 5.25% for the
year ended December 31, 1997 to 5.84% for the year ended December 31, 1998.
Provision for Loan Losses
-------------------------
The provision for loan losses for the year ended December 31, 1998 as
compared to 1997 increased approximately $110,000. The balance of the allowance
for loan losses was approximately $4.4 million at December 31, 1998 and
approximately $4.2 million at December 31, 1997. Actual loan charge-offs net of
recoveries were approximately $720,000 for the year ended December 31, 1998 and
approximately $353,000 for the year ended December 31, 1997. Non-accrual loans
were approximately $1.3 million at December 31, 1998 as compared to $520,000 at
December 31, 1997. Loans 90 days or more past due and still accruing amounted
to approximately $199,000 at December 31, 1998 and $178,000 at December 31,
1997. In determining an adequate level of loan loss reserves, such loans were
included in such consideration. The amount of the provision for loan losses is
a result of the amount of loans charged-off, the amount of loans recovered and
management's conclusion concerning the level of the allowance for loan losses.
The level of the allowance for loan losses is based upon a number of factors
including the Banks' past loan loss
17
<PAGE>
experience, management's evaluation of the collectibility of loans, the general
state of the economy, specific impaired loans and other relevant factors.
Non-Interest Income
-------------------
The following table presents the principal components of non-interest
income for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997
------------- -----------
(Dollars in thousands)
<S> <C> <C>
Service charges on deposit accounts $3,013 2,797
Insurance commissions 221 148
Fees on mortgage loans originated for sale 725 244
Late charges and other loan fees 657 349
Equity in earnings of unconsolidated subsidiary 368 256
Securities gains (losses) 11 (13)
Gain (loss) on sale of loans 2 24
Gain (loss) on sale of other real estate (5) 3
Gain (loss) on sale of assets 109 (2)
Other income 522 504
------ -----
Total non-interest income $5,623 4,310
====== =====
</TABLE>
Non-interest income for the year ended December 31, 1998 as compared to
1997, increased approximately $1.3 million. Service charges on deposit accounts
for the year ended December 31, 1998 as compared to 1997 increased approximately
$216,000. This increase was related primarily to an increase in the number of
transactional accounts with NSF charges. Fees on mortgage loans originated for
sale increased approximately $481,000 reflecting an increase in mortgage loan
originations. Late charges and other miscellaneous loan fees increased
approximately $308,000 reflecting an increase in loan volume. Equity in
earnings of unconsolidated subsidiary increased approximately $112,000. This
represents the Company's 50% interest in the earnings of Empire Financial
Services, Inc. ("Empire"), an unconsolidated subsidiary which is 50% owned by
First Community. All other income increased from approximately $664,000 for the
year ended December 31, 1997 to approximately $860,000 in 1998, an increase of
$196,000.
Non-Interest Expenses
---------------------
The following table presents the principal components of non-interest
expenses for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
------------ ----------
(Dollars in thousands)
<S> <C> <C>
Compensation $ 6,636 6,002
Other personnel expenses 1,588 1,294
Occupancy expense of bank premises 746 729
Furniture and equipment expense 1,302 1,246
Federal deposit insurance 90 80
Postage and courier services 339 359
Supplies 497 494
Amortization 357 357
Other operating expenses 3,860 2,885
------- ------
Total non-interest expenses $15,415 13,446
======= ======
</TABLE>
18
<PAGE>
Non-interest expenses for the year ended December 31, 1998 as compared to
1997, increased approximately $2.0 million or 14.6%.
Compensation and other personnel expenses increased approximately $928,000
reflecting an increase in the number of employees, in wage levels and in the
cost of employee benefits. Merger related expenses for the year ended December
31, 1998 as compared to 1997 increased approximately $501,000. These expenses
were incurred by the Company and two subsidiaries in connection with the
acquisition by merger of two subsidiaries in 1998, which were accounted for as
poolings of interest. All other expenses increased approximately $540,000 or
8.95%. The increases were primarily attributed to a larger volume of business.
Income Taxes
------------
The effective tax rate for the year ended December 31, 1998 was 33.5%
compared to 34.5% for the year ended December 31, 1997.
Comparison of Years Ended December 31, 1997 and 1996
Operations for the year ended December 31, 1997 resulted in a net income of
approximately $6.0 million compared to a net income of approximately $4.8
million for the year ended December 31, 1996.
Interest Income
---------------
Total interest income increased approximately $3.5 million for 1997
compared to 1996. This increase is attributed to the factors explained in the
following paragraphs.
Interest earned on loans increased from approximately $26.3million in 1996
to approximately $30.0 million in 1997, an increase of $3.7 million. This
increase was the net effect of an increase in the average loan portfolio balance
from approximately $274.4 million in 1996 to $314.7 million in 1997 and a
decrease in the rate earned on the loan portfolio from 9.6% in 1996 to 9.54% in
1997.
Interest earned on taxable investment securities decreased from
approximately $5.5 million in 1996 to approximately $5.1 million in 1997, a
decrease of $432,000. This decrease was the combined effect of a decrease in
the average taxable investment portfolio balance from approximately $86.8
million in 1996 to approximately $80.8 million in 1997 and a decrease in the
rate earned on the taxable investment portfolio from 6.38% in 1996 to 6.31% in
1997.
Interest earned on nontaxable investment securities increased from
approximately $239,000 in 1996 to approximately $247,000 in 1997, an increase of
$8,000. This increase was the net effect of an increase in the average non-
taxable investment portfolio balance from approximately $4.9 million in 1996 to
approximately $5.6 million in 1997 and a decrease in the rate earned on the non-
taxable investment portfolio from 4.9% in 1996 to 4.41% in 1997.
Interest earned on interest-bearing deposits in banks increased from
approximately $91,000 in 1996 to approximately $236,000 in 1997, an increase of
$145,000. This increase was the combined effect of an increase in the average
interest-bearing deposits balance from $2.4 million in 1996 to $4.7 million in
1997 and an increase in the rate earned on the interest-bearing deposits from
3.84% in 1996 to 5.0% in 1997.
Interest earned on federal funds sold increased from approximately $394,000
in 1996 to approximately $448,000 in 1997, an increase of $54,000. This
increase was the net effect of a decrease in the average federal funds sold
balance from approximately $9.5 million in 1996 to approximately $7.1 million in
1997 and an increase in the rate earned on the federal funds sold from 4.17% in
1996 to 6.32% in 1997.
Interest Expense
----------------
Total interest expense increased approximately $960,000 in 1997 compared to
1996. This increase is attributed to the factors explained in the following
paragraphs.
19
<PAGE>
The increase in total interest expense was the net effect of an increase in
the average balance of interest-bearing deposits from approximately $295.1
million in 1996 to approximately $315.5 million in 1997 and a decrease in the
average rate paid on deposits from 4.99% in 1996 to 4.85% in 1997. The effect
of these changes increased the interest expense on interest-bearing deposits
from approximately $14.7 million for the year ended December 31, 1996 to
approximately $15.3 million for the year ended December 31, 1997, an increase of
$569,000. The increase in interest-bearing deposits came from the local
communities served by the Banks.
All other interest expense consisting principally of interest on notes and
mortgages payable, increased from approximately $1.3 million for the year ended
December 31, 1996 to approximately $1.7 million for the year ended December 31,
1997, an increase of $392,000. This increase was the combined effect of an
increase in the average balance of Federal Home Loan Bank advances from
approximately $16.3 million in 1996 to approximately $23.2 million in 1997 and
an increase in the average rate from 5.44% in 1996 to 5.79% in 1997. These
advances were to match fund mortgage loans made. Additionally, the Company had
notes payable to correspondent banks which had a balance of approximately $2.2
million at December 31, 1997. The interest rate was variable (7.65% at December
31, 1997). Semi-annual principal payments were scheduled through the maturity
date in 2005. Interest on notes payable decreased from approximately $337,000
for the year ended December 31, 1996 to approximately $240,000 for the year
ended December 31, 1997, a decrease of $97,000.
Interest of approximately $76,000 was paid on federal funds purchased
during the year ended December 31, 1997 and approximately $44,000 during the
year ended December 31, 1996, an increase of $32,000. There was no federal
funds purchased outstanding at December 31, 1997.
Interest of approximately $24,000 was paid on other borrowed funds during
the year ended December 31, 1996 and approximately $28,000 during the year ended
December 31, 1997, an increase of $4,000. This represented interest expense on
sweep agreements. This increase was the net effect of a decrease in the average
balance of sweep agreements from approximately $600,000 for the year ended
December 31, 1996 to approximately $500,000 for the year ended December 31, 1997
and an increase in the average rate paid from 4.17% for the year ended December
31, 1996 to 5.25% for the year ended December 31, 1997.
Provision for Loan Losses
-------------------------
The provision for loan losses for the year ended December 31, 1997 as
compared to 1996 increased approximately $160,000. The balance of the allowance
for loan losses was approximately $4.2 million at December 31, 1997 and
approximately $3.8 million at December 31, 1996. Actual loan charge-offs net of
recoveries were approximately $353,000 for the year ended December 31, 1997 and
approximately $257,000 for the year ended December 31, 1996. Non-accrual loans
were approximately $520,000 at December 31, 1997 as compared to $527,000 at
December 31, 1996. Loans 90 days or more past due and still accruing amounted
to approximately $178,000 at December 31, 1997 and $265,000 at December 31,
1996. In determining an adequate level of loan loss reserves, such loans were
included in such consideration. The amount of the provision for loan losses is
a result of the amount of loans charged-off, the amount of loans recovered and
management's conclusion concerning the level of the allowance for loan losses.
The level of the allowance for loan losses is based upon a number of factors
including the Banks' past loan loss experience, management's evaluation of the
collectibility of loans, the general state of the economy, specific impaired
loans and other relevant factors.
20
<PAGE>
Non-Interest Income
-------------------
The following table presents the principal components of non-interest
income for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
------------- ----------
(Dollars in thousands)
<S> <C> <C>
Service charges on deposit accounts $2,797 2,407
Insurance commissions 148 84
Fees on mortgage loans originated for sale 244 254
Late charges and other loan fees 349 298
Equity in earnings of unconsolidated subsidiary 256 216
Securities gains (losses) (13) 131
Gain (loss) on sale of loans 24 11
Gain (loss) on sale of other real estate 3 1
Gain (loss) on sale of assets (2) 3
Other income 504 446
------ -----
Total non-interest income $4,310 3,851
====== =====
</TABLE>
Non-interest income for the year ended December 31, 1997 as compared to
1996, increased approximately $459,000. Service charges on deposit accounts for
the year ended December 31, 1997 as compared to 1996 increased approximately
$390,000. This increase was related primarily to an increase in the number of
transaction deposit accounts with NSF charges. Late charges and other
miscellaneous loan fees increased approximately $51,000 reflecting an increase
in loan volume. Securities gains for the year ended December 31, 1997 as
compared to 1996 decreased approximately $144,000. Equity in earnings of
unconsolidated subsidiary increased approximately $40,000. This represents the
Company's 50% interest in the earnings of Empire. All other income increased
from approximately $799,000 for the year ended December 31, 1996 to
approximately $921,000 in 1997.
Non-Interest Expenses
---------------------
The following table presents the principal components of non-interest
expenses for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
------------ ----------
(Dollars in thousands)
<S> <C> <C>
Compensation $ 6,002 5,430
Other personnel expenses 1,294 1,060
Occupancy expense of bank premises 729 696
Furniture and equipment expense 1,246 1,159
Federal deposit insurance 80 117
Special SAIF assessment -0- 385
Postage and courier services 359 315
Supplies 494 418
Amortization 357 376
Other operating expenses 2,885 2,574
------- ------
Total non-interest expenses $13,446 12,530
======= ======
</TABLE>
Non-interest expenses for the year ended December 31, 1997 as compared to
1996, increased approximately $916,000 or 7.3% ($1,301,000 or 10.7% excluding
special SAIF assessment in 1996).
Compensation and other personnel expenses increased approximately $806,000
reflecting an increase in the number of employees, in wage levels and in the
cost of employee benefits. During the quarter ended September 30,
21
<PAGE>
1996, the much publicized pending legislation which would result in a special
SAIF assessment to recapitalize the insurance fund was signed into law. This
assessment affected the Company's then thrift subsidiary, First Community, and
resulted in an assessment of $.657 per $100 of domestic deposits held as of
March 31, 1995. This assessment amounted to $385,000. Federal deposit insurance
decreased $37,000 for the year ended December 31, 1997 compared to 1996 as a
result of reductions in federal deposit insurance premium rates. All other
expenses increased approximately $532,000 or 9.6%. The increases were primarily
attributed to a larger volume of business.
Income Taxes
------------
The effective tax rate for the year ended December 31, 1997 was 34.5%
compared to 33.7% for the year ended December 31, 1996.
Asset/Liability Management and Market Risk (Quantitative and Qualitative
Disclosures About Market Risk)
The Company's financial performance is impacted by, among other factors,
interest rate risk and credit risk. The Company utilizes no derivative
instruments to mitigate its credit risk, relying instead on strict underwriting
standards, loan review, and an adequate loan loss reserve.
Interest rate risk is the risk of loss in value due to changes in interest
rates. This risk is addressed by the Company's Asset Liability Management
Committee ("ALCO"), which includes senior management representatives. ALCO
monitors and considers methods of managing interest rate risk by monitoring
changes in Economic Value of Equity ("EVE") and net interest income under
various interest rate scenarios.
Market value has taken on greater interest as a measure of equity risk. By
marking-to-market the components of the balance sheet, the Company can compute
the market value of equity. Not unlike a bond analysis, interest rates are
changed at various increments and the new market value is calculated. ALCO
attempts to manage the various components of the Company's balance sheet to
minimize the impact of sudden and sustained changes in interest rates on EVE and
net interest income.
The Company's exposure to interest rate risk is reviewed on at least a
quarterly basis by the Board of Directors and the ALCO. Rate risk measurement
is undertaken to determine potential loss in the net interest margin ("NIM")
and, ultimately, in each Bank's capital ratio. One of the most popular methods
used to estimate interest rate risk is the rate sensitivity gap. The theory
states that interest rate risk is due to the volume differences, called GAP,
between repricable assets and liabilities over a specific period of time. NIM
change can be quantified by assuming a rate change and applying it to this GAP.
If potential changes to EVE and NIM resulting from hypothetical interest rate
swings are not within limits acceptable by the Board of Directors, the Board of
Directors may direct management to adjust its asset and liability mix to bring
interest rate risk within acceptable limits.
To ensure that the Company's EVE and NIM remain within acceptable limits
the following strategies have been developed. First, greater emphasis has been
placed on adjustable rate loans, which generally reprice in one year or less.
Second, its investment activities are short- and medium-term securities. Third,
attempt to maintain and increase regular savings and transaction deposit
accounts. Fourth, utilize long-term borrowings to match long-term assets.
22
<PAGE>
The following table presents the Company's projected change in EVE and net
interest income for the various rate shock levels as of December 31, 1998. EVE
and the impact on net interest income for the Company are regularly calculated
internally.
CHANGES IN ECONOMIC VALUE OF EQUITY
-----------------------------------
<TABLE>
<CAPTION>
MARKET
VALUE OF
CHANGE IN PORTFOLIO ACTUAL PERCENT
INTEREST RATES EQUITY CHANGE CHANGE
- ------------------------- ----------- ------------ --------
<S> <C> <C> <C>
200 basis point rise $14,115,000 -$6,814,000 -32.56%
Base rate scenario 20,929,000 -0- .00%
200 basis point decline 28,790,000 $ 7,861,000 +37.56%
</TABLE>
CHANGES IN NET INTEREST INCOME
------------------------------
<TABLE>
<CAPTION>
NET
CHANGE IN INTEREST ACTUAL PERCENT
INTEREST RATES INCOME CHANGE CHANGE
- ------------------------- ----------- ---------- --------
<S> <C> <C> <C>
200 basis point rise $22,769,000 +$ 478,000 +2.14%
Base rate scenario 22,291,000 -0- .00%
200 basis point decline 21,945,000 -$ 346,000 -1.55%
</TABLE>
The preceding table indicates that at December 31, 1998, in the event of a
sudden and sustained increase in prevailing market interest rates, the Company's
EVE would be expected to decrease and in the event of a decrease in prevailing
market rates, the Company's net interest income would be expected to decrease.
At December 31, 1998, the Company's estimated changes in EVE were acceptable to
the Board of Directors.
Rate risk analysis can be complex and risk can only be estimated.
Computation of forecasted effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments, and deposit decay, and should not be relied upon as
indicative of actual future results. Further, the computations do not
contemplate any actions the ALCO could undertake in response to changes in
interest rates.
Interest Rate Sensitivity GAP Up to One Year
As of December 31, 1998, excluding NOW and savings accounts, which the
Company does not consider to be rate sensitive, the Company has a positive
interest sensitivity GAP up to one year. The following table presents the
interest-sensitivity GAP of the Company, the rate sensitive assets to rate
sensitive liabilities and comfort ranges as of December 31, 1998.
<TABLE>
<CAPTION>
UP TO
ONE YEAR
-----------------------
(Dollars in thousands)
<S> <C>
Total rate sensitive assets $ 210,932
Total rate sensitive liabilities 225,363
----------
Interest-sensitivity GAP -$ 14,431
GAP ratio .94
==========
Comfort range .80-1.20
==========
</TABLE>
23
<PAGE>
Financial Condition
The Company, including the Banks, reported consolidated total assets of
approximately $513.7 million at December 31, 1998 and $471.9 million at December
31, 1997 representing an increase of approximately $41.8 million for the year
ended December 31, 1998. Loan growth exceeded deposit growth as loans increased
approximately $30.2 million and deposits increased approximately $26.6 million.
Additionally, funds were provided by operations of $7.8 million, sale of stock
of $300,000, Federal Home Loan Bank advances of $7.2 million, decrease in
interest-bearing deposits of $4.7 million, increase in federal funds purchased
and other borrowings of $5.2 million and decrease in federal funds sold of
$200,000. These funds were used to purchase additional bank premises and
equipment of $3.5 million, pay dividends of $2.1 million, increase investment
securities $11.5 million, increase cash by $2.5 million and decrease note
payable to a correspondent bank by $2.2 million. The growth in loans and
deposits is attributable to several factors including growth in the customer
base due to the business development efforts of the management team, the pricing
of loans and deposits and the favorable economic conditions experienced in the
markets served by the Banks.
The changes in interest rates as previously discussed are reflective of
interest rates in general and market conditions including competition. Changes
in short-term funds including cash and due from banks, federal funds sold,
interest-bearing deposits and investment securities are reflective of the
liquidity position of the Company.
The Company's capital to assets ratio as of December 31, 1998 and 1997 was
9.95% and 9.76%, respectively.
The Company and the Banks are subject to various regulatory capital
requirements administered by the state and federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and the Banks' financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Banks must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998 and 1997,
that the Company and the Banks meet all capital adequacy requirements to which
they are subject.
As of December 31, 1998, the most recent notification from banking
regulators categorized the Company and the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
adequately capitalized, the Company and the Banks must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There have been no conditions or events since that notification that
management believes have changed the institutions' category.
24
<PAGE>
The Company's consolidated actual capital amounts and ratios and the minimum
amounts and ratios under the capital adequacy and prompt corrective action
provisions are presented below:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISION
--------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to risk weighted assets) $52,482 13.8% 30,424 8% 38,030 10%
Tier I Capital
(to risk weighted assets) 48,056 12.6% 15,256 4% 22,884 6%
Tier I Capital
(to average assets) 48,056 9.6% 20,023 4% 25,029 5%
As of December 31, 1997:
Total Capital
(to risk weighted assets) $47,122 14.9% 25,300 8% 31,626 10%
Tier I Capital
(to risk weighted assets) 42,879 13.5% 12,705 4% 19,057 6%
Tier I Capital
(to average assets) 42,879 9.5% 18,054 4% 22,568 5%
</TABLE>
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers, for the withdrawal of funds or the funding of additional loans, and
the ability of the Banks to meet those requirements. Management monitors and
maintains appropriate levels of assets and liabilities so that maturities of
assets are such that adequate funds are provided to meet estimated customer
withdrawals and loan requests.
The Banks' liquidity position depends primarily upon the liquidity of its
assets relative to its need to respond to short-term demand for funds caused by
withdrawals from deposit accounts and loan funding commitments. Primary sources
of liquidity are scheduled payments on its loans and interest on the Banks'
investments. The Banks may also utilize their cash and due from banks, short-
term deposits with financial institutions, federal funds sold and investment
securities to meet liquidity requirements. At December 31, 1998, the Banks'
cash and due from banks were approximately $24.5 million (after reduction for
their required reserves of $1.9 million), their short-term deposits with
financial institutions were $1.9 million, and their federal funds sold were
$15.6 million. The effect of the required reserves is to reduce available
liquidity. All of the above can be converted to cash on short notice. The sale
of investments, which had a market value of approximately $95.2 million at
December 31, 1998, can also be used to meet liquidity requirements, to the
extent the investments are not pledged to secure public funds on deposit as
required by law. Securities with a market value of $37.3 million were pledged
as of December 31, 1998.
The Banks' funding needs are based primarily on the volume of lending. The
primary funding source is from new deposits. The Banks seek to attract new
deposits by paying rates of interest on deposit accounts which are competitive
in their respective primary service areas. The Banks generally do not pay
brokers' commissions in connection with the obtaining of deposits or have
deposits outside the primary service area. The Banks do not pay premiums to
attract deposits. As of December 31, 1998, the average cost for deposit
liabilities was approximately 4.9%. The Banks continue to expect that new
deposits will serve as its primary funding source.
The Banks also have the ability, on a short-term basis, to borrow and
purchase federal funds from other financial institutions. The Banks are members
of the Federal Home Loan Bank of Atlanta and as such have the ability to secure
advances therefrom, although the cost of such advances exceed lower cost
alternatives such as deposits from the local communities. The Banks had
advances outstanding from the Federal Home Loan Bank of Atlanta of $39.1 million
at December 31, 1998 at an average rate of 6.03%.
The average loan to deposit ratio for the Company at December 31, 1998 was
85.1% compared to 83.2% at December 31, 1997.
25
<PAGE>
<TABLE>
<CAPTION>
Average Balance Sheets
The following table presents average balance sheets for the three years ended December 31, 1998.
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
ASSETS 1998 1997 1996
--------------------- ------------------ ------------------
<S> <C> <C> <C>
(Dollars in thousands)
Cash and cash equivalents:
Cash and due from banks $ 25,131 19,789 15,987
Interest-bearing deposits in other banks 2,404 2,165 869
-------- ------- -------
Total cash and cash equivalents 27,535 21,954 16,856
Time deposits 1,897 2,547 1,499
Federal funds sold and securities purchased under
agreement to resell 24,283 7,093 9,458
Investment securities 89,324 86,469 91,750
Investment in unconsolidated subsidiary 51 98 133
Loans, net of allowance for loan losses and unearned
interest 323,743 310,628 270,738
Bank premises and equipment 12,725 11,445 10,990
Other REO 436 402 407
Land and building of former banking offices 319 380 285
Land and building held for lease 295 183 367
Accrued interest receivable 5,314 4,854 3,803
Goodwill 2,892 3,249 3,615
Cash value of life insurance 2,836 2,371 1,749
Other assets 1,172 1,052 1,896
-------- ------- -------
Total assets $492,822 452,725 413,546
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 67,514 61,548 53,884
NOW 87,575 77,821 77,108
Savings 24,741 25,264 25,641
Time 219,028 212,368 192,373
-------- ------- -------
398,858 377,001 349,006
Federal funds purchased 1,912 1,200 1,057
Notes payable 2,184 3,271 4,271
Other borrowed funds 1,672 535 584
Advances from Federal Home Loan Bank 35,435 23,194 16,323
Accrued interest 1,629 1,650 1,162
Other liabilities 2,549 2,403 2,464
-------- ------- -------
Total liabilities 444,239 409,254 374,867
-------- ------- -------
Stockholders' equity:
Common stock 1,240 1,264 1,719
Additional paid in capital 26,057 26,104 25,015
Retained earnings 21,552 17,119 13,158
Accumulated other comprehensive income 226 13 55
Treasury stock (492) (1,029) (1,268)
-------- ------- -------
Total stockholders' equity 48,583 43,471 38,679
-------- ------- -------
Total liabilities and stockholders' equity $492,822 452,725 413,546
======== ======= =======
</TABLE>
26
<PAGE>
Average Yields Earned and Rates Paid
The following tables presents the average balances, average yields and
interest earned on interest-earning assets and average rates and interest paid
on interest-bearing liabilities for the three years ended December 31, 1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -------------------------
AVERAGE INCOME/ YIELD AVERAGE INCOME/ YIELD AVERAGE INCOME/ YIELD
BALANCES EXPENSE RATES BALANCES EXPENSE RATES BALANCES EXPENSE RATES
-------- ------- ------ -------- ------- ------ -------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average yield on loans (1)(3) $328,078 33,140 10.10% 314,651 30,031 9.54% 274,352 26,334 9.60%
Average yield on taxable
investment securities 81,477 4,654 5.71% 80,836 5,101 6.31% 86,774 5,533 6.38%
Average yield on non-taxable
investment securities (2) 7,505 316 4.20% 5,599 247 4.41% 4,872 239 4.90%
Average yield on interest-
bearing deposits in banks 4,302 206 4.78% 4,711 236 5.00% 2,368 90 3.84%
Average yield on federal
funds sold 24,283 1,382 5.69% 7,093 448 6.32% 9,458 394 4.17%
-------- ------ ----- ------- ------ ---- ------- ------ ----
Average yield on all
interest-earning assets $445,645 39,698 8.91% 412,890 36,063 8.73% 377,824 32,590 8.63%
======== ====== ===== ======= ====== ==== ======= ====== ====
Average rate paid on now
account deposits $ 87,575 2,691 3.07% 77,821 2,237 2.87% 77,108 2,327 3.02%
Average rate paid on savings
deposits 24,741 758 3.06% 25,264 799 3.16% 25,641 807 3.15%
Average rate paid on time 219,028 12,786 5.84% 212,368 12,248 5.77% 192,373 11,582 6.02%
deposits
Average rate paid on federal
funds
purchased 1,912 128 6.70% 1,200 76 6.32% 1,057 44 4.17%
Average rate paid on notes
payable 2,184 152 6.94% 3,271 240 7.33% 4,271 337 7.90%
Average rate paid on other
borrowed funds 1,672 98 5.84% 535 28 5.25% 584 24 4.17%
Federal Home Loan Bank 35,435 2,391 6.75% 23,194 1,342 5.79% 16,323 888 5.44%
advances -------- ------ ----- ------- ------ ---- ------- ------ ----
Average rate paid on all
interest-
bearing liabilities $372,547 19,004 5.10% 343,653 16,970 4.94% 317,357 16,009 5.04%
======== ====== ===== ======= ====== ==== ======= ====== ====
Average net yield on interest-
earning assets (net interest
income as a percentage of
average interest-earning 4.64% 4.62% 4.39%
assets) ===== ==== ====
</TABLE>
(1) Non-accruing loans have been included in the "average amount outstanding"
and average loans have not been reduced by the allowance for loan losses.
(2) Interest income on tax exempt securities has not been calculated on a tax
equivalent basis.
(3) Loan fees included in interest income amounted to approximately $1,100,000
in 1998, $1,137,000 in 1997, and $929,000 in 1996.
27
<PAGE>
The table below sets forth certain information regarding changes in interest
income and interest expense for the periods indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (i) changes in volume (changes in volume
multiplied by old rate); (ii) changes in rates (change in rate multiplied by old
volume); (iii) changes in rate-volume (changes in rate multiplied by the change
in volume). The net change attributable to both volume and rate, which cannot
be segregated, has been allocated proportionately to change due to volume and
change due to rate.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 VS. 1998 1996 VS. 1997
----------------------- -----------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
---------------------- ------------------------
VOLUME RATE NET VOLUME RATE NET
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest income:
Loans $1,308 $1,799 $3,107 $3,862 $(164) $3,698
Taxable investment securities 41 (488) (447) (372) (60) (432)
Non-taxable investment securities 80 (11) 69 24 (16) 8
Interest-bearing deposits in banks (20) (10) (30) 111 34 145
Federal funds sold 974 (40) 934 (51) 105 54
------ ------ ------ ------ ----- ------
Total $2,383 $1,250 $3,633 $3,574 $(101) $3,473
------ ------ ------ ------ ----- ------
Interest expense:
NOW account deposits $ 293 $ 161 $ 454 $ 21 $(111) $ (90)
Savings deposits (16) (25) (41) (10) 2 (8)
Time deposits 388 150 538 1,107 (442) 665
Federal funds purchased 47 5 52 7 25 32
Advances from Federal Home Loan Bank 798 251 1,049 394 60 454
Other borrowed funds 66 4 70 (2) 6 4
Other long-term debt (76) (12) (88) (74) (23) (97)
------ ----- ------ ------ ----- ------
Total $1,500 $ 534 $2,034 $1,443 (483) $ 960
------ ----- ------ ------ ----- ------
Net interest income $ 883 $ 716 $1,599 $2,131 $ 382 $2,513
====== ===== ====== ====== ===== ======
</TABLE>
28
<PAGE>
Investment Portfolio
The following table presents investments in obligations of (i) U.S. Treasury
and other U.S. government agencies and corporations, (ii) states of the U.S. and
political subdivisions and (iii) other securities as of December 31, 1998, 1997
and 1996.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- -----------------------
SECURITIES SECURITIES SECURITIES SECURITIES SECURITIES SECURITIES
AVAILABLE HELD TO AVAILABLE HELD TO AVAILABLE HELD TO
FOR SALE MATURITY FOR SALE MATURITY FOR SALE MATURITY
---------- ---------- ---------- ---------- ----------- ----------
( Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. government agencies
and corporations $80,813 $-0- $67,683 $4,542 $64,686 $3,790
States of the U.S. and
political subdivisions 9,097 -0- 5,914 -0- 17,015 -0-
Other securities 4,808 -0- 5,107 -0- 3,315 -0-
------- ---- ------- ------ ------- ------
Total 94,718 $-0- $78,704 $4,542 $85,016 $3,790
Unrealized gains (losses)
on available-for-sale-securities 491 -0- 193 -0- (125) -0-
------- ---- ------- ------ ------- ------
$95,209 $-0- $78,897 $4,542 $84,891 $3,790
======= ==== ======= ====== ======= ======
</TABLE>
(1) Securities available-for-sale are carried at market value and securities
held-to-maturity are carried at amortized cost.
The following table presents the amortized cost (cost for equity securities)
of investments in obligations of (i) U.S. Treasury and other U.S. government
agencies and corporations, (ii) states of the U.S. and political subdivisions
and (iii) other securities as of December 31, 1998 that are due (a) in one year
or less, (b) after one year through five years, (c) after five years through ten
years and (d) after ten years. In addition, the table provides the weighted
average yield for each range of maturities.
<TABLE>
<CAPTION>
AMOUNT AT DECEMBER 31, 1998 DUE IN
-----------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
THROUGH FIVE THROUGH TEN
ONE YEAR OR LESS YEARS YEARS AFTER TEN YEARS TOTAL
----------------- -------------- -------------- ---------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ------- ------ ------ ------ ------ ------- ------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Treasury and other U. S.
government agencies and
corporations $10,670 6.10% $44,932 5.71% $6,699 6.70% $18,224 6.22% $80,525 5.96%
States of the U.S. and political
subdivisions (1)(2) 1,157 6.48 3,545 7.17 316 6.90 4,078 5.13 9,096 6.16
Other securities (2)(3) -0- .00 -0- .00 -0- .00 5,097 6.89 5,097 6.89
------- ---- ------- ---- ------ ---- ------- ----- ------- ----
Total $11,827 6.14% $48,477 5.81% $7,015 6.71% $27,399 6.18% $94,718 6.03%
======= ==== ======= ==== ====== ==== ======= ===== ======= ====
- -----------------------------
</TABLE>
(1) Yields on tax exempt obligations have been computed on a tax equivalent
basis.
(2) As of December 31, 1998, there was no aggregate book values of any issuer
which exceeded 10% of the Company's stockholders' equity.
(3) Consists of domestic corporate notes, stocks and mutual funds which are
comprised of Federal Home Loan Bank of Atlanta and Community Financial
Services, Inc. stock and mutual funds consisting predominately of U.S.
government securities. Yield represents yield earned for 1998.
29
<PAGE>
Loan Portfolio
Before reduction for the allowance for loan losses, the loan portfolio
totaled approximately $351.7 million at December 31, 1998 which was an increase
of approximately $30.2 million from December 31, 1997 or 9.39%. During the year
ended December 31, 1998, average net loans were approximately $323.7 million
compared to $310.6 million in 1997, an increase of approximately $13.1 million.
During the year ended December 31, 1996, average net loans were approximately
$270.7 million. These average loan levels reflected a slower rate of growth
from 1997 to 1998 of $13.1 million compared to the rate of growth from 1996 to
1997 of $39.9 million.
The following table sets forth information summarizing the composition of
the loan portfolio at December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
--------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial and financial $ 55,885 $ 70,912 $ 45,947
Agricultural 6,759 7,340 2,517
Real estate - construction 22,196 19,519 14,589
Real estate - mortgage 215,006 178,709 179,620
Installment loans to individuals and other 51,752 45,067 43,623
Overdrafts 346 302 303
-------- -------- --------
351,944 321,849 286,599
Deferred loan fees and unearned interest, net (213) (337) (302)
-------- -------- --------
351,731 321,512 286,297
Allowance for loan losses (4,426) (4,243) (3,804)
-------- -------- --------
Loans, net $347,305 317,269 282,493
======== ======== ========
</TABLE>
The following table sets forth certain information at December 31, 1998
regarding the dollar amount of all loans based on their contractual terms to
maturity for fixed rate loans and repricing frequency for adjustable rate loans.
Demand loans, loans having no stated schedule of repayments and no stated
maturity and overdrafts are reported for one year or less.
<TABLE>
<CAPTION>
TOTAL LOANS AT DECEMBER 31, 1998 DUE FOR REPRICING IN
-----------------------------------------------------
AFTER ONE
YEAR
ONE YEAR THROUGH DUE AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Total Loans $166,768 147,706 37,470 351,944
======== ========== ========== ========
The following table sets forth certain information at December 31, 1998
regarding the dollar amount of all loans based on their contractual terms to
maturity. Demand loans, loans having no stated schedule of repayments and no
stated maturity and overdrafts are reported as due in one year or less.
TOTAL LOANS AT DECEMBER 31, 1998 DUE IN
----------------------------------------
ONE YEAR AFTER ONE
OR LESS YEAR TOTAL
-------- ------- --------
(Dollars in thousands)
Total Loans 140,348 211,596 351,944
======== ======== ========
</TABLE>
30
<PAGE>
The following table presents information concerning outstanding balances of
nonperforming loans at December 31, 1998, 1997 and 1996. Nonperforming loans
consists of loans which have been placed on nonaccrual status or are past due
more than 90 days with respect to principal or interest.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis (1) $1,251 520 527
Accruing loans which are contractually past
due 90 days or more as to principal or
interest payments (1) 199 178 265
Other loans which are "troubled debt
restructurings" (1) -0- -0- -0-
</TABLE>
For the year ended December 31, 1998 for loans accounted for on a nonaccrual
basis and other loans which are "troubled debt restructurings" as defined in
Statement of Financial Accounting Standards No. 15, the gross interest income
that would have been reported if the loans had been current in accordance with
their original terms and had been outstanding throughout the period or since
origination, if held for part of the period, was approximately $52,700 and the
amount of interest income on those loans that was included in net income for the
period was approximately $19,000.
A loan is placed on non-accrual status when the loan has been delinquent for
90 days except where an analysis of related collateral values reflects
sufficient collateral to secure principal and accrued interest. When accrual of
interest is discontinued, all unpaid accrued interest is reversed.
As of December 31, 1998, in the opinion of management, there are no
additional problem loans of significance which are not now disclosed under
information concerning nonaccrual, past due and restructured loans.
As of December 31, 1998, there are no loan concentrations exceeding 10% of
total loans which are not otherwise disclosed previously as a category of loans.
As of December 31, 1998, there are no other interest-bearing assets that
would be required to be disclosed as nonaccrual, past due or restructured loans
if such assets were loans.
- --------------------------
(1) There are no foreign loans.
Reserve For Possible Loan Losses
An allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible based
on evaluations of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, specific impaired loans and current economic conditions that may
affect the borrowers' ability to pay.
The reserve for possible loan losses was approximately 1.26% of outstanding
loans at December 31, 1998 and 1.32% at December 31, 1997. The reserve was
increased to approximately $4.4 million at December 31, 1998 from approximately
$4.2 million at December 31, 1997. Nonperforming loans increased from
approximately $520,000 at December 31, 1997 to approximately $1.3 million at
December 31, 1998, representing .36% of total loans. Management believes that
the reserve for loan losses of approximately $4.4 million at December 31, 1998
is adequate due to the $808,000 of charge-offs in the year ended December 31,
1998 and the fact that approximately $237.2 million or 67.4% of the Banks' loan
portfolio consisted of loans secured by real estate.
31
<PAGE>
The following table sets forth an analysis of loss experience for the
periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
--------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $4,243 $3,804 $3,427
------ ------ ------
Charge-offs:
Domestic:
Commercial, financial and agricultural 207 97 56
Real estate construction -0- -0- -0-
Real estate mortgage 45 36 89
Installment loans to individuals 556 294 155
Overdrafts -0- -0- -0-
------ ------ ------
808 427 300
------ ------ ------
Recoveries:
Domestic:
Commercial, financial and agricultural 16 14 2
Real estate - construction -0- -0- -0-
Real estate - mortgage 22 16 -0-
Installment loans to individuals 50 43 42
Overdrafts -0- -0- -0-
------ ------ ------
88 73 44
------ ------ ------
Net charge-offs 720 354 256
------ ------ ------
Additions charged to operations 903 793 633
------ ------ ------
Balance at end of period $4,426 $4,243 $3,804
====== ====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period .22% .11% .09%
====== ===== =====
</TABLE>
The Banks have allocated the reserve for possible loan losses according to
the amounts deemed to be reasonably necessary at each year end to provide for
the possibility of losses being incurred within the categories of loans set
forth in the table below based on management's evaluation of the loan portfolio.
The amounts and percentages of such components of the reserve for possible loan
losses at December 31, 1998, 1997 and 1996 and the percent of loans in each
category to total loans are presented below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996
-------------------- --------------------- --------------------
PERCENT PERCENT PERCENT
OF LOANS TO LOANS TO LOANS
IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------ ------ ------------- ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial and agricultural $ 788 17.80% $1,031 24.31% $ 643 16.91%
Real estate construction 279 6.31 257 6.06 194 5.09
Real estate mortgage 2,704 61.09 2,357 55.53 2,384 62.67
Installment loans to individuals 651 14.70 594 14.00 579 15.22
Overdrafts 4 .10 4 .10 4 .11
Foreign -0- .00 -0- .00 -0- .00
Unallocated -0- .00 -0- .00 -0- .00
------ ------ ------ ------ ------ ------
$4,426 100.00% $4,243 100.00% $3,804 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
32
<PAGE>
The following table sets forth an analysis of the average amount
outstanding and the average rate paid for all deposits for the categories and
periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1997 1996
-------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
AMOUNT RATE PAID AMOUNT RATE PAID AMOUNT RATE PAID
-------- ---------- ------- ---------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Deposits in domestic bank offices:
Non-interest-bearing demand deposits $ 67,514 .00% $ 61,548 .00% $ 53,884 .00%
Interest-bearing demand deposits 87,575 3.07 77,821 2.87 77,108 3.02
Savings deposits 24,741 3.06 25,264 3.16 25,641 3.15
Time deposits 219,028 5.84 212,368 5.77 192,373 6.02
Deposits in banking offices -0- .00 -0- .00 -0- .00
-------- -------- --------
Total $398,858 377,001 349,006
======== ======== ========
</TABLE>
Deposit Maturities
The principal sources of funds for the Banks' loans and investments are
demand, time, savings and other deposits and borrowings. The Banks offer a
variety of deposit accounts including checking and NOW accounts, savings and
time accounts, certificates of deposit and money market accounts. As of
December 31, 1998, total deposits were approximately $413.3 million compared to
approximately $386.6 million at December 31, 1997 and compared to approximately
$367.4 million at December 31, 1996. Although, in some instances, time deposits
greater than $100,000 may be more sensitive to changes in interest rates,
substantially all the Banks' deposits are derived from within their primary
service areas which management believes are not as interest rate sensitive as
are more urban service areas. The Banks do not have any brokered deposits.
The following table summarizes maturity information for time deposits
greater than $100,000 at December 31, 1998.
<TABLE>
<CAPTION>
(Dollars in thousands)
----------------------
<S> <C>
Three months or less $16,309
Over three through six months 15,263
Over six through 12 months 24,036
Over 12 months 5,170
-------
Total $60,778
=======
</TABLE>
33
<PAGE>
Advances From Federal Home Loan Bank
The following table shows the Company's borrowings from the Federal Home Loan
Bank and the weighted average interest rates thereon at the end of the last
three years. Also provided are the maximum amount of borrowings and the average
amounts outstanding as well as weighted average interest rates for the three
years.
FEDERAL HOME
LOAN BANK
ADVANCES
-----------------------
(Dollars in thousands)
Balance at December 31:
1998 $39,058
1997 31,812
1996 17,645
Weighted average interest
rate at year end:
1998 6.03%
1997 6.25%
1996 6.42%
Maximum amount outstanding
at any month's end:
1998 $39,440
1997 31,812
1996 22,650
Average amount outstanding
during the year:
1998 $35,435
1997 23,194
1996 16,323
Weighted average interest
rate during the year:
1998 6.75%
1997 5.79%
1996 5.44%
Interest Rate Sensitivity
The relative interest rate sensitivity of the Banks' assets and liabilities
indicates the extent to which the Banks' net interest income may be affected by
interest rate movements. The Banks' ability to reprice assets and liabilities
in the same dollar amounts and at the same time minimizes interest rate risks.
One method of measuring the impact of interest rate changes on net interest
income is to measure, in a number of time frames, the interest-sensitivity gap,
by subtracting interest-sensitive liabilities from interest-sensitive assets,
as reflected in the following table. Such interest-sensitivity gap represents
the risk, or opportunity, in repricing. If more assets than liabilities are
repriced at a given time in a rising rate environment, net interest income
improves; in a declining rate environment, net interest income deteriorates.
Conversely, if more liabilities than assets are repriced while interest rates
are rising, net interest income deteriorates; if interest rates are falling, net
interest income improves.
34
<PAGE>
The following table presents the interest-sensitivity gap of the Banks as of
December 31, 1998.
<TABLE>
<CAPTION>
OVER OVER
THREE THREE MONTHS ONE YEAR
MONTHS THROUGH THROUGH OVER
OR LESS 12 MONTHS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Short-term deposits and interest-bearing
cash $ 1,637 $ 198 $ 99 $ -0- $ 1,934
Loans 125,398 41,370 147,706 37,470 351,944
Investment securities 14,294 12,405 37,477 30,542 94,718
Federal funds sold 15,630 -0- -0- -0- 15,630
-------- ------- -------- ------- --------
Total interest-earning assets 156,959 53,973 185,282 68,012 464,226
-------- ------- -------- ------- --------
Interest-bearing liabilities:
NOW and savings (1) -0- -0- -0- -0- -0-
Super NOW and money market 43,122 -0- -0- -0- 43,122
Time deposits 49,769 117,902 53,099 -0- 220,770
Federal funds purchased 3,824 -0- -0- -0- 3,824
Other borrowed funds 2,339 -0- -0- -0- 2,339
Advances from Federal Home
Loan Bank 3,374 5,033 17,203 13,448 39,058
-------- -------- -------- -------- --------
Total interest-bearing liabilities 102,428 122,935 70,302 13,448 309,113
-------- -------- -------- -------- --------
Interest-sensitivity GAP $ 54,531 $(68,962) $114,980 $ 54,564 $155,113
======== ======== ======== ======== ========
Cumulative interest sensitivity GAP $ 54,531 $(14,431) $100,549 $155,113
======== ======== ======== ========
Interest-sensitivity GAP ratio 1.53 .44 2.64 5.06
======== ======= ======= =======
Cumulative interest-
sensitivity GAP ratio 1.53 .94 1.34 1.50
======== ======= ======= =======
</TABLE>
Comfort range .80 - 1.20
- -------------------------
(1) Not considered rate sensitive.
Impact of Inflation and Changing Prices
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets, such as
property, plant and equipment, and inventories and therefore are primarily
impacted by interest rates rather than changing prices. While the general level
of inflation underlies most interest rates, interest rates react more to change
in the expected rate of inflation and to changes in monetary and fiscal policy.
Net interest income and the interest rate spread are good measures of the
company's ability to react to changing interest rates. This information is
presented in further detail in the section entitled "Average Yields Earned and
Rates Paid."
35
<PAGE>
YEAR 2000
- ---------
The Year 2000 issue refers generally to the data structure and processing
problem that may prevent systems from properly processing data-sensitive
information when the year changes to 2000. The Year 2000 issue affects IT
systems, such as computer programs and various types of electronic equipment
that process data information by using only two digits rather than four digits
to define the applicable year, and thus may recognize a date using "00" as the
year 1900 rather than the year 2000. The issue also affects some non-IT
systems, such as devices which rely on a microcontroller to process date
information. The Year 2000 issue could disrupt a company's operations by
generating erroneous data or causing system failures or miscalculations.
The Company's State of Readiness
--------------------------------
The Company has implemented a Year 2000 readiness program designed to
ensure that the Company's computer systems and applications will function
properly beyond 1999. This program is also designed to assess the readiness of
other entities with which the Company and its affiliates do business. This
program has been divided into five phases: Awareness; Assessment; Renovation;
Validation; and Implementation. The major areas of focus include hardware,
software, embedded chips, third party vendors as well as third party data
centers.
Management's target date for completion of all phases for its mission
critical applications is June 30, 1999. Mission critical applications include
those that (i) directly affect delivery of primary services to the Banks'
customers; (ii) directly affect revenue recognition and collection; (iii) would
create noncompliance with any statutes or laws; and (iv) would require
significant costs to address in the event of noncompliance.
The principal critical area consists of software and hardware that comprise
the core of the Banks' customer servicing systems. Testing of these components
has been ongoing since the third quarter of 1998 and will continue until Year
2000 compliance has been achieved. As of December 30, 1998, the Awareness,
Assessment, Renovation and Validation phases for mission critical applications
were each approximately 85% to 100% complete. The Implementation phase is
approximately 80% complete.
Costs to Address the Company's Year 2000 Issues
-----------------------------------------------
Expenses associated with the Company's Year 2000 compliance effort for
fiscal year 1998 were between $100,000 and $150,000. Expenses projected for
fiscal year 1999 are between $110,000 and $180,000. Additionally, capital
investment estimates are between $350,000 and $500,000 over the life of the
project.
Contingency Plans
-----------------
The Company has developed a contingency plan in connection with its Year
2000 readiness program, including a back-up site as well as back-up procedures
with Southern Financial Systems, located in Macon, Georgia, for its in-house
data processing system. However, the Company realizes that any reasonable
contingency plan cannot accurately account for all possible scenarios which may
arise as a result of Year 2000 related computation problems. Eagle Bank and
Trust utilizes a third party service bureau, M&I Data Services, located in Brown
Deer, Wisconsin, which has substantially completed all five phases of its Year
2000 readiness program.
Risks of the Company's Year 2000 Issues
---------------------------------------
The Company anticipates that its mission critical applications will be Year
2000 compliant by June 30, 1999. However, no assurance can be given that
unforeseen circumstances will not arise during the performance of the testing
and implementation phases. Furthermore, the Year 2000 compliance status of
third party suppliers and networks, which could adversely impact the Company's
applications, cannot be fully known. The Company is unable to determine the
impact that any system interruption would have on its results of operations,
financial position and cash flows. However, such impact could be material.
36
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations Asset/Liability Management and
Market Risk."
ITEM 8. FINANCIAL STATEMENTS .
The Company's consolidated financial statements, notes thereto and
auditor's report thereon are set forth beginning on page F-1 of this report and
are incorporated herein by reference.
Index to Consolidated Financial Statements
------------------------------------------
Financial Statements Page
- -------------------- ----
Independent Auditor's Report................................... F-2
Consolidated Balance Sheets.................................... F-3
Consolidated Statements of Income.............................. F-4
Consolidated Statements of Comprehensive Income................ F-5
Consolidated Statements of Stockholders' Equity................ F-6
Consolidated Statements of Cash Flows.......................... F-8
Notes to Financial Statements.................................. F-9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
The information set forth under the headings "Proposal One Election of
Directors" and "Executive Officers" in the Company's Proxy Statement for the
1999 Annual Meeting of Shareholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the heading "Executive Compensation" in the
Company's Proxy Statement for the 1999 Annual Meeting of Shareholders is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the heading "Principal Shareholders" in the
Company's Proxy Statement for the 1999 Annual Meeting of Shareholders is
incorporated herein by reference.
37
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the headings "Certain Transactions" and
"Executive Compensation Compensation Committee Interlocks and Insider
Participation" in the Company's Proxy Statement for the 1999 Annual Meeting of
Shareholders are incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
The consolidated financial statements, notes thereto and auditor's report
thereon, filed as part hereof, are listed in the Index to Item 8 of this Report.
2. Financial Statement Schedules.
All schedules have been omitted as the required information is not
applicable.
3. Exhibits.
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of December 31, 1997 and
amended on April 27, 1998, by and among Investors Financial
Corporation, Bainbridge National Bank and the Registrant
(previously filed as Exhibit 2(a) to the Registrant's
Registration Statement No. 333-47513 on Form S-4 and incorporated
herein by this reference).
2.2 Agreement and Plan of Merger, dated as of June 30, 1998 and
amended on September 29, 1998, by and between Eagle Bancorp, Inc.
and the Registrant (previously filed as Exhibit 2(a) to the
Registrant's Registration Statement No. 333-64945).
3.1 Amended and Restated Articles of Incorporation (previously filed
as Exhibit 3.1 to the Registrant's Registration Statement No.
333-74819 on Form S-8 and incorporated herein by this reference).
3.2 Amended and Restated Bylaws (previously filed as Exhibit 3.1 to
the Registrant's Registration Statement No. 333-74819 on Form S-8
and incorporated herein by this reference).
10.1 Employment Agreement dated December 31, 1997 between First
Community Bank of Southwest Georgia and Tracy A. Dixon.
10.2.1 PAB Bankshares, Inc. First Amendment to First Restated and
Amended Dividend Reinvestment and Common Stock Purchase Plan
(previously filed as Exhibit 28.2 to the Registrant's
Registration Statement No. 33-74080 on Form S-3 and incorporated
herein by this reference).
10.2.2 PAB Bankshares, Inc. Third Amended and Restated Dividend
Reinvestment and Common Stock Purchase Plan (previously filed as
Exhibit 28.1 to the Registrant's Registration Statement No. 33-
74080 on Form S-3 on September 1, 1998, and incorporated herein
by this reference).
10.3 PAB Bankshares, Inc. 1994 Employee Stock Option Plan, as amended.
38
<PAGE>
10.4 PAB Bankshares, Inc. 1994 Directors Deferred Stock Purchase Plan.
10.5 Form of Executive Salary Continuation Agreement, with attached
Schedule of Terms.
11.1 Statement Re Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant.
23.1 Accountants Consent.
27.1 Financial Data Schedule 1998.
27.2 Financial Data Schedule 1997.
27.3 Financial Data Schedule 1996.
(b) Reports on Form 8-K.
None.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
Date: March 31, 1999 PAB BANKSHARES, INC.
By:/s/ R. Bradford Burnette
---------------------------------------------------
R. Bradford Burnette, President and Chief Executive
Officer
By:/s/ C. Larry Wilkinson
---------------------------------------------------
C. Larry Wilkinson, Executive Vice President and
Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on March 31, 1999.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ James L. Dewar, Sr.
- ------------------------------------------------------- Chairman of the Board and Director
James L. Dewar, Sr.
/s/ R. Bradford Burnette President/Chief Executive Officer and Director (Principal
- ------------------------------------------------------- Executive Officer)
R. Bradford Burnette
/s/ Walter W. Carroll, II
- ------------------------------------------------------- Director
Walter W. Carroll, II
/s/ William S. Cowart
- ------------------------------------------------------- Director
William S. Cowart
/s/ James L. Dewar, Jr.
- ------------------------------------------------------- Director
James L. Dewar, Jr.
/s/ Thompson Kurrie, Jr.
- ------------------------------------------------------- Director
Thompson Kurrie, Jr.
/s/ F. Ferrell Scruggs
- ------------------------------------------------------- Director
F. Ferrell Scruggs, Sr.
- ------------------------------------------------------- Director
D. Ramsay Simmons, Jr.
/s/ Joe P. Singletary
- ------------------------------------------------------- Director
Joe P. Singletary, Jr.
- ------------------------------------------------------- Director
William J. Jones
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Signature Title
<S> <C>
- -------------------------------------------------------
John M. Simmons Director
- -------------------------------------------------------
Tracy A. Dixon Director
- -------------------------------------------------------
Paul E. Parker Director
- -------------------------------------------------------
James B. Lanier, Jr. Director
/s/ C. Larry Wilkinson Executive Vice President and Director (Chief Financial Officer)
- -------------------------------------------------------
C. Larry Wilkinson
</TABLE>
41
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
PAB Bankshares, Inc. and Subsidiaries
Independent Auditors' Report F-2
Consolidated Balance Sheets - December 31, 1998 and 1997 F-3
Consolidated Statements of Income - Years ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Comprehensive Income Years Ended December 31, 1998, 1997 and
1996 F-5
Consolidated Statements of Stockholders' Equity - Years ended December 31, 1998, 1997 and 1996 F-6
Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996 F-8
Notes to Consolidated Financial Statements Years Ended December 31, 1998, 1997 and 1996 F-9
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors and Stockholders
PAB Bankshares, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of PAB Bankshares,
Inc. and its Subsidiaries as of December 31, 1998 and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PAB
Bankshares, Inc. and its Subsidiaries as of December 31, 1998, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
We previously audited and reported on the consolidated balance sheet of PAB
Bankshares, Inc. and its Subsidiaries as of December 31, 1997 and the related
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows for the two years ended December 31, 1997, prior to their
restatement for the 1998 pooling of interests. The contribution of PAB
Bankshares, Inc. and Subsidiaries to total assets as of December 31, 1997 and
revenues and net income for the year ended December 31, 1997 represented 70%,
69% and 69% of the respective restated totals. The contribution of PAB
Bankshares, Inc. and Subsidiaries to revenues and net income for the year ended
December 31, 1996 represented 68% and 69% of the respective restated totals.
Separate financial statements of the other companies included in the 1997
restated consolidated balance sheet and consolidated statements of income,
comprehensive income, stockholders' equity and cash flows were audited and
reported on separately by other auditors. We also audited the combination of
the accompanying consolidated balance sheet as of December 31, 1997 and
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows for the two years ended December 31, 1997, after restatement for
the 1998 pooling of interests; in our opinion, such consolidated statements have
been properly combined on the basis described in Note 1 of the notes to
consolidated financial statements.
Stewart, Fowler & Stalvey, P.C.
- -------------------------------
Valdosta, Georgia
January 13, 1999
F-2
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
---------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- -----------
<S> <C> <C>
Cash and Cash Equivalents:
Cash and due from banks 26,369,236 23,893,540
Interest-bearing deposits in other banks 1,538,435 3,271,018
Federal funds sold and
securities purchased
under agreement to resell 15,630,000 15,848,204
---------- -----------
Total Cash and Cash Equivalents 43,537,671 43,012,762
Time Deposits 396,000 3,398,000
Investment Securities, Notes 1 and2 95,209,328 83,438,835
Investment in Unconsolidated Subsidiary, Notes 1 and 19 34,814 66,749
Loans, Net of Allowance for Loan Losses
($4,426,217 - 1998; $4,243,043 1997)
and Unearned Interest, Notes 1, 5, 8 and 16 347,305,116 317,269,090
Bank Premises and Equipment, Notes 1 and 3 13,620,861 11,829,631
Property Acquired in Settlement of Loans and
Other Real Estate Owned:
Land and building of former banking offices, Notes 1 and 4 322,920 315,277
Land and building held for lease, Notes 1 and 4 590,486 -0-
Property acquired in settlement of loans, Note 1 438,474 433,791
Accrued Interest Receivable 5,491,847 5,135,735
Cash Value of Life Insurance, Note 10 2,888,472 2,783,838
Goodwill and other intangible assets, Note 1 2,713,762 3,070,426
Other Assets, Note 1 1,192,259 1,147,078
------------- -----------
Total Assets 513,742,010 471,901,212
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 68,633,159 66,394,196
NOW 99,335,495 77,999,133
Savings 24,517,302 24,964,224
Time, $100,000 and over, Note 6 60,778,164 63,984,294
Other time, Note 6 159,991,854 153,301,771
-------------- -----------
413,255,974 386,643,618
Federal funds purchased
and securities sold under
agreement
to repurchase 3,824,095 -0-
Notes Payable, Note 7 -0- 2,184,000
Other borrowed funds 2,339,170 1,004,854
Advances from Federal Home Loan Bank, Note 8 39,057,723 31,811,673
Accrued Interest Payable 1,601,491 1,656,497
Advance Payments by Borrowers for Taxes and Insurance 52,672 180,322
Dividends Payable 662,440 548,106
Income taxes payable - current -0- 71,693
Other Liabilities, Note 10 1,846,088 1,735,490
-------------- -----------
Total Liabilities 462,639,653 425,836,253
-------------- -----------
Stockholders' Equity:
Common stock, no par value, 15,000,000 shares authorized,
8,280,495 shares (1997 - 8,435,099) issued and
8,280,495 shares (1997 - 8,270,787) outstanding 1,217,065 1,263,745
Preferred stock, no par value, 1,500,000 shares
authorized, no shares issued or outstanding -0- -0-
Additional paid in capital 25,809,693 26,304,565
Retained earnings 23,739,623 19,364,279
Accumulated other comprehensive income 335,976 115,559
-------------- -----------
51,102,357 47,048,148
Treasury stock, at cost (1997 - 164,312 shares) -0- (983,189)
-------------- -----------
51,102,357 46,064,959
-------------- -----------
Total Liabilities and Stockholders' Equity $513,742,010 471,901,212
============== ===========
</TABLE>
Note: The accompanying notes to consolidated financial statements are an
integral part of this statement.
F-3
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------ -------------- -------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans, Note 1 $ 33,139,539 30,031,418 26,333,790
Interest on investment securities:
Taxable 4,654,243 5,101,374 5,533,168
Tax exempt 315,524 247,061 238,874
Interest on federal funds sold 1,382,022 448,247 394,411
Interest on deposits in banks 205,793 235,722 90,932
------------ -------------- -------------
Total 39,697,121 36,063,822 32,591,175
------------ -------------- -------------
Interest Expense:
Interest on deposits 16,234,940 15,284,549 14,715,770
Interest on federal funds purchased 128,131 75,815 44,057
Interest on notes and mortgages, Note 7 151,582 239,779 337,393
Interest on other borrowed funds 97,709 28,062 24,357
Interest on advances from Federal Home Loan Bank, Note 8 2,391,277 1,342,044 887,950
------------ -------------- -------------
Total 19,003,639 16,970,249 16,009,527
------------ -------------- -------------
Net Interest Income 20,693,482 19,093,573 16,581,648
Provision for Loan Losses, Notes 1 and 5 903,404 792,900 632,842
------------ -------------- -------------
Net Interest Income After Provision for Loan Losses 19,790,078 18,300,673 15,948,806
------------ -------------- -------------
Other Income:
Service charges on deposit accounts 3,012,558 2,797,077 2,406,437
Insurance commissions 220,668 148,250 84,051
Fees on mortgage loans originated for sale 725,439 243,904 254,085
Late charges and other loan fees 656,588 349,258 298,212
Equity in earnings of unconsolidated subsidiary, Note 19 368,064 255,877 215,692
Gain (Loss) on sale of loans 1,989 23,955 11,412
Gain (Loss) on sale of other real estate (5,025) 2,154 1,328
Gain (Loss) on sale of assets 109,063 (1,854) 2,951
Securities gains (losses), Note 1 11,313 (12,532) 130,924
Other income 522,398 503,958 445,423
------------ -------------- -------------
Total 5,623,055 4,310,047 3,850,515
------------ -------------- -------------
Other Expenses:
Compensation 6,636,426 6,001,823 5,430,070
Other personnel expenses, Notes 9 and 10 1,587,496 1,294,287 1,060,620
Occupancy expense of bank premises 745,799 728,986 696,605
Furniture and equipment expense 1,302,480 1,246,665 1,159,493
Federal deposit insurance 90,408 80,510 116,521
Special SAIF assessment -0- -0- 384,882
Postage and courier services 338,621 358,593 314,550
Supplies 497,177 493,840 417,622
Amortization, Note 1 356,664 356,664 375,912
Other operating expenses 3,859,561 2,884,832 2,573,733
------------ -------------- -------------
Total 15,414,632 13,446,200 12,530,008
------------ -------------- -------------
Income Before Income Taxes 9,998,501 9,164,520 7,269,313
Income Taxes, Notes 1 and 13 3,347,451 3,161,626 2,450,710
------------ -------------- -------------
Net Income $ 6,651,050 6,002,894 4,818,603
============ ============== =============
Earnings Per Share, Note 1:
Basic $.80 .73 .60
============ ============== =============
Diluted $.78 .72 .59
============ ============== =============
</TABLE>
Note: The accompanying notes to consolidated financial statements are an
integral part of this statement.
F-4
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996
----------------- -------------- -------------
<S> <C> <C> <C>
Net income $ 6,651,050 6,002,894 4,818,603
----------------- -------------- -------------
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period 227,460 198,757 (210,128)
Less: reclassification adjustment for
(gains) losses included in net income (7,043) 7,802 (81,513)
----------------- -------------- -------------
Other comprehensive income 220,417 206,559 (291,641)
----------------- -------------- -------------
Comprehensive Income $ 6,871,467 6,209,453 4,526,962
================= ============== =============
</TABLE>
Note: The accompanying notes to consolidated financial statements are an
integral part of this statement.
F-5
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
---------------------- PREFERRED PAID IN RETAINED INCOME TREASURY
SHARES AMOUNT STOCK CAPITAL EARNINGS (LOSS) STOCK TOTAL
--------- ---------- --------- ---------- ---------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995,
as previously reported 5,423,776 $1,263,745 -0- 14,744,823 8,646,737 184,469 1,461,043 23,378,731
Adjustment for pooling of
interests:
Issuance of shares to
shareholders of Investors
Financial Corp. 1,711,249 -0- -0- 4,608,542 2,279,663 16,638 -0- 6,904,843
Issuance of shares to
shareholders of Eagle
Bancorp, Inc. 907,610 -0- -0- 5,683,247 516,150 (466) -0- 6,198,931
--------- ---------- --- ---------- ---------- ------------- ---------- ----------
Balances, December 31,
1995,
as restated 8,042,635 1,263,745 -0- 25,036,612 11,442,550 200,641 1,461,043 36,482,505
Issuance of shares to
directors
in lieu of fees 13,384 -0- -0- 70,265 -0- -0- -0- 70,265
Issuance of shares through
dividend reinvestment plan 67,650 -0- -0- 475,415 -0- -0- -0- 475,415
Issuance of shares through
common stock purchase plan 36,078 -0- -0- 251,062 -0- -0- -0- 251,062
Stock issued by pooled
companies -0- -0- -0- 1,125 -0- -0- -0- 1,125
Net Income -0- -0- -0- -0- 4,818,603 -0- -0- 4,818,603
Dividends -0- -0- -0- -0- (749,082) -0- -0- (749,082)
Dividends - pooled
companies -0- -0- -0- -0- (638,223) -0- -0- (638,223)
Acquisition of shares
of treasury stock (4,948) -0- -0- -0- -0- -0- 30,925 (30,925)
Sale of shares of
treasury stock 69,760 -0- -0- 68,153 -0- -0- (417,421) 485,574
Other comprehensive
income (loss) -0- -0- -0- -0- -0- (291,641) -0- (291,641)
--------- ---------- --- ---------- ---------- ------------- ---------- ----------
Balances, December 31, 1996
as restated 8,224,559 1,263,745 -0- 25,902,632 14,873,848 (91,000) 1,074,547 40,874,678
Issuance of shares to
directors
in lieu of fees 15,268 -0- -0- 4,069 -0- -0- (91,358) 95,427
Issuance of shares
through dividend
reinvestment plan 26,150 -0- -0- 270,062 -0- -0- -0- 270,062
Issuance of shares
through common stock
purchase plan 4,810 -0- -0- 50,732 -0- -0- -0- 50,732
</TABLE>
Note: The accompanying notes to consolidated financial statements are an
integral part of this statement.
F-6
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
-----------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
------------------------ PREFERRED PAID IN RETAINED INCOME TREASURY
SHARES AMOUNT STOCK CAPITAL EARNINGS (LOSS) STOCK TOTAL
--------- ------------ --------- ---------- ---------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock issued by pooled
companies -0- -0- -0- 77,070 -0- -0- -0- 77,070
Net Income -0- -0- -0- -0- 6,002,894 -0- -0- 6,002,894
Dividends -0- -0- -0- -0- (988,423) -0- -0- (988,423)
Dividends - pooled
companies -0- -0- -0- -0- (524,040) -0- -0- (524,040)
Other comprehensive income
(loss) -0- -0- -0- -0- -0- 206,559 -0- 206,559
--------- ---------- --- ---------- ---------- ------------- --------- ----------
Balances, December 31,
1997,
as restated 8,270,787 1,263,745 -0- 26,304,565 19,364,279 115,559 983,189 46,064,959
Issuance of shares to
directors in lieu of fees 7,808 -0- -0- 81,240 -0- -0- -0- 81,240
Issuance of shares
through dividend
reinvestment plan 1,650 -0- -0- 19,685 -0- -0- -0- 19,685
Issuance of stock upon
exercise of employee
stock options 250 -0- -0- 2,515 -0- -0- -0- 2,515
Net Income -0- -0- -0- -0- 6,651,050 -0- -0- 6,651,050
Dividends -0- -0- -0- -0- (1,997,476) -0- -0- (1,997,476)
Dividends - pooled
companies -0- -0- -0- -0- (278,230) -0- -0- (278,230)
Stock issued by pooled
companies -0- -0- -0- 338,197 -0- -0- -0- 338,197
Cancellation of treasury
stock -0- (46,680) -0- (936,509) -0- -0- (983,189) -0-
Other comprehensive income
(loss) -0- -0- -0- -0- -0- 220,417 -0- 220,417
--------- ---------- --- ---------- ---------- ------------- --------- ----------
Balances, December 31,
1998 8,280,495 $1,217,065 -0- 25,809,693 23,739,623 335,976 -0- 51,102,357
========= ========== === ========== ========== ============= ========= ==========
</TABLE>
Note: The accompanying notes to consolidated financial statements are an
integral part of this statement.
F-7
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------ -------------- -------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 6,651,050 6,002,894 4,818,603
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,052,882 1,022,350 881,134
Deferred income taxes (144,047) (193,112) 3,840
Provision for loan losses 903,404 792,900 632,842
Amortization 356,664 356,664 375,912
Amortization (accretion) of securities (92,283) (45,989) (178,209)
(Gain) loss on sale of assets (109,063) 1,854 (2,951)
(Gain) loss on sale of loans (1,989) (23,955) (11,412)
(Gain) loss on sale of other real estate owned 5,025 (2,154) (1,328)
Securities (gains) losses (11,313) 12,532 (130,924)
Minority interests 741 595 495
Equity in earnings of unconsolidated subsidiary (368,064) (255,877) (215,692)
Dividend received from unconsolidated subsidiary 400,000 320,000 220,000
Increase in cash value of life insurance (104,634) -0- -0-
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable (356,112) (422,541) (261,233)
Increase (decrease) in accrued interest payable (55,006) (47,527) 66,544
(Increase) decrease in other assets (94,057) (328,448) (96,114)
Increase (decrease) in income taxes payable (71,693) 11,986 (143,334)
Increase (decrease) in other liabilities 241,217 531,581 459,648
------------ -------------- -------------
Net cash provided (used) by operating activities 8,202,722 7,733,753 6,417,821
------------ -------------- -------------
Cash Flows From Investing Activities:
Capital expenditures (3,452,909) (1,294,055) (1,412,571)
Proceeds from sale of assets 185,014 -0- 72,810
(Increase) decrease in time deposits 3,002,000 (1,703,000) (391,600)
(Increase) decrease in loans (30,947,149) (35,604,480) (36,198,394)
Purchase of life insurance policies -0- (826,540) (415,844)
Principal payments on mortgage-backed securities 9,739,611 943,011 1,132,434
Purchase of available-for-sale securities (54,860,855) (22,512,808) (28,141,775)
Proceeds from sales and calls of available-for-sale
securities 20,576,316 14,273,949 12,362,247
Purchase of held-to-maturity securities -0- (1,245,625) (748,359)
Proceeds from maturities of available-for-sale
securities 12,125,967 14,470,508 19,553,865
Proceeds from maturities of held-to-maturity securities 1,050,000 500,000 1,050,000
------------ -------------- -------------
Net cash provided (used) by investing activities (42,582,005) (32,999,040) (33,137,187)
------------ -------------- -------------
Cash Flows From Financing Activities:
Increase (Decrease) in federal funds purchased 3,824,095 -0- -0-
Proceeds of additional stock issued 340,712 127,802 252,187
Increase (decrease) in time deposits 3,483,953 6,106,530 17,431,675
Increase (decrease) in other deposits 23,128,403 14,013,031 11,173,141
Advances from Federal Home Loan Bank 19,136,000 25,030,000 80,097,000
Payments on long-term indebtedness (14,073,950) (12,063,076) (73,166,324)
Increase (Decrease) other borrowings 1,334,316 (200,000) (500,000)
Dividends paid (2,141,687) (1,335,932) (635,091)
Acquisition of treasury stock -0- -0- (30,925)
Proceeds from sale of treasury stock -0- -0- 485,574
Decrease in advance payments by borrowers for taxes
and insurance (127,650) 20,817 (48,260)
------------ -------------- -------------
Net cash provided (used) by financing activities 34,904,192 31,699,172 35,058,977
------------ -------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 524,909 6,433,885 8,339,611
Cash and Cash Equivalents at Beginning of Period 43,012,762 36,578,877 28,239,266
------------ -------------- -------------
Cash and Cash Equivalents at End of Period $ 43,537,671 43,012,762 36,578,877
============ ============== =============
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash Paid During The Period For:
Interest $ 19,058,645 16,975,242 15,881,975
============ ============== =============
Income taxes $ 3,716,269 3,301,649 2,585,355
============ ============== =============
Schedule of Non-Cash Investing and Financing Activities
- -------------------------------------------------------
Total increase (decrease) in unrealized losses on securities
available-for-sale $ (297,936) (39,748) 110,061
============ ============== =============
Stock issued to directors in payment of fees and
stock issued through dividend reinvestment plan $ 100,925 365,489 545,680
============ ============== =============
</TABLE>
Note: The accompanying notes to consolidated financial statements are an
integral part of this statement.
F-8
<PAGE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Nature of operations: PAB Bankshares, Inc. is engaged in the activity of
providing traditional banking services through its banking subsidiaries
consisting of Park Avenue Bank (Valdosta, Georgia), Farmers and Merchants Bank
(Adel, Georgia), First Community Bank of Southwest Georgia (Bainbridge, Georgia)
and Eagle Bank and Trust (Statesboro, Georgia). All are state chartered banks.
The Banks primarily grant agribusiness, commercial, consumer and real estate
loans with a market area that includes predominately Lowndes County, Cook
County, Decatur County, Grady County and Bulloch County and the immediate
outlying areas. The composition of the Banks' loan portfolio is detailed in
Note 5 of these financial statements. The Banks limit investment securities to
U.S. Treasury obligations, obligations of other U.S. Government agencies and
corporations, obligations of state and political subdivisions and selected
mutual funds. The Banks also purchase time deposits with other banks in
denominations generally not exceeding $100,000 per bank and sells federal funds
to major correspondent banks. Through First Community Bank of Southwest
Georgia, PAB Bankshares, Inc. also owns one-half of the issued and outstanding
stock of an unconsolidated service corporation subsidiary, Empire Financial
Services, Inc., which is primarily engaged in the origination and servicing of
commercial real estate loans.
Consolidated financial statements: The accompanying consolidated financial
statements include the accounts of PAB Bankshares, Inc. and its subsidiaries
consisting of Park Avenue Bank (100% owned), Farmers & Merchants Bank (99.9%
owned), First Community Bank of Southwest Georgia (100% owned) and Eagle Bank
and Trust (100% owned). Intercompany transactions and balances have been
eliminated in consolidation.
Investment securities: Effective January 1, 1994, debt securities that
management has the ability and intent to hold to maturity are classified as
held-to-maturity and carried at cost adjusted for amortization of premiums and
accretion of discounts using methods approximating the interest method. Other
securities are classified as available-for-sale and are carried at fair value.
Unrealized gains and losses on securities available-for-sale are recognized as
direct increases or decreases in stockholders' equity. Cost of securities sold
is determined using the specific identification method.
Bank premises and equipment and related depreciation: Assets are stated at
cost, less depreciation. Depreciation of bank premises and equipment, including
a building of a former banking office and a building acquired for lease, is
computed using the straight-line method over the estimated useful lives of the
assets. Expenditures for maintenance, repairs, removals and betterments which
do not materially prolong the useful lives of the assets are charged to income
as incurred. The cost of property retired or sold, and the related accumulated
depreciation, is removed from the accounts, and any gain or loss, after taking
into consideration proceeds from sale, is transferred to income.
Loans and allowance for losses on loans: Loans are stated at the amount of
unpaid principal, reduced by unearned interest and an allowance for loan losses.
Unearned interest on installment loans is recognized as income over the terms of
the loans by the interest method. Interest on other loans is calculated by
using the simple interest method on daily balances of the principal amount
outstanding. The Banks provide for possible loan losses in amounts based upon
management's evaluation of the collectibility of loans and other relevant
factors 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. The allowance is increased
by a provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries. Accrual of interest is discontinued when
management believes that the borrowers' financial condition is such that
collection of interest is doubtful.
Loan fees: For longer term loans secured by real estate that are originated and
retained in the Banks' loan portfolios, loan origination fees and certain direct
loan origination costs are deferred and amortized to interest income over the
contractual life of the loan using the interest method. For other loans, fees
are included in income as charged to the customer and the
F-9
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- --------------------------------------------------------------
direct costs of origination are expensed as incurred. Such method of accounting
for loan fees is in conformity with generally accepted accounting principles in
all material respects.
Other real estate owned: Real estate acquired in settlement of loans is
initially recorded at market value at acquisition less estimated costs to sell
and subsequently carried at the lower of cost or market value less estimated
costs to sell. Costs related to holding and maintaining real estate are charged
to operations and costs relating to improvement of the real estate are
capitalized. Land acquired and held for future development is carried at cost.
Amortization: Goodwill is being amortized over periods ranging from fifteen to
twenty-five years by the straight-line method. Core deposit intangibles are
being amortized over a period of ten years. The Company continually reviews
goodwill and other intangible assets on an objective and subjective basis for
any impairment which might effect the carrying value or remaining life of the
intangible asset. Subjective factors considered include the legal and
regulatory environment, demand, competition and other economic factors. On an
objective basis, the Company computes the discounted present value of projected
subsidiary net income and compares the result with the carrying value of
intangible assets. If the carrying value exceeds the discounted present value
of projected net income, the Company records a write-down or reduces the
remaining period of amortization. To date, the Company has not had to make any
such adjustments.
Earnings per share: Earnings per share are computed on the weighted average
number of shares and common equivalent shares outstanding. Weighted average
shares used in the computation of earnings per share were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
----------------------------- ----------------------------- ----------------------------
WEIGHTED PER- WEIGHTED PER- WEIGHTED PER-
AVERAGE SHARE AVERAGE SHARE AVERAGE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- --------- ------ ---------- --------- ------ --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share:
Net Income $6,651,050 8,279,413 $.80 6,002,894 8,221,426 $.73 4,818,603 8,097,836 $.60
==== ==== ======
Effect of Dilutive Securities:
Stock Options -0- 210,879 -0- 82,710 -0- 56,371
---------- --------- ---------- --------- --------- ---------
Diluted Earning Per Share:
Net Income $6,651,050 8,490,292 $.78 $6,002,894 8,304,136 $.72 4,818,603 8,154,207 $.59
========== ========= ==== ========== ========= ==== ========= ========= ======
</TABLE>
The weighted average shares used in calculating earnings per share information
has been adjusted to reflect a two-for-one stock split in 1998 and 1996. No
transactions occurred after December 31, 1998 and before issuance of the
financial statements that would have changed materially the number of common
shares or potential common shares outstanding at December 31, 1998 if the
transaction had occurred before the end of the period.
Income taxes: Deferred income taxes are reported for temporary differences
between items of income or expense reported in the financial statements and
those reported for income tax purposes. At December 31, 1998 and 1997, other
assets included a deferred income tax charge of $742,116 and $725,709,
respectively.
Cash and cash equivalents: For purposes of the statements of cash flows, cash
and cash equivalents include cash on hand, amounts due from banks and Federal
Funds sold.
Investment in unconsolidated subsidiary: Investment in unconsolidated
subsidiary is accounted for under the equity method.
F-10
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- --------------------------------------------------------------
Off balance sheet financial instruments: In the ordinary course of business,
the Banks have entered into off balance sheet financial instruments consisting
of commitments to extend credit and standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain significant estimates: Material estimates that are particularly
susceptible to significant change relate to the determination of the allowance
for losses on loans and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination
of allowances for losses on loans and the valuation of foreclosed real estate,
management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Banks' allowances for losses on loans and foreclosed real estate. Such
agencies may require the Banks to recognize additions to the allowances based on
their judgements about information available to them at the time of their
examination. It is at least reasonably possible that the allowances for losses
on loans and foreclosed real estate may change in the near term.
Stock-based compensation: In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. The Company has elected to disclose
the proforma effect on net income as if the fair value based method of
accounting for stock options had been used.
Fair values of financial instruments: Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets, and, in
many cases, could not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.
Time deposits: Fair values for time deposits are estimated using a discounted
cash flow analysis that applies interest rates currently being offered on
certificates to a schedule of aggregated contractual maturities on such time
deposits.
Investment securities: Fair values for investment 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.
F-11
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- --------------------------------------------------------------
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values for other loans (for example, fixed rate commercial real estate and
rental property mortgage loans and commercial and industrial loans) are
estimated using discounted cash flow analysis, based on interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. Loan fair value estimates include judgements regarding future
expected loss experience and risk characteristics. The carrying amount of
accrued interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits (for example, checking
accounts, interest-bearing checking accounts and savings accounts) are, by
definition, equal to the amount payable on demand at the reporting date (that
is, their carrying amounts). The fair values for 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 contractual
maturities on such time deposits. The carrying amount of accrued interest
payable approximates fair value.
Short-term borrowings, notes payable and advances from Federal Home Loan Bank:
The fair value of short-term borrowings, notes payable and advances from
Federal Home Loan Bank are estimated using rates currently available for debt
with similar terms and remaining maturities.
Other liabilities: Commitments to extend credit were evaluated and fair value
was estimated using the terms for similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
Advertising: The Company expenses advertising costs as they are incurred.
Advertising costs charged to expense were $257,849, $236,203 and $240,649 for
the years ended December 31, 1998, 1997 and 1996, respectively.
Capital structure: During 1996 and 1998, the Company had a two-for-one stock
split. The effect of the stock split was applied retroactively to previous
years. During 1997, the number of shares of common stock was increased from
4,000,000 to 15,000,000 shares. Also, during 1997, the Articles of
Incorporation were restated to authorize the issuance of 1,500,000 shares of
preferred stock. As of December 31, 1998, no shares of preferred stock had been
issued.
Segment reporting: The Company is engaged in the activity of providing
traditional banking services through its commercial banking subsidiaries
previously discussed under "nature of operations." The Company does not have
reportable segments, foreign operations, assets located in foreign countries or
major customers, as defined in Statement of Financial Accounting Standards No.
131 (Disclosures About Segments of an Enterprise and Related Information).
Reclassifications: Certain amounts in the 1997 and 1996 consolidated financial
statements have been reclassified to conform with the presentation adopted in
1998.
New accounting standards: In March 1995, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No. 121 (SFAS)
(Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets To
Be Disposed Of). This statement established accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. This statement requires
that long-lived assets and other identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, the entity should estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows is less than the
carrying amount of the asset, an impairment loss is recognized. Otherwise, an
impairment loss is not recognized. Measurement of an impairment loss for long-
lived assets and identifiable intangibles that an entity
F-12
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- --------------------------------------------------------------
expects to hold and use should be based on the fair value of the asset. The
statement requires that long-lived assets and certain identifiable intangibles
to be disposed of be reported at the lower of carrying amount or fair value less
cost to sell, except for assets that are covered by APB Opinion No. 30
(Reporting The Results Of Operations - Reporting The Effects Of Disposal Of A
Segment Of A Business And Extraordinary, Unusual And Infrequently Occurring
Events And Transactions). Assets that are covered by Opinion 30 will continue to
be reported at the lower of carrying amount or net realizable value. This
statement was effective for fiscal years beginning after December 15, 1995. The
adoption of this statement did not have a material impact on the Company's
financial statements.
In October 1995, the FASB issued SFAS No. 123 (Accounting For Stock-Based
Compensation). This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. Examples are stock purchase
plans, stock options, restricted stock and stock appreciation rights. The
statement also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. Those transactions
must be accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measurable. The statement defines a fair value based method of accounting for
an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25 (Accounting For Stock Issued To
Employees). Entities electing to remain with the accounting in Opinion 25, must
make proforma disclosures of net income and, if presented, earnings per share,
as if the fair value based method of accounting defined in this statement had
been applied. The Company elected to continue to apply Opinion 25 and thus
provide proforma disclosures of net income and earnings per share. This
statement is effective for fiscal years beginning after December 15, 1995. The
adoption of this statement did not have a material impact on the Company's
financial statements.
In June 1996, the FASB issued SFAS No. 125 (Accounting For Transfers And
Servicing Of Financial Assets And Extinguishments Of Liabilities). This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. The statement
applies to transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. However, as a result of an
amendment to SFAS No. 125 by the FASB in December 1996, certain provisions of
SFAS No. 125 are deferred for an additional year. Adoption of the new
accounting standard did not have a material impact on the Company's financial
statements.
In February 1997, the FASB issued SFAS No. 128 (Earnings Per Share). This
statement establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential common
stock. This statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15 (Earnings Per Share) and makes them
comparable to international earnings per share standards. It replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share. It also requires dual presentation of basic and diluted earnings per
share on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
F-13
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- --------------------------------------------------------------
in the earnings of the entity. Diluted earnings per share is computed similarly
to fully diluted earnings per share pursuant to Opinion 15. This statement is
effective for financial statements issued for periods ending after December 15,
1997. The adoption of this statement did not have a material impact on the
company's financial statements.
In February 1997, the FASB issued SFAS No. 129 (Disclosure Of Information About
Capital Structure). This statement establishes standards for disclosing
information about an entity's capital structure. It applies to all entities.
This statement continues the previous requirements to disclose certain
information about an entity's capital structure found in APB Opinions No. 10
(Omnibus Opinion - 1996), No. 15 (Earnings Per Share) and FASB No. 47
(Disclosure Of Long-Term Obligations), for entities that were subject to the
requirements of those standards. This statement is effective for financial
statements issued for periods ending after December 15, 1997. The adoption of
this statement did not have a material impact on the Company's financial
statements
In June 1997, the FASB issued SFAS No. 130 (Reporting Comprehensive Income).
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement 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 displayed with
the same prominence as other financial statements. This statement does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement. This statement requires that an enterprise
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. This statement is effective for
fiscal years beginning after December 15, 1997. The adoption of this statement
did not have a material impact on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131 (Disclosures About Segments Of An
Enterprise And Related Information). This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
This statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments. The statement requires that a public
business enterprise report a measure of segment profit or loss, certain specific
revenue and expense items and segment assets. It requires reconciliations of
total segment revenues, total segment profit or loss, total segment assets and
other amounts disclosed for segments to corresponding amounts in the
enterprise's general-purpose financial statements. It requires that all public
business enterprises report information about the revenues derived from the
enterprise's products or services (or groups of similar products and services),
about the Countries in which the enterprise earns revenues and holds assets and
about major customers regardless of whether that information is used in making
operating decisions. The statement also requires that a public business
enterprise report descriptive information about the way that the operating
segments were determined, the products and services provided by the operating
segments, differences between the measurements used in reporting segment
information and those used in the enterprise's general-purpose financial
statements and changes in the measurement of segment amounts from period to
period. This statement is effective for financial statements for periods
beginning after December 15, 1997. The adoption of this statement did not have
a material impact on the Company's financial statements.
F-14
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
- --------------------------------------------------------------
In February 1998, the FASB issued SFAS No. 132 (Employers' Disclosures About
Pensions and Other Postretirement Benefits). This statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practical, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis and eliminate certain disclosures previously required by FASB
Statements No. 87, 88 and 106. The statement suggests combined formats for
presentation of pension and other postretirement benefit disclosures. This
statement is effective for fiscal years beginning after December 15, 1997. The
adoption of this statement did not have a material impact on the Company's
financial statements.
In June 1998, the FASB issued SFAS No. 133 (Accounting for Derivative
Instruments and Hedging Activities). This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security or a foreign-currency-denominated forecasted
transaction. Under this statement, an entity that elects to apply hedge
accounting is required to establish at the inception of the hedge the method it
will use for assessing the effectiveness of the hedging derivative and the
measurement approach for determining the ineffective aspect of the hedge. Those
methods must be consistent with the entity's approach to managing risk. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Initial application of this statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. The adoption of this statement is not expected to have a material
impact on the Company's financial statements.
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 amends Statement No. 65
(Accounting for Certain Mortgage Banking Activities) to require that after the
securitization of a mortgage loan held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sale or hold those
investments. This statement conforms the subsequent accounting for securities
retained after the securitization of mortgage loans by a mortgage banking
enterprise with the subsequent accounting for securities retained after the
securitization of other types of assets by a non-mortgage banking enterprise.
This statement shall be effective for the first fiscal quarter beginning after
December 15, 1998. The adoption of this statement is not expected to have a
material impact on the Company's financial statements.
Note 2 - Investment Securities
- ------------------------------
Investment securities are carried in the accompanying balance sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Available-for-sale $95,209,328 78,897,138
Held-to-maturity -0- 4,541,697
----------- ----------
$95,209,328 83,438,835
=========== ==========
</TABLE>
F-15
<PAGE>
Note 2 - Investment Securities (Continued)
- -----------------------------------------
Securities available-for-sale consist of the following:
- -------------------------------------------------------
<TABLE>
<CAPTION>
As of December 31, 1998:
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
U.S. Treasury Obligations $ 8,902,483 186,439 -0- 9,088,922
Obligations of other U.S.
Government agencies and
corporations 43,431,034 346,472 11,097 43,766,409
Obligations of state and
political subdivisions 9,096,559 119,448 2,676 9,213,331
Mortgage backed securities 28,479,376 150,848 136,820 28,493,404
Federal Home Loan Bank
stock 2,722,800 -0- -0- 2,722,800
Mutual Funds 1,025,000 -0- 146,572 878,428
Federal Reserve Bank 225,000 -0- -0- 225,000
Community Financial Services,
Inc. stock 696,794 -0- -0- 696,794
Other stock 139,240 -0- 15,000 124,240
----------- ------- ------- ----------
$94,718,286 803,207 312,165 95,209,328
=========== ======= ======= ==========
As of December 31, 1997:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
U.S. Treasury Obligations $13,946,055 104,613 -0- 14,050,668
Obligations of other U.S.
Government agencies and
corporations 35,810,960 157,834 66,200 35,902,594
Obligations of state and
political subdivisions 5,914,321 66,364 7,877 5,972,808
Mortgage backed securities 17,925,902 190,870 91,103 18,025,669
Federal Home Loan Bank
Stock 3,358,300 -0- -0- 3,358,300
Mutual Funds 1,000,000 -0- 146,395 853,605
Community Financial Services,
Inc. stock 473,494 -0- -0- 473,494
Federal reserve stock 225,000 -0- -0- 225,000
Other stock 50,000 -0- 15,000 35,000
----------- ------- ------- ----------
$78,704,032 519,681 326,575 78,897,138
=========== ======= ======= ==========
</TABLE>
F-16
<PAGE>
Note 2 - Investment Securities (Continued)
- -----------------------------------------
Securities held-to-maturity consist of the following:
- -----------------------------------------------------
<TABLE>
<CAPTION>
As of December 31, 1997:
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ---------
U.S. Treasuries and U.S.
Government Agencies $4,541,697 33,795 6,931 4,568,561
=========== ========== ========== =========
</TABLE>
The amortized cost and estimated market value of debt securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call of prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES
AVAILABLE-FOR-SALE
-----------------------
MARKET
COST VALUE
----------- ----------
<S> <C> <C>
Due in one year or less $11,827,338 11,897,557
Due after one year through
five years 48,476,626 49,021,932
Due after five years through
ten years 7,015,227 7,088,551
Due after ten years 22,590,261 22,554,026
----------- ----------
$89,909,452 90,562,066
=========== ==========
</TABLE>
Proceeds from sales and calls of available-for-sale securities during 1998 were
$20,576,316 with gross gains of $42,524 and gross losses of $31,211 being
recognized.
Proceeds from sales and calls of available-for-sale securities during 1997 were
$14,273,949 with gross gains of $11,484 and gross losses of $24,016 being
recognized.
Proceeds from sales and calls of available-for-sale securities during 1996 were
$12,362,247 with gross gains of $207,824 and gross losses of $76,900 being
recognized.
During 1998, debt securities with an amortized cost of $3,495,036 were
transferred from held-to-maturity to available-for-sale. The securities had an
unrealized gain of $34,964.
Effective January 1, 1996, debt securities with an amortized cost of $1,609,517
were transferred from held-to-maturity to available-for-sale. The securities
had an unrealized gain of $61,650. Management made the transfer in response to
its decision to eliminate the held-to-maturity classification.
Securities with a carrying value of approximately $37,320,766 and $40,470,395 at
December 31, 1998 and 1997, respectively, were pledged to secure public monies
as required by law.
F-17
<PAGE>
Note 3 - Bank Premises and Equipment
- ------------------------------------
Bank premises and equipment are stated at cost less accumulated depreciation,
and include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- ESTIMATED
1998 1997 USEFUL LIVES
------------- ----------- ------------
<S> <C> <C> <C>
Land $ 3,464,950 2,979,978
Bank premises and improvements 8,975,919 7,742,785 5-40 years
Furniture, fixtures and equipment 6,547,172 5,588,446 5-15 years
Automobiles 201,951 225,906 3- 5 years
Deposit on equipment 41,988 -0-
----------- ----------
19,231,980 16,537,115
Less accumulated depreciation (5,611,119) (4,707,484)
----------- ----------
$13,620,861 11,829,631
=========== ==========
</TABLE>
Depreciation expense amounted to $1,052,882, $1,022,350 and $881,134 for the
years ended December 31, 1998, 1997 and 1996, respectively.
Note 4 - Land and Building of Former Banking Office and Land and Building Held
- ------------------------------------------------------------------------------
For Lease
- ---------
Land and building of former banking office is stated at cost less accumulated
depreciation and include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- ESTIMATED
1998 1997 USEFUL LIFE
----------- --------- -----------
<S> <C> <C> <C>
Land $ 41,000 41,000
Building 489,760 462,719 30 years
--------- --------
530,760 503,719
Less accumulated depreciation (207,840) (188,442)
--------- --------
$ 322,920 315,277
========= ========
</TABLE>
The building is currently being leased. Fair value of these assets exceeds book
value.
Land and building acquired for lease is stated at cost less accumulated
deprecation and include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- ESTIMATED
1998 1997 USEFUL LIFE
--------- -------- -----------
<S> <C> <C> <C>
Land $ 354,589 -0-
Building 240,000 -0- 39 years
--------- --------
594,589 -0-
Less accumulated depreciation (4,103) -0-
--------- --------
$ 590,486 -0-
=========== =========
</TABLE>
The property is held for lease. Fair value of these assets exceeds book value.
F-18
<PAGE>
<TABLE>
<CAPTION>
Note 5 - Loans
- --------------
Major classifications of loans are as follows:
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
Commercial and financial $ 55,885,120 70,911,845
Agricultural 6,759,273 7,340,214
Real estate - construction 22,196,188 19,519,253
Real estate - mortgage 215,005,777 178,708,685
Installment loans to individuals and other 51,751,606 45,066,948
Overdrafts 346,766 301,755
------------ -----------
351,944,730 321,848,700
Deferred loan fees and unearned interest, net (213,397) (336,567)
------------ -----------
351,731,333 321,512,133
Allowance for loan losses (4,426,217) (4,243,043)
------------ -----------
Loans, Net $347,305,116 317,269,090
============ ===========
</TABLE>
At December 31, 1998 and 1997, the total recorded investment in impaired loans,
all of which had allowances determined in accordance with SFAS No. 114 and No.
118, amounted to approximately $1,251,274 and $519,418, respectively. The
average recorded investment in impaired loans amounted to approximately $83,921,
$268,243 and $84,803 for the years ended December 31, 1998, 1997 and 1996,
respectively. The allowance for loan losses related to impaired loans amounted
to approximately $199,752 and $53,595 at December 31, 1998 and 1997,
respectively. Interest income on impaired loans of $19,126, $19,528 and $2,116
was recognized for cash payments received in 1998, 1997 and 1996, respectively.
The Banks have no commitments to loan additional funds to borrowers whose loans
are classified as impaired.
First mortgage loans on residential (one-to-four units) real estate are pledged
to secure advances from the Federal Home Loan Bank (See Note 8). The advances
must be fully secured after discounting the qualifying loans at 75% of the
principal balances outstanding.
At December 31, 1997, the Company was servicing mortgage loans for the benefit
of others totalling approximately $21,346,000. While such loans were originated
by the Company, the entire cost of originating the loans has been allocated to
the loans with no cost being allocated to the mortgage servicing rights, since
management believes the amount to be immaterial. During 1998, the Company
suspended its mortgage servicing activities and sold its mortgage servicing
rights, realizing a gain of $102,131. Revenue from mortgage servicing
activities amounted to $42,592 and $59,171 for the years ended December 31, 1997
and 1996, respectively.
Transactions in the allowance for losses on loans were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Balance, January 1 $4,243,043 3,803,606 3,427,433
Provision for losses charged to
operating expenses 903,404 792,900 632,842
Recoveries 87,843 73,787 44,281
---------- --------- ---------
Total 5,234,290 4,670,293 4,104,556
Less loans charged off (808,073) (427,250) (300,950)
---------- --------- ---------
Balance, December 31 $4,426,217 4,243,043 3,803,606
========== ========= =========
</TABLE>
F-19
<PAGE>
Note 6 - Deposits
- -----------------
At December 31, 1998, the scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $169,058,197
2000 32,416,029
2001 7,178,189
2002 4,601,810
2003 7,515,793
------------
$220,770,018
============
</TABLE>
Note 7 - Notes Payable
- ----------------------
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
------ ------
<S> <C> <C>
Note payable to correspondent bank,
interest payable quarterly,
variable interest rate (7.65% at
December 31, 1997), equal semi-
annual installments in the amount
of $136,500, maturity date in
2005, repaid during 1998 without
prepayment penalty. The note
was secured by all of the issued
and outstanding stock of Bainbridge
National Bank prior to the merger
with the Company. $ -0- 2,184,000
======== ==========
</TABLE>
Note 8 - Advances From Federal Home Loan Bank
- ---------------------------------------------
Advances from the Federal Home Loan Bank consists of the following:
DECEMBER 31,
-------------------------
1998 1997
------- ------
Advances payable, interest payable
monthly or quarterly, combination of
fixed and variable interest rates which
averaged 6.03% and 6.25% at December 31, 1998,
and 1997, respectively, various
repayment options, maturities
through August 2, 2010. $39,057,723 31,811,673
=========== ==========
F-20
<PAGE>
Note 8 Advances From Federal Home Loan Bank (Continued)
- --------------------------------------------------------
Maturities of the advances for the succeeding five years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1999 $8,530,666
2000 7,764,201
2001 2,134,408
2002 1,924,620
2003 5,256,503
</TABLE>
The advances are collateralized as provided in Note 5.
Note 9 - Profit Sharing Plan and 401(k) Plan
- --------------------------------------------
An employee profit sharing plan and 401(k) plan is provided for qualified
employees. The plans are qualified under the Internal Revenue Code. The Board
of Directors makes an annual determination of the contribution to the profit
sharing plan. By law and pursuant to the terms and provisions of the employee
profit sharing plan, a contribution up to a maximum of 15% of the total
qualified employee compensation may be made. Under the 401(k) plan, employees
may make salary deferral contributions of 10% to 15% of qualified employee
compensation. The Company will make matching contributions at a level
determined by the Board of Directors. Amounts contributed to the plans for the
years ended December 31, 1998, 1997 and 1996 totaled $328,073, $277,626 and
$243,569, respectively.
Note 10 - Deferred Compensation Plan
- ------------------------------------
Effective January 1, 1994, the Company adopted a deferred compensation plan for
the benefit of key employees. While the plan is to be funded from the general
assets of the Company, life insurance policies were acquired for the purpose of
serving as the primary funding source. As of December 31, 1998 and 1997, the
cash values of these policies were $2,849,483 and $2,747,030, respectively, and
the liability accrued for benefits payable under the plan was $403,749 and
$275,596, respectively.
Note 11 - Employee Stock Option Plan
- ------------------------------------
The Company's Stock Option Plan authorizes the granting of stock options to its
full-time employees for up to 400,000 shares of common stock. Under the plan,
the exercise price of each option equals the market price of the Company's stock
on the grant date, and an option's maximum term is ten years. Options are
granted as administered by the Board of Directors and, with limited exceptions,
vest on a straight-line basis over a five year period beginning February 26,
1997.
The fair value of each option grant is estimated on the grant date using an
option-pricing model with the following weighted-average assumptions used for
grants in 1998: dividend yield of 1.37%, risk free interest rate of 5.0%,
expected lives of 5 years for the options and a volatility rate of 30.00%.
Weighted-average assumptions used for grants in 1997 are as follows: dividend
yield of 1.65%, risk-free interest rate of 5.57%, expected lives of five years
for the options and a volatility rate of 14.2%.
Weighted-average assumptions used for grants in 1996 are as follows: dividend
yield of 1.65%, risk-free interest rate of 7.50%, expected lives of five years
for the options and a volatility rate of 23.0%.
F-21
<PAGE>
Note 11 - Employee Stock Option Plan (Continued)
- ------------------------------------------------
A summary of the status of the Company's stock option plan as of December 31,
1998, 1997 and 1996, and the changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
------------------------------ ----------------------------- ----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
FIXED EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- --------------------------------------- --------------- ------------- ------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 328,588 $ 8.59 188,118 $ 6.35 44,118 $ 6.67
Granted 54,500 12.06 152,000 10.58 144,000 6.25
Exercised (33,985) (10.03) (11,030) 14.00 -0- .00
Forfeited (2,000) 8.59 (500) 10.06 -0- .00
-------- -------- -------
Outstanding at
end of year 347,103 8.76 328,588 8.04 188,118 6.35
======== ======== =======
Exercisable at
December 31 162,603 8.09 162,388 8.59 84,118 6.47
Weighted-average
fair value of
options granted
during the year $3.71 2.91 1.92
======== ======== =======
</TABLE>
The following table summarizes
information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------------- ---------------------------------
WEIGHTED-
AVERAGE WEIGHTED WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OR ACTUAL OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/98 LIFE PRICE AT 12/31/98 PRICE
- --------------------------------------- -------------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
$ 6.25 144,000 7 Years $ 6.25 81,600 $ 6.25
9.43 17,353 2 Years 9.43 17,353 9.43
10.06 131,250 8 Years 10.06 61,650 10.06
12.06 54,500 9 Years 12.06 2,000 12.06
-------- -------
$ 6.25 to
$12.06 347,103 162,603
======== =======
</TABLE>
If the Company had used the fair value based method of accounting for its
employee stock option plan, as prescribed by Statement of Financial Accounting
Standards No. 123, compensation cost in net income for the year ended December
31, 1998 would have increased by $136,754, resulting in net income of
$6,514,296, net of tax. Basic earnings per share would have declined from $.80
to $.79 and diluted earnings per share would have declined from $.78 to $.77.
If the Company had used the fair value based method of accounting for its
employee stock option plan for the year ended December 31, 1997, compensation
cost in net income would have increased by $170,487, resulting in net income of
$5,889,675, net of tax. Basic earnings per share would have declined from $.73
to $.72 and diluted earnings per share would have declined from $.72 to $.71.
F-22
<PAGE>
Note 11 - Employee Stock Option Plan (Continued)
- ------------------------------------------------
If the Company had used the fair value based method of accounting for its
employee stock option plan for the year ended December 31, 1996, compensation
cost and net income would not have changed.
Note 12 - Directors Deferred Stock Purchase Plan
- ------------------------------------------------
On April 18, 1994, the Company's shareholders approved the Directors Deferred
Stock Purchase Plan (the "Director Plan"), which provides that a director of the
Company or any subsidiary may elect to receive shares of common stock of the
Company in lieu of the cash compensation otherwise payable as director's fees
for services as a member of the Board of Directors or any committee thereof. The
shares of common stock issuable to an electing director shall be issued on
January 15 following each fiscal year in a whole number (rounded down) resulting
from the amount of such director's fees (or a portion thereof as determined by
such director) for such previous fiscal year divided by 100% of the fair market
value of the common stock as of January 1 of such previous fiscal year. The
Director Plan covers 100,000 shares of common stock, which may be authorized for
issuance and delivery thereunder. The Director Plan shall remain in effect for
five years (through January 15, 1999) or until termination by the Board,
whichever occurs first. The Director Plan is administered by the Board of
Directors of the Company. The Company has issued 7,808, 15,268 and 13,384 shares
of common stock under the Director Plan for the years ended December 31, 1998,
1997 and 1996, respectively.
Note 13 - Income Taxes
- ----------------------
Income tax expense is comprised of federal and state income taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Current expense $3,491,498 3,354,738 2,446,870
Deferred (credit) (144,047) (193,112) 3,840
---------- --------- ---------
$3,347,451 3,161,626 2,450,710
========== ========= =========
</TABLE>
Income tax at the statutory rate of 34% is reconciled to the Company's actual
provision as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C>
Tax at statutory rate $3,399,490 3,115,937 2,471,566
State income taxes 263,250 269,620 146,532
Tax exempt interest and dividend
exclusion (358,249) (217,387) (203,021)
Amortization of goodwill 43,746 43,746 43,746
Increase in cash value of life
insurance policies (46,088) (27,038) (20,914)
Other 45,302 (23,252) 12,801
---------- --------- ---------
Actual income tax expense $3,347,451 3,161,626 2,450,710
========== ========= =========
</TABLE>
F-23
<PAGE>
Note 13 - Income Taxes (Continued)
- ----------------------------------
Deferred tax liabilities have been provided for taxable temporary differences
related to accumulated depreciation, stock dividends and unrealized gains on
available-for-sale securities. Deferred tax assets have been provided for
deductible temporary differences related to unrealized losses on available-for-
sale securities, the allowance for loan losses, deferred compensation and
purchase accounting adjustments. The net deferred tax assets in the
accompanying balance sheets include the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,466,014 1,404,426
Purchase accounting adjustments 18,984 14,880
Deferred compensation plan 152,359 103,999
Other 56,275 26,828
---------- ---------
1,693,632 1,550,133
---------- ---------
Deferred tax liabilities:
Bank premises and equipment and
depreciation 595,062 544,607
Stock dividends 77,057 77,057
Unrealized gains on available-
for-sale securities 205,202 77,562
Amortization of core deposits 65,138 94,748
Other 9,057 30,450
---------- ---------
951,516 824,424
---------- ---------
Net deferred tax assets $ 742,116 725,709
========== =========
</TABLE>
No valuation allowance was established in view of the Company's tax strategies
coupled with anticipated future taxable income as evidenced by the Company's
earnings potential.
Through 1995, thrift institutions were allowed, for tax purposes, a special
deduction for bad debts based on a percentage of taxable income before such
deduction, subject to various limitations provided by the Internal Revenue Code.
One of the Company's subsidiaries (converted from a thrift subsidiary) had an
allowable percentage of 8%. Effective January 1, 1996, only the experience
method is allowable for computing the provision for bad debts for tax purposes.
Additionally, any excess bad debt deductions taken after December 31, 1987, must
be recaptured over a six year period. The effect of changing the method of
computing bad debts had no effect upon the income tax provision of the Company's
subsidiary inasmuch as the excess deductions had been subjected to the deferred
income tax provision.
For tax purposes, included in retained earnings of the Company's subsidiary (now
converted from a thrift subsidiary) at December 31, 1998, is approximately
$2,033,000 of accumulated bad debt deductions for which no deferred income tax
liability has been recorded. This amount represents an allocation of income to
bad debt deductions for tax purposes only. Reduction of amounts so allocated
for purposes other than tax bad debt losses or adjustments arising from carry-
back of net operating losses would give rise to income for tax purposes only,
which would be subject to income taxes at the then prevailing corporate rate.
F-24
<PAGE>
Note 14 - Dividend Reinvestment and Common Stock Purchase Plan
- --------------------------------------------------------------
On December 20, 1993, the Company's Board of Directors approved a dividend
reinvestment and common stock purchase plan. The purpose of the plan is to
provide shareholders of record of the Company's common stock, who elect to
participate in the plan, with a simple and convenient means to reinvest
automatically cash dividends and make additional voluntary cash purchases of
shares of common stock without the expense of brokerage commissions or other
fees. Eligible participants may purchase common stock through automatic
reinvestment of common stock dividends on all of their shares or not less than
50% of their shares and make additional voluntary cash payments of not less than
$50 nor more than $1,000, in the aggregate, for each calendar year. The price
of common stock purchased with dividends will be 100% of the fair market value
of the stock. The price of common stock purchased with voluntary cash payments
will be 100% of the fair market value of the stock. Among amendments to the
plan effective January 1, 1998, is the elimination of the 50% minimum
participation level for dividend reinvestment. During the years ended December
31, 1998, 1997 and 1996, the plan resulted in the incremental issuance of 1,650,
30,960 and 103,728 shares, respectively. The decline in the incremental shares
issued is due to the current policy of acquiring shares in the market place to
fill orders for dividend reinvestment and stock purchases rather than issuing
additional shares.
Note 15 - Commitments, Contingencies and Financial Instruments With Off-Balance-
- --------------------------------------------------------------------------------
Sheet Risk
----------
The consolidated financial statements do not reflect various commitments and
contingent liabilities which arise in the normal course of business and which
involve elements of credit risk, interest rate risk and liquidity risk. These
commitments and contingent liabilities are commitments to extend credit and
standby letters of credit. A summary of the Banks' commitments and contingent
liabilities is as follows:
<TABLE>
<CAPTION>
NOTIONAL AMOUNT
-----------------------
DECEMBER 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Commitments to extend credit $47,369,264 42,651,000
Standby letters of credit 1,768,132 2,783,400
</TABLE>
Commitments to extend credit and standby letters of credit all include exposure
to some credit loss in the event of nonperformance by the customer. The Banks'
credit policies and procedures for credit commitments are the same as those for
extensions of credit that are reported in the financial statements. Because
these instruments have fixed maturity dates and because many of them expire
without being drawn upon, they do not generally present any significant
liquidity risk to the Banks. The Banks' have not incurred any losses on their
commitments in either 1998 or 1997.
The nature of the business of the Company and the Banks is such that they are
ordinarily subjected to a certain amount of litigation. In the opinion of
management and counsel, there is no litigation in which the outcome will have a
material effect on the financial statements.
F-25
<PAGE>
Note 16 - Related Party Transactions
- ------------------------------------
At December 31, 1998 and 1997, loans to all officers, directors and employees
and their associates aggregated approximately $10,965,398 and $15,168,730,
respectively.
The following is a summary of the activity in loans to executive officers,
directors and principal shareholders where the aggregate to any one exceeded
$60,000 during the year ended December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of year $ 10,748,447
Amounts advanced 11,118,016
Repayments (11,004,349)
------------
Balance, end of year $ 10,862,114
============
</TABLE>
Employees, officers, directors and principal shareholders maintained customary
deposit relationship with the Banks. The aggregate of such deposits was
approximately $13,500,000 at December 31, 1998.
Management believes that all of the above transactions were entered into in the
normal course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other customers and did not involve more than
normal credit risk or present other unfavorable features.
Note 17 - Regulatory Matters
- ----------------------------
The primary source of funds available for the payment of cash dividends are
dividends received by PAB Bankshares, Inc. from subsidiary Banks. The Banks
are limited by banking regulations as to the amount of dividends that may be
paid without prior approval of the Banks' regulatory agency. Retained earnings
of the Banks against which dividends may be charged is approximately $11,789,000
at December 31, 1998 and the amount of dividends which may be paid within one
year is approximately $3,922,000.
The Banks are required to maintain average balances with the Federal Reserve
Bank. The average amount of those reserve balances for the year ended December
31, 1998 was approximately $1,866,000.
The Company and the Banks are subject to various regulatory capital requirements
administered by the state and federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's and the Banks' financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Banks must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain off-balance-
sheet items as calculated under regulatory accounting practices. The capital
amounts and classification are also subject to qualitative judgements by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1998 and 1997,
that the Company and the Banks meet all capital adequacy requirements to which
they are subject.
The most recent notification from Banking regulators categorized the Company and
the Banks as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Company and the
Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There have been no conditions or
events since that notification that management believes have changed the
institution's category.
F-26
<PAGE>
Note 17--Regulatory Matters (Continued)
- ---------------------------------------
The Company's consolidated actual capital amounts and ratios and the minimum
amounts and ratios under the capital adequacy and prompt corrective action
provisions are presented below:
<TABLE>
<CAPTION>
CAPITALIZED UNDER TO BE WELL
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
--------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ --------- -------- --------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $52,482 13.8% 30,424 8.0% 38,030 less than 10.0%
Tier I Capital
(to Risk Weighted Assets) 48,056 12.6% 15,256 4.0% 22,884 less than 6.0%
Tier I Capital
(to Average Assets) 48,056 9.6% 20,023 4.0% 25,029 less than 5.0%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $47,122 14.9% 25,300 8.0% 31,626 less than 10.0%
Tier I Capital
(to Risk Weighted Assets) 42,879 13.5% 12,705 4.0% 19,057 less than 6.0%
Tier I Capital
(to Average Assets) 42,879 9.5% 18,054 4.0% 22,568 less than 5.0%
</TABLE>
Note 18 - Concentrations of Credit Risk
- ---------------------------------------
In addition to the concentrations of credit risk disclosures in notes one and
five, the Company and its subsidiaries maintains its cash in bank deposit
accounts which usually exceed federally insured limits and sells federal funds
to correspondent banks on an unsecured basis. The Company and its subsidiaries
has not experienced any losses in such accounts. Management believes the
Company and its subsidiaries is not exposed to any significant credit risk on
cash and cash equivalents and federal funds sold.
Note 19 - Investment in Unconsolidated Subsidiary
- -------------------------------------------------
On August 14, 1985, the Board of Directors of the Company's subsidiary (First
Community Bank of Southwest Georgia) approved participation in the formation of
a new service corporation, Empire Financial Services, Inc. ("Empire") with its
home office located in Milledgeville, Georgia. The primary purpose of the
service corporation is the origination and servicing of commercial real estate
loans. Since the formation of the service corporation, First Community has
participated in loans originated by Empire when deemed appropriate by
management.
First Community owns 50% of the outstanding stock of Empire. First Community
accounts for its investment in Empire under the equity method. The investment
in Empire exceeded First Community's share of the underlying net assets by
$48,588 at December 31, 1998, and is being amortized on the straight-line method
over twenty-five years.
F-27
<PAGE>
Following is a summary of the unaudited financial position at December 31, 1998
and 1997 and unaudited results of operations of Empire for the three years ended
December 31, 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---------- ---------
ASSETS
----------
<S> <C> <C>
Current assets $1,516,951 438,363
Premises and equipment 584,181 427,981
---------- ---------
Total Assets $2,101,132 866,344
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------
Current liabilities $1,325,531 460,334
Long-term liabilities 441,302 311,046
---------- ---------
Total Liabilities 1,766,833 771,380
Stockholders' equity 334,299 94,964
---------- ---------
Total Liabilities and Stockholders' Equity $2,101,132 866,344
========== =========
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Total revenue $2,999,317 1,724,445 1,811,282
========== ========== =========
Net income $1,039,334 503,236 498,328
========== ========== =========
First Community Bank of Southwest Georgia's
proportionate share of net income $ 519,667 251,618 249,164
========== ========== =========
</TABLE>
To facilitate the timely closing of its books and preparation of monthly
financial statements, the Company's subsidiary (First Community Bank of
Southwest Georgia) follows a consistent practice of accruing its share of Empire
earnings one month in arrears. As of December 31, 1998, an additional amount of
earnings of approximately $150,000 was recorded in January 1999. There was no
significant earnings recorded in arrears at December 31, 1997 or 1996.
F-28
<PAGE>
Note 20 - Financial Information of PAB Bankshares, Inc. (Parent Only)
- ---------------------------------------------------------------------
Condensed balance sheets of PAB Bankshares, Inc. as of December 31, 1998 and
1997 and related statements of income and cash flows for the three years ended
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
--------------
DECEMBER 31,
-----------------------
ASSETS 1998 1997
------ ----------- ----------
<S> <C> <C>
Cash on deposit with subsidiary banks $ 4,296,858 2,460,360
Investment in:
Park Avenue Bank 16,628,190 14,626,656
Farmers & Merchants Bank 4,881,654 4,348,746
First Community Bank of Southwest Georgia 16,888,997 19,736,728
Eagle Bank and Trust 7,244,621 6,749,255
Property, Plant and Equipment, net of accumulated
depreciation 561,599 673,885
Land and building held for lease 594,589 -0-
Income taxes receivable 737,965 361,659
Other assets 279,498 315,812
----------- ----------
Total Assets $52,113,971 49,273,101
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Dividends payable $ 662,440 548,106
Notes payable -0- 2,184,000
Other liabilities 349,174 476,036
----------- ----------
1,011,614 3,208,142
----------- ----------
Stockholders' Equity:
Common stock 1,217,065 1,263,745
Additional paid in capital 25,809,693 26,304,565
Retained earnings 23,739,623 19,364,279
Other comprehensive income 335,976 115,559
----------- ----------
51,102,357 47,048,148
Less: Treasury Stock, at cost -0- (983,189)
----------- ----------
51,102,357 46,064,959
----------- ----------
Total Liabilities and Stockholders' Equity $52,113,971 49,273,101
=========== ==========
</TABLE>
F-29
<PAGE>
Note 20 - Financial Information of PAB Bankshares, Inc. (Parent Only)
- ---------------------------------------------------------------------
(Continued)
- -----------
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
--------------------
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Income:
Equity in earnings of subsidiary banks:
Park Avenue Bank $3,273,601 2,791,419 2,476,434
Farmers & Merchants Bank 822,972 654,480 549,467
First Community Bank of Southwest
Georgia 2,930,637 2,533,316 1,937,760
Eagle Bank and Trust 817,794 749,145 615,634
Interest Income:
Subsidiary banks 10,224 15,246 15,957
Computer service income, management
and other fees from subsidiary banks 976,459 1,084,887 504,109
Other income 11,183 3,831 49,601
---------- --------- ---------
8,842,870 7,832,324 6,148,962
Expenses 2,925,795 2,243,765 1,699,736
---------- --------- ---------
Income before taxes 5,917,075 5,588,559 4,449,226
Income taxes (benefit) (733,975) (414,335) (369,377)
---------- --------- ---------
Net Income $6,651,050 6,002,894 4,818,603
========== ========= =========
</TABLE>
F-30
<PAGE>
Note 20 - Financial Information of PAB Bankshares, Inc. (Parent Only)
- ---------------------------------------------------------------------
(Continued)
- -----------
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996
------------------- ------------------- ---------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net income $ 6,651,050 6,002,894 4,818,603
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 245,021 203,094 131,879
Equity in earnings of subsidiary
banks (7,845,004) (6,728,360) (5,579,295)
(Gains) Loss on sale of assets (6,932) -0- (1,795)
Dividends received from subsidiaries:
Park Avenue Bank 1,395,708 2,170,812 850,000
Farmers & Merchants Banks 327,245 370,167 179,838
First Community Bank of Southwest
Georgia 5,778,050 1,691,123 1,079,586
Eagle Bank and Trust 382,339 -0- -0-
Deferred income taxes 6,539 18,772 8,001
Change in assets and liabilities (394,048) 204,849 (79,261)
----------- ---------- ----------
Net cash provided (used) by operating activities 6,539,968 3,933,351 1,407,556
----------- ---------- ----------
Cash Flows From Investing Activities:
Proceeds from sale of assets 17,600 -0- 68,901
Capital expenditures (733,914) (405,678) (259,694)
(Increase) Decrease in cash value of
life insurance (2,181) (6,938) (1,573)
----------- ---------- ----------
Net cash provided (used) by investing activities (718,495) (412,616) (192,366)
----------- ---------- ----------
Cash Flows From Financing Activities:
Dividends paid (2,141,687) (1,335,932) (635,091)
Repayment of notes payable (2,184,000) (1,200,000) (1,773,000)
Proceeds from issuance of stock 340,712 124,302 734,021
Acquisition of treasury stock -0- -0- (30,925)
----------- ---------- ----------
Net cash provided (used) by financing activities (3,984,975) (2,411,630) (1,704,995)
----------- ---------- ----------
Net Increase (Decrease) in Cash 1,836,498 1,109,105 (489,805)
Cash and Cash Equivalents at Beginning of Period 2,460,360 1,351,255 1,841,060
----------- ---------- ----------
Cash and Cash Equivalents at End of Period $ 4,296,858 2,460,360 1,351,255
=========== ========== ==========
Supplemental Disclosures of Cash Flow Information
- --------------------------------------------------------
Cash paid during the period for:
Interest $ 151,582 240,184 388,197
=========== ========== ==========
Income taxes (received) $ (364,208) (467,814) (308,128)
=========== ========== ==========
</TABLE>
F-31
<PAGE>
Note 21 - Fair Values of Financial Instruments
- ----------------------------------------------
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------ --------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE VALUE VALUE
---------------- ------------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 43,537,671 43,537,671 43,012,762 43,012,762
Time deposits 396,000 396,000 3,398,000 3,398,000
Investment securities 95,209,328 95,209,328 83,438,835 83,465,699
Loans, net of allowance for
loan losses 347,305,116 337,361,000 317,269,090 317,496,565
Accrued interest receivable 5,491,847 5,491,847 5,135,735 5,135,735
Financial liabilities:
Deposits 413,255,974 422,841,000 386,643,618 390,871,566
Notes payable -0- -0- 2,184,000 2,184,000
Advances from Federal Home
Loan Bank 39,057,723 35,390,000 31,811,673 31,853,779
Accrued interest payable 1,601,491 1,601,491 1,656,497 1,656,497
Other borrowed funds 2,339,170 2,339,170 1,004,854 1,004,854
Federal funds purchased 3,824,095 3,824,095 -0- -0-
</TABLE>
The carrying amounts in the preceding table are included in the balance sheet
under the applicable captions.
<TABLE>
<CAPTION>
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Other:
Commitments to extend
credit $47,369,264 47,369,264 42,651,000 42,651,000
Standby letters of credit 1,768,132 1,768,132 2,783,400 2,783,400
</TABLE>
F-32
<PAGE>
Note 22 - Mergers and Acquisitions
- ----------------------------------
On June 19, 1998, the Company acquired all of the outstanding common stock of
Investors Financial Corp. (Investors) in exchange for 1,711,249 shares of the
Company's common stock and a nominal amount of cash in lieu of fractional
shares. Immediately following the merger, Investors was liquidated and its
wholly-owned subsidiary, Bainbridge National Bank, became a wholly-owned
subsidiary of the Company. Bainbridge National Bank was a commercial banking
entity operating in Bainbridge, Georgia and surrounding areas. Effective August
31, 1998, Bainbridge National Bank was merged with First Community Bank of
Southwest Georgia. On December 9, 1998, the Company acquired all of the
outstanding common stock of Eagle Bank Corp., Inc. (Eagle) in exchange for
907,610 shares of the Company's common stock. Immediately following the merger,
Eagle was liquidated and its wholly-owned subsidiary, Eagle Bank and Trust,
became a wholly-owned subsidiary of the Company. Eagle Bank and Trust is a
state chartered commercial bank operating in Statesboro, Georgia and surrounding
areas.
The mergers of Investors and Eagle have been accounted for as poolings of
interests and, accordingly, all prior financial statements have been restated to
include the accounts and operations of the pooled companies. The following
table presents a reconciliation of net interest income and net income, as
previously reported by the Company, to those presented in the accompanying
consolidated financial statements and reflects the net interest income and net
income of the previously separate companies for the periods before the mergers.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996
--------------- -------------------- ------------------
<S> <C> <C> <C>
Net Interest Income:
PAB Bankshares, Inc. $16,080,518 13,083,267 11,148,043
Investors Financial Corp./Bainbridge
National Bank 1,705,081 3,300,480 3,061,889
Eagle Bancorp, Inc./Eagle Bank
and Trust 2,907,883 2,709,826 2,371,716
----------- ---------- ----------
Combined $20,693,482 19,093,573 16,581,648
=========== ========== ==========
Net Income:
PAB Bankshares, Inc. $ 5,226,774 4,144,133 3,348,554
Investors Financial Corp./Bainbridge
National Bank 606,481 1,184,820 968,193
Eagle Bancorp, Inc./Eagle Bank
and Trust 817,795 673,941 501,856
----------- ---------- ----------
Combined $ 6,651,050 6,002,894 4,818,603
=========== ========== ==========
</TABLE>
F-33
<PAGE>
Note 23 - Quarterly Results of Operations (Unaudited)
- -----------------------------------------------------
The following is a summary of the quarterly results of operations for the two
years ended December 31, 1998:
<TABLE>
<CAPTION>
QUARTERLY PERIOD ENDED
-------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- --------- -------------- -------------
(In Thousands, Except Per share Data)
Year Ended December 31, 1998:
<S> <C> <C> <C> <C>
Interest income $ 9,600 9,912 10,090 10,094
Interest expense (4,580) (4,823) (4,816) (4,784)
------- ------ ------ ------
Net interest income 5,020 5,089 5,274 5,310
Provision for loan losses (292) (174) (166) (271)
------- ------ ------ ------
Net interest income
after provision for
loan losses 4,728 4,915 5,108 5,039
Other income 1,463 1,364 1,427 1,368
Other expenses (3,507) (3,828) (3,988) (4,091)
------- ------ ------ ------
Income before income taxes 2,684 2,451 2,547 2,316
Income taxes (874) (855) (872) (746)
------- ------ ------ ------
Net income $ 1,810 1,596 1,675 1,570
======= ====== ====== ======
Basic earnings per share $ 0.22 0.19 0.20 0.19
======= ====== ====== ======
Diluted earnings per share $ 0.22 0.19 0.19 0.18
======= ====== ====== ======
Year Ended December 31, 1997:
Interest income $ 8,512 8,828 9,233 9,491
Interest expense (4,022) (4,119) (4,322) (4,506)
------- ------ ------ ------
Net interest income 4,490 4,709 4,911 4,985
Provision for loan losses (139) (168) (269) (217)
------- ------ ------ ------
Net interest income
after provision for
Loan losses 4,351 4,541 4,642 4,768
Other income 971 1,105 1,058 1,176
Other expenses (3,163) (3,272) (3,404) (3,607)
------- ------ ------ ------
Income before income taxes 2,159 2,374 2,296 2,337
Income taxes (735) (810) (842) (776)
------- ------ ------ ------
Net income $ 1,424 1,564 1,454 1,561
======= ====== ====== ======
Basic earnings per share $ 0.17 0.19 0.18 0.19
======= ====== ====== ======
Diluted earnings per share $ 0.17 0.19 0.17 0.19
======= ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of
December 31, 1997 by and between Tracy A. Dixon, a resident of the State of
Georgia ("Employee") and First Community Bank of Southwest Georgia, a Georgia
corporation ("FCB").
W I T N E S S E T H:
WHEREAS, Employee is currently an executive officer of Bainbridge National
Bank, a wholly owned subsidiary of Investors Financial Corp. ("Investors").
Investors has entered into an Agreement and Plan of Merger (the "Merger
Agreement") with FCB's parent corporation, PAB Bankshares, Inc. ("PAB"),
pursuant to which Investors will be merged with and into PAB (the "Merger"), and
subsequently Bainbridge National Bank will be merged with FCB;
WHEREAS, upon consummation of the Merger, FCB and Employee each desire to
enter into an employment relationship with the other; and
WHEREAS, FCB and Employee each deem it necessary and desirable, for their
mutual protection, to execute a written document setting forth the terms and
conditions of said relationship;
NOW, THEREFORE, in consideration of the employment of Employee by FCB, of
the premises and the mutual promises and covenants contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment and Duties.
FCB hereby employs Employee to serve as Chief Executive Officer and to
perform such duties and responsibilities as customarily performed by persons
acting in such capacity. During the terms of this Agreement, Employee will
devote his full time and effort to his duties hereunder. Employee will report
directly to the Chief Executive Officer of PAB.
2. Term. Subject to the provisions of Sections 12 and 14 of this
Agreement, the period of Employee's employment under this Agreement shall be
deemed to have commenced as
<PAGE>
of the effective date of the Merger, and shall continue for a period of thirty-
six (36) calendar months thereafter, and any extensions thereafter, unless the
Merger is not consummated or the Employee dies before the end of such thirty-six
(36) months, in which case the period of employment shall continue until the end
of the month of such death. The said thirty-six (36) month period of employment
shall automatically be extended for additional twelve (12) full calendar months
terms without further action by the parties, commencing on the third anniversary
of this Agreement and each anniversary thereafter. No such automatic extension
shall occur if either party shall, at least ninety (90) days prior to any said
anniversary, have served written notice upon the other of its intention that
this Agreement shall not be so extended.
3. Compensation.
For all services to be rendered by Employee during the term of this
Agreement, FCB agrees to pay Employee an annual base salary equal to his
compensation paid by Bainbridge National Bank as of the date of the Merger
Agreement subject to normal annual increase through the Effective Date of the
Merger (the "Base Salary"), less normal withholdings, payable in equal monthly
or more frequent installments as are customary under FCB's payroll practices
from time to time. FCB's Board of Directors shall review Employee's Base Salary
annually and in its sole discretion may adjust Employee's Base Salary from year
to year, but any reduction during the term of this Agreement shall not occur
unless a similar reduction is made in the base salary of all similarly situated
officers of PAB. The annual compensation (regardless of form), by the Board
will be done after taking into account, among other things, changes in the cost
of living, Employee's own performance and the performance of FCB. Any action or
review by the Board may be delegated to an appropriate committee thereof.
4. Expenses.
So long as Employee is employed hereunder, Employee is entitled to receive
reimbursement for, or seek payment directly by FCB of, all reasonable expenses
which are consistent with the normal policy of FCB in the performance of
Employee's duties hereunder, provided that Employee accounts for such expenses
in writing.
2
<PAGE>
5. Employee Benefits.
So long as Employee is actively employed hereunder, Employee will be
entitled to participate in the employee benefit, option, bonus and any other
compensation programs covering executive officers of FCB and its affiliated
companies substantially similar to those amounts received by the group of
executive officers of FCB and its affiliated companies disclosed in any PAB
filings as the group of highly compensated employees or similar designation.
6. Vacation.
Employee shall be entitled to a vacation in accordance with FCB's vacation
policy in effect at the time the vacation is to be taken but in no event less
than the current vacation benefit provided to Employee by Bainbridge National
Bank.
7. Confidentiality.
In Employee's position as an employee of FCB, Employee has had and will
have access to confidential information, trade secrets and other proprietary
information of vital importance to FCB and has and will also develop
relationships with customers, employees and others who deal with FCB which are
of value to FCB. FCB requires as a condition to Employee's employment with FCB
that Employee agrees to certain restrictions on Employee's use of the
proprietary information and valuable relationships developed during Employee's
employment with FCB. In consideration of the terms and conditions contained
herein, the parties hereby agree as follows:
7.1 FCB and Employee mutually agree and acknowledge that FCB may
entrust Employee with highly sensitive confidential, restricted and proprietary
information concerning various Business Opportunities (as hereinafter defined),
customer lists, and personnel matters. Employee acknowledges that he shall bear
a fiduciary responsibility to FCB to protect such information from use or
disclosure that is not necessary for the performance of Employee's duties
hereunder, as an essential incident of Employee's employment with FCB.
3
<PAGE>
7.2 For the purposes of this Section, the following definitions shall
apply:
7.2.1 "Trade Secret" shall mean the identity and addresses of
customers of FCB, the whole or any portion or phase of any scientific or
technical information, design, process, procedure, formula or improvement that
is valuable and secret (in the sense that it is not generally known to
competitors of FCB) and which is defined as a "trade secret" under Georgia law
pursuant to the Georgia Trade Secrets Act.
7.2.2 "Confidential Information" shall mean any data or
information, other than Trade Secrets, which is material to FCB and not
generally known by the public. Confidential Information shall include, but not
be limited to, Business Opportunities of FCB (as hereinafter defined), the
details of this Agreement, FCB's business plans and financial statements and
projections, information as to the capabilities of FCB's employees, their
respective salaries and benefits and any other terms of their employment and the
costs of the services FCB may offer or provide to the customers it serves, to
the extent such information is material to FCB and not generally known by the
public.
7.2.3 "Business Opportunities" shall mean any specialized
information or plans of FCB concerning the provision of financial services to
the public, together with all related information concerning the specifics of
any contemplated financial services regardless of whether FCB has contacted or
communicated with such target person or business.
7.2.4 Notwithstanding the definitions of Trade Secrets,
Confidential Information, and Business Opportunities set forth above, Trade
Secrets, Confidential Information, and Business Opportunities shall not include
any information:
(i) that is or becomes generally known to the public;
(ii) that is already known by Employee or is developed by
Employee after termination of employment through entirely independent efforts;
(iii) that Employee obtains from an independent source
having a bona fide right to use and disclose such information;
4
<PAGE>
(iv) that is required to be disclosed by law, except to the
extent eligible for special treatment under an appropriate protective order; or
(v) that FCB's Board of Directors approves for release.
7.3 Employee shall not, without the prior approval of FCB's Board, during
his employment with FCB and for so long thereafter as the information or data
remain Trade Secrets, use or disclose, or negligently permit any unauthorized
person who is not an employee of FCB to use, disclose, or gain access to, any
Trade Secrets of FCB, its affiliates, or of any other person or entity making
Trade Secrets available for FCB's use.
7.4 Employee shall not, without the prior written consent of FCB, during
his employment with FCB and for a period of eighteen (18) months thereafter as
long as the information or data remain competitively sensitive, use or disclose,
or negligently permit any unauthorized person who is not employed by FCB to use,
disclose, or gain access to, any Confidential Information to which the Employee
obtained access by virtue of his employment with FCB, except as provided in
Section 7.2 of this Agreement.
8. Observance of Security Measures.
During Employee's employment with FCB, Employee is required to observe all
security measures adopted to protect Trade Secrets, Confidential Information,
and Business Opportunity of FCB.
9. Return of Materials.
Upon the request of FCB and, in any event, upon the termination of his
employment with FCB, Employee shall deliver to FCB all memoranda, notes,
records, manuals or other documents, including all copies of such materials
containing Trade Secrets or Confidential Information, whether made or compiled
by Employee or furnished to him from any source by virtue of his employment with
FCB.
10. Severability.
Employee acknowledges and agrees that the covenants contained in Sections 7
through 9 of this Agreement shall be construed as covenants independent of one
another and distinct from
5
<PAGE>
the remaining terms and conditions of this Agreement, and severable from every
other contract and course of business between FCB and Employee, and that the
existence of any claim, suit or action by Employee against FCB, whether
predicated upon this or any other agreement, shall not constitute a defense to
FCB's enforcement of any covenant contained in Sections 7 through 9 of this
Agreement.
11. Specific Performance.
Employee acknowledges and agrees that the covenants contained in Sections 7
through 9 of this Agreement shall survive any termination of employment, as
applicable, with or without Cause, at the instigation or upon the initiative of
either party. Employee further acknowledges and agrees that the ascertainment
of damages in the event of Employee's breach of any covenant contained in
Sections 7 through 9 of this Agreement would be difficult, if at all possible.
Employee therefore acknowledges and agrees that FCB shall be entitled in
addition to and not in limitation of any other rights, remedies, or damages
available to FCB in arbitration, at law or in equity, upon submitting whatever
affidavit the law may require, and posting any necessary bond, to have a court
of competent jurisdiction enjoin Employee from committing any such breach.
12. Termination.
During the term of this Agreement, employment, including without
limitation, except as otherwise provided in this Section 12, all compensation,
salary, expenses reimbursement, and employee benefits may be terminated as
follows:
12.1 At the election of FCB for Cause;
12.2 At Employee's election, for Good Reason or upon FCB's breach of
any material provision of this Agreement;
12.3 "Cause" shall mean (i) conduct by Employee that amounts to
fraud, material dishonesty, gross negligence or willful misconduct in the
performance of his duties hereunder; (ii) the conviction (from which no appeal
may be, or is, timely taken) of the Employee of a felony; (iii) initiation of
suspension or removal proceedings against the Employee by federal or state
regulatory authorities acting under lawful authority pursuant to provisions of
6
<PAGE>
federal or state law or regulation which may be in effect from time to time;
(iv) knowingly violates federal or state banking laws or regulations ; or (v)
refuses to perform a duly authorized directive of the FCB Board of Directors;
12.4 Upon Employee's death, or, at the election of either party, upon
Employee's disability as determined in accordance with the standards and
procedures under Employee's then-current long-term disability insurance coverage
provided by FCB, or, if such disability insurance coverage provided by FCB is
not then in place, upon Employee's disability resulting in inability to perform
the duties described in Section 1 of this Agreement for a period of one hundred
eighty (180) consecutive days;
12.5 "Good Reason" shall mean
(i) a material change in Employee's status, offices, titles,
reporting requirements, lending authority after initial modification by PAB
after the Merger, duties or responsibilities with Bainbridge National Bank as in
effect on the effective date of the Merger, or any other action by PAB which
results in a material diminution in such position, authority, duties or
responsibilities;
(ii) a reduction in Employee's Base Salary and benefits as in
effect on the effective date of the Merger or as the same may be increased from
time to time, unless a similar reduction is made in salary and benefits of all
similarly-situated officers of PAB; or
(iii) any requirement by PAB or FCB that Employee relocate to a
location more than fifty (50) miles from the main office as defined in Section
15.1.2 of this Agreement;
12.6 Provided there has not occurred a Change in Control as set forth
in Section 14 of this Agreement, if this Agreement is terminated either (i) by
FCB at any time for any reason other than for Cause, (ii) by Employee for Good
Reason or (iii) upon FCB's breach of this Agreement, then FCB shall pay to
Employee as Employee's sole remedy hereunder the compensation and benefits
remaining under this Agreement, at a rate no less than Employee's Annual Salary
as defined in Section 14 of this Agreement for a term equal to the greater of
either
7
<PAGE>
(y) the remaining months of the original thirty-six (36) month term of
this Agreement, or (z) twelve (12) months, as if no termination occurred; or
12.7 If the Agreement is terminated for Cause, Employee shall receive
no further compensation or benefits, other than Employee's Base Salary and other
compensation as accrued through the date of termination for Cause.
13. Notice.
All notice provided for herein shall be in writing and shall be deemed to
be given when delivered in person or deposited in the United States Mail,
registered or certified, return receipt requested, with proper postage prepaid
and addressed as follows:
<TABLE>
<S> <C>
FCB: PAB Bankshares, Inc.
3102 N. Oak Street Extension
Valdosta, Georgia 31602-3589
Attn: President
with a copy to: Troutman Sanders, LLP
600 Peachtree Street, N.E., Suite 5200
Atlanta, Georgia 30308-2216
Attn: Thomas O. Powell, Esquire
Employee: Tracy A. Dixon
Post Office Box 797
Bainbridge, Georgia 31718
</TABLE>
14. Change in Control.
None of the benefits provided in Section 14 of this Agreement shall be
payable to Employee unless (i) there shall have been a Change in Control of
either PAB or FCB, as set forth in this Section 14, and (ii) Employee is
employed by FCB at such time.
14.1 "PAB Board" shall mean the Board of Directors of PAB.
14.2 "Change in Control" shall be deemed to have occurred if:
14.2.1 During the term of this Agreement, the individuals
constituting PAB's Board at the effective date of the Merger ("Beginning PAB
Board") cease for any reason to constitute at least a majority of said Board,
provided that in making such determination, a
8
<PAGE>
Director elected by or on the recommendation of the Beginning PAB Board shall
be deemed to be a member of such Beginning PAB Board, excluding, for this
purpose, any Director whose assumption of office occurs as a result of an
actual or threatened election contest or proxy contest with respect to the
election or removal of directors; or
14.2.2 If (i) a notice or an application is filed with the Federal
Reserve Board ("FRB") pursuant to Regulation "Y" of the FRB under the Change in
Bank Control Act or the Bank Holding Company Act or with the Georgia Department
of Banking and Finance (the "Department") pursuant to the Financial Institutions
Code of Georgia for permission to acquire control of PAB or FCB, or (ii) more
than twenty-five percent (25%) of the PAB's outstanding common stock or
equivalent in voting power of any class or classes of outstanding securities of
PAB entitled to vote in elections of Directors shall be acquired by any
corporation or other person, or group. "Group" shall mean persons who act in
concert as described in Section 13(d)(3) or 14(d) (2) of the Securities Exchange
Act of 1934 as amended; or
14.2.3 PAB shall become a subsidiary of another corporation or
shall be merged or consolidated into another corporation and (i) less than a
majority of the outstanding voting shares of the parent or surviving corporation
after such acquisition, merger or consolidation are owned immediately after such
acquisition, merger or consolidation by the owners of the voting shares of PAB
immediately before such acquisition, merger or consolidation, or (ii) a person
or entity (excluding any corporation resulting from such business combination or
any employee benefit plan or related trust of PAB or such resulting corporation)
beneficially owns or controls 25% or more of the combined voting power of the
then outstanding securities of such corporation, except to the extent that such
ownership existed prior to the business combination, or (iii) less than a
majority of the members of the board of directors of the corporation resulting
from such business combination were members of the PAB Board at the time of the
execution of the initial agreement for such merger or consolidation; or
14.2.4 Substantially all of the assets of PAB shall be sold to
another entity other than a sale to a wholly-owned subsidiary of PAB; or
9
<PAGE>
14.2.5 The sale or transfer of any of the stock or substantially
all of the assets of FCB regardless of the form of the transaction, other than a
sale or transfer to a wholly-owned subsidiary of PAB.
14.3 Employee and PAB agree in the event of a Change in Control of
PAB, Employee will remain in the employ of FCB and FCB shall employ Employee,
for the remainder of the term of this Agreement, or 12 months, whichever is
greater, performing the same duties that he was performing at the time of the
effective date of the Change in Control and with the same title, compensation,
benefits, reporting requirements and location. Any extension of employment
under this Section 14.3 shall be deemed an extension of the term of this
Agreement, during which all provisions of this Agreement shall remain in effect.
14.4 Subject to the terms and conditions of this Agreement, following
a Change in Control of PAB, Employee shall receive the following compensation in
consideration for the services to be provided on behalf of FCB as set forth
herein:
14.4.1 If FCB terminates Employee without Cause, or if FCB takes
any action specified in Section 14.4.2 of this Agreement during the term of this
Agreement following the date of occurrence of a Change in Control of PAB,
("Termination of Employment"), the Company shall pay Employee, at Employee's
election, the following amounts:
ALTERNATIVE A
(i) a lump sum cash payment in an amount equal to the product of two and
eleven-twelfths (2 and 11/12) multiplied by Employee's annual compensation from
FCB, including salary, bonuses, all perquisites, and all other forms of
compensation paid to Employee for his benefit or the benefit of his family,
however characterized, for the fiscal year during the term of this Agreement for
which such compensation was highest ("Employee's Annual Salary"). The payment
provided for in this Section 14.2.1 (i) shall be due and payable to Employee
within thirty (30) days after the date of Termination of Employment; or
10
<PAGE>
ALTERNATIVE B
(i) twelve (12) payments, each in an amount equal to (A) the product of
two and eleven-twelfths (2 and 11/12) multiplied by Employee's Annual Salary,
divided by (B) twelve (12)("Monthly Payments"). The Monthly Payments shall be
made, commencing on the date of Termination of Employment, on the first day of
each calendar month; and
(ii) for a one (1) year period commencing on the date of Termination of
Employment, FCB shall provide to Employee and his spouse and family, and pay all
costs and expenses associated with, major medical insurance, health insurance,
hospitalization, life insurance, long-term disability and any other medical
plans and programs of FCB with the same coverage and benefits provided to
Employee by FCB immediately preceding the date of a Change of Control of PAB.
In the event Employee is employed during the remaining term of this Agreement by
a person or entity unaffiliated with PAB, the benefits to be provided to
Employee and his spouse in this Section 14.2.1 (ii) shall be reduced to the
extent equivalent benefits are provided by the subsequent employer; and
(iii) In addition to the amounts paid under either ALTERNATIVE A or
ALTERNATIVE B, and Section 14.4.1(ii), FCB shall pay Employee's base salary as
accrued through the date of Termination of Employment at the higher of the rate
in effect at the time of Termination of Employment and the highest rate in
effect at any time during the term of this Agreement, plus any other amounts to
which Employee is entitled under any compensation plan of FCB, at the time such
payments are due.
14.4.2 During the remaining term of this Agreement following the
effective date of a Change in Control, if FCB takes any of the following
actions, such action shall be deemed to be a termination without Cause. Those
actions are: (i) a reduction in Employee's salary, bonus provisions or other
perquisites as were in effect immediately prior to a Change in Control, (ii) a
material change in the duties required to be performed by Employee on behalf of
FCB, (iii) a failure by FCB to increase Employee's salary annually in accordance
with an established procedure, or (iv) a requirement by FCB that Employee
relocate more than fifty (50)
11
<PAGE>
miles from the Main Office. In any such event, Employee shall be entitled to all
payments provided for in Section 14.4.1 of this Agreement.
15. Covenant Not to Compete and Not to Solicit.
15.1 For purposes of this Section 15, FCB and Employee conduct the
following business in the following geographic areas:
15.1.1 FCB is engaged in the business of transacting business as
a bank which accepts deposits, makes loans, cash checks and otherwise engages in
the business of banking ("Business of FCB").
15.1.2 After merging with Bainbridge National Bank, FCB will
actively conduct business in the geographic areas of Georgia and Florida from
its main office located at 226 South Broad Street, Bainbridge, Georgia 31717-
3616 (the "Main Office").
15.1.3 Employee has established business relationships and
performs the duties described in Section 1 of this Agreement in the geographic
area covered by a circle having a radius of fifty (50) miles from the Main
Office, and will work primarily in such area while in the employ of FCB.
15.2 Employee covenants and agrees that for a period of eighteen (18)
months after the termination of his employment with FCB for any reason, Employee
shall not, directly or indirectly, as principal, agent, trustee, consultant or
through the agency of any corporation, partnership, association, trust or other
entity or person, on Employee's own behalf or for others, provide the duties
described in Section 1 of this Agreement for any entity or person conducting the
Business of FCB within the geographic area covered by a circle having a radius
of fifty (50) miles from the Main Office.
15.3 Employee acknowledges that an important factor leading to the
Merger is the loyalty of Bainbridge National Bank's employees. Accordingly,
Employee agrees that both during the term of this Agreement and for a period of
eighteen (18) months after the termination of this Agreement for any reason,
Employee will not enter into, and will not participate in, any plan or
arrangement to cause any FCB employee to terminate his or her employment with
FCB,
12
<PAGE>
and, Employee further agrees that for a period of at least eighteen (18)
months after the termination of employment by any employee of FCB, Employee will
not hire such employee in connection with any business initiated by Employee or
any other person, firm or corporation. Employee further agrees that information
as to the capabilities of FCB's employees, their salaries and benefits, and any
other terms of their employment is Confidential Information and proprietary to
FCB.
15.4 Employee and FCB shall periodically amend this Agreement by
updating the address referenced in Section 15.1.2 of this Agreement so that it
at all times lists the then current geographic area served by FCB for which
Employee performs the duties described in Section 1 of this Agreement.
15.5 The covenants contained in this Section 15 shall be construed as
agreements severable from and independent of each other and of any other
provision of this or any other contract or agreement between the parties hereto.
The existence of any claim or cause of action by Employee against FCB, whether
predicated upon this or any other contract or agreement, shall not constitute a
defense to the enforce ment by FCB of said covenants.
16. Miscellaneous.
16.1 This Agreement constitutes and expresses the whole agreement of
the parties in reference to the employment of Employee by FCB, and there are no
representations, inducements, promises, agreements, arrangements, or
undertakings oral or written, between the parties other than those set forth
herein.
16.2 This Agreement shall be governed by the laws of the State of
Georgia.
16.3 Should any clause or any other provision of this Agreement be
determined to be void or unenforceable for any reason, such determination shall
not affect the validity or enforceability of any clause or provision of this
Agreement, all of which shall remain in full force and effect.
16.4 Time is of the essence in this Agreement.
13
<PAGE>
16.5 This Agreement shall be binding upon and enure to the benefit of
the parties hereto and their successors and assigns. This Agreement shall not
be assignable by any other parties hereto without the prior written consent of
the other parties.
16.6 This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute but a single instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
<TABLE>
<S> <C>
"Employee"
/s/Judy M. Powell /s/ Tracy A. Dixon (SEAL)
- ------------------------------------ ------------------------------
Witness Tracy A. Dixon
ATTEST "FCB"
FIRST COMMUNITY BANK OF
SOUTHWEST GEORGIA
/s/ Denise McKenzie By: /s/ R. Bradford Burnette, CEO
- ------------------------------------ ------------------------------------
(BANK SEAL)
</TABLE>
14
<PAGE>
EXHIBIT 10.3
PAB BANKSHARES, INC.
1994 EMPLOYEE STOCK OPTION PLAN
-------------------------------
1. Purpose of the Plan.
-------------------
This Employee Stock Option Plan (the "Plan") for PAB Bankshares, Inc. (the
"Company") is intended to encourage valued employees of the Company to develop a
proprietary interest in the success of the Company, and to attract and retain
such employees of the Company. Unless otherwise indicated by the context
herein, reference to the "Company" includes the Company and its subsidiaries.
2. Administration of the Plan.
--------------------------
2.1 The Plan shall be administered by the Board of Directors, or, at
the option of the Board of Directors, a committee appointed by, and consisting
of two or more members of, the Board of Directors (the "Committee"). At any time
that the Board of Directors shall not have appointed a Committee as described
above, any reference herein to the Committee shall mean the Board of Directors.
Subject to the provisions of this Plan, the Committee shall have full
authority, in its discretion: (i) to determine from the eligible employees of
the Company those employees to whom options will be granted; (ii) to determine
when such options shall be granted; (iii) to determine the option price of the
shares subject to each option, which price shall not be less than the minimum
specified in Section 6 hereof; (iv) to determine when each option shall become
exercisable and the duration of the exercise period; and (v) to interpret the
Plan and to prescribe and rescind rules and regulations relating to it.
2.2 Determinations or interpretations by the Committee of any
provisions of the Plan, or of any option granted under it, shall be final. No
member of the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any option granted thereunder.
3. Types of Options.
----------------
The options granted under this Plan to any eligible person may be either
"Incentive Stock Options" as defined in Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code"), or "Nonqualified Stock Options", which
are not incentive stock options. The options granted under this Plan shall be
designated as either Incentive Stock Options or Nonqualified Stock Options.
<PAGE>
4. Eligibility.
-----------
4.1 All regularly employed employees of the Company, or its
subsidiaries (as defined in Code Section 424(f)) , including officers and
directors who are such employees, shall be eligible to participate in this Plan.
4.2 No option may be granted to any employee who owns stock possessing
more than 10% of the total combined voting power of all classes of stock of the
company or any subsidiary, unless the option price is fixed and not less than
110% of the fair market value of the stock, and the exercise period is limited
to not more then five years from the date such option is granted. For purposes
of the immediately preceding sentence, a person shall be considered as owning
the stock owned directly or indirectly by or for his brothers and sisters,
whether by the whole or half blood, spouse, ancestors, and lineal descendants;
and the stock owned directly or indirectly by a corporation, partnership, estate
or trust shall be considered as being owned proportionately by its shareholders,
partners, or beneficiaries.
4.3 The aggregate fair market value (determined as of the time the
option is granted) of the common stock with respect to which Incentive Stock
Options are exercisable for the first time by any employee during any calendar
year shall not exceed $100,000.
5. Stock Subject to the Plan.
-------------------------
The stock subject to the options granted under the Plan shall be shares of
the Company's common stock which are authorized but unissued or reacquired by
the Company, or any authorized but unissued or reacquired shares into which such
shares of common stock are exchanged, reclassified or converted. Subject to
adjustment as provided in Section 13 hereof, the aggregate number of shares for
which options may be granted under the Plan shall not exceed 400,000. However,
any shares subject to option under the Plan, which option for any reason expires
or is terminated unexercised as to such shares, may again be subjected to an
option under the Plan.
6. Option Price.
------------
6.1 The exercise price for each option granted under this Plan shall
be determined by the Committee at the time the option is granted, but in no
event shall such exercise price be less than 100% of the fair market value of
the Company's common stock on the date of grant.
6.2 If the stock is listed on an established stock exchange on the
date any option is granted, the fair market value of the stock on that date
shall be deemed to be the mean between the highest and lowest quoted selling
prices of the stock on such stock exchange on such date, or if no sale of the
Company's stock shall have been made on any stock exchange on such date, on the
next preceding day on which there was a sale of stock. If the stock is not
listed on an established stock exchange on the date any option is granted, the
fair market value of the stock on that date shall be deemed to be either (i) if
the stock is not actively traded in the
<PAGE>
over-the-counter market, an amount arrived at by the Committee by applying any
reasonable valuation method; or (ii) if the stock is actively traded in the
over-the-counter market, the mean between dealer "bid" and "ask" closing prices
of the stock in the over-the-counter market on that date as reported by the
National Association of Securities Dealers Automated Quotation System.
7. Term of Options.
---------------
The term of each option shall be determined by the Committee at the time
the option is granted; provided, however, that no option shall be exercisable
after the expiration of ten years from the date of grant and all options shall
be subject to earlier termination as hereinafter provided.
8. Exercise of Option.
------------------
The time at which or the event upon the happening of which each option
granted hereunder becomes exercisable, in whole or in part, shall be determined
by the Committee at the time the option is granted.
9. Date of Grant and Form of Agreement.
-----------------------------------
Each option granted under this Plan, unless otherwise specifically
indicated, shall be granted as of the date of the Committee resolution granting
the option. The Committee shall notify the recipient of the grant in writing
delivered either in person or by certified mail. The notification shall serve
as the option agreement and shall contain a summary of the essential terms and
conditions of the Plan and a complete statement of the particular terms and
conditions of the options represented thereby. Any inconsistencies between the
terms of the Plan and the terms of the option agreement shall be governed by the
terms of the Plan.
10. Manner of Exercise.
------------------
10.1 Any person electing to exercise, in whole or in part, any option
granted under the Plan shall give written notice to the Company of his election
and of the number of whole shares he has elected to purchase, such notice to be
accompanied with payment in full.
10.2 Payment for shares being purchased pursuant to the exercise of
an option shall be made in Cash, by certified check, by shares of common stock
of the Company or by a combination thereof. Any stock transferred to the Company
under the exercise of an option shall be valued in the same manner as provided
for in Section 6.2 hereof with the exception that the value shall be determined
as of the date of exercise rather than the date the option is granted.
10.3 The Company shall not be required to issue fractional shares in
the exercise of any option granted under this Plan, and any fractional shares
otherwise issuable on the exercise of any such option shall be disregarded.
<PAGE>
11. Assignability.
-------------
Each option granted under this Plan shall be transferable only by will or
by the laws of the descent and distribution and during his lifetime shall be
exercisable only by the employee to whom the option is granted. Except as
permitted by the preceding sentence, the option granted under this Plan shall
not be transferred, assigned, pledged, or hypothecated in any way (whether by
operation of law or otherwise), and the option shall not be subject to
execution, attachment or similar process. Any attempt to transfer, assign,
pledge, hypothecate, or otherwise dispose of any option contrary to the
provisions of the Plan, or upon the levy of any attachment or similar process
upon such option, the option shall immediately become null and void.
12. Termination of Employment.
-------------------------
12.1 If the employment of an employee terminates for any reason other
than death or disability, any options granted to the employee under this Plan
which have not been exercised shall automatically terminate on the effective
date of the employees termination of employment; provided, however, the
Committee reserves the right to grant, in writing, to an employee the right to
exercise any options granted under this Plan for a period not to exceed ninety
days from the date of such termination, to the extent of the number of shares
which were purchasable thereunder at the date of such termination. The transfer
of an employee from the Company to any subsidiary or vice versa, or from one
subsidiary to another subsidiary, shall not be deemed a termination of
employment for purposes of the Plan.
12.2 In the event of the death of an employee any option held by him
at the time of the death shall become fully exercisable, shall be transferred as
provided in his will or as determined by the laws of descent and distribution,
and may be exercised, in whole or in part, by the estate of the employee, or any
person that acquired the option by such bequest or inheritance from the
employee, at any time or from time to time on or before the earlier of one year
after the date of death or the expiration date prescribed in the option
agreement. In the event that an employee becomes permanently and totally
disabled (as determined by the committee in its sole discretion), any option
held by him on the date of disability (such date to be determined by the
committee in its sole discretion) shall become fully exercisable and may be
exercised in whole or in part, by the employee or his duly appointed guardian or
conservator at any time or from time to time, on or before the earlier of one
year after the date of disability or the expiration date prescribed in the
option agreement.
13. Adjustments due to Certain Events.
---------------------------------
13.1 In the event that there is a change in the common stock of the
Company by reason of dividends paid in shares of common stock, combination or
reclassification of shares, recapitalization, stock split, merger, consolidation
or otherwise, the Committee shall make such adjustment, if any, as it may be
deem equitable in the number and kind of shares which may become subject to
options to be granted under the Plan, in the number and kind of
<PAGE>
shares covered by options theretofore granted, or in the exercise price of
shares covered by any such option.
13.2 Upon the complete liquidation of the Company, other than
pursuant to a plan of reorganization, any unexercised options granted under this
Plan shall be cancelled. In the event of the complete liquidation of any
subsidiary employing the employee or in the event such subsidiary ceases to be a
subsidiary, any unexercised part of any option granted shall be cancelled unless
the employee shall become employed by the company or another subsidiary
concurrently with such event.
14. Change in Control.
-----------------
Notwithstanding the provisions of the Plan or any option agreement
regarding exercisability, the Company shall have the right, exercisable in its
sole discretion by notice to employee to require employee to purchase, within
ten days from the date of such notice, all or any portion of the shares which
are subject to the option pursuant to the other terms and conditions hereof, and
the option shall terminate as to any balance remaining of the shares as of the
eleventh day from the date of such notice, in the event (i) the Board (or, if
the approval of the Board is not required as a matter of law, the shareholders
of the Company) shall approve (a) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which shares of common stock would be converted to cash, securities or other
property, other than a merger of the Company in which the holders of common
stock immediately prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after the merger, or (b)
any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, the assets of the company,
or (c) the adoption of a plan or proposal for the liquidation or dissolution of
the Company, or (ii) any person (as such term is defined in Section 13(d) of the
Securities Exchange Act of 1934), corporation or other entity other than the
Company shall make a tender offer or exchange offer to acquire any common stock
(or securities convertible into common stock) for cash, securities or any other
consideration, provided that (a) at least a portion of such securities sought
pursuant to the offer in question is acquired and (b) after consummation of such
offer, the person, corporation or other entity in question is the "beneficial
owner" (as such term is defined in Rule 13d-3 promulgated under the Securities
Exchange Act of 1934), directly or indirectly, of 50% or more of the outstanding
common stock (calculated as provided in Rule 13d-3(d) in the case of rights to
acquire common stock).
15. Rights as a Stockholder.
-----------------------
An employee shall not by reason of the Plan or any option granted pursuant
to the Plan have any rights of a stockholder of the Company unless shares have
been issued and a certificate therefore has been delivered to him. Nothing in
the Plan or any option granted hereunder, shall (i) confer upon any employee any
right to continue in the employ of the company or (ii) interfere in any way with
the right of the Company to terminate the employment of any employee.
<PAGE>
16. Listing and Registration of Shares.
----------------------------------
Each option shall be subject to the requirement that if at any time the
Committee shall determine that the listing, registration, or qualification of
the shares covered thereby upon any securities exchange or under any federal or
state law or the consent or approval of any governmental regulatory body, is
necessary or desirable as the condition of, or in connection with, the granting
of any such option or the issue or purchase of shares thereunder, such option
may not be exercised in whole or in part unless and until such listing,
registration, qualification consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee. In this
regard, the Committee may impose such conditions upon the exercise of any option
granted under the Plan as it may deem necessary or advisable to assure
compliance with such laws, rules and regulations.
17. Amendment or Termination of the Plan.
------------------------------------
The Board of Directors may, without further stockholder approval, amend or
discontinue this Plan at any time, provided that no unexercised option granted
under this Plan may be altered or cancelled, except in accordance with its terms
or as otherwise provided in Section 13 hereunder, without the written consent of
the participant to whom such option was granted; and further provided that
without the approval of the stockholders, no amendment may (i) increase the
maximum number of shares for which options may be granted under the Plan (except
in accordance with Section 13 hereunder), (ii) permit the grant of options under
the Plan after the expiration date of the Plan, (iii) change the designation of
the class of employees eligible to receive options under the Plan, or (iv)
materially increase the benefits accruing to eligible employees.
18. Tax Withholding.
---------------
Whatever shares of common stock are to be issued and delivered under the
Plan, the Board shall have the right, at or prior to the delivery of any
certificate or certificates for such shares, to require the recipient to remit
to the Company, in the form of cash or check payable to the order of the
Company, an amount sufficient to satisfy withholding requirements with respect
to federal, state and local income and employment taxes.
19. Term of the Plan.
----------------
This Plan shall become effective on the earlier of the date of its adoption
by the Board of Directors of the Company or its approval by the stockholders of
the Company. The Plan shall expire and no options shall be granted pursuant to
the Plan after ten years from the effective date of the Plan.
<PAGE>
20. Stockholder Approval.
--------------------
This Plan shall be submitted to the stockholders of the Company for their
approval within twelve months of its adoption by the Board of Directors. In the
event that the stockholder approval is not obtained, any option theretofore and
thereafter granted shall not be Incentive Stock Options.
21. Notices.
-------
All notices or other communications hereunder must be in writing and will
be deemed given on the data delivered if delivered in person, or on the third
business day after mailed by depositing the same postage prepaid in a post
office addressed to the Company at its principal office and to any other person
at their last known address furnished to the Company.
<PAGE>
EXHIBIT 10.4
PAB BANKSHARES, INC. 1994 DIRECTORS
DEFERRED STOCK PURCHASE PLAN
1. PURPOSE OF THE PLAN.
-------------------
This Directors Deferred Stock Purchase Plan (the "Plan") for PAB
Bankshares, Inc. ("Company") is intended to encourage Directors of the Company
to develop a proprietary interest in the success of the Company, and to retract
and retain such Directors of the Company. Unless otherwise indicated by the
context herein, reference to the "Company" includes the Company and its
subsidiaries.
2. THE PLAN.
--------
As provided herein, each Director of the company may elect to receive
Company common stock in lieu of the cash compensation otherwise payable to such
Director for his service as a member of the Board of Directors or any committee
thereof. The Company shares issuable to any electing Director shall be issued
to such Director on each January 15 (or next business day thereafter) (the
"Deferred Payment Date") following the end of the calendar year the director
election is in effect.
3. ELIGIBILITY.
-----------
All Directors of the Company, including Officers and Directors who are
employees, shall be eligible to participate in this Plan.
4. STOCK SUBJECT TO PLAN.
---------------------
The stock subject to the Plan shall be shares of the Company's common stock
which are authorized but unissued or reacquired by the Company, or any
authorized but unissued or reacquired shares to which such shares of common
stock are exchanged, reclassified or
<PAGE>
converted. The aggregate number of shares for which all Directors may elect to
receive Company common stock in lieu of cash under the Plan shall not exceed
25,000 as may be adjusted for stock splits, share dividends, reclassification of
shares, merger or otherwise.
5. DETERMINATION OF COMPANY SHARES DISTRIBUTABLE TO ELECTING DIRECTOR.
------------------------------------------------------------------
The number of Company shares issuable to any electing Director on each
Deferred Payment Date is a number resulting when the amount of the electing
Director's fees for the previous year, subject to his or her stock purchase
election, is divided by one hundred percent of the fair market value of PAB
common stock as of January 1 of the preceding year. No fractional shares shall
be issued under the Plan. The value of any fractional shares shall be paid by
the Company in cash to the Director on the Deferred Payment Date. The fair
market value of the PAB common stock as of January 1 of each year shall be that
amount determined by resolution of the Board of Directors of the Company at the
first regularly scheduled meeting of the Directors of the Company.
6. MANNER OF ELECTION.
------------------
Any Director of the Company may elect to be a participant in the Plan by
delivering his election to so participate in writing to the Company. The
election shall state: (i) that the Director is electing to be a participant in
the Plan; (ii) that the election is applicable to all fees and other
compensation payable to the Director after the date of the election by virtue of
his position as a Director with the Company (in addition to regular board fees,
such compensation includes committee fees and such bonuses the Board of
Directors of the Company and its subsidiaries may grant the Directors from time
to time); and (iii) and the dollar amount or percentage of such fees which will
be payable in (1) Company common stock; and (2) cash
2
<PAGE>
payable on the Deferred Payment Date. Such election shall be continuing until:
(i) modified in writing by the Director to the company; (ii) revoked in writing
by the Director to the Company; (iii) upon the resignation or removal of the
Director from the Board of Directors of the Company and any subsidiary in which
such Director serves in similar capacity; and (iv) upon the death of the
Director.
7. LEGEND ON CERTIFICATE ISSUED.
----------------------------
Each share certificate evidencing the acquisition of Company shares
pursuant to the provisions of the Plan shall contain a legend indicating that
pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended,
the shares evidenced by the certificate may not be sold for a period of at least
two years from the date of the issuance of the share certificate; and,
thereafter, may only be sold with the opinion of legal counsel of the Company
that the shares may be sold or disposed of in a transaction exempt from
registration under the Securities Act of 1933 or any applicable State Securities
Act.
8. AMENDMENT OR TERMINATION OF THE PLAN.
------------------------------------
The Board of Directors may, without further stockholder approval, amend or
discontinue this Plan at anytime, provided that without the approval of the
stockholders, no amendment may increase the maximum number of Company shares
which the electing Directors may purchase pursuant to the Plan.
9. TERM OF THE PLAN.
----------------
This Plan shall become effective on the earlier of the date of its adoption
by the Board of Directors of the Company or its approval by the stockholders of
the Company. Unless otherwise terminated as provided herein, the Plan shall
terminate on the earlier of (i) January 15, 1999; or,
3
<PAGE>
(ii) the date that all Company shares reserved herein for Directors electing to
participate in the Plan have been issued.
10. SHAREHOLDER APPROVAL.
--------------------
This Plan shall be submitted to the stockholders of the Company for their
approval within twelve months of its adoption by the Board of Directors.
11. NOTICES.
-------
All notices or other communications hereunder must be in writing and will
be deemed given on the date delivered if delivered in person or on the third
business day after mailed by depositing the same, postage prepaid, in a post
office addressed to the Company at its principal office and to any other person
at their last known address furnished to the Company.
4
<PAGE>
EXHIBIT 10.5
EXECUTIVE SALARY CONTINUATION AGREEMENT
---------------------------------------
THE AGREEMENT, made and entered into this ___ day of January, 1994 by and
between The Park Avenue Bank, a Bank organized under the laws of the State of
Georgia (hereinafter called "Bank"), and [_____________] (hereinafter called the
"Executive").
W I T N E S S E T H :
--------------------
WHEREAS, the Executive has been and continues to be a valued Executive of
the Bank, and is now serving the Bank as its Chief Executive Officer; and,
WHEREAS, it is the consensus of the Board of Directors that the Executive's
services to the Bank in the past have been of exceptional merit and have
constituted an invaluable contribution to the general welfare of the Bank and in
bringing it to its present status of operating efficiency, and its present
position in its field of activity; and,
WHEREAS, the experience of the Executive, his knowledge of the affairs of
the Bank, his reputation and contacts in the industry are so valuable that
assurance of his continued services is essential for the future growth and
profits of the Bank and it is in the best interests of the Bank to arrange terms
of continued employment for the Executive so as to reasonably assure his
remaining in the Bank's employment during his lifetime or until the age of
retirement; and,
WHEREAS, it is the desire of the Bank that his services be retained as
herein provided:
ACCORDINGLY, it is the desire of the Bank and the Executive to enter into
this agreement under which the Bank will agree to make certain payments to the
Executive at retirement or his beneficiary in the event of his premature death
while employed by the Bank, and,
FURTHERMORE, it is the intent of the parties hereto that this agreement be
considered an unfunded arrangement maintained primarily to provide supplemental
benefits for the Executive, as a member of a select group of management or
highly compensated employees of the Bank for the purposes of the Employee
Retirement Security Act of 1974, (E.R.I.S.A.):
NOW, THEREFORE, in consideration of services performed in the past and to
be performed in the future as well as of the mutual promises and covenants
herein contained it is agreed as follows:
EMPLOYMENT
1. The Bank agrees to employ the Executive in such full-time capacity as the
Bank may from time to time determine. The Executive will continue in the
employ of the Bank in such capacity and with such duties and
responsibilities as may be assigned to him, and with such compensation as
may be determined from time to time by the Board of Directors of the Bank.
1
<PAGE>
FRINGE BENEFITS
2. The salary continuation benefits provided by this agreement are granted by
the Bank as a fringe benefit to the Executive in addition to its other
fringe benefits afforded the Executive by the Bank and are not part of any
salary reduction plan or an arrangement deferring a bonus or a salary
increase. The Executive has no option to take any current payment or bonus
in lieu of these salary continuation benefits except as set forth
hereinafter.
RETIREMENT DATE
3. If Executive remains in the continuous employ of the Bank, he shall retire
from active employment with the Bank on [___________] (the "Retirement
Date").
RETIREMENT BENEFIT AND POST-RETIREMENT DEATH BENEFIT
4. Upon said retirement by Executive and commencing with the first day of the
month following the Retirement Date, the Bank shall pay Executive an annual
benefit equal to 40% of Executive's average annual salary for the 3 years
immediately prior to his retirement in equal monthly installments (of 1/12
of the annual benefit) for a period of one hundred eighty (180) months,
provided that if less than one hundred eighty (180) of such monthly
payments have been made prior to the death of the Executive, the Bank shall
continue such monthly payments to whomever the Executive shall designate in
writing and filed with the Bank, until the full number of one hundred
eighty (180) monthly payments have been made. In the absence of any
effective designation of beneficiary, any such amount becoming due and
payable upon the death of the Executive shall be payable to the duly
qualified executor or administrator of his estate. Notwithstanding the
foregoing, the Bank shall not be obligated to pay the Executive any amounts
under this Paragraph 4 or the following Paragraph 5 if the Executive
engages in the business of banking as either the owner of an interest in a
bank (except as a passive investor owning less than 10% of the equity
securities of a publicly held company) or as a director, officer or
employee of, or consultant to a bank having a place of business in Lowndes
County of the State of Georgia at any time during the three year period
commencing with the Retirement Date. The term "salary" as used in this
agreement shall mean the annual compensation of the Executive established
from time to time by the Board of Directors, exclusive of directors fees,
bonuses, profit sharing or retirement plan contributions and the value of
fringe benefits and acccouterments granted the Executive by Bank.
Provided, however, that anything hereinabove to the contrary
notwithstanding, no death benefit shall be payable hereunder if it is
determined that the Executive's death was caused by suicide. If after the
retirement of Executive, the capital of the Bank should fall below the
minimum required by the Bank's regulatory authority and/or the Bank fails
to make a profit in any two (2) successive years, Executive may, at his
option, demand that the Bank pay him the balance of his Account in a lump
sum payable on or before thirty (30) days from the date of the delivery by
Executive of his written demand for payment to the Bank.
2
<PAGE>
DEATH ABND DISABILITY BENEFITS PRIOR TO RETIREMENT
5. In the event the Executive should die or become permanently disabled (as
that term is hereinafter defined) while actively employed by the Bank at
any time after the date of this Agreement but prior to the Retirement Date,
the Bank will pay an annual benefit equal to 40% of Executive's annual
average salary for the 3 years immediately prior to his death or permanent
disability in equal monthly installments (each equal to 1/12 of the annual
benefit) for a period of one hundred eighty (180) months to such individual
or individuals as the Executive may have designated in writing and filed
with the Bank. In the event of death prior to retirement, the said monthly
payments shall begin the first day of the third month following the month
in which the Executive dies. In the event the Executive's employment is
terminated due to permanent disability, the said monthly payments shall
begin the earlier of the first day of the month following the Retirement
Date of the first day of the month following the receipt by Bank of written
notice from the permanently disabled Executive to commence the payment of
the annual benefit computed in this paragraph 5. In the absence of any
effective designation of beneficiary, any such amounts becoming due and
payable upon the death of the Executive shall be payable to the duly
qualified executor or administrator of his estate. For purposes of this
agreement, permanent disability is defined as the continuous loss of one-
half (1/2) or more of the time spent by the Executive in the usual daily
performance of his duties as result of a physical or mental illness for a
continuous period in excess of ninety (90) days.
BENEFIT ACCOUNTING
6. The Bank shall account for this benefit using the regulatory accounting
principles of the Bank's primary federal regulator. The Bank shall
establish an accrued liability retirement account for the Executive (the
"Account") into which appropriate reserves shall be accrued in the amount
determined by the Bank's certified public accounting firm.
VESTED PERCENTAGE AMOUNT
7. As used in this Agreement, the term "Vested Percentage Amount" shall mean
the percentage amount resulting when (i) the number resulting from the sum
of the number of each year the first of which commences with the December
31 first falling after the Effective Date and the number of each successive
year thereafter until the December 31 preceding the date this Agreement
terminates by virtue of either subparagraph (a) or (b) of Paragraph 8 is
divided by (ii) the number resulting from the sum of the number of each
year the first of which commences with the December 31 first falling after
the Effective Date and the number of each successive year thereafter until
the December 31 immediately preceding the Retirement Date. For
illustrative purposes only, assume that the Effective Date is June 30, 1995
and the Retirement Date is September 30, 2005 and the Executive voluntarily
terminates his employment on March 31, 2000. Under this illustration, the
Vested Percentage Amount at the termination date would be 27.3% computed
where the numerator is 15 and the denominator is 55 computed as follows:
3
<PAGE>
<TABLE>
<CAPTION>
Numerator Denominator
(To Termination Date) (To Retirement Date)
- -------------------- --------------------
Year Year
---- ----
<S> <C> <C> <C>
12/31/95 1 12/31/95 1
12/31/96 2 12/31/96 2
12/31/97 3 12/31/97 3
12/31/98 4 12/31/98 4
12/31/99 5 12/31/99 5
12/31/00 6
12/31/01 7
12/31/02 8
12/31/03 9
12/31/04 10
-- --
SUM OF YEARS 15 SUM OF YEARS 55
</TABLE>
OTHER TERMINATION OF EMPLOYMENT
8. (a) In the event that the Executive's employment terminates prior
to the Retirement Date because of his discharge by the Bank without cause,
this agreement shall terminate. The Bank shall pay to the Executive an
amount of money equal to either (1) the amount resulting when the
Executive's Account as of the December 31 preceding the termination date is
multiplied by the Vested Percentage Amount or (2) the amount of the
Executive's Account as of the December 31 preceding the termination date in
the event the Executive is terminated within twenty four (24) months after
there has been a change of control of the Bank or PAB Bankshares, Inc.
which resulting amount shall be payable in one hundred eighty (180) equal
monthly installments commencing with the first day of the month following
the date of termination and each first day of the month thereafter until
paid in full. For purposes of this agreement the term "change in control"
shall mean transfer of 50% or more of the common stock ownership of either
the Bank or PAB Bankshares, Inc. during any twelve month period by either
sale or merger in which either the Bank or PAB Bankshares, Inc. is not the
surviving entity.
(b) In the event that the employment of the Executive shall terminate
prior to Retirement Date by his voluntary action, this agreement shall
terminate and the Bank shall pay to the Executive an amount of money equal
to the amount resulting when the Executive's Account as of the December 31
preceding the termination date is multiplied by the Vested Percentage
Amount which resulting amount shall be payable in one hundred eighty (180)
equal monthly installments commencing with the first day of the month
following the Retirement Date and each first day of the month thereafter
until paid in full. Notwithstanding the foregoing, the Bank shall not be
obligated to pay the Executive any amounts under this subparagraph (b) of
this Paragraph 8 if the Executive engages in the business of banking as
either the owner of an interest in a bank (except as a passive investor
owning less than 10% of the equity securities of a publicly held company),
or as a director, officer or employee of, or consultant to a bank having a
place of business in Lowndes County of the State of Georgia at any time
during the three years
4
<PAGE>
period commencing with the date the Executive voluntarily terminates his
employment with the Bank.
(c) In the event that the Executive's employment terminates prior to the
Retirement Date because of his discharge by the Bank for cause, then this
agreement shall terminate and the Bank shall have no further obligation to
make any payment of any amount of money to the Executive under this
agreement or otherwise. For purposes of this agreement, the Bank shall have
"cause" to terminate the Executive's employment and this agreement if he
(1) is convicted of one or more acts constituting a felony' (2) engages in
one or more acts involving fraud or serious moral turpitude; or (3)
misappropriates Bank assets or engages in conduct materially injurious to
the Bank.
(d) In the event the Executive should die after termination of
employment but prior to the completion of any monthly to the completion of
any monthly payments payable under either subparagraphs (a) or (b) of this
Paragraph 8, the remaining installments shall be paid to such individual or
individuals as the Executive may have designated in writing, and filed with
the Bank. In the absence of any effective designation of beneficiary, any
such amounts shall be payable to the duly qualified executor or
administrator of his estate.
PARTICIPATION IN OTHER PLANS
9. The benefits provided hereunder shall be in addition to Executive's annual
salary as determined by the Board of Directors, and shall not affect the
right of Executive to participate in any current or future Bank retirement
plan, group insurance, bonus, or in any such compensation arrangement which
constitutes a part of the Bank's regular compensation structure.
ALIENABILITY
10. It is agreed that neither Executive, nor his spouse, nor any other
designee, shall have any right to commute, sell, assign, transfer or
otherwise convey the right to receive any payments hereunder, which
payments and the right thereto are expressly declared to be non-assignable
and non-transferable; and, in the event of any attempted assignment or
transfer, the Bank shall have no further liability hereunder.
RESTRICTIONS ON FUNDING
11. The Bank shall have no obligations to set aside, earmark, or entrust any
fund or money with which to pay its obligations under this Agreement. The
Bank reserves the absolute right at its sole discretion to either fund the
obligations undertaken by this Agreement or to refrain from funding the
same and determine the extent, nature and method of such funding.
5
<PAGE>
GENERAL ASSETS OF THE BANK
12. The rights of the Executive under this Agreement and of any beneficiary of
the Executive shall be solely those of an unsecured creditor of the Bank.
If the Bank shall acquire an insurance policy or any other asset in
connection with the liabilities assumed by it hereunder, it is expressly
understood and agreed that neither Executive nor any beneficiary of
Executive shall have any right with respect to, or claim against, such
policy or other asset. Such policy or asset shall not be deemed to be held
under any trust for the benefit of Executive or his beneficiaries or to be
held in any way as collateral security for the fulfilling of the
obligations of the Bank under this Agreement. It shall be, and remain, a
general, unpledged, unrestricted asset of the Bank and Executive or any of
his beneficiaries shall not have a greater claim to the insurance policy or
other assets, or any interest in either of them, than any other general
creditor of the Bank.
AMENDMENT AND TERMINATION
13. This Agreement may be amended in whole or in part from time to time by the
Bank, but only in writing. The Bank may terminate this agreement at any
time or for any reason. If terminated prior to the Executive's leaving the
employ of the Bank, the amount of the Executive's Account at the date the
agreement is terminated by the Bank shall be payable to the Executive or
his designated beneficiary upon retirement, permanent disability, death, or
germination of employment in the manner and at the times provided herein,
as the case may be.
NOT A CONTRACT OF EMPLOYMENT
14. This Agreement shall not be deemed to constitute a contract of employment
between the parties hereto, nor shall any provision hereof restrict the
right of the Bank to discharge the Executive, or restrict the right of the
Executive to terminate his employment.
HEADINGS
15. Headings and subheadings of this Agreement are inserted for reference and
convenience only and shall not be deemed a part of this Agreement.
APPLICABLE LAW
16. The validly and interpretation of this Agreement shall be governed by the
laws of the State of Georgia.
EFFECTIVE DATE
17. The effective date of this Agreement (the "Effective Date") shall be
December 31, 1993.
6
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Agreement to be signed in
its corporate name by its duly authorized officer and Executive hereunto has set
his hand and seal, all on the day and year first above written.
THE PARK AVENUE BANK
"Bank"
By:
-------------------------
Chairman of the Board
"Executive"
------------------------- (SEAL)
7
<PAGE>
DESIGNATION OF BENEFICIARY
Pursuant to the terms of that Executive Salary Continuation Agreement,
dated ________________, 19___ between myself and The Park Avenue Bank, I hereby
designate the following beneficiary(ies) to receive payments which may be due
under such Agreement after my death:
<TABLE>
<CAPTION>
Primary Beneficiary
<S> <C> <C>
- -------------------------- ----------------------- ----------------------
Name Address Relationship
Secondary Beneficiary(ies)
- -------------------------- ----------------------- ----------------------
Name Address Relationship
- -------------------------- ----------------------- ----------------------
Name Address Relationship
</TABLE>
The Primary Beneficiary named above shall be the designated beneficiary
referred to in Paragraph Four and Five of said Agreement if he or she is living
at the time a death benefit payment thereunder becomes due and payable, and the
Secondary Beneficiary named above shall be the designated beneficiary referred
to in Paragraphs Four, Five and Eight of said Agreement only if he or she is
living at the time a death benefit payment becomes payable and the Primary
Beneficiary is not then living.
This designation hereby revokes any prior designation which may have
been in effect.
Date
-----------------------------
- ----------------------------- ---------------------------------
Witness Executive
Acknowledged by:
------------------------------------
Title:
The Park Avenue Bank
8
<PAGE>
Schedule of Terms for Executive Salary Continuation Agreements
--------------------------------------------------------------
<TABLE>
<CAPTION>
Name Normal Retirement Date
- ---- ----------------------
<S> <C>
R. Bradford Burnette November 7, 2004
William S. Cowart December 22, 2018
C. Larry Wilkinson, Sr. July 26, 2001
</TABLE>
9
<PAGE>
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
PAB BANKSHARES, INC.
--------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Basic Earnings Per Share:
- ------------------------
Average shares outstanding 8,279,413 8,221,426 8,097,836
========== ========= =========
Diluted Earnings Per Share:
- --------------------------
Average shares outstanding 8,279,413 8,221,426 8,097,836
---------- --------- ---------
Average options outstanding for options assumed exercised:
With exercise price of $6.25 144,000 144,000 144,000
With exercise price of $9.43 17,353 17,324 -0-
With exercise price of $10.0625 131,250 131,500 -0-
With exercise price of $12.0625 47,500 -0- -0-
With exercise price of $18.44 2,000 -0- -0-
With exercise price of $21.625 4,000 -0- -0-
With exercise price of $23.13 -0- -0- -0-
---------- --------- ---------
346,103 292,824 144,000
---------- --------- ---------
Proceeds from assumed exercise of options outstanding $3,080,691 2,386,584 900,000
Average market price per share during the period 22.78 11.36 10.27
---------- --------- ---------
Assumed shares repurchased 135,224 210,114 87,629
---------- --------- ---------
Common stock equivalents of options outstanding 210,879 82,710 56,371
---------- --------- ---------
Average shares outstanding 8,490,292 8,304,136 8,154,207
========== ========= =========
Earnings Per Share:
- ------------------
Net Income $6,651,050 6,002,894 4,818,603
========== ========= =========
Basic Earnings Per Share $ .80 .73 .60
========== ========= =========
Diluted Earnings Per Share $ .78 .72 .59
========== ========= =========
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
1. The Park Avenue Bank, Valdosta, Georgia
2. Farmers & Merchants Bank, Adel, Georgia
3. First Community Bank of Southwest Georgia, Bainbridge, Georgia
4. Eagle Bank and Trust, Statesboro, Georgia
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 13, 1999, appearing on Page F-2 of the Form 10-K for the
year ended December 31, 1998, into the Company's previously filed registration
statement No. 333-74819.
/s/ Stewart, Fowler & Stalvey, P.C.
- -----------------------------------
STEWART, FOWLER & STALVEY, P.C.
Valdosta, Georgia
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 26,369
<INT-BEARING-DEPOSITS> 1,934
<FED-FUNDS-SOLD> 15,630
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,209
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 351,731
<ALLOWANCE> 4,426
<TOTAL-ASSETS> 513,742
<DEPOSITS> 413,256
<SHORT-TERM> 6,163
<LIABILITIES-OTHER> 4,163
<LONG-TERM> 39,058
<COMMON> 1,217
0
0
<OTHER-SE> 49,885
<TOTAL-LIABILITIES-AND-EQUITY> 513,742
<INTEREST-LOAN> 33,140
<INTEREST-INVEST> 4,970
<INTEREST-OTHER> 1,587
<INTEREST-TOTAL> 39,697
<INTEREST-DEPOSIT> 16,235
<INTEREST-EXPENSE> 19,004
<INTEREST-INCOME-NET> 20,693
<LOAN-LOSSES> 903
<SECURITIES-GAINS> 11
<EXPENSE-OTHER> 15,415
<INCOME-PRETAX> 9,999
<INCOME-PRE-EXTRAORDINARY> 6,651
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,651
<EPS-PRIMARY> .80
<EPS-DILUTED> .78
<YIELD-ACTUAL> 4.64
<LOANS-NON> 1,251
<LOANS-PAST> 199
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,243
<CHARGE-OFFS> 808
<RECOVERIES> 88
<ALLOWANCE-CLOSE> 4,426
<ALLOWANCE-DOMESTIC> 4,426
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 23,894
<INT-BEARING-DEPOSITS> 6,669
<FED-FUNDS-SOLD> 15,848
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 78,897
<INVESTMENTS-CARRYING> 4,542
<INVESTMENTS-MARKET> 4,569
<LOANS> 321,512
<ALLOWANCE> 4,243
<TOTAL-ASSETS> 471,901
<DEPOSITS> 386,644
<SHORT-TERM> 1,005
<LIABILITIES-OTHER> 4,191
<LONG-TERM> 33,996
<COMMON> 1,264
0
0
<OTHER-SE> 44,801
<TOTAL-LIABILITIES-AND-EQUITY> 471,901
<INTEREST-LOAN> 30,031
<INTEREST-INVEST> 5,348
<INTEREST-OTHER> 685
<INTEREST-TOTAL> 36,064
<INTEREST-DEPOSIT> 15,285
<INTEREST-EXPENSE> 16,970
<INTEREST-INCOME-NET> 19,094
<LOAN-LOSSES> 793
<SECURITIES-GAINS> (13)
<EXPENSE-OTHER> 13,446
<INCOME-PRETAX> 9,165
<INCOME-PRE-EXTRAORDINARY> 6,003
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,003
<EPS-PRIMARY> .73
<EPS-DILUTED> .72
<YIELD-ACTUAL> 4.62
<LOANS-NON> 520
<LOANS-PAST> 178
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,804
<CHARGE-OFFS> 427
<RECOVERIES> 73
<ALLOWANCE-CLOSE> 4,243
<ALLOWANCE-DOMESTIC> 4,243
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,685
<INT-BEARING-DEPOSITS> 5,605
<FED-FUNDS-SOLD> 16,984
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 85,709
<INVESTMENTS-CARRYING> 3,790
<INVESTMENTS-MARKET> 3,792
<LOANS> 286,297
<ALLOWANCE> 3,804
<TOTAL-ASSETS> 433,549
<DEPOSITS> 367,359
<SHORT-TERM> 370
<LIABILITIES-OTHER> 3,916
<LONG-TERM> 21,029
<COMMON> 1,264
0
0
<OTHER-SE> 39,611
<TOTAL-LIABILITIES-AND-EQUITY> 433,549
<INTEREST-LOAN> 26,334
<INTEREST-INVEST> 5,772
<INTEREST-OTHER> 485
<INTEREST-TOTAL> 32,591
<INTEREST-DEPOSIT> 14,716
<INTEREST-EXPENSE> 16,010
<INTEREST-INCOME-NET> 16,581
<LOAN-LOSSES> 633
<SECURITIES-GAINS> 131
<EXPENSE-OTHER> 12,530
<INCOME-PRETAX> 7,269
<INCOME-PRE-EXTRAORDINARY> 4,819
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,819
<EPS-PRIMARY> .60
<EPS-DILUTED> .59
<YIELD-ACTUAL> 4.39
<LOANS-NON> 527
<LOANS-PAST> 265
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,427
<CHARGE-OFFS> 301
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 3,804
<ALLOWANCE-DOMESTIC> 3,804
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
