<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 June 30, 2000
------------------------------
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 (IRS employer identification no.)
incorporation or organization)
3250 North Valdosta Road, Valdosta, Georgia 31602
------------------------------ ------------------------------
(Address of Principal executive offices) (Zip Code)
(912) 241-2775
------------------------------
(Registrants telephone number, including area code)
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
------- -------
There were 9,513,470 shares of the Registrant's Common Stock outstanding at June
30, 2000.
<PAGE> 2
PAB BANKSHARES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I.FINANCIAL INFORMATION PAGE
Item 1.Consolidated Financial Statements (Unaudited)
Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-9
Item 2.Managements Discussion and Analysis of
Financial Condition and Results of Operations 10-17
Item 3.Quantitative and Qualitative Disclosures About
Market Risk 17
PART II.OTHER INFORMATION
Item 1.Legal Proceedings 17
Item 2.Changes in Securities and Use of Proceeds 17
Item 3.Defaults Upon Senior Securities 17
Item 4.Submission of Matters to a Vote of Security Holders 18
Item 5.Other Information 18
Item 6.Exhibits and Reports on Form 8-K 18
SIGNATURES 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
<PAGE> 3
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ -------------
<S> <C> <C>
ASSETS
------
Cash and due from banks $ 24,268,414 31,524,206
Interest-bearing deposits with banks 10,912,789 11,715,628
Federal funds sold and securities purchased
under agreements to resell 11,670,000 21,405,000
Securities available for sale 72,481,417 78,925,871
Loans 539,367,063 494,417,167
Allowance for loan losses (5,504,639) (5,037,074)
------------ ------------
Net loans 533,862,424 489,380,093
------------ ------------
Premises and equipment 18,169,973 16,076,124
Goodwill and other intangible assets 2,178,766 2,357,098
Investment in unconsolidated subsidiary 240,808 40,391
Other real estate owned 605,672 762,667
Other assets 12,912,130 12,781,615
------------ ------------
Total assets $687,302,393 664,968,693
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Noninterest-bearing deposits $ 68,382,887 64,915,579
Interest-bearing deposits 473,024,612 451,288,404
------------ ------------
Total deposits 541,407,499 516,203,983
------------ ------------
Federal funds purchased and securities sold
under agreements to repurchase 14,264,149 13,828,094
Advances from the Federal Home Loan Bank 56,676,645 60,112,240
Dividends payable 920,218 986,417
Other liabilities 3,806,594 4,100,699
------------ ------------
Total liabilities 617,075,105 595,231,433
------------ ------------
Minority interest in preferred stock of
consolidated subsidiaries 126,000 126,000
------------ ------------
Stockholders' equity:
Preferred stock, no par value, 1,500,000 shares
authorized, no shares issued or outstanding 0 0
Common stock, no par value, 98,500,000 shares
authorized, 9,513,470 and 9,617,406 shares
issued at June 30, 2000 and December 31, 1999,
respectively 1,217,065 1,217,065
Additional paid-in capital 29,894,881 31,236,921
Retained earnings 39,432,431 37,336,119
Accumulated other comprehensive loss (443,089) (178,845)
------------ ------------
Total stockholders' equity 70,101,288 69,611,260
------------ ------------
Total liabilities and stockholders' equity $687,302,393 664,968,693
============ ============
</TABLE>
<PAGE> 4
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $12,572,240 10,667,214 24,581,118 20,874,117
Interest and dividends on
securities:
Taxable 1,039,617 1,275,535 2,088,554 2,580,207
Tax-exempt 55,472 38,578 116,886 136,298
Other interest income 285,549 278,108 706,979 630,409
---------- ---------- ---------- ----------
Total interest income 13,952,878 12,259,435 27,493,537 24,221,031
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 5,520,502 4,939,275 10,755,583 9,977,532
Interest on federal funds
purchased and securities
sold under agreements
to repurchase 181,146 102,855 318,647 169,795
Interest on advances from
the Federal Home Loan
Bank 867,777 532,458 1,718,247 1,129,679
---------- ---------- ---------- ----------
Total interest expense 6,569,425 5,574,588 12,792,477 11,277,006
---------- ---------- ---------- ----------
Net interest income 7,383,453 6,684,847 14,701,060 12,944,025
Provision for loan losses 337,000 198,350 728,437 360,600
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 7,046,453 6,486,497 13,972,623 12,583,425
---------- ---------- ---------- ----------
Other income:
Service charges on deposit
accounts 981,677 893,902 1,894,937 1,717,955
Fees on mortgage banking
activities 111,450 153,497 182,521 341,688
Other commissions and fees 79,983 64,313 133,294 123,959
Securities transactions, net (5,177) (12,627) (11,056) (24,389)
Equity in earnings of
unconsolidated subsidiary 186,209 117,712 325,417 374,866
Gain (loss) on sale of assets (182,216) 0 (174,168) 16,318
Other income 155,114 144,777 315,114 321,460
---------- ---------- ---------- ----------
Total other income 1,327,040 1,361,574 2,666,059 2,871,857
---------- ---------- ---------- ----------
Other expenses:
Salaries and employee
benefits 2,864,083 2,431,656 5,663,511 4,901,870
Net occupancy expense of
premises 275,182 265,707 564,633 514,137
Furniture and equipment
expense 396,975 360,931 799,636 715,142
Goodwill amortization 89,165 89,165 178,332 178,332
Other operating expenses 1,705,344 1,437,797 3,227,802 2,866,355
---------- ---------- ---------- ----------
Total other expenses 5,330,749 4,585,256 10,433,914 9,175,836
---------- ---------- ---------- ----------
Income before income tax
expense 3,042,744 3,262,815 6,204,768 6,279,446
Income tax expense 1,034,401 1,131,391 2,072,036 2,105,258
---------- ---------- ---------- ----------
Net income $2,008,343 2,131,424 4,132,732 4,174,188
========== ========== ========== ==========
Earnings per common share:
Basic $ 0.21 0.22 0.43 0.43
========== ========== ========== ==========
Diluted $ 0.21 0.22 0.43 0.43
========== ========== ========== ==========
</TABLE>
<PAGE> 5
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION> SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,132,732 4,174,188
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 943,003 913,053
Provision for loan losses 728,437 360,600
Net realized loss on securities available for sale 11,056 24,389
Net (gain) loss on sale of assets 174,168 (16,318)
Equity in earnings of unconsolidated subsidiary (325,417) (374,866)
Dividends received from unconsolidated subsidiary 125,000 300,000
Net increase in accrued interest receivable,
prepaid expenses and other assets (130,515) (655,304)
Net increase (decrease) in accrued interest
payable, accrued expenses and other liabilities (158,629) 244,959
----------- -----------
Net cash provided by operating activities 5,499,835 4,970,701
----------- -----------
Cash flows from investing activities:
Decrease in interest-bearing deposits with
other banks 802,839 2,814,797
Decrease in Federal funds sold and securities
purchased under agreements to resell 9,735,000 11,680,000
Securities available for sale:
Purchases (662,131) (11,180,748)
Proceeds from sales and calls 559,142 10,236,393
Proceeds from maturities and paydowns 6,103,597 11,743,594
Net increase in loans (45,266,480) (24,663,120)
Purchase of premises and equipment (3,618,080) (831,340)
Proceeds from sale of assets 831,169 0
----------- -----------
Net cash used in investing activities (31,514,944) (200,424)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits 25,203,516 (6,828,183)
Net increase in Federal funds purchased
and securities sold under repurchase agreements 436,055 2,195,139
Net decrease in advances from the Federal
Home Loan Bank (3,435,595) (5,017,667)
Dividends paid (2,102,619) (1,408,539)
Dividends paid by pooled company 0 (452,214)
Proceeds from the exercise of stock options 4,989 2,413
Acquisition of stock under the stock repurchase
plans (1,347,029) 0
----------- -----------
Net cash provided by (used in) financing
activities 18,759,317 (11,509,051)
----------- -----------
Net decrease in cash and due from banks (7,255,792) (6,738,774)
Cash and due from banks at beginning of period 31,524,206 27,222,697
----------- -----------
Cash and due from banks at end of period $24,268,414 20,483,923
=========== ===========
</TABLE>
<PAGE> 6
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION> SIX MONTHS ENDED JUNE 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $12,660,390 11,282,115
=========== ===========
Taxes $ 2,606,300 2,122,543
=========== ===========
Noncash transactions:
Increase in unrealized losses on securities
available for sale $ 399,720 1,684,425
=========== ===========
Stock issued to directors in lieu of fees $ 0 114,630
=========== ===========
</TABLE>
<PAGE> 7
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial information of PAB Bankshares, Inc. and
Subsidiaries (the "Company") is unaudited; however, such information reflects
all adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations. As more fully discussed in Note 2, the
Company completed one merger in 1999 accounted for as a pooling of interests.
The accompanying consolidated financial information has been restated for all
periods presented to reflect the effect of this merger as if it had taken place
on January 1, 1999. Certain other reclassification adjustments have been made
to prior year amounts with no effect on total assets or net income in order to
conform with the current year presentation. The results of operations for the
three months and six months ended June 30, 2000 are not necessarily indicative
of the results that may be expected for the full year. These statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
NOTE 2. BUSINESS COMBINATIONS
On November 30, 1999, the Company completed a business combination with Baxley
Federal Savings Bank ("Baxley Federal") by exchanging 1,323,533 shares of the
Company's common stock for all of the common stock of Baxley Federal. The
combination was accounted for as a pooling of interests and, accordingly, the
financial statements reflect the combination as if it took place on January 1,
1999. All prior period consolidated financial statements have been restated to
include the results of Baxley Federal.
The following table illustrates the Company's net interest income, net income,
and earnings per share on a consolidated basis for the periods prior to the
business combination discussed above:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
---------------------- ----------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net Interest Income:
PAB Bankshares, Inc. $ 5,730 11,057
Baxley Federal 955 1,887
------- -------
Combined $ 6,685 12,944
======= =======
Net Income:
PAB Bankshares, Inc. $ 1,793 3,515
Baxley Federal 338 659
------- -------
Combined $ 2,131 4,174
======= =======
Basic Earnings Per Share:
PAB Bankshares, Inc. $ 0.21 0.42
Baxley Federal 0.61 1.19
------- -------
Combined $ 0.22 0.43
======= =======
Diluted Earnings Per Share:
PAB Bankshares, Inc. $ 0.21 0.42
Baxley Federal 0.61 1.19
------- -------
Combined $ 0.22 0.43
======= =======
</TABLE>
<PAGE> 8
NOTE 3. STOCKHOLDERS' EQUITY
On March 20, 2000, the Company declared a quarterly cash dividend of $0.105 per
share payable to shareholders of record as of March 31, 2000. The dividend was
paid on April 14, 2000.
On May 22, 2000, the Company declared a quarterly cash dividend of $0.1075 per
share payable to shareholders of record as of June 30, 2000. The dividend is to
be paid on July 14, 2000.
During the six months ended June 30, 2000, the Company acquired and cancelled
104,416 shares of common stock for a total of $1,347,029 through two stock
repurchase plans approved by the Board of Directors on June 21, 1999 and March
20, 2000. A balance of 20,584 shares was available in the plans for repurchase
at June 30, 2000.
During the six months ended June 30, 2000, the Company issued 480 shares of
common stock for a total of $4,989 upon the exercise of employee stock options.
NOTE 4. COMPREHENSIVE INCOME
The Company's comprehensive income, which includes certain transactions and
other economic events that bypass the income statement, consists of net income
and unrealized gains and losses on securities available for sale, net of income
taxes.
Comprehensive income for the three months and six months ended June 30, 2000 and
1999 is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income $ 2,008 2,131 4,133 4,174
Other comprehensive income (loss):
Net unrealized holding gains
(losses) arising during the
period, net of tax 14 (526) (271) (1,073)
Reclassification adjustment for
losses included in net income,
net of tax 3 8 7 16
---------- ---------- ---------- ----------
Total other comprehensive income
(loss) 17 (518) (264) (1,057)
---------- ---------- ---------- ----------
Comprehensive income $ 2,025 1,613 3,869 3,117
========== ========== ========== ==========
</TABLE>
<PAGE> 9
NOTE 5. EARNINGS PER SHARE
Earnings per share for periods prior to 2000 have been restated to reflect the
business combinations accounted for as poolings of interests.
The following tables set forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ---------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Basic:
Net income $ 2,008 2,131 4,133 4,174
---------- ---------- ---------- ----------
Average common shares 9,523 9,611 9,549 9,611
---------- ---------- ---------- ----------
Earnings per common share basic $ 0.21 0.22 0.43 0.43
========== ========== ========== ==========
Diluted:
Net income $ 2,008 2,131 4,133 4,174
---------- ---------- ---------- ----------
Average common shares 9,523 9,611 9,549 9,611
Effect of dilutive securities:
Stock options 66 160 84 158
---------- ---------- ---------- ----------
Average diluted common shares 9,589 9,771 9,633 9,769
---------- ---------- ---------- ----------
Earnings per common share diluted$ 0.21 0.22 0.43 0.43
========== ========== ========== ==========
</TABLE>
NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133".) Statement 133
establishes new accounting and reporting activities for derivatives. The
standard requires all derivatives to be measured at fair value and recognized as
either assets or liabilities on the balance sheet. Under certain conditions, a
derivative may be specifically designated as a hedge. Accounting for the
changes in fair value of a derivative depends on the intended use of the
derivative and the resulting designation. In July 1999, the FASB issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133" ("Statement 137"),
which deferred the effective date of Statement 133 to fiscal years beginning
after June 15, 2000. In June 2000, the FASB issued Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an amendment of FASB Statement No. 133" ("Statement
138".) For the Company, Statement 133, as amended by Statement 137 and
Statement 138, is effective January 1, 2001. On adoption, the provisions of
Statement 133 must be applied prospectively. The Company is in the process of
assessing the impact, if any, that Statement 133 will have on its financial
position or results of operations.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PAB Bankshares, Inc. (the "Company") is a bank holding company organized and
incorporated in 1982 under the laws of the State of Georgia and headquartered in
Valdosta, Georgia. At June 30, 2000, the Company consisted of five financial
institution subsidiaries: The Park Avenue Bank in Valdosta and Lake Park,
Georgia; Farmers & Merchants Bank in Adel, Georgia; First Community Bank of
Southwest Georgia in Bainbridge and Cairo, Georgia; Eagle Bank and Trust in
Statesboro, Georgia; and Baxley Federal Savings Bank in Baxley and Hazlehurst,
Georgia (collectively referred to herein as the "Banks"); and an investment
advisory services subsidiary, PAB Financial Services, LLC in Valdosta, Georgia
("PAB Financial").
The Company is focused on community banking. The Company's knowledge of both
its product lines and local markets allows it to compete effectively with larger
institutions by offering a wide range of products and services while maintaining
strong community relationships and name recognition within its markets. The
Company supports a philosophy of autonomous management with each subsidiary bank
having its own board of directors and officers who make lending decisions at the
local level. Through 13 banking offices located across South Georgia, the Banks
provide a broad array of financial services including: loans to small and
medium-sized businesses; residential, construction and development loans;
commercial real estate loans; consumer loans; and a variety of commercial and
consumer deposit products.
Through PAB Financial, which opened in 1999, the Company offers a complete line
of financial and investment services to its customers through its association
with Raymond James Financial Services, Inc.
Acquisitions of unaffiliated financial institutions during the past three years
have been a principal source of the Company's growth. In 1998, the Company
acquired both Eagle Bancorp, Inc. and its wholly owned bank subsidiary, Eagle
Bank and Trust, and Investors Financial Corporation and its wholly owned bank
subsidiary, Bainbridge National Bank. Bainbridge National Bank was subsequently
merged into First Community Bank of Southwest Georgia. In 1999, the Company
acquired Baxley Federal Savings Bank, a federal stock savings bank. The
historical financial statements of the Company have been restated to give effect
to these acquisitions, which were accounted for as poolings of interests.
The following discussion should be read in conjunction with the Consolidated
Financial Statements, including the footnotes, and is qualified in its entirety
by the foregoing and other more detailed financial information appearing
elsewhere herein. Historical results of operations and the percentage
relationships among any amounts included in the Consolidated Statements of
Income, and any trends which may appear to be inferable there from, should not
be taken as being necessarily indicative of trends in operations or results of
operations for any future periods.
<PAGE> 11
Financial Condition
Total assets increased $22,334,000, or 3.4%, in the six-month period from
December 31, 1999 to June 30, 2000. During the six-month period, total loans
increased $44,950,000, or 9.1%. The increase in loans is primarily attributable
to increased demand for loans in the markets that the Company serves. The loan
demand was funded through the liquidation of other earning assets and an
increase in deposits. During the six-month period, interest-bearing deposits
with banks decreased $803,000, or 6.9%, Federal funds sold decreased $9,735,000,
or 45.5%, and investment securities decreased $6,444,000, or 8.2%.
During the six-month period ended June 30, 2000, total liabilities increased
$21,844,000, or 3.7%. Total deposits increased $25,204,000, or 4.9%, total
advances from the Federal Home Loan Bank decreased $3,436,000, or 5.7%, and
Federal funds purchased and securities sold under agreements to repurchase
increased $436,000, or 3.2%. Of the $25,204,000 increase in total deposits,
approximately $7,700,000 represented out-of-market time deposits raised to meet
loan demand. The balance of the deposit growth came from core (local customer
base) deposits.
During the six-month period ended June 30, 2000, total stockholders equity
increased $490,000, or 0.7%. As a percentage of total assets, total
stockholders' equity was 10.2% and 10.5% at June 30, 2000 and December 31, 1999,
respectively.
Results of Operations
For the three months ended June 30, 2000, the Company recorded net income of
$2,008,000, or $0.21 per diluted share, as compared to $2,131,000, or $0.22 per
diluted share, for the same period in 1999. The net decrease of $123,000, or
5.8%, is due primarily to the following:
Net interest income increased $699,000.
Provision for credit losses increased $139,000.
Other income decreased $35,000.
Other expense increased $745,000.
Income tax expense decreased $97,000.
The reasons for these changes are discussed more fully below.
For the six months ended June 30, 2000 the Company recorded net income of
$4,133,000, or $0.43 per diluted share, as compared to $4,174,000, or $0.43 per
diluted share, for the same period in 1999. The net decrease of $41,000, or
1.0%, is due primarily to the following:
Net interest income increased $1,757,000.
Provision for credit losses increased $368,000.
Other income decreased $206,000.
Other expense increased $1,258,000.
Income tax expense decreased $33,000.
The reasons for these changes are discussed more fully below.
During the second quarter of 2000, the Company recorded a nonrecurring loss of
$120,000, net of tax effect, on the sale of real estate, primarily on two former
banking facilities. Excluding this loss, net of tax effect, net income would
have been approximately $2,129,000, or $0.22 per diluted share, for the second
quarter and $4,253,000, or $0.44 per diluted share, for the year to date.
<PAGE> 12
Net Interest Income
-------------------
For the three months ended June 30, 2000, net interest income on a taxable-
equivalent basis was $7,412,000, compared to $6,705,000 for the same period in
1999, an increase of $707,000, or 10.5%. The net interest margin was 4.78% for
the second quarter of 2000, 2 basis points higher than the net interest margin
during the same period in 1999.
For the three months ended June 30, 2000, total interest income on a taxable-
equivalent basis increased $1,702,000, compared to the same period in 1999. The
increase in interest income was primarily due to an increase in interest-earning
assets. The average yield on earning assets was 31 basis points higher than the
average yield during the same period in 1999. The increase in the yield is the
result of an increase in loan volume and higher interest rates in comparison to
the second quarter of 1999.
For the three months ended June 30, 2000, total interest expense increased
$995,000, compared to the same period in 1999. The increase in interest expense
was due to an increase in the volume of interest-bearing liabilities and an
increase in interest rates. The average rate paid on interest-bearing
liabilities was 31 basis points higher than the average rate during the same
period in 1999.
The following table sets forth the amount of interest income or expense and the
average yields or rates for each major category of interest-earning assets and
interest-bearing liabilities for the three months ended June 30, 2000 and 1999.
Federally tax-exempt income is presented on a taxable-equivalent basis assuming
a 34% Federal tax rate.
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------------
2000 1999
------------------------ ------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned
interest $529,854 12,572 9.54% 457,575 10,667 9.35%
Investment securities:
Taxable 69,412 1,040 6.02% 82,997 1,276 6.16%
Nontaxable 5,143 84 6.57% 7,113 58 3.30%
Other short term
investments 19,254 285 5.96% 17,561 278 6.35%
-------- ------- -------- -------
Total interest-
earning assets $623,663 13,981 9.02% 565,246 12,279 8.71%
======== ------- ======== -------
Interest-bearing liabilities:
Interest-bearing demand
deposits $121,604 838 2.77% 110,269 727 2.65%
Savings deposits 29,933 195 2.62% 31,439 207 2.64%
Time deposits 312,686 4,487 5.77% 291,561 4,005 5.51%
FHLB advances 53,036 868 6.58% 36,817 533 5.80%
Other short term
borrowings 14,527 181 5.02% 9,361 103 4.41%
-------- ------- -------- -------
Total interest-bearing
liabilities $531,786 6,569 4.97% 479,447 5,575 4.66%
======== ------- ======== -------
Net interest income $ 7,412 6,705
======= =======
Total assets / Net
interest margin $674,180 4.78% 614,278 4.76%
======== ==== ======== ====
</TABLE>
<PAGE> 13
For the six months period ended June 30, 2000, net interest income on a taxable-
equivalent basis was $14,761,000, compared to $13,014,000 for the same period in
1999, an increase of $1,747,000, or 13.4%. The net interest margin was 4.81%
for the year-to-date, 16 basis points higher than the net interest margin during
the same period in 1999.
For the six months ended June 30, 2000, total interest income on a taxable-
equivalent basis increased $3,263,000, compared to the same period in 1999. The
average yield on earning assets was 30 basis points higher than the average
yield during the same period in 1999.
For the six months ended June 30, 2000, total interest expense increased
$1,516,000, compared to the same period in 1999. The average rate paid on
interest-bearing liabilities was 15 basis points higher than the average rate
during the same period in 1999.
The following table sets forth the amount of interest income or expense and the
average yields or rates for each major category of interest-earning assets and
interest-bearing liabilities for the six months ended June 30, 2000 and 1999.
Federally tax-exempt income is presented on a taxable-equivalent basis assuming
a 34% Federal tax rate.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------
2000 1999
------------------------ ------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned
interest $517,305 24,581 9.56% 450,368 20,874 9.35%
Investment securities:
Taxable 70,886 2,089 5.93% 84,964 2,580 6.12%
Nontaxable 5,244 177 6.79% 7,493 207 5.56%
Other short term
investments 24,075 707 5.91% 22,104 630 5.75%
-------- ------- -------- -------
Total interest-
earning assets $617,510 27,554 8.97% 564,929 24,291 8.67%
======== ------- ======== -------
Interest-bearing liabilities:
Interest-bearing demand
deposits $121,101 1,657 2.75% 110,542 1,457 2.66%
Savings deposits 29,591 394 2.68% 30,642 407 2.68%
Time deposits 307,929 8,704 5.68% 292,405 8,113 5.60%
FHLB advances 53,510 1,718 6.46% 37,548 1,130 6.07%
Other short term
borrowings 13,642 319 4.70% 8,218 170 4.17%
-------- ------- -------- -------
Total interest-bearing
liabilities $525,773 12,792 4.89% 479,355 11,277 4.74%
======== ------- ======== -------
Net interest income $14,761 13,014
======= =======
Total assets / Net
interest margin $667,585 4.81% 614,552 4.65%
======== ==== ======== ====
</TABLE>
Provision for Loan Losses
-------------------------
For the second quarter of 2000, the Company recorded a provision for loan losses
of $337,000 compared to $198,000 for the second quarter of 1999. Net charge-
offs during the second quarter of 2000 amounted to $228,000 compared to $38,000
for the second quarter of 1999.
For the six months ended June 30, 2000, the Company recorded a provision for
loan losses of $728,000, compared to $361,000 during the same period in 1999.
Net charge-offs for the six months ended June 30, 2000 amounted to $261,000
compared to $170,000 during the same period in 1999.
<PAGE> 14
The increase in the provision was necessary to replenish loan losses during the
period and to provide for losses inherent in a growing loan portfolio. The
allowance for loan losses was 1.02% of total loans at June 30, 2000 and at
December 31, 1999. The annualized net loss to average total loans ratio was
0.10% for the current year-to-date and 0.08% for the same period in 1999.
Management will continue to monitor and adjust the level of the allowance for
loan losses in relation to net charge-offs, as well as the overall level of the
allowance for loan losses to loans outstanding and management's assessment of
loan losses inherent in the loan portfolio.
The table below illustrates the level of nonperforming assets at June 30, 2000
and December 31, 1999.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999 $ Change % Change
------ ------ -------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Loans past due 90 days or more $ 139 465 (326) (70.1)%
Nonaccrual loans 2,397 2,395 2 0.1 %
------- ------- ------- -----
Total nonperforming loans 2,536 2,860 (324) (11.3)%
Other real estate owned 606 763 (157) (20.6)%
------- ------- ------- -----
Total nonperforming assets $ 3,142 3,623 (481) (13.3)%
======= ======= =======
Nonperforming loans/Total loans 0.47% 0.58%
Nonperforming assets/Total assets 0.46% 0.54%
</TABLE>
Other Income
------------
Other income decreased $35,000, or 2.5%, in the second quarter of 2000 compared
to the same period in 1999. The Company's main source of other income is from
service charges on deposit accounts. Service charges on deposit accounts
increased $88,000, or 9.8%, as a result from the increase in deposit levels.
Fees on mortgage banking activities decreased $42,000, or 27.4%, due primarily
to a decline in the demand for residential mortgages as compared to the higher
demand experienced in 1998 and early 1999. Management attributes the decline in
demand to an increase in interest rates. There was an increase of $68,000, or
58.2%, in the Company's equity interest in the net earnings of Empire Financial
Services, Inc. an unconsolidated subsidiary. The increase is due to
fluctuations in commercial loan demand. As previously noted, included in other
income is a nonrecurring loss of $182,000 on the sale of assets during the
second quarter of 2000 compared to none during the same period in 1999.
For the six months ended June 30, 2000, other income decreased $206,000, or
7.2%, compared to the same period in 1999. Service charges on deposits
increased by $177,000, or 10.3%. Fees on mortgage banking activities decreased
by $159,000, or 46.6%.
Other Expense
-------------
Other expense increased $745,000, or 16.3%, for the three months ended June 30,
2000 compared to the same period in 1999. Other expenses have increased in
comparison to the same period in 1999 as a result of the Company s commitment to
develop the infrastructure of personnel, facilities and technology necessary to
manage its growth strategy. Salaries and employee benefits expense increased
$432,000, or 17.8%. Occupancy expense remained relatively constant, increasing
slightly by $9,000, or 3.6%. Furniture and equipment expense increased $36,000,
or 10.0%. Other operating expense increased $268,000, or 18.6%.
For the six months ended June 30, 2000, other expense increased $1,258,000, or
13.7%. Salaries and employee benefits increased $762,000, or 15.5%. Occupancy
expense increased $50,000, or 9.8%. Furniture and equipment expense increased
$84,000, or 11.8%. Other operating expense increased $361,000, or 12.6%.
<PAGE> 15
The following table presents the major components of other operating expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Other operating expenses:
Postage and courier $ 121 128 245 251
Supplies 116 124 249 272
Advertising 111 86 213 169
Committee and directors fees 149 124 285 246
Legal and accounting fees 166 126 311 253
Consulting fees 105 44 154 85
All other operating expenses 937 806 1,771 1,590
------- ------- ------- -------
Total other operating expenses $ 1,705 1,438 3,228 2,866
======= ======= ======= =======
</TABLE>
Income Tax Expense
------------------
Income tax expense decreased $97,000 for the three months ended June 30, 2000
compared to the same period in 1999. The effective tax rate for the second
quarter of 2000 was 34.0% compared to 34.7% for the same period in 1999.
Income tax expense decreased $33,000 for the six months ended June 30, 2000
compared to the same period in 1999. The effective tax rate the year-to-date
was 33.4% compared to 33.5% for the same period in 1999.
Interest Rate Sensitivity Management
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk."
The repricing of interest-earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of the Company's
asset/liability management program, the timing of repricing assets and
liabilities is referred to as Gap management. It is the policy of the Company
to maintain a Gap ratio in the one-year time horizon of .80 to 1.20. The
current Gap analysis indicates that the Company is somewhat liability sensitive
in relation to changes in market interest rates.
The Company uses simulation analysis to monitor changes in net interest income
due to changes in market interest rates. The simulation of rising, declining,
and a most likely interest rate scenario allows management to monitor and adjust
interest rate sensitivity to minimize the impact of market interest rate swings.
Each month management updates all available data concerning cash flows of assets
and liabilities, changes in market interest rates, and expectations as to new
volumes of loans and deposits.
During periods of rising interest rates, as has been experienced during 2000,
mortgage originations, especially refinancings, tend to decrease. This has been
somewhat offset by the strong economies in which the Company operates and
continued strong real estate market.
Liquidity and Capital Resources
Liquidity is an important factor in the financial condition of the Company and
affects the Company's ability to meet the borrowing needs and deposit withdrawal
requirements of its customers. Assets, consisting principally of loans and
investment securities, are funded by customer deposits, purchased funds, and
borrowed funds.
<PAGE> 16
The investment portfolio is one of the Company's primary sources of liquidity.
Maturities of securities provide a constant flow of funds, which are available
for liquidity needs. Investment securities that contractually mature within one
year were approximately $11.6 million at June 30, 2000. However, mortgage-
backed securities and securities with call provisions create cash flows earlier
than the contractual maturities. Other short-term investments also increase
forecasted cash flows. Total short-term investments, which include Federal funds
sold and interest-earning deposits with other banks, totaled $22.6 million at
June 30, 2000. Maturities in the loan portfolio also provide a steady flow of
funds. At June 30, 2000 and 1999, the loan-to-deposit ratio was 99.6% and
93.4%, respectively.
The Company has a total of $56.7 million in Federal Home Loan Bank advances as
of June 30, 2000. The advances mature at various dates from 2000 to 2009 and
bear interest payable quarterly. The advances are collateralized by qualifying
first mortgage loans.
At June 30, 2000, the Company had approximately $3.2 million in outstanding
commitments for major capital expenditures. These expenditures include the
estimated cost to complete construction in progress on two branch banking
offices and to complete the acquisition and installation of new data processing
equipment and software. The Company plans to use normal cash flows from
operations to fund these capital expenditures. For the six months ended June
30, 2000, the net cash provided by operating activities was approximately $5.5
million. Additional expenditures may be required for other mergers and
acquisitions. At June 30, 2000, there were no cash commitments for additional
mergers or acquisitions.
Stockholders' Equity
--------------------
The Company maintains a ratio of stockholders' equity to total assets that is
adequate relative to industry standards. The Company's ratio of stockholders'
equity to total assets was 10.2% at June 30, 2000, compared to 10.5% at December
31, 1999.
The Company and its subsidiary banks are required to comply with risk-based
capital adequacy standards established by the Federal Reserve and the Federal
Deposit Insurance Corporation. At June 30, 2000, management was not aware of
any recommendations by its regulatory authorities which, if they were to be
implemented, would have a material effect on the Company's liquidity capital
resources or operations. However, it is possible that examination by regulatory
authorities in the future could materially impact the Company's liquidity,
capital resources and operations.
The following table presents the Company's regulatory capital position as of
June 30, 2000.
<TABLE>
<CAPTION>
June 30, Minimum
2000 Requirement
---- -----------
<S> <C> <C>
Tier I Capital Leverage Ratio 10.2% 3.0%
Tier I Risk-based Capital Ratio 12.9% 4.0%
Total Risk-based Capital Ratio 14.0% 8.0%
</TABLE>
<PAGE> 17
Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act
This quarterly report on Form 10-Q contains "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. When used
in this report, the words "believes," "expects," "anticipates," "estimates," and
similar words and expressions are generally intended to identify forward-looking
statements. Statements that describe the Company's future strategic plans, goals
or objectives are also forward-looking statements, including those regarding the
intent, belief or current expectations of the Company or management, are not
guarantees of future performance, results or events and involve risks and
uncertainties, and that actual results and events may differ materially from
those in the forward-looking statements as a result of various factors
including, but not limited to, (i) interest rates and general economic
conditions in the markets in which the Company operates, (ii) competitive
pressures in the markets in which the Company operates, (iii) the effect of
future legislation or regulatory changes on the Company's operations, (iv) the
effect of weather, such as drought, on agribusiness loans and (v) other factors
described from time to time in the Company's filings with the Securities and
Exchange Commission. The forward-looking statements included in this report are
made only as of the date hereof. The Company undertakes no obligation to update
such forward-looking statements to reflect subsequent events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, credit risk and liquidity risk. The Company has little or no risk
related to trading accounts, commodities or foreign exchange. Interest rate risk
is the exposure of a banking organization's financial condition and earnings
ability to adverse movements in interest rates. The Company has analyzed the
assumed market value risk and earnings risk inherent in its interest rate
sensitive instruments related to interest-rate swings of 300 basis points over a
24 month horizon, both above and below current levels (rate shock analysis).
Earnings and fair value estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. There have been no significant changes in the
Company's market risk exposure since December 31, 1999.
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.
<PAGE> 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on April 24, 2000, the
following director was elected to hold office until the 2001 annual
meeting of stockholders and until his successor is dully elected and
qualified or until his earlier death, resignation, incapacity to serve,
or removal:
Name For Against Abstain
Alvin R. Tuten, Jr. 7,214,620 0 6,603
At the annual meeting of stockholders held on April 24, 2000, the
following director was elected to hold office until the 2002 annual
meeting of stockholders and until his successor is dully elected and
qualified or until his earlier death, resignation, incapacity to
serve, or removal:
Name For Against Abstain
Kennith D. McLeod 7,214,620 0 6,603
At the annual meeting of stockholders held on April 24, 2000, the
following directors were elected to hold office until the 2003 annual
meeting of stockholders and until their successors are dully elected
and qualified or until their earlier death, resignation, incapacity to
serve, or removal:
Name For Against Abstain
James L. Dewar, Jr. 7,214,620 0 6,603
James L. Dewar, Sr. 7,214,500 0 6,723
C. Larry Wilkinson 7,214,620 0 6,603
Joe P. Singletary, Jr. 7,185,021 0 36,202
Walter W. Carroll, II 7,214,620 0 6,603
The following directors will continue in office:
Bill J. Jones, James B. Lanier, Jr., John M. Simmons, D. Ramsay
Simmons, Jr., F. Ferrell Scruggs, Sr., R. Bradford Burnette, William
S. Cowart, Thompson Kurrie, Jr., Paul E. Parker, Tracy A. Dixon
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a.Exhibits
27.1 Financial Data Schedule For the Six Months Ended June 30, 2000
27.2 Financial Data Schedule For the Six Months Ended June 30, 1999
b.Reports on Form 8-K
None.
<PAGE> 19
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.
------------------------------------
Registrant
Date: August 14, 2000 By:/s/ R. Bradford Burnette
------------------------ ------------------------------
R. Bradford Burnette
President and Chief Executive
Officer
Date: August 14, 2000 By:/s/ Michael E. Ricketson
------------------------ ------------------------------
Michael E. Ricketson
Chief Financial Officer
<PAGE> 20
PAB BANKSHARES, INC.
FORM 10-Q
INDEX OF EXHIBITS
The following exhibits are filed as part of the report.
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
27.1 Financial Data Schedule For the Six Months
Ended June 30, 2000 21
27.2 Financial Data Schedule For the Six Months
Ended June 30, 1999 23
