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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2000
Commission File Number 0-25422
PAB BANKSHARES, INC.
(A Georgia Corporation)
IRS Employer Identification Number: 58-1473302
3250 North Valdosta Road, Valdosta, Georgia 31602
Telephone Number: (229) 241-2775
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock, no par value The American Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None.
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 preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
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 the 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 2001 was $72,826,074 based on a closing trading price
of $10.57 per share.
The number of shares outstanding of the registrant's common stock at March 1,
2000 was 9,496,563 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2001 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
within 120 days of the registrant's fiscal year end is incorporated by reference
in answer to Part III of this Form 10-K.
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TABLE OF CONTENTS
Page
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PART I
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1. BUSINESS 3
Banking Subsidiaries 4
Banking Services and Operations 6
Nonbanking Services and Operations 6
Competition 6
Employees 6
Supervision and Regulation 7
2. PROPERTIES 12
3. LEGAL PROCEEDINGS 12
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
PART II
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5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 13
Market and Dividend Information 13
Stockholders 13
6. SELECTED FINANCIAL DATA 14
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 15
Statistical Disclosures
Average Balances, Interest and Yields 16
Rate / Volume Analysis 17
Investment Portfolio 17
Loan Portfolio 18
Summary of Loan Loss Experience 20
Deposits 21
Borrowings 21
Liquidity and Capital Resources 22
Results of Operations 23
7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 26
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Quarterly Financial Summary for 2000 and 1999 27
Report of Independent Public Accountants 29
Consolidated Statements of Condition at December 31, 2000 and 1999 31
Consolidated Statements of Income for the Three Years Ended December 31, 2000 32
Consolidated Statements of Comprehensive Income for the Three Years Ended
December 31, 2000 33
Consolidated Statements of Stockholders' Equity for the Three Years Ended
December 31, 2000 34
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2000 35
Notes to Consolidated Financial Statements 37
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES 59
PART III
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10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 59
11. EXECUTIVE COMPENSATION 59
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 59
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 59
PART IV
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14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 59
SIGNATURES 61
EXHIBIT INDEX 63
PART I
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Report, including, without limitation, matters
discussed under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operation," as well as oral statements made by PAB
Bankshares, Inc. ("PAB") or the officers, directors, or employees of PAB may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"). Forward-looking
statements include statements about the competitiveness of the banking industry,
potential regulatory obligations, our strategies and other statements that are
not historical facts. When we use in this Report words like "anticipate,"
"believe," "expect," "estimate" and similar expressions, you should consider
them as identifying forward-looking statements. These forward-looking
statements involve risks and uncertainties and are based on the beliefs and
assumptions of management of PAB, and on the information available to management
at the time that these disclosures were prepared. Factors that may cause actual
results to differ materially from those expressed or implied by such
forward-looking statements include, among others, the following possibilities:
(1) competitive pressures among depository and other financial institutions may
increase significantly; (2) changes in the interest rate environment may reduce
margins; (3) general economic conditions may be less favorable than expected,
resulting in, among other things, a deterioration in credit quality and/or a
reduction in demand for credit; (4) legislative or regulatory changes, including
changes in accounting standards, may adversely affect the businesses in which
PAB is engaged; (5) costs or difficulties related to the integration of the
businesses of PAB and its merger partners may be greater than expected; (6)
expected cost savings associated with mergers may not be fully realized or
realized within the expected time frame; (7) deposit attrition, customer loss or
revenue loss following mergers may be greater than expected; (8) competitors may
have greater financial resources and develop products that enable such
competitors to compete more successfully than PAB; and (9) adverse changes may
occur in the bond and equity markets. Many of such factors are beyond PAB's
ability to control or predict, and readers are cautioned not to put undue
reliance on such forward-looking statements. PAB disclaims any obligation to
update or revise any forward-looking statements contained in this Report,
whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS
GENERAL
PAB is a bank holding company organized and incorporated in 1982 under the laws
of the State of Georgia and headquartered in Valdosta, Georgia. At December 31,
2000, PAB consisted of six bank subsidiaries (the "Banks") listed in order of
acquisition in the table below, as well as an investment advisory services firm,
PAB Financial Services, LLC ("PAB Financial"), with an office in Valdosta,
Georgia.
BANK SUBSIDIARY/BANK PRESIDENT BANK LOCATIONS(# OF OFFICES)
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The Park Avenue Bank Valdosta, Lowndes County, Georgia (3)
William S. Cowart Lake Park, Lowndes County, Georgia (1)
McDonough, Henry County, Georgia (1)
Farmers & Merchants Bank (99.91% owned) Adel, Cook County, Georgia (1)
Brenda B. Schwalls
First Community Bank of Southwest Georgia Bainbridge, Decatur County, Georgia (3)
Jeff E. Hanson Cairo, Grady County, Georgia (1)
Eagle Bank and Trust Statesboro, Bulloch County, Georgia (2)
Gary L. Johnson
Baxley Federal Bank Baxley, Appling County, Georgia (1)
Alvin R. Tuten, Jr. Hazlehurst, Jeff Davis County, Georgia (1)
Friendship Community Bank Ocala, Marion County, Florida (2)
J. Clay Gibson
3
PAB focuses on community banking. PAB's knowledge of both its product lines and
local markets allows it to compete effectively with larger institutions by
offering a wide range of products and services while maintaining strong
community relationships and name recognition within its markets. In addition,
management believes that there will continue to be increased opportunities to
deliver commercial loan products in the retail and small to middle markets as
larger competitors focus on the higher dollar and volume loan product markets.
PAB supports a philosophy of autonomous management with each subsidiary bank
having its own board of directors and officers who make lending decisions at the
local level. Through 16 banking offices, the Banks provide a broad array of
services, including: loans to small and medium-sized businesses; residential,
construction and development loans; commercial real estate loans; Small Business
Administration ("SBA") lending; consumer loans; and a variety of commercial and
consumer deposit products. Through financial service agreements with PAB
Financial, the Banks are also able to offer a complete line of financial and
investment services to their customers.
Acquisitions of unaffiliated financial institutions during the past three years
have been a principal source of PAB's growth. In 1998, PAB completed its
acquisition of Investors Financial Corporation and its wholly-owned subsidiary,
Bainbridge National Bank. Bainbridge National was then merged into First
Community. Also in 1998, PAB completed its acquisition of Eagle Bancorp, Inc.,
and its wholly-owned subsidiary, Eagle Bank and Trust. In 1999, PAB completed
its acquisition of Baxley Federal Savings Bank, a federal stock savings bank.
In November 2000, Baxley Federal Savings Bank was converted to a
state-chartered, commercial bank operating under the name of Baxley Federal
Bank. Each of these mergers was accounted for using the pooling of interest
method of accounting for business combinations. Accordingly, the historical
financial statements of PAB have been restated to include these acquisitions.
In December 2000, PAB acquired Friendship Community Bank through an all cash
transaction. This acquisition was accounted for using the purchase method of
accounting for business combinations.
During 2000, PAB strategically positioned itself into new growth markets to
complement its existing markets. In November 2000, Park Avenue opened a
full-service banking office in McDonough, Henry County, Georgia, which is
located 25 miles southeast of downtown Atlanta along U.S. Interstate 75.
According to a March 2000 U. S. Census Bureau report, the population of Henry
County grew 93.1% from 1990 to 1999. Over this time span, Henry County was the
second fastest growing county in Georgia. Corresponding with the population
growth, according to FDIC deposit data, there has been annual deposit growth of
at least 12% in Henry County in each year since 1994, a 97.1% increase overall.
Also in November, Eagle began construction of a full-service banking office in
Richmond Hill, Bryan County, Georgia, which is located in a growing suburban
area 23 miles south of Savannah, Georgia, along U. S. Highway 17. The Richmond
Hill office is scheduled to open in March 2001. In December 2000, PAB acquired
Friendship Community Bank in Ocala, Marion County, Florida. Marion County is one
of the twenty most populous counties in Florida. According to recent U. S.
Census Bureau statistics, Marion County's population grew 26.2% from 1990 to
1999, and is projected to grow another 22% by 2010.
PAB's principal executive offices are located at 3250 North Valdosta Road,
Valdosta, Georgia, 31602, and its telephone number at that address is (229)
241-2775.
BANKING SUBSIDIARIES
The Park Avenue Bank
Park Avenue commenced operations in 1971 as a state-chartered commercial bank.
The main office of the bank is located in Valdosta, Georgia. Park Avenue has
five full-service banking offices in Georgia. In 1999, Park Avenue formed PAB
Holdings, Inc., an intermediate holding company, and PAB Investments, Inc., a
Real Estate Investment Trust ("REIT"). These companies were established in order
to enhance and strengthen the capital position of Park Avenue. The
establishment of a REIT subsidiary is expected to allow Park Avenue to increase
the effective yield on its real estate related assets and residential mortgage
loan portfolios by transferring a portion of those assets and loans to an entity
that receives favorable tax treatment. At December 31, 2000, Park Avenue had
approximately $292.3 million in assets and approximately $241.4 million in
deposits.
The Valdosta Chamber of Commerce estimates the current population of Valdosta to
be approximately 43,700 and the population of Lowndes County to be approximately
92,100. Valdosta is the county seat of Lowndes County and is approximately 18
miles north of the Georgia-Florida border.
4
Farmers & Merchants Bank
Farmers commenced operations in 1947 as a state-chartered commercial bank. The
bank is located in Adel, Georgia. At December 31, 2000, Farmers had
approximately $61.3 million in assets and approximately $49.2 million in
deposits.
The Cook County Chamber of Commerce estimates the current population of Adel to
be approximately 5,300 and the population of Cook County to be approximately
15,700. Adel is approximately 25 miles north of Valdosta, Georgia.
First Community Bank of Southwest Georgia
First Community was chartered in 1934 as a federal mutual savings and loan
association. In June 1990, the bank was converted from a federal mutual savings
and loan association to a federal stock savings bank through the sale and
issuance of common stock. First Community today is a state-chartered commercial
bank, with three banking offices in Bainbridge, Georgia, and a branch bank in
Cairo, Georgia, using the trade name "The Bank of Grady County". First
Community also owns 50% of the issued and outstanding capital stock of Empire
Financial Services, Inc., an originator and servicer of commercial real estate
loans. In 1999, First Community formed FCB Holdings, Inc., an intermediate
holding company, and FCB Investments, Inc., a REIT. Like those established by
Park Avenue, these companies were established to allow First Community to
increase the effective yield on its real estate related assets and residential
mortgage loan portfolios. At December 31, 2000, First Community had
approximately $167.6 million in assets and approximately $135.0 million in
deposits.
The Decatur County Chamber of Commerce estimates the current population of
Bainbridge to be approximately 11,700 and the population of Decatur County to be
approximately 28,200. Bainbridge is approximately 90 miles west of Valdosta,
Georgia.
Eagle Bank and Trust
Eagle commenced operations in 1991 as a state-chartered commercial bank. Eagle
has two full-service banking offices in Statesboro, Georgia. In March 2001,
Eagle expects to open a new bank branch in Richmond Hill, Bryan County, Georgia,
using the trade name "The Richmond Hill Bank". At December 31, 2000, Eagle had
approximately $94.8 million in assets and approximately $80.4 million in
deposits.
The Bulloch County Chamber of Commerce estimates the current population of
Statesboro be approximately 22,700 and the population of Bulloch County to be
approximately 56,000. Statesboro is approximately 155 miles northeast of
Valdosta, Georgia.
Baxley Federal Bank
Baxley was chartered in 1934 as a federal mutual savings and loan association.
In June 1991, Baxley was converted from a federal mutual savings and loan
association to a federal stock savings bank through the sale and issuance of
common stock. In November 2000, Baxley converted to a state-charted, commercial
bank. The main office of the bank is located in Baxley, Georgia. The bank also
has a branch office in Hazlehurst, Georgia. At December 31, 2000, Baxley had
approximately $121.0 million in assets and approximately $94.6 million in
deposits.
The Appling County Chamber of Commerce estimates the current population of
Baxley to be approximately 4,100 and the population of Appling County to be
approximately 17,400. Baxley is approximately 90 miles northeast of Valdosta,
Georgia.
Friendship Community Bank
Friendship began operations in 1988 as a state chartered, Federal Reserve member
bank in Ocala, Florida. Friendship has two full-service banking offices in
Ocala. At December 31, 2000, Friendship had approximately $53.2 million in
assets and $44.4 million in deposits. Following the receipt of all regulatory
approvals, PAB plans to merge Friendship with and into Park Avenue during the
second quarter of 2001.
5
The Marion County Chamber of Commerce estimates the current population of Ocala
to be approximately 50,000 and the population of Marion County to be
approximately 265,000. Ocala is approximately 150 miles south of Valdosta,
Georgia.
BANKING SERVICES AND OPERATIONS
Each of PAB's six commercial banking subsidiaries offer a full range of
commercial banking services to individuals, professionals and business customers
in their respective primary service areas. The Banks provide customary banking
services such as checking and savings accounts, various types of time deposits,
money transfers, safe deposit facilities, ATM's, credit and debit cards, and
individual retirement accounts. They also finance short-and medium-term
commercial transactions, provide residential mortgage lending, make secured and
unsecured loans, and provide other ancillary financial services to their
customers. The Banks offer Internet banking, on-line bill paying services and
Web-based commercial cash management products. The Banks do not presently offer
trust and fiduciary services.
The principal sources of income for the Banks are interest and fees collected on
loans and interest on investment securities. The principal expenses of the Banks
are interest paid on deposits and other borrowings, employee compensation,
office expenses, and other operating expenses.
NONBANKING SERVICES AND OPERATIONS
PAB Financial commenced operations in the fourth quarter of 1999 as an operating
subsidiary of PAB. PAB Financial provides agency transactional services for
customer investments as permitted under the regulations of the Federal Reserve.
PAB Financial provides its customers with securities brokerage services,
including securities execution services on national securities exchanges. PAB
Financial's brokerage activities are restricted to buying and selling securities
solely as an agent for the account of its customers, and do not include
underwriting or dealing in securities. In addition, PAB Financial is permitted
to act as an agent for the private placement of securities in accordance with
federal securities laws. PAB Financial also provides investment advisory
services to its customers, such as furnishing general economic information and
investment advice, and providing instructional materials for customers on
individual financial management matters.
COMPETITION
The Banks experience competition in attracting and retaining business for
personal checking and savings accounts and in making residential real estate,
commercial real estate and consumer loans in its primary service areas. The
principal factors in competing for such accounts are interest rates, the range
of financial services offered, convenience of office and branch locations and
flexible office hours. Direct competition for such accounts comes from other
savings institutions, commercial banks, credit unions, brokerage firms and money
market funds. The primary factors in competing for loans are interest rates,
loan origination fees and the range of lending services offered. The
competition for origination of loans normally comes from other commercial banks,
savings institutions, credit unions and mortgage banking firms. Such entities
may have competitive advantages as a result of greater resources and higher
lending limits (by virtue of greater capitalization) and may offer their
customers certain services that the Banks may not presently provide.
EMPLOYEES
As of March 1, 2001, PAB had an aggregate of 306 full-time equivalent employees.
6
SUPERVISION AND REGULATION
General
PAB is a bank holding company registered with the Board of Governors of the
Federal Reserve System (the "Federal Reserve") and the Georgia Department of
Banking and Finance (the "Georgia Department") under the Bank Holding Company
Act of 1956, as amended (the "BHC Act") and the Financial Institutions Code of
Georgia (the "FICG"), respectively. As such, PAB is subject to the supervision,
examination and reporting requirements of the BHC Act and the regulations of the
Federal Reserve, and the FICG and the regulations of the Georgia Department.
The Banks are members of the Federal Deposit Insurance Corporation ("FDIC"), and
as such, their deposits are insured by the FDIC to the maximum extent provided
by law. The Banks are also subject to numerous state and federal statutes and
regulations that affect their business, activities, and operations, and each is
supervised and examined by one or more state or federal bank regulatory
agencies.
Five of the Banks (Park Avenue, Farmers, First Community, Eagle and Baxley) are
state non-member banks, and they are subject to regulation, supervision, and
examination by the FDIC and the Georgia Department. Friendship is a state
member bank and it is subject to regulation, supervision, and examination by the
Federal Reserve and the Florida Department of Banking and Finance (the "Florida
Department"). The respective Federal and state regulatory agencies regularly
examine the operations of these subsidiaries and are given authority to approve
or disapprove mergers, consolidations, the establishment of branches, and
similar corporate actions. The agencies also have the power to prevent the
continuance or development of unsafe or unsound banking practices or other
violations of law.
Acquisitions
The BHC Act requires every bank holding company to obtain the prior approval of
the Federal Reserve before: (i) it may acquire direct or indirect ownership or
control of any voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control more than 5% of the
voting shares of the bank; (ii) it or any of its subsidiaries, other than a
bank, may acquire all or substantially all of the assets of any bank; or (iii)
it may merge or consolidate with any other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the communities to be served. The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the bank
holding companies and banks involved and the convenience and needs of the
communities to be served. Consideration of financial resources generally
focuses on capital adequacy, and consideration of convenience and needs issues
generally focuses on the parties' performance under the Community Reinvestment
Act of 1977.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act, the
restrictions on interstate acquisitions of banks by bank holding companies were
repealed. As a result, PAB, and any other bank holding company located in
Georgia is able to acquire a bank located in any other state, and a bank holding
company located outside of Georgia can acquire any Georgia-based bank, in either
case subject to certain deposit percentage and other restrictions. The
legislation provides that unless an individual state has elected to prohibit
out-of-state banks from operating interstate branches within its territory,
adequately capitalized and managed bank holding companies are able to
consolidate their multistate banking operations into a single bank subsidiary
and to branch interstate through acquisitions. De novo branching by an
out-of-state bank is permitted only if it is expressly permitted by the laws of
the host state. Georgia does not permit de novo branching by an out-of-state
bank. Therefore, the only method by which an out-of-state bank or bank holding
company may enter Georgia is through an acquisition. Georgia has adopted an
interstate banking statute that removes the existing restrictions on the ability
of banks to branch interstate through mergers, consolidations and acquisitions.
However, Georgia law prohibits a bank holding company from acquiring control of
a financial institution until the target financial institution has been
incorporated five years.
7
Activities.
The BHC Act has generally prohibited a bank holding company from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those determined by
the Federal Reserve to be closely related to banking or managing or controlling
banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley
Act, discussed below, have expanded the permissible activities of a bank holding
company that qualifies as a financial holding company. In determining whether a
particular activity is permissible, the Federal Reserve must consider whether
the performance of such an activity can be reasonably expected to produce
benefits to the public, such as a greater convenience, increased competition, or
gains in efficiency, that outweigh possible adverse effects such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices.
Gramm-Leach-Bliley Act.
The Gramm-Leach-Bliley Act (the "GLB Act") implemented major changes to the
statutory framework for providing banking and other financial services in the
United States. The GLB Act, among other things, eliminated many of the
restrictions on affiliations among banks and securities firms, insurance firms,
and other financial service providers. A bank holding company that qualifies as
a financial holding company will be permitted to engage in activities that are
financial in nature or incidental or complimentary to a financial activity. The
GLB Act specifies certain activities that are deemed to be financial in nature,
including underwriting and selling insurance, providing financial and investment
advisory services, underwriting, dealing in, or making a market in securities,
limited merchant banking activities, and any activity currently permitted for
bank holding companies under Section 4(c)(8) of the BHC Act.
To become eligible for these expanded activities, a bank holding company must
qualify as a financial holding company. To qualify as a financial holding
company, each insured depository institution controlled by the bank holding
company must be well-capitalized, well-managed, and have at least a satisfactory
rating under the Community Reinvestment Act. In addition, the bank holding
company must file declaration with the Federal Reserve of its intention to
become a financial holding company.
The GLB Act also authorized national banks and state chartered banks (assuming
they have the requisite authority under applicable state law) to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company, and any activity that a bank's federal banking regulator, in
consultation with the Federal Reserve, determines is financial in nature or
incidental to any such financial activity, except (i) insurance underwriting,
(ii) real estate development or real estate investment activities (unless
otherwise permitted by law), (iii) insurance company portfolio investments, and
(iv) merchant banking. The authority of a bank to invest in a financial
subsidiary is subject to a number of conditions, including that the bank be
well-managed and well-capitalized (after deducting from capital the bank's
investment in any financial subsidiary).
Payment of Dividends
PAB is a legal entity separate and distinct from its subsidiaries. The
principal sources of cash flow of PAB, including cash flow to pay dividends to
its shareholders, are dividends from the Banks. There are statutory and
regulatory limitations on the payment of dividends by these subsidiary
depository institutions to PAB, as well as by PAB to its shareholders.
If, in the opinion of the federal banking regulators, a depository institution
under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the depository
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "-Prompt Corrective
Action." Moreover, the federal agencies have issued policy statements that
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
8
At December 31, 2000, under dividend restrictions imposed under federal and
state laws, the Banks, without obtaining governmental approvals, could declare
aggregate dividends to PAB of approximately $3.9 million. During 2000, PAB
declared cash dividends to shareholders of approximately 72.1% of current
earnings.
The payment of dividends by PAB and the Banks may also be affected or limited by
other factors, such as the requirement to maintain adequate capital above
regulatory guidelines.
Capital Adequacy
PAB and the Banks are required to comply with the capital adequacy standards
established by the federal banking agencies. There are two basic measures of
capital adequacy for bank holding companies that have been promulgated by the
Federal Reserve: a risk-based measure and a leverage measure. All applicable
capital standards must be satisfied for a bank holding company to be considered
in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items.
The minimum guideline for the ratio of Total Capital to risk-weighted assets
(including certain off-balance-sheet items, such as standby letters of credit)
is 8.0%. Total Capital consists of Tier 1 Capital, which is comprised of common
stock, undivided profits, minority interests in the equity accounts of
consolidated subsidiaries and noncumulative perpetual preferred stock, less
goodwill and certain other intangible assets, and Tier 2 Capital, which consists
of subordinated debt, other preferred stock, and a limited amount of loan loss
reserves. At December 31, 2000, PAB's consolidated Total Capital Ratio and its
Tier 1 Capital Ratio were 12.5% and 11.1%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3.0% for bank holding companies that
meet certain specified criteria, including those having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. PAB's Leverage Ratio at December 31, 2000 was 8.7%. The guidelines
also provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
The Banks are subject to risk-based and leverage capital requirements adopted by
their respective federal banking regulators, which are substantially similar to
those adopted by the Federal Reserve for bank holding companies. Each of the
subsidiary depository institutions of PAB was in compliance with all applicable
minimum capital requirements as of December 31, 2000. Neither PAB nor any of
the subsidiary depository institutions has been advised by any federal banking
agency of any specific minimum capital ratio requirement applicable to it.
Failure to meet capital guidelines could subject a bank or bank holding company
to a variety of enforcement remedies, including issuance of a capital directive,
the termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"-Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
In this regard, the Federal Reserve and the FDIC have, pursuant to FDICIA,
recently adopted final regulations requiring regulators to consider interest
rate risk (when the interest rate sensitivity of an institution's assets does
not match the sensitivity of its liabilities or its off -balance sheet position)
in the evaluation of a bank's capital adequacy. The bank regulatory agencies
have concurrently proposed a methodology for evaluating interest rate risk that
would require banks with excessive interest rate risk exposure to hold
additional amounts of capital against such exposures.
9
Support of Subsidiary Institutions
Under Federal Reserve policy, PAB is expected to act as a source of financial
strength for, and to commit resources to support, each of its banking
subsidiaries. This support may be required at times when, absent such Federal
Reserve policy, PAB may not be inclined to provide such support. In addition,
any capital loans by a bank holding company to any of its banking subsidiaries
are subordinate in right of payment to deposits and to certain other
indebtedness of such banks. In the event of a bank holding company's
bankruptcy, any commitment by a bank holding company to a federal bank
regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC, in connection with (i) the default of a
commonly controlled FDIC-insured depository institution or (ii) any assistance
provided by the FDIC to any commonly controlled FDIC-insured depository
institution in danger of default. The FDIC's claim for damages is superior to
claims of shareholders of the insured depository institution or its holding
company, but is subordinate to claims of depositors, secured creditors, and
holders of subordinated debt (other than affiliates) of the commonly controlled
insured depository institution. The subsidiary depository institutions of PAB
are subject to these cross-guarantee provisions. As a result, any loss suffered
by the FDIC in respect of any of the Banks would likely result in assertion of
the cross-guarantee provisions, the assessment of such estimated losses against
the depository institution's banking affiliates, and a potential loss of PAB's
investment in such other subsidiary depository institutions.
Prompt Corrective Action
FDICIA established a system of prompt corrective action to resolve the problems
of undercapitalized institutions. Under this system, the federal banking
regulators have established five capital categories (well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized), and are required to take certain mandatory
supervisory actions, and are authorized to take other discretionary actions,
with respect to institutions in the three undercapitalized categories. The
severity of the action will depend upon the capital category in which the
institution is placed. Generally, subject to a narrow exception, the banking
regulator must appoint a receiver or conservator for an institution that is
critically undercapitalized. The federal banking agencies have specified by
regulation the relevant capital level for each category.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
A bank holding company must guarantee that a subsidiary depository institution
meets its capital restoration plan, subject to certain limitations. The
controlling holding company's obligation to fund a capital restoration plan is
limited to the lesser of 5.0% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches or engaging in any new
line of business, except under an accepted capital restoration plan or with FDIC
approval. In addition, the appropriate federal banking agency may test an
undercapitalized institution in the same manner as it treats a significantly
undercapitalized institution if it determines that those actions are necessary.
At December 31, 2000, each of the subsidiary banks of PAB had the requisite
capital levels to qualify as "well capitalized" under the regulatory framework
for prompt corrective action.
FDIC Insurance Assessments
The FDIC has adopted a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The system assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. The FDIC also assigns
an institution to one of three supervisory subgroups within each capital group.
The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation that the institution's primary federal regulator provides
10
to the FDIC and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. The FDIC then determines an institution's insurance assessment rate
based on the institution's capital category and supervisory category. Under the
risk-based assessment system, there are nine combinations of capital groups and
supervisory subgroups to which different assessment rates are applied.
Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institution's capital group and supervisory subgroup.
The FDIC may terminate its insurance of deposits if it finds that the
institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.
Safety and Soundness Standards
The FDIA, as amended by the FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation and compensation, fees and benefits,
and such other operational and managerial standards as the agencies deem
appropriate. The federal bank regulatory agencies have adopted a set of
guidelines prescribing safety and soundness standards pursuant to FDICIA, as
amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation and
fees and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and exposures
specified in the guidelines. The guidelines prohibit excessive compensation as
an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director, or principal shareholder. In
addition, the agencies adopted regulations that authorize, but do not require,
an agency to order an institution that has been given notice by an agency that
it is not satisfying any of such safety and soundness standards to submit a
compliance plan. If, after being so notified, an institution fails to submit an
acceptable compliance plan or fails in any material respect to implement an
acceptable compliance plan, the agency must issue an order directing action to
correct the deficiency and may issue an order directing other actions of the
types to which an undercapitalized institution is subject under the "prompt
corrective action" provisions of FDICIA. See "-Prompt Corrective Action." If
an institution fails to comply with such an order, the agency may seek to
enforce such order in judicial proceedings and to impose civil money penalties.
The federal regulatory agencies also proposed guidelines for asset quality and
earnings standards.
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA") each of the Banks, as an FDIC
insured institution, has a continuing and affirmative obligation to help meet
the credit needs of its entire community, including low- and moderate-income
neighborhoods, consistent with safe and sound banking practices. The CRA
requires the appropriate federal regulator, in connection with its examination
of an insured institution, to assess the institution's record of meeting the
credit needs of its community and to take such record into account in its
evaluation of certain applications, such as applications for a merger or the
establishment of a branch. An unsatisfactory rating may be used as the basis
for the denial of an application by the federal banking regulator. Each of the
Banks received a satisfactory or better rating in its last CRA examination.
Privacy.
The GLB Act also modified laws related to financial privacy. The new financial
privacy provisions generally prohibit a financial institution from disclosing
nonpublic personal financial information about consumers to third parties unless
consumers have the opportunity to "opt out" of the disclosure. A financial
institution is also required to provide its privacy policy annually to its
customers. Compliance with the implementing regulations is mandatory effective
July 1, 2001.
11
Monetary Policy.
The earnings of the Banks and PAB are affected by domestic and foreign
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies. The Federal Reserve has had, and will
continue to have, an important impact on the operating results of commercial
banks through its power national to implement monetary policy in order, among
other things, to mitigate recessionary and inflationary pressures by regulating
the national money supply. The techniques used by the Federal Reserve include
setting the reserve requirements of member banks and establishing the discount
rate on member bank borrowings. The Federal Reserve also conducts open market
transactions in United States government securities.
ITEM 2. PROPERTIES
The Banks operate 14 banking offices in Georgia and 2 in Florida. With the
exception of an office in Ocala, Florida, the Banks own all of the real property
and/or buildings in which their offices are located. The Ocala office is under
a five-year operating lease that expires in May 2003. In addition, PAB owns an
administrative building in Valdosta, Georgia for use as its corporate office.
PAB leases office space from Park Avenue and Eagle to house its data processing
equipment. All of the properties are in a good state of repair and are
appropriately designed for the purposes for which they are used.
Other than normal real estate and commercial lending activities of the Banks,
PAB generally does not invest in real estate, interests in real estate, real
estate mortgages, or securities of or interests in persons primarily engaged in
real estate activities.
ITEM 3. LEGAL PROCEEDINGS
The nature of the business of PAB and the Banks ordinarily results in a certain
amount of litigation. Accordingly, PAB and the Banks are parties to a limited
number of lawsuits incidental to their respective businesses. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse impact on PAB's consolidated financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET AND DIVIDEND INFORMATION
PAB's common stock has been listed for quotation on the American Stock Exchange
(AMEX) under the symbol "PAB" since July 9, 1996. Prior to that date, there was
no established trading market for PAB's common stock.
PAB's ability to pay dividends is primarily dependent on earnings from
operations, the adequacy of capital and the availability of liquid assets for
distribution. PAB's ability to generate liquid assets for distribution is
primarily dependent on the ability of the Banks to pay dividends to PAB. The
payment of dividends is an integral part of management's goals to retain
sufficient capital to support future growth and to meet regulatory requirements
while providing a competitive return on investment to stockholders. For more
information on dividend restrictions see the "Payment of Dividends" section
under Supervision and Regulation in Item 1 of this document.
The following table sets forth, for the indicated periods, the high and low
closing sales prices for PAB's common stock as reported by AMEX, the cash
dividends declared, and the diluted earnings per share.
Sales Price
--------------
Calendar Period High Low Dividends Earnings
- --------------- ------ ------ ---------- ---------
1999
First Quarter $19.63 $15.38 $ 0.0900 $ 0.21
Second Quarter 17.38 14.63 0.0950 0.22
Third Quarter 19.00 13.00 0.1000 0.23
Fourth Quarter 18.25 13.25 0.1025 0.23
2000
First Quarter 15.00 8.63 0.1050 0.22
Second Quarter 12.13 9.50 0.1075 0.21
Third Quarter 12.19 9.75 0.1100 0.23
Fourth Quarter 10.81 8.69 0.1100 -0.06
STOCKHOLDERS
As of March 1, 2001, there were 2,332 holders of record of PAB's common stock.
13
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for PAB. This
selected financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and the Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
(In thousands, except per share and other data) 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Summary of Operations:
Interest income $ 57,526 $ 49,495 $ 48,385 $ 44,381 $ 40,625
Interest expense 28,674 22,906 23,439 21,225 20,137
- -------------------------------------------------------------------------------------------------------------------
Net interest income 28,852 26,589 24,946 23,156 20,488
Provision for loan losses 4,099 985 903 793 633
Other income 5,756 6,060 5,266 4,442 4,013
Other expense 21,874 18,966 17,224 15,275 15,023
- -------------------------------------------------------------------------------------------------------------------
Income before income tax expense 8,635 12,698 12,085 11,530 8,845
Income tax expense 2,909 4,005 4,098 4,022 3,012
- -------------------------------------------------------------------------------------------------------------------
Net income $ 5,726 $ 8,693 $ 7,987 $ 7,508 $ 5,833
===================================================================================================================
Net interest income (taxable-equivalent) $ 28,968 $ 26,718 $ 25,108 $ 22,988 $ 20,611
Selected Average Balances:
Total assets $ 694,674 $ 629,634 $ 597,461 $ 554,964 $ 513,197
Earning assets 640,889 576,729 554,127 501,734 476,048
Loans 534,340 467,149 425,210 390,496 358,378
Deposits 548,276 500,582 488,322 462,302 433,703
Stockholders' equity 70,706 68,161 62,913 58,271 54,583
Selected Year End Balances:
Total assets $ 794,907 $ 664,969 $ 620,111 $ 572,172 $ 535,102
Earning assets 722,490 606,464 569,291 525,897 497,968
Loans 580,737 494,417 440,515 409,905 371,087
Allowance for loan losses 8,185 5,037 5,172 4,996 4,570
Deposits 637,180 516,204 504,087 472,556 452,048
Stockholders' equity 70,780 69,611 66,063 59,763 56,779
Common Share Data:
Outstanding at year end 9,501,947 9,617,406 9,604,027 9,594,319 9,548,092
Weighted average outstanding 9,528,387 9,612,634 9,602,946 9,544,959 9,421,369
Diluted weighted average outstanding 9,598,790 9,749,162 9,813,825 9,627,669 9,477,740
Per Share Ratios:
Net income - basic $ 0.60 $ 0.90 $ 0.83 $ 0.79 $ 0.62
Net income - diluted 0.60 0.89 0.81 0.78 0.62
Dividends declared 0.43 0.39 0.28 0.18 0.14
Book value 7.45 7.24 6.88 6.23 5.95
Profitability Ratios:
Return on average assets (ROA) 0.82% 1.38% 1.34% 1.35% 1.14%
Return on average equity (ROE) 8.10% 12.75% 12.70% 12.88% 10.69%
Net interest margin 4.52% 4.63% 4.53% 4.37% 4.33%
Efficiency ratio (excluding merger and
conversion costs) 60.39% 57.12% 55.06% 55.28% 61.38%
Liquidity Ratios:
Total loans to total deposits 91.14% 95.78% 87.39% 86.74% 82.09%
Average loans to average earning assets 83.37% 81.00% 76.74% 77.83% 75.28%
Noninterest-bearing deposits to total deposits 11.09% 12.58% 14.30% 15.02% 13.14%
Capital Adequacy Ratios:
Average equity to average assets 10.18% 10.83% 10.53% 10.50% 10.64%
Dividend payout ratio 72.08% 43.54% 33.95% 22.44% 21.77%
Asset Quality Ratios /1/:
Net charge-offs to average loans 0.26% 0.24% 0.17% 0.09% 0.08%
Nonperforming loans to total loans 1.27% 0.54% 0.40% 0.24% 0.27%
Nonperforming assets to total assets 0.99% 0.52% 0.37% 0.26% 0.27%
Allowance for loan losses to total loans 1.41% 1.02% 1.17% 1.22% 1.23%
Allowance for loan losses to nonperforming loans 111.03% 188.79% 292.87% 498.11% 459.30%
- --------------------------------------------------------------------------------------------------------------------
/1/ Included in nonperforming loans and nonperforming assets at December 31,
2000, are approximately $4,433,000 in loans conditionally guaranteed by a U. S.
government agency.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
GENERAL
The following discussion and analysis of the consolidated financial condition
and results of operations of PAB should be read in conjunction with the
Consolidated Financial Statements and related Notes, and is qualified in its
entirety by the foregoing and other more detailed financial information
appearing elsewhere. Historical results of operations and the percentage
relationships among any amounts included, and any trends which may appear to be
inferred, should not be taken as being necessarily indicative of trends in
operations or results of operations for any future periods.
PAB has made, and may continue to make, various forward-looking statements with
respect to financial and business matters. Comments regarding PAB's business
which are not historical facts are considered forward-looking statements that
involve inherent risks and uncertainties. Actual results may differ materially
from those contained in these forward-looking statements. For additional
information regarding forward-looking statements, see PAB's cautionary
disclosures at the beginning of this document.
2000 was a year of growth, consolidation and conversion for PAB. The year began
with the successful implementation of PAB's Y2K plan and ended with the
acquisition of a new bank subsidiary. In the second quarter, the holding company
officers and staff moved into the new holding company building. In the fourth
quarter, the Banks opened two new branch offices and began the construction of a
third. During the third quarter and fourth quarters, PAB successfully converted
its core data processing, ATM's, imaging, Internet banking, deposit platform,
payroll, general ledger and accounts payable systems. PAB also upgraded its
communications equipment, network servers and wide area network. This conversion
took significant resources away from the normal business of the Banks and the
holding company for most of the second half of the year. As a result, PAB
incurred additional costs during that period. The conversion process will
continue into 2001 with ongoing training on the new systems and the loan
platform and document imaging conversion projects. With the conversion to new
systems, PAB also began an effort to consolidate and centralize the accounting
and operations functions from the bank level to the holding company. These steps
taken in 2000 to build the necessary infrastructure are a part of PAB's
long-term strategy for growth and prosperity.
At the close of business on December 29, 2000, PAB consummated its merger with
Friendship Community Bank (Friendship). This transaction was accounted for
under the purchase method of accounting for business combinations. Since this
transaction became effective after the last business day of the year, none of
the results of operations for Friendship are included with PAB's consolidated
statements of income.
A pro forma presentation of selected items on PAB's consolidated statement of
condition including and excluding Friendship is provided below for comparative
purposes.
PAB Pro Forma
Consolidated Consolidated Pro Forma
(Including (Excluding PAB % Change
Friendship) Friendship Friendship) Consolidated (Excluding
As of December 31, (in thousands) 2000 2000 2000 1999 Friendship)
- ------------------------------------------- --------------- ------------ ------------- ------------ -----------
Total assets $ 794,907 $ 53,211 $ 741,836 $ 664,969 11.6%
Interest-bearing deposits with other banks 13,414 221 13,193 11,716 12.6%
Federal funds sold 43,415 10,075 33,340 21,405 55.8%
Investment securities 84,925 12,597 72,328 78,926 -8.4%
Loans 580,737 22,472 558,265 494,417 12.9%
Allowance for loan losses 8,185 451 7,734 5,037 53.5%
Net loans 572,552 22,021 550,531 489,380 12.5%
Deposits:
Noninterest-bearing demand 70,679 5,179 65,500 64,916 0.9%
Interest-bearing demand 125,714 7,608 118,106 119,241 -1.0%
Savings 32,860 6,510 26,350 27,666 -4.8%
Time 407,927 25,069 382,858 304,381 25.8%
Total deposits 637,180 44,366 592,814 516,204 14.8%
- ------------------------------------------- --------------- ------------ ------------- ------------ -----------
15
STATISTICAL DISCLOSURES
AVERAGE BALANCES, INTEREST AND YIELDS
The following table details the average balance of interest-earning assets and
interest-bearing liabilities, the amount of interest earned and paid, and the
average yields and rates for each of the three years in the period ended
December 31, 2000. Federally tax-exempt income is presented on a
taxable-equivalent basis assuming a 34% Federal tax rate. Loan average balances
include loans on nonaccrual status.
For the Years Ended
December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
ASSETS
Interest-earning assets:
Loans $534,340 $ 51,045 9.55% $467,149 $ 43,166 9.24% $425,210 $ 41,290 9.71%
Investment securities:
Taxable 68,702 4,028 5.86% 81,341 4,849 5.96% 85,324 4,921 5.77%
Nontaxable 5,009 344 6.86% 6,677 378 5.66% 7,505 478 6.37%
Other short-term
investments 32,838 2,225 6.78% 21,562 1,231 5.71% 36,088 1,858 5.15%
-------------------- ------------------- -------------------
Total interest-
earning assets 640,889 57,642 8.99% 576,729 49,624 8.60% 554,127 48,547 8.76%
Noninterest-earning assets:
Cash 25,170 26,292 18,738
Allowance for loan
losses (5,650) (5,189) (5,084)
Unrealized gain (loss)
on securities
available for sale (240) 909 1,117
Other assets 34,505 30,893 28,563
-------- -------- ---------
Total assets $694,674 $629,634 $597,461
======== ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $116,661 $ 3,357 2.88% $111,642 $ 2,978 2.67% $102,390 $ 3,084 3.01%
Savings deposits 28,723 725 2.52% 30,267 805 2.66% 29,358 906 3.09%
Time deposits 335,935 20,128 5.99% 294,673 16,131 5.47% 285,618 16,680 5.84%
FHLB advances 56,674 3,796 6.70% 44,376 2,507 5.65% 35,435 2,391 6.75%
Notes payable - - - - 2,184 152 6.94%
Other short-term
borrowings 13,717 668 4.87% 11,421 485 4.25% 3,584 226 6.30%
------------------- ------------------- -------------------
Total interest-
bearing liabilities 551,710 28,674 5.20% 492,379 22,906 4.65% 458,569 23,439 5.11%
Noninterest-bearing liabilities
and stockholders' equity:
Demand deposits 66,957 64,000 70,956
Other liabilities 5,301 5,094 5,023
Stockholders' equity 70,706 68,161 62,913
-------- -------- ---------
Total liabilities and
stockholders'
equity $694,674 $629,634 $597,461
======== ======== =========
Interest rate spread 3.79% 3.95% 3.65%
========= ========= ======
Net interest income $ 28,968 $ 26,718 $ 25,108
======== ======== =========
Net interest margin 4.52% 4.63% 4.53%
========= ========= ======
16
RATE / VOLUME ANALYSIS
The following table shows a summary of the changes in interest income and
interest expense on a fully taxable equivalent basis resulting from changes in
volume and changes in rates for each category of interest-earning assets and
interest-bearing liabilities. The change in interest attributable to rate has
been determined by applying the change in rate between years to average balances
outstanding in the later year. The change in interest due to volume has been
determined by applying the rate from the earlier year to the change in average
balances outstanding between years. Thus, changes that are not solely due to
volume have been consistently attributed to rate.
For the Years Ended
December 31, 2000 vs. 1999 1999 vs. 1998
- ----------------------------------------------------------------------------------------------------
Changes Due To Changes Due To
Increase ---------------- Increase ------------------
(Decrease) Rate Volume (Decrease) Rate Volume
----------- ------- -------- ----------- -------- --------
(Dollars In Thousands)
Increase (decrease) in:
Income from earning assets:
Loans $ 7,879 $1,670 $ 6,209 $ 1,876 $(2,196) $ 4,072
Taxable securities (821) (68) (753) (72) 158 (230)
Nontaxable securities (34) 60 (94) (100) (47) (53)
Other short-term
investments 994 350 644 (627) 121 (748)
- ----------------------------------------------------------------------------------------------------
Total interest income 8,018 2,012 6,006 1,077 (1,964) 3,041
- ----------------------------------------------------------------------------------------------------
Expense from interest-bearing
liabilities:
Demand deposits 379 245 134 (106) (385) 279
Savings deposits (80) (39) (41) (101) (129) 28
Time deposits 3,997 1,738 2,259 (549) (1,078) 529
FHLB advances 1,289 594 695 116 (487) 603
Notes payable - - - (152) - (152)
Other short-term
borrowings 183 85 98 259 (235) 494
- ----------------------------------------------------------------------------------------------------
Total interest expense 5,768 2,623 3,145 (533) (2,314) 1,781
- ----------------------------------------------------------------------------------------------------
Net interest income $ 2,250 $ (611) $ 2,861 $ 1,610 $ 350 $ 1,260
====================================================================================================
INVESTMENT PORTFOLIO
The carrying values of investment securities at the indicated dates are
presented below.
As of December 31, (in thousands) 2000 1999 1998
-------------------------------------------------------------------
U. S. Government and agency securities $51,033 $45,158 $ 54,621
State and municipal securities 4,968 5,486 9,213
Mortgage-backed securities 21,125 21,117 29,397
Marketable equity securities 3,752 2,499 2,143
Restricted and other equity securities 4,047 4,666 5,084
-------------------------------------------------------------------
Total $84,925 $78,926 $100,458
===================================================================
Investment portfolio policy stresses quality and liquidity. Expected maturities
differ from contractual maturities because security issuers have the right to
call or prepay obligations with or without call or prepayment penalties.
Securities purchased during the last several years have had primarily short to
intermediate term maturities.
17
The following table shows the contractual maturities of non-equity investment
securities at December 31, 2000 and the weighted-average yields (for all
obligations on a fully taxable basis assuming a 34% tax rate) on such
securities.
U.S. Gov't State and Mortgage-
and Agency Municipal backed
Securities Securities Securities
As of December 31, 2000 Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Due in one year or less $ 22,468 5.59% $ 990 6.92% $ 1,070 6.21%
Due after one year through five years 21,988 6.08% 3,073 6.57% 2,112 9.48%
Due after five years through ten years 6,577 6.71% 103 4.90% 2,814 6.02%
Due after ten years - - 802 7.34% 15,129 4.94%
-------------------------------------------------------------------------------------------------------------
Total $ 51,033 6.29% $ 4,968 6.60% $21,125 6.84%
-------------------------------------------------------------------------------------------------------------
The estimated fair market value of PAB's investment portfolio at December 31,
2000, was approximately $1.3 million above amortized cost. Excluding the $1.8
million unrealized gain on stock invested in the Federal Home Loan Mortgage
Corporation, the fair market value of PAB's investment portfolio would be
approximately $600,000 below amortized cost. Market values vary significantly
as interest rates change; however, management expects normal maturities in the
portfolio to meet and exceed liquidity requirements.
Approximately 97% of the investment portfolio is rated "A" or better by Moody's
Investors Service, Inc. Non-rated securities are principally issued by various
political subdivisions within the State of Georgia. The portfolio is carefully
monitored to assure there is no unreasonable concentration of securities in the
obligations of a single debtor.
LOAN PORTFOLIO
A sound credit policy and careful, consistent credit review are vital to a
successful lending program. The Banks operate under written loan policies which
attempt to maintain a consistent lending philosophy, provide sound traditional
credit decisions, provide an adequate return and render service to the
communities in which the Banks are located. Credit reviews and loan
examinations help confirm that the Banks are adhering to these loan policies.
The Banks make both secured and unsecured loans to individuals, firms and
corporations, and both consumer and commercial lending operations include
various types of credit for the Banks' customers. Secured loans include first
and second real estate mortgage loans. The Banks also make direct installment
loans to consumers on both a secured and unsecured basis. The loan portfolio
contains no foreign or energy-related loans or significant concentrations in any
one industry or loan type, with the exception of residential and commercial real
estate mortgages.
Types of Loans
The amount of loans outstanding at the indicated dates is presented in the
following table according to type of loan.
As of December 31, (in thousands) 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------
Commercial and financial $ 72,942 $ 59,328 $ 56,531 $ 71,355 $ 46,213
Agricultural 23,064 8,197 6,759 7,340 2,517
Real estate - construction 40,130 31,858 22,567 19,519 15,462
Real estate - mortgage 376,000 332,008 298,211 262,041 258,768
Installment loans to individuals and other 68,880 63,424 56,825 50,143 48,976
--------------------------------------------------------------------------------------------------
581,016 494,815 440,893 410,398 371,936
Unearned income, net (279) (398) (378) (493) (849)
--------------------------------------------------------------------------------------------------
580,737 494,417 440,515 409,905 371,087
Allowance for loan losses (8,185) (5,037) (5,172) (4,996) (4,570)
--------------------------------------------------------------------------------------------------
Loans, net $572,552 $489,380 $435,343 $404,909 $366,517
==================================================================================================
18
The percentage of loans outstanding at the indicated dates is presented in the
following table according to type of loan.
As of December 31, 2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------------
Commercial and financial 12.56% 12.00% 12.83% 17.41% 12.45%
Agricultural 3.97% 1.66% 1.54% 1.79% 0.68%
Real estate - construction 6.91% 6.44% 5.12% 4.76% 4.17%
Real estate - mortgage 64.75% 67.15% 67.70% 63.93% 69.73%
Installment loans to individuals and other 11.86% 12.83% 12.90% 12.23% 13.20%
-------------------------------------------------------------------------------------------
100.05% 100.08% 100.09% 100.12% 100.23%
Unearned income, net -0.05% -0.08% -0.09% -0.12% -0.23%
-------------------------------------------------------------------------------------------
100.00% 100.00% 100.00% 100.00% 100.00%
Allowance for loan losses -1.41% -1.02% -1.17% -1.22% -1.23%
-------------------------------------------------------------------------------------------
Loans, net 98.59% 98.98% 98.83% 98.78% 98.77%
===========================================================================================
Maturities and Sensitivities of Loans to Changes in Interest Rates
A schedule of loans maturing, based on contractual terms, is presented in the
following table for selected loan types.
Commercial Real Estate -
As of December 31, (in thousands) & Financial Agricultural Construction
- -----------------------------------------------------------------------------------------
Due in one year or less $ 36,345 $ 15,205 $ 18,687
Due after one year through five years 31,721 7,751 16,658
Due after five years 4,876 108 4,785
- -----------------------------------------------------------------------------------------
Total $ 72,942 $ 23,064 $ 40,130
=========================================================================================
Of the above loans maturing after one year,
those with predetermined fixed rates $ 23,242 $ 4,737 $ 14,254
those with floating or adjustable rates 13,355 3,122 7,189
- -----------------------------------------------------------------------------------------
Total maturing after one year $ 36,597 $ 7,859 $ 21,443
=========================================================================================
Nonperforming Loans
The amount of nonperforming loans outstanding at the indicated dates is
presented in the following table by category.
As of December 31, (in thousands) 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------
Loans accounted for on a nonaccrual basis $2,430 $2,395 $1,567 $ 825 $ 730
Accruing loans which are contractually past due
90 days or more as to principal or interest
payments 509 273 199 178 265
Loans not included above which are "troubled
debt restructurings" as defined in SFAS No. 15 - - - - -
Other impaired loans 4,433 - - - -
- ------------------------------------------------------------------------------------------
Total nonperforming loans $7,372 $2,668 $1,766 $1,003 $ 995
==========================================================================================
For the year ended December 31, 2000, the gross interest income that would have
been recorded in the period had the above nonperforming loans been current in
accordance with their original terms and had been outstanding throughout the
year was approximately $488,000. The amount of interest income on the above
nonperforming loans that was included in net income for the year ended December
31, 2000 was approximately $115,000.
The accrual of interest on loans is discontinued when, in management's opinion,
the borrower may be unable to meet payments as they become due. All interest
accrued but not collected for loans that are placed on nonaccrual status or
charged off is reversed against interest income. The Interest on these loans is
subsequently accounted for on a cash-basis or cost-recovery method until
qualifying for a return to accrual status. Loans are returned to accrual status
when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.
19
Included as other impaired loans in the schedule of nonperforming loans at
December 31, 2000, are loans to one borrower totaling approximately $4,433,000.
These loans are conditionally guaranteed by the U. S. Department of Agriculture.
However, these loans are considered by management to be impaired loans as
defined in SFAS No. 114, because the loans have deteriorated to the point of
loss and management is relying on the USDA's guaranty to avoid further losses.
During the fourth quarter of 2000, management charged-off the unguaranteed
balances and established a reserve for interest accrued but uncollected through
year end.
A potential problem loan is any loan which is not disclosed above as
nonperforming, but where known information about possible credit problems of the
borrower causes management to have serious doubts as to the ability of such
borrower to comply with the present loan repayment terms. As of December 31,
2000, excluding those loans classified as nonperforming, there were no
significant loans that management considered as potential problem loans.
SUMMARY OF LOAN LOSS EXPERIENCE
Analysis of the Allowance for Loan Losses
The following table summarizes the activity in the allowance for loan losses,
the average balance of loans outstanding, and the ratio of net losses
experienced for each of the last five years.
For the Years Ended December 31, (in thousands) 2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 5,037 $ 5,172 $ 4,996 $ 4,570 $ 4,209
Charge-offs:
Commercial, financial and agricultural 680 444 207 97 56
Real estate - construction 110 13 - - -
Real estate - mortgage (commercial and residential) 393 191 45 36 89
Installment loans to individuals and other loans 401 568 571 314 171
- -------------------------------------------------------------------------------------------------------------
1,584 1,216 823 447 316
- -------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial and agricultural 59 10 16 14 2
Real estate - construction - - - - -
Real estate - mortgage (commercial and residential) 72 - 22 16 -
Installment loans to individuals and other loans 51 86 58 50 42
- -------------------------------------------------------------------------------------------------------------
182 96 96 80 44
- -------------------------------------------------------------------------------------------------------------
Net charge-offs 1,402 1,120 727 367 272
- -------------------------------------------------------------------------------------------------------------
Additions provided to the allowance
charged to operations 4,099 985 903 793 633
Allowance for loan losses of acquired bank 451 - - - -
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ 8,185 $ 5,037 $ 5,172 $ 4,996 $ 4,570
=============================================================================================================
Average balance of loans outstanding $534,340 $467,149 $425,210 $390,496 $358,378
=============================================================================================================
Ratio of net charge-offs during the year to average
loans outstanding during the year 0.26% 0.24% 0.17% 0.09% 0.08%
=============================================================================================================
Allocation of the Allowance for Loan Losses
The Banks have allocated the allowance for credit losses according to the amount
deemed to be reasonably necessary at each year end to provide for the
possibility of losses being incurred within the categories of loans set forth in
the table below, based on management's evaluation of the loan portfolio. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
20
The components of the allowance for credit losses for each of the past five
years are presented below.
As of December 31, 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- --------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Commercial, financial
and agricultural $ 579 16.5% $ 687 13.7% $ 742 14.3% $ 958 19.2% $ 666 13.1%
Real estate -
construction 712 6.9% 324 6.4% 265 5.1% 237 4.7% 202 4.2%
Real estate -
mortgage 2,333 64.7% 3,380 67.1% 3,498 67.7% 3,190 63.9% 3,074 69.5%
Installment loans to
Individuals 780 11.9% 646 12.8% 667 12.9% 611 12.2% 628 13.2%
Unallocated 3,781 - - - -
- --------------------------------------------------------------------------------------------------------------------------
Total $8,185 100.0% $5,037 00.0% $5,172 100.0% $4,996 100.0% $4,570 100.0%
==========================================================================================================================
The allowance for loan losses as a percentage of nonperforming loans was 111.03%
at December 31, 2000, compared to 188.79% at December 31, 1999. Management
considers the current level of the allowance for loan losses adequate to absorb
losses from loans in the portfolio. Management's determination of the adequacy
of the allowance for loan losses, which is based on the factors and risk
identification procedures previously discussed, requires the use of judgments
and estimations that may change in the future. Unfavorable changes in the
factors used by management to determine the adequacy of the allowance, or the
availability of new information, could cause the allowance for loan losses to be
increased or decreased in future periods.
DEPOSITS
The following table summarizes average deposits and related weighted average
rates for each of the three years presented.
For the Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------------
Average Average Average
Amount Rate Amount Rate Amount Rate
- --------------------------------------------------------------------------------------------
(Dollars In Thousands)
Noninterest-bearing demand $ 66,957 - $ 64,000 - $ 70,956 -
Interest-bearing demand 116,661 2.88% 111,642 2.67% 102,390 3.01%
Savings 28,723 2.52% 30,267 2.66% 29,358 3.09%
Time 335,935 5.99% 294,673 5.47% 285,618 5.84%
- --------------------------------------------------------------------------------------------
Total $548,276 4.44% $500,582 3.98% $488,322 4.23%
- --------------------------------------------------------------------------------------------
The maturities of time deposits of $100,000 or more as of December 31, 2000 are
summarized below.
Amount (in thousands)
------------------------------------------------------
Three months or less $ 25,900
Over three through six months 24,598
Over six through twelve months 50,294
Over twelve months 35,994
------------------------------------------------------
Total $ 136,786
======================================================
BORROWINGS
PAB utilizes external funding sources to fund growth and operations, including
advances from the Federal Home Loan Bank of Atlanta, Georgia (the "FHLB"),
Federal funds purchased and a line of credit. The most significant of these
sources of funds during 2000 was the FHLB advances, which averaged $56.7 million
during 2000. The advances outstanding at December 31, 2000 totaled $58.7
million with a weighted-average stated interest rate of 6.41%. For a more
detailed discussion of the FHLB advances and other borrowings of PAB, see Notes
8 and 9 to the Consolidated Financial Statements included herein.
21
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is an important factor in the financial condition of PAB and affects
PAB's ability to meet the borrowing needs and deposit withdrawal requirements of
its customers. Assets, consisting principally of loans and investment
securities, are funded by customer deposits, borrowed funds, and retained
earnings.
The investment portfolio has been one of PAB's primary sources of liquidity.
Maturities of securities provide a constant flow of funds that are available for
cash needs. Contractual investment securities that mature within one year total
$24.5 million. However, mortgage-backed securities and securities with call
provisions create cash flows earlier than the contractual maturities. Estimates
of prepayments on mortgage-backed securities and call provisions on Federal
agency and state and municipals increase the forecasted cash flow from the
investment portfolio. Maturities in the loan portfolio also provide a steady
flow of funds. In addition, PAB's liquidity continues to be enhanced by a
relatively stable core deposit base and the availability of additional advances
from the FHLB. At December 31, 2000, PAB's liquidity ratio was 20.1% and its
dependency ratio was 12.9%.
PAB's liquidity from investments is somewhat limited since the Banks have
pledged certain investments to secure public deposits, certain borrowing
arrangements, and for other purposes. At December 31, 2000, approximately 61.2%
of PAB's investments were pledged as collateral to others.
The Consolidated Financial Statements do not reflect various commitments and
contingent liabilities that arise in the normal course of business. These
off-balance sheet financial instruments include commitments to extend credit and
standby letters of credit. Such financial instruments are included in the
financial statements when funds are distributed or the instruments become
payable. At December 31, 2000, the Banks had outstanding commitments to extend
credit through open lines of credit of approximately $58,371,000 and outstanding
standby letters of credit of approximately $1,083,000. For more detailed
disclosure on the commitments and contingent liabilities of PAB, see Note 19 to
the Consolidated Financial Statements included herein.
At December 31, 2000, PAB had outstanding commitments to complete the
construction of two bank branch offices, for the installation and training costs
of a new loan platform system, and for the conversion of Friendship's data
processing systems. Management plans to fund these expenditures, totaling
approximately $2.1 million, with cash provided from operations in 2001. Cash
flows from operations were $11.3 million in 2000.
Stockholders' Equity
PAB maintains a ratio of stockholders' equity to total assets that is adequate
relative to industry standards. PAB's ratio of stockholders' equity to total
assets was 8.9% at December 31, 2000, compared to 10.5% at December 31, 1999.
PAB and its subsidiary banks are required to comply with capital adequacy
standards established by the Federal Reserve and the FDIC. See the section
titled "Capital Adequacy" under Supervision and Regulation in Item 1 of this
document for more information on the regulatory capital adequacy standards.
The following table summarizes PAB's capital ratios at December 31, 2000 and
1999. For more detailed disclosure on the capital ratios of PAB, see Note 21 to
the Consolidated Financial Statements included herein.
Minimum
Regulatory
2000 1999 Requirement
- -------------------------------------------------------------------------------
Total Capital to Risk Weighted Assets 12.5% 15.0% 8.0%
Tier 1 Capital to Risk Weighted Assets 11.1% 14.0% 4.0%
Tier 1 Capital to Average Assets (Leverage Ratio) 8.7% 11.8% 4.0%
- -------------------------------------------------------------------------------
22
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income for 2000, on a tax equivalent basis increased $2.3 million,
or 8.4%, from 1999. This increase can be attributed to the $67.2 million, or
14.4%, increase in average loans outstanding. The average balance sheet for
2000 grew $65.0 million due to strong loan demand and the entry into new growth
markets. PAB funded this loan growth by liquidating investments, offering
promotional rate time deposits, and borrowing short-term advances from the FHLB.
During 2000, PAB's cost of funds increased by 55 basis points.
Net interest income for 1999, on a tax equivalent basis increased $1.6 million,
or 6.4% from 1998. This increase can be attributed to the $22.6 million, or
4.1%, increase in average interest earning assets. The average balance sheet
for 1999 grew $32.2 million, or 5.4%, due to loan demand in the Bank's markets.
The net interest margin increased as PAB's cost of funds decreased.
The table below illustrates the changes in the net interest margin over the past
three years.
For the Year Ended December 31, 2000 1999 1998
----------------------------------------------------------------------------------------------------------
Interest Percent of Interest Percent of Interest Percent of
Income/ Earning Income/ Earning Income/ Earning
Expense Assets Expense Assets Expense Assets
----------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Interest income $ 57,526 8.98% $ 49,495 8.58% $ 48,385 8.73%
Tax-equivalent adjustment 116 0.01% 129 0.02% 162 0.03%
----------------------------------------------------------------------------------------------------------
Interest income, taxable equivalent 57,642 8.99% 49,624 8.60% 48,547 8.76%
Interest expense 28,674 4.47% 22,906 3.97% 23,439 4.23%
----------------------------------------------------------------------------------------------------------
Net interest income,
taxable equivalent $ 28,968 4.52% $ 26,718 4.63% $ 25,108 4.53%
==========================================================================================================
Average Earning Assets $ 640,889 $ 576,729 $ 554,127
==========================================================================================================
PROVISION FOR LOAN LOSSES
The provision for loan losses is the charge to operating earnings necessary to
maintain an adequate allowance for loan losses. Through the provision, PAB
maintains an allowance for loan losses that management believes is adequate to
absorb losses inherent in the loan portfolio. However, future additions to the
allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
procedures, periodically review the Banks' allowance for loan losses. Based on
their judgments about information available to them at the time of their
examination, such agencies may require the Banks to recognize additions to their
allowance for loan losses.
On a monthly basis, management analyzes the allowance for loan losses,
nonperforming loans, and net charge-offs to assess the adequacy of the
allowance. At December 31, 2000, the allowance as a percent of total loans was
1.41%, compared to 1.02% at December 31, 1999.
During the fourth quarter of 2000, management elected to make a special one-time
provision of $1.75 million to the Bank's allowance for loan losses.
Uncertainties about a rapidly slowing economy and a growing loan portfolio
spurred the timing of management's decision. In addition, PAB converted Baxley
from a federal savings bank to a state commercial bank. In doing so, a
conversion provision of $300,000 was made to bring their allowance for loan
losses to that of comparable commercial banks. Before the conversion provision,
Baxley's allowance as a percent of total loans was 0.79%. After the conversion
provision, the ratio was 1.09%.
The ratio of nonperforming loans to total loans was 1.27% and 0.54% at December
31, 2000 and 1999, respectively. Included in nonperforming loans at December 31,
2000, were loans to one borrower totaling approximately $4.4 million that are
conditionally guaranteed by the USDA. Excluding these loans, this ratio would
have been 0.51%.
Net charge-offs as a percent of average loans remained fairly low at 0.26% and
0.24% for the years ended December 31, 2000 and 1999, respectively.
23
NONINTEREST INCOME
The following table summarizes noninterest income for PAB during the three years
ended December 31, 2000.
For the Year Ended December 31, 2000 1999 1998
---------------------------------------------------------------------------------------------------
Percent Percent
Change Change
Amount 2000 vs. 1999 Amount 1999 vs. 1998 Amount
---------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Service charges on deposit accounts $ 3,881 6.9% $ 3,630 10.6% $ 3,281
Mortgage origination fees 439 -22.8% 569 -21.5% 725
Insurance commissions and fees 302 37.3% 220 -6.4% 235
Brokerage commissions and fees 125 - - - -
Other commissions and fees 238 88.9% 126 -40.8% 213
Securities transactions, net (24) 29.4% (34) -409.1% 11
Equity in earnings of Empire 563 -17.3% 681 85.1% 368
Gain (loss) on disposal of assets (154) -1500.0% 11 -89.5% 105
Earnings on bank-owned life insurance 140 -74.1% 541 416.7% 105
Other 246 -22.2% 316 41.7% 223
---------------------------------------------------------------------------------------------------
Total Noninterest Income $ 5,756 -5.0% $ 6,060 15.1% $ 5,266
===================================================================================================
The majority of the decrease in 2000 was due to a decrease in the earnings on
bank-owned life insurance policies of $401,000 and a $154,000 loss on the
disposal of assets. In 1999, PAB collected $511,000 in split-dollar life
insurance benefits on the untimely death of one of its senior banking officers.
In 2000, PAB disposed of two former bank properties and miscellaneous other
assets for a net loss.
Revenues from mortgage originations continued to decline during 2000, from a
high in 1998 of $725,000, to only $439,000 in 2000. The decline in these
revenues is due to an increase in mortgage rates during 1999 and 2000 that
slowed the demand for mortgage refinancings as well as increased competition
locally and over the Internet that has lead to more competitive pricing.
PAB's equity in the net earnings of Empire, an unconsolidated subsidiary (see
Note 6 of the Consolidated Financial Statements), also decreased $118,000, or
17.3%, as the result of weaker commercial loan demand and tighter liquidity
levels of its bank customers as compared to 1999.
The $125,000 in brokerage commissions during 2000 were generated through PAB
Financial Services, which did not began operations until late 1999.
NONINTEREST EXPENSE
The following table summarizes noninterest expenses for PAB during the three
years ended December 31, 2000.
For the Year Ended December 31, 2000 1999 1998
---------------------------------------------------------------------------------------------------
Percent Percent
Change Change
Amount 2000 vs. 1999 Amount 1999 vs. 1998 Amount
---------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Salaries and wages $ 9,259 11.8% $ 8,278 12.4% $ 7,364
Employee benefits 2,256 1.7% 2,219 26.0% 1,761
Net occupancy expense of premises 1,165 18.5% 983 11.7% 880
Furniture and equipment expense 1,732 20.2% 1,441 1.7% 1,417
Amortization of intangible assets 360 0.8% 357 - 357
Advertising and business development 526 37.1% 384 8.6% 353
Supplies and printing 631 23.2% 512 -6.4% 547
Postage and courier 459 -1.7% 467 20.4% 388
Legal and accounting fees 470 9.9% 427 -7.7% 463
Outside consulting fees 437 90.8% 229 24.4% 184
Director and committee fees 568 18.2% 481 13.2% 424
Merger and acquisition costs 49 -90.8% 535 -13.7% 620
Conversion costs 833 - - - -
Other 3,129 17.9% 2,653 7.6% 2,466
--------------------------------------------------------------------------------------------------
Total Noninterest Expense $21,874 15.3% $18,966 10.1% $17,224
==================================================================================================
24
Salaries and employee benefits increased a combined $1.0 million, or 9.7%,
during 2000 due to normal annual salary increases and the hiring of additional
staff for new branches and the holding company office in the second half of the
year. Excluding Friendship, the number of full-time equivalent employees grew
7.9%, from 266 at December 31, 1999 to 287 at December 31, 2000.
Net occupancy and furniture and equipment expenses increased a combined
$473,000, or 19.5%, as the holding company office and two new bank branches were
placed in service during the year. In addition, depreciation and maintenance
costs increased during the fourth quarter as a result of the conversion to
approximately $2.5 million in new equipment and software.
Fees paid to outside consulting firms increased $208,000, or 90.8%, during 2000
as a result of special consultation engagements for management and the Board on
strategic planning, human resources, compensation, data processing and
operational issues. Several of these engagements correspond with the conversion
and consolidation projects.
The total of all other noninterest expenses increased $1.4 million in 2000, or
24.9% compared to 1999. This increase was due primarily to $833,000 in direct
conversion costs. Merger costs decreased $485,000 as the costs associated with
the acquisition in 2000 was pushed down to the acquired bank under purchase
accounting rules. Merger costs in 1999 and 1998 were expensed to operations as
incurred since those acquisitions were accounted using the pooling of interest
method. The increase in other costs was primarily the result of the significant
growth of PAB during the year and additional conversion related costs not
separately identifiable.
INCOME TAXES
PAB experienced pre-tax operating earnings of $8.6 million for 2000, which
resulted in a tax provision of $2.9 million. The effective rate of 33.7%
increased from an effective rate of 31.5% in 1999. For more information on
income taxes, see Note 10 of the Consolidated Financial Statements included
herein.
FOURTH QUARTER RESULTS
PAB had a net loss of $583,000, or $0.06 per share, for the fourth quarter of
2000, compared to $0.23 per share in the fourth quarter of 1999. Previously
mentioned nonrecurring charges for conversion costs, additional provisions for
loan losses, and a reserve for uncollected interest during the quarter were the
primary cause for the operating loss. PAB also incurred additional expenses in
opening two branches during the quarter.
The net interest margin was 4.22%, which compared to fourth quarter 1999's
4.62%. The average yield on earning assets rose from 8.62% in 1999 to 9.12% in
2000, however the average rate on interest-bearing liabilities increased nearly
a full percentage point from 4.61% in 1999 to 5.60% in 2000. The rise in
interest expense during the period was primarily due to higher rates during the
period in comparison to 1999.
IMPACT OF INFLATION
Inflation impacts the growth in total assets in the banking industry and causes
a need to increase equity capital at higher than normal rates to meet capital
adequacy requirements. PAB copes with the effects of inflation through
effectively managing its interest rate sensitivity gap position, by periodically
reviewing and adjusting its pricing of services to consider current costs, and
through managing its dividend payout policy relative to its level of income.
RECENT ACCOUNTING PRONOUNCEMENTS
In management's opinion, there are no recent accounting pronouncements that have
had a material impact on PAB's earnings or financial position as of or for the
year ended December 31, 2000. For more detailed disclosure on recent accounting
developments, see Note 1 to the Consolidated Financial Statements included
herein.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PAB is exposed to U.S. dollar interest rate changes and accordingly, PAB manages
exposure by considering the possible changes in the net interest margin. PAB
does not have any trading instruments nor does it classify any portion of the
investment portfolio as held for trading. PAB does not engage in any hedging
activities or enter into any derivative instruments with a higher degree of risk
than mortgage-backed securities, which are commonly held pass through
securities. Finally, PAB has no material direct exposure to foreign currency
exchange rate risk, commodity price risk, and other market risks.
Interest rates play a major part in the net interest income of a financial
institution. The sensitivity to rate changes is known as "interest rate risk."
The repricing of interest earning assets and interest-bearing liabilities can
influence the changes in net interest income. As part of PAB's asset/liability
management program, the timing of repriced assets and liabilities is referred to
as Gap management. It is PAB's policy to maintain a Gap ratio in the one-year
time horizon of .80 to 1.20. The table below has two measures of Gap,
regulatory and management adjusted. The Regulatory Gap considers only
contractual maturities or repricings. The management adjusted Gap considers
such things as prepayments on certain interest rate sensitive assets and the
circumstances under which core deposits are repriced. Although interest-bearing
transaction accounts are available to reprice in the three-month window,
historical experiences show these deposits more stable over the course of one
year. The management adjusted Gap indicates PAB is somewhat asset sensitive in
relation to changes in market interest rates. Being asset sensitive would
result in net interest income increasing in a rising rate environment and
decreasing in a declining rate environment.
PAB uses simulation analysis to monitor changes in net interest income due to
changes in market interest rates. The simulation of rising, declining, and flat
interest rate scenarios allow management to monitor and adjust interest rate
sensitivity to minimize the impact of market interest rate swings. The analysis
of the impact on net interest income over a twelve-month period is subjected to
a gradual 150 basis point increase or decrease in market rates on net interest
income and is monitored on a quarterly basis. As of year end, the simulation
model projected net interest income would increase 0.9% if rates gradually rise
by 150 basis points over the next year. On the other hand, the model projected
net interest income to decrease 3.2% if rates gradually decline by 150 basis
points over the next year. PAB's policy states that net interest income cannot
change over +/- 5% using this analysis and presently, PAB is within policy
guidelines.
CUMULATIVE GAP ANALYSIS
Regulatory Defined
3-Month 6-Month 1-Year
- ------------------------------------------------------------------
(Dollars in thousands)
Rate Sensitive Assets (RSA) $245,785 $289,741 $374,635
Rate Sensitive Liabilities (RSL) 228,011 307,799 457,414
- ------------------------------------------------------------------
RSA minus RSL (Gap) $ 17,774 $(18,058) $(82,779)
Gap Ratio (RSA/RSL) 1.08 0.94 0.82
Management Adjusted
3-Month 6-Month 1-Year
- ------------------------------------------------------------------
(Dollars in thousands)
Rate Sensitive Assets (RSA) $245,785 $289,741 $374,635
Rate Sensitive Liabilities (RSL) 155,783 250,016 414,078
- ------------------------------------------------------------------
RSA minus RSL (Gap) $ 90,002 $ 39,725 $(39,443)
Gap Ratio (RSA/RSL) 1.58 1.16 0.90
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
QUARTERLY FINANCIAL SUMMARY FOR 2000 AND 1999
The quarterly information reported previously on Form 10-Q for the quarters
indicated below has been restated to reflect the 1999 Baxley merger, which was
accounted for as a pooling of interests. Management has also made certain
reclassification changes in order to be consistent with the classifications
adopted with the current year presentation.
Quarterly Period Ended
March 31 June 30 September 30 December 31
- ----------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
Year Ended December 31, 2000:
Interest income $ 13,473 $ 13,882 $ 14,673 $ 15,498
Interest expense 6,223 6,569 7,544 8,338
- ----------------------------------------------------------------------------------------
Net interest income 7,250 7,313 7,129 7,160
Provision for loan losses 391 337 367 3,004
- ----------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses 6,859 6,976 6,762 4,156
Other income 1,340 1,328 1,576 1,512
Other expenses 5,036 5,261 4,991 6,586
- ----------------------------------------------------------------------------------------
Income (loss) before
income taxes 3,163 3,043 3,347 (918)
Income tax (benefit) 1,038 1,034 1,172 (335)
- ----------------------------------------------------------------------------------------
Net income (loss) $ 2,125 $ 2,009 $ 2,175 $ (583)
========================================================================================
Basic earnings (loss) per share $ 0.22 $ 0.21 $ 0.23 $ (0.06)
Diluted earnings (loss) per share $ 0.22 $ 0.21 $ 0.23 $ (0.06)
Year Ended December 31, 1999:
Interest income $ 11,889 $ 12,190 $ 12,450 $ 12,966
Interest expense 5,702 5,574 5,597 6,033
- ----------------------------------------------------------------------------------------
Net interest income 6,187 6,616 6,853 6,933
Provisions for loan losses 162 198 224 401
- ----------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses 6,025 6,418 6,629 6,532
Other income 1,510 1,362 1,393 1,795
Other expenses 4,518 4,516 4,661 5,271
- ----------------------------------------------------------------------------------------
Income before income taxes 3,017 3,264 3,361 3,056
Income taxes 974 1,132 1,099 800
- ----------------------------------------------------------------------------------------
Net income $ 2,043 $ 2,132 $ 2,262 $ 2,256
========================================================================================
Basic earnings per share $ 0.21 $ 0.22 $ 0.24 $ 0.23
Diluted earnings per share $ 0.21 $ 0.22 $ 0.23 $ 0.23
27
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of PAB is responsible for the preparation of the financial
statements, related financial data and other information in this Annual Report
on Form 10-K. The financial statements are prepared in accordance with
generally accepted accounting principles and include amounts based on
management's estimates and judgment where appropriate. Financial information
appearing throughout this Annual Report on Form 10-K is consistent with the
financial statements.
PAB's accounting system, which records, summarizes and reports financial
transactions, is supported by an internal control structure which provides
reasonable assurance that assets are safeguarded and that transactions are
recorded in accordance with PAB's policies and established accounting
procedures. As an integral part of the internal control structure, PAB
maintains a professional staff of internal auditors who monitor compliance with
and assess the effectiveness of the internal control structure.
The Audit Committee of PAB's Board of Directors, composed solely of outside
directors, meets regularly with PAB's management, internal auditors and
independent public accountants to review matters relating to financial
reporting, internal control structure and the nature, extent and results of the
audit effort. The independent public accountants and the internal auditors have
access to the Audit Committee with or without management present.
The financial statements have been audited by Stewart, Fowler & Stalvey, P.C.,
independent public accountants, who render an independent opinion on
management's financial statements. Their appointment was recommended by the
Audit Committee, approved by the Board of Directors and ratified by the
stockholders. Their examination provides an objective assessment of the degree
to which PAB's management meets its responsibility for financial reporting.
Their opinion on the financial statements is based on auditing procedures, which
include reviewing the internal control structure to determine the timing and
scope of audit procedures and performing selected tests of transactions and
records as they deem appropriated. These auditing procedures are designed to
provide a reasonable level of assurance that the financial statements are fairly
presented in all material respects.
R. Bradford Burnette Michael E. Ricketson Jay Torbert
Chairman and Chief Financial Officer Controller
Chief Executive Officer
28
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
PAB Bankshares, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of condition of PAB
Bankshares, Inc. and its Subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, comprehensive income, stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the statement of condition as
of December 31, 2000 of Friendship Community Bank, a wholly-owned subsidiary
which statement reflects total assets constituting 6.2% as of December 31, 2000,
of the related consolidated total assets. That statement was audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Friendship Community Bank, is based solely
on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. As audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of PAB Bankshares, Inc. and its
Subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
We previously audited and reported on the consolidated statements of income,
comprehensive income, stockholders' equity and cash flows of PAB Bankshares,
Inc. and its Subsidiaries for the year ended December 31, 1998, prior to their
restatement for the 1999 pooling of interests. The contribution of PAB
Bankshares, Inc. and Subsidiaries to revenues and net income for the year ended
December 31, 1998 represented 84% and 83% of the respective restated totals.
Separate financial statements of the other companies included in the 1998
restated consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows were audited and reported on separately by other
auditors. We also audited the combination of the accompanying consolidated
statements of income, retained earnings, and cash flows for the year ended
December 31, 1998, after restatement for the 1999 pooling of interests. In our
opinion, such consolidated statements have been properly combined on the basis
described in Note 1 of the notes to the consolidated financial statements.
/s/ Stewart, Fowler & Stalvey, P.C.
- ----------------------------------------
Valdosta, Georgia
January 26, 2001
29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Shareholders
Friendship Community Bank
Ocala, Florida
We have audited the accompanying balance sheets of Friendship Community
Bank as of December 31, 2000 and 1999, and the related statements of operations,
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Bank'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. These 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 financial position of Friendship Community Bank as
of December 31, 2000 and 1999, and for the years then ended in conformity with
generally accepted accounting principles.
/s/ Osburn, Henning and Company
-----------------------------------
OSBURN, HENNING AND COMPANY
Orlando, Florida
January 12, 2001
30
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 2000 AND 1999
- ----------------------------------------------------------------------------------------------
2000 1999
------------- -------------
ASSETS
Cash and due from banks $ 29,697,335 $ 31,524,206
Interest-bearing deposits in other banks 13,414,020 11,715,628
Federal funds sold 43,415,000 21,405,000
Investment securities 84,924,830 78,925,871
Loans 580,736,533 494,417,167
Allowance for loan losses (8,184,641) (5,037,074)
------------- -------------
Net loans 572,551,892 489,380,093
------------- -------------
Premises and equipment 22,380,725 16,378,883
Goodwill and other intangible assets 6,450,742 2,357,098
Investment in unconsolidated subsidiary 57,639 40,391
Cash value of bank-owned life insurance policies 9,041,355 3,429,167
Foreclosed assets 566,518 762,667
Other assets 12,406,513 9,049,689
------------- -------------
Total assets $794,906,569 $664,968,693
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 70,679,023 $ 64,915,579
Interest-bearing 566,500,715 451,288,404
------------- -------------
Total deposits 637,179,738 516,203,983
------------- -------------
Federal funds purchased and securities sold under
agreements to repurchase 12,165,591 13,828,094
Advances from the Federal Home Loan Bank 58,701,282 60,112,240
Other borrowings 7,667,280 -
Other liabilities 8,412,198 5,213,116
------------- -------------
Total liabilities 724,126,089 595,357,433
------------- -------------
Stockholders' equity:
Preferred stock, no par value, 1,500,000 shares authorized,
no shares issued - -
Common stock, no par value, 98,500,000 shares authorized,
9,501,947 and 9,617,406 shares issued 1,217,065 1,217,065
Additional paid-in capital 29,754,284 31,236,921
Retained earnings 38,939,722 37,336,119
Accumulated other comprehensive income (loss) 869,409 (178,845)
------------- -------------
Total stockholders' equity 70,780,480 69,611,260
------------- -------------
Total liabilities and stockholders' equity $794,906,569 $664,968,693
============= =============
See accompanying notes to consolidated financial statements.
31
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- -----------------------------------------------------------------------------------------------------
2000 1999 1998
------------ ------------ -----------
INTEREST INCOME
Interest and fees on loans $51,045,640 $43,165,734 $41,289,920
Interest and dividends on investment securities:
Taxable 4,028,030 4,849,344 4,921,212
Nontaxable 226,732 249,259 315,524
Other interest income 2,225,325 1,230,786 1,857,929
------------ ------------ -----------
Total interest income 57,525,727 49,495,123 48,384,585
------------ ------------ -----------
INTEREST EXPENSE
Interest on deposits 24,209,959 19,914,138 20,669,846
Interest on federal funds purchased and securities sold
under agreements to repurchase 668,246 484,993 225,840
Interest on Federal Home Loan Bank advances 3,796,126 2,507,423 2,391,277
Interest on other borrowings - - 151,582
------------ ------------ -----------
Total interest expense 28,674,331 22,906,554 23,438,545
------------ ------------ -----------
Net interest income 28,851,396 26,588,569 24,946,040
Provision for loan losses 4,098,663 985,188 903,404
------------ ------------ -----------
Net interest income after provision for loan losses 24,752,733 25,603,381 24,042,636
------------ ------------ -----------
OTHER INCOME
Service charges on deposit accounts 3,880,560 3,629,687 3,280,408
Other fee income 1,105,167 914,987 1,173,280
Securities transactions, net (23,630) (33,629) 11,313
Equity in earnings of unconsolidated subsidiary 562,979 680,578 368,064
Other noninterest income 231,290 868,477 432,604
------------ ------------ -----------
Total other income 5,756,366 6,060,100 5,265,669
------------ ------------ -----------
OTHER EXPENSES
Salaries and employee benefits 11,515,415 10,496,961 9,124,567
Occupancy expense of premises 1,164,663 982,977 879,907
Furniture and equipment expense 1,731,930 1,440,998 1,416,560
Amortization of goodwill and other intangibles 359,520 356,664 356,664
Other noninterest expense 7,102,166 5,687,951 5,445,881
------------ ------------ -----------
Total other expenses 21,873,694 18,965,551 17,223,579
------------ ------------ -----------
Income before income tax expense 8,635,405 12,697,930 12,084,726
Income tax expense 2,908,808 4,005,054 4,097,924
------------ ------------ -----------
Net income $ 5,726,597 $ 8,692,876 $ 7,986,802
============ ============ ===========
Earnings per common share:
Basic $ 0.60 $ 0.90 $ 0.83
============ ============ ===========
Diluted $ 0.60 $ 0.89 $ 0.81
============ ============ ===========
See accompanying notes to consolidated financial statements.
32
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------------------
2000 1999 1998
----------- ------------ ------------
Net income $ 5,726,597 $ 8,692,876 $ 7,986,802
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during
the period, net of tax of $531,975;
($979,902); and $367,902 1,032,658 (1,616,553) 606,898
Reclassification adjustment for (gains) losses
included in net income, net of tax of $8,034;
$12,692 and ($4,270) 15,596 20,937 (7,043)
----------- ------------ ------------
1,048,254 (1,595,616) 599,855
----------- ------------ ------------
Comprehensive income $ 6,774,851 $ 7,097,260 $ 8,586,657
=========== ============ ============
See accompanying notes to consolidated financial statements.
33
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- ------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------------- PAID-IN RETAINED COMPREHENSIVE TREASURY
SHARES PAR VALUE CAPITAL EARNINGS INCOME (LOSS) STOCK TOTAL
---------- ----------- ------------ ------------ -------------- ---------- ------------
Balance,
December 31, 1997 6,763,626 $1,263,745 $31,590,231 $27,075,387 $ 816,916 $(983,189) $59,763,090
Net income - - - 7,986,802 - - 7,986,802
Other comprehensive
income - - - - 599,855 - 599,855
Two-for-one stock split 2,830,693 - - - - - -
Cash dividends declared,
$.275 per share - - - (1,997,476) - - (1,997,476)
Cash dividends declared
by pooled companies - - - (730,444) - - (730,444)
Stock issued by
pooled companies - - 338,197 - - - 338,197
Stock issued to directors
in lieu of fees 7,808 - 81,240 - - - 81,240
Stock issued through
dividend reinvestment
plan 1,650 - 19,685 - - - 19,685
Stock options exercised 250 - 2,515 - - - 2,515
Retirement of
treasury stock - (46,680) (936,509) - - 983,189 -
---------- ----------- ------------ ------------ -------------- ---------- ------------
Balance,
December 31, 1998 9,604,027 1,217,065 31,095,359 32,334,269 1,416,771 - 66,063,464
Net income - - - 8,692,876 - - 8,692,876
Other comprehensive
loss - - - - (1,595,616) - (1,595,616)
Cash dividends declared,
$.3875 per share - - - (3,339,028) - - (3,339,028)
Cash dividends declared
by pooled companies - - - (341,918) - - (341,918)
Dividends on preferred
stock of subsidiaries - - - (10,080) - - (10,080)
Stock issued to directors
in lieu of fees 9,503 - 114,630 - - - 114,630
Stock options exercised 3,876 - 26,932 - - - 26,932
---------- ----------- ------------ ------------ -------------- ---------- ------------
Balance,
December 31, 1999 9,617,406 1,217,065 31,236,921 37,336,119 (178,845) - 69,611,260
Net income - - - 5,726,597 - - 5,726,597
Other comprehensive
income - - - - 1,048,254 - 1,048,254
Cash dividends declared,
$.4325 per share - - - (4,122,994) - - (4,122,994)
Stock acquired and
cancelled under stock
repurchase plan (119,616) - (1,512,152) - - - (1,512,152)
Stock options exercised 4,157 - 29,515 - - - 29,515
---------- ----------- ------------ ------------ -------------- ---------- ------------
Balance,
December 31, 2000 9,501,947 $1,217,065 $29,754,284 $38,939,722 $ 869,409 $ - $70,780,480
========== =========== ============ ============ ============== ========== ============
See accompanying notes to consolidated financial statements.
34
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- -----------------------------------------------------------------------------------------------------
2000 1999 1998
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,726,597 $ 8,692,876 $ 7,986,802
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion, net 2,019,426 1,842,249 1,452,125
Provision for loan losses 4,098,663 985,188 903,404
Provision for deferred taxes (968,127) (184,024) (108,625)
Net realized (gain) loss on securities transactions 23,630 33,629 (11,313)
Net (gain) loss on disposal of assets 153,817 (10,889) (105,016)
Equity in earnings of unconsolidated subsidiary (562,979) (680,578) (368,064)
Dividends received from unconsolidated subsidiary 500,000 675,000 400,000
Other noncash items, net - - (28,537)
Increase in cash value of bank-owned life insurance (139,958) (540,695) (104,634)
Increase in interest receivable (969,909) (604,525) (344,727)
Increase (decrease) in interest payable 774,898 251,976 (62,383)
(Increase) decrease in taxes receivable (892,703) 207,543 -
Increase (decrease) in taxes payable (340,497) 340,497 (71,693)
Net change in other assets and other liabilities 1,856,494 (264,212) (76,501)
-------------- ------------- -------------
Net cash provided by operating activities 11,279,352 10,744,035 9,460,838
-------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits
in other banks (1,477,548) 197,536 (928,000)
Increase in Federal funds sold (11,935,000) (5,000,000) (157,000)
Activities on securities available for sale:
Purchases (4,167,444) (16,695,894) (55,613,823)
Proceeds from sales and calls 560,133 12,842,700 20,576,316
Proceeds from maturities and paydowns 11,707,704 22,714,619 23,337,448
Proceeds from maturities of securities held to maturity - - 1,050,000
Net increase in loans (65,053,345) (55,344,190) (31,495,210)
Purchase of premises and equipment (7,437,686) (2,343,484) (3,537,656)
Proceeds from disposal of assets 924,785 16,318 331,794
Purchase of bank-owned life insurance polices (6,265,261) - -
Proceeds from life insurance benefits 511,031 - -
Net cash received in purchase acquisition of Friendship 1,526,565 - -
------------- ------------- -------------
Net cash used in investing activities (81,106,066) (43,612,395) (46,436,131)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 76,610,058 12,116,855 31,530,967
Net increase (decrease) in Federal funds purchased
and securities sold under repurchase agreements (1,662,503) 7,664,829 5,158,411
Advances from the Federal Home Loan Bank 27,770,000 33,027,000 19,136,000
Payments on Federal Home Loan Bank advances (29,180,958) (11,972,483) (14,073,950)
Dividends paid (4,054,117) (3,367,049) (2,069,078)
Dividends paid by pooled companies - (452,214) (519,309)
Proceeds from the exercise of stock options 29,515 26,932 2,515
Acquisition of stock under stock repurchase plans (1,512,152) - -
Proceeds from the issuance of preferred stock in
REIT subsidiaries - 126,000 -
Proceeds form the issuance of stock by pooled companies - - 338,197
------------- ------------- -------------
Net cash provided by financing activities 67,999,843 37,169,870 39,503,753
------------- ------------- -------------
35
PAB BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------------------------------
2000 1999 1998
------------ ------------ -----------
Net increase (decrease) in cash and due from banks (1,826,871) 4,301,510 2,528,460
Cash and due from banks at beginning of period 31,524,206 27,222,696 24,694,236
------------ ------------ -----------
Cash and due from banks at end of period $29,697,335 $31,524,206 $27,222,696
============ ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $27,899,433 $22,654,578 $23,500,928
============ ============ ===========
Taxes $ 4,626,725 $ 4,262,579 $ 4,443,569
============ ============ ===========
NONCASH INVESTING AND FINANCING TRANSACTIONS:
Increase (decrease) in unrealized gains on
securities available for sale $ 1,597,178 $(2,514,112) $ 909,933
============ ============ ===========
Purchase price and debt incurred on acquisition of Friendship $ 7,667,280 $ - $ -
============ ============ ===========
Stock issued to directors in lieu of fees $ - $ 114,630 $ 100,925
============ ============ ===========
See accompanying notes to consolidated financial statements.
36
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
PAB Bankshares, Inc, (the Company) is a multi-bank holding company whose
business is primarily conducted by its subsidiary banks (the Banks) listed
below. Through the Banks, the Company offers a broad range of commercial
and consumer banking products and services to customers located in the
market areas served by the Banks. At December 31, 2000, the Company had a
market presence across southern Georgia, south-metro Atlanta, and central
Florida. The Company and the Banks are subject to the regulations of
certain Federal and state agencies and are periodically examined by those
regulatory agencies.
BANK SUBSIDIARY BANKING LOCATIONS(# OF OFFICES)
--------------- -------------------------------
The Park Avenue Bank Valdosta, Lowndes County, Georgia (3)
Lake Park, Lowndes County, Georgia (1)
McDonough, Henry County, Georgia (1)
Farmers & Merchants Bank (99.91% owned) Adel, Cook County, Georgia (1)
First Community Bank of Southwest Georgia Bainbridge, Decatur County, Georgia (3)
Cairo, Grady County, Georgia (1)
Eagle Bank and Trust Statesboro, Bulloch County, Georgia (2)
Baxley Federal Bank Baxley, Appling County, Georgia (1)
Hazlehurst, Jeff Davis County, Georgia (1)
Friendship Community Bank Ocala, Marion County, Florida (2)
In addition to the Banks, the Company owns an investment advisory services
subsidiary, PAB Financial Services, LLC of Valdosta, Georgia (PAB
Financial). Through PAB Financial, the Company is able to offer brokerage
and investment services to its customers.
Although the Company provides products and services under two distinct
regulatory-defined operations (i.e. banking and nonbanking), the Company's
nonbanking operations are not currently considered by management as
material for separate segment reporting under the provisions of Statement
of Financial Accounting Standards (SFAS) No. 131.
At the close of business on December 29, 2000, the Company consummated its
merger with Friendship Community Bank (Friendship). This transaction was
accounted for under the purchase method of accounting for business
combinations. Further details on this transaction are presented in Note 2,
Business Combinations.
BASIS OF PRESENTATION
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices within the financial
services industry. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the statement of condition and
revenues and expenses for the period. Actual results could differ from
those estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the
allowance for loan losses, and the valuation of foreclosed real estate and
deferred tax assets.
The Company's consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation.
Certain items in the consolidated financial statements as of and for the
years ended December 31, 1999 and 1998 have been reclassified, with no net
effect on total assets, total stockholders' equity, or net income, in order
to be consistent with the classifications adopted with the current year
presentation.
37
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The principles that significantly affect the determination of financial
position, results of operations and cash flows are summarized below.
CASH AND DUE FROM BANKS
For purposes of reporting cash flows, cash and due from banks includes
cash on hand and amounts due from banks (including cash items in
process of clearing). Cash flows from loans originated by the Banks,
deposits, interest-bearing deposits and Federal funds purchased and
sold are reported net.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
SECURITIES
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability to
hold to maturity are classified as held to maturity and reported at
amortized cost. All other debt and equity securities with readily
determinable fair values are classified as available for sale and
carried at fair value with unrealized gains and losses excluded from
earnings and reported in other comprehensive income, net of tax.
Restricted and other equity securities without a readily determinable
fair value are carried at cost and periodically evaluated for
impairment. Included in restricted equity securities is the Banks'
investment in Federal Home Loan Bank (FHLB) stock. FHLB stock can be
sold only at its par value and only to the FHLB or to another member
institution.
Purchase premiums and discounts are recognized in interest income
using the interest method over the terms of the securities. Declines
in the fair value of securities below their cost that are deemed to be
other than temporary are reflected in earnings as realized losses.
Gains and losses on the sale of securities are recorded on the trade
date and are determined using the specific identification method.
LOANS
Loans are reported at their outstanding principal balances less
unearned income and the allowance for loan losses. Unearned income is
recognized over the terms of the loans using the interest method.
Interest income is accrued based on the principal balance outstanding.
In general, loan origination fees and certain direct origination costs
are recognized at the time the loan is recorded. For some long-term
mortgage loans, the loan origination fees and certain direct
origination costs are deferred and recognized as an adjustment of the
related loan yield using the interest method over the life of those
loans. The results of operations are not materially different than the
results that would have been obtained had all loan fees and costs been
accounted for in accordance with generally accepted accounting
principles.
The accrual of interest on loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become
due. All interest accrued but not collected for loans that are placed
on nonaccrual status or charged off is reversed against interest
income. The Interest on these loans is subsequently accounted for on a
cash-basis or cost-recovery method until qualifying for a return to
accrual status. Loans are returned to accrual status when all the
principal and interest amounts contractually due are brought current
and future payments are reasonably assured.
38
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (Continued)
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status,
collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not
classified as impaired. Management determines the significance of
payment delays and payment shortfalls on a case-by-case basis, taking
into consideration all of the circumstances surrounding the loan and
the borrower, including the length of the delay, the reasons for the
delay, the borrower's prior payment record, and the amount of the
shortfall in relation to the principal and interest owed. Individually
identified impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, the loan's obtainable market price, or the fair value of the
collateral if the loan is collateral dependant. Larger groups of
smaller balance homogeneous loans are collectively evaluated for
impairment.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established as losses are estimated
to have occurred through a provision for loan losses charged to
earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may
affect the borrower's repayment ability, estimated value of any
underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revisions as more information becomes
available. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan
losses, and may require additions to the allowance based on their
judgment about information available to them at the time of their
examinations.
PREMISES AND EQUIPMENT
Land is carried at cost. Buildings and equipment are carried at cost,
less accumulated depreciation computed on the straight-line method
over the estimated useful lives of the assets.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, arising from excess of purchase price over net assets of
acquired businesses, is being amortized on the straight-line method
over periods ranging from fifteen to twenty-five years. Core deposit
intangibles are being amortized over a period of ten years. The
Company's intangible assets are periodically reviewed to ensure that
there have been no events or circumstances to indicate that the
unamortized recorded amounts are impaired.
39
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
First Community Bank of Southwest Georgia owns a 50% equity interest
in Empire Financial Services, Inc. of Milledgeville, Georgia (Empire),
a commercial mortgage origination and servicing organization that
serves various financial institutions, including the Banks, throughout
the southeastern United States. This investment is accounted for under
the equity method. The investment in Empire exceeded the bank's share
of the underlying net assets by $42,872 at December 31, 2000, and is
being amortized on the straight-line method over twenty-five years.
FORECLOSED ASSETS
Foreclosed assets represent real estate properties and other assets
acquired through, or in lieu of, loan foreclosure or other
proceedings. Foreclosed assets are to be sold and are carried at the
lower of the recorded amount of the loan or the fair value of the
property, less estimated disposal costs. Management periodically
performs valuations, and any changes in the carrying amounts are
recognized as charges against the Company's earnings.
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for the
applicable year. Deferred tax assets and liabilities are recognized on
the temporary differences between the bases of assets and liabilities
as measured by tax laws and their bases as reported in the financial
statements. Deferred tax expense or benefit is then recognized for the
change in deferred tax assets or liabilities between periods.
Recognition of deferred tax assets and liabilities is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax operating
loss carryforwards, and tax credits will be realized. A valuation
allowance is recorded for those deferred tax items for which it is
more likely than not that realization will not occur.
The Company and its subsidiaries file a consolidated income tax
return. Each subsidiary provides for income taxes based on its
contribution to income taxes (benefits) of the consolidated group.
REAL ESTATE INVESTMENT TRUSTS
In 1999, the Company formed two real estate investment trusts (REIT's)
and two intermediate REIT holding companies as subsidiaries of The
Park Avenue Bank and First Community Bank of Southwest Georgia. The
REIT's were established to realize state income tax benefits and to
provide the two banks with ready access to capital markets if
additional capital were needed. The REIT holding companies were
established to provide assistance in managing the Company's investment
in the REIT's. To comply with Federal tax law, a minority interest in
the non-voting, cumulative preferred stock of the REIT's was issued to
certain directors, officers and employees of the Company. The
preferred stock pays an 8% annual dividend. The total minority
interest of the REIT's included in other liabilities was $126,000 as
of December 31, 2000 and 1999.
INCOME AND EXPENSE RECOGNITION
Items of income and expense (including advertising costs) are
recognized using the accrual basis of accounting, except for some
immaterial amounts that are recognized when received or paid.
40
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income by
the weighted-average number of shares of common stock outstanding.
Diluted earnings per common share are computed by dividing net income
minus the income effect of potential common shares that are dilutive
by the sum of the weighted-average number of shares of common stock
outstanding and potential common shares. All per share data for prior
years have been adjusted to reflect two-for-one stock splits on March
10, 1998 and May 31, 1996.
COMPREHENSIVE INCOME
SFAS No. 130 describes comprehensive income as the total of all
components of comprehensive income including net income. Other
comprehensive income refers to revenues, expenses, gains and losses
that, under generally accepted accounting principles, are included in
comprehensive income but excluded from net income. Currently, the
Company's other comprehensive income consists of unrealized gains and
losses on available for sale securities.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board (the FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 standardizes the accounting for
derivative instruments, including certain derivative instruments
embedded in other contracts. The standard requires all derivatives to
be measured at fair value and recognized as either assets or
liabilities on the statement of condition. Under certain conditions, a
derivative may be specifically designated as a hedge. Accounting for
the changes in fair value of a derivative depends on the intended use
of the derivative and the resulting designation. For the Company, SFAS
No. 133 is effective January 1, 2001. On adoption, the provisions of
SFAS No. 133 must be applied prospectively. Management does not
anticipate that the provisions of SFAS No. 133 will have a material
impact on the Company's earnings or financial position.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which replaces SFAS No. 125. SFAS No. 140 provides
accounting and reporting standards for securitizations and other
transfers of financial assets and collateral based on consistent
application of a financial components approach that focuses on
control. Under this approach, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when
extinguished. Certain disclosure requirements of SFAS No. 140 were
effective immediately and have been adopted by the Company. Other
portions become effective for transactions occurring after March 31,
2001. Management does not anticipate that the adoption of the new
provisions of SFAS No. 140 will have a material impact on the
Company's earnings or financial position.
In February 2001, the FASB issued for public comment its tentative
decisions announced in December 2000 on the accounting for goodwill in
a limited revised Exposure Draft, "Business Combinations and
Intangible Assets - Accounting for Goodwill". If the statement is
adopted as proposed, the use of the pooling of interest method of
accounting for business combinations initiated after the statement's
effective date would be prohibited. In addition, goodwill acquired in
business combinations would no longer be amortized using a
straight-line method over an estimated life, but instead would be
capitalized and reviewed for impairment when events or circumstances
occur indicating that impairment might exist. The statement would
apply to any goodwill subsequently acquired as well as to the existing
unamortized goodwill recorded on the Company's statement of condition.
Management is evaluating the effect that the proposed statement might
have on the Company's earnings and financial position.
41
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. BUSINESS COMBINATIONS
At the close of business on December 29, 2000, the Company consummated its
merger with Friendship Community Bank (Friendship). This transaction was
accounted for under the purchase method of accounting for business
combinations. In an all cash transaction, the Company acquired 100% of
Friendship's common stock outstanding for $7,667,280. The excess cost over
the net assets acquired of Friendship amounted to $4,407,434 and will be
amortized using the straight-line method over a twenty-year period. In
completing the transaction, Friendship recorded contingent liabilities
totaling approximately $300,000, net of tax, for the cost to convert to the
Company's data processing system and the cost of buying out existing
contracts for an employment agreement with the bank president and a data
processing agreement with a third party service provider.
The following chart summarizes the assets acquired and liabilities assumed
in connection with the Friendship business combination.
Cash and due from banks $ 1,526,565
Interest-bearing deposits with other banks 220,844
Federal funds sold 10,075,000
Investment securities 12,596,913
Loans, net 22,020,968
Other assets 2,223,554
Deposits 44,365,697
Other liabilities 1,038,301
Since this transaction became effective after the last business day of the
year, none of the results of operations for Friendship are included with
the Company's consolidated statements of income for the years ended
December 31, 2000, 1999 and 1998. The following unaudited summary
information presents the consolidated results of operations of the Company
on a pro forma basis, as if Friendship had been acquired on January 1,
1999. The pro forma summary information does not necessarily reflect the
results of operations that would have occurred, if the acquisitions had
occurred at the beginning of the periods presented, or of the results which
may occur in the future.
2000 1999
----------- -----------
Interest income $60,672,394 $52,162,104
Interest expense 30,060,828 24,009,812
----------- -----------
Net interest income 30,611,566 28,152,292
Provision for loan losses 4,134,663 994,188
Noninterest income 6,030,674 6,278,384
Noninterest expense 23,545,687 20,423,555
----------- -----------
Income before income taxes 8,961,890 13,012,933
Income tax expense 3,034,476 4,108,653
----------- -----------
Net income $ 5,927,414 $ 8,904,280
=========== ===========
Net income per share $ 0.62 $ 0.93
=========== ===========
Net income per share, diluted $ 0.62 $ 0.91
=========== ===========
42
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. SECURITIES
The amortized cost and approximate fair values of investments in securities
available for sale as of December 31, 2000 and 1999 were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ------------ -----------
December 31, 2000:
U. S. Government and agency
securities $51,248,673 $ 44,522 $ (260,411) $51,032,784
State and municipal securities 4,964,322 21,610 (18,410) 4,967,522
Mortgage-backed securities 21,272,769 72,954 (220,961) 21,124,762
Marketable equity securities 2,074,331 1,881,268 (203,246) 3,752,353
Restricted and other equity securities 4,047,409 - - 4,047,409
----------- ----------- ------------ -----------
$83,607,504 $ 2,020,354 $ (703,028) $84,924,830
=========== =========== ============ ===========
December 31, 1999:
U. S. Government and agency
securities $45,948,497 $ 13,584 $ (804,383) $45,157,698
State and municipal securities 5,508,114 20,986 (42,829) 5,486,271
Mortgage-backed securities 21,594,772 9,101 (487,153) 21,116,720
Marketable equity securities 1,488,506 1,240,932 (230,090) 2,499,348
Restricted and other equity securities 4,665,834 - - 4,665,834
----------- ----------- ------------ -----------
$79,205,723 $ 1,284,603 $(1,564,455) $78,925,871
=========== =========== ============ ===========
Included in restricted and other equity securities at December 31, 2000 and
1999, is the Banks' investment in FHLB stock of $3,737,200 and $3,854,800,
respectively.
The amortized cost and fair value of debt securities as of December 31,
2000 by contractual maturity are shown below. Maturities may differ from
contractual maturities in mortgage-backed securities because the mortgages
underlying the securities may be called or repaid without any penalties.
Equity securities have a perpetual life and no stated maturity. Therefore
mortgage-backed securities, marketable equity securities, and restricted
equity securities are not included in the maturity categories in the
following maturity summary.
AMORTIZED FAIR
COST VALUE
----------- -----------
Due in one year or less $23,459,803 $23,359,381
Due from one year to five years 25,058,187 24,960,013
Due from five to ten years 6,651,172 6,651,403
Due after ten years 1,043,833 1,029,509
Mortgage-backed securities 21,272,769 21,124,762
Marketable equity securities 2,074,331 3,752,353
Restricted and other equity securities 4,047,409 4,047,409
----------- -----------
$83,607,504 $84,924,830
=========== ===========
Securities with a carrying value of approximately $51,976,000 and
$42,195,000 at December 31, 2000 and 1999, respectively, were pledged to
secure public deposits, certain borrowing arrangements, and for other
purposes.
43
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. SECURITIES (CONTINUED)
Gains and losses on sales, calls, and paydowns of securities available for
sale for the years ended December 31, 2000, 1999 and 1998 consist of the
following:
2000 1999 1998
--------- --------- ---------
Gross gains on securities transactions $ 2,886 $ 7,827 $ 42,524
Gross losses on securities transactions (26,516) (41,456) (31,211)
--------- --------- ---------
Net realized gain (loss) on
securities transactions $(23,630) $(33,629) $ 11,313
========= ========= =========
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio as of December 31, 2000 and 1999 were
as follows:
2000 1999
------------- -------------
Commercial and financial $ 72,942,398 $ 59,328,217
Agricultural 23,063,510 8,197,422
Real estate - construction 40,129,922 31,858,224
Real estate - mortgage (commercial and residential) 376,000,100 332,007,520
Installment loans to individuals and other loans 68,879,438 63,423,507
------------- -------------
581,015,368 494,814,890
Unearned income, net (278,835) (397,723)
------------- -------------
580,736,533 494,417,167
Allowance for loan losses (8,184,641) (5,037,074)
------------- -------------
$572,551,892 $489,380,093
============= =============
At December 31, 2000 and 1999, the total recorded investment in impaired
loans amounted to approximately $6,451,000 and $2,395,000, respectively.
These loans had a related allowance for loan losses of approximately
$1,303,000 and $369,000 at December 31, 2000 and 1999, respectively. The
average recorded investment in impaired loans during 2000, 1999 and 1998
was approximately $2,486,000, $1,981,000 and $1,196,000, respectively.
Interest income recognized on impaired loans for cash payments received in
2000, 1999 and 1998 was approximately $115,000, $117,000 and $19,000,
respectively. Included in total impaired loans at December 31, 2000, are
loans conditionally guaranteed by the USDA of approximately $4,433,000. The
other loans reported as impaired are loans for which the accrual of
interest had been discontinued by management.
The Company has granted loans to certain directors, executive officers, and
related entities of the Company and the Banks. The interest rates on these
loans were substantially the same as rates prevailing at the time of the
transactions and repayment terms are customary for the types of loans
involved.
Changes in related party loans for the year ended December 31, 2000 are as
follows:
Balance, beginning of year $ 13,352,489
Advances 23,982,892
Repayments (20,495,508)
Transactions due to changes in related parties 2,268,233
-------------
Balance, end of year $ 19,108,106
=============
44
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
Changes in the allowance for loan losses for the years ended December 31,
2000, 1999 and 1998 consist of the following:
2000 1999 1998
------------ ------------ -----------
Balance, beginning of year $ 5,037,074 $ 5,171,905 $4,996,243
Provision charged to operations 4,098,663 985,188 903,404
Loans charged-off (1,583,833) (1,216,662) (823,013)
Recoveries 182,292 96,643 95,271
Purchase acquisition of Friendship 450,445 - -
------------ ------------ -----------
Balance, end of year $ 8,184,641 $ 5,037,074 $5,171,905
============ ============ ===========
NOTE 5. PREMISES AND EQUIPMENT
Major classifications of premises and equipment as of December 31, 2000 and
1999 were as follows:
2000 1999
------------ ------------
Land $ 4,610,555 $ 3,880,781
Buildings and improvements 14,407,290 10,830,098
Furniture, fixtures and equipment 9,648,889 8,396,055
Former banking facilities - 530,760
Construction in progress 486,236 1,059,008
------------ ------------
29,152,970 24,696,702
Less accumulated depreciation (6,772,245) (8,317,819)
------------ ------------
$22,380,725 $16,378,883
============ ============
Depreciation expense amounted to $1,588,796, $1,412,249, and $1,185,923 for
the years ended December 31, 2000, 1999, and 1998, respectively.
With the exception of the main banking office of Friendship, the Company
owns and operates all of its banking offices. The Friendship office is
under a five-year operating lease that requires the Company to pay $57,775
plus an annual index adjustment, per year until expiration in May 2003.
At December 31, 2000, the Company had two branch banking offices under
construction. The Company is committed to complete these projects during
2001 for a total cost (excluding land) of approximately $2,125,000.
NOTE 6. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Following is a summary of unaudited financial information of Empire as of
December 31, 2000 and 1999 and for the twelve months ended December 31,
2000, 1999 and 1998. Empire maintains its books on a fiscal year different
from the Company.
2000 1999
---------- ----------
Total assets $1,998,140 $1,129,050
Total liabilities $1,664,634 $1,021,984
45
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (CONTINUED)
2000 1999 1998
---------- ---------- ----------
Total revenue $3,618,235 $3,324,728 $2,999,317
Net income $1,226,439 $1,122,766 $1,039,334
To facilitate the timely closing of its books and preparation of monthly
financial information, the Company follows a consistent practice of
accruing its share of Empire earnings one month in arrears. For the years
ended December 31, 2000, 1999 and 1998, an additional amount of Empire
earnings of approximately $88,000, $59,000 and $150,000 was subsequently
recorded in January 2001, 2000 and 1999, respectively.
NOTE 7. DEPOSITS
A summary of interest-bearing deposits by major classification as of
December 31, 2000 and 1999 follows.
2000 1999
------------ ------------
Interest-bearing demand $125,714,275 $119,240,933
Savings 32,859,370 27,666,315
Time, $100,000 and over 136,786,504 102,389,335
Other time 271,140,566 201,991,821
------------ ------------
$566,500,715 $451,288,404
============ ============
A summary of interest expense on deposits by major category for the years
ended December 31, 2000, 1999 and 1998 follows.
2000 1999 1998
----------- ----------- -----------
Interest-bearing demand $ 3,357,422 $ 2,977,692 $ 3,083,732
Savings 724,968 805,384 906,294
Time 20,127,569 16,131,062 16,679,820
----------- ----------- -----------
$24,209,959 $19,914,138 $20,669,846
=========== =========== ===========
The scheduled maturities of time deposits at December 31, 2000 follow:
YEAR AMOUNT
------ ------------
2001 $304,136,467
2002 70,202,946
2003 14,208,519
2004 6,946,858
2005 11,703,795
Later 728,485
------------
$407,927,070
============
46
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. ADVANCES FROM THE FEDERAL HOME LOAN BANK
Listed below is a summary of the advances from the Federal Home Loan Bank
of Atlanta, Georgia (FHLB) as of December 31, 2000 and 1999.
2000 1999
----------- -----------
Advances with interest at adjustable rates,
ranging from 6.10% to 6.79% at December 31, 2000,
due at various dates from May 2003 to
September 2009. $ 5,541,580 $ 7,600,000
Amortizing advances with interest at fixed rates,
ranging from 5.20% to 7.24% at December 31, 2000,
due in varying amounts and at various intervals through
August 2010. 5,239,702 7,012,240
Advances with interest at fixed rates, ranging from 5.69%
to 7.28% at December 31, 2000, due at various dates
from May 2001 to March 2003. 20,820,000 19,200,000
Advances with interest at fixed rates, ranging from 5.46%
to 6.77% at December 31, 2000, convertible to
variable rates at the option of the FHLB, due at
various dates from March 2003 to March 2010. 27,100,000 26,300,000
----------- -----------
$58,701,282 $60,112,240
=========== ===========
The Banks have pledged qualifying residential real estate mortgage loans as
collateral on the advances from the FHLB.
The scheduled maturities of the advances from the FHLB at December 31, 2000
follow.
YEAR AMOUNT
------ -----------
2001 $21,172,102
2002 2,283,773
2003 12,756,503
2004 505,059
2005 3,030,288
Later 18,953,557
-----------
$58,701,282
===========
NOTE 9. OTHER BORROWINGS
At December 31, 2000, the Company owed $7,667,280 to the former
stockholders of Friendship (see Note 2.) In January 2001, the Company
intends to use the line of credit described below to finance 100% of this
acquisition.
On August 31, 2000, the Company obtained a 3-year, $15 million line of
credit with The Bankers Bank of Atlanta, Georgia, for the purpose of
providing operating capital and to finance potential purchase acquisitions.
The Company had not drawn on the line of credit by December 31, 2000.
Interest on the line of credit is due quarterly at the one-month LIBOR rate
plus 1.75%, or 8.311% at December 31, 2000. Principal is due at maturity on
August 30, 2003, however, at the option of the Company, the outstanding
principal due at maturity could then be converted to a ten-year amortizing
note.
47
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. INCOME TAXES
The income tax expense for the years ended December 31, 2000, 1999 and 1998
consists of the following:
2000 1999 1998
----------- ----------- -----------
Current $3,876,935 $4,189,078 $4,206,549
Deferred (968,127) (184,024) (108,625)
----------- ----------- -----------
$2,908,808 $4,005,054 $4,097,924
=========== =========== ===========
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before income
taxes. A reconciliation of the differences for the years ended December 31,
2000, 1999 and 1999 follows.
2000 1999 1998
----------- ----------- -----------
Tax at statutory rate $2,936,038 $4,317,296 $4,108,807
Increase (decrease) resulting from:
State income tax, net of Federal
tax benefit - 172,459 293,553
Tax exempt interest and dividend
exclusion (270,909) (358,884) (330,206)
Amortization of goodwill 43,755 43,746 43,746
Increase in cash value of bank-
owned life insurance policies (46,177) (196,283) (38,984)
Deferred tax adjustment 159,422 - -
Prior year accrual differences 123,174 - -
Other items, net (36,495) 26,720 21,008
----------- ----------- -----------
Income tax expense $2,908,808 $4,005,054 $4,097,924
=========== =========== ===========
The components of deferred income taxes included in other assets on the
statements of condition at December 31, 2000 and 1999 are as follows:
2000 1999
---------- ----------
Deferred tax assets:
Allowance for loan losses $2,524,297 $1,593,140
Purchase accounting adjustments 525,954 -
Deferred compensation 218,788 294,807
Reserve for uncollectible interest 109,820 -
Unrealized loss on securities available for sale - 100,360
Other - 34,237
---------- ----------
3,378,859 2,022,544
---------- ----------
Deferred tax liabilities:
Premises and equipment 577,652 648,807
Deferred loan origination cost 187,965 166,775
Unrealized gain on securities available for sale 413,755 -
Core deposit intangible 6,520 35,711
Other 12,446 -
---------- ----------
1,198,338 851,293
---------- ----------
Net deferred tax assets $2,180,521 $1,171,251
========== ==========
48
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. EMPLOYEE BENEFIT PLANS
The Company provides an employee 401(k) profit sharing plan for qualified
employees. The 401(k) plan allows a participant to defer a portion of his
compensation and provides that the Company will match a portion of the
deferred compensation. The plan also provides for nonelective and
discretionary profit sharing contributions to be made at the sole
discretion of the Board of Directors. Approximately 3.5% of the
participants' eligible compensation was accrued as the discretionary profit
sharing contributions for 2000, 1999 and 1998. All full-time and part-time
employees are eligible to participate in the plan provided they have met
the eligibility requirements. Generally, a participant must have completed
twelve months of employment with a minimum of 1,000 hours. Aggregate
expense under the plan charged to operations during 2000, 1999 and 1998
amounted to approximately $595,000, $433,000, and $338,000, respectively.
NOTE 12. DEFERRED COMPENSATION PLANS
The Company and the Banks have entered into separate deferred compensation
arrangements with certain executive officers. The plans call for certain
amounts payable at retirement, death or disability. The estimated present
value of the deferred compensation is being accrued over the remaining
expected term of active employment. The Banks have purchased life insurance
policies that they intend to use to finance this liability. Aggregate
expense under the deferred compensation plans charged to operations during
2000, 1999 and 1998 were approximately $177,000, $382,000 and $127,000,
respectively.
NOTE 13. OTHER INCOME AND EXPENSES
A summary of significant other fee income included in the Company's
statements of income for the years ended December 31, 2000, 1999 and 1998
follows.
2000 1999 1998
---------- -------- ----------
Mortgage origination fees $ 439,327 $569,121 $ 725,439
Insurance commissions and fees 302,277 219,893 234,679
Brokerage commissions and fees 125,241 - -
Other fee income 238,322 125,973 213,162
---------- -------- ----------
Total other fee income $1,105,167 $914,987 $1,173,280
========== ======== ==========
A summary of significant other noninterest income included in the Company's
statements of income for the years ended December 31, 2000, 1999 and 1998
follows.
2000 1999 1998
---------- -------- --------
Earnings on bank-owned life insurance $ 139,958 $540,695 $104,634
Gain (loss) on disposal of assets (153,817) 10,889 105,016
Other noninterest income 245,149 316,893 222,954
---------- -------- --------
Total other noninterest income $ 231,290 $868,477 $432,604
========== ======== ========
49
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. OTHER INCOME AND EXPENSES (CONTINUED)
A summary of significant other noninterest expense included in the
Company's statements of income for the years ended December 31, 2000, 1999
and 1998 follows.
2000 1999 1998
---------- ---------- ----------
Advertising and business development $ 526,016 $ 383,687 $ 353,310
Supplies and printing 630,892 512,247 547,060
Postage and courier 459,059 467,113 388,080
Legal and accounting fees 469,549 427,428 463,252
Outside consulting fees 436,647 228,875 184,002
Director and committee fees 568,296 480,640 424,513
Merger and acquisition costs 49,292 534,523 619,658
Conversion costs 833,139 - -
Other noninterest expenses 3,129,276 2,653,438 2,466,006
---------- ---------- ----------
Total other noninterest expense $7,102,166 $5,687,951 $5,445,881
========== ========== ==========
NOTE 14. EARNINGS PER COMMON SHARE
The following is a reconciliation of net income (the numerator) and the
weighted average shares outstanding (the denominator) used in determining
basic and diluted earnings per share for the years ended December 31, 2000,
1999 and 1998.
2000 1999 1998
---------- ---------- ----------
Basic earnings per share:
Net income $5,726,597 $8,692,876 $7,986,802
---------- ---------- ----------
Weighted average common shares
outstanding 9,528,387 9,612,634 9,602,946
---------- ---------- ----------
Earnings per common share $ 0.60 $ 0.90 $ 0.83
========== ========== ==========
Diluted earnings per share:
Net income $5,726,597 $8,692,876 $7,986,802
---------- ---------- ----------
Weighted average common shares
outstanding 9,528,387 9,612,634 9,602,946
Effect of dilutive stock options 70,403 136,528 210,879
---------- ---------- ----------
Weighted average diluted common
shares outstanding 9,598,790 9,749,162 9,813,825
---------- ---------- ----------
Earnings per common share $ 0.60 $ 0.89 $ 0.81
========== ========== ==========
NOTE 15. DIRECTORS DEFERRED STOCK PURCHASE PLAN
In 1994, the Company's stockholders approved the Directors Deferred Stock
Purchase Plan (the Director Plan), which provides that a director of the
Company or any subsidiary may elect to receive shares of common stock of
the Company in lieu of the cash compensation otherwise payable as
director's fees for services rendered as a member of the Board of Directors
or any committee thereof. The Director Plan expired in January 1999.
50
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN
In 1993, the Board of Directors approved a dividend reinvestment and common
stock purchase plan. The plan is designed to provide stockholders with a
simple and convenient means to reinvest cash dividends and make additional
cash purchases of the Company's common stock. The Company acquires shares
in the open market as needed to fill orders for dividend reinvestment and
stock purchases in the plan rather than issuing additional shares of common
stock.
NOTE 17. STOCK OPTION PLANS
The Company has two fixed stock option plans under which it has granted
options to its employees and directors to purchase common stock at the fair
market price on the date of grant. Both plans provide for "incentive stock
options" and "non-qualified stock options". The incentive stock options are
intended to qualify under Section 422 of the Internal Revenue Code for
favorable tax treatment. Under the 1994 Employee Stock Option Plan, the
Company's stockholders authorized the Board of Directors to grant up to
400,000 stock options to employees of the Company as part of an incentive
plan to attract and retain key personnel in the Company. Under the 1999
Stock Option Plan, the Company's stockholders authorized the Board of
Directors to grant up to 600,000 stock options to directors, employees,
consultants and advisors of the Company.
A summary of the status of the two fixed plans at December 31, 2000, 1999
and 1998 and changes during the years ended on those dates is as follows:
2000 1999 1998
---------------------- ---------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
----------- ---------- --------- ---------- -------- ----------
Under option, beginning
of year 440,157 $ 11.19 347,103 $ 8.76 328,588 $ 8.04
Granted 88,950 13.40 121,750 16.84 54,500 12.06
Exercised (4,157) 7.10 (3,876) 6.95 (33,985) 10.03
Forfeited (1,300) 16.09 (24,820) 9.21 (2,000) 8.59
----------- ---------- --------- ---------- -------- ----------
Under option, end of year 523,650 $ 11.58 440,157 $ 11.19 347,103 $ 8.76
=========== ========== ========= ========== ======== ==========
Exercisable at end of year 305,929 $ 10.68 246,959 $ 10.62 162,603 $ 8.09
=========== ========== ========= ========== ======== ==========
Weighted-average fair value
per option of options
granted during year $ 4.53 $ 6.59 $ 3.71
=========== ========== =========
A further summary of the options outstanding at December 31, 2000 is as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES NUMBER LIFE IN YEARS PRICE NUMBER PRICE
--------------- ------- -------------- -------- -------- ---------
$ 6.25 - 9.63 129,000 5.19 $ 6.28 110,400 $ 6.25
10.06 - 12.06 175,200 6.31 10.57 104,918 10.40
13.31 - 15.88 95,400 8.49 13.52 6,401 14.09
16.25 - 23.13 124,050 8.48 17.05 84,210 16.56
------- --------
523,650 6.94 11.58 305,929 10.68
======= ========
51
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17. STOCK OPTION PLANS (CONTINUED)
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company recognizes compensation cost for stock-based employee
compensation awards in accordance with APB Opinion No. 25, "Accounting for
Stock Issued to Employees". The Company recognized no compensation cost
under the fixed stock option plan for the years ended December 31, 2000,
1999, and 1998. If the Company had recognized compensation cost in
accordance with SFAS No. 123, net income and net income per share for the
years ended December 31, 2000, 1999 and 1998 would have been reduced as
follows:
2000 1999 1998
----------------------- ----------------------- -----------------------
BASIC BASIC BASIC
NET EARNINGS NET EARNINGS NET EARNINGS
INCOME PER SHARE INCOME PER SHARE INCOME PER SHARE
----------- ---------- ----------- ---------- ----------- ----------
As reported $5,726,597 $ 0.60 $8,692,876 $ 0.90 $7,986,802 $ 0.83
Stock based
compensation, net of
related tax effect (671,149) -0.07 (741,218) -0.07 (136,754) -0.01
----------- ---------- ----------- ---------- ----------- ----------
As adjusted $5,055,448 $ 0.53 $7,951,658 $ 0.83 $7,850,048 $ 0.82
=========== ========== =========== ========== =========== ==========
2000 1999 1998
----------------------- ----------------------- ----------------------
DILUTED DILUTED DILUTED
NET EARNINGS NET EARNINGS NET EARNINGS
INCOME PER SHARE INCOME PER SHARE INCOME PER SHARE
----------- ---------- ----------- ---------- ----------- ----------
As reported $5,726,597 $ 0.60 $8,692,876 $ 0.89 $7,986,802 $ 0.81
Stock based
compensation, net of
related tax effect (671,149) -0.07 (741,218) -0.07 (136,754) -0.01
----------- ---------- ----------- ---------- ----------- ----------
As adjusted $5,055,448 $ 0.53 $7,951,658 $ 0.82 $7,850,048 $ 0.80
=========== ========== =========== ========== =========== ==========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
--------- --------- --------
Risk-free interest rate 5.24% 5.39% 5.00%
Expected life of the options 10 years 10 years 5 years
Expected dividends (as a percent
of the fair value of the stock) 4.69% 2.50% 1.37%
Expected volatility 45.62% 34.20% 30.00%
NOTE 18. STOCK REPURCHASE PLAN
In June 1999, the Board of Directors approved a stock repurchase plan
whereby management was authorized to buy back and cancel up to 75,000
shares of the Company's common stock from the open market. In March 2000,
the Board approved to buy back and cancel an additional 50,000 shares of
the Company's common stock. During 2000, the Company acquired and canceled
119,616 shares of common stock for a total cost of $1,512,152. A balance of
5,384 shares was available in the plan for repurchase at December 31, 2000.
52
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19. COMMITMENTS AND CONTINGENT LIABILITIES
The consolidated financial statements do not reflect various commitments
and contingent liabilities that arise in the normal course of business.
These off-balance sheet financial instruments include commitments to extend
credit and standby letters of credit. Such financial instruments are
included in the financial statements when funds are disbursed or the
instruments become payable. These instruments involve, to varying degrees,
elements of credit risk, interest rate risk and liquidity risk.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Company uses the same credit and collateral policies
for these off-balance sheet financial instruments as it does for
on-balance sheet financial instruments. A summary of the Company's
commitments outstanding as of December 31, 2000 and 1999 follows.
2000 1999
----------- -----------
Commitments to extend credit $58,371,000 $46,366,000
Standby letters of credit $ 1,083,000 $ 2,004,000
Commitments to extend credit generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
The credit risk involved in issuing these financial instruments is
essentially the same as that involved in extending loans to customers. The
Company evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
customer. Collateral held varies but may include real estate and
improvements, marketable securities, accounts receivable, crops, livestock,
inventory, equipment and personal property.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. Collateral held varies as specified above and is required in
instances which the Company deems necessary.
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management for the Company, any liability
resulting from such proceedings would not have a material adverse effect on
the Company's financial statements.
NOTE 20. CONCENTRATIONS OF CREDIT
The Banks make commercial, agricultural, residential and consumer loans to
customers primarily in southern Georgia, south-metro Atlanta, and central
Florida. A substantial portion of the Company's customers' abilities to
honor their contracts is dependent on the business economy in the
geographical area served by the Banks.
As of December 31, 2000, approximately 74% of the Company's loan portfolio
is concentrated in real estate loans. Substantial portions of these loans
are secured by real estate in the Company's primary markets. In addition, a
substantial portion of the real estate owned is located in those same
markets. Accordingly, the ultimate collectibility of a substantial portion
of the Company's loan portfolio and the recovery of a substantial portion
of the carrying amount of real estate owned are susceptible to changes in
market conditions in the Company's primary markets.
53
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 21. REGULATORY MATTERS
The Banks are subject to certain restrictions on the amount of dividends
that may be declared without prior regulatory approval. At December 31,
2000, approximately $3,915,000 of the Banks' retained earnings was
available for dividend declaration without regulatory approval.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Banks must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors. Prompt corrective action provisions are not applicable
to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets as set forth in the table below. Management believes, as of
December 31, 2000, the Company and the Banks meet all capital adequacy
requirements to which it is subject.
As of December 31, 2000, the most recent notification from the regulatory
authorities categorized the Banks as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes
have changed the Banks' category.
The actual capital amounts and ratios for the Company and its lead bank,
The Park Avenue Bank, are presented in the following table. All amounts
have been rounded to the nearest thousand.
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ------ ----------- ------ ----------- ------
As of December 31, 2000:
Total Capital
to Risk Weighted Assets:
Consolidated $71,496,000 12.5% $45,753,000 8.0% - N/A -
The Park Avenue Bank $22,965,000 10.4% $17,661,000 8.0% $22,076,000 10.0%
Tier 1 Capital
to Risk Weighted Assets:
Consolidated $63,592,000 11.1% $22,877,000 4.0% - N/A -
The Park Avenue Bank $20,425,000 9.3% $ 8,830,000 4.0% $13,246,000 6.0%
Tier 1 Capital
to Average Assets:
Consolidated $63,592,000 8.7% $29,250,000 4.0% - N/A -
The Park Avenue Bank $20,425,000 7.2% $11,294,000 4.0% $14,118,000 5.0%
54
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 21. REGULATORY MATTERS (CONTINUED)
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ------ ----------- ------ ----------- ------
As of December 31, 1999:
Total Capital
to Risk Weighted Assets:
Consolidated $72,600,000 15.0% $38,720,000 8.0% - N/A -
The Park Avenue Bank $20,450,000 10.9% $14,948,000 8.0% $18,685,000 10.0%
Tier 1 Capital
to Risk Weighted Assets:
Consolidated $67,563,000 14.0% $19,304,000 4.0% - N/A -
The Park Avenue Bank $18,419,000 9.9% $ 7,474,000 4.0% $11,211,000 6.0%
Tier 1 Capital
to Average Assets:
Consolidated $67,563,000 11.8% $22,903,000 4.0% - N/A -
The Park Avenue Bank $18,419,000 7.6% $ 9,654,000 4.0% $12,068,000 5.0%
NOTE 22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In cases
where quoted market prices are not available, fair values are based on
estimates using discounted cash flow models. Those models are significantly
affected by the assumptions used, including the discount rates and
estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and,
in many cases, could not be realized in immediate settlement of the
instrument. The use of different methodologies may have a material effect
on the estimated fair value amounts. Also, the fair value estimates
presented herein are based on pertinent information available to management
as of December 31, 2000 and 1999. Such amounts have not been revalued for
purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
CASH, DUE FROM BANKS, INTEREST BEARING DEPOSITS, AND FEDERAL FUNDS SOLD
The carrying amounts of cash, due from banks, interest-bearing
deposits in other banks, and Federal funds sold approximate their fair
value.
INVESTMENT SECURITIES
Fair values for securities are based on quoted market prices. The
carrying values of equity securities with no readily determinable fair
value approximate fair values.
LOANS
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow methods, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using discounted
cash flow models or underlying collateral values.
55
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 22. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSITS
The carrying amounts of demand deposits and savings deposits
approximate their fair values. Fair values for fixed-rate certificates
of deposit are estimated using discounted cash flow models, using
interest rates currently being offered on certificates.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The carrying amounts of Federal funds purchased and securities sold
under agreements to repurchase approximate their fair value.
ADVANCES FROM THE FHLB AND OTHER BORROWINGS
For variable-rate borrowings that reprice frequently, fair values are
based on carrying values. For fixed-rate borrowings, the fair values
are estimated using discounted cash flow models, using interest rates
currently being offered for borrowings with similar terms.
OFF-BALANCE SHEET INSTRUMENTS
Fair values of the Company's off-balance sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Company until such commitments
are funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been assigned.
The approximate carrying value and estimated fair value of the Company's
financial instruments as of December 31, 2000 and 1999 are summarized
below. All amounts have been rounded to the nearest thousand.
2000 1999
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
Cash and due from banks, interest-
bearing deposits with other banks,
and Federal funds sold $ 86,526,000 $ 86,526,000 $ 64,645,000 $ 64,645,000
Investment securities 84,925,000 84,925,000 78,926,000 78,926,000
Loans, net 572,552,000 566,383,000 489,380,000 486,121,000
Deposits 637,180,000 638,990,000 516,204,000 517,331,000
Federal funds purchased and
securities sold under agreements
to repurchase 12,166,000 12,166,000 13,828,000 13,828,000
Advances from the FHLB 58,701,000 58,127,000 60,112,000 59,015,000
Other borrowings 7,667,000 7,667,000 - -
56
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 23. CONDENSED FINANCIAL INFORMATION OF PAB BANKSHARES, INC.
(PARENT COMPANY ONLY)
The condensed financial statements for PAB Bankshares, Inc. follows.
PAB BANKSHARES, INC.
CONDENDSED STATEMENTS OF CONDITION
DECEMBER 31, 2000 AND 1999
2000 1999
----------- -----------
Assets:
Cash on deposit with subsidiary banks $ 6,503,960 $13,050,358
Investment securities 349,945 349,945
Investment in subsidiaries 66,470,737 54,700,646
Premises and equipment 4,309,587 1,232,783
Other assets 2,607,148 1,625,800
----------- -----------
Total assets $80,241,377 $70,959,532
=========== ===========
Liabilities and stockholders' equity:
Other borrowings $ 7,667,280 $ -
Dividends payable 1,045,214 976,337
Other liabilities 748,403 371,935
----------- -----------
Total liabilities 9,460,897 1,348,272
----------- -----------
Stockholders' equity 70,780,480 69,611,260
----------- -----------
Total liabilities and stockholders' equity $80,241,377 $70,959,532
=========== ===========
PAB BANKSHARES, INC.
CONDENDSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ------------ ------------
Income:
Dividends from subsidiaries $ 4,930,706 $ 13,844,725 $ 7,883,342
Interest income 103,820 14,132 10,224
Management and service fees 1,279,967 1,256,033 976,459
Other income 92,504 36,032 11,183
----------- ------------ ------------
Total income 6,406,997 15,150,922 8,881,208
----------- ------------ ------------
Expenses 4,800,038 3,131,068 2,925,795
----------- ------------ ------------
Income before income tax benefit and equity in
undistributed earnings (distributions in excess
of earnings) of subsidiaries 1,606,959 12,019,854 5,955,413
Income tax benefit 1,258,615 680,336 733,975
----------- ------------ ------------
Income before equity in undistributed earnings
(distributions in excess of earnings) of
subsidiaries 2,865,574 12,700,190 6,689,388
Equity in undistributed earnings (distributions in excess
of earnings) of subsidiaries 2,861,023 (4,007,314) 1,297,414
----------- ------------ ------------
Net income $ 5,726,597 $ 8,692,876 $ 7,986,802
=========== ============ ============
57
PAB BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 23. CONDENSED FINANCIAL INFORMATION OF PAB BANKSHARES, INC. (CONTINUED)
(PARENT COMPANY ONLY)
PAB BANKSHARES, INC.
CONDENDSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net income $ 5,726,597 $ 8,692,876 $ 7,986,802
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 422,579 267,321 245,021
Deferred tax provision 78,065 (9,150) 6,539
Gain on disposal of assets (3,634) - (6,932)
Distributions in excess of earnings (undistributed
earnings) of subsidiaries (2,861,023) 4,007,314 (1,297,414)
Increase in cash value of life insurance (66,159) (7,988) (2,181)
Net change in other assets and liabilities (764,398) 125,442 (394,048)
------------ ------------ ------------
Net cash provided by operating activities 2,532,027 13,075,815 6,537,787
------------ ------------ ------------
Cash flows from investing activities:
Purchase of securities available for sale - (349,945) -
Purchase of premises and equipment (3,501,165) (924,171) (733,914)
Proceeds from disposal of assets 9,494 - 17,600
Investment in subsidiary (50,000) (50,000) -
------------ ------------ ------------
Net cash used in investing activities (3,541,671) (1,324,116) (716,314)
------------ ------------ ------------
Cash flows from financing activities:
Repayment of notes payable - - (2,184,000)
Dividends paid (4,054,117) (3,025,131) (2,141,687)
Proceeds from issuance of stock 29,515 26,932 340,712
Acquisition of stock under the stock repurchase plan (1,512,152) - -
------------ ------------ ------------
Net cash used in financing activities (5,536,754) (2,998,199) (3,984,975)
------------ ------------ ------------
Net increase (decrease) in cash (6,546,398) 8,753,500 1,836,498
Cash at beginning of year 13,050,358 4,296,858 2,460,360
------------ ------------ ------------
Cash at end of year $ 6,503,960 $13,050,358 $ 4,296,858
============ ============ ============
NOTE 24. SUBSEQUENT EVENTS
In January 2001, the Board of Directors authorized management to buy back
and cancel an additional 125,000 shares of the Company's common stock over
the next twelve-month period under the Company's stock repurchase plan
(Note 18.)
58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no occurrence requiring a response to this Item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the headings "Proposal One: Election of
Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the definitive Proxy Statement (the "2001 Proxy
Statement") relating to the annual meeting of shareholders of PAB, is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the heading "Executive Compensation" in the 2001
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information appearing under the heading "Principal Shareholders" in the 2001
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the headings "Executive Compensation -
Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions" in the 2001 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS.
The consolidated financial statements, notes thereto and
auditor's report thereon, filed as part hereof, are listed in the
Index to Item 8 of this Report.
2. FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted as the required information is
not applicable.
59
3. EXHIBITS.
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of June 3, 1999, by and between
Baxley Federal Savings Bank and the Registrant, and joined into as of
November 2, 1999 by PAB Interim Association No. 1 (incorporated by
reference to Exhibit 2(a) to the Registrant's Registration Statement
No. 333-83907 on Form S-4 (No. 333-83907) filed with the Commission on
July 28, 1999).
2.2 Agreement and Plan of Merger, dated as of September 15, 2000, by and
between Friendship Community Bank and the Registrant, and joined into
by FCB Interim Bank.
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3(a) to the Registrant's Registration Statement
on Form S-4 (No. 333-83907) filed with the Commission on October 14,
1999).
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 3(a)
to the Registrant's Registration Statement on Form S-8 (No. 333-74819)
filed with the Commission on March 22, 1999).
10.1 Form of Employment Agreement with Schedule of Parties and Terms
(incorporated by reference to Exhibit 10.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999).
10.2.1 PAB Bankshares, Inc. First Amendment to First Restated and Amended
Dividend Reinvestment and Common Stock Purchase Plan (incorporated by
reference to Exhibit 28.2 to the Registrant's Registration Statement
on Form S-3 (No. 33-74080) filed with the Commission on April 8,
1997).
10.2.2 PAB Bankshares, Inc. Third Amended and Restated Dividend
Reinvestment and Common Stock Purchase Plan (incorporated by reference
to Exhibit 28.1 to the Registrant's Registration Statement on Form S-3
(No. 33-74080) filed with the Commission on September 1, 1998).
10.3 PAB Bankshares, Inc. 1994 Employee Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.3 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
10.4 PAB Bankshares, Inc. 1994 Directors Deferred Stock Purchase Plan
(incorporated by reference to Exhibit 10.4 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
10.5 Form of Executive Salary Continuation Agreement, with attached
Schedule of Terms (incorporated by reference to Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998).
10.6 PAB Bankshares, Inc. 1999 Stock Option Plan (incorporated by reference
to Exhibit 99 to the Registrant's Registration Statement on Form S-8
(No. 333-89527) filed with the Commission on March 22, 1999).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Stewart, Fowler & Stalvey, P.C.
23.2 Consent of Osburn, Henning and Company.
(b) REPORTS ON FORM 8-K.
None.
60
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.
PAB BANKSHARES, INC.
Date: March 26, 2001
By: /s/ R. Bradford Burnette
---------------------------
R. Bradford Burnette,
Chairman and Chief Executive Officer
Signature Title Date
- -------------------------- ------------------------ --------------
/s/ R. Bradford Burnette Director, Chairman March 26, 2001
- --------------------------
R. Bradford Burnette Chief Executive Officer
Director March 26, 2001
- --------------------------
Walter W. Carroll, II
/s/ William S. Cowart Director March 26, 2001
- --------------------------
William S. Cowart
Director March 26, 2001
- --------------------------
James L. Dewar, Sr.
/s/ James L. Dewar, Jr. Director March 26, 2001
- --------------------------
James L. Dewar, Jr.
/s/ Tracy A. Dixon Director March 26, 2001
- --------------------------
Tracy A. Dixon
/s/ Bill J. Jones Director March 26, 2001
- --------------------------
Bill J. Jones
/s/ Thompson Kurrie, Jr. Director March 26, 2001
- --------------------------
Thompson Kurrie, Jr.
/s/ James B. Lanier, Jr. Director March 26, 2001
- --------------------------
James B. Lanier, Jr.
/s/ Kennith D. McLeod Director March 26, 2001
- --------------------------
Kennith D. McLeod
/s/ Paul E. Parker Director March 26, 2001
- --------------------------
Paul E. Parker
/s/ Ferrell Scruggs, Sr. Director March 26, 2001
- --------------------------
Ferrell Scruggs, Sr.
/s/ D. Ramsay Simmons, Jr. Director March 26, 2001
- --------------------------
D. Ramsay Simmons, Jr.
/s/ John M. Simmons Director March 26, 2001
- --------------------------
John M. Simmons
61
/s/ Joe P. Singletary, Jr. Director March 26, 2001
- --------------------------
Joe P. Singletary, Jr.
/s/ Alvin R. Tuten, Jr. Director March 26, 2001
- --------------------------
Alvin R. Tuten, Jr.
/s/ C. Larry Wilkinson Director, Executive Vice March 26, 2001
- --------------------------
C. Larry Wilkinson President
/s/ Michael E. Ricketson Executive Vice President March 26, 2001
- --------------------------
Michael E. Ricketson Chief Financial Officer
62
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
2.2 Agreement and Plan of Merger, dated as of September 15, 2000, by
and between Friendship Community Bank and the Registrant, and
joined into by FCB Interim Bank.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Stewart, Fowler & Stalvey, P.C.
23.2 Consent of Osburn, Henning and Company.
63