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U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1996.
[ ] 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 0-10974
FIRST PULASKI NATIONAL CORPORATION
State of incorporation: Tennessee IRS Employer ID
No.: 62-1110294
206 South First Street, Pulaski, Tennessee 38478
Registrant's telephone number: 615-363-2585
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock Par Value $1.00 Per Share
Indicate by check mark 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 past 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K 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-K or any amendment to this
Form 10-K. [X]
The aggregate market value (computed on the basis of the most
recent trades of which the Registrant was aware) of shares of
Common Stock, par value $1 per share, held by nonaffiliates of the
Registrant as of February 15, 1997 was $33,333,750. The market
value calculation assumes that all shares beneficially owned by
members of the Board of Directors of the Registrant are shares
owned by "affiliates", a status which each of the directors
individually disclaims.
Documents Incorporated by Reference: None
PART I
ITEM 1: BUSINESS
First Pulaski National Corporation, (the Corporation) is a
financial corporation engaged in general commercial and retail
banking business which operates through one subsidiary bank.
The Corporation was organized under the laws of the State of
Tennessee in 1981 and its only significant asset is the common
stock of First National Bank of Pulaski (the Bank), headquartered
in Pulaski, Tennessee.
All of the common stock of the Bank is owned by the Corporation.
At December 31, 1996, the Corporation and its subsidiary had
combined total assets of $248,792,437.
The Corporation currently has long-term indebtedness of $1,846,814
in the form of notes payable to the Federal Home Loan Bank of
Cincinnati. Note G to Financial Statements, Part II, Item 8,
includes a detailed analysis of this debt. The Bank derives its
primary source of funds from deposits and is the largest
independent financial institution in Giles County, Tennessee. It
has established two branches in adjacent Lincoln County,
Tennessee.
As of February 15, 1997 the First National Bank of Pulaski had 157
employees, 24 of whom were part-time. The Corporation has no
employees other than those employed by the Bank.
FIRST PULASKI NATIONAL CORPORATION
The Corporation is a bank holding company within the meaning of
the Bank Holding Company Act of 1956 (BHC Act), and is registered
as such with the Board of Governors of the Federal Reserve System
(FRB). The Corporation is subject to examination by the FRB and is
restricted in its acquisitions.
Under the BHC Act, a bank holding company is, with limited
exceptions, prohibited from (i) acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any
company which is not a bank or (ii) engaging in any activity other
than managing or controlling banks. With the prior approval of
the FRB, however, a bank holding company may own more than 5% of
the voting shares of a company engaged in activities which the FRB
determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The Corporation, through its subsidiary, projects a diversified
range of financial services to its customers. These include
activities related to general banking business with complete
services in the commercial, corporate and retail banking field.
FIRST NATIONAL BANK OF PULASKI
The First National Bank of Pulaski is subject to the supervision
of and regular examination by the Office of the Comptroller of the
Currency (OCC) and the FDIC. The OCC has broad supervisory
authority over national banks and conducts regular periodic
examinations of the Bank. The Bank is also subject to provisions
of the Federal Reserve Act which limits loans or extensions of
credit to, and investments in the stock of, the Corporation, as
well as the amount of loans or advances that may be made to third
parties secured by the securities or obligations of the
Corporation and its subsidiary. The Securities Exchange Act of
1934 imposes regulatory requirements on various securities
activities conducted by banks. First National Bank of Pulaski is
registered with the Securities Exchange Commission as a transfer
agent for First Pulaski National Corporation's stock and must
comply with various recordkeeping and reporting requirements.
ITEM 2: PROPERTIES
The Corporation and the Bank are headquartered at 206 South First
Street, Pulaski, Tennessee, in Giles County. The banking facility
housing the corporation's headquarters was completed in 1966 and
has undergone several major renovation and expansion projects over
the years, including the addition of a theater complex in 1986.
The most recent expansion at this facility was completed in early
1995, at a cost of approximately $2,700,000 for building
construction, parking facilities and landscaping. Furniture and
equipment expense, which included the new imaging system and a new
IBM AS/400 computer system, amounted to an additional $1,060,000.
An expansion and renovation of the Bank's Industrial Park Road
office, on the western edge of Pulaski, was completed in early
1996 at a cost of approximately $114,000, including furniture and
fixtures. The Minor Hill Road office, in the southern part of
Pulaski, operates in a facility which was completed in 1985. This
property, previously occupied under lease, was acquired by the
Bank in 1991. Renovations to this facility amounting to
approximately $6,000 were completed in 1996. Other banking
facilities operated by the Bank include offices at Ardmore in the
southeastern corner of Giles County and at Fayetteville and Park
City in adjacent Lincoln County, Tennessee. The Ardmore office,
in existence since 1963, has also undergone several major
expansions, with the most recent being completed in early 1993 at
a cost of approximately $453,000, including furniture and
fixtures. A new community room in a separate building adjacent to
the Ardmore banking office was built during 1988. A new Lincoln
County office, located on West College Street in Fayetteville,
Tennessee, was opened in September of 1991 in a leased facility
which the bank enlarged and renovated at a cost of approximately
$775,000, including furniture and fixtures. A second Lincoln
County branch was opened in the spring of 1993 in Park City,
approximately seven miles south of Fayetteville. This facility,
currently located in a temporary banking facility which is owned
by the Bank, was renovated at an approximate cost of $372,000
including furniture and fixtures. At the present time
construction is underway on a permanent bank building on adjacent
property which is also owned by the Bank. It is anticipated that
the total cost of the new building, landscaping, paving and
furnishings will be approximately $1,000,000. Additional
properties for parking, storage and expansion in the various
locations are also leased under terms as long as to the year 2015.
Rental expenses for these properties during the year 1996
amounted to $54,736.60.
ITEM 3: LEGAL PROCEEDINGS
Neither the Corporation nor its subsidiary is a party to any legal
proceedings, which in management's judgement would have a material
adverse effect on the consolidated financial position of the
Corporation and its subsidiary.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None required to be described.
PART II
ITEM 5: MARKET AND DIVIDEND INFORMATION
Common stock of First Pulaski National Corporation is not traded
through an organized exchange but is traded between local
individuals. The following trading prices for 1996 and 1995
represent trades of which the Corporation was aware and do not
necessarily include all trading transactions for the period and
may not necessarily reflect actual stock values.
Range of Cash
Trading Dividends
Prices Paid
1st Quarter, 1996 $27.62 $0.32
2nd Quarter, 1996 $27.82 $0.32
3rd Quarter, 1996 $29.64 $0.35
4th Quarter, 1996 $26.80 $0.41
ANNUAL DIVIDEND, 1996 $1.40
1st Quarter, 1995 $26.40 $0.25
2nd Quarter, 1995 $25.80 $0.30
3rd Quarter, 1995 $25.80 $0.30
4th Quarter, 1995 $25.60 $0.45
ANNUAL DIVIDEND, 1995 $1.30
There are approximately 1,200 stockholders of the Corporation's
common stock as of February 15, 1997.
ITEM 6: SELECTED FINANCIAL DATA
Per share figures in the tables which follow are based on weighted
average numbers of shares outstanding of 1,522,591 shares for
1996, 1,532,245 shares for 1995, 1,511,450 shares for 1994,
1,481,735 shares for 1993, and 1,462,625 shares for 1992, after
giving retroactive effect to the five-for-one stock split which
was effective on July 1, 1996.
CONSOLIDATED SELECTED FINANCIAL DATA
For Year Ended December 31,
1996 1995 1994 1993 1992
------ ------ ------- ------- -------
(Amounts in thousands, except per share data)
Total interest income $21,245 $19,776 $16,715 $15,842 $15,887
Net interest income 12,484 11,342 10,750 10,472 9,741
Loan loss provision 783 259 225 365 757
Net income 4,063 3,705 3,848 3,811 3,330
Per Share Data:
Net income 2.67 2.42 2.55 2.57 2.28
Cash dividends paid 1.40 1.30 1.20 1.00 0.85
Total average equity 30,698 28,822 26,394 23,977 21,500
Total average assets 247,304 234,714 217,482 201,022 183,630
Total year-end assets 248,792 241,552 219,102 207,415 192,576
Ratios:
Assets to equity 7.80 7.96 8.24 8.38 8.54
Return on average
equity 13.24% 12.85% 14.58% 15.89% 15.49%
Return on average
assets 1.64% 1.58% 1.77% 1.90% 1.81%
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
First Pulaski National Corporation is a one-bank holding company
with its only subsidiary being First National Bank of Pulaski,
Tennessee. The following analysis reviews important factors
affecting the financial condition and results of operations of the
Corporation for the periods indicated. This review should be
read in conjunction with the consolidated financial statements and
related notes.
RESULTS OF OPERATIONS
OVERVIEW
Net income for 1996 was $4,063 thousand or $2.67 per share,
compared with $3,705 thousand or $2.42 per share in 1995 and
$3,848 thousand or $2.55 per share in 1994. Return on average
assets was 1.64% in 1996, 1.58% in 1995 and 1.77% in 1994. The
return on average equity was 13.2%, 12.9% and 14.6% for 1996, 1995
and 1994, respectively.
NET INTEREST INCOME
Net interest income is the difference between interest and fees
earned on loans, securities and other interest-earning assets
(interest income) and interest paid on deposits and borrowed funds
(interest expense). In 1996, net interest income increased by
10.1 percent following an increase of 5.5 percent in 1995. The
net increase is attributable primarily to increased volumes,
offsetting the reduction in earnings due to reduced rates. The
total 1996 increase in net interest income of $1,153 thousand, on
a taxable equivalent basis, resulted from an increase of $1,167
thousand due to increased volumes and a decrease of $14 thousand
due to decreased rates.
Net interest earnings is a function of the average balances of
interest-earning assets and interest-bearing liabilities and the
yields earned and rates paid on those balances. Management must
maintain the spread between the yields earned and rates paid in
managing the margin.
The following tables summarize the changes in interest earned and
interest paid for the given time periods and indicate the factors
affecting these changes. The first table presents, by major
categories of assets and liabilities, the average balances, the
components of the taxable equivalent net interest earnings/spread,
and the yield or rate for the years 1996, 1995 and 1994.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
December
1996 1995 1994
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- --------- ----- ------- -------- ------ -------- -------- ------
ASSETS
------
Interest-Earning Assets:
Loans and lease financing $157,697 $17,179 10.89% $142,825 $15,719 11.01% $129,067
$12,533 9.71%
Taxable investment securities 47,453 2,992 6.31% 47,148 2,809 5.96% 53,425 3,323
6.22%
Non-taxable investment
securities 13,765 801 5.82% 10,057 654 6.50% 10,848 823 7.59%
Federal funds sold 9,365 505 5.39% 13,280 816 6.14% 6,720 310 4.61%
Time deposits in other banks 23 2 8.70% 44 1 2.27% 404 23 5.69%
--------- -------- ------ --------- ------- ------ ------ ------ ------
Total Interest-Earning Assets 28,303 21,479 9.41% 213,354 19,999 9.37% 200,464 17,012
8.49%
Non-interest Earning Assets:
Cash and due from banks. 8,539 8,583 9,280
Premises and equipment, net 7,185 7,312 5,676
Other Assets 5,482 7,563 4,102
Less allowance for loan losses (2,205) (2,098) (2,040)
------- ------- --------
Total Non-Interest-Earning Assets $9,001 21,360 17,018
------- ------- --------
TOTAL $247,304 $234,714 $217,482
======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Interest-Bearing Liabilities:
Demand deposits $20,172 394 1.95% $20,407 560 2.74% $21,549 523 2.43%
Savings deposits 28,953 732 2.53% 28,562 776 2.72% 30,424 817 2.69%
Time deposits 134,120 7,524 5.61% 126,164 7,029 5.57% 111,696 4,587 4.11%
Other borrowed money 1,838 111 6.04% 1,165 69 5.92% 727 38 5.23%
------- ----- ----- ------- ----- ----- ------- ----- -----
Total Interest-Bearing
Liabilities 185,083 8,761 4.73% 176,298 8,434 4.78% 164,396 5,965 3.63%
Non-Interest-Bearing Liabilities:
Demand deposits 28,659 26,885 25,103
Other liabilities 2,864 2,709 1,589
------- ------- ------
Total Non-Interest Bearing
Liabilities 31,523 29,594 26,692
Shareholders' Equity 30,698 28,822 26,394
------- ------- -------
TOTAL $247,304 $234,714 $217,482
========= ========= =========
Net interest earnings/spread,
on a taxable equivalent basis 12,718 5.57% 11,565 5.42% 11,047 5.51%
Taxable equivalent adjustments:
Loans 60 66 63
Investment securities 174 157 234
----- ---- ----
Total taxable equivalent adjustment....... 234 223 297
----- ----- -----
Net interest earnings $12,484 $11,342 $10,750
========== ========= ==========
Note: The taxable equivalent adjustment has been computed based
on a 34% federal income tax rate and has given effect to the
disallowance of interest expense, for federal income tax purposes,
related to certain tax-free assets. Loans include nonaccrual
loans for all years presented.
The following table shows the change from year to year for each
component of the taxable equivalent net interest margin separated
into the amount generated by volume changes and the amount
generated by changes in the yields earned or rates paid.
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
-------- -------- -------- -------- ------- --------
(in thousands of dollars) (in thousands of dollars)
Interest Earned on:
Loans and lease financing $1,637 (177) $1,460 $1,336 $1,850 $3,186
Taxable investment securities 18 165 183 (390) (124) (514)
Non-taxable investment securities 241 (94) 147 (60) (109) (169)
Federal funds sold (241) (70) (311) 303 203 506
Time deposits 0 1 1 (20) (2) (22)
------- ----- ------- ------- ------ ------
Total Interest-Earning Assets $1,655 ($175) $1,480 $1,169 $1,818 $2,987
======== ======== ======== ======== ======== ========
Interest Paid On:
Demand deposits ($6) ($160) ($166) ($28) $65 $37
Savings deposits 11 (55) (44) (50) 9 (41)
Time deposits 443 52 495 594 1,848 2,442
Other borrowed money 40 2 42 23 8 31
------ ------ ------ ------ ------ ------
Total Interest-Bearing Liabilities $488 ($161) $327 $539 $1,930 $2,469
======== ======== ======== ======== ======== =======
Net Interest Earnings, on a taxable
equivalent basis $1,167 ($14) $1,153 $630 ($112) $518
-------- -------- -------- ------- -------- -------
Less: taxable equivalent adjustment 11 (74)
------- -------
Net Interest Earnings $1,142 $592
======== =======
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 from one year to the next. The change in
interest due to rate has been determined by applying the change in
rate from one year to the next to the average balances outstanding
in the later year. The computation of the taxable equivalent
adjustment has given effect to the disallowance of interest
expense, for federal income tax purposes, related to certain tax-
free assets.
SOURCES AND USES OF FUNDS
The following table outlines the sources and uses of funds for
each of the years 1996, 1995 and 1994, with the percent of change
in each category from year to year.
1996 1995 1994
------------------ ---------------- ---------
Increase Increase
Average (Decrease) Percent Average (Decrease) Percent Average
Balance Amount Change Balance Amount Change Balance
--------- -------- ------- -------- -------- ------- ---------
(in thousands of dollars, except percents)
FUNDING USES:
Interest earning assets:
Loans-domestic $157,697 $14,872 10.4% $142,825 $13,758 10.7% $129,067
Taxable investment securities 47,453 305 0.6% 47,148 (6,277) -11.7% 53,425
Non-taxable investment
securities 13,765 3,708 36.9% 10,057 (791) -7.3% 10,848
Federal funds sold 9,365 (3,915) -29.5 13,280 6,560 97.6% 6,720
Time deposits in other
banks-domestic 23 (21) -47.7% 44 (360) -89.1% 404
------- ------- ----- ------- ------ ----- --------
Total Interest Earning Assets $228,303 $14,949 7.0% $213,354 $12,890 6.4% $200,464
========= ======== ====== ======== ======= ====== ========
FUNDING SOURCES:
Demand deposits-non-interest
bearing $28,659 $1,774 6.6% $26,885 $1,782 7.1% $25,103
Demand deposits-interest bearing 20,172 (235) -1.2% 20,407 (1,142) -5.3% 21,549
Savings deposits 28,953 391 1.4% 28,562 (1,862) -6.1% 30,424
Time deposits 134,120 7,956 6.3% 126,164 14,468 13.0% 111,696
Other 16,399 5,063 44.7% 11,336 (356) -3.0% 11,692
------- ------ ----- ------- ------- ------ -------
Total Sources $228,303 $14,949 7.0% $213,354 $12,890 6.4% $200,464
========= ======== ======= ======== ======= ====== ========
NON-INTEREST INCOME
Non-interest income amounted to $2,125 thousand in 1996, an
increase of 2.1 percent from 1995. Non-interest income in 1995
increased by 2.5 percent from 1994. Included in non-interest
income in all three years were losses on security transactions.
Net losses realized totaled $95.4 thousand, $56.2 thousand, and
$136.3 thousand in 1996, 1995, and 1994, respectively.
NON-INTEREST EXPENSE
Non-interest expense in 1996 was $7,668 thousand, up 1.7 percent
from 1995. Non-interest expense for 1995 had increased by 8.5
percent over the previous year. The increase in non-interest
expense is attributable to increased operating costs reflecting
increases in personnel costs and furniture and equipment expense.
Other operating expenses were lower due to decreased FDIC
Insurance premium costs. Also, occupancy expense and advertising
and public relations expense showed decreases from the previous
year.
LOAN LOSS PROVISION
The provision for loan losses is the charge to earnings which
management feels is necessary to maintain the allowance for loan
losses at a level considered adequate to absorb potential future
losses on existing loans. The adequacy of the allowance for loan
losses is determined by a continuous evaluation of the loan
portfolio. The Bank utilizes an independent loan review function
which considers loans on their own merits based on factors which
include past loan experience, collateral value, off-balance sheet
credit risk, and possible effects of prevailing economic
conditions. Findings are presented regularly to management, where
other factors such as actual loan loss experience relative to the
size and characteristics of the loan portfolio, deteriorations in
concentrations of credit, trends in portfolio volumes,
delinquencies and non-performing loans and, when applicable,
reports of the regulatory agencies are considered. Bank
management performs calculations for the minimum allowance level
needed and a final evaluation is made.
The provision for loan losses was $783.0 thousand in 1996 compared
to $258.6 thousand in 1995 and $225.0 thousand in 1994. Net loan
losses were $460.7 thousand in 1996, $223.9 thousand in 1995, and
$208.2 thousand in 1994. The 1996 provision for loan losses
exceeded the current year loan losses by $322.2 thousand.
The composition of net loan recoveries for 1996 consists
of agriculture loans <$47.4 thousand>, personal loans <$394.2
thousand>, real estate loans $21.1 thousand, and commercial and
industrial loans <$40.2 thousand>. The allowance at the end of
1996 is $2,381 thousand, or 1.51 percent of outstanding loans and
leases, as compared to $2,058 thousand or 1.35 percent and $2,024
thousand or 1.48 percent in 1995 and 1994 respectively.
The following table sets out respectively the allocation of the Allowance
for Loan Losses and the percentage of loans by category to total loans
outstanding at the end of each of the years indicated.
December 31,
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
(amounts in thousands of dollars)
Allowance applicable to:
Real estate loans.. $422 $634 $482 $575 $577
Commercial loans... $80 $58 $63 $58 $52
Agriculture loans.. $238 $173 $187 $174 $154
Individual loans... 1,639 1,191 1,290 1,198 1,063
Other loans........ 2 2 2 2 1
------ ------ ------ ------ ------
Total.............. $2,381 $2,058 $2,024 $2,007 $1,847
====== ====== ====== ====== ======
Percentages of loans by
category to total loans:
Real estate loans.. 51.76% 51.11% 51.50% 55.12% 57.26%
Commercial loans... 14.77% 13.34% 13.07% 11.71% 9.58%
Agriculture loans.. 7.33% 8.00% 7.88% 7.55% 4.93%
Individual loans... 24.92% 26.00% 25.95% 23.83% 25.67%
Other loans........ 1.22% 1.55% 1.60% 1.79% 2.56%
------- ------- ------- ------- -------
Total............... 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
INCOME TAXES
Income tax expense includes federal and state taxes on earnings.
Income taxes were $2,095,836, $1,920,362, and $1,758,243 in 1996,
1995 and 1994, respectively. The effective tax rates were 34.03
percent, 34.14 percent and 31.36 percent respectively. Note I to
Financial Statements, Part II, Item 8, provides a detailed
analysis of the components of income tax expense.
QUARTERLY RESULTS OF OPERATIONS
Quarter-by-quarter income and expense data for the years 1996 and
1995 are presented in the following table.
For The Three Months Ended
Mar 31 Jun 30 Sep 30 Dec 31
------ ------ ------ ------
(In Thousands, Except Per Share Amounts)
1996:
Total interest income............ 5,232 5,356 5,419 5,238
Total interest expense........... 2,219 2,205 2,154 2,183
Net interest income.............. 3,013 3,151 3,265 3,055
Provision for loan losses........ 100 153 300 230
Other income..................... 459 500 521 645
Other expense.................... 1,809 1,885 1,854 2,119
Income before income tax......... 1,563 1,613 1,632 1,351
Income taxes..................... 575 573 567 381
Net income....................... 988 1,040 1,065 970
Net income per share............. $0.65 $0.69 $0.70 $0.63
1995:
Total interest income............ 4,565 4,955 5,120 5,136
Total interest expense........... 1,823 2,143 2,215 2,254
Net interest income.............. 2,742 2,812 2,905 2,882
Provision for loan losses........ 41 38 64 116
Other income..................... 493 634 465 489
Other expense.................... 1,910 1,981 1,772 1,875
Income before income tax......... 1,284 1,427 1,534 1,380
Income taxes..................... 473 471 535 441
Net income....................... 811 956 999 939
Net income per share............. $0.53 $0.63 $0.65 $0.61
The third and fourth quarter 1996 provisions for loan losses shown
in the table above were increased significantly from amounts set
aside during the prior quarters of the year. This was a result of
an increase in past due loans in the latter part of 1996 and
management's identification of additional exposure related to some
problem loans. In addition, net charge-offs were higher during
the last six months, resulting in a decision by the Bank's
management to increase the provision for loan losses accordingly.
BALANCE SHEET
LOANS
Loan growth during 1996 resulted primarily from increases in
commercial and industrial loans and in real estate loans,
including farm, residential, and commercial real estate.
Management's focus is to promote loan growth in the bank's target
market, emphasizing the expansion of business and the enhancement
of the quality of life in the bank's trade area. Efforts are
taken to maintain a fairly diversified portfolio without
significant concentration of risk.
A comparison over the last three years showed that average total
loans and leases increased by $14.9 million or 10.4 percent in
1996, by $13.8 million or 10.7 percent in 1995 and by $11.7
million or 10.0 percent in 1994. The growth in deposits has been
used to support the continuing increase in loan demand.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan and lease balances at the end
of each period and monthly averages, changes in the allowance for
possible losses arising from loans charged off and recoveries on
loans previously charged off, and additions to the
allowance which have been charged to expense.
For Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands of dollars)
Amount of net loans
and lease financing
outstanding at end
of period.............. 157,903 152,993 136,371 121,504 112,888
======= ======= ======= ======= =======
Monthly average amount
of loans and leases.... 157,697 142,825 129,067 117,336 107,147
======= ======= ======= ======= =======
Balance of allowance
for possible loan
losses at beginning
of period.............. 2,058 2,024 2,007 1,847 1,500
Loans charged off...... 740 433 367 380 595
Recoveries of loans
previously charged off. 280 209 159 175 185
------ ------ ------ ------ -----
Net loans charged off.. 460 224 208 205 410
------ ------ ------ ------ ------
Additions to allowance
charged to expense..... 783 258 225 365 757
------ ------ ------ ------ ------
Balance at end of
period................. 2,381 2,058 2,024 2,007 1,847
======= ======= ======= ====== ======
Ratio of net charge
offs during period to
average loans
outstanding............ 0.29% 0.16% 0.16% 0.18% 0.38%
======= ====== ======= ======= =======
Reference is made to Note C to Financial Statements, Part II, Item
8, for further detail regarding charge - offs and recoveries by
category.
LOAN QUALITY
The loan portfolio has been diversified so that there is no
concentration of loans by category or within a category. In
general, loan loss risks have been minimized by extending loans
within the trade area of the Bank, only with adequate cash flow to
service the debt, upon sufficient collateral, and with short
maturities. The loan portfolio does not include loans secured
only by speculative collateral. Because the local economy is not
concentrated in any particular industry, the loan portfolio is not
subjected to significant risks when one industry is experiencing
problems. Net loans charged off during 1996 amounted to $460.7
thousand, as compared to $223.9 thousand in 1995 and $208.2
thousand in 1994. Percentages of net charge-offs to average total
loans and leases were 0.29 percent in 1996, 0.16 percent in 1995
and 0.16 percent in 1994.
The amounts of loans and leases outstanding at the indicated dates
are shown in the following table according to type of loan.
LOAN PORTFOLIO
December 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(in thousands of dollars)
Construction and land
development........... $3,548 $2,929 $3,530 $1,429 $1,317
Commercial, industrial.. 20,219 17,911 14,650 13,058 9,693
Agricultural............ 11,799 12,503 10,956 9,341 5,664
Real est. farmland...... 17,314 15,615 13,535 10,232 8,584
Real est. residential... 38,708 37,811 35,418 35,829 34,351
Real est. commercial.... 27,255 26,410 22,690 22,106 22,892
Installment-individuals. 40,096 40,610 36,105 29,453 29,460
Lease financing......... 0 0 0 23 51
Other loans................... 1,943 2,402 2,229 2,202 2,947
-------- -------- -------- -------- --------
TOTAL $160,882 $156,191 $139,113 $123,673 $114,959
======== ======== ======== ======== ========
Loans included in the other loans category above include student
loans, non-taxable loans, overdrafts, and all other loans not
included in any of the designated categories.
The following table presents the maturity distribution and
interest sensitivity of selected loan categories (excluding
residential mortgage, home equity, consumer loans, and lease
financing).
Due in
1 year Due after
or less 1 year Total
-------- -------- -------
(in thousands of dollars)
Construction, land development $3,433 $115 $3,548
Commercial, industrial 14,410 5,809 $20,219
Agricultural 9,083 2,716 $11,799
Real estate farmland 12,113 5,201 $17,314
Real estate commercial 14,249 13,006 $27,255
------- ------- -------
Total selected loans $53,288 $26,847 $80,135
======= ======= =======
The table below summarizes the percentages of the loans selected
for use in the preceding table falling into each of the indicated
maturity ranges, and the sensitivity of such loans to interest
rate changes for those with maturities greater than one year.
Due in
1 year Due after
or less 1 year Total
-------- -------- -------
Percent of total selected loans...... 66.50% 33.50% 100.00%
Cumulative percent of total......... 66.50% 100.00%
Sensitivity of loans to changes
in interest rates - loans due after one year:
Fixed rate loans................... $21,724 $21,724
Variable rate loans................ 5,123 5,123
-------- --------
$26,847 $26,847
======== ========
NON-PERFORMING ASSETS
Non-performing assets include non-accrual loans, loans
restructured because of debtor's financial difficulties, other
real estate owned, and loans past due ninety days or more as to
interest or principal payment.
From 1995 to 1996, non-accruing loans increased by 116.06 percent
to $449.5 thousand following a decrease of 23.4 percent in 1995
from 1994. There were no restructured loans at year-end 1996 or
1995. Restructured loans had shown a decrease in 1994, down 73.4
percent. Other real estate owned, consisting of properties
acquired through foreclosures or deeds in lieu thereof and
in-substance foreclosures, totaled $218.9 thousand for an increase
of 98.9 percent, following decreases of 40.7 percent in 1995 and
33.3 percent in 1994. Loans past due ninety days or more totaled
$190.7 thousand for a decrease of 9.2 percent over same period
last year, following an increase of 30.3 percent in 1995. All
major credit lines and troubled loans are reviewed regularly by a
committee of the Board of Directors. Non-performing loans are not
concentrated in any particular category of loans and contain no
losses that would materially affect the allowance.
The following table summarizes the company's non-performing assets
and loans past due ninety days or more.
December 31,
1995 1994 1993
------- ------- -------
(in thousands of dollars)
Non-accrual loans............. $449 $208 $272
Troubled debt restructurings.. $0 $0 $29
Other real estate owned....... $219 $110 $186
Loans past due ninety days or
more as to interest or
principal payment........... $190 $210 $161
As of December 31, 1996, management was not aware of any
specifically identified loans, other than those included in the
categories discussed above, that represent significant potential
problems. The Corporation maintains high audit standards,
exercises extensive internal controls and conducts regular and
thorough loan reviews. However, the risk inherent in the lending
business results in periodic charge-offs of loans. The
corporation maintains an allowance for loan losses which it
believes to be adequate to absorb reasonably foreseeable losses in
the loan portfolio. The executive officers of the subsidiary bank
evaluate, on a quarterly basis, the risk in the portfolio to
determine an adequate allowance for loan losses.
The evaluation includes analyses of historical performance, the
level of nonperforming and rated loans, specific analyses of
problem loans, loan activity since the previous quarter, loan
review reports, consideration of current economic conditions and
other pertinent information. The evaluation is reviewed by the
Audit Committee.
As a matter of bank policy, internal classifications of loans are
performed on a routine and continuing basis. Relative to the
classification of loans for regulatory purposes, it is
management's position that those loans classified, internally or
externally, as loss, doubtful, substandard or special mention (i)
do not represent or result from trends or uncertainties which they
expect to materially impact operating results, liquidity, or
capital resources, and (ii) do not represent material credits
about which there is any information which would cause serious
doubts as to the ability of such borrowers to comply with the loan
repayment terms.
SECURITIES
The securities portfolio consists primarily of U.S. Treasury
obligations, federal agency securities and marketable bonds of
states, counties and municipalities. Management uses investment
securities to assist in maintaining proper interest rate
sensitivity in the balance sheet, to provide securities to pledge
as collateral for certain public funds and to provide an
alternative investment for available funds.
The following table sets forth the carrying amount of securities
at the dates indicated:
December 31,
1996 1995 1994
-------- -------- --------
Available-for-sale in thousands of dollars)
- ------------------
U. S. Treasury securities.......... $20,373 $20,406 $33,631
U.S. Government Agencies...... 23,385 21,128 13,381
-------- -------- --------
$43,758 $41,534 $47,012
-------- -------- --------
Held-to-maturity
- ----------------
States and political subdivisions... $14,404 $13,347 $10,930
Other securities.................... 5,285 4,042 4,517
-------- -------- --------
$19,689 $17,389 $15,447
-------- -------- --------
TOTAL $63,447 $58,923 $62,459
======== ======== ========
The Corporation adopted statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", on January 1, 1994. Prior to the
adoption of SFAS 115, the investment securities were treated
similarly to the held-to-maturity classification.
The following table sets forth the maturities of securities at
December 31, 1996 and the average yields of such securities
(calculated on the basis of the cost and effective yields).
US Treasuries, State and
and Government Political
Agencies Subdivisions Other Total
-------------- ------------ -------- ------
(in thousands of dollars)
Available-for-sale
- ---------------------
Within one year:
Amount................ $11,184 $11,184
Yield................. 6.44% 6.44%
After one but within five years:
Amount................ $32,522 $32,522
Yield................. 6.33% 6.33%
After ten years:
Amount................ $52 $52
Yield................. 7.86% 7.86%
Held-to-maturity
- -------------------
Within one year:
Amount................ $3,461 $3,024 $6,485
Yield................. 6.55% 6.00% 6.29%
After one but within five years:
Amount................ $10,843 $2,261 $13,104
Yield................. 6.20% 6.50% 6.25%
After five but within ten years:
Amount................ $100 $100
Yield................. 8.42% 8.42%
After ten years:
Amount................ $0
Yield................. 0.00%
Total average securities increased by $4.0 million or 7.0 percent
during 1996 as compared to the previous year. Average taxable
investment securities increased by $0.3 million or 0.7 percent and
average non-taxable investment securities increased by $3.7
million or 36.9 percent, to account for the overall increase in
average investments. The total securities portfolio was $4.5
million or 7.7 percent less at the end of 1996 than at the end of
1995. This decrease resulted primarily from the increase in loan
demand.
DEPOSITS
The Bank's primary source of funds is customer deposits, including
large certificates of deposits. Aggregate average deposits
increased by $9.9 million in 1996, by $13.2 million in 1995 and by
$13.2 million in 1994. Continuing a trend which began with
deregulation and the advent of interest-bearing demand deposit
accounts, most of the deposit growth experienced by the Bank has
been in accounts which are interest sensitive.
The average amount of deposits for the periods indicated is
summarized in the following table:
For Year Ended December 31,
1995 1994 1993
-------- -------- --------
(in thousands of dollars)
Demand deposits - non-interest bearing.... $28,659 $26,885 $25,103
Demand deposits - interest bearing........ 20,172 20,407 31,471
Savings deposits.......................... 28,953 28,562 20,502
Time deposits (excluding time CD's
of $100,000 or more)............. 92,392 87,643 84,242
Time CD's of $100,000 or more............. 41,728 38,520 27,453
-------- -------- --------
TOTAL................................ $211,904 $202,017 $188,771
======== ======== ========
Remaining maturities of time certificates of deposits of $100,000
or more outstanding at December 31, 1996, are summarized as
follows (in thousands of dollars):
3 months or less.......................... $15,643
Over 3 months through 6 months............ $10,551
Over 6 months through 12 months........... $9,322
Over 12 months............................ $5,079
--------
TOTAL................................ $40,595
========
Other funds were invested in other earning assets such as federal
funds and bank time deposits at minimum levels necessary for
operating needs for liquidity.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary functions of asset/liability management are to assure
adequate liquidity and maintain an appropriate balance between
interest sensitive earning assets and interest bearing
liabilities. Liquidity management involves the ability to meet
the cash flow requirements of customers who may be either
depositors wanting to withdraw funds or borrowers needing
assurance that sufficient funds will be available to meet their
credit needs. Interest rate sensitivity management seeks to avoid
fluctuating net interest margins and to enhance consistent growth
of net interest income through periods of changing interest rates.
Marketable investment securities, particularly those of shorter
maturities, are the principal source of asset liquidity.
Securities maturing in one year or less amounted to $17.7 million
at December 31, 1996, representing 27.9 percent of the investment
securities portfolio, an increase from the 25.0 percent level of
1995. Other assets such as federal fund sold and maturing loans
and time deposits in other banks are additional sources of
liquidity.
Interest rate sensitivity varies with different types of interest
earning assets and interest bearing liabilities. Overnight
federal funds on which rates change daily and loans which are tied
to the prime rate differ considerably from long term investment
securities and fixed rate loans. Similarly, time deposits over
$100,000 and money market certificates are much more interest
sensitive than are savings accounts. Regular savings and NOW
accounts are classified by management as immediately rate
sensitive. At December 31, 1996 the Bank had a total of $35.5
million in certificates of $100,000 or more which would mature in
one year or less. In addition, consumer certificates of smaller
amounts generally mature every six months, while money market
deposit accounts mature on demand.
Simulation modeling is used to evaluate both the level of interest
rate sensitivity as well as potential balance sheet strategies.
Important elements in this modeling process include the mix of
floating rate versus fixed rate assets and liabilities; the
repricing/maturing volumes and rates of the existing balance
sheet; and assumptions regarding future volumes, maturity patterns
and pricing under varying interest rate scenarios.
INTEREST RATE SENSITIVITY GAPS
December 31, 1996 0-30 31-90 91-365 1 - 5 Over 5
$ in thousands Days Days Days years years Total
- -------------------------- ------- ------- -------- ------- -------- --------
Interest-sensitive assets:
Loans and leases......... $25,171 $16,230 $51,637 $62,004 $62,004 $217,046
Taxable securities....... 0 5,028 10,123 42,864 148 $58,163
Nontaxable securities.... 0 0 3,024 2,260 0 $5,284
Federal funds sold....... 8,492 0 0 0 0 $8,492
-------- ------- -------- -------- -------- --------
Total.................... $33,663 $21,258 $64,784 $107,128 $62,152 $288,985
Interest-sensitive liabilities:
Demand deposits.......... $19,446 $0 $0 $0 $0 $19,446
Savings.................. 27,116 0 0 0 0 $27,116
Time..................... 24,141 24,177 68,537 18,790 0 $135,645
Other borrowed funds..... 11 23 106 661 1,046 $1,847
-------- -------- -------- -------- -------- --------
Total.................... $70,714 $24,200 $68,643 $19,451 $1,046 $184,054
Interest sensitivity gap... ($37,051) ($2,942) ($3,859) $87,677 $61,106 $104,931
Cumulative gap............. ($37,051)($39,993) ($43,852) $43,825 $104,931 $209,862
Ratio of cumulative gap to
earning assets........... -12.82% -13.84% -15.17% 15.17% 36.31% 72.62%
The primary interest sensitive assets and liabilities in this
maturity range are commercial loans, which are included in loans
and leases above and large certificates of deposit, included above
in time deposits. The Bank is in a negative gap position in each
of the intervals, with the exception of those with maturities of
one year or more, indicating that it has more rate sensitive
liabilities which it can reprice in the indicated time span than
it has rate sensitive assets. This normally indicates that the
Bank would be in position to reprice its rate-sensitive liability
accounts (deposits) more quickly than it would its rate-sensitive
assets (loans and investments). During periods of declining
interest rates the negative gap works to the Bank's advantage,
widening the net interest spread between assets and liabilities.
To the contrary, however, during periods of rising rates the
negative gap would be to the Bank's disadvantage, with the net
interest spread shrinking. Theoretically, a gap position of near
zero would produce minimum fluctuations of the net interest spread
over long periods of time, negating the effect of rising and
falling interest rate environments. A positive gap position would
essentially reverse the effects of rising and falling rates.
It is management's objective to minimize this gap through the
asset/liability management process. The gap position is closely
monitored, and investment decisions and deposit and loan pricing
structures are configured with the gap position in mind. The gap
table is updated at least monthly or more often if considered
necessary. Asset/Liability management limits the ratio of rate
sensitive assets to rate sensitive liabilities with maturities of
one year or less to not less than 0.50 and not more than 1.50. If
the RSA/RSL ratio is outside this parameter, management will take
action to review asset and liability mixes, maturities, yields,
and costs, review objectives and strategies, and determine if
changes are needed. Currently the RSA/RSL ratio with maturities
of one year or less is within the range the committee has limited
and stands at 0.73.
CAPITAL RESOURCES, CAPITAL AND DIVIDENDS
Regulatory requirements place certain constraints on the
Corporation's capital. In order to maintain appropriate ratios of
equity to total assets, a corresponding level of capital growth
must be achieved. Growth in total average assets was 5.4 percent
in 1996 and 7.9 percent in 1995. The corresponding percentage
increase in average equity amounted to 6.5 percent in 1996 and 9.2
percent in 1995.
The Corporation's equity capital was $31,887,402 at December 31,
1996, $30,331,795 at December 31, 1995, and $27,049,026 at
December 31, 1994, for an increase of 17.9 percent over the
two-year period. The Corporation's equity-to-average asset ratio
was 12.4 percent, as compared to 12.3 percent for 1995 and 12.1
percent for 1994. The maintenance of this ratio during the year
1996 reflects the fact that the earnings the company experienced
during the year were sufficient to keep pace with the growth in
total assets. The Corporation plans to maintain a capital to
asset ratio which reflects financial strength and conforms to
current regulatory guidelines. The ratio of dividends to net
income was 52.5 percent in 1996, 53.9 percent in 1995, and 47.3
percent in 1994.
During the current year the authorized number of common shares was
increased from 1,800 thousand to 10 million shares and the Board
of Directors authorized a five-for-one stock split effective July 1,
1996.
The Federal Reserve Board, the Office of the Comptroller of the
Currency and the FDIC have issued risk-based capital guidelines
for U.S. banking organizations. These guidelines provide a
uniform capital framework that is sensitive to differences in risk
profiles among banking companies.
Under these guidelines, total capital consists of Tier I capital
(core capital, primarily stockholders' equity) and Tier II
capital (supplementary capital, including certain qualifying debt
instruments and the loan loss reserve). Assets are assigned risk
weights ranging from 0 percent to 100 percent depending on the
level of credit risk normally associated with such assets.
Off-balance sheet items (such as commitments to make loans) are
also included in assets through the use of conversion factors
established by regulators and are assigned risk weights in the
same manner as on-balance sheet items. By the end of 1992,
banking institutions were expected to achieve a Tier I capital to
risk-weighted assets ratio of at least 4.00 percent, a total
capital (Tier I plus Tier II) to risk-weighted assets ratio of at
least 8.00 percent, and a Tier I capital to total assets ratio
(leverage ratio) of at least 3.00 percent. As of December 31,
1996, the Company and its subsidiary, First National Bank of
Pulaski, had ratios which exceeded the regulatory requirements to
be classified as "well capitalized," the highest regulatory
capital rating. The Company's and subsidiary's ratios are
illustrated in Note N to the financial statements.
FINANCIAL ACCOUNTING STANDARDS BOARD RELEASES
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards("SFAS") No. 115 as explained in Note A to
Financial Statements, Part II, Item 8. As a result of Adopting
SFAS 115, the carrying value of securities at December 31, 1996
increased by $279.4 thousand in unrealized gains. Total
stockholders' equity increased by $181.9 thousand which
represented the unrealized gain less deferred taxes. Management
has classified a majority of the investment portfolio in the
available-for-sale category and reports these investments at fair
value. Management does not anticipate the sale of a material
amount of investment securities classified as available-for-sale
in the foreseeable future. However, these securities may be sold
in response to changes in the interest rates, changes in
prepayment risk, the need to increase regulatory capital or
asset/liability strategy.
On January 1, 1995, the Company adopted FASB Statements No. 114
and No. 118, both of which deal with accounting by creditors for
impairment of loans. Statements No. 114 and No. 118, explained in
Note A to Financial Statements, Part II, Item 8, provide new rules
for measuring impairment losses on loans. As of the fourth
quarter of 1996, the Company has identified those loans which it
deems to be impaired and has computed allowances which management
believes to be sufficient for those loans. The adoption of these
statements had no material effect on the earnings or financial
condition of the Company.
Management is not aware of any known trends, events, uncertainties
or current recommendations by the regulatory authorities which
will have a material effect on the Corporation's liquidity,
capital resources or operations.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements for First Pulaski National
Corporation and its subsidiary, First National Bank of Pulaski,
appear on the following pages.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
1996 1995
Cash and due from banks $8,411,810 $8,767,525
Federal funds sold 8,491,655 10,231,642
----------- -----------
Total cash and cash equivalents 16,903,465 18,999,167
Interest bearing deposits with banks - 100,000
Securities available for sale 43,757,815 41,533,475
Securities held to maturity (fair value - $19,781,371
and $17,492,384) 19,689,343 17,389,119
Loans 160,882,496 156,191,063
Unearned income (2,979,171) (3,198,480)
----------- -----------
Loans net of unearned income 157,903,325 152,992,583
Allowance for loan losses (2,380,700) (2,058,456)
----------- -----------
Total net loans 155,522,625 150,934,127
Bank premises and equipment 7,151,876 7,239,935
Accrued interest receivable 3,401,339 3,383,798
Prepayments and other assets 2,147,073 1,862,047
Other real estate owned 218,901 110,058
----------- -----------
TOTAL ASSETS $248,792,437 $241,551,726
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest bearing $30,479,710 $27,784,716
Interest bearing 182,206,625 179,624,823
----------- -----------
Total deposits 212,686,335 207,409,539
Other borrowed funds 1,846,814 1,312,788
Accrued taxes 113,041 111,713
Accrued interest on deposits 1,684,906 1,792,560
Accrued profit sharing expense 158,699 131,341
Other liabilities 415,240 461,990
----------- -----------
TOTAL LIABILITIES 216,905,035 211,219,931
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; authorized - 10,000,000
shares; 1,532,220 and 308,261 shares issued and
outstanding 1,532,220 308,261
Capital surplus 5,895,046 6,145,969
Retained earnings 24,278,237 23,579,610
Net unrealized gains on securities available for
sale, net of tax 181,899 297,955
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 31,887,402 30,331,795
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $248,792,437 $241,551,726
============ ============
The accompanying notes are an integral part of these financial statements.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
INTEREST INCOME
Loans, including fees $17,119,358 $15,652,718 $12,470,157
Securities:
Taxable 2,991,819 2,809,325 3,323,225
Non-taxable 627,271 496,781 588,762
Interest bearing deposits with banks 1,823 919 22,913
Federal funds sold 505,161 816,498 309,648
---------- ---------- ----------
Total Interest Income 21,245,432 19,776,241 16,714,705
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits:
Transaction accounts 394,080 560,093 523,027
Money market deposit accounts 269,117 313,385 279,214
Other savings deposits 462,830 462,729 537,841
Time certificates of deposit of
$100,000 or more 2,391,284 2,275,145 1,368,081
All other time deposits 5,133,154 4,754,481 3,219,252
Borrowed funds 110,777 68,756 37,645
---------- ---------- ----------
Total Interest Expense 8,761,242 8,434,589 5,965,060
---------- ---------- ----------
NET INTEREST INCOME 12,484,190 11,341,652 10,749,645
Provision for loan losses 783,000 258,649 225,000
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 11,701,190 11,083,003 10,524,645
---------- ---------- ----------
OTHER INCOME
Service charges on deposit accounts 1,517,781 1,367,109 1,361,372
Commissions and fees 305,213 357,945 342,709
Other service charges and fees 109,005 153,819 102,179
Security gains (losses), net (95,491) (56,198) (136,349)
Gain on sale of other assets 3,166 32,067 104,151
Dividends 170,287 177,658 159,903
Mortgage banking fees 115,140 48,343 96,166
---------- ---------- ----------
Total Other Income 2,125,101 2,080,743 2,030,131
---------- ---------- ----------
OTHER EXPENSES
Salaries and employee benefits 4,270,016 3,877,850 3,636,127
Occupancy expense, net 855,318 880,265 704,305
Furniture and equipment expense 757,748 699,622 484,549
Advertising and public relations 413,486 521,528 450,675
Other operating expenses 1,371,289 1,558,725 1,672,793
---------- ---------- ----------
Total Other Expenses 7,667,857 7,537,990 6,948,449
---------- ---------- ----------
Income before income taxes 6,158,434 5,625,756 5,606,327
Applicable income taxes 2,095,836 1,920,362 1,758,243
---------- ---------- ----------
NET INCOME $4,062,598 $3,705,394 $3,848,084
========== ========== ==========
Earnings per common share $2.67 $2.42 $2.55
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,062,598 $3,705,394 $3,848,084
Adjustments to reconcile net income to net cash
provided by operating activities-
Provision for loan losses 783,000 258,649 225,000
Depreciation and amortization 745,720 742,772 498,947
Amortization and accretion of investment securities, net 225,283 371,685 434,110
Deferred income tax expense (benefit) (77,511) 62,388 (64,519)
Gain on sale of other assets (3,166) (32,067) (104,151)
Security gains (losses), net 95,491 56,198 136,349
Loans originated for sale (4,911,920) (2,593,755) (3,619,124)
Proceeds from sale of loans 4,743,420 2,685,755 4,283,384
(Increase) in interest receivable (17,541) (1,035,868) (296,355)
(Increase) in prepayments and other assets (147,728) (100,580) (49,013)
Increase (decrease) in accrued interest on deposits (107,654) 822,903 218,199
Increase (decrease) in accrued taxes 1,328 58,060 (85,844)
Increase (decrease) in other liabilities (19,392) 398,143 (72,918)
---------- ---------- ----------
Cash Provided by Operating Activities, net 5,371,928 5,399,677 5,352,149
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in interest bearing deposits with banks 100,000 (100,000) 750,000
Purchases of securities available for sale (19,598,894) (18,983,237) (24,564,820)
Proceeds from sales of securities available for sale 11,967,501 11,100,506 7,765,131
Proceeds from maturities of securities available for sale 5,021,968 14,510,359 14,314,703
Purchases of securities held to maturity (8,326,881) (6,851,464) (7,026,994)
Proceeds from maturities of securities held to maturity 5,915,125 5,064,636 3,975,000
Net increase in loans (5,322,675) (16,945,597) (15,994,742)
Principal payments received under leases - - 23,503
Capital expenditures (657,661) (946,806) (3,063,848)
Proceeds from sale of other real estate 14,000 115,392 262,429
---------- ---------- ----------
Cash Used by Investing Activities, net (10,887,517) (13,036,211) (23,559,638)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 660,000 240,000 1,000,000
Borrowings repaid (125,974) (87,797) (39,416)
Net increase in deposits 5,276,796 17,740,414 8,871,988
Cash dividends paid (2,130,927) (1,994,868) (1,818,435)
Proceeds from issuance of common stock 501,476 428,928 778,688
Common stock repurchased (761,484) - -
---------- ---------- ----------
Cash Provided by Financing Activities, net 3,419,887 16,326,677 8,792,825
---------- ---------- ----------
INCREASE (DECREASE) IN CASH, net (2,095,702) 8,690,143 (9,414,664)
CASH AND CASH EQUIVALENTS, beginning of year 18,999,167 10,309,024 19,723,688
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year $16,903,465 $18,999,167 $10,309,024
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
Unrealized
Gains/(Losses)
Common Stock Capital Retained on Securities,
Shares Amount Surplus Earnings Net of Taxes Total
-------- -------- ---------- ----------- --------- ----------
Balance at December 31, 1993 $296,389 $296,389 $4,950,225 $19,839,435 $- $25,086,049
Cumulative effect, net of
taxes, of a change in
accounting for securities - - - - 852,483 852,483
Net income - - - 3,848,084 - 3,848,084
Cash dividends paid $1.20
per share - - - (1,818,435) - (1,818,435)
Common stock issued 8,521 8,521 770,167 - - 778,688
Change in unrealized gains
(losses) on securities,
net of tax - - - - (1,697,843) (1,697,843)
-------- -------- --------- ---------- --------- ----------
Balance at December 31, 1994 304,910 304,910 5,720,392 21,869,084 (845,360) 27,049,026
Net income - - - 3,705,394 - 3,705,394
Cash dividends paid $1.30
per share - - - (1,994,868) - (1,994,868)
Common stock issued 3,351 3,351 425,577 - - 428,928
Change in unrealized gains
(losses) on securities,
net of tax - - - - 1,143,315 1,143,315
--------- --------- --------- ---------- --------- ----------
Balance at December 31, 1995 308,261 308,261 6,145,969 23,579,610 297,955 30,331,795
Five-for one stock split 1,233,044 1,233,044 - (1,233,044) - -
Net income - - - 4,062,598 - 4,062,598
Cash dividends paid $1.40
per share - - - (2,130,927) - (2,130,927)
Common stock issued 18,505 18,505 482,971 - - 501,476
Common stock repurchased (27,590) (27,590) 733,894) - - (761,484)
Change in unrealized gains
(losses) on securities,
net of tax - - - - (116,056) (116,056)
--------- --------- --------- ---------- ------- -------
Balance at
December 31, 1996 $1,532,220 $1,532,220 $5,895,046 $24,278,237 $181,899 $31,887,402
========== ========== ========== =========== ========
===========
The accompanying notes are an integral part of these financial statements.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
First Pulaski National Corporation (the "Corporation") is a one-
bank holding company organized under the laws of Tennessee in 1981
and registered under the Bank Holding Company Act of 1956, as
amended. The Corporation through its bank subsidiary provides
domestic financial services in Giles and Lincoln County,
Tennessee, to customers who are predominantly small and middle-
market businesses and middle-income individuals. The accounting
and reporting policies of the Corporation and its subsidiary
conform to generally accepted accounting principles and to general
practices within the banking industry. A description of the
significant accounting policies is presented below.
Note A - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of
First Pulaski National Corporation and its wholly-owned bank
subsidiary First National Bank of Pulaski. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Securities
Effective January 1, 1994, the Corporation adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under this statement,
the Corporation's securities are classified as either held to
maturity or available for sale.
Held to maturity securities are securities for which management
has the ability and intent to hold on a long-term basis or until
maturity. These securities are carried at amortized cost,
adjusted for amortization of premiums and accretion of discounts.
Securities available for sale represent those securities intended
to be held for an indefinite period of time, including securities
that management intends to use as part of its asset/liability
strategy, or that may be sold in response to changes in interest
rates, changes in prepayment risk, the need to increase regulatory
capital or other similar factors. Securities available for sale
are recorded at fair value with unrealized gains and losses net of
any tax effect, added or deducted directly from shareholders'
equity.
Realized and unrealized gains and losses are based on the specific
identification method.
Loans and Allowance for Loan Losses
Loans which the Corporation has the positive intent and ability to
hold to maturity are stated at the principal amount outstanding,
net of unearned income. Loans include loans held for sale at
December 31, 1996 and 1995, totaling $260,500 and $92,000,
respectively. These loans are recorded at cost, which
approximates market value.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance is
based on management's evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit
concentrations, trends in historical loss experience, specific
impaired loans, and economic conditions. Allowances for impaired
loans are generally determined based on collateral values or the
present value of estimated cash flows. Because of uncertainties
associated with the regional economic conditions, collateral
values, and future cash flows on impaired loans, it is reasonably
possible that management's estimate of credit losses inherent in
the loan portfolio and the related allowance may change materially
in the near term. The allowance is increased by a provision for
loan losses, which is charged to expense and reduced by charge-
offs, net of recoveries.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note A - Summary of Significant Accounting Policies - (Continued)
Loans and Allowance for Loan Losses - (Continued)
In 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS" No. 114), which was
amended in 1994 by Statement of Financial Accounting Standards No.
118,"Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure" ("SFAS" No. 118). These standards
address the accounting for certain loans when it is probable that
all amounts due pursuant to the contractual terms of the loan will
not be collected. Individually identified impaired loans are
measured based on the present value of payments expected to be
received, using the historical effective loan rate as the discount
rate. Loans that are to be foreclosed or that are solely
dependent on the collateral for repayment may alternatively be
measured based on the fair value of the collateral for such loans.
Measurement may also be based on observable market prices. If
the recorded investment in the loan exceeds the measure of fair
value, a valuation allowance is established as a component of the
allowance for loan losses. The Corporation adopted SFAS No. 114
and SFAS No. 118 effective January 1, 1995. The Corporation had
previously measured the allowance for loan losses using methods
similar to those prescribed in SFAS No. 114. As a result of
adopting these statements, no additional allowance for loan losses
was required as of January 1, 1995.
Loans are generally placed on nonaccrual when a loan is
specifically determined to be impaired or when principal or
interest is delinquent for 90 days or more or when doubt as to
timely collection of principal or interest exists unless such
loans are well secured and in the process of collection. The
decision to place a loan on nonaccrual status is based on an
evaluation of the borrower's financial condition, collateral,
liquidation value, and other factors that affect the borrower's
ability to pay. Generally, at the time a loan is placed on a
nonaccrual status, all interest accrued and uncollected on the
loan in the current fiscal year is reversed from income, and all
interest accrued and uncollected from the prior year is charged
off against the allowance for loan losses. Thereafter, interest
on nonaccrual loans is recognized in interest income only to the
extent that cash is received and future collection of principal is
not in doubt. If the collectibility of outstanding principal is
doubtful, such interest received is applied as a reduction of
principal.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed on the straight-line and various accelerated methods at
rates calculated to amortize the cost of assets over their
estimated useful lives. Cost of major additions and improvements
are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred.
Other Real Estate Owned
Other real estate owned consists of properties acquired through
foreclosures and premises not used for business operations. These
properties are valued at the lower of cost or estimated net
realizable value. Cost includes loan principal, accrued interest,
and foreclosure expense. Estimated net realizable value is the
estimated selling price in an orderly disposition reduced by
estimated selling costs and future carrying costs. The excess of
cost over net realizable value at the time of foreclosure is
charged to the allowance for loan losses. The estimated net
realizable fair value is reviewed periodically and any write-downs
are charged against current earnings as market adjustments.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note A - Summary of Significant Accounting Policies - (Continued)
Income Taxes
The provision for income taxes is based on income reported for
consolidated financial statement purposes and includes deferred
taxes resulting from the recognition of certain revenues and
expenses in different periods for tax reporting purposes.
The current income tax provision approximates taxes to be paid or
refunded for the applicable period.
Balance sheet amounts of deferred taxes are recognized on the
temporary differences between the basis of assets and liabilities
as measured by tax laws and their basis as reported in the
financial statements. Deferred tax expense or benefit is then
recognized for the change in deferred tax liabilities or assets
between periods.
Recognition of deferred tax assets 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.
First Pulaski National Corporation files a consolidated income tax
return. However, income taxes are computed by the subsidiary on a
separate basis, and taxes currently payable are remitted to First
Pulaski National Corporation.
Statements of Cash Flows
Cash and cash equivalents as presented in the consolidated
statements of cash flows includes cash and due from banks and
federal funds sold. Cash flows from operating activities reflect
interest paid of $8,868,896, $7,611,656 and $5,709,217 and income
taxes paid of $2,183,486, $1,899,000 and $1,909,235 for the years
ended December 31, 1996, 1995, and 1994, respectively.
Earnings Per Share
Earnings per common share are based on the weighted average number
of shares outstanding of 1,522,591, 1,532,245, and 1,511,450 for
1996, 1995 and 1994, respectively. Options granted under the
stock option plans are not included in the computation since their
dilutive effect is not material. All references to per share
amounts for all years presented have been adjusted for the five-
for-one stock split on July 1, 1996.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications
Certain 1995 and 1994 financial information has been reclassified
to conform its presentation with the 1996 financial statements.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note B - Securities
The following is a summary of the amortized cost and estimated
fair value of securities at December 31:`
Gross Gross Estimated
Unrealized Unrealized Fair
1996 Cost Gains Losses Value
- ---- ---- ----- ------ -----
Available for Sale
U.S. Treasury securities $20,239,156 $134,174 $ - $20,373,330
U.S. Government agencies 23,239,267 146,118 900 23,384,485
---------- ------- ---- ----------
43,478,423 280,292 900 43,757,815
---------- ------- ---- ----------
Held to Maturity
Obligations of states and
political subdivisions 14,403,708 74,326 4,338 14,473,696
Other debt securities 5,285,635 22,618 578 5,307,675
---------- -------- ------ ----------
19,689,343 96,944 4,916 19,781,371
---------- ------- ----- ----------
TOTAL $63,167,766 $377,236 $5,816 $63,539,186
=========== ======== ====== ===========
1995
- ----
Available for Sale
U.S. Treasury securities $20,235,663 $197,811 $27,702 $20,405,772
U.S. Government agencies 20,842,577 285,126 - 21,127,703
----------- -------- ------- -----------
41,078,240 482,937 27,702 41,533,475
----------- -------- ------- -----------
Held to Maturity
Obligations of states and
political subdivisions 13,347,233 99,602 28,051 13,418,784
Other debt securities 4,041,886 32,309 595 4,073,600
---------- ------- ------ ----------
17,389,119 131,911 28,646 17,492,384
TOTAL ---------- -------- ------ ----------
$58,467,359 $614,848 $56,348 $59,025,859
=========== ======== ======= ===========
The following is a summary of the amortized cost and estimated
fair value of debt securities by contractual maturity at December
31, 1996:
Available for Sale Held to Maturity
------------------ ----------------
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
Due in one year or less $11,130,783 $11,184,230 $6,485,692 $6,505,556
Due after one year through five years 32,296,796 32,521,339 13,104,141 13,176,305
Due after five years through ten years 50,844 52,246 99,510 99,510
---------- ---------- ---------- ----------
TOTAL $43,478,423 $43,757,815 $19,689,343 $19,781,371
=========== =========== =========== ===========
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note B - Securities (Continued)
Net gains realized from securities transactions for 1996, 1995 and
1994 were:
Book Gross Realized Net
1996 Proceeds Value Gains Losses Realized
---- -------- ----- ----- ------ --------
Securities sold $11,967,501 $12,068,117 $ - $100,616 $(100,616)
Securities matured or redeemed 10,931,968 10,931,968 - - -
Securities recovered* 5,125 - 5,125 - 5,125
----------- ----------- ------ -------- --------
$22,904,594 $23,000,085 $5,125 $100,616 $(95,491)
=========== =========== ====== ======== ========
1995
Securities sold $11,100,506 $11,166,340 $ - $65,834 $(65,834)
Securities matured or redeemed 19,569,659 19,565,359 4,300 - 4,300
Securities recovered* 5,336 - 5,336 - 5,336
----------- ----------- ------- ------- ---------
$30,675,501 $30,731,699 $9,636 $65,834 $(56,198)
=========== =========== ======= ======== =========
1994
Securities sold $7,765,131 $8,000,046 $ - $234,915 $(234,915)
Securities matured or redeemed 18,287,584 18,191,132 96,447 - 96,447
Securities recovered* 2,119 - 2,119 - 2,119
----------- ----------- ------- -------- ---------
$26,054,834 $26,191,178 $98,566 $234,915 $(136,349)
=========== =========== ======= ======== =========
*Previously written off
Income tax expense (benefit) attributable to securities
transactions was $(38,196), $(22,479) and $(54,540) for 1996, 1995
and 1994, respectively.
Securities with a book value of $27,708,698 and $17,492,706 at
December 31, 1996 and 1995, respectively, were pledged to secure
public monies and for other purposes as required or permitted by
law.
There were no investments in obligations of state and political
subdivisions that were payable from and secured by the same source
of revenue or taxing authority that exceeded 10% of consolidated
shareholders' equity at December 31, 1996 or 1995.
Note C - Loans and Allowance for Loan Losses
Although the Corporation has a loan portfolio diversified by type
of risk, the ability of its customers to honor their contracts is
to some extent dependent upon their regional economic condition.
The Corporation grants commercial and consumer loans primarily to
customers in Giles and Lincoln County, Tennessee. In order to
mitigate the impact of credit risk, management strives to identify
loans experiencing difficulty early enough to correct the problems
and to maintain an allowance for loan losses to cover inherent
losses in the loan portfolio. At December 31, 1996, the
Corporation had no concentrations of 10 percent or more of total
loans in any single industry.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note C - Loans and Allowance for Loan Losses (Continued)
The following is a summary of loans at December 31:
1996 1995
------------- -------------
Construction and land development $3,547,794 $2,928,706
Commercial and industrial 20,219,218 17,911,213
Agricultural 11,799,313 12,502,723
Real estate loans secured by:
Farmland 17,313,993 15,614,677
Residential property 38,708,335 37,811,008
Nonresidential, nonfarm 27,254,908 26,410,563
Loans to individuals secured by:
Automobiles 20,129,271 19,291,909
Retail, consumer and personal expenditures 19,966,371 21,318,235
Other loans 1,943,293 2,402,029
160,882,496 156,191,063
Unearned income (2,979,171) (3,198,480)
------------ ------------
TOTAL $157,903,325 $152,992,583
============ ============
The following is a summary of loan maturities carrying fixed and
variable interest rates as of December 31, 1996:
Within Over
One Year One Year Total
----------- ----------- ------------
Fixed rate loans $90,830,101 $52,344,784 $143,174,885
Variable rate loans 17,478,286 229,325 17,707,611
------------ ----------- ------------
TOTAL $108,308,387 $52,574,109 $160,882,496
============ =========== ============
At December 31, 1996, 1995 and 1994, impaired, nonaccrual and
restructured loans totaled $449,531, $208,063 and $300,586,
respectively. The amount of interest income actually recognized
on these loans during 1996, 1995 and 1994, was $5,625, $937 and
$2,298, respectively. The additional amount of interest income
that would have been recorded during 1996, 1995 and 1994, if the
above amounts had been current in accordance with their original
terms was $26,139, $16,962 and $12,884, respectively.
As of December 31, 1996, the Corporation's recorded investment in
impaired loans and the related valuation allowance calculated
under SFAS No. 114 are as follows:
Recorded Valuation
Investment Allowance
Impaired Loans- ---------- ----------
Valuation allowance required $ 330,620 $ 108,798
No valuation allowance required 118,911 -
---------- ----------
Total Impaired Loans $ 449,531 $ 108,798
========== ==========
The valuation allowance is included in the allowance for loan
losses on the balance sheet.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note C - Loans and Allowance for Loan Losses (Continued)
The average recorded investment in impaired loans for the year
1996 was $373,579.
Loans past due 90 days or more and accruing interest were
$190,761, $210,137 and $161,233 at December 31, 1996, 1995 and
1994, respectively.
Certain related parties (principally directors, including their
families and companies in which they are principal owners) are
loan customers of the Corporation's bank subsidiary. Related party
loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve
more than a normal risk of collectibility. The following table
summarizes the changes in related party loans for 1996 and 1995.
1996 1995
----------- -----------
Balance at beginning of year $8,506,931 $7,660,907
Additions 4,844,908 3,387,327
Repayments (3,951,444) (2,541,303)
----------- -----------
Balance at end of year $9,400,395 $8,506,931
=========== ===========
Transactions in the allowance for loan losses were as follows:
1996 1995 1994
---------- ---------- ----------
Balance at beginning of year $2,058,456 $2,023,681 $2,006,864
Less-Charge-offs: ---------- ---------- -----------
Real estate -
Residential - 4,287 10,000
Commercial 53,236 63,659 33,064
Agricultural 50,089 22,276 73,721
Individuals 637,280 342,459 250,220
---------- ---------- ----------
740,605 432,681 367,005
Add-Recoveries:
Real estate -
Residential 1,810 10,720 5,752
Nonresidential, nonfarm 19,336 1,657 1,338
Commercial 12,941 73,721 16,071
Agricultural 2,683 16,252 37,917
Individuals 243,079 106,457 97,744
---------- ---------- -----------
279,849 208,807 158,822
---------- ---------- -----------
Net Charge-offs 460,756 223,874 208,183
---------- ---------- -----------
Add-Provision charged to operations 783,000 258,649 225,000
---------- ---------- -----------
Balance at end of year $2,380,700 $2,058,456 $2,023,681
========== ========== ===========
Ratio of net charge-offs to average
loans outstanding during the year 0.29% 0.16% 0.16%
==== ==== ====
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note D - Bank Premises and Equipment
The following is a summary of bank premises and equipment at
December 31:
Accumulated
Depreciation & Carrying
1996 Cost Amortization Amount
- ---- ---- ------------ --------
Land $573,180 $ - $573,180
Buildings 7,521,898 2,721,112 4,800,786
Furniture and equipment 4,613,105 3,178,803 1,434,302
Leasehold improvements 402,311 58,703 343,608
---------- --------- ---------
TOTAL $13,110,494 $5,958,618 $7,151,876
=========== ========== ==========
1995
Land $441,812 $ - $441,812
Buildings 7,217,868 2,459,991 4,757,877
Furniture and equipment 4,417,899 2,732,291 1,685,608
Leasehold improvements 400,442 45,804 354,638
---------- --------- ---------
TOTAL $12,478,021 $5,238,086 $7,239,935
=========== ========== ==========
The following is a summary of non-cancelable minimum operating
lease commitments for real property, excluding cancelable short-
term commitments, principally for equipment.
Annual Annual
Year Commitments Year Commitments
---- ----------- ------------ -----------
1997 $49,722 2002 - 2006 $30,000
1998 49,722 2007 - 2011 30,000
1999 49,722 2012 - 2014 14,500
2000 49,532
2001 20,422
Note E - Prepayments and Other Assets
The following is a summary of prepayments and other assets at
December 31:
1996 1995
---------- ----------
Prepaid expenses $136,218 $92,663
Federal Home Loan Bank stock 765,400 712,200
Federal Reserve Bank stock 112,500 112,500
Investment in single premium whole life insurance contract 524,669 504,553
Investment in insurance limited partnership and corporation 81,850 81,850
Deferred income tax benefits 489,629 352,331
Other 36,807 5,950
---------- ----------
TOTAL $2,147,073 $1,862,047
========== ==========
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note F - Deposits
The following is a summary of deposits at December 31:
1996 1995
---- ----
Noninterest bearing:
Demand $30,479,710 $27,784,716
Interest bearing:
Demand 19,416,565 20,167,217
Savings 27,146,886 28,639,237
Other time 95,048,254 90,250,759
Certificates of deposit $100,000 and over 40,594,920 40,567,610
------------ -----------
TOTAL $212,686,335 $207,409,539
============ ============
Note G - Other Borrowed Funds
The following is a summary of other borrowed funds at December 31:
1996 1995
---- ----
Notes payable to Federal Home Loan Bank:
Dated 11-17-93, matures 12-01-08,
payable $1,682 per month including
interest at 5.95% $172,853 $182,444
Dated 6-22-94, matures 7-01-04, payable
$11,077 per month including interest
at 5.95% 809,674 891,753
Dated 10-16-95, matures 11-01-05,
payable $2,750 per month including
interest at 6.70% 221,048 238,591
Dated 2-2-96, matures 3-01-16,
payable $2,237 per month including
interest at 6.50% 294,374 -
Dated 2-12-96, matures 3-01-11,
payable $3,087 per month including
interest at 6.25% 348,865 -
---------- ----------
TOTAL $1,846,814 $1,312,788
========== ==========
The notes are secured by a pledge of Federal Home Loan Bank stock
with a par value of $765,400 and a blanket pledge of $2,770,221
first mortgage loans against single family, 1-4 unit residential
properties.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note G - Other Borrowed Funds (Continued)
Notes payable are scheduled to mature December 31:
1997 $139,651
1998 148,435
1999 157,774
2000 167,701
2001 178,254
Thereafter 1,054,999
----------
$1,846,814
==========
Note H - Common Stock and Related Matters
The authorized number of common shares was increased from
1,800,000 to 10,000,000 shares as of April 18, 1996.
In March 1996, the Board of Directors authorized a five-for-one
stock split of common shares effected in the form of a dividend as
of July 1, 1996. The par value of the new shares issued totaled
$1,233,044, and this amount was transferred from retained earnings
to the common stock account. Common stock options outstanding and
exercised have been increased five-for-one and the exercise price
reduced by one-fifth. All references in the consolidated financial
statements with regard to dividends and earnings per share have
been restated to reflect the five-for-one stock split.
Note I - Income Taxes
The components of income taxes for the three years ended December
31 are as follows:
1996 1995 1994
Federal
Current $1,830,769 $1,553,931 $1,520,738
Deferred tax (benefit) (77,511) 62,388 (64,519)
----------- ---------- ----------
1,753,258 1,616,319 1,456,219
State 342,578 304,043 302,024
----------- ----------- ----------
Provision for Income Taxes $2,095,836 $1,920,362 $1,758,243
========== ========== ==========
Income taxes varied from the amount computed at the statutory
federal income tax rate for the years ended December 31 as
follows:
1996 1995 1994
Federal taxes at statutory rate $2,093,868 $1,912,757 $1,906,151
Increase (decrease) resulting from
tax effect of:
Tax exempt interest on obligations
of states and political subdivisions (219,420) (168,405) (237,184)
State income taxes, net of federal
income tax benefit 226,101 200,668 199,336
Dividend received deduction (27,523) (27,171) (28,681)
Excess capital loss (12,354) (36,132)
Others, net 22,810 14,867 (45,247)
---------- ---------- ----------
Provision for Income Taxes $2,095,836 $1,920,362 $1,758,243
========== ========== ==========
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note I - Income Taxes (Continued)
Significant components of the Corporation's deferred tax assets
and liabilities on December 31 are as follows:
1996 1995
---- ----
Deferred tax assets:
Allowance for loan losses $623,249 $513,686
Other real estate 4,867 5,904
Deferred compensation 18,633 18,633
-------- --------
Gross Deferred Tax Assets 646,749 538,223
-------- --------
Deferred tax liabilities:
Investment securities 45,890 31,112
Securities available for sale 94,993 154,780
Other securities 16,237 -
-------- --------
Gross Deferred Tax Liabilities 157,120 185,892
-------- --------
Net Deferred Tax Assets $489,629 $352,331
======== ========
Note J - Other Operating Expenses
The following table summarizes the components of other operating
expenses for the years ended December 31:
1996 1995 1994
---- ---- ----
Directors' fees $153,275 $159,030 $178,125
Stationery and supplies 184,158 184,332 169,314
FDIC insurance 2,000 225,087 418,242
Other insurance 50,686 57,465 63,419
Postage 126,971 122,308 123,272
Telephone 96,901 97,758 86,538
Other 757,298 712,745 633,883
---------- ---------- ----------
$1,371,289 $1,558,725 $1,672,793
========== ========== ==========
Note K - Profit Sharing Plan
The Corporation's bank subsidiary has a non-contributory trusteed
profit sharing retirement plan covering all officers and employees
who have completed a year of service and are over the age of 21.
The bank subsidiary's total payroll in 1996 was $3,339,298.
Contributions for the current year were calculated using the base
salary amount of $3,034,894. The bank subsidiary's contribution
is based, in general, on 10% of earnings before taxes, not to
exceed 15% of the total salary of all the participants. The plan
expense was $455,234, $404,188 and $395,755 in 1996, 1995 and
1994, respectively.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note L - Other Financial Instruments, Commitments and
Contingencies
The Corporation's bank subsidiary is a party to financial
instruments with off-balance-sheet-risk in the normal course of
business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit,
standby letters of credit and residential mortgage loans sold with
certain repurchase requirements. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts
of those instruments reflect the extent of involvement the bank
subsidiary has in those particular financial instruments.
The following summarizes the bank subsidiary's involvement in
financial instruments with off-balance-sheet risk as of December
31:
Contract or Notional
Amount
--------------------------
1996 1995
Commitments to extend credit $13,334,204 $13,111,542
Standby letters of credit 843,937 687,725
Mortgage loans sold with repurchase
requirements outstanding 1,604,758 1,097,528
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The bank subsidiary evaluates
each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained upon extension of credit is based on
management's credit evaluation. Collateral held varies but may
include certificates of deposits, accounts receivable, inventory,
property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit are conditional commitments issued by
the bank subsidiary to guarantee the performance of a customer to
a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including commercial
paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
The bank subsidiary may be required to repurchase residential
mortgage loans sold if a default occurs with respect to the
payment of any of the first four installments of principal and
interest after a loan is sold and the default continues for a
period of 90 days. These loans are considered in the computation
of the allowance for loan losses to cover future defaults.
In the normal course of business, the Corporation and its bank
subsidiary are involved in various legal proceedings. Management
has concluded, based upon advice of legal counsel, that the result
of these proceedings will not have a material effect on the
consolidated financial statements of the Corporation and its bank
subsidiary.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note M - First Pulaski National Corporation (Parent Company Only)
Financial Information
BALANCE SHEETS
December 31,
-----------
1996 1995
ASSETS ---- -----
Cash $2,186,242 $2,397,343
Investment in bank subsidiary, at equity 29,599,577 27,826,607
Other assets 101,583 107,845
----------- -----------
TOTAL ASSETS $31,887,402 $30,331,795
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' Equity
Common stock, $1 par value; authorized -
10,000,000 shares; 1,532,220 and
308,261 shares issued and outstanding $1,532,220 $308,261
Capital surplus 5,895,046 6,145,969
Retained earnings 24,278,237 23,579,610
Net unrealized gains on securities available
for sale, net of tax 181,899 297,955
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,887,402 $30,331,795
=========== ===========
STATEMENTS OF INCOME
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
INCOME
Dividends from subsidiary $2,130,927 $1,994,868 $1,818,435
Other dividends 115,642 114,166 120,509
---------- ---------- ----------
2,246,569 2,109,034 1,938,944
---------- ---------- ----------
EXPENSES
Education 27,354 22,012 13,906
Directors' fees 33,100 52,200 64,900
Stockholder's meeting 17,477 15,277 13,171
Other 14,799 21,986 7,359
---------- ---------- ----------
92,730 111,475 99,336
---------- ---------- ----------
Income before applicable income taxes
and equity in undistributed earnings
of subsidiary 2,153,839 1,997,559 1,839,608
Reduction in consolidated income taxes
arising from parent company tax
operating loss 19,733 25,995 21,214
---------- ---------- ----------
Income before equity in undistributed
earnings of subsidiary 2,173,572 2,023,554 1,860,822
Equity in undistributed earnings of subsidiary 1,889,026 1,681,840 1,987,262
---------- ---------- ----------
NET INCOME $4,062,598 $3,705,394 $3,848,084
========== ========== ==========
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note M - First Pulaski National Corporation (Parent Company Only)
Financial Information (Continued)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 4,062,598 $3,705,394 $3,848,084
Adjustments to reconcile net income to
net cash provided by operating activities -
Equity in undistributed earnings of
subsidiary (1,889,026) (1,681,840) (1,987,262)
(Increase) decrease in other assets 6,262 (4,782) (3,120)
---------- --------- ---------
Cash Provided by Operating Activities 2,179,834 2,018,772 1,857,702
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (2,130,927) (1,994,868) (1,818,435)
Proceeds from issuance of common stock 501,476 428,928 778,688
Common stock repurchased (761,484) - -
Cash Used by Financing Activities (2,390,935) (1,565,940) (1,039,747)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH, net (211,101) 452,832 817,955
CASH, beginning of year 2,397,343 1,944,511 1,126,556
---------- ---------- ----------
CASH, end of year $2,186,242 $2,397,343 $1,944,511
========== ========== ==========
Note N - Regulatory Requirements and Restrictions
The Corporation's bank subsidiary is required to maintain average
reserve balances with the Federal Reserve Bank. The average
amount of those reserve requirements was approximately $1,348,000
and $1,320,000 for the years ended December 31, 1996 and 1995,
respectively.
The primary source of funds for payment of dividends by the
Corporation to its shareholders is dividends received from its
bank subsidiary. The amount of dividends that a bank subsidiary
may pay in any year is subject to certain regulatory restrictions.
The amount available for payment of dividends without prior
regulatory approval at December 31, 1996, to the Parent Company
was $5,931,965.
The Corporation is subject to various regulatory capital
requirements administered by its primary federal regulator, the
Office of Comptroller of the Currency (OCC). Failure to meet the
minimum regulatory capital requirements can initiate certain
mandatory, and possible additional discretionary actions by
regulators, that if undertaken, could have a direct material
affect on the consolidated financial statements. Under the
regulatory capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Corporation must meet
specific capital guidelines involving quantitative measures of the
Corporation's assets, liabilities, and certain off balance-sheet
items as calculated under regulatory accounting practices. The
Corporation's capital amounts and classification under the prompt
corrective action guidelines are also subject to qualitative
judgements by the regulators about components, risk weightings,
and other factors.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note N - Regulatory Requirements and Restrictions (Continued)
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and the Bank to maintain minimum
amounts and ratios of total risk-based capital and Tier I capital
to risk-weighted assets (as defined in the regulations), and Tier
I capital to adjusted total assets (as defined). Management
believes the Corporation and the Bank meet all the capital
adequacy requirements to which they are subject as of December 31,
1996.
As of September 25, 1995, the most recent notification from
regulatory authorities categorized First Pulaski National
Corporation and First National Bank as well capitalized under the
regulatory framework for prompt corrective action. To remain
categorized as well capitalized, the Corporation will have to
maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as disclosed in the table below. There are no
conditions or events since the most recent notification that
management believes have changed the Corporation's category.
To Be Well Capitalized
under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
------ ----------------- -----------------------
First First First
First Pulaski First Pulaski First Pulaski
National National National National National National
Bank Corporation Bank Corporation Bank Corporation
Amount:
Total Risk-Based Capital
(to Risk-Weighted Assets) $31,574,000 $33,863,000 $13,802,000 $13,809,000 $17,253,000 $17,261,000
Tier I Capital
(to Risk-Weighted Assets) 29,415,000 31,703,000 6,901,000 6,905,000 10,352,000 10,357,000
Tier I Capital
(to Adjusted Total Assets) 29,415,000 31,703,000 7,509,000 7,512,000 12,516,000 12,520,000
Ratios:
Total Risk-Based Capital
(to Risk-Weighted Assets) 18.30% 19.62% 8.00% 8.00% 10.00% 10.00%
Tier I Capital
(to Risk-Weighted Assets) 17.05% 18.37% 4.00% 4.00% 6.00% 6.00%
Tier I Capital
(to Adjusted Total Assets) 11.75% 12.66% 3.00% 3.00% 5.00% 5.00%
Note O - Stock Option and Stock Purchase Plans
Under the Corporation's stock option and employee stock purchase
plans, non-employee directors and bank subsidiary employees may be
granted options or rights to purchase shares of the Corporation's
common stock. The option or purchase price under all plans is
equal to the fair market value of the stock at the date of grant.
The Corporation applies Accounting Principles Board (APB) Opinion
25 in computing compensation costs related to its stock option
plans. Under this method, compensation is the excess, if any, of
the market price of the stock at grant date over the amount that
must be paid to acquire the stock. The Corporation's stock option
plans have no intrinsic value at grant date, therefore no
compensation cost has been recognized.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note O - Stock Option and Stock Purchase Plans (Continued)
However, under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," corporations which
follow APB Opinion 25 are required to disclose the pro forma
amount for compensation costs for its stock option plans based on
the fair value at the grant dates for awards under those plans.
Accordingly, the Corporation's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
1996 1995
---- ----
Net Income:
As reported $4,062,598 $3,705,394
Pro forma 4,044,598 3,692,894
Earnings per Share:
As reported $2.67 $2.42
Pro forma 2.66 2.41
In calculating the pro forma disclosures, the fair value of
options granted is estimated as of the date granted using the
Black-Scholes option pricing model with the following weighted-
average assumptions used for grants in 1996 and 1995,
respectively: dividend yield of 4.7 percent for all years;
expected volatility of 6.3 and 5.3 percent; risk-free interest
rates of 7.0 percent in both years; and expected lives of 4.4
years in 1996 and 1995. Pro forma disclosure is not required for
1994.
Shares available for grants of options or rights to purchase at
December 31, 1996 include 55,000 shares under the 1987 stock
option plan, 111,160 shares under the 1994 outside directors stock
option plan and 118,150 shares under the 1994 employee purchase
plan.
The 1987 plan permits the Board of Directors to grant options to
key employees. A total of 100,000 shares were reserved under this
plan of which 45,000 shares have been granted and 40,000 shares
have been exercised. These options expire 10 years from the date
of grant.
The 1994 outside directors stock option plan permits the granting
of stock options to non-employee directors. A total of 150,000
shares were reserved under this plan. An option to purchase 500
shares is granted upon becoming a member of the Board of
Directors, of which 250 shares is immediately exercisable and the
remaining 250 shares are exercisable upon the first annual meeting
of shareholders following the date of grant provided the optionee
is still serving as an outside director. In addition, each
outside director receives an immediately exercisable option to
purchase 2,500 shares, less the number of shares of stock
previously beneficially owned. These options expire ten years
from the date of grant.
The 1994 employee stock purchase plan permits the granting of
stock options to eligible employees of the Corporation. A total
of 150,000 shares were reserved under this plan. The Board has
established the following guidelines as to the number of shares
employees are allowed to purchase on July 1, each year:
Number of Shares
----------------
Years of Service Under 10 years Over 10 years
- ---------------- -------------- -------------
Vice-Presidents and above 200 250
All other Officers 125 175
Non-Officers 75 125
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note O - Stock Option and Stock Purchase Plans (Continued)
The following is a summary of the stock option and purchase plans
activity for 1996, 1995 and 1994:
Stock Option Plans Employee Purchase Plan
------------------ ----------------------
Shares Shares Shares
Available Under Available Shares
for Option Option for Purchase Purchased
---------- ------ ------------ ---------
Balance, January 1, 1994,
as originally reported 12,000 4,000 - -
Adjustment for five-for-one stock split 48,000 16,000 - -
---------- --------- ------------ ----------
Balance, January 1, 1994, restated 60,000 20,000 - -
Additions 150,000 - 150,000 -
Granted (18,500) 18,500 (12,125) 12,125
Exercised - (28,000) - (12,125)
---------- ---------- ------------ ----------
Balance December 31, 1994 191,500 10,500 137,875 -
Granted (12,340) 12,340 (9,735) 9,735
Exercised - (6,350) - (9,735)
Balance December 31, 1995 179,160 16,490 128,140 -
Granted (13,000) 13,000 (9,990) 9,990
Exercised - (7,790) - (9,990)
Balance December 31, 1996 166,160 21,700 118,150 -
========= ========== ============ =========
Exercisable at December 31, 1996 16,400
======
The weighted-average fair value of options, calculated using the
Black-Scholes option pricing model, granted during 1996 and 1995
is $4.50 and $3.44, respectively.
Note P - Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" ("SFAS" No. 107),
requires entities to disclose the estimated fair value of its
financial instrument assets and liabilities. Management is
concerned that the required disclosures under SFAS No. 107 may
lack reasonable comparability between financial institutions due
to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary
markets for many of the financial instruments. This lack of
uniform valuation methodologies also introduces a greater degree
of subjectivity to these estimated fair values.
The following methods and assumptions were used by the Corporation
in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet for cash and short-term instruments approximate
those assets' fair values.
FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Note P - Fair Values of Financial Instruments (Continued)
Securities: Fair values for securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.
Loans: For variable-rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on
carrying values. The fair values for other loans are estimated
using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers
of similar credit quality.
Deposit liabilities: The fair values disclosed for demand
deposits (e.g., interest and non-interest checking, savings, and
certain types of money market accounts) are, by definition, equal
to the amount payable on demand at the reporting date (i.e., their
carrying amounts). The carrying amounts for variable-rate, fixed-
term money market accounts and certificates of deposits
approximate their fair values at the reporting date. Fair values
for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Other borrowed funds: Market quotes are used for Federal Home
Loan Bank borrowings.
Standby letters of credit: Value is estimated based on the related
fee income associated with the commitment.
The estimated fair values of the Corporation's financial
instruments on December 31 were (dollars in thousands):
1996 1995
--------------------------- ---------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
Financial assets:
Cash and short-term investments $16,903 $16,903 $19,099 $19,099
Securities 63,447 63,539 58,923 59,026
Loans 157,903 158,256 152,993 153,380
Less: allowance for loan losses (2,381) - (2,058) -
Financial liabilities:
Deposits 212,686 212,766 207,410 207,657
Other borrowed funds 1,847 1,785 1,313 1,301
Unrecognized financial instruments:
Standby letters of credit - (1) - (2)
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
First Pulaski National Corporation
Pulaski, Tennessee
We have audited the accompanying consolidated balance sheets of
First Pulaski National Corporation and Subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of First Pulaski National Corporation and
Subsidiary as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements,
effective January 1, 1994, the Corporation changed its method of
accounting for securities.
/s/ Putman & Hancock
Fayetteville, Tennessee
February 20, 1997
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of First Pulaski National Corporation and its only
subsidiary, First National Bank of Pulaski, is responsible for the
content and integrity of the financial statements and all other
financial information included in this annual report. Management
believes that the statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts
based on informed estimates and judgements of management with respect
to certain events and transactions.
Management is further responsible for maintaining a system of
internal accounting controls, designed to provide reasonable assurance
that the books and records reflect the transactions of the Corporation
and that its established policies and procedures are carefully
followed. Management reviews and modifies the system of internal
accounting controls to improve its effectiveness, and the system is
augmented by written policies, the careful selection and training of
qualified personnel, and a program of internal audit. Management
believes that the system of internal accounting control provides
reasonable assurance that assets are safeguarded and the financial
information is objective and reliable.
Independent public accountants are engaged to audit the financial
statements of the Corporation and issue a report thereon. They have
informed management that the audits were conducted in accordance with
generally accepted auditing standards which require a review of and
evaluation of internal accounting controls to determine the nature,
timing and extent of audit testing.
The Board of Directors, through its Audit Committee (comprised of
four non-management directors), is responsible for providing
reasonable assurance that management fulfills its responsibilities in
the preparation of the financial statements and in the maintenance of
the system of internal accounting control. The Audit Committee
annually selects the independent public accountants and submits its
selection to the Board of Directors for approval. The Audit Committee
meets with management, the independent public accountants and the
internal auditors, approves the overall scope of audit work and
reviews audit reports and findings.
/s/ Robert M. Curry /s/ William R. Horne /s/Glen Lamar
Robert M. Curry William R. Horne Glen Lamar
Chairman & CEO President Secretary/Treasurer
ITEM 9: DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None required to be described.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
10(a) Identification of Directors
The following named persons are current directors. The table
includes names, ages, date of original election to the Board of
Directors of the Corporation or of the Bank which pre-existed the
Corporation, and the position held with the Corporation. All
directors are elected to an annual term.
Served as Principal Occupation
Director Office in or Employment for
Directors Age Since Corporation Last Five (5) Years
- ------------------------------------------------------------------------
David E. Bagley 43 4-22-93 Director President, Bagley &
Bagley Ins., Inc.
Johnny Bevill 61 2-05-70 Director Owner, Davis &
Eslick Market
James K. Blackburn, IV 54 4-07-83 Director Owner, Lairdland
Farm; Real Estate
Broker
Wade Boggs 33 4-20-95 Director Owner WashMaster
Car Wash and Boggs'
Properties
James H. Butler 50 4-05-84 Director Real Estate Agent,
Butler Realty
Thomas L. Cardin 65 2-05-70 Director President,
Cardin Distrib.
Company
Joyce F. Chaffin 65 4-01-82 Director Retired Vice-
President, First
National Bank
Parmenas Cox 85 1-13-44 Senior Senior Chairman,
Chairman First National Bank
Robert M. Curry 47 4-02-81 Chairman Board Chairman, CEO,
& Director First National Bank
Gregory G. Dugger 47 4-22-93 Director Dentist
Joe Dunavant 73 2-05-70 Director Farmer, Dunavant &
Dunavant
Charles D. Haney 42 4-22-93 Director Physician
Gary Harrison 46 4-02-87 Director Vice-President,
First National Bank
Morris Ed Harwell 66 4-07-83 Director President, Harwell
Enterprises
R. M. Harwell 93 1-13-49 Director Vice-President,
Harwell Enterprises
James Rand Hayes 60 4-07-83 Director Owner, Hayes
Properties
William R. Horne 49 4-02-81 President President,
& Director First National Bank
Glen Lamar 50 10-19-81 Sec/Treas Senior Vice-Pres.,
& Director and Cashier,
First National Bank
D. Clayton Lee 72 1-09-62 Director Attorney-at-Law,
Retired
Kenneth R. Lowry 67 2-06-69 Director Retired Supt.,
Genesco, Pulaski,
Tennessee Plant
Beatrice J. McElroy 72 4-05-79 Director Real Estate
Investments
William A. McNairy 64 4-04-91 Director Owner, McNairy's
Flowerama & Gifts
W. Harwell Murrey, MD 62 2-05-70 Director Physician;
President,
Physicians &
Surgeons, Inc.
Stephen F. Speer 51 10-19-81 Director Attorney, Partner
Henry, Henry, Stack,
Garner & Speer
W. E. Walters, Jr. 75 3-14-77 Director Farmer
Bill Yancey 52 4-04-91 Director Farmer
Director Stephen F. Speer and other members of the law firm of
Henry, Henry, Stack, Garner & Speer, P.C., rendered legal
services to the Corporation and its subsidiary during the current
year.
10(b) Identification of Executive Officers
Parmenas Cox, Senior Chairman of the Board, is 85 years old and
has been with the subsidiary bank since its beginning in January,
1938. He began work on January 13, 1938 as an Assistant Cashier,
and was promoted to Vice-President and Cashier on January 10,
1946. In January, 1949 he was elected First Active
Vice-President, and on January 8, 1952 he was promoted to
President. In January, 1963 he was made Chairman of the Board of
First National Bank and in October, 1981 was named Chairman of
the Board of the newly formed Pulaski National Corporation, the
one-bank holding company which was created to own First National
Bank. In April, 1988 he was named Senior Chairman of the Board.
Robert M. Curry, Chairman of the Board and CEO, is 47 years old
and came to work for First National Bank in June, 1973. Prior to
his employment with the Subsidiary Bank, he worked at Hamilton
National Bank, Knoxville, Tennessee as Assistant Cashier and
Assistant Branch Manager from March, 1972 until May, 1973. He is
a 1972 graduate of the University of Tennessee with a degree in
business. In January, 1974, he was elected Assistant Cashier and
was promoted to Assistant Vice-President in January, 1975. In
December, 1976, he was promoted to Vice-President and was elected
Executive Vice-President of First National Bank in December,
1977. He was elected Treasurer of First Pulaski National
Corporation in October of 1981, and was elevated to the position
of Vice-Chairman in April, 1988. In April of 1990 he was named
Chairman of the Board and CEO for both First Pulaski National
Corporation and First National Bank. He is a graduate of the
School of Banking of the South, Louisiana State University.
William R. Horne, President, is 49 years old and has been with
the subsidiary bank since June, 1969, when he graduated from
college. He worked part-time with the Bank while a student. On
February 4, 1971 he was named Assistant Cashier. On February 1,
1973 he was named Assistant Vice-President. In January, 1974 he
was promoted to Vice-President and in December, 1977 was made
Executive Vice-President of First National Bank. In October,
1981 he was named Vice-President of First Pulaski National
Corporation. In April, 1988 he was elevated to the position of
President of First Pulaski National Corporation. Since April 5,
1990 he has also served as President of First National Bank. He
is a graduate of the School of Banking of the South, Louisiana
State University.
Glen Lamar, Secretary-Treasurer, is 50 years old and joined the
staff of First National Bank in July, 1976. Prior to that time,
he was a financial auditor for the Dekalb County Board of
Education in Atlanta, Georgia. He is a 1972 graduate of
Oglethorpe University, Atlanta, with a degree in business
administration. He was elected Comptroller in 1976 and was
promoted to Cashier in December, 1977. In October, 1981, he was
elected Secretary of First Pulaski National Corporation. In
April, 1988 he was named Secretary-Treasurer. He also currently
serves as Senior Vice-President and Cashier of First National
Bank. He is a graduate of the School of Banking of the South,
Louisiana State University.
Gayle C. Gower, Assistant Secretary, is 52 years of age and was
employed by First National Bank in August, 1974. She was
promoted to Assistant Cashier in December, 1978. She was
promoted to the position of Vice-President in September, 1985.
She was elected Assistant Secretary of First Pulaski National
Corporation in April, 1995.
10(c) Identification of Certain Significant Employees
None requiring identification.
10(d) Family Relationships
None requiring identification.
10(e) Business Experience
See table given in part 10(a).
10(f) Involvement in Certain Legal Proceedings
None requiring description.
Section (16a) Beneficial Ownership Reporting Compliance
None requiring identification.
ITEM 11: EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued
by the Corporation during the fiscal years 1996, 1995 and 1994
for (i) the Chief Executive Officer of the Corporation and (ii)
the President of the Corporation (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and Fiscal All Other
Principal Position Year Salary Bonus Compensation(1)
- ---------------------- ------ -------- -------- ---------------
Robert M. Curry, 1996 $105,786 $6,904 $18,307
Chief Executive Office 1995 $102,708 $0 $16,749
of the Corporation 1994 $102,708 $3,989 $17,186
William R. Horne, 1996 $105,786 $6,927 $18,278
President of the 1995 $102,708 $0 $16,755
Corporation 1994 $102,708 $3,996 $17,338
(1) Represents (i) Corporation contributions to a defined
contribution plan in the amount of $16,597, $15,110 and
$15,682 for Mr. Curry in fiscal 1996, 1995 and 1994,
respectively, and $16,683, $15,181 and $15,753 for Mr.
Horne in fiscal 1996, 1995 and 1994, respectively; (ii)
premiums paid by the Corporation with respect to life
insurance policies on the life of the Named Executive
Officers payable to beneficiaries designated by the Named
Executive Officers of $1,431, $1,410 and $1,406 in fiscal
1996, 1995 and 1994, respectively, for Mr. Curry and
$1,595, $1,574 and $1,570 in fiscal 1996, 1995 and 1994,
respectively, for Mr. Horne; and (iii) interest paid by
the Bank (for which the named Executive Officers serve as
Executive Officers) on loans to the named Executive
Officers arranged by the Bank, the proceeds of which were
used to purchase Common Stock of the Corporation, in the
amount of $279, $229 and $98 in fiscal 1996, 1995 and
1994, respectively, for Mr. Curry and $0, $0 and $15, in
fiscal 1996, 1995 and 1994, respectively for Mr. Horne.
DIRECTOR COMPENSATION
The Directors of the Corporation are compensated at the rate
of $300.00 for each Directors meeting attended. Those Directors
of the Corporation who serve on the Board of Directors of the
First National Bank of Pulaski, Tennessee also serve on the
Executive and Loan Committee for the Bank and are compensated
at the rate of $300.00 per Directors meeting and Executive and
Loan Committee meeting. Additionally, Directors who serve on
the Audit Committee of First National Bank of Pulaski receive
$100.00 per meeting. All other Directors who serve on other
committees for the Bank receive $50.00 per meeting. Inside
Directors (Bank employees) only receive Director fees for regular
Board of Directors meetings and Executive and Loan Committee
meetings.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table lists all current directors, the number of
shares of common stock(the Corporation's only class of voting
securities) beneficially owned and the nature of beneficial
ownership, and the percent of class.
Shares beneficially owned Percentage of
Directors as of Mar. 15, 1997 class owned
- ---------------------- ------------------------- -------------
David E. Bagley 3,950 (1) 0.26%
Johnny Bevill 20,130 (2) * 1.31%
James K. Blackburn, IV 8,480 (3) * 0.55%
Wade Boggs 910 (4) 0.06%
James H. Butler 4,661 (5) 0.30%
Thomas L. Cardin 23,065 (6) * 1.51%
Joyce F. Chaffin 6,000 (7) 0.39%
Parmenas Cox 16,295 * 1.06%
Robert M. Curry 40,410 (8) * 2.64%
Gregory G. Dugger 4,580 (9) 0.30%
Joe Dunavant 9,640 (10) 0.63%
Charles D. Haney 14,850 (11) 0.97%
W. Gary Harrison 23,275 (12) * 1.52%
R. M. Harwell 15,180 (13) 0.99%
Morris Ed Harwell 12,840 (14) * 0.84%
James Rand Hayes 10,850 (15) 0.71%
William R. Horne 30,830 (16) * 2.01%
Glen Lamar 28,420 (17) * 1.85%
D. Clayton Lee 51,500 (18) 3.36%
Kenneth R. Lowry 11,840 (19) 0.77%
Beatrice J. McElroy 16,705 (20) 1.09%
William A. McNairy 500 (21) 0.03%
W. Harwell Murrey, M. D. 37,684 (22) * 2.46%
Stephen F. Speer 23,680 (23) * 1.55%
W. E. Walters, Jr. 11,400 (24) 0.74%
Bill Yancey 3,750 (25) * 0.24%
TOTAL 421,115(26) 27.48%
(1) Includes 500 shares held by Ameritrade, Inc. for benefit of David Bagley
and wife, 200 shares held by Ameritrade, Inc. for benefit of David Bagley
as trustee for two children, 500 shares held by Prudential Bank and Trust
as trustee for David Bagley, and 2,750 shares held by Prudential
Securities, Inc. for benefit of David Bagley.
(2) Includes 10,065 shares held by wife.
(3) Includes 1,730 shares held by wife.
(4) Includes 490 shares held with wife and 420 shares held with father.
(5) Includes 4,211 shares held jointly with wife and 450 shares held jointly
with three children.
(6) Includes 10,865 shares held by Ameritrade, Inc. for benefit of Thomas L.
Cardin IRA, 2,500 shares held by James Clarence Cardin Testamentary
Trust, and 2,345 shares held by wife.
(7) Includes 2,625 shares held by husband.
(8) Includes 7,780 shares held jointly with wife, 6,180 shares held jointly
with two brothers as equal partners, and 630 shares held jointly with
wife as Trustee for four children.
(9) Includes 100 shares held jointly with wife as Trustee for child and 1,665
shares held by Ameritrade, Inc. for benefit of Gregory G. Dugger IRA.
(10) Includes 1,070 shares held jointly with wife.
(11) Includes 4,240 shares held jointly with wife, 300 shares held jointly with
wife as Trustee for three children, and 10,310 shares held in trust for
employees of Physicians and Surgeons, Inc.
(12) Includes 90 shares held by wife as Trustee for child, and 22,935 shares
held jointly with wife.
(13) Includes 650 shares held by wife and does not include shares held by his
son, Morris Ed Harwell.
(14) Includes 100 shares held by wife and does not include shares held by his
father, R. M. Harwell.
(15) Includes 10,100 shares held jointly with wife.
(16) Includes 5,260 shares held jointly with wife.
(17) Includes 23,190 shares held jointly with wife and 940 shares held as
custodian for two children.
(18) Includes 28,090 shares held by wife.
(19) Includes 3,700 shares held jointly with wife.
(20) Includes 540 shares held by husband, 1,051 shares held jointly with
husband, 11,414 shares held jointly with two children and 2,640 shares
held as Trustee for two children.
(21) Held jointly with wife.
(22) Includes 10,310 shares held in trust for employees of Physicians &
Surgeons, Inc., and 17,475 shares held by wife.
(23) Includes 360 shares held by Henry, Henry, Stack, Garner & Speer, P.C.
Retirement Plan.
(24) Includes 1,090 shares held by wife and 2,240 shares held jointly with
wife.
(25) Held jointly with wife.
(26) Total has been reduced by the 10,310 shares held in trust
for the employees of Physicians and Surgeons, Inc. which
is reflected twice in the individual totals above, with
the holdings of Charles D. Haney and W. H. Murrey.
The following table sets forth information concerning persons who
are the beneficial owners of more than five percent of the
Corporation's common stock (its only class of voting securities).
The information shown below is as of February 15, 1997 and is
based on the Corporation's stock records or the ownership data
filed with the Securities and Exchange Commission.
Name and address of Number of shares Percentage
beneficial owner(s) beneficially owned of class
- ------------------- ------------------ ----------
First National Bank 93,558 6.11%
of Pulaski, Tennessee
Profit Sharing Plan
The following table shows the ownership of the Corporation's
equity securities beneficially owned by all directors and
executive officers of the Corporation and its subsidiary (a total
of 26 persons including those listed before) as a group on
February 15, 1997.
Title of Number of shares Percentage
class beneficially owned of class
- -------------- -------------------- ----------
Common Stock 421,115 27.48%
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996 the Corporation paid the law firm of Henry, Henry, Stack,
Garner and Speer legal fees of less than $27,000.00. Stephen F.
Speer is a partner in the above firm and is also a director of
the Corporation.
Some of the Corporation's officers and directors are at present,
as in the past, customers of the Corporation's subsidiary bank,
and some of the Corporation's officers and directors are
directors or officers of corporations or members of partnerships
which are customers of the Corporation's subsidiary bank. As
such customers, they had transactions in the ordinary course of
business in 1996 with said bank, including borrowings, all of
which were substantially on the same terms, including interest
rates and collateral, as those prevailing at the same time for
comparable transactions with other persons and did not involve
more than normal risk of collectability or present any other
unfavorable features.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
14(a) (1) and (2) Financial Statements and Financial Statement
Schedules
The following consolidated financial statements of the
Corporation and its subsidiary are included in Part II, Item 8:
Consolidated Balance Sheets--December 31, 1996 and 1995.
Consolidated Statement of Income--Years Ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows--Years Ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity-
Years Ended December 31, 1996, 1995 and 1994.
The following parent company only financial statements for the
First Pulaski National Corporation are included in Part II, Item
8:
Balance Sheets--December 31, 1996 and 1995.
Statements of Income--Years Ended December 31, 1996, 1995 and
1994.
Statements of Cash Flows--Years Ended December 31, 1996, 1995
and 1994.
14(a) (3) Listing of Exhibits
Statement Regarding Computation of Per Share Earnings - Included
in Note A to Financial Statements, Part II, Item 8.
Consent of Putman & Hancock, Certified Public Accountants -
Included in items referenced in paragraph (c) of this item, on
following pages.
Financial Data Schedule
14(b) Reports on Form 8-K
During the last quarter of 1996, no Form 8-K reports were
required to be filed.
14(c) Exhibits
Exhibits are attached following signature pages.
14(d) Other Financial Statement Schedules
All other schedules to the consolidated financial statements
required by Article 9 of Regulation S-X and all other schedules
to the financial statements of the registrant required by Article
5 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore have been omitted.
SIGNATURES:
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
First Pulaski National Corporation
----------------------------------
(Registrant)
Date: 3-18-97 By: /s/ Parmenas Cox
----------------- ------------------------------
Parmenas Cox, Senior Chairman
Date: 3-18-97 By: /s/ Robert M. Curry
----------------- ------------------------------
Robert M. Curry, Chairman
Date: 3-18-97 By: /s/ Glen Lamar
----------------- ------------------------------
Glen Lamar, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below and on the succeeding page by the following
persons on behalf of the registrant and in the capacities indicated.
/s/ David E. Bagley /s/ Johnny Bevill
- ------------------------------ ------------------------------
David E. Bagley, Director Johnny Bevill, Director
/s/ James K. Blackburn IV /s/ Wade Boggs
- ------------------------------ ------------------------------
James K. Blackburn IV, Director Wade Boggs, Director
/s/ James H. Butler /s/ Thomas L. Cardin
- ------------------------------ ------------------------------
James H. Butler, Director Thomas L. Cardin, Director
/s/ Joyce F. Chaffin /s/ Parmenas Cox
- ------------------------------ ------------------------------
Joyce F. Chaffin, Director Parmenas Cox, Director
/s/ Robert M. Curry /s/ G. G. Dugger DDS
- ------------------------------ ------------------------------
Robert M. Curry, Director Greg G. Dugger DDS, Director
/s/ Joe Dunavant /s/ Charles D. Haney MD
- ------------------------------ ------------------------------
Joe Dunavant, Director Charles D. Haney MD, Director
/s/ Gary Harrison /s/ Morris Ed Harwell
- ------------------------------ ------------------------------
Gary Harrison, Director Morris Ed Harwell, Director
/s/ R. M. Harwell /s/ James Rand Hayes
- ------------------------------ ------------------------------
R. M. Harwell, Director James Rand Hayes, Director
/s/ William R. Horne /s/ Glen Lamar
- ------------------------------ ------------------------------
William R. Horne, Director Glen Lamar, Director
/s/ D. Clayton Lee /s/ Kenneth R. Lowry
- ------------------------------ ------------------------------
D. Clayton Lee, Director Kenneth R. Lowry, Director
/s/ Beatrice J. McElroy /s/ William A. McNairy
- ------------------------------ ------------------------------
Beatrice J. McElroy, Director William A. McNairy, Director
/s/ W. Harwell Murrey MD /s/ Stephen F. Speer
- ------------------------------ ------------------------------
W. Harwell Murrey MD, Director Stephen F. Speer, Director
/s/ W. E. Walters /s/ Bill Yancey
- ------------------------------ ------------------------------
W. E. Walters, Director Bill Yancey, Director
INDEX TO EXHIBITS
EXHIBIT
NUMBER
- -------
11 Statement Regarding Computation of Per Share
Earnings -- Included in Note A to Financial
Statements, Part II, Item 8
24 Consent of Putman & Hancock, Certified Public
Accountants
27 Financial Data Schedule