<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 March 31, 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 the 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 May 2, 1994
Common Stock, $1.00 Par Value 15,892,903 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 Cash Flows. . . . . . . . . 5
Consolidated Statements of Shareholders' Equity. . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-2-
<PAGE> 3
CONSOLIDATED BALANCE SHEETS (unaudited)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
March 31 December 31 March 31
1994 1993 1993
----------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 73,288 $ 85,097 $ 57,974
Federal funds sold and securities purchased under
agreements to resell 50,890 35,871 26,594
- - ---------------------------------------------------------------------------------------------------
Cash and cash equivalents 124,178 120,968 84,568
Interest-bearing deposits in other financial institutions 53,915 68,157 74,536
Investment securities available-for-sale 460,156 403,680 37,496
Investment securities held-to-maturity (market value
$148,702, $144,827 and $521,911, respectively 141,333 132,436 499,254
Loans 1,369,372 1,286,200 1,248,423
Less: Unearned income (13,678) (16,453) (18,027)
Allowance for loan losses (25,172) (21,073) (23,870)
- - ---------------------------------------------------------------------------------------------------
Net loans 1,330,522 1,248,674 1,206,526
Premises and equipment 54,789 47,554 45,656
Other assets 81,056 66,061 67,000
- - ---------------------------------------------------------------------------------------------------
Total assets $2,245,949 $2,087,530 $2,015,036
===================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 292,663 $ 280,037 $ 259,853
Interest-bearing, including certificates of deposit
of $100 or more of $178,378, $146,416 and
$161,801, respectively 1,544,112 1,436,154 1,413,454
- - ---------------------------------------------------------------------------------------------------
Total deposits 1,836,775 1,716,191 1,673,307
Federal funds purchased and securities sold
under agreements to repurchase 77,963 63,089 114,545
Other short-term borrowings 11,867 13,807 8,528
Long-term debt 70,934 57,867 9,363
Other liabilities 30,869 23,973 15,445
- - ---------------------------------------------------------------------------------------------------
Total liabilities 2,028,408 1,874,927 1,821,188
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share authorized
30,000,000 shares; issued and outstanding 15,869,675
15,532,855 and 15,314,964 shares, respectively 15,870 15,533 15,315
Additional paid-in capital 61,591 55,403 52,048
Retained earnings 141,670 138,400 126,485
Unrealized holding gains (losses) on securities available-for-sale (1,590) 3,267 ---
- - ---------------------------------------------------------------------------------------------------
Total shareholders' equity 217,541 212,603 193,848
- - ---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,245,949 $2,087,530 $2,015,036
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended March 31
---------------------------
1994 1993
---------------------------
<S> <C> <C>
INTEREST INCOME
Loans (including fees) $ 27,331 $ 26,786
Interest-bearing deposits in other
financial institutions 628 758
Investment securities:
Tax-exempt 2,435 2,136
Taxable 5,738 6,310
Federal funds sold and securities purchased
under agreements to resell 289 180
- - ------------------------------------------------------------------------------
Total interest income 36,421 36,170
- - ------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits, including interest expense on certificates of
deposit of $100 or more of $2,867 and $2,956,
respectively 11,581 14,787
Federal funds purchased and securities
sold under agreements to repurchase 2,397 604
Other short-term borrowings 60 57
Long-term debt 796 169
- - ------------------------------------------------------------------------------
Total interest expense 14,834 15,617
- - ------------------------------------------------------------------------------
NET INTEREST INCOME 21,587 20,553
Provision for loan losses 356 1,115
- - ------------------------------------------------------------------------------
Net interest income after provision for loan losses 21,231 19,438
- - ------------------------------------------------------------------------------
NONINTEREST INCOME
Fees for trust services 542 584
Service charges on deposit accounts 2,227 2,074
Net gains on securities transactions 163 365
Other noninterest income 3,901 4,220
- - ------------------------------------------------------------------------------
Total noninterest income 6,833 7,243
- - ------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 10,521 9,852
Net occupancy 1,099 987
Furniture and equipment 1,354 1,292
Other noninterest expense 6,936 6,404
- - ------------------------------------------------------------------------------
Total noninterest expense 19,910 18,535
- - ------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMMULATIVE EFFECT OF ACCOUNTING CHANGE 8,154 8,146
Income tax expense 1,871 2,306
- - ------------------------------------------------------------------------------
Income before cummulative effect
of accounting change 6,283 5,840
Cumulative effect at January 1, 1993 of change in
accounting for income taxes --- 160
- - ------------------------------------------------------------------------------
NET INCOME $ 6,283 $ 6,000
==============================================================================
NET INCOME PER SHARE:
Based on weighted-average shares outstanding of
15,677,131 and 15,304,193, respectively:
Income before cummulative effect of accounting change $ .40 $ .39
Cummulative effect of accounting change --- .01
- - ------------------------------------------------------------------------------
Net income per share $ .40 $ .40
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements
-4-
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------
1994 1993
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,283 $ 6,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 356 1,115
Provision for other real estate losses 29 370
Depreciation 1,326 1,143
Amortization, net (2,456) 1,207
Deferred income tax benefit (3,091) ----
Net gains on sales of investment securities (164) (365)
Gains on sales of mortgage loan servicing rights (1,230) (1,367)
Losses on sales of assets acquired in
foreclosure and equipment (197) (136)
Excess servicing fees receivable resulting from
first mortgage loan sales (227) (2,864)
Increase (decrease) in mortgage loans held-for-sale 25,777 (3,534)
Other, net 11,259 2,931
- - --------------------------------------------------------------------------------------------
Net cash provided by operating activities 37,665 4,500
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities 1,326 30,500
Proceeds from maturities of investment securities 2,810 4,863
Purchases of investment securities (11,952) (77,940)
Proceeds from sales of investment securities available-for-sale 2,477 ----
Proceeds from maturities of investment securities available-for-sale 5,345 ----
Purchases of investment securities available-for-sale (89,405) ----
Principal collection on investment securities available-for-sale 27,303 ----
Net (increase) decrease in interest-bearing deposits in
other financial institutions 14,838 (7,655)
Net increase in loans (21,551) (11,130)
Proceeds from sale of mortgage loan servicing rights 1,729 3,181
Purchases of mortgage loan servicing rights (5,408) (218)
Purchases of premises and equipment (649) (5,191)
Proceeds from sales of premises and equipment 32 994
Proceeds from sales of assets acquired in foreclosure 1,217 1,189
Net cash and cash equivalents acquired in the
purchase of bank subsidiary 24,985 ----
- - --------------------------------------------------------------------------------------------
Net cash used by investing activities (46,903) (61,407)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits (11,457) (6,389)
Net (decrease) increase in short-term borrowings 12,934 33,905
Proceeds from the issuance of long-term debt 13,000 1,017
Payments on long-term debt (163) (1,024)
Proceeds from issuance of common stock for stock options exercised 702 341
Payments for fractional shares in stock split 445 ----
Cash dividends paid on common stock (3,013) (2,633)
- - --------------------------------------------------------------------------------------------
Net cash provided by financing activities 12,448 25,217
- - --------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 3,210 (31,690)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 120,968 116,258
- - --------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 124,178 $ 84,568
============================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 13,089 $ 11,278
============================================================================================
Income taxes paid $ 1,565 $ 865
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
-5-
<PAGE> 6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Valuation
Shares Amount Capital Earnings Allowance 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 6,000
Cash dividends declared (2,633) (2,633)
Stock options excercised 22,125 22 319 341
--------------------------------------------------------------------------------------------------
Balance at March 31, 1993 15,314,964 $15,315 $52,048 $126,485 --- $193,848
==================================================================================================
Balance at January 1, 1994 15,532,855 $15,533 $55,403 $138,400 $3,267 $212,603
Net income 6,283 6,283
Cash dividends declared (3,013) (3,013)
Issuance of common
shares for acquisition 266,414 266 5,112 5,378
Stock options exercised 48,827 49 653 702
Issuance of common stock
for dividend reinvestment 21,579 22 423 445
Securities available-for-sale
valuation allowance (4,857 (4,857)
--------------------------------------------------------------------------------------------------
Balance at March 31, 1994 15,869,675 $15,870 $61,591 $141,670 ($1,590) $217,541
==================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
-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. 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.MERGER
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.
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 three month period ended March 31,
1994, had the purchase transaction described above been
consummated as of January 1, 1994, would have been:
PRO FORMA IMPACT
(dollars in thousands)
<TABLE>
<CAPTION>
Net Interest Income Net Income (Loss)
---------------------------------------
<S> <C> <C>
First National Bancorp, before acquisition $ 21,587 $ 6,283
Metro Bancorp, Inc. through February 28, 1994 711 (2,897)
---------------------------------------
Total $ 22,298 $ 3,386
=======================================
</TABLE>
The $2.897 million net loss reported by Metro includes a
one-time pre-tax provision for loan loss and provision
for other real estate totaling $4.135 million to Metro's
subsidiary bank prior to the merger.
3. PENDING ACQUISITION
On March 15, 1994, officials of Company and Barrow
Bankshares, Inc., ("Barrow"), whose wholly-owned
subsidiary is Barrow Bank & Trust Company, located in
Barrow County, Georgia, signed an Agreement of
Reorganization and Plan of Merger ("Agreement"). Under
the terms of the Agreement, the Company will, after
satisfaction of all legal and regulatory requirements by
both parties, exchange 1.37 shares of its common stock
for eack share of the 379,682 shares of Barrow stock
outstanding. No cash, except for fractional shares, will
be offered in the transaction, which will be accounted
for as a pooling-of-interests. The merger is subject to
approval by Barrow shareholders and various regulatory
authorities. As of March 31, 1994, total consolidated
assets and equity of Barrow and its subsidiary bank were
$54.973 million and $5.413 million, respectively. After
the merger and reorganization, Barrow Bank & Trust
Company will become the Company's seventeenth affiliate
bank.
4. EMPLOYEE BENEFIT PLANS
During the first quarter of 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 106 ("FAS 106"), "Employers' Accounting for Post-
Retirement Benefits Other than Pensions." Under FAS
106, accrual accounting is required for retiree medical
and life insurance benefits beginning in 1993. The
Company elected to amortize the accumulated benefit
obligation at January 1, 1993, of $2.6 million against
earnings over a twenty year period. The net periodic
expense charged against earnings was calculated to be
$170,495 and $92,941 for the quarters ending March 31,
1994 and 1993, respectively.
-7-
<PAGE> 8
5. INCOME TAXES
During the first quarter of 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 109 (FAS 109), "Accounting for Income Taxes." Under
FAS 109, deferred tax assets and liabilities are
established for temporary differences between the
financial reporting basis and the tax basis of the
Company's assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized
or settled. The Company elected to adopt FAS 109 as of
January 1, 1993 as a cumulative effect of a change in
accounting principle and did not restate any prior
periods. The cumulative effect of this change in
accounting for income taxes is reported separately in the
income statement for the three months ended March 31,
1993.
6.RECENT ACCOUNTING PRONOUNCEMENTS
During May 1993, the Financial Accounting Standards Board
("FASB") issued FAS 114, "Accounting by Creditors for
Impairment of a Loan" and FAS 115, "Accounting for
Certain Investments in Debt and Equity Securities".
FAS 114 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.
FAS 115 requires investments to be classified in three
categories; held-to-maturity securities (reported at
amortized cost), trading securities (reported at fair
value) and available-for-sale securities (reported at
fair value). Unrealized gains or losses on trading
securities are included in earnings. Unrealized gains or
losses on available-for-sale securities are excluded from
earnings and reported in a separate component of
shareholders' equity. FAS 115 is effective beginning in
1994, but can be adopted as of December 31, 1993. The
Company has adopted FAS 115 as of December 31, 1993, and
the net valuation allowance impact to the Company's
equity was a $1.590 million loss at March 31, 1994 and a
$3.267 million gain at December 31, 1993.
-8-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following management's discussion and analysis of
financial condition and results of operations includes
supplemental financial data and should be read in
conjunction with the primary consolidated financial
statements appearing in this report.
SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1994 1993 Change Percent
----------------------------------------------
<S> <C> <C> <C> <C>
Quarter Ended March 31:
Net income $ 6,283 $ 6,000 $ 283 4.71 %
Net interest income 21,587 20,553 1,034 5.03
Net interest income (FTE) 23,109 21,646 1,463 6.76
Noninterest income 6,833 7,243 (410) (5.66)
Noninterest expenses 19,910 18,535 1,375 7.42
Provision for loan losses 356 1,115 (759) (68.07)
Per Share Data:
Net income $ .40 $ .39 $ .01 2.56 %
Dividends declared .1900 .1725 .0175 10.14
Book value 13.71 12.66 1.05 8.30
Tangible book value 12.13 11.67 .46 3.97
Weighted average shares outstanding 15,677,131 15,304,193
Shares outstanding at quarter-end 15,869,675 15,314,964
Financial Ratios:
Return on average assets 1.21% 1.24%
Return on average shareholders' equity 12.02 12.73
Net interest margin 4.81 4.85
Primary capital to adjusted assets:
Including intangibles 10.69 10.68
Excluding intangibles 10.29 10.33
Allowance for loan losses to loans, net of unearned income:
Including mortgage loans held-for-sale 1.86 1.94
Excluding mortgage loans held-for-sale 1.91 2.08
Selected Balances as of March 31:
Total assets $2,245,949 $2,015,036 $230,913 11.46 %
Earning assets 2,061,988 1,868,276 193,712 10.37
Loans, net of unearned income:
Including mortgage loans held-for-sale 1,355,694 1,230,396 125,298 10.18
Excluding mortgage loans held-for-sale 1,316,110 1,148,658 167,452 14.58
Allowance for loan losses 25,172 23,870 1,302 5.46
Securities 601,489 536,750 64,739 12.06
Deposits 1,836,775 1,673,307 163,468 9.77
Other interest-bearing funds 160,764 132,435 28,329 21.39
Shareholders' equity 217,541 193,848 23,693 12.22
Average Balances for the Quarter:
Total assets $2,110,058 $1,954,905 $155,153 7.94 %
Earning assets 1,950,114 1,811,846 138,268 7.63
Loans, net of unearned income:
Including mortgage loans held-for-sale 1,285,164 1,192,258 92,906 7.79
Excluding mortgage loans held-for-sale 1,239,308 1,138,554 100,754 8.85
Allowance for loan losses 22,508 23,678 (1,170) (4.94)
Securities 567,475 521,099 46,376 8.90
Deposits 1,729,406 1,653,698 75,708 4.58
Other interest-bearing funds 146,566 97,986 48,580 49.58
Shareholders' equity 212,035 191,203 20,832 10.90
</TABLE>
-9-
<PAGE> 10
PERFORMANCE OVERVIEW
In the first quarter of 1994, the Company reported net
income of $6.283 million, an increase of $.283 million, or
4.71% from the $6.000 million in the first quarter of 1993.
Earnings per share in the first quarter of 1994 were $.40,
compared with $.39 in the first quarter of 1993, an increase
of 2.56%. Weighted average shares outstanding for the first
three months of 1994 increased to 15,677,131, compared with
15,304,193 in the first three months of 1993.
Fully-taxable equivalent net interest income for the quarter
increased to $23.109 million in the first three months of
1994, compared with $21,646 million in the first three
months of 1993. Net interest margin for the quarter was
4.81%, down slightly from 4.85% reported for the first
quarter of 1993. The provision for loan losses totaled
$.356 million compared to $1.115 million for the first
quarter of 1993, a result of management's continued effort
to make asset quality a top priority. Noninterest income
decreased 5.66%, from $7.243 million in 1993 to $6.833
million in 1994, with the most significant decrease coming
from lower mortgage loan and other related fees, a decrease
of $1.239 million. Noninterest expense increased 7.42% from
$18.535 million to $19.910 million. The increase in
noninterest expense between the first quarter of 1994 and
first quarter of 1993 was attributable to an increase in
employee related expenses of $.669 million between periods,
with $.221 million of the increase related to the
acquisition of Metro.
Management expects overall earnings performance to continue
improving during the second quarter. This is based on the
Company's analysis of recent acquisitions, expansions into
new markets and the anticipated growth of these markets.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is
the amount by which interest and fees generated by interest-
earning assets, including loans, investment securities and
money market assets, exceed the interest costs of deposits
and borrowed funds. Net interest income is affected by a
number of factors including the volume and type of earning
assets and liabilities, interest rate fluctuations and asset
quality. For comparative purposes in the accompanying
narrative, net interest income has been adjusted to reflect
tax-exempt income, such as interest on municipal securities
and tax-exempt loans, on a fully taxable equivalent basis.
The increase in fully taxable equivalent net interest income
was attributable to the 7.93% growth in average earning
assets from $1.812 billion at March 31, 1993, to $1.950
billion reported at March 31, 1994. The earnings effect of
this growth in earning assets was slowed somewhat by the
decrease in the net interest margin to 4.81%, from 4.85%
reported for the first quarter of 1993. The growth of
average core earning assets was due to acquisition of Metro,
an increase in retail loans of $52 million and commercial
loans of $20 million. Average incremental assets were up
5.57% as the $7.848 million decrease in average mortgage
loans held for sale was offset by an increase in securities
of $46.375 million. Average interest-bearing liabilities
increased 6.45%, from $1.523 billion in the first quarter of
1993 to $1.621 billion in first quarter of 1994. Average
demand deposits rose to $255 million, up 11.40% from the
prior year.
Management anticipates a modest improvement in net interest
income during the second quarter of 1994 and throughout the
rest of 1994. With the recent increase in rates by the
Federal Reserve Bank, management believes there may be some
easing of margin pressure, although temporary, when compared
to previous quarters.
NONINTEREST INCOME
Total noninterest income decreased 5.66% to $6.833 million
for the first quarter of 1994, from $7.243 million for the
first quarter of 1993. The decrease in noninterest income
was due primarily to lower mortgage loan servicing and other
related fees, which decreased $1.239 million between the
first quarters of 1994 and 1993, or a 46.85% decline. This
is due primarily to the decrease in the average servicing
portfolio levels and the slowing down of refinancing
activity, when compared to levels seen during the first
quarter of 1993. Gain on sales of mortgage loan servicing
rights decreased, from $1.367 million during the first
quarter of 1993, compared to $1.230 million for the first
quarter of 1994, or 11.14%. Additional income was
recognized in the first quarter of 1994, due to the sale of
refinanced mortgages, which existed on the Company's books
at December 31, 1993.
Gains on sales of securities were $.164 million in first
quarter 1994, down from the $.365 million reported for the
first quarter of 1993, a decrease of 55.17%.
-10-
<PAGE> 11
The Company anticipates future decreases in mortgage
refinancing activity, as mortgage rates begin to rise from
record levels seen in the past few years. Initiatives begun
in 1993, relating to mutual funds and annuities sales are
expected to increase the opportunities for noninterest
income development.
Changes in key noninterest income catagories are provided in
the following table:
ANALYSIS OF CHANGE IN NONINTEREST INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Increase/(Decrease)
-------------------
3/31/94 3/31/93 $ %
-----------------------------------
<S> <C> <C> <C> <C>
Fees for trust services $ 542 $ 585 (43) (7.36)
Service charges on deposit accounts 2,227 2,074 153 7.36
Net gains on sales of investment securities 164 365 (201) (55.17)
Insurance premiums and commissions 305 429 (124) (28.98)
Mortgage loan and other related fees 1,405 2,644 (1,239) (46.85)
Other noninterest income 2,190 1,146 1,044 91.12
-----------------------------------
Total noninterest income $6,833 $7,243 (411) (5.67)
Noninterest income as a percent of
average assets (annualized) 1.31% 1.50%
</TABLE>
NONINTEREST EXPENSES
Total noninterest expense amounted to $19.910 in the first
quarter of 1994 compared to $18.535 million in 1993, or
7.42%. The Company's effeciency ratio increased slightly
from 64.98% for the first quarter of 1993 to 66.86% for the
first quarter of 1994.
For the current quarter, personnel related expenses
increased $.669 million, over the $9.852 million in the
first quarter of 1993. Approximately 30% of the increase
over 1993 is related to the addition of Metro's payroll,
which are not reflected in 1993 expenses, but are included
in first quarter 1994 expenses. Excluding the affects of
Metro, personnel related expensed had a modest increase of
approximately 4.72%.
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 telephone expenses were expected with the
conversion. The Company will continue to see slight
increases in these catagories throughout the rest of 1994.
-11-
<PAGE> 12
The Company's efficiency ratio (noninterest expense as a
percentage of total net interest income, adjusted on a fully-
taxable equivelent basis, and excluding securities gains or
losses) increased from 64.98% at the end of the first
quarter of 1993, to 66.86% at the end of the first quarter
1994. While the effeciency ratio increased through the
final three quarters of 1993, the Company has a longer term
objective of reducing this ratio to the lower 60% range over
the next four-to-six quarters.
Changes in key noninterest expense catagories are provided
in the following table:
ANALYSIS OF NONINTEREST EXPENSE
(dollars in thousands)
<TABLE>
<CAPTION>
Increase/(Decrease)
------------------------------------
3/31/94 3/31/93 $ %
------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $10,521 $ 9,852 669 6.79
Furniture and equipment 1,354 1,292 62 4.80
Net occupancy 1,099 987 112 11.35
Promotional 359 328 32 9.64
Postage, telephone and stationary 1,217 1,126 90 8.03
Other:
FDIC insurance premiums 965 966 (1) (0.14)
Amortization of goodwill 182 170 12 7.21
Other noninterest expense 4,213 3,814 399 10.46
-----------------------------------
Total noninterest expense $19,910 $18,535 1,375 7.42
===================================
Noninterest expense as a percent
of average assets (annualized) 3.82% 3.85%
Overhead ratio 66.86% 64.98%
</TABLE>
-12-
<PAGE> 13
ASSET QUALITY
The most significant risk of loss in a financial institution
is from its loan portfolio. The Company manages it 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.
Nonperforming loans, which include nonaccrual loans and
renegotiated loans totaled $24.178 million, or 1.84% of
loans at March 31, 1994, compared with $30.405 million, or
1.73% at December 31, 1993, and with $23.388 million, or
2.04% at March 31, 1993. Nonperforming assets, which is
made up of nonperforming loans, plus other real estate
acquired in forclosures (OREO), totaled $36.015 million, or
2.71% of loans, plus OREO at March 31, 1994, compared to
$30.405 million, or 2.50% at December 31, 1993, and with
$33.871 million, or 2.92% at March 31, 1993.
As in previous quarters, management will be monitoring asset
quality levels closely and expects to see improvements
through the rest of 1994.
RISK ELEMENTS
(dollars in thousands)
<TABLE>
<CAPTION>
3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $22,240 $20,509 $22,705 $24,694 $23,131
Renegotiated loans 1,938 364 404 211 257
----------------------------------------------
Total nonperforming loans 24,178 20,873 23,109 24,905 23,388
Other real estate 11,837 9,532 10,393 11,825 10,483
----------------------------------------------
Total nonperforming assets $36,015 $30,405 $33,502 $36,730 $33,871
==============================================
Loans past due 90 days or more $ 147 $ 224 $ 647 $ 480 $ 416
Nonperforming loans as a percent of loans, net of
unearned income (excluding held-for-sale) 1.84 % 1.73 % 1.95 % 2.13 % 2.04 %
Nonperforming assets as a percent of loans,
net of unearned income, plus other real estate
owned (excluding held-for-sale) 2.71 2.50 2.80 3.11 2.92
Allowance for loan losses as a percent of
nonperforming loans 104.11 100.95 99.71 95.98 102.06
Allowance for loan losses as a percent of
nonperforming assets 69.89 69.31 68.78 65.08 70.47
</TABLE>
The Company has had significant success in maintaining solid
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 Company's nonperforming
assets decreased $6.432 million between March 31, 1993 and
March 31, 1994, with a majority of the decrease, $4.723
million, occuring between December 31, 1993 and March 31,
1994. The ratio of nonperforming assets to loans and other
real estate, excluding the impact of Metro, would be 2.00%,
2.43% and 2.70% for the periods ended March 31, 1994,
December 31, 1993 and March 31, 1993, respectively.
Management continues to place emphasis in asset quality
procedures and training and anticipates additional
improvements will be recognized in the second quarter and
thoughout the rest of 1994.
-13-
<PAGE> 14
ALLOWANCE AND PROVISION FOR LOAN LOSSES
In the first quarter of 1994, the provision for loan losses
amounted to $.356 million, compared to $1.115 million in the
first quarter of 1993. The reduction in the level of
provision expense was warrented by the improvement in asset
quality since first quarter 1993. Activity in the allowance
for loan losses, including the contribution from the
acquisition of Douglasville in the first quarter, is shown
in the following table.
LOAN CHARGE-OFF ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
1994 1993 1993 1993 1993
------------------------------------------------------------------
First Fourth Third Second First
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average total loans, net of unearned income $1,239,308 $1,196,244 $1,174,645 $1,169,638 $1,138,554
==================================================================
Allowance for loan losses, beginning of quarter $ 21,073 $ 23,044 $ 23,905 $ 23,870 $ 23,589
Charge-offs 916 2,683 1,981 1,507 1,227
Recoveries on loans charged-off 619 389 617 510 392
------------------------------------------------------------------
Net charge-offs 297 2,294 1,364 997 835
Provision for loan losses 356 323 503 1,032 1,116
Allowance of subsidiary bank acquired 4,040 --- --- --- ---
------------------------------------------------------------------
Allowance for loan losses, end of year $ 25,172 $ 21,073 $ 23,044 $ 23,905 $ 23,870
==================================================================
Allowance for loan losses to loans,
net of unearned income:
Including mortgage loans held-for-sale 1.96 % 1.61 % 1.82 % 1.87 % 2.00 %
Excluding mortgage loans held-for-sale 2.03 1.76 1.96 2.04 2.10
Net loans charged off as a percentage
of average loans, net of unearned
income (annualized):
Including mortgage loans held-for-sale .10 .70 .43 .31 .28
Excluding mortgage loans held-for-sale .10 .77 .46 .34 .29
</TABLE>
During the first quarter of 1994, a significant recovery on
loans charged-off was recognized. In addition, previous
emphasis by management in the area of asset quality has
resulted in an unusually low charge-off ratio for the
quarter. Management anticipates the charge-off ratio will
return to a modest mid-to-upper 30% range during the rest of
1994.
-14-
<PAGE> 15
The following table presents loan and asset quality
concentrations as of March 31, 1994:
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 $ 32,671 2.41% $ 563 $ --- $ 413 $ ---
Broiler operations 29,278 2.16 --- --- 376 ---
Egg operations 14,197 1.05 350 --- 126 ---
Farmland 18,550 1.37 121 --- --- ---
Multi-family residential 20,536 1.51 1,047 --- 1,903 ---
Office buildings 33,698 2.49 --- --- 25 ---
----------------------------------------------------------------------
28,374 2.09 736 --- 753 ---
Manufacturing/industrial:
Hotel/motel 21,115 1.56 --- --- 924 ---
Recreational properties 8,435 .62 1,825 1,255 1,611 ---
Shopping centers 15,129 1.12 285 --- 441 ---
Other commercial 110,172 8.13 2,373 --- 1,595 ---
Other 45,894 3.39 4,978 320 78 ---
---------------------------------------------------------------------
378,049 27.89 12,278 1,575 8,245 ---
Construction and land development:
Acquisition and land development:
Residential 28,288 2.09 193 --- --- ---
Commercial 6,891 .51 --- --- --- ---
Construction 75,377 5.56 88 --- 1,368 ---
---------------------------------------------------------------------
110,556 8.15 281 --- 1,368 ---
Residential mortgages:
Real estate dwelling 208,977 15.41 3,208 53 1,444 ---
Mortgage loans held-for-sale 39,584 2.92 --- --- --- ---
Residential lots 40,176 2.96 702 119 367 ---
Mobile homes 33,831 2.50 758 --- 34 ---
Rental 31,905 2.35 894 191 189 ---
Interval ownership 10,083 .74 20 --- --- ---
Mortgage loan investments 24,187 1.78 521 --- 45 ---
Home equity 25,428 1.88 41 --- 58 ---
Other 12,550 .93 183 --- 87 ---
---------------------------------------------------------------------
426,721 31.48 6,327 363 2,224 ---
Commercial products:
Assignment A/R and contracts 19,658 1.45 --- --- --- ---
Inventory 11,400 .84 52 --- --- ---
Assignment of notes 7,910 .50 435 --- --- ---
Automobiles - heavy trucks 4,563 .34 142 --- --- ---
Floor plans 1,924 .14 --- --- --- ---
Other 63,836 4.71 1,160 --- --- 19
---------------------------------------------------------------------
109,291 8.06 1,789 --- --- 19
Consumer goods:
Automobiles 207,193 15.28 778 --- --- 67
Unsecured 33,758 2.49 42 --- --- 2
Savings and certificates 29,062 2.14 --- --- --- ---
Credit cards 18,825 1.63 --- --- --- 58
Mobile homes without real estate 7,447 .55 94 --- --- ---
Unsecured consumer lines of credit 3,692 .27 4 --- --- 1
Co-maker/guarantor 5,187 .38 13 --- --- ---
Other 25,913 1.91 634 --- --- ---
---------------------------------------------------------------------
331,077 24.42 1,565 --- --- 128
---------------------------------------------------------------------
Total concentrations $1,355,694 100.00% $22,240 $1,938 $11,837 $147
=====================================================================
</TABLE>
-15-
<PAGE> 16
The following table provides a summary of average balances
for the quarters ended March 31, 1994, December 31, 1993 and
March 31, 1993, along with interest earned and paid during
each period and average rates by category.
<TABLE>
<CAPTION>
3/31/94 12/31/93 3/31/93
------------------------- -------------------------- -------------------------
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 $ 63,294 $ 628 4.02% $ 67,114 $ 667 3.94% $ 72,368 $ 758 4.25%
Net loans 1,285,164 27,330 8.62 1,312,030 28,013 8.47 1,192,258 26,788 9.11
Investment securities:
Taxable 426,257 5,738 5.46 406,651 5,645 5.51 407,871 6,310 6.27
Non-taxable 141,217 3,958 11.37 124,473 3,369 10.74 113,228 3,229 11.57
Federal funds sold 34,182 289 3.43 8,234 47 2.26 26,120 178 2.76
------------------ ------------------- ------------------
Total earning assets 1,950,114 37,943 7.89 1,918,504 37,741 7.80 1,811,845 37,263 8.34
------------------------- -------------------------- -------------------------
Reserve for loan losses (22,508) (22,501) (23,678)
Cash and due from banks 63,484 64,328 57,988
Premises and equipment, net 49,843 47,419 43,627
Other assets 69,125 60,170 65,123
---------- ---------- ----------
Total assets $2,110,058 $2,067,920 $1,954,905
========== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and money
market accounts $ 570,625 3,612 2.57 $ 542,524 3,592 2.63 $ 539,574 3,748 2.82
Time deposits 903,992 9,735 4.37 884,516 9,908 4.44 885,415 11,039 5.06
Federal funds purchased
and securities sold under
agreements to repurchase 72,638 630 3.52 85,067 693 3.23 79,610 604 3.08
Other borrowed funds 73,929 857 4.70 61,552 723 4.66 18,376 226 4.99
------------------ ------------------- ------------------
Total interest-bearing liabilities 1,621,184 14,834 3.71 1,573,659 14,916 3.76 1,522,975 15,617 4.16
------------------------- -------------------------- -------------------------
Noninterest-bearing demand deposits 254,788 274,408 228,709
Other liabilities 22,051 19,015 12,018
---------- ---------- ----------
Total liabilities 1,898,023 1,867,082 1,763,702
Total shareholders' equity 212,035 200,838 191,203
---------- ---------- ----------
Total liabilities and
shareholders' equity $2,110,058 $2,067,920 $1,954,905
========== ========== ==========
Net interest income $23,109 $22,825 $21,646
======== ======== ========
Interest spread 4.18% 4.04% 4.18%
======= ======= =======
Net interest margin 4.81% 4.72% 4.85%
======= ======= =======
</TABLE>
-16-
<PAGE> 17
EARNING ASSETS
Total average earning assets for the first quarter of 1994,
were $1.950 billion, up 7.63% from the $1.812 billion during
first quarter of 1993, and up 7.96% from the $1.910 billion
during fourth quarter of 1993. Earning assets have
consistently accounted for over 90% of total assets.
Earning assets accounted for 91.81% of assets at March 31,
1994, 91.49% at December 31, 1993, and 92.72% at March 31,
1993.
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.
During the first quarter of 1994, incremental earning assets
increased $40.372 million. This increase was due primarily
to increases in investments, with agencies up $39.711
million and treasuries up $16.269 million. These increases
were partially offset by a decrease in mortgage loans held-
for-sale of $25.778 million. 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 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 second quarter of 1994.
FUNDING SOURCES
Total average deposits and other funding sources for the
quarter ending March 31, 1994, were $1.621 billion, up 6.45%
from the $1.522 billion during the first quarter ending
March 31, 1993, and up 3.02% from the $1.574 billion during
the fourth quarter ending December 31, 1993.
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.
Deposits remained relatively unchanged between periods, when
taking into account the increase attributed to Metro
deposits. However, incremental funds increased between
first quarter 1994 and first quarter of 1993, primarily the
result of an increase of $38.455 million in certificates of
deposit over $100,000 and an increase in long-term debt of
$55.491 million, offset by a decrease in federal funds
purchased and securities sold under agreements to repurchase
of $6.972 million
-17-
<PAGE> 18
SECURITIES
The book and market value of securities at March 31, 1994,
are summarized as follows:
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 $ 87,402 $ 464 $ 406 $ 87,460
Mortgage-backed securities 365,061 3,303 5,768 362,596
State and municpal - taxable 3,039 117 255 2,901
Other investments 7,244 42 87 7,199
--------------------------------------------
Total $ 462,746 $ 3,926 $ 6,516 $ 460,156
Investment securities held-to-maturity:
State an municipal - tax exempt $ 141,333 $ 9,036 $ 1,668 $ 148,701
</TABLE>
At March 31, 1994, market value of securities as a percent
of book value was 100.79%, down from the 103.34% and 104.50
% reported at December 31, 1993, and March 31, 1993,
respectively.
Based on the carrying value, the following provides
securities available-for-sale, securities held-to-maturity,
federal funds sold and interest-bearing deposits with
financial institutions:
CARRYING VALUE OF INVESTMENTS
(in thousands)
<TABLE>
<CAPTION>
March 31 December 31 March 31
1994 1993 1993
-----------------------------------
<S> <C> <C> <C>
Securities available-for-sale:
U. S. Treasury $ 24,824 $ 8,155 $ 6,383
U. S. Government agencies 62,636 31,465 8,934
Mortgage-backed securities:
Fixed rate 126,926 122,756 9,772
Adjustable rate 235,670 232,694 12,407
Corporate bonds 542 563 ---
State and municipal 2,901 3,146 ---
Other investments 6,657 4,901 ---
-----------------------------------
Total securities available-for-sale 460,156 403,680 37,496
Securities held-to-maturity:
U. S. Treasury --- --- 12,287
U. S. Government agencies --- --- 35,332
Mortgage-backed securities:
Fixed rate --- --- 90,571
Adjustable rate --- --- 238,579
Corporate bonds --- --- 1,501
State and municipal 141,333 132,436 116,345
Other investments --- --- 4,639
-----------------------------------
Total securities held-to-maturity 141,333 132,436 499,254
Federal funds sold 50,890 35,871 26,594
Interest-bearing deposits with
financial institutions 53,915 68,157 74,536
-----------------------------------
Total investments $246,138 $236,464 $600,384
===================================
</TABLE>
-18-
<PAGE> 19
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 second quarter based on the current interest rate
environment.
The Company has the intention and ability to hold investment
securities until their 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 quarter 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 second quarter. As
of March 31, 1994, $306.934 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.
The following table presents the current distribution of the
total investments by expected maturity and average yields
(for all obligations on a fully taxable equivalent basis
assuming a 35% tax rate) at March 31, 1994. Expected
maturities may differ from contractual maturities due to
call and prepayment options.
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 $12,504 3.84% $11,331 6.04% $ 989 8.24%
U. S. Government agencies 30,912 4.06 21,049 5.41 10,675 7.01
Mortgage-backed securities:
Fixed rate --- --- 6,530 8.10 24,069 7.14 $ 96,327 7.19%
Adjustable rate --- --- 233 4.85 1,679 5.97 233,758 5.44
Corporate bonds --- --- 542 8.84 --- --- --- ---
State and municipag 1,053 9.26 604 12.55 390 12.01 854 6.62
Other investments --- --- --- --- --- --- 6,657 5.58
-------------------------------------------------------------
Total investment securities
available-for-sale 44,469 3.90 40,289 5.99 37,802 7.01 337,596 5.93
State and municipal 7,100 11.75 57,263 12.79 15,279 11.28 69,059 10.02
Federal funds sold 50,980 3.80 --- --- --- --- --- ---
Interest-bearing deposits with
financial institutions 53,521 3.86 394 4.11 --- --- --- ---
-------------------------------------------------------------
Total investments $156,070 4.23% $97,946 9.79% $53,081 8.15% $406,655 6.62%
=============================================================
</TABLE>
-19-
<PAGE> 20
INTEREST RATE SENSITIVITY
BETA ADJUSTED GAP
(dollars in thousands)
<TABLE>
<CAPTION>
Three Six Twelve
Months Months Months
------------------------------------
<S> <C> <C> <C>
Beta adjusted gap position:
Rate sensitive assets $ 773,243 $ 961,978 $ 1,190,150
Rate sensitive liabilities 764,738 955,991 1,210,779
------------------------------------
Dollar Gap $ 8,505 $ 5,987 $ (20,629)
====================================
Gap ratio 1.01 1.01 .98
Policy ratio .65 - 1.20 .65 - 1.20 .90 - 1.10
</TABLE>
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 affiliate 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. As of March 31, 1994, the Company's
balance sheet was structured to attain compliance with this
standard.
The Beta adjusted gap analysis 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 March 31, 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, as of March 31, 1994, that the Company is in
compliance with these standards. Management anticipates no
significant changes in this profile for the second 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%. As of March 31,
1994, the core funding to core assets ratio equaled 111.66%
down from the 115.63% and 118.27% reported at December 31,
1993 and March 31, 1993, respectively. 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 second quarter of 1994.
-20-
<PAGE> 21
It is also the Company's target policy for incremental funds
to total deposits and funds not to exceed 40%. As of March
31, 1994, this ratio equaled 26.23%, up from the 25.16%
reported as of December 31, 1993 and 23.13% as of March 31,
1993, and continues to be 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
The Company's standards and capital levels as of March 31,
1994, are as follows:
ANALYSIS OF CAPITAL ADEQUACY
(dollars in thousands)
<TABLE>
<CAPTION>
Regulatory Internal
3/31/94 Guidelines Standards
----------- ---------- ---------------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets 14.29% 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 15.54 8.00 9.00 (minimum)
Leverage ratios:
Capital to assets 9.69% 6.50% (minimum)
Primary capital to adjusted assets (a) 10.69 5.50% 8.00 (minimum)
Primary tangible capital to adjusted
assets (b) 10.29 6.00 (minimum)
Tier 1 capital $ 207,477
Tier 2 capital 18,153
----------
Total capital $ 225,629
==========
Risk-adjusted assets $1,452,243
<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.
-21-
<PAGE> 22
The Company has met all of its capital requirements through
retained earnings while steadily increasing regulatory and
internally defined capital ratio objectives. The following
summarizes the Company's internal capital generation and the
factors that influence it:
INTERNAL CAPITAL GENERATION RATE
<TABLE>
<CAPTION>
March 31 March 31
1994 1993
---------------------
<S> <C> <C>
Return on average assets 1.21% 1.24%
divided by
Average equity as a % of average assets 10.05 9.78
equals
Return on average equity 12.02 12.73
times
Earnings retained 52.50 55.77
equals
Internal capital growth 6.31 7.10
</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 first quarter of 1994 was $.19
compared to $.1725 for the first quarter of 1993, an
increase of 10.14%. 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.
<TABLE>
<CAPTION>
Number Description of Exhibits
------ -------------------------------------
<S> <C>
11.1 Statement re computation of per share earnings
(enclosed herewith)
</TABLE>
(b) Not applicable.
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<PAGE> 24
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31 March 31
1994 1993
----------- -----------
<S> <C> <C>
EARNINGS PER SHARE:
Weighted average shares outstanding 15,677,131 15,304,193
========== ==========
Net income per share $0.40 $0.39
========== ==========
PRIMARY EARNINGS PER SHARE:
Weighted average shares outstanding 15,677,131 15,304,193
Dilutive stock options 98,949 128,446
---------- ----------
15,776,080 15,432,639
========== ==========
Net income per share $0.40 $0.39
========== ==========
FULLY DILUTED EARNINGS PER SHARE:
Weighted average shares outstanding 15,677,131 15,304,193
Dilutive stock options 98,949 138,134
---------- ----------
15,776,080 15,442,327
========== ==========
Net income per share $0.40 $0.39
========== ==========
Net income $ 6,283 $ 6,000
Primary EPS
1993 dilutive options as previously reported 106,957
Carrollton Stock option plan 21,489
----------
Total Options 128,446
==========
Fully Diluted EPS
1992 dilutive options as previously reported 116,645
Carrollton Stock option plan 21,489
----------
Total Options 138,134
==========
</TABLE>
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<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: May 3, 1994
By: /c/ Peter D. Miller
-------------------------------------
Peter D. Miller
President, Chief Administrative,
and Chief Financial Officer
By: /c/ J. Reid Moore
------------------------------------
J. Reid Moore
Group Vice President and Controller
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