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, 1997.
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 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___
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:
$18,806,678.
State the aggregate market value of the voting stock held by non-
affiliates: as of March 15, 1998, 566,504 Shares of common
stock, $1.00 par value (the "Common Stock"), with an aggregate
value of $17,844,876 (based upon approximate market value of
$31.50/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
March 15, 1998, there were 807,800 outstanding shares of the
Registrant's Common Stock.<PAGE>
FNB BANKING COMPANY
FORM 10-KSB
INDEX
PAGE
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . .
Item 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . .
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . .
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS. . . . . . . . . . . . . . . . .
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . .
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
A PLAN OF OPERATION . . . . . . . . . . . . . . .
Item 7. FINANCIAL STATEMENTS. . . . . . . . . . . . . . .
Item 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . . . .
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT . . . . . . . .
Item 10. EXECUTIVE COMPENSATION. . . . . . . . . . . . . .
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . .
Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. . . . . . . . . . . . . . . . . . .
Item 13. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . .
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE REGISTRANT
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.
Certain statements included or incorporated by reference in
this Form 10-KSB are forward-looking (as such term is defined in
the Securities Exchange Act of 1934, as amended). Such statements
may relate to the Company or the Bank's operations, performance and
financial condition. These statements are based upon a number of
assumptions and estimates that are inherently subject to significant
uncertainties, many of which are beyond the control of the Company
and the Bank. Actual results may differ materially from those
expressed or implied by such forward-looking statements.
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. Through its subsidiary, Griffin Loans, Inc., a consumer
finance company, the Company engages in the business of small making
loans to individuals under the trade name "First Credit."
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, 1997
the Bank's deposit base, totaling approximately $167 million,
consisted of approximately $27 million in non-interest bearing
demand deposits (16% of total deposits), approximately $41
million in interest bearing demand deposits (including money
market accounts) (24% of total deposits), approximately $15
million in savings deposits (9% of total deposits),
approximately $55 million in time deposits in amounts less than
$100,000 (34% of total deposits), and approximately $29 million
in time deposits of $100,000 or more (17% 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.
-1-
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, 1997, consumer, real estate (including
mortgage and construction loans) and commercial loans represented
approximately 18%, 37%, and 45%, 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 and Henry County, Georgia.
On February 25, 1997 the Bank opened a branch in Henry County and
began to serve that market. 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.
On March 19, 1993, inter-agency guidelines adopted by
federal bank regulators, including the Office of the Comptroller
of the Currency (the "OCC"), went into effect and mandated that
financial institutions establish real estate lending policies and
establish certain minimum real estate loan-to-value standards.
The Bank has adopted these federal standards as its minimum
standards. These standards require maximum loan-to-value ratios
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for various types of real estate loans as set forth below.
However, the Bank may make exceptions to the minimum standards,
which exceptions must be accounted for and tracked.
<TABLE>
<CAPTION>
Loan-to-
Value Limit
Loan category (percent)
------------- ------------
<S> <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. The Board of Directors reviews all loans
over $25,000 whether current or past due each month.
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 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.
-3-
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. On February 25, 1997 the
Company opened a branch in the town of Hampton, Henry County,
Georgia. Henry County has a population of approximately 76,000.
The Company competes in Spalding County with four other
commercial banks and one thrift institution and in Henry County
with seven commercial banks and one thrift institution. The
deposit range of its competitors in Spalding County is $36
million to $122 million and $1 million to $260 million in Henry
County. The Bank is the largest bank in Spalding County in terms
of assets and deposit size, with assets and deposits at
December 31, 1997 of approximately $184 million and $160 million,
respectively, and the second smallest in Henry County in terms of
deposits located in that county.
In addition to the Company's competitors in Spalding and
Henry County, the Company competes with commercial banks,
thrifts, various other financial institutions and brokerage
houses located outside the market area. 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.
YEAR 2000 COMPLIANCE
The "year 2000 issue" arises from the widespread use of computer
programs that rely on two-digit codes to perform computations or
decision-making functions. Many of these programs may fail due to
an inability to properly interpret date codes beginning January 1,
2000 ("Y2K"). For example, such programs may misinterpret "00" as the year
1900 rather than 2000. In addition, some equipment, being controlled
by microprocessor chips, may not deal appropriately with the year "00".
The Company is evaluating its computer systems to determine which
modifications and expenditures will be necessary to make its systems
compatible with Y2K requirements. The Company believes that their
systems will be Y2K-compliant upon implementation of such modifications.
Management estimates that total costs of Y2K compliance will be
approximately $250,000. The Company estimates that the direct costs
of such modifications will not be material to the consolidated results
of operations. However, there can be no assurance that all necessary
modifications will be identified and corrected or that unforeseen
difficulties or costs will not arise. In addition, there can be no
assurance that the systems of other companies on which the Company
depends will be modified on a timely basis, or that the failure by
another company to properly modify its systems will not negatively
impact the systems or operations of the Company.
EMPLOYEES
As of December 31, 1997, the Company and the Bank had 108
full-time and 21 part-time employees. The Company is not a party
to any collective bargaining agreement. Management believes that the
Company enjoys satisfactory relations with its employees.
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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.
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.
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 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 the
-5-<PAGE>
development 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 (i) 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.
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 a 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, 1997,
the Bank's retained earnings from which dividends could be paid
totaled approximately $3,795,000. For 1997, the Company's cash
dividend payout to stockholders was 31% 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.
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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
Tier One Capital to average 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 amended effective January 1, 1997
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 revised standards have not
had and are not expected to have a significant effect on the
Company's capital requirements.
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.
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
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<PAGE>
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, 1997.
CAPITAL ADEQUACY
Set forth below are pertinent capital ratios for FNB and the
Bank as of December 31, 1997.
<TABLE>
<CAPTION>
Minimum Capital Requirements FNB Bank
- ----------------------------- --- ----
<S> <C> <C>
Tier 1 Capital to Risk-based 14.1% 13.9% <F1>
Assets: 4.00%
Total Capital to Risk-based 15.4% 15.1% <F2>
Assets: 8.00%
Leverage Ratio (Tier 1 Capital 11.3% 10.9% <F3>
to Average Assets): 4.00%
<FN>
<F1> Minimum for "Well Capitalized" Banks = 6%
<F2> Minimum for "Well Capitalized" Banks = 10%
<F3> Minimum for "Well Capitalized" Banks = 5%
</FN>
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 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. These regulations have not had any
appreciable impact upon the Company and the Bank.
-8-
<PAGE>
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 Credit 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
provides 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
before June 1, 1997, or alternatively, to opt out of interstate
branching before 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.
In 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
-9-
<PAGE>
where a bank does not currently have operations. After July 1,
1998, all restrictions on state-wide branching will 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 certain other limited
circumstances.
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 overpayments 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 paid 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
1995, the annual FDIC insurance premiums paid by the Bank would
have been reduced by approximately $284,000.
On September 29, 1996, the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 was enacted (the "1996 Act").
The 1996 Act's chief accomplishment was to provide for the
recapitalization of the Savings Association Insurance Fund
("SAIF") by levying a one-time special assessment on SAIF
deposits to bring the fund to a reserve ratio equal to $.25 per
$100 of insured deposits and to provide that beginning in 1997,
BIF assessments would be used to help pay off the $780 million in
annual interest payments on the $8 billion Financing Corporation
("FICO") bonds issued in the late 1980s as part of the government
rescue of the thrift industry. The law provides that BIF
assessments for FICO bond payments must be set at a rate equal to
20% of the SAIF rates for such assessments in for 1997, 1998 and
1999. After 1999, all FDIC insured institutions will pay the
same assessment rates. For 1997, the assessment for the FICO
bond payments was $.0132 per $100 of deposits for BIF deposits
and $.0648 per $100 of deposits for SAIF deposits. Currently, the
deposit insurance assessments range from zero to $.27 per $100 of
deposits with 94% of banks paying nothing for deposit insurance. One of
the provisions of the 1996 Act was to eliminate the minimum
$2,000 per year charge for deposit insurance. As a result, in 1997,
the Bank paid no premiums for deposit insurance and a FICO bond
assessment of $17,181. The Bank will pay no premium for deposit
insurance in the first six months of 1998 and a first quarter FICO
bond assessment of $4,419. The Bill also provided limited
regulatory relief and revised certain out-of-date regulations.
-10-<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's main office is located at 318 South Hill
Street, Griffin, Georgia, 30224, and its telephone number at that
office is (770) 227-2251.
The Company distributes its services through four full-
service banking offices, and one limited-service banking office
as follows:
Main Office
-----------
318 South Hill Street
Griffin, Georgia 30224
Northside Bank Branch
---------------------
1475 West McIntosh Road
Griffin, Georgia 30223
Southside Bank Branch
---------------------
1103 Zebulon Road
Griffin, Georgia 30224
Kroger Griffin Branch
---------------------
Limited Service Office
----------------------
100 Spalding Village
Griffin, Georgia 30223
Henry County Branch
-------------------
996 Bear Creek Boulevard
Hampton, Georgia 30228
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 $611,112 at
December 31, 1997. 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 and to house the offices of Griffin Loans, Inc.
The Company or the Bank owns these properties, except the Kroger
Griffin Branch Limited Office, which is leased. The Bank owns
the Henry County Branch property. 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.
-11-<PAGE>
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's Stock. As of March 15, 1998, the Company had [425]
shareholders of record.
Dividends. In 1996 and 1997, the Company declared cash
dividends of $807,800 ($1.00 per share) and $888,580 ($1.10 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 10 to the Company's consolidated financial
statements for the three years ended December 31, 1997 set forth
in Item 7 hereof.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company is a one bank holding company organized in 1983. The
Bank is the only subsidiary of the Company at December 31, 1997 and 1996.
YEAR 2000 CONSIDERATIONS
The Company is aware of the issues associated with the programming
code in existing computer systems as the millennium (year 2000)
approaches. The Y2K problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the
two-digit value to 00. The issue is whether computer systems will
properly recognize date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail.
The Company is utilizing both internal and external resources to
identify, correct or reprogram, and test the systems for the Y2K
compliance. It is anticipated that all mainframe systems will be
Y2K certified no later than the third quarter of 1998, allowing
adequate time for testing during 1999. To date, confirmation has
been received from the Company's primary processing vendors that
plans are being developed to address processing of transactions in
the year 2000.
Management estimates expenditures associated with Y2K compliance
to be approximately $250,000. Direct costs are not expected to be
material to the consolidated results of operations and will be expensed
as incurred. Expenses in 1997 related to the Y2K issue were not material
to the financial results of operations.
-12-<PAGE>
FINANCIAL CONDITION - 1997 VS. 1996
During 1997, average total assets increased $22,135,000 (14%) over
1996. Average deposits increased $17,872,000 (13%) in 1997 over
1996. Average loans increased $19,837,000 (16%) in 1997 over 1996.
Total assets at December 31, 1997, were $192,819,000,
representing a $22,042,000 (13%) increase from December 31, 1996.
Total deposits increased $21,912,000 (15%) from 1996 to 1997 while
total gross loans increased $12,758,000 (10%) during 1997. Time
deposits increased $16,207,000 from 1996 to 1997 while all other
deposit accounts increased $5,705,000 in 1997. As the local economy
remained strong, loan demand increased and the Bank showed increases in
each lending category at year end except consumer. 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, 1997 were $2,813,000 compared
to $783,000 at December 31, 1996. The majority of the increase is
attributable to a increase of non-accrual loans. There were no
related party loans which were considered nonperforming at December 31,
1997.
The Bank was most recently examined by its primary regulatory
authority in January of 1998. 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 - 1997 VS. 1996
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 increased by $1,279,000 or 14% in 1997. Net
interest income at December 31, 1997, was $10,678,000 compared to
$9,398,000 in 1996. 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 (6.57% in 1997 and 6.48% in 1996) increased
approximately 1% in 1997 over 1996.
The provision for loan losses in 1997 was $718,000 compared to
$365,000 in 1996. The significant increase in the provision for loan
losses was primarily attributable to the increase in the loan
portfolio and an increase in non-accrual loans as compared to 1996.
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 1.4%
and 1.1% of total loans outstanding at December 31, 1997 and 1996,
respectively. Net charge-offs were $128,000 and $216,000 during 1997
and 1996, respectively. A dedicated loan review function is utilized
by the Bank. All loans of $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
-13-
<PAGE>
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 1997 of $2,259,000 increased over 1996 by
$29,000 or 1%. Other operating expenses increased $704,000 (10 %) in
1997 over 1996 principally due to the increase in personnel and
occupancy expenses associated with opening of the Henry County
branch.
Income taxes expressed as a percentage of earnings before income
taxes increased from 32% in 1996 to 34% in 1997. The increase
relates to a decrease in tax-exempt income as a percentage of
earnings before income taxes.
RESULTS OF OPERATIONS - 1996 VS. 1995
Net interest income in 1996, which was $9,398,000, increased by
$1,003,000 or 12% over 1995. 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 (6.48% in 1996 and 6.44% in 1995) increased
approximately 1% in 1996 over 1995.
The provision for loan losses in 1996 was $365,000 compared to
$31,000 in 1995. The significant increase in the provision for loan
losses was primarily attributable to the increase in the loan
portfolio and an increase in net charge-offs of $213,000 as compared
to 1995. The allowance for loan losses represented approximately
1.1% and 1.2% of total loans outstanding at December 31, 1996 and
1995, respectively. Net charge-offs were $216,000 and $3,000 during
1996 and 1995, respectively.
Other operating income in 1996 of $2,229,000 increased over 1995
levels by $39,000 or 2%. Other operating expenses in 1996 of
$7,242,000 increased by $343,000 or 5% over 1995 principally due to
increases in supplies, depreciation and repairs and maintenance
expenses.
Income taxes expressed as a percentage of earnings before income
taxes increased from 30% in 1995 to 32% in 1996. The increase
related 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.
During 1997, certain equity securities held by the Company which had
previously been included in other investments were transferred to
available for sale as these began being traded on a national
exchange. The transfer of these securities to available for sale
resulted in an increase in stockholders' equity of $703,000 after
consideration for the tax effects of the unrealized gain on these
securities.
-14-
<PAGE>
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.
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 increased $9,314,000 to a total
$21,775,000 at year end 1997 as cash flows increases generated from
deposit and operating activities outpaced amounts used by investing
activities. Cash inflows from operations totaled $4,148,000 in 1997,
while inflows from financing activities totaled $18,071,000, most of
which were net deposit increases during 1997 of $21,912,000 and FHLB
advances of $4,000,000. Included in financing activities were note
payable repayments of $167,000 and FHLB advance repayments of
$6,786,000.
Investing activities used $12,906,000 of cash and cash equivalents,
principally composed of net advances of loans to customers of
$12,925,000 during 1997 and investment security purchases, net of
sales, calls, and paydowns.
CAPITAL RESOURCES
The Company continues to maintain adequate capital ratios. The
following tables present the Company's regulatory capital position
at December 31, 1997.
</TABLE>
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
Actual as of December 31, 1997
------------------------------
<S> <C>
Tier 1 Capital 14.1%
Tier 1 Capital minimum requirement 4.0%
----
Excess 10.1%
====
Total Capital 15.4%
Total Capital minimum requirement 8.0%
----
Excess 7.4%
====
Leverage Ratio
As of December 31, 1997
-----------------------
Tier 1 Capital to adjusted total assets
("Leverage Ratio") 11.3%
Minimum leverage requirement 4.0%
----
Excess 7.3%
====
</TABLE>
-15-<PAGE>
For a more complete discussion of the actual and required ratios
of the Company and the Bank, see Note 15 to the consolidated financial
statements.
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.
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 time frame and subtracting
all liabilities that reprice or mature within that time frame. 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, 1997 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.
-16-
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1997
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:
Interest-bearing deposits with
other banks $ 500 - - - 500
Investment securities 10 1,857 10,472 9,735 22,074
Mortgage loans held for sale 650 - - - 650
Loans 31,241 23,612 72,066 13,870 140,789
Other investments - - - 826 826
----------- ------ ------ ------ -------
Total interest-bearing assets $ 32,401 25,469 82,538 24,431 164,839
=========== ====== ====== ====== =======
Interest-bearing liabilities:
Deposits:
Demand and savings $ 56,590 - - - 56,590
Time deposits 20,040 33,547 16,639 13,583 83,809
FHLB advances - 286 1,143 - 1,429
Notes payable 611 - - - 611
----------- ------ ------ ------ -------
Total interest-bearing liabilities $ 77,241 33,833 17,782 13,583 142,439
=========== ====== ====== ====== =======
Interest sensitive difference
per period (44,840) (8,364) 64,756 10,848 22,400
=========== ====== ====== ====== =======
Cumulative interest sensitivity
difference (44,840) (53,204) 11,552 22,400
=========== ====== ====== ======
Cumulative difference to total
assets (23%) (28%) 6% 12%
=========== ====== ====== ======
</TABLE>
At December 31, 1997, the difference between the Company's
liabilities and assets repricing or maturing within one year was
$53,204,000. 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.
-17-<PAGE>
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.
SELECTED STATISTICAL INFORMATION
The following section presents consolidated statistical
information for FNB Banking Company which supplements the
financial data discussed 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.
-18-
<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)
1997 1996
--------------------------- -----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Loans (including loan fees) $ 140,193 14,904 10.63% $ 120,356 12,543 10.42%
Investment securities:
Taxable 15,101 1,041 6.89% 15,957 1,101 6.90%
Non-taxable 6,919 600 8.67% 7,822 692 8.85%
Federal funds sold 3,532 207 5.86% 4,505 258 5.73%
------- ------ ------- ------
Total interest earning assets 165,745 16,752 10.11% 148,640 14,594 9.82%
Other non-interest earnings assets 15,686 10,656
------- -------
Total assets $ 181,431 $ 159,296
======= =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and savings $ 53,653 1,361 2.54% $ 50,517 1,299 2.57%
Time 72,852 4,118 5.65% 60,438 3,441 5.69%
FHLB advances 5,153 332 6.44% 3,108 145 4.67%
Long-term debt 688 50 7.27% 840 62 7.38%
Federal funds purchased and securities
sold under repurchase 145 9 6.21% 212 13 6.13%
------- ------ ----- ------- ------ -----
Total interest-bearing liabilities 132,491 5,870 4.43% 115,115 4,960 4.31%
------- ------ ----- ------- ------ -----
Other non-interest bearing liabilities 29,772 26,977
Stockholders' equity 19,168 17,204
Total liabilities and ------- -------
stockholders' equity 181,431 $ 159,296
======= =======
Excess of interest-earning assets over
interest bearing liabilities $ 33,254 $ 33,525
======= =======
Ratio of interest-earning assets to
interest-bearing liabilities 125.10% 129.12%
Net interest income 10,822 9,634
Net interest spread 5.68% 5.51%
Net interest yield on interest earning
assets 6.57% 6.48%
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
1995
------------------------------
Average Yield/
Balance Interest Rate
---------- -------- --------
<S> <C> <C> <C>
Assets:
Interest earning assets:
Loans (including loan fees) $ 107,447 11,017 10.25%
Investment securities:
Taxable 16,399 1,118 6.82%
Non-taxable 8,746 786 8.98%
Federal funds sold 2,013 120 5.96%
------- ------ ----
Total interest earning assets 134,605 13,041 9.69%
Other non-interest earnings assets 12,106
-------
Total assets $ 146,711
=======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and savings $ 49,623 1,329 2.68%
Time 53,918 2,928 5.43%
FHLB advances 380 26 6.84%
Long-term debt 1,021 78 7.64%
Federal funds purchased and securities
sold under repurchase 279 17 6.10%
------- ----- ----
Total interest-bearing liabilities 105,221 4,378 4.16%
------- ----- ----
Other non-interest bearing liabilities 26,118
Stockholders' equity 15,372
Total liabilities and -------
stockholders' equity $ 146,711
Excess of interest-earning assets over =======
interest bearing liabilities $ 29,384
Ratio of interest-earning assets to =======
interest-bearing liabilities 127.93%
Net interest income 8,663
Net interest spread 5.53%
Net interest yield on interest earning
assets 6.44%
</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.
-20-
<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 1997 over 1996, and 1996 over 1995.
<TABLE>
<CAPTION>
1997 over 1996
--------------
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) $ 2,072 289 2,361
Investment securities:
Taxable (59) (1) (60)
Non-taxable (79) (13) (92)
Federal funds sold (55) 4 (51)
----- ---- -----
Total interest earning assets $ 1,879 279 2,158
===== ==== =====
Interest expense on:
Deposits:
Interest-bearing demand and savings $ 78 (16) 62
Time 691 (14) 677
FHLB 102 85 187
Long-term debt (11) (1) (12)
Federal funds purchased (3) (1) (4)
----- ---- -----
Total interest-bearing liabilities $ 857 53 910
===== ==== =====
</TABLE>
Note: Rate/volume variances were allocated between rate variances and
volume variances using a weighted average allocation method.
-21-
<PAGE>
TABLE 2
VOLUME-RATE ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
1996 over 1995
--------------
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) $ 1,325 201 1,526
Investment securities:
Taxable (29) 12 (17)
Non-taxable (84) (10) (94)
Federal funds sold 149 (11) 138
----- --- -----
Total interest earning assets $ 1,361 192 1,553
===== === =====
Interest expense on:
Deposits:
Interest-bearing demand and savings $ 21 (51) (30)
Time 360 153 513
FHLB 213 (94) 119
Long-term debt (14) (2) (16)
Federal funds purchased (4) - (4)
----- --- -----
Total interest-bearing liabilities $ 576 6 582
===== === =====
</TABLE>
Note: Rate/volume variances were allocated between rate variances
and volume variances using a weighted average allocation method.
TABLE 3
INVESTMENT PORTFOLIO
The following table presents the investments by category at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(Amounts are presented in thousands)
1997 1996
---- ----
<S> <C> <C>
HELD TO MATURITY (AT AMORTIZED COST)
United States treasury and agencies $ 1,488 2,779
State, county and municipal 6,281 7,344
Mortgage-backed 1,624 2,074
----- ------
Totals $ 9,393 12,197
===== ======
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
(Amounts are presented in thousands)
1997 1996
---- ----
AVAILABLE FOR SALE Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
United States treasury and agencies $ 3,128 3,156 4,540 4,530
Mortgage-backed 7,850 7,865 5,521 5,481
Equity securities 526 1,660 - -
------ ------ ------ ------
$ 11,504 12,681 10,061 10,011
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OTHER INVESTMENTS $ 826 1,155
</TABLE>
The following table presents the maturities of all investment securities
at carrying value and the weighted average yields for each range of
maturities presented. (Amounts are presented in thousands)
<TABLE>
<CAPTION>
United States Mortgage- Weighted
Maturities at Treasury and Backed State, County Average
December 31, 1997 Agencies Securities and Municipal Yields
- ----------------- ------------- ---------- ------------- --------
<S> <C> <C> <C> <C>
Within 1 year $ - 396 260 7.17%
After 1 through 5 years 4,048 3,218 1,644 6.28%
After 5 through 10 years 596 3,910 3,870 6.35%
After 10 years - 1,965 507 6.48%
------ ----- -----
Totals $ 4,644 9,489 6,281
====== ===== =====
</TABLE>
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 for 1996 common stock in two companies for which
no readily determinable market value exists. These securities are not
included in the maturity analysis above. During 1997, certain equity
securities previously included in other investments were transferred
to available for sale as these securities began being traded on a
national exchange. Yields on tax exempt securities are calculated on
a tax equivalent basis.
-23-
<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,
------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts are presented in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 63,182 52,437 35,761 36,950 35,184
Real estate - construction 5,634 3,604 2,334 2,136 734
Real estate-mortgage 45,794 44,688 45,273 40,692 43,054
Installment loans to
individuals 26,179 27,302 24,887 21,507 19,303
------- ------- ------- ------- ------
140,789 128,031 108,255 101,285 98,275
Less: Unearned interest and fees (304) (330) (287) (180) (41)
Allowance for loan losses (2,013) (1,422) (1,273) (1,245) (1,442)
------- ------- ------- ------- ------
Loans, net $ 138,472 126,279 106,695 99,860 96,792
======= ======= ======= ======= ======
</TABLE>
As of December 31, 1997, 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 $ 30,558 5,634 36,192
1 to 5 years 32,624 - 32,624
------ ----- ------
Totals $ 63,182 5,634 68,816
====== ===== ======
</TABLE>
As of December 31, 1997, 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 $ 24,360 8,264 32,624
====== ===== ======
</TABLE>
-24-
<PAGE>
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, 1997, 1996, 1995, 1994,
and 1993 (amounts are presented in thousands):
<TABLE>
<CAPTION>
December 31,
------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Other real estate and repossessions $ - 90 - - 524
Accruing loans 90 days or more
past due 275 216 148 144 165
Non-accrual loans 2,538 477 677 1,640 2,502
Interest on non-accrual loans which
would have been reported 187 38 67 158 175
</TABLE>
Increases in the allowance for loan losses were deemed necessary
partially to provide for potential losses associated with the
increase in non-accrual loans. After consideration for
collateral values securing the non-accrual loans and the
aforementioned additional loan loss provision, management
believes the level of the allowance for loan losses at December
31, 1997, is adequate to absorb potential losses inherent in
these and other loans in the portfolio. While there may be
additional loans in the portfolio that may become classified as
conditions indicate, management is not aware of any potential
problem or restructured loans that are not disclosed in the
above table.
A loan is placed on non-accrual status when, in management's
judgment, 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.
-25-
<PAGE>
TABLE 5
ALLOWANCE FOR LOAN LOSSES
The following table summarizes information concerning the
allowance for loan losses:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts are presented in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,422 1,273 1,245 1,442 1,756
Charge-offs:
Commercial, financial and agricultural 55 67 62 81 760
Real estate-construction - - - - -
Real estate-mortgage 8 64 - - -
Installment loans to individuals 331 342 348 371 146
----- ----- ----- ----- -----
394 473 410 452 906
----- ----- ----- ----- -----
Recoveries:
Commercial, financial and agricultural 78 96 223 97 17
Real estate-construction - - - - -
Real estate-mortgage - 7 - - -
Installment loans to individuals 188 154 184 73 50
----- ----- ----- ----- -----
266 257 407 170 67
----- ----- ----- ----- -----
Net charge-offs 128 216 3 282 839
Additions charged to operations 719 365 31 85 525
----- ----- ----- ----- -----
Balance at end of year $ 2,013 1,422 1,273 1,245 1,442
===== ===== ===== ===== =====
Ratio of net charge-offs during the period
to average loans outstanding during
the period .09% .18% .00% .28% .92%
=== === === === ===
</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.
The Bank does not allocate the allowance for loan losses to
various loan categories. The extra allowance is available to
absorb losses from any and all loans. Management anticipates
gross charge-offs for 1998 to approximate $500,000, $200,000 of
-26-<PAGE>
which would be associated with loans classified as commercial and
the balance with consumer type loans. Anticipated charge-offs
are an estimate based on historical experience and other
judgmental factors and may be more or less than those that
ultimately occur.
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)
1997 1996 1995
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Demand deposits:
Non-interest bearing $ 26,474 - 24,152 - 23,822 -
Interest-bearing demand
and savings 53,653 2.54% 50,517 2.57% 49,623 2.68%
Time deposits 72,852 5.65% 60,438 5.69% 53,918 5.43%
------- ------- -------
Totals $152,979 135,107 127,363
======= ======= =======
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at
December 31, 1997, are summarized as follows (amounts are presented in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Within 3 months $ 6,909
After 3 through 6 months 6,147
After 6 through 12 months 7,396
After 12 months 8,511
------
Total $ 28,963
======
</TABLE>
TABLE 7
SELECTED RATIOS
The following table sets out certain ratios of the consolidated
entity for the years indicated.
-27-
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income to:
Average stockholders' equity 14.75% 15.87% 16.59%
Average assets 1.56% 1.72% 1.73%
Dividends to net income 31.43% 29.59% 26.92%
Average equity to average assets 10.56% 10.85% 10.47%
</TABLE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements and the report of independent public
accountants are included in this report beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
For the year ended December 31, 1997, the accounting firm of Porter
Keadle Moore, LLP. 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.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Board of Directors
The following table sets forth for each director of the Company as
of January 25, 1998 (a) the person's name, (b) his age at December 31,
1997, (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> <C>
J. Henry Cheatham, III 47 1994 Private Investor
Ernest F. Carlisle, III 66 1997 Carlisle & Company
C. A. Knowles 65 1982 President, Chief Executive Officer and Treasurer of the
Company and President of the Bank
James A. Mankin 71 1982 Merchant and Real Estate Developer
David G. Newton 50 1990 Real Estate Developer
John T. Newton, Jr. 51 1993 Interim Chairman of the Board of the Company;
Chairman of the Board of the Bank; Attorney,
Newton & Howell, P.C.
</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
brothers and are first cousins of J. Henry Cheatham, III. 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, 1997, (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 65 1982 President, Chief Executive Officer and Treasurer of the Company and
President of the Bank.
William K. Holmes 47 1974 Assistant Treasurer since 1993, Senior Vice President of the Bank
since 1974, 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, 1997 whose cash compensation, including salary and bonus, exceeded
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------------------
Name and Principal Position Year Salary <F1> Bonus Other
---- ----------- ----- -----
<S> <C> <C> <C> <C>
C. A. Knowles 1997 $193,793 $27,500 <F2>
President, Chief Executive 1996 $193,043 $32,519 <F2>
Officer and Treasurer 1995 $195,700 $23,000 <F2>
<FN>
<F1>Includes Director's fees
<F2>Does not meet Securities and Exchange Commission threshold for
disclosure.
</FN>
</TABLE>
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.
Each director of the Bank receives an annual retainer of $3,000 plus $300
per meeting attended for their service as a director of the Bank and $150
for each Board committee meeting they attend.
-29-
<PAGE>
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 common stock of the Company, $1.00 par value
(the "Company Stock"), on January 25, 1998, 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>
<CAPTION>
Number of Shares
Name and Address Beneficially Owned Percentage of Total
- ---------------- ------------------ -------------------
<S> <C> <C>
Newton Family Partnership 171,904 <F1> 21.28%
1076 Maple Drive
Griffin, GA 30223
John T. Newton, Sr. 192,529 <F2> 23.83%
1076 Maple Drive
Griffin, GA 30223
Harvey Cheatham 71,920 <F3> 8.90%
P.O. Box 88185
Atlanta, GA 30338
John Henry Cheatham 42,452 <F4> 5.26%
P.O. Box 1252
Griffin, GA 30224
EMC Investments Ltd. partnership 42,000 5.20%
5101 North Casablanca Road, #6
Scottsdale, AZ 85253
James Gilliam Cheatham 47,952 <F5> 5.87%
P.O. Box 506
Griffin, GA 30224
Lelia Cheatham Von Stein 47,152 <F6> 5.84%
623 Probart Street
Brevard, NC 28712
______________________________
<FN>
<F1> John T. Newton, Sr. has sole voting and investment power over the
shares owned of record by the partnership under the terms of the
partnership agreement.
<F2> Of the indicated shares, 171,904 shares are owned of record by the
Newton Family Partnership, and Mr. Newton has sole voting and
investment power with respect to these shares. Includes 7,932
shares owned by the Estate of Virginia Cheatham Newton.
-30-
<PAGE>
<F3> 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 6,000 shares which are held directly by his wife,
Anne A. Cheatham, as to which shares Mr. Cheatham disclaims
beneficial ownership.
<F4> Of the indicated shares, Mr. Cheatham owns 34,952 shares and 7,500
shares are owned by his children.
<F5> Of the indicated shares, Mr. Cheatham owns 34,952 shares and 12,500
shares are owned by his children.
<F6> Of the indicated shares, Ms. Von Stein owns 35,252 shares and 11,900
shares are owned by her children.
</FN>
</TABLE>
STOCK OWNED BY MANAGEMENT
The following table provides for each director of the Company,
the named executive officer, and for all directors and officers of the
Company as a group, as of January 25, 1998, 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>
Ernest F. Carlisle, III 204 *
J. Henry Cheatham, III 42,452 <F1> 5.26%
C. A. Knowles 920 *
James A. Mankin 3,555 <F2> *
David G. Newton 10,117 1.25%
John T. Newton, Jr. 13,006 <F3> 1.61%
All directors and executive officers
as a group (7 persons) 70,356 <F1><F2><F3> 8.70%
* Indicates less than one percent.
<FN>
<F1> Includes 7,500 shares held by Mr. Cheatham as custodian for his
children.
<F2> Includes 1,591 shares owned by Mr. Mankin's wife.
<F3> Includes 6,773 shares held by Mr. Newton as Trustee for his niece
and nephew.
</FN>
</TABLE>
-31-<PAGE>
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 Company, the extensions of credit made by the
Bank to its directors and officers since January 1, 1997 (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 12 under Notes to Consolidated Financial
Statements in Item 7 hereof.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The Company 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.
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.
27.0 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
None.
-32-
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(with Independent Accountants' Report thereon)
F-1<PAGE>
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, 1997 and
1996, and the related statements of earnings, changes in
stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1997. 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,
1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting
principles.
/s/ Porter Keadle Moore, LLP.
-----------------------------
PORTER KEADLE MOORE, LLP.
Atlanta, Georgia
January 15, 1998
F-2
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets
------
1997 1996
---- ----
<S> <C> <C>
Cash and due from banks, including reserve requirements of
$1,340,000 and $1,196,000 $ 13,578,133 12,461,860
Federal funds sold 8,197,365 -
----------- -----------
Cash and cash equivalents 21,775,498 12,461,860
----------- -----------
Interest-bearing deposits with other banks 500,000 -
Investment securities available for sale 12,681,186 10,010,949
Investment securities held to maturity (market value,
$9,779,012 and $12,679,015) 9,392,953 12,197,132
Other investments 825,700 1,154,910
Mortgage loans held for sale 650,350 972,276
Loans, net 138,472,205 126,278,521
Premises and equipment, net 6,866,681 6,079,942
Accrued interest receivable and other assets 1,654,010 1,620,806
----------- -----------
$ 192,818,583 170,776,396
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 27,318,977 25,522,071
Interest-bearing demand 41,233,435 37,663,754
Savings 15,356,322 15,017,853
Time 83,808,834 67,601,606
----------- -----------
Total deposits 167,717,568 145,805,284
FHLB advances 1,428,571 4,214,286
Note payable 611,112 777,779
Accounts payable and accrued liabilities 1,681,760 1,300,617
----------- -----------
Total liabilities 171,439,011 152,097,966
----------- -----------
Commitments
Stockholders' equity:
Common stock, par value $1; 5,000,000 shares authorized; 807,800 shares
issued and outstanding 807,800 807,800
Retained earnings 19,842,089 17,903,934
Net unrealized gain (loss) on investment securities available for sale,
net of tax 729,683 (33,304)
----------- -----------
Total stockholders' equity 21,379,572 18,678,430
----------- -----------
$ 192,818,583 170,776,396
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 14,904,480 12,543,160 11,016,657
Interest on federal funds sold 206,824 257,845 119,788
Interest-bearing deposits in other banks 20,283 5,696 6,012
Interest on investment securities:
Tax-exempt 395,958 457,159 518,758
Taxable 943,775 1,036,878 1,068,633
Dividends on other investments 76,634 57,993 43,016
---------- ---------- ----------
Total interest income 16,547,954 14,358,731 12,772,864
---------- ---------- ----------
Interest expense:
Deposits 5,479,025 4,740,619 4,257,069
Notes payable 50,419 61,784 77,907
Other 340,882 157,958 43,004
---------- ---------- ----------
Total interest expense 5,870,326 4,960,361 4,377,980
---------- ---------- ----------
Net interest income 10,677,628 9,398,370 8,394,884
Provision for loan losses 718,450 365,240 31,000
---------- ---------- ----------
Net interest income after provision for loan losses 9,959,178 9,033,130 8,363,884
---------- ---------- ----------
Other operating income:
Service charges 1,533,384 1,507,821 1,576,045
Fees for trust services 180,000 180,000 180,000
Securities gains, net 8,171 104,183 65,550
Other 537,169 437,453 368,221
---------- ---------- ----------
Total other operating income 2,258,724 2,229,457 2,189,816
---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 4,602,151 4,179,287 3,917,042
Occupancy and equipment 1,297,615 1,128,910 1,009,844
Miscellaneous 2,045,722 1,933,462 1,972,181
---------- ---------- ----------
Total other operating expenses 7,945,488 7,241,659 6,899,067
---------- ---------- ----------
Earnings before income taxes 4,272,414 4,020,928 3,654,633
Income taxes 1,445,679 1,290,761 1,103,782
---------- ---------- ----------
Net earnings $ 2,826,735 2,730,167 2,550,851
========= ========== ==========
Net earnings per share $ 3.50 3.38 3.16
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
<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, 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
Net earnings - 2,730,167 - 2,730,167
Cash dividends declared of $1.00 per share - (807,800) - (807,800)
Change in unrealized loss on investment
securities available for sale, net of tax - - (17,993) (17,993)
-------- ----------- ---------- ----------
Balance, December 31, 1996 807,800 17,903,934 (33,304) 18,678,430
Net earnings - 2,826,735 - 2,826,735
Cash dividends declared of $1.10 per share - (888,580) - (888,580)
Change in unrealized gain (loss) on investment
securities available for sale, net of tax - - 762,987 762,987
-------- ----------- --------- ----------
Balance, December 31, 1997 $ 807,800 19,842,089 729,683 21,379,572
======== =========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,826,735 2,730,167 2,550,851
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation, amortization and accretion 441,298 345,094 368,991
Provision for loan losses 718,450 365,240 31,000
Provision for losses on sales of other real estate
owned and repossessed collateral 193 3,798 11,986
Provision for deferred income taxes (282,482) (47,032) 74,845
Gains on investment securities (8,171) (104,183) (65,550)
(Gains) losses on disposals of premises and equipment 10,800 (3,150) 1,574
Gain on sale of other real estate and repossessed collateral (15,925) - -
Change in:
Mortgage loans held for sale 321,926 (972,276) 42,638
Interest receivable (32,297) (69,901) (69,619)
Interest payable 117,378 530 76,020
Other, net 49,958 230,870 (258,839)
--------- --------- ----------
Net cash provided by operating activities 4,147,863 2,479,157 2,763,897
--------- --------- ----------
Cash flows from investing activities:
Change in interest-bearing deposits with other banks (500,000) - -
Proceeds from sales of investment securities
available for sale 3,084,938 990,000 976,250
Proceeds from sales of other investments - - 9,800
Proceeds from calls and maturities of investment securities
held to maturity 2,837,125 3,597,249 3,967,100
Proceeds from calls and maturities of investment securities
available for sale 2,054,715 1,561,897 173,766
Purchase of investment securities held to maturity - - (698,370)
Purchase of investment securities available for sale (6,088,269) (5,543,379) (1,000,000)
Purchase of other investments (196,800) (34,400) -
Net change in loans (12,924,571) (19,983,675) (7,192,952)
Proceeds from disposals of premises and equipment 3,260 3,150 1,800
Additions to premises and equipment (1,235,115) (605,205) (624,289)
Proceeds from sales of other real estate and
repossessed collateral 59,170 - 315,232
----------- ----------- ----------
Net cash used by investing activities $(12,905,547) (20,014,363) (4,071,663)
----------- ----------- ----------
</TABLE>
F-6
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows, continued
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in demand and savings deposits $ 5,705,056 5,177,522 (3,911,166)
Net change in time deposits 16,207,228 10,946,397 5,135,638
Net change in federal funds purchased - - (1,500,000)
Proceeds from FHLB advances 4,000,000 2,500,000 2,000,000
Repayments of FHLB advances (6,785,715) (285,714) -
Repayments of notes payable (166,667) (166,666) (166,667)
Payment of cash dividends (888,580) (807,800) (686,630)
----------- ----------- ----------
Net cash provided by financing activities 18,071,322 17,363,739 871,175
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 9,313,638 (171,467) (436,591)
Cash and cash equivalents at beginning of year 12,461,860 12,633,327 13,069,918
----------- ----------- ----------
Cash and cash equivalents at end of year $ 21,775,498 12,461,860 12,633,327
=========== =========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 5,752,948 4,959,831 4,301,960
Income taxes $ 1,645,000 1,222,500 1,141,000
Noncash investing and financing activities:
Transfers of other investment securities at cost
upon application of SFAS 115 $ 526,010 - -
Change in net unrealized losses on
investment securities available for sale,
net of tax $ (762,987) 17,993 (338,225)
Transfers of loans to other real estate $ 12,437 128,176 348,597
Financed sales of other real estate $ - 93,378 21,379
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<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 and other surrounding counties in Georgia.
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
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, 1997 and
1996 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
F-8
<PAGE>
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.
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. During 1997 certain equity securities
previously included in other investments were transferred to
available for sale as these securities began being traded on a
national exchange.
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.
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.
F-9
<PAGE>
The allowance represents an amount which, in management's
judgment, will be adequate to absorb probable losses on
existing loans that may become uncollectible.
Management's judgment 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 judgments of
information available to them at the time of their
examination.
Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate, or at the loan's observable market price, or at
the fair value of the collateral of the loan if the loan is
collateral dependent. 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. The Bank has no material
amounts of impaired loans at December 31, 1997 and 1996.
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 10 - 40 Years
Furniture and equipment 3 - 10 Years
INCOME TAXES
The Company accounts for income taxes using the asset and
liability method and recognizes 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, future tax benefits, such as net
operating loss carryforwards, are recognized 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.
F-10
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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
Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share" became effective for the Company for the
year ended December 31, 1997. This new standard specifies the
computation, presentation and disclosure requirements for
earnings per share and is designed to simplify previous
earnings per share standards and to make domestic and
international practices more compatible. Earnings per common
share are based on the weighted average number of common
shares outstanding during the period while the effects of
potential common shares outstanding during the period such as
options, convertible securities and warrants are included in
diluted earnings per share. The Company has no potential
common shares and correspondingly earnings per share amounts
for all years presented are based on 807,800 shares, the
weighted average number of common shares outstanding.
OTHER
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 127 "Deferral
of the Effective Date of Certain Provisions of SFAS No. 125"
("SFAS 127"), Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") and
Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 127 simply defers, until
January 1, 1998, the effective date of selected provisions of
a previously issued accounting and disclosure standard. SFAS
130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. SFAS 131 specifies the
presentation and disclosure of operating segment information
reported in the annual report and interim reports issued to
stockholders. The provisions of SFAS 130 and 131 are
effective for fiscal years beginning after December 15, 1997.
The management of the Company believes that the adoption of
these statements will not have a material impact on the
Company's financial position, results of operations, or
liquidity.
F-11<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(2) INVESTMENT SECURITIES
Investment securities at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
SECURITIES HELD TO MATURITY:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agencies $ 1,487,968 15,787 - 1,503,755
State, county and municipal 6,281,208 332,250 442 6,613,016
Mortgage-backed securities 1,623,777 38,464 - 1,662,241
--------- ------- --- ---------
Total $ 9,392,953 386,501 442 9,779,012
========= ======= === =========
December 31, 1996
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government agencies $ 2,778,965 25,873 - 2,804,838
State, county and municipal 7,343,954 414,621 920 7,757,655
Mortgage-backed securities 2,074,213 43,935 1,626 2,116,522
---------- ------- ----- ----------
Total $ 12,197,132 484,429 2,546 12,679,015
========== ======= ===== ==========
December 31, 1997
-----------------
SECURITIES AVAILABLE FOR SALE: Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government agencies $ 3,128,304 28,204 452 3,156,056
Equity securities 526,010 1,133,812 - 1,659,822
Mortgage-backed securities 7,849,965 41,904 26,561 7,865,308
---------- --------- ------ ----------
Total $ 11,504,279 1,203,920 27,013 12,681,186
========== ========= ====== ==========
December 31, 1996
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Government agencies $ 4,540,165 3,623 13,788 4,530,000
Mortgage-backed securities 5,521,245 20,537 60,833 5,480,949
---------- --------- ------- ----------
Total $ 10,061,410 24,160 74,621 10,010,949
========== ========= ======= ==========
</TABLE>
F-12
<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, 1997, 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. Government agencies:
1 to 5 years $ 1,487,968 1,503,755 2,542,012 2,559,620
5 to 10 years - - 586,292 596,436
--------- --------- --------- ---------
1,487,968 1,503,755 3,128,304 3,156,056
========= ========= ========= =========
State, county and municipal:
Within 1 year 260,000 263,348 - -
1 to 5 years 1,644,108 1,681,847 - -
5 to 10 years 3,869,835 4,136,242 - -
More than 10 years 507,265 531,579 - -
--------- --------- --------- ---------
6,281,208 6,613,016 - -
========= ========= ========= ==========
Total securities other than mortgage-
backed securities:
Within 1 year 260,000 263,348 - -
1 to 5 years 3,132,076 3,185,602 2,542,012 2,559,620
5 to 10 years 3,869,835 4,136,242 586,292 596,436
More than 10 years 507,265 531,579 - -
Mortgage-backed securities 1,623,777 1,662,241 7,849,965 7,865,308
Equity securities - - 526,010 1,659,822
--------- --------- ---------- ----------
$ 9,392,953 9,779,012 11,504,279 12,681,186
========= ========= ========== ==========
</TABLE>
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. There were no sales of
investment securities held to maturity during 1997, 1996 and
1995.
Proceeds from sales of securities available for sale during
1997, 1996 and 1995 were $3,084,938, $990,000 and $976,250,
respectively. Gross losses of $13,729, $3,317 and $23,750
for 1997, 1996 and 1995, respectively, were realized on those
sales.
F-13
<PAGE>
Certain investment securities were written down to their
estimated realizable values because, in the opinion of
management, the decline in value was considered other than
temporary. During 1997, 1996 and 1995, the Company received
$21,900, $17,500 and $87,100, respectively, on an investment
security that was in default and written down prior to 1992.
The amounts received in excess of the remaining cost basis
resulted in recoveries of $21,900, $17,500 and $87,100 in
1997, 1996 and 1995, respectively. During 1996, the Company
received $250,000 on another investment security that was
written down in 1993 which resulted in a recovery of $90,000.
These recoveries are included with securities gains in the
statements of earnings.
Securities with a carrying value of $17,414,000 and
$12,772,000 at December 31, 1997 and 1996, respectively, were
pledged to secure public deposits as required by law.
(3) LOANS
Major classifications of loans at December 31, 1997 and 1996
are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 63,182,064 52,437,173
Real estate - construction 5,633,712 3,604,322
Real estate - mortgage 45,793,633 44,687,988
Consumer 26,179,196 27,301,406
----------- -----------
Total loans 140,788,605 128,030,889
Less: Allowance for loan losses 2,012,795 1,422,603
Unearned interest and fees 303,605 329,765
----------- -----------
Net loans $ 138,472,205 126,278,521
=========== ===========
</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.
F-14
<PAGE>
Changes in the allowance for loan losses are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,422,603 1,273,267 1,245,314
Amounts charged off (394,245) (473,420) (409,863)
Recoveries on amounts previously charged off 265,987 257,516 406,816
Provision charged to operating expenses 718,450 365,240 31,000
--------- --------- ---------
Balance at end of year $ 2,012,795 1,422,603 1,273,267
========= ========= =========
</TABLE>
The Company was servicing approximately $26,600,000 and
$30,900,000 of mortgage loans for the Federal Home Loan
Mortgage Corporation at December 31, 1997 and 1996,
respectively.
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996, are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and improvements $ 1,606,563 1,390,125
Buildings and improvements 5,595,195 5,447,340
Furniture and equipment 3,364,070 3,191,228
Construction in progress 706,594 28,955
--------- ---------
11,272,422 10,057,648
Less: Accumulated depreciation 4,405,741 3,977,706
---------- ---------
$ 6,866,681 6,079,942
========== =========
</TABLE>
Depreciation expense was $434,316, $397,020 and $321,560 for
the years ended December 31, 1997, 1996 and 1995,
respectively.
(5) DEPOSITS
The aggregate amount of time deposit accounts with a minimum
denomination of $100,000 was approximately $28,962,600 and
$19,709,500 at December 31, 1997 and 1996, respectively.
Deposits from related parties totaled approximately $2,600,000
and $2,900,000 at December 31, 1997 and 1996, respectively.
F-15
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
At December 31, 1997, the scheduled maturities of time
deposits are as follows:
1998 $ 64,077,094
1999 12,258,176
2000 3,668,653
2001 1,165,443
2002 and thereafter 2,639,468
----------
$ 83,808,834
==========
(6) NOTE PAYABLE
Note payable at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<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. $ 611,112 777,779
</TABLE>
Aggregate maturities required on the note payable at December 31, 1997
are as follows:
1998 $ 166,668
1999 166,668
2000 166,668
2001 111,108
-------
$ 611,112
=======
(7) FEDERAL HOME LOAN BANK ADVANCES
The Bank has 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, 1997, the Bank has an advance payable of
$1,428,571 with a fixed interest rate of 6.72% and interest
payable monthly with equal principal payments due semi-
annually until maturity in 2002.
F-16
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(8) EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit plan
covering substantially all of its employees who have completed
one year of service. Effective September 1, 1997 the plan was
terminated. All participants as of September 1, 1997 became
fully vested and no new participants will be admitted to the
plan. No further contribution will be made to the plan except
payments necessary to attain full funding of the liabilities
under the plan. As a result of the curtailment of benefits,
the Company recognized a curtailment gain of $76,700.
The following table sets forth the Plan's status and amounts
recognized in the balance sheets at December 31, 1997 and
1996. Plan assets are stated at fair value and consist of
cash, certificates of deposit, equity securities and
government securities.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested $ 3,447,488 2,222,769
Nonvested - 29,284
--------- ---------
Total accumulated benefit obligations $ 3,447,488 2,252,053
========= =========
Projected benefit obligations for services
rendered to date $ 3,447,488 3,330,530
Plan assets at fair value 3,397,500 3,188,262
--------- ---------
Assets less than projected benefit obligation (49,988) (142,268)
Unamortized net asset existing
at date of adoption of SFAS 87 - 206,739
Unamortized net gain from past experience different
from that assumed and effects of changes in assumptions (74,936) (102,592)
--------- --------
Prepaid (accrued) pension cost included in other
liabilities $ (124,924) (38,121)
========== ========
</TABLE>
The components of net pension cost for the years ended December 31,
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost for benefits earned $ 177,324 143,364 115,323
Interest cost on projected benefit
obligations 239,764 222,170 200,887
Actual return on plan assets (379,899) (282,114) (493,582)
Net amortization and deferral 126,335 42,580 305,372
--------- -------- --------
Net pension cost $ 163,524 126,000 128,000
========= ======== ========
</TABLE>
F-17
<PAGE>
The following assumptions were used in determining the actuarial
present value of the projected benefit obligations at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rate 7.0% 7.0%
Rate of increase in future compensation levels - 5.0%
Expected long-term rate of return on assets 8.25% 8.25%
</TABLE>
The Company has a profit sharing plan covering substantially all
employees. 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
$205,000, $130,000 and $131,000 in 1997, 1996 and 1995,
respectively.
(9) 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
------
1997 1996
---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 16,650,000 24,787,000
Standby letters of credit and
financial guarantees written $ 467,000 932,000
</TABLE>
F-18
<PAGE>
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 at
December 31, 1997 are approximately 71% collateralized.
(10) 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 1998 without prior approval is
approximately $3,795,000 plus 1998 earnings of the Bank.
(11) INCOME TAXES
The components of income tax expense for the years ended December 31,
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 1,728,161 1,337,793 1,028,937
Deferred (282,482) (47,032) 74,845
--------- --------- ---------
$ 1,445,679 1,290,761 1,103,782
========= ========= =========
</TABLE>
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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Pretax income at statutory rates $ 1,452,620 1,367,116 1,242,575
Add (deduct):
Tax-exempt interest income (139,939) (155,070) (174,663)
Nondeductible interest expense 15,024 16,273 17,215
Other 117,974 62,442 18,655
--------- --------- ---------
$ 1,445,679 1,290,761 1,103,782
========= ========= =========
</TABLE>
F-19
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred tax
asset (liability). At December 31, 1997 and 1996, the Company's net
deferred tax liability is included as a component of other
liabilities.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred income tax assets:
Net unrealized loss in investment securities $ - 17,157
Allowance for loan losses 572,074 310,348
Reserve for pension contributions 47,420 14,470
Other 86,676 64,801
--------- --------
Total gross deferred income tax assets 706,170 406,776
--------- --------
Deferred income tax liabilities:
Net unrealized gain on investment securities (447,225) -
Premises and equipment (558,457) (524,386)
----------- ----------
Total gross deferred income tax liabilities (1,005,682) (524,386)
----------- ---------
Net deferred income tax liability $ (299,512) (117,610)
=========== =========
</TABLE>
(12) 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 1997:
<TABLE>
<CAPTION>
<S> <C>
Beginning balance $ 5,109,450
Loans advanced 2,336,070
Repayments (1,723,890)
-----------
Ending balance $ 5,721,630
===========
</TABLE>
F-20
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(13) 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deposit insurance premiums $ 17,181 2,020 146,729
Stationery and supplies $ 257,523 279,814 209,038
Postage $ 186,379 179,591 164,678
Directors fees $ 163,575 154,400 153,100
Data processing $ 337,270 321,540 192,397
</TABLE>
(14) 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 and due from banks and federal funds sold, the
carrying amount is a reasonable estimate of fair value.
INTEREST-BEARING DEPOSITS WITH OTHER BANKS
The carrying value of interest-bearing deposits with other
banks 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.
F-21
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
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.
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.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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 judgments. These
estimates are subjective in nature and involve uncertainties
and matters of significant judgment 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.
F-22
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
The carrying amount and estimated fair values of the
Company's financial instruments at December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 21,775,498 21,775,498 12,461,860 12,461,860
Interest -bearing deposits with
other banks 500,000 500,000 - -
Investment securities 22,074,139 22,460,198 22,208,081 22,689,964
Other investments 825,700 825,700 1,154,910 1,154,910
Loans and mortgage loans held
for sale 139,022,555 137,402,363 127,250,797 126,499,785
Liabilities:
Deposits 167,717,568 168,104,529 145,805,284 146,032,337
FHLB advances 1,428,571 1,446,785 4,214,286 4,216,204
Notes payable 611,112 611,112 777,779 777,779
Unrecognized financial
instruments:
Commitments to extend credit 16,650,000 16,650,000 24,787,000 24,787,000
Standby letters of credit $ 467,000 467,000 932,000 932,000
</TABLE>
(15) REGULATORY MATTERS
The Bank is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory-and possibly additional discretionary-
action by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to
qualitative judgments by the regulators about components,
risk weightings, and other factors.
F-23
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(15) REGULATORY MATTERS, CONTINUED
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier I
capital (as defined) to average risk-weighted assets (as
defined) and of Tier I capital (as defined) to average assets
(as defined). Management believes, as of December 31, 1997,
that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1997 and 1996, the most recent
notification from the Office of the Comptroller of the
Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no
conditions or events since that notification that management
believes have changed the institution's category.
The consolidated and bank only actual capital amounts and
ratios for 1997 and 1996 are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
-------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total Risk-Based Capital (to Risk
Weighted Assets):
Consolidated $ 22,448,925 15.4% 11,661,779 >8.0% N/A N/A
-
FNB Griffin $ 21,545,269 15.1% 11,414,712 >8.0% 14,268,390 >10.0%
- -
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 20,625,527 14.1% 5,851,213 >4.0% N/A N/A
-
FNB Griffin $ 19,765,753 13.9% 5,687,986 >4.0% 8,531,980 >6.0%
- -
Tier 1 Capital (to Average Assets):
Consolidated $ 20,625,527 11.3% 7,301,072 >4.0% N/A N/A
-
FNB Griffin $ 19,765,753 10.9% 7,253,487 >4.0% 9,066,859 >5.0%
- -
AS OF DECEMBER 31, 1996
Total Risk-Based Capital (to Risk
Weighted Assets):
Consolidated $ 20,039,698 16.2% 9,896,147 >8.0% N/A N/A
-
FNB Griffin $ 19,192,076 15.5% 9,905,588 >8.0% 12,381,985 >10.0%
- -
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 18,617,095 15.0% 4,964,559 >4.0% N/A N/A
-
FNB Griffin $ 17,769,473 14.4% 4,935,965 >4.0% 7,403,947 >6.0%
- -
Tier 1 Capital (to Adjusted Total Assets):
Consolidated $ 18,617,095 11.6% 6,419,688 >4.0% N/A N/A
-
FNB Griffin $ 17,769,473 11.1% 6,403,414 >4.0% 8,004,267 >5.0%
- -
</TABLE>
F-24
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(16) FNB BANKING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1997 and 1996
Assets
------
1997 1996
---- ----
<S> <C> <C>
Cash $ 359,257 261,611
Investment in First National Bank of Griffin 19,816,834 17,830,807
Investment securities available for sale 1,659,822 526,010
Other assets 537,290 572,363
---------- ----------
$ 22,373,203 19,190,791
========== ==========
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Other liabilities $ 508,951 27,681
Dividends payable 484,680 484,680
Stockholders' equity 21,379,572 18,678,430
---------- ----------
$ 22,373,203 19,190,791
========== ==========
<CAPTION>
Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income:
Interest $ 31,514 17,796 7,966
Other 220,148 240,879 288,501
Dividends from subsidiary 888,580 807,800 886,630
--------- --------- ---------
1,140,242 1,066,475 1,183,097
--------- --------- ---------
Other operating expenses 239,510 178,203 245,801
--------- --------- ---------
Earnings before income taxes and equity in undistributed
earnings of bank subsidiary 900,732 888,272 937,296
Income tax expense - ( 27,361) (23,353)
--------- --------- ---------
Earnings before equity in undistributed earnings of
bank subsidiary 900,732 860,911 913,943
Equity in undistributed earnings of bank subsidiary 1,926,003 1,869,256 1,636,908
--------- --------- ---------
Net earnings $ 2,826,735 2,730,167 2,550,851
========= ========= =========
</TABLE>
F-25
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued
(16) FNB BANKING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION, CONTINUED
<TABLE>
<CAPTION>
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,826,735 2,730,167 2,550,851
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Equity in undistributed earnings
of bank subsidiary (1,926,003) (1,869,256) (1,636,908)
Depreciation 35,073 35,073 35,528
Change in other liabilities 50,421 23,336 (413,421)
---------- ---------- ----------
Net cash provided by operating activities 986,226 919,320 536,050
---------- ---------- ----------
Cash flows from financing activities - dividends paid (888,580) (807,800) (686,630)
---------- ---------- ----------
Net increase (decrease) in cash 97,646 111,520 (150,580)
Cash at beginning of the period 261,611 150,091 300,671
---------- ---------- ----------
Cash at end of the period $ 359,257 261,611 150,091
========== ========== ==========
Supplemental disclosure of cash flow information:
Net unrealized loss on investment securities
available for sale, net of tax $ (762,987) 17,993 (338,225)
Change in dividends receivable from subsidiary $ - - 200,000)
</TABLE>
F-26
<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 27, 1998
<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,
Jr., 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
--------- ----- ----
<S> <S> <C>
/s/ John T. Newton, Jr. Chairman of the Board of Directors 3-27-98
- -----------------------------
John T. Newton, Jr.
/s/ C.A. Knowles President, Treasurer, and 3-27-98
- ----------------------------- Director (principal executive
C. A. Knowles officer)
/s/ William K. Holmes Assistant Treasurer (principal 3-27-98
- ----------------------------- accounting and financial officer)
William K. Holmes
/s/ James A. Mankin Director and Secretary 3-27-98
- -----------------------------
James A. Mankin
/s/ Ernest F. Carlisle, III Director 3-27-98
- -----------------------------
Ernest F. Carlisle, III
/s/ J. Henry Cheatham, III Director 3-27-98
- -----------------------------
J. Henry Cheatham, III
/s/ David G. Newton Director 3-27-98
- -----------------------------
David G. Newton
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
21.0 Subsidiaries of FNB Banking Company.
24.0 A Power of Attorney is set forth on the signature
page to this Form 10-KSB.
27.0 Financial Data Schedule (for SEC use only)
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> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,578,133
<INT-BEARING-DEPOSITS> 140,398,591
<FED-FUNDS-SOLD> 8,197,365
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,681,186
<INVESTMENTS-CARRYING> 9,392,953
<INVESTMENTS-MARKET> 9,779,012
<LOANS> 138,472,205
<ALLOWANCE> 2,012,795
<TOTAL-ASSETS> 192,818,583
<DEPOSITS> 167,717,568
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,681,568
<LONG-TERM> 2,039,683
0
0
<COMMON> 807,800
<OTHER-SE> 20,571,722
<TOTAL-LIABILITIES-AND-EQUITY> 192,818,583
<INTEREST-LOAN> 14,904,480
<INTEREST-INVEST> 1,436,650
<INTEREST-OTHER> 206,824
<INTEREST-TOTAL> 16,547,954
<INTEREST-DEPOSIT> 5,479,025
<INTEREST-EXPENSE> 5,870,326
<INTEREST-INCOME-NET> 9,959,178
<LOAN-LOSSES> 718,450
<SECURITIES-GAINS> 8,171
<EXPENSE-OTHER> 7,945,488
<INCOME-PRETAX> 4,272,414
<INCOME-PRE-EXTRAORDINARY> 4,272,414
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,826,735
<EPS-PRIMARY> 3.50
<EPS-DILUTED> 0
<YIELD-ACTUAL> 6.57
<LOANS-NON> 2,538,000
<LOANS-PAST> 340,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,422,603
<CHARGE-OFFS> 394,245
<RECOVERIES> 265,987
<ALLOWANCE-CLOSE> 2,012,795
<ALLOWANCE-DOMESTIC> 2,012,795
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
