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
For the fiscal year ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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: $20,086,967.
State the aggregate market value of the voting stock held by non-affiliates:
as of March 22, 1999, 807,800 shares of common stock, $1.00 par value (the
"Common Stock"), with an aggregate value of $21,271,800 (based upon
approximate market value of $40.00/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 22,
1999, there were 807,800 shares outstanding of the Registrant's Common
Stock.<PAGE>
INDEX
PAGE
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . 1
Item 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . 8
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . 9
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . 9
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION . . . . . . . . . . . . . . . . . . . . . . 10
Item 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 23
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . 23
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT. . . . . . . . . . . . . . . . . . . 24
Item 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 25
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . . . . . . 25
Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 27
Item 13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . 27
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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 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 Bank 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, 1998 the Bank's
deposit base, totaling approximately $175 million, consisted of
approximately $29 million in non-interest bearing demand deposits (17%
of total deposits), approximately $39 million in interest bearing
demand deposits (including money market accounts) (22% of total
deposits), approximately $17 million in savings deposits (10% of total
deposits), approximately $60 million in time deposits in amounts less
than $100,000 (34% of total deposits), and approximately $30 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.
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LOANS
The Bank makes both secured and unsecured loans to individuals,
firms and corporations, and both its consumer and commercial lending
operations include various types of credit for the Bank's customers.
Secured loans include first and second real estate mortgage loans.
The Bank also makes direct installment loans to consumers on both a
secured and unsecured basis. At December 31, 1998, consumer, real
estate (including mortgage and construction loans) and commercial
loans represented approximately 20%, 33%, and 47%, 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
normally 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 cash flow 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 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.
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Loan-to-
Value Limit
Loan category (percent)
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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>
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 new 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.
COMPETITION
The banking business is highly competitive. The Company's
primary market area consists of Spalding County, Georgia. On February 25,
1997, the Company opened a branch in the town of Hampton, Henry County,
Georgia. The Company competes in Spalding County with 5 other commercial
banks and no thrift institutions and in Henry County with 10 commercial
banks and 1 thrift institution. The deposit range of its competitors in
Spalding County is $32 million to $130 million and $3 million to $308
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,
1998 of approximately $203 million and $175 million, respectively, and the
third smallest in Henry County in terms of deposits located in that county.
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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 incurred to date with
respect to Y2K compliance are $750,000. 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, 1998, the Company and the Bank had 113 full-
time and 20 part-time employees. The Company is not a party to any
collective bargaining agreement. Management believes that the Company
has satisfactory relations with its employees.
SUPERVISION AND REGULATION
GENERAL. The Company is a registered bank holding company
subject to regulation by the Board of Governors of the Federal Reserve
(the "Federal Reserve") under the Bank Holding Company Act of 1956, as
amended (the "Act"). The Company is required to file financial
information with the Federal Reserve periodically and is subject to
periodic examination by the Federal Reserve.
The Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before (i) it may acquire direct or
indirect ownership or control of more than 5% of the voting shares of
any bank that it does not already control; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all
of the assets of a bank; and (iii) it may merge or consolidate with
any other bank holding company. In addition, a bank holding company
is generally prohibited from engaging in, or acquiring, direct or
indirect control of the voting shares of any company engaged in non-
banking activities. This prohibition does not apply to activities
found by the Federal Reserve, by order or regulation, to be so closely
related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve has
determined by regulation or order to be closely related to banking
are: making or servicing loans and certain types of leases;
performing certain data processing services; acting as fiduciary or
investment or financial advisor; providing discount brokerage
services; underwriting bank eligible securities; underwriting debt and
equity securities on a limited basis through separately capitalized
subsidiaries; and making investments in corporations or projects
designed primarily to promote community welfare.
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The laws of Georgia require annual registration with the
Department of Banking and Finance (the "DBF") by all Georgia bank
holding companies. Such registration includes information with
respect to the financial condition, operations, management and
intercompany relationships of a bank holding company and its
subsidiaries and related matters. The DBF may also require such other
information as is necessary to keep itself informed as to whether the
provisions of Georgia law and the regulations and orders issued
thereunder by the DBF have been complied with. 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 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,
1998, the Bank's retained earnings from which dividends could be paid
totaled approximately $21,752,798. For 1998, the Company's cash
dividend payout to stockholders was 35% 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 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, 1998.
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CAPITAL ADEQUACY
Set forth below are pertinent capital ratios for FNB and the Bank as
of December 31, 1998.
MINIMUM CAPITAL REQUIREMENTS FNB BANK
- ---------------------------- --- ----
Tier 1 Capital to Risk-based 15.4% 14.0% <F1>
Assets: 4.00%
Total Capital to Risk-based 16.6% 15.1% <F2>
Assets: 8.00%
Leverage Ratio (Tier 1 Capital 11.4% 11.1% <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]
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 where a bank does not
currently have operations. After July 1, 1998, all restrictions on
state-wide branching was 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.
The Bank paid no premium for deposit insurance in 1998 and FICO
bond assessments of $19,131. It is not estimated that the Bank will
pay any premium for deposit insurance in 1999 and will pay FICO bond
assessments of $19,397.
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
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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 $444,446 at December 31, 1998.
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.
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
Common Stock. As of March 22, 1999, the Company had 422 shareholders
of record.
DIVIDENDS. In 1997 and 1998, the Company declared cash dividends
of $888,580 ($1.10 per share) and $1,009,750 ($1.25 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 set forth in Item 7 hereof.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements under the
private Securities Litigation Reform Act of 1995 that involve risks
and uncertainties. Although the Company believes that the assumptions
underlying the forward-looking statements contained in the discussion
are reasonable, any of the assumptions could be inaccurate, and
therefore, no assurance can be made that any of the forward-looking
statements included in this discussion will be accurate. Factors that
could cause actual results to differ from results discussed in
forward-looking statements include, but are not limited to: economic
conditions (both generally and in the markets where the Company
operates); competition from other providers of financial services
offered by the Company; government regulation and legislation; changes
in interest rates; material unforeseen changes in the financial
stability and liquidity of the Company's credit customers; material
unforeseen complications related to the Year 2000 issues for the
Company, its suppliers, customers, and governmental agencies, all of
which are difficult to predict and which may be beyond the control of
the Company. The Company undertakes no obligation to revise forward-
looking statements to reflect events or changes after the date of this
discussion or to reflect the occurrence of unanticipated events.
GENERAL
The Company is a one bank holding company registered under the Bank
Holding Company Act of 1956 and was incorporated under the laws of the
state of Georgia in 1983. All of the Company's activities are currently
conducted by its wholly owned subsidiary, First National Bank of Griffin,
Georgia (the "Bank"). The Bank owns a consumer finance company, Griffin
Loans, Inc., which engages in the business of making small loans to
individuals. Griffin Loans, Inc. operates under the trade name of First
Credit in Griffin and Zebulon, Georgia.
The Company's subsidiary 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.
The following discussion is intended to provide insight into the
financial condition and results of operations of the Company and
should be read in conjunction with the consolidated financial
statements and accompanying notes.
STATEMENTS OF EARNINGS REVIEW
Net earnings were $2.92 million in 1998, an increase of 3.3% from
the $2.83 million earned in 1997. Net earnings per share were $3.62 for
1998, compared with $3.50 reported in 1997, an increase of 3.4%.
Return on average assets and return on average stockholders equity
for 1998 were 1.49% and 12.90%, respectively, compared with 1.56% and
14.75%, respectively, for 1997. Net earnings were $2.83 million in
1997, an increase of 3.5% from the $2.73 million earned by the
Company in 1996. Net earnings per share were $3.50 in 1997, compared
with the $3.38 reported in 1996, an increase of 3.6%. Return on
average assets and return on average stockholders equity for 1996
were 1.72% and 15.87%, respectively.
Net interest income increased by $669 thousand or 6.3% in 1998.
Net interest income at December 31, 1998, was $11.35 million compared
to $10.68 million in 1997. Net yield (tax equivalent) on interest
earning assets (6.58% in 1998 and 6.57% in 1997) increased slightly in
1998 over 1997. Net interest income increased by $1.28 million or 14%
in 1997. Net interest income at December 31, 1997, was $10.68 million
compared to $9.40 million in 1996. Net yield (tax equivalent) on
interest earning assets (6.57% in 1997 and 6.48% in 1996) increased
approximately 1.4% in 1997 over 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
deposits and other liabilities.
-10-
<PAGE>
The banking industry uses two key ratios to measure relative
profitability of net interest income. The net interest rate spread
measures the difference between the average yield on interest earning
assets and the average rate paid on interest bearing liabilities. The
interest rate spread eliminates the impact of non-interest bearing
deposits and gives a direct perspective on the effect of market
interest rate movements. The net interest margin is defined as net
interest income as a percent of average total interest earning assets
and takes into account the positive impact of investing noninterest-
bearing deposits.
The net interest spread was 5.65% in 1998, 5.68% in 1997 and
5.51% in 1996, while the net interest margin (on a tax-equivalent
basis) was 6.58% in 1998, 6.57% in 1997 and 6.48% in 1996. The
increase in the margin and the spread are primarily due to an increase
in loan pricing, which produced a 40 basis point increase in the
average yield from 1997 to 1998. The average cost of interest bearing
liabilities for 1998 was 4.58%, an increase of 15 basis points from
1997.
The following table shows, for the past three years, the
relationship between interest income and interest expense and the
average balances of interest earning assets and interest bearing
liabilities.
-11-
<PAGE>
TABLE 1
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
<TABLE>
<CAPTION>
For the Years Ended December 31,
(in thousands)
1998 1997 1996
--------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earnings assets:
Loans (including loan fees) $ 142,404 15,704 11.03% 140,193 14,904 10.63% 120,356 12,543 10.42%
Investment securities:
Taxable 20,647 1,352 6.55% 15,101 1,041 6.89% 15,957 1,101 6.90%
Tax exempt 6,366 542 8.51% 6,919 600 8.67% 7,822 692 8.85%
Federal funds sold 5,834 328 5.62% 3,532 207 5.86% 4,505 258 5.73%
------- ------ ------- ------- ------- -------
Total interest earning assets 175,251 17,926 10.23% 165,745 16,752 10.11% 148,640 14,594 9.82%
Other non-interest earnings assets 20,604 15,686 10,656
------ ------- -------
Total assets $ 195,855 181,431 159,296
======= ======= =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand
and savings $ 55,789 1,362 2.44% 53,653 1,361 2.54% 50,517 1,299 2.57%
Time 81,946 4,903 5.98% 72,852 4,118 5.65% 60,438 3,441 5.69%
FHLB advances 1,344 89 6.62% 5,153 332 6.44% 3,108 145 4.67%
Long-term debt 527 38 7.21% 688 50 7.27% 840 62 7.38%
Federal funds purchased and
securities sold under repurchase
agreements 67 3 4.48% 145 9 6.21% 212 13 6.13%
------- ------ ------- ------- ------- -------
Total interest-bearing liabilities 139,673 6,395 4.58% 132,491 5,870 4.43% 115,115 4,960 4.31%
------- ------ ------- ------- ------- ------
Non-interest bearing deposits 28,727 26,474 24,152
Other liabilities 4,815 3,298 2,825
Stockholders' equity 22,640 19,168 17,204
------- ------- -------
Total liabilities and
stockholders' equity $ 195,855 181,431 159,296
======= ======= =======
Excess of interest-earning assets
over interest-bearing liabilities $ 35,578 33,254 33,525
======= ======= =======
Ratio of interest-earning assets to
interest-bearing liabilities 125.55% 125.10% 129.12%
Net interest income 11,531 10,882 9,634
Net interest spread 5.65% 5.68% 5.51%
Net interest yield on interest
earning assets 6.58% 6.57% 6.48%
</TABLE>
Non-accrual loans and the interest income that was recorded on these
loans, if any, are included in the yield calculation for loans in all
periods reported.
Tax exempt interest income is calculated on a tax equivalent basis.
-12-<PAGE>
The following table shows the relative impact on net interest income
of changes in the average outstanding balances (volume) of interest
earning assets and interest bearing liabilities and the rates earned
and paid by the Company on such assets and liabilities. Variances
resulting from a combination of changes in rate and volume are
allocated in proportion to the absolute dollar amounts of the change
in each category.
TABLE 2
CHANGES IN INTEREST INCOME AND EXPENSE ON A TAX EQUIVALENT BASIS
(in thousands)
<TABLE>
<CAPTION>
Increase (decrease) due to changes in:
-------------------------------------
1998 over 1997 1997 over 1996
-------------- --------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans (including loan fees) $ 236 564 800 2,104 257 2,361
Investment securities:
Taxable 359 (48) 311 (58) (2) (60)
Tax exempt (47) (11) (58) (78) (14) (92)
Federal funds sold 129 (8) 121 (57) 6 (51)
--- --- ----- ----- --- -----
Total interest earning assets 677 497 1,174 1,911 247 2,158
--- --- ----- ----- --- -----
Interest expense on:
Deposits:
Interest-bearing demand and savings 90 (89) 1 76 (14) 62
Time 535 250 785 701 (24) 677
FHLB advances (253) 10 (243) 119 68 187
Long-term debt (12) - (12) (11) (1) (12)
Federal funds purchased (4) (2) (6) (4) - (4)
--- --- --- ----- --- -----
Total interest-bearing liabilities 356 169 525 881 29 910
--- --- --- ----- --- -----
Increase (decrease) in net interest income $ 321 328 649 1,030 218 1,248
=== === === ===== === =====
</TABLE>
Other operating income in 1998 of $2.35 million increased over 1997 by
$87 thousand or 3.8%. The increase is primarily attributable to an
increase in gains on mortgage loans sold during 1998 of $79 thousand
over 1997. Other operating expenses increased $831 thousands (10%) in
1998 over 1997 principally due to the increase in employee costs of
approximately $346 thousand related to an increase in the number of
employees necessary to handle the asset growth. Also, the increase in
other operating expenses relates to an increase of $88 thousand in
equipment and software maintenance and security costs associated with
a new branch in Henry County, Georgia and a special contribution to
Habitat for Humanity of $40 thousand. Income taxes expressed as a
percentage of earnings before income taxes remained relatively stable
at 34% in 1997 and 33% in 1998.
Other operating income in 1997 of $2.26 million increased over 1996 by
$29 thousand or 1.3%. Other operating expenses increased $704 thousand
(9.7 %) 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 the decrease in tax-exempt income as a percentage of
earnings before income taxes.
BALANCE SHEETS REVIEW
During 1998, average total assets increased $14.42 million (8.0%) over
1997. Average deposits increased $13.48 million (8.8%) in 1998 over
1997. Average loans increased $2.21 million (1.6%) in 1998 over 1997.
During 1997, average total assets increased $22.14 million (13.9%)
over 1996. Average deposits increased $17.87 million (13.2%) in 1997
over 1996. Average loans increased $19.84 million (16.5%) in 1997 over
1996.
Total assets at December 31, 1998, were $202.78 million, representing
a $9.96 million (5.2%) increase from December 1, 1997. Total deposits
increased $6.83 million (4.1%) from 1997 to 1998 while total gross
-13-
<PAGE>
loans increased $8.14 million (5.8%) during 1998. Time deposits
increased $6.18 million from 1997 to 1998 while all other deposit
accounts increased $648 thousand in 1998. As the local economy remains
strong, loan demand increased and the Bank showed increases in each
lending category at year end except real estate. These loan increases
were funded principally with increases in deposit accounts.
Total assets at December 31, 1997, were $192.82 million, representing
a $22.04 million (12.9%) increase from December 31, 1996. Total
deposits increased $21.91 million (15.0%) from 1996 to 1997 while
total gross loans increased $12.76 million (10.0%) during 1997. Time
deposits increased $16.21 millions from 1996 to 1997 while all other
deposit accounts increased $5.71 million in 1997.
INVESTMENTS
The investment portfolio consists of debt securities and to a lesser
extent equity 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.
TABLE 3
INVESTMENT PORTFOLIO
The following table shows the carrying value of the Company's securities,
by security type, as of December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(in thousands)
HELD TO MATURITY 1998 1997 1996
---- ---- ----
<S> <C>
United States treasuries and agencies $ 500 1,488 2,779
State, county and municipal 6,019 6,281 7,344
Mortgage-backed securities 560 1,624 2,074
------ ------ ------
Totals $ 7,079 9,393 12,197
====== ====== ======
Available for Sale
United States treasuries and agencies $ 10,583 3,156 4,530
State, county and municipal 800 7,865 5,481
Mortgage-backed securities 8,182 - -
Equity securities 2,006 1,660 -
------ ------ ------
$ 21,571 12,681 10,011
====== ====== ======
Other investments $ 826 826 1,155
====== ====== ======
</TABLE>
Other investments include Federal Reserve Bank stock and Federal Home
Loan Bank stock and for 1996, common stock in two companies for which
no readily determinable market value existed. These securities are
not included in the maturity analysis above. 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 thousand after consideration for the tax
effects of the unrealized gain on these securities.
The following table presents the expected maturity of the total
securities by maturity date and average yields based on amortized cost
(for all obligations on a fully taxable basis, assuming a 34% tax
rate) at December 31, 1998. The composition and maturity/repricing
distribution of the securities portfolio is subject to change
depending on rate sensitivity, capital, and liquidity needs.
-14-
<PAGE>
TABLE 4
EXPECTED MATURITY OF SECURITIES
(in thousands)
<TABLE>
<CAPTION>
United States Weighted
Maturities at Treasuries and Mortgage- State, County Average
December 31, 1998 Agencies Backed Securities and Municipal Yields
- ----------------- -------- ----------------- ------------- ------
<S> <C> <C> <C> <C>
Within 1 year $ - 455 769 8.69%
After 1 through 5 years 5,523 1,004 2,094 6.91%
After 5 through 10 years 5,560 5,754 3,156 7.11%
After 10 years - 1,529 800 6.05%
------ ----- -----
Totals $ 11,083 8,742 6,819
====== ===== =====
</TABLE>
Mortgage backed securities are included in the maturities categories
in which they are anticipated to be repaid based on scheduled
maturities and yields on tax exempt securities are calculated on a tax
equivalent basis.
TABLE 5
LOAN PORTFOLIO
The following table presents loans by type at the end of each of the
last five years.
<TABLE>
<CAPTION>
December 31,
------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 69,821 63,182 52,437 35,761 36,950
Real estate - construction 5,005 5,634 3,604 2,334 2,136
Real estate - mortgage 44,170 45,794 44,688 45,273 40,692
Installment loans to
individuals 29,937 26,179 27,302 24,887 21,507
------- ------- ------- ------- -------
148,933 140,789 128,031 108,255 101,285
Less: Unearned interest and fees (361) (304) (330) (287) (180)
Allowance for loan losses (1,708) (2,013) (1,422) (1,273) (1,245)
------- ------- ------- ------- -------
Loans, net $ 146,864 138,472 126,279 106,695 99,860
======= ======= ======= ======= =======
</TABLE>
The following table sets forth the maturity distribution of real
estate construction and commercial, financial and agricultural loans,
including the interest rate sensitivity for loans maturing in greater
than one year, as of December 31, 1998. (in thousands)
-15-
<PAGE>
TABLE 6
LOAN PORTFOLIO MATURITY
<TABLE>
<CAPTION>
Commercial, Real
Financial and Estate
Maturity Agricultural Construction Total
-------- ------------ ------------ -----
<S> <C> <C> <C>
Within 1 year $ 26,056 4,368 30,424
1 to 5 years 41,596 637 42,233
After 5 years 2,169 - 2,169
------ ----- ------
Totals $ 69,821 5,005 74,826
====== ===== ======
Fixed Variable
Interest Interest
Rates Rates Total
-------- -------- -----
Commercial, financial and agricultural:
1 to 5 years $ 36,959 4,637 41,596
After 5 years 68 2,101 2,169
------ ----- ------
$ 37,027 6,738 43,765
====== ===== ======
Real estate - construction
1 to 5 years $ 218 419 637
=== === ===
</TABLE>
The provision for loan losses in 1998 was $530 thousand compared to $718
thousand in 1997. The significant decrease in the provision for loan losses
was primarily attributable to the decline in the rate of loan growth during
1998 compared to 1997 and due to the significant decrease in nonperforming
assets during 1998. The provision for loan losses continues to reflect
management's estimate of potential loan losses inherent in the portfolio and
the creation of an allowance for loan losses adequate to absorb such losses.
The allowance for loan losses represented approximately 1.2% and 1.4% of
total loans outstanding at December 31, 1998 and 1997, respectively. Net
charge-offs were $835 thousand and $128 thousand during 1998 and 1997,
respectively. Management believes that these levels of allowance are
appropriate based upon the Company's loan portfolio and the current
economic conditions.
The provision for loan losses in 1997 was $718 thousand compared to $365
thousand 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 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 thousand
and $216 thousand during 1997 and 1996, respectively.
The Company has a dedicated loan review function. All loans $50 thousand 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 repayment problems so that adequate allowances can be made
through the provision for loan losses. 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.
Management's judgement in determining the adequacy of the allowance is based
on evaluations of the collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality, and review of specific problem
-16-
<PAGE>
loans. In determining the adequacy of the allowance for loan losses,
management uses a loan grading system that rates loans in six different
categories. Grades four though six are assigned allocations of loss based
on management's estimate of potential loss which is generally based on
discounted, collateral deficiencies. Loans graded one through three are
stratified by type and allocated loss ranges based on historical loss
experience for the strata. The combination of these results are compared
quarterly to the recorded allowance for loan losses and material differences
are adjusted by increasing or decreasing the provision for loan losses.
Management uses a devoted internal loan reviewer who is independent of the
lending function to challenge and corroborate the loan grading system and
provide additional analysis in determining the adequacy of the allowance for
loan losses and the future provisions for estimated loan losses.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, regulators, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses. Such regulators may require the Company to recognize additions to
the allowance based on their judgements of information available to them at
the time of their examination.
The Company does not allocate the allowance for loan losses to various loan
categories. The entire allowance is available to absorb losses from any and
all loans. Management anticipates gross charge-offs for 1999 to approximate
$750-thousand, of which $450-thousand 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.
The following table presents a summary of changes in the allowance for loan
losses for each of the past five years.
TABLE 7
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 2,013 1,422 1,273 1,245 1,442
Charge-offs:
Commercial, financial and agricultural 663 55 67 62 81
Real estate-construction - - - - -
Real estate-mortgage 53 8 64 - -
Installment loans to individuals 315 331 342 348 371
----- ----- ----- ----- -----
1,031 394 473 410 452
----- ----- ----- ----- -----
Recoveries:
Commercial, financial and agricultural 19 78 96 223 97
Real estate-construction - - - - -
Real estate-mortgage 23 - 7 - -
Installment loans to individuals 154 188 154 184 73
----- ----- ----- ----- -----
196 266 257 407 170
----- ----- ----- ----- -----
Net charge-offs 835 128 216 3 282
Additions charged to operations 530 719 365 31 85
----- ----- ----- ----- -----
Balance at end of year $ 1,708 2,013 1,422 1,273 1,245
===== ===== ===== ===== =====
Ratio of net charge-offs during the period
to average loans outstanding during
the period .59% .09% .18% .00% .28%
=== === === === ===
</TABLE>
-17-
<PAGE>
Non-performing assets at December 31, 1998 were $1,548,000 compared to
$2,813,000 at December 31, 1997. The majority of the decrease is
attributable to charge-offs of a non-accrual loan of $625,000 during 1998.
There were no related party loans that were considered nonperforming at
December 31, 1998.
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 an increase of non-accrual loans.
The following table 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, 1998, 1997, 1996, 1995, and 1994 (in
thousands):
TABLE 8
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
------------
1998 1997 1996 1995 1994
--- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Other real estate and repossessions $ 33 - 90 - -
Accruing loans 90 days or more
past due 256 275 216 148 144
Non-accrual loans 1,259 2,538 477 677 1,640
Interest on non-accrual loans which
would have been reported 209 187 38 67 158
</TABLE>
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 table above.
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.
DEPOSITS
Time deposits of $100 thousand and greater totaled $30.4 million at December 31,
1998, compared with $29.0 million at year-end 1997. The following table
sets forth the scheduled maturities of time deposits of $100 thousand and
greater at December 31, 1998.
TABLE 9
DEPOSITS
(in thousands)
Within 3 months $ 5,302
After 3 through 6 months 5,306
After 6 through 12 months 10,356
After 12 months 9,421
------
Total $ 30,385
======
-18-<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 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 $5.0 million.
Cash and cash equivalents decreased $8.56 million to a total $13.22 million
at December 31, 1998 as cash flows increases generated from financing and
operating activities were outpaced by amounts used by investing activities.
Cash inflows from operations totaled $1.85 million in 1998, while inflows
from financing activities totaled $6.66 million, most of which were net
deposit increases during 1998 of $6.83 million and FHLB advances of $1.25
million. Included in financing activities were note payable repayments of
$167 thousand, FHLB advance repayments of $286 thousand and dividends paid
to stockholders of $969 thousand.
Investing activities used $17.06 million of cash and cash equivalents,
principally composed of net advances of loans to customers of $9.10 million
during 1998 and investment security purchases, net of sales, calls, and
paydowns of $6.16 million.
See the consolidated financial statements for a more complete analysis of
cash flows.
CAPITAL RESOURCES
The Company continues to maintain adequate capital ratios. The following
tables present the Company's regulatory capital position at December 31,
1998.
TABLE 10
CAPITAL RATIOS
Actual as of December 31, 1998
------------------------------
Tier 1 Capital 15.42%
Tier 1 Capital minimum requirement 4.00%
-----
Excess 11.42%
=====
Total Capital 16.59%
Total Capital minimum requirement 8.00%
-----
Excess 8.59%
=====
LEVERAGE RATIO
As of December 31, 1998
Tier 1 Capital to adjusted total assets
("Leverage Ratio") 11.41%
Minimum leverage requirement 4.00%
-----
Excess 7.41%
=====
For a more complete discussion of the actual and required ratios of the
Company and its Bank subsidiary, see Note 15 to the consolidated financial
statements.
-19-
<PAGE>
Average equity to average assets were 11.56% in 1998, 10.56% in 1997 and
10.80% during 1996. The ratio of dividends declared to net earnings was
34.58% during 1998, compared with 31.43% and 29.59% in 1997 and 1996,
respectively.
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 at least a quarterly basis. One
method to measure a bank's interest rate exposure is through its repricing
gap. The gap is calculated by taking all assets that reprice or mature within
a given timeframe and subtracting all liabilities that reprice or mature within
that timeframe. The difference between these two amounts is called the "gap",
the amount of either liabilities or assets that will reprice without a
corresponding asset or liability repricing.
A negative gap (more liabilities repricing than assets) generally indicates
that the bank's net interest income will decrease if interest rates rise and
will increase if interest rates fall. A positive gap generally indicates
that the bank's net interest income will decrease if rates fall and will
increase if rates rise.
The following table summarizes the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1998 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.
-20-
<PAGE>
TABLE 11
INTEREST RATE GAP SENSITIVITY
<TABLE>
<CAPTION>
At December 31, 1998
Maturing or Repricing in
------------------------
(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
Federal funds sold 216 - - - 216
Investment securities 1,682 2,891 10,851 13,226 28,650
Mortgage loans held for sale 2,549 - - - 2,549
Loans 28,637 20,147 83,963 16,186 148,933
Other investments - - - 826 826
------- ------- ------ ------ -------
Total interest-bearing assets $ 33,584 23,038 94,814 30,238 181,674
======= ======= ====== ====== =======
Interest-bearing liabilities:
Deposits:
Demand and savings $ 55,621 - - - 55,621
Time deposits 26,448 43,227 20,136 176 89,987
FHLB advances 35 425 1,127 806 2,393
Notes payable 444 - - - 444
------- ------- ------ ------ -------
Total interest-bearing liabilities $ 82,548 43,652 21,263 982 148,445
======= ====== ====== ====== =======
Interest sensitive difference
per period $ (48,964) (20,614) 73,551 29,256 33,229
======= ====== ====== ====== =======
Cumulative interest sensitivity
difference $ (48,964) (69,578) 3,973 33,229
======= ====== ====== ======
Cumulative difference to total
assets (24)% (34%) 2% 16%
== == = ==
</TABLE>
At December 31, 1998, the difference between the Company's liabilities
and assets repricing or maturing within one year was $69.58 million.
Due to an excess of liabilities repricing or maturing within one year,
a rise in interest rates would cause the Company's net interest income
to decline.
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they
may react in different degrees or at different points in time to
changes in market interest rates. Additionally, certain assets, such
as adjustable-rate mortgages, have features that restrict changes in
interest rates, both on a short-term basis and over the life of the
asset. Changes in interest rates, prepayment rates, early withdrawal
levels and the ability of borrowers to service their debt, among other
factors, may change significantly from the assumptions made in the
table.
INFLATION
Inflation impacts the growth in total assets in the banking industry
and causes a need to increase equity capital at higher than normal
rates to meet capital adequacy requirements. The Company copes with
the effects of inflation through the management of its interest rate
sensitivity gap position, by periodically reviewing and adjusting its
-21-
<PAGE>
pricing of services to consider current costs, and through managing
its level of net income relative to its dividend payout policy.
YEAR 2000 PREPAREDNESS
The use of computer software that relies on a two digit number to
define the applicable year may cause processing problems for computer
controlled systems when the Year 2000 arrives. Malfunction could occur
at several other noted dates as well, such as September 9, 1999. In
view of the potential adverse impact of the Year 2000 problem on the
Company and the Bank, its customers and its ability to continue to
operate as a business, careful planning must be undertaken to ensure
minimal disruption. The Company has established a centralized function
to implement a process to this end.
The Bank performs most of its data processing in-house using purchased
banking software and hardware for its main applications, such as loans
and deposits. Included in these in-house operations are a teller
processing system, a check sorter system, a check imaging system, and a
trust processing system. Besides its main applications, the Bank has a
number of ancillary systems connected to various vendors to process
specific work, such as automated teller machines, credit cards, accounts
receivable and accounts payable, mortgage loans, payroll, and the like.
In addition, the Bank uses several non-information systems that are vital
to its operation. These include vault and alarm systems, communications,
postal services, utilities, and such.
The Bank is also aware of the potential exposure it has to its
viability as a business based on the Year 2000 preparedness of third
parties such as its customers and correspondent banking relationships
including the Federal Reserve Bank.
THE BANK'S STATE OF READINESS
The Bank is under the authority of the Office of the Comptroller of
the Currency (the "OCC"), which has released an Interagency Statement
under which guidance the Bank is managing the Year 2000 project. This
Statement describes five phases: Awareness, Assessment, Renovation,
Validation and Implementation, and establishes timelines for completion
of each phase. The Bank believes its mission critical applications are
within those guidelines. The Bank believes that all necessary
remediations were completed prior to December 31, 1998.
The Bank established a credit risk management program and a liquidity
risk program to review its business relationships for Year 2000
readiness and determine any potential risks or exposure. This program
includes letters and questionnaires to major deposit and loan
customers, certain suppliers and vendors. The Bank believes that any
issues that may arise due to customer or vendor risk will be
manageable.
COSTS ASSOCIATED WITH THE BANK'S YEAR 2000 ISSUES
To date, the Bank has spent approximately $500 thousand on upgrading
hardware and software. It has spent at least $100 thousand on testing,
including costs for outside reviews and consultants. Soft costs
including employee time and other resources are estimated to reach
$150 thousand. Many of the upgrades would have occurred in the normal
course of business over the next several years, but were accelerated
due to the Year 2000 issue.
RISK OF THE BANK'S YEAR 2000 ISSUES
All the Bank's major systems have been remediated and tested. Testing
is nearly complete for all other systems and review of the testing
documentation is underway. While the Bank believes it will be
adequately prepared, no assurances can be given that it will not be
exposed to potential losses resulting from problems with its internal
systems associated with the century date change.
-22-
<PAGE>
Further, the impact of non-compliance by outside parties cannot be
accurately determined. The Year 2000 issue may have a material impact
on the financial condition of the Bank if borrowers of the Bank become
insolvent and are unable to repay loans.
The Bank and others are reliant on the Federal Reserve Bank to process
much of its work. While some functions, such as wire transfers, could
continue by telephone if the Federal Reserve's automated system does not
perform as expected, certain applications, such as check processing and
automated clearing house transactions are critical to the operation of
the Bank, and if disrupted, would seriously impact the Bank's ability
to serve its customers. The Bank believes the Federal Reserve Bank
is aggressively pursuing a Year 2000 compliance strategy and that the
risk of its non-compliance is slight, but it is beyond the control of
the Bank and must be considered.
Other third parties whose non-compliance could severely impact the Bank
include the local power provider and telephone companies.
THE BANK'S CONTINGENCY PLANS
The Bank has a Business Disruption Contingency Plan that would be
implemented in the event of any internal or external system failure.
The Plan calls for switching to PC or manual processing, depending on
the system and the nature of the failure. The Bank is continually
reviewing and refining its Plan. The Bank believes it could continue
to operate regardless of the failure. It has plans to make loans and
process deposits, receive and disperse cash, and update account
balances.
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, 1998, 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.
-23-
<PAGE>
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, 1999 (a) the person's name, (b) his age at December 31,
1998, (c) the year he was first elected as a director of the Company and
(d) his positions with the Company and the Bank, other than as a director,
and his principal occupation and business experience for the past five years.
<TABLE>
<CAPTION>
Year First Position with Company; Principal
Name Age Elected Occupation; Business Experience
---- --- ---------- --------------------------------
<S> <C> <C> <S>
J. Henry Cheatham, III 48 1994 Director; Vice President of Textiles, Inc.
Ernest F. Carlisle, III 67 1997 Director; President and Chief Executive
Officer of Carlisle & Company
James G. Cheatham 46 1998 Director; Senior Chairman and Senior Vice
President of the 1888 Group
C. A. Knowles 66 1982 Director; President, Chief Executive Officer,
and Treasurer of the Company and President
of the Bank
James A. Mankin 72 1982 Director; Retired; Merchant and Real Estate
Developer
David G. Newton 51 1990 Director; Real Estate Developer
John T. Newton, Jr. 52 1993 Chairman of the Board of the Company;
Chairman of the Board of the Bank; Attorney,
Newton & Howell, P.C.
</TABLE>
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 and James
G. Cheatham, who are also brothers. 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, 1998, (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 66 1982 President, Chief Executive Officer and Treasurer
of the Company and President of the Bank.
William K. Holmes 48 1974 Assistant Treasurer since 1993, Senior Vice President
of the Bank since 1974, Principal Accounting and
Financial Officer.
</TABLE>
-24-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the annual term compensation paid by the
Company and the Bank to C. A. Knowles, the Company's Chief Executive Officer,
the Company's only executive officer as of December 31, 1998 whose cash
compensation, including salary and bonus, exceeded $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------------------
Name and Principal Position Year Salary<F1> Bonus Other
---- --------- ------- -----
C. A. Knowles 1998 $193,343 $20,400 <F2>
President, Chief Executive 1997 $193,793 $27,500 <F2>
Officer and Treasurer 1996 $193,043 $32,519 <F2>
_____________________
[FN]
<F1> Includes Director's fees
<F2> Does not meet Securities and Exchange Commission threshold for disclosure.
</FN>
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.
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 on January 25, 1999, the following
information: (a) the owner's name and address, (b) the number of shares of
Common Stock owned, and (c) the percentage such number represents of the
outstanding shares of Common Stock. Unless otherwise indicated, the listed
owners are the record owners of, and have sole voting and investment powers
over, their shares.
________________________________________________________________________________
| | | |
| | Number of Shares | |
| Name and Address | Beneficially Owned | Percentage of Total |
|__________________________________|_____________________|_____________________|
| | | |
| 435 Associates, Ltd. | 49,920 <F1> | 6.18% |
| P.O. Box 440668 | | |
| Kennesaw, GA 30144-9512 | | |
|__________________________________|_____________________|_____________________|
| | | |
| Newton Family Partnership | 171,904 <F2> | 21.28% |
| P.O. Drawer F | | |
| Griffin, Georgia 30224 | | |
|__________________________________|_____________________|_____________________|
| | | |
| John T. Newton, Sr. | 194,529 <F3> | 24.08% |
| 1076 Maple Drive | | |
| Griffin, Georgia 30223 | | |
|__________________________________|_____________________|_____________________|
-25-<PAGE>
| | | |
| Harvey M. Cheatham | 71,920 <F4> | 8.90% |
| 2260 Peachtree Road, N.W. | | |
| B-2 | | |
| Atlanta, Georgia 30309 | | |
|__________________________________|_____________________|_____________________|
| | | |
| John Henry Cheatham, III | 43,452 <F5> | 5.38% |
| 2773 Hwy. 16 West | | |
| Griffin,Georgia 30223 | | |
|__________________________________|_____________________|_____________________|
| | | |
| EMC Investments Ltd. Partnership | 42,000 <F6> | 5.20% |
| 5101 North Casablanca Road, #6 | | |
| Scottsdale, AS 85253 | | |
|__________________________________|_____________________|_____________________|
| | | |
| James G. Cheatham | 48,552 <F7> | 6.01% |
| P.O.Box 506 | | |
| Griffin, Georgia 30224 | | |
|__________________________________|_____________________|_____________________|
| | | |
| Lelia Cheatham Von Stein | 48,152 <F8> | 5.96% |
| 623 Probart Street | | |
| Brevard, North Carolina 28712 | | |
|__________________________________|_____________________|_____________________|
______________________________
[FN]
<F1> Harvey M. Cheatham has sole voting and investment power over the
shares owned by the record by the partnership under the terms of the
partnership agreement.
<F2> 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.
<F3> 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.
<F4> 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.
<F5> Of the indicated shares, Mr. Cheatham owns 35,152 shares and
8,300 shares are owned by his children.
<F6> Elizabeth M. Cheatham is the sole owner of EMC Investments Ltd.
Partnership.
<F7> Of the indicated shares, Mr. Cheatham owns 35,152 shares and
13,400 shares are owned by his children.
<F8> Of the indicated shares, Ms. Von Stein owns 35,452 shares and
12,700 shares are owned by her children.
</FN>
<PAGE>
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, 1999, 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.
-26-
<PAGE>
Number of Shares
Name and Address Beneficially Owned Percentage of Total
- ---------------- ------------------ -------------------
Ernest F. Carlisle, III 705 *
J. Henry Cheatham, III 43,452 <F1> 5.38%
C. A. Knowles 920 *
James A. Mankin 1,646 <F2> *
David G. Newton 17,824 <F3> 2.21%
James G. Cheatham 48,552 <F4> 6.01%
John T. Newton, Jr. 11,993 <F5> 1.48%
All directors and executive officers
as a group (9 persons) 79,722 <F1><F2><F3> 9.87%
<F4><F5>
________________________
[FN]
* Indicates less than one percent.
<F1> Includes 8,000 shares held by Mr. Cheatham as custodian for his
children.
<F2> Does not include 1,591 shares owned by Mr. Mankin's wife; 294
shares held by his son; 294 shares held by his daughter; 294
shares held in trust for his daughter and 4,222 shares held in
trust for his grandchildren, for which Mr. Mankin disclaims
beneficial ownership.
<F3> Includes 6,905 shares are held by Mr. Newton as trustee for his
niece and nephew.
<F4> Includes 13,400 shares held by his children.
<F5> Includes 5,760 shares held by Mr. Newton as trustee for his
niece and nephew.
</FN>
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, 1998 (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.
<PAGE>
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.
-27-
<PAGE>
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 page to this
Form 10-KSB.
27.0 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
None.
-28-
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(WITH INDEPENDENT ACCOUNTANTS' REPORT THEREON)
PAGE
----
Report of Independent Certified Public Accountants . . . . . . . . . . . . F-1
Consolidated Balance Sheets (December 31, 1998 and 1997) . . . . . . . . . F-2
Consolidated Statements of Earnings (For the Years Ended
December 31, 1998, 1997 and 1996). . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Changes in Stockholders' Equity
(For the Years Ended December 31, 1998, 1997 and 1996) . . . . . . . . F-4
Consolidated Statements of Comprehensive Income (For the
Years Ended December 31, 1998, 1997 and 1996). . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows (For the Years
Ended December 31, 1998, 1997 and 1996). . . . . . . . . . . . . . . . F-6
Notes to consolidated Financial Statements . . . . . . . . . . . . . . . . F-8
<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, 1998 and 1997, and the related
statements of earnings, changes in stockholders' equity, comprehensive
income and cash flows for each of the three years in the period ended
December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Porter Keadle Moore, LLP
PORTER KEADLE MOORE, LLP
/s/ Porter Keadle Moore, LLP
PORTER KEADLE MOORE, LLP
Atlanta, Georgia
January 15, 1999
F-1
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
Assets
------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash and due from banks, including reserve requirements of
$2,104,000 and $1,340,000 $ 13,000,934 13,578,133
Federal funds sold 215,700 8,197,365
----------- -----------
Cash and cash equivalents 13,216,634 21,775,498
----------- -----------
Interest-bearing deposits with other banks 500,000 500,000
Investment securities available for sale 21,571,333 12,681,186
Investment securities held to maturity (market value,
$7,439,648 and $9,779,012) 7,078,893 9,392,953
Other investments 825,700 825,700
Mortgage loans held for sale 2,549,425 650,350
Loans, net 146,864,199 138,472,205
Premises and equipment, net 8,271,551 6,866,681
Accrued interest receivable and other assets 1,904,180 1,654,010
----------- -----------
$ 202,781,915 192,818,583
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 28,935,817 27,318,977
Interest-bearing demand 38,966,906 41,233,435
Savings 16,654,317 15,356,322
Time 89,987,361 83,808,834
----------- -----------
Total deposits 174,544,401 167,717,568
FHLB advances 2,392,857 1,428,571
Note payable 444,446 611,112
Accrued interest payable and accrued liabilities 1,842,081 1,681,760
----------- -----------
Total liabilities 179,223,785 171,439,011
----------- -----------
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 21,752,798 19,842,089
Accumulated other comprehensive income 997,532 729,683
----------- -----------
Total stockholders' equity 23,558,130 21,379,572
----------- -----------
$ 202,781,915 192,818,583
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 15,703,957 14,904,480 12,543,160
Interest on federal funds sold 327,739 206,824 257,845
Interest-bearing deposits in other banks 72,279 20,283 5,696
Interest on investment securities:
Tax-exempt 357,792 395,958 457,159
Taxable 1,181,120 943,775 1,036,878
Dividends on other investments 98,801 76,634 57,993
---------- ---------- ----------
Total interest income 17,741,688 16,547,954 14,358,731
---------- ---------- ----------
Interest expense:
Deposits 6,264,309 5,479,025 4,740,619
Notes payable 38,488 50,419 61,784
Other 92,041 340,882 157,958
---------- ---------- ----------
Total interest expense 6,394,838 5,870,326 4,960,361
---------- ---------- ----------
Net interest income 11,346,850 10,677,628 9,398,370
Provision for loan losses 530,075 718,450 365,240
---------- ---------- ----------
Net interest income after provision for loan losses 10,816,775 9,959,178 9,033,130
---------- ---------- ----------
Other operating income:
Service charges 1,459,869 1,533,384 1,507,821
Fees for trust services 195,000 180,000 180,000
Securities gains, net 11,535 8,171 104,183
Other 678,875 537,169 437,453
---------- ---------- ----------
Total other operating income 2,345,279 2,258,724 2,229,457
---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 4,948,279 4,602,151 4,179,287
Occupancy and equipment 1,546,527 1,297,615 1,128,910
Miscellaneous 2,281,255 2,045,722 1,933,462
---------- ---------- ----------
Total other operating expenses 8,776,061 7,945,488 7,241,659
---------- ---------- ----------
Earnings before income taxes 4,385,993 4,272,414 4,020,928
Income taxes 1,465,534 1,445,679 1,290,761
---------- ---------- ----------
Net earnings $ 2,920,459 2,826,735 2,730,167
========== ========== ==========
Net earnings per share $ 3.62 3.50 3.38
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income Total
------ -------- -------------- -----
<S> <C> <C> <C> <C>
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 accumulated other comprehensive
income - - (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 accumulated other comprehensive
income - - 762,987 762,987
------- ---------- -------- ----------
Balance, December 31, 1997 807,800 19,842,089 729,683 21,379,572
Net earnings - 2,920,459 - 2,920,459
Cash dividends declared of $1.25 per share - (1,009,750) - (1,009,750)
Change in accumulated other comprehensive
income - - 267,849 267,849
------- ---------- ------- ----------
Balance, December 31, 1998 $ 807,800 21,752,798 997,532 23,558,130
======= ========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4-
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings $ 2,920,459 2,826,735 2,730,167
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Holding gains (losses) arising during period, net of tax
of $168,549, $470,743 and $21,930 275,000 768,053 46,600
Reclassification adjustment for gains included
in net earnings, net of tax of $4,384, $3,105 and $39,590 (7,151) (5,066) (64,593)
--------- --------- ---------
Total other comprehensive income 267,849 762,987 (17,993)
--------- --------- ---------
Comprehensive income $ 3,188,308 3,589,722 2,712,174
========= ========= =========
</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, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,920,459 2,826,735 2,730,167
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation, amortization and accretion 556,408 441,298 345,094
Provision for loan losses 530,075 718,450 365,240
Provision for losses on sales of other real estate
owned and repossessed collateral - 193 3,798
Provision for deferred income taxes 191,748 (282,482) (47,032)
Gains on investment securities (11,535) (8,171) (104,183)
(Gains) losses on disposals of premises and equipment 35,073 10,800 (3,150)
Gain on sale of other real estate and repossessed collateral - (15,925) -
Change in:
Mortgage loans held for sale (1,899,075) 321,926 (972,276)
Interest receivable (45,116) (32,297) (69,901)
Interest payable (11,006) 117,378 530
Other, net (421,329) 49,958 230,870
----------- ----------- -----------
Net cash provided by operating activities 1,845,702 4,147,863 2,479,157
----------- ----------- -----------
Cash flows from investing activities:
Change in interest-bearing deposits with other banks - (500,000) -
Proceeds from sales of investment securities
available for sale 1,942,216 3,084,938 990,000
Proceeds from calls and maturities of investment securities
held to maturity 2,328,080 2,837,125 3,597,249
Proceeds from calls and maturities of investment securities
available for sale 4,599,952 2,054,715 1,561,897
Purchase of investment securities available for sale (15,030,084) (6,088,269) (5,543,379)
Purchase of other investments - (196,800) (34,400)
Net change in loans (9,096,458) (12,924,571) (19,983,675)
Proceeds from disposals of premises and equipment 10,123 3,260 3,150
Additions to premises and equipment (1,954,813) (1,235,115) (605,205)
Proceeds from sales of other real estate and
repossessed collateral 141,325 59,170 -
----------- ----------- -----------
Net cash used by investing activities $ (17,059,659) (12,905,547) (20,014,363)
----------- ----------- -----------
</TABLE>
F-6
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in demand and savings deposits $ 648,306 5,705,056 5,177,522
Net change in time deposits 6,178,527 16,207,228 10,946,397
Proceeds from FHLB advances 1,250,000 4,000,000 2,500,000
Repayments of FHLB advances (285,714) (6,785,715) (285,714)
Repayments of notes payable (166,666) (166,667) (166,666)
Payment of cash dividends (969,360) (888,580) (807,800)
---------- ---------- ----------
Net cash provided by financing activities 6,655,093 18,071,322 17,363,739
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (8,558,864) 9,313,638 (171,467)
Cash and cash equivalents at beginning of year 21,775,498 12,461,860 12,633,327
---------- ---------- ----------
Cash and cash equivalents at end of year $ 13,216,634 21,775,498 12,461,860
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 6,405,844 5,752,948 4,959,831
Income taxes $ 1,488,000 1,645,000 1,222,500
Noncash investing and financing activities:
Transfers of other investment securities at cost
upon application of SFAS 115 $ - 526,010 -
Change in net unrealized (gains) losses on
investment securities available for sale,
net of tax $ (267,849) (762,987) 17,993
Transfers of loans to other real estate $ 208,372 12,437 128,176
Financed sales of other real estate $ 33,983 - 93,378
Change in dividends payable $ 40,390 - -
</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 (the
"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, 1998 and 1997 the
Company had no trading securities.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at cost, adjusted for the amortization
or accretion of premiums or discounts. Unrealized holding gains and
losses, net of the related tax effect, on securities available for sale
are excluded from earnings and are reported as a separate component of
stockholders' equity until realized. Transfers of securities between
categories are recorded at fair value at the date of transfer. Unrealized
holding gains or losses associated with transfers of securities from held
to maturity to available for sale are recorded as a separate component of
stockholders' equity. The unrealized holding gains or losses included in
the separate component of stockholders' equity for securities transferred
from available for sale to held to maturity are maintained and amortized
into earnings over the remaining life of the security as an adjustment to
yield in a manner consistent with the amortization or accretion of
premium or discount on the associated security.
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 trading on a
national exchange.
F-8
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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. The allowance represents an amount which, in
management's judgement, will be adequate to absorb probable losses on
existing loans that may become uncollectible.
Management's judgement in determining the adequacy of the allowance is
based on evaluations of the collectibility of loans. These evaluations
take into consideration such factors as changes in the nature and volume
of the loan portfolio, current economic conditions that may affect the
borrower's ability to pay, overall portfolio quality, and review of
specific problem loans. In determining the adequacy of the allowance for
loan losses, management uses a loan grading system that rates loans in
six different categories. Grades four though six are assigned
allocations of loss based on management's estimate of potential loss
which is generally based on discounted, collateral deficiencies. Loans
graded one through three are stratified by type and allocated loss ranges
based on historical loss experience for the strata. The combination of
these results are compared quarterly to the recorded allowance for loan
losses and material differences are adjusted by increasing or decreasing
the provision for loan losses. Management uses a devoted internal loan
reviewer who is independent of the lending function to challenge and
corroborate the loan grading system and provide additional analysis in
determining the adequacy of the allowance for loan losses and the future
provisions for estimated loan losses.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
economic conditions. In addition, regulators, as an integral part of
their examination process, periodically review the Company's allowance
for loan losses. Such regulators may require the Company to recognize
additions to the allowance based on their judgements of information
available to them at the time of their examination.
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 had no material amounts of impaired loans at
December 31, 1998 and 1997.
F-9
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
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 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.
Comprehensive Income
--------------------
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 established standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The Company has elected to present
comprehensive income in a separate consolidated statement of
comprehensive income. Accumulated other comprehensive income is solely
related to the net of tax effect of unrealized gains on securities
available for sale.
F-10
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Recent Accounting Pronouncements
--------------------------------
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for hedging derivatives and for
derivative instruments including derivative instruments embedded in other
contracts. It requires the fair value recognition of derivatives as
assets or liabilities in the financial statements. The accounting for the
changes in the fair value of a derivative depends on the intended use of
the derivative instrument at inception. Instruments used as fair value
hedges account for the change in fair value in the earnings of the period
simultaneous with accounting for the fair value change of the item being
hedged. Cash flow hedges account for the change in fair value of the
effective portion in comprehensive income rather than earnings and
foreign currency hedges are accounted for in comprehensive income as part
of the translation adjustment. Derivative instruments that are not
intended as a hedge account for the change in fair value in the earnings
of the period of the change. SFAS No. 133 is effective for all fiscal
quarters for all fiscal years beginning after June 15, 1999, but initial
application of the Statement must be made as of the beginning of the
quarter. At the date of initial application, an entity may transfer any
held to maturity security into the available for sale or trading
categories without calling into question the entity's intent to hold
other securities to maturity in the future. The Bank believes the
adoption of SFAS No. 133 will not have a material impact on its financial
position, results of operations or liquidity.
(2) INVESTMENT SECURITIES
Investment securities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31, 1998
SECURITIES HELD TO MATURITY: Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government agencies $ 500,000 10,780 - 510,780
State, county and municipal 6,018,613 343,217 - 6,361,830
Mortgage-backed securities 560,280 6,758 - 567,038
--------- ------- ------ ---------
Total $ 7,078,893 360,755 - 7,439,648
========= ======= ====== =========
December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
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, 1998
SECURITIES AVAILABLE FOR SALE: Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
U.S. Government agencies $ 10,498,769 84,426 - 10,583,195
State, county and municipal 795,000 4,736 - 799,736
Equity securities 526,010 1,480,259 - 2,006,269
Mortgage-backed securities 8,142,632 51,562 12,061 8,182,133
---------- --------- ------ ----------
Total $ 19,962,411 1,620,983 12,061 21,571,333
========== ========= ====== ==========
</TABLE>
F-11
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES, CONTINUED
SECURITIES AVAILABLE FOR SALE (CONTINUED):
<TABLE>
<CAPTION>
December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
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
=========== ========= ====== ==========
</TABLE>
The amortized cost and fair value of investment securities at December 31,
1998, 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 $ 500,000 510,780 4,995,806 5,023,500
5 to 10 years - - 5,502,963 5,559,695
---------- ------- --------- ---------
500,000 510,780 10,498,769 10,583,195
========== ======= ========== ==========
State, county and municipal:
Within 1 year 768,930 780,551 - -
1 to 5 years 2,094,272 2,186,153 - -
5 to 10 years 3,155,411 3,395,126 - -
More than 10 years - - 795,000 799,736
---------- --------- ---------- ---------
6,018,613 6,361,830 795,000 799,736
========== ========= ========== =========
Total securities other than mortgage-
backed securities:
Within 1 year 768,930 780,551 - -
1 to 5 years 2,594,272 2,696,933 4,995,806 5,023,500
5 to 10 years 3,155,411 3,395,126 5,502,963 5,559,695
More than 10 years - - 795,000 799,736
Mortgage-backed securities 560,280 567,038 8,142,632 8,182,133
Equity securities - - 526,010 2,006,269
---------- --------- --------- ---------
$ 7,078,893 7,439,648 19,962,411 21,571,333
========== ========= ========== ==========
</TABLE>
Call premiums amounting to $26,762 were received on three called
securities during 1998 and are included with securities gains in the 1998
statement of earnings. There were no sales of investment securities held to
maturity during 1998, 1997 and 1996.
F-12
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES, CONTINUED
Proceeds from sales of securities available for sale during 1998, 1997
and 1996 were $1,942,216, $3,084,938 and $990,000, respectively. Gross
losses of $15,227, $13,729 and $3,317 for 1998, 1997 and 1996,
respectively, were realized on those sales.
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 and 1996, the
Company received $21,900 and $17,500, 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 and $17,500 in 1997 and 1996, 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 $19,127,000 and $17,414,000 at
December 31, 1998 and 1997, respectively, were pledged to secure public
deposits as required by law.
(3) LOANS
Major classifications of loans at December 31, 1998 and 1997 are
summarized as follows:
1998 1997
---- ----
Commercial, financial and agricultural $ 69,820,797 63,182,064
Real estate - construction 5,005,340 5,633,712
Real estate - mortgage 44,170,013 45,793,633
Consumer 29,936,839 26,179,196
----------- -----------
Total loans 148,932,989 140,788,605
Less: Allowance for loan losses 1,707,913 2,012,795
Unearned interest and fees 360,877 303,605
----------- -----------
Net loans $ 146,864,199 138,472,205
=========== ===========
The Company grants loans and extensions of credit to individuals and a
variety of firms and corporations located in its trade area, primarily
Spalding County, Georgia and surrounding counties. Although the Company
has a diversified loan portfolio, a substantial portion of the loan
portfolio is collateralized by improved and unimproved real estate and is
dependent upon the real estate market in this geographical area.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 2,012,795 1,422,603 1,273,267
Amounts charged off (1,031,039) (394,245) (473,420)
Recoveries on amounts previously charged off 196,082 265,987 257,516
Provision charged to operating expenses 530,075 718,450 365,240
--------- --------- ---------
Balance at end of year $ 1,707,913 2,012,795 1,422,603
========= ========= =========
</TABLE>
The Company was servicing approximately $19,200,000 and $26,600,000 of
mortgage loans for the Federal Home Loan Mortgage Corporation at
December 31, 1998 and 1997, respectively.
F-13
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1998 and 1997, are summarized as
follows:
1998 1997
---- ----
Land and improvements $ 1,385,125 1,385,125
Buildings and improvements 6,839,981 5,816,633
Furniture and equipment 4,246,150 3,364,070
Construction in progress 504,173 706,594
---------- ----------
12,975,429 11,272,422
Less: Accumulated depreciation 4,703,878 4,405,741
---------- ----------
$ 8,271,551 6,866,681
========== ==========
Depreciation expense was $504,747, $434,316 and $397,020 for the years
ended December 31, 1998, 1997 and 1996, respectively.
(5) DEPOSITS
The aggregate amount of time deposit accounts with a minimum denomination
of $100,000 was approximately $30,385,000 and $28,962,600 at December 31,
1998 and 1997, respectively. Deposits from related parties totaled
approximately $2,637,000 and $2,635,000 at December 31, 1998 and 1997,
respectively.
At December 31, 1998, the scheduled maturities of time deposits were as
follows:
1999 $ 70,039,808
2000 10,899,619
2001 2,240,740
2002 2,563,549
2003 and thereafter 4,243,645
----------
$ 89,987,361
==========
(6) NOTE PAYABLE
Note payable at December 31, 1998 and 1997, consisted of the following:
1998 1997
---- ----
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. $ 444,446 611,112
Aggregate maturities required on the note payable at December 31, 1998,
were as follows:
1999 $ 166,668
2000 166,668
2001 111,110
-------
$ 444,446
=======
F-14<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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, 1998, the Bank has an advance payable of $1,142,857 with
a fixed interest rate of 6.72% and interest payable monthly with equal
principal payments due semi-annually until maturity in 2002. The Bank has
an advance payable of $1,250,000 with a fixed interest rate of 5.50% and
interest payable monthly with equal principal payments due quarterly
until maturity in 2008.
(8) EMPLOYEE BENEFIT PLANS
The Company had 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 were allowed to be admitted to the plan. No further
contributions were 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. During 1998, the Company made a payment of $50,191 to attain
full funding of the liabilities under the plan. Subsequent to this
payment, the assets of the plan were distributed to the participants as
per their election and the plan is terminated and has no assets as of
December 31, 1998.
The following table sets forth the Plan's status and amounts recognized
in the balance sheet at December 31, 1997. Plan assets are stated at fair
value and consist of cash, certificates of deposit, equity securities and
government securities.
1997
Actuarial present value of benefit obligations:
Vested $ 3,447,488
Nonvested -
---------
Total accumulated benefit obligations $ 3,447,488
=========
Projected benefit obligations for services rendered
to date $ 3,447,488
Plan assets at fair value 3,397,500
---------
Assets less than projected benefit obligation (49,988)
Unamortized net asset existing at date of
adoption of SFAS 87 -
Unamortized net gain from past experience
different from that assumed and effects of
changes in assumptions (74,936)
---------
Prepaid (accrued) pension cost included in
other liabilities $ (124,924)
=========
The components of net pension cost for the years ended December 31, 1997
and 1996, were as follows:
1997 1996
---- ----
Service cost for benefits earned $ 177,324 143,364
Interest cost on projected benefit
obligations 239,764 222,170
Actual return on plan assets (379,899) (282,114)
Net amortization and deferral 126,335 42,580
-------- --------
Net pension cost $ 163,524 126,000
======== ========
F-15
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) EMPLOYEE BENEFIT PLANS, CONTINUED
The following assumptions were used in determining the actuarial present
value of the projected benefit obligations at December 31, 1997:
Discount rate 7.0%
Rate of increase in future compensation levels -
Expected long-term rate of return on assets 8.25%
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 $297,000, $205,000 and $130,000 in 1998, 1997
and 1996, 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.
Approximate
Contractual
Amount
------
1998 1997
Financial instruments whose contract ---- ----
amounts represent credit risk:
Commitments to extend credit $ 25,500,000 16,650,000
Standby letters of credit and
financial guarantees written $ 873,000 467,000
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, 1998 are
approximately 74% collateralized.
F-16
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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 1999 without prior approval is
approximately $3,861,000 plus 1999 earnings of the Bank.
(11) INCOME TAXES
The components of income tax expense for the years ended December 31,
1998, 1997 and 1996 are as follows:
1998 1997 1996
---- ---- ----
Current $ 1,273,786 1,728,161 1,337,793
Deferred 191,748 (282,482) (47,032)
--------- --------- ---------
$ 1,465,534 1,445,679 1,290,761
========= ========= =========
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:
1998 1997 1996
---- ---- ----
Pretax income at statutory rates $ 1,491,238 1,452,620 1,367,116
Add (deduct):
Tax-exempt interest income (130,297) (139,939) (155,070)
Nondeductible interest expense 14,539 15,024 16,273
Other 90,054 117,974 62,442
--------- --------- ---------
$ 1,465,534 1,445,679 1,290,761
========= ========= =========
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, 1998 and 1997, the Company's net
deferred tax liability is included as a component of other liabilities.
1998 1997
---- ----
Deferred income tax assets:
Allowance for loan losses $ 464,807 572,074
Reserve for pension contributions - 47,420
Other 92,540 86,676
---------- ---------
Total gross deferred income tax assets 557,347 706,170
---------- ---------
Deferred income tax liabilities:
Net unrealized gain on investment securities (611,391) (447,225)
Premises and equipment (601,382) (558,457)
---------- ----------
Total gross deferred income tax liabilities (1,212,773) (1,005,682)
---------- ----------
Net deferred income tax liability $ (655,426) (299,512)
========== ==========
F-17
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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 1998:
Beginning balance $ 5,721,630
Loans advanced 3,012,204
Repayments (2,488,421)
----------
Ending balance $ 6,245,413
==========
(13) MISCELLANEOUS OPERATING EXPENSES
Components of other operating expenses which are greater than 1% of
interest income and other operating income are as follows:
1998 1997 1996
---- ---- ----
Stationery and supplies $ 250,151 257,523 279,814
Postage $ 184,230 186,379 179,591
Directors fees $ 157,650 163,575 154,400
Data processing $ 284,322 337,270 321,540
(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.
Deposits
--------
The fair value of demand deposits, savings accounts, NOW accounts and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows.
F-18
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
FHLB Advances
-------------
The fair value of the FHLB fixed rate borrowings are estimated using
discounted cash flows, based on the current incremental borrowing
rates for similar types of borrowing arrangements.
Note Payable
------------
The Company's note payable bears interest based on a percentage of
the prime rate and as such, the carrying amount approximates the fair
value.
Commitments to Extend Credit, Standby Letters of Credit and Financial
---------------------------------------------------------------------
Guarantees Written
------------------
Because commitments to extend credit and standby letters of credit are
made using variable rates, the contract value is a reasonable estimate
of fair value.
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on many judgements. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include the
mortgage banking operation, deferred income taxes and premises and
equipment. In addition, the tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in the estimates.
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 13,216,634 13,216,634 21,775,498 21,775,498
Interest -bearing deposits with
other banks 500,000 500,000 500,000 500,000
Investment securities 28,650,226 29,010,981 22,074,139 22,460,198
Other investments 825,700 825,700 825,700 825,700
Loans and mortgage loans held
for sale 149,413,624 148,308,428 139,022,555 137,402,363
Liabilities:
Deposits 174,544,401 175,220,065 167,717,568 168,104,529
FHLB advances 2,392,857 2,432,455 1,428,571 1,446,785
Notes payable 444,446 444,446 611,112 611,112
Unrecognized financial instruments:
Commitments to extend credit 25,500,000 25,500,000 16,650,000 16,650,000
Standby letters of credit $ 873,000 873,000 467,000 467,000
</TABLE>
F-19
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(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 judgements by the regulators about components, risk
weightings, and other factors.
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, 1998, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1998 and 1997, 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 1998
and 1997 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, 1998
Total Risk-Based Capital (to Risk
Weighted Assets):
Consolidated $ 24,268,215 16.6% 11,695,525 > 8.0% N/A N/A
-
FNB Griffin $ 23,432,413 15.1% 12,414,523 > 8.0% 15,518,154 > 10.0%
- -
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 22,560,598 15.4% 5,859,896 > 4.0% N/A N/A
-
FNB Griffin $ 21,724,795 14.0% 6,207,084 > 4.0% 9,310,626 > 6.0%
- -
Tier 1 Capital (to Average Assets):
Consolidated $ 22,560,598 11.4% 7,915,999 > 4.0% N/A N/A
-
FNB Griffin $ 21,724,795 11.1% 7,828,755 > 4.0% 9,785,944 > 5.0%
- -
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%
- -
</TABLE>
F-20
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) FNB BANKING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheets
December 31, 1998 and 1997
Assets
------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C>
Cash $ 368,728 359,257
Investment in First National Bank of Griffin 21,804,566 19,816,834
Investment securities available for sale 2,006,270 1,659,822
Other assets 467,842 537,290
---------- ----------
$ 24,647,406 22,373,203
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ 564,206 508,951
Dividends payable 525,070 484,680
Stockholders' equity 23,558,130 21,379,572
---------- ----------
$ 24,647,406 22,373,203
========== ==========
Statements of Earnings
----------------------
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Income:
Interest and dividends $ 45,658 31,514 17,796
Other 129,912 220,148 240,879
Dividends from subsidiary 1,009,750 888,580 807,800
--------- --------- ---------
1,185,320 1,140,242 1,066,475
--------- --------- ---------
Other operating expenses 214,209 239,510 178,203
--------- --------- ---------
Earnings before income taxes and equity in undistributed
earnings of bank subsidiary 971,111 900,732 888,272
Income tax benefit (expense) 14,667 - (27,361)
-------- --------- ---------
Earnings before equity in undistributed earnings of
bank subsidiary 985,778 900,732 860,911
Equity in undistributed earnings of bank subsidiary 1,934,681 1,926,003 1,869,256
--------- --------- ---------
Net earnings $ 2,920,459 2,826,735 2,730,167
========= ========= =========
</TABLE>
F-21
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) FNB BANKING COMPANY (PARENT COMPANY ONLY) FINANCIAL INFORMATION,
CONTINUED
Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,920,459 2,826,735 2,730,167
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Equity in undistributed earnings of bank subsidiary (1,934,681) (1,926,003) (1,869,256)
Depreciation 17,537 35,073 35,073
Change in other assets and liabilities, net (24,484) 50,421 23,336
---------- --------- ---------
Net cash provided by operating activities 978,831 986,226 919,320
---------- --------- ---------
Cash flows from financing activities - dividends paid (969,360) (888,580) (807,800)
---------- --------- ---------
Net increase (decrease) in cash 9,471 97,646 111,520
Cash at beginning of the period 359,257 261,611 150,091
--------- --------- ---------
Cash at end of the period $ 368,728 359,257 261,611
========= ========= =========
Supplemental disclosure of cash flow information:
Net unrealized (gain) loss on investment securities
available for sale, net of tax $ (267,849) (762,987) 17,993
Change in dividends receivable from subsidiary $ 40,390 - -
</TABLE>
F-22
<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 30, 1999
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 3/30/99
John T. Newton, Jr.
/s/ C.A. Knowles President, Treasurer, and 3/30/99
C.A. Knowles Director (principal executive officer)
/s/ William K. Holmes Assistant Treasurer (principal 3/30/99
William K. Holmes accounting and financial officer)
/s/ James A. Mankin Director and Secretary 3/30/99
James A. Mankin
___________________________ Director _______
Ernest F. Carlisle, III
/s/ Henry Cheatham, III Director 3/30/99
J. Henry Cheatham, III
/s/ James G. Cheatham Director 3/30/99
James G. Cheatham
/s/ David G. Newton Director 3/30/99
David G. Newton
</TABLE>
-29-<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,000,934
<INT-BEARING-DEPOSITS> 500,000
<FED-FUNDS-SOLD> 215,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,571,333
<INVESTMENTS-CARRYING> 7,078,893
<INVESTMENTS-MARKET> 7,439,648
<LOANS> 151,482,414
<ALLOWANCE> 1,707,913
<TOTAL-ASSETS> 202,781,915
<DEPOSITS> 174,544,401
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,842,081
<LONG-TERM> 2,837,303
0
0
<COMMON> 807,800
<OTHER-SE> 22,750,330
<TOTAL-LIABILITIES-AND-EQUITY> 202,781,915
<INTEREST-LOAN> 15,703,957
<INTEREST-INVEST> 1,637,713
<INTEREST-OTHER> 400,018
<INTEREST-TOTAL> 17,741,688
<INTEREST-DEPOSIT> 6,264,309
<INTEREST-EXPENSE> 6,394,838
<INTEREST-INCOME-NET> 11,346,850
<LOAN-LOSSES> 530,075
<SECURITIES-GAINS> 11,535
<EXPENSE-OTHER> 8,776,061
<INCOME-PRETAX> 4,385,993
<INCOME-PRE-EXTRAORDINARY> 4,385,993
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,920,459
<EPS-PRIMARY> 3.62
<EPS-DILUTED> 0
<YIELD-ACTUAL> 6.58
<LOANS-NON> 1,259,000
<LOANS-PAST> 256,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,012,795
<CHARGE-OFFS> 1,031,039
<RECOVERIES> 196,082
<ALLOWANCE-CLOSE> 1,707,913
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,707,913
</TABLE>
