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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 33-37078
FNC BANCORP, INC. (A GEORGIA CORPORATION)
I.R.S. EMPLOYER IDENTIFICATION NUMBER 58-1910615
420 SOUTH MADISON AVENUE, DOUGLAS, GEORGIA 31533
TELEPHONE NUMBER: (912) 384-1100
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, Par Value $1 Per Share
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No ____
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not 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. [X]
The registrant's total revenues for the fiscal year ended December 31, 1999 were
$6,002,548.
As of March 1, 2000, registrant had outstanding 416,136 shares of common stock,
$1 par value per share, which is registrant's only class of common stock. There
is no established market for the common stock of the registrant. Therefore, the
aggregate market value of the voting stock held by nonaffiliates of the
registrant is not known.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I.
ITEM 1. DESCRIPTION OF BUSINESS
The Company
FNC Bancorp, Inc. was incorporated as a Georgia business corporation on
September 19, 1990, to serve as a bank holding company for First National Bank
of Coffee County. The Bank began operations on September 23, 1991, and is the
sole subsidiary of the Company.
The Company's offices are located at 420 South Madison Avenue, Douglas,
Georgia and its telephone number is (912) 384-1100. The Company maintains its
offices at the office of First National Bank of Coffee County at this address.
The Company's principal business is the ownership and management of the
Bank. The Company was organized to facilitate the Bank's ability to serve its
current and future customers' requirements for financial services. The holding
company structure provides flexibility for expansion of the Company's banking
business through the possible acquisition of other financial institutions and
the provision of additional capital to the Bank. For example, we may assist the
Bank in maintaining its required capital ratios by borrowing money and
contributing the proceeds of that debt to the Bank as primary capital.
The Bank
General
On August 15, 1990, the Organizers of the Company and the Bank filed an
application with the Office of the Comptroller of the Currency to charter the
Bank as a national banking association under the name "First National Bank of
Coffee County" to conduct business in Douglas, Coffee County, Georgia and the
surrounding area. The Organizers of the Company and the Bank were Robert L.
Cation, Milton G. Clements, William C. Ellis, Jr., Ralph G. Evans, A. Curtis
Farrar, Jr., Norman E. Fletcher and Timothy J. Palmer. The Bank was authorized
to commence its banking business by the OCC issuing a national bank charter for
the Bank. Operations commenced on September 23, 1991. The OCC granted
preliminary approval of the application on December 14, 1990. Final approval of
the application was subject to, among other conditions, capitalization of the
Bank at a minimum of $3,500,000 prior to the Bank opening for business.
The Bank's business consists primarily of attracting deposits from the
general public and, with these and other funds, making real estate loans,
consumer loans, business loans, residential and commercial construction loans
and other investments. In addition to deposits, sources of funds for the Bank's
loans and other investments include amortization and prepayment of loans, sales
of participation in loans, sales of investment securities and may include in the
future, sales of loans. The principal sources of income for the Bank is interest
and fees collected on loans and, to a lesser extent, interest and dividends
collected on other investments.
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Philosophy and Strategy
The Bank serves as a community bank in a market dominated by large regional
banks. The philosophy and strategy of the Bank is to emphasize its local
ownership and management and its prompt and responsive personal service in order
to attract customers and acquire a market share now controlled by other
financial institutions in the Bank's market area. Most of the shares sold in the
Company's public offering were sold in the Coffee County area, and this local
ownership has helped to provide an immediate customer base. The Bank's President
and the other Organizers also have significant contacts in Coffee County, which
has provided additional customers and is expected to continue to do so.
The Bank's strategy is to attract as customers small to medium-size
manufacturing, retail, professional and industrial businesses as well as middle-
to upper-income consumers and professionals. These customers typically provide a
higher level of profitability and a lower degree of risk than do customers of
the larger banks and are prime customers of smaller banks. As more and more
small banks are merged out of existence, the opportunities to fill the void
created by these mergers are enhanced for small de novo banks that have both
adequate capital resources and experienced management. The Bank's President has
experience in servicing these types of customers at other financial institutions
and uses that experience to continue to provide services to these types of
customers. See "Item 10. Directors and Executive Officers of the Registrant."
Management of the Bank also has an active officer and director call program to
describe the products, services and philosophy of the Bank to both existing and
prospective customers.
Market Area
The Bank's primary service area is Coffee County, Georgia, and the Bank is
located in Douglas, the county seat and largest city in the county. The Bank's
secondary service area includes the surrounding areas of Atkinson, Bacon, Ben
Hill, Berrien, Irwin, Jeff Davis and Ware Counties. Access to the area is
provided by U.S. Highways 441 and 221 and State Highways 135 and 158, all
intersecting in Douglas. Douglas also has access to four interstate highway
systems, I-10, I-16, I-75, and I-95, all within 100 miles of the city. The area
is comprised of a diversified mix of commercial, retail, industrial,
agricultural and residential areas.
Population in Coffee County was approximately 29,592 in 1990 and was
estimated at 34,298 in 1998, an increase of almost 16% in eight years. The
population is projected to be 35,880 by 2001. The population is well distributed
by age and is slightly more than 51% female. The median age of the population is
32.2 years.
Services
Loan Portfolio. As a full service commercial bank, the Bank offers a wide range
of commercial loans, consumer loans and real estate loans consisting primarily
of short and intermediate-term residential lot loans, residential construction
loans, commercial construction loans, agricultural loans and permanent
residential and commercial real estate loans. Commercial loans consist of loans
made to individual, corporate and partnership borrowers for a variety of
business purposes and includes Small Business Administration loans. Consumer
loans consist primarily of installment loans to individuals for personal, family
and household purposes, including loans for automobiles, home improvements and
investments.
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A majority of the Bank's construction loans consists of residential
construction loans. These loans typically involve a higher degree of risk to the
Bank than many other types of loans due to the borrower's greater sensitivity to
the effect that changes in economic conditions may have on the success of a
project. The Bank intends to compensate for the increased risk in part by
charging higher interest rates and fees on these types of loans. The Bank also
offers residential first mortgage loan products with fifteen year maximum terms.
Long-term fixed rate mortgage loans are originated by the Bank for a
correspondent Bank and are not held in the Bank's loan portfolio. All
construction, acquisition and development loans will be limited to 80% of the
appraised value of the property upon completion and will be secured by the
related real estate and construction property.
The Bank intends to originate variable rate loans and short term fixed rate
consumer loans of five years or less. See "Asset and Liability Management"
below.
Deposits. The Bank offers a wide range of commercial and consumer deposit
services that are typically available in most banks and savings institutions,
including interest bearing and noninterest-bearing checking accounts, money
market checking accounts, negotiable order of withdrawal ("NOW") accounts and
savings and other time deposits of various types ranging from daily money market
accounts to longer-term certificates of deposit. In addition, retirement
accounts such as Individual Retirement Accounts are available. All depositors
are insured by the Federal Deposit Insurance Corporation up to the maximum
amount permitted by law. The Bank's depositors consist of individuals,
businesses and their employees within the Bank's market area, obtained through
personal solicitation by the Bank's officers and directors, direct mail
solicitation and advertisement in the local media. The Bank pays competitive
interest rates on time and savings deposits and has a service charge fee
schedule competitive with other financial institutions in the Bank's market
area, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges and other similar
fees.
Other Services. The Bank provides other services such as official bank checks
and money orders, MasterCard and Visa credit cards, safe deposit boxes,
travelers' checks, bank by mail, direct deposit of payroll and social security
checks, U.S. Savings Bonds, wire transfer of funds, a night depository and ATM
access. The Bank also provides an array of personalized banking services to
middle- to upper-income individuals, with emphasis on knowledge of the
individual financial needs and objectives of these customers and timely
response. The Bank seeks to promote long-term relationships with these types of
customers.
Correspondent Banking
Correspondent banking involves the provision of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Bank has correspondent banking relationships with
larger commercial banks for investments, liquidity, federal funds lines, loan
participation, check clearing services and consulting services. These include
Bankers Bank (Atlanta, Georgia), Regions Bank (Gainesville, Georgia) and
SunTrust Bank (Atlanta, Georgia), Federal Reserve Bank (Atlanta, Georgia), and
Federal Home Loan Bank (Atlanta, Georgia).
The Bank sells loan participation to one or more correspondent or area
banks with respect to loans that exceed the Bank's lending limit.
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Asset and Liability Management
The primary assets of the Bank consists of its loan and investment
portfolios. The Bank's loan portfolio consists primarily of variable rate loans
or fixed rate loans that mature in less than five years. The majority of the
Bank's securities investments consist of obligations of the United States,
obligations guaranteed as to principal and interest by the United States, other
taxable securities and certain obligations of states and municipalities. The
Bank engages in federal funds transactions with its principal correspondent
banks and currently acts primarily as a net seller of such funds. The sale of
federal funds amounts to a short-term loan from the Bank to another bank.
Ultimately, the Bank will strive to maintain a loan portfolio equal to
approximately 75% of assets and an investment portfolio equal to approximately
16% of the assets, with the remaining 9% of the Bank's assets consisting of
cash, fixed assets and other assets.
Deposit accounts, including transaction accounts, time deposits and
certificates of deposit, represent the majority of the liabilities of the Bank.
The Bank does not seek brokered certificates of deposit or other types of
brokered deposits.
Efforts are made generally to match maturities and rates of the loan and
investment portfolios with those deposits, although exact matching is not
possible. Substantially all of the loans with maturities in excess of one year
are negotiated on a variable interest rate basis or with a demand repayment
provision. By pricing loans on a variable rate structure or by keeping the
maturities of the loan and investment portfolios relatively short term, the Bank
is able to negotiate loan rates or to reinvest securities proceeds at prevailing
market rates, thereby helping maintain a generally consistent spread over the
interest rates paid by the Bank on the deposits which are used to fund the loan
and investment portfolios.
The Bank has established policies and procedures designed to ensure that an
acceptable asset/liability mix is monitored on a timely basis, with a report
reflecting the interest-sensitive liabilities being prepared and presented to
the Bank's Asset/Liability Committee on a quarterly basis. The objective of this
policy is to control interest-sensitive assets and liabilities so as to minimize
the impact of substantial movements in interest rates on the Bank's earnings.
The Bank has developed an internal lending policy for the Bank, including
appropriate lending limits for each officer of the Bank based upon such criteria
as the experience of the individual officer. Management has appropriate
procedures pertaining to lending and has established a lending limit above which
the approval of the Board of Directors is required. Additionally, the Bank is
subject to certain statutory requirements which generally provide that the Bank
may grant loans and extensions of credit that are not fully secured to a single
borrower up to $1,011,000 (15% of the Bank's unimpaired capital and surplus).
The Bank also may grant additional loans and extensions of credit to a single
borrower up to $674,000 (10% of the bank's unimpaired capital and surplus),
provided such additional loans and extensions of credit are fully secured by
readily marketable collateral.
The Bank does not, as a matter of course, finance purchases of raw land or
speculative commercial or industrial developments. The Bank generally does not
make loans outside of Coffee County and the surrounding seven county market area
and seeks to obtain a broad diversification of loan customers. The Bank will
request correspondent banks to participate in loans when loan amounts exceed the
Bank's legal limits or internal lending policies. See "Correspondent Banking"
above.
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Competition
Banks generally compete with other financial institutions through the
banking products and services offered, the pricing of services, the level of
service provided, the convenience and availability of services and the degree of
expertise and the personal manner in which services are offered. In Coffee
County, other than the Bank, there are branches of six regional banks. These
include SunTrust Bank, SouthTrust Bank, First Liberty Bank, Citizens Security
Bank, Southeastern Bank and Colony Bank Southeast. The Bank encounters
competition from most of these financial institutions. In the conduct of certain
areas of its banking business, the Bank also competes with credit unions,
consumer finance companies, insurance companies, money market mutual funds and
other financial institutions, some of which are not subject to the same degree
of regulation and restrictions imposed upon the Bank.
Many of the Bank's competitors have substantially greater resources and
lending limits than the Bank has and offer certain services, such as trust
services, that the Bank currently does not provide. Moreover, many of these
competitors have numerous branch offices and other facilities in the PSA, a
competitive advantage that the Bank initially does not have. Nevertheless, in
evaluating the competition in the PSA, the management and the Board of Directors
believe that there will be sufficient growth in banking activities for all of
these institutions, including the Bank, to be successful, based in part on an
average annual growth of approximately 5.1% in commercial bank deposits in the
PSA over the last four years. Furthermore, management and the Board of Directors
believe that the extensive banking experience and contacts in the PSA of its
President and the other board members will enable the Bank to compete
effectively without offering unusually high interest rates for deposits or
unusually low interest rates for loans. The Bank's relatively small size permits
it to offer more personalized service than its competitors, which is expected to
provide the Bank with a competitive advantage.
Employees
At December 31, 1999, the Bank employed 35 full-time employees. The Company
has no employees. Holding company duties are performed by bank employees and
where such duties are significant, related compensation and benefit costs are
allocated to and reimbursed by the holding company. The Bank considers its
relationship with its employees to be good. To the extent possible, the Bank
employs persons experienced in the banking profession and persons who are
natives or long time residents of the Coffee County area.
Supervision and Regulation
Both the Company and the Bank are subject to extensive state and Federal
banking regulations that impose restrictions on and provide for general
regulatory oversight of our operations. These laws are generally intended to
protect depositors and not shareholders. The following discussion describes the
material elements of the regulatory framework that applies to us.
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To the extent that the following information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in applicable law or
regulation may have a material effect on the business and prospects of the
Company and the Bank.
The Company
As a bank holding company, the Company is subject to regulation by the
Board of Governors of the Federal Reserve System (the "Federal Reserve")
pursuant to the federal Bank Holding Company Act (the "BHCA") and by the Georgia
Department of Banking and Finance (the "Georgia Department") pursuant to the
Georgia Bank Holding Company Act (the "GBHCA").
The Company is required to file with the Federal Reserve an annual report
and such additional information as the Federal Reserve may require pursuant to
the BHCA. The Federal Reserve also may make examinations of the Company and the
Bank.
The Federal Reserve has established a risk-based and leverage measure of
capital adequacy for bank holding companies that is similar to that adopted by
the OCC for banks.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items,
such as letters of credit and unfunded loan commitments, are assigned to broad
risk categories, each with appropriate risk weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier
2 Capital. Tier 1 Capital generally consists of common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries,
qualifying noncumulative perpetual preferred stock, and a limited amount of
qualifying cumulative perpetual preferred stock, less goodwill and other
specified intangible assets. Tier 1 Capital must equal at least 4% of
risk-weighted assets. Tier 2 Capital generally consists of subordinated debt,
other preferred stock and hybrid capital and a limited amount of loan loss
reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1
Capital.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and other specified
intangible assets, of 3% for bank holding companies that meet certain specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve's risk-based capital measure for market risk. All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4%. The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. The Federal Reserve considers the
leverage ratio and other indicators of capital strength in evaluating proposals
for expansion or new activities.
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If the capital of a bank holding company falls below minimum required
levels, the bank holding company may be denied approval to acquire or establish
additional banks or non-bank businesses, as discussed below. Bank holding
companies may be compelled by bank regulatory authorities to invest additional
capital in the event a subsidiary bank experiences either significant loan
losses or rapid growth of loans or deposits. In addition, the company may be
required to provide additional capital to any additional banks it acquires as a
condition to obtaining the approvals and consents of regulatory authorities in
connection with such acquisitions.
Bank holding companies are required by the BHCA to obtain approval from the
Federal Reserve prior to acquiring, directly or indirectly, ownership or control
of more than 5% of the outstanding shares of any class of voting stock of any
bank or bank holding company. Bank holding companies and their subsidiaries also
are prohibited from acquiring any voting shares of, or interest in, any banks
located outside of the state in which the operations of the bank holding
company's subsidiaries are located unless the acquisition is authorized
specifically by the statutes of the state in which the target is located.
Several southeastern states, including Georgia, have enacted reciprocal
legislation that authorizes interstate acquisitions of banking organizations by
bank holding companies within the southeastern United States, subject to certain
conditions and restrictions. As a result of this legislation, the company may
become a candidate for acquisition by, or may itself seek to acquire, banking
organizations located in those states that have enacted reciprocal legislation.
(See, however, certain restrictions on acquisitions imposed by the GBHCA
discussed below). Additionally, under the BHCA, as amended pursuant to FIRREA
and as implemented by an amendment to the Federal Reserve regulations, a bank
holding company may acquire a savings association, as defined in FIRREA, in any
state without regard to whether the bank holding company can operate a bank in
that state.
The BHCA also prohibits bank holding companies, with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a
bank and from engaging in any business other than banking or managing or
controlling banks or other permissible subsidiaries. The Federal Reserve is
authorized to approve, among other things, the ownership of shares by a bank
holding company in any company the activities of which the Federal Reserve has
determined to be so closely related to banking or to managing or controlling
banks as to be a proper incident thereto. Notice to and review by the Federal
Reserve of such activities would be necessary before the Company could engage in
such activities. The Federal Reserve is empowered to differentiate between
activities that are initiated de novo by a bank holding company or a subsidiary
and activities commenced by acquisition of a going concern.
The Federal Reserve has enforcement powers over bank holding companies and
nonbanking subsidiaries to forestall activities that represent unsafe or unsound
practices or constitute violations of law. These powers may be exercised through
the issuance of cease-and-desist orders or other actions. The Federal Reserve
also is empowered to assess civil money penalties against companies or
individuals who violate the BHCA or orders or regulations thereunder, to order
termination of non-banking activities of non-banking subsidiaries of bank
holding companies and to order termination of ownership and control of a
non-banking subsidiary by a bank holding company. Certain violations may also
result in criminal penalties.
The status of the Company as a registered bank holding company under the
BHCA does not exempt it from certain federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.
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The Bank and the Company is "affiliated" within the meaning of the Federal
Reserve Act. Certain provisions of the Federal Reserve Act establish standards
for the terms of, limit the amount of and establish collateral requirements with
respect to any loans or extensions of credit to, and investments in, affiliates
by the Bank as well as set arms-length criteria for such transactions and for
certain other transactions (including payment by the Bank for services and under
any contract) between the Bank and its affiliates. In addition, related
provisions of the Federal Reserve Act and the Federal Reserve regulations limit
the amounts of, and establish required procedures and credit standards with
respect to, loans and other extensions of credit to officers, directors and
principal shareholders of the Bank, the Company and any subsidiary of the
Company, and to related interests of such persons.
Under Section 106(b) of the Bank Holding Company Act Amendments of 1970 (12
U.S.C. S 1972), the Bank is prohibited from extending credit, selling or leasing
property or furnishing any service to any customer on the condition or
requirement that the customer (i) obtain any additional property, service or
credit from the Company, the Bank or any other subsidiary of the Company, (ii)
refrain from obtaining any property, credit or service from any competitor of
the Company, the Bank or any subsidiary of the Company or (iii) furnish any
credit, property or service to the Company, the Bank or any subsidiary of the
Company.
As a bank holding company, the Company is required to give the Federal
Reserve prior written notice of any purchase or redemption of its outstanding
equity securities if the gross consideration for the purchase or redemption,
when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, is equal to 10% or more of the
Company's consolidated net worth. The Federal Reserve may disapprove such a
purchase or redemption if it determines that the proposal constitutes an unsafe
or unsound practice, would violate any law, regulation, Federal Reserve order or
directive or any condition imposed by, or written agreement with, the Federal
Reserve.
In November 1985, the Federal Reserve adopted its Policy Statement on Cash
Dividends Not Fully Covered by Earnings. The Policy Statement sets forth various
guidelines that the Federal Reserve believes that a bank holding company should
follow in establishing its dividend policy. In general, the Federal Reserve
stated that bank holding companies should not pay dividends except out of
current earnings and unless the prospective rate of earnings retention by the
holding company appears consistent with its capital needs, asset quality and
overall financial condition.
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (the "GLB Act"), which significantly changed the
regulatory structure and oversight of the Company and the Bank. The GLB Act
revises the Bank Holding Company Act and repeals the affiliation provisions of
the Glass-Steagall Act of 1933, permitting a qualifying holding company, called
a "financial holding company", to engage in a full range of financial
activities, including banking, insurance and securities activities, as well as
merchant banking and additional activities that are "financial in nature" or
"incidental" to such financial activities. The GLB Act thus provides expanded
financial affiliation opportunities for existing bank holding companies by
allowing bank holding companies to engage in activities such as securities
underwriting and the underwriting and brokering of insurance products. The GLB
Act also expands passive investments by financial holding companies in any type
of company, financial or nonfinancial, through merchant banking and insurance
company investments. In order for a bank holding company to qualify as a
financial holding company, its subsidiary depository institutions must be
"well-capitalized" and "well-managed" and have at least a "satisfactory" rating
under the Community Reinvestment Act.
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The GLB Act also reforms the regulatory framework of the financial services
industry. Under the GLB Act, financial holding companies are subject to primary
supervision by the FRB, while current federal and state regulators of financial
holding company regulated subsidiaries such as insurers, broker-dealers,
investment companies and banks generally retain their jurisdiction and
authority. In order to implement its underlying purposes, the GLB Act preempts
state laws that restrict the establishment of financial affiliations authorized
or permitted under the GLB Act, subject to specified exceptions for state
insurance regulators. The GLB Act also removes the current blanket exemption for
banks from the broker-dealer registration requirements under the Securities
Exchange Act of 1934, as amended, amends the Investment Company Act of 1940, as
amended, with respect to bank common trust fund and mutual fund activities, and
amends the Investment Advisers Act of 1940, as amended, to require registration
of banks that act as investment advisers to mutual funds.
The provisions of the GLB Act relating to financial holding companies will
become effective 120 days after its enactment, or about March 15, 2000,
excluding the federal preemption provisions, which became effective on the date
of enactment. In January 2000, the FRB and the OCC each issued interim and
proposed rules governing the application process for becoming a financial
holding company or subsidiary of a financial holding company. Additional
regulations are expected from the FRB and the OCC during the year 2000 for the
implementation of the GLB Act.
The Georgia Department has established a minimum level of capital to total
assets of 5%, with certain adjustments, on a consolidated basis for bank holding
companies. The capital guidelines assume adequate liquidity and a moderate
degree of risk in the loan and investment portfolios as well as any off balance
sheet activities. In assessing compliance with the guidelines, therefore, the
Georgia Department reviews the relationship of on and off balance sheet risks to
capital and requires those institutions with high or inordinate levels of risk
to adhere to higher capital standards. Bank holding companies whose operations
involve, or are exposed to high or inordinate degrees of risk are expected to
hold additional capital to compensate for such risks. In addition, bank holding
companies engaging in significant nonbanking activities typically require higher
capital ratios than do banks alone.
The BHCA, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act", repealed the prior statutory restrictions on
interstate acquisitions of banks by bank holding companies, and a bank holding
company located in Georgia may now acquire a bank located in any other state,
and any bank holding company located outside Georgia may lawfully acquire a
Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also provides that, after June 1, 1997,
national and state chartered banks may branch interstate through acquisitions of
banks in other states. By adopting legislation prior to that date, a state has
the ability either to "opt in" (which Georgia has done) and accelerate the date
after which interstate branching is permissible or "opt out" and prohibit
interstate branching altogether.
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The Bank
As a national banking association, the Bank is subject to supervision,
examination and regulation by the OCC under the National Bank Act. It also is a
member of the Federal Reserve System and subject to regulation by the Federal
Reserve under the Federal Reserve Act. The deposits of the Bank are insured by
the FDIC to the full extent provided by law and, therefore, the Bank pays
insurance assessments to, and is subject to regulation and examination by the
FDIC.
The FDIC currently insures the deposits of each member bank to a maximum of
$100,000 per depositor. For this protection, the Bank will pay a semi-annual
statutory assessment and will be subject to the rules and regulations of the
FDIC. The FDIC has the authority to prevent the continuance or development of
unsound and unsafe banking practices. The FDIC is also authorized, among other
things, to approve conversions, mergers, consolidations and assumption of
deposit liability transactions between insured banks and uninsured banks or
institutions, and to prevent capital or surplus diminution in such transactions
where the resulting, continuing, or assumed bank is an insured nonmember state
bank. The FDIC premium rate is set by the Financial Institutions Reform Recovery
and Enforcement Act ("FIRREA"). FIRREA primarily affects the regulation of
savings associations and savings and loan holding companies rather than the
regulation of commercial banks and bank holding companies. However, FIRREA does
contain certain provisions affecting banks and bank holding companies, including
without limitation, provisions affecting deposit insurance premiums, thrift
acquisitions, liability of commonly controlled depository institutions,
receivership and conservatorship rights and procedures and substantially
increased penalties for violation of banking statutes, regulations and orders.
In 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991
(Act) was enacted. The Act affects all federally insured banks, savings banks
and thrifts. The Act contains a $70 billion recapitalization of the Bank
Insurance Fund (BIF) by significantly increasing the amount that the FDIC can
borrow from the Treasury. The FDIC must assess premiums that are sufficient to
give the BIF reserves of $1.25 for each $100 of insured deposits. Additional
significant provisions of the Act include: requiring prompt corrective action by
regulators if minimum capital standards are not met; establishing early
intervention procedures for "significantly" undercapitalized (to be defined by
the FDIC) institutions; limiting FDIC reimbursement of uninsured deposits when
large banks fail; requiring an annual regulatory examination; and imposing
auditing and accounting requirements, including management and auditor reporting
on internal controls over financial reporting and on compliance with laws and
regulations.
The Act requires FDIC-insured depository institutions with assets in excess
of $150 million to file an "annual report" with the federal regulatory agencies
that will be available for public inspection. This requirement can be satisfied
for subsidiaries of a bank holding company by an audit of the consolidated
financial statements of the holding company. In addition, the Act requires that
the annual report must include an auditor's report on management's assertions
regarding the effectiveness of internal controls pertaining to financial
reporting and on agreed upon procedures concerning compliance with specific laws
and regulations designated by federal regulatory agencies. The management and
auditor reporting requirements may be satisfied at the holding company level,
depending upon various criteria for asset levels and CAMEL ratings of the
individual subsidiaries. However, all FDIC-insured depository institutions over
$9 billion will require the additional management and auditor reports.
-11-
<PAGE>
Federal and Georgia laws regulate many aspects of the Bank's operations,
including branch offices, remote facilities, lending limits, borrowing,
permitted investments, declaration of dividends, mergers and acquisitions,
electronic funds transfers, deposits reserve requirements and interest rates
payable on deposits and chargeable on loans. The Bank is subject to applicable
Georgia laws that do not conflict with, or are not preempted by, federal banking
laws, including Georgia laws limiting the maximum allowable rates of interest on
loans and extensions of credit to customers of the Bank.
Similar to the Federal Reserve's capital requirements applicable to the
Company, the OCC has issued risk-based capital rules requiring (i) at least 50%
of a national bank's total capital to consist of common and certain other equity
capital; (ii) assets and off balance sheet items to be weighted according to
risk; (iii) Tier 1 capital to equal or exceed 4% of total assets (see below);
and (iv) the total capital to risk-weighted assets ratio to be 8%.
Under the National Bank Act, if the capital stock of a national bank is
impaired by losses or otherwise, the OCC is authorized to require payment of the
deficiency by assessment upon the bank's shareholders. To the extent necessary,
if any such assessment is not paid by any shareholder after notice, the OCC is
authorized to sell the stock of such shareholder to satisfy the deficiency.
National banks also are subject to legal limitations on the amount of dividends
they can pay. The prior approval of the OCC is required if the total of all
dividends declared by a national bank in any calendar year will exceed such
bank's net profits (as defined by statute) for that year combined with its
retained net profits for the preceding two years, less any required transfers to
surplus or to a fund for the retirement of any preferred stock. Other rules that
are administered by the OCC and that are applicable to national banks relate to
issuance of securities, establishment of branches, limitations on credit to
subsidiaries and other aspects of the business and activities of such
subsidiaries. The OCC has broad authority to prohibit national banks from
engaging in unsafe or unsound banking practices and periodically examines
national banks to determine their compliance with applicable law and
regulations. National banks also must make periodic reports of their condition
to the OCC.
Certain federal legislation, including the Depository Institutions
Deregulation and Monetary Control Act of 1980 and the Garn-St. Germain
Depository Institutions Act of 1982, has had a significant impact upon
competition among financial institutions. In particular, banking laws and
regulations enacted since 1980 have increased substantially the ability of
savings institutions to compete with commercial banks for deposits.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, the federal
banking regulators have established five capital categories; well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. The federal banking regulators have specified by
regulation the relevant capital level for each category.
-12-
<PAGE>
Under the prompt corrective action provisions an institution that (i) has a
Total Risk-Based Capital Ratio of 10% or greater, a Tier 1 Risk-Based Capital
Ratio of 6% or greater, and a Leverage Ratio of 5% or greater and (ii) is not
subject to any written agreement, order, capital directive, or prompt corrective
action directive issued by the appropriate federal banking regulator is deemed
to be well capitalized. An institution with a Total Risk-Based Capital Ratio of
8% or greater, a Tier 1 Risk-Based Capital Ratio of 4% or greater, an a Leverage
Ratio of 4% or greater is considered to be adequately capitalized. A depository
institution that has a Total Risk-Based Capital Ratio of less than 8%, a Tier 1
Risk-Based Capital Ratio of less than 4%, or a Leverage Ratio of less than 4% is
considered to be undercapitalized. A depository institution that has a Total
Risk-Based Capital Ratio of less than 6%, a Tier 1 Risk-Based Capital Ratio of
less than 3%, or a Leverage Ratio of less than 3%, is considered to be
significantly undercapitalized, and an institution that has a tangible equity
capital to assets ratio equal to or less than 2% is deemed to be critically
undercapitalized. For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier 1 Capital for purposes of the
risk-based capital standards, plus the amount of outstanding cumulative
perpetual preferred stock (including related surplus), minus all intangible
assets with certain exceptions. A depository institution may be deemed to be in
a capitalized category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking
regulator. Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meets its capital restoration plan, subject to certain
limitations. The obligation of a controlling holding company under FDICIA to
fund a capital restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of the
FDIC. In addition, the appropriate federal banking regulator is given authority
with respect to any undercapitalized depository institution to take any of the
actions it is required to or may take with respect to a significantly
undercapitalized institution as described below if it determines "that those
actions are necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking regulator must require the institution to take one or more of
the following actions: (i) sell enough shares, including voting shares, to
become adequately capitalized; (ii) merge with (or be sold to) another
institution (or holding company), but only if grounds exist for appointing a
conservator or receiver; (iii) restrict certain transactions with banking
affiliates as if the "sister bank" exception to the requirements of Section 23A
of the Federal Reserve Act did not exist; (iv) otherwise restrict transactions
with bank or non-bank affiliates; (v) restrict interest rates that the
institution pays on deposits to "prevailing rates" in the institution's
"region;" (vi) restrict asset growth or reduce total assets; (vii) alter,
reduce, or terminate activities; (viii) hold a new election of directors; (ix)
dismiss any director or senior executive officer who held office for more than
180 days immediately before the institution became undercapitalized, provided
that in requiring dismissal of a director or senior officer, the regulator must
comply with certain procedural requirements, including the opportunity for an
appeal in which the director or officer will have the burden of proving his or
her value to the institution; (x) employ "qualified" senior executive officers;
(ix) cease accepting deposits from correspondent depository institutions; (xii)
divest certain nondepository affiliates which pose a danger to the institution;
or (xiii) be divested by a parent holding company. In addition, without the
prior approval of the appropriate federal banking regulator, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such officer.
-13-
<PAGE>
At December 31, 1999, the Bank had the requisite capital levels to qualify
as well capitalized.
FDIC Insurance Assessments
The FDIC has adopted a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The system assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups based on a
supervisory evaluation that the institution's primary federal regulator provides
to the FDIC and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit funds.
Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institution's capital group and supervisory subgroup. In addition, the FDIC
imposes assessments to help pay off the $780 million in annual interest payments
on the $8 billion financing corporation bonds issued in the late 1980's as part
of the government rescue of the thrift industry. This assessment rate is
adjusted quarterly and ranged from 1.16 cents to 1.22 cents per $100 of deposits
in 1999.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
Safety and Soundness Standards
The FDIA, as amended by FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation and compensation, fees and benefits,
and such other operational and managerial standards as the agencies deem
appropriate. The federal bank regulatory agencies have adopted a set of
guidelines prescribing safety and soundness standards pursuant to FDICIA, as
amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation,
fees, and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as
an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director, or principal shareholders. The federal
banking agencies determined that stock valuation standards were not appropriate.
In addition, the agencies adopted regulations that authorize, but do not
require, an agency to order an institution that has been given notice by an
agency that it is not satisfying any of such safety and soundness standards to
submit a compliance plan. If, after being so notified, an institution fails to
submit an acceptable compliance plan or fails in any material respect to
implement an accepted compliance plan, the agency must issue an order directing
action to correct the deficiency and may issue an order directing other actions
of the types to which an undercapitalized association is subject under the
"prompt corrective action" provisions of FDICIA. If an institution fails to
comply with such an order, the agency may seek to enforce such order in judicial
proceedings and to impose civil money penalties. The federal bank regulatory
agencies also proposed guidelines for asset quality and earnings standards.
-14-
<PAGE>
Federal banking regulations applicable to all banks, among other things,
(i) provide federal bank regulatory agencies with powers to prevent unsafe and
unsound banking practices; (ii) restrict preferential loans by banks to
"insiders" of banks; (iii) require banks to keep information on loans to
principal shareholders and executive officers; and (iv) prohibit certain
director and officer interlocks between financial institutions.
Community Reinvestment Act
The Community Reinvestment Act requires the appropriate federal regulator,
in connection with their examinations of financial institutions within their
jurisdiction, to evaluate the record of each financial institution in meeting
the credit needs of its local community, including low and moderate-income
neighborhoods. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility. Failure to
adequately meet these criteria could impose additional requirements and
limitations on the Bank. Under the Gramm-Leach-Bliley Act, banks with aggregate
assets of not more than $250 million are subject to a Community Reinvestment Act
examination only once every 60 months if the bank receives an outstanding
rating, once every 48 months if it receives a satisfactory rating and as needed
if the rating is less than satisfactory. Additionally, under the
Gramm-Leach-Bliley Act, banks are required to publicly disclose the terms of
various Community Reinvestment Act-related agreements.
Monetary Policy
Banking is a business that depends on interest rate differentials. In
general, the difference between the interest rates paid by the Bank on its
deposits and other borrowings and the interest rates received on loans extended
to its customers and on securities held in its portfolios comprises the major
portion of the Bank's earnings.
The earnings and growth of the Bank and of the Company are affected not
only by general economic conditions, both domestic and foreign, but also by the
monetary and fiscal policies of the United States and its agencies, particularly
the Board. The Board implements national monetary policy (as opposed to fiscal
policy), such as seeking to curb inflation and combat recession, by its open
market operations in the United States government securities, adjustments in the
amount of industry reserves that banks and other financial institutions are
required to maintain and adjustments to the discount rates applicable to
borrowings by banks from the Federal Reserve System. The actions of the Board in
these areas influence the growth of bank loans, investments and deposits and
also affect interest rates charged and paid on deposits. The nature and impact
of any future changes in monetary policies cannot be predicted with certainty.
Other Regulatory Matters
The Board, in 1985, issued a policy statement on the payment of cash
dividends by bank holding companies. In the statement, the Board expressed its
view that a bank holding company experiencing earnings weakness should not pay
cash dividends exceeding its net income or that can be funded only in ways that
weaken the holding company's financial health, such as by borrowing.
-15-
<PAGE>
Interest and other charges collected or contracted for by the Bank are
subject to state usury laws and federal laws concerning interest rates. The
Bank's loan operations are also subject to federal laws applicable to credit
transactions, such as:
- - The federal Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers;
- - The Home Mortgage Disclosure Act of 1975, requiring financial institutions to
provide information to enable the public and public officials to determine
whether a financial institution is fulfilling its obligation to help meet the
housing needs of the community it serves;
- - The Equal Credit Opportunity Act, prohibiting discrimination on the basis of
race, creed or other prohibited factors in extending credit;
- - The Fair Credit Reporting Act of 1978, governing the use and provision of
information to credit reporting agencies;
- - The Fair Debt Collection Act, governing the manner in which consumer debts may
be collected by collection agencies; and
- - The rules and regulations of the various federal agencies charged with the
responsibility of implementing these federal laws.
The deposit operations of the Bank are subject to:
- - The Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures for
complying with administrative subpoenas of financial records; and
- - The Electronic Funds Transfer Act and Regulation E issued by the Federal
Reserve to implement that act, which governs automatic deposits to and
withdrawals from deposit accounts and customers' rights and liabilities arising
from the use of automated teller machines and other electronic banking services.
Taxation
General. In general, the Company and the Bank is taxed in the same manner as
other corporations under the Internal Revenue Code of 1986, as amended (the
"Code"), although the Code contains certain rules which may affect the taxation
of banks to a greater degree than other corporations. The general rate structure
and certain of these special rules are discussed below.
Rates. Corporation income is subject to graduated federal income tax rates,
beginning at 15% of the corporation's first $50,000 of taxable income, and
increasing to a maximum rate of 34% with respect to taxable income in excess of
$75,000. However, taxable income that falls between $100,000 and $335,000 is
subject to an additional 5% surcharge, up to a maximum surcharge of $11,750.
-16-
<PAGE>
Bad Debt Reserves. The use of the reserve method of computing the bad debt
deduction is no longer available to any bank which, either alone or in
combination with all members of its parent-subsidiary controlled group, has an
average adjusted basis in its total combined assets of in excess of $500
million. Such a bank must use the specific charge-off method of deducting bad
debts. Because the company has assets of less than $500 million, it is eligible
to use the reserve method, but is limited to the experience method of
calculating additions to its bad debt reserve. The experience method measures
the ratio of actual bad debts to total outstanding loans based on a six-year
moving average.
Interest Expense on Tax-Exempt Obligations. In general, a bank is not permitted
to deduct that portion of its interest expense allocable to tax-exempt interest
income. The allocation of a bank's interest expense to tax-exempt interest
income is based on the relative proportion of the bank's total average adjusted
basis in its tax-exempt obligations to its total average adjusted basis in all
of its assets. There is an exception to this disallowance rule for interest
expense allocable to "qualified tax-exempt obligations," which must be
designated as such by the issuer and which are not private activity bonds.
Net Operating Losses. Net operating losses of a bank generally may be carried
back three taxable years and carried forward 15 taxable years. An exception to
the general rule permits the portion of a net operating loss incurred after 1986
and before 1994 which is attributable to bad debt losses to be carried back ten
years and forward at least five years.
Alternative Minimum Tax. All corporations, including banks, are subject to the
corporate alternative minimum tax. For corporations, the alternative minimum tax
rate is 20% of the alternative minimum taxable income ("AMTI") in excess of
certain exemption amounts ($40,000, phased out when AMTI exceeds $150,000). The
alternative minimum tax is payable to the extent it exceeds regular tax
liability. It is possible for a taxpayer such as the Company to be liable for
alternative minimum tax even if its regular tax liability is zero.
In computing AMTI, a taxpayer must include certain items not included in
the computation of regular taxable income. Financial institutions must include
in AMTI the difference between the amount added to the bad debt reserve for the
year and the amount which would have been deducted for bad debts using the
actual experience method. For all corporations, AMTI includes certain tax-exempt
income on private activity bonds and 75% of the difference between the
corporation's "current adjusted earnings" and its AMTI (determined without
regard to this item). A corporation's "current adjusted earnings" means its AMTI
(determined without regard to this item), with certain adjustments, including
the addition of tax-exempt income.
Future Requirements
Statutes and regulations are regularly introduced which contain
wide-ranging proposals for altering the structure, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or in what form any proposed statute or regulation will be adopted or
the extent to which the business of FNC Bancorp, Inc. or its Subsidiary Bank may
be affected by such statute or regulation.
-17-
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices are located at 420 South Madison
Avenue, Douglas, Georgia. This location is in the southern portion of downtown
Douglas, which is believed to be the most rapidly growing section of Douglas.
This location was chosen because of its convenience to both the central downtown
area and the retail and professional expansion on the south side of Douglas. In
addition, this site offers good visibility to the one-way south-bound traffic on
Peterson Avenue and provides access to customers from Cherry Street and Madison
Avenue. The Board of Directors are dedicated to maintaining the viability of the
downtown Douglas area and believe that the Bank building adds an attractive
building to the downtown area while avoiding traffic congestion.
The Organizers formed a partnership, the CEF Partnership, which obtained an
option to purchase a 3.46 acre site at the above location at a purchase price of
$330,000, which is approximately $20,000 below the appraised value of the
property. On December 28, 1990, the CEF Partnership exercised its option to
purchase the property from the seller, Douglas Peanut and Grain Co., whose
president, Ralph G. Evans, is an Organizer of the Company and the Bank. The
purchase price for the option was $31,800, all of which was credited toward the
purchase price of the property. The Bank used $330,000 of the proceeds from the
sale of its stock to the Company to reimburse the Organizers for the payment of
the purchase price of the option and to complete the purchase of the site from
the CEF Partnership.
During 1992, the Bank completed construction of its headquarters building
on the site purchased from the Partnership. Construction cost and furniture,
fixtures and equipment totaled approximately $1.3 million.
At December 31, 1999, the Company was in the process of constructing an
annex to the main office. Commercial lending and, potentially, personal banking
and insurance services will be located in the annex. The total cost to complete
construction, landscape, furnish and equip the new facility is estimated to be
approximately $635,000.
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor its subsidiary bank is a party to, nor is any of
their property the subject of, any material pending legal proceedings, other
than the ordinarily routine proceedings incidental to the business of the Bank,
nor to the knowledge of the management of the Company are any such proceedings
contemplated or threatened against it or its subsidiary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of 1999.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
(a) There currently is no public market for the Common Stock.
(b) As of March 1, 2000, there were approximately 360 holders of
record of the Common Stock.
(c) The Company has never declared or paid a cash dividend but expects
to do so in the future. The payment of dividends by national banks
is restricted by statute and regulation. See "Item 1.
Description of Business - Supervision and Regulation."
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Information
The Company's 1999 Annual Report on Form 10-KSB contains forward-looking
statements in addition to historical information. The Company cautions that
there are various important factors that could cause actual results to differ
materially from those indicated in the forward-looking statements; accordingly,
there can be no assurance that such indicated result will be realized. These
factors include legislative and regulatory initiatives regarding deregulation
and restructuring of the banking industry; the extent and timing of the entry of
additional competition in the Company's markets; potential business strategies,
including acquisitions or dispositions of assets or internal restructuring, that
may be pursued by the Company; state and Federal banking regulations; changes in
or application of environmental and other laws and regulations to which the
Company is subject; political, legal and economic conditions and developments;
financial market conditions and the results of financing efforts; changes in
commodity prices and interest rates; weather, natural disasters and other
catastrophic events; and other factors discussed in the Company's filings with
the Securities and Exchange Commission, including this Annual Report on Form
10-KSB. The words "believe", "expect", "anticipate", "project" and similar
expressions signify forward-looking statements. Readers are cautioned not to
place undue reliance on any forward-looking statements made by or on behalf of
the Company. Any such statement speaks only as of the date the statement was
made. The Company undertakes no obligation to update or revise any
forward-looking statements. Additional information with respect to factors that
may cause results to differ materially from those contemplated by such
forward-looking statements is included in the Company's current and subsequent
filings with the Securities and Exchange Commission.
General
The Company's principal asset is its ownership of the Bank. Accordingly,
the Company's results of operations are primarily dependent upon the results of
operations of the Bank. The Bank conducts a commercial banking business which
consists of attracting deposits from the general public and applying those funds
to the origination of commercial, consumer and real estate loans (including
commercial loans collateralized by real estate). The Bank's profitability
depends primarily on net interest income, which is the difference between
interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate paid and earned on these balances. Net
interest income is dependent upon the Bank's interest rate spread, which is the
difference between the average yield earned on its interest-earning assets and
the average rate paid on its interest-bearing liabilities. When interest-earning
assets approximates or exceeds interest-bearing liabilities, any positive
interest rate spread will generate interest income. The interest rate spread is
impacted by interest rates, deposit flows and loan demand. Additionally, and to
a lesser extent, the Bank's profitability is affected by such factors as the
level of noninterest income and expenses, the provision for loan losses and the
effective tax rate. Noninterest income consists primarily of loan and other fees
and income from the sale of investment securities. Noninterest expenses consist
of compensation and benefits, occupancy-related expenses, deposit insurance
premiums paid to the FDIC and other operating expenses.
-20-
<PAGE>
Results of Operations For Years Ended December 31, 1999 and 1998
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense. Since
interest rates are determined by market forces and economic conditions beyond
the control of the Company, the ability to generate net interest income is
dependent upon the Bank's ability to obtain an adequate spread between the rate
earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest income
divided by average earning assets.
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets.
Interest-earning assets consist of loans, investment securities and Federal
funds sold. Interest-bearing liabilities consist of deposits and other
short-term borrowings. A portion of interest income is earned on tax-exempt
investments, such as state and municipal bonds. In an effort to state this
tax-exempt income and its resultant yield on a basis comparable to all other
taxable investments, an adjustment is made to analyze this income on a
taxable-equivalent basis.
The Company's net interest margin decreased 17 basis points, or 3.23%, to
5.10% in 1999, as compared to 5.27% in 1998. The yield on average
interest-earning assets decreased 46 basis points, or 4.97%, to 8.80% in 1999,
as compared to 9.26% in 1998. The interest rate paid on average interest-bearing
liabilities decreased 22 basis points, or 4.41%, to 4.77% in 1999, as compared
to 4.99% in 1998. Net interest income on a taxable-equivalent basis was
$3,093,000 in 1999 as compared to $2,339,000 in 1998, representing an increase
of $754,000 or 32.24%. The decrease in the yield on interest-earning assets
offset by a decrease in the rate paid on interest-bearing liabilities resulted
in a decrease in net interest income of $240,000. This decrease in net interest
income due to a change in rates was offset by an increase of $994,000 generated
on an increase in volume of interest-earning assets over interest-bearing
liabilities in 1999.
Average interest-earning assets increased $16,197,000, or 36.46%, to
$60,615,000 in 1999 from $44,418,000 in 1998. Average loans increased
$13,546,000; average Federal funds sold increased $690,000; and average
investments increased $1,961,000. The increase in average interest-earning
assets was accompanied by an increase of $14,311,000, or 32.84%, in average
deposits to $57,889,000 in 1999 from $43,578,000 in 1998. Approximately 20% of
the average deposits were noninterest-bearing deposits in 1999 and 1998.
Average total assets increased $15,227,00 or 31.25% to $63,954,000 in 1999
as compared to $48,727,000 in 1998. Loan demand was much stronger in 1999 than
in 1998 as evidenced by average loan to deposit ratio of 85.02% in 1999 as
compared to 81.85% in 1998.
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<PAGE>
The allowance for loan losses is established through a provision for loan
losses charged to expense and represents a reserve for potential losses in the
loan portfolio. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible based on
evaluations of the collectibility of loans and prior loan loss experience (when
sufficient time elapses to establish experience). The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem and/or impaired
loans and current economic conditions that may affect the borrowers' ability to
pay. The adequacy of the allowance for loan losses is evaluated periodically
based on a review of all significant loans, with a particular emphasis on
nonaccruing, past due and other loans that management believes require
attention.
The provision for loan losses is a charge to earnings in the current period
to replenish the allowance for loan losses and maintain it at a level management
has determined to be adequate. Based upon management's evaluation of the loan
portfolio and the potential loan risk associated with specific loans and
selected loan categories, management determined that no provision was required
to be charged to earnings in 1999 or in 1998. The allowance for loan losses as a
percentage of total loans outstanding amounted to 2.63% at December 31, 1999 as
compared to 3.03% at December 31, 1998. Management considers the year-end
allowances adequate to cover potential losses in the loan portfolio.
Following is a comparison of noninterest income for the years ended
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Increase
1999 1998 (Decrease)
--------------- --------------- ---------------
<S> <C> <C> <C>
Service charges on deposit accounts $ 524,000 $ 447,000 $ 77,000
Other commissions and fees 37,000 26,000 11,000
Origination fees on mortgage loans 34,000 46,000 (12,000)
Other 75,000 70,000 5,000
--------------- --------------- ---------------
$ 670,000 $ 589,000 $ 81,000
=============== =============== ===============
</TABLE>
Total noninterest income increased $81,000, or 13.75%, in 1999. However, as
a percentage of average assets, noninterest income decreased from 1.21% in 1998
to 1.05% in 1999, a 13.22% decrease. The increase in service charges on deposit
accounts of $77,000, or 17.23%, is attributable to an increase of approximately
$6,573,000, or 35.28%, in average demand deposits and savings in 1999. Other
commissions and fees increased $11,000, or 42.31%, due to volume. Origination
fees on mortgage loans decreased $12,000, or 26.09%, in 1999. The Bank funded
and retained more new mortgages in 1999, as opposed to originating them for
other financial institutions. Other income increased $5,000 in 1999, which is
net of $28,000 in nonrecurring loan referral fees earned in 1998. The gross
increase of $33,000 in other income is comprised of an $8,000 increase in ATM
and debit card fees, gains on ORE transactions, and other miscellaneous income
items.
-22-
<PAGE>
Following is an analysis of noninterest expense for the years ended
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Increase
1999 1998 (Decrease)
----------------- ---------------- -----------------
<S> <C> <C> <C>
Salaries and employee benefits ....................... $ 1,251,000 $ 992,000 $ 259,000
Equipment and occupancy .............................. 279,000 261,000 18,000
Data processing ...................................... 89,000 106,000 (17,000)
Printing and office supplies ......................... 72,000 67,000 5,000
Legal and professional ............................... 80,000 101,000 (21,000)
Advertising and business development ................. 68,000 40,000 28,000
Training and travel .................................. 148,000 78,000 70,000
Other ................................................ 334,000 336,000 (2,000)
----------------- ---------------- -----------------
$ 2,321,000 $ 1,981,000 $ 340,000
================= ================ =================
</TABLE>
Total noninterest expense increased $340,000, or 17.16%, in 1999. However,
as a percentage of average assets, noninterest expense decreased 10.81% from
4.07% in 1998 to 3.63% in 1999. Salaries and employee benefits increased
$259,000, or 26.11%, due to an increase in Bank personnel and lending officers
from 28 employees as of December 31, 1998 to 35 employees as of December 31,
1999, a 25% increase. Equipment and occupancy expenses increased $18,000, or
6.90%, in 1999 due for the most part to increased depreciation on new equipment
and an increase in utility costs. Data processing costs were $17,000 less than
in 1998. In 1998, the Bank spent an additional $24,000 in upgrading software and
other costs in preparation for the Year 2000. Legal and professional fees
decreased $21,000, or 20.79%, in 1999 due to a decrease in accounting and
auditing fees. Advertising and business development increased $28,000, or 70%,
due to an increase in advertising in the media and in various promotions for
Bank customers. Travel and training costs increased $70,000, or 89.74%, in 1999.
Most of this increase relates to $60,000 paid to a consulting team from the
Bank's core software provider to perform an operational efficiency review and to
provide needed training and operational procedures for Bank personnel.
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company and the Bank to meet those needs. The
Company and the Bank seek to meet liquidity requirements primarily through
management of short-term investments (principally Federal funds sold) and
monthly amortizing loans. Another source of liquidity is the repayment of
maturing single payment loans. The Bank is a member of the Federal Home Loan
Bank of Atlanta and as such has the ability to obtain advances therefrom,
although the cost of such advances exceed lower cost alternatives such as
deposits from the local community. The Bank had an outstanding advance from the
Federal Home Loan Bank of Atlanta of $55,000 at December 31, 1999 at a rate of
6.99%. The Bank also has the ability to borrow and purchase Federal funds from
other financial institutions on a short-term basis, if needed.
-23-
<PAGE>
The liquidity and capital resources of the Company and the Bank are
monitored on a periodic basis by state and Federal regulatory authorities. As
determined under guidelines established by these regulatory authorities, the
Bank's liquidity ratio at December 31, 1999 was considered satisfactory. At that
date, the Bank's short-term investments were adequate to cover any reasonable
anticipated immediate need for funds. The Company and the Bank were aware of no
events or trends likely to result in a material change in their liquidity.
During 1999, the Company increased its capital by retaining earnings of $925,000
and by $55,000 from proceeds upon exercise of stock options. In addition, the
Company reduced capital by purchasing 500 shares of common stock amounting to
$9,000 for the treasury. After recording a decrease in capital of $63,000 for
unrealized losses on securities, net of taxes, total capital increased $908,000
to $4,852,000 from $3,944,000 at December 31, 1998.
At December 31, 1999, the Company was in process of completing the
construction of an annex to its main office. The estimated cost to complete
construction, landscape, furnish and equip the new facility is approximately
$635,000. No other major capital expenditures are planned for 2000.
In accordance with risk capital guidelines issued by the Federal Reserve
Board, the Company is required to maintain a minimum standard of total capital
to weighted risk assets of 8%. Additionally, all member banks must maintain
"core" or "Tier 1" capital of at least 4% of total assets ("leverage ratio").
Member banks operating at or near the 4% capital level are expected to have
well-diversified risks, including no undue interest rate risk exposure,
excellent control systems, good earnings, high asset quality, and well managed
on- and off-balance sheet activities; and, in general, be considered strong
banking organizations with a composite 1 rating under the CAMEL rating system of
banks. For all but the most highly rated banks meeting the above conditions, the
minimum leverage ratio is to be 4% plus an additional 100 to 200 basis points.
The following table summarizes the regulatory capital levels of the Company
at December 31, 1999.
<TABLE>
<CAPTION>
Actual Required Excess
------------------------- ------------------------- -------------------------
Amount Percent Amount Percent Amount Percent
----------- ------------ ----------- ------------ -------------------------
(Dollars in Thousands)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leverage capital ............. $ 4,901 7.66 % $ 2,558 4.00 % $ 2,343 3.66 %
Risk-based capital:
Core capital ................ 4,901 9.98 1,964 4.00 2,937 5.98
Total capital ............... 5,524 11.25 3,928 8.00 1,596 3.25
</TABLE>
The Bank also met its individual regulatory capital requirements at
December 31, 1999.
-24-
<PAGE>
Average Balances and Net Income Analysis
The following table sets forth the amount of the Company's interest income
or interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets. Federally tax-exempt
income is presented on a taxable-equivalent basis assuming a 34% Federal tax
rate.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------- -------------------------------- -------------------------------
(Dollars in Thousands)
----------------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid
----------- ---------- --------- ---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of
unearned interest . $ 49,216 $ 4,709 9.57 % $ 35,670 $ 3,615 10.13 % $ 27,336 $ 2,698 9.87 %
Investment securities:
Taxable ............. 6,682 389 5.82 4,806 291 6.05 8,291 511 6.16
Nontaxable .......... 85 5 5.88 - - - - - -
Federal funds sold ... 4,632 231 4.99 3,942 206 5.23 3,128 173 5.53
----------- ---------- ---------- ---------- --------- ---------
Total interest-
earning assets 60,615 5,334 8.80 44,418 4,112 9.26 38,755 3,382 8.73
----------- ---------- ---------- ---------- --------- ---------
Noninterest-earning
assets:
Cash ................. 3,485 3,009 2,953
Allowance for loan
losses ............ (1,377) (1,244) (1,201)
Unrealized gain
on available
for sale securities (32) 19 (3)
Other assets ...... 1,263 2,525 2,985
----------- ---------- ---------
Total
noninterest-
earning assets 3,339 4,309 4,734
----------- ---------- ---------
Total assets .... $ 63,954 $ 48,727 $ 43,489
=========== ========== =========
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------- -------------------------------- --------------------------------
(Dollars in Thousands)
---------------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Paid Balance Expense Rate Paid Balance Expense Rate Paid
----------- ---------- ---------- --------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
Savings and
interest-bearing
demand deposits .... $ 13,736 $ 369 2.69% $ 9,732 $ 236 2.42% $ 8,198 $ 227 2.77%
Time deposits ......... 32,686 1,831 5.60 24,948 1,478 5.92 22,259 1,280 5.75
Other borrowings ...... 569 41 7.21 881 59 6.7 2,275 139 6.11
----------- ---------- -------------------- ---------- -----------
Total
interest-bearing
liabilities ...... 46,991 2,241 4.77 35,561 1,773 4.99 32,732 1,646 5.03
----------- ---------- -------------------- ---------- -----------
Noninterest-bearing
liabilities and
stockholders' equity:
Demand deposits .... 11,467 8,898 7,190
Other liabilities .. 1,122 615 458
Stockholders' equity 4,374 3,653 3,109
----------- ----------- ----------
Total
noninterest-bearing
liabilities and
stockholders'
equity ........... 16,963 13,166 10,757
----------- ----------- ----------
Total liabilities and
stockholders'
equity ................ $ 63,954 $ 48,727 $ 43,489
=========== =========== ==========
Interest rate spread ..... 4.03% 4.27% 3.70%
========== =========== =========
Net interest income ...... $ 3,093 $ 2,339 $ 1,736
========== ========= ===========
Net interest margin ...... 5.10% 5.27% 4.48%
========== =========== =========
</TABLE>
-26-
<PAGE>
Rate and Volume Analysis
The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. Federally
tax-exempt interest is presented on a taxable-equivalent basis assuming a 34%
Federal tax rate. The change in interest attributable to rate has been
determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
---------------------------------------- ----------------------------------------
(Dollars in Thousands)
----------------------------------------------------------------------------------
Increase Changes Due To Increase Changes Due To
-------------------------- --------------------------
(Decrease) Rate Volume (Decrease) Rate Volume
------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans ......... $ 1,094 $ (279) $ 1,373 $ 917 $ 94 $ 823
Interest on securities:
Taxable ............................ 98 (16) 114 (220) (5) (215)
Nontaxable ......................... 5 - 5 - - -
Interest on Federal funds ............. 25 (11) 36 33 (12) 45
------------- ------------- ------------ ------------ ------------ ------------
Total interest income ............ 1,222 (306) 1,528 730 77 653
------------- ------------- ------------ ------------ ------------ ------------
Expense from interest-bearing liabilities:
Interest on savings and interest-
bearing demand deposits ............ 133 36 97 9 (33) 42
Interest on time deposits ............. 353 (105) 458 198 43 155
Interest on other borrowings .......... (18) 3 (21) (80) 5 (85)
------------- ------------- ------------ ------------ ------------ ------------
Total interest expense ........... 468 (66) 534 127 15 112
------------- ------------- ------------ ------------ ------------ ------------
Net interest income ......... $ 754 $ (240) $ 994 $ 603 $ 62 $ 541
============= ============= ============ ============ ============ ============
</TABLE>
-27-
<PAGE>
Asset/Liability Management
A principal objective of the Company's asset/liability management strategy
is to minimize its exposure to changes in interest rates by matching the
maturity and repricing horizons of interest-earning assets and interest-bearing
liabilities. At FNC this strategy is overseen in part through the direction of
the Investment Committee which establishes policies and monitors results to
control interest rate sensitivity. At the Bank, the strategy is overseen by the
Board of Directors with the direction and strategy being directed principally by
the President of the Bank.
As part of the Banks' interest rate risk management policy, the Investment
Committee or Board examines the extent to which its assets and liabilities are
"interest rate-sensitive" and monitors its interest rate-sensitivity "gap". An
asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed, usually one year or less. The
interest rate-sensitivity gap is the difference between the interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
such time period. A gap is considered positive when the amount of interest
rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities.
A gap is considered negative when the amount of interest rate-sensitive
liabilities exceeds the interest rate-sensitive assets. During a period of
rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in net
interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income. If the
Company's assets and liabilities were equally flexible and moved concurrently,
the impact of any increase or decrease in interest rates on net interest income
would be minimal.
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the Investment Committee or Board also evaluates how the
repayment of particular assets and liabilities is impacted by changes in
interest rates. Income associated with interest-earning assets and costs
associated with interest-bearing liabilities may not be affected uniformly by
changes in interest rates. In addition, the magnitude and duration of changes in
interest rates may have a significant impact on net interest income. For
example, although certain assets and liabilities may have similar maturities or
periods of repricing, they may react in different degrees to changes in market
interest rates. Interest rates on certain types of assets and liabilities
fluctuate in advance of changes in general market interest rates, while interest
rates on other types may lag behind changes in general market rates. In
addition, certain assets, such as adjustable rate mortgage loans, have features
((generally referred to as "interest rate caps") which limit changes in interest
rates on a short-term basis and over the life of the asset. In the event of a
change in interest rates, prepayment and early withdrawal levels also could
deviate significantly from those assumed in calculating the interest rate gap.
The ability of many borrowers to service their debts also may decrease in the
event of an interest rate increase.
As of December 31, 1999, the Company's cumulative one-year interest rate
sensitivity gap ratio was 75%. This indicates that the Company's
interest-bearing liabilities will reprice during this period at a rate faster
than the Company's interest-earning assets. However, management believes that
the type and amount of the Company's interest rate-sensitive liabilities (a
significant portion of which are composed of money market, NOW and savings
accounts whose yields, to a certain extent, are subject to the discretion of
management) may reduce the potential impact that a rise in interest rates might
have on the Company's net interest income. In addition, the Company has
borrowing agreements with three correspondent banks and the Federal Home Loan
Bank to provide temporary liquidity as necessary.
-28-
<PAGE>
The following table sets forth the distribution of the repricing of the
Company's earning assets and interest-bearing liabilities as of December 31,
1999, the interest rate sensitivity gap (i.e., interest rate sensitive assets
less interest rate sensitive liabilities), the cumulative interest rate
sensitivity gap ratio (i.e., interest rate sensitive assets divided by interest
rate sensitivity liabilities) and the cumulative sensitivity gap ratio. The
table also sets forth the time periods in which earning assets and liabilities
will mature or may reprice in accordance with their contractual terms. However,
the table does not necessarily indicate the impact of general interest rate
movements on the net interest margin since the repricing of various categories
of assets and liabilities is subject to competitive pressures and the needs of
the Banks' customers. In addition, various assets and liabilities indicated as
repricing within the same period may in fact reprice at different times within
such period and at different rates.
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------------------------------------------
Maturing or Repricing Within
--------------------------------------------------------------------
Zero to Three One to Over
Three Months to Five Five
Months One Year Years Years Total
------------ ------------- ------------- ------------- ------------
(Dollars in Thousands)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits in banks ................... $ 17 $ - $ - $ - $ 17
Federal funds sold ................................... 1,528 - - - 1,528
Investment securities ................................ 179 135 7,893 50 8,257
Loans ................................................ 17,145 6,763 27,982 2,278 54,168
------------ ------------- ------------- ------------- ------------
18,869 6,898 35,875 2,328 63,970
------------ ------------- ------------- ------------- ------------
Interest-bearing liabilities:
Interest-bearing demand deposits (1) ................. - 3,499 9,638 - 13,137
Savings (1) .......................................... - - 2,000 - 2,000
Certificates less than $100,000 ...................... 5,919 13,815 4,176 13 23,923
Certificates, $100,000 and over ...................... 3,778 5,573 1,374 - 10,725
Federal funds purchased .............................. 1,250 - - - 1,250
Notes payable ........................................ 500 - - - 500
FHLB borrowings ...................................... - 10 40 5 55
------------ ------------- ------------- ------------- ------------
11,447 22,897 17,228 18 51,590
------------ ------------- ------------- ------------- ------------
Interest rate sensitivity gap ........................... $ 7,422 $ (15,999) $ 18,647 $ 2,310 $ 12,380
============ ============= ============= ============= ============
Cumulative interest rate sensitivity gap ................ $ 7,422 $ (8,577) $ 10,070 $ 12,380
============ ============= ============= =============
Interest rate sensitivity gap ratio ..................... 1.65 0.30 2.08 129.33
============ ============= ============= =============
Cumulative interest rate sensitivity gap ratio .......... 1.65 0.75 1.20 1.24
============ ============= ============= =============
</TABLE>
(1) The Company has found that NOW checking accounts and savings deposits are
generally not sensitive to changes in interest rates and, therefore, it has
placed such liabilities in the "One to Five Years" category. It has also found
that the money-market checking deposits reprice between three months to one
year, on the average.
-29-
<PAGE>
Investment Portfolio
The Company manages the mix of asset and liability maturities in an effort
to control the effects of changes in the general level of interest rates on net
interest income. See " - Asset/Liability Management." Except for its effect on
the general level of interest rates, inflation does not have a material impact
on the Company due to the rate variability and short-term maturities of its
earning assets. In particular, approximately 44% of the loan portfolio is
comprised of loans which mature or reprice within one year or less. Mortgage
loans, primarily with five- to fifteen-year maturities, are also made on a
variable rate basis with rates being adjusted every one to five years. In
contrast, 96% of the investment portfolio matures or reprices after one year.
Types of Investments
The amortized cost and fair value of securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- ---------------
(Dollars in Thousands)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1999:
U. S. Treasury and government
agencies ........................... $ 3,239 $ - $ (74) $ 3,165
=============== ============== ============== ===============
December 31, 1998:
U. S. Government and agency
agencies ........................... $ 4,259 $ 21 $ - $ 4,280
=============== ============== ============== ===============
Securities Held to Maturity
December 31, 1999:
U. S. Treasury and government
agencies ........................... $ 4,483 $ - $ (46) $ 4,437
State, county and municipal
securities ......................... 295 - (3) 292
--------------- -------------- -------------- ---------------
$ 4,778 $ - $ (49) $ 4,729
=============== ============== ============== ===============
</TABLE>
Other investments consist of Federal Reserve Bank stock and Federal Home
Loan Bank stock. These investments are carried at cost as such investments are
not readily marketable. At December 31, 1999 and 1998, the Company's total
investment in these restricted equity securities was $314,000 and $474,000,
respectively.
-30-
<PAGE>
Maturities
The amounts of investment securities in each category as of December 31,
1999 are shown in the following table according to contractual maturity
classifications (1) one year or less, (2) after one year through five years, (3)
after five years through ten years, and (4) after ten years.
<TABLE>
<CAPTION>
U.S. Treasury and State, County and
Government Agencies Municipal Securities
Yield Yield
Amount (1) Amount (1) (2)
------------ ------------ ------------ ------------
(Dollars in Thousands)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Maturity:
One year or less .......................................... $ - - % $ - - %
After one year through five years ......................... 7,648 5.94 245 6.65
After five years through ten years ........................ - - 50 6.14
After ten years ........................................... - - - -
------------ -------- ------------ ----------
$ 7,648 5.94 % $ 295 6.56 %
============ ========= ============ ==========
</TABLE>
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over the
life of each security. The weighted average yield for each maturity range was
computed using the acquisition price of each security in that range.
(2) Yields on state, county and municipal securities are stated on a taxable
equivalent basis using a tax rate of 34%.
-31-
<PAGE>
Loan Portfolio
The amount of loans outstanding at the indicated dates is shown in the
following table according to type of loans.
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
--------------- ---------------
(Dollars in Thousands)
----------------------------------
<S> <C> <C>
Commercial and financial ........................................................ $ 8,015 $ 6,345
Agricultural .................................................................... 1,431 1,214
Real estate - construction ...................................................... 2,545 1,210
Real estate - mortgage, farmland ................................................ 8,419 7,916
Real estate - mortgage, other ................................................... 27,848 21,156
Consumer installment ............................................................ 5,911 4,149
--------------- ---------------
54,169 41,990
Allowance for loan losses ....................................................... (1,423) (1,274)
--------------- ---------------
Loans, net ...................................................................... $ 52,746 $ 40,716
=============== ===============
</TABLE>
Maturities and Sensitivity of Loans to Changes in Interest Rates
The Company's loan portfolio, as of December 31, 1999 was made up primarily
of short-term fixed rate loans or variable rate loans. The average contractual
life on installment loans is approximately three years, while mortgages are
generally variable over one-to five-year periods. Following is a summary of
loans which presents separately the amount of loans outstanding as of December
31, 1999 in each category according to contractual maturity classifications: (i)
one year or less, (ii) after one year through five years, and (iii) after five
years.
<TABLE>
<CAPTION>
Due in After One After
One Through Five
Year Five Years Years Total
------------ ------------- ------------- -------------
(Dollars in Thousands)
------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and financial .................................... $ 3,779 $ 3,269 $ 967 $ 8,015
Agricultural ................................................ 544 545 342 1,431
Real estate - construction .................................. 1,533 998 14 2,545
Real estate - mortgage, farmland ............................ 2,094 3,925 2,400 8,419
Real estate - mortgage, other ............................... 6,258 18,509 3,081 27,848
Consumer installment ........................................ 1,945 3,291 675 5,911
------------ ------------- ------------- -------------
Total ............................................... $ 16,153 $ 30,537 $ 7,479 $ 54,169
============ ============= ============= =============
</TABLE>
-32-
<PAGE>
The following table summarizes loans at December 31, 1999 with the due
dates after one year which (i) have predetermined interest rates and (ii) have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
December 31,
1999
(Dollars in
Thousands)
----------------
<S> <C>
Predetermined interest rates ........................................................................... $ 27,371
Floating or adjustable interest rates .................................................................. 10,645
----------------
$ 38,016
================
</TABLE>
Nonperforming Loans
The following table presents, at the dates indicated, the aggregate of
nonperforming loans for the categories indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
--------------- ----------------
(Dollars in Thousands)
----------------------------------
<S> <C> <C>
Loans accounted for on a nonaccrual basis ......................................... $ 380 $ 448
Instalment loans and term loans contractually past due ninety
days or more as to interest or principal payments and still accruing ........... 3 4
Loans, the term of which have been renegotiated to provide a
reduction or deferral of interest or principal because of
deterioration in the financial position of the borrower ........................ - -
Loans now current about which there are serious doubts as to
the ability of the borrower to comply with present loan
repayment terms ................................................................ - -
</TABLE>
In the opinion of management, any loans classified by regulatory
authorities as substandard or special mention that have not been disclosed above
do not (i) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity or
capital resources, nor (ii) represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms. Any loans
classified by regulatory authorities as loss have been charged off.
-33-
<PAGE>
Summary of Loan Loss Experience
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense are
past loan experience, composition of the loan portfolio, evaluation of possible
future losses, current economic conditions and other relevant factors. The
Company's allowance for loan losses was approximately $1,423,000 at December 31,
1999, representing 2.63% of year-end total loans outstanding compared with
approximately $1,274,000 at December 31, 1998, which represented 3.03% year end
total loans outstanding.
The allowance for loan losses is reviewed quarterly based on management's
evaluation of current risk characteristics of the loan portfolio, as well as the
impact of prevailing and expected economic business conditions. Management
considers the allowance for loan losses adequate to cover possible loan losses
on each outstanding loan with particular emphasis on any problem loans. No
assurance can be given, however, that adverse economic circumstances will not
result in increased losses in the Bank's loan portfolio, and require greater
provisions for loan losses in the future.
Allocation of the Allowance for Loan Losses
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. Management believes the
allowance can be allocated only on an approximate basis. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------
1999 1998
------------------------------ ------------------------------
Percent of Percent of
Loans in Loans in
Category to Category to
Amount Total Loans Amount Total Loans
---------------- ------------- ---------------- ------------
(Dollars in Thousands)
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, industrial and agricultural ............ $ 375 17 % $ 325 18 %
Real estate ................................................... 333 72 303 72
Consumer ...................................................... 503 11 455 10
Unallocated ................................................... 212 - 191 -
---------------- ------------- ---------------- ------------
$ 1,423 100 % $ 1,274 100 %
================ ============= ================ ============
</TABLE>
-34-
<PAGE>
Allocation of the Allowance for Loan Losses (Continued)
The following table presents an analysis of the Company's loan loss
experience for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1999 1998
--------------- ---------------
(Dollars in Thousands)
---------------------------------
<S> <C> <C>
Average amount of loans outstanding ............................................... $ 49,216 $ 35,670
=============== ===============
Balance of reserve for possible loan losses at beginning of period ................ 1,274 1,159
--------------- ---------------
Charge-offs:
Commercial, financial and agricultural ......................................... (2) (67)
Real estate .................................................................... - (7)
Consumer ....................................................................... (61) (62)
Recoveries:
Commercial, financial and agricultural ......................................... 25 33
Real estate .................................................................... 53 126
Consumer ....................................................................... 134 92
--------------- ---------------
Net (charge-offs) recoveries .............................................. 149 115
--------------- ---------------
Additions to reserve charged to operating expenses ................................ - -
--------------- ---------------
Balance of reserve for possible loan losses ....................................... $ 1,423 $ 1,274
=============== ===============
Ratio of net loan (charge-offs) recoveries to average loans ....................... .30% .32%
=============== ===============
</TABLE>
-35-
<PAGE>
Deposits
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits and time deposits for the periods indicated are presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1999 1998
----------------------------- -----------------------------
Amount Rate Amount Rate
--------------- ------------ --------------- ------------
(Dollars in Thousands)
------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits ............................. $ 11,467 - % $ 8,898 - %
Interest-bearing demand and savings deposits .................... 13,736 2.69 9,732 2.42
Time deposits ................................................... 32,686 5.60 24,948 5.92
--------------- ---------------
Total deposits .................................... $ 57,889 $ 43,578
=============== ===============
</TABLE>
The Company has a large, stable base of time deposits, with little or no
dependence on volatile deposits of $100,000 or more. The time deposits are
principally certificates of deposit and individual retirement accounts obtained
from individual customers.
The amounts of time certificates of deposit issued in amounts of $100,000
or more as of December 31, 1999, are shown below by category, which is based on
time remaining until maturity of (i) three months or less, (ii) over three
through twelve months and (iii) over twelve months.
<TABLE>
<CAPTION>
December 31,
1999
---------------
(Dollars in
Thousands)
---------------
<S> <C>
Three months or less .......................................................................... $ 3,778
Over three through twelve months .............................................................. 5,573
Over twelve months ............................................................................ 1,374
---------------
Total ........................................................................... $ 10,725
===============
</TABLE>
-36-
<PAGE>
Return on Assets and Stockholders' Equity
The following table shows return on assets (net income divided by average
total assets), return on equity (net income divided by average stockholders'
equity), dividend payout ratio (dividends declared per share divided by net
income per share) and stockholders' equity to asset ratio (average stockholders'
equity divided by average total assets) for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Return on assets ......................................................................... 1.45 % 1.24 %
Return on equity ......................................................................... 21.16 16.48
Dividends payout ......................................................................... - -
Equity to assets ratio ................................................................... 6.84 7.5
</TABLE>
Commitments and Lines of Credits
In the ordinary course of business, the Bank has granted commitments to
extend credit to approved customers. Generally, these commitments to extend
credit have been granted on a temporary basis for seasonal or inventory
requirements and have been approved by the Bank's Board of Directors. The Banks
have also granted commitments to approved customers for standby letters of
credit. These commitments are recorded in the financial statements when funds
are disbursed or the financial instruments become payable. The Bank uses the
same credit policies for these off-balance sheet commitments as they do for
financial instruments that are recorded in the consolidated financial
statements. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Because many of the
commitment amounts expire without being drawn upon, the total commitment amounts
do not necessary represent future cash requirements.
Following is a summary of the commitments outstanding at December 31, 1999
and 1998.
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
--------------- ---------------
(Dollars in Thousands)
----------------------------------
<S> <C> <C>
Commitments to extend credit .................................................. $ 7,164 $ 4,959
Standby letters of credit ..................................................... 102 120
--------------- ---------------
$ 7,266 $ 5,079
=============== ===============
</TABLE>
-37-
<PAGE>
Impact of Inflation
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in accordance with generally accepted
accounting principles and practices within the banking industry which require
the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiaries are included on pages F-1 through F-33 of this Annual Report on
Form 10-KSB:
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income - Years Ended December 31, 1999 and 1998
Consolidated Statements of Comprehensive Income - Years Ended December 31, 1999
and 1998
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1999
and 1998
Consolidated Statements of Cash Flows - Years Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During 1999, the Company did not change its accountants and there was no
disagreement on any matter of accounting principles or practices for financial
statement disclosure that would have required the filing of a current report on
Form 8-K.
-38-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS
The members of the Board of Directors of the Company are elected by the
shareholders. The directorships of the Company are divided into three classes,
with the members of each class serving three-year terms and the shareholders of
the Company elect one class annually.
The following table and accompanying notes sets forth the name, age,
business experience during the past five years, the year he first became a
director and the year in which his current term will expire of each of the
Directors of the Company as of December 31, 1999.
<TABLE>
<CAPTION>
Director's
Director Term
Name Age Position Since Expires
----------------------------------- ------------- ------------------------------------- ------------- --------------
<S> <C> <C> <C> <C>
Board Nominees:
Milton G. Clements 51 Director 1990 2000
Robert L. Cation 55 Chairman of the Board of Directors 1990 2000
Jeffery W. Johnson 50 Director 1997 2000
Directors Continuing in Office:
William C. Ellis, Jr. 55 Director 1990 2001
Ralph G. Evans 43 Director 1990 2001
A. Curtis Farrar, Jr. 55 Director 1990 2002
Norman E. Fletcher 62 Director 1990 2002
</TABLE>
Executive Officers
The following table and accompanying notes set forth the name, age and
business experience during the past five years of individuals who are the
executive officers of the Company and the Bank and all persons chosen to become
executive officers.
<TABLE>
<CAPTION>
Name Age Position with the Company and the Bank
- --------------------------- -------------- ---------------------------------------------------------------------------
<S> <C> <C>
Robert L. Cation 55 Chairman of the Board of FNC Bancorp, Inc.
Chairman of the Board of First National Bank of Coffee County
Jeffery W. Johnson 50 President and CEO of FNC Bancorp, Inc.
President and CEO of First National Bank of Coffee County
Leonard W. Thomas 39 Senior Vice President and CFO of First National Bank of Coffee County
Assistant Secretary of FNC Bancorp, Inc.
Ralph G. Evans 43 Secretary of FNC Bancorp, Inc.
</TABLE>
-39-
<PAGE>
Business Experience
Effective April 2, 1997, Jeffery W. Johnson was employed as President and
CEO of the Company and the Bank as well as elected as a director of the Bank.
Mr. Johnson has twenty-five years experience in banking. He most recently served
as President of First State Bank in Cordele, Georgia, a position he held for ten
years. Prior to his tenure with First State Bank, Mr. Johnson served as CEO of
Commercial State Bank, Donalsonville, Georgia, as a Vice President of the Bank
of Perry, Perry, Georgia and as a Banking Officer at C & S National Bank in
Athens, Georgia. Mr. Johnson is a native of Soperton, Georgia, a graduate of the
University of Georgia and the School of Banking at Louisiana State University.
He has served as a director of the Small Business Administration's Advisory
Board, is a past President of the Cordele Chamber of Commerce and was a delegate
to the 1998 Congressional Conference on Small Business.
Leonard W. Thomas is Senior Vice President and CFO of First National Bank
of Coffee County. His responsibilities include supervision of the Bank's
investment, bookkeeping and accounting operations. He has over 14 years of bank
audit and management experience, is a CPA and has completed the AICPA's National
Banking School in Charlottesville, Virginia.
Robert L. Cation is an Organizer of the Company and the Bank. Mr. Cation
also is the Chairman of the Board of Directors of the Company and serves as
Chairman of the Board of Directors of the Bank. Since 1970, Mr. Cation has owned
and operated Cation Food Stores, Inc., a retail grocery operation in south
Georgia, where he serves as President and is responsible for the overall
management of the corporation. Mr. Cation served as a director for Bank South,
Douglas (and as a director for The Exchange Bank of Douglas, the predecessor of
Bank South, Douglas) from 1983 until June 1990.
Milton G. Clements is an Organizer of the Company and the Bank. Mr.
Clements also is a Director of the Company and the Bank. He is Chairman and
President of Clements, Purvis & Stewart, P.C., a Certified Public Accounting
firm in Douglas, Georgia. He is a past President and director of the
Douglas-Coffee County Chamber of Commerce as well as a past director of the
Douglas Downtown Development Authority. Mr. Clements is a former member of the
Douglas Lions Club where he has held all the primary officer positions and is a
current member of the Georgia Society and the American Institute of CPA's.
William C. Ellis, Jr. is an Organizer of the Company and the Bank. Mr.
Ellis also is a Director of the Company and the Bank. Mr. Ellis has served as
President of ESCO Industries, Inc., a Douglas Georgia based manufacturing
corporation with branch locations in Asheboro, North Carolina, Lakeland,
Florida, Waco, Texas and Hartselle, Alabama. In addition, Mr. Ellis serves as
President of Ellis & Ellis, Inc., Douglas, Georgia and Secretary-Treasurer of
Diversified Polymer Industries, Inc., Dalton, Georgia. Mr. Ellis' professional
involvement includes membership in the Georgia Manufactured Housing Association,
the Coffee County Manufacturers Council and the Douglas-Coffee County Chamber of
Commerce. From 1984 until June 1990, he served as a director of Trust Company
Bank of Coffee County.
-40-
<PAGE>
Ralph G. Evans is an Organizer of the Company and the Bank. Mr. Evans also
is a Director and the Secretary of the Company and Director of the Bank. Mr.
Evans serves as President of both R. W. Griffin Feed, Seed & Fertilizer, Inc., a
farming and farm supply retail store, and Douglas Peanut and Grain Co. Mr. Evans
also serves as a director of Chem Nut, Inc., an Albany, Georgia based
publicly-held ag-chemical distribution company. Mr. Evans previously served as a
director of the Downtown Douglas Development Authority.
A. Curtis Farrar, Jr. is an Organizer of the Company and the Bank. Mr.
Farrar also is a Director of the Company and the Bank. He is presently Senior
Partner with the law firm of Farrar and Hennesy. Since 1973, Mr. Farrar has
served as a Juvenile Court Judge in Douglas. From 1987 to 1989, Mr. Farrar
served on the Georgia Governor's Task Force on Drug Awareness and Prevention.
Norman E. Fletcher is an Organizer of the Company and the Bank. Mr.
Fletcher also is a Director of the Company and the Bank. He is President of
Fletcher Oil Company and Floco, Inc. all of which are wholesale oil companies.
He also serves as President of Quick Change, Inc. convenience store chain in
south Georgia. Mr. Fletcher is an active member and deacon of the First Baptist
Church in Douglas, and since January 1990, has served as Chairman of the Job
Training Program in the area.
Unless stated otherwise, each of the above-named persons has been engaged
in his or her present occupation for more than the past five years.
There are no family relationships among directors, executive officers, or
persons nominated or chose by the Company to become directors or executive
officers.
-41-
<PAGE>
ITEM 10. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Executive Compensation
The Company does not separately compensate any of its executive officers.
The following table sets forth the annual and long-term compensation paid to the
Company's and the Bank's Chief Executive Officer for the most recent and
previous two fiscal years. There were no other executive officers of the Company
and the Bank whose cash compensation exceeded $100,000 during 1999.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------------- -------------------------- ----------
Other Restricted Securities
Name Annual Stock Underlying LTP All Other
Principal Salary Bonus Compensation Award(S) Options Payouts Compensation
Position Year ($) ($) ($) (1) ($) SARS (#) ($) ($)
- ------------------------ ------- ------------ ----------- --------------- ------------ ------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffery W. Johnson (2) 1999 $ 120,000 $ 49,250 $ - $ - 101 $ - $ -
President and CEO 1998 $ 96,000 $ 24,000 $ - $ - 10,259 $ - $ -
of FNC Bancorp, Inc. 1997 $ 72,000 $ - $ - $ - 39,640 $ - $ 772
and First National
Bank of Coffee
County
</TABLE>
(1) Compensation does not include any perquisites and other personal benefits
which may be derived from business-related expenditures that in the aggregate do
not exceed the lesser of $50,000 or 10% of the total annual salary and bonuses
reported for such person.
(2) Jeffery W. Johnson began employment April 2, 1997 and was elected President
and CEO of the Bank and the Company on May 15, 1997.
-42-
<PAGE>
The Board of Directors, after consulting with others in the banking
industry and legal counsel negotiated an employment agreement with Jeffery W.
Johnson which commenced on April 1, 1997 and will continue for a term ending
April 30, 2000. Thereafter such employment agreement will continue from year to
year unless and until terminated by either party. The Board of Directors relied
upon information pertaining to comparable CEO compensation in the industry as
well as its determination of the value of Mr. Johnson's previous experience in
determining a fair and reasonable compensation package for Mr. Johnson as set
forth in the new employment agreement. The terms and conditions of such
employment agreement are summarized described below.
Employment Agreement
The employment agreement (the "Agreement") provides Mr. Johnson with a base
salary of $90,000 annually during the initial term of the Agreement. After the
initial fiscal year, the base salary may be increased at the discretion of the
Board. The Agreement also provides for incentive compensation in the form of
bonuses to be paid to Mr. Johnson should certain performance levels related to
profitability be achieved. Mr. Johnson may receive a bonus equal to fifty per
cent (50%) of the amount by which the Company's net income exceeds return on
equity benchmarks determined as set forth in the Agreement. The return on equity
benchmark for the 1997 fiscal year was 9.5%. For subsequent years, the benchmark
will be determined by the Board of Directors or a compensation committee
thereof. These bonuses are capped at $35,000 for the first fiscal year, $45,000
for the second fiscal year and $50,000 for the third fiscal year. Mr. Johnson is
afforded the right under the Agreement to elect to receive the amount of such
incentive bonus in the form of non-qualified stock options provided that the
total number of stock options issued under this election shall not exceed 25,000
shares. As an additional inducement to Mr. Johnson to accept employment with the
Bank, the Company issued stock options for 25,000 shares vesting 8,333 shares
per year the first two years of employment and 8,334 in the third year. All such
stock options will provide for a strike price of $10 per share and shall have a
term of seven years after the date of issuance or vesting, as applicable.
The Agreement also provides for hospitalization and major medical insurance
coverage for Mr. Johnson; term life insurance; disability insurance; an
automobile; membership in a social club suitable for conducting banking business
and reimbursement for expenses incurred on behalf of the Bank.
The Agreement will provide that, if the Bank terminates the Agreement
without cause during the first three years of its term, Mr. Johnson will receive
severance pay equal to twelve months base salary. In the event of a change in
control of the Bank, Mr. Johnson will receive severance pay equal to two years
base salary unless he is offered equivalent employment with the acquiring party
and remains employed in such capacity for at least six months.
In addition, the employment agreement will provide that following
termination of his employment with the Bank, Mr. Johnson will not engage in any
banking activities in which he was engaged at the time of his employment within
a fifty mile radius of Douglas, Georgia for a period of one year following
termination.
-43-
<PAGE>
Other Executive Compensation
With respect to compensation paid to executive officers other than the CEO,
the Board of Directors has offered competitive salaries in comparison to market
practices when hiring. Subsequent raises are based upon a comparison of current
market conditions and management's subjective valuation of job performance. The
Bank paid bonuses to certain executive officers. These bonuses were based upon
an evaluation of the job performance of each individual executive officer as
well as a comparison of current market conditions. In addition, the Board has
awarded stock options to certain executive officers as an incentive to job
performance.
Director Compensation
Currently, directors are reimbursed for expenses in connection with the
performance of their duties but receive no directors' fees. However, for the
year ending December 31, 2000, the Company has budgeted to pay the directors
$36,000 in directors' fees for participation in Board meetings and various
sub-committees of the Bank and Company.
The following table sets forth certain information concerning each grant of
options to purchase the Company's common stock made during the 1999 fiscal year
to the persons named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------------
% of Total
Number of Options
Shares Granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration
Granted (#) Year ($/SH) Date
-------------- ---------------- -------------- ------------
<S> <C> <C> <C> <C>
Jeffery W. Johnson
1999 ...................... 101 2.06% $ 10 2009
============== ================ ==============
</TABLE>
The following table sets forth certain information regarding the exercise
of stock options in the 1999 fiscal year by the person named in the Summary
Compensation Table and the Value of options held by such person at the end of
such fiscal year.
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired on Value (1) Underlying Unexercised In-The-Money Options
Name Exercise (#) Realized ($) Options at Year End (#) at Year End ($) (2)
--------------------- --------------- -------------- ------------------------------- --------------------------------
Exercisable Unexercisable Exercisable Unexercisable
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jeffery W. Johnson 5,963 $ 11,926 41,666 8,334 $ 83,332 $ 16,668
=============== ============== =============== =============== ================ ===============
</TABLE>
(1) Values are calculated by subtracting the exercise or base price from the
fair market value of the stock as of the exercise date or fiscal year end, as
appropriate, which is assumed to be $12 per share.
(2) Assumes, for all unexercised in-the-money options, the difference between
fair market value and the exercise price to be $2 per share for the reason
stated in (1) above.
-44-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Shareholders
The following table presents as of December 31, 1999, certain information
regarding the Company's common stock owned by each person who beneficially owns
more than 5% of the shares of the Company's common stock.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent of
Title of Class Beneficial Owner Ownership Class
-------------------- ---------------------------------- ------------------- -----------------
<S> <C> <C> <C>
Common Carl C. Atkinson 25,000 1 6.01%
Rt. 2, Box 777
Broxton, Georgia 31519
Common Robert L. Cation 26,917 6.47
1008 Golf Club Road
Douglas, Georgia 31533
Common William C. Ellis, Jr. 27,167 6.53
Post Office Box 270
Douglas, Georgia 31534
Common Ralph G. Evans 31,717 2 7.62
Post Office Box 1264
Douglas, Georgia 31534
Common A. Curtis Farrar, Jr. 26,917 6.47
Post Office Box 770
Douglas, Georgia 31534
Common Norman E. Fletcher 26,566 3 6.39
401 Shirley Avenue
Douglas, Georgia 31533
</TABLE>
1 Includes 12,500 shares held in the name of Malklean B. Atkinson, wife of Carl
C. Atkinson.
2 Includes 600 shares held in the name of Cady Suzanne Evans, daughter of Ralph
G. Evans, 600 shares held in the name of Christy Elizabeth Evans, daughter of
Ralph G. Evans and 600 shares held in the name of Ralph G. Evans, Jr., son of
Ralph G. Evans.
3 Includes 200 shares held in the name of CEDE & Company F/B/O Norman E.
Fletcher IRA and 200 shares held in the name of CEDE & Company F/B/O Marvelyne
G. Fletcher (wife of Normal E. Fletcher) IRA.
-45-
<PAGE>
Stock Ownership by Management
The following table presents as of December 31, 1999, certain information
regarding the Company's common stock owned (i) by each of the Company's
directors and (ii) by all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address of Beneficial Percent of
Title of Class Beneficial Owner Ownership Class
-------------------- ---------------------------------- -------------------- -----------------
<S> <C> <C> <C>
Common Robert L. Cation 26,917 6.47%
1008 Golf Club Road
Douglas, Georgia 31533
Common Milton G. Clements 17,600 4 4.23
1512 Golf Club Ext.
Douglas, Georgia 31533
Common William C. Ellis, Jr. 27,167 6.53
Post Office Box 270
Douglas, Georgia 31534
Common Ralph G. Evans 31,717 5 7.62
Post Office Box 1264
Douglas, Georgia 31534
Common A. Curtis Farrar, Jr. 26,917 6.47
Post Office Box 770
Douglas, Georgia 31534
Common Norman E. Fletcher 26,566 6 6.39
401 Shirley Avenue
Douglas, Georgia 31533
Common Jeffery W. Johnson 16,925 4.07
Common Leonard W. Thomas 467 0.11
---------------- -----------------
All directors and executive officers as a group (8 persons) 174,276 41.89%
================ =================
</TABLE>
4 Includes 1,000 shares held in the name of Laura B. Clements, wife of Milton G.
Clements, 2,000 shares held in the name of Milton Bryan Clements, son of Milton
G. Clements, 2,000 shares held in the name of Steven Griffin Clements, son of
Milton G. Clements, 2,000 shares held in the name of William Donovan Clements,
son of Milton G. Clements.
5 Includes 600 shares held in the name of Cady Suzanne Evans, daughter of Ralph
G. Evans, 600 shares held in the name of Christy Elizabeth Evans, daughter of
Ralph G. Evans and 600 shares held in the name of Ralph G. Evans, Jr., son of
Ralph G. Evans.
6 Includes 200 shares held in the name of CEDE & Company F/B/O Norman E.
Fletcher IRA and 200 shares held in the name of CEDE & Company F/B/O Marvalyne
G. Fletcher (wife of Norman E. Fletcher) IRA.
-46-
<PAGE>
The following contains information with respect to the common stock owned
as of the record date (i) by directors and executive officers of the Company and
(ii) by all directors and executive officers of the Company as a group, who are
deemed to be the beneficial owners of additional shares of the common stock of
the Company through their right to exercise warrants or stock options. The
percent owned is calculated for each individual upon the assumption that they
have exercised all of their warrants or stock options while no other holder of
warrants or options has done so. The percent owned of the group is calculated
upon the assumption that all such individuals have simultaneously exercised all
of their warrants and options.
<TABLE>
<CAPTION>
Number of % Owned
Number of Shares and (Including
Name of Shares Number of Number of Options/ Options/
Beneficial Owner Issued 7 Warrants 8 Options Warrants 9 Warrants) 10
----------------------------------------- --------------- ------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
Robert L. Cation ........................ 26,917 25,000 - 51,917 11.77%
Milton G. Clements ...................... 17,600 12,500 - 30,100 7.02
William C. Ellis, Jr. ................... 27,167 25,000 - 52,167 11.83
Ralph G. Evans .......................... 31,717 25,000 - 56,717 12.86
A. Curtis Farrar, Jr. ................... 26,917 25,000 - 51,917 11.77
Norman E. Fletcher ...................... 26,566 25,000 - 51,566 11.69
Jeffery W. Johnson ...................... 16,925 - 50,000 66,925 14.36
Leonard W. Thomas ....................... 467 - 933 1,400 0.34
--------------- ------------- -------------- ------------------ --------------
All directors and executive officers
as a group (8 persons) ............ 174,276 137,500 50,933 362,709 59.99%
=============== ============= ============== ================== ==============
</TABLE>
Under Mr. Jeffery W. Johnson's employment agreement and under agreements
with the Bank's directors individually, he acquired the rights to acquire
certain stock options and stock of the Company. If Mr. Johnson acquired all of
the shares of stock available to him by stock option under his employment
agreement or from the Bank's directors, then he would own 66,925 shares of the
Company's stock which would represent 14.36% of the issued and outstanding stock
of the Company assuming that no other holder of options or warrants exercised
their rights to acquire additional stock.
7 Taken from the previous table except as noted.
8 In recognition of the efforts and financial risks undertaken by the directors
and executive officers in organizing the Company and the Bank, the directors and
executive officers named above were granted warrants to purchase one share of
common stock for each share purchased in the original offering, however, such
persons elected to acquire a total of only 137,500 such warrants. Upon exercise,
each warrant will entitle the holder to purchase one share of the common stock
of the company at a price equal to $10 per share (the same price at which the
shares were initially sold to the public) unless the Bank is, at that time,
required to raise capital to meet its regulatory guidelines in which case the
exercise price will be greater of $10 per share or the book value per share of
the common stock of the Company as reflected in the Company's quarterly
financial report for the quarter and immediately prior to the exercise of the
warrant. Subject to certain limitations, the warrants are exercisable for a
period of ten (10) years from the date of the Company's stock offering.
9 Includes shares deemed to be beneficially owned through the right to exercise
warrants or stock options exercisable within sixty (60) days of the record date.
10 Based upon 416,136 shares outstanding as of the record date and as adjusted
for warrants or stock options exercisable within sixty (60) days of the record
date.
-47-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bank Loans to Affiliates
The Directors, officers and employees of the Company and the Bank, as well
as individuals, firms and companies with which they are associated, have or are
anticipated to have banking transactions with the Bank. Subject to applicable
laws, the Bank has a policy of offering loans to its eligible employees (i.e.,
employees other than Directors, executive officers and holders of more than ten
percent of the Company's outstanding Common Stock, as well as affiliates of such
persons) at favorable interest rates which generally will be equal to or in
excess of the Bank's prime lending rate at the time of the loan. Loans to
directors, executive officers, controlling shareholders and their affiliates are
made at the prevailing interest rate for comparable loans to unaffiliated
borrowers. In all respects other than the rate of interest charged on loans to
eligible employees, loans by the Bank to directors, officers, employees and
controlling shareholders, as well as to affiliates of such persons, are extended
only in the ordinary course of business and on substantially the same terms,
including collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk
of collectability or present other unfavorable features. Bank policy also
requires that any loans by the Bank to any of its directors or executive
officers aggregating in excess of $25,000 must be approved by the affirmative
vote of a majority of the Board of Directors at a meeting in which any
interested director has abstained from participating, either directly or
indirectly.
-48-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-B.
Exhibit
No. Description
3.1 Articles of Incorporation of the Registrant, (filed as Exhibit 3.1 to
the Registrant's Form S-18 (File Number 33-37078), as amended.)
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the Registrant's Form
S-18 (File Number 33-37078), as amended.)
10.1 Form of subscription Agreement (filed as Exhibit 10.1 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-37078),
filed with the Commission for the year ended December 31, 1990 and
incorporated herein by reference.)
10.2 Form of Organizer's Warrant (filed as Exhibit 10.2 to the Registrant's
Form S-18 (File Number 33-37078), as amended.)
10.3 1997 Incentive Stock Option Plan (filed as Exhibit 10.3 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-37078),
filed with the Commission for the year ended December 31, 1997 and
incorporated herein by reference).
10.4 Executive Employment Agreement with Jeffery W. Johnson (filed as
Exhibit 10.4 to the Registrant's Annual Report on Form 10-KSB (File
Number 33-37078), filed with the Commission for the year ended
December 31, 1997 and incorporated herein by reference).
21.1 Subsidiaries of the Registrant. (filed as Exhibit 21.1 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-37078),
(filed with the Commission for the year ended December 31, 1996 and
incorporated herein by reference).
24 Power of Attorney relating to this Annual Report on Form 10-KSB is set
forth on the signature pages to this Annual Report.
27 Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the last quarter
of the period covered by this Report.
-49-
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"), the Registrant has duly caused this
Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized.
FNC BANCORP, INC.
Date:March 24, 2000 By: /s/ Jeffrey W. Johnson
------------------------- --------------------------------------------
Jeffery W. Johnson, President,
Chief Executive Officer and Director
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jeffery W. Johnson as his attorney-in-fact,
acting with full power of substitution for him in his name, place and stead, in
any and all capacities, to sign any amendments to this Form 10-KSB and to file
the same, with exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission and hereby ratifies and
confirms all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Exchange Act, this Form 10-KSB has been
signed by the following persons in the capacities and on the dates indicated.
Date:March 24, 2000 /s/ Jeffrey W. Johnson
------------------------- --------------------------------------------
Jeffery W. Johnson, President
Chief Executive Officer and Director
Date:March 24, 2000 /s/ Robert L. Cation
------------------------- --------------------------------------------
Robert L. Cation, Director
Date:March 24, 2000 /s/ Milton G. Clements
------------------------- --------------------------------------------
Milton G. Clements, Director
Date:March 24, 2000 /s/ William C. Ellis, Jr.
------------------------- --------------------------------------------
William C. Ellis, Jr., Director
Date:March 24, 2000 /s/ Ralph G. Evans
------------------------- --------------------------------------------
Ralph G. Evans, Director
Date:March 24, 2000 /s/ A. Curtis Farrar, Jr.
------------------------- --------------------------------------------
A. Curtis Farrar, Jr., Director
Date:March 24, 2000 /s/ Norman E. Fletcher
------------------------- --------------------------------------------
Norman E. Fletcher, Director
-50-
<PAGE>
FNC BANCORP, INC.
EXHIBIT INDEX
Exhibit
No. Description
3.1 Articles of Incorporation of the Registrant, (filed as Exhibit 3.1 t
the Registrant's Form S-18 (File Number 33-37078), as amended.)
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the Registrant's Form
S-18 (File Number 33-37078), as amended.)
10.1 Form of subscription Agreement (filed as Exhibit 10.1 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-37078),
filed with the Commission for the year ended December 31, 1990 and
incorporated herein by reference.)
10.2 Form of Organizer's Warrant (filed as Exhibit 10.2 to the Registrant's
Form S-18 (File Number 33-37078), as amended.)
10.3 1997 Incentive Stock Option Plan (filed as Exhibit 10.3 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-37078),
(filed with the Commission for the year ended December 31, 1997 and
incorporated herein by reference).
10.4 Executive Employment Agreement with Jeffery W. Johnson (filed as
Exhibit 10.4 to the Registrant's Annual Report on Form 10-KSB (File
Number 33-37078), (filed with the Commission for the year ended
December 31, 1997 and incorporated herein by reference).
21.1 Subsidiaries of the Registrant. (filed as Exhibit 21.1 to the
Registrant's Annual Report on Form 10-KSB (File Number 33-37078),
(filed with the Commission for the year ended December 31, 1996 and
incorporated herein by reference.)
24 Power of Attorney relating to this Annual Report on Form 10-KSB is set
forth on the signature pages to this Annual Report.
27 Financial Data Schedule
(b) The Registrant did not file any reports on Form 8-K during the last quarter
of the period covered by this Report.
-51-
<PAGE>
FNC BANCCORP, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated financial statements:
Independent Auditor's Report ................................................................. F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 ..................................... F-3
Consolidated Statements of Income - Years ended December 31, 1999 and 1998 ................... F-4
Consolidated Statements of Comprehensive Income - Years ended December 31, 1999 and 1998 .... F-5
Consolidated Statements of Stockholders' Equity - Years ended December 31, 1999 and 1998 .... F-6
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and 1998 ............... F-7
Notes to Consolidated Financial Statements ................................................... F-9
</TABLE>
All schedules are omitted as the required information is inapplicable or the
information is presented in the financial statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
FNC Bancorp, Inc. and Subsidiary
Douglas, Georgia
We have audited the accompanying consolidated balance sheets of FNC
Bancorp, Inc. and Subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows for the years then ended. 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 audits 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 FNC Bancorp,
Inc. and Subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Albany, Georgia
January 28, 2000 /s/ MAULDIN & JENKINS, LLC
F-2
<PAGE>
FNC BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------
--------------------- ---------------------
<S> <C> <C>
Cash and due from banks ...................................................... $ 3,394,212 $ 5,617,359
Federal funds sold ........................................................... 1,528,000 5,966,000
Securities available for sale, at fair value ................................. 3,165,290 4,280,362
Securities held to maturity, at cost
(fair value $4,728,603) ................................................. 4,777,413 -
Other investments ............................................................ 313,900 473,600
Loans ........................................................................ 54,168,453 41,989,950
Less allowance for loan losses ............................................... 1,422,689 1,274,285
--------------------- ---------------------
Loans, net ......................................................... 52,745,764 40,715,665
--------------------- ---------------------
Premises and equipment, net .................................................. 1,849,122 1,613,025
Other assets ................................................................. 1,079,603 914,391
--------------------- ---------------------
$ 68,853,304 $ 59,580,402
===================== =====================
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing demand ............................................... $ 11,090,409 $ 12,695,085
Interest-bearing demand .................................................. 13,136,785 11,707,125
Savings .................................................................. 1,999,607 1,973,434
Time, $100,000 and over .................................................. 10,724,505 9,252,893
Other time ............................................................... 23,923,115 18,671,816
--------------------- ---------------------
Total deposits ................................................. 60,874,421 54,300,353
--------------------- ---------------------
Federal funds purchased .................................................. 1,250,000 -
Notes payable, directors ................................................. 500,000 500,000
Federal Home Loan Bank borrowings ........................................ 55,000 65,000
Other liabilities ........................................................ 1,322,291 771,509
--------------------- ---------------------
Total liabilities .................................................. 64,001,712 55,636,862
--------------------- ---------------------
Stockholders' equity
Preferred stock, par value $1; 10,000,000 shares
authorized, no shares issued
Common stock, par value $1; 10,000,000 shares
authorized; issued 1999 416,636 shares;
1998 411,173 shares .................................................. 416,636 411,173
Additional paid-in capital ............................................... 3,708,875 3,659,708
Retained earnings (deficit) .............................................. 784,081 (141,341)
Accumulated other comprehensive income (loss) ............................ (49,000) 14,000
--------------------- ---------------------
4,860,592 3,943,540
Less cost of treasury stock, 500 shares .................................. 9,000 -
--------------------- ---------------------
Total stockholders' equity ......................................... 4,851,592 3,943,540
--------------------- ---------------------
$ 68,853,304 $ 59,580,402
===================== =====================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
FNC BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------- ----------------------
<S> <C> <C>
Interest income
Interest and fees on loans ................................................... $ 4,708,709 $ 3,614,790
Interest and dividends on taxable securities ................................. 389,393 290,683
Interest on nontaxable securities ............................................ 3,586 -
Interest on Federal funds sold ............................................... 230,641 206,364
------------------- ----------------------
5,332,329 4,111,837
------------------- ----------------------
Interest expense
Interest on deposits ......................................................... 2,200,033 1,713,903
Interest on other borrowings ................................................. 40,984 59,358
------------------- ----------------------
2,241,017 1,773,261
------------------- ----------------------
Net interest income .................................................... 3,091,312 2,338,576
Provision for loan losses ........................................................ - -
------------------- ----------------------
Net interest income after provision for loan losses .................... 3,091,312 2,338,576
------------------- ----------------------
Other income
Service charges on deposit accounts .......................................... 524,040 446,728
Other commissions and fees ................................................... 36,507 26,545
Origination fees on mortgage loans ........................................... 34,308 45,851
Other ........................................................................ 75,364 70,204
------------------- ----------------------
670,219 589,328
------------------- ----------------------
Other expenses
Salaries and employee benefits ............................................... 1,250,855 991,981
Equipment and occupancy ...................................................... 279,188 261,306
Data processing .............................................................. 89,226 106,459
Printing and office supplies ................................................. 71,512 67,138
Legal and professional ....................................................... 80,454 101,313
Advertising and business development ......................................... 67,501 40,259
Training and travel .......................................................... 148,226 77,742
Other operating expenses ..................................................... 334,177 335,417
------------------- ----------------------
2,321,139 1,981,615
------------------- ----------------------
Income before income taxes ............................................. 1,440,392 946,289
Income tax expense ............................................................... 514,970 344,611
------------------- ----------------------
Net income ............................................................. $ 925,422 $ 601,678
=================== ======================
Basic earnings per common share .................................................. $ 2.23 $ 1.47
=================== ======================
Diluted earnings per common share ................................................ $ 2.07 $ 1.47
=================== ======================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
FNC BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------- --------------------
<S> <C> <C>
Net income ....................................................................... $ 925,422 $ 601,678
Other comprehensive income (loss):
Net unrealized holding gains (losses) arising during
period, net of tax (benefit) of ($32,000) and $1,866 ..................... (63,000) 4,034
------------------- --------------------
Comprehensive income ............................................................. $ 862,422 $ 605,712
=================== ====================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
FNC BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Additional Retained Comprehensive Treasury Stock Total
----------------- Paid-in Earnings Income ---------------- Stockholders'
Shares Par Value Capital (Deficit) (Loss) Shares Par Value Equity
------- --------- ----------- --------- ------------ ------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ......... 405,710 $ 405,710 $ 3,610,541 $(743,019) $ 9,966 - $ - $ 3,283,198
Exercise of options by
officer .................... 5,463 5,463 49,167 - - - - 54,630
Net income ..................... - - - 601,678 - - - 601,678
Other comprehensive income ..... - - - - 4,034 - - 4,034
------- --------- ----------- --------- ------------ ------ --------- ----------------
Balance, December 31, 1998 ......... 411,173 411,173 3,659,708 (141,341) 14,000 - - 3,943,540
Exercise of options by
officer .................... 5,463 5,463 49,167 - - - - 54,630
Net income ..................... - - - 925,422 - - - 925,422
Purchase of treasury stock ..... - - - - - 500 (9,000) (9,000)
Other comprehensive loss ....... - - - - (63,000) - - (63,000)
------- -------- ------------ --------- ------------ ------ --------- ----------------
Balance, December 31, 1999 ......... 416,636 $ 416,636 $ 3,708,875 $ 784,081 $ (49,000) 500 $ (9,000) $ 4,851,592
======= ========= ============ ========= ============ ====== ========= ================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
FNC BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------------- -----------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................................... $ 925,422 $ 601,678
---------------------- -----------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ............................................................. 141,167 133,926
Provision for deferred income taxes ...................................... 10,691 173,529
Loss on disposal of property and equipment ............................... 14,790 -
Increase in interest receivable .......................................... (150,434) (28,792)
Increase in interest payable ............................................. 149,382 189,052
Increase in taxes payable ................................................ 315,629 -
Other prepaids, deferrals and accruals, net .............................. 92,302 224,034
---------------------- -----------------------
Total adjustments .................................................. 573,527 691,749
---------------------- -----------------------
Net cash provided by operating activities .......................... 1,498,949 1,293,427
---------------------- -----------------------
INVESTING ACTIVITIES
(Increase) decrease in Federal funds sold .................................... 4,438,000 (5,932,000)
Purchases of securities available for sale ................................... (2,979,928) (1,750,000)
Proceeds from sales of securities available for sale ......................... 1,000,000 -
Proceeds from maturities of securities available for sale .................... 3,000,000 3,501,360
Purchases of securities held to maturity ..................................... (4,777,413) -
Proceeds from redemption of
Federal Home Loan Bank stock ............................................. 159,700 -
Increase in loans, net ....................................................... (12,030,099) (10,195,091)
Purchase of premises and equipment ........................................... (392,054) (91,921)
---------------------- -----------------------
Net cash used in investing activities .............................. (11,581,794) (14,467,652)
---------------------- -----------------------
FINANCING ACTIVITIES
Increase in deposits ......................................................... 6,574,068 15,252,354
Increase (decrease) in Federal funds purchased ............................... 1,250,000 (430,000)
Decrease in Federal Home Loan Bank borrowings ................................ (10,000) (1,010,000)
Proceeds from issuance of common stock ....................................... 54,630 54,630
Purchase of treasury stock ................................................... (9,000) -
---------------------- -----------------------
Net cash provided by financing activities .......................... 7,859,698 13,866,984
---------------------- -----------------------
Net increase (decrease) in cash and due from banks ............................... $ (2,223,147) $ 692,759
Cash and due from banks at beginning of year ..................................... 5,617,359 4,924,600
---------------------- -----------------------
Cash and due from banks at end of year ........................................... $ 3,394,212 $ 5,617,359
====================== =======================
</TABLE>
F-7
<PAGE>
FNC BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------------------- -------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES Cash paid during the year for:
Interest .............................................................. $ 2,091,635 $ 1,584,209
Income taxes .......................................................... $ 188,650 $ 171,082
NONCASH TRANSACTION
Net change in unrealized gains (losses) on securities
available for sale .................................................... $ (95,000) $ 5,900
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
FNC BANCORP, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
FNC Bancorp, Inc. (the Company) is a bank holding company whose business is
conducted by its wholly-owned subsidiary, First National Bank of Coffee County
(the Bank). The Bank is a commercial bank located in Douglas, Coffee County,
Georgia. The Bank provides a full range of banking services in its primary
market area of Coffee County and the surrounding counties.
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the balance sheet date and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination
of the allowance for loan losses, the valuation of foreclosed real estate, and
deferred tax assets.
The Company's consolidated financial statements include the accounts of the
Company and the Bank. All significant intercompany transactions and accounts
have been eliminated in consolidation.
Reclassification of Certain Items
Certain items in the consolidated financial statements as of and for the year
ended December 31, 1998 have been reclassified, with no effect on total assets,
total capital or net income, to be consistent with the classifications adopted
for the year ended December 31, 1999.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Due From Banks
Cash on hand, cash items in process of collection, and amounts due from banks
are included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may exceed
Federally insured limits. The Company has not experienced any losses in such
accounts.
Securities
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held to maturity and recorded at amortized cost.
Securities not classified as held to maturity are classified as available for
sale and recorded at fair value with unrealized gains and losses reported as a
separate component of other comprehensive income or loss. Other investments,
which include Federal Reserve Bank stock and Federal Home Loan Bank stock, are
carried at cost as such investments are not readily marketable.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sale of securities are determined using the specific
identification method.
Loans
Loans are reported at their outstanding principal balances less unearned income
and the allowance for loan losses. Interest income is accrued based on the
principal balance outstanding.
Fees on loans and costs incurred in origination of loans are recognized at the
time the loan is placed on the books. Because these loan fees and costs are not
significant and the majority of loans have maturities of one year or less, the
results of operations are not materially different than the results which would
be obtained by accounting for loan fees and costs in accordance with generally
accepted accounting principles.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
The accrual of interest on loans is discontinued when, in management's opinion,
the borrower may be unable to meet payments as they become due. Unless, in
management's opinion, the borrower's impairment is only temporary, all interest
accrued but not collected for loans that are placed on nonaccrual status or
charged off is reversed against interest income. Interest income is subsequently
recognized only to the extent cash payments are received.
The allowance for loan losses is maintained at a level that management believes
to be adequate to absorb potential losses in the loan portfolio. Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan is confirmed. Subsequent recoveries are credited to the allowance.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth, composition of the loan portfolio, and other risks
inherent in the portfolio. This evaluation is inherently subjective as it
requires material estimates that are susceptible to significant change including
the amounts and timing of future cash flows expected to be received on impaired
loans. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses, and may require the Company to record additions to the allowance based
on their judgment about information available to them at the time of their
examinations.
A loan is considered impaired when it is probable the Company will be unable to
collect all principal and interest payments due in accordance with the
contractual terms of the loan agreement. Individually identified impaired loans
are measured based on the present value of expected payments using the
contractual loan rate as the discount rate, the loan's observable market price,
or the fair value of the collateral if the loan is collateral dependent. If the
recorded investment in the impaired loan exceeds the measure of fair value, a
valuation allowance is established as a component of the allowance for loan
losses. Changes to the valuation allowance are recorded as a component of the
provision for loan losses.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment
Land is carried at cost. Premises and equipment are carried at cost less
accumulated depreciation computed principally on the straight-line method over
the estimated useful lives of the assets.
Other Real Estate Owned
Other real estate owned represents properties acquired through foreclosure.
Other real estate owned is held for sale and is carried at the lower of the
recorded amount of the loan or fair value of the properties less estimated
selling costs. Any write-down to fair value at the time of transfer to other
real estate owned is charged to the allowance for loan losses. Subsequent gains
or losses on sale and any subsequent adjustment to the value are recorded as
other expenses. There was no other real estate owned at December 31, 1999 or
1998.
Income Taxes
Income tax expense consists of current and deferred taxes. Current income tax
provisions approximate taxes to be paid or refunded for the applicable year.
Deferred income tax assets and liabilities are determined using the balance
sheet method. Under this method, the net deferred tax asset or liability is
determined based on the tax effects of the differences between the book and tax
bases of the various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws. Recognition of deferred tax
balance sheet amounts is based on management's belief that it is more likely
than not that the tax benefit associated with certain temporary differences will
be realized. A valuation allowance would be recorded for those deferred tax
items for which it is more likely than not that realization would not occur. The
Company files a consolidated income tax return. Each entity provides for income
taxes based on its contribution to income taxes (benefits) of the consolidated
group.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Common Share
Basic earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted earnings
per common share are computed by dividing net income minus the income effect of
potential common shares that are dilutive by the sum of the weighted average
number of shares of common stock outstanding and potential common shares.
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130 describes
comprehensive income as the total of all components of comprehensive income,
including net income. Other comprehensive income refers to revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income. Currently, the
Company's other comprehensive income consists of unrealized gains and losses on
available for sale securities.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The effective
date of this statement has been deferred by SFAS No. 137 until fiscal years
beginning after June 15, 2000. However, the statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Company expects
to adopt this statement effective January 1, 2001. SFAS No. 133 requires the
Company to recognize all derivatives as either assets or liabilities in the
balance sheet at fair value. For derivatives that are not designated as hedges,
the gain or loss must be recognized in earnings in the period of change. For
derivatives that are designated as hedges, changes in the fair value of the
hedged assets, liabilities, or firm commitments must be recognized in earnings
or recognized in other comprehensive income until the hedged item is recognized
in earnings, depending on the nature of the hedge. The ineffective portion of a
derivative's change in fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of SFAS No. 133 will
have on the Company's earnings or financial position.
There are no other recent accounting pronouncements that have had, or are
expected to have, a material effect on the Company's financial statements.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. INVESTMENT SECURITIES
The amortized cost and approximate fair values of securities are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Securities Available for Sale
December 31, 1999:
U. S. Treasury and government agencies ... $ 3,239,290 $ - $ (74,000) $ 3,165,290
=============== ============== =============== ===============
December 31, 1998:
U. S. Treasury and government agencies ... $ 4,259,362 $ 21,000 $ - $ 4,280,362
=============== ============= ============== ===============
Securities Held to Maturity
December 31, 1999:
U. S. Treasury and government agencies .... $ 4,482,594 $ - $ (46,188) $ 4,436,406
State, county and municipal securities .... 294,819 - (2,622) 292,197
--------------- ------------- -------------- ---------------
$ 4,777,413 $ - $ (48,810) $ 4,728,603
=============== ============= ============== ===============
</TABLE>
Securities with a carrying value of $4,722,586 and $2,824,141 at December 31,
1999 and 1998, respectively, were pledged to secure public deposits and for
other purposes.
The amortized cost and fair value of debt securities as of December 31, 1999 by
contractual maturity are shown below.
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
---------------------------------- ----------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Due from one to three years ...... $ 2,249,780 $ 2,195,817 $ 3,141,921 $ 3,119,366
Due from three to five years ..... 989,510 969,473 1,585,665 1,561,885
Due from five to ten years ....... - - 49,827 47,352
--------------- ----------------- ---------------- ----------------
$ 3,239,290 $ 3,165,290 $ 4,777,413 $ 4,728,603
=============== ================= ================ ================
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
Commercial and financial ...................................... $ 8,015,067 $ 6,344,841
Agricultural .................................................. 1,431,012 1,213,970
Real estate - construction .................................... 2,545,021 1,209,970
Real estate - mortgage, farmland .............................. 8,419,070 7,915,802
Real estate - mortgage, other ................................. 27,847,233 21,156,471
Consumer installment .......................................... 5,911,050 4,148,896
------------------ -----------------
54,168,453 41,989,950
Allowance for loan losses ..................................... (1,422,689) (1,274,285)
------------------ -----------------
Loans, net .................................................... $ 52,745,764 $ 40,715,665
================== =================
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Balance, beginning of year ................................ $ 1,274,285 $ 1,159,173
Provision for loan losses .............................. - -
Loans charged off ...................................... (63,359) (135,693)
Recoveries of loans previously charged off ............. 211,763 250,805
------------------- -------------------
Balance, end of year ...................................... $ 1,422,689 $ 1,274,285
=================== ===================
</TABLE>
The Bank had no loans which it considered to be impaired other than the loans on
which the accrual of interest had been discontinued. The total recorded
investment in impaired loans was $380,425 and $332,587 at December 31, 1999 and
1998, respectively. These loans had related allowance for loan losses of
approximately $67,000 and $69,000 at December 31, 1999 and 1998, respectively.
The average recorded investment in impaired loans for 1999 and 1998 was
approximately $403,000 and $569,000, respectively. There was no significant
amount of interest income recognized on impaired loans in 1999 or 1998.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
The Bank has granted loans to certain related parties, including directors,
executive officers and their related entities. The interest rates on these loans
were substantially the same as rates prevailing at the time of the transaction
and repayment terms are customary for the type of loan involved. Changes in
related party loans for the year ended December 31, 1999 are as follows:
<TABLE>
<S> <C>
Balance, beginning of year ................................................... $ 175,228
Advances .................................................................. 622,207
Repayments ................................................................ (201,556)
-----------------
Balance, end of year ...................................................... $ 595,879
=================
</TABLE>
NOTE 4. PREMISES AND EQUIPMENT, NET
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Land ........................................................... $ 372,676 $ 372,676
Buildings and improvements ..................................... 1,064,078 1,064,078
Equipment ...................................................... 1,006,375 882,757
Construction in process, estimated cost
to complete; $575,000 .................................... 240,386 -
----------------- -----------------
2,683,515 2,319,511
Accumulated depreciation ....................................... (834,393) (706,486)
----------------- -----------------
$ 1,849,122 $ 1,613,025
================= =================
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. DEPOSITS
At December 31, 1999, scheduled maturities of time deposits are as follows:
<TABLE>
<S> <C>
For the year ending December 31,
2000 ............................................................................ $ 29,084,483
2001 ............................................................................ 1,959,047
2002 ............................................................................ 2,859,112
2003 ............................................................................ 724,433
2004 ............................................................................ 7,700
Due after five years ............................................................ 12,845
-----------------
$ 34,647,620
=================
</TABLE>
NOTE 6. NOTES PAYABLE TO DIRECTORS
Notes payable to certain directors totaling $500,000 consist of notes which were
executed on December 27, 1996, and subsequently modified on July 10, 1999. Each
of the notes accrues interest at the Bank's prime rate less 1%. With the
exception of one note in the amount of $36,750 to one director where interest
payments are due quarterly, all payments of principal and accrued interest have
been deferred until maturity on December 29, 2001. At maturity, the Company has
the option to pay all or a part of unpaid principal and interest by issuing to
the director any stock subject to unexercised warrants or options held by the
directors. The directors have the option at any time to pay for any warrant or
option then exercisable through forgiveness of interest and principal accrued
and outstanding.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. FEDERAL HOME LOAN BANK BORROWINGS
The Bank can obtain additional funding as needed for mortgage loans from the
Federal Home Loan Bank of Atlanta ("FHLB"). At December 31, 1999 and 1998, the
Bank had one advance outstanding with a fixed interest rate of 6.99%. This
advance is collateralized by a blanket floating lien on qualifying first
mortgage loans and pledging of the Bank's stock in the FHLB. A summary of the
Bank's borrowings from the FHLB for the years ended December 31, 1999 and 1998
follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Balance, beginning of year ..................................... $ 65,000 $ 1,075,000
Advances .................................................... - -
Repayments .................................................. (10,000) (1,010,000)
----------------- -----------------
Balance, end of year ........................................... $ 55,000 $ 65,000
================= =================
</TABLE>
At December 31, 1999, scheduled maturities of FHLB borrowings are as follows:
<TABLE>
<S> <C>
For the year ending December 31,
2000 .............................................................................. $ 10,000
2001 .............................................................................. 10,000
2002 .............................................................................. 10,000
2003 .............................................................................. 10,000
2004 .............................................................................. 10,000
Due after five years .............................................................. 5,000
----------------
$ 55,000
================
</TABLE>
NOTE 8. EMPLOYEE BENEFIT PLAN
The Bank has a 401(k) salary deferral plan which allows employees to defer up to
15% of their salary with partially matching Bank contributions. Bank
contributions to this plan charged to expense amounted to $16,154 and $16,015 in
1999 and 1998, respectively.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Current ........................................................ $ 504,279 $ 171,082
Deferred ....................................................... 10,691 173,529
----------------- -----------------
$ 514,970 $ 344,611
================= =================
</TABLE>
The Company's income tax expense differs from the amounts computed by applying
the Federal income tax statutory rates to income before income taxes. A
reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1999 1998
------------------------- --------------------------
Amount Percent Amount Percent
------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Tax provision at statutory rate ............... $ 489,733 34 % $ 321,738 34 %
Increase resulting from:
Other items, net ........................... 25,237 2 22,873 2
------------ ---------- ------------- ----------
Income tax expense ............................ $ 514,970 36 % $ 344,611 36 %
============ ========== ============= ==========
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses ................................... $ 256,143 $ 256,143
Non accrual loan interest receivable ........................ 27,752 26,381
Securities available for sale ............................... 25,000 -
----------------- -----------------
308,895 282,524
----------------- -----------------
Deferred tax liabilities:
Premises and equipment ...................................... 73,172 80,192
Other ....................................................... 21,382 2,300
Securities available for sale ............................... - 7,000
----------------- -----------------
94,554 89,492
----------------- -----------------
Net deferred tax assets ........................................ $ 214,341 $ 193,032
================= =================
</TABLE>
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator and the weighted
average shares outstanding (the denominator) used in determining basic and
diluted earnings per share.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
---------------------------------------------------------
Income Shares Per Share Amount
(Numerator) (Denominator)
--------------- ------------------ -----------------
<S> <C> <C> <C>
Basic earnings per share
Net income ........................... $ 925,422 415,104 $ 2.23
=================
Effect of Dilutive Securities
Stock options and warrants ........... - 32,620
----------------- ------------------
Dilutive earnings per share
Net income ........................... $ 925,422 447,724 $ 2.07
================= ================== =================
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------- ------------------- ----------------
<S> <C> <C> <C>
Basic earnings per share
Net income ........................... $ 601,678 409,305 $ 1.47
================
Effect of Dilutive Securities
Stock options and warrants ........... - -
----------------- ------------------
Dilutive earnings per share
Net income ........................... $ 601,678 409,305 $ 1.47
================= =================== ================
</TABLE>
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. STOCK WARRANTS AND STOCK OPTION PLAN
Stock Warrants
In recognition of the efforts and financial risks undertaken by the Company's
organizers, the Company granted each organizer an opportunity to purchase one
share of common stock for each share purchased by them in the Company's common
stock offering. The warrants became exercisable on the date the Bank opened for
business and are exercisable in whole or in part at any time during the ten year
period following that date, at an exercise price equal to $10 per share unless
the Bank is required to raise capital to meet regulatory guidelines. In the
event this occurs, the exercise price will be the greater of $10 per share or
the book value per share of the common stock as reflected in the Company's
quarterly financial report for the quarter ended immediately prior to the
exercise of the warrant. The warrants are nontransferable, other than by will or
the laws of descent and distribution, but shares issued pursuant to the exercise
of warrants will be transferable, subject to compliance with applicable
securities laws. At December 31, 1999 and 1998, there were 137,500 warrants
outstanding.
Stock Option Plan
The Company has options outstanding under the stockholder-approved 1997 Stock
Option Plan (the "1997 Plan"). Options granted under the 1997 Plan are one of
two types: (i) those which qualify for treatment as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive
Stock Options") or (ii) those which do not so qualify ("Nonqualified Stock
Options"). The 1997 Plan provides that not more than 125,000 shares in the
aggregate be issued for Incentive Stock Options and Nonqualified Stock Options.
The exercise price of an Incentive Stock Option shall not be less than the fair
value at the date of grant. The exercise price of a Nonqualified Stock Option
shall be determined by the Board on the date granted.
In addition to the options available under the 1997 Plan, in April 1997, the
Board granted options for 10,926 shares of common stock with a $10 exercise
price to the President and CEO of the Bank provided that he exercises one-half
of the options within twelve months and the remainder within twenty-four months.
The officer exercised 5,463 options during each year ended December 31, 1999 and
1998. At December 31, 1999, there were no options outstanding outside of the
1997 Plan.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. STOCK WARRANTS AND STOCK OPTION PLAN (Continued)
Stock Option Plan (Continued)
A summary of the status of the 1997 Plan at December 31, 1999 and 1998, and
changes during the years ended on those dates is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- ----------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Number Price Number Price
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Under option, beginning of year ......... 58,117 $ 10.00 39,640 $ 10.00
Granted .............................. 4,901 11.96 20,510 10.00
Forfeited ............................ - - (2,033) 10.00
----------- -----------
Under option, end of year .............. 63,018 10.33 58,117 10.00
=========== ===========
Exercisable at end of year ............. 44,070 33,992
=========== ===========
Available for grant at end of year ..... 61,982 66,883
=========== ===========
Weighted-average fair value per option
of options granted during the year .. $ 5.55 $ 3.97
=========== ===========
</TABLE>
Additional information about options outstanding at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
---------------------------------- ---------------
Weighted-
Average
Exercise Number Contractual Number
Price Outstanding Life in Years Outstanding
--------------- ----------------- -------------- ---------------
<S> <C> <C> <C>
$ 10.00 58,218 6.7 44,070
12.00 4,800 10.0 -
----------------- ---------------
63,018 6.9 44,070
================= ===============
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. STOCK WARRANTS AND STOCK OPTION PLAN (Continued)
Stock Option Plan (Continued)
As permitted under generally accepted accounting principles, grants under the
1997 Plan are accounted for following the provisions of APB Opinion No. 25 and
its related interpretations. Accordingly, no compensation cost has been
recognized for grants made to date. Had compensation cost been determined based
on the fair value method prescribed in FASB Statement No. 123, reported net
income and earnings per share would have been reduced as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1999 1998
--------------------------------- --------------------------------
Basic and Basic and
Diluted Diluted
Net Net Income Net Net Income
Income Per Share Income Per Share
----------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
As reported .................... $ 925,422 $ 2.23 $ 601,678 $ 1.47
Stock based compensation,
net of related tax effect ... (29,828) (0.07) (52,976) (0.13)
----------------- --------------- ---------------- ---------------
As adjusted $ 895,594 $ 2.16 $ 548,702 $ 1.34
================= =============== ================ ===============
</TABLE>
The fair value of the options granted in 1999 was based upon the discounted
value of future cash flows of the options using the following assumptions:
Risk-free interest rate 6.28%
Expected life of the options 10 years
Expected dividends (as a percent of the fair value of the stock) 0.00%
Expected volatility 0.00%
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank has entered into off-balance-sheet
financial instruments which are not reflected in the financial statements. These
financial instruments include commitments to extend credit and standby letters
of credit. Such financial instruments are included in the financial statements
when funds are disbursed or the instruments become payable. These instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
A summary of the Bank's commitments is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Commitments to extend credit .................................. $ 7,164,000 $ 4,959,000
Standby letters of credit ..................................... 102,500 120,000
----------------- -----------------
$ 7,266,500 $ 5,079,000
================= =================
</TABLE>
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
credit risk involved in issuing these financial instruments is essentially the
same as that involved in extending loans to customers. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the customer. Collateral held varies but may
include real estate and improvements, crops, marketable securities, accounts
receivable, inventory, equipment, and personal property.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan to customers. Collateral held varies as
specified above and is required in instances which the Bank deems necessary.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES (Continued)
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management of the Company, any liability
resulting from such proceedings would not have a material effect on the
Company's financial statements.
NOTE 13. CONCENTRATIONS OF CREDIT
The Bank originates primarily commercial, residential, and consumer loans to
customers in the Coffee County and surrounding counties. The ability of the
majority of the Bank's customers to honor their contractual loan obligations is
dependent on the economy in Douglas, Georgia and surrounding areas.
Although the Bank's loan portfolio is diversified, there is a relationship in
this region between the agricultural economy and the economic performance of
loans made to nonagricultural customers. The Bank's lending policies for
agricultural and nonagricultural customers require loans to be
well-collateralized and supported by cash flows. Collateral for agricultural
loans include equipment, crops, livestock and land. Credit losses from loans
related to the agricultural economy is taken into considerations by management
in determining the allowance for loan losses.
Approximately seventy-two percent (72%) of the Company's loan portfolio is
concentrated in real estate loans. A substantial portion of these loans are
secured by real estate in the Bank's primary market area. Accordingly, the
ultimate collectibility of the loan portfolio is susceptible to changes in
market conditions in the Bank's primary market area. The other significant
concentrations of credit by type of loan are set forth in Note 3.
The Bank is subject to certain statutory requirements which generally provide
that the Bank may not extend credit to any single borrower or group of related
borrowers in excess of 15% of the Bank's unimpaired capital and surplus (as
defined by the Bank's regulatory authorities), or approximately $1,011,000.
The Bank has a concentration of funds on deposit at its primary correspondent
bank at December 31, 1999 as follows:
Federal funds sold .................................... $ 645,000
Correspondent commercial checking account ............. 1,589,778
------------------
$ 2,234,778
==================
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. Regulatory Matters
The Bank is subject to certain restrictions on the amount of dividends that may
be declared without prior regulatory approval. At December 31, 1999,
approximately $817,400 of retained earnings were available for dividend
declaration without regulatory approval.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets and of Tier I capital to average assets.
Management believes, as of December 31, 1999, the Bank met all capital adequacy
requirements to which it is subject.
As of December 31, 1999, 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 following table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. REGULATORY MATTERS (Continued)
The Bank's actual capital amounts and ratios are presented in the following
table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------------------- ------------------------ --------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- --------- --------------- ------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total Capital to Risk Weighted Assets
Consolidated ............... $ 5,524,300 11.3% $ 3,928,000 8.0% - - - N/A - - -
Bank ....................... $ 5,941,100 12.1% $ 3,928,000 8.0% $ 4,909,900 10.0%
Tier I Capital to Risk Weighted Assets
Consolidated ............... $ 4,900,600 10.0% $ 1,964,000 4.0% - - - N/A - - -
Bank ....................... $ 5,317,400 10.8% $ 1,964,000 4.0% $ 2,946,000 6.0%
Tier I Capital to Average Assets
Consolidated ............... $ 4,900,600 7.7% $ 2,558,200 4.0% - - - N/A - - -
Bank ....................... $ 5,317,400 8.3% $ 2,558,200 4.0% $ 3,197,700 5.0%
As of December 31, 1998
Total Capital to Risk Weighted Assets
Consolidated ............... $ 4,421,400 11.5% $ 3,085,200 8.0% - - - N/A - - -
Bank ....................... $ 4,860,400 12.6% $ 3,085,200 8.0% $ 3,856,500 10.0%
Tier I Capital to Risk Weighted Assets
Consolidated ............... $ 3,929,500 10.2% $ 1,542,600 4.0% - - - N/A - - -
Bank ....................... $ 4,368,500 11.3% $ 1,542,600 4.0% $ 2,313,900 6.0%
Tier I Capital to Average Assets
Consolidated ............... $ 3,929,500 7.2% $ 2,177,500 4.0% - - - N/A - - -
Bank ....................... $ 4,368,500 8.0% $ 2,177,500 4.0% $ 2,721,900 5.0%
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments. In cases where quoted market
prices are not available, fair values are based on estimates using discounted
cash flow methods. Those methods are significantly affected by the assumptions
used, including the discount rates and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. The use of different methodologies may have a
material effect on the estimated fair value amounts. Also, the fair value
estimates presented herein are based on pertinent information available to
management as of December 31, 1999 and 1998. Such amounts have not been revalued
for purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
Cash and Due From Banks and Federal Funds Sold
The carrying amounts of cash and due from banks and Federal funds sold
approximate their fair value.
Securities
Fair values for securities classified as available for sale and held to maturity
are based on available quoted market prices. The carrying values of other
investments with no readily determinable fair value approximate fair values.
Loans
For variable-rate loans that reprice frequently and have no significant change
in credit risk, fair values are based on carrying values. For other loans, the
fair values are estimated using discounted cash flow models, using current
market interest rates offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of the underlying
collateral.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Deposits
The carrying amounts of demand deposits and savings deposits approximate their
fair values. Fair values for certificates of deposit are estimated using
discounted cash flow models, using current market interest rates offered on
certificates with similar remaining maturities.
Federal Funds Purchased
The carrying amounts of Federal funds purchased approximate their fair values.
Notes Payable
For variable-rate notes payable that reprice frequently, the carrying amounts
approximate fair values.
Federal Home Loan Bank Borrowings
The fair values of the Company's borrowings from the FHLB are estimated using
discounted cash flow models, using current market interest rates offered on
similar types of borrowing arrangements.
Off-Balance Sheet Instruments
Fair values of the Company's off-balance sheet financial instruments are based
on fees charged to enter into similar agreements. However, commitments to extend
credit and standby letters of credit do not represent a significant value to the
Company until such commitments are funded. The Company has determined that these
instruments do not have a distinguishable fair value and no fair value has been
assigned.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The estimated fair values and related carrying values of the Company's financial
instruments were as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks and
Federal funds sold ........... $ 4,922,212 $ 4,922,212 $ 11,583,359 $ 11,583,359
================ =============== ================= ===============
Investments in securities ....... $ 8,256,603 $ 8,207,793 $ 4,753,962 $ 4,753,962
================ =============== ================= ===============
Loans ........................... $ 54,168,453 $ 54,219,600 $ 41,989,950 $ 40,869,961
Allowance for loan losses ....... 1,422,689 - 1,274,285 -
---------------- --------------- ----------------- ---------------
Loans, net ........... $ 52,745,764 $ 54,219,600 $ 40,715,665 $ 40,869,961
================ =============== ================= ===============
Financial liabilities:
Noninterest-bearing demand ...... $ 11,090,409 $ 11,090,409 $ 12,695,085 $ 12,695,085
Interest-bearing demand ......... 13,136,785 13,136,785 11,707,125 11,707,125
Savings ......................... 1,999,607 1,999,607 1,973,434 1,973,434
Time deposits ................... 34,647,620 34,810,000 27,924,709 28,070,996
---------------- --------------- ----------------- ---------------
Total deposits ....... $ 60,874,421 $ 61,036,801 $ 54,300,353 $ 54,446,640
================ =============== ================= ===============
Federal funds purchased ............ $ 1,250,000 $ 1,250,000 $ - $ -
================ =============== ================= ===============
Notes payable, director ............ $ 500,000 $ 500,000 $ 500,000 $ 500,000
================ =============== ================= ===============
Other borrowings ................... $ 55,000 $ 53,700 $ 65,000 $ 64,500
================ =============== ================= ===============
</TABLE>
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets of FNC Bancorp,
Inc. and statements of income and cash flows as of and for the years ended
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
1999 1998
------------------ -----------------
<S> <C> <C>
Assets
Cash ........................................................... $ 169,709 $ 136,439
Investment in subsidiary ....................................... 5,268,408 4,382,517
Other assets, due from subsidiary .............................. 336,909 -
------------------ -----------------
Total assets ........................................... $ 5,775,026 $ 4,518,956
================== =================
Liabilities
Notes payable, directors ....................................... $ 500,000 $ 500,000
Other liabilities .............................................. 423,434 75,416
------------------ -----------------
Total liabilities ...................................... 923,434 575,416
------------------ -----------------
Stockholders' equity .............................................. 4,851,592 3,943,540
------------------ -----------------
Total liabilities and stockholders' equity ............. $ 5,775,026 $ 4,518,956
================== =================
</TABLE>
F-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
Income, interest ................................................ $ 6,481 $ 2,467
----------------- ----------------
Expense
Interest ..................................................... 35,455 36,872
Other expense ................................................ 6,495 20,674
----------------- ----------------
41,950 57,546
----------------- ----------------
Loss before income tax benefits and
equity in undistributed earnings
of subsidiary ................. (35,469) (55,079)
Income tax benefits ............................................. (12,000) (16,847)
----------------- ----------------
Loss before equity in undistributed
earnings of subsidiary .......................... (23,469) (38,232)
Equity in undistributed earnings of subsidiary ................. 948,891 639,910
----------------- ----------------
Net income ........................................... $ 925,422 $ 601,678
================= ================
</TABLE>
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. PARENT COMPANY FINANCIAL INFORMATION (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................................. $ 925,422 $ 601,678
------------------- -------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Undistributed earnings of subsidiary .................... (948,891) (639,910)
Increase in due from subsidiary ......................... (336,909) -
Decrease in deferred tax assets ........................ - 27,876
Increase in interest payable ........................... 27,999 36,871
Increase in taxes payable .............................. 320,019 -
------------------- -------------------
Total adjustments ..................................... (937,782) (575,163)
------------------- -------------------
Net cash provided by (used in) operating activities ... (12,360) 26,515
------------------- -------------------
FINANCING ACTIVITIES
Purchase of treasury stock ................................. (9,000) -
Proceeds from issuance of common stock ..................... 54,630 54,630
------------------- -------------------
Net cash provided by financing activities ............. 45,630 54,630
------------------- -------------------
Net increase in cash .......................................... 33,270 81,145
Cash at beginning of year ..................................... 136,439 55,294
------------------- -------------------
Cash at end of year ........................................... $ 169,709 $ 136,439
=================== ===================
</TABLE>
F-33
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,394,212
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,528,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,165,290
<INVESTMENTS-CARRYING> 4,777,413
<INVESTMENTS-MARKET> 4,728,603
<LOANS> 54,168,453
<ALLOWANCE> 1,422,689
<TOTAL-ASSETS> 68,853,304
<DEPOSITS> 60,874,421
<SHORT-TERM> 55,000
<LIABILITIES-OTHER> 1,322,291
<LONG-TERM> 500,000
0
0
<COMMON> 416,636
<OTHER-SE> 4,434,956
<TOTAL-LIABILITIES-AND-EQUITY> 68,853,304
<INTEREST-LOAN> 4,708,709
<INTEREST-INVEST> 392,979
<INTEREST-OTHER> 230,641
<INTEREST-TOTAL> 5,332,329
<INTEREST-DEPOSIT> 2,200,033
<INTEREST-EXPENSE> 2,241,617
<INTEREST-INCOME-NET> 3,091,312
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,321,139
<INCOME-PRETAX> 1,440,392
<INCOME-PRE-EXTRAORDINARY> 925,422
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 925,422
<EPS-BASIC> 2.23
<EPS-DILUTED> 2.07
<YIELD-ACTUAL> 5.10
<LOANS-NON> 380,000
<LOANS-PAST> 3,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 383,000
<ALLOWANCE-OPEN> 1,274,285
<CHARGE-OFFS> 63,359
<RECOVERIES> 211,763
<ALLOWANCE-CLOSE> 1,422,689
<ALLOWANCE-DOMESTIC> 1,210,689
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 212,000
</TABLE>
