<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 30, 1999
------------------------------
PAB BANKSHARES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Georgia 001-11823 58-1473302
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
3102 North Oak Street Extension, Valdosta, Georgia 31602
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (912) 241-2775
--------------------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On November 30, 1999, PAB Bankshares, Inc., a Georgia corporation ("PAB")
consummated the acquisition of Baxley Federal Savings Bank, a federally
chartered stock savings bank ("Baxley"). Pursuant to that certain Agreement and
Plan of Merger (the "Merger Agreement"), dated as of June 3, 1999, by and
between PAB and Baxley, and joined into, as of November 2, 1999, by PAB Interim
Association No. 1, a federally chartered interim stock savings association and a
wholly-owned subsidiary of PAB ("Interim"), Interim merged with and into Baxley,
with Baxley continuing in existence as a wholly-owned subsidiary of PAB.
Pursuant to the Merger Agreement, each share of Baxley common stock was
converted into the right to receive 2.40 shares of PAB common stock. Based on
the closing price of PAB common stock on November 30, 1999, the aggregate value
of the acquisition was approximately $19.68 million, or approximately $35.70 per
share of Baxley common stock.
PAB is a bank holding company headquartered in Valdosta, Georgia with
assets, as a result of the Baxley acquisition, exceeding $650 million. In
addition to its newly acquired thrift subsidiary in Baxley, Georgia, PAB
operates banking subsidiaries based in Valdosta, Adel, Bainbridge, and
Statesboro, Georgia. PAB common stock is quoted on the American Stock Exchange
under the symbol "PAB."
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
The following financial statements are filed with this Report:
AUDITED FINANCIAL STATEMENTS
Report of H.H. Burnet & Company, Independent Auditors..... F-1
Statements of Financial Condition as of December 31,
1998 and 1997........................................... F-2
Statements of Income for the twelve months ended
December 31, 1998, 1997 and 1996........................ F-4
Statements of Changes in Stockholders' Equity for the
twelve months ended December 31, 1998, 1997 and 1996.... F-6
Statements of Cash Flows for the twelve months ended
December 31, 1998, 1997 and 1996........................ F-7
Notes to Financial Statements............................. F-10
UNAUDITED FINANCIAL STATEMENTS
Balance Sheets as of September 30, 1999 and December
31, 1998................................................ F-30
Statements of Income and Comprehensive Income for the
three months and nine months ended September 30, 1999
and 1998................................................ F-32
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998............................. F-34
Notes to Unaudited Financial Statements................... F-36
(b) Pro Forma Financial Information
The following unaudited pro forma condensed financial statements are filed
with this Report.
Unaudited Pro Forma Combined Condensed Balance Sheet as
of September 30, 1999................................... F-43
Notes to Unaudited Pro Forma Combined Condensed
Balance Sheet........................................... F-44
Unaudited Pro Forma Combined Condensed Statement of Income
for the nine months ended September 30, 1999............ F-45
Unaudited Pro Forma Combined Condensed Statement of Income
for the year ended December 31, 1998.................... F-46
Unaudited Pro Forma Combined Condensed Statement of Income
for the year ended December 31, 1997.................... F-47
Notes to Unaudited Pro Forma Combined Condensed Statements
of Income............................................... F-48
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of June 3, 1999, by and
between PAB Bankshares, Inc. and Baxley Federal Savings Bank, and
joined into, as of November 2, 1999, by PAB Interim Association No.
1 (incorporated herein by reference to the exhibit of the same
number in PAB Bankshares, Inc.'s Registration Statement on Form S-4,
dated October 14, 1999, Registration No. 333-83907).
99.1* Press Release, dated November 30, 1999, issued by PAB Bankshares,
Inc.
- -------------------
* Previously filed.
<PAGE>
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 hereunto duly authorized.
PAB BANKSHARES, INC.
(Registrant)
Dated: February 10, 2000 By: /s/ R. Bradford Burnette
-------------------------------------
R. Bradford Burnette, President and
Chief Executive Officer
<PAGE>
February 3, 1999
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Baxley Federal Savings Bank
Baxley, Georgia 31513
We have audited the accompanying statements of financial condition of
Baxley Federal Savings Bank as of December 31, 1998 and 1997, and the related
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three year period ended December 31, 1998. These financial
statements are the responsibility of the institution's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We have conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly in all material respects, the financial position of Baxley Federal
Savings Bank as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the years in the three year period ended December
31, 1998, in conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ H. H. BURNET & COMPANY, P.C.
F-1
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------------------
<S> <C> <C>
ASSETS
- ------
Cash and Due from Banks $ 853,460 $ 800,191
Interest Bearing Deposits in Banks 9,978,729 4,316,447
Federal Funds Sold 775,000 400,000
------------ ------------
Total Cash and Cash Equivalents $ 11,607,189 $ 5,516,638
Investment Securities Available for Sale,
at Fair Value (Note 1 & 2) 4,462,333 4,571,058
Loans Receivable (Net) (Note 1 & 3) 88,037,502 87,639,745
Premises and Equipment, Net
(Note 1 & 4) 1,505,809 1,554,103
Investment Required By Law -
Federal Home Loan Bank Stock,
at Cost (Note 6) 786,200 749,400
Accrued Interest Receivable (Note 5) 589,240 600,625
Other Assets 122,641 94,148
------------ ------------
Total Assets $107,110,914 $100,725,717
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<TABLE>
<CAPTION>
LIABILITIES
- -----------
<S> <C> <C>
Deposits (Note 7) $90,831,155 $85,912,544
Accrued Interest Expense 60,818 68,195
Other Liabilities 805,275 599,802
Dividends Payable 452,214 446,700
----------- -----------
Total Liabilities $92,149,462 $87,027,241
----------- -----------
Commitments (Note 10)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1998 1997
-----------------------------------------
<S> <C> <C>
STOCKHOLDERS' EQUITY (Note 1 & 11)
- --------------------
Common Stock $.01 par value, shares
authorized - 8,000,000,
shares issued and outstanding, 1998
and 1997 - 551,481 $ 5,515 $ 5,515
Additional Paid-In Capital 5,280,496 5,280,496
Common Stock Acquired by ESOP (Note 13) 0 0
Common Stock Acquired by RRP (Note 15) 0 0
Retained Earnings (Note 9) 8,594,646 7,711,108
Accumulated Other Comprehensive Income 1,080,795 701,357
------------ ------------
Total Stockholders' Equity $ 14,961,452 $ 13,698,476
------------ ------------
Total Liabilities and
Stockholders' Equity $107,110,914 $100,725,717
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Twelve Months
Ended
INTEREST AND December 31,
DIVIDEND INCOME 1998 1997 1996
- --------------- ---------- ---------- ----------
<S> <C> <C> <C>
Interest -
Loans (Note 1) $7,375,261 $7,272,503 $7,025,232
Mortgage-Backed Securities 79,165 110,947 136,680
Investment Securities 116,998 137,394 130,857
Federal Funds & FHLB Overnight 270,113 436,717 435,489
Dividends 70,806 64,333 59,626
---------- ---------- ----------
Total Interest & Dividend Income $7,912,343 $8,021,894 $7,787,884
---------- ---------- ----------
INTEREST EXPENSE
- ----------------
Interest on Deposits (Note 7) $4,434,906 $4,252,710 $4,121,069
Interest on Other Borrowings
(Note 13) 0 2,065 7,484
---------- ---------- ----------
Total Interest Expense $4,434,906 $4,254,775 $4,128,553
---------- ---------- ----------
Net Interest Income $3,477,437 $3,767,119 $3,659,331
Provision for Loan Loss (Note 1 & 3) 0 0 0
---------- ---------- ----------
Net Interest & Dividend Income
After Provision for Loan Loss $3,477,437 $3,767,119 $3,659,331
---------- ---------- ----------
OTHER INCOME
- ------------
Loan Fees $ 118,532 $ 108,539 $ 122,400
Other Fees 271,496 288,102 257,765
Other Income 28,717 30,112 28,439
---------- ---------- ----------
Total Other Income $ 418,745 $ 426,753 $ 408,604
---------- ---------- ----------
OTHER EXPENSES
- --------------
Compensation -
Officers, Directors, Employees $ 732,118 $ 688,108 $ 690,902
Employee Benefit Plans and
Other Personnel Expenses (Note 12) 172,808 244,204 338,943
Office Occupancy 167,937 160,826 162,831
Furniture & Equipment Expense 114,080 100,353 93,576
Advertising 55,525 66,196 53,214
Stationery and Supplies 95,061 98,962 83,033
Professional Expense 48,465 48,697 45,754
Federal Insurance Premiums 51,534 53,514 176,390
SAIF Special Assessment 0 0 492,598
Supervisory Examinations 32,827 32,606 31,551
Data Processing Expense 191,642 188,075 175,500
Other Expenses 146,949 146,939 147,250
Loss on Sale of Foreclosed Property 1,011 0 0
---------- ---------- ----------
Total Other Expenses $1,809,957 $1,828,480 $2,491,542
---------- ---------- ----------
Income Before Income Tax Expense $2,086,225 $2,365,392 $1,576,393
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Twelve Months
Ended
December 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Income Tax Expense (Note 8) $ 750,473 $ 860,353 $ 561,638
----------- ----------- -----------
Net Income $ 1,335,752 $ 1,505,039 $ 1,014,755
----------- ----------- -----------
Other Comprehensive Income,
Before Tax:
Unrealized holding gains
arising during the period $ 611,996 $ 390,326 $ 152,245
Income tax expense related
to items of other
comprehensive income (232,558) (148,324) (57,853)
----------- ----------- -----------
Other Comprehensive Income,
net of tax $ 379,438 $ 242,002 $ 94,392
----------- ----------- -----------
Comprehensive Income $ 1,715,190 $ 1,747,041 $ 1,109,147
=========== =========== ===========
Per Share Data Based on
Weighted Average
Outstanding Shares
Basic Earnings Per Share $ 2.42 $ 2.82 $ 1.94
=========== =========== ===========
Diluted Earnings Per share $ 2.41 $ 2.81 $ 1.89
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Common Common Accumulated
--------------------- Additional Stock Stock Other
Number of Paid-In Acquired by Acquired by Retained Comprehensive
Shares Amount Capital ESOP RRP Earnings Income
--------- --------- ----------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 527,601 $ 5,276 $ 4,926,348 $ (92,581) $ (62,820) $ 9,921,677 $ 364,963
Common Stock Issued
Under Stock Option
Plans 1,519 $ 15 $ 15,174 $ 0 $ 0 $ 0 $ 0
Common Stock Issued
by RRP 0 35,094 0 35,520 0 0
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1996 0 0 0 0 1,014,755 0
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $281,540 0 0 0 0 0 94,392
Payment to ESOP 0 0 46,290 0 0 0
Less: Dividends Declared
$.80 Per Share 0 0 0 0 (423,296) 0
Compensation Expense for
Market Value Over
Cost for ESOP
Allocations 0 22,736 0 0 0 0
--------- ---------- ----------- ------------ ----------- ------------- ----------
Balance,
December 31, 1996 529,120 $ 5,291 $ 4,999,352 $ (46,291) $ (27,300) $ 10,513,136 $ 459,355
========= ========== =========== ============ =========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
Total
-----------
<S> <C>
Balance,
December 31, 1995 $ 15,062,863
Common Stock Issued
Under Stock Option
Plans $ 15,189
Common Stock Issued
by RRP 70,614
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1996 1,014,755
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $281,540 94,392
Payment to ESOP 46,290
Less: Dividends Declared
$.80 Per Share (423,296)
Compensation Expense for
Market Value Over
Cost for ESOP
Allocations 22,736
------------
Balance,
December 31, 1996 $ 15,903,543
============
</TABLE>
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Common Common Accumulated
--------------------- Additional Stock Stock Other
Number of Paid-In Acquired by Acquired by Retained Comprehensive
Shares Amount Capital ESOP RRP Earnings Income
--------- --------- ----------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Issued
Under Stock Option
Plans 22,361 $ 224 $ 233,386 $ 0 $ 0 $ 0 $ 0
Common Stock Issued
by RRP 0 27,628 0 27,300 0 0
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1997 0 0 0 0 1,505,039 0
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $429,864 0 0 0 0 0 242,002
Payment to ESOP 0 0 46,291 0 0 0
Less: Dividends Paid
$7.00 Per Share 0 0 0 0 (3,860,367) 0
Compensation Expense for
Market Value Over
Cost for ESOP Allocations 0 30,130 0 0 0 0
Less: Dividends Declared
$.81 Per Share 0 0 0 0 0 (446,700) 0
------- ------ ----------- --------- ---------- ----------- ------------
Balance,
December 31, 1997 551,481 $5,515 $5,280,496 $ 0 $ 0 $ 7,711,108 $ 701,357
======= ====== =========== ========= ========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Common Stock Issued
Under Stock Option
Plans $ 223,610
Common Stock Issued
by RRP 54,928
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1997 1,505,039
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $429,864 242,002
Payment to ESOP 46,291
Less: Dividends Paid
$7.00 Per Share (3,860,367)
Compensation Expense for
Market Value Over
Cost for ESOP Allocations 30,130
Less: Dividends Declared
$.81 Per Share (446,700)
------------
Balance,
December 31, 1997 $ 13,698,476
============
</TABLE>
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Common Common Accumulated
--------------------- Additional Stock Stock Other
Number of Paid-In Acquired by Acquired by Retained Comprehensive
Shares Amount Capital ESOP RRP Earnings Income
--------- --------- ----------- ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1998 0 0 0 0 0 1,335,752 0
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $662,423 0 0 0 0 0 0 379,438
Less: Dividends Declared
$.82 Per Share 0 0 0 0 (452,214) 0
------- ------ ---------- --------- ---------- ------------- -------------
Balance,
December 31, 1998 551,481 $5,515 $5,280,496 $ 0 $ 0 $ 8,594,646 $ 1,080,795
======= ====== ========== ========= ========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Comprehensive Income
Net Income for Twelve
Months Ended
December 31, 1998 1,335,752
Other Comprehensive Income,
Net of Tax
Change in Unrealized
Appreciation on Securities
Available for Sale, Net
of Tax of $662,423 379,438
Less: Dividends Declared
$.82 Per Share (452,214)
------------
Balance,
December 31, 1998 $ 14,961,452
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Twelve Months
Ended
December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net Income $1,335,752 $1,505,039 $1,014,755
---------- ---------- ----------
Adjustments to Reconcile
Net Income to Net Cash
Provided by Operating
Activities:
Depreciation $ 133,041 $ 121,708 $ 113,759
(Discount Accretion) Net of
Premium Amortization 1,821 299 3,247
Provision for Loan
Losses 0 0 0
Compensation Expense on
Issuance of Stock Options 0 0 0
Compensation Expense for Market
Value Over Cost for ESOP
Allocations 0 30,130 22,736
Expense for Issuance of Common
Stock to MRP/DRP Participants 0 54,928 70,614
FHLB Stock Dividend (36,800) (50,300) (30,900)
(Gain) Loss on Sale of
REO 1,011 0 0
(Gain) Loss on Sale of Premises
and Equipment 0 0 4,684
Deferred Charges, Net 8,263 13,228 (21,990)
Changes in Operating Assets
and Liabilities:
(Increase) Decrease in
Accrued Interest Receivable 11,385 (29,231) 25,178
(Increase) Decrease in
Other Assets (34,244) 29,445 (30,363)
Increase (Decrease) in
Accrued Interest Payable (7,377) (2,155) (58,131)
Increase (Decrease) in
Other Liabilities (27,086) 74,657 133,069
---------- ---------- ----------
Total Adjustments $ 50,014 $ 242,709 $ 231,903
---------- ---------- ----------
Net Cash Provided by
Operating Activities $1,385,766 $1,747,748 $1,246,658
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Twelve Months
Ended
December 31,
1998 1997 1996
----------- ----------- -------------
<S> <C> <C> <C>
Cash Flows from Investing Activities:
(Increase) Decrease in Loans $ (548,061) $(3,635,075) $(3,656,907)
Purchase of Securities
Available for Sale (752,968) (503,394) (1,741,610)
Proceeds from Maturities and
Principal Repayments of
Securities Available for Sale 1,471,870 1,096,410 1,920,458
Purchases of Premises
and Equipment (84,747) (306,388) (73,514)
Proceeds from Sale of
Other Real Estate Owned 146,780 0 73,100
----------- ----------- ------------
Net Cash Used By
Investing Activities $ 232,874 $(3,348,447) $ (3,478,473)
----------- ----------- ------------
Cash Flows from Financing Activities:
Net Deposits from Customers $ 4,918,611 $ 1,223,219 $ 1,544,837
Proceeds from Issuance of
Stock Options 0 223,610 15,190
Payment on Other Borrowings 0 (43,075) (40,077)
Dividends Paid (446,700) (4,283,663) (395,701)
----------- ----------- -----------
Net Cash Provided By
Financing Activities $ 4,471,911 $(2,879,909) $ 1,124,249
----------- ----------- -----------
Net Increase (Decrease) in
Cash and Cash Equivalents $ 6,090,551 $(4,480,608) $(1,107,566)
Cash and Cash Equivalents at
Beginning of Year 5,516,638 9,997,246 11,104,812
----------- ----------- -----------
Cash and Cash Equivalents at
End of Year $11,607,189 $ 5,516,638 $ 9,997,246
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BAXLEY, GEORGIA
STATEMENTS OF CASH FLOWS
For the Twelve Months
Ended
December 31,
1998 1997 1996
----------- ----------- -----------
Supplemental Disclosures
of Cash Flow Information:
Cash Paid For:
Interest $4,442,283 $4,256,930 $4,186,684
Income Taxes 727,300 807,591 493,191
Supplemental Disclosures of Non-Cash Investing Activities:
Loans Receivable of approximately $142,041, $5,750, and $73,100 were
transferred to Real Estate Acquired in Settlement of Loans and Other Repossessed
Assets during the years ended December 31, 1998, 1997, and 1996, respectively.
Total increase in unrealized gain on securities available for sale was
$611,997, $390,326, and $152,246 for the years ending December 31, 1998, 1997
and 1996, respectively.
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
The accounting and reporting policies of Baxley Federal Savings Bank
conform to generally accepted accounting principles and to general practice
within the savings and loan industry. The following is a description of the more
significant of those policies that the Institution follows in preparing and
presenting its financial statements.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Prior to June 19, 1990, Baxley Federal Savings Bank was a Federally
Chartered Mutual Savings and Loan Institution regulated by the Office of
Thrift Supervision (OTS). In a special meeting held June 19, 1990, members
of Baxley Federal Savings and Loan Association adopted a Federal Mutual
Savings Bank Charter and the corporate name was changed to Baxley Federal
Savings Bank. Baxley Federal Savings Bank converted from a federally
chartered mutual savings bank to a federally chartered stock savings bank
on June 27, 1991. Operations are conducted at the home office in Baxley,
Georgia and a branch office in Hazlehurst, Georgia.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans and
the valuation of foreclosed real estate. In connection with the
determination of the estimated losses on loans and foreclosed real estate,
management obtains appraisals for significant properties.
The Bank extends credit to customers throughout its market area with a
concentration in real estate mortgage loans secured by one to four family
residences. The real estate loan portfolio is substantially secured by
properties located throughout Southeast Georgia. Although the Bank has a
diversified loan portfolio, a substantial portion of its borrowers' ability
to repay such loans is dependent upon the economy in the Bank's market
area.
While management uses available information to recognize losses on
loans and foreclosed real estate, further reductions in the carrying
amounts of loans and foreclosed assets may be necessary based on changes in
local economic conditions. In addition, regulatory agencies, as an integral
part of their examination process periodically review the estimated losses
on loans and foreclosed real estate. Such agencies may require the Bank to
recognize additional losses based on their judgments about information
available to them at the time of their examination. Because of these
factors, it is reasonably possible that the estimated losses on loans and
foreclosed real estate may change materially in the
F-10
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Use of Estimates - Continued
- ----------------
near term. However, the amount of the change that is reasonably possible cannot
be estimated.
Investments in Securities
- -------------------------
Baxley Federal adopted FASB 115 effective January 1, 1994. As of this date,
the Bank's investments in securities have been classified as securities
available for sale.
Securities available for sale consist of bonds, notes, debentures and
certain equity securities not classified as trading securities or as securities
to be held to maturity.
Prior to 1994, all of Baxley Federal's investments were classified as held
to maturity.
Unrealized holding gains and losses, net of tax, on securities available
for sale are included in other comprehensive income.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
The amortization of premiums and the accretion of discounts are recognized
in interest income using methods approximating the interest method over the
period of maturity.
Loans and the Allowance for Loan Losses
- ---------------------------------------
Loans are stated at their unpaid principal balances net of unearned
discounts, allowance for loan losses and deferred loan fees. Unearned discount
is taken into income using the interest method.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan" ("SFAS 114"). SFAS 114 requires impaired loans to be
measured based on the present value of expected future cash flows, discounted at
the loan's effective interest rate, or at the loan's observable market price, or
the fair value of the collateral if the loan is collateral dependent, beginning
in fiscal 1996. In October 1994, the FASB issued Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures" ("SFAS 118") which amends SFAS 114 to
require information about the recorded investment in certain impaired loans and
eliminates its provisions regarding how a creditor
F-11
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Loans and the Allowance for Loan Losses - Continued
- ---------------------------------------
should report income on an impaired loan. SFAS 118 allows creditors to use
existing methods for recognizing income on impaired loans, including methods
required by certain industry regulators. The Company adopted SFAS 114 and SFAS
118 effective January 1, 1996. This adoption required no increase to the
allowance for loan losses and had no impact on net income in 1996.
Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments received on
such loans are applied as a reduction of the loan principal balance. Interest
income on other impaired loans is recognized only to the extent of interest
payments received.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions and other risks inherent in the portfolio. Allowances
for impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a provision
for loan losses, which is charged to expense, and reduced by charge-offs, net of
recoveries.
The Bank provides separate valuation allowances for estimated losses on
consumer loans and estimated losses on mortgage loans and real estate owned.
Additions to allowances are charged to expense and reduced by charge-offs, net
of recoveries.
Foreclosed Real Estate
- ----------------------
Foreclosed real estate includes both formally foreclosed property and in-
substance foreclosed property. In-substance foreclosed properties are those
properties for which the institution has taken physical possession, regardless
of whether formal foreclosure proceedings have taken place. At the time of
foreclosure, foreclosed real estate is recorded at the lower of the carrying
amount or fair value less cost to sell, which becomes the property's new basis.
Any write-downs based on the asset's fair value at date of acquisition are
charged to the allowance for loan losses. After foreclosure, these assets are
carried at the lower of their new cost basis or fair value less cost to sell.
Costs incurred in maintaining foreclosed real estate and subsequent adjustments
to the carrying amount of the property are included in income (loss) on
foreclosed real estate. Costs relating to improvement of the real estate are
capitalized.
Premises and Equipment
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated principally on the straight-line method over the
estimated useful lives of the assets. Costs incurred for maintenance and repairs
are expensed currently.
F-12
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Income Taxes
- ------------
Income taxes are provided for the tax effects of the transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of available-for-sale
securities, allowance for loan losses, estimated losses on foreclosed real
estate, accumulated depreciation and deferred loan expenses. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred tax assets and liabilities are
reflected at income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
Loan Origination and Commitment Fees
- ------------------------------------
Loan origination fees, net of certain direct origination costs, are
deferred and amortized on a basis that approximates level yield over the
contractual lives of the underlying loans. In addition, fees for a commitment to
originate or purchase loans are offset against direct loan origination costs
incurred to make such commitments. The net amounts are deferred and, if the
commitment is exercised, recognized over the life of the related loan as a yield
adjustment or, if the commitment expires unexercised, recognized as income upon
expiration of the commitment. For the twelve months ended December 31, 1998,
1997, and 1996, respectively, net income included $49,900, $10,783, and $45,126
net of nonrefundable fees and costs. Loans receivable is reduced by $164,474 and
$156,211 of unamortized nonrefundable fees and costs at December 31, 1998 and
1997.
Cash and Cash Equivalents
- -------------------------
The Bank considers all cash and amounts due from depository institutions,
interest-bearing deposits in other banks and federal funds sold to be cash
equivalents for purposes of the statements of cash flows.
Earnings Per Share
- ------------------
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". SFAS No. 128 establishes standards for computing and presenting earnings
per share ("EPS") and applies to all entities with publicly held common stock or
potential common stock. Basic EPS excludes dilution and is computed by dividing
earnings available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS includes the potential
dilutive securities using the treasury stock method. The Bank adopted the
requirements of SFAS No. 128 in the year ended December 31, 1997. Prior years
EPS amounts have been restated to conform to SFAS 128. Basic earnings per share
is computed by dividing net income by the weighted average number of shares
outstanding of 551,481, 534,576, and 524,006
F-13
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Earnings Per Share -- Continued
- -------------------------------
during the years ended December 31, 1998, 1997, and 1996, respectively. The
dilutive effect of stock options in the number of 1,204, 1,204, and 12,303 has
been considered in the computation of diluted earnings per share for the three
years ended December 31, 1998.
Fair Values of Financial Instruments
- ------------------------------------
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement
of financial condition for cash and cash equivalents approximate those
assets' fair values.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair value for other loans are estimated using discounted cash
flow analysis, based on interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Loan fair value
estimates include judgments regarding future expected loss experience and
risk characteristics. Fair values for impaired loans are estimated using
discounted cash flow analysis or underlying collateral values, where
applicable. The carrying amount of accrued interest receivable approximates
its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts and passbook accounts) are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The fair values for certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being
F-14
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deposits: - Continued
----------------------
offered on certificates to a schedule of aggregated contractual maturities
on such time deposits. The carrying amount of accrued interest payable
approximates fair value.
Short-term borrowings: The carrying amounts of short-term borrowings
approximate their fair values.
Reclassifications
- -----------------
Certain reclassifications of prior year amounts have been made to
conform to those classifications used in the accompanying financial statements.
Recent Accounting Pronouncements
- --------------------------------
SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued in June 1997 and is effective for the Bank
for the year beginning January 1, 1998. SFAS No. 131 establishes standards
for reporting operating segments by public business enterprises in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The Bank does not have any significant changes to its reporting
format in response to SFAS No. 131.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS
No. 133 will be effective for the Bank's year ending December 31, 2000. The
Bank does not currently have any derivative instruments nor is it involved
in hedging activities.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1) which provides guidance
for the accounting of such costs. SOP 98-1 is effective for the Bank for
the year ending December 31, 1999. This SOP is not expected to have a
significant effect on the Bank.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
(SOP 98-5) which requires costs of start-up activities and organization
costs to be expensed as incurred. The adoption of SOP 98-5 will not have
any effect on the Bank.
F-15
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(2) INVESTMENT SECURITIES
---------------------
The carrying amounts of investment securities as shown in Baxley
Federal's statements of financial condition and their approximate fair
values at December 31, 1998 and 1997 are as follows:
December 31, 1998
-----------------
Securities Available for Sale
- -----------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Losses Value
---------- ---------- ---------- ----------
U.S. Government
Obligations $1,002,126 $ 7,640 $ 0 $1,009,766
Federal Agency
Obligations 752,681 3,655 (867) 755,469
Other Securities 88,561 1,708,806 (3,813) 1,793,554
Mortgage Backed
Securities 875,747 27,797 0 903,544
---------- ---------- -------- ----------
$2,719,115 $1,747,898 $ (4,680) $4,462,333
========== ========== ======== ==========
December 31, 1997
-----------------
Securities Available for Sale
- -----------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Losses Value
---------- ---------- ---------- ----------
U.S. Government
Obligations $2,005,486 $ 7,805 $ (86) $2,013,205
Federal Agency
Obligations 0 0 0 0
Other Securities 88,561 1,102,926 (5,137) 1,186,350
Mortgage Backed
Securities 1,345,791 29,311 (3,599) 1,371,503
---------- ---------- -------- ----------
$3,439,838 $1,140,042 $ (8,822) $4,571,058
========== ========== ======== ==========
The scheduled maturities of securities available for sale at December
31, 1998 were as follows:
Amortized Fair
Cost Value
----------- -----------
No Contractual Maturity $ 88,561 $1,793,554
Due in One Year or Less 1,046,512 1,054,571
Due After One Year Through
Five Years 752,681 755,469
Due After Five Years Through
Ten Years 703,846 716,639
Due After Ten Years 127,515 142,100
---------- ----------
$2,719,115 $4,462,333
========== ==========
F-16
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
INVESTMENT SECURITIES - Continued
- ---------------------
The amortized cost and fair value of mortgage-backed securities are
presented by contractual maturity in the preceding table. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations without call or prepayment penalties.
Assets in the amount of $1,750,000 for each of the twelve months ended
December 31, 1998 and 1997, are pledged to various local governing authorities
to secure public deposits and for other purposes required or permitted by law.
The Bank did not sell any investments during the years ending December
31, 1998 and 1997.
(3) LOANS RECEIVABLE
----------------
Loans receivable at December 31, 1998 and 1997 consisted of the following:
December 31,
1998 1997
----------- -----------
First Mortgage Loans $79,305,579 $78,314,774
Equity Line Loans 1,018,919 1,186,283
Loans to Depositors,
Secured by Savings 1,190,818 1,478,842
Participation 2,076,087 2,853,458
Consumer and Other 5,656,352 5,412,487
----------- -----------
$89,247,755 $89,245,844
----------- -----------
Less:
Loans in Process $ 300,091 $ 696,688
Unearned Interest 0 0
Allowance for Loan Losses 745,688 753,200
Net Deferred Loan Origination Fees 164,474 156,211
----------- -----------
$ 1,210,253 $ 1,606,099
----------- -----------
$88,037,502 $87,639,745
=========== ===========
At December 31, 1998 and 1997, the Bank had nonaccrual loans
aggregating approximately $316,361 and $305,110, respectively, for which
impairment had not been recognized.
The institution was servicing loans sold aggregating -0- for both
periods ended December 31, 1998 and 1997.
Loans with carrying amounts of $138,280 and $-0- were transferred to
foreclosed real estate in 1998 and 1997, respectively.
Loans receivable includes loans to officers, directors and employees
of the Bank totaling approximately $974,186 and $987,732 at December 31,
1998 and 1997, respectively. During 1998, $193,316 of new loans were made
and repayments totaled $206,862.
F-17
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
LOANS RECEIVABLE - Continued
----------------
Loans to directors and executive officers are made on substantially
the same terms as loans to others. Mortgage loans are offered to employees
at an interest rate which is one-half of one percent below the then going
rate. Also, no loan fees are charged. Consumer loans are offered to
employees at an interest rate which is one percent less than the then going
rate.
An analysis of changes in the allowance for loan losses is as follows:
For the Twelve Months Ended
December 31,
1998 1997 1996
---------- ---------- ---------
Balance at Beginning
of Period $753,200 $766,521 $783,101
Provision for Loan Loss 0 0 0
-------- -------- --------
$753,200 $766,521 $783,101
-------- -------- --------
Loans Charged Off $ 14,940 $ 19,806 $ 21,552
Less: Recoveries 7,428 6,485 4,972
-------- -------- --------
Net Loan Charge-Offs $ 7,512 $ 13,321 $ 16,580
-------- -------- --------
Balance at End
of Period $745,688 $753,200 $766,521
======== ======== ========
At December 31, 1998, the total recorded investment in impaired loans,
all of which had allowances determined in accordance with SFAS No. 114 and
No. 118, amounted to $53,940. The allowance for loan losses related to
impaired loans amounted to $13,865 at December 31, 1998.
(4) PREMISES AND EQUIPMENT
----------------------
Premises and equipment are summarized as follows:
December 31,
1998 1997
---------- ----------
Land $ 160,831 $ 160,831
Buildings and improvements 1,749,488 1,748,287
Furniture, fixtures and equipment 760,429 676,883
---------- ----------
$2,670,748 $2,586,001
Less: Accumulated depreciation 1,164,939 1,031,898
---------- ----------
$1,505,809 $1,554,103
========== ==========
The income statements include depreciation expense of $133,041,
$121,708, and $113,759 for the years ended December 31, 1998, 1997 and
1996, respectively.
F-18
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(5) ACCRUED INTEREST RECEIVABLE
---------------------------
Accrued interest receivable is summarized as follows:
December 31,
1998 1997
-------- --------
Loans $545,992 $553,070
Investment Securities 21,943 20,425
Mortgage-Backed Securities 5,114 7,922
Other 16,191 19,208
-------- --------
$589,240 $600,625
======== ========
(6) INVESTMENTS REQUIRED BY LAW
---------------------------
Investment in stock of a Federal Home Loan Bank is carried at cost and
is required of those institutions which utilize its services. No ready
market exists for the stock, and it has no quoted market value.
(7) DEPOSITS
--------
Deposits at December 31 are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Rate at
December 1998 1997
31, 1998 Amount Percent Amount Percent
-------- ----------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
Demand and NOW
Accounts including
non-interest-
bearing deposits of
$3,565,833 in 1998
and $3,443,550 in
1997. 1.35% $10,927,803 12.03% $10,357,999 12.06%
Money Market 3.00 6,221,984 6.85 6,821,605 7.94
Passbook Savings 3.00 4,381,269 4.82 4,852,276 5.64
----------- -------- ----------- -----------
$21,531,056 23.70% $22,031,880 25.64%
----------- -------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average
Rate at
December 1998 1997
31, 1998 Amount Percent Amount Percent
-------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Certificates of Deposit
0.00% to 3.99% 3.66% $ 567,562 .62% - -
4.00% to 4.49% 4.02 342,917 .38 $975,410 1.14%
4.50% to 4.99% 4.85 1,191,646 1.30 - -
5.00% to 5.49% 5.22 9,327,019 10.30 - -
5.50% to 5.99% 5.77 10,982,486 12.09 27,653,978 32.19
6.00% to 6.49% 6.05 44,154,475 48.60 31,609,059 36.79
6.50% to 6.99% 6.74 1,233,119 1.36 1,574,206 1.83
7.00% to 7.99% 7.00 1,500,875 1.65 2,068,011 2.41
8.00% to 8.99% - - - - -
9.00% to 9.99% - - - - -
----------- ----------- ----------- -----------
$69,300,099 76.30% $63,880,664 74.36%
----------- ----------- ----------- -----------
5.00% $90,831,155 100.00% $85,912,544 100.00%
=========== =========== =========== ===========
</TABLE>
F-19
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
DEPOSITS - Continued
--------
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was $21,206,768 and $16,384,893 at December 31,
1998 and 1997, respectively.
At December 31, 1998, scheduled maturities of certificates of deposit
are as follows:
Year Ending December 31,
------------------------
1999 $58,316,277
2000 7,330,818
2001 1,845,897
2002 1,320,486
2003 426,621
After 2003 60,000
-----------
Total $69,300,099
===========
The Bank held deposits of approximately $3,413,907 and $4,083,067 for
related parties at December 31, 1998 and 1997, respectively.
Interest expense on deposits for the periods indicated is summarized
as follows:
For the Twelve Months Ended
December 31,
1998 1997 1996
----------- ----------- -----------
Passbook accounts $ 149,228 $ 172,088 $ 169,014
NOW & ICMA accounts 391,846 419,719 430,726
Certificates 3,916,968 3,679,196 3,538,663
---------- ---------- ----------
$4,458,042 $4,271,003 $4,138,403
Less:
Early withdrawal penalties 23,136 18,293 17,334
---------- ---------- ----------
Total $4,434,906 $4,252,710 $4,121,069
========== ========== ==========
(8) INCOME TAXES
------------
For income tax purposes, the Bank is permitted an annual bad debt
deduction (not related to amounts of loan losses actually anticipated
and charged to operations) in computing taxable income. The bad debt
deduction is generally based on a percentage of taxable income before bad
debt deduction or on actual bad debt experience. The maximum bad debt
deduction allowable based on a percentage of taxable income is 8% beginning
January 1, 1987. Bad debt deductions in excess of actual losses are deemed
tax preference items and are subject to a minimum tax. The Institution used
the percentage of taxable income method to determine the allowable bad debt
deduction.
Tax bad debt reserves created from income tax deductions are used to
absorb losses on loans. If the reserves are used for any other purpose,
such amounts are subject to tax at the then applicable rates. Since the
Bank does not intend to use the reserves for purposes other
F-20
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
INCOME TAXES - Continued
------------
than to absorb loan losses, deferred income taxes have not been provided on
such reserves. Retained earnings at December 31, 1998 and 1997 included
approximately $2,537,220 for which no provision for income taxes was made.
In the future, if the Bank does not meet Federal income tax requirements
necessary to permit it to deduct bad debts based on a percentage of taxable
income, these amounts could become taxable under the then prevailing rates.
The unrecorded deferred liability on this amount was approximately
$964,144.
The provision for federal and state income taxes differs from that
computed by applying statutory rates to income before income tax expense,
as indicated in the following analysis:
For the Twelve Months Ended
December 31,
1998 1997 1996
----------- ----------- -----------
"Expected" tax expense $ 805,687 $ 913,654 $ 601,286
Meals 354 482 645
Tax-exempt dividend 0 0 0
Tax-exempt securities (22,031) (32,238) (30,662)
Other (5,483) (5,922) (7,135)
Profit on REOS 0 0 0
Dividends on ESOP stock 0 (1,286) (2,486)
Benefit of state income tax
deduction (25,620) (26,389) (9,104)
Compensation expense - ESOP 0 12,052 9,094
Non-deductible interest 500 0 0
Tax exempt interest on
loans (2,934) 0 0
--------- --------- ---------
Actual income tax expense $ 750,473 $ 860,353 $ 561,638
========= ========= =========
The current and deferred amounts of these tax provisions are as
follows:
For the Twelve Months Ended
December 31,
1998 1997 1996
--------- --------- ---------
Current
Federal $651,002 $740,822 $468,591
State 64,049 65,972 22,760
-------- -------- --------
$715,051 $806,794 $491,351
-------- -------- --------
Deferred
Federal $ 31,693 $ 47,921 $ 62,889
State 3,729 5,638 7,398
-------- -------- --------
$ 35,422 $ 53,559 $ 70,287
-------- -------- --------
Total Expense $750,473 $860,353 $561,638
======== ======== ========
F-21
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
INCOME TAXES - Continued
------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
For the Twelve Months Ended
December 31,
1998 1997
------------ ------------
Deferred Tax Assets
Accounting Change $ 0 $ 28,642
Allowance for Loan Losses 143,874 146,728
Other 7,209 6,116
--------- ---------
Total Deferred Tax Assets $ 151,083 $ 181,486
--------- ---------
Deferred Tax Liabilities
Depreciation 52,220 49,598
Deferred loan expenses 159,314 156,917
FASB 115 market value adjustment 662,423 429,864
--------- ---------
Total Deferred Tax Liabilities $ 873,957 $ 636,379
--------- ---------
Net Deferred Tax Assets (Liabilities)
Under SFAS 109 $(722,874) $(454,893)
========= =========
Due to the expectation of future taxable income, valuation reserves
were determined to be immaterial.
(9) RETAINED EARNINGS
-----------------
In connection with the insurance of savings accounts, the Institution
is required to maintain a federal insurance reserve. The reserve, which
aggregated $965,900 at December 31, 1998, is not a valuation allowance and
has not been created by charges against earnings. It represents a
restriction on retained earnings of the Institution.
(10) COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------
In the normal course of business, there are various outstanding
commitments and contingent liabilities such as guarantees, commitments to
extend credit, etc., which are not reflected in the accompanying financial
statements. The Bank does not anticipate losses as a result of these
transactions.
The Bank had commitments on mortgage loans of approximately $951,000
and $818,000 at December 31, 1998 and 1997, respectively.
Commitments under lines of credit for loans totaled approximately
$1,618,000 and $1,701,000 at December 31, 1998 and 1997, respectively. It
is the opinion of management that such commitments do not involve more than
the normal risk of loss.
F-22
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(11) STOCKHOLDERS' EQUITY AND REGULATORY MATTERS
-------------------------------------------
On February 19, 1991, the Board of Directors of Baxley Federal Savings
Bank adopted a Plan of Conversion (Plan) to convert from a Federally
chartered mutual savings bank to a Federally chartered stock savings bank.
The Plan was approved by regulatory authorities and Institution members at
a special meeting.
Federal regulations permit Baxley Federal to pay dividends only from
net earnings and retained earnings and do not permit Baxley Federal to pay
cash dividends on common stock if its net worth would be reduced below the
level required by the regulations or the amount required for the
liquidation account established by the Plan of Conversion. In order to
grant a priority to eligible account holders (as defined in the Plan of
Conversion) in the event of future liquidation, Baxley Federal at the time
of conversion, established a liquidation account in an amount equal to its
net worth as of December 31, 1990, adjusted as described below. In the
event of future liquidation of Baxley Federal, eligible account holders who
continue to maintain their deposit accounts shall be entitled to receive a
distribution from the liquidation account based on their proportionate
share of the then total remaining qualifying deposits. The total amount of
the liquidation account will be decreased as the balances of eligible
account holders are reduced on annual determination dates subsequent to the
conversion. No dividends may be paid to stockholders if such dividends
reduce the stockholders' equity of Baxley Federal below the amount required
for the liquidation account.
Baxley Federal may not declare or pay a cash dividend on, or
repurchase any of its common stock, if the effect thereof would cause the
stockholders' equity of Baxley Federal to be reduced below either the
amount required for the liquidation account or the fully phased-in
regulatory capital requirement imposed by the OTS.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) was signed into law on December 19, 1991. Regulations implementing
the prompt corrective action provisions of FDICIA includes significant
changes to the legal and regulatory environment for insured depository
institutions, including reductions in insurance coverage for certain kinds
of deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions, and new
regulations concerning internal controls, accounting and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Institutions categorized as "under-
capitalized" or worse are subject to certain restrictions, including the
requirement to file a capital plan with its primary Federal regulator,
prohibitions on the payment of dividends and management fees, restrictions
on executive compensation and increased supervisory monitoring, among other
things. Other restrictions may be imposed on the institution either by its
primary Federal regulator or by the
F-23
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(11) STOCKHOLDERS' EQUITY AND REGULATORY MATTERS - Continued
-------------------------------------------
Federal Deposit Insurance Corporation, including requirements to raise
additional capital, sell assets or sell the entire institution. Once an
institution becomes "critically undercapitalized," it must generally be
placed in receivership or conservatorship within 90 days.
To be considered "well capitalized," an institution must generally
have a leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of
at least 6% and a total risk-based capital ratio of at least 10%. An
institution is deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less.
While the Office of Thrift Supervision (OTS) and the Financial
Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) minimum
capital requirements were not changed by FDICIA, an OTS regulated thrift
rating will be determined using thresholds associated with the above
capital categories. OTS minimum capital requirements are 1.5% tangible
capital, 3% core capital and 8% risk-based capital. Therefore, an OTS-
regulated thrift could meet all three of its OTS minimum capital
requirements yet still be "undercapitalized" for purposes of prompt
corrective action under FDICIA.
Baxley Federal's capital position remains high compared to its peers
and is substantially in excess of all regulatory requirements. The Savings
Bank is not under any agreement with regulatory authorities nor is it aware
of any current recommendations by regulatory authorities which, if they
were to be implemented, would have a material effect on liquidity, capital
resources or operations of the Savings Bank. The Bank was categorized as
"well capitalized" under the aforementioned FDICIA requirements. The
following is a summary of the Bank's compliance with capital standards as
of December 31, 1998.
<TABLE>
<CAPTION>
For Capital
Adequacy Purposes and to Be
Adequately Capitalized under the
Prompt Corrective Action
Actual Provisions
----------------- ---------------------
Amount Ratio Amount Ratio
-------- ------- -------- -------
(dollars in Thousands) (dollars in Thousands)
<S> <C> <C> <C> <C>
As of December 31, 1998:
Total Risk-Based Capital
(to Risk-Weighted * *
Assets) $15,365 26.7% $4,607 8.0%
Tier 1 Capital
(to Risk-Weighted
Assets) 13,878 24.1% 2,303 4.0%
Tier 1 Capital
(to Adjusted Total
Assets) 13,878 13.1% 4,241 4.0%
Tangible Capital
(to Adjusted Total
Assets) 13,878 13.1% 1,590 1.5%
As of December 31, 1997:
Total Risk-Based Capital
(to Risk-Weighted
Assets) 13,680 24.9% 4,384 8.0%
Tier 1 Capital
(to Risk-Weighted
Assets) 12,994 23.7% 2,192 4.0%
Tier 1 Capital
(to Adjusted Total
Assets) 12,994 13.0% 4,001 4.0%
Tangible Capital
(to Adjusted Total
Assets) 12,994 13.0% 1,500 1.5%
</TABLE>
* Greater than or equal to sign.
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(11) STOCKHOLDERS' EQUITY AND REGULATORY MATTERS - Continued
-------------------------------------------
The following is a reconciliation of capital for the Bank under generally
accepted accounting principles (GAAP) to regulatory capital:
<TABLE>
<CAPTION>
Risk-Based Tier 1 (Core) Tangible
Capital Capital Capital
---------- ------------- --------
(Dollars in Thousands)
As of December 31, 1998:
<S> <C> <C> <C>
GAAP Capital $14,961 $14,961 $14,961
Unrealized Losses (Gains)
on Certain Available-for-
Sale Securities Net of
Taxes (316) (1,083) (1,083)
Allowances for Loan Losses 720 - -
------- ------- -------
Regulatory Capital $15,365 $13,878 $13,878
Minimum Capital
Requirement 4,607 4,241 1,590
------- ------- -------
Regulatory Capital Excess $10,758 $ 9,637 $12,288
======= ======= =======
As of December 31, 1997:
GAAP Capital $13,698 $13,698 $13,698
Unrealized Losses (Gains)
on Certain Available-for-
Sale Securities Net of
Taxes (704) (704) (704)
Allowance for Loan Losses 686 - -
------- ------- -------
Regulatory Capital $13,680 $12,994 $12,994
Minimum Capital
Requirement 4,384 4,001 1,500
------- ------- -------
Regulatory Capital Excess $ 9,296 $ 8,993 $11,494
======= ======= =======
</TABLE>
F-24
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(12) PENSION AND RETIREMENT PLANS
----------------------------
The Bank participates in the Financial Institutions Retirement Fund.
The Bank makes contributions to the plan equal to the amounts accrued for
pension expense. In this master multiple employer plan, the accumulated
benefits and plan assets are not determined or allocated separately by
individual employers. The Bank had no required contributions for the
current plan year ending June, 1998. The total pension expense was $-0-,
$9,861, and $30,042 for the years ended December 31, 1998, 1997 and 1996,
for this Institution.
On December 31, 1988, the Bank adopted the 401K thrift plan through
the Financial Institutions Thrift Plan to commence March 1,1989. The plan
covers substantially all of its employees. The employee participating may
defer up to 15% of gross income. The Bank will match $.25 on a dollar of
the employees contribution but will only consider the first 6% of the
employees' total contribution as a ceiling on its matching responsibility.
The total pension expense for the Bank's portion for the years ended
December 31, 1998, 1997 and 1996, was $10,396, $9,806, and $10,211,
respectively.
(13) EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
In connection with its conversion to stock form on June 27, 1991,
Baxley Federal established a leveraged Employee Stock Ownership Plan
("ESOP") for employees age 21 or older who have at least one year of
credited service. As part of the conversion, the ESOP borrowed $293,250
from an unrelated third party lender and purchased 29,325 shares of Baxley
Federal stock at $10 per share for a total of $293,250. All dividends
received by the ESOP were used to pay debt service. The ESOP shares
initially were pledged as collateral for its debt. As the debt was repaid,
shares were released from collateral and allocated to active employees,
based on the proportion of debt service paid in the year. The loan has
been fully repaid as of December 31, 1997. The Bank accounted for its ESOP
in accordance with Statement of Position 93-6. Accordingly, the debt of
the ESOP was recorded as debt and the shares pledged as collateral were
reported as unearned ESOP shares in the statement of financial position.
As shares were released from collateral, the Bank reported compensation
expense equal to the current market price of the shares, and the shares
became outstanding for earnings-per-share (EPS) computations. Dividends on
allocated ESOP shares were recorded as a reduction of retained earnings;
dividends on unallocated ESOP shares were recorded as a reduction of debt
and accrued interest. ESOP compensation expense was $-0-, $51,673, and
$64,327 for the years ended December 31, 1998, 1997 and 1996, respectively.
F-25
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(13) EMPLOYEE STOCK OWNERSHIP PLAN - Continued
-----------------------------
The ESOP shares as of December 31 were as follows:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Allocated shares 25,306.341
Shares released for allocation 4,018.659
Unreleased shares -
-----------
Total ESOP shares 29,325.000
===========
Fair value of unreleased shares at
December 31 $ 0
===========
</TABLE>
(14) STOCK OPTION PLANS
------------------
Also, in connection with the conversion, the Board of Directors
adopted an Incentive Stock Option Plan ("Incentive Plan") and a Stock
Option Plan for Outside Directors ("Directors Stock Option Plan"). Common
stock in an aggregate amount equal to 10% of the shares issued in the
conversion was reserved for issuance by Baxley Federal for stock options to
be granted (at no cost to them) to directors and officers of Baxley
Federal.
Officers of Baxley Federal are eligible to receive options under the
Incentive Plan. The Incentive Plan provides for the granting of options
over the next 10 years, after which no options may be granted. The option
price may not be less than 100% of the fair market value of the shares of
common stock on the date of the grant and no option shall be exercisable
more than 10 years after the date it is granted. 36,660 shares of common
stock have been reserved for options under the Incentive Plan. On June 27,
1991, options to purchase 36,660 shares were granted to purchase common
stock of Baxley Federal at the initial public offering price of $10.00 per
share.
Under the Directors Stock Option Plan, at the time of conversion, each
eligible member of the Board was granted a single nonstatutory option to
purchase shares of common stock. Under the Directors Stock Option Plan,
12,215 shares of common stock were reserved for issuance to eligible
directors of Baxley Federal. On June 27, 1991, options to purchase 12,215
shares were granted to purchase common stock of Baxley Federal at the
initial public offering price of $10.00 per share. Seven Board Members were
granted options to purchase 1,745 shares each. All directors' stock options
were exercised by the year ending December 31, 1995.
F-26
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(14) STOCK OPTION PLANS - Continued
------------------
The following is a summary of activity in the Incentive Stock Option
Plan:
<TABLE>
<CAPTION>
Incentive Stock Option Plan
-----------------------------------
December 31,
1998 1997 1996
----------- ----------- --------
<S> <C> <C> <C>
Options outstanding at
beginning of period 2,394 24,755 26,274
Options exercised 0 22,361 1,519
Options expired 2,394 0 0
------ ------- -------
Options outstanding at
End of Period 0 2,394 24,755
====== ======= =======
Option prices per share:
Options exercised $ 10 $ 10 $ 10
Options outstanding at
End of Period $ 10 $ 10 $ 10
</TABLE>
(15) BANK RECOGNITION AND RETENTION PLAN AND TRUSTS
----------------------------------------------
Baxley Federal established a Management Recognition and Retention Plan
and Trust ("MRP") and a Directors Recognition and Retention Plan and Trust
("DRP") (collectively, the "RRPs") as a method of providing officers and
directors of Baxley Federal a proprietary interest in the Institution in a
manner designed to encourage such persons to remain with Baxley Federal.
The terms of each RRP were identical, and only the participants varied.
Baxley Federal contributed funds to the RRPs to enable the MRP to purchase
three percent and the DRP to purchase one percent of the total number of
shares of common stock sold in the conversion. Because of excess stock
subscription orders, shares were not available for purchase by the RRPs. In
this event the RRPs may, following the conversion, purchase authorized but
unissued shares of common stock from the Institution subject to
stockholders' approval. Baxley Federal was authorized by the Board of
Directors to issue 16,250 shares of common stock out of its authorized but
unissued shares to the RRP at a purchase price of $10.00 per share, which
was the same as the purchase price in the conversion, with such shares to
be allocated 75% to MRP and 25% to DRP. The RRPs were submitted to
stockholders for ratification and approved in April, 1992. Baxley Federal
then issued 16,250 shares of common stock to the RRPs.
The participants earned shares at the rate of 20% of the aggregate
number of shares covered by the award at the end of each full twelve months
of employment as of the anniversary date of such award. 2,730 shares of
stock were awarded in May, 1997 and 3,552 shares were awarded in May 1996.
All shares had been awarded by December 31, 1997. Expense for issuance of
common stock to the MRP/DRP participants in the amounts of $-0-, $54,928,
and $70,614 were incurred during the twelve month period ended April, 1998,
1997 and 1996, respectively.
F-27
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(16) DISCLOSURE OF ACCUMULATED OTHER COMPREHENSIVE INCOME
----------------------------------------------------
During the first quarter ending March 31, 1998, Baxley Federal adopted
FASB No. 130, Reporting Comprehensive Income. Statement No. 130 requires
the reporting of comprehensive income in addition to net income from
operations. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income.
December 31, 1998
---------------------------------------
Current-
Beginning Period Ending
Balance Change Balance
--------- --------- ----------
Unrealized Gains on
Securities $701,357 $379,438 $1,080,795
-------- -------- ----------
Accumulated Other
Comprehensive Income $701,357 $379,438 $1,080,795
-------- -------- ----------
December 31, 1997
---------------------------------------
Current-
Beginning Period Ending
Balance Change Balance
--------- --------- ----------
Unrealized Gains on
Securities $459,355 $242,002 $ 701,357
-------- -------- ----------
Accumulated Other
Comprehensive Income $459,355 $242,002 $ 701,357
-------- -------- ----------
December 31, 1996
---------------------------------------
Current-
Beginning Period Ending
Balance Change Balance
--------- --------- ----------
Unrealized Gains on
Securities $364,963 $ 94,392 $ 459,355
-------- -------- ----------
Accumulated Other
Comprehensive Income $364,963 $ 94,392 $ 459,355
-------- -------- ----------
F-28
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
(17) FAIR VALUES OF FINANCIAL INSTRUMENTS
------------------------------------
The estimated fair values of the Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from Banks $ 853,460 $ 853,460 $ 800,191 $ 800,191
Interest Bearing Deposits in Banks 9,978,729 9,978,729 4,316,447 4,316,447
Federal Funds Sold 775,000 775,000 400,000 400,000
Investment Securities 4,462,333 4,462,333 4,571,058 4,571,058
Loans Net of Allowance 88,037,502 90,125,000 87,639,745 90,363,000
Accrued Interest Receivable 589,240 589,240 600,625 600,625
------------ ------------ ----------- ------------
Total Financial Assets $104,696,264 $106,783,762 $98,328,066 $101,051,321
============ ============ =========== ============
Financial Liabilities:
Deposits $ 90,831,155 $ 91,495,000 $85,912,544 $ 86,176,000
Other Borrowings 0 0 0 0
Accrued Interest payable 60,818 60,818 68,195 68,195
------------ ------------ ----------- ------------
Total Financial Liabilities $ 90,891,973 $ 91,555,818 $85,980,739 $ 86,244,195
============ ============ =========== ============
</TABLE>
The carrying amounts in the preceding table are included in the
statements of financial condition under the applicable captions. It is not
practicable to estimate the fair value of Federal Home Loan Bank (FHLB)
stock because it is not marketable. The carrying amount of that investment
is reported in the statements of financial condition.
F-29
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
- ------
Cash and Due from Banks $ 1,187,144 $ 853,460
Interest Bearing Deposits in Banks 8,682,177 9,978,729
Federal Funds Sold 1,075,000 775,000
------------ ------------
Total Cash and Cash Equivalents $ 10,944,321 $ 11,607,189
Investment Securities Available for
Sale, at Fair Value 3,849,557 4,462,333
Loans Receivable, Net (Note 1 & 2) 90,415,508 88,037,502
Premises and Equipment, Net (Note 1) 1,421,846 1,505,809
Investment Required by Law -
Federal Home Loan Bank Stock, at Cost 782,900 786,200
Accrued Interest Receivable 601,963 589,240
Other Assets 169,828 122,641
------------ ------------
Total Assets $108,185,923 $107,110,914
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
- -----------
Deposits (Note 3) $ 86,507,639 $ 90,831,155
Accrued Interest Expense 118,115 60,818
Other Liabilities 812,065 805,275
Other Borrowings 5,000,000 0
Dividends Payable 0 452,214
------------ ------------
Total Liabilities $ 92,437,819 $ 92,149,462
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
STOCKHOLDERS' EQUITY (Note 1)
- --------------------
Common Stock $.01 par value, shares
authorized - 8,000,000,
shares issued and outstanding
March 31, 1999, 551,481 $ 5,515 $ 5,515
Additional Paid in Capital 5,280,496 5,280,496
Retained Earnings 9,615,452 8,594,646
Accumulated Other Comprehensive
Income 846,641 1,080,795
------------ ------------
Total Stockholders' Equity $ 15,748,104 $ 14,961,452
------------ ------------
Total Liabilities and Stockholders'
Equity $108,185,923 $107,110,914
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
- ----------------------------
Interest
Loans (Note 1) $1,767,855 $1,838,280 $5,255,959 $5,560,322
Mortgage-Backed Securities 11,900 18,344 40,218 62,342
Investment Securities 28,451 27,714 84,283 89,295
Federal Funds & FHLB Overnight 101,416 73,783 356,880 169,863
Dividends 18,840 18,094 56,110 52,713
---------- ---------- ---------- ----------
Total Interest & Dividend Income $1,928,462 $1,976,215 $5,793,450 $5,934,535
INTEREST EXPENSE
- ----------------
Interest on Deposits $ 998,179 $1,136,158 $3,126,719 $3,296,662
Interest on Borrowings 13,222 0 13,222 0
---------- ---------- ---------- ----------
Total Interest Expense $1,011,401 $1,136,158 $3,139,941 $3,296,662
---------- ---------- ---------- ----------
Net Interest Income $ 917,061 $ 840,057 $2,653,509 $2,637,873
Provision for Loan Loss (Note 1) 0 0 0 0
---------- ---------- ---------- ----------
Net Interest & Dividend Income After Provision
for Loan Loss $ 917,061 $ 840,057 $2,653,509 $2,637,873
---------- ---------- ---------- ----------
OTHER INCOME
- ------------
Loan Fees $ 28,379 27,869 $ 83,899 $ 88,352
Other Fees 64,647 66,441 196,274 201,950
Other Income 10,536 6,466 28,208 22,429
---------- ---------- ---------- ----------
Total Other Income $ 103,562 $ 100,776 $ 308,381 $ 312,731
---------- ---------- ---------- ----------
OTHER EXPENSES
- --------------
Compensation -- Officers, Directors, Employees $ 187,289 $ 190,413 $ 586,516 $ 550,234
Employee Benefit Plans and Other
Personnel Expenses 42,645 41,658 127,485 127,587
Office Occupancy 45,575 45,694 123,954 126,632
Furniture & Equipment Expense 26,404 26,279 80,619 80,221
Advertising 17,689 15,233 43,492 37,098
Stationery & Supplies 22,343 24,963 70,348 73,032
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OTHER EXPENSES -- CONTINUED
Professional Expense 13,150 11,850 38,307 36,615
Federal Insurance Premiums 12,966 12,950 39,398 39,280
Supervisory Examinations 8,842 8,076 24,477 24,750
Data Processing Expense 47,021 46,708 147,108 142,498
Other Expenses 31,299 35,610 91,211 100,550
---------- ---------- ---------- ----------
Total Other Expenses $ 455,223 $ 459,434 $1,372,915 $1,338,497
---------- ---------- ---------- ----------
Income Before Income Tax Expense $ 565,400 $ 481,399 $1,588,975 $1,612,107
---------- ---------- ---------- ----------
Income Tax Expense:
Current $ 198,160 $ 172,832 $ 560,948 $ 565,402
Deferred 5,368 7,180 7,220 17,035
---------- ---------- ---------- ----------
Total Income Tax Expense (Note 4) $ 203,528 $ 180,012 $ 568,168 $ 582,437
---------- ---------- ---------- ----------
Net Income $ 361,872 $ 301,387 $1,020,807 $1,029,670
---------- ---------- ---------- ----------
Other Comprehensive Income, Before Tax:
Unrealized holding gains (losses) arising during
the period $ (162,169) $ 80,183 $ (377,669) $ 218,218
Income tax benefit (expense) related to
items of other comprehensive income 61,624 (30,470) 143,514 (82,923)
---------- ---------- ---------- ----------
Other Comprehensive Income, Net of Tax $ (100,545) $ (49,713) $ (234,155) $ 135,295
---------- ---------- ---------- ----------
Comprehensive Income $ 261,327 $ 351,100 $ 786,652 $1,164,965
========== ========== ========== ==========
Per Share Data Based on Weighted Average
Outstanding Shares
Basic Earnings Per Share $ .66 $ .55 $ 1.85 $ 1.87
========== ========== ========== ==========
Diluted Earnings Per Share $ .65 $ .55 $ 1.85 $ 1.87
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,020,807 $ 1,029,670
---------- -----------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation $ 95,410 $ 92,382
(Discount Accretion) Net of Premium Amortization 2,367 1,120
Provision for Loan Loss 0 0
Deferred Charges, Net 28,471 (1,620)
(Gain) Loss on Sale of Other Repossessed Assets 0 1,011
FHLB Stock Dividend 0 (36,800)
(Gain) Loss on Sale of Fixed Assets (2,666) 0
Changes in Operating Assets and Liabilities:
Increase (Decrease) in Accrued Interest Payable 57,297 54,669
Increase (Decrease) in Other Liabilities 150,304 46,482
Decrease (Increase) in Accrued Interest Receivable (12,723) (15,892)
Decrease (Increase) in Other Assets (47,187) (10,370)
---------- -----------
Total Adjustments $ 271,273 $ 130,982
---------- -----------
Net Cash Provided by Operating Activities $ 1,292,080 $ 1,160,652
---------- -----------
Cash Flows from Investing Activities:
(Increase) Decrease in Loans $(2,451,477) $(1,254,888)
Purchases of Securities Available for Sale (1,009,259) (500,234)
Purchases of Premises and Equipment (11,447) (74,021)
Proceeds from Maturities and Principal Repayments of
Securities Available for Sale 1,241,999 1,084,522
Proceeds from Sale of Other Real Estate Owned 47,666 132,330
Redemption of Federal Home Loan Bank Stock 3,300 0
---------- -----------
Net Cash Provided (Used) by Investing Activities $(2,179,218) $ (612,291)
---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1999 1998
----------- ----------
Cash Flows from Financing Activities:
Net Deposits from Customers $(4,323,516) $2,319,900
Dividends Paid (452,214) (446,700)
Advance from FHLB 5,000,000 0
Proceeds from Issuance of Stock Options 0 0
----------- ----------
Net Cash Provided (Used) by Financing
Activities $ 224,270 $1,873,200
----------- ----------
Net Increase (Decrease) in Cash
and Cash Equivalents $ (662,868) $2,421,561
Cash and Cash Equivalents at
Beginning of Period 11,607,189 5,516,638
----------- ----------
Cash and Cash Equivalents at
End of Period $10,944,321 $7,938,199
=========== ==========
Supplemental Disclosures of Cash
Flow Information:
Cash Paid During the Year For:
Interest $ 3,082,644 $3,241,993
Income Taxes 518,756 559,300
Supplemental Disclosures of Non-Cash Investing Activities:
Total Increase (Decrease) in unrealized gain on securities available for
sale was $(234,155) and $135,295 for the years ending September 30, 1999 and
1998.
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
The accounting and reporting policies of Baxley Federal Savings Bank
conform to generally accepted accounting principles and to general practice
within the savings and loan industry.
The information included in the accompanying financial statements and
related notes as of September 30, 1999 and December 31, 1998 and for the nine
months ended September 30, 1999 and 1998 is unaudited, but in the opinion of
management, reflects all adjustments (consisting of normal recurring
adjustments) necessary for a fair statement of the results of such interim
periods.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Baxley Federal Savings Bank was a Federally Chartered Mutual Savings
and Loan Institution regulated by the Office of Thrift Supervision (OTS).
In a special meeting held June 19, 1990, members of Baxley Federal Savings
and Loan Association adopted a Federal Mutual Savings Bank Charter and the
corporate name was changed to Baxley Federal Savings Bank. Baxley Federal
Savings Bank converted from a federally chartered mutual savings bank to a
federally chartered stock savings bank on June 27, 1991. Operations are
conducted at the home office in Baxley, Georgia and a branch office in
Hazlehurst, Georgia.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans and
the valuation of foreclosed real estate. In connection with the
determination of the estimated losses on loans and foreclosed real estate,
management obtains appraisals for significant properties.
The Bank extends credit to customers throughout its market area with a
concentration in real estate mortgage loans secured by one to four family
residences. The real estate loan portfolio is substantially secured by
properties located throughout Southeast Georgia. Although the Bank has a
diversified loan portfolio, a substantial portion of its borrowers' ability
to repay such loans is dependent upon the economy in the Bank's market
area.
F-36
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Use of Estimates - Continued
----------------
While management uses available information to recognize losses on
loans and foreclosed real estate, further reductions in the carrying
amounts of loans and foreclosed assets may be necessary based on changes in
local economic conditions. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the estimated losses
on loans and foreclosed real estate. Such agencies may require the Bank to
recognize additional losses based on their judgments about information
available to them at the time of their examination. Because of these
factors, it is reasonably possible that the estimated losses on loans and
foreclosed real estate may change materially in the near term. However, the
amount of the change that is reasonably possible cannot be estimated.
Loans and the Allowance for Loan Losses
--------------------------------------
Loans are stated at their unpaid principal balances net of unearned
discounts, allowance for loan losses and deferred loan fees. Unearned
discount is taken into income using the interest method.
Loan origination and commitment fees, as well as certain direct
origination costs, are deferred and amortized as a yield adjustment over
the lives of the related loans using the interest method. Amortization of
deferred loan fees is discontinued when a loan is placed on the nonaccrual
status.
Generally, interest income is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest payments
received on such loans are applied as a reduction of the loan principal
balance. Interest income on other impaired loans is recognized only to the
extent of interest payments received.
The allowance for loan losses is maintained at a level which, in the
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the
nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, economic conditions, and other risks
inherent in the portfolio. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated
cash flows. The allowance is increased by a provision for loan losses,
which is charged to expense and reduced by charge-offs, net of recoveries.
The Bank provides separate valuation allowances for estimated losses
on consumer loans and estimated losses on
F-37
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Loans and the Allowance for Loan Losses - (Continued)
--------------------------------------
mortgage loans and real estate owned. Additions to allowances are charged
to expense and reduced by charge-offs, net of recoveries.
Investment in Securities
------------------------
Baxley Federal adopted FASB 115 effective January 1, 1994. As of this
date, the Bank's investments in securities are classified in one category
and accounted for as follows:
. Securities Available for Sale. Securities available for sale
consist of bonds, notes, debentures and certain equity securities
not classified as trading securities or as securities to be held to
maturity.
Prior to 1994, all of Baxley Federal's investments were classified as
held to maturity.
Unrealized holding gains and losses, net of tax, on securities
available for sale are reported as a net amount in a separate component of
shareholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
The amortization of premiums and the accretion of discounts are
recognized in interest income using methods approximating the interest
method over the period of maturity.
Foreclosed Real Estate
----------------------
Foreclosed real estate is carried at the lower of cost or fair value
minus estimated costs to sell and consists of real estate acquired through
foreclosure in settlement of loans. Costs relating to holding and
maintaining real estate are charged to operations and costs relating to
improvement of real estate are capitalized.
Income Taxes
------------
Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently due
plus deferred taxes related primarily to differences between the basis of
available for sale securities, allowance for loan losses, estimated losses
on foreclosed real estate, accumulated depreciation and deferred loan
expenses. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred tax assets and liabilities are
F-38
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Income Taxes - (Continued)
------------
reflected at income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled.
As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated principally on the straight-line
method over the useful lives of the assets. Costs incurred for maintenance
and repairs are expensed currently.
Deferred Income
---------------
The Bank's method of accounting for nonrefundable fees and costs
associated with lending, committing to lend or purchase loans are in
accordance with FASB 91. These fees and costs are deferred and recognized
as income or expense over the life of the loan as an adjustment of yield.
The unamortized balance is reported on the balance sheet as part of the
loan balance to which they relate.
Statement of Cash Flows
-----------------------
The Bank considers all cash and amounts due from depository
institutions, interest-bearing deposits in other banks and federal funds
sold to be cash equivalents for purposes of the statements of cash flows.
Earnings Per Share
------------------
In March 1997, the Financial Accounting Standards Board ("FASB")
issued a Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share". SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to all entities with
publicly held common stock or potential common stock. Basic EPS excludes
dilution and is computed by dividing earnings available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS includes the potential dilutive securities
using the treasury stock method. The Bank adopted the requirements of SFAS
No. 128 in the year ended December 31, 1997. Prior years EPS amounts have
been restated to conform to SFAS 128. Basic earnings per share is computed
by dividing net income by the weighted-average number of shares outstanding
of 551,481 during the period ended September 30, 1999. The dilutive effect
of stock options in the number of 1,204 has been considered in the
computation of diluted earnings per share for the period ended September
30, 1999.
Other Borrowings
----------------
Other borrowings consist of a special Y2K advance borrowed from the
Federal Home Loan Bank for a six-month period.
F-39
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
Reclassifications
-----------------
Certain reclassifications of prior year amounts have been made to
conform to those classifications used in the accompanying financial
statements.
(2) LOANS RECEIVABLE, NET
---------------------
Loans receivable consisted of the following:
September 30, December 31,
1999 1998
------------- ------------
One to Four Family
Residential Mortgage $76,623,933 $73,300,000
Equity Line 1,462,603 1,018,919
Loans to Depositors,
Secured by Savings 1,571,477 1,190,818
Participation 1,872,744 2,076,087
Consumer and Other 10,389,109 11,661,931
----------- -----------
$91,919,866 $89,247,755
----------- -----------
Less:
Loans in Process $ 581,675 $ 300,091
Allowance for Loan Losses 729,438 745,688
Deferred Loan Fees 193,245 164,474
----------- -----------
$ 1,504,358 $ 1,210,253
----------- -----------
Total $90,415,508 $88,037,502
=========== ===========
(3) DEPOSITS
--------
Deposits are summarized as follows:
September 30, December 31,
1999 1998
------------- -------------
Non-interest Bearing NOW Accounts $ 2,907,185 $ 3,565,833
NOW Accounts 7,235,371 7,361,970
Money Market Deposit Accounts 6,466,959 6,221,984
Passbook Accounts 4,673,545 4,381,269
----------- -----------
Total Passbook and Transaction
Accounts $21,283,060 $21,531,056
Certificate Accounts 65,224,579 69,300,099
----------- -----------
Total Deposits $86,507,639 $90,831,155
=========== ===========
F-40
<PAGE>
BAXLEY FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
(4) INCOME TAXES
------------
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
September 30,
1999
-------------
Deferred Tax Assets:
Accounting Change $ 0
Allowance for Loan Losses 137,699
Other 10,082
---------
Total Deferred Tax Assets $ 147,781
---------
Deferred Tax Liabilities:
Depreciation $ 49,056
FASB 115 Market Value Adjustment 518,909
Deferred Loan Fees 166,396
---------
Total Deferred Tax Liabilities $ 734,361
---------
Net Deferred Tax Assets (Liabilities)
Under SFAS 109 $(586,580)
=========
Due to the expectation of future taxable income, valuation reserves
were determined to be immaterial.
Tax bad debt reserves created from income tax deductions are used to
absorb losses on loans. If the reserves are used for any other purpose,
such amounts are subject to tax at the then applicable rates. Since the
Bank does not intend to use the reserves for purposes other than to absorb
loan losses, deferred income taxes have not been provided on such reserves.
Actual expense differs from the "expected" tax expense as follows:
Nine Months Three Months
Ended Ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
Expected Tax Expense $585,735 $594,085 $194,707 $184,398
Tax Exempt Securities (24,869) (14,706) (7,204) (5,668)
Tax Exempt Dividend (3,223) (2,579) (1,074) (860)
Other (10,525) - 17,099 -
Compensation Expense --
ESOP Allocations - 5,717 - 2,142
-------- -------- -------- --------
Actual Income Tax Expense $568,168 $582,437 $203,528 $180,012
======== ======== ======== ========
F-41
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
-----------------------------------------
The following unaudited pro forma combined condensed balance sheet as of
September 30, 1999, gives effect to the merger of Baxley Federal Savings Bank
with PAB Bankshares, Inc. assuming such transaction is accounted for as a
pooling of interest and as if such transaction had been consummated on September
30, 1999.
The following unaudited pro forma combined condensed statements of income for
the nine months ended September 30, 1999 and the two years ended December 31,
1998, give effect to the merger of Baxley Federal Savings Bank with PAB
Bankshares, Inc. assuming such transaction is accounted for as a pooling of
interest and as if such transaction had been consummated on January 1, 1997.
The transaction was consummated on November 30, 1999 by the issuance of
1,323,533 shares of PAB Bankshares, Inc. common stock in exchange for all of the
outstanding common stock of Baxley Federal Savings Bank.
The unaudited pro forma combined condensed financial statements are presented
for information purposes only and are not necessarily indicative of the combined
financial position or results of operations which would actually have occurred
if the transaction had been consummated at the date and for the periods
indicated or which may be obtained in the future.
F-42
<PAGE>
PAB BANKSHARES, INC.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
BAXLEY
PAB FEDERAL ADJUSTMENTS
BANKSHARES, SAVINGS INCREASE PRO FORMA
INC. BANK (DECREASE) COMBINED
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
------
Cash and due from banks $ 23,601,375 1,187,144 -0- 24,788,519
Interest-bearing deposits
in other banks 3,315,145 8,682,177 -0- 11,997,322
Federal funds sold and
securities purchased
under agreements to
resell 6,020,000 1,075,000 -0- 7,095,000
Time deposits 396,000 -0- -0- 396,000
Investment securities 79,084,812 4,632,457 -0- 83,717,269
Investment in unconsolidated
subsidiary 190,309 -0- -0- 190,309
Loans, net of unearned interest 397,032,911 91,144,946 -0- 488,177,857
Allowance for loan losses (4,404,130) (729,438) -0- (5,133,568)
Bank premises and equipment 14,300,449 1,421,846 -0- 15,722,295
Other real estate 1,620,953 -0- -0- 1,620,953
Accrued interest receivable 6,406,559 601,963 -0- 7,008,522
Cash value of life insurance 3,009,804 -0- -0- 3,009,804
Goodwill and other intangible
assets 2,446,265 -0- -0- 2,446,265
Other assets 2,000,330 169,828 (604,505)(d) 1,565,653
------------ ----------- -------- -----------
Total Assets $535,020,782 108,185,923 (604,505) 642,602,200
============ =========== ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits:
Non-interest bearing deposits $ 58,722,202 2,907,185 -0- 61,629,387
Interest-bearing deposits 355,237,510 83,600,454 -0- 438,837,964
------------ ----------- -------- -----------
Total Deposits 413,959,712 86,507,639 -0- 500,467,351
Federal funds purchased and
securities sold under agreement
to repurchase 6,732,677 -0- -0- 6,732,677
Advances from Federal Home
Loan Bank 49,444,950 5,000,000 -0- 54,444,950
Other borrowed funds 7,092,332 -0- -0- 7,092,332
Other liabilities 4,636,186 930,180 (604,160)(c)(d) 4,962,206
------------ ----------- -------- -----------
Total Liabilities 481,865,857 92,437,819 (604,160) 573,699,516
------------ ----------- -------- -----------
Stockholders' Equity:
Common stock 1,217,065 5,515 (5,515)(b) 1,217,065
Additional paid in capital 25,926,736 5,280,496 5,170(b)(c) 31,212,402
Retained earnings 26,790,891 9,615,452 -0- 36,406,343
Accumulated other
comprehensive income (loss) (779,767) 846,641 -0- 66,874
------------ ----------- -------- -----------
53,154,925 15,748,104 (345) 68,902,684
------------ ----------- -------- -----------
Total Liabilities and
Stockholders' Equity $535,020,782 108,185,923 (604,505) 642,602,200
============ =========== ======== ===========
</TABLE>
See notes to unaudited pro forma combined condensed balance sheet.
F-43
<PAGE>
PAB BANKSHARES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
-------------------------------------------------------------
(a) To reflect the issuance of 1,323,533 shares of PAB Bankshares, Inc. common
stock to effect the Baxley Federal Savings Bank transaction. The transaction
will be accounted for as a pooling of interest, therefore, the effect upon
stockholders' equity will be to increase PAB Bankshares, Inc. stockholders'
equity by the total equity of Baxley Federal Savings Bank. The unaudited pro
forma financial statements have been prepared based on PAB Bankshares, Inc.
issuance of 1,323,533 shares of PAB Bankshares, Inc. common stock in
exchange for all the outstanding common stock of Baxley Federal Savings
Bank.
(b) A reclassification from common stock to additional paid in capital reflects
the fact that issuance of the common stock of PAB Bankshares, Inc. is no par
value and the Company has elected to freeze the common stock account at
$1,217,065.
(c) To reflect the payment for fractional shares which would otherwise have been
issued to stockholders of Investors Financial Corp. in the amount of $345.
(d) To reflect the reclassification of income tax liabilities of Baxley Federal
Savings Bank in the amount of $604,505 and reflect as a reduction of income
tax assets of PAB Bankshares, Inc.
F-44
<PAGE>
PAB BANKSHARES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
BAXLEY
PAB FEDERAL ADJUSTMENTS
BANKSHARES, SAVINGS INCREASE PRO FORMA
INC. BANK (DECREASE) COMBINED
------------ -------- ------------ ----------
<S> <C> <C> <C> <C>
Interest income $ 30,204 5,794 -0- 35,998
Interest expense (13,734) (3,140) -0- (16,874)
---------- ------ --- ---------
Net interest income 16,470 2,654 -0- 19,124
Provision for loan losses (585) -0- -0- (585)
Non-interest income 4,488 308 -0- 4,796
Non-interest expense (12,323) (1,373) -0- (13,696)
---------- ------ --- ---------
Income before income taxes 8,050 1,589 -0- 9,639
Income taxes (2,636) (568) -0- (3,204)
---------- ------ --- ---------
Net Income $ 5,414 1,021 -0- 6,435
========== ====== === =========
Earnings Per Share(a):
Basic $ .65 .67
========== =========
Diluted $ .64 .66
========== =========
Weighted Average Shares:
Basic 8,288,718 9,612,251
========== =========
Diluted 8,430,348 9,753,881
========== =========
</TABLE>
See notes to unaudited pro forma combined condensed statements of income
F-45
<PAGE>
PAB BANKSHARES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
BAXLEY
PAB FEDERAL ADJUSTMENTS
BANKSHARES, SAVINGS INCREASE PRO FORMA
INC. BANK (DECREASE) COMBINED
------------ -------- ------------ ----------
<S> <C> <C> <C> <C>
Interest income $ 39,697 7,912 -0- 47,609
Interest expense (19,004) (4,435) -0- (23,439)
---------- ------ --- ---------
Net interest income 20,693 3,477 -0- 24,170
Provision for loan losses (903) -0- -0- (903)
Non-interest income 5,623 419 -0- 6,042
Non-interest expense (15,415) (1,810) -0- (17,225)
---------- ------ --- ---------
Income before income taxes 9,998 2,086 -0- 12,084
Income taxes (3,347) (750) -0- (4,097)
---------- ------ --- ---------
Net Income $ 6,651 1,336 -0- 7,987
========== ====== === =========
Earnings Per Share(a):
Basic $ .80 .83
========== =========
Diluted $ .78 .81
========== =========
Weighted Average Shares:
Basic 8,279,413 9,602,946
========== =========
Diluted 8,490,292 9,813,825
========== =========
</TABLE>
See notes to unaudited pro forma combined condensed statements of income.
F-46
<PAGE>
PAB BANKSHARES, INC.
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
BAXLEY
PAB FEDERAL ADJUSTMENTS
BANKSHARES, SAVINGS INCREASE PRO FORMA
INC. BANK (DECREASE) COMBINED
------------ -------- ------------ ----------
<S> <C> <C> <C> <C>
Interest income $ 36,064 8,022 -0- 44,086
Interest expense (16,970) (4,255) -0- (21,225)
---------- ------ --- ---------
Net interest income 19,094 3,767 -0- 22,861
Provision for loan losses (793) -0- -0- (793)
Non-interest income 4,310 427 -0- 4,737
Non-interest expense (13,446) (1,829) -0- (15,275)
---------- ------ --- ---------
Income before income taxes 9,165 2,365 -0- 11,530
Income taxes (3,162) (860) -0- (4,022)
---------- ------ --- ---------
Net Income $ 6,003 1,505 -0- 7,508
========== ====== === =========
Earnings Per Share(a):
Basic $ .73 .79
========== =========
Diluted $ .72 .78
========== =========
Weighted Average Shares:
Basic 8,221,426 8,304,136
========== =========
Diluted 1,323,533 1,323,533
========== =========
</TABLE>
See notes to unaudited pro forma combined condensed statements of income.
F-47
<PAGE>
PAB BANKSHARES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
--------------------------------------------------------------------
(a) Pro forma earnings per share are based on the weighted average number of
shares outstanding for the period adjusted for the shares issued in the
transaction of 1,323,533 shares.
F-48
