SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
COMMISSION FILE NO. 2-94292
FNB Banking Company
(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
Post Office 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: $20,118,182
State the aggregate market value of the voting stock held by non-affiliates: AS
OF MARCH 14, 2000, 294,363 SHARES OF COMMON STOCK, $1.00 PAR VALUE (THE "COMMON
STOCK"), WITH AN AGGREGATE VALUE OF $11,774,520 (BASED UPON APPROXIMATE MARKET
VALUE OF $40.00 /SHARE AND INCLUDING SHARES HELD BY THE REGISTRANT'S AFFILIATES)
(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 14, 2000, THERE WERE
788,924 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......................................7
Item 3. Legal Proceedings ...........................................8
Item 4. Submission of Matters to a Vote of
Security Holders........................................8
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........................................9
Item 7. Financial Statements........................................22
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.............................................22
PART III..............................................................23
Item 9. Directors, Executive Officers, Promoters
and Control Persons; Compliance with
Section 16(A) of the Exchange Act......................23
Item 10. Executive Compensation......................................24
Item 11. Security Ownership of Certain Beneficial
Owners and Management ................................24
Item 12. Certain Relationships and Related
Transactions...........................................26
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. On March 1, 1983, the 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's 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, including corporate, pension, and personal trust services,
to its customers through the Bank. Through its subsidiary, Griffin Loans, Inc.,
a consumer finance company, the Company engages in the business of small making
loans to individuals under the trade name "First Credit."
SERVICES
The Bank is community oriented, with an emphasis on retail banking, and
offers such customary banking services as consumer and commercial checking
accounts, NOW accounts, savings accounts, certificates of deposit, lines of
credit, MasterCard and Visa accounts, and money transfers. The Bank finances
commercial and consumer transactions, makes secured and unsecured loans, and
provides a variety of other banking services.
DEPOSITS
The Bank offers a full range of depository accounts and services to
both consumers and businesses. At December 31, 1999, the Bank's deposit base,
totaling approximately $177 million, consisted of approximately $29 million in
non-interest bearing demand deposits (16% of total deposits), approximately $44
million in interest bearing demand deposits (including money market accounts)
(24% of total deposits), approximately $19 million in savings deposits (10% of
total deposits), approximately $61 million in time deposits in amounts less than
$100,000 (34% of total deposits), and approximately $24 million in time deposits
of $100,000 or more (13% 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, 1999, consumer, real estate (including mortgage and construction
loans), and commercial loans represented approximately 19%, 33%, and 48%,
respectively, of the Bank's total loan portfolio. The Bank owns a consumer
finance company, Griffin Loans, Inc. ("Griffin Loans"), which owns another
consumer finance company, Zebulon Finance Corporation ("Zebulon Finance"). Most
loans made by the finance company are for less than $1,000, but Griffin Loans
also makes real estate loans for larger amounts. On June 17, 1999, the assets of
Zebulon Finance were sold or incorporated into Griffin Loans, and the Zebulon
operation is no longer run by Griffin Loans.
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 consisting
of Spalding and Henry Counties, Georgia. Unsecured loans normally are made only
to persons who maintain depository relationships with the Bank. Secured loans
are made to persons who are well-established and have net worth, collateral, and
cash flow to support the loan. Real estate loans are 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.
Inter-agency guidelines adopted by federal bank regulators, including
the Office of the Comptroller of the Currency (the "OCC"), mandate 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.
The Bank may, however, 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>
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[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. 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
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 the Bank's officers 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. The Company competes in
Spalding County with five other commercial banks and in Henry County with 12
commercial banks. The deposit range of its competitors in Spalding County is $31
million to $138 million and $6 million to $352 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, 1999, of approximately $219 million and $177
million, respectively, and the second smallest in Henry County in terms of
deposits located in that county.
In addition to the Company's competitors in Spalding and Henry County,
the Company competes with commercial banks, thrifts, and 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
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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 Bank did not experience any material disruptions in their
operations or activities as a result of the "Year 2000" problem. Nor did the
Bank incur material expenses in correcting perceived or suspected Year 2000
problems. In addition, the Bank is not aware that any of its suppliers or
customers has experienced any material disruptions in their operations or
activities. The Bank does not expect to encounter any such problems in the
foreseeable future, although it continues to monitor its computer operations for
signs or indications of such problem.
It is possible, however, that if Year 2000 problems are incurred by the
customers of the Bank, such problems could have a negative impact on future
operations and financial performance of the Bank, although the Bank has not been
able to specifically identify any such problems among its clients or suppliers.
Furthermore, the Year 2000 problem may impact other entities with which the Bank
transacts business and the Bank cannot predict the effect of the Year 2000
problem on such entities or the resulting effect on the Bank.
EMPLOYEES
As of December 31, 1999, the Company and the Bank had 111 full-time and
25 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, and is subject to periodic
examination by, the Federal Reserve.
The Act requires every bank holding company to obtain the Federal
Reserve's prior approval before (1) 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; (2) it or any of its non-bank subsidiaries may acquire all or
substantially all of the assets of a bank; and (3) 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 listed in the Act or found by the
Federal Reserve, by order or regulation, to be 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:
o making or servicing loans and certain types of leases;
o performing certain data processing services;
o acting as fiduciary or investment or financial advisor;
o providing brokerage services;
o underwriting bank eligible securities;
o underwriting debt and equity securities on a limited basis through
separately capitalized subsidiaries; and
o making investments in corporations or projects designed primarily to
promote community welfare.
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In addition, effective March 11, 2000, bank holding companies whose
banking subsidiaries are all well-capitalized and well-managed may apply to
become a financial holding company. Financial holding companies have the
authority to engage in activities that are "financial in nature" that are not
permitted for other bank holding companies. Some of the activities that the Act
provides are financial in nature are:
o lending, exchanging, transferring, investing for others or safeguarding
money or securities;
o insuring, guaranteeing, or indemnifying against loss, harm, damage,
illness, disability, or death, or providing and issuing annuities, and
acting as principal, agent, or broker with respect thereto;
o providing financial, investment, or economic advisory services,
including advising an investment company;
o issuing or selling instruments representing interests in pools of
assets permissible for a bank to hold directly; and
o underwriting, dealing in, or making a market in securities.
We have no immediate plans to register as a financial holding company.
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.
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The payment of dividends by the Company and the Bank may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion of
the applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which, depending upon
the financial condition of 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, 1999, the Bank's retained earnings from which
dividends could be paid totaled approximately $22 million. For 1999, the
Company's cash dividend payout to stockholders was forty-seven percent of net
income.
MONETARY POLICY
The results of operations of the Bank, and therefore the Company, are
affected by credit policies of monetary authorities, particularly the Federal
Reserve. The instruments of monetary policy employed by the Federal Reserve
include open market operations in U.S. government securities, changes in the
discount rate on bank borrowings and changes in reserve requirements against
bank deposits. In view of changing conditions in the national economy and in the
money markets, as well as the effect of actions by monetary and fiscal
authorities, including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand, or the
business and earnings of the Bank.
CAPITAL ADEQUACY
The Federal Reserve and the OCC have implemented substantially
identical risk-based rules for assessing bank and bank holding company capital
adequacy. These regulations establish minimum capital standards in relation to
assets and off-balance sheet exposures as adjusted for credit risk. Banks and
bank holding companies are required to have (1) a minimum level of total capital
(as defined) to risk-weighted assets of eight percent; (2) a minimum Tier One
Capital (as defined) to risk-weighted assets of four percent; and (3) a Tier One
Capital to average assets of four percent. In addition, the Federal Reserve and
the OCC have established a minimum three percent 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 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 capital adequacy standards also 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.
In addition, Section 38 of the Federal Deposit Insurance Corporation
Act's "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 concerning the prompt corrective action
provisions that 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 ten percent, a Tier One risk-based
ratio of at least six percent and a leverage ratio of at least five percent; (2)
an "adequately capitalized" institution has a total risk-based capital ratio of
at least eight percent, a Tier One risk-based ratio of at least four percent and
a leverage ratio of at least four percent; (3) an "undercapitalized" institution
has a total risk-based capital ratio of under eight percent, a Tier One
risk-based ratio of under four percent or a leverage ratio of under four
percent; (4) a "significantly undercapitalized" institution has a total
risk-based capital ratio of under six percent, a Tier One risk-based ratio of
under three percent or a leverage ratio of under three percent; and (5) a
"critically undercapitalized" institution has a leverage ratio of two percent or
less. Institutions in any of the three undercapitalized categories would be
prohibited from declaring dividends or making capital distributions. The OCC
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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, 1999.
Set forth below are pertinent capital ratios for the Company and the Bank as of
December 31, 1999.
MINIMUM CAPITAL REQUIREMENTS COMPANY BANK
- ---------------------------- ------- ----
Tier 1 Capital to Risk-based 14.3% 13.7%<F1>
Assets: 4.00%
Total Capital to Risk-based 15.6% 15.0%<F2>
Assets: 8.00%
Leverage Ratio (Tier 1 Capital 10.8% 10.5%<F3>
to Average Assets): 4.00%
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[FN]
<F1> Minimum for "Well Capitalized" Banks = 6%
<F2> Minimum for "Well Capitalized" Banks = 10%
<F3> Minimum for "Well Capitalized" Banks = 5%
</FN>
RECENT LEGISLATIVE AND REGULATORY ACTION
On November 12, 1999, President Clinton signed the Gramm-Leach-Bliley
Act, a significant piece of legislation intended to modernize the financial
services industry. The bill repeals the anti-affiliation provisions of the 1933
Glass-Steagall Act to allow for the merger of banking and securities
organizations and permits banking organizations to engage in insurance
activities including insurance underwriting. The bill also allows bank holding
companies to engage in financial activities that are "financial in nature or
complementary to a financial activity." The act lists the expanded areas that
are financial in nature and includes insurance and securities underwriting and
merchant banking among others. The bill also:
o prohibits non-financial entities from acquiring or establishing a
thrift while grandfathering existing thrifts owned by non-financial
entities.
o establishes state regulators as the appropriate functional regulators
for insurance activities but provides that state regulators cannot
"prevent or significantly interfere" with affiliations between banks
and insurance firms.
o contains provisions designed to protect consumer privacy. The bill
requires financial institutions to disclose their policy for collecting
and protecting confidential information and allows consumers to "opt
out" of information sharing except with unaffiliated third parties who
market the institutions' own products and services or pursuant to joint
agreements between two or more financial institutions.
o provides for functional regulation of a bank's securities activities by
the Securities and Exchange Commission.
Various portions of the bill have different effective dates, ranging
from immediately to more than a year for implementation.
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.
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The Company distributes its services through four full-service banking
offices and one limited-service banking office as follows:
MAIN OFFICE
-----------
318 South Hill Street
Griffin, Georgia 30224
NORTHSIDE BANK BRANCH
---------------------
1475 West McIntosh Road
Griffin, Georgia 30223
SOUTHSIDE BANK BRANCH
---------------------
1103 Zebulon Road
Griffin, Georgia 30224
KROGER GRIFFIN BRANCH
---------------------
LIMITED SERVICE OFFICE
----------------------
100 Spalding Village
Griffin, Georgia 30223
HENRY COUNTY BRANCH
-------------------
996 Bear Creek Boulevard
Hampton, Georgia 30228
The executive offices of the Company and the main office of the Bank
are located in a 33,000 square-foot facility, 318 South Hill Street, Griffin,
Georgia. The Company's main office is subject to a mortgage in the principal
amount of $277,779 at December 31, 1999. 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.
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.
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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 14, 2000, the Company had 407 shareholders of record. At December 31,
1999, there were approximately 408 shareholders of record. Management is aware
of sales of the Company's stock in 1998, aggregating approximately 11,425 shares
in blocks ranging from 35 shares to 3,019 shares at prices ranging from $30 to
$42 per share. Management is aware of sales of the Company's stock in 1999,
aggregating approximately 5439 shares in blocks ranging from 17 shares to 1,353
shares at prices ranging from $40 to $42 per share.
DIVIDENDS
In 1999 and 1998, the Company declared cash dividends of $1,009,750
($1.25 per share) and $990,459 ($1.25 per share), respectively. The Company
intends to continue paying cash dividends on a semi-annual basis. The amount and
frequency of dividends, however, 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.
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; and
material unforeseen changes in the financial stability and liquidity of the
Company's credit customers, 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 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, Georgia.
The Company's subsidiary bank was most recently examined by its primary
regulatory authority in July of 1999. 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.
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<PAGE>
STATEMENTS OF EARNINGS REVIEW
Net earnings were $2.1 million in 1999, a decrease of 28% from the $2.9
million earned in 1998. Net earnings per share was $2.64 for 1999, compared with
$3.62 reported in 1998, a decrease of 27.1%. Return on average assets and return
on average stockholders' equity for 1999 was 1.00% and 9.67%, respectively,
compared with 1.49% and 12.90%, respectively, for 1998. The decrease in earnings
per share is due to the increase of $1,000,000 in the allowance for loan losses
as a result of an anticipated loss with a single borrower. Net earnings were
$2.9 million in 1998, an increase of 3.3% from the $2.8 million earned by the
Company in 1997. Net earnings per share were $3.62 in 1998, compared with the
$3.50 reported in 1997, an increase of 3.4 %. Return on average assets and
return on average stockholders' equity for 1997 were 1.56% and 14.75%,
respectively.
Net interest income decreased by $8,000 or .01% in 1999. Net interest
income at December 31, 1999 and 1998 remained stable at $11.3 million. Net yield
(tax equivalent) on interest earning assets (5.99% in 1999 and 6.58% in 1998)
decreased by 59 basis points in 1999 from 1998. Net interest income increased by
$670,000 or 6.3% in 1998 over 1997. Net interest income at December 31, 1998,
was $11.3 million compared to $10.7 million in 1997. Net yield (tax equivalent)
on interest earning assets (6.58% in 1998 and 6.57% in 1997) increased
approximately .02% in 1998 over 1997.
The Company's operational results depend primarily 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.
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 5.13% in 1999, 5.65% in 1998 and 5.68% in
1997, while the net interest margin (on a tax-equivalent basis) was 5.99% in
1999, 6.58% in 1998 and 6.57% in 1997. The decreases in the margin and the
spread in 1999 are primarily due to the decrease in loan rates due to
competitive pricing without the same degree of corresponding rate decreases in
interest bearing liabilities.
-10-
<PAGE>
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.
TABLE 1
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1999 1998 1997
-----------------------------------------------------------------------------------------------
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) $152,329 15,481 10.16% 142,404 15,704 11.03% 140,193 14,904 10.63%
Investment securities:
Taxable 24,850 1,516 6.10% 20,647 1,352 6.55% 15,101 1,041 6.89%
Tax exempt 7,816 624 7.98% 6,366 542 8.51% 6,919 600 8.67%
Federal funds sold 7,756 422 5.44% 5,834 328 5.62% 3,532 207 5.86%
------- ------- --------- ------- ------- ------
Total interest earning assets 192,751 18,043 9.36% 175,251 17,926 10.23% 165,745 16,752 10.11%
Other non-interest earnings assets 17,185 20,604 15,686
------- ------- ------
Total assets $209,936 195,855 181,431
======= ======= =======
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits:
Interest-bearing demand
and savings $ 59,987 1,407 2.35% 55,789 1,362 2.44% 53,653 1,361 2.54%
Time 85,537 4,686 5.48% 78,844 4,758 6.03% 70,801 4,008 5.66%
FHLB advances 2,256 145 6.43% 1,344 89 6.62% 5,153 332 6.44%
Long-term debt 354 25 7.06% 527 38 7.21% 688 50 7.27%
Federal funds purchased and
securities sold under
repurchase agreements 5,286 229 4.33% 3,169 148 4.67% 2,196 119 5.42%
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities 153,420 6,492 4.23% 139,673 6,395 4.58% 132,491 5,870 4.43%
Non-interest bearing deposits 30,652 28,727 26,474
Other liabilities 4,118 4,815 3,298
Stockholders' equity 21,746 22,640 19,168
------- ------- ------
Total liabilities and
stockholders' equity $209,936 195,855 181,431
======= ======= =======
Excess of interest-earning assets
over interest-bearing
liabilities $ 39,331 35,578 33,254
======= ======= =======
Ratio of interest-earning assets to
interest-bearing liabilities 125.64% 125.47% 125.10%
Net interest income 11,551 11,531 10,882
====== ====== ======
Net interest spread 5.13% 5.65% 5.68%
==== ==== ====
Net interest yield on interest
earning assets 5.99% 6.58% 6.57%
==== ==== ====
</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.
-11-
<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
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Increase (decrease) due to changes in:
--------------------------------------
1999 over 1998 1998 over 1997
-------------- --------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans (including loan fees) $ 610 (833) (223) 236 564 800
Investment securities:
Taxable 376 (212) 164 359 (48) 311
Tax exempt 126 (44) 82 (47) (11) (58)
Federal funds sold 120 (26) 94 129 (8) 121
----- ----- --- --- --- -----
Total interest earning assets 1,232 (1,115) 117 677 497 1,174
----- ----- --- --- --- -----
Interest expense on:
Deposits:
Interest-bearing demand and savings 88 (43) 45 90 (89) 1
Time 967 (1,039) (72) 476 274 750
FHLB advances 58 (2) 56 (253) 10 (243)
Long-term debt (12) (1) (13) (12) - (12)
Federal funds purchased and securities sold
under repurchase agreements 91 (10) 81 42 (13) 29
----- ------ ---- --- --- -----
Total interest-bearing liabilities 1,192 (1,095) 97 343 182 525
----- ----- ---- --- --- -----
Increase (decrease) in net interest income 40 (20) 20 334 315 649
===== ====== ==== === === =====
</TABLE>
Other operating income in 1999 of $2.3 million decreased from 1998 by
$58,000 or 2.5%. The decrease is primarily attributable to a decrease in trust
department fees and losses on securities. Other operating expenses increased
$336,000 (3.8%) in 1999 over 1998 principally due to the increase in employee
costs related to an increase in salaries of key employees, insurance increases
and an increase in depreciation expense related to the Year 2000 purchases and
capital improvements. Income taxes expressed as a percentage of earnings before
income taxes decreased as tax exempt income as a percentage of earnings before
taxes increased.
Other operating income in 1998 of $2.4 million increased over 1997 by
$87,000 or 3.8%. The increase is primarily attributable to an increase in gains
on mortgage loans sold during 1998 of $79,000 over 1997. Other operating
expenses increased $831,000 (10%) in 1998 over 1997 principally due to the
increase in employee costs of approximately $346,000 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 $88,000 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 $40,000.
Income taxes expressed as a percentage of earnings before income taxes remained
relatively stable at 34% in 1997 and 33% in 1998.
BALANCE SHEET REVIEW
During 1999, average total assets increased $14.1 million (7.2%) over
1998. Average deposits increased $12.8 million (7.8%) in 1999 over 1998. Average
loans increased $9.9 million (7.0%) in 1999 over 1998. During 1998, average
total assets increased $14.4 million (8.0%) over 1997. Average deposits
increased $12.4 million (8.2%) in 1998 over 1997. Average loans increased $2.2
million (1.6%) in 1998 over 1997.
Total assets at December 31, 1999, were $219.7 million, representing a
$16.9 million (8.4%) increase from December 31, 1998. Total deposits increased
$8.2 million (4.8%) from 1998 to 1999 while total gross loans increased $7.5
million (5.0%) during 1999. Time deposits increased $596,000 from 1998 to 1999
while all other deposit accounts increased $7.6 million in 1999. As the local
economy remains strong, loan demand increased and the Bank showed increases in
-12-
<PAGE>
the commercial, financial, agricultural and construction lending areas. These
loan increases were funded principally with increases in deposit accounts.
Total assets at December 31, 1998, were $202.8 million, representing a
$10.0 million (5.2%) increase from December 31, 1997. Total deposits increased
$5.2 million (3.2%) from 1997 to 1998 while total gross loans increased $8.4
million (6.1%) during 1998. Time deposits increased $4.6 million from 1997 to
1998 while all other deposit accounts increased $648,000 in 1998.
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
(DOLLAR AMOUNTS IN THOUSANDS)
The following table shows the carrying value of the Company's securities, by
security type, as of December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
HELD TO MATURITY 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States treasuries and agencies $ - 500 1,488
State, county and municipal - 6,019 6,281
Mortgage-backed securities - 560 1,624
------ ------ ------
Totals $ - 7,079 9,393
====== ====== ======
AVAILABLE FOR SALE
United States treasuries and agencies $ 13,345 10,583 3,156
State, county and municipal 8,332 800 7,865
Mortgage-backed securities 8,136 8,182 -
Equity securities 1,367 2,006 1,660
------ ------ ------
$ 31,180 21,571 12,681
====== ====== ======
OTHER INVESTMENTS $ 722 826 826
====== ====== ======
</TABLE>
Other investments include Federal Reserve Bank stock and Federal Home
Loan Bank stock. During 1999, in connection with the implementation of Statement
of Financial Accounting Standards No. 133, "Accounting for Derivatives and
Hedging Activities," all held to maturity investment securities were transferred
to available for sale. This transfer increased stockholders equity by $4,000.
During 1997, certain equity securities held by the Company, which had previously
been included in other investments, were transferred to available for sale as
these began being traded on a national exchange. The transfer of these
securities to available for sale resulted in an increase in stockholders' equity
of $703,000 after consideration for the tax effects of the unrealized gain on
these securities.
-13-
<PAGE>
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,
1999. The composition and maturity/repricing distribution of the securities
portfolio is subject to change depending on rate sensitivity, capital and
liquidity needs.
TABLE 4
EXPECTED MATURITY OF SECURITIES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
United States Weighted
Maturities at Treasuries and Mortgage- State, County Average
December 31, 1999 Agencies Backed Securities and Municipal Yields
- ----------------- -------- ----------------- ------------- ------
<S> <C> <C> <C> <C>
Within 1 year $ 500 - 235 5.61%
After 1 through 5 years 9,987 1,060 2,660 5.96%
After 5 through 10 years 3,500 4,001 3,218 6.09%
After 10 years - 3,293 2,319 5.52%
------ ----- -----
Totals $ 13,987 8,354 8,432
====== ===== =====
</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
(DOLLAR AMOUNTS IN THOUSANDS)
The following table presents loans by type at the end of each of the
last five years.
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 76,377 69,821 63,182 52,437 35,761
Real estate - construction 8,789 5,005 5,634 3,604 2,334
Real estate - mortgage 42,189 44,170 45,794 44,688 45,273
Installment loans to
individuals 29,042 29,937 26,179 27,302 24,887
------- ------- ------- ------- -------
156,397 148,933 140,789 128,031 108,255
Less: Unearned interest and fees (321) (361) (304) (330) (287)
Allowance for loan losses (2,589) (1,708) (2,013) (1,422) (1,273)
------- ------- ------- ------- -------
Loans, net $ 153,487 146,864 138,472 126,279 106,695
======= ======= ======= ======= =======
</TABLE>
-14-
<PAGE>
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, 1999.
TABLE 6
LOAN PORTFOLIO MATURITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Commercial, Real
Financial and Estate -
Maturity Agricultural Construction Total
-------- ------------ ------------ -----
<S> <C> <C> <C> <C>
Within 1 year $ 24,391 7,403 31,794
1 to 5 years 43,315 1,386 44,701
After 5 years 8,671 - 8,671
------ ----- ------
Totals $ 76,377 8,789 85,166
====== ===== ======
Fixed Variable
Interest Interest
Rates Rates Total
----- ----- -----
Commercial, financial and agricultural:
1 to 5 years $ 39,158 4,157 43,315
After 5 years 3,699 4,972 8,671
------ ----- ------
$ 42,857 9,129 51,986
====== ===== ======
Real estate - construction
1 to 5 years $ 384 1,002 1,386
====== ===== ======
</TABLE>
The provision for loan losses in 1999 was $1.5 million compared to
$530,000 in 1998. The increase is primarily attributable to one significant
commercial relationship of $1.1 million that has been down-graded to doubtful.
In addition, the finance company (a wholly-owned subsidiary of the Bank)
increased its provision for loan losses by $190,000 during 1999 due to losses
realized in its portfolio. 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 1.7% and 1.2% of total loans
outstanding at December 31, 1999 and 1998, respectively. Net charge-offs were
$579,000 and $835,000 during 1999 and 1998, 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 1998 was $530,000 compared to $718,000
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 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 $835,000 and $128,000 during 1998 and 1997, respectively.
The Company has a dedicated loan review function. All loans of $50,000
or more are reviewed annually and placed in 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 at 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.
-15-
<PAGE>
Management's judgment in determining the adequacy of the allowance is
based on evaluations of the collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's ability to
pay, overall portfolio quality, and review of specific problem loans. 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 judgments 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 2000 to approximate $1.1
million, of which $850,000 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.
-16-
<PAGE>
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
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 1,708 2,013 1,422 1,273 1,245
Charge-offs:
Commercial, financial and agricultural 270 663 55 67 62
Real estate-construction - - - - -
Real estate-mortgage 41 53 8 64 -
Installment loans to individuals 528 315 331 342 348
----- ------ --- ----- -----
839 1,031 394 473 410
----- ----- --- ----- -----
Recoveries:
Commercial, financial and agricultural 47 19 78 96 223
Real estate-construction - - - - -
Real estate-mortgage 5 23 - 7 -
Installment loans to individuals 208 154 188 154 184
----- --- --- ----- ------
260 196 266 257 407
----- ------ --- ----- ------
Net charge-offs 579 835 128 216 3
Additions charged to operations 1,460 530 719 365 31
----- ------ --- ------ ------
Balance at end of year $ 2,589 1,708 2,013 1,422 1,273
===== ===== ===== ===== =====
Ratio of net charge-offs during the period
to average loans outstanding during
the period .38% .59% .09% .18% .00%
=== === == === ===
</TABLE>
Non-performing assets at December 31, 1999, were $1.6 million compared
to $1.5 million at December 31, 1998. There were no related party loans that
were considered nonperforming at December 31, 1999.
Non-performing assets at December 31, 1998 were $1.5 million compared
to $2.8 million at December 31, 1997. The majority of the decrease is
attributable to charge-off of a non-accrual loan of $625,000 during 1998. There
were no related party loans that were considered nonperforming at December 31,
1998.
-17-
<PAGE>
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, 1999, 1998, 1997, 1996, and 1995 (dollar
amounts in thousands):
Table 8
Non-Performing Assets
(dollar amounts in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Other real estate and repossessions $ - 33 - 90 -
Accruing loans 90 days or more
past due 281 256 275 216 148
Non-accrual loans 1,342 1,259 2,538 477 677
Interest on non-accrual loans which
would have been reported 20 209 187 38 67
</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 $100,000 and greater totaled $24.5 million at December
31, 1999, compared with $26.1 million at year-end 1998. The following table sets
forth the scheduled maturities of time deposits of $100,000 and greater at
December 31, 1999.
TABLE 9
DEPOSITS
(DOLLAR AMOUNTS IN THOUSANDS)
Within 3 months $ 5,959
After 3 through 6 months 4,847
After 6 through 12 months 7,682
After 12 months 5,994
-----
Total $ 24,482
======
LIQUIDITY
The Bank must maintain, on a daily basis, sufficient funds to cover the
withdrawals from depositors' accounts and to supply new borrowers with funds. To
meet these obligations, the Bank keeps cash on hand, maintains account balances
with its correspondent banks, and purchases and sells federal funds and other
short term investments. Asset and liability maturities are monitored in an
attempt to match these to meet liquidity needs. It is the policy of the Bank to
monitor its liquidity to meet regulatory requirements and their local funding
requirements.
-18-
<PAGE>
The Bank maintains relationships with correspondent banks that can
provide funds to it on short notice, if needed. Presently, the Bank has
arrangements with a commercial bank for short term unsecured advances up to $5.0
million.
Cash and cash equivalents increased $10.1 million to a total $23.3
million at December 31, 1999, as cash flows increases generated from financing
and operating activities outpaced amounts used by investing activities. Cash
inflows from operations totaled $5.7 million in 1999, while inflows from
financing activities totaled $16.9 million, most of which were net deposit
increases during 1999 of $8.2 million, increases in FHLB advances of $6.2
million and $4.4 million increases in repurchase agreements. Included in
financing activities were note payable repayments of $167,000, FHLB advance
repayments of $1.3 million, $1 million of dividends paid to stockholders, and
$755,000 for the repurchase and retirement of common stock.
Investing activities used $12.6 million of cash and cash equivalents,
principally composed of net advances of loans to customers of $8.0 million
during 1999 and investment security purchases, net of sales, calls, and paydowns
of $4.3 million.
See the consolidated statements of cash flows in 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, 1999.
TABLE 10
CAPITAL RATIOS
<TABLE>
<CAPTION>
Actual as of December 31, 1999
------------------------------
<S> <C>
Tier 1 Capital 14.34%
Tier 1 Capital minimum requirement 4.00%
-----
Excess 10.34%
=====
Total Capital 15.59%
Total Capital minimum requirement 8.00%
-----
Excess 7.59%
=====
LEVERAGE RATIO
As of December 31, 1999
-----------------------
Tier 1 Capital to adjusted total assets
("Leverage Ratio") 10.85%
Minimum leverage requirement 3.00%
-----
Excess 7.85%
=====
</TABLE>
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.
Average equity to average assets was 10.36% in 1999, 11.56% in 1998 and
10.56% during 1997. The ratio of dividends declared to net earnings was 47.08%
during 1999, compared with 34.58% and 31.43% in 1998 and 1997, 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
-19-
<PAGE>
officers are charged with the responsibility for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix. It is the overall philosophy of management to support asset
growth primarily through growth of core deposits, which include deposits of all
categories made by local individuals, partnerships and corporations. The
objective of the policy is to control interest sensitive assets and liabilities
so as to minimize the impact of substantial movements in interest rates on
earnings.
The asset/liability mix is monitored on a regular basis. A report
reflecting the interest sensitive assets and interest sensitive liabilities is
prepared and presented to the Board of Directors on a monthly basis. One method
to measure a bank's interest rate exposure is through its repricing gap. The gap
is calculated by taking all assets that reprice or mature within a given
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, 1999 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
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
At December 31, 1999
Maturing or Repricing in
------------------------
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 7,027 - - - 7,027
Investment securities 235 500 13,292 17,153 31,180
Mortgage loans held for sale 694 - - - 694
Loans 46,478 15,551 86,420 7,947 156,396
Other investments - - - 722 722
------- ------ ------ ------ -------
Total interest-bearing assets 54,934 16,051 99,712 25,822 196,519
------- ------ ------ ------ -------
Interest-bearing liabilities:
Deposits:
Demand and savings 62,867 - - - 62,867
Time deposits 28,097 35,947 21,578 20 85,642
Securities sold under
Repurchase agreements 9,391 - - - 9,391
FHLB advances 7,531 94 500 500 8,625
Notes payable 42 125 111 - 278
------- ------ ------ ------ -------
Total interest-bearing liabilities 107,928 36,166 22,189 520 166,803
------- ------ ------ ------ -------
Interest sensitive difference
per period $ (52,994) (20,115) 77,523 25,302 29,716
======= ======= ====== ====== =======
Cumulative interest sensitivity
difference $ (52,994) (73,109) 4,414 29,716
Cumulative difference to total
assets (24.12)% (33.28)% 2.01% 13.53%
</TABLE>
At December 31, 1999, the difference between the Company's liabilities
and assets repricing or maturing within one year was $73.1 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 impacts the growth in total assets in the banking industry
and causes a need to increase equity capital at higher than normal rates to meet
capital adequacy requirements. The Company copes with the effects of inflation
through the management of its interest rate sensitivity gap position, by
periodically reviewing and adjusting its pricing of services to consider current
costs, and through managing its level of net income relative to its dividend
payout policy.
-21-
<PAGE>
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, 1999, 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.
-22-
<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, 2000, (a) the person's name, (b) his age at December 31, 1999, (c)
the year he was first elected as a director of the Company and (d) his positions
with the Company and the Bank, other than as a director, and his principal
occupation and business experience for the past five years.
<TABLE>
<CAPTION>
Year First Position with Company; Principal
Name Age Elected Occupation; Business Experience
---- --- ------- -------------------------------
<S> <C> <C> <C>
J. Henry Cheatham, III 49 1994 Vice President of Textiles, Inc.
Ernest F. Carlisle, III 68 1997 President and Chief Executive Officer
of Carlisle & Company, an insurance company
James G. Cheatham 47 1998 President of the 1888 Group, a textile company
C. A. Knowles 67 1982 President, Chief Executive Officer, and
Treasurer of the Company and President
of the Bank
James A. Mankin 73 1982 Retired; Merchant and Real Estate Developer
David G. Newton 52 1990 Real Estate Developer
John T. Newton, Jr. 53 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, 1999, (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 67 1982 President, Chief Executive Officer and Treasurer of the
Company and President of the Bank.
William K. Holmes 49 1974 Assistant Treasurer since 1993, Senior Vice President of
the Bank since 1974, Principal Accounting and Financial
Officer.
</TABLE>
-23-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the annual term compensation paid by the
Company and its subsidiary to C. A. Knowles, the Company's Chief Executive
Officer, the Company's only executive officer as of December 31, 1997 whose cash
compensation, including salary and bonus, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------------
Name and Principal Position Year Salary<F1> Bonus Other
---- ------ ----- -----
<S> <C> <C> <C> <C>
C. A. Knowles 1999 $203,680 $29,367 <F2>
President, Chief Executive 1998 $193,343 $20,400 <F2>
Officer, and Treasurer 1997 $193,793 $27,500 <F2>
William K. Holmes 1999 $111,312 $ 5,000 <F2>
Asst. Treasurer 1998 $104,197 $13,575 <F2>
1997 $ 97,100 $13,575 <F2>
- ---------------------
<FN>
<F1> Includes Director's fees
<F2> Does not meet Securities and Exchange Commission threshold for disclosure.
</FN>
</TABLE>
DIRECTOR COMPENSATION
Each director of the Company receives a $1,600 annual retainer plus
$300 per meeting attended for their service as a director of the Company. Each
director of the Bank receives an annual retainer of $3,000 plus $300 per meeting
attended for their service as a director of the Bank and $150 for each Board
committee meeting they attend.
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 Company
Stock. Unless otherwise indicated, the listed owners are the record owners of,
and have sole voting and investment powers over, their shares.
<TABLE>
<CAPTION>
|------------------------------------------------------------------------------------------------------------------|
| | Number of Shares | |
| Name and Address | Beneficially Owned | Percentage of Total |
|----------------------------------------|--------------------------------------|----------------------------------|
|<S> | <C> | <C> |
| 435 Associates, Ltd. | | |
| Post Office Box 550787 | 49,920 <F2> | 6.33% |
| Atlanta, Georgia 30355-0787 | | |
| | | |
|----------------------------------------|--------------------------------------|----------------------------------|
| Newton Family Partnership | | |
| Post Office Drawer F | 171,904 <F2> | 21.79% |
| Griffin, Georgia 30224 | | |
| | | |
|----------------------------------------|--------------------------------------|----------------------------------|
| John T. Newton, Sr. | | |
| 1076 Maple Drive | 195,655 <F3> | 24.80% |
| Griffin, Georgia 30223 | | |
|------------------------------------------------------------------------------------------------------------------|
-24-
<PAGE>
|------------------------------------------------------------------------------------------------------------------|
| Harvey M. Cheatham | | |
| Post Office Box 550787 | 71,920 <F4> | 9.12% |
| Atlanta, Georgia 30355-0787 | | |
|----------------------------------------|--------------------------------------|----------------------------------|
| John Henry Cheatham, III | | |
| 2773 Hwy. 16 West | 43,452 <F5> | 5.51% |
| Griffin, Georgia 30223 | | |
|----------------------------------------|--------------------------------------|----------------------------------|
| EMC Investments Ltd. Partnership | | |
| 5101 North Casablanca Road, #6 | 42,000 <F6> | 5.32% |
| Scottsdale, Arizona 85253 | | |
|----------------------------------------|--------------------------------------|----------------------------------|
| James G. Cheatham | | |
| Post Office Box 506 | 48,552 <F7> | 6.15% |
| Griffin, Georgia 30224 | | |
|----------------------------------------|--------------------------------------|----------------------------------|
| Lelia Cheatham Von Stein | | |
| 445 Rich Mountain Road | 48,152<F8> | 6.10% |
| 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>
</TABLE>
STOCK OWNED BY MANAGEMENT
The following table provides for each director of the Company, the named
executive officer, and for all directors and officers of the Company as a group,
as of January 25, 2000, the following information: (a) the name of the named
executive officer, director, or the number of persons in the group; (b) the
number of shares of Company Stock beneficially owned by the named executive
officer, 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.
-25-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Name and Address Beneficially Owned Percentage of Total
- ---------------- ------------------ -------------------
<S> <C> <C>
Ernest F. Carlisle, III 705 *
J. Henry Cheatham, III 43,452 <F1> 5.51%
C. A. Knowles 920 *
James A. Mankin 100 <F2> *
David G. Newton 21,363 <F3> 2.71%
James G. Cheatham 48,552 <F4> 6.15%
John T. Newton, Jr. 13,274 <F5> 1.68%
All directors and executive officers
as a group (9 persons) 127,002 16.10%
- ------------------------
<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>
</TABLE>
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, 1999 (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.
-26-
<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.
Exhibit.
No. Document
--- --------
3.1 Articles of Incorporation of FNB Banking Company, as amended. (Included
as Exhibit 3.1 to the Company's 1992 annual report on Form 10- K.)
3.2 Bylaws of FNB Banking Company, as amended. (Included as Exhibit 3.2 to
the Company's 1992 annual report on Form 10-K.)
4.1 See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation
and Bylaws, as amended, which define the rights of the holders of
Common Stock of FNB Banking Company.
21.0 Subsidiaries of FNB Banking Company.
24.0 A Power of Attorney is set forth on the signature pages to this Form
10-KSB.
27.0 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
None.
-27-
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
(WITH INDEPENDENT ACCOUNTANTS' REPORT THEREON)
<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, 1999 and 1998, 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,
1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Atlanta, Georgia
January 14, 2000
F-1
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Assets
------
1999 1998
---- ----
<S> <C> <C>
Cash and due from banks, including reserve requirements of
$1,521,000 and $2,104,000 $ 16,298,540 13,000,934
Federal funds sold 7,026,547 215,700
----------- -----------
Cash and cash equivalents 23,325,087 13,216,634
----------- -----------
Interest-bearing deposits with other banks 500,000 500,000
Investment securities available for sale 31,180,375 21,571,333
Investment securities held to maturity (market value of $7,439,648) - 7,078,893
Other investments 721,600 825,700
Mortgage loans held for sale 693,979 2,549,425
Loans, net 153,486,630 146,864,199
Premises and equipment, net 8,007,718 8,271,551
Accrued interest receivable and other assets 1,795,534 1,904,180
----------- -----------
$ 219,710,923 202,781,915
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 29,276,860 28,935,817
Interest-bearing demand 44,077,892 38,966,906
Savings 18,789,378 16,654,317
Time 85,641,717 85,045,580
----------- -----------
Total deposits 177,785,847 169,602,620
Securities sold under repurchase agreements 9,391,076 4,941,781
FHLB advances 8,625,000 2,392,857
Note payable 277,779 444,446
Accrued interest payable and accrued liabilities 785,833 1,842,081
----------- -----------
Total liabilities 196,865,535 179,223,785
----------- -----------
Commitments
Stockholders' equity:
Common stock, par value $1; 5,000,000 shares authorized; 788,924
and 807,800 shares issued and outstanding 788,924 807,800
Retained earnings 22,129,812 21,752,798
Accumulated other comprehensive income (loss) (73,348) 997,532
----------- -----------
Total stockholders' equity 22,845,388 23,558,130
----------- -----------
$ 219,710,923 202,781,915
=========== ===========
</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, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 15,481,198 15,703,957 14,904,480
Interest on federal funds sold 421,559 327,739 206,824
Interest-bearing deposits in other banks 54,205 72,279 20,283
Interest on investment securities:
Tax-exempt 411,914 357,792 395,958
Taxable 1,348,809 1,181,120 943,775
Dividends on other investments 113,083 98,801 76,634
---------- ---------- ----------
Total interest income 17,830,768 17,741,688 16,547,954
---------- ---------- ----------
Interest expense:
Deposits 6,092,923 6,120,443 5,368,750
Note payable 24,854 38,488 50,419
Other 373,971 235,907 451,157
---------- ---------- ----------
Total interest expense 6,491,748 6,394,838 5,870,326
---------- ---------- ----------
Net interest income 11,339,020 11,346,850 10,677,628
Provision for loan losses 1,460,332 530,075 718,450
---------- ---------- ----------
Net interest income after provision for loan losses 9,878,688 10,816,775 9,959,178
---------- ---------- ----------
Other operating income:
Service charges 1,529,482 1,459,869 1,533,384
Fees for trust services 120,000 195,000 180,000
Securities gains (losses), net (42,720) 11,535 8,171
Other 680,652 678,875 537,169
---------- ---------- ----------
Total other operating income 2,287,414 2,345,279 2,258,724
---------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 5,210,827 4,948,279 4,602,151
Occupancy and equipment 1,633,812 1,546,527 1,297,615
Miscellaneous 2,266,995 2,281,255 2,045,722
---------- ---------- ----------
Total other operating expenses 9,111,634 8,776,061 7,945,488
---------- ---------- ----------
Earnings before income taxes 3,054,468 4,385,993 4,272,414
Income taxes 950,830 1,465,534 1,445,679
---------- ---------- ----------
Net earnings $ 2,103,638 2,920,459 2,826,735
========== ========== ==========
Net earnings per share $ 2.64 3.62 3.50
========== ========= ===============
</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, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss) Total
----- -------- ------------- -----
<S> <C> <C> <C> <C>
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 - 0 762,987 762,987
------- ---------- --------- ----------
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
Net earnings - 2,103,638 - 2,103,638
Cash dividends declared of $1.25 per share - (990,459) - (990,459)
Shares repurchased and retired (18,876) (736,165) - (755,041)
Change in accumulated other comprehensive
income (loss) - - (1,070,880) (1,070,880)
------- ---------- --------- ----------
Balance, December 31, 1999 $ 788,924 22,129,812 (73,348) 22,845,388
======= ========== ========== ==========
</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, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net earnings $ 2,103,638 2,920,459 2,826,735
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available for sale:
Holding gains (losses) arising during period, net of tax
of $672,579, $168,549 and $470,743 (1,097,366) 275,000 768,053
Reclassification adjustment for (gains) losses included
in net earnings, net of tax of $16,234, $4,384 and $3,105 26,486 (7,151) (5,066)
--------- --------- ---------
Total other comprehensive income (loss) (1,070,880) 267,849 762,987
--------- --------- ---------
Comprehensive income $ 1,032,758 3,188,308 3,589,722
========= ========= =========
</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, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,103,638 2,920,459 2,826,735
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation, amortization and accretion 637,710 556,408 441,298
Provision for loan losses 1,460,332 530,075 718,450
Provision for losses on sales of other real estate
owned and repossessed collateral - - 193
Provision for deferred income taxes (230,552) 191,748 (282,482)
Provision for writedown of investment security 40,000 - -
(Gains) losses on sales of investment securities 2,720 (11,535) (8,171)
Losses on disposals of premises and equipment - 35,073 10,800
Gain on sale of other real estate and repossessed collateral (87,596) - (15,925)
Change in:
Mortgage loans held for sale 1,855,446 (1,899,075) 321,926
Interest receivable (116,235) (45,116) (32,297)
Interest payable (28,806) (11,006) 117,378
Other, net 88,233 (421,329) 49,958
---------- ---------- ----------
Net cash provided by operating activities 5,724,890 1,845,702 4,147,863
---------- ---------- ----------
Cash flows from investing activities:
Change in interest-bearing deposits with other banks - - (500,000)
Proceeds from sales of investment securities
available for sale 620,974 1,942,216 3,084,938
Proceeds from calls and maturities of investment securities
held to maturity 483,671 2,328,080 2,837,125
Proceeds from calls and maturities of investment securities
available for sale 7,348,800 4,599,952 2,054,715
Purchase of investment securities available for sale (12,764,523) (15,030,084) (6,088,269)
Purchase of other investments - - (196,800)
Proceeds from calls of other investments 104,100 - -
Net change in loans (7,986,794) (9,096,458) (12,924,571)
Proceeds from disposals of premises and equipment 14,815 10,123 3,260
Additions to premises and equipment (377,708) (1,954,813) (1,235,115)
Proceeds from sales of other real estate and
repossessed collateral - 141,325 59,170
---------- ---------- ----------
Net cash used by investing activities $ (12,556,665) (17,059,659) (12,905,547)
---------- ---------- ----------
</TABLE>
F-6
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net change in demand and savings deposits $ 7,587,090 648,306 5,705,056
Net change in time deposits 596,137 4,578,246 17,627,638
Net change in securities sold under repurchase agreements 4,449,295 1,600,281 (1,420,410)
Proceeds from FHLB advances 7,500,000 1,250,000 4,000,000
Repayments of FHLB advances (1,267,857) (285,714) (6,785,715)
Repayments of note payable (166,667) (166,666) (166,667)
Payment of cash dividends (1,002,729) (969,360) (888,580)
Repurchase and retirement of common stock (755,041) - -
---------- ---------- ----------
Net cash provided by financing activities 16,940,228 6,655,093 18,071,322
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 10,108,453 (8,558,864) 9,313,638
Cash and cash equivalents at beginning of year 13,216,634 21,775,498 12,461,860
---------- ---------- ----------
Cash and cash equivalents at end of year $ 23,325,087 13,216,634 21,775,498
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 6,520,554 6,405,844 5,752,948
Income taxes $ 993,000 1,488,000 1,645,000
Noncash investing and financing activities:
Transfers of other investment securities at cost
upon application of SFAS 115 $ - - 526,010
Transfer of investment securities held to maturity
to available for sale $ 6,595,694 - -
Change in net unrealized (gains) losses on
investment securities available for sale,
net of tax $ 1,070,880 (267,849) (762,987)
Transfers of loans to other real estate $ 236,583 208,372 12,437
Financed sales of other real estate $ 332,552 33,983 -
Change in dividends payable $ 12,270 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. Certain 1997 and 1998 amounts have been
reclassified to conform to the 1999 presentation.
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, 1999 and 1998 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.
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, 1999 and 1998.
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
Securities Sold Under Repurchase Agreements
-------------------------------------------
Securities sold under repurchase agreements are treated as financing
activities and are carried at the amounts at which the securities will be
subsequently reacquired as specified in the respective agreements.
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
-----------------------------
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 1999, 1998 and 1997, respectively are based on 796,074,
807,800 and 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
--------------------
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. 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. In
1999 the Bank transferred all held to maturity investment securities to
available for sale under this provision of SFAS No. 133. The held to
maturity securities had amortized cost of $6,600,000 and net unrealized
gains of $6,100. The result of the transfer was to increase stockholders'
equity by $4,000 which represented the net of tax effect of the unrealized
gains associated with the held to maturity investments transfered. There
were no other material impacts due to the adoption of SFAS No. 133.
(2) INVESTMENT SECURITIES
Investment securities at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES AVAILABLE FOR SALE: Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agencies $ 13,986,476 155 642,096 13,344,535
State, county and municipal 8,432,365 136,673 236,356 8,332,682
Mortgage-backed securities 8,353,829 6,704 224,082 8,136,451
Equity securities 526,010 840,697 - 1,366,707
---------- ------- --------- ----------
Total $ 31,298,680 984,229 1,102,534 31,180,375
========== ======= ========= ==========
December 31, 1998
-----------------
SECURITIES HELD TO MATURITY: Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
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
========= ======= ======= =========
</TABLE>
F-11
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES, CONTINUED
<TABLE>
<CAPTION>
December 31, 1998
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES AVAILABLE FOR SALE: Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
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>
The amortized cost and fair value of investment securities available for sale at
December 31, 1999, 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.
Securities Available
for Sale
--------
Amortized Estimated
Cost Fair Value
---- ----------
U.S. Government agencies:
Within 1 year $ 500,000 500,155
1 to 5 years 9,986,476 9,524,455
5 to 10 years 3,500,000 3,319,925
---------- ----------
13,986,476 13,344,535
========== ==========
State, county and municipal:
Within 1 year 235,000 235,000
1 to 5 years 2,659,999 2,735,687
5 to 10 years 3,218,148 3,214,778
More than 10 years 2,319,218 2,147,217
--------- ---------
8,432,365 8,332,682
========= =========
Total securities other than mortgage-
backed securities:
Within 1 year 735,000 735,155
1 to 5 years 12,646,475 12,260,142
5 to 10 years 6,718,148 6,534,703
More than 10 years 2,319,218 2,147,217
Mortgage-backed securities 8,353,829 8,136,451
Equity securities 526,010 1,366,707
---------- ----------
$ 31,298,680 31,180,375
========== ==========
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 1999, 1998 and 1997.
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 1999, 1998,
and 1997 were $620,974, $1,942,216 and $3,084,938, respectively. Gross
losses of $2,720, $15,227 and $13,729 for 1999, 1998, and 1997,
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. In late 1999 an investment
security was considered in default and written down $40,000 which is
included in securities losses in the statement of earnings. During 1997,
the Company received $21,900 on an investment security that was in default
and written down prior to 1992. The amount received in excess of the
remaining cost basis resulted in recovery of $21,900 in 1997. This
recovery is included with securities gains in the statements of earnings.
Securities with a carrying value of $23,186,000 and $19,127,000 at
December 31, 1999 and 1998, respectively, were pledged to secure public
deposits and for other purposes.
(3) LOANS
Major classifications of loans at December 31, 1999 and 1998 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 76,376,867 69,820,797
Real estate - construction 8,788,603 5,005,340
Real estate - mortgage 42,188,877 44,170,013
Consumer 29,041,549 29,936,839
----------- -----------
Total loans 156,395,896 148,932,989
Less: Allowance for loan losses 2,588,697 1,707,913
Unearned interest and fees 320,569 360,877
----------- -----------
Net loans $ 153,486,630 146,864,199
=========== ===========
</TABLE>
The Company grants loans and extensions of credit to individuals and a
variety of firms and corporations located in its trade area, primarily
Spalding County, Georgia and surrounding counties. Although the Company has
a diversified loan portfolio, a substantial portion of the loan portfolio is
collateralized by improved and unimproved real estate and is dependent upon
the real estate market in this geographical area.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 1,707,913 2,012,795 1,422,603
Amounts charged off (839,010) (1,031,039) (394,245)
Recoveries on amounts previously charged off 259,462 196,082 265,987
Provision charged to operating expenses 1,460,332 530,075 718,450
--------- ---------- ----------
Balance at end of year $ 2,588,697 1,707,913 2,012,795
========= ========= =========
</TABLE>
The Company was servicing approximately $15,760,000 and $19,200,000 of
mortgage loans for the Federal Home Loan Mortgage Corporation at December
31, 1999 and 1998, 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, 1999 and 1998, are summarized as
follows:
1999 1998
---- ----
Land and improvements $ 1,385,125 1,385,125
Buildings and improvements 7,377,489 6,839,981
Furniture and equipment 3,995,361 4,246,150
Construction in progress - 504,173
---------- ----------
12,757,975 12,975,429
Less: Accumulated depreciation 4,750,257 4,703,878
---------- ----------
$ 8,007,718 8,271,551
========== ==========
Depreciation expense was $626,726, $504,747 and $434,316 for the years
ended December 31, 1999, 1998 and 1997, respectively.
(5) DEPOSITS
The aggregate amount of time deposit accounts with a minimum denomination
of $100,000 was approximately $24,482,000 and $26,145,000 at December 31,
1999 and 1998, respectively. Deposits from related parties totaled
approximately $3,552,000 and $2,637,000 at December 31, 1999 and 1998,
respectively.
At December 31, 1999, the scheduled maturities of time deposits were as
follows:
2000 $ 64,044,125
2001 11,507,387
2002 3,278,178
2003 4,059,562
2004 2,752,465
----------
$ 85,641,717
(6) NOTE PAYABLE
Note payable at December 31, 1999 and 1998, consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Note payable, due in monthly installments of $13,889
plus interest at 70% of the prime interest rate
through August 1, 2001, collateralized by certain
land and buildings. $ 277,779 444,446
</TABLE>
Aggregate maturities required on the note payable at December 31, 1999,
were as follows:
2000 $ 166,668
2001 111,111
-------
$ 277,779
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, 1999, the Bank has an advance payable of $1,125,000 with a
fixed interest rate of 5.50% and interest payable monthly with equal
principal payments due quarterly until maturity in 2008. The Bank has an
advance payable of $7,500,000 with a fixed interest rate of 5.98% and
interest payable monthly with principal due at maturity in January 2000.
(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 has been terminated and had no assets as of December 31, 1998.
The components of net pension cost for the year ended December 31, 1997,
were as follows:
1997
----
Service cost for benefits earned $ 177,324
Interest cost on projected benefit
obligations 239,764
Actual return on plan assets (379,899)
Net amortization and deferral 126,335
-------
Net pension cost $ 163,524
=======
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, subject to minimum service requirements. Effective January 1,
1995, the Company amended the plan to comply with the requirements of
Section 401(k) of the Internal Revenue Code. The Company will match up to
6% of the participants' before tax contributions. The Company's matching
contributions amounted to $307,000, $297,000 and $205,000 in 1999, 1998
and 1997, respectively.
F-15
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit risk in excess
of the amount recognized in the balance sheet. The contract amounts of
those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by
the other party for commitments to extend credit, standby letters of
credit and financial guarantees written is represented by the contractual
amount of those instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.
In some cases, the Company does require collateral or other security to
support financial instruments with credit risk.
<TABLE>
<CAPTION>
Approximate
Contractual
Amount
------
1999 1998
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent credit
risk:
Commitments to extend credit $ 28,152,000 25,500,000
Standby letters of credit and financial guarantees written $ 953,000 873,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company, upon extension of
credit is based on management's credit evaluation. Collateral held varies
but may include unimproved and improved real estate, certificates of
deposit, or personal property.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers. Letters of credit at December 31, 1999 are
approximately 94% collateralized.
(10) DIVIDEND LIMITATIONS
Dividends paid by the Bank are the primary source of funds available to
the Company. Banking regulations limit the amount of dividends that may be
paid without prior approval of the regulatory authorities. The amount of
dividends the Bank may pay in 2000 without prior approval is approximately
$2,208,000 plus 2000 earnings of the Bank.
F-16
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) INCOME TAXES
The components of income tax expense for the years ended December 31,
1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current $ 1,181,382 1,273,786 1,728,161
Deferred (230,552) 191,748 (282,482)
--------- ---------- ---------
$ 950,830 1,465,534 1,445,679
========= ========= =========
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:
1999 1998 1997
---- ---- ----
Pretax income at statutory rates $ 1,038,519 1,491,238 1,452,620
Add (deduct):
Tax-exempt interest income (140,051) (130,297) (139,939)
Nondeductible interest expense 16,104 14,539 15,024
Other 36,258 90,054 117,974
--------- --------- ---------
$ 950,830 1,465,534 1,445,679
========= ========= =========
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred tax
asset (liability).
1999 1998
---- ----
Deferred income tax assets:
Allowance for loan losses $ 827,474 464,807
Other 15,165 92,540
-------- ----------
Total gross deferred income tax assets 842,639 557,347
------- ----------
Deferred income tax liabilities:
Net unrealized gain on investment securities 44,955 (611,391)
Premises and equipment (656,122) (601,382)
------- -----------
Total gross deferred income tax liabilities (611,167) (1,212,773)
------- ----------
Net deferred income tax asset (liability) $ 231,472 (655,426)
======= ==========
</TABLE>
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 1999:
Beginning balance $ 6,245,413
Loans advanced 6,281,849
Repayments (5,337,747)
---------
Ending balance $ 7,189,515
=========
(13) MISCELLANEOUS OPERATING EXPENSES
Components of other operating expenses which are greater than 1% of
interest income and other operating income are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Stationery and supplies $ 244,249 250,151 257,523
Data processing $ 236,970 284,322 337,270
</TABLE>
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized on the face of the balance sheet, for which it
is practicable to estimate that value. The assumptions used in the
estimation of the fair value of the Company's financial instruments are
detailed below. Where quoted prices are not available, fair values are
based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of the Company, but rather a good-faith
estimate of the increase or decrease in value of financial instruments
held by the Company since purchase, origination, or issuance.
Cash and Cash Equivalents
-------------------------
For cash and due from banks and federal funds sold, the carrying amount
is a reasonable estimate of fair value.
Interest-bearing Deposits with Other Banks
------------------------------------------
The carrying value of interest-bearing deposits with other banks is a
reasonable estimate of fair value.
Investment Securities
---------------------
Fair values for investment securities are based on quoted market
prices.
Other Investments
-----------------
The carrying value of other investments approximates fair value.
Loans and Mortgage Loans Held for Sale
--------------------------------------
The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. For variable rate
loans, the carrying amount is a reasonable estimate of fair value.
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.
Securities Sold Under Repurchase Agreements
-------------------------------------------
The carrying value of securities sold under repurchase agreements
approximates fair value.
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, or were recently executed, 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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 23,325,087 23,325,087 13,216,634 13,216,634
Interest -bearing deposits with
other banks 500,000 500,000 500,000 500,000
Investment securities 31,180,375 31,180,375 28,650,226 29,010,981
Other investments 721,600 721,600 825,700 825,700
Loans and mortgage loans held
for sale 154,180,609 154,772,825 149,413,624 148,308,428
Liabilities:
Deposits 177,785,847 178,193,631 169,602,620 170,384,781
Securities sold under repurchase
agreements 9,391,076 9,391,076 4,941,781 4,941,781
FHLB advances 8,625,000 8,566,515 2,392,857 2,432,455
Notes payable 277,779 277,779 444,446 444,446
Unrecognized financial instruments:
Commitments to extend credit 28,152,000 28,152,000 25,500,000 25,500,000
Standby letters of credit $ 953,000 953,000 873,000 873,000
</TABLE>
F-19
<PAGE>
FNB BANKING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) REGULATORY MATTERS
The Company and the Bank are 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 Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classifications 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 Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1999 and 1998, 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 1999
and 1998 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, 1999
Total Risk-Based Capital (to Risk
Weighted Assets):
Consolidated $ 24,916,880 15.59% 12,788,124 8.00% N/A N/A
FNB Griffin $ 23,992,915 15.04% 12,764,096 8.00% 15,955,120 10.00%
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 22,918,736 14.34% 6,394,062 4.00% N/A N/A
FNB Griffin $ 21,998,525 13.79% 6,382,048 4.00% 9,573,072 6.00%
Tier I Capital (to Average Assets):
Consolidated $ 22,918,736 10.85% 8,449,338 4.00% N/A N/A
FNB Griffin $ 21,998,525 10.51% 8,375,017 4.00% 10,468,771 5.00%
AS OF DECEMBER 31, 1998
Total Risk-Based Capital (to Risk
Weighted Assets):
Consolidated $ 24,268,215 16.6% 11,695,525 8.00% N/A N/A
FNB Griffin $ 23,432,413 15.1% 12,414,523 8.00% 15,518,154 10.00%
Tier I Capital (to Risk Weighted Assets):
Consolidated $ 22,560,598 15.4% 5,859,896 4.00% N/A N/A
FNB Griffin $ 21,724,795 14.0% 6,207,084 4.00% 9,310,626 6.00%
Tier I Capital (to Average Assets):
Consolidated $ 22,560,598 11.4% 7,915,999 4.00% N/A N/A
FNB Griffin $ 21,724,795 11.1% 7,828,755 4.00% 9,785,944 5.00%
</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, 1999 and 1998
Assets
------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash $ 161,203 368,728
Investment in First National Bank of Griffin 21,403,945 21,804,566
Investment securities available for sale 1,366,707 2,006,270
Other assets 744,282 467,842
---------- ----------
$ 23,676,137 24,647,406
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ 317,949 564,206
Dividends payable 512,800 525,070
Stockholders' equity 22,845,388 23,558,130
---------- ----------
$ 23,676,137 24,647,406
========== ==========
</TABLE>
Statements of Earnings
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income:
Interest and dividends $ 58,311 45,658 31,514
Other - 129,912 220,148
Dividends from subsidiary 1,865,460 1,009,750 888,580
--------- --------- ---------
1,923,771 1,185,320 1,140,242
--------- --------- ---------
Other operating expenses 93,863 214,209 239,510
--------- --------- ----------
Earnings before income taxes and equity in undistributed
earnings of bank subsidiary 1,829,908 971,111 900,732
Income tax benefit - 14,667 -
--------- --------- ---------
Earnings before equity in undistributed earnings of
bank subsidiary 1,829,908 985,778 900,732
Equity in undistributed earnings of bank subsidiary 273,730 1,934,681 1,926,003
--------- --------- ---------
Net earnings $ 2,103,638 2,920,459 2,826,735
========= ========= =========
</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, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,103,638 2,920,459 2,826,735
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Equity in undistributed earnings of bank subsidiary (273,730) (1,934,681) (1,926,003)
Depreciation - 17,537 35,073
Change in other assets and liabilities, net (279,663) (24,484) 50,421
--------- ---------- ---------
Net cash provided by operating activities 1,550,245 978,831 986,226
--------- --------- ----------
Cash flows from financing activities:
Dividends paid (1,002,729) (969,360) (888,580)
Purchase and retirement of stock (755,041) - -
---------- --------- ----------
Net cash provided (used) by financing activities (1,757,770) (969,360) (888,580)
---------- ---------- ----------
Net increase (decrease) in cash (207,525) 9,471 97,646
Cash at beginning of the period 368,728 359,257 261,611
---------- --------- ---------
Cash at end of the period $ 161,203 368,728 359,257
</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, 2000
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 March 30, 2000
John T. Newton, Jr.
/s/ C.A. Knowles President, Treasurer, and March 30, 2000
C.A. Knowles Director (principal executive officer)
/s/ William K. Holmes Assistant Treasurer (principal March 30, 2000
William K. Holmes accounting and financial officer)
/s/ James A. Mankin _ Director and Secretary March 30, 2000
James A. Mankin
/s/ Ernest F. Carlisle, III Director March 30, 2000
Ernest F. Carlisle, III
/s/ J. Henry Cheatham, III Director March 30, 2000
J. Henry Cheatham, III
/s/ James G. Cheatham Director March 30, 2000
James G. Cheatham
/s/ David G. Newton Director March 30, 2000
David G. Newton
</TABLE>
-28-
<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)
<PAGE>
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
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 16,298,540
<INT-BEARING-DEPOSITS> 157,900,064
<FED-FUNDS-SOLD> 7,026,547
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,180,375
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 153,486,630
<ALLOWANCE> 2,588,697
<TOTAL-ASSETS> 219,710,923
<DEPOSITS> 187,176,924
<SHORT-TERM> 0
<LIABILITIES-OTHER> 785,833
<LONG-TERM> 8,902,779
0
0
<COMMON> 788,924
<OTHER-SE> 22,056,464
<TOTAL-LIABILITIES-AND-EQUITY> 219,710,923
<INTEREST-LOAN> 15,481,198
<INTEREST-INVEST> 1,928,012
<INTEREST-OTHER> 421,559
<INTEREST-TOTAL> 17,830,768
<INTEREST-DEPOSIT> 6,092,923
<INTEREST-EXPENSE> 6,491,748
<INTEREST-INCOME-NET> 11,339,020
<LOAN-LOSSES> 1,460,332
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,111,634
<INCOME-PRETAX> 3,054,469
<INCOME-PRE-EXTRAORDINARY> 3,054,469
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,103,638
<EPS-BASIC> 2.64
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.92
<LOANS-NON> 1,342,000
<LOANS-PAST> 281,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,707,913
<CHARGE-OFFS> 839,009
<RECOVERIES> 259,461
<ALLOWANCE-CLOSE> 2,588,697
<ALLOWANCE-DOMESTIC> 2,588,697
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
