<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 1999
Commission file number 0-25422
PAB BANKSHARES, INC.
(Exact name of Registrant
as specified in its charter)
Georgia 58-1473302
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3102 North Oak Street Extension
Valdosta, Georgia 31602
(Address of principal executive offices)
(912) 241-2775
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 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
The number of shares outstanding of the Issuer's class of common stock at March
31, 1999 was 8,289,998 shares of common stock.
<PAGE> 2
PAB BANKSHARES, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1999
(UNAUDITED) AND DECEMBER 31, 1998 . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - THREE
MONTH PERIODS ENDED MARCH 31, 1999 AND 1998 . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) -
THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998 . . . . . . 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED) - THREE MONTH PERIODS ENDED MARCH 31,
1999 AND 1998 . . . . . . . . . . . . . . . . . . . . . . . . 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -
THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998 . . . . . . 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . . . . 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
<PAGE> 3
<TABLE>
PABBANKSHARES,INC. ANDSUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Cash and Cash Equivalents:
Cash and due from banks $ 21,094,834 26,369,236
Interest-bearing deposits in other banks 1,103,349 1,538,435
Federal funds sold and securities purchased under
agreement to resell 12,280,000 15,630,000
------------ ------------
Total Cash and Cash Equivalents 34,478,183 43,537,671
Time Deposits 396,000 396,000
Investment Securities available-for-sale, at fair value 86,498,796 95,209,328
Investment in Unconsolidated Subsidiary 91,968 34,814
Loans, Net of Allowance for Loan Losses ($4,464,886 - 1999; $4,426,217 - 1998)
and Unearned Interest 356,480,222 347,305,116
Bank Premises and Equipment 13,808,711 13,620,861
Property Acquired in Settlement of Loans and Other Real Estate Owned:
Land and building of former banking offices 317,880 322,920
Land and building held for lease 588,948 590,486
Property acquired in settlement of loans 476,534 438,474
Accrued Interest Receivable 5,206,434 5,491,847
Cash Value of Life Insurance 2,915,003 2,888,472
Goodwill and other intangible assets 2,624,596 2,713,762
Other Assets 1,475,273 1,192,259
------------ -------------
Total Assets $ 505,358,548 513,742,010
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Demand $ 59,272,961 68,633,159
NOW 94,773,891 99,335,495
Savings 26,668,126 24,517,302
Time, $100,000 and over 62,325,083 60,778,164
Other time 160,978,045 159,991,854
------------ ------------
404,018,106 413,255,974
Federal funds purchased and securities sold under agreement to repurchase 4,063,372 3,824,095
Advances from Federal Home Loan Bank 37,354,057 39,057,723
Other borrowed funds 3,962,493 2,339,170
Accrued interest payable 1,682,652 1,601,491
Advance payments by borrowers for taxes and insurance 66,375 52,672
Dividends payable 663,412 662,440
Income taxes - current 522,829 -0-
Other liabilities 1,242,774 1,846,088
------------ ------------
Total Liabilities 453,576,070 462,639,653
------------ ------------
Stockholders' Equity:
Common stock, no par value, 15,000,000 shares authorized,
8,289,998 shares (1998 - 8,280,495) issued and 8,289,998
shares (1998 - 8,280,495) outstanding 1,217,065 1,217,065
Preferred stock, no par value, 1,500,000 shares authorized,
no shares issued or outstanding -0- -0-
Additional paid in capital 25,924,323 25,809,693
Retained earnings 24,715,690 23,739,623
Accumulated other comprehensive income (74,600) 335,976
------------ ------------
51,782,478 51,102,357
------------ ------------
Total Liabilities and Stockholders' Equity $ 505,358,548 513,742,010
============= ============
</TABLE>
<PAGE> 4
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 8,202,444 7,889,620
Interest on investment securities:
Taxable 1,243,483 1,202,504
Tax exempt 97,721 78,556
Interest on federal funds sold 188,357 379,361
Interest on deposits in banks 38,468 69,116
----------- -----------
Total 9,770,473 9,619,157
----------- -----------
Interest Expense:
Interest on deposits 3,951,194 3,981,064
Interest on federal funds purchased
and securities sold under agreement to repurchase 38,007 14,724
Interest on notes and mortgages -0- 40,764
Interest on other borrowed funds 28,935 14,368
Interest on advances from Federal Home Loan Bank 597,220 527,783
----------- -----------
Total 4,615,356 4,578,703
----------- -----------
Net Interest Income 5,155,117 5,040,454
Provision for Loan Losses 162,250 292,433
----------- -----------
Net Interest Income After Provision for Loan Losses 4,992,867 4,748,021
----------- -----------
Other Income:
Service charges on deposit accounts 750,662 717,877
Insurance commissions 55,617 47,060
Late charges and other loan fees 147,665 201,101
Equity in earnings of unconsolidated subsidiary 257,154 61,706
Fees on mortgage loans originated for sale 188,191 140,810
Gain (Loss) on sale of assets 16,318 102,131
Gain (Loss) on sale of real estate owned -0- (9,006)
Other income 180,174 155,944
Securities gains (losses) (11,761) 25,370
----------- -----------
Total 1,584,020 1,442,993
----------- -----------
Other Expenses:
Compensation 1,835,173 1,529,215
Other personnel expenses 452,750 373,317
Occupancy expense of bank premises 211,927 183,972
Furniture and equipment expense 301,703 280,650
Federal deposit insurance 19,205 14,027
Postage and courier services 108,276 98,379
Supplies 135,660 112,112
Amortization 89,166 89,166
Other operating expenses 904,108 826,450
----------- -----------
Total 4,057,968 3,507,288
----------- -----------
Income Before Income Taxes 2,518,919 2,683,726
Income Taxes 796,751 874,243
----------- -----------
Net Income $ 1,722,168 1,809,483
=========== ==========
Earnings Per Share:
Basic $ .21 .22
============= ============
Diluted $ .20 .21
============= ============
Weighted Average Shares:
Basic 8,285,774 8,276,743
============= ============
Diluted 8,451,450 8,513,497
============= ============
</TABLE>
<PAGE> 5
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-------------------------------------------------
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net income $1,722,168 1,809,483
----------- -----------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period (417,332) (220)
Less: reclassification adjustment for (gains)
losses included in net income 6,756 (15,795)
----------- -----------
Other comprehensive income (loss) (410,576) (16,015)
----------- -----------
Comprehensive Income $1,311,592 1,793,468
=========== ===========
</TABLE>
<PAGE> 6
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
------------------------------------------
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE
COMMON STOCK 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, 1997 8,270,787 $1,263,745 -0- 26,304,565 19,364,279 115,559 983,189 46,064,959
Issuance of shares through
dividend reinvestment plan 1,650 -0- -0- 19,686 -0- -0- -0- 19,686
Issuance of shares to directors
in lieu of fees 7,808 -0- -0- 81,240 -0- -0- -0- 81,240
Net Income -0- -0- -0- -0- 1,809,483 -0- -0- 1,809,483
Dividends -0- -0- -0- -0- (339,732) -0- -0- (339,732)
Dividends-pooled company -0- -0- -0- -0- (65,800) -0- -0- (65,800)
Cancellation of treasury stock -0- (46,680) -0- (936,509) -0- -0- (983,189) -0-
Other comprehensive income(loss) -0- -0- -0- -0- -0- (16,015) -0- (16,015)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances, March 31, 1998
(Unaudited) 8,280,245 $1,217,065 -0- 25,468,982 20,768,230 99,544 -0- 47,553,821
========== ========== ========== ========== ========== ========== ========== ==========
Balances, December 31, 1998 8,280,495 $1,217,065 -0- 25,809,693 23,739,623 335,976 -0- 51,102,357
Issuance of shares to directors
in lieu of fees 9,503 -0- -0- 114,630 -0- -0- -0- 114,630
Net Income -0- -0- -0- -0- 1,722,168 -0- -0- 1,722,168
Dividends -0- -0- -0- -0- (746,101) -0- -0- (746,101)
Other comprehensive income(loss) -0- -0- -0- -0- -0- (410,576) -0- (410,576)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balances, March 31, 1999
(Unaudited) 8,289,998 $1,217,065 -0- 25,924,323 24,715,690 (74,600) -0- 51,782,478
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE> 7
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $1,722,168 1,809,483
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 295,755 248,070
Deferred income taxes (11,513) (31,527)
Provision for loan losses 162,250 292,433
Amortization 89,166 89,166
Amortization (accretion) of securities 23,982 (65,124)
(Gain) loss on sale of assets (16,318) (102,131)
(Gain) loss on sale of other real estate owned -0- 9,006
Securities (gains) losses 11,761 (25,370)
Minority interests 215 171
Equity in earnings of unconsolidated subsidiary (257,154) (61,706)
Dividend received from unconsolidated subsidiary 200,000 -0-
Increase in cash value of life insurance (26,531) (27,736)
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable 285,413 282,046
Increase (decrease) in accrued interest payable 81,161 114,737
(Increase) decrease in other assets (89,009) (189,662)
Increase (decrease) in income taxes payable 522,829 707,481
Increase (decrease) in other liabilities (488,899) (531,875)
---------- ----------
Net cash provided (used) by operating activities 2,505,276 2,517,462
---------- ----------
Cash Flows From Investing Activities:
Capital expenditures (460,709) (705,228)
Proceeds from sale of assets -0- 167,414
(Increase) decrease in time deposits -0- 3,500,000
(Increase) decrease in loans (9,375,416) (8,244,011)
Principal payments on mortgage-backed securities 2,297,448 3,126,688
Purchase of available-for-sale securities (4,710,270) (15,016,002)
Proceeds from sales and calls of available-for-sale securities 8,153,238 4,694,176
Proceeds from maturities of available-for-sale securities 2,341,305 5,588,594
---------- ----------
Net cash provided (used) by investing activities (1,754,404) (6,888,369)
---------- ----------
Cash Flows From Financing Activities:
Increase (Decrease) in federal funds purchased 239,277 2,592,815
Increase (decrease) in time deposits 2,533,110 2,495,721
Increase (decrease) in other deposits (11,770,978) 1,877,867
Advances from Federal Home Loan Bank 1,600,000 15,300,000
Payments on long-term indebtedness (3,303,666) (5,868,827)
Increase (Decrease) other borrowings 1,623,323 297,454
Dividends paid (745,129) (594,269)
Increase (Decrease) in advance payments by borrowers for taxes and insurance 13,703 (93,288)
---------- ----------
Net cash provided (used) by financing activities (9,810,360) 16,007,473
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents (9,059,488) 11,636,566
Cash and Cash Equivalents at Beginning of Period 43,537,671 43,012,762
---------- ----------
Cash and Cash Equivalents at End of Period $34,478,183 54,649,328
=========== ==========
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
Cash Paid During The Period For:
Interest $4,534,195 4,463,968
========== =========
Income taxes $ 145,957 215,308
========== =========
Schedule of Non-Cash Investing and Financing Activities
- -------------------------------------------------------
Total increase (decrease) in unrealized losses on securities available-for-sale $ 593,068 27,593
========== ==========
Stock issued to directors in payment of fees and stock issued through dividend
reinvestment plan $ 114,630 100,926
========== ==========
</TABLE>
<PAGE> 8
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
Note 1 - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal and recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1998.
Prior period financial information has been restated for a business combination
with Investors Financial Corporation (Investors) (and its subsidiary, Bainbridge
National Bank), which was consummated on June 19, 1998 and accounted for as a
pooling of interests in conformity with generally accepted accounting
principles.
Prior period financial information has been restated for a business combination
with Eagle Bancorp, Inc. (Eagle) (and its subsidiary, Eagle Bank & Trust), which
was consummated on December 9, 1998 and accounted for as a pooling of interests
in conformity with generally accepted accounting principles.
Note 2 - Business Combinations
- ------------------------------
On June 19, 1998, PAB Bankshares, Inc. (PAB) issued 1,711,249 shares of common
stock in exchange for all of the outstanding stock, warrants and options of
Investors (Bainbridge, Georgia). This transaction, accounted for as a pooling
of interests, added $79.5 million in assets.
On December 9, 1998, PAB issued 907,610 shares of common stock in exchange for
all of the outstanding stock of Eagle (Statesboro, Georgia). This transaction,
accounted for as a pooling of interests, added $78.3 million in assets.
As explained in Note 1, PAB restated prior period financial information for the
Investors and Eagle transactions. The following table presents net interest
income, net income and earnings per share as reported by PAB, Investors and
Eagle and on a combined basis for the three months ended March 31, 1998 (amounts
in thousands, except per share information):
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C>
Net Interest Income:
PAB $ 3,523
Investors 847
Eagle 670
----------
Combined $ 5,040
==========
Net Income:
PAB $ 1,330
Investors 280
Eagle 200
----------
Combined $ 1,810
==========
Basic Earnings Per Share:
PAB $ .24
Investors .59
Eagle .23
Combined .22
Diluted Earnings Per Share:
PAB $ .23
Investors .54
Eagle .22
Combined .21
<PAGE> 10
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On June 19, 1998, the Company completed its merger of Investors Financial
Corporation (and its subsidiary, Bainbridge National Bank). On December 9,
1998, the Company completed its merger of Eagle Bancorp, Inc. (and its
subsidiary, Eagle Bank & Trust). The transactions have been accounted for as a
pooling of interests; therefore, all prior period financial information has been
restated to reflect the merger. Current period financial information reflects
the merger as if it had occurred on January 1, 1998.
Results of Operations
- ---------------------
The Company, including the operations of its subsidiaries, reported consolidated
net income of $1,722,168 for the three months ended March 31, 1999 compared to
$1,809,483 for the three months ended March 31, 1998. Basic earnings per share
were $.21 for the three months ended March 31, 1999 compared to $.22 per share
for the quarter ended March 31, 1998. Diluted earnings per share were $.20 per
share for the three months ended March 31, 1999 compared to $.21 per share for
the three months ended March 31, 1998. Net interest income after provision for
loan losses was $4,992,867 and $4,748,021 for the three months ended March 31,
1999 and 1998, respectively. The provision for loan losses was $162,250 and
$292,433 for the three months ended March 31, 1999 and 1998, respectively.
Noninterest income totalled $1,584,020 and $1,442,993 for the three months ended
March 31, 1999 and 1998, respectively, and noninterest expenses totalled
$4,057,968 and $3,507,288 for the three months ended March 31, 1999 and 1998,
respectively.
Comprehensive income was $1,311,592 and $1,793,468 for the three months ended
March 31, 1999 and 1998, respectively. Other comprehensive income consisted of
unrealized gains and losses on available-for-sale securities.
The following table summarizes the results of operations of the Company for the
three month periods ended March 31, 1999 and 1998.
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest income $ 9,770 9,619
Interest expense (4,615) (4,579)
-------- --------
Net interest income 5,155 5,040
Provision for loan losses (162) (292)
Noninterest income 1,584 1,443
Noninterest expense (4,058) (3,507)
-------- --------
Income before taxes 2,519 2,684
Income taxes (797) (874)
-------- --------
Net income 1,722 1,810
Other comprehensive income (loss),
net of tax (410) (16)
-------- --------
Comprehensive income $ 1,312 1,794
======== ========
</TABLE>
<PAGE> 11
Interest Income
- ---------------
Total interest income increased approximately $151,000 for the three months
ended March 31, 1999 compared to the three months ended March 31, 1998. This
increase is attributed to the factors explained in the following paragraph.
This increase was the net effect of an increase in the average loan portfolio
balance from approximately $325.4 million for the three months ended March 31,
1998 to approximately $354.8 million for the three months ended March 31, 1999
and a decrease in the average rate earned on the loan portfolio from 9.70% for
the three months ended March 31, 1998 to 9.25% for the three months ended March
31, 1999. The effect of these changes increased the interest income earned on
the loan portfolio from approximately $7,890,000 for the three months ended
March 31, 1998 to approximately $8,202,000 for the three months ended March 31,
1999, an increase of $312,000.
Interest earned on taxable investment securities increased from approximately
$1,203,000 for the three months ended March 31, 1998 to approximately $1,244,000
for the three months ended March 31, 1999, an increase of $41,000. This
increase was the net effect of an increase in the average taxable investment
portfolio balance from approximately $77.4 million for the three months ended
March 31, 1998 to approximately $82.9 million for the three months ended March
31, 1999 and a decrease in the rate earned on the taxable investment portfolio
from 6.21% for the three months ended March 31, 1998 to 6.00% for the three
months ended March 31, 1999.
Interest earned on non-taxable investment securities increased from
approximately $79,000 for the three months ended March 31, 1998 to approximately
$98,000 for the three months ended March 31, 1999, an increase of $19,000. This
increase was the combined effect of an increase in the average non-taxable
investment portfolio from approximately $6.4 million for the three months ended
March 31, 1998 to approximately $7.8 million for the three months ended March
31, 1999 and an increase in the rate earned on the non-taxable investment
portfolio from 4.89% for the three months ended March 31, 1998 to 5.00% for the
three months ended March 31, 1999.
As of March 31, 1999, the amortized cost of taxable and non-taxable investments
consisted of $74.5 million (86.1%) of U.S. Treasury securities and securities of
U.S. Government Agencies and Corporations, $7.3 million (8.4%) of obligations of
States, Counties and Municipalities and $4.8 million (5.5%) of equity
securities. The securities are predominantly at fixed rates. There are no
interest rates which change inversely to changes in interest rates.
Interest earned on interest-bearing deposits in banks decreased from
approximately $69,000 for the three months ended March 31, 1998 to approximately
$38,000 for the three months ended March 31, 1999, a decrease of $31,000. This
decrease was the net effect of a decrease in the average interest-bearing
deposits balance from approximately $3.8 million for the three months ended
March 31, 1998 to approximately $1.6 million for the three months ended March
31, 1999 and an increase in the rate earned on the interest-bearing deposits
from 7.23% for the three months ended March 31, 1998 to 9.33% for the three
months ended March 31, 1999.
Interest earned on federal funds sold and securities purchased under agreement
to resell decreased from approximately $379,000 for the three months ended March
31, 1998 to approximately $188,000 for the three months ended March 31, 1999, a
decrease of $191,000. This decrease was the combined effect of a decrease in
the average federal funds sold balance from approximately $25.6 million for the
<PAGE> 12
three months ended March 31, 1998 to approximately $14.3 million for the three
months ended March 31, 1999 and a decrease in the average rate earned from 5.93%
for the three months ended March 31, 1998 to 5.28% for the three months ended
March 31, 1999.
Interest Expense
- ----------------
Total interest expense increased approximately $36,000 for the three months
ended March 31, 1999 compared to the three months ended March 31, 1998. This
increase is attributed to the factors explained in the following paragraph.
This increase was the net effect of an increase in the average balance of
interest-bearing deposits from approximately $328.3 million for the three months
ended March 31, 1998 to approximately $346.2 million for the three months ended
March 31, 1999 and a decrease in the average rate paid on interest-bearing
deposits from 4.85% for the three months ended March 31, 1998 to 4.57% for the
three months ended March 31, 1999. The effect of these changes decreased the
interest expense on interest-bearing deposits from approximately $3,981,000 for
the three months ended March 31, 1998 to approximately $3,951,000 for the three
months ended March 31, 1999, a decrease of $30,000. The increase in interest-
bearing deposits came primarily from the local communities served by the Banks.
Interest expense on advances from the Federal Home Loan Bank increased from
approximately $528,000 for the three months ended March 31, 1998 to
approximately $597,000 for the three months ended March 31, 1999, an increase of
$69,000. This increase was the combined effect of an increase in the average
balance of advances from approximately $36.6 million for the three months ended
March 31, 1998 to approximately $38.2 million for the three months ended March
31, 1999 and an increase in the average rate paid from 5.77% for the three
months ended March 31, 1998 to 6.25% for the three months ended March 31, 1999.
All other interest expense consisting of interest on notes and mortgages
payable, federal funds purchased and securities sold under agreements to
repurchase and sweep agreements decreased from approximately $70,000 for the
three months ended March 31, 1998 to approximately $67,000 for the three months
ended March 31, 1999, a decrease of $3,000. This decrease was the net effect of
an increase in the average balance of such indebtedness from approximately $4.6
million for the three months ended March 31, 1998 to approximately $7.0 million
for the three months ended March 31, 1999 and a decrease in the average rate
paid from approximately 6.12% for the three months ended March 31, 1998 to
approximately 3.81% for the three months ended March 31, 1999. The interest
rate reduction was attributed, in part, to the repayment prior to maturity of a
note payable to a correspondent bank which carried a rate of 7.65%.
<PAGE> 13
Noninterest Income
- ------------------
The following table presents the principal components of noninterest income for
the three month and nine month periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service charges on deposit
accounts $ 751 718
Insurance commissions 56 47
Late charges and other loan fees 148 201
Fees on mortgage loans
originated for sale 188 141
Gain (Loss) on sale of assets 16 102
Securities gains (losses) (12) 25
Equity in earnings of unconsolidated
subsidiary 257 62
Gain (Loss) on sale of other real
estate -0- (9)
Other income 180 156
-------- --------
Total Noninterest Income $ 1,584 1,443
======== ========
</TABLE>
Noninterest income for the three months ended March 31, 1999 as compared to the
three months ended March 31, 1998 increased approximately $141,000.
Service charges on deposit accounts for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998, increased approximately
$33,000. This increase was related primarily to an increase in the number of
transaction deposit accounts with NSF charges. Equity in earnings of
unconsolidated subsidiary, which represents the Company's 50% interest in the
earnings of Empire Financial Services, Inc., an unconsolidated subsidiary which
is owned by First Community Bank of Southwest Georgia (a subsidiary of the
Company), increased $195,000. Gain on sale of assets decreased $86,000 for the
three months ended March 31, 1999 as compared to the three months ended March
31, 1998. The 1998 amount represented the sale of mortgage servicing rights.
Fees on mortgage loans originated for sale increased $47,000 due to an increase
in loan origination activity undertaken by the Company. All other income
decreased approximately $48,000 for the three months ended March 31, 1999.
<PAGE> 14
Noninterest Expenses
- --------------------
The following table presents the principal components of noninterest expenses
for the three month periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Compensation $ 1,835 1,529
Other personnel expenses 453 373
Occupancy expense of bank premises 212 184
Furniture and equipment expense 302 281
Federal deposit insurance 19 14
Postage and courier services 108 99
Supplies 136 112
Amortization 89 89
Other operating expenses 904 826
-------- --------
Total Noninterest Expenses $ 4,058 3,507
======== ========
</TABLE>
Noninterest expenses for the three months ended March 31, 1999 as compared to
the three months ended March 31, 1998, increased approximately $551,000 or
15.7%. Compensation and other personnel expenses increased approximately
$386,000 for the three months ended March 31, 1999 as compared to the three
months ended March 31, 1998. This increase reflects increases in the number of
employees, in wage levels and in the cost of employee benefits. All other
expenses increased approximately $165,000 or 10.3% for the three months ended
March 31, 1999 compared to the three months ended March 31, 1998. This increase
was primarily the result of a larger volume of business and professional fees
associated with the merger activities of the Company.
Provision for Loan Losses
- -------------------------
The provision for loan losses for the three months ended March 31, 1999 was
$162,250 compared to $292,433 for the three months ended March 31, 1998. The
balance of the allowance for loan losses was approximately $4,465,000 (1.2% of
outstanding loans) at March 31, 1999 and approximately $4,403,000 (1.3% of
outstanding loans) at March 31, 1998. Actual loan charge-offs net of recoveries
were approximately $124,000 for the three months ended March 31, 1999 and
approximately $132,000 for the three months ended March 31, 1998. Non-accrual
loans were approximately $1,871,000 at March 31, 1999 as compared to $1,251,000
at December 31, 1998. Loans ninety days or more past due and still accruing
amounted to approximately $817,000 at March 31, 1999 and $199,000 at December
31, 1998. Because of credit quality concerns industry-wide, management has
taken a more conservative approach to recognizing potential problem credits.
These loans are being closely monitored to minimize possible losses and reduce
the volume. 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 including specific impaired loans, the
general state of the economy and other relevant factors.
<PAGE> 15
Income Taxes
- ------------
The effective tax rate for the three months ended March 31, 1999 was 31.6%
compared to 32.6% for the three months ended March 31, 1998.
Financial Condition
- -------------------
The Company, including its subsidiaries, reported consolidated total assets of
approximately $505.4 million at March 31, 1999 and approximately $513.7 million
at December 31, 1998, representing a decrease of approximately $8.3 million.
The decrease was attributed to a decrease in deposits (primarily public funds)
during the first quarter of 1999. Total deposits decreased approximately $9.2
million during the quarter ended March 31, 1999. Public tax deposits in the
amount of approximately $15.3 million were collected in the fourth quarter of
1998 and routinely disbursed during the first quarter of 1999. However net core
deposits increased by approximately $6.1 million during the first quarter of
1999.
During the three months ended March 31, 1999, cash and due from banks decreased
$5.3 million, federal funds sold and securities purchased under agreement to
resell decreased $3.4 million, federal funds purchased and securities sold under
agreement to repurchase increased $.2 million, investments decreased $8.1
million, other borrowed funds increased $1.6 million, operations generated $2.5
million and interest bearing deposits decreased $.4 million which provided $21.5
million of funds which were used to fund increases in loans of $9.4 million,
decrease deposits $9.2 million, decrease long-term debt $1.7 million, pay
dividends of $.7 million and fund capital expenditures of $.5 million.
A number of factors contribute to the changes in loans and deposits as discussed
under "Results of Operations" and "Financial Condition". Such factors include
the growth in the customer base due to 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 subsidiary banks. The
changes in interest rates as previously discussed are reflective of interest
rates in general, market conditions and competition. Changes in short-term
funds including cash and due from banks, federal funds sold and securities
purchased under agreement to resell, interest-bearing deposits and investment
securities are reflective of the liquidity position of the company.
The investment securities portfolio of the Company, including its subsidiaries,
reflected unrealized gains (losses) for the available-for-sale category of
approximately ($102,000) (($75,000) net of income tax effect). All securities
were held in the available-for-sale category as of March 31, 1999. Pursuant to
Financial Accounting Standards Board Statement No. 115 and as amended by
Statement No. 130, a valuation allowance has been provided for the available-
for-sale category and is reflected as a separate component of shareholders'
equity as other comprehensive income.
<PAGE> 16
The Company and its subsidiary banks are required to maintain minimum amounts of
capital to total "risk weighted" assets, as defined by the banking regulators.
On a consolidated basis, at March 31, 1999, a comparison of the minimum required
and actual capital ratios are as follows:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER
PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
---------------- ---------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999
Total Capital
(to Risk Weighted
Assets) $53,598 12.30% 34,860 8.00% 43,576 10.00%
Tier 1 Capital
(to Risk Weighted
Assets) 49,134 11.28% 17,423 4.00% 26,135 6.00%
Tier 1 Capital
(to Average Assets) 49,134 9.94% 19,772 4.00% 24,715 5.00%
</TABLE>
Each entity was in full compliance with its respective regulatory capital
requirements.
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 March 31, 1999, the Company's
cash and due from banks were approximately $19.4 million in excess of its
reserve requirements of approximately $1.7 million, its short-term deposits with
financial institutions were approximately $1.5 million and its federal funds
sold and securities purchased under agreement to resell were approximately $12.3
million. All of the above can be converted to cash on short notice. The sale
of investments which had a market value of approximately $86.5 million at March
31, 1999 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 approximately $36.8 million were pledged
as of March 31, 1999.
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. The Banks continue to expect that new deposits will serve as
their primary funding source.
The Banks also have the ability, on 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
<PAGE> 17
alternatives such as deposits from the local communities. The Banks had
advances outstanding from the Federal Home Loan Bank of Atlanta of $37.4 million
at March 31, 1999, at fixed and variable rates ranging from 4.97% to 7.24%.
The Board of Directors approved a dividend for the first quarter of $.09 per
share, an increase of 50% over $.06 per share for the first quarter of 1998.
The primary source of funds available for the payment of cash dividends by the
Company are dividends from the subsidiary banks. Holders of the common stock of
the Company are entitled to share ratably in dividends, if and when, declared by
the Board of Directors of the Company, out of funds legally available therefore.
Georgia Banking Law provides that dividends may be declared and paid only from a
bank's cumulative retained earnings which have not been appropriated as
permanent capital. Generally, a bank may pay dividends if and when declared by
the Board of Directors, and without prior approval of the Georgia Department of
Banking and Finance, as long as (i) a bank's ratio of equity capital to adjusted
total assets equals or exceeds 6%, (ii) the aggregate amount of dividends
declared or anticipated to be declared by a bank in the calendar year does
exceed 50% of such bank's net profits after taxes, but before dividends, for the
prior calendar year and (iii) the total classified assets at the most recently
completed and delivered examination of the bank do not exceed 80% of the equity
capital reflected at such examination.
Year 2000
- ---------
The Year 2000 Issue
- -------------------
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 Bank's customer servicing systems. Testing of these components has
<PAGE> 18
been ongoing since the third quarter of 1998 and will continue until Year 2000
compliance has been achieved. As of March 31, 1999, the Awareness, Assessment,
Renovation and Validation phases for mission critical applications were each
approximately 90% complete. The Implementation phase is approximately
90% complete.
Costs to Address the Company's Year 2000 Issues
- -----------------------------------------------
Expenses associated with the Company's Year 2000 compliance effort for the
quarter ended March 31, 1999 were approximately $43,000. Total expenses
projected for 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 (a subsidiary bank) 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.
<PAGE> 19
ITEM 3. 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 derivatives to
mitigate its credit risk, relying instead on strict underwriting standards, loan
review and an adequate loan loss reserve.
The Company has reviewed its market risk information disclosed in its 1998
Annual Report to Stockholders in relation to market risk information for the
three months ended March 31, 1999 and has determined that there has been no
material changes in its market risk disclosures from those presented in its 1998
Annual Report.
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No.
-----------
11 Statement re Computation of Per Share Earnings
27.1 Financial Data Schedule-Three Months Ended March 31, 1999
27.2 Financial Data Schedule-Three Months Ended March 31, 1998
(b) Reports on Form 8-K.
None.
<PAGE> 21
SIGNATURES
Pursuant to the requirements 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.
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)
Date:May 14, 1999
<PAGE> 22
PAB BANKSHARES, INC.
FORM 10-Q
INDEX OF EXHIBITS
-----------------
The following exhibits are filed as part of the report.
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------- ----
11 Statement re computation of
per share earnings 23
27.1 Financial data schedule-Three Months
Ended March 31, 1999 24
27.2 Financial data schedule-Three Months
Ended March 31, 1998 26
[MULTIPLIER] 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
PAB BANKSHARES, INC.
-------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Basic Earnings Per Share:
- ------------------------
Average shares outstanding 8,285,774 8,276,743
========== ==========
Diluted Earnings Per Share:
- --------------------------
Average shares outstanding 8,285,774 8,276,743
---------- ----------
Average options outstanding:
With exercise price of $6.250 144,000 144,000
With exercise price of $6.67 7,353 7,353
With exercise price of $10.063 131,250 131,500
With exercise price of $12.063 47,500 47,500
With exercise price of $14.00 10,000 10,000
---------- ----------
Proceeds from assumed exercise of options
outstanding $2,982,806 2,959,916
Average market price per share during
the period $ 17.10 28.57
---------- ----------
Assumed shares repurchased 174,427 103,599
---------- ----------
Common stock equivalents of options outstanding 165,676 236,754
---------- ----------
Average shares outstanding 8,451,450 8,513,497
========== ==========
Earnings Per Share:
- ------------------
Net Income $1,722,168 1,809,483
========== ==========
Basic Earnings Per Share $ .21 .22
========== ==========
Diluted Earnings Per Share $ .20 .21
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 21,095
<INT-BEARING-DEPOSITS> 1,499
<FED-FUNDS-SOLD> 12,280
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,499
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 360,945
<ALLOWANCE> 4,465
<TOTAL-ASSETS> 505,359
<DEPOSITS> 404,018
<SHORT-TERM> 8,026
<LIABILITIES-OTHER> 4,179
<LONG-TERM> 37,354
<COMMON> 1,217
0
0
<OTHER-SE> 50,565
<TOTAL-LIABILITIES-AND-EQUITY> 505,359
<INTEREST-LOAN> 8,202
<INTEREST-INVEST> 1,341
<INTEREST-OTHER> 227
<INTEREST-TOTAL> 9,770
<INTEREST-DEPOSIT> 3,951
<INTEREST-EXPENSE> 4,615
<INTEREST-INCOME-NET> 5,155
<LOAN-LOSSES> 162
<SECURITIES-GAINS> (12)
<EXPENSE-OTHER> 4,058
<INCOME-PRETAX> 2,519
<INCOME-PRE-EXTRAORDINARY> 1,722
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,722
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 18,762
<INT-BEARING-DEPOSITS> 982
<FED-FUNDS-SOLD> 35,303
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 84,612
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 329,369
<ALLOWANCE> 4,403
<TOTAL-ASSETS> 490,053
<DEPOSITS> 391,017
<SHORT-TERM> 3,895
<LIABILITIES-OTHER> 4,160
<LONG-TERM> 43,427
<COMMON> 1,217
0
0
<OTHER-SE> 46,337
<TOTAL-LIABILITIES-AND-EQUITY> 490,053
<INTEREST-LOAN> 7,890
<INTEREST-INVEST> 1,281
<INTEREST-OTHER> 448
<INTEREST-TOTAL> 9,619
<INTEREST-DEPOSIT> 3,981
<INTEREST-EXPENSE> 4,579
<INTEREST-INCOME-NET> 5,040
<LOAN-LOSSES> 292
<SECURITIES-GAINS> 25
<EXPENSE-OTHER> 3,507
<INCOME-PRETAX> 2,684
<INCOME-PRE-EXTRAORDINARY> 1,809
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,809
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
