<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED].
For the fiscal year ended December 31, 1995.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
Commission File No. 2-94292
FNB Banking Company
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(Exact name of Small Business Issuer as specified in its charter)
Georgia 58-1479370
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
318 South Hill Street, P.O. Drawer F, Griffin, Georgia 30224
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (770) 227-2251
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Check whether there the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
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Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. NOT APPLICABLE. REGISTRANT IS
NOT REQUIRED TO BE REGISTERED UNDER THE SECURITIES EXCHANGE ACT
OF 1934.
State the Issuer's revenue for its most recent fiscal year. $14,897,130.
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State the aggregate market value of the voting stock held by non-
affiliates: as of March 15, 1996, 566,504 Shares of Common
Stock, $1.00 par value, with an aggregate value of $17,278,372
(based upon approximate market value of $30.50/share) (the last
sale price known to the Registrant for the Common Stock, for
which there is no established trading market).
State the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: As of
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March 15, 1996, Common Stock, $1.00 par value - 807,800 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report (the "Annual Report") to
Shareholders for the year ended December 31, 1995 are
incorporated by reference into Part II.
Transitional Small Business Issuer Disclosure Format. Yes No X
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FNB BANKING COMPANY
FORM 10-KSB
INDEX PAGE
PART I
Item 1. DESCRIPTION OF BUSINESS .......................... 1
Item 2. DESCRIPTION OF PROPERTY ..........................21
Item 3. LEGAL PROCEEDINGS ............................... 22
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS .................................22
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ..............................22
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ...................................... 22
Item 7. FINANCIAL STATEMENTS ............................ 27
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE .......... 27
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS ............................ 28
Item 10. EXECUTIVE COMPENSATION .......................... 29
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ........................... 30
Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS .................................... 31
Item 13. EXHIBITS AND REPORTS ON FORM 8-K ................ 32
EXHIBIT INDEX
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PART I
Item 1. DESCRIPTION OF BUSINESS
THE COMPANY
FNB Banking Company, a Georgia corporation, (the "Company" or
"FNB") was organized on July 13, 1982. Effective on March 1, 1983,
FNB Banking Company acquired all of the 200,000 issued
and outstanding shares of common stock, $10.00 par value, of
First National Bank of Griffin (the "Bank"). As a result of this
transaction, the former shareholders of the Bank became the
shareholders of the Company, and the Bank became the wholly-owned
subsidiary of the Company.
The Company operates a full-service commercial banking
business based in Griffin, Georgia, providing such customary
banking services as checking and savings accounts, various types
of time deposits, safe deposit facilities, money transfers and
individual retirement accounts. The Company also finances
commercial transactions, makes secured and unsecured loans and
provides other financial services to its customers. The Company
performs corporate, pension and personal trust services through
the Bank.
On January 17, 1996, Griffin Loans, Inc., a consumer finance
subsidiary of the Bank, purchased substantially all of the assets
of another consumer finance company, Zebulon Finance
Corporation, for approximately $90,000. This purchase was the
result of the Company's desire to expand its financial services
into a segment of the market not normally served by the Bank,
particularly the small loan customer.
SERVICES
The Bank is community oriented, with an emphasis on retail
banking, and offers such customary banking services as consumer
and commercial checking accounts, NOW accounts, savings accounts,
certificates of deposit, lines of credit, Mastercard and
Visa accounts and money transfers. The Bank finances commercial
and consumer transactions, makes secured and unsecured loans, and
provides a variety of other banking services.
DEPOSITS
The Bank offers a full range of depository accounts and
services to both consumers and businesses. At December 31, 1995
the Bank's deposit base, totaling approximately $129 million,
consisted of approximately $23 million in non-interest
bearing demand deposits (18% of total deposits), approximately
$35 million in interest bearing demand deposits (including money
market accounts) (27% of total deposits), approximately $15
million in savings deposits (12% of total deposits),approximately
$45 million in time deposits in amounts less than $100,000 (35%
of total deposits), and approximately $11 million in time
deposits of $100,000 or more (8% of total deposits). Management
of the Bank is of the opinion that its time deposits of $100,000
or more are customer relationship-oriented and represent a
reasonably stable source of funds.
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LOANS
The Bank makes both secured and unsecured loans to individuals,
firms and corporations, and both its consumer and commercial
lending operations include various types of credit for the Bank's
customers. Secured loans include first and second real estate
mortgage loans. The Bank also makes direct installment loans to
consumers on both a secured and unsecured basis. At December 31,
1995, consumer, real estate (including mortgage and construction
loans) and commercial loans represented approximately 23%, 44%,
and 33%, respectively, of the Bank's total loan portfolio. On
October 13, 1994, the Bank purchased the assets of Griffin Loans,
Inc., a consumer finance company, and on January 17, 1996, Griffin
Loans, Inc. purchased substantially all of the assets of another
consumer finance company, Zebulon Finance Corporation. Most
loans made by the finance company are for less than $1,000, but
Griffin Loans, Inc. also makes real estate loans for larger
amounts.
LENDING POLICY
The current lending strategy of the Bank is to make loans
only to persons who reside, work or own property in its primary
trade area which consists of Spalding County, Georgia. Unsecured
loans normally are made only to persons who maintain depository
relationships with the Bank. Secured loans are made to persons
who are well established and have net worth, collateral and cash
flow to support the loan. Real estate loans are only made when
such loans are secured by real property located in the Bank's
primary trade area.
The Bank provides each lending officer with written
guidelines for lending activities. Lending authority is
delegated by the Board of Directors of the Bank to loan
officers, each of whom is limited in the amount of secured and
unsecured loans which they can make to a single borrower or
related group of borrowers. All unsecured loans in excess of
$50,000 must have the approval of the loan committee.
Making loans to businesses to fund working capital is a
traditional function of commercial banks. Such loans are
expected to be repaid out of the current earnings of the
commercial entity, and the ability of the borrower to service its
debt is dependent upon the success of the commercial enterprise.
It is the Bank's policy to secure these loans with collateral.
Many of the Bank's commercial loans are secured by real estate
collateral because such collateral is superior to other types of
collateral available to small businesses. Loans secured by
commercial real estate, however, particularly if collateral
dependent, are subject to certain inherent risks. Commercial
real estate may be substantially illiquid, and commercial real
estate values are difficult to ascertain and subject to wide
fluctuation depending upon economic conditions.
Effective March 19, 1993, inter-agency guidelines adopted by
federal bank regulators including the Office of the Comptroller
of the Currency went into effect mandating that financial
institutions establish real estate lending policies and
establishing certain minimum real estate loan-to-value standards.
The Bank has adopted these federal standards as its minimum
standards. These standards require minimum loan-to-value ratios
for various types of real estate loans as set forth
below, although the Bank may make exceptions to the minimum
standards, which exceptions must be accounted for and tracked:
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<TABLE>
<CAPTION>
Loan-to-
Value Limit
Loan category (percent)
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<S> <C> <C>
Raw land 65
Land development 75
Construction:
Commercial, multifamily <F1> and
other nonresidential 80
1- to 4-family residential 85
Improved Property 85
Owner-occupied 1- to 4-family and
home equity <F2>
_________________________
<FN>
<F1> Multifamily construction includes condominiums and
cooperatives.
<F2> A loan-to-value limit has not been established for
permanent mortgage or home equity loans on owner-occupied,
1- to 4-family residential property. However, for any such
loan with a loan-to-value ratio that equals or exceeds 90
percent at origination, appropriate credit enhancement in
the form of either mortgage insurance or readily marketable
collateral is required.
</FN>
</TABLE>
LOAN REVIEW AND NON-PERFORMING ASSETS
The loan review officer of the Company reviews the Bank's
loan portfolio to determine deficiencies and corrective action to
be taken. The results of the reviews by the loan review officer
are presented to the President of the Bank and the Executive
Committee of the Bank. On at least an annual basis, reviews are
conducted for all loans over $50,000. Past due loans are
reviewed at least weekly by lending officers and by the chief
credit officer, and a summary report is reviewed monthly by the
Board of Directors. Monthly, the Board of Directors reviews all
loans over $25,000 whether current or past due.
ASSET/LIABILITY MANAGEMENT
A committee composed of officers of the Bank is charged with
managing the Bank's assets and liabilities. The committee
attempts to manage asset growth, liquidity and capital in order
to maximize income and reduce interest rate risk. The committee
directs the Bank's overall acquisition and allocation of funds.
At monthly meetings, the committee reviews and discusses the
monthly asset and liability funds budget in relation to the
actual flow of funds, as well as peer group comparisons; the
ratio of the amount of rate-sensitive assets to the amount of
rate-sensitive liabilities; the ratio of the allowance for loan
losses to outstanding and non-performing loans; and other
variables, such as expected loan demand, investment
opportunities, core deposit growth within specified categories,
regulatory changes, monetary policy adjustments and
the overall state of the economy.
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INVESTMENT POLICY
The Bank's investment policy is to maximize income, consistent
with liquidity, asset quality and regulatory constraints. The policy
is reviewed from time to time by the Board of Directors of the Bank.
Individual transactions, portfolio composition and performance are
reviewed and approved monthly by the Board of Directors or a committee
thereof. The President of the Bank implements the policy and
reports to the full Board of Directors of the Bank on a monthly
basis information concerning sales, purchases, resultant gains or
losses, average maturity, federal taxable equivalent yields and
appreciation or depreciation by investment categories.
COMPETITION
The banking business is highly competitive. The Company's
primary market area consists of Spalding County, Georgia, with a
population of approximately 55,000. The Company competes in its
market with four other commercial banks and one thrift
institution. The deposit range of its competitors in the local
market area is $43 million to $113 million. The Bank is the
largest bank in its market area in terms of assets and deposit
size, with assets and deposits at December 31, 1995 of
approximately $150 million and $129 million, respectively.
In addition to the Company's competitors in Griffin, Georgia,
the Company competes with commercial banks, thrifts, various
other financial institutions and brokerage houses located outside
Griffin. To a lesser extent, the Company also competes for loans
with insurance companies, regulated small loan companies, credit
unions and certain governmental agencies. In addition, the
Company and any non-banking subsidiaries it may establish in the
future compete and will compete with numerous other companies and
financial institutions engaged in similar lines of business, such
as other bank holding companies, leasing companies and insurance
companies.
EMPLOYEES
As of December 31, 1995, the Company and the Bank had 98
full-time and 19 part-time employees. The Company is not a party
to any collective bargaining agreement. Management believes the
Company enjoys satisfactory relations with its employees.
SUPERVISION AND REGULATION
GENERAL. The Company is a registered bank holding company
subject to regulation by the Board of Governors of the Federal
Reserve (the "Federal Reserve") under the Bank Holding Company
Act of 1956, as amended (the "Act"). The Company is required to
file financial information with the Federal Reserve periodically
and is subject to periodic examination by the Federal Reserve.
The Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before (i) it may acquire
direct or indirect ownership or control of more than 5% of the
voting shares of any bank that it does not already control;
(ii) it or any of its subsidiaries, other than a bank, may acquire
all or substantially all of the assets of a bank; and (iii) it
may merge or consolidate with any other bank holding company. In
addition, a bank holding company is generally prohibited from
engaging in, or acquiring, direct or indirect control of the
voting shares of any company engaged in non-banking activities.
This prohibition does not apply to activities found by the
Federal Reserve, by order or regulation, to be so closely related
to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal
Reserve has determined by regulation or order to be closely
related to banking are: making or servicing loans and certain
types of leases; performing certain data processing
services; acting as fiduciary or investment or financial advisor;
providing discount brokerage services; underwriting bank eligible
securities; underwriting debt and equity securities on a limited
basis through separately capitalized subsidiaries; and making
investments in corporations or projects designed primarily to
promote community welfare.
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The laws of Georgia require annual registration with the
Department of Banking and Finance (the "DBF") by all Georgia bank
holding companies. Such registration includes information with
respect to the financial condition, operations, management and
intercompany relationships of a bank holding company and its
subsidiaries and related matters. The DBF may also require such
other information as is necessary to keep itself informed as to
whether the provisions of Georgia law and the regulations and
orders issued thereunder by the DBF have been complied with, and
the DBF may make examinations of each bank holding company and
each bank subsidiary thereof, other than a national bank.
The Bank is a national bank chartered under the National
Bank Act and is subject to the supervision of, and is regularly
examined by, the Office of the Comptroller of the Currency (the
"OCC"). The OCC regulates or monitors all areas of the Bank's
operations and activities, including reserves, loans,
mergers, issuance of securities, payments of dividends, interest
rates and establishment of branches. Interest and certain other
charges collected or contracted for by the Bank are also subject
to state usury laws or certain federal laws concerning interest
rates.
The Bank is insured by the Federal Deposit Insurance
Corporation (the "FDIC"). The major functions of the FDIC with
respect to insured banks include paying depositors to the extent
provided by law if an insured bank is closed without adequate
provisions having been made to pay claims of depositors, acting
as a receiver of state banks placed in receivership when
appointed receiver by state authorities and preventing
thedevelopment or continuance of unsound and unsafe banking
practices.
The Company is an "affiliate" of the Bank under the Federal
Reserve Act, which imposes certain restrictions on (i) loans by
the Bank to the Company, (ii) investments in the stock or
securities of the Company by the Bank, (iii) the Bank's taking
the stock or securities of an "affiliate" as collateral for loans
by the Bank to a borrower and (iv) the purchase of assets from
the Company by the Bank. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services.
PAYMENT OF DIVIDENDS. The Company is a legal entity
separate and distinct from the Bank. Most of the revenues of the
Company result from dividends paid to it by the Bank. There are
statutory and regulatory requirements applicable to the payment
of dividends by the Bank, as well as by the Company to its
shareholders.
As a national bank, the Bank is required by federal law to
obtain the prior approval of the OCC for payments of dividends if
the total of all dividends declared by the Board of Directors in
any year will exceed the total of the Bank's net profits (as
defined and interpreted by regulation) for that year, plus
(ii) the Bank's retained net profits (as defined and interpreted
by regulation) of the preceding two years, less any required
transfers to surplus.
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The payment of dividends by the Company and the Bank may
also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory
guidelines. In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice
(which, depending upon the financial condition of the bank, could
include the payment of dividends), such authority may require,
after notice and hearing, that such bank cease and desist from
such practice. The FDIC and the OCC have issued policy
statements providing that insured banks should generally only pay
dividends out of current operating earnings. At December 31,
1995, retained earnings available from the Bank to pay dividends
totalled approximately $3,000,000 million. For 1995, the
Company's cash dividend payout to stockholders was 27% of net
income.
MONETARY POLICY. The results of operations of the Bank, and
therefore the Company, are affected by credit policies of
monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve
include open market operations in U.S. government
securities, changes in the discount rate on bank borrowings and
changes in reserve requirements against bank deposits. In view
of changing conditions in the national economy and in the money
markets, as well as the effect of actions by monetary and fiscal
authorities, including the Federal Reserve, no prediction can be
made as to possible future changes in interest rates, deposit
levels, loan demand or the business and earnings of the Bank.
CAPITAL ADEQUACY. The Federal Reserve and the OCC have
implemented substantially identical risk-based rules for
assessing bank and bank holding company capital adequacy. These
regulations establish minimum capital standards in relation to
assets and off-balance sheet exposures as adjusted for credit
risk. Banks and bank holding companies are required to have (1)a
minimum level of total capital (as defined) to risk-weighted
assets of eight percent (8%); (2) a minimum Tier One Capital (as
defined) to risk-weighted assets of four percent (4%); and (3) a
minimum stockholders' equity to risk-weighted assets of four
percent (4%). In addition, the Federal Reserve and the OCC have
established a minimum three percent (3%) leverage ratio of Tier
One Capital to total assets for the most highly-rated banks and
bank holding companies. "Tier One Capital" generally consists of
common equity not including unrecognized gains and losses on
securities, minority interests in equity accounts of consolidated
subsidiaries and certain perpetual preferred stock less certain
intangibles. The Federal Reserve and the OCC will require a bank
holding company and a bank, respectively, to maintain a leverage
ratio greater than three percent (3%) if either is experiencing
or anticipating significant growth or is operating with less than
well-diversified risks in the opinion of the Federal Reserve. The
Federal Reserve and the OCC use the leverage ratio in tandem with
the risk-based ratio to assess the capital adequacy of banks and
bank holding companies. The FDIC, the OCC and the Federal
Reserve have proposed amending the capital adequacy standards to
provide for the consideration of interest rate risk in the
overall determination of a bank's capital ratio, requiring banks
with greater interest rate risk to maintain adequate capital for
the risk. The proposed revisions are not expected to have a
significant effect on the Company's capital requirements, if
adopted in their current form.
In addition, effective December 19, 1992, a new Section 38
to the Federal Deposit Insurance Act implemented the prompt
corrective action provisions that Congress enacted as a part of
the Federal Deposit Insurance Corporation Improvement Act of 1991
(the "1991 Act"). The "prompt corrective action" provisions set
forth five regulatory zones in which all banks are placed largely
based on their capital positions. Regulators are permitted to
take increasingly harsh action as a bank's financial condition
declines. Regulators are also empowered to place in receivership
or require the sale of a bank to another depository institution
when a bank's capital leverage ratio reaches two percent. Better
capitalized institutions are generally subject to less onerous
regulation and supervision than banks with lesser amounts of
capital.
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The OCC has adopted regulations implementing the prompt
corrective action provisions of the 1991 Act, which place
financial institutions in the following five categories based
upon capitalization ratios: (1) a "well capitalized" institution
has a total risk-based capital ratio of at least 10%, a Tier One
risk-based ratio of at least 6% and a leverage ratio of at least
5%; (2) an "adequately capitalized" institution has a total
risk-based capital ratio of at least 8%, a Tier One risk-based
ratio of at least 4% and a leverage ratio of at least 4%; (3)
an"undercapitalized" institution has a total risk-based capital
ratio of under 8%, a Tier One risk-based ratio of under 4% or a
leverage ratio of under 4%; (4) a "significantly
undercapitalized" institution has a total risk-based capital
ratio of under 6%, a Tier One risk-based ratio of under 3% or a
leverage ratio of under 3%; and (5) a "critically
undercapitalized" institution has a leverage ratio of 2% or less.
Institutions in any of the three undercapitalized categories
would be prohibited from declaring dividends or making capital
distributions. The OCC regulations also establish procedures
for"downgrading" an institution to a lower capital category based
on supervisory factors other than capital. Under the OCC's
regulations, the Bank was a "well capitalized" institution at
December 31, 1995.
CAPITAL ADEQUACY
Set forth below are pertinent capital ratios for the
Company and the Bank as of December 31, 1995.
Minimum Capital Requirements Company Bank
- ---------------------------- ------- ----
Tier 1 Capital to Risk-based 14.95% 15.51% (1)
Assets: 4.00%
Total Capital to Risk-based 16.06% 16.76% (2)
Assets: 8.00%
Leverage Ratio (Tier 1 Capital 11.36% 10.70% (3)
to Total Assets): 3.00%
(1) Minimum for "Well Capitalized" Banks = 6%
(2) Minimum for "Well Capitalized" Banks = 10%
(3) Minimum for "Well Capitalized" Banks = 5%
RECENT LEGISLATIVE AND REGULATORY ACTION. On April
19, 1995, the four federal bank regulatory agencies adopted
revisions to the regulations promulgated pursuant to the
Community Reinvestment Act (the "CRA"), which are intended to set
distinct assessment standards for financial institutions. The
revised regulation contains three evaluation tests: (i) a
lending test, which compares an institution s market share of
loans in low- and moderate-income areas to its market share of
loans in its entire service area and the percentage of a bank s
outstanding loans to low- and moderate-income areas or
individuals, (ii) a services test, which evaluates the provisions
of services that promote the availability of credit to low- and
moderate-income areas, and (iii) an investment test, which
evaluates an institution's record of investments in organizations
designed to foster community development, small- and
minority-owned businesses and affordable housing lending,
including state and local government housing or revenue bonds.
The regulations are designed to reduce some paperwork
requirements of the current regulations and provide regulators,
institutions and community groups with a more objective and
predictable manner with which to evaluate the CRA performance of
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financial institutions. The rule became effective on January 1,
1996, at which time evaluation under streamlined procedures began
for institutions with assets of less than $250 million that are
owned by a holding company with total assets of less than $1
billion. It is not expected that these regulations will have any
appreciable impact upon the Company and the Bank.
Congress and various federal agencies (including, in
addition to the bank regulatory agencies, the Department of
Housing and Urban Development, the Federal Trade Commission and
the Department of Justice) (collectively the "Federal Agencies")
responsible for implementing the nation's fair lending laws have
been increasingly concerned that prospective home buyers and
other borrowers are experiencing discrimination in their efforts
to obtain loans. In recent years, the Department of Justice has
filed suit against financial institutions, which it determined
had discriminated, seeking fines and restitution for borrowers
who allegedly suffered from discriminatory practices. Most, if
not all, of these suits have been settled (some for substantial
sums) without a full adjudication on the merits.
On March 8, 1994 the Federal Agencies, in an effort to
clarify what constitutes lending discrimination and specify the
factors the agencies will consider in determining if lending
discrimination exists, announced a joint policy statement
detailing specific discriminatory practices prohibited under the
Equal Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were
identified: (1) overt evidence of discrimination, when a lender
blatantly discriminates on a prohibited basis, (2) evidence of
disparate treatment, when a lender treats applicants differently
based on a prohibited factor even where there is no showing that
the treatment was motivated by prejudice or a conscious intention
to discriminate against a person, and (3) evidence of disparate
impact, when a lender applies a practice uniformly to all
applicants, but the practice has a discriminatory effect, even
where such practices are neutral on their face and are applied
equally, unless the practice can be justified on the basis of
business necessity.
On September 23, 1994, President Clinton signed the Reigle
Community Development and Regulatory Improvement Act of 1994 (the
"Regulatory Improvement Act"). The Regulatory Improvement Act
contains funding for community development projects through banks
and community development financial institutions and also
numerous regulatory relief provisions designed to eliminate
certain duplicative regulations and paperwork requirements.
On September 29, 1994, President Clinton signed the
Reigle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the"Federal Interstate Bill") which amends federal law to
permit bank holding companies to acquire existing banks in any
state effective September 29, 1995, and any interstate bank
holding company is permitted to merge its various bank
subsidiaries into a single bank with interstate branches after
May 31, 1997. States have the authority to authorize interstate
branching prior to June 1, 1997, or alternatively, to opt out of
interstate branching prior to that date. The Georgia Financial
Institutions Code was amended in 1994 to permit the acquisition
of a Georgia bank or bank holding company by out-of-state bank
holding companies beginning July 1, 1995. On September 29, 1995,
the interstate banking provisions of the Georgia Financial
Institutions Code were superseded by the Federal Interstate Bill.
On January 26, 1996, the Georgia legislature adopted a
bill (the "Georgia Intrastate Bill") to permit, effective July 1,
1996, any bank located in Georgia or group of affiliated banks
under one holding company to establish new or additional branch
banks in up to three additional counties anywhere within the
State of Georgia where the bank does not currently have
operations. After July 1, 1998, all restrictions on state-wide
branching would be removed. Prior to adoption of the Georgia
Intrastate Bill, Georgia only permitted branching of banks within
a county, via merger or consolidation with an existing bank or in
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certain other limited circumstances. Although Governor Miller
has not yet signed the Georgia Intrastate Bill into law, he is
expected to do so.
FDIC INSURANCE ASSESSMENTS FOR THE BANK. The Bank is subject
to FDIC deposit insurance assessments for the Bank Insurance Fund
(the "BIF"). In the first six months of 1995, the Bank was
assessed $.23 per $100 of deposits based upon a risk-
based system whereby banks are assessed on a sliding scale
depending upon their placement in nine separate supervisory
categories, from $.23 per $100 of deposits for the healthiest
banks (those with the highest capital, best management and best
overall condition) to as much as $.31 per $100 of deposits for
the less-healthy institutions, for an average $.259 per $100 of
deposits.
On August 8, 1995, the FDIC lowered the BIF premium
for healthy banks 83% from $.23 per $100 in deposits to $.04 per
$100 in deposits, while retaining the $.31 level for the riskiest
banks. The average assessment rate was therefore reduced
from $.232 to $.044 per $100 of deposits. The new rate took
effect on September 29, 1995. On September 15, 1995, the FDIC
refunded $80,081 to the Bank for premium over payments in the
second and third quarter of 1995. On November 14, 1995, the FDIC
again lowered the BIF premium for healthy banks from $.04 per
$100 of deposits to zero for the highest rated institutions (92%)
of the industry). As a result, the Bank will pay only the
legally required annual minimum payment of $2,000 per year for
insurance beginning in January 1996. Had the current rates been
in effect for all of 1994 and 1995, the annual FDIC insurance
premiums paid by the Bank would have been reduced by
approximately $284,000.
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SELECTED STATISTICAL INFORMATION
The following section presents consolidated statistical information for
FNB Banking Company which supplements the financial data discussed
elsewhere herein.
Index to Selected Statistical Information
Table 1 Average Balances and Interest Rates
Table 2 Volume-Rate Analysis
Table 3 Investment Portfolio
Table 4 Loan Portfolio
Table 5 Allowance for Loan Losses
Table 6 Deposits
Table 7 Selected Ratios
Average balances contained in the following selected statistical information
generally represent average daily balances for all periods.
-10-
<PAGE>
Table 1
Average Balances and Interest Rates
The table below shows the month-end average balance outstanding for each
category of interest earning assets and interest-bearing liabilities for
the indicated periods, and the average rate of interest earned or paid
thereon.
<TABLE>
<CAPTION>
For the Years Ended December 31,
(Amounts are presented in thousands)
1995 1994 1993
----------------------------- ----------------------------- ---------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Loans (including loan fees) $107,447 11,017 10.25% 100,946 9,550 9.46% 91,623 9,103 9.94%
Investment securities:
Taxable 16,399 1,118 6.82% 16,384 1,050 6.41% 19,398 1,241 6.40%
Non-taxable 8,746 786 8.98% 9,516 844 8.87% 10,213 947 9.27%
Federal funds sold 2,013 120 5.96% 4,582 202 4.41% 6,576 194 2.95%
------- ------- ---- ------- ------ ---- ------- ------ ----
Total interest earning assets 134,605 13,041 9.69% 131,428 11,646 8.86% 127,810 11,485 8.99%
Other non-interest earnings assets 12,106 12,310 14,190
------- ------- -------
Total assets $146,711 143,738 142,000
======= ======= =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and
savings $ 49,623 1,329 2.68% 52,462 1,412 2.69% 50,148 1,525 3.04%
Time 53,918 2,928 5.43% 51,948 2,214 4.26% 56,987 2,433 4.27%
FHLB 380 26 6.84% - - - - - -
Long-term debt 1,021 78 7.64% 1,188 71 5.98% 1,361 70 5.14%
Federal funds purchased and
securities sold under repurchase 279 17 6.10% 40 2 5.00% 2 - -
------- ------- ---- ------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities 105,221 4,378 4.16% 105,638 3,699 3.50% 108,498 4,028 3.71%
Other non-interest bearing liabilities 26,118 23,960 20,108
Stockholders' equity 15,372 14,140 13,394
------- ------ ------
Total liabilities and
stockholders' equity $146,711 143,738 142,000
======= ======= =======
Excess of interest-earning assets
over interest bearing liabilities $ 29,384 25,790 19,312
======= ====== ======
Ratio of interest-earning assets
to interest-bearing liabilities 127.93% 124.41% 117.80%
Net interest income 8,663 7,947 7,457
Net interest spread 5.53% 5.36% 5.28%
Net interest yield on interest earning assets 6.44% 6.05% 5.83%
</TABLE>
Non-accrual loans and the interest income which was recorded on
these loans, if any, are included in the yield calculation for
loans in all periods reported.
Tax exempt income is calculated on a tax equivalent basis.
-11-
<PAGE>
Table 2
Volume-Rate Analysis
The following table shows a summary of the changes in interest income and
interest expense on a tax equivalent basis resulting from changes in volume
and changes in rates for each major category of interest earning assets and
interest-bearing liabilities for 1995 over 1994, and 1994 over 1993.
<TABLE>
<CAPTION>
1995 over 1994
--------------
Increase (decrease) due to changes in:
--------------------------------------
(Amounts are presented in thousands)
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Interest income on:
Loans (including loan fees) $ 641 826 1,467
Investment securities:
Taxable 1 67 68
Non-taxable (67) 9 (58)
Federal funds sold (103) 21 (82)
---- --- -----
Total interest earning assets $ 472 923 1,395
=== === =====
Interest expense on:
Deposits:
Interest-bearing demand and savings $ (78) (5) (83)
Time 104 610 714
FHLB 13 13 26
Long-term debt (21) 28 7
Federal funds purchased 12 3 15
--- --- ---
Total interest-bearing liabilities $ 30 649 679
=== === ===
</TABLE>
Note: Rate/volume variances were allocated between rate variances and
volume variances using a weighted average allocation method.
-12-
<PAGE>
Table 2
Volume-Rate Analysis (continued)
<TABLE>
<CAPTION>
1994 over 1993
--------------
Increase (decrease) due to change in:
-------------------------------------
(Amounts are presented in thousands)
Volume Rate Total
------ ---- -----
<S> <C> <C> <C>
Interest income on:
Loans (including loan fees) $ 851 (404) 447
Investment securities:
Taxable (193) 2 (191)
Non-taxable (63) (40) (103)
Federal funds sold (13) 21 8
---- ---- ----
Total interest earning assets $ 582 (421) 161
==== ==== ====
Interest expense on:
Deposits:
Interest-bearing demand and savings $ 77 (190) (113)
Time (213) (6) (219)
Long-term debt (5) 6 1
Federal funds purchased 2 - 2
---- ---- ----
Total interest-bearing liabilities $ (139) (190) (329)
==== ==== ====
</TABLE>
Note: Rate/volume variances were allocated between rate variances and volume
variances using a weighted average allocation method.
-13-
<PAGE>
Table 3
Investment Portfolio
The following table presents the investments by category at December 31, 1995,
1994 and 1993:
<TABLE>
<CAPTION>
(Amounts are presented in thousands)
Held to maturity (at amortized cost) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
United States treasury and agencies $ 4,710 5,677 3,996
State, county and municipal 8,062 9,475 10,080
Mortgage-backed 2,849 3,632 12,731
------ ------ ------
Totals $ 15,621 18,784 26,807
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
(Amounts are presented in thousands)
1995 1994
---- ----
Available for Sale Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
United States treasury and agencies $ 1,995 2,015 1,994 1,844
Mortgage-backed 5,092 5,048 5,285 4,899
----- ----- ----- -----
$ 7,087 7,063 7,279 6,743
===== ===== ===== =====
</TABLE>
Other investments 1995 1994 1993
---- ---- ----
$ 1,121 1,130 646
===== ===== ===
SFAS 115 was adopted as of January 1, 1994. As such, there were no securities
classified as available for sale prior to 1994.
The following table presents the maturities of all investment securities at
amortized cost and the weighted average yields for each range of maturities
presented.
<TABLE>
<CAPTION>
(Amounts are presented in thousands)
United States Mortgage- Weighted
Maturities at Treasury and Backed State, County Average
December 31, 1995 Agencies Securities and Municipal Yields
- ----------------- -------------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
Within 1 year $ - 82 560 10.01%
After 1 through 5 years 6,405 6,538 2,315 6.74%
After 5 through 10 years 300 1,321 4,335 7.97%
After 10 years - - 852 10.00%
----- ----- -----
Totals $6,705 7,941 8,062
===== ===== =====
</TABLE>
-14-
<PAGE>
Table 3
Investment Portfolio, continued
Mortgage backed securities are included in the maturities categories in which
they are anticipated to be repaid based on scheduled maturities.
Other investments included Federal Reserve Bank stock, Federal Home Loan
Bank stock and common stock in two companies for which no readily determinable
market value exists. These securities are not included in the maturity
analysis above.
Yields on tax exempt securities are calculated on a tax equivalent basis.
-15-
<PAGE>
Table 4
Loan Portfolio
The following table presents loans by type at the end of each of the last
five years.
<TABLE>
<CAPTION>
December 31,
------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts are presented in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 35,761 36,950 35,184 34,799 55,685
Real estate - construction 2,334 2,136 734 1,082 2,204
Real estate-mortgage 45,273 40,692 43,054 38,897 53,101
Installment loans to
individuals 24,887 21,507 19,303 17,198 23,185
------- ------- ------ ------ -------
108,255 101,285 98,275 91,976 134,175
Less: Unearned income (287) (180) (41) (67) (783)
Allowance for loan losses (1,273) (1,245) (1,442) (1,756) (2,291)
------- ------- ------ ------ -------
Loans, net $ 106,695 99,860 96,792 90,153 131,101
======= ======= ====== ====== =======
</TABLE>
As of December 31, 1995 maturities of loans in the indicated classifications
were as follows (amounts are presented in thousands):
<TABLE>
<CAPTION>
Commercial, Real
Financial and Estate
Maturity Agricultural Construction Total
-------- ------------- ------------ -----
<S> <C> <C> <C>
Within 1 year $ 21,122 2,334 23,456
1 to 5 years 14,639 - 14,639
------ ----- ------
Totals $ 35,761 2,334 38,095
====== ===== ======
</TABLE>
-16-
<PAGE>
Table 4
Loan Portfolio, continued
As of December 31, 1995, the interest terms of loans in the indicated
classifications for the indicated maturity ranges are as follows
(amounts are presented in thousands):
<TABLE>
<CAPTION>
Fixed Variable
Interest Interest
Rates Rates Total
-------- -------- -----
<S> <C> <C> <C>
Commercial, financial and agricultural:
1 to 5 years $ 10,201 4,438 14,639
====== ===== ======
</TABLE>
The following summarizes past due and non-accrual loans, other
real estate and repossessions, and income that would have been
reported on non-accrual loans as of December 31, 1995, 1994,
1993, 1992 and 1991 (amounts are presented in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Other real estate and repossessions $ - - 524 142 804
Accruing loans 90 days or more
past due 148 144 165 80 763
Non-accrual loans 677 1,640 2,502 2,274 3,510
Interest on non-accrual loans which
would have been reported 67 158 175 275 496
</TABLE>
A loan is placed on non-accrual status when, in management's
judgement, the collection of interest appears doubtful. As a
result of management's ongoing review of the loan portfolio,
loans are classified as non-accrual generally when they are past
due in principal or interest payments for more than 90 days or it
is otherwise not reasonable to expect collection of principal and
interest under the original terms. Exceptions are allowed for 90
day past due loans when such loans are well secured and in
process of collection. Generally, payments received on non-
accrual loans are applied directly to principal.
-17-
<PAGE>
Table 5
Allowance for Loan Losses
The following table summarizes information concerning the
allowance for loan losses:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts are presented in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,245 1,442 1,756 2,291 1,743
Charge-offs:
Commercial, financial and agricultural 62 81 760 772 823
Real estate-construction - - - - -
Real estate-mortgage - - - - -
Installment loans to individuals 348 371 146 187 372
----- ----- ----- ----- -----
410 452 906 959 1,195
----- ----- ----- ----- -----
Recoveries:
Commercial, financial and agricultural 223 97 17 137 46
Real estate-construction - - - - -
Real estate-mortgage - - - - -
Installment loans to individuals 184 73 50 136 50
----- ----- ----- ----- -----
407 170 67 273 96
----- ----- ----- ----- -----
Net charge-offs 3 282 839 686 1,099
Split-off of subsidiary - - - (592) -
Additions charged to operations 31 85 525 743 1,647
----- ----- ----- ----- -----
Balance at end of year $ 1,273 1,245 1,442 1,756 2,291
===== ===== ===== ===== =====
Ratio of net charge-offs during the period
to average loans outstanding during
the period .00% .28% .92% .55% .82%
</TABLE>
The Company has a dedicated loan review function. All loans
$50,000 or more are reviewed annually and placed into various
loan grading categories which assist in developing lists of
potential problem loans. These loans are constantly monitored by
the loan review function to ensure early identification of
deterioration. The formal allowance for loss adequacy test is
performed the month end before each calendar quarter end.
Specific amounts of loss are estimated on problem loans and
historical loss percentages are applied to the balance of the
portfolio using certain portfolio stratifications. Additionally,
the evaluation takes into consideration such factors as changes
in the nature and volume of the loan portfolio, current economic
conditions, regulatory examination results, and the existence of
loan concentrations.
-18-<PAGE>
Table 6
Deposits
The average balance of deposits and the average rates paid on
such deposits are summarized for the periods indicated in the
following table.
<TABLE>
<CAPTION>
December 31,
(Amounts are presented in thousands)
1995 1994 1993
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest bearing $ 23,822 - 23,807 - 19,389 -
Interest-bearing demand
and savings 49,623 2.68% 52,462 2.69% 50,148 3.04%
Time deposits 53,918 5.43% 51,948 4.26% 56,987 4.27%
------- ------- -------
Totals $127,363 128,217 126,524
======= ======= =======
</TABLE>
Maturities of time certificates of deposit of $100,000 or more
outstanding at December 31, 1995 are summarized as follows
(amounts are presented in thousands):
Within 3 months $ 2,026,562
After 3 through 6 months 1,402,523
After 6 through 12 months 1,577,605
After 12 months 2,694,881
---------
Total $ 7,701,571
=========
-19-
<PAGE>
Table 7
Selected Ratios
The following table sets out certain ratios of the consolidated entity for
the years indicated.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income to:
Average stockholders' equity 16.59% 12.89% 12.45%
Average assets 1.73% 1.27% 1.17%
Dividends to net income 26.92% 33.23% 33.87%
Average equity to average assets 10.47% 9.84% 9.43%
</TABLE>
-20-
<PAGE>
Item 2. DESCRIPTION OF PROPERTY
The Company's main office is located at 318 South Hill
Street, Griffin, Georgia, 30223, and its telephone number at that
office is (770) 227-2251.
The Company distributes its services through three
full-service banking offices, and one limited-service banking
office as follows:
Main Office
-----------
318 South Hill Street
Griffin, Georgia 30223
Northside Bank Branch
---------------------
1475 West McIntosh Road
Griffin, Georgia 30223
Southside Bank Branch
---------------------
1103 Zebulon Road
Griffin, Georgia 30223
Kroger Griffin Branch
---------------------
Limited Service Office
----------------------
100 Spalding Village
Griffin, Georgia 30223
-21-
<PAGE>
The executive offices of the Company and the main office of
the Bank are located in a 33,000 square-foot facility, 318 South
Hill Street, Griffin, Georgia. The Company's main office is
subject to a mortgage in the principal amount of $944,445 at
December 31, 1995. None of the other properties of the Company
are subject to encumbrances. The Company owns a building
adjacent to its main office in Griffin which is used for storage
of bulk supplies. The Company or the Bank owns these properties,
except the Kroger Griffin Branch Limited Office, which is leased.
In addition, the Bank leases? owns offices at 114 West Solomon,
Griffin, Georgia and 509 B2 Highway 19 South, Zebulon, Georgia in
which Griffin Loans, Inc. conducts its operations. During
1990, the Bank acquired property at 1453 West McIntosh Road,
adjacent to its Northside Branch. The property was acquired for
possible expansion purposes.
Item 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal
proceedings to which the Company or the Bank is a party or to
which any of their property is subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of
the Company during the fourth quarter of its fiscal year.
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
STOCK. There is no established public trading market for
the Company Stock. As of March 15, 1996, the Company
had 469 shareholders of record.
DIVIDENDS. In 1995 and 1994, the Company declared cash
dividends of $686,630 ($.85 per share) and $605,850 ($.75 per
share), respectively. The Company intends to continue paying
cash dividends on a semi-annual basis. However, the amount and
frequency of dividends will be determined by the Company's Board
of Directors in light of earnings, capital requirements and the
financial condition of the Company, and no assurances can be
given that dividends will be paid in the future. Information on
restrictions on the amount of dividends payable by the Company
appears in Note 9 to the Company's consolidated financial
statements appearing on page 15 of the Annual Report to
Shareholders for the year ended December 31, 1995, and is
incorporated herein by reference.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FNB Banking Company (the "Company") is a one bank holding
company organized in 1983. The Company had one subsidiary, First
National Bank of Griffin, Georgia (the "Bank") at both December 31,
1995 and 1994. Effective October 13, 1994, the Bank acquired
certain assets of Griffin Loans, Inc., a consumer finance
company, for $386,500. Analysis of the results of operations and
average balances comparing 1995 and 1994 as well as year end
financial condition analysis comparing 1995 and 1994 have not
been materially impacted by the acquisition of Griffin Loans,
Inc.
FINANCIAL CONDITION - 1995 VS. 1994
During 1995, average total assets increased $2,973,000 (2%)
over 1994. Average deposits decreased $854,000 (1%) in 1995 over
1994. Average loans increased $6,501,000 (6%) in 1995 over 1994.
Year-end balances at both December 31, 1995 and 1994 show
increases in total assets of $3,727,000 (3%) from 1994 to 1995.
Total deposits increased $1,224,000 (1%) from 1994 to 1995 while
total gross loans increased $6,969,000 (7%) during 1995. Time
-22-
<PAGE>
deposits increased $5,136,000 from 1995 to 1994 while all other
deposit accounts decreased $3,911,000 from 1994 to 1995. As the
local economy remains strong, loan demand increased and the Bank
showed increases in each lending category at year end except
commercial, financial and agricultural. These loan increases were
funded partially by the proceeds of sales, calls, and paydowns of
investment securities along with borrowings from the FHLB. Non-
performing assets at December 31, 1995 were $825,000 compared to
$1,784,000 at December 31, 1994 as the result of the repayment of
two non-accrual loans totaling $700,000. The majority of the
decrease is attributable to a significant reduction of non-
accrual loans. There were no related party loans which were
considered nonperforming at December 31, 1995.
The Company's subsidiary bank was most recently examined by
its primary regulatory authority in November of 1994. There were
no recommendations by the regulatory authority that, in
management's opinion, will have material effects on the Company's
liquidity, capital resources or operations.
RESULTS OF OPERATIONS - 1995 VS. 1994
The Company's operational results primarily depend on the
earnings of the Bank. Its earnings depend to a large degree on
net interest income, which is the difference between the interest
income received from its investments (such as loans, investment
securities, federal funds sold, etc.) and the interest expense
which is paid on deposit liabilities.
Net interest income in 1995, which was $8,395,000, increased
by $735,000 or 10% over 1994. The increase is primarily
attributable to the increase in interest and fees on loans offset
by increases in interest expense on time deposits. Net yield
(tax equivalent) on interest earning assets (6.45% in 1995 and
6.05% in 1994) increased approximately 7% in 1995 over 1994. This
increase was associated with a $1,395,000 or 12% increase in
interest earned and a $679,000 or 18% increase in interest paid
in 1995 as compared to 1994.
The provision for loan losses in 1995 was $31,000 compared to
$85,000 in 1994. The decrease in the provision for loan losses
was primarily attributable to a decrease in net charge-offs of
$279,000 as compared to 1994 and a general increase in the loan
portfolio's overall credit quality. The provision for loan losses
continues to reflect management's estimate of potential loan
losses inherent in the portfolio and the creation of an allowance
for loan losses adequate to absorb such losses. The allowance for
loan losses represented approximately 1.2% of total loans
outstanding at December 31, 1995 and 1994. Net charge-offs were
$3,000 and $282,000 during 1995 and 1994, respectively. A
dedicated loan review function is utilized by the Bank. All loans
$50,000 or more are reviewed annually and placed into various
loan grading categories which assists in developing lists of
potential problem loans. These loans are regularly monitored by
the loan review process to ensure early identification of
repayment problems so that adequate allowances can be made
through the provision for loan losses. Management believes that
these levels of allowance are appropriate based upon the
Company's loan portfolio and the current economic conditions.
Other operating income in 1995 of $2,124,000 increased over
1994 levels by $247,000 or 13%. The increase is primarily
attributable to the increase of service charges on deposits of
$140,000 in 1995 as compared to 1994 along with an increase over
the same period in credit card fee income of $90,000.
Other operating expenses in 1995 of $6,834,000 decreased by
$112,000 or 2% over 1994 levels.
Income taxes expressed as a percentage of earnings before
income taxes increased from 27% in 1994 to 30% in 1995. The
increase relates to the decrease in tax-exempt income as a
percentage of earnings before income taxes.
-23-
<PAGE>
RESULTS OF OPERATIONS - 1994 VS. 1993
Net interest income in 1994, which was $7,660,000, increased
by $524,000 or 7% over 1993. The increase is primarily
attributable to the increase in interest and fees on loans and
the decrease of interest expense on deposits. Net yield (tax
equivalent) on interest earning assets (6.05% in 1994 and 5.83%
in 1993) increased approximately 4% in 1994 over 1993. This
increase was associated with a $161,000 or 1% increase in
interest earned and a $329,000 or 8% decrease in interest paid in
1994 as compared to 1993.
The provision for loan losses in 1994 was $85,000 compared to
$525,000 in 1993. The decrease in the provision for loan losses
was primarily attributable to a decrease in net charge-offs of
$557,000 as compared to 1993 and a general estimate of potential
loan losses inherent in the portfolio and the creation of an
allowance for loan losses adequate to absorb such losses. The
allowance for loan losses represented approximately 1.2% of total
loans outstanding at December 31, 1994 compared to 1.4% of total
loans outstanding at December 31, 1993 as the Bank charged off
certain loans during 1994 that were provided for in 1993. Net
charge-offs were $282,000 and $839,000 during 1994 and 1993,
respectively.
Other operating income in 1994 of $1,877,000 decreased over
1993 levels by $72,000 or 4%. The decrease is primarily
attributable to the reduction of gains on mortgage loan sales of
$141,000 in 1994 compared to 1993 offset by an increase in fees
for trust services of $80,000.
Other operating expenses in 1994 of $6,946,000 increased by
$181,000 or 3% over 1993 levels.
Income taxes expressed as a percentage of earnings before
income taxes increased from 23% in 1993 to 27% in 1994. The
increase relates to the decrease in tax-exempt income as a
percentage of earnings before income taxes.
INVESTMENTS
The investment portfolio consists of debt securities which
provide the Company with a source of liquidity and a long-term,
relatively stable source of income. Additionally, the investment
portfolio provides a balance to interest rate and credit risk in
other categories of the balance sheet while providing a vehicle
for the investment of available funds, furnishing liquidity, and
supplying securities to pledge as required collateral for certain
deposits.
With the adoption of SFAS No. 115, the Company has reported
the effect of the change in the method of accounting for
investment securities as a separate component of equity, net of
income taxes which resulted in a net unrealized gain on
investment securities available for sale, net of tax, of $26,000
as of January 1, 1994, the date of the adoption of the accounting
change. The net unrealized loss on investment securities
available for sale, net of tax, amounted to $354,000 at December 31,
1994.
In conjunction with the adoption of SFAS No. 115, the Company
transferred securities previously accounted for at amortized cost
totaling $9,019,000 to available for sale at January 1, 1994.
LIQUIDITY
The Bank must maintain, on a daily basis, sufficient funds to
cover the withdrawals from depositors' accounts and to supply new
borrowers with funds. To meet these obligations, the Bank keeps
cash on hand, maintains account balances with its correspondent
banks, and purchases and sells federal funds and other short term
investments. Asset and liability maturities are monitored in an
attempt to match these to meet liquidity needs. It is the policy
of the Bank to monitor its liquidity to meet regulatory
requirements and their local funding requirements.
-24-
<PAGE>
The Bank maintains relationships with correspondent banks that
can provide funds to it on short notice, if needed. Presently,
the Bank has arrangements with a commercial bank for short term
unsecured advances up to $5,000,000.
Cash and cash equivalents decreased $437,000 to a total
$12,633,000 at year end 1995 as decreases generated from
investing activities outpaced amounts provided by operating and
financing purposes. Cash inflows from operations totaled
$2,764,000 in 1995, while inflows from financing activities
totaled $871,000, most of which were net deposit increases during
1995 of $1,224,000 and FHLB advances of $2,000,000. Included in
financing activities were note payable repayments of $167,000.
Investing activities used $4,072,000 of cash and cash
equivalents, principally composed of net advances of loans to
customers of $7,193,000 during 1995 offset by proceeds, net of
investment security purchases, from sales, calls, and paydowns of
investment securities totaling $3,429,000.
CAPITAL RESOURCES
The Company continues to maintain adequate capital ratios. The
following tables present the Company's regulatory capital
position at December 31, 1995.
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
-------------------------
Actual as of December 31, 1995
------------------------------
<S> <C>
Tier 1 Capital 14.9%
Tier 1 Capital minimum requirement 4.0%
----
Excess 10.9%
====
Total Capital 16.1%
Total Capital minimum requirement 8.0%
----
Excess 8.1%
====
</TABLE>
<TABLE>
<CAPTION>
Leverage Ratio
--------------
As of December 31, 1995
-----------------------
<S> <C>
Tier 1 Capital to adjusted total assets
("Leverage Ratio") 11.36%
Minimum leverage requirement 3.00%
-----
Excess 8.36%
=====
</TABLE>
ASSET/LIABILITY MANAGEMENT
It is the Company's objective to manage assets and liabilities
to provide a satisfactory, consistent level of profitability
within the framework of established cash, loan, investment,
borrowing and capital policies. Certain officers are charged with
the responsibility for monitoring policies and procedures that
are designed to ensure acceptable composition of the
asset/liability mix. It is the overall philosophy of management
to support asset growth primarily through growth of core
deposits, which include deposits of all categories made by local
individuals, partnerships and corporations. The objective of the
policy is to control interest sensitive assets and liabilities so
as to minimize the impact of substantial movements in interest
rates on earnings.
-25-
<PAGE>
The asset/liability mix is monitored on a regular basis. A
report reflecting the interest sensitive assets and interest
sensitive liabilities is prepared and presented to the Board of
Directors on a monthly basis.
One method to measure a bank's interest rate exposure is
through its repricing gap. The gap is calculated by taking all
assets that reprice or mature within a given timeframe and
subtracting all liabilities that reprice or mature within that
timeframe. The difference between these two amounts is called the
"gap", the amount of either liabilities or assets that will
reprice without a corresponding asset or liability repricing.
A negative gap (more liabilities repricing than assets)
generally indicates that the bank's net interest income will
decrease if interest rates rise and will increase if interest
rates fall. A positive gap generally indicates that the bank's
net interest income will decrease if rates fall and will increase
if rates rise.
The following table summarizes the amounts of interest-earning
assets and interest-bearing liabilities outstanding at December 31,
1995 that are expected to mature, prepay or reprice in each
of the future time periods shown. Except as stated below, the
amount of assets or liabilities that mature or reprice during a
particular period was determined in accordance with the
contractual terms of the asset or liability. Adjustable rate
loans are included in the period in which interest rates are next
scheduled to adjust rather than in the period in which they are
due, and fixed rate loans and mortgage-backed securities are
included in the periods in which they are anticipated to be
repaid based on scheduled maturities. The Company's savings
accounts and interest-bearing demand accounts (NOW and money
market deposit accounts), which are generally subject to
immediate withdrawal, are included in the "Three Months or Less"
category, although historical experience has proven these
deposits to be more stable over the course of a year.
<TABLE>
<CAPTION>
At December 31, 1995
Maturing or Repricing in
------------------------
(dollars in thousands)
Three Four
Months or Months to 1 to 5 Over 5
Less 12 Months Years Years Total
--------- --------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities $ 100 950 14,654 6,981 22,685
Loans 32,751 24,403 47,352 3,749 108,255
Other investments - - - 1,121 1,121
------ ------ ------ ------ -------
Total interest-bearing assets $ 32,851 25,353 62,006 11,851 132,061
====== ====== ====== ====== =======
Interest-bearing liabilities:
FHLB advances $ - - 1,333 667 2,000
Deposits:
Savings and demand 49,642 - - - 49,642
Time deposits 14,457 25,199 16,982 17 56,655
Notes payable 944 - - - 944
------ ------ ------ ------ -------
Total interest-bearing liabilities $ 65,043 25,199 18,315 684 109,241
====== ====== ====== ====== =======
Interest sensitive difference
per period (32,192) 154 43,691 11,167 22,820
====== ====== ====== ====== =======
Cumulative interest sensitivity
difference (32,192) (32,038) 11,653 22,820
====== ====== ====== ======
Cumulative difference to total
assets (21%) (21%) 8% 15%
==== ==== ==== ===
</TABLE>
At December 31, 1995, the difference between the Company's
liabilities and assets repricing or maturing within one year was
-26-
<PAGE>
$32,038,000. Due to an excess of liabilities repricing or
maturing within one year, a rise in interest rates would cause
the Company's net interest income to decline.
Certain shortcomings are inherent in the method of analysis
presented in the foregoing table. For example, although certain
assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees or at different
points in time to changes in market interest rates. Additionally,
certain assets, such as adjustable-rate mortgages, have features
that restrict changes in interest rates, both on a short-term
basis and over the life of the asset. Changes in interest rates,
prepayment rates, early withdrawal levels and the ability of
borrowers to service their debt, among other factors, may change
significantly from the assumptions made in the table.
INFLATION
Inflation impacts the growth in total assets in the banking
industry and causes a need to increase equity capital at higher
than normal rates to meet capital adequacy requirements. The
Company copes with the effects of inflation through the
management of its interest rate sensitivity gap position, by
periodically reviewing and adjusting its pricing of services to
consider current costs, and through managing its level of net
income relative to its dividend payout policy.
Item 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company as of
December 31, 1995 and 1994, and for each of the years in the
three-year period ended December 31, 1995, and the report issued
thereon by the Company's independent certified public
accountants, appear on pages 1 through 6 of the Annual Report to
Shareholders for the year ended December 31, 1995, and are
incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
For the year ended December 31, 1995, the accounting firm of
Evans, Porter, Bryan and Company was the principal accountant for
the Company.
The Company had no disagreements with its accountants on any
matters of accounting principle or practices or financial
statement disclosure.
-27-
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
THE BOARD OF DIRECTORS
The following table sets forth for each director (a) the
person's name, (b) his age at December 31, 1995, (c) the
year he was first elected as a director of the Company and (d)
his positions with the Company and the Bank, other than as a
director, and his principal occupation and business experience
for the past five years.
<TABLE>
<CAPTION>
Year First Position with Company; Principal
Name Age Elected Occupation; Business Experience
---- ---- ------------- ---------------------------------
<S> <C> <C> <S>
C. A. Knowles 63 1982 President, Chief Executive
Officer and Treasurer of the Company and President
of the Bank
James A. Mankin 69 1982 Merchant and Real Estate Developer
W. Cameron Mitchell 82 1993 Retired
David G. Newton 48 1993 Private Investor; Former
Vice President
Dundee Mills, Inc.
John T. Newton, Sr. 79 1982 Chairman of the Board of the Company;
Chairman of the Board, Dundee Mills, Inc.
from 1986 through 1995.
John T. Newton, Jr. 49 1993 Chairman of the Board of the Bank;
Attorney, Newton & Howell, P.C.
J. Henry Cheatham III 45 1994 Private Investor; Former Administrative Assistant,
Dundee Mills, Inc.
</TABLE>
-28-
<PAGE>
Directors are elected at each annual meeting of shareholders
and hold office until the next annual meeting and until their
successors are elected and qualified. John T.Newton, Jr. and
David G. Newton, are the sons of John T. Newton, Sr., and J. Henry
Cheatham is the nephew of John T. Newton, Sr., and the first
cousin of David G. Newton and John T. Newton, Jr. There are no
other family relationships among directors and executive officers
of the Company.
EXECUTIVE OFFICERS
The following table sets forth for each executive officer of
the Company (a) the person's name, (b) his age at December 31,
1995, (c) the year he was first elected as an executive officer
of the Company and (d) his positions with the Company and the
Bank.
<TABLE>
<CAPTION>
Year First Principal Occupation;
Name Age Elected Business Experience
---- --- ---------- --------------------
<S> <C> <C> <S>
C. A. Knowles 63 1982 President, Chief Executive Officer
and Treasurer of the Company and
President of the Bank.
John T. Newton, Sr. 79 1982 Chairman of the Board of the Company.
William K. Holmes 45 1993 Assistant Treasurer, Principal Accounting
and Financial Officer.
</TABLE>
Item 10. EXECUTIVE COMPENSATION
The following table sets forth the annual term compensation
paid by the Company and its subsidiary to C. A. Knowles, the
Company's Chief Executive Officer, the Company's only executive
officer as of December 31, 1995 whose cash compensation, including
salary and bonus, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------
Name and Principal Position Year Salary<F1> Bonus Other
- --------------------------- ---- --------- ----- -----
<S> <C> <C> <C> <C>
C. A. Knowles 1995 $195,700 $23,000 <F2>
President, Chief Executive 1994 $198,329 $18,500 <F2>
Officer and Treasurer 1993 $173,371 $30,229 <F2>
<FN>
<F1> Includes Director's fees
<F2> Does not meet Securities and Exchange Commission threshold
for disclosure.
</FN>
-29-
<PAGE>
DIRECTOR COMPENSATION
Each director of the Company receives a $1,600
annual retainer plus $300 per meeting attended for their
service as a director of the Company as well as an annual
retainer of $3,000 plus $300 per meeting attended for their
service as a director of the Bank and $150 for each Bank
committee meeting they attend.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL HOLDERS OF STOCK
The following table provides for each person who, to
the best information and knowledge of the Company, beneficially
owned 5% or more of the outstanding shares of Company Stock on
January 25, 1996, the following information: (a) the owner's name
and address, (b) the number of shares of Company Stock owned,
and (c) the percentage such number represents of the outstanding
shares of Company Stock. Unless otherwise indicated, the listed
owners are the record owners of, and have sole voting and
investment powers over, their shares.
</TABLE>
<TABLE>
<CAPTION>
Number of Shares
Name and Address Beneficially Owned Percentage of Total
- ---------------- ------------------ -------------------
<S> <C> <C>
Newton Family Partnership 171,904(1) 21.3%
1076 Maple Drive
Griffin, GA 30223
John T. Newton, Sr. 174,315(2) 21.6%
1076 Maple Drive
Griffin, GA 30223
Virginia Cheatham 179,836(3) 22.3%
Newton
1076 Maple Drive
Griffin, GA 30223
Harvey Cheatham 65,920(4) 8.2%
P.O. Box 88185
Atlanta, GA 30338
James Henry Cheatham 41,052(5) 5.08%
P.O. Box 1252
Griffin, GA 30224
Elizabeth M. Cheatham 42,000 5.2%
5101 North Casablanca Road, #6
Scottsdale, AZ 85253
James Gilliam Cheatham 45,652(6) 5.65%
P.O. Box 506
Griffin, GA 30224
Lelia Cheatham Von Stein 45,352(7) 5.61%
623 Probart Street
Brevard, NC 28712
</TABLE>
______________________________
(1) John T. Newton, Sr. and his wife, Virginia Cheatham Newton,
share voting and investment powers over the shares owned of
record by the partnership under the terms of the partnership
agreement.
(2) Of the indicated shares, 171,904 shares are owned of record
by the Newton Family Partnership, and Mr. Newton and his
wife, Virginia Cheatham Newton, share voting and investment
powers with respect to these shares. Does not include 7,932
shares owned by Mrs. Newton, as to which shares Mr. Newton
disclaims beneficial ownership.
-30-
<PAGE>
(3) Of the indicated shares, 171,904 shares are owned of record
by the Newton Family Partnership, and Mrs. Newton and her
husband, John T. Newton, Sr., share voting and investment
powers with respect to these shares. Does not include 2,411
shares owned by Mr. Newton, as to which shares Mrs. Newton
disclaims beneficial ownership.
(4) Of the indicated shares, 16,000 shares are subject to voting
and investment power by Mr. Cheatham as general partner for
Club Associates, L.P., the record owner of such shares, and
49,920 are subject to voting and investment power by Mr.
Cheatham as general partner of 435 Associates, LTD, the
record owner of such shares. Does not include 12,000 shares
which are held directly by his wife, Anne A. Cheatham, as to
which shares Mr. Cheatham disclaims beneficial ownership.
(5) Of the indicated shares, Mr. Cheatham owns 34,352 shares and
11,300 shares are owned by his children.
(6) Of the indicated shares, Mr. Cheatham owns 34,352 shares and
11,300 shares are owned by his children.
(7) Of the indicated shares, Ms. Von Stein owns 34,652 shares
and 10,700 shares are owned by her children.
STOCK OWNED BY MANAGEMENT
The following table provides for each director of the
Company and for all directors and officers of the Company as a
group, as of January 25, 1996, the following information: (a) the
name of the director or the number of persons in the group;
(b) the number of shares of Company Stock beneficially owned by
the director or the group; and (c) the percentage such number
represents of the outstanding shares of Company Stock. Unless
otherwise indicated, the listed person is the record owner of,and
has sole voting and investment powers over, his shares.
<TABLE>
<CAPTION>
Number of Shares
Name and Address Beneficially Owned Percentage of Total
- ---------------- ------------------ -------------------
<S> <C> <C>
J. Henry Cheatham III 41,052(1) 5.08%
C. A. Knowles 2,200 .27%
James A. Mankin 1,964 .24%
W. Cameron Mitchell 2,400 .30%
David G. Newton 14,130(2) 1.75%
John T. Newton, Sr. 174,315(3) 21.58%
John T. Newton, Jr. 5,133 .64%
All directors and executive officers
as a group (8 persons) 241,296(1)(2)(3) 29.87%
</TABLE>
(1) Includes 6,700 shares held by Mr. Cheatham as custodian for
his children.
(2) Includes 6,313 shares held by Mr. Newton as Trustee for his
niece and nephew.
(3) Of the indicated shares, 171,904 shares are owned of record
by the Newton Family Partnership, and Mr. Newton and his
wife, Virginia Cheatham Newton, share voting and investment
powers with respect to these shares. Does not include
7,932 shares owned by Mrs. Newton, as to which shares Mr.
Newton disclaims beneficial ownership.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's directors and officers and certain companies
and individuals associated with them have been customers of, and
have had banking transactions with, the Bank and are expected to
continue such relationships in the future. Pursuant to such
transactions, the Company's directors and officers from time to
time have borrowed funds from the Bank for various business and
personal reasons. In the opinion of the management of the
-31-
<PAGE>
Company, the extensions of credit made by the Bank to its
directors and officers since January 1, 1995 (a) were made in the
ordinary course of business, (b) were made on substantially the
same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
persons and (c) did not involve more than a normal risk of
collectibility or present other unfavorable features. See note
11 under Notes to Consolidated Financial Statements in the FNB
Banking Company 1995 Annual Report.
During 1995 the Bank paid Newton & Howell, P.C. approximately
$39,000 for legal services. John T. Newton, Jr., director of the
Company and Chairman of the Board of the Bank, is the president
of that firm.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The registrant submits herewith as exhibits to
this report on Form 10-KSB the exhibits required by
Item 601 of Regulation S-B, subject to Rule 12b-32
under the Securities Exchange Act of 1934.
Exhibit No. Document
----------- --------
3.1 Articles of Incorporation of FNB
Banking Company, as amended. (Included
as Exhibit 3.1 to the Company's 1992
annual report on Form 10-K.)
3.2 Bylaws of FNB Banking Company, as
amended. (Included as Exhibit 3.2 to
the Company's 1992 annual report on
Form 10-K.)
4.1 See Exhibits 3.1 and 3.2 for provisions
of Articles of Incorporation and
Bylaws, as amended, which define the
rights of the holders of Common Stock
of FNB Banking Company.
13.0 FNB Banking Company 1995 Annual Report.
(Only those portions specifically
incorporated herein by reference are
deemed filed herewith.)
21.0 Subsidiaries of FNB Banking Company.
24.0 A Power of Attorney is set forth on the
signature pages to this Form 10-KSB.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
-32-<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FNB BANKING COMPANY
(Registrant)
By: /s/ C. A. Knowles
C. A. Knowles
President
Dated: March 28, 1996
<PAGE>
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints C. A. Knowles
and John T. Newton, Sr., or each of them, his attorney-in-fact,
each with full power of substitution, for him in his name, place
and stead, in any and all capacities, to sign any amendments to
this Report on Form 10-KSB, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and hereby ratifies and
confirms all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ John T. Newton, Sr. Chairman of the Board of Directors March 28, 1996
John T. Newton, Sr.
/s/ C. A. Knowles President, Treasurer, and March 28, 1996
C. A. Knowles Director (principal executive
officer)
/s/ William K. Holmes Assistant Treasurer (principal March 28, 1996
William K. Holmes accounting and financial officer)
/s/ James A. Mankin Director and Secretary March 28, 1996
James A. Mankin
/s/ W. Cameron Mitchell Director March 28, 1996
W. Cameron Mitchell
_______________________ Director ___________, 1996
David G. Newton
/s/ John T. Newton, Jr. Director March 28, 1996
John T. Newton, Jr.
/s/ J. Henry Cheatham, III Director March 28, 1996
J. Henry Cheatham, III
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
13.0 FNB Banking Company 1995 Annual Report.
(Only those portions specifically
incorporated herein by reference are
deemed filed herewith.)
21.0 Subsidiaries of FNB Banking Company.
24.0 A Power of Attorney is set forth on the
signature pages to this Form 10-KSB.
27 Financial Data Schedule
Exhibit 13
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
FNB Banking Company and Subsidiary
We have audited the accompanying consolidated balance sheets of
FNB Banking Company and subsidiary as of December 31, 1995 and
1994, and the related statements of earnings, changes in
stockholders' equity and cash flows for the three years in the
period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of FNB Banking Company and subsidiary as of December 31,
1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting
principles.
Evans, Porter, Bryan & Co.
Atlanta, Georgia
January 12, 1996
F-1<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets
------
1995 1994
---- ----
<S> <C> <C>
Cash and due from banks, including reserve
requirements of $1,073,000 and $1,100,000 $ 12,633,327 13,069,918
Investment securities available for sale (note 2) 7,063,760 6,742,855
Investment securities held to maturity (market value,
$16,208,545 and $18,481,011) (note 2) 15,621,241 18,784,396
Other investments 1,120,510 1,130,310
Mortgage loans held for sale - 42,638
Loans, net (note 3) 106,694,884 99,860,150
Premises and equipment (notes 4 and 5) 5,871,757 5,572,402
Accrued interest receivable and other assets 1,373,014 1,449,253
------------- -----------
$ 150,378,493 146,651,922
============= ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 23,201,333 25,161,974
Interest-bearing demand 34,839,943 35,913,900
Savings 14,802,508 15,679,076
Time 56,655,209 51,519,571
------------- -----------
Total deposits 129,498,993 128,274,521
Federal funds purchased - 1,500,000
FHLB advances (note 6) 2,000,000 -
Note payable (note 5) 944,445 1,111,112
Accounts payable and accrued liabilities 1,160,999 1,194,679
------------- -----------
Total liabilities 133,604,437 132,080,312
------------- -----------
Commitments (note 8)
Stockholders' equity (note 9):
Common stock, par value $1; 5,000,000 shares
authorized; 807,800 shares issued and outstanding 807,800 807,800
Retained earnings 15,981,567 14,117,346
Net unrealized loss on investment securities
available for sale, net of tax (15,311) (353,536)
------------- -----------
Total stockholders' equity 16,774,056 14,571,610
------------- -----------
$ 150,378,493 146,651,922
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 11,016,657 9,549,840 9,102,885
Interest on federal funds sold 119,788 202,323 194,263
Interest-bearing deposits in other banks 6,012 3,858 413
Interest on investment securities:
Tax-exempt 518,758 556,618 625,207
Taxable 1,068,633 1,034,598 1,231,377
Dividends on other investments 43,016 11,791 9,495
------------ ---------- ----------
Total interest income 12,772,864 11,359,028 11,163,640
------------ ---------- ----------
Interest expense:
Deposits 4,257,069 3,623,676 3,958,020
Notes payable 77,907 70,887 70,006
Other 43,004 4,673 -
------------ ---------- ----------
Total interest expense 4,377,980 3,699,236 4,028,026
------------ ---------- ----------
Net interest income 8,394,884 7,659,792 7,135,614
Provision for loan losses (note 3) 31,000 85,000 525,000
------------ ---------- ----------
Net interest income after provision for loan losses 8,363,884 7,574,792 6,610,614
------------ ---------- ----------
Other operating income:
Service charges 1,576,045 1,435,566 1,392,580
Fees for trust services 180,000 185,000 105,000
Other 368,221 256,911 451,372
------------ ---------- ----------
Total other operating income 2,124,266 1,877,477 1,948,952
------------ ---------- ----------
Other operating expenses:
Salaries and employee benefits 3,917,042 3,972,917 3,735,616
Occupancy and equipment 1,009,844 867,538 940,841
Securities (gains) losses, net (65,550) (92,282) 149,414
Miscellaneous (note 12) 1,972,181 2,197,657 1,939,256
------------ ---------- ----------
Total other operating expenses 6,833,517 6,945,830 6,765,127
------------ ---------- ----------
Earnings before income taxes and cumulative
effect of accounting change 3,654,633 2,506,439 1,794,439
Income taxes (note 10) 1,103,782 683,433 416,673
------------ ---------- ----------
Earnings before cumulative effect
of accounting change 2,550,851 1,823,006 1,377,766
Cumulative effect of accounting change for
income taxes on years prior to 1993 (note 10) - - 290,865
------------ ---------- ----------
Net earnings $ 2,550,851 1,823,006 1,668,631
============ ========== ==========
Earnings per common share based on
average outstanding shares of 807,800
in 1995, 1994 and 1993:
Earnings per share before cumulative
effect of accounting change $ 3.16 2.26 1.71
Cumulative effect of accounting change - - .36
------------ ---------- ----------
Net earnings per share $ 3.16 2.26 2.07
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Net
Unrealized
Gain
(Loss) On
Investment
Securities
Available
Common Retained for Sale,
Stock Earnings Net of Tax Total
------ -------- ----------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $ 807,800 11,797,019 - 12,604,819
Net earnings - 1,668,631 - 1,668,631
Cash dividends declared of $.70 per share - (565,460) - (565,460)
--------- ---------- -------- ----------
Balance, December 31, 1993 807,800 12,900,190 - 13,707,990
Cumulative effect of accounting change for
certain investment securities, net of
income taxes of $13,415 - - 26,041 26,041
Net earnings - 1,823,006 - 1,823,006
Cash dividends declared of $.75 per share - (605,850) - (605,850)
Change in unrealized loss on investment
securities available for sale, net of tax - - (379,577) (379,577)
--------- ---------- -------- ----------
Balance, December 31, 1994 807,800 14,117,346 (353,536) 14,571,610
Net earnings - 2,550,851 - 2,550,851
Cash dividends declared of $.85 per share - (686,630) - (686,630)
Change in unrealized loss on investment
securities available for sale, net of tax - - 338,225 338,225
--------- ---------- -------- ----------
Balance, December 31, 1995 $ 807,800 15,981,567 (15,311) 16,774,056
========= ========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,550,851 1,823,006 1,668,631
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation, amortization and accretion 368,991 352,816 459,977
Provision for loan losses 31,000 85,000 525,000
Provision for losses on sales of other real estate
owned and repossessed collateral 11,986 126,906 -
Provision for deferred income taxes 74,845 84,614 211,173
Cumulative effect of accounting change - - (290,865)
(Gains) losses on investment securities (65,550) (92,282) 149,414
Losses on disposals of premises and equipment 1,574 40,113 -
Change in:
Mortgage loans held for sale 42,638 173,642 (85,000)
Interest receivable (69,619) (140,914) 59,973
Interest payable 76,020 2,004 (55,612)
Other, net (258,839) 132,396 269,257
----------- --------- ---------
Net cash provided by operating activities 2,763,897 2,587,301 2,911,948
----------- --------- ---------
Cash flows from investing activities:
Proceeds from sales and calls of investment securities
held to maturity 1,911,300 2,300,605 3,685,000
Proceeds from sales and calls of investment securities
available for sale 976,250 2,024,967 -
Proceeds from sales and calls of other investments 9,800 - -
Proceeds from maturities of investment securities
held to maturity 2,055,800 3,530,452 7,104,434
Proceeds from maturities of investment securities
available for sale 173,766 689,622 -
Purchase of investment securities held to maturity (698,370) (6,776,361) (6,897,067)
Purchase of investment securities available for sale (1,000,000) (992,500) -
Purchase of other investments - (484,300) -
Net change in loans (7,192,952) (2,964,659) (7,684,593)
Proceeds from disposals of premises and equipment 1,800 - -
Additions to premises and equipment (624,289) (334,425) (346,940)
Proceeds from sales of other real estate and
repossessed collateral 315,232 496,428 138,234
Purchase of Griffin Loans, Inc. net of cash acquired - (386,500) -
------------ ---------- ----------
Net cash used by investing activities $ (4,071,663) (2,896,671) (4,000,932)
------------ ---------- ----------
</TABLE>
F-5
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in demand and savings deposits $ (3,911,166) 7,433,094 (710,678)
Net change in time deposits 5,135,638 (1,021,615) (6,044,172)
Net change in federal funds purchased (1,500,000) 700,000 800,000
Proceeds from FHLB advances 2,000,000 - -
Repayments of notes payable (166,667) (166,667) (166,666)
Payment of cash dividends (686,630) (565,460) (721,170)
----------- ---------- ----------
Net cash provided (used) by financing activities 871,175 6,379,352 (6,842,686)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (436,591) 6,069,982 (7,931,670)
Cash and cash equivalents at beginning of year 13,069,918 6,999,936 14,931,606
----------- ---------- ----------
Cash and cash equivalents at end of year $ 12,633,327 13,069,918 6,999,936
=========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,301,960 3,697,232 4,083,638
Income taxes $ 1,141,000 534,000 367,000
Noncash investing and financing activities:
Transfer of investment securities
available for sale upon adoption of
SFAS 115 (note 1) $ - 9,018,824 -
Transfers of other investment securities
upon adoption of SFAS 115 (note 1) $ - 646,010 -
Change in net unrealized losses on
investment securities available for sale,
net of tax $ (338,225) 353,536 -
Transfers of loans to other real estate $ 348,597 99,671 792,327
Financed sales of other real estate $ 21,379 - 272,485
Change in dividends payable to stockholders $ - 40,390 (155,710)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of FNB Banking Company
(the "Company") and subsidiary, and the methods of applying
those principles, conform with generally accepted accounting
principles (GAAP) and with general practice within the banking
industry. The following is a summary of the significant
policies and procedures.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, First National
Bank of Griffin ("Bank"). All significant intercompany
accounts and transactions have been eliminated in
consolidation.
The Bank commenced business in 1933 upon receipt of its
charter from the Georgia Department of Banking and Finance.
This state charter was converted to a national charter in
1965. The Bank is primarily regulated by the Office of the
Comptroller of the Currency ("OCC") and the Company is
regulated by the Federal Reserve System and both undergo
periodic examinations by these regulatory authorities. The
Bank provides a full range of customary banking services
throughout Spalding County in Georgia. During 1994, the Bank
acquired certain assets of Griffin Loans, Inc., a consumer
finance company, for $386,500.
In preparing financial statements in conformity with GAAP,
management is required to make estimates and assumptions that
affect the reported amounts in the financial statements.
Actual results could differ significantly from these
estimates. Material estimates common to the banking industry
that are particularly susceptible to significant change in the
near term include, but are not limited to, the determination
of the allowance for loan losses, the valuation of real estate
acquired in connection with or in lieu of foreclosure on
loans, and valuation allowances associated with the
realization of deferred tax assets which are based on future
taxable income.
Investment Securities
---------------------
Effective January 1, 1994, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity
Securities." Under SFAS No. 115, the Company classifies its
securities in one of three categories: trading, available for
sale, or held to maturity. Trading securities are bought and
held principally for the purpose of selling them in the near
term. Held to maturity securities are those securities for
which the Company has the ability and intent to hold the
security until maturity. All other securities not included in
trading or held to maturity are classified as available for
sale. At December 31, 1995 and 1994 the Company had no trading
securities.
Available for sale securities are recorded at fair value. Held
to maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized
holding gains and losses, net of the related tax effect, on
securities available for sale are excluded from earnings and
are reported as a separate component of stockholders' equity
until realized. Transfers of securities between categories are
recorded at fair value at the date of transfer. Unrealized
holding gains or losses associated with transfers of
securities from held to maturity to available for sale are
recorded as a separate component of stockholders' equity. The
unrealized holding gains or losses included in the separate
component of stockholders' equity for securities transferred
from available for sale to held to maturity are maintained and
amortized into earnings over the remaining life of the
security as an adjustment to yield in a manner consistent with
the amortization or accretion of premium or discount on the
associated security.
F-7<PAGE>
A decline in the market value of any available for sale or
held to maturity investment below cost that is deemed other
than temporary is charged to earnings and establishes a new
cost basis for the security.
Premiums and discounts are amortized or accreted over the life
of the related security as an adjustment to the yield.
Realized gains and losses for securities classified as
available for sale and held to maturity are included in
earnings and are derived using the specific identification
method for determining the cost of securities sold.
Other Investments
-----------------
Other investments include equity securities with no readily
determinable fair value. These investment securities are
carried at cost.
Mortgage Loans Held for Sale
----------------------------
Mortgage loans held for sale are carried at the lower of
aggregate cost or market value. The amount by which cost
exceeds market value is accounted for as a valuation
allowance. Changes in the valuation allowance are included in
the determination of net earnings of the period in which the
change occurs.
Loans, Loan Fees and Interest Income
------------------------------------
Loans are stated at principal amount outstanding, net of the
allowance for loan losses. Interest on loans is calculated by
using the simple interest method on daily balances of the
principal amount outstanding.
Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions
and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful.
When a loan is placed on nonaccrual status, previously accrued
and uncollected interest is charged to interest income on
loans. Generally, payments on nonaccrual loans are applied to
principal.
Loan fees, net of certain origination costs, have been
deferred and are being amortized over the lives of the
respective loans in accordance with generally accepted
accounting principles set forth in Statement of Financial
Accounting Standards No. 91, "Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans
and Initial Direct Costs of Leases".
Allowance For Loan Losses
-------------------------
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely.
The allowance represents an amount which, in management's
judgement, will be adequate to absorb probable losses on
existing loans that may become uncollectible.
Management's judgement in determining the adequacy of the
allowance is based on evaluations of the collectibility of
loans. These evaluations take into consideration such factors
as changes in the nature and volume of the loan portfolio,
current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality, and review of
specific problem loans.
Management believes that the allowance for loan losses is
adequate. While management uses available information to
recognize losses on loans, future additions to the allowance
may be necessary based on changes in economic conditions. In
addition, regulators, as an integral part of their examination
process, periodically review the Company's allowance for loan
losses. Such regulators may require the Company to recognize
additions to the allowance based on their judgements of
information available to them at the time of their
examination.
F-8
<PAGE>
Effective January 1, 1995, the Company accounts for impaired
loans in accordance with Statement of Financial Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan" amended for SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosure." A loan is impaired when, based on current
information and events, it is probable that all amounts due
according to the contractual terms of the loan agreement will
not be collected. SFAS No. 114 requires that impaired loans be
measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, which
is the contractual interest rate adjusted for any deferred
loan fees or cost, premium or discount existing at the
inception or acquisition of the loan, or at the loan's
observable market price, or at the fair value of the
collateral of the loan if the loan is collateral dependent.
SFAS No. 118 amends SFAS No. 114 to require information about
the recorded investment in certain impaired loans and
eliminates its provisions regarding how a creditor should
report income on an impaired loan. SFAS No. 118 allows
creditors to use existing methods for recognizing income on
impaired loans, including methods used by certain industry
regulators. The adoption of these standards had no material
effect on the consolidated financial statements.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. When
assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the
accounts, and any gain or loss is reflected in income for the
period. Costs incurred for maintenance and repairs are
expensed currently. The range of estimated useful lives for
premises and equipment are:
Buildings and improvements 3 - 40 Years
Furniture and equipment 3 - 10 Years
Income Taxes
------------
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method required
under Accounting Principles Board Opinion No. 11 to the asset
and liability method required by SFAS No. 109. SFAS No. 109
requires the recognition of deferred tax assets and
liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
basis. Additionally, the standard requires the recognition of
future tax benefits, such as net operating loss carryforwards,
to the extent that realization of such benefits is more likely
than not. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which the assets and liabilities are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
tax expense in the period that includes the enactment date.
In the event the future tax consequences of differences
between the financial reporting bases and the tax bases of the
Company's assets and liabilities results in deferred tax
assets, an evaluation of the probability of being able to
realize the future benefits indicated by such asset is
required. A valuation allowance is provided for the portion of
the deferred tax asset when it is more likely than not that
some portion or all of the deferred tax asset will not be
realized. In assessing the realizability of the deferred tax
assets, management considers the scheduled reversals of
deferred tax liabilities, projected future taxable income, and
tax planning strategies.
Net Earnings Per Common Share
-----------------------------
Net earnings per share is determined by dividing net earnings
by the weighted average number of shares outstanding.
F-9<PAGE>
Other
-----
Certain reclassifications of the 1994 and 1993 amounts have
been made to conform to the presentation used in the 1995
financial statements. Property (other than cash deposits) held
by the Bank in a fiduciary or agency capacity for customers is
not included in the balance sheets since such items are not
assets of the Bank.
(2) INVESTMENT SECURITIES
Investment securities at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
Securities Held to Maturity: December 31, 1995
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury and Government
agencies $ 4,710,393 147,080 - 4,857,473
State, county and municipal 8,061,787 402,278 20,304 8,443,761
Mortgage-backed securities 2,849,061 58,250 - 2,907,311
---------- ------- ------ ----------
Total $ 15,621,241 607,608 20,304 16,208,545
========== ======= ====== ==========
</TABLE>
F-10
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) INVESTMENT SECURITIES, CONTINUED
<TABLE>
<CAPTION>
Securities Held to Maturity: December 31, 1994
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and Government
agencies $ 5,677,400 13,290 182,403 5,508,287
State, county and municipal 9,475,373 202,140 275,541 9,401,972
Mortgage-backed securities 3,631,623 6,884 67,755 3,570,752
---------- ------- ------- ----------
Total $ 18,784,396 222,314 525,699 18,481,011
========== ======= ======= ==========
Securities Available for Sale: December 31, 1995
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Treasury and Government
agencies $ 1,994,923 20,557 - 2,015,480
Mortgage-backed securities 5,092,036 5,591 49,347 5,048,280
--------- ------ ------ ---------
Total $ 7,086,959 26,148 49,347 7,063,760
========= ====== ====== =========
December 31, 1994
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- ---------- ---------
U.S. Treasury and Government
agencies $ 1,993,522 - 149,762 1,843,760
Mortgage-backed securities 5,284,994 - 385,899 4,899,095
--------- ------- ------- ---------
Total $ 7,278,516 - 535,661 6,742,855
========= ======= ======= =========
</TABLE>
F-11
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) INVESTMENT SECURITIES, CONTINUED
The amortized cost and fair value of investment securities at
December 31, 1995, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities
because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Held Securities Available
to Maturity for Sale
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury and Government
agencies:
1 to 5 years $ 4,410,616 4,548,566 1,994,923 2,015,480
5 to 10 years 299,777 308,907 - -
---------- ---------- --------- ---------
$ 4,710,393 4,857,473 1,994,923 2,015,480
========== ========== ========= =========
State, county and municipal:
Within 1 year $ 560,000 637,130 - -
1 to 5 years 2,319,269 2,384,675 - -
5 to 10 years 4,329,836 4,524,216 - -
More than 10 years 852,682 897,740 - -
---------- ---------- --------- ---------
$ 8,061,787 8,443,761 - -
========== ========== ========= =========
Total securities other than mortgage-
backed securities:
Within 1 year $ 560,000 637,130 - -
1 to 5 years 6,729,885 6,933,241 1,994,923 2,015,480
5 to 10 years 4,629,613 4,833,123 - -
More than 10 years 852,682 897,740 - -
Mortgage-backed securities 2,849,061 2,907,311 5,092,036 5,048,280
---------- ---------- --------- ---------
$ 15,621,241 16,208,545 7,086,959 7,063,760
========== ========== ========= =========
</TABLE>
Proceeds from disposals of securities held to maturity during
1995, 1994 and 1993 were $1,911,300, $2,300,605 and
$3,685,000, respectively. Call premiums amounting to $2,200
were received on two called securities during 1995 and are
included with securities gains in the 1995 statement of
earnings. Gross gains of $3,685 for 1993, along with gross
losses of $109,099 for 1993, were realized on those sales.
There were no sales of investment securities held to maturity
during 1995 and 1994.
Proceeds from sales of securities available for sale during
1995 and 1994 were $976,250 and $2,024,967, respectively.
Gross gains of $9,177 for 1994, along with gross losses of
$23,750 and $2,500 for 1995 and 1994, respectively, were
realized on those sales.
Certain investment securities were written down to their
estimated realizable value because, in the opinion of
management, the decline in value was considered other than
temporary. Writedowns of these securities of $44,000 were
charged to operations in 1993. During 1995 and 1994, the
Company received $87,100 and $195,605, respectively, on an
investment security that was in default and was written down
prior to 1992. The amount received in excess of the remaining
cost basis resulted in recoveries of $87,100 and $85,605 in
1995 and 1994, respectively, and is included with securities
gains in the statements of earnings.
Securities with a carrying value of $5,914,000 and $6,765,000
at December 31, 1995 and 1994, respectively, were pledged to
secure public deposits as required by law.
F-12
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(3) LOANS
Major classifications of loans at December 31, 1995 and 1994
are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <S> <C> <C>
Commercial, financial and agricultural $ 35,760,795 36,950,218
Real estate - construction 2,333,745 2,136,091
Real estate - mortgage 45,273,648 40,691,618
Consumer 24,886,667 21,507,602
----------- -----------
Total loans 108,254,855 101,285,529
Less: Allowance for loan losses 1,273,267 1,245,314
Unearned interest and fees 286,704 180,065
----------- -----------
Net loans $ 106,694,884 99,860,150
=========== ===========
</TABLE>
The Company grants loans and extensions of credit to
individuals and a variety of firms and corporations located in
its trade area, primarily Spalding County, Georgia and
surrounding counties. Although the Company has a diversified
loan portfolio, a substantial portion of the loan portfolio is
collateralized by improved and unimproved real estate and is
dependent upon the real estate market in this geographical
area.
Changes in the allowance for loan losses are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,245,314 1,441,964 1,755,810
Amounts charged off (409,863) (452,464) (906,515)
Recoveries on amounts previously charged off 406,816 170,814 67,669
Provision charged to operating expenses 31,000 85,000 525,000
--------- --------- ---------
Balance at end of year $ 1,273,267 1,245,314 1,441,964
========= ========= =========
</TABLE>
The Company was servicing approximately $31,200,000 and
$31,100,000 of mortgage loans for the Federal Home Loan
Mortgage Corporation at December 31, 1995 and December 31,
1994.
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1995 and 1994, are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land and improvements $ 1,113,634 1,113,634
Buildings and improvements 5,465,706 5,468,780
Furniture and equipment 3,022,762 2,705,028
--------- ---------
9,602,102 9,287,442
Less: Accumulated depreciation 3,730,345 3,715,040
--------- ---------
$ 5,871,757 5,572,402
========= =========
</TABLE>
Depreciation expense was $321,560, $292,711 and $380,584 for
the years ended December 31, 1995, 1994 and 1993,
respectively.
F-13
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(5) NOTE PAYABLE
Note payable at December 31, 1995 and 1994 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Note payable, due in monthly installments of $13,889
plus interest at 70% of the prime interest rate
through August 1, 2001, collateralized by certain
land and buildings. $ 944,445 1,111,112
</TABLE>
Aggregate maturities required on the note payable at December
31, 1995 are as follows:
1996 166,668
1997 166,668
1998 166,668
1999 166,668
2000 166,668
Thereafter 111,105
-------
$ 944,445
=======
(6) FEDERAL HOME LOAN BANK ADVANCES
During 1994, the Bank entered into an agreement with the
Federal Home Loan Bank (FHLB) whereby the FHLB agreed to
provide the Bank credit facilities under the Agreement for
Advances and Security Agreement. Any amounts advanced by the
FHLB are secured under a Blanket Floating Lien covered by all
of the Bank's 1-4 family first mortgage loans. The Bank may
draw advances up to 75% of the outstanding balance of these
loans based on the agreement with the FHLB. At December 31,
1995, the Bank has advances payable amounting to $2,000,000
with a fixed interest rate of 6.72% and interest payable
monthly with equal principal payments due semi-annually
beginning July 1997 until maturity in 2002.
(7) EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit plan
covering substantially all of its employees who have completed
one year of service. The Company's funding policy provides
that payments to the plan shall be consistent with minimum
government funding requirements plus additional amounts which
may be approved by the Company. Contributions are intended to
provide not only for benefits attributed to services to date
but also for those expected to be earned in the future.
F-14
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(7) EMPLOYEE BENEFIT PLANS, CONTINUED
The following table sets forth the Plan's status and amounts
recognized in the balance sheets at December 31, 1995 and
1994. Plan assets are stated at fair value and consist of
cash, certificates of deposit, equity securities and
government securities.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 2,201,036 1,593,371
Nonvested 25,798 16,008
--------- ---------
Total accumulated benefit obligations $ 2,226,834 1,609,379
========= =========
Projected benefit obligations for services
rendered to date $ 3,378,244 2,493,420
Plan assets at fair value 3,123,794 2,384,649
--------- ---------
Assets less than projected benefit obligation (254,450) (108,771)
Unamortized net asset (transition gain) existing
at date of adoption of SFAS 87 225,240 243,741
Unamortized net gain from past experience different
from that assumed and effects of changes in
assumptions 87,108 (236,338)
--------- ---------
Prepaid (accrued) pension cost included in other
liabilities $ 57,898 (101,368)
========== =========
</TABLE>
The components of net pension cost for the years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Service cost for benefits earned $ 115,323 133,916 130,314
Interest cost on projected benefit
obligations 200,887 188,399 175,373
Actual return on plan assets (493,582) 56,602 (162,194)
Net amortization and deferral 305,372 (232,917) 18,507
-------- -------- --------
Net pension cost $ 128,000 146,000 162,000
======= ======== ========
</TABLE>
The following assumptions were used in determining the
actuarial present value of the projected benefit obligations
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Discount rate 7.0% 8.0%
Rate of increase in future compensation levels 5.0% 5.0%
Expected long-term rate of return on assets 8.25% 8.25%
</TABLE>
F-15
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(7) Employee Benefit Plans, continued
The Company has a profit sharing plan covering substantially
all employees. Contributions, computed as defined in the plan,
amounted to $384,000 in 1994 and $357,000 in 1993. Effective
January 1, 1995, the Company amended the plan to comply with
the requirements of Section 401(K) of the Internal Revenue
Code. The plan covers substantially all employees, subject to
certain minimum service requirements. The Company will match
up to 6% of the participants' before tax contributions. The
Company's matching contributions amounted to $131,000 in 1995.
(8) Commitments
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to
meet the financing needs of its customers. These financial
instruments include commitments to extend credit, standby
letters of credit and financial guarantees. Those instruments
involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the balance sheet. The contract
amounts of those instruments reflect the extent of involvement
the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of
nonperformance by the other party for commitments to extend
credit, standby letters of credit and financial guarantees
written is represented by the contractual amount of those
instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
In some cases, the Company does require collateral or other
security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
Approximate
Contractual
Amount
-----------
1995 1994
---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 15,687,000 12,555,000
Standby letters of credit and
financial guarantees written $ 798,000 954,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments may expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The Company evaluates each customer's
credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company, upon
extension of credit is based on management's credit evaluation.
Collateral held varies but may include unimproved and improved
real estate, certificates of deposit, or personal property.
Standby letters of credit and financial guarantees written
are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers. Letters of credit are approximately
40% collateralized.
F-16
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(9) DIVIDEND LIMITATIONS
Dividends paid by the Bank are the primary source of funds
available to the Company. Banking regulations limit the
amount of dividends that may be paid without prior approval
of the regulatory authorities. The amount of dividends the
Bank may pay in 1996 without prior approval is approximately
$3,260,000 plus 1996 earnings of the Bank.
(10)INCOME TAXES
As more fully described in note 1, the Company changed its
method of accounting for income taxes effective January 1,
1993. The adoption of SFAS 109 resulted in a cumulative
effect that increased net earnings by $290,865 for the year
ended December 31, 1993.
The components of income tax expense for the years ended
December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993
---- ---- ----
Current $ 1,028,937 598,819 205,500
Deferred 74,845 84,614 211,173
--------- ------- -------
$ 1,103,782 683,433 416,673
========= ======= =======
The differences between the provision for income taxes and
the amount computed by applying the statutory federal income
tax rate to earnings before taxes are as follows:
<TABLE>
(CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Pretax income at statutory rates $ 1,242,575 852,189 610,109
Add (deduct):
Tax-exempt interest income (174,663) (190,693) (212,014)
Nondeductible interest expense 17,215 15,354 17,095
Other 18,655 6,583 1,483
--------- -------- -------
$ 1,103,782 683,433 416,673
========= ======== =======
</TABLE>
The following summarizes the sources and expected tax
consequences of future taxable deductions (income) which
comprise the net deferred tax asset (liability). The net
deferred tax asset at December 31, 1994 is included as a
component of other assets. At December 31, 1995, the Company's
net deferred liability is included as a component of other
liabilities.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred income tax assets:
Net unrealized loss in investment securities $ 7,888 182,125
Allowance for loan losses 250,580 216,499
State income tax credits 35,000 123,000
Other 46,055 103,225
------- --------
Total gross deferred income tax assets 339,523 624,849
Less: Valuation allowance (35,000) (123,000)
------- --------
Net deferred income tax assets 304,523 501,849
------- --------
Deferred income tax liabilities:
Premises and equipment (478,434) (426,678)
-------- --------
Net deferred income tax asset (liability) $ (173,911) 75,171
======== ========
</TABLE>
F-15
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(11) RELATED PARTY TRANSACTIONS
The Company conducts transactions with directors and officers,
including companies in which they have beneficial interest, in
the normal course of business. It is the policy of the Company
that loan transactions with directors and officers be made on
substantially the same terms as those prevailing at the time
for comparable loans to other persons. The following is a
summary of activity for related party loans for 1995:
Beginning balance $ 5,015,921
Loans advanced 11,000,277
Repayments (12,461,446)
-----------
Ending balance $ 3,554,752
===========
(12) MISCELLANEOUS OPERATING EXPENSES
Components of other operating expenses which are greater than 1%
of interest income and other operating income are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deposit insurance premiums $ 146,729 280,209 281,629
Stationery and supplies $ 209,038 175,701 154,480
Postage $ 164,678 177,317 159,292
Directors fees $ 153,100 167,400 145,750
Data processing $ 192,397 134,364 151,917
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments" requires disclosure of fair value information
about financial instruments, whether or not recognized on the
face of the balance sheet, for which it is practicable to
estimate that value. The assumptions used in the estimation
of the fair value of the Company's financial instruments are
detailed below. Where quoted prices are not available, fair
values are based on estimates using discounted cash flows and
other valuation techniques. The use of discounted cash flows
can be significantly affected by the assumptions used,
including the discount rate and estimates of future cash
flows. The following disclosures should not be considered a
surrogate of the liquidation value of the Company, but rather
a good-faith estimate of the increase or decrease in value of
financial instruments held by the Company since purchase,
origination, or issuance.
CASH AND CASH EQUIVALENTS
For cash, due from banks and federal funds sold the
carrying amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES
Fair values for investment securities are based on quoted
market prices.
OTHER INVESTMENTS
The carrying value of other investments approximates fair
value.
LOANS AND MORTGAGE LOANS HELD FOR SALE
The fair value of fixed rate loans is estimated by
discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with
similar credit ratings. For variable rate loans, the
carrying amount is a reasonable estimate of fair value.
DEPOSITS
The fair value of demand deposits, savings accounts, NOW
accounts and certain money market deposits is the amount
payable on demand at the reporting date. The fair value of
fixed maturity certificates of deposit is estimated by
discounting the future cash flows.
F-16
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
FHLB ADVANCES
The fair value of the FHLB fixed rate borrowings are
estimated using discounted cash flows, based on the current
incremental borrowing rates for similar types of borrowing
arrangements.
NOTE PAYABLE
The Company's note payable bears interest based on a
percentage of the prime rate and as such, the carrying
amount approximates the fair value.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT AND
FINANCIAL GUARANTEES WRITTEN
Because commitments to extend credit and standby letters of
credit are made using variable rates, the contract value is
a reasonable estimate of fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time,
based on relevant market information and information about
the financial instrument. These estimates do not reflect
any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a
particular financial instrument. Because no market exists
for a significant portion of the Company's financial
instruments, fair value estimates are based on many
judgements. These estimates are subjective in nature and
involve uncertainties and matters of significant judgement
and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-
balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the
value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities
that are not considered financial instruments include the
mortgage banking operation, deferred income taxes and
premises and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and
losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
The carrying amount and estimated fair values of the
Company's financial instruments at December 31, 1995 are as
follows:
</TABLE>
<TABLE>
<CAPTION>
1995
---------------------------
Carrying Estimated
Amount Fair Value
-------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 12,633,327 12,633,327
Investment securities 22,685,001 23,272,305
Other investments 1,120,510 1,120,510
Loans 106,694,884 105,900,645
Liabilities:
Deposits 129,498,993 130,076,854
FHLB advances 2,000,000 2,090,980
Notes payable 944,445 944,445
Unrecognized financial instruments:
Commitments to extend credit 15,687,000 15,687,000
Standby letters of credit 798,000 798,000
</TABLE>
F-17
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(14) FNB BANKING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1995 and 1994
Assets
------
1995 1994
---- ----
<S> <C> <C>
Cash $ 150,091 300,671
Investment in First National Bank of Griffin 15,979,544 14,004,411
Other assets 1,133,446 982,736
---------- ----------
$ 17,263,081 15,287,818
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ 4,345 231,528
Dividends payable 484,680 484,680
Stockholders' equity 16,774,056 14,571,610
---------- ----------
$ 17,263,081 15,287,818
========== ==========
</TABLE>
Statements of Earnings
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Interest $ 7,966 8,449 2,708
Other 288,501 251,972 214,006
Dividends from subsidiary 886,630 405,850 565,460
--------- ------- -------
1,183,097 666,271 782,174
--------- ------- -------
Other operating expenses 245,801 265,031 300,326
--------- ------- -------
Earnings before income taxes, equity in undistributed
earnings of bank subsidiary and cumulative effect of
accounting change 937,296 401,240 481,848
Income tax benefit (expense) (23,353) 1,567 29,327
--------- ------- -------
Earnings before equity in undistributed
earnings of bank subsidiary and cumulative
effect of accounting change 913,943 402,807 511,175
Equity in undistributed earnings of bank subsidiary 1,636,908 1,420,199 1,035,920
--------- --------- ---------
Earnings before cumulative effect of accounting change 2,550,851 1,823,006 1,547,095
Cumulative effect of accounting change for income
taxes on years prior to 1993 - - 121,536
--------- --------- ---------
Net earnings $ 2,550,851 1,823,006 1,668,631
========= ========= =========
</TABLE>
F-18
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(14) FNB BANKING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION, CONTINUED
<TABLE>
<CAPTION>
Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,550,851 1,823,006 1,668,631
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Equity in undistributed earnings
of bank subsidiary (1,636,908) (1,420,199) (1,035,920)
Cumulative effect of accounting change - - (121,536)
Amortization and depreciation 35,528 49,138 65,163
Change in other assets and liabilities (413,421) 53,053 419,861
---------- ---------- ---------
Net cash provided by operating activities 536,050 504,998 996,199
---------- ---------- ---------
Cash flows from financing activities - dividends paid (686,630) (565,460) (721,170)
---------- ---------- ---------
Net increase (decrease) in cash (150,580) (60,462) 275,029
Cash at beginning of the period 300,671 361,133 86,104
---------- ---------- ---------
Cash at end of the period $ 150,091 300,671 361,133
========== ========== =========
Supplemental disclosure of cash flow information:
Net unrealized loss on investment securities
available for sale of bank subsidiary, net of tax $ (338,225) 353,536 -
Change in dividends receivable from subsidiary $ (200,000) 159,610 155,710
Change in dividends payable to stockholders $ - 40,390 (155,710)
</TABLE>
F-19
EXHIBIT 21
ORGANIZATIONAL CHART
FNB Banking Company
First National Bank of Griffin: wholly-owned subsidiary
(the "Griffin Bank") of FNB Banking Company
Griffin Loans, Inc. wholly-owned subsidiary
of First National Bank of
Griffin
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000757262
<NAME> FNB BANKING COMPANY
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,633,327
<INT-BEARING-DEPOSITS> 106,297,660
<FED-FUNDS-SOLD> 3,950,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,063,760
<INVESTMENTS-CARRYING> 15,621,241
<INVESTMENTS-MARKET> 16,208,545
<LOANS> 106,694,884
<ALLOWANCE> 1,273,267
<TOTAL-ASSETS> 150,378,493
<DEPOSITS> 129,498,993
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,160,999
<LONG-TERM> 2,944,445
0
0
<COMMON> 807,800
<OTHER-SE> 15,966,256
<TOTAL-LIABILITIES-AND-EQUITY> 150,378,493
<INTEREST-LOAN> 11,016,657
<INTEREST-INVEST> 1,630,407
<INTEREST-OTHER> 125,800
<INTEREST-TOTAL> 12,772,864
<INTEREST-DEPOSIT> 4,257,069
<INTEREST-EXPENSE> 4,377,980
<INTEREST-INCOME-NET> 8,394,884
<LOAN-LOSSES> 31,000
<SECURITIES-GAINS> 65,550
<EXPENSE-OTHER> 6,899,067
<INCOME-PRETAX> 3,654,633
<INCOME-PRE-EXTRAORDINARY> 3,654,633
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,550,851
<EPS-PRIMARY> 3.16
<EPS-DILUTED> 0
<YIELD-ACTUAL> 6.47
<LOANS-NON> 677,000
<LOANS-PAST> 156,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,245,314
<CHARGE-OFFS> 409,863
<RECOVERIES> 406,816
<ALLOWANCE-CLOSE> 1,273,267
<ALLOWANCE-DOMESTIC> 1,273,267
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
