<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1994
or
/ / Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ------ to -------
Commission File No. 0-10657
FIRST NATIONAL BANCORP
----------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1415138
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 Jesse Jewell Parkway, Suite 700
Gainesville, Georgia 30501
-------------------- -----
(Address of principal executive offices) (Zip Code)
(404) 503-2000
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed
since last report)
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 twelve
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 2, 1994
----- -------------------------------
Common Stock, $1.00 Par Value 16,489,469 Shares
<PAGE> 2
FIRST NATIONAL BANCORP AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Part I. Financial Information Page Number
- - ------------------------------ -----------
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets. . . . . . . . . . . . . . . . 3
Consolidated Statements of Income. . . . . . . . . . . . . 4
Consolidated Statements of Shareholders' Equity. . . . . . 5
Consolidated Statements of Cash Flows. . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . 9
Part II. Other Information
- - --------------------------------
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 23
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
September 30 December 31 September 30
1994 1993 1993
----------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 86,910 $ 86,393 $ 71,960
Federal funds sold and securities purchased under
agreements to resell 23,950 36,371 12,459
- - -------------------------------------------------------------------------------------------------------
Cash and cash equivalents 110,860 122,764 84,419
Interest-bearing deposits in other financial institutions 22,301 68,157 62,890
Investment securities available-for-sale 518,462 410,252 30,935
Investment securities held-to-maturity (market value
$150,949, $144,827 and $542,656, respectively 148,209 139,368 519,012
Loans 1,406,839 1,323,054 1,347,704
Less: Unearned income (9,891) (16,490) (18,116)
Allowance for loan losses (22,657) (21,543) (23,514)
- - -------------------------------------------------------------------------------------------------------
Net loans 1,374,291 1,285,021 1,306,074
Premises and equipment 56,755 49,630 49,353
Other assets 83,048 66,603 65,908
- - -------------------------------------------------------------------------------------------------------
Total assets $2,313,926 $2,141,795 $2,118,591
=======================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing 333,264 285,255 277,179
Interest-bearing, including certificates of deposit
of $100 or more of $184,407, $152,761
and $153,999, respectively 1,563,871 1,479,177 1,476,017
- - -------------------------------------------------------------------------------------------------------
Total deposits 1,897,135 1,764,432 1,753,196
Federal funds purchased and securities sold
under agreements to repurchase 66,793 63,379 76,812
Other short-term borrowings 8,578 13,807 13,025
Long-term debt 90,592 57,958 48,237
Other liabilities 24,711 24,160 20,180
- - -------------------------------------------------------------------------------------------------------
Total liabilities 2,087,809 1,923,736 1,911,450
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share authorized
30,000,000 shares; issued and outstanding 16,465,036
16,034,183 and 15,864,255 shares, respectively 16,465 16,034 15,864
Additional paid-in capital 66,410 58,762 56,304
Retained earnings 151,691 139,996 134,973
Net unrealized holding gains (losses) on securities
available-for-sale (8,449) 3,267 ---
- - -------------------------------------------------------------------------------------------------------
Total shareholders' equity 226,117 218,059 207,141
- - -------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,313,926 $2,141,793 $2,118,591
=======================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------------
9/30/94 9/30/93 9/30/94 9/30/93
------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $ 31,109 $ 28,792 $ 89,437 $ 85,197
Interest-bearing deposits in other
financial institutions 322 654 952 2,083
Investment securities:
Tax-exempt 2,537 2,303 7,633 6,748
Taxable 7,559 5,980 20,186 18,825
Federal funds sold and securities purchased
under agreements to resell 320 235 1,368 568
- - -------------------------------------------------------------------------------------------------------
Total interest income 41,847 37,964 119,576 113,421
- - -------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits, including interest expense on certificates
of deposit of $100 or more of $1,691, $1,666, $5,008
and $6,206, respectively. 14,659 14,228 42,550 43,855
Federal funds purchased and securities
sold under agreements to repurchase 845 764 2,201 2,410
Other short-term borrowings 39 63 156 171
Long-term debt 1,097 605 2,948 1,161
- - -------------------------------------------------------------------------------------------------------
Total interest expense 16,640 15,660 47,855 47,597
- - -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 25,207 22,304 71,721 65,824
Provision for loan losses (159) 509 (136) 2,661
- - -------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 25,366 21,795 71,857 63,163
- - -------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Fees for trust services 591 565 1,746 1,731
Service charges on deposit accounts 2,801 2,243 7,833 6,476
Net (losses) gains on sales of investment securities (20) 64 (65) 744
Other noninterest income 3,228 5,140 11,695 13,227
- - -------------------------------------------------------------------------------------------------------
Total noninterest income 6,600 8,012 21,209 22,178
- - -------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 10,914 10,180 32,712 30,316
Net occupancy 1,286 1,059 3,657 3,165
Furniture and equipment 1,422 1,405 4,313 4,032
Other noninterest expense 8,155 7,472 23,759 22,090
- - -------------------------------------------------------------------------------------------------------
Total noninterest expense 21,777 20,116 64,441 59,603
- - -------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 10,189 9,691 28,625 25,738
Income tax expense 2,952 2,870 7,645 7,164
- - -------------------------------------------------------------------------------------------------------
Income before cumulative effect
of accounting change 7,237 6,821 20,980 18,574
Cumulative effect at January 1, 1993 of change in
accounting for income taxes --- --- --- 160
- - -------------------------------------------------------------------------------------------------------
NET INCOME $ 7,237 $ 6,821 $ 20,980 $ 18,734
=======================================================================================================
NET INCOME PER SHARE:
Based on weighted-average shares outstanding 16,462,745 15,853,116 16,357,511 15,818,104
Income before cumulative effect of accounting change $ .44 $ .43 $ 1.28 $ 1.17
Cumulative effect of accounting change --- --- - --- .01
- - -------------------------------------------------------------------------------------------------------
Net income per share $ .44 $ .43 $ 1.28 $ 1.18
=======================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Holding Gains
(Losses) On
Common Stock Additional Securities
____________________ Paid-In Retained Available-
Shares Amount Capital Earnings For-Sale Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 15,771,194 $15,771 $54,872 $124,102 $194,745
Net income 18,734 18,734
Cash dividends declared
of $.5250 per share (7,863) (7,863)
Stock options exercised 67,046 67 927 994
Issuance of common stock
for dividend reinvested 26,015 26 505 531
- - ------------------------------------------------------------------------------------------------------------
Balance at September 30, 1993 15,864,255 $15,864 $56,304 $134,973 --- $207,141
============================================================================================================
Balance at January 1, 1994 16,034,183 $16,034 $58,762 $139,996 $ 3,267 $218,059
Net income 20,980 20,980
Cash dividends declared
of $.5775 per share (9,285) (9,285)
Issuance of common
shares for acquisition 266,414 266 5,112 5,378
Stock options exercised 95,842 96 1,199 1,295
Issuance of common stock
for dividend reinvestment 68,597 69 1,337 1,406
Unrealized losses on securities
available-for-sale, net
tax effect of $7,396 (11,716) (11,716)
- - ------------------------------------------------------------------------------------------------------------
Balance at September 30, 1994 16,465,036 $16,465 $66,410 $151,691 $ (8,449) $226,117
============================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
9/30/94 9/30/93
-------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 20,980 $ 18,734
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses (136) 2,661
Provision for other real estate losses 335 1,023
Depreciation 4,220 3,751
Amortization, net (246) 2,395
Deferred income tax benefit (6,502) (981)
Net losses (gains) on sales of investment securities 65 (744)
Gains on sales of mortgage loan servicing rights (2,295) (8,185)
Losses (gains) on sales of other assets 11 (412)
Gains on sales of assets acquired in
foreclosure, and equipment (182) (246)
Excess servicing fees receivable resulting from
first mortgage loan sales (413) (1,172)
Increase (decrease) in mortgage loans held for sale 50,932 (26,796)
Other, net 7,640 5,384
- - ------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 74,409 (4,588)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales/calls of investment securities 3,534 31,864
Proceeds from maturities of investment securities 5,766 77,356
Purchases of investment securities (16,745) (166,217)
Proceeds from sales/calls of investment securities available- 27,215 2,000
for-sale
Proceeds from maturities of investment securities available-for- 47,752 ----
sale
Purchases of investment securities available-for-sale (260,429) ----
Principal collection on investment securities available-for- 69,627 10,458
sale
Net decrease in interest-bearing deposits in
other financial institutions 46,452 3,991
Net increase in loans (54,691) (57,816)
Proceeds from sale of mortgage loan servicing rights 3,128 10,553
Purchases of mortgage loan servicing rights (10,461) (1,360)
Purchases of premises and equipment (3,572) (10,331)
Proceeds from sales of premises and equipment 138 2,152
Proceeds from sales of assets acquired in forclosure 6,318 3,580
Net cash and cash equivalents acquired in the
purchase of bank subsidiary 24,563 ----
- - -------------------------------------------------------------------------------------------
Net cash used by investing activities (111,405) (93,770)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 662 31,633
Net (decrease) increase in short-term borrowings (1,815) 39
Proceeds from the issuance of long-term debt 33,000 40,159
Payments on long-term debt (596) (1,392)
Proceeds from issuance of common stock for stock options 1,295 994
exercised
Cash dividends paid on common stock (7,454) (6,648)
- - -------------------------------------------------------------------------------------------
Net cash provided by financing activities 25,092 64,785
- - -------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (11,904) (33,573)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 122,764 117,992
- - -------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 110,860 $ 84,419
===========================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 47,557 $ 45,829
===========================================================================================
Income taxes paid $ 10,037 $ 7,791
===========================================================================================
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have
been included. Operating results for the interim periods are
not necessarily indicative of the results that may be expected
for the full year or any other interim period. Certain
reclassifications have been made to amounts previously
presented to conform with current period presentations. Such
reclassifications had no effect on net income. For further
information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1993.
2. BUSINESS COMBINATIONS
On October 27, 1994, officials of First National Bancorp (the
"Company") and FF Bancorp, Inc. ("FF Bancorp"), New Smyrna
Beach, Florida, announced the signing of a Letter of Intent
whereby the Company will acquire all of the outstanding stock
of the $597 million asset FF Bancorp. FF Bancorp is the
parent holding company of First Federal Savings Bank of New
Smyrna Beach, a $318 million asset thrift institution, First
Federal Savings Bank of Citrus County, a $214 million asset
thrift headquartered in Inverness, and Key Bank of Florida, a
$66 million asset commercial bank located in Tampa. The
transaction calls for each share of FF Bancorp stock to be exchanged
for .825 shares of the Company stock in a tax-free exchange to be
accounted for as a pooling-of-interests. The acquisition is subject
to the approval of FF Bancorp shareholders and various regulatory
authorities. The Company anticipates completing the transaction in
the first quarter of 1995.
On July 31, 1994, the Company completed its acquisition of
Barrow Bankshares, Inc. ("Barrow"), whose wholly-owned
subsidiary is Barrow Bank & Trust Company, located in Barrow
County, Georgia, making Barrow the Company's seventeenth
affiliate. The Company exchanged 521,700 shares of its common
stock for all of the 379,682 shares of Barrow stock
outstanding. No cash, except for fractional shares, was paid
in the transaction. The transaction was accounted for as a
pooling-of-interests and, accordingly, the consolidated
financial statements for all periods presented have been
restated to include the financial position and results of
operations of Barrow. Pre-merger 1994 results of Barrow are
not material. The Company's consolidated financial data for
the three and nine month periods ended September 30, 1993 have
been restated as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/93 9/30/93
--------------------------------------
<S> <C> <C>
Net interest income:
First National Bancorp, before acquisition $ 21,615 $ 63,926
Barrow 689 1,898
-----------------------------------------------------------------------------------
Total $ 22,304 $ 65,824
===================================================================================
Net income:
First National Bancorp, before acquisition $ 6,626 $ 18,213
Barrow 195 521
-----------------------------------------------------------------------------------
Total $ 6,821 $ 18,734
===================================================================================
Net income per share:
First National Bancorp, before acquisition $ .43 $ 1.19
Effect of restatement for Barrow --- (.01)
-----------------------------------------------------------------------------------
Total $ .43 $ 1.18
===================================================================================
</TABLE>
On February 28, 1994, the Company acquired all of the
outstanding common stock of Metro Bancorp, Inc., ("Metro") the
parent company of the $140 million asset The Commercial
Bank, Douglasville, located in Douglas County, Georgia. The
Company issued 266,414 shares of its common stock and $250,243
in cash in exchange for all of the outstanding shares of
Metro. The excess of the purchase price over the fair value
of the net assets acquired totaled $2.928 million and was
recorded as goodwill. The goodwill is being amortized using
the straight-line method over a 15-year period. The purchase
price is
7
<PAGE> 8
subject to adjustment based on asset recoveries for up to
an eighteen month period after the agreement date. The maximum
amount of the adjustment is limited to $1.395 million
and will be recorded as goodwill and amortized over 15 years,
should any adjustment be required. This transaction was
accounted for as a purchase, and therefore is not included in
the Company's results of operations or statements of financial
position prior to the date of acquisition. The pro forma
impact on the Company's results of operations for the nine
months ended September 30, 1994 and 1993, had the purchase
transaction described above been consummated as of January 1,
1993, would have been (dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
------------------------
<S> <C> <C>
Interest income $120,900 $120,257
Noninterest income 21,659 24,536
Income before cummulative effect of accounting change 20,674 19,530
Cumulative effect of accounting change --- 310
------------------------
Net income $ 20,674 $ 19,840
========================
Net income per share:
Income before cummulative effect of accounting change $ 1.26 $ 1.21
Cumulative effect of accounting change --- .02
------------------------
Net income $ 1.26 $ 1.23
========================
Weighted average shares outstanding 16,415,088 16,084,518
========================
</TABLE>
3.RECENTLY ISSUED ACCOUNTING STANDARDS
During the second quarter of 1993, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 114 (FAS 114), "Accounting by
Creditors for Impairment of a Loan" which requires impaired
loans to be measured based on the present value of expected
future cash flows, discounted at the loan's effective interest
rate, or at the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent,
beginning in 1995. FAS 114 may be adopted prior to 1995.
In October 1994, FASB issued Statement of Financial Accounting
Standards No. 118 (FAS 188). FAS 118 amends the disclosure
requirements of FAS 114 to require information about the
recorded investment in certain impaired loans and how a
creditor should recognize interest income related to those
loans.
The Company has not yet determined the actual impact of FAS 114
and FAS 118 on its financial statements or made a
determination of whether it will adopt these standards prior
to 1995.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion will cover results of operations, asset
quality, financial position and capital resources. The
information included in this discussion is intended to assist
readers in their analysis of, and should be read in conjunction
with, the consolidated financial statements presented elsewhere
in this report, and the Company's annual report on Form 10-K for
the year ended December 31, 1993.
Table 1: SELECTED FINANCIAL DATA (in thousands, except per share data)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
1994 1993 Change %Change
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Quarter Ended September 30
Net income $ 7,237 $ 6,821 $ 416 6.1
Net interest income 25,207 22,304 2,903 13.0
Net interest income (FTE) 26,940 23,793 3,147 13.2
Noninterest income 6,600 8,012 (1,412) (17.6)
Noninterest expenses 21,777 20,116 1,661 8.3
Provision for loan losses (159) 509 (668) (131.2)
Net income per share .44 .43 .01 2.3
Dividends declared per share .1950 .1775 .0175 9.9
Book value per share 13.73 13.06 .67 5.1
Tangible book value per share 12.07 12.23 (.16) (1.3)
Weighted average shares outstanding 16,462,745 15,853,116
Shares outstanding at quarter-end 16,465,036 15,864,255
- - -----------------------------------------------------------------------------------------------------
Financial Ratios
Return on average assets 1.26% 1.29%
Return on average shareholders' equity 12.75 13.27
Net interest margin 5.12 4.86
Primary capital to adjusted assets:
Including intangibles 10.65 10.77
Excluding intangibles 10.28 10.46
Allowance for loan losses to loans, net of unearned income:
Including mortgage loans held for sale 1.62 1.77
Excluding mortgage loans held for sale 1.64 1.92
- - -----------------------------------------------------------------------------------------------------
Selected Balances as of September 30
Total assets $2,313,926 $2,118,591 $195,335 9.2
Earning assets 2,109,870 1,954,884 154,986 7.9
Loans, net of unearned income:
Including mortgage loans held for sale 1,396,948 1,329,588 67,360 5.1
Excluding mortgage loans held for sale 1,382,519 1,224,588 157,931 12.9
Allowance for loan losses 22,657 23,514 (857) (3.6)
Securities 666,671 549,947 116,724 21.2
Deposits 1,897,135 1,753,196 143,939 8.2
Short-term borrowings 75,371 89,837 (14,466) (16.1)
Long-term borrowings 90,592 48,237 42,355 87.8
Shareholders' equity 226,117 207,141 18,976 9.2
- - -----------------------------------------------------------------------------------------------------
Nine Month Period Ended September 30
Net income $ 20,980 $ 18,734 $ 2,246 12.0
Net income per share 1.28 1.18 .10 8.5
Dividends declared per share .5775 .5250 .0525 10.0
Weighted average shares outstanding 16,357,511 15,818,104
Return on average assets 1.25% 1.21%
Return on average shareholders' equity 12.54 12.56
Net interest margin 4.97 4.91
- - -----------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PERFORMANCE OVERVIEW
In the third quarter of 1994, the Company reported net income of
$7.237 million, an increase of $.416 million, or 6.1% from the
$6.821 million in the third quarter of 1993. Earnings per share
in the third quarter of 1994 were $.44, compared with $.43 in the
third quarter of 1993, an increase of 2.3%. Weighted average
shares outstanding for the third quarter of 1994 increased to
16,462,745, compared with 15,853,116 in the third quarter of
1993. On a year to date basis, the Company earned $20.980
million, or $1.28 per share, compared to $18.734 million, or
$1.18 per share in 1993. Weighted average shares outstanding in
the first nine months of 1994 increased to 16,357,511 compared
with 15,818,104 in the first nine months of 1993.
Net income in the third quarter produced a return on average
assets of 1.26%, compared to the 1.29% reported for third quarter
1993. Return on average equity was 12.75% for the three months
ended September 30, 1994, compared to 13.27% in the third quarter
of 1993.
Growth in net interest income and a reduction in loan loss
provision expense, driven by an improvement in asset quality,
both contributed to an increase in improved earnings.
Noninterest income was impacted by a significant decrease in
mortgage loan activity and related fees. Due to the acquisition
of Metro, recorded under the purchase method of accounting,
noninterest expenses have shown a substantial increase, primarily
in the area of personnel related expenses.
The remainder of this discussion provides a more detailed
explanation of factors affecting the change in results of
operations and the change in financial position of the Company
for the reported periods.
NET INTEREST INCOME
Net interest income is the most significant component of
earnings. For analytical purposes, interest earned on tax exempt
assets, such as industrial development revenue bonds and state
and municipal obligations, is adjusted to a fully-taxable
equivalent (FTE) basis. This adjustment is based upon the
federal corporate income tax rate, and any interest expense which
is disallowed as a deduction in connection with carrying tax
exempt assets. Table 2 shows the sources of interest income and
expenses between years and the variances resulting from
fluctuations in interest rate (rate) and changes in the amount
(volume) of earning assets and interest-bearing liabilities.
Net interest income on an FTE basis increased to $76.544 million
in the first nine months of 1994, compared with $70.233 million
in the first nine months of 1993. The increase in volumes of
average earning assets increased net interest income by $9.764
million and increases in volumes of interest-bearing liabilities
reduced net interest income by $2.997 million for a net increase
in net interest income of $6.767 million. The increase in net
interest margin increased net interest income by $13.809 million
over the same period in 1993. Average loans, which increased
$84.472 million, and average securities, which increased $84.553
million, comprised the majority of the increase in average
earning assets over average earning assets for the same period
ended 1993, with most of this increase coming from the
acquisition of Metro.
The Company's net interest margin for the nine months ended
September 30, 1994, was 4.97% , up from 4.91% reported for the
same period in 1993.
For the quarter ended September 30, 1994, net interest income on
an FTE basis increased to $26.940 million, compared to $25.860
million for the second quarter of 1994, and $23.793 million for
the quarter ended September 30, 1993. Net interest margin for
the third quarter was 5.12%, an increase over the 4.95% reported
in the second quarter, and the 4.86% reported for the third
quarter of 1993.
Recent increases in rates by the Federal Reserve Bank have provided
a temporary increase in rate spreads. However, management believes
the industry will begin to see increased margin pressure by the end
of the year, as rates on deposits and other funding sources are
forced upwards. Anticipating the possibility of an additional
increase in rates by the Federal Reserve during the fourth quarter,
management has strategically positioned the Company's balance sheet
into a slightly asset sensitive position over the short-term.
Consequently, management believes current margin levels will be
sustainable during the fourth quarter.
10
<PAGE> 11
Table 2: CHANGES IN NET INTEREST INCOME - TAXABLE EQUIVALENT BASIS
(dollars in thousands)
<TABLE>
<CAPTION>
Average Balance Average Rates Interest ------- 1994-1993 --------
Nine Months Ended Nine Months Ended Nine Months Ended Income
September 30 Increase/ September 30 September 30 Expense Volume Rate
1994 1993 (Decrease) 1994 1993 1994 1993 Variance Variance Variance
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing
deposits in other
financial institutions $ 43,977 $ 68,668 $(24,691) 2.89% 4.06% $ 952 $ 2,083 $(1,131) $ (630) $ (501)
Loans, net 1,363,228 1,278,756 84,472 8.77% 8.91% 89,437 85,197 4,240 5,558 (1,318)
Investment securities:
Tax-exempt 148,752 121,775 26,977 11.20% 12.25% 12,456 11,157 1,299 2,318 (1,019)
Taxable 475,963 418,387 57,576 5.67% 6.02% 20,186 18,825 1,361 2,486 (1,125)
Federal funds sold and
securities purchased
under agreements to resell 27,110 25,721 1,389 6.75% 2.95% 1,368 568 800 32 768
- - -----------------------------------------------------------------------------------------------------------------------------
Total earning assets 2,059,030 1,913,307 145,723 8.08% 8.23% 124,399 117,830 6,569 9,764 (3,195)
- - -----------------------------------------------------------------------------------------------------------------------------
Reserve for loan loss (24,201) (24,240) 39
Cash and due from banks 69,006 60,195 8,811
Premises and equipment, net 55,018 48,067 6,951
Other assets 82,713 65,181 17,532
- - --------------------------------------------------------------
Total assets $2,241,566 $2,062,510 $179,056
==============================================================
Savings, IMMA deposits $ 616,377 $ 549,618 $ 66,759 2.63% 2.80% 12,106 11,505 601 1,340 (739)
Time deposits 929,627 908,506 21,121 4.38% 4.76% 30,444 32,350 (1,906) 739 (2,645)
Federal funds purchased
and securities sold under
agreements to repurchase 69,120 99,510 (30,390) 4.26% 3.24% 2,201 2,410 (209) (850) 641
Other borrowed funds 87,718 37,750 49,968 4.73% 4.72% 3,104 1,332 1,772 1,768 4
- - -----------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing liabilities 1,702,842 1,595,384 107,458 3.76% 3.99% 47,855 47,597 258 2,997 (2,739)
- - -----------------------------------------------------------------------------------------------------------------------------
Demand deposits 290,028 252,452 37,576
Other liabilities 24,965 15,299 9,666
Shareholders' equity 223,731 199,375 24,356
- - --------------------------------------------------------------
Total liabilities and
shareholders' equity $2,241,566 $2,062,510 $179,056
==============================================================
Rate spread 4.32% 4.25%
=============================================================================================================================
Net interest margin/revenue 4.97% 4.91% $ 76,544 $ 70,233 $ 6,311 $ 6,767 $ (456)
=============================================================================================================================
<FN>
Changes in interest due to volume and rate were defined as
follows: Volume variance-change in average balance multiplied by
prior year rate; Rate variance-change in rate multiplied by
prior year average balance. The change in interest due to both
rate and volume has been allocated proportionately to volume
variance and rate variance based on the relationship of the
absolute dollar change in each.
</TABLE>
NONINTEREST INCOME
Total noninterest income decreased to $6.600 million for the
third quarter of 1994, from $7.713 million in second quarter 1994
and $8.012 million for the third quarter of 1993. Revenues from
service charges on deposit accounts helped offset the lower
income from mortgage related activity, with an increase of $558
thousand between the third quarter of 1994 and third quarter of
1993. Mortgage loan and other related fees decreased
$1.857 million, from $3.106 million earned for the third
quarter of 1993, to $1.249 million earned for the third
quarter of 1994. On a year to date basis, income from mortgage
related activities decreased $2.996 million, or 37.30%, between
periods. A portion of the decline in mortgage revenues was
positively impacted by a reduction
11
<PAGE> 12
in related noninterest
expenses. The decrease in mortgage loan and other related fees
is primarily due to the decrease in the average servicing
portfolio levels and the slowing down of refinancing activity,
when compared to levels seen during the first nine months of
1993. Net gain on sales of mortgage loan servicing rights
decreased $5.890 million, to $2.295 million, from $8.185 million
in the first nine months of 1993. Included in noninterest income
for the nine months ended 1994 is additional income that was
recognized in the first quarter of 1994, due to the sale of
refinanced mortgages that existed on the Company's books at
December 31, 1993.
The Company believes that while refinancing activity has ceased,
mortgage loan originations will continue to stabilize, as
mortgage loan rates rise from the record levels seen during the
past few years. Refinancing by customers during previous periods
decreased the Company's loan servicing portfolio, as loans held
in the portfolio were being paid off. The Company anticipates
that additional servicing income will be obtained in later
periods through retail efforts by affiliate banks and through
acquisitions of servicing portfolios purchased from other
financial institutions and mortgage companies.
The Company continues to analyze opportunities available through
the expansion of trust, credit card, and annuity products, as a
source for generating additional noninterest income.
Table 3 shows the key noninterest income categories and changes
for the three months and nine months ended September 30, 1994 and
1993:
Table 3: ANALYSIS OF NONINTEREST INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- -------------------------------------
Increase/(Decrease) Increase/(Decrease)
9/30/94 9/30/93 $ % 9/30/94 9/30/93 $ %
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 2,801 $ 2,243 558 24.88 $ 7,833 $ 6,476 1,357 20.95
Mortgage loan and other related fees 1,249 3,106 (1,857) (59.79) 5,037 8,033 (2,996) (37.30)
Fees for trust services 591 565 26 4.60 1,746 1,731 15 .87
Credit card 463 374 89 23.80 1,246 979 267 27.27
Insurance premiums and commissions 185 194 (9) (4.64) 822 847 (25) (2.95)
Net (losses) gains on sales
of investment securities (20) 64 (84) (131.25) (65) 744 (809) (108.74)
Other noninterest income 1,794 1,840 (46) (2.50) 5,836 4,347 1,489 34.25
- - --------------------------------------------------------------------------------------------------------------------------
Total noninterest income $ 6,600 $ 8,012 (1,412) (17.62) $ 21,209 $ 22,178 (969) (4.37)
==========================================================================================================================
Noninterest income as a percent of
average assets (annualized) 1.15% 1.52% 1.27% 1.44%
</TABLE>
NONINTEREST EXPENSE
Total noninterest expense was $21.777 million in the third
quarter of 1994, compared to $22.293 million in the second
quarter of 1994 and $20.116 million in the third quarter of 1993.
Personnel related expenses, which makes up the largest category
of noninterest expense, increased $.734 million between the third
quarters of each year presented, and $2.396 million on a year to
date basis. Of the quarterly increase, approximately 67% of the
increase in 1994 is the result of Metro's third quarter personel
expenses, which was the reason for the 54% increase on a year to
date basis. All categories of noninterest expense reflect
increases due to the recent acquisition of Metro. Excluding the
affects of Metro, the Company's personnel related expense
increased only .23% between the third quarters of each year, and
2.61% between the nine months ended 1994 and 1993.
The Company's efficiency ratio (noninterest expense as a
percentage of total FTE net interest income and non interest
income, excluding securities gains or losses) decreased slightly
to 64.89% for the third quarter of 1994, when compared to the
66.45% and 66.84% reported for second and first quarter of 1994,
respectively, and higher than the 63.17% reported for third
quarter 1993. For the nine months ended September 30, 1994, the
Company's efficiency ratio was 66.03%.
12
<PAGE> 13
During 1993, the Company converted to a new data processing
system serviced by an outside data processing company. While
overall effeciencies have been realized with the new system,
modest increases in depreciation and telephone expenses were
expected with the conversion. The Company will continue to see
slight increases in these categories during the remainder of
1994.
Table 4 shows the key noninterest expense categories and changes
for the three months and nine months ended September 30, 1994 and
1993:
Table 4: ANALYSIS OF NONINTEREST EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------------------------------------------
Increase/(Decrease) Increase/(Decrease)
---------------------------------------------------------------------------------
9/30/94 9/30/93 $ % 9/30/94 9/30/93 $ %
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $10,914 $10,180 734 7.21 $32,712 $30,316 2,396 7.90
Furniture and equipment 1,422 1,405 17 1.21 4,313 4,032 281 6.97
Net occupancy 1,286 1,059 227 21.44 3,657 3,165 492 15.55
Postage, telephone and 1,195 1,152 43 3.73 3,701 3,498 203 5.80
stationery
FDIC insurance premiums 1,070 970 100 10.31 3,054 2,949 105 3.56
Data processing 635 776 (141) (18.17) 1,872 1,914 (42) (2.19)
Amortization of mortgage
loan servicing rights 560 589 (29) (4.92) 1,764 2,426 (662) (27.29)
Promotional 508 403 105 26.05 1,627 1,205 422 35.02
Directors fees 356 296 60 20.27 1,040 875 165 18.86
Travel and entertainment 294 240 54 22.50 870 728 142 19.51
Amortization of goodwill 207 170 37 21.76 596 511 85 16.63
Legal fees 193 179 14 7.82 854 634 220 34.70
Other noninterest expense 3,137 2,697 440 16.31 8,381 7,350 1,031 14.03
- - -------------------------------------------------------------------------------------------------------------------
Total noninterest expense $21,777 $20,116 1,661 8.26 $64,441 $59,603 4,838 8.12
===================================================================================================================
Noninterest expense as a percent
of average assets (annualized) 3.79% 3.81% 3.84% 3.86%
Overhead ratio 64.89% 63.38% 66.03% 65.02%
</TABLE>
INCOME TAXES
Income tax expense was $2.952 million for the third quarter of
1994, an increase of 2.86% over the same period of 1993. Income
tax expense was $7.645 million and $7.164 million for the nine
months ended September 30, 1994 and 1993, respectively, which was
an increase of 6.7% between periods. The effective tax rate
for the first nine months of 1994 decreased slightly to 26.71%
from the 27.83% reported in 1993, due primarily to the benefits
of tax free investment securities acquired in conjunction with
the Metro merger.
13
<PAGE> 14
ASSET QUALITY
The most significant risk of loss in a financial institution is
from its loan portfolio. The Company manages its loan portfolio
to limit risk through initial review of credit applications,
approval of loans by experienced and trained personnel, loan
documentation and compliance procedures. The Company's loan
portfolio is well diversified with no excessive concentration in
any one industry.
In accordance with regulatory standards, loans are placed in
nonaccrual status when they reach a prescribed delinquency stage,
generally when payments are 90 days past due or when other events
occur which make the collection of all principal and interest
owing on the loan questionable. Table 5 shows balances of
nonperforming assets and other key asset quality perfomance
ratios.
Table 5: RISK ELEMENTS
(dollars in thousands)
<TABLE>
<CAPTION>
9/30/94 6/30/94 3/31/94 12/31/93 9/30/93
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $20,666 $18,154 $22,240 $20,509 $22,705
Renegotiated loans 368 1,811 1,938 364 404
- - ---------------------------------------------------------------------------------------------
Total nonperforming loans 21,034 19,965 24,178 20,873 23,109
Other real estate 10,312 11,490 11,837 9,532 10,393
- - ---------------------------------------------------------------------------------------------
Total nonperforming assets $31,346 $31,455 $36,015 $30,405 $33,502
=============================================================================================
Loans past due 90 days or more $ 291 $ 215 $ 147 $ 252 $ 647
=============================================================================================
Nonperforming loans as a percent of loans, net
of unearned income (including held-for-sale) 1.51% 1.44% 1.74% 1.60% 1.74%
Nonperforming assets as a percent of loans,
net of unearned income, plus other real
estate owned (including held-for-sale) 2.23 2.25 2.57 2.31 2.50
Allowance for loan losses as a percent of
nonperforming loans 107.72 122.28 106.10 103.21 101.75
Allowance for loan losses as a percent of
nonperforming assets and loans past
due 90 days or more 71.62 77.09 70.94 70.27 68.86
</TABLE>
The Company has had significant success in improving core asset
quality over the last five quarters. The significant increase in
nonperforming loans and nonperforming assets during the first
quarter of 1994, when compared to previous quarters, is primarily
the result of the acquisition of Metro and the inclusion of
Metro's $6.8 million nonperforming loans and $10.1 million
nonperforming assets. Excluding the impact of Metro, the ratio
of nonperforming assets to loans and other real estate, would be
1.56% at September 30, 1994, which compares favorably when
compared to the 2.50% reported at September 30, 1993.
While management continues to place emphasis on asset quality
procedures and training, the level of nonperforming loans and
assets will also continue to be largely dependent on the
continuing economic recovery in the markets the Company serves.
Management anticipates a continuation of a slowly improving
economy, and due to continued problem asset remediation,
continued improvement in nonperforming loans, assets, and
applicable asset quality ratios.
14
<PAGE> 15
ALLOWANCE AND PROVISION FOR LOAN LOSSES
During the third quarter of 1994, the Company experienced a
$1.756 million reduction in loan loss reserves. This reduction
was due to $1.597 million in net charge offs, coupled with a $159
thousand negative provision expense, the result of a recapture in
excess reserves due to the continued improvement in asset
quality. On a year to date basis, the Company charged-off $2.790
million in loans and had a negative provision expense of $136
thousand. The provision recapture and the continued reductions
in the level of provision expense has been warranted by
the improvement in asset quality since first quarter
1993. Activity in the allowance for loan losses, including the
contribution from the acquisition of Metro during the first
quarter of 1994, is shown in Table 6.
Table 6: LOAN CHARGE-OFF ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------
Third Second First Fourth Third
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average total loans, net of unearned $1,387,043 $1,381,007 $1,321,658 $1,348,835 $1,304,886
===============================================================
Allowance for loan losses, beginning of quarter $ 24,413 $ 25,654 $ 21,543 $ 23,514 $ 24,368
Charge-offs 2,222 1,550 916 2,684 1,982
Recoveries on loans charged-off 625 652 621 389 619
---------------------------------------------------------------
Net charge-offs 1,597 898 295 2,295 1,363
Provision for loan losses (159) (343) 366 324 509
Allowance of subsidiary bank acquired --- --- 4,040 --- ---
---------------------------------------------------------------
Allowance for loan losses, end of quarter $ 22,657 $ 24,413 $ 25,654 $ 21,543 $ 23,514
===============================================================
Allowance for loan losses to loans,
net of unearned income:
Including mortgage loans held for sale 1.62% 1.76% 1.84% 1.65% 1.77%
Excluding mortgage loans held for sale 1.64 1.78 1.90 1.74 1.92
Net loans charged off as a percentage
of average loans, net of unearned
income (annualized):
Including mortgage loans held for sale .46 .26 .09 .68 .42
Excluding mortgage loans held for sale .46 .26 .09 .74 .45
</TABLE>
15
<PAGE> 16
Table 7 presents presents the Company's consolidated loan and
asset quality concentrations as of September 30, 1994:
Table 7: LOAN AND ASSET QUALITY CONCENTRATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Percent Other Real Loans 90 Days
Collateral Type Outstanding of Loans Nonaccrual Renegotiated Estate or more Past Due
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial mortgages:
Retail business $34,955 2.50 % $ 3,691 $ --- $ 731 $ ---
Broiler operations 27,202 1.95 298 --- --- ---
Egg operations 15,589 1.12 157 --- 185 ---
Farmland 21,633 1.55 95 --- --- ---
Multi-family residential 20,947 1.50 2,780 --- 1,279 ---
Office buildings 33,695 2.41 262 --- 508 ---
Manufacturing/industrial 24,303 1.74 217 --- 153 ---
Hotel/motel 23,497 1.68 --- --- --- ---
Recreational properties 10,102 0.72 1,200 --- 360 ---
Shopping centers 15,357 1.10 268 --- 797 ---
Other commercial 101,679 7.28 1,202 --- 1,511 ---
Other 52,934 3.79 1,543 320 1,647 ---
- - -------------------------------------------------------------------------------------------------------------
381,893 27.34 11,713 320 7,171 ---
Construction and land development:
Acquisition and land development:
Residential 35,531 2.54 94 --- 537 ---
Commercial 5,448 0.39 --- --- 52 ---
Construction 94,018 6.73 125 --- 440 15
- - -------------------------------------------------------------------------------------------------------------
134,997 9.66 219 --- 1,029 15
Residential mortgages:
Real estate dwelling 218,173 15.62 3,221 48 1,454 78
Mortgage loans held for sale 14,429 0.98 --- --- --- 84
Residential lots 45,298 3.23 546 --- 607 ---
Mobile homes 35,840 2.57 729 --- 38 12
Rental 32,790 2.35 523 --- --- 51
Interval ownership 9,015 0.65 15 --- --- ---
Mortgage loan investments 26,568 1.90 566 --- --- ---
Home equity 29,123 2.08 48 --- --- ---
Other 7,725 0.61 5 --- 13 ---
- - -------------------------------------------------------------------------------------------------------------
418,961 29.99 5,653 48 2,112 225
Commercial products:
Assignment A/R and contracts 25,086 1.80 134 --- --- ---
Inventory 8,962 0.64 164 --- --- ---
Assignment of notes 7,001 0.50 263 --- --- ---
Automobiles - heavy trucks 4,274 0.31 6 --- --- ---
Floor plans 1,562 0.11 30 --- --- ---
Other 66,749 4.77 830 --- --- ---
- - -------------------------------------------------------------------------------------------------------------
113,634 8.13 1,427 --- --- ---
Consumer goods:
Automobiles 216,487 15.50 868 --- --- 20
Unsecured 37,788 2.71 175 --- --- 7
Savings and certificates 28,740 2.06 15 --- --- ---
Credit cards 19,609 1.40 --- --- --- 13
Mobile homes without real estate 7,252 0.52 88 --- --- ---
Unsecured consumer lines of credit 3,943 0.28 7 --- --- 11
Co-maker/guarantor 4,469 0.32 7 --- --- ---
Other 29,175 2.09 494 --- --- ---
- - -------------------------------------------------------------------------------------------------------------
347,463 24.88 1,654 --- --- 51
- - -------------------------------------------------------------------------------------------------------------
Total loans $1,396,948 100.00 % $20,666 $368 $10,312 $291
=============================================================================================================
</TABLE>
16
<PAGE> 17
Table 8 provides a summary of average balances for the quarters
ended September 30, 1994, December 31, 1993 and September 30,
1993, along with interest earned and paid during each quarter and
average rates by category.
Table 8: QUARTERLY AVERAGES, MIX, INTEREST AND RATES
(dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------------------------------------------------------------
9/30/94 12/31/93 9/30/93
---------------------------------------------------------------------------------------
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits in
other financial $ 27,534 $ 322 4.64% $ 67,114 $ 667 3.94% $ 64,346 $ 654 4.03%
Net loans 1,387,043 31,109 8.90 1,348,835 28,957 8.52 1,304,886 28,792 8.75
Investment securities:
Non-taxable 147,990 4,270 11.45 130,958 3,451 10.45 126,344 3,792 11.91
Taxable 504,762 7,559 5.94 413,672 5,737 5.50 414,272 5,980 5.73
Federal funds sold and
securities purchased under
agreements to resell 22,232 320 5.71 8,734 61 2.77 31,030 235 3.00
-------------------- --------------------- --------------------
Total earning assets 2,089,561 43,580 8.27 1,969,313 38,873 7.83 1,940,878 39,453 8.06
--------------------------- ---------------------------- ----------------------------
Allowance for loan losses (24,136) (22,972) (24,025)
Cash and due from banks 71,213 65,624 61,310
Premises and equipment, net 56,461 49,495 49,639
Other assets 87,721 60,740 64,465
----------- ----------- ------------
Total assets $2,280,820 $2,122,200 $2,092,267
=========== =========== ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and money
market accounts $ 629,711 4,245 2.67 $ 553,546 3,699 2.65 $ 552,132 3,830 2.75
Time deposits 925,380 10,414 4.46 921,945 10,217 4.40 907,147 10,398 4.55
Federal funds purchased
and securities sold under
agreements to repurchase 67,326 845 4.98 85,357 693 3.22 94,844 764 3.20
Other borrowed funds 96,050 1,136 4.69 61,643 724 4.66 56,522 668 4.69
--------------------- ----------------------- --------------------
Total interest-
bearing liabilities 1,718,467 16,640 3.84 1,622,491 15,333 3.75 1,610,645 15,660 3.86
--------------------------- ---------------------------- ---------------------------
Noninterest-bearing
demand deposits 312,420 274,408 260,513
Other liabilities 24,694 19,222 17,102
----------- ----------- -----------
Total liabilities 2,055,581 1,916,121 1,888,260
----------- ----------- -----------
Total shareholders' equity 225,239 206,079 204,007
----------- ----------- -----------
Total liabilities and
shareholders' equity $2,280,820 $2,122,200 $2,092,267
=========== =========== ===========
Net interest income $26,940 $23,540 $23,793
======= ======= =======
Interest spread 4.43% 4.08% 4.21%
====== ====== ======
Net interest margin 5.12% 4.74% 4.86%
====== ====== ======
</TABLE>
17
<PAGE> 18
EARNING ASSETS AND FUNDING SOURCES
Management classifies earning assets into two categories, core
and incremental. Core earning assets are defined as loans
relative to the business of banking, while incremental earning
assets are all other earning assets, including mortgage loans
held-for-sale, investments, and interest-bearing deposits with
other financial institutions. Table 9 provides the Company's
allocation between these categories and the change between these
categories for the periods presented.
Table 9: ANALYSIS OF BALANCE SHEET CHANGES
(dollars in thousands)
<TABLE>
<CAPTION>
Change Change
-----------------------------------------
For the Period Ended 9/30/94 to 12/31/93 9/30/94 to 9/30/93
----------------------------------------------------------------------------
9/30/94 12/31/93 9/30/93 $ % $ %
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Core earning assets:
Commercial loans $ 674,448 $ 587,348 $ 586,300 87,100 14.8 88,148 15.0
Retail loans 676,247 626,001 615,879 50,246 8.0 60,368 9.8
Other core loans 31,824 27,854 22,409 3,970 14.3 9,415 42.0
----------------------------------------------------------------------------
Total core earning assets 1,382,519 1,241,203 1,224,588 141,316 11.4 157,931 12.9
----------------------------------------------------------------------------
Incremental earning assets:
First mortgage loans held-for-sale 14,429 65,361 105,000 (50,932) (77.9) (90,571) (86.3)
Investment securities 666,671 549,620 549,947 117,051 21.3 116,724 21.2
Interest-bearing deposits with
other financial institutions 22,301 68,157 62,890 (45,856) (67.3) (40,589) (64.5)
Federal funds sold
and repurchase agreements 23,950 36,371 12,459 (12,421) (34.2) 11,491 92.2
----------------------------------------------------------------------------
Total incremental earning assets 727,351 719,509 730,296 7,842 1.1 (2,945) (.4)
----------------------------------------------------------------------------
Total earning assets $2,109,870 $1,960,712 $1,954,884 149,158 7.6 154,986 7.9
============================================================================
Deposits and Funds:
Core funds:
Demand deposits $ 333,264 $ 285,255 $ 277,179 48,009 16.8 56,085 20.2
Interest-bearing checking 174,626 172,183 163,341 2,443 1.4 11,285 6.9
Century Service and IMMA 329,037 306,105 316,279 22,932 7.5 12,758 4.0
Statement savings 121,218 83,412 83,171 37,806 45.3 38,047 45.7
Certificates less than
$100,000 and IRAs 600,408 582,873 591,024 17,535 3.0 9,384 1.6
----------------------------------------------------------------------------
Total core funds 1,558,553 1,429,828 1,430,994 128,725 9.0 127,559 8.9
----------------------------------------------------------------------------
Incremental funds:
Certificates over $100,000 184,407 152,762 153,998 31,645 20.7 30,409 19.7
Other large deposits 154,175 181,842 168,204 (27,667) (15.2) (14,029) (8.3)
Federal funds purchased 23,731 44,235 44,348 (20,504) (46.4) (20,617) (46.5)
Repurchase agreements 43,062 19,144 32,464 23,918 124.9 10,598 32.6
Other short-term borrowings 8,578 13,807 13,025 (5,229) (37.9) (4,447) (34.1)
Long-term debt 90,592 57,958 48,237 32,634 56.3 42,355 87.8
----------------------------------------------------------------------------
Total incremental funds 504,545 469,748 460,276 34,797 7.4 44,269 9.6
----------------------------------------------------------------------------
Total funds $2,063,098 $1,899,576 $1,891,270 163,522 8.6 171,828 9.1
============================================================================
</TABLE>
Total earning assets at September 30, 1994, were $2.110 billion,
up 7.6% from the $1.961 billion at December 31, 1993, and up 7.9%
from the $1.955 billion at September 30, 1993. Total core
earning assets increased 11.4% to $1.383 billion over the $1.241
billion reported at December 31, 1993, while incremental earning
assets remained stable since September 30, 1993, increasing only
1.1% since December 31, 1993. Although incremental earning
assets had little change, as a whole, categories making up
incremental earnings had significant changes between periods,
with the largest decrease resulting from mortgage loans held-for-
sale, decreasing $50.932 million since December 31, 1993, and
deposits held with other financial institutions, decreasing
$45.856 million. Both these categories were offset by an
increase in investment securities of $117.051 million, or 21.3%
since December
18
<PAGE> 19
31, 1993. The decrease in mortgage loans held-
for-sale can be attributed to lower loan production and
decreasing refinancing activity, which are the result of this
year's rise in mortgage loan rates. While there may be
continued changes within categories of earning assets, management
expects no material changes in overall core or incremental assets
during the fourth quarter of 1994.
Similar to earning assets, management classifies funding sources
into core and incremental categories. Core funding sources are
primarily deposits held, including demand deposits, but excluding
CD's greater than $100,000. Incremental funds are defined as all
other funding sources, including federal funds purchased and
other borrowings.
Total incremental funds at September 30, 1994, were $504.545
million, up 7.4% from the $469.748 million at December 31, 1993,
and up 9.6% from the $460.276 million at September 30, 1993.
Total core funds at September 30, 1994, were $1.559 billion, up
9.0% from the $1.430 billion at December 31, 1993, and up 8.9%
from the $1.431 billion at September 30, 1993.
Total deposits increased slightly between periods, when taking
into account the increase attributed to Metro deposits. However,
incremental funds increased between September 30, 1994 and
September 30, 1993, primarily due to an increase of $30.409
million in certificates of deposit over $100,000 and an increase
in long-term debt of $42.355 million, of which $40.000 million in
long-term debt was the result of additional Federal Home Loan
Bank debt by the Company's lead bank, The First National Bank of
Gainesville.
SECURITIES
Federal funds sold, interest-bearing deposits with financial
institutions, and shorter term U.S. Treasury and federal agency
securities are held primarily for liquidity purposes while
mortgage-backed securities are held for income purposes. The
mortgage-backed security distribution between adjustable and
fixed rate securities is determined by interest rate sensitivity
requirements. Management anticipates no material change in the
portfolio distribution in the fourth quarter based on the current
interest rate environment. The book and market value of
securities at September 30, 1994, are summarized in Table 10.
Table 10: SECURITIES - AMORTIZED COST AND MARKET VALUE
(in thousands)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------
<S> <C> <C> <C> <C>
Investment securities available-for-sale:
U.S. Treasurey and U.S. Government Agencies $ 171,318 $ 125 $ 1,874 $ 169,569
Mortgage-backed securities 353,299 507 12,582 341,224
State and municpal - taxable 994 89 --- 1,083
Other investments 6,698 23 135 6,586
-------------------------------------------
Total $ 532,209 $ 744 $ 14,591 $ 518,462
===========================================
Investment securities held-to-maturity:
State and municipal - tax exempt $ 148,209 $ 6,160 $ 3,420 $ 150,949
===========================================
</TABLE>
The Company has the intention and ability to hold investment
securities until their specific maturity date (classified as
securities held-to-maturity). However, periodically various
factors may dictate that it would be in the best interest of the
Company to restructure the portfolio or a part of the portfolio
to meet changing economic conditions, satisfy internal policy
constraints in liquidity, rate sensitivity, safety and soundness
or maintain risk-based capital requirements. During the nine
months ended September 30, 1994, the Company did not sell any
securities classified as investment securities held-to-maturity.
Management does not anticipate any significant security sales for
the fourth quarter. At September 30, 1994, $312.404 million of
investment securities were pledged to secure public funds on
deposit and securities sold under repurchase agreements, and for
other purposes as required by various statutes or agreements.
Due to the rapid rise in long-term interest rates, the market
value of securities as a percentage of cost was 98.36% at
September 30, 1994, down from the previous five quarters.
Table 11 presents the current distribution of the total
investments by expected maturity and average yields (for all
obligations on a FTE basis assuming a 35% tax rate) at September
30, 1994. Expected maturities may differ from contractual
maturities due to call and prepayment options.
19
<PAGE> 20
Table 11: EXPECTED MATURITY OF INVESTMENTS (SECURITIES AND OTHER FUNDS)
(dollars in thousands)
<TABLE>
<CAPTION>
After 1 But After 5 But
Within 1 Year Within 5 Years Within 10 Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
available-for-sale:
U. S. Treasury $ 16,182 5.29% $ 9,453 5.87% $ 953 8.24%
U. S. Government agencies 85,489 5.02 41,355 6.09 16,137 6.58
Mortgage-backed securities:
Fixed rate --- --- 5,828 8.10 23,100 7.07 $ 90,116 7.19%
Adjustable rate --- --- 110 4.76 154 4.77 221,916 5.85
Corporate bonds --- --- 523 8.84 --- --- --- ---
State and municipal 214 7.37 486 8.08 383 7.80 --- ---
Other investments --- --- --- --- --- --- 6,063 6.27
------------------------------------------------------------------------
Total investment securities
available-for-sale 101,885 5.05 57,755 6.23 40,727 6.83 318,095 6.24
State and municipal 7,179 11.70 54,047 12.32 13,054 9.95 73,929 8.46
Federal funds sold and securities
purchased under agreements
to resell 23,950 5.13 --- --- --- --- --- ---
Interest-bearing deposits with
other financial institutions 21,905 4.86 396 5.90 --- --- --- ---
------------------------------------------------------------------------
Total investments $154,919 5.35% $112,198 9.16% $53,781 7.59% $392,024 6.66%
========================================================================
</TABLE>
INTEREST RATE SENSITIVITY
Rate sensitivity is defined as the exposure to variability in net
interest income resulting from changes in market based interest
rates. It is the Company's philosophy to protect net interest
income through a controlled assumption of interest rate risk for
profit, against unexpected changes in interest rates. This is
accomplished through an appropriate balance between interest
sensitive assets and interest sensitive liabilities at each
subsidiary bank and on a consolidated basis. The Company
measures and manages interest rate risk through the following
methods: net interest income variance to the Company's business
and financial plan, Beta adjusted gap analysis and net income
variance through simulation analysis.
Table 12: INTEREST RATE SENSITIVITY
(dollars in thousands)
<TABLE>
<CAPTION>
At September 30, 1994 3 Month 6 Month 12 Month
-----------------------------------------
<S> <C> <C> <C>
Beta-adjusted gap position
Rate sensitive assets $ 709,045 $ 891,330 $ 1,203,001
Rate sensitive liabililities 700,041 946,035 1,203,972
-----------------------------------------
Dollar gap $ 9,004 $ (54,705) $ (971)
=========================================
Gap ratio 1.01 .94 1.00
=========================================
Company minimum standards .65 to 1.20 .65 to 1.20 .90 to 1.10
</TABLE>
The Beta adjusted gap analysis, as provided in Table 12, gives
recognition and appropriate adjustment to the contractual gap
position to administered and market rate assets and liabilities
that are not likely to change in rate to the same degree as a
change in market rates. Generally, liabilities such as regular
savings, insured money market accounts, NOW accounts and super now
20
<PAGE> 21
checking accounts would fit into this category. Earning
assets subject to applicable rate caps and floors, fixed rate
securities subject to anticipated prepayments and yield changes
are also adjusted accordingly in the Beta gap calculations. In
management's opinion, the Beta adjusted gap profile as of
September 30, 1994, meets the Company's objectives. Management
anticipates no major shifts in the Beta adjusted gap profiles.
Simulation analysis measures the annualized impact to net income
due to an immediate and parallel shift in interest rates. The
Company's standard, in varying rate shock environments, is as
follows:
<TABLE>
<CAPTION>
Annualized impact to Net Income due to a Maximum Net Income
parallel and immediate shift in rates of: Negative Impact
<S> <C>
+200 Basis points 2.50%
+100 Basis points 2.00%
-100 Basis points 2.50%
-200 Basis points 3.50%
</TABLE>
Simulation analysis performed on the Company's balance sheet
indicates, at September 30, 1994, that the Company is in
compliance with these standards. Management anticipates no
significant changes in this profile for the fourth quarter of
1994.
LIQUIDITY
The Company measures and manages the consolidated liquidity
position based on core funding and incremental funding
objectives. It is the Company's target policy for core funding
to equal at least 100% of core earning assets, with the minimum
acceptable level being 90%. For the quarter ended September 30,
1994, the average core funding to average core assets ratio
equaled 111.59% up slightly from the 111.50% reported for the
quarter ended June 30, 1994, and a decrease from the 115.42% reported
for the quarter ended September 30, 1993. These percentages are
well above the Company's minimum tolerance. Management
anticipates that the core funding ratio will remain above the
100% mark during the fourth quarter of 1994.
It is also the Company's target policy for incremental funds to
total deposits and funds not to exceed 40%. For the quarter
ended September 30, 1994, this ratio, based on quarterly
averages, equaled 24.49%, down slightly from the 25.41% reported
for the quarter ended June 30, 1994, and down from the 25.28%
reported for the quarter ended September 30, 1993. These ratios
are all well below the Company's maximum tolerance. Through its
lead affiliate bank, the Company maintains upstream overnight
federal funds lines of credit of $70.0 million. These lines are
occasionally used to fund peak balances in mortgage loans held
for sale. In June 1992, the parent Company secured a revolving
line of credit totaling $3.0 million. Management knows of no
demands, commitments or events that will result in, or that are
likely to result in, the Company's liquidity increasing or
decreasing in any material way.
CAPITAL RESOURCES
It is the Company's risk management policy to maintain a capital
base sufficient to support anticipated asset growth, merger
activity and management's estimation of longer term earnings
risk. Capital standards assume that the Company's risk profiles
in liquidity, rate sensitivity and asset quality are in line with
internal risk management objectives. The Company's risk-based
capital position is well in excess of minimum regulatory
standards. Consequently, management anticipates no change in
asset allocation strategies to complement risk-based capital
requirements. Additionally, the Company's leverage capital
position is well in excess of the new regulatory requirements.
The Company's standards and capital levels at September 30, 1994,
are provided in Table 13. Management anticipates that risk-based
and leverage ratios will remain well above minimum regulatory
standards. The Company has met all of its capital requirements
through retained earnings while steadily increasing regulatory
and internally defined capital ratio objectives.
21
<PAGE> 22
Table 13: ANALYSIS OF CAPITAL ADEQUACY
(dollars in thousands)
<TABLE>
<CAPTION>
Regulatory Internal
9/30/94 Guidelines Standards
------------------------------------------------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets 14.11% 4.00% 9.00% (minimum)
Tier 2 capital to risk-adjusted assets 1.25 4.00 2.00 (maximun)
-----------
Total capital to risk-adjusted assets 15.36% 8.00 9.00 (minimum)
===========
Leverage ratios:
Capital to assets 9.77% 6.50% (minimum)
Primary capital to adjusted assets (a) 10.65 5.50% 8.00 (minimum)
Primary tangible capital to adjusted assets (b) 10.28 6.00 (minimum)
Tier 1 capital $ 216,472
Tier 2 capital 19,177
-----------
Total capital $ 235,649
===========
Risk-adjusted assets $1,534,176
===========
<FN>
(a) Shareholders' equity plus allowance for loan losses divided by total assets, plus allowance for loan losses.
(b) Shareholders' equity plus allowance for loan losses, less goodwill divided by total assets, plus allowance for loan
losses, less goodwill.
</TABLE>
Table 14 summarizes the Company's internal capital generation and the
factors that influence it.
Table 14: INTERNAL CAPITAL GENERATION RATE
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
9/30/94 9/30/93 9/30/94 9/30/93
----------------------------------------------------
<S> <C> <C> <C> <C>
Return on average assets 1.26% 1.29% 1.25% 1.21%
divided by ----------------------------------------------------
Average equity as a % of average assets 9.88 9.75 9.98 9.67
equals ----------------------------------------------------
Return on average equity 12.75 13.27 12.54 12.56
times ----------------------------------------------------
Earnings retained 56.21 59.91 54.97 55.67
equals ----------------------------------------------------
Internal capital growth 7.17 7.95 6.89 6.99
====================================================
</TABLE>
Between the quarters ended September 30, 1994 and 1993, the
internal growth rate increased due to the increase in the return
on average equity between periods, while average equity as a
percentace of average assets increased and earnings retained
decreased. On a year to date basis, return on average assets
increased slightly, coupled with a higher average equity to
average assests ratio, which resulted in relatively little change
in return on average equity. The decrease in internal capital
growth, between the nine months ended September 30, 1994 and
September 30, 1993, resulted from a lower earnings retained
ratio.
The cash dividend declared for the third quarter of 1994 was
$.1950 compared to $.1775 for the third quarter of 1993, an
increase of 9.9%. Management is of the opinion that, given the
Company's dividend policy, asset growth can be funded internally
while maintaining the integrity of the Company's capital
positions.
22
<PAGE> 23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Number Description of Exhibits
------ ----------------------------------------------
11.1 Statement re computation of per share earnings
enclosed herewith.
27.1 Financial Data Schedule
(b) Dated July 31, 1994, and filed August 1, 1994, a Form 8-K
was filed pursuant to the completion of the merger between the
Company and Barrow Bancshares, Inc. ("Barrow"), whereby 521,700
shares of the Company's stock was issued for all of the 379,682
shares of Barrow stock outstanding.
Dated October 27, 1994, and filed October 28, 1994, a Form 8-
K was filed pursuant to a Letter of Intent signed between
Company and FF Bancorp, Inc., New Smyrna, Florida ("FF
Bancorp"), whereby Company will acquire all the outstanding
stock of the $597 million asset FF Bancorp in a tax free exchange
of stock. Each share of FF Bancorp stock will be exchanged
for .825 shares of Company $1.00 par value common stock in a
transaction to be accounted for as a pooling-of-interests. FF
Bancorp is the parent holding company of First Federal Savings
Bank of New Smyrna, New Smyrna Beach, Florida; First Federal
Savings Bank of Citrus County, Iverness, Florida; and Key Bank of
Florida, Tampa, Florida.
23
<PAGE> 24
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
9/30/94 9/30/93 9/30/94 9/30/93
----------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
Weighted average shares outstanding 16,462,745 15,853,116 16,357,511 15,818,104
==============================================
Net income per share $.44 $.43 $1.28 $1.18
==============================================
PRIMARY EARNINGS PER SHARE
Weighted average shares outstanding 16,462,745 15,853,116 16,357,511 15,818,104
Dilutive stock options 174,384 137,399 203,062 136,771
----------------------------------------------
16,637,129 15,990,515 16,560,573 15,954,875
==============================================
Net income per share $.43 $.43 $1.27 $1.17
==============================================
FULLY DILUTED EARNINGS PER SHARE
Weighted average shares outstanding 16,462,745 15,853,116 16,357,511 15,818,104
Dilutive stock options 186,797 137,399 209,251 136,938
----------------------------------------------
16,649,542 15,990,515 16,566,762 15,955,042
==============================================
Net income per share $.43 $.43 $1.27 $1.17
==============================================
</TABLE>
24
<PAGE> 25
EXHIBIT 27.1
SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Month Ended For the Nine Months Ended
-----------------------------------------------------
9/30/94 9/30/93 9/30/93 9/30/93
-----------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 86,910 $ 71,960 $ 86,910 $ 71,960
Interest-bearing deposits 22,301 62,890 22,301 62,890
Federal funds sold-purchased securities for resale 23,950 12,459 23,950 12,459
Trading account sales --- --- --- ---
Investment and mortgage backed securities held-for-sale 518,462 30,935 518,462 30,935
Investment and mortgage backed securities held-to-maturity
- carrying value 148,209 519,012 148,209 519,012
Investment and mortgage backed securities held-to-maturity
- market value 150,949 542,656 150,949 542,656
Loans 1,396,948 1,329,588 1,396,948 1,329,588
Allowance for losses 22,657 23,514 22,657 23,514
Total assets 2,313,926 2,118,591 2,313,926 2,118,591
Deposits 1,897,135 1,753,196 1,897,135 1,753,196
Short-term borrowings 75,371 89,837 75,371 89,837
Other liabilities 24,711 20,180 24,711 20,180
Long-term debt 90,592 48,237 90,592 48,237
Preferred stock-mandatory redemption --- --- --- ---
Preferred stock-no mandatory redemption --- --- --- ---
Common stock 16,465 15,864 16,465 15,864
Other shareholders' equity 209,652 191,277 209,652 191,277
Total liabilities and shareholders' equity 2,313,926 2,118,591 2,313,926 2,118,591
Interest and fees on loans 31,109 28,792 89,437 85,197
Interest and dividends on investments 10,096 8,283 27,819 25,573
Other interest income 642 889 2,320 2,651
Total interest income 41,847 35,582 119,576 113,421
Interest on deposits 14,659 14,228 42,550 43,855
Total interest expense 16,640 15,660 47,855 47,597
Net interest income 25,207 22,304 71,721 65,824
Provision for loan losses (159) 509 (136) 2,661
Investment securities gains/losses (20) 64 (65) 744
Other income 6,620 7,948 21,274 21,434
Other expenses 21,777 20,116 64,441 59,603
Income/loss before income tax 10,189 9,691 28,625 25,738
Income/loss before extraordinary items 10,189 9,691 28,625 25,738
Extraordinary items, less tax --- --- --- ---
Cumulative change in accounting principles --- --- --- ---
Net income or loss 7,237 6,821 20,980 18,734
Earnings per share - primary .43 .43 1.27 1.17
Earnings per share - fully diluted .43 .43 1.27 1.17
Net yield-interest earning assets - actual 5.12% 4.86% 4.97% 4.91%
Loans on non accrual $ 20,666 $ 22,705 $ 20,666 $ 22,705
Accruing loans past due 90 days or more 291 647 291 647
Troubled debt restructuring 368 404 368 404
Potential problem loans 99,035 95,401 99,035 95,401
Allowance for loan loss-beginning of period 24,413 24,368 21,543 24,046
Total charge-offs 2,222 1,982 4,688 4,715
Total recoveries 625 619 1,898 1,522
Allowance for loan loss-end of period 22,657 23,514 22,657 23,514
Loan loss allowance allocated to domestic loans 22,657 23,514 22,657 23,514
Loan loss allowance allocated to foreign loans --- --- --- ---
Loan loss allowance - unallocated --- --- --- ---
</TABLE>
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST NATIONAL BANCORP
Dated: November 7, 1994
By: /s/ Peter D. Miller
------------------------------------
Peter D. Miller
President, Chief Administrative,
and Chief Financial Officer
By: /s/ J. Reid Moore
-----------------------------------
J. Reid Moore
Group Vice President and Controller
26
