<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 June 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 30501
Gainesville, Georgia (Zip Code)
(Address of principal executive offices)
(404) 503-2500
(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 August 2, 1994
Common Stock, $1.00 Par Value 16,460,590 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 5. Submission of Matters to a Vote of Security Holders. . 23
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
June 30 December 31 June 30
1994 1993 1993
---------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 69,511 $ 85,097 $ 59,754
Federal funds sold and securities
purchased under agreements to resell 21,770 35,871 13,506
- - ----------------------------------------------------------------------------
Cash and cash equivalents 91,281 120,968 73,260
Interest-bearing deposits in other
financial institutions 31,046 68,157 64,455
Investment securities available-for-sale 499,845 403,680 32,144
Investment securities held-to-maturity
(market value $146,715, $144,827,
and $521,595, respectively 141,608 132,436 499,637
Loans 1,362,997 1,286,200 1,278,122
Less: Unearned income (11,468) (16,453) (17,848)
Allowance for loan losses (23,890) (21,073) (23,904)
- - ----------------------------------------------------------------------------
Net loans 1,327,639 1,248,674 1,236,370
Premises and equipment 54,181 47,554 47,243
Other assets 86,129 66,061 70,551
- - ----------------------------------------------------------------------------
Total assets $2,231,729 $2,087,530 $2,023,660
============================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 296,531 $ 280,037 $ 260,708
Interest-bearing, including certificates
of deposit of $100 or more of $177,019,
$146,416 and $153,152, respectively 1,516,762 1,436,154 1,403,519
- - ----------------------------------------------------------------------------
Total deposits 1,813,293 1,716,191 1,664,227
Federal funds purchased and securities
securities sold under agreements
to repurchase 69,790 63,089 83,627
Other short-term borrowings 11,738 13,807 12,519
Long-term debt 90,772 57,867 48,331
Other liabilities 29,067 23,973 17,688
- - ----------------------------------------------------------------------------
Total liabilities 2,014,660 1,874,927 1,826,392
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share,
authorized 30,000,000 shares; issued and
outstanding 15,913,703, 15,532,855 and
15,343,569 shares, respectively 15,914 15,533 15,344
Additional paid-in capital 62,310 55,403 52,480
Retained earnings 145,735 138,400 129,444
Net unrealized holding gains (losses)
on securities available-for-sale (6,890) 3,267 ---
- - ----------------------------------------------------------------------------
Total shareholders' equity 217,069 212,603 197,268
- - ----------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,231,729 $2,087,530 $2,023,660
============================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------------------------------------
1994 1993 1994 1993
----------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $ 29,319 $ 27,918 $ 56,649 $ 54,705
Interest-bearing deposits in
other financial institutions 420 671 1,048 1,429
Investment securities:
Tax-exempt 2,480 2,176 4,915 4,312
Taxable 6,716 6,354 12,454 12,663
Federal funds sold and securities
purchased under agreements to
resell 299 138 589 317
- - ------------------------------------------------------------------------------
Total interest income 39,234 37,257 75,655 73,426
- - ------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits, including interest expense
on certificates of deposit of $100
or more of $1,602, $1,748, $3,193
and $4,417, respectively 13,755 14,041 27,102 28,827
Federal funds purchased and
securities sold under agreements
to repurchase 726 1,039 1,355 1,643
Other short-term borrowings 56 51 117 108
Long-term debt 1,051 383 1,848 552
- - ------------------------------------------------------------------------------
Total interest expense 15,588 15,514 30,422 31,130
- - ------------------------------------------------------------------------------
NET INTEREST INCOME 23,646 21,743 45,233 42,296
Provision for loan losses (383) 1,032 (27) 2,147
- - ------------------------------------------------------------------------------
Net interest income after
provision for loan losses 24,029 20,711 45,260 40,149
- - ------------------------------------------------------------------------------
NONINTEREST INCOME
Fees for trust services 613 581 1,154 1,166
Service charges on deposit accounts 2,719 2,090 4,946 4,164
Net gains on securities transactions 24 159 188 524
Other noninterest income 4,302 3,836 8,204 8,055
- - ------------------------------------------------------------------------------
Total noninterest income 7,658 6,666 14,492 13,909
- - ------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 10,834 9,835 21,355 19,687
Net occupancy 1,174 1,049 2,272 2,036
Furniture and equipment 1,453 1,272 2,808 2,564
Other noninterest expense 8,378 7,773 15,315 14,177
- - ------------------------------------------------------------------------------
Total noninterest expense 21,839 19,929 41,750 38,464
- - ------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES
AND CUMMULATIVE EFFECT OF
ACCOUNTING CHANGE 9,848 7,448 18,002 15,594
Income tax expense 2,723 1,863 4,594 4,169
- - ------------------------------------------------------------------------------
Income before cummulative
effect of accounting change 7,125 5,585 13,408 11,425
Cumulative effect at January 1,
1993 of change in accounting
for income taxes --- --- --- 160
- - ------------------------------------------------------------------------------
NET INCOME $ 7,125 $ 5,585 $ 13,408 $ 11,585
=============================================================================
NET INCOME PER SHARE:
Weighted-average shares
outstanding 15,896,129 15,334,934 15,787,235 15,319,647
Income before cummulative
effect of accounting change $ .45 $ .36 $ .85 $ .75
Cummulative effect of
accounting change --- --- --- .01
- - ------------------------------------------------------------------------------
Net income per share $ .45 $ .36 $ .85 $ .76
==============================================================================
<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 15,292,839 $ 15,293 $ 51,729 $ 123,118 $ 190,140
Net income 11,585 11,585
Cash dividends declared
of $.3475 per share (5,259) (5,259)
Stock options exercised 44,625 45 629 674
Issuance of common stock
for dividend reinvestment 6,105 6 122 128
- - ---------------------------------------------------------------------------------------------
Balance at June 30, 1993 15,343,569 $ 15,344 $ 52,480 $ 129,444 --- $ 197,268
=============================================================================================
Balance at January 1, 1994 15,532,855 $ 15,533 $ 55,403 $ 138,400 $ 3,267 $ 212,603
Net income 13,408 13,408
Cash dividends declared
of $.3825 per share (6,073) (6,073)
Issuance of common stock
for acquisition 266,414 266 5,112 5,378
Stock options exercised 69,627 70 919 989
Issuance of common stock
for dividend reinvestment 44,807 45 876 921
Investment securities
available-for-sale
valuation adjustment, net
of tax effect of $6,413 (10,157) (10,157)
- - ---------------------------------------------------------------------------------------------
Balance at June 30, 1994 15,913,703 $ 15,914 $ 62,310 $ 145,735 $ (6,890) $ 217,069
=============================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------
1994 1993
------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 13,408 $ 11,585
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses (27) 2,147
Provision for other real estate losses 116 669
Depreciation 2,726 2,350
Amortization, net 805 2,767
Deferred income tax (benefit) expense (4,694) 604
Gains on sales of investment securities, net (188) (524)
Gains on sales of mortgage loan servicing rights (2,275) (5,554)
Gains on sales of other assets (34) (264)
Gains on sales of assets acquired in
forclosure and equipment (275) (374)
Excess servicing fees receivable resulting from
first mortgage loan sales (235) (822)
Decrease (increase) in mortgage loans held for sale 50,478 (33,712)
Other, net 9,135 (4,770)
- - --------------------------------------------------------------------------------
Net cash provided (used) by operating activities 68,940 (25,898)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities 2,419 24,317
Proceeds from maturities/calls of investment securities 4,097 40,109
Purchases of investment securities (13,647) (108,525)
Proceeds from sales of investment
securities available-for-sale 4,477 ----
Proceeds from maturities/calls of
investment securities available-for-sale 36,588 ----
Purchases of investment securities
available-for-sale (194,699) ----
Principal collection on investment
securities available-for-sale 51,887 6,973
Net decrease in interest-bearing deposits
in other financial institutions 37,707 2,426
Net increase in loans (44,224) (10,699)
Proceeds from sales of mortgage loan servicing rights 3,168 7,274
Purchases of mortgage loan servicing rights (9,750) (795)
Purchases of premises and equipment (1,534) (7,984)
Proceeds from sales of premises and equipment 117 1,237
Proceeds from sales of assets acquired in forclosure 2,305 2,391
Net cash and cash equivalents acquired in
the purchase of bank subsidiary 24,986 ----
- - -------------------------------------------------------------------------------
Net cash used by investing activities (97,103) (43,276)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits (34,939) (15,469)
Net increase in short-term borrowings 4,632 6,978
Proceeds from the issuance of long-term debt 33,000 40,066
Payments on long-term debt (325) (1,105)
Proceeds from issuance of common stock for
stock options exercised 989 128
Cash dividends paid on common stock (4,881) (4,422)
- - --------------------------------------------------------------------------------
Net cash (used) provided by financing activities (1,524) 26,176
- - --------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (29,687) (42,998)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 120,968 116,258
- - --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 91,281 $ 73,260
================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 30,512 $ 28,616
================================================================================
Income taxes paid $ 6,779 $ 5,255
================================================================================
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
6
<PAGE> 7
NOTES TO CONSOLIDATED 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 February 28, 1994, First National Bancorp ("the Company") acquired
all of the outstanding common stock of Metro Bancorp, Inc., ("Metro")
the parent company of the $139.898 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 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 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 six
months ended June 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 $ 76,979 $ 78,185
Noninterest income 14,942 15,480
Income before cummulative effect
of accounting change 13,102 12,173
Cumulative effect of accounting change --- 310
---------------------------------------------------------------
Net income $ 13,102 $ 12,483
===============================================================
Net income per share:
Income before cummulative effect
of accounting change $ .82 $ .78
Cumulative effect of accounting
change --- .02
---------------------------------------------------------------
Net income $ .82 $ .80
===============================================================
Weighted average shares outstanding 15,961,884 15,586,061
===============================================================
</TABLE>
Effective 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 Bank and Trust Company 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. As of June 30, 1994,
total consolidated assets and equity of Barrow and its subsidiary bank
were $54.658 million and $5.577 million, respectively. The transaction
was accounted for under the pooling-of-interest method of accounting
and accordingly all prior period information will be restated beginning
with the Company's September 30, 1994, Form 10-Q. The following
summarizes pro forma consolidated financial data as of, and for the six
month period ended, June 30, 1994, for the Company as if the
acquisition had been completed as of June 30, 1994 (dollars in
thousands):
<TABLE>
<S> <C>
Total assets $ 2,286,387
Total equity 222,646
Interest income 77,541
Noninterest income 14,798
Net income 13,743
Net income per share .84
Weighted average shares outstanding 16,308,935
</TABLE>
7
<PAGE> 8
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. The Company has not yet
determined the actual impact of FAS 114 on its financial statements or
made a determination of whether it will adopt FAS 114 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.
Table 1: SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
1994 1993 Change % Change
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Quarter Ended June 30:
Net income $ 7,125 $ 5,585 $ 1,540 27.6
Net interest income 23,646 21,743 1,903 8.8
Net interest income (FTE) 25,213 23,499 1,714 7.3
Noninterest income 7,658 6,666 992 14.9
Noninterest expenses 21,839 19,929 1,910 9.6
Provision for loan losses (383) 1,032 (1,415) (137.1)
Net income per share 0.45 0.36 .09 25.0
Dividends declared per share .1925 .1750 .0175 10.0
Book value per share 13.64 12.86 .78 6.1
Tangible book value per share 13.02 12.36 .66 5.3
Weighted average shares outstanding 15,896,129 15,334,932
Shares outstanding at quarter-end 15,913,703 15,343,569
- - -----------------------------------------------------------------------------------------------
Financial Ratios:
Return on average assets 1.28 % 1.10 %
Return on average shareholders' equity 13.14 11.55
Net interest margin 4.95 4.97
Primary capital to adjusted assets:
Including intangibles 10.68 10.80
Excluding intangibles 10.29 10.47
Allowance for loan losses to loans, net of unearned income:
Including mortgage loans held for sale 1.77 1.90
Excluding mortgage loans held for sale 1.79 2.04
- - -----------------------------------------------------------------------------------------------
Selected Balances as of June 30:
Total assets $2,231,729 $2,023,660 $208,069 10.3
Earning assets 2,045,798 1,870,016 175,782 9.4
Loans, net of unearned income:
Including mortgage loans held for sale 1,351,529 1,260,274 91,255 7.2
Excluding mortgage loans held for sale 1,336,646 1,171,561 165,085 14.1
Allowance for loan losses 23,890 23,904 (14) (.1)
Securities 641,453 531,781 109,672 20.6
Deposits 1,813,293 1,664,227 149,066 9.0
Short-term borrowings 81,528 96,146 (14,618) (15.2)
Long-term borrowings 90,772 48,331 42,441 87.8
Shareholders' equity 217,069 197,268 19,801 10.0
- - -----------------------------------------------------------------------------------------------
Six Month Period Ended June 30:
Net income $ 13,408 $ 11,585 $ 1,823 15.7
Net income per share .85 .76 .09 11.8
Dividends declared per share .3825 .3475 .0350 10.1
Weighted average shares outstanding 15,787,235 15,319,647
Return on average assets 1.25 % 1.17 %
Return on average equity 12.45 12.13
Net interest margin 4.88 4.91
- - -----------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 10
PERFORMANCE OVERVIEW
In the second quarter of 1994, the Company reported net income of $7.125
million, an increase of $1.540 million, or 27.6% from the $5.585 million
in the second quarter of 1993. Earnings per share in the second quarter
of 1994 were $.45, compared with $.36 in the first quarter of 1993, an
increase of 25.0%. Weighted average shares outstanding for the second
quarter of 1994 increased to 15,896,129, compared with 15,334,932 in the
second quarter of 1993. On a year to date basis, the Company earned
$13.408 million, or $.85 per share, compared to $11.585 million, or $.76
per share in 1993. Weighted average shares outstanding in the first six
months of 1994 increased to 15,787,235 compared with 15,319,647 in the
first six months of 1993.
Net income in the second quarter produced a return on average assets of
1.28%, up from the 1.21% in first quarter 1994, and a substantial
increase over the 1.10% reported in the second quarter 1993. Return on
average equity was 13.14% for the three months ended June 30, 1994,
compared to 12.02% in the first quarter of 1994 and 11.55% for the three
months ended June 30, 1993.
Growth in net interest income, a significant reduction in loan loss
provision expense driven by a recapture of earlier loan loss provisions,
and increases in noninterest income all contributed to improved earnings.
Increases reflected in all categories of income and expenses can be
attributed, in part, to the recent acquisition of Metro recorded under
the purchase method of accounting, particulary in the areas of fee income
and employee 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 $48.322 million in the
first six months of 1994, compared with $45.145 million in the first six
months of 1993. The increase in volumes of average earning assets
increased net interest income by $6.169 million and increases in volumes
of interest-bearing liabilities reduced net interest income by $2.101
million for a net increase in net interest income of $4.068 million. The
decrease in net interest margin further reduced net interest income by
$.891 million from the same period in 1993. Average loans, which
increased $82.681 million, comprised the majority (58%) 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 declined to 4.88% in the first six
months of 1994, down from 4.91% for the first six month of 1993.
For the quarter ended June 30, 1994, net interest income on an FTE basis
increased to $25.213 million, compared to $23.109 million for the first
quarter of 1994 and $23.499 million for the quarter ended June 30, 1993.
Net interest margin for the second quarter was 4.95%, an increase over
the 4.81% reported in the first quarter and down slightly from 4.97%
reported for the second quarter of 1993.
Management anticipates a modest improvement in net interest income during
the third quarter of 1994 and throughout the rest of 1994. Due to recent
increases in rates by the Federal Reserve Bank, management believes there
may be some easing of margin pressure, although temporary, when compared
to previous quarters.
10
<PAGE> 11
Table 2: CHANGES IN NET INTEREST INCOME - TAXABLE EQUIVALENT BASIS
(dollars in thousands)
<TABLE>
<CAPTION>
Average Balances Average Rates Interest -------- 1994-1993 -------
Six months Six months Six months Income
ended June 30 Increase ended June 30 ended June 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
deposits in other
financial institutions $ 52,265 $ 70,789 $(18,524) 4.04% 4.07% $ 1,048 $ 1,429 $ (381) $ (371) $ (10)
Loans, net 1,315,179 1,232,498 82,681 8.69 8.95 56,649 54,705 1,944 3,595 (1,651)
Investment securities
Taxable 454,986 414,414 40,572 5.52 6.16 12,454 12,663 (209) 1,177 (1,386)
Tax-exempt 142,554 114,936 27,618 11.32 12.56 8,004 7,161 843 1,600 (757)
Federal funds sold
securities purchased
under agreements
to resell 31,978 22,047 9,931 3.71 2.90 589 317 272 168 104
- - ---------------------------------------------------------------------------------------------------------------------------
Total earning assets 1,996,962 1,854,684 142,278 7.95% 8.29% 78,744 76,275 2,469 6,169 (3,700)
- - ---------------------------------------------------------------------------------------------------------------------------
Reserve for loan loss (23,763) (23,889) 126
Cash and due from banks 66,236 58,284 7,952
Premises and equipment, net 52,255 45,302 6,953
Other assets 79,177 65,545 13,632
- - --------------------------------------------------------------
Total assets $2,170,867 $1,999,926 $170,941
==============================================================
Savings, IMMA deposits $ 594,277 $ 536,325 $ 57,952 2.59% 2.82% 7,644 7,493 151 773 (622)
Time deposits 905,000 882,931 22,069 4.34 4.87 19,458 21,334 (1,876) 522 (2,398)
Federal funds purchased
and securities sold
under agreements
to repurchase 73,867 102,123 (28,256 3.70 3.24 1,355 1,643 (288) (497) 209
Other 83,409 28,114 55,295 4.75 4.73 1,965 660 1,305 1,303 2
- - ---------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing liabilities 1,656,553 1,549,493 107,060 3.70 4.05 30,422 31,130 (708) 2,101 (2,809)
- - ---------------------------------------------------------------------------------------------------------------------------
Demand deposits 272,388 243,609 28,779
Other liabilities 24,801 14,241 10,560
Shareholders' equity 217,125 192,583 24,542
- - --------------------------------------------------------------
Total liabilities and
shareholders' equity $2,170,867 $1,999,926 $170,941
==============================================================
Rate spread 4.25% 4.24%
===========================================================================================================================
Net interest margin/revenue 4.88% 4.91% $48,322 $45,145 $3,177 $4,068 $ (891)
===========================================================================================================================
<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;
and Rate/Volume variance-change in average balance multiplied by the
change in rate. 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 increased to $7.658 million for the second
quarter of 1994, from $6.833 million in first quarter 1994 and $6.666
million for the second quarter of 1993. The increase in noninterest
income was due primarily to an increase in service charges on deposit
accounts of $.629 million, or 30.10% over the same period in 1993,
primarily the result of the acquisition with Metro. On a year to date
basis, mortgage loan servicing and other related fees, which decreased
$1.139 million between the first six months of 1994 and 1993, or a 23.12%
decline, was offset by an increase in service charges on deposit accounts
and an increase in the second quarter other income catagory of $.782
million and $1.304 million, respectively. A portion of the decline in
mortgage revenues was positively impacted by a reduction 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 six months of 1993. Net gain on sales of
mortgage loan servicing rights decreased $3.217 million, to $2.275
million, from $5.554 million in the first six months of 1993. Included
in noninterest income
11
<PAGE> 12
for the six 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.
Gains on sales of securities were $24 thousand in second quarter 1994,
down from the $159 thousand reported for the second quarter of 1993, a
decrease of 84.91%.
The Company anticipates a continued absense of mortgage refinancing
production, as mortgage rates continue to rise from record levels seen in
the past few years. Refinancing by customers during previous periods
created an outflow effect to 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 servicing portfolio
purchases from other financial institutions and mortgage companies.
Initiatives begun in 1993, relating to mutual funds and annuities sales
are also expected to increase the opportunities for noninterest income
generation as these programs become more developed and marketing efforts
become more defined.
Table 3 shows the key noninterest income catagories and changes for the
three months and six months ended June 30, 1994 and 1993:
Table 3: ANALYSIS OF NONINTEREST INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ --------------------------------------
Increase/(Decrease) Increase/(Decrease)
------------------- -------------------
6/30/94 6/30/93 $ % 6/30/94 6/30/93 $ %
------------------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fees for trust services $ 613 $ 581 32 5.51 $ 1,154 $ 1,166 (12) (1.03)
Service charges on deposit accounts 2,719 2,090 629 30.10 4,946 4,164 782 18.78
Net gains on sales of
investment securities 24 159 (135) (84.94) 188 524 (336) (64.12)
Insurance premiums and commissions 331 224 107 47.77 637 653 (16) (2.45)
Mortgage loan and other related fees 2,382 2,283 99 4.34 3,788 4,927 (1,139) (23.12)
Other noninterest income 1,589 1,329 260 19.56 3,779 2,475 1,304 52.69
- - --------------------------------------------------------------------------------------------------------------------
Total noninterest income $ 7,658 $ 6,666 992 14.88 $ 14,498 $ 13,909 583 4.19
====================================================================================================================
Noninterest income as a percentage
of average assets (annualized) 1.38% 1.31% 1.35% 1.40%
</TABLE>
NONINTEREST EXPENSES
Total noninterest expense was $21.839 million in the second quarter of
1994, compared to $19.910 million in the first quarter of 1994 and
$19.929 million in the second quarter of 1993. All categories of
noninterest expense reflect increases due to the recent acquisition of
Metro. Personnel related expenses, which makes up the largest category on
noninterest expenses, increased $.999 million between the second quarters
of each year presented, and $1.668 million between the six months ended
1994 and 1993. Of the increase, approximately 67% of the change between
quarters is the result of Metro's second quarter personel expenses, while
54% of the increase between the six month periods is the result of
Metro's payroll expenses. Excluding the affects of Metro, the Company's
personnel related expense had a modest increase of approximately 3.32%
between the second quarter of each year, and 3.94% between the six 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 to 66.49% for the second quarter of
1994, when compared to the 66.86% reported for first three months of
1994, but increased slightly over the 66.42% for the second quarter of
1993. For the first six months of 1994, the Company's efficiency ratio
was 66.67%, an increase of 95 basis points over the 65.72% reported for
the first six months of 1993. While the efficiency ratio has increased
during recent quarters, the Company has a longer term objective of
reducing this ratio to the lower 60% range over the next four to six
quarters.
During the first half of 1993, the Company converted to a new data
processing system serviced by an outside data processing company. While
overall effeciencies have been obtained with the new system, modest
increases in depreciation and
12
<PAGE> 13
telephone expenses were expected with the conversion. The Company will
continue to see slight increases in these catagories throughout the rest
of 1994.
Table 4 shows the key noninterest expense catagories and changes for the
three months and six months ended June 30, 1994 and 1993:
Table 4: ANALYSIS OF NONINTEREST EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
Increase/(Decrease) Increase/(Decrease)
----------------------------------- -----------------------------------
6/30/94 6/30/93 $ % 6/30/94 6/30/93 $ %
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $10,834 $ 9,835 999 10.16 $21,355 $19,687 1,668 8.47
Furniture and equipment 1,453 1,272 181 14.23 2,808 2,564 244 9.52
Net occupancy 1,174 1,049 125 11.92 2,272 2,036 236 11.59
Promotional 737 455 282 61.98 1,096 783 313 39.97
Postage, telephone and stationary 1,244 1,166 78 6.69 2,461 2,292 169 7.37
Other:
FDIC insurance premiums 965 967 (2) (.21) 1,930 1,933 (3) (.16)
Amortization of goodwill 207 170 37 21.76 389 340 49 14.41
Other noninterest expense 5,225 5,015 210 4.19 9,439 8,829 610 6.91
- - ----------------------------------------------------------------------------------------------------------------
Total noninterest expense $21,839 $19,929 1,910 9.58 $41,750 $38,464 3,286 8.54
================================================================================================================
Noninterest expense as a percentage
of average assets (annualized) 3.94% 3.91% 3.88% 3.88%
Overhead ratio 66.49% 66.42% 66.67% 65.72%
</TABLE>
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>
6/30/94 3/31/94 12/31/93 9/30/93 6/30/93
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $18,154 $22,240 $20,509 $22,705 $24,694
Renegotiated loans 1,811 1,938 364 404 211
- - ---------------------------------------------------------------------------------------------
Total nonperforming loans 19,965 24,178 20,873 23,109 24,905
Other real estate 11,490 11,837 9,532 10,393 11,825
- - ---------------------------------------------------------------------------------------------
Total nonperforming assets $31,455 $36,015 $30,405 $33,502 $36,730
=============================================================================================
Loans past due 90 days or more 215 147 224 647 480
=============================================================================================
Nonperforming loans as a percentage of loans, net
of unearned income (excluding held-for-sale) 1.49% 1.84% 1.73% 1.95% 2.13%
Nonperforming assets as a percentage of loans,
net of unearned income, plus other real estate
owned (excluding held-for-sale) 2.33 2.71 2.50 2.80 3.10
Allowance for loan losses as a percentage
of nonperforming loans 119.66 104.11 100.95 99.71 95.98
Allowance for loan losses as a percentage
of nonperforming assets and loans past
due 90 days or more 75.43 69.89 69.31 68.78 65.08
</TABLE>
Nonperforming loans, which include nonaccrual loans and renegotiated
loans, totaled $19.965 million, or 1.49% of loans at June 30, 1994, a
significant decrease over the $24.178 million, or 1.84% of loans reported
at March 31, 1994, and the $24.905 million, or 2.13% of loans reported at
June 30, 1993.
Nonperforming assets, which include nonperforming loans and other real
estate acquired in forclosures (OREO), totaled $31.455 million, $36.015
million and $36.730 million, at June 30, 1994, March 31, 1994, and June
30, 1993, respectively. Nonperforming assets as a percentage of loans,
plus OREO decreased to 2.33%, from the 2.71% reported at March 31, 1994
and 3.10% reported at December 31, 1993.
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. The ratio of nonperforming
assets to loans and other real estate, excluding the impact of Metro,
would be 1.71% at June 30, 1994, which compares favorably to the 3.10%
reported at June 30, 1993.
While management continues to place emphasis in 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.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
During the second quarter of 1994, the Company experienced a $.739
million reduction in loan loss reserves due to a recapture of excess
reserves at two of the Company's subsidiary banks. This resulted in a
negative provision expense of $.383 million in the second quarter of
1994, a decrease of $1.415 million for the same period in 1993, and a
negative provision expense of $27
14
<PAGE> 15
thousand, or a decrease of $2.174
million, for the six months ended June 30, 1994, when compared with the
$1.032 million provison expensed in the second quarter of 1993, and
$2.147 million provision expense for the six months ended June 30, 1993.
In addition to the provision recapture from the subsidiary banks, the
reduction in the level of provision expense was 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, is shown in Table 6.
Table 6: LOAN CHARGE-OFF ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
1994 1993
------------------------- --------------------------------------
Second First Fourth Third Second
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average total loans, net of unearned income $1,345,194 $1,285,164 $1,312,030 $1,269,236 $1,272,015
==================================================================
Allowance for loan losses, beginning of quarter $ 25,172 $ 21,073 $ 23,044 $ 23,905 $ 23,869
Charge-offs 1,549 916 2,683 1,981 1,507
Recoveries on loans charged-off 650 619 389 617 511
------------------------------------------------------------------
Net charge-offs 899 297 2,294 1,364 996
Provision for loan losses (383) 356 323 503 1,032
Allowance of subsidiary bank acquired --- 4,040 --- --- ---
------------------------------------------------------------------
Allowance for loan losses, end of quarter $ 23,890 $ 25,172 $ 21,073 $ 23,044 $ 23,905
==================================================================
Allowance for loan losses to loans,
net of unearned income:
Including mortgage loans held-for-sale 1.77% 1.86% 1.66% 1.78% 1.90%
Excluding mortgage loans held-for-sale 1.79 1.91 1.75 1.94 2.04
Net loans charged off as a percentage
of average loans, net of unearned
income (annualized):
Including mortgage loans held-for-sale .27 .10 .70 .43 .31
Excluding mortgage loans held-for-sale .27 .10 .77 .46 .34
</TABLE>
The charge-off ratio (annualized) increased slightly to .27% at the end
of second quarter 1994, over the .10% reported for the first quarter of
1994, but was significantly lower than the last three quarters of 1993.
Management anticipates the charge-off ratio will move towards the modest
mid-to-upper 30% range during the rest of 1994.
15
<PAGE> 16
Table 7 presents presents the Company's consolidated loan and asset
quality concentrations as of June 30, 1994:
Table 7: LOAN AND ASSET QUALITY CONCENTRATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Percentage Other Real Loans 90 Days
Collateral Type Outstanding of Loans Nonaccrual Renegotiated Estate Past Due or more
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial mortgages:
Retail business $ 31,201 2.31% $ 656 $ --- $ 315 $---
Broiler operations 29,885 2.21 308 --- --- ---
Egg operations 15,890 1.18 164 --- 261 ---
Farmland 18,667 1.38 60 --- --- ---
Multi-family residential 19,876 1.47 1,435 --- 1,499 ---
Office buildings 32,823 2.43 --- --- --- ---
Manufacturing/industrial 28,678 2.12 276 --- 599 ---
Hotel/motel 22,236 1.65 --- --- --- ---
Recreational properties 8,422 .62 300 1,250 2,124 ---
Shopping centers 15,104 1.12 278 --- 483 ---
Other commercial 102,068 7.55 1,956 --- 2,325 ---
Other 43,453 3.22 4,457 323 174 ---
- - -------------------------------------------------------------------------------------------------------------------
368,303 27.25 9,890 1,573 7,780 ---
Construction and land development:
Acquisition and land development:
Residential 28,706 2.12 100 --- 91 ---
Commercial 6,748 .50 --- --- --- ---
Construction 87,162 6.45 127 --- 1,320 ---
- - -------------------------------------------------------------------------------------------------------------------
122,616 9.07 227 --- 1,411 ---
Residential mortgages:
Real estate dwelling 209,101 15.47 2,736 49 1,642 75
Mortgage loans held-for-sale 14,883 1.10 --- --- --- ---
Residential lots 40,291 2.98 334 --- 592 8
Mobile homes 34,914 2.58 696 --- 38 16
Rental 31,778 2.35 657 189 27 ---
Interval ownership 10,005 .74 17 --- --- ---
Mortgage loan investments 26,152 1.93 394 --- --- ---
Home equity 27,828 2.06 39 --- --- ---
Other 12,794 .95 237 --- --- ---
- - -------------------------------------------------------------------------------------------------------------------
407,746 30.17 5,110 238 2,299 99
Commercial products:
Assignment A/R and contracts 22,350 1.65 564 --- --- ---
Inventory 10,099 .75 49 --- --- ---
Assignment of notes 6,788 .50 115 --- --- ---
Automobiles - heavy trucks 4,232 .31 109 --- --- ---
Floor plans 1,800 .13 8 --- --- ---
Other 62,706 4.64 700 --- --- ---
- - -------------------------------------------------------------------------------------------------------------------
107,975 7.99 1,545 --- --- ---
Consumer goods:
Automobiles 212,108 15.69 702 --- --- 35
Unsecured 33,384 2.47 124 --- --- ---
Savings and certificates 29,311 2.17 --- --- --- ---
Credit cards 18,627 1.63 --- --- --- 40
Mobile homes without real estate 7,203 .53 65 --- --- ---
Unsecured consumer lines of credit 3,726 .28 8 --- --- 5
Co-maker/guarantor 4,428 .33 25 --- --- ---
Other 36,102 2.67 458 --- --- 36
- - -------------------------------------------------------------------------------------------------------------------
344,889 25.52 1,382 --- --- 116
- - -------------------------------------------------------------------------------------------------------------------
Total concentrations $1,351,529 100.00% $18,154 $1,811 $11,490 $215
===================================================================================================================
</TABLE>
16
<PAGE> 17
Table 8 provides a summary of average balances for the quarters ended
June 30, 1994, December 31, 1993 and June 30, 1993, along with interest
earned and paid during each quarter and average rates by category.
Table 8: QUARTERLY AVERAGES, MIX, INTEREST AND RATES
<TABLE>
<CAPTION>
For the three months ended 6/30/94 12/31/93 6/30/93
-------------------------- -------------------------- --------------------------
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 institutions $ 41,374 $ 420 4.07% $ 67,114 $ 667 3.94% $ 69,232 $ 671 3.93%
Net loans 1,345,194 29,319 8.79 1,312,030 28,013 8.47 1,272,015 27,918 8.90
Investment securities:
Non-taxable 143,875 4,047 11.28 124,475 3,369 10.74 116,628 3,931 13.67
Taxable 483,502 6,716 5.57 406,651 5,645 5.51 420,881 6,354 6.12
Federal funds sold and
securities purchased under
agreements to resell 29,784 299 4.03 8,234 47 2.26 18,017 138 3.11
------------------- ------------------- -------------------
Total earning assets 2,043,729 40,801 8.01 1,918,504 37,741 7.80 1,896,773 39,012 8.34
-------------------------- -------------------------- --------------------------
Reserve for loan losses (25,019) (22,501) (24,097)
Cash and due from banks 68,922 64,328 58,561
Premises and equipment 54,671 47,419 46,955
Other assets 83,365 60,170 65,959
----------- ----------- -----------
Total assets $2,225,668 $2,067,920 $2,044,151
=========== =========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and money
market accounts $ 618,895 4,032 2.61 $ 542,524 3,592 2.63 $ 533,138 3,745 2.82
Time deposits 906,132 9,723 4.30 884,516 9,908 4.44 880,379 10,295 4.69
Federal funds purchased
and securities sold under
agreements to repurchase 75,128 726 3.88 85,067 693 3.23 124,172 1,039 3.36
Other borrowed funds 92,724 1,107 4.79 61,552 723 4.66 37,724 434 4.61
-------------------- ------------------- -------------------
Total interest-
bearing liabilities 1,692,879 15,588 3.69 1,573,659 14,916 3.76 1,575,413 15,513 3.95
-------------------------- -------------------------- --------------------------
Noninterest-bearing
demand deposits 288,827 274,408 258,358
Other liabilities 26,544 19,015 16,428
---------- ---------- ----------
Total liabilities 2,008,250 1,867,082 1,850,199
---------- ---------- ----------
Total shareholders' equity 217,418 200,838 193,952
---------- ---------- ----------
Total liabilities and
shareholders' equity $2,225,668 $2,067,920 $2,044,151
========== ========== ==========
Net interest income $25,213 $22,825 $23,499
======= ======= =======
Interest spread 4.31% 4.04% 4.39%
====== ====== ======
Net interest margin 4.95% 4.72% 4.97%
====== ====== ======
</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 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
------------------- -------------------
6/30/94 to 12/31/93 6/30/94 to 6/30/93
------------------- -------------------
6/30/94 12/31/93 6/30/93 $ % $ %
---------------------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning Assets:
Core earning assets:
Commercial loans $ 647,244 $ 559,229 $ 525,388 88,015 15.7 121,856 23.2
Retail loans 655,902 617,305 627,355 38,597 6.3 28,547 4.6
Other core loans 33,500 27,852 18,818 5,648 20.3 14,682 78.0
Total core earning assets 1,336,646 1,204,386 1,171,561 132,260 11.0 165,085 14.1
Incremental earning assets:
First mortgage loans held-for-sale 14,883 65,361 88,714 (50,478) (77.2) (73,831) (83.2)
Investment securities 641,453 536,116 531,781 105,337 19.6 109,672 20.6
Interest-bearing deposits with
financial institutions 31,046 68,157 64,455 (37,111) (54.4) (33,409) (51.8)
Federal funds sold
and repurchase agreements 21,770 35,871 13,506 (14,101) (39.3) 8,264 61.2
----------------------------------- ------------------- -------------------
Total incremental earning assets 709,152 705,505 698,456 3,647 .5 10,696 1.5
----------------------------------- ------------------- -------------------
Total earning assets $2,045,798 $1,909,891 $1,870,017 135,907 7.1 175,781 9.4
=================================== =================== ===================
Deposits and Funds:
Core funds:
Demand deposits $ 296,531 $ 280,037 $ 260,708 16,494 5.9 35,823 13.7
Interest-bearing checking 178,878 167,955 150,944 10,923 6.5 27,934 18.5
Century Service and IMMA 320,459 300,557 311,363 19,902 6.6 9,096 2.9
Statement savings 119,394 77,938 73,402 41,456 53.2 45,992 62.7
Certificates less than
$100 and IRAs 562,494 561,446 556,183 1,048 .2 6,311 1.1
----------------------------------- ------------------- -------------------
Total core funds 1,477,756 1,387,933 1,352,600 89,823 6.5 125,156 9.3
----------------------------------- ------------------- -------------------
Incremental funds:
Certificates over $100 177,019 146,416 153,152 30,603 20.9 23,867 15.6
Other large deposits 158,518 181,842 158,475 (23,324) (12.8) 43 ---
Federal funds purchased 34,677 43,945 47,330 (9,268) (21.1) (12,653) (26.7)
Repurchase agreements 35,113 19,144 36,297 15,969 83.4 (1,184) (3.3)
Other short-term borrowings 11,738 13,807 12,519 (2,069) (15.0) (781) (6.2)
Long-term debt 90,772 57,867 48,331 32,905 56.9 42,441 87.8
----------------------------------- ------------------- -------------------
Total incremental funds 507,837 463,021 456,104 44,816 9.7 51,733 11.3
----------------------------------- ------------------- -------------------
Total funds $1,985,593 $1,850,954 $1,808,704 134,639 7.3 176,889 9.8
=================================== =================== ===================
</TABLE>
Total earning assets at June 30, 1994, were $2.046 billion, up 7.1% from
the $1.910 billion at December 31, 1993, and up 9.4% from the $1.870
billion at June 30, 1993. Total core earning assets increased 11.0% to
$1.337 billion over the $1.204 billion reported at December 31, 1993,
while incremental earning assets remained stable since June 30, 1993,
increasing only 1.5%. 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 $50.478 million since
December 31, 1993, and deposits held with other financial institutions,
decreasing $37.111 million. Both these categories were offset by an
increase in investment securities of $105.337 million, or 19.6% since
December 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 recent
18
<PAGE> 19
increases in mortgage loan rates. While
there may be continued changes within catagories of earning assets,
management expects no material changes in overall core or incremental
assets during the third 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 June 30, 1994, were $507.837 million, up 9.7%
from the $463.021 million at December 31, 1993, and up 11.3% from the
$456.104 million at June 30, 1993. Total core funds at June 30, 1994,
were $1.478 billion, up 6.5% from the $1.388 billion at December 31,
1993, and up 9.3% from the $1.353 billion at June 30, 1993.
Total deposits increased slightly between periods, when taking into
account the increase attributed to Metro deposits. However, incremental
funds increased between June 30, 1994 and June 30, 1993, primarily due to
an increase of $23.867 million in certificates of deposit over $100,000
and an increase in long-term debt of $42.441 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. Treasuries and U.S. Government
agencies 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 third quarter based
on the current interest rate environment. The book and market value of
securities at June 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. Treasury and U.S. Government
Agencies $ 125,810 $ 113 $ 1,457 $ 124,466
Mortgage-backed securities 375,388 1,215 10,850 365,753
State and municipal - taxable 2,639 104 272 2,471
Other investments 7,244 30 119 7,155
------------------------------------------
Total $ 511,081 $ 1,462 $ 12,698 $ 499,845
==========================================
Investment securities held-to-maturity:
State and municipal - tax exempt $ 141,608 $ 7,476 $ 2,369 $ 146,715
==========================================
</TABLE>
19
<PAGE> 20
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 June 30, 1994. Expected maturities may
differ from contractual maturities due to call and prepayment options.
Table 11: 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 $ 11,387 4.82% $ 12,080 5.98% $ 951 8.24%
U. S. Government agencies 47,477 4.77 37,415 6.05 15,156 6.52
Mortgage-backed securities:
Fixed rate --- --- 6,440 8.07 22,876 7.12 $103,757 7.30%
Adjustable rate --- --- 228 4.72 510 5.95 231,942 5.54
Corporate bonds --- --- 530 8.84 --- --- --- ---
State and municipal 648 5.18 597 8.16 388 7.80 838 4.30
Other investments --- --- --- --- --- --- 6,625 6.00
-------------------------------------------------------------------------------
Total investment securities
available-for-sale 59,512 4.73 57,290 6.22 39,881 6.84 343,162 6.06
State and municipal 6,515 11.43 52,025 12.41 12,549 10.62 70,519 9.54
Federal funds sold 21,770 4.13 --- --- --- --- --- ---
Interest-bearing deposits with
financial institutions 30,947 4.10 99 4.20 --- --- --- ---
-------------------------------------------------------------------------------
Total investments $118,744 4.82% $109,414 9.17% $ 52,430 7.74% $414,681 6.61%
===============================================================================
</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 first
six months of 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 third quarter. At June 30, 1994,
$318.343 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.
At June 30, 1994, market value of securities as a percentage of cost was
99.06%, down from the 100.79% and 103.34% reported at March 31, 1994 and
December 31, 1993, respectively, due to the rapid rise in long-term
interest rates.
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.
In terms of net interest income variance to the financial plan, the
acceptable level of risk is defined as a maximum 2% annualized net
interest income variance due to a shift in interest rates from plan
projections, with such rate shift based on management's best estimation
of the potential maximum and gradual change in rates (higher or lower)
relative to plan. At June 30, 1994, the Company's balance sheet was
structured to attain compliance with this standard.
20
<PAGE> 21
Table 12: INTEREST RATE SENSITIVITY
(dollars in thousands)
<TABLE>
<CAPTION>
At June 30, 1994 3 Month 6 Month 12 Month
-----------------------------------------
<S> <C> <C> <C>
Beta-adjusted gap position:
Rate sensitive assets 717,912 892,897 1,144,595
Rate sensitive liabilities 718,253 887,545 1,174,952
-----------------------------------------
Dollar gap (341) 5,352 (30,357)
=========================================
Gap ratio 1.00 1.01 .97
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 of a change in market rates.
Generally, liabilities such as regular savings, insured money market
accounts, NOW accounts and super now 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 June 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 June 30, 1994, that the Company is in compliance with these standards.
Management anticipates no significant changes in this profile for the
third 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 June 30, 1994, the average core funding to average core
assets ratio equaled 111.13% down slightly from the 111.66% reported for
the quarter ended March 31, 1994, and the 117.40% reported for the
quarter ended June 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 third 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 June 30,
1994, this ratio, based on quarterly averages, equaled 25.77%, down
slightly from the 26.23% reported for the quarter ended March 31, 1994,
but up from the 23.13% reported for the quarter ended March 31, 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.
21
<PAGE> 22
CAPITAL RESOURCES
The Company's standards and capital levels at June 30, 1994, are
proviided in Table 13.
Table 13: ANALYSIS OF CAPITAL ADEQUACY
(dollars in thousands)
<TABLE>
<CAPTION>
Regulatory Internal
6/30/94 Guidelines Standards
-----------------------------------------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets 13.83% 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 15.08 8.00 9.00 (minimum)
=============
Leverage ratios:
Capital to assets 9.73% 6.50% (minimum)
Primary capital to adjusted assets (a) 10.68 5.50% 8.00 (minimum)
Primary tangible capital to adjusted assets (b) 10.29 6.00 (minimum)
Tier 1 capital $ 207,211
Tier 2 capital 18,729
-------------
Total capital $ 225,940
=============
Risk-adjusted assets $ 1,498,354
=============
<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>
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. 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. 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 six months ended
-------------------------- -------------------------
6/30/94 6/30/93 6/30/94 6/30/93
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Return on average assets 1.28% 1.10% 1.25% 1.17%
divided by ------------------------------------------------------
Average equity as a % of average assets 9.74 9.52 10.04 9.64
equals ------------------------------------------------------
Return on average equity 13.14 11.55 12.45 12.13
times ------------------------------------------------------
Earnings retained 57.05 52.63 54.96 54.05
equals ------------------------------------------------------
Internal capital growth 7.50 6.08 6.84 6.56
======================================================
</TABLE>
The internal growth rate increased due to the increase in the return on
average equity for the comparative period which more than offset the
effects of the increase in the percentage amount of earnings which were
declared for payment of cash dividends to shareholders. The cash
dividend declared for the second quarter of 1994 was $.1925 compared to
$.1750 for the second quarter of 1993, an increase of 10.0%. 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 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Shareholders' Meeting was held on April 20,
1994. A majority of the shareholders, representing 9,440,066 shares,
either in person or by proxy, approved the election of Directors,
approved a proposal to establish the Performance-Based Restricted
Stock Plan and ratified the appointment of KPMG Peat Marwick as the
Company's independent auditors for the year ended December 31, 1994.
The twenty-two (22) Directors elected by shareholders to serve for
the 1994-1995 year are as follows:
Jane Wood Banks Edwin C. Poss
Thomas S. Cheek Paul J. Reeves
John A. Ferguson A. Roy Roberts, Jr.
James H. Harris, Jr. Richard A. Shockley
Ray C. Jones Harold L. Smith
Arthur J. Kunzer, Jr. W. Woodrow Stewart
W. L. Lester Bobby M. Thomas
Richard A. McNeece James A. Walters
Peter D. Miller M.G. West
Loy D. Mullinax J. Michael Womble
J. Kenneth Nix, Sr. Joe Wood, Jr.
The following schedule provides the allocation of the 9,440,066
voting shares for or against Proposal No. 2, Performance- Based
Restricted Stock Plan, and No. 3, ratification of the appointment of KPMG
Peat Marwick:
<TABLE>
<CAPTION>
Vote For Vote Against
Shares Percent Shares Percent
------------------- -------------------
<S> <C> <C> <C> <C>
Performance-Based Restricted Stock 8,571,232 90.8% 625,217 6.6%
KPMG Peat Marwick Independent Auditors 9,398,991 99.6 5,393 .1
</TABLE>
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.
(b) On April 14, 1994, a Form 8-K was filed pursuant to the Agreement of
Reorganization and Plan of Merger ("Agreement") by and between the
Company and Barrow Bancshares, Inc. ("Barrow"), whereby Barrow is to
merge with the Company, resulting in the Company's acquiring all of
the outstanding shares of Barrow's subsidiary bank, Barrow Bank &
Trust Company.
Dated July 31, 1994, and filed August 1, 1994, a Form 8-K was filed
pursuant to the completion of the above transaction by and between
the Company and Barrow, whereby 521,700 shares of the Company's stock
was issued for all of the 379,682 shares of Barrow stock outstanding.
23
<PAGE> 24
Exhibit 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30 June 30 June 30 June 30
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
Weighted average shares outstanding 15,896,129 15,334,932 15,787,235 15,319,647
==================================================
Net income per share $ .45 $ .36 $ .85 $ .76
==================================================
PRIMARY EARNINGS PER SHARE
Weighted average shares outstanding 15,896,129 15,334,932 15,787,235 15,319,647
Dilutive stock options 192,097 139,343 207,126 131,311
--------------------------------------------------
16,088,226 15,474,275 15,994,361 15,450,958
==================================================
Net income per share $ .44 $ .36 $ .84 $ .75
==================================================
FULLY DILUTED EARNINGS PER SHARE
Weighted average shares outstanding 15,896,129 15,334,932 15,787,235 15,319,647
Dilutive stock options 196,825 131,311 208,799 131,311
--------------------------------------------------
16,092,954 15,466,243 15,996,034 15,450,958
==================================================
Net income per share $ .44 $ .36 $ .84 $ .75
==================================================
</TABLE>
24
<PAGE> 25
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: August 9, 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
25
