<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000
------------------------------
Commission File Number 0-25422
PAB BANKSHARES, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1473302
------------------------------ ------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
3250 North Valdosta Road
Valdosta, Georgia 31602
------------------------------ ------------------------------
(Address of Principal executive offices) (Zip Code)
(912) 241-2775
------------------------------
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
There were 9,509,947 shares of the Registrant s Common Stock outstanding at
September 30, 2000.
================================================================================
<PAGE> 2
PAB BANKSHARES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements (Unaudited)
Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-9
Item 2. Managements' Discussion and Analysis of
Financial Condition and Results of Operations 10-18
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 20
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 26,248,049 31,524,206
Interest-bearing deposits with banks 12,633,327 11,715,628
Federal funds sold and securities purchased
under agreements to resell 38,215,000 21,405,000
Securities available for sale 70,451,400 78,925,871
Loans 557,915,004 494,417,167
Allowance for loan losses (5,678,772) (5,037,074)
-------------------------------------------------------------------------------
Net loans 552,236,232 489,380,093
-------------------------------------------------------------------------------
Premises and equipment 19,162,412 16,076,124
Goodwill and other intangible assets 2,133,527 2,357,098
Investment in unconsolidated subsidiary 100,001 40,391
Other real estate owned 724,038 762,667
Other assets 13,282,426 12,781,615
-------------------------------------------------------------------------------
Total assets $735,186,412 664,968,693
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 71,766,638 64,915,579
Interest-bearing deposits 507,850,623 451,288,404
-------------------------------------------------------------------------------
Total deposits 579,617,261 516,203,983
-------------------------------------------------------------------------------
Federal funds purchased and securities sold
under agreements to repurchase 15,369,196 13,828,094
Advances from the Federal Home Loan Bank 62,124,775 60,112,240
Dividends payable 947,054 986,417
Other liabilities 5,310,827 4,100,699
-------------------------------------------------------------------------------
Total liabilities 663,369,113 595,231,433
-------------------------------------------------------------------------------
Minority interest in preferred stock of
consolidated subsidiaries 126,000 126,000
-------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, no par value, 1,500,000 shares
authorized, no shares issued or outstanding 0 0
Common stock, no par value, 98,500,000 shares
authorized, 9,509,947 and 9,617,406 shares
issued at September 30, 2000 and
December 31, 1999, respectively 1,217,065 1,217,065
Additional paid-in capital 29,831,914 31,236,921
Retained earnings 40,562,951 37,336,119
Accumulated other comprehensive income (loss) 79,369 (178,845)
-------------------------------------------------------------------------------
Total stockholders' equity 71,691,299 69,611,260
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity $735,186,412 664,968,693
===============================================================================
</TABLE>
<PAGE> 4
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $13,088,123 11,005,106
Interest and dividends on securities:
Taxable 953,609 1,156,113
Tax-exempt 56,541 52,148
Other interest income 574,360 235,966
-------------------------------------------------------------------------------
Total interest income 14,672,633 12,449,333
-------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 6,286,392 4,894,028
Interest on federal funds purchased and securities
sold under agreements to repurchase 174,694 134,979
Interest on Federal Home Loan Bank advances 1,083,311 567,158
-------------------------------------------------------------------------------
Total interest expense 7,544,397 5,596,165
-------------------------------------------------------------------------------
Net interest income 7,128,236 6,853,168
Provision for loan losses 367,000 224,000
-------------------------------------------------------------------------------
Net interest income after provision
for loan losses 6,761,236 6,629,168
-------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 1,015,173 894,677
Other fee income 301,010 209,423
Securities transactions, net (8,610) (8,231)
Gain (loss) on sale of assets (197) 2,666
Equity in earnings of unconsolidated subsidiary 128,495 180,629
Other income 82,174 123,669
-------------------------------------------------------------------------------
Total other income 1,518,045 1,402,833
-------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 2,773,086 2,476,331
Occupancy expense of premises 312,584 286,995
Furniture and equipment expense 372,341 393,534
Goodwill amortization 89,880 89,166
Other operating expenses 1,385,564 1,425,961
-------------------------------------------------------------------------------
Total other expenses 4,933,455 4,671,987
-------------------------------------------------------------------------------
Income before income tax expense 3,345,826 3,360,014
Income tax expense 1,171,731 1,099,437
-------------------------------------------------------------------------------
Net income $ 2,174,095 2,260,577
===============================================================================
Earnings per common share:
Basic $ 0.23 0.24
===============================================================================
Diluted $ 0.23 0.23
===============================================================================
Weighted average shares outstanding:
Basic 9,509,770 9,613,654
===============================================================================
Diluted 9,575,208 9,725,171
===============================================================================
Dividends declared per share $ 0.11 0.10
===============================================================================
</TABLE>
<PAGE> 5
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $37,530,717 31,737,217
Interest and dividends on securities:
Taxable 3,042,163 3,736,320
Tax-exempt 173,427 188,446
Other interest income 1,281,339 866,375
-------------------------------------------------------------------------------
Total interest income 42,027,646 36,528,358
-------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 17,041,975 14,871,560
Interest on federal funds purchased and securities
sold under agreements to repurchase 493,341 304,774
Interest on Federal Home Loan Bank advances 2,801,558 1,696,837
-------------------------------------------------------------------------------
Total interest expense 20,336,874 16,873,171
-------------------------------------------------------------------------------
Net interest income 21,690,772 19,655,187
Provision for loan losses 1,095,437 584,600
-------------------------------------------------------------------------------
Net interest income after provision
for loan losses 20,595,335 19,070,587
-------------------------------------------------------------------------------
OTHER INCOME
Service charges on deposit accounts 2,847,694 2,593,703
Other fee income 819,003 878,001
Securities transactions, net (19,667) (32,620)
Gain (loss) on sale of assets (174,365) 18,984
Equity in earnings of unconsolidated subsidiary 455,341 555,495
Other income 282,986 306,996
-------------------------------------------------------------------------------
Total other income 4,210,992 4,320,559
-------------------------------------------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 8,378,707 7,236,195
Occupancy expense of premises 877,217 801,132
Furniture and equipment expense 1,171,977 1,108,676
Goodwill amortization 269,641 267,498
Other operating expenses 4,558,191 4,338,185
-------------------------------------------------------------------------------
Total other expenses 15,255,733 13,751,686
-------------------------------------------------------------------------------
Income before income tax expense 9,550,594 9,639,460
Income tax expense 3,243,767 3,204,695
-------------------------------------------------------------------------------
Net income $ 6,306,827 6,434,765
===============================================================================
Earnings per common share:
Basic $ 0.66 0.67
===============================================================================
Diluted $ 0.66 0.66
===============================================================================
Weighted average shares outstanding:
Basic 9,536,080 9,612,251
===============================================================================
Diluted 9,614,228 9,753,881
===============================================================================
Dividends declared per share $ 0.32 0.29
===============================================================================
</TABLE>
<PAGE> 6
<TABLE>
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 6,306,827 6,434,765
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 1,381,204 1,384,199
Provision for loan losses 1,095,437 584,600
Net realized loss on securities transactions 19,667 32,620
Net (gain) loss on sale of assets 174,365 (18,984)
Equity in earnings of unconsolidated subsidiary (455,341) (555,495)
Dividends received from unconsolidated subsidiary 350,000 400,000
Net increase in accrued interest receivable,
prepaid expenses and other assets (682,704) (1,267,198)
Net increase in accrued interest payable,
accrued expenses and other liabilities 1,029,017 615,361
-------------------------------------------------------------------------------
Net cash provided by operating activities 9,218,472 7,609,868
-------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in interest-bearing deposits with
other banks (917,699) (480,158)
Increase (decrease) in Federal funds sold and
securities purchased under agreements to resell (16,810,000) 9,310,000
Securities available for sale:
Purchases (2,167,444) (12,878,833)
Proceeds from sales and calls 559,142 10,236,393
Proceeds from maturities and paydowns 10,444,131 17,191,774
Net increase in loans (63,951,576) (48,648,551)
Purchase of premises and equipment (4,932,902) (1,605,618)
Proceeds from sale of assets 839,169 47,666
-------------------------------------------------------------------------------
Net cash used in investing activities (76,937,179) (26,827,327)
-------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 63,413,278 (3,619,778)
Net increase in Federal funds purchased
and securities sold under repurchase agreements 1,541,102 7,661,744
Net increase in Federal Home Loan Bank advances 2,012,535 15,387,227
Dividends paid (3,119,358) (2,196,110)
Dividends paid by pooled company 0 (452,214)
Proceeds from the exercise of stock options 29,515 2,413
Acquisition of stock under stock repurchase plans (1,434,522) 0
-------------------------------------------------------------------------------
Net cash provided by financing activities 62,442,550 16,783,282
-------------------------------------------------------------------------------
Net decrease in cash and due from banks (5,276,157) (2,434,177)
Cash and due from banks at beginning of period 31,524,206 27,222,697
-------------------------------------------------------------------------------
Cash and due from banks at end of period $26,248,049 24,788,520
===============================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $19,850,785 16,714,954
Taxes $ 3,666,300 3,186,018
Noncash transactions:
Increase (decrease) in unrealized gains on
Securities available for sale $ 439,325 (1,944,470)
Stock issued to directors in lieu of fees $ 0 114,630
</TABLE>
<PAGE> 7
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated financial information of PAB Bankshares, Inc.
and Subsidiaries (the "Company") is unaudited; however, such information
reflects all adjustments (consisting of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and results of operations. As more fully discussed in Note
2, the Company completed one merger in 1999 accounted for as a pooling of
interests. The accompanying consolidated financial information has been
restated for all periods presented to reflect the effect of this merger as if
it had taken place on January 1, 1999. Certain other reclassification
adjustments have been made to prior year amounts with no effect on total
assets or net income in order to conform with the current year presentation.
The results of operations for the three months and nine months ended September
30, 2000 are not necessarily indicative of the results that may be expected
for the full year. These statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
NOTE 2. BUSINESS COMBINATIONS
On November 30, 1999, the Company completed a business combination with Baxley
Federal Savings Bank ("Baxley Federal") by exchanging 1,323,533 shares of the
Company's common stock for all of the common stock of Baxley Federal. The
combination was accounted for as a pooling of interests and, accordingly, the
financial statements reflect the combination as if it took place on January 1,
1999. All prior period consolidated financial statements have been restated
to include the results of Baxley Federal.
The following table illustrates the Company's net interest income, net income,
and earnings per share on a consolidated basis for the periods prior to the
business combination discussed above:
<TABLE>
<CAPTION>
Net Basic Diluted
Interest Net Earnings Earnings
Income Income Per Share Per Share
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------
(In Thousands Except Per Share Amounts)
Three Months Ended
September 30, 1999:
PAB Bankshares, Inc. $5,936 $1,899 $0.23 $0.23
Baxley Federal 917 362 0.66 0.66
Combined $6,853 $2,261 $0.24 $0.23
=============================================================================
Nine Months Ended
September 30, 1999:
PAB Bankshares, Inc. $17,002 $5,414 $0.65 $0.64
Baxley Federal 2,653 1,021 1.85 1.85
-----------------------------------------------------------------------------
Combined $19,655 $6,435 $0.67 $0.66
=============================================================================
</TABLE>
<PAGE> 8
NOTE 3. STOCKHOLDERS' EQUITY
On March 20, 2000, the Company declared a quarterly cash dividend of $0.105
per share payable to shareholders of record as of March 31, 2000. The
dividend was paid by April 14, 2000.
On May 22, 2000, the Company declared a quarterly cash dividend of $0.1075
per share payable to shareholders of record as of June 30, 2000. The dividend
was paid by July 14, 2000.
On August 28, 2000, the Company declared a quarterly cash dividend of $0.11
per share payable to shareholders of record as of September 30, 2000. The
dividend is to be paid by October 13, 2000.
During the nine months ended September 30, 2000, the Company acquired and
cancelled 111,616 shares of common stock for a total of $1,434,522 through
two stock repurchase plans approved by the Board of Directors on June 21,
1999 and March 20, 2000. A balance of 13,384 shares was available in the
plans for repurchase at September 30, 2000.
During the nine months ended September 30, 2000, the Company issued 4,157
shares of common stock for a total of $29,515 upon the exercise of employee
stock options.
NOTE 4. COMPREHENSIVE INCOME
The Company's comprehensive income, which includes certain transactions and
other economic events that bypass the income statement, consists of net
income and unrealized gains and losses on securities available for sale, net
of income taxes.
Comprehensive income for the three months and nine months ended September 30,
2000 and 1999 is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Net income $2,174 2,261 6,307 6,435
-------------------------------------------------------------------------------
Other comprehensive income (loss):
Net unrealized holding gains
(losses) arising during the
period, net of tax 534 (817) 246 (1,321)
Reclassification adjustment for
losses included in net income,
net of tax 6 5 13 21
-------------------------------------------------------------------------------
Total other comprehensive
income (loss) 540 (812) 259 (1,300)
-------------------------------------------------------------------------------
Comprehensive income $2,714 1,449 6,566 5,135
===============================================================================
</TABLE>
<PAGE> 9
NOTE 5. EARNINGS PER SHARE
Earnings per share for periods prior to 2000 have been restated to reflect the
business combinations accounted for as poolings of interests.
The following tables set forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------
(In Thousands Except Per Share)
<S> <C> <C> <C> <C>
Basic:
Net income $2,174 $2,261 $6,307 $6,435
-------------------------------------------------------------------------------
Average common shares 9,510 9,614 9,536 9,612
-------------------------------------------------------------------------------
Earnings per common share $0.23 $0.24 $0.66 $0.67
===============================================================================
Diluted:
Net income $2,174 $2,261 $6,307 $6,435
-------------------------------------------------------------------------------
Average common shares 9,510 9,614 9,536 9,612
Effect of dilutive securities:
Stock options 65 111 78 142
-------------------------------------------------------------------------------
Average diluted common shares 9,575 9,725 9,614 9,754
-------------------------------------------------------------------------------
Earnings per common share $0.23 $0.23 $0.66 $0.66
===============================================================================
</TABLE>
NOTE 6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("Statement 133".) Statement
133 standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. The standard requires all
derivatives to be measured at fair value and recognized as either assets or
liabilities on the balance sheet. Under certain conditions, a derivative may
be specifically designated as a hedge. Accounting for the changes in fair
value of a derivative depends on the intended use of the derivative and the
resulting designation. In July 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133 - an amendment of FASB Statement No. 133" ("Statement 137"), which
deferred the effective date of Statement 133 to fiscal years beginning after
June 15, 2000. In June 2000, the FASB issued Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments
and Certain Hedging Activities - an amendment of FASB Statement No. 133"
("Statement 138".) For the Company, Statement 133, as amended by Statement
137 and Statement 138, is effective January 1, 2001. On adoption, the
provisions of Statement 133 must be applied prospectively. The Company is in
the process of assessing the impact that Statement 133 will have on its
financial statements.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PAB Bankshares, Inc. (the "Company") is a bank holding company organized and
incorporated in 1982 under the laws of the State of Georgia and headquartered in
Valdosta, Georgia. At June 30, 2000, the Company consisted of five financial
institution subsidiaries: The Park Avenue Bank in Valdosta, Georgia; Farmers &
Merchants Bank in Adel, Georgia; First Community Bank of Southwest Georgia in
Bainbridge, Georgia; Eagle Bank and Trust in Statesboro, Georgia; and Baxley
Federal Savings Bank in Baxley, Georgia (collectively referred to herein as the
"Banks"); and an investment advisory services subsidiary, PAB Financial
Services, LLC in Valdosta, Georgia ("PAB Financial").
The Company is focused on community banking. The Company's knowledge of both
its product lines and local markets allows it to compete effectively with larger
institutions by offering a wide range of products and services while maintaining
strong community relationships and name recognition within its markets. The
Company supports a philosophy of autonomous management with each subsidiary bank
having its own board of directors and officers who make lending decisions at the
local level. Through 13 banking offices, the Banks provide a broad array of
services including: loans to small and medium-sized businesses; residential,
construction and development loans; commercial real estate loans; consumer
loans; and a variety of commercial and consumer deposit products. Through
financial service agreements with PAB Financial, the Banks are able to offer a
complete line of financial and investment services to their customers.
Acquisitions of unaffiliated financial institutions during the past three years
have been a principal source of the Company's growth. In 1998, the Company
acquired both Eagle Bancorp, Inc. and its wholly owned bank subsidiary, Eagle
Bank and Trust, and Investors Financial Corporation and its wholly owned bank
subsidiary, Bainbridge National Bank. Bainbridge National Bank was subsequently
merged into First Community Bank of Southwest Georgia. In 1999, the Company
acquired Baxley Federal Savings Bank, a federal stock savings bank. During the
fourth quarter of 2000, Baxley Federal Savings Bank, with regulatory approval,
will convert its federal thrift charter to a state commercial bank charter. The
historical financial statements of the Company have been restated to give effect
to these acquisitions, which were accounted for as poolings of interests.
On September 19, 2000, the Company announced that they had entered into a merger
agreement with Friendship Community Bank of Ocala, Florida ("Friendship".)
Subject to regulatory and shareholder approvals, the Company will acquire 100%
of the stock of Friendship in an all cash transaction. Friendship has total
assets of approximately $50 million and two full-service banking offices in
Ocala.
The following discussion should be read in conjunction with the Consolidated
Financial Statements, including the footnotes, and is qualified in its entirety
by the foregoing and other more detailed financial information appearing
elsewhere herein. Historical results of operations and the percentage
relationships among any amounts included in the Consolidated Statements of
Income, and any trends which may appear to be inferable there from, should not
be taken as being necessarily indicative of trends in operations or results of
operations for any future periods.
<PAGE> 11
FINANCIAL CONDITION
During the nine-month period from December 31, 1999 to September 30, 2000, total
assets increased $70,217,000, or 10.6%, to $735,186,000. Most of this growth
was in the loan portfolio. Total loans increased $63,498,000, or 12.8%, to
$557,915,000. The loan growth is primarily attributable to strong demand for
loans in the markets that the Company serves. The Company has been able to fund
the loan demand through the liquidation of other earning assets and through an
aggressive campaign for deposit growth. Total deposits increased $63,413,000,
or 12.3%, to $579,617,000. An increase of $41,549,000 in time deposits
represented the majority of the total deposit growth during the period. The
table below provides a comparative summary of the major balance sheet accounts
at September 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
2000 1999 $ Change % Change
-------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Assets:
Interest-bearing deposits with
other banks $ 12,633 11,716 917 7.8%
Federal funds sold 38,215 21,405 16,810 78.5%
Securities available for sale 70,451 78,926 (8,475) -10.7%
Loans 557,915 494,417 63,498 12.8%
-------------------------------------------------------------------------------
Total interest-earning assets 679,214 606,464 72,750 12.0%
-------------------------------------------------------------------------------
Cash and due from banks 26,248 31,524 (5,276) -16.7%
Allowance for loan losses (5,679) (5,037) (642) 12.7%
Other assets 35,403 32,018 3,385 10.6%
-------------------------------------------------------------------------------
Total assets $735,186 664,969 70,217 10.6%
===============================================================================
Liabilities & stockholders equity:
Interest-bearing deposits $507,851 451,288 56,563 12.5%
FHLB advances 62,125 60,112 2,013 3.3%
Other short-term borrowings 15,369 13,828 1,541 11.1%
-------------------------------------------------------------------------------
Total interest-bearing
liabilities 585,345 525,228 60,117 11.4%
-------------------------------------------------------------------------------
Noninterest-bearing deposits 71,766 64,916 6,850 10.6%
Other liabilities 6,258 5,088 1,170 23.0%
Minority interests 126 126 0 0.0%
Stockholders' equity 71,691 69,611 2,080 3.0%
-------------------------------------------------------------------------------
Total liabilities &
stockholders' equity $735,186 664,969 70,217 10.6%
===============================================================================
</TABLE>
<PAGE> 12
RESULTS OF OPERATIONS
For the three months ended September 30, 2000, the Company recorded net income
of $2,174,000, or $0.23 per diluted share, as compared to $2,261,000, or $0.23
per diluted share, for the same period in 1999. The net decrease of $87,000, or
3.8%, is the result of the following:
Net interest income increased $275,000.
Provision for credit losses increased $143,000.
Other income increased $183,000.
Other expense increased $329,000.
Income tax expense increased $73,000.
For the nine months ended September 30, 2000 the Company recorded net income of
$6,307,000, or $0.66 per diluted share, as compared to $6,435,000, or $0.66 per
diluted share, for the same period in 1999. The net decrease of $128,000, or
2.0%, is due primarily to the following:
Net interest income increased $2,036,000.
Provision for credit losses increased $511,000.
Other income decreased $21,000.
Other expense increased $1,593,000.
Income tax expense increased $39,000.
The reasons for these changes are discussed more fully below.
Net Interest Income
-------------------
For the three months ended September 30, 2000, net interest income on a taxable-
equivalent basis was $7,158,000, compared to $6,880,000 for the same period in
1999, an increase of $277,000, or 4.0%. The net interest margin was 4.36% for
the third quarter of 2000, 38 basis points lower than the net interest margin
during the same period in 1999. The decrease of the net interest margin during
the period is the result of an increase in promotional rate certificates of
deposit and borrowings from the Federal Home Loan Bank.
For the three months ended September 30, 2000, total interest income on a
taxable-equivalent basis increased $2,226,000, compared to the same period in
1999. The increase in interest income was primarily due to an increase of
$77,224, or 13.4%, in interest-earning assets. In addition, the average yield
on earning assets was 36 basis points higher than the average yield during the
same period in 1999.
For the three months ended September 30, 2000, total interest expense increased
$1,948,000, compared to the same period in 1999. The increase in interest
expense was due to an increase in the volume of interest-bearing liabilities of
$74,974, or 15.4%, and an increase in interest rates. The average rate paid on
interest-bearing liabilities was 78 basis points higher than the average rate
during the same period in 1999.
<PAGE> 13
The following table sets forth the amount of interest income or expense and the
average yields or rates for each major category of interest-earning assets and
interest-bearing liabilities for the three months ended September 30, 2000 and
1999. Federally tax-exempt income is presented on a taxable-equivalent basis
assuming a 34% Federal tax rate.
<TABLE>
<CAPTION>
Three Months Ended
September 30, 2000 1999
-------------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $546,845 13,088 9.52% 475,286 11,005 9.19%
Investment securities:
Taxable 66,291 954 5.72% 78,874 1,156 5.82%
Nontaxable 4,844 86 7.04% 6,130 79 5.11%
Other short term
investments 35,631 574 6.41% 16,097 236 5.82%
-------------------------------------------------------------------------------
Total interest-
earning assets $653,611 14,702 8.95% 576,387 12,476 8.59%
===============================================================================
Interest-bearing liabilities:
Interest-bearing
demand deposits $112,502 810 2.86% 111,763 751 2.67%
Savings deposits 29,077 176 2.42% 30,611 201 2.60%
Time deposits 347,143 5,300 6.02% 292,015 3,942 5.36%
FHLB advances 59,726 1,083 7.22% 41,434 567 5.43%
Other short term
borrowings 14,481 175 4.80% 12,132 135 4.41%
-------------------------------------------------------------------------------
Total interest-
bearing
liabilities $562,929 7,544 5.33% 487,955 5,596 4.55%
===============================================================================
Net interest income $7,158 6,880
===============================================================================
Total assets $707,543 627,211
===============================================================================
Net interest margin 4.36% 4.74%
===============================================================================
</TABLE>
For the nine months period ended September 30, 2000, net interest income on a
taxable-equivalent basis was $21,780,000, compared to $19,752,000 for the same
period in 1999, an increase of $2,028,000, or 10.3%. The net interest margin
was 4.62% for the year-to-date, 2 basis points lower than the net interest
margin during the same period in 1999.
For the nine months ended September 30, 2000, total interest income on a
taxable-equivalent basis increased $5,492,000, compared to the same period in
1999. The increase in interest income was primarily due to an increase of
$60,757, or 10.7%, in interest-earning assets. In addition, the average yield
on earning assets was 33 basis points higher than the average yield during the
same period in 1999.
For the nine months ended September 30, 2000, total interest expense increased
$3,464,000, compared to the same period in 1999. The increase in interest
expense was due to an increase in the volume of interest-bearing liabilities of
$55,829, or 11.6%, and an increase in interest rates. The average rate paid on
interest-bearing liabilities was 37 basis points higher than the average rate
during the same period in 1999.
<PAGE> 14
The following table sets forth the amount of interest income or expense and the
average yields or rates for each major category of interest-earning assets and
interest-bearing liabilities for the nine months ended September 30, 2000 and
1999. Federally tax-exempt income is presented on a taxable-equivalent basis
assuming a 34% Federal tax rate.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000 1999
-------------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $526,915 37,531 9.51% 458,916 31,737 9.25%
Investment securities:
Taxable 69,332 3,042 5.86% 82,980 3,736 6.02%
Nontaxable 5,097 263 6.89% 7,007 286 5.45%
Other short term
investments 28,846 1,281 5.93% 20,530 866 5.64%
-------------------------------------------------------------------------------
Total interest-
earning assets $630,190 42,117 8.93% 569,433 36,625 8.60%
===============================================================================
Interest-bearing liabilities:
Interest-bearing
demand deposits $116,741 2,467 2.82% 110,906 2,208 2.66%
Savings deposits 29,355 570 2.60% 30,541 608 2.66%
Time deposits 323,124 14,005 5.79% 292,317 12,056 5.51%
FHLB advances 55,680 2,802 6.72% 39,453 1,697 5.75%
Other short term
borrowings 13,916 493 4.74% 9,770 305 4.17%
-------------------------------------------------------------------------------
Total interest-
bearing
liabilities $538,816 20,337 5.04% 482,987 16,873 4.67%
===============================================================================
Net interest income $21,780 19,752
===============================================================================
Total assets $681,596 619,808
===============================================================================
Net interest margin 4.62% 4.64%
===============================================================================
</TABLE>
<PAGE> 15
Provision for Loan Losses
-------------------------
For the third quarter of 2000, the Company recorded a provision for loan losses
of $367,000 compared to $224,000 for the third quarter of 1999. Net charge-offs
during the third quarter of 2000 amounted to $193,000 compared to $582,000 for
the third quarter of 1999.
For the nine months ended September 30, 2000, the Company recorded a provision
for loan losses of $1,095,000, compared to $585,000 during the same period in
1999. Net charge-offs for the nine months ended September 30, 2000 amounted to
$454,000 compared to $752,000 during the same period in 1999.
The increase in the provision was necessary to replenish loan losses during the
period and to provide for losses inherent in a growing loan portfolio.
Management anticipates further increases in the provision to supplement the
overall level of the allowance for loan losses. The allowance for loan losses
was 1.02% of total loans at September 30, 2000 and at December 31, 1999. The
annualized net loss to average total loans ratio was 0.12% for the current year-
to-date and 0.22% for the same period in 1999. Management will continue to
monitor and adjust the level of the allowance for loan losses in relation to net
charge-offs, as well as the overall level of the allowance for loan losses to
loans outstanding and management's assessment of loan losses inherent in the
loan portfolio.
The table below summarizes the level of nonperforming assets at September 30,
2000 and December 31, 1999.
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
2000 1999 $ Change % Change
-------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Loans past due 90 days or more
and still accruing interest (1) $1,140 465 675 145.2%
Nonaccrual loans 1,971 2,395 (424) -17.7%
-------------------------------------------------------------------------------
Total nonperforming loans 3,111 2,860 251 8.8%
Other real estate owned 754 763 (9) -1.2%
-------------------------------------------------------------------------------
Total nonperforming assets 3,865 3,623 242 6.7%
===============================================================================
Nonperforming loans/Total loans 0.56% 0.58%
Nonperforming assets/Total assets 0.53% 0.54%
</TABLE>
(1) The amount shown excludes $4,430,000, the guaranteed portion of a USDA
loan. The unguaranteed portion, $492,000, is included in the total for
nonaccrual loans.
<PAGE> 16
Other Income
------------
Other income increased $115,000, or 8.2%, during the third quarter of 2000
compared to the same period in 1999. The Company's main source of other income
is from service charges on deposit accounts. As a result of the deposit growth
in the Banks, service charge income increased $120,000, or 13.5%. Other fee
income increased $92,000, or 43.7%, due in part to brokerage fees generated
through PAB Financial. PAB Financial began operations in November 1999. The
Company s equity interest in the net earnings of Empire Financial Services,
Inc., an unconsolidated subsidiary, decreased $52,000, or 28.9%, compared to the
same period in 1999. Other noninterest income, which includes earnings on the
cash value of officers life insurance, decreased $41,000, or 33.6%. The
earnings on the cash value of officers life insurance policies for the quarter
was $30,000 less than the same period in 1999.
For the nine months ended September 30, 2000, other income decreased $110,000,
or 2.5%, compared to the same period in 1999. Service charges on deposits
increased by $254,000, or 9.8%. Other fee income decreased $59,000, or 6.7%.
Fees generated from mortgage banking activities decreased $156,000, or 33.7%,
due primarily to a decline in the demand for residential mortgages as compared
to the higher demand experienced in 1998 and early 1999. Management attributes
the decline in demand to an increase in mortgage interest rates. Fees generated
on brokerage services offered through PAB Financial, has provided $68,000 in
2000.
Other Expense
-------------
Other expense increased $261,000, or 5.6%, for the three months ended September
30, 2000 compared to the same period in 1999. Salaries and employee benefits
expense increased $297,000, or 12.0%. The increase in personnel cost is the
result of normal cost increases for existing employees plus an increase of 10.2%
in the number of full time equivalent employees from 246 at September 30, 1999
to 271 at September 30, 2000. The increase in employee levels is the result of
the Banks growth and the need for staffing at the holding company level. The
change in other expenses during the quarter is the result of normal business
operations.
For the nine months ended Sept 30, 2000, other expense increased $1,504,000, or
10.9%. Salaries and employee benefits increased $1,143,000, or 15.8%.
Occupancy expense increased $76,000, or 9.5%. Furniture and equipment expense
increased $63,000, or 5.7%. Other operating expense increased $220,000, or
5.1%.
During the year, the Company has been planning and preparing for a complete
systems conversion. The Company is upgrading its data processing, imaging,
Internet banking, teller, ATM, payroll and accounting systems and installing new
communications and networking systems to enhance the systems upgrades. Although
training and implementation of new policies and procedures should continue into
2001, management anticipates having the major components of the conversion
process completed by the end of this year.
The following table presents the major components of other operating expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
-------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Other operating expenses:
Postage and courier $ 119 112 364 363
Supplies 91 121 340 393
Advertising 96 86 309 256
Committee and directors fees 142 124 427 370
Legal and accounting fees 107 110 418 362
All other operating expenses 831 873 2,700 2,594
-------------------------------------------------------------------------------
Total other operating expenses $1,386 1,426 4,558 4,338
===============================================================================
</TABLE>
<PAGE> 17
Income Tax Expense
------------------
Income tax expense increased $72,000 for the three months ended September 30,
2000 compared to the same period in 1999. The effective tax rate for the third
quarter of 2000 was 35.0% compared to 32.7% for the same period in 1999.
Income tax expense increased $39,000 for the nine months ended September 30,
2000 compared to the same period in 1999. The effective tax rate the year-to-
date was 34.0% compared to 33.2% for the same period in 1999.
INTEREST RATE SENSITIVITY MANAGEMENT
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk."
The repricing of interest-earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of the Company's
asset/liability management program, the timing of repricing assets and
liabilities is referred to as Gap management. It is the policy of the Company
to maintain a Gap ratio in the one-year time horizon of .80 to 1.20. The
current Gap analysis indicates that the Company is somewhat liability sensitive
in relation to changes in market interest rates.
The Company uses simulation analysis to monitor changes in net interest income
due to changes in market interest rates. The simulation of rising, declining,
and a most likely interest rate scenario allows management to monitor and adjust
interest rate sensitivity to minimize the impact of market interest rate swings.
Each month management updates all available data concerning cash flows of assets
and liabilities, changes in market interest rates, and expectations as to new
volumes of loans and deposits.
During periods of rising interest rates, as has been experienced during 2000,
mortgage originations, especially refinancings, tend to decrease. This has been
somewhat offset by the strong economies in which the Company operates and
continued strong real estate market.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is an important factor in the financial condition of the Company and
affects the Company's ability to meet the borrowing needs and deposit withdrawal
requirements of its customers. Assets, consisting principally of loans and
investment securities, are funded by customer deposits, purchased funds, and
borrowed funds.
The Company's loan to deposit ratio was 96.3% and 95.8% at September 30, 2000
and December 31, 1999, respectively.
The investment portfolio is one of the Company's primary sources of liquidity.
Maturities of securities provide a constant flow of funds, which are available
for liquidity needs. Investment securities that contractually mature within one
year were approximately $38.2 million at September 30, 2000. However, mortgage-
backed securities and securities with call provisions create cash flows earlier
than the contractual maturities. Other short-term investments also increase
forecasted cash flows. Total short-term investments, which include Federal funds
sold and interest-earning deposits with other banks, totaled $50.8 million at
September 30, 2000. Maturities in the loan portfolio also provide a steady flow
of funds.
The Company has a total of $62.1 million in Federal Home Loan Bank advances as
of September 30, 2000. The advances mature at various dates from 2000 to 2010
and bear interest payable quarterly. Approximately $40.1 million of the
advances either mature of reprice within one year. The advances are
collateralized by qualifying first mortgage loans.
<PAGE> 18
At September 30, 2000, the Company had approximately $3.0 million in outstanding
commitments for major capital expenditures. These expenditures include the
estimated cost to complete construction in progress on three branch banking
offices and to complete the acquisition and installation of new data processing
and communications equipment and software. The Company plans to use normal cash
flows from operations to fund these capital expenditures. For the nine months
ended September 30, 2000, the net cash provided by operating activities was
approximately $9.2 million. Additionally, the Company anticipates that it will
utilize its $15 million line of credit with The Bankers Bank of Atlanta,
Georgia, to complete its $7.7 million acquisition of Friendship Community Bank
of Ocala, Florida.
Stockholders' Equity
--------------------
The Company maintains a ratio of stockholders' equity to total assets that is
adequate relative to industry standards. The Company's ratio of stockholders'
equity to total assets was 9.8% at September 30, 2000, compared to 10.5% at
December 31, 1999.
The Company and its subsidiary banks are required to comply with risk-based
capital adequacy standards established by the Federal Reserve and the Federal
Deposit Insurance Corporation. At September 30, 2000, management was not aware
of any recommendations by its regulatory authorities which, if they were to be
implemented, would have a material effect on the Company s liquidity capital
resources or operations. However, it is possible that examination by regulatory
authorities in the future could materially impact the Company's liquidity,
capital resources and operations.
The following table presents the Company's regulatory capital position as of
September 30, 2000.
<TABLE>
<CAPTION>
September 30, Minimum
2000 Requirement
------------------------------------------------------------------
<S> <C> <C>
Tier I Capital Leverage Ratio 9.9% 3.0%
Tier I Risk-based Capital Ratio 12.6% 4.0%
Total Risk-based Capital Ratio 13.7% 8.0%
</TABLE>
<PAGE> 19
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
This quarterly report on Form 10-Q contains "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. When used
in this report, the words "believes," "expects," "anticipates," "estimates," and
similar words and expressions are generally intended to identify forward-looking
statements. Statements that describe the Company's future strategic plans, goals
or objectives are also forward-looking statements, including those regarding the
intent, belief or current expectations of the Company or management, are not
guarantees of future performance, results or events and involve risks and
uncertainties, and that actual results and events may differ materially from
those in the forward-looking statements as a result of various factors
including, but not limited to, (i) interest rates and general economic
conditions in the markets in which the Company operates, (ii) competitive
pressures in the markets in which the Company operates, (iii) the effect of
future legislation or regulatory changes on the Company's operations, (iv) the
effect of weather, such as drought, on agribusiness loans and (v) other factors
described from time to time in the Company's filings with the Securities and
Exchange Commission. The forward-looking statements included in this report are
made only as of the date hereof. The Company undertakes no obligation to update
such forward-looking statements to reflect subsequent events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk and, to a
lesser extent, credit risk and liquidity risk. The Company has little or no risk
related to trading accounts, commodities or foreign exchange. Interest rate risk
is the exposure of a banking organization's financial condition and earnings
ability to adverse movements in interest rates. The Company has analyzed the
assumed market value risk and earnings risk inherent in its interest rate
sensitive instruments related to interest-rate swings of 300 basis points over a
24 month horizon, both above and below current levels (rate shock analysis).
Earnings and fair value estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore, cannot be
determined with precision. There have been no significant changes in the
Company's market risk exposure since December 31, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
<PAGE> 20
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule For the Nine Months
Ended September 30, 2000
27.2 Financial Data Schedule For the Nine Months
Ended September 30, 1999
b. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAB BANKSHARES, INC.
-----------------------
Registrant
Date: November 14, 2000 By: /s/ R. Bradford Burnette
----------------- --------------------------
R. Bradford Burnette
President and Chief Executive Officer
Date: November 14, 2000 By: /s/ Michael E. Ricketson
----------------- --------------------------
Michael E. Ricketson
Chief Financial Officer
<PAGE> 21
PAB BANKSHARES, INC.
FORM 10-Q
INDEX OF EXIBITS
The following exhibits are filed as part of the report.
EXHIBIT NO. DESCRIPTION
----------- --------------------------------
27.1 Financial Data Schedule
For the Nine Months
Ended September 30, 2000
27.2 Financial Data Schedule
For the Nine Months
Ended September 30, 1999
