<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / X /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ X / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
FIRST NATIONAL BANCORP
(Name of Registrant as Specified In Its Charter)
C. Talmadge Garrison
Senior Vice President, Secretary and Treasurer
First National Bancorp
303 Jesse Jewell Parkway, Suite 700
Gainesville, Georgia 30501
(Name of Persons(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ X / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
................................................................
2) Aggregate number of securities to which transaction applies:
................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
.................................................................
4) Proposed maximum aggregate value of transaction:
.................................................................
__/ Set forth the amount on which the filing fee is calculated and state
how it was determined.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
1) Amount Previously Paid:
..............................................
2) Form, Schedule or Registration Statement
No.:
..............................................
3) Filing Party:
..............................................
4) Date Filed:
..............................................
<PAGE> 2
FIRST NATIONAL BANCORP
P.O. DRAWER 937
GAINESVILLE, GEORGIA
30503-0937
RICHARD A. MCNEECE TEL. (404) 503-2100
CHAIRMAN OF THE BOARD FAX. (404) 503-2700
AND
CHIEF EXECUTIVE OFFICER
March 18, 1994
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of First National
Bancorp Shareholders which will be held at the Georgia Mountains Center,
downtown Gainesville, on Wednesday, April 20, 1994. Ample parking should be
available on the Center's adjoining parking decks.
There will be a reception in Rooms B and C beginning at 3:30 p.m., during
which we hope you will join us for refreshments and get a chance to meet and
talk to the Directors and Senior Officers of Bancorp and the Affiliate Banks.
The Annual Meeting will be held in the Georgia Mountains Center Theatre
beginning at 4:00 p.m., and should be adjourned by no later than 5:00 p.m.
The official Notice, Proxy, Proxy Statement and Annual Report to
Shareholders are enclosed. Your proxy card is located in the window on the front
of this package of documents. It would be most helpful to us if you would kindly
complete, sign and mail your proxy card as soon as possible in the enclosed
envelope, addressed to First National Bancorp, Midtown Station, P. O. Box 949,
New York, NY 10138-0749. (Note: this address is for mailing proxy cards only.)
We would greatly appreciate you voting "FOR" the Directors nominated, "FOR"
the Performance-Based Restricted Stock Plan proposal, and "FOR" the proposal to
ratify KPMG Peat Marwick as independent auditors of the Company for the 1994
year.
We look forward to being with you at the meeting.
Cordially,
/s/ Richard A. McNeece
- ----------------------------
Richard A. McNeece
Chairman and Chief Executive Officer
Enclosures
SUITE 700 - FIRST NATIONAL BANCORP BUILDING - 303 JESSE JEWELL PARKWAY
GAINESVILLE, GEORGIA 30501
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 20, 1994
TO THE HOLDERS OF COMMON STOCK
OF FIRST NATIONAL BANCORP
The Annual Meeting of Shareholders of First National Bancorp will be held
in the Theatre at the Georgia Mountains Center, 301 Main Street, Gainesville,
Georgia, on Wednesday, April 20, 1994, at 4:00 p.m., Gainesville time, for the
following purposes:
1. To elect twenty-two Directors to serve until the 1995 Annual Meeting of
Shareholders.
2. To vote on the proposal to establish the Performance-Based Restricted Stock
Plan.
3. To ratify the appointment of KPMG Peat Marwick as the Company's independent
auditors for the fiscal year ending December 31, 1994.
4. To transact such other business as may properly come before the meeting and
any adjournments thereof. Management at present knows of no other business to
be presented at the meeting, other than the report of Management and
presentation of the financial statements. If other matters properly come
before the meeting, the persons named in the Proxy will have discretionary
authority to vote proxies with respect to such matters after considering the
recommendations of management.
Shareholders of record at the close of business on February 18, 1994, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
For the Board of Directors,
/s/ Richard A. McNeece
-----------------------
Richard A. McNeece
Chief Executive Officer
Gainesville, Georgia
March 18, 1994
YOU ARE URGED TO VOTE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED AS
SOON AS POSSIBLE, EVEN IF YOU DO PLAN TO ATTEND THE MEETING. IF YOU ATTEND THE
MEETING YOU MAY, IF YOU SO DESIRE, REVOKE THE PROXY AND VOTE YOUR SHARES IN
PERSON.
<PAGE> 4
FIRST NATIONAL BANCORP
GAINESVILLE, GEORGIA 30503
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 20, 1994
SOLICITATION OF PROXIES
This Proxy Statement is furnished to the shareholders of First National
Bancorp (the "Company") in connection with the solicitation of proxies by the
Company's Board of Directors for the purposes stated herein for use at the
Annual Meeting of Shareholders to be held in the theater of the Georgia
Mountains Center, 301 Main Street, Gainesville, Georgia, on Wednesday, April 20,
1994, at 4:00 p.m., Gainesville time, or any adjournment thereof. THE COST OF
THIS SOLICITATION OF PROXIES WILL BE BORNE BY THE COMPANY.
The Company's executive offices are located at 303 Jesse Jewell Parkway,
Suite 700, P. O. Drawer 937, Gainesville, Georgia 30503. The approximate date of
the mailing of this Proxy Statement to shareholders is March 18, 1994.
REVOCATION OF PROXY
The Board of Directors encourages the personal attendance of shareholders
at the Annual Meeting, and the giving of the proxy does not preclude the right
to vote in person, should the person giving the proxy so desire. The person
giving the proxy has the power to revoke the proxy at any time before the proxy
is exercised.
VOTING AND OUTSTANDING STOCK
The close of business on February 18, 1994, has been fixed as the record
date for the determination of shareholders of the Company entitled to vote at
the Annual Meeting. At the close of business on that date, the Company had
issued and outstanding 15,575,662 shares of common stock, $1.00 par value.
In the election of Directors, each shareholder will have the right to vote
the number of shares owned by him for as many persons as there are Directors to
be elected, or to cumulate such shares and give one candidate as many votes as
the number of Directors multiplied by the number of shares shall equal, or to
distribute them on the same principle among as many candidates as he may see
fit. For all other purposes, each share is entitled to one vote and except as
otherwise stated in this Proxy Statement, a majority of shares voted shall
constitute the affirmative act of the shareholders. The cumulative voting rights
referred to above have the effect of giving minority interests a greater chance
to elect a director to the Board and would help preclude a takeover by spreading
control of the Board among a greater number of shareholders. There are presently
no other provisions in the Company's Articles of Incorporation or Bylaws that
the Board of Directors believe would have an anti-takeover effect.
<PAGE> 5
DIRECTOR AND MANAGEMENT INFORMATION
The twenty-two (22) persons listed below as Director Nominees will be
nominated to serve until the 1995 Annual Meeting of Shareholders. Unless
otherwise directed, it is the intention of the persons named in the proxy to
vote for the election of the Nominees listed below. There are five individuals
who served as Directors of the Company for the 1993-1994 year and who were
listed in the 1993 Proxy Statement, who are not among the nominees listed below
being nominated by management to serve for the 1994-1995 year. Mr. J. B.
McKibbon, who has served as a Director of the Company since it became a bank
holding company in 1981, has chosen not to seek re-election to the Board of
Directors of the Company or its subsidiary, The First National Bank of
Gainesville, because he is one year short of the maximum age for a Director
under the Company's Bylaws. Mr. James A. Walters has been nominated to fill this
vacancy on the Board of Directors. Because he has reached the maximum age for a
Director under the Company's Bylaws, Mr. J. M. "Ray" McRae, who has served as a
Director of the Company since its inception in 1981, is not being nominated for
re-election to the Board of Directors of the Company and its subsidiary, The
First National Bank of Gainesville. Mr. John A. Ferguson, Jr. has been nominated
to fill this vacancy on the Board of Directors. Mr. John H. Henderson has served
as a Director of the Company for the past two years because he served as
Chairman of the Board of Directors of the Company's subsidiary, First National
Bank of Paulding County. That bank's Chairman of the Board serves on a rotating
basis, and a new chairman has been elected to serve that bank. Mr. Henderson
will remain as a director of that bank. Mr. J. Michael Womble, the newly elected
Chairman of First National Bank of Paulding County, has been nominated to be
elected a Director of the Company. Because he has reached the maximum age for a
Director, Mr. J. L. Nix is not being nominated for re-election to the Board of
Directors of the Company and its subsidiary, First National Bank of White
County. Mr. J. L. Nix has served as a Director of the Company since 1985 when
the First National Bank of White County (formerly The Peoples Bank) was acquired
by the Company. Mr. J. Kenneth Nix, Sr., newly elected Chairman of First
National Bank of White County, has been nominated to fill this vacancy on the
Board of Directors. Mr. Kenneth Nix is the son of Mr. J. L. Nix. Mr. W. Harold
Prather, who has served as a Director of the Company since 1990, is not being
nominated for re-election to the Board of Directors of the Company because he
has reached the maximum age for a Director. Due to the terms in the merger
agreement under which the Company acquired Granite City Bank, Mr. Prather, who
has been serving as Chairman of that bank, will continue to serve as a Director
of that bank. Mr. W. L. Lester, the newly elected Chairman of Granite City Bank,
has been nominated to fill this vacancy on the Board of Directors. Additional
biographical information concerning these Director Nominees is included below
under the caption "Director Nominees." Please refer to the paragraph entitled
"BYLAWS PROVISIONS FOR ELECTION OF DIRECTORS" for a discussion about setting the
number of Directors and nominations for election of Directors.
DIRECTOR NOMINEES
<TABLE>
<S> <C>
JANE WOOD BANKS EDWIN C. POSS
THOMAS S. CHEEK PAUL J. REEVES
JOHN A. FERGUSON, JR. A. ROY ROBERTS, JR.
JAMES H. HARRIS, JR. RICHARD L. 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.
</TABLE>
The following are the names and ages of the Director Nominees, the year
each individual began continuous service as a Director of the Company, and the
business experience of each, including principal occupations, at present and for
at least the past five years.
Mrs. Jane Wood Banks, age 67, became a Director at the origination of the
Company in 1981. Mrs. Banks is a private investor concentrating in real estate
management and the management of various other
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<PAGE> 6
holdings that include listed securities. Mrs. Banks has also served since 1981
as a Director of The First National Bank of Gainesville, Gainesville, Georgia,
the first affiliate bank of the Company.
Mr. Thomas S. Cheek, age 62, became a Director in 1987 when the Bank of
Banks County became an affiliate of the Company. Mr. Cheek is President of
Mountain View, Inc., a company concentrating in land development. Mountain View,
Inc. was formed in 1992. Mr. Cheek was in the land development business for
several years on a private investor basis prior to formation of Mountain View,
Inc. He previously served as Chairman of Vintage Enterprises, Inc., Gainesville,
Georgia, where he also served in other capacities such as President and Chief
Executive Officer during the years since 1967. Vintage Enterprises, Inc.,
manufactured factory built homes. The manufacturing plant is now closed. Mr.
Cheek has served as a Director and as Chairman of Bank of Banks County, Homer,
Georgia, since the bank was founded in 1974.
Mr. John A. Ferguson, Jr. age 54, has been nominated by management for
election by the shareholders to serve for the first time as a Director of the
Company. Mr. Ferguson has been associated with Northeast Georgia Medical Center
since 1964 in various positions including Hospital Administrator and Executive
Director and became President in 1975. The organization was restructured in 1986
and Mr. Ferguson was named President and C.E.O. of Northeast Georgia Health
Services, Inc. which is the corporate umbrella for Northeast Georgia Medical
Center, Northeast Georgia Health Resources, and other medical related ventures
which provide nursing, health care, and physical fitness programs for the
Northeast Georgia area. Mr. Ferguson has served as a Director of The First
National Bank of Gainesville since 1992.
Mr. James H. Harris, Jr., age 68, became a Director in 1987, shortly after
The Citizens Bank, Toccoa, Georgia, became an affiliate of the Company. Mr.
Harris has been associated with Toccoa Casket Company, Toccoa, Georgia, a
manufacturer of caskets, since 1952 in various positions, and he served as
President of that company from 1978 until March 1992, when the Toccoa Casket
Company was sold. He currently remains in a management position with the Toccoa
Casket Company. Mr. Harris has also been President and Chairman of the Board of
J. H. Enterprises, Inc., an investment and service corporation, since 1973. Mr.
Harris has served as a Director of The Citizens Bank, Toccoa, Georgia, since
1978 and currently serves as Chairman of that bank.
Mr. Ray C. Jones, age 64, became a Director of the Company in 1991. Mr.
Jones is currently President and a Director of J & S Farms, Inc., a poultry
related organization dealing in commercial eggs and feed manufacturing located
in Gainesville, Georgia. Mr. Jones has served in that capacity for many years
and is also involved in other poultry related businesses as an owner. Mr. Jones
has served as a Director of The First National Bank of Gainesville since 1984.
Mr. Arthur J. Kunzer, Jr., age 60, became a Director of the Company in
1982. Mr. Kunzer has been co-owner and Vice President of Frierson's, a men's
clothing store in Gainesville, Georgia, since 1969. Mr. Kunzer has also served
as a Director of The First National Bank of Gainesville since 1982.
Mr. W. L. "Bill" Lester, age 64, has been nominated by management for
election by the shareholders to serve for the first time as a Director of the
Company. Mr. Lester was associated with the poultry industry for many years. He
started Elberton Poultry, Inc. in 1955 and operated that business until it was
sold in 1985. In 1985, Mr. Lester formed Lester Enterprises which is the
corporate umbrella for LHP Manufacturing which manufactures bobbins for the
textile industry, and Toccoa Injection Molding which manufactures molded plastic
parts and goods. Mr. Lester still operates those businesses. Mr. Lester has
served as a Director of Granite City Bank in Elberton since 1984 and has been
chosen to serve as Chairman of that bank's Board of Directors.
Mr. Richard A. McNeece, age 54, became a Director of the Company in 1989.
Mr. McNeece joined the Company's largest bank, The First National Bank of
Gainesville, in 1987 as President and Chief Operating Officer. Mr. McNeece was
elected President and Chief Operating Officer of the Company in 1990, President
and Chief Executive Officer in 1991, and Chairman and Chief Executive Officer in
1992. Mr. McNeece also still serves as Chairman and Chief Executive Officer and
a Director of The First National Bank of Gainesville.
Mr. Peter D. Miller, age 47, became a Director in 1991. He was elected by
the Board of Directors as President, Chief Financial and Administrative Officer
effective April 15, 1992. He served as Executive Vice
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President and Chief Financial Officer of the Company from 1983 until 1992. Mr.
Miller joined the Company's first affiliate bank, The First National Bank of
Gainesville, in 1977 and has served that bank in various capacities such as Vice
President and Senior Investment Officer. He currently serves as Senior Vice
President and Chief Financial Officer of The First National Bank of Gainesville
and as a director of The First National Bank of Paulding County, an affiliate of
the Company.
Mr. Loy D. Mullinax, age 62, became a Director of the Company in 1989,
shortly after the Pickens County Bank in Jasper, Georgia became an affiliate of
the Company. Mr. Mullinax has been in the home construction business for several
years and is the owner of Mullinax Truss Company in Jasper, a company in the
business of fabricating and marketing trusses for buildings. Mr. Mullinax has
served as a Director of Pickens County Bank since the bank was founded in 1976
and currently serves as Chairman of that bank.
Mr. J. Kenneth Nix, Sr., age 46, has been nominated by management for
election by the shareholders to serve for the first time as a Director of the
Company. Mr. Nix is an attorney and has been a partner in the law firm Stewart,
Melvin & House in Gainesville, Georgia since 1977. Stewart, Melvin & House
serves as legal counsel to the Company. Mr. Nix has served as a Director of the
First National Bank of White County since 1984 and has been chosen to serve as
Chairman of that bank's Board of Directors.
Mr. Edwin C. Poss, age 66, became a Director in 1984, shortly after the
Bank of Clayton, Clayton, Georgia, became an affiliate of the Company. Mr. Poss,
a real estate broker, has been President of Poss Real Estate, Inc., Clayton,
Georgia, a firm dealing in real estate primarily in the Rabun County area, since
1970. Mr. Poss has also served as a Director of Bank of Clayton since 1983.
Mr. Paul J. Reeves, age 67, originally became a Director of the Company in
1984, shortly after the First National Bank of Habersham in Cornelia, Georgia,
became an affiliate of the Company. He served until 1987 when he resigned to
eliminate any possibility of a conflict of interest when a family member was
offered an employment promotion with the Company's independent auditors. The
conflict no longer exists, and Mr. Reeves was re-appointed as a Director by the
Board of Directors in 1991. Mr. Reeves is President of Habersham Hardware
Company in Cornelia, Georgia. Mr. Reeves has served as a Director of First
National Bank of Habersham since 1957 and currently serves as Chairman of that
bank.
Mr. A. Roy Roberts, Jr., age 67, was appointed a Director of the Company by
the Board of Directors, effective January 20, 1993, shortly after the date on
which the Citizens Bank, Cherokee County, Georgia, became an affiliate of the
Company. Mr. Roberts currently serves as Chairman of that bank, where he has
been a director since 1966. Mr. Roberts is in the real estate and insurance
business in Cherokee County.
Mr. Richard L. Shockley, age 68, became a Director at the origination of
the Company in 1981. Mr. Shockley became Vice-Chairman of the Company in 1990,
after having served as President since 1981 when the Company was established.
Mr. Shockley has been associated with The First National Bank of Gainesville
since 1954 when he joined the bank as a lending officer. Since that time, he has
served the bank in various positions including Executive Vice President and
President and currently serves as Director and Vice-Chairman. Mr. Shockley also
serves as a director of several of the affiliate banks of the Company.
Mr. Harold L. Smith, age 50, became a Director of the Company in 1992. Mr.
Smith is currently Chairman of Turner, Wood & Smith, Inc., an insurance agency
associated with Hilb, Rogal and Hamilton, a publicly held company. Before
becoming Chairman, he served as President and C.E.O. of Turner, Wood & Smith,
Inc. Mr. Smith also served as Vice Chairman of Southern Heritage Insurance
Company until the company was sold in 1991. Mr. Smith has served as a Director
of The First National Bank of Gainesville since 1984.
Mr. W. Woodrow Stewart, age 55, became a Director at the origination of the
Company in 1981. Mr. Stewart, an attorney, has been a partner in Stewart, Melvin
& House, a law firm in Gainesville, Georgia, since 1967. Stewart, Melvin & House
serves as legal counsel to the Company. Mr. Stewart has also served as a
Director of The First National Bank of Gainesville since 1979.
Mr. Bobby M. Thomas, age 47, became a Director of the Company in 1989.
Since 1983, Mr. Thomas has been a Director of The Peoples Bank of Forsyth
County, an affiliate of the Company, and currently serves as
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Chairman of that bank's Board of Directors. Mr. Thomas has been owner and
President of Thomas Supply Company in Cumming, Georgia since 1975. Thomas Supply
Company is a manufacturer and wholesaler of lumber products to customers all
over the Southeastern United States.
Mr. James A. Walters, age 56, has been nominated by management for election
by the shareholders to serve for the first time as a Director of the Company.
Mr. Walters started Walters Management Company in 1979 after being associated
with the finance company business for several years, and he is Chairman and
C.E.O. of that company. Walters Management Company owns and operates forty
consumer finance companies located in Georgia and Texas, three rent-to-own
television and appliance stores and one furniture store. Mr. Walters is a
partner in a recently formed mortgage company in Gainesville, Georgia, and he is
a partner in several real estate holdings. Mr. Walters was elected a Director of
The First National Bank of Gainesville in 1993.
Mr. M. G. "Mack" West, age 58, became a Director of the Company in 1992.
Mr. West was the owner of the Sears catalogue and appliance store in Ellijay for
many years. He was also associated with the building supply business for several
years and currently serves as Mayor of East Ellijay. Since 1981, Mr. West has
served as a Director of First National Bank of Gilmer County, an affiliate of
the Company, and currently serves as Chairman of that bank's Board of Directors.
Mr. J. Michael Womble, age 41, has been nominated by management for
election by the shareholders to serve for the first time as a Director of the
Company. In 1992, Mr. Womble, who is a certified public accountant, started
Southlife Properties, Inc. which buys and develops land for subdivisions,
Southlife Development, Inc. which builds houses, and Southlife Realty, Inc.
which markets and sells the houses. Mr. Womble is President and C.E.O. of all
those companies. From 1988 to 1992, Mr. Womble was President and C.E.O. of First
National Bank of Paulding County. He continues to serve as a Director and has
been elected Chairman of that bank's Board of Directors. From 1979 to 1988 Mr.
Womble was the founder, owner and managing partner of Womble, Jackson, Gunn &
Company, a certified public accounting firm.
Mr. Joe Wood, Jr., age 39, became a Director of the Company in 1992. Mr.
Wood is currently President and C.E.O. of Turner, Wood & Smith, Inc., an
insurance agency associated with Hilb, Rogal and Hamilton, a publicly held
company. Mr. Wood has been associated with Turner, Wood, & Smith, Inc., since
1977, becoming its President and C.E.O. in 1990. Mr. Wood has served as a
Director of The First National Bank of Gainesville since 1990.
There are four other persons who are serving as Executive Officers of the
Company, but who are not Directors of the Company. They are set forth below. All
officers are elected annually by the Board of Directors to serve a one year
term.
Mr. Bryan F. Bell, age 47, is currently serving as Senior Vice President,
Affiliate Credit Administration, for the Company. Mr. Bell joined the Company in
1986 when he became President and C.E.O. of the First National Bank of White
County. Mr. Bell transferred to a credit officer position with the Company in
1991. He currently also serves as a Director of the Citizens Bank, Cherokee
County.
Mr. C. Talmadge Garrison, age 61, is currently serving as Senior Vice
President, Secretary and Treasurer of the Company. Mr. Garrison has been
associated with the Company and The First National Bank of Gainesville in
various management positions since 1963.
Mr. Stephen Rownd, age 34, is currently serving as Senior Vice President,
Credit Policy, for the Company. Mr. Rownd joined the Company in this position in
1991. From 1990 to 1991, Mr. Rownd was Senior Vice President, Credit Policy, for
Barnett Bank of Atlanta. From 1988 to 1990, Mr. Rownd was Vice President -
Credit Administration Manager for Barnett Bank of South Florida in Miami.
Mr. Richard D. White, age 44, is currently serving as President and a
Director of The First National Bank of Gainesville. Mr. White has served in
various management positions, including Executive Vice President, since joining
the bank in 1972.
There are no family relationships among the Director Nominees or Management
personnel of the Company. With the exception of Mr. Thomas S. Cheek, none of the
above have been involved in legal
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<PAGE> 9
proceedings relating to the Bankruptcy Act, criminal proceedings, or securities
violations. Relative to Mr. Cheek, Vintage Enterprises, Inc., filed for Chapter
11 reorganization under the Bankruptcy Act on August 25, 1989, at which time Mr.
Cheek served as Chairman of the corporation, and he continued in that position
until March 30, 1990. A trustee was appointed July 20, 1990, and on August 30,
1990, by order of the Bankruptcy Court, the reorganization proceeding was
converted to a Chapter 7 liquidation proceeding. At that time, Mr. Cheek ceased
to be a director of Vintage Enterprises, Inc.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE ELECTION OF
THE ABOVE LISTED DIRECTOR NOMINEES TO HOLD OFFICE UNTIL THE 1995 ANNUAL MEETING
OF SHAREHOLDERS HELD FOR THE PURPOSE OF ELECTING DIRECTORS.
BYLAWS PROVISIONS FOR ELECTION OF DIRECTORS
The Bylaws of the Company provide that "the Board shall consist of not less
than five nor more than twenty-five Shareholders, the exact number within such
minimum and maximum limits to be fixed and determined from time to time by
resolution of a majority of the full Board or by resolution of the Shareholders
at any meeting thereof; PROVIDED, HOWEVER, that the Board may not increase the
number of Directors to a number which; (1) exceeds by more than three the number
of Directors last elected by Shareholders where such number was fifteen or less;
and (ii) to a number which exceeds by more than four the number of Directors
last elected by Shareholders where such number was sixteen or more, but in no
event shall the number of Directors exceed twenty-five.
The Bylaws state the following: "Nominations for election to the Board may
be made by the Board or by any Stockholder of any outstanding class of capital
stock of the Corporation entitled to vote for the election of Directors.
Nominations other than those made by or on behalf of the existing management of
the Corporation, shall be made in writing and shall be delivered or mailed to
the President of the Corporation, not less than 14 days nor more than 50 days
prior to any meeting of Shareholders called for the election of Directors,
provided however, that if less than 21 days' notice of the meeting is given to
Shareholders, such nomination shall be mailed or delivered to the President of
the Corporation not later than the close of business on the seventh day
following the day on which the notice of meeting was mailed. Such notification
shall contain the following information to the extent known to the notifying
Shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the total number of shares of
capital stock of the Corporation that will be voted for each proposed nominee;
(d) the name and residence address of the notifying Stockholder, and (e) the
number of shares of capital stock of the Corporation owned by the notifying
Shareholder. Nominations not made in accordance herewith may, in his/her
discretion, be disregarded by the Chairperson of the meeting, and upon his/her
instructions, the vote tellers may disregard all votes cast for each such
nominee."
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held six meetings (four regular and
two telephone conference) during the year ended December 31, 1993. Those matters
requiring a formal vote at times other than regular meetings are normally
handled by called meetings, telephone conference or consent minutes.
The Board has four formal committees, which are the Audit Committee, the
Executive Compensation Committee, the Employee Benefit Committee and the
Strategic Planning Committee. The Audit Committee receives the reports of and
makes recommendations to the internal auditors, recommends to the Board of
Directors the engagement of the independent auditors of the Company and reviews
the scope and results of the audits, internal accounting controls, audit
practices and the professional services furnished by the independent auditors to
the Company. The Audit Committee met four times during 1993. Audit Committee
members for 1993 were Ray C. Jones, Chairman, John H. Henderson, Arthur J.
Kunzer, Jr., Edwin C. Poss, W. Harold Prather and Joe Wood, Jr. who was
appointed in April 1993.
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<PAGE> 10
The Executive Compensation Committee was established in 1988 for the
purpose of considering compensation matters for Company officers and affiliate
banks' chief executive officers. The Compensation Committee for 1993 met three
times in 1993 and, on January 14, 1994 and January 19, 1994, to consider
compensation matters. Compensation Committee members for 1993 were W. Woodrow
Stewart, Chairman, James H. Harris, Jr., J. B. McKibbon, Jr., J. M. "Ray" McRae,
J. L. Nix, Bobby M. Thomas, and Harold L. Smith, who was appointed in April
1993.
The Employee Benefit Committee was established in 1987 for the purpose of
considering changes needed in employee benefit plans in the Company and various
affiliate banks. The committee also receives actuarial, audit, and performance
reports prepared on the various benefit plans. The Employee Benefit Committee
met once in 1993. Employee Benefit Committee members for 1993 were Jane W.
Banks, Chairperson, Thomas S. Cheek, Loy D. Mullinax, Paul J. Reeves, and M. G.
West.
The Strategic Planning Committee was established in 1992 to assess and
evaluate the strategic growth and direction, as well as the business strategy,
of the Company, with the goal of determining the best alternatives to enhance
shareholder value. The committee also has the responsibility to evaluate merger
and acquisition alternatives for the Company. The Strategic Planning Committee
members for 1993 were Richard A. McNeece, Chairman, Jane W. Banks, James. H.
Harris, Jr., Ray C. Jones, J. M. "Ray" McRae, J. B. McKibbon, Jr., J. L. Nix,
Paul J. Reeves, Bobby M. Thomas, and W. Woodrow Stewart. The committee met four
times during 1993.
The full Board acts on all other Company matters, and therefore the Company
does not have a standing nominating committee or other committee performing a
similar function.
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES, EXECUTIVE OFFICERS,
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
The following table sets forth the beneficial ownership of the Company's
only outstanding class of securities, common stock, $1.00 par value, held by the
Directors, Nominees for Director, Executive Officers, and Directors and
Executive Officers as a group as of December 31, 1993.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP(1)(2) OF CLASS(1)(2)(3)
- -------------------------------------------------------- -------------------------- -----------------
<S> <C> <C>
Jane Wood Banks......................................... 346,815 2.23%
Thomas S. Cheek......................................... 39,174 .25%
John A. Ferguson, Jr.................................... 1,816 .01%
James H. Harris, Jr..................................... 16,190 .10%
John H. Henderson....................................... 3,194 .02%
Ray C. Jones............................................ 91,217 .59%
Arthur J. Kunzer, Jr.................................... 25,610 .16%
W. L. Lester............................................ 17,241 .11%
J. B. McKibbon, Jr...................................... 160,531 1.03%
Richard A. McNeece...................................... 84,441 .54%
J. M. "Ray" McRae....................................... 247,244 1.59%
Peter D. Miller......................................... 49,298 .32%
Loy D. Mullinax......................................... 21,300 .14%
J. L. Nix............................................... 761,331 4.90%
J. Kenneth Nix, Sr...................................... 162,869 1.05%
Edwin C. Poss........................................... 7,589 .05%
W. Harold Prather....................................... 18,674 .12%
Paul J. Reeves.......................................... 66,886 .43%
A. Roy Roberts, Jr...................................... 56,986 .37%
Richard L. Shockley..................................... 57,424 .36%
Harold L. Smith......................................... 64,972 .42%
</TABLE>
7
<PAGE> 11
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP(1)(2) OF CLASS(1)(2)(3)
- -------------------------------------------------------- -------------------------- -----------------
<S> <C> <C>
W. Woodrow Stewart...................................... 3,844 .02%
Bobby M. Thomas......................................... 50,084 .32%
James A. Walters........................................ 139 --
Mack G. West............................................ 4,887 .03%
J. Michael Womble....................................... 13,468 .09%
Joe Wood, Jr............................................ 40,610 .26%
C. Talmadge Garrison.................................... 47,201 .30%
Bryan F. Bell........................................... 22,671 .15%
Stephen M. Rownd........................................ 3,395 .02%
Richard D. White........................................ 22,409 .14%
All Directors and Executive Officers as a Group (25
persons).............................................. 2,509,510 16.01%
</TABLE>
- ---------------
(1) Included in the listing above for Jane Wood Banks are 145,420 shares owned
by adult children to which she shares voting and investment power and
100,000 shares held in a partnership account over which Mrs. Banks has
voting and investment power. Not included in the listing are 148,706 shares
owned by two adult sons and grandchildren over which Mrs. Banks asserts no
voting or investment power. Included in the listing above for John H.
Ferguson, Jr. are 1,500 shares in a retirement plan managed through his
employer as to which he asserts no direct voting or investment power.
Included in the listing above for James H. Harris, Jr., are 541 shares owned
by his wife and son to which he shares voting and investment power. Included
in the listing for John H. Henderson are 369 shares held in custody for
minor children. Included in the listing above for Ray C. Jones are 5,405
shares held in his wife's name over which he shares voting and investment
power. Not included in the listing for Mr. Jones are 15,353 shares in the
names of his adult children or held jointly with their spouses over which he
has no voting and investment authority. Included in the listing above for
Arthur J. Kunzer, Jr., are 12,455 shares owned by his wife to which he
shares voting and investment power. Included in the listing above for W. L.
Lester are 6,514 shares held jointly with his wife over which he shares
voting and investment power. Included in the listing above for J. B.
McKibbon, Jr. are 3,360 shares owned by his wife over which he shares voting
and investment power. Not included in the listing are 3,360 shares owned by
Mr. McKibbon's daughter to which he asserts no voting or investment power.
Included in the listing for J. M. "Ray" McRae are 98,032 shares owned by his
wife and adult daughters to which he shares voting and investment power. Not
included in Mr. McRae's total are 3,650 shares held in his granddaughter's
name to which Mr. McRae has no voting and investment power. Also included in
Mr. McRae's total are 112,500 shares that he transferred to a grantor
retained income trust during 1991. Not included in the listing above for Loy
D. Mullinax are 924 shares owned by his son and daughter to which he asserts
no voting and investment power. Included in the listing above for J. L. Nix
are 115,379 shares owned by Mr. Nix's wife or both of them jointly to which
Mr. Nix has shared voting and investment power. Also included are 138,799
shares in the name of Mr. Nix's wife, as custodian or trustee for their
grandchildren to which he has shared voting and investment power. Not
included in the listing are 449,806 shares owned by Mr. Nix's adult children
over which he asserts no voting or investment power. Included in the listing
above for J. Kenneth Nix, Sr. are 644 shares held by Mr. Nix as custodian
for his children and 575 shares in a grantor trust, to which he has voting
and investment power. Included in the listing above for Edwin C. Poss are
258 shares owned by his wife to which he shares voting and investment power.
Included in the listing above for Paul J. Reeves are 31,890 shares held by
his wife over which he shares voting and investment power. Included in the
listing above for A. Roy Roberts, Jr., are 16,838 shares owned by his wife
to which he shares voting and investment power. Also included in the listing
above for Mr. Roberts are 3,182 shares held in his adult sons' names to
which he shares voting and investment power. Included in the listing above
for Richard L. Shockley are 9,264 shares owned jointly by him, his wife and
sons to which he shares voting and investment power. Not included in the
above listing are 844 shares owned by Mr. Shockley's adult sons over which
he asserts no voting or investment power. Included in the listing above for
Mr. Smith are 3,567 shares owned by his wife to which he shares voting and
investment power. Not included in the listing above for Mr. Smith are 1,706
shares owned by his son over which he has no voting and investment power.
Included in the listing above for W. Woodrow Stewart are 575 shares in a
grantor trust to which he has voting and investment power. Included in the
listing above for Bobby M. Thomas are 4,466 shares held in custody for minor
children, to which he has voting and investment power. Included in the
listing above for J. Michael Womble are 534 shares he holds as custodian for
his son to which he has voting and investment power. Included in the listing
above for Mr. Wood are 12,777 shares either held by his wife and/or held
jointly with his wife and shares held in custody for minor children.
Included in the listing above for C. Talmadge Garrison are 585 shares in the
name of his wife over which he shares voting and investment power. Not
included in the above listing are 1,637 shares owned by Mr. Garrison's adult
son and daughter over which he has no voting or investment power. Included
in the listing above for Bryan F. Bell are 7,549 shares held jointly with
his wife, to which he shares voting and investment power.
(2) With respect to each present or former executive officer of the Company and
all directors and officers as a group, the number of shares and percent of
class in the above table assumes that each such person has exercised all
stock options held by such person as of December 31, 1993 and issued under
the stock option plans of the Company, if and to the extent that such
options were exercisable within 60 days of December 31, 1993 and
beneficially owned by that officer. Included in the listing above are shares
which such persons have the option to purchase under stock options issued
under the Company's stock option plans for the years 1987 through 1993. The
options have various grant dates, with the option price per share (the fair
market value on date of each grant), ranging from a low of $11.167 per share
for options issued in 1991 to a high of $18.75 per share for options issued
in 1993. The numbers and percentages of shares shown in the above table as
owned by the following persons and by all directors and officers as a group
assume that the following stock options had been exercised: Mr. McRae,
16,200 shares; Mr. Shockley, 18,749 shares; Mr. McNeece, 19,700 shares; Mr.
Miller, 23,630 shares; Mr. Garrison, 26,699 shares; Mr. White, 18,449
shares; Mr. Bell, 13,549 shares; Mr. Rownd, 3,370 shares; and all directors,
and executive officers (including the above individuals), 140,346 shares.
Directors who are not also executive officers or former executive officers
do not participate in the stock option plans.
8
<PAGE> 12
(3) With respect to each present or former executive officer of the Company and
all Directors and Officers as a group, the number of shares and percent of
class in the above table includes the amount of shares held in the
particular executive officer's account under the Company's 401(k) Plan,
under which participants can elect for a portion of their 401(k) funds to be
invested in Company stock. At December 31, 1993, Mr. McNeece, the only
executive officer with funds in his 401(k) account invested in Company
stock, had 6,208 shares in his 401(k) account.
PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following table sets forth the beneficial owner of the Company's only
outstanding class of securities, common stock, $1.00 par value, who to the
Company's knowledge owned beneficially more than 5% of the Company's outstanding
common stock as of December 31, 1993.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------------------------------------ -------------------- --------
<S> <C> <C>
Edrayco........................................................... 1,087,974 6.93%
The First National Bank
P. O. Drawer 937
Gainesville, Georgia 30503
</TABLE>
The shares listed above in the name of Edrayco are shares held in various
trust accounts of The First National Bank of Gainesville (a wholly owned
subsidiary of the Company), as trustee for its trust customers. Depending on the
terms of each trust, the Bank, as trustee, may exercise no voting or investment
control, or may exercise either shared voting power, shared investment power,
sole voting power, sole investment power, or a combination of the foregoing. As
of December 31, 1993, the Trust Department of The First National Bank of
Gainesville had sole voting and investment power with respect to 1,007,274
shares, shared voting and investment power with respect to 21,339 shares, and no
voting or investment power with respect to 59,341 shares.
COMPENSATION OF EXECUTIVE OFFICERS
COMPENSATION COMMITTEE REPORT
In general, the established objective of the Compensation Committee is to
support attainment of the Company's mission of increasing shareholder wealth,
through the employment of a compensation approach that ensures that the total
compensation package for key officers: (1) is linked directly to measurable
business and strategic goals; and (2) is consistent with other financial
institutions in the southeast region that are similar in performance and size.
To that end, it is the Committee's policy that: (1) executive compensation
programs should be designed to attract and retain qualified executives whose
performance is critical to the long-term success of the Company; (2) through the
appropriate use of stock programs, executives should be given the opportunity to
increase their stock ownership in the Company in exchange for their successful
long-term strategic management and the enhancement of shareholder value; (3)
executives should have a substantial amount of their compensation package held
"at risk" and dependent upon achievement of Board approved financial and
strategic goals; and (4) executives should be rewarded for both annual and
long-term performance.
The Compensation Committee believes that it is critical that the total
executive compensation program be designed in a manner which promotes the long
term success of the Company and resultant increase in shareholder value.
Base salaries of executives are determined by both individual performance
and competitive compensation data in conjunction with the recommendation of the
benefits consulting division of Ernst & Young, a national accounting firm ("the
consultants"). The Compensation Committee has established a goal of paying
salaries that are competitive within financial institutions of similar asset
size and performance in order to attract and retain key executives in a highly
competitive environment. Decreased reliance on base compensation in the total
compensation package, with increased reliance on incentive compensation based on
performance, is the Compensation Committee's intent. Actual salary increases are
awarded through the appraisal of individual
9
<PAGE> 13
performance results based on a disciplined wage and salary administration
program and the spread, if any, between the executive's current base
compensation and the competitive base compensation median of a peer group of
financial institutions. Competitive base compensation medians are determined
annually utilizing various industry sources of information on the peer group,
with validation periodically by the Company's consultants. Since the Company's
return on average assets placed the Company well into the upper range of
performance among the peer group, the Committee felt that the base compensation
of Company officers should be at least equal to the midpoint of the competitive
base compensation range of the peer group. The Compensation Committee believes
that the Company's most direct competitors for executive talent are not
necessarily all of the companies that would be included in a peer group
established to compare shareholder returns. Thus, the compensation peer group is
not the same as the peer group index in the Comparison of Five Year Cumulative
Total Return graph included below in this Proxy Statement.
It is the policy of the Compensation Committee that the salary for the CEO
be set under the same guidelines as used for the executive officers and other
officers, while having the salary of the CEO be competitive enough in the
banking industry to attract and retain a CEO capable of administering policies
of the Board and increasing shareholder value. If the CEO fulfills these goals,
then it is the policy of the Compensation Committee to set his salary at least
at the competitive median for salaries of all CEO's who manage bank holding
companies of similar size and performance characteristics. The salary range was
determined using peer group surveys as obtained by various compensation
consulting organizations. In setting the salary ranges for 1993, the Company's
Human Resources Division used compensation surveys of Cole, Sheshunoff, Mercer
ECS and the Georgia Bankers Association. The performance of the CEO and the
Company was measured by comparing the Company's return on average assets with
that of the peer group and the Company's five year cumulative total return for
the Company's stock when compared to the selected Dow Jones Industry Peer Group
of 90 southern banks and the selected NASDAQ Market Value Index. The Company's
return on average asset performance for 1992 was determined to be in the upper
level range of the peer group. The five year cumulative total return for the
Company's stock showed an increase of 19.2% from 1992 to 1993. This compared to
an increase of 1.0% for the NASDAQ Market Value Index and an increase of 39.2%
for the Dow Jones Industry Peer Group. Although significantly above the NASDAQ
Market Value Index performance, but below the Dow Jones Industry Peer Group
performance, the Compensation Committee determined the 19.2% increase in the
five year total return on the Company's stock was very acceptable, and it was
deemed appropriate that the CEO's salary be moved toward the midpoint of the
salary range as established.
The competitive median salary for 1993 for CEO's based on the peer group
review was determined to be $355,000. CEO McNeece's salary for fiscal year 1992
was $300,000. Since it was determined that the Company performed in the upper
range of performance in comparison with the peer group based on return on
average assets and the Company's cumulative total return on stock value was
acceptable, the Compensation Committee felt that CEO McNeece's salary should be
at least comparable to the midpoint salary range for CEO's of the peer group.
Consequently, under the policies outlined above, a 6.10% increase ($18,300) was
proposed in order to bring CEO McNeece's salary closer to the median. In
addition, a merit increase was considered due to the performance of Bancorp for
1992 as indicated above and the individual performance rating of CEO McNeece.
Performance ratings for each executive officer are determined based on specific
criteria for each officer position. For the CEO it is based on whether the goals
and objectives of the Company as established in the strategic plan for the prior
fiscal year were met. The goals under the strategic plan for the Company for a
particular fiscal year may differ from the goals for another fiscal year. The
performance rating of the Company CEO is a subjective determination on the part
of the Compensation Committee, after reviewing the performance of the Company
under the goals and objectives set forth in the strategic plan. The Compensation
Committee determined that most of the goals of the strategic plan for 1992 were
met, including development of retail banking strategies, implementation of a
stringent loan loss reserve methodology and strict credit review, upgrading of
the personnel management systems, acquisition of two affiliate banks through
mergers, and implementation of an investors relation program which resulted in
increases in the trading volume of Company stock and ownership of Company stock
by institutional investors. Consequently, CEO McNeece's performance rating
qualified him for an upward adjustment in his annual salary. Using the 1993
merit increase guidelines applicable to all executive officers, CEO McNeece's
performance qualified him for a
10
<PAGE> 14
6% merit increase ($18,000) in annual salary. The aggregate increases to annual
salary for CEO McNeece described above were $36,300, thus raising his annual
salary for 1993 to $336,300.
The Company's incentive compensation plan is a key element in the shift
towards variable pay in the overall compensation program. The cash incentives
available under the incentive compensation plan tie a portion of the executive's
compensation directly to key measures of corporate performance. The incentive
compensation plan focuses on three specific criteria of performance: (1)
earnings momentum (based on earnings per share for certain participants and net
income for other participants), (2) asset quality (based on individual standards
for certain participants and the sufficiency of allowance for loan losses and
leases for other participants), and (3) strategic objectives (based upon
individual objectives for certain participants and attainment of strategic
priorities in the annual business plan for other participants). Each of the
criteria is measured on an annual basis. The primary purpose of the incentive
compensation plan is to motivate eligible participants to attain specific annual
goals in each of the three performance categories.
For the incentive plan to be operative for any participant, the Company
must first attain a minimum level of performance, defined as follows: a base
return on average assets of the greater of (a) 90% of the Company's average
return on average assets for the past three years, or (b) 90% of the past three
year average return on average assets for the Company's peer group as determined
in the Bank Holding Company Information Report as published by the Federal
Reserve Bank of Atlanta. In addition, the Company must have attained at least a
net income performance equal to 90% of business plan net income. Once these
criteria are met, the plan becomes operative for Company and affiliate bank
participants who must then meet further performance criteria under the earnings,
asset quality, and strategic goals categories. In 1993, under earnings goals the
Company CEO and President received awards only if the Company met 100% of the
earnings per share goals. For all other participants, the Company and affiliate
banks must have met 100% of the net income to plan expectations. Under asset
quality goals the Company officers listed in the Summary Compensation Table and
most other participants received awards only if the Company or the individual
participant's affiliate bank met the allowance for loan and lease losses ratio
goals established as plan goals. Under the strategic objectives goals,
objectives are customized and strategic priorities are defined in the respective
annual business plans, and accomplishments are then measured against the
respective plans. Each of the three above criteria have been assigned a
weighting which reflects the relative importance of the three to the whole of
the incentive award. In the case of the CEO shown in the Summary Compensation
Table, the criteria weightings are 60% for earnings, 20% for asset quality, and
20% for meeting strategic objectives. Incentive compensation awards are based on
a percent of compensation for the level of performance attained under each
criteria.
The Committee determined that the required standards under the incentive
compensation plan were met by the Company and by several of the affiliate banks
for 1993. The Committee determined that the Company's executive officers were
each entitled to an award under the plan based upon performance of the Company
at the levels established in the plan, after reviewing and evaluating the
performance of the Company's executive officers under the specific criteria set
forth in the plan. In the case of CEO McNeece, the Company performed at the
established plan level of performance under the plan regarding the earnings, the
asset quality and the strategic objectives criteria. CEO McNeece's performance
at plan level in each criteria resulted in an award under the earnings criteria
of 21% of base salary, and awards of 7% of base salary for each of the other two
criteria, asset quality and strategic objectives. The total plan award to CEO
McNeece was 35% of his base salary (the sum of the awards under the separate
award criteria).
The Committee has determined that stock options should be provided to key
executives to provide incentive for longer term corporate performance and
increase executive stock ownership in the Company. The grant of an option
provides no immediate benefit to the executive and value is realized only to the
extent that the price of Company stock rises above the exercise price, the
current market price at the time of the grant.
Option grants are based on a "stock option grant multiple" methodology, a
standard industry approach recommended by the Company's consultants and adopted
by the Compensation Committee. The methodology is generally a formula which
determines the number of options to be granted a key officer by multiplying the
percentage established for each officer position times the base salary of the
officer. The resulting amount is then divided by the option price (fair market
value of a share of Company stock at the date of grant) to
11
<PAGE> 15
determine the number of options to be granted to the officer. This methodology
does not consider the number of previously granted stock options and stock
awards which have been made to an officer. Under this methodology, the award of
options for a particular year is based strictly on the multiple of the officer's
base salary established by the Compensation Committee, and that multiple does
not fluctuate, except based upon the performance of the officer, as determined
by the Committee.
The Compensation Committee considered and approved a list of recommended
stock option grants which were granted and issued with a January 20, 1993 issue
date. The Summary Compensation Table discloses those shares granted to the
executive officers shown in the table. In the case of CEO McNeece, options were
awarded for the number of shares having an aggregate exercise price equal to 95%
of base salary, the established multiple for him.
<TABLE>
<S> <C>
W. Woodrow Stewart, Chairman J.L. Nix
James H. Harris, Jr. Harold L. Smith
J.B. McKibbon, Jr. Bobby M. Thomas
J.M. "Ray" McRae
</TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
The table below presents in tabular form the five year cumulative total
return for the Company's stock, assuming reinvestment of dividends, with that of
a broad equity market index (NASDAQ Market Value Index) and the Dow Jones
Industry peer Group (BAS), composed of 90 southern U.S. banking organizations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------------------------------------
COMPANY 1988 1989 1990 1991 1992 1993
- ------------------------------------------------- ---- ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
First National Bancorp, Georgia 100 94.11 76.91 105.88 126.25 152.43
Peer Group, Dow Jones, BAS 100 119.35 89.82 153.51 213.68 229.63
Broad Market Index, NASDAQ 100 112.89 91.57 117.56 118.71 142.40
</TABLE>
12
<PAGE> 16
The graph below compares the five year cumulative total return for the
Company's stock, assuming reinvestment of dividends, with that of the same broad
equity market index (NASDAQ Market Value Index) and the Dow Jones Industry Peer
Group (BAS), composed of 90 southern U.S. banking organizations. This
information is presented in tabular form above.
<TABLE>
<CAPTION>
Dow Jones
First Industry, Nasdaq Mar-
Measurement Period National Southern ket Value
(Fiscal Year Covered) Bancorp Banks Index
<S> <C> <C> <C>
1988 100 100 100
1989 94.11 119.35 112.89
1990 76.91 89.82 91.57
1991 105.88 153.51 117.56
1992 126.25 213.68 118.71
1993 152.43 229.63 142.40
</TABLE>
ASSUMES $100 INVESTED ON JANUARY 1, 1989; ASSUMES DIVIDEND REINVESTED.
FISCAL YEAR ENDING DECEMBER 31ST
The corporate mission of the Company is to maximize shareholder wealth
through current dividend growth and capital appreciation in the Company's stock,
by striving for: (1) above average earnings per share growth, (2) consistency,
stability and predictability in earnings growth, (3) quality earnings, and (4) a
sound financial position. The Company's strategy is to assure that corporate
performance is adequately reflected in the price of the Company's stock through
an aggressive investor relations program designed to achieve a market price that
reflects the full value of the Company's stock when compared to similar
investments.
In management's opinion the Company's stock performed well in 1993 with an
annual return of 20.7% compared to a 1993 return of 7.5% for the peer group of
southern banks and 20.0% for the broad equity market index.
Prior to 1991, the brokerage and institutional investor communities did not
hold a significant percentage of the Company's stock, and it has only been over
the past three years that these audiences have recognized the Company as a
quality investment alternative, such recognition being attributable, in
management's opinion, to the Company's growing size, geographical presence and
performance, as well as management's investor relations efforts. Management
estimates that approximately 3.9% of the Company's stock was held by
institutional investors at December 31, 1993.
13
<PAGE> 17
SUMMARY COMPENSATION TABLE
The following table summarizes the key elements of executive compensation
previously discussed. The Summary Compensation Table includes individual
compensation information on the Chief Executive Officer and the four other most
highly compensated executive officers of the Company for services rendered in
all capacities during the fiscal years ended December 31, 1993, 1992, and 1991.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- ------------
OTHER SECURITIES ALL
NAME AND ANNUAL UNDERLYING OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($)(2) OPTIONS(#) COMPENSATION($)
- ---------------------- ---- --------- ----------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. McNeece 1993 $ 336,300 $ 117,705 $1,000 16,000 $36,818(3)
Chairman and C.E.O. 1992 300,000 21,000 1,000 16,500 24,000(3)
1991 255,000 10,041 1,000 180(5) 24,444(4)
Peter D. Miller 1993 245,200 61,300 1,000 9,400 25,402(3)
President, C.A.O., 1992 225,000 16,313 1,000 7,500 18,000(3)
and C.F.O. 1991 190,000 4,275 1,000 1,026(5) 20,900(4)
C. Talmadge Garrison 1993 149,400 22,410 1,000 6,000 13,984(3)
Senior Vice 1992 143,400 8,604 1,000 6,750 11,472(3)
President & 1991 137,500 3,086 1,000 1,681(5) 15,086(4)
Secretary
Richard D. White 1993 195,000 39,000 1,000 6,000 17,550(3)
President, The First 1992 170,000 10,880 1,000 6,000 13,600(3)
National Bank of 1991 145,000 4,672 1,000 2,083(5) 15,950(4)
Gainesville
Bryan F. Bell 1993 110,800 24,930 1,000 4,000 9,972(3)
Senior Vice 1992 105,500 7,955 1,000 4,500 8,440(3)
President, Credit 1991 100,000 8,000 1,000 1,028(5) 12,000(4)
First National
Bancorp
</TABLE>
- ---------------
(1) These amounts are awards made to the officer under the Company's incentive
compensation plan. See the subsection entitled "Compensation Committee
Report."
(2) The amounts shown in this column reflect the amounts contributed by the
employer to the account of each officer under the Company's employee stock
purchase plan. The plan allows all employees of the Company or its affiliate
banks to participate in the plan. Under the plan, upon voluntary election to
participate in the plan, the participating employee may contribute up to
$2,000 or 10% of compensation, whichever is less, to such employee's account
under the plan. Upon such contribution, the participating employee's
employer then contributes an amount equal to 50% of such employee's
contribution to such employee's account. The monies are then used to
purchase Company stock in the open market and the stock is held in the
employee's account under the plan. The aggregate value of all perquisite and
other personal benefits are not reflected and are less than 10% of total
annual salary and bonus reported for each of the named officers in each of
the years indicated. Perquisites paid for the above named officers include
employee only portion of health, life and disability insurance premiums and
some club dues.
(3) During 1992, the Company profit-sharing plan was amended by adding a 401(k)
arrangement to the plan. The amount shown for 1992 and 1993, except in the
case of Mr. McNeece, represents the aggregate contributions by the Company
on behalf of the officer under the 401(k) profit-sharing plan, including
regular Company contributions, matching contributions on employee elective
deferrals under the 401(k) arrangement, and Company matching contributions
on amounts deferred by the officer, if any, under the nonqualified deferred
compensation plan which supplements the qualified plan (the "SERP"). In Mr.
McNeece's case, the amount shown includes a portion of the premium for term
life insurance coverage for both years, paid by the Company in the amount of
$4,765 each year, in addition to the Company contributions under the 401(k)
profit-sharing plan and the SERP.
(4) During 1991 the named officers participated in a qualified defined
contribution profit-sharing plan at the same percentage of compensation as
all qualified employees of the Company. The amounts shown, except in the
case of Mr. McNeece, are the amounts contributed by the Company on behalf of
the named officers under the profit-sharing plan. In the case of Mr.
McNeece, the amount shown includes a premium for term life insurance
coverage for 1991 in the amount of $4,201 in addition to the Company
contributions under the profit-sharing plan.
(5) Options which normally would have been granted for 1991 were not granted
until January 1992. The options which are shown as granted in 1991 were
incentive stock options granted to replace options previously granted in
1989 which were nonqualified options. The replacement options granted in
1991 were granted at the same exercise price as the options they replaced,
which was not less than the fair market value of Company stock as of the
date of grant of the replacement options in 1991. The 1989 options replaced
were canceled and surrendered.
Salary compensation for three of the Company's key executives has increased
over the past three years, as a result of performance based increases, promotion
of these key executives to a higher level of responsibility, and the desire of
the compensation committee to move the base compensation of key executives to
the
14
<PAGE> 18
competitive median. The 1992 increase for Mr. McNeece reflected his appointment
to Chairman and CEO of the Company, while the increase for Mr. Miller reflected
his appointment as President, Chief Administrative and Chief Financial Officer
of the Company. Mr. White was appointed President of the Company's lead bank in
January 1992. Base compensation levels for these key executives remained below
the competitive median in 1992. In 1993, base compensation was at the
competitive median for Mr. Miller, but remained below the median for Messrs.
McNeece and White. The intent is for each of these key executive's base
compensation to reach the median within the next year or two years.
In 1992 and 1991, incentive awards were modest relative to target and
maximum potential payouts. The lower payment of awards for 1991 and 1992
reflects actual earnings and loan quality results below plan expectations. In
1993, the Company net earnings and loan quality results improved and the
incentive compensation earned was higher reflecting the pay for performance
basis of the plan.
In 1993, 1992 and 1991, the Company did not sponsor or provide to the named
officers any programs for restricted or bonus stock awards or long-term
incentive compensation. The Company intends to sponsor a performance based
restricted stock plan for three of its key officers, beginning in 1994, subject
to the approval of the shareholders. A description of the proposed plan is
located under the caption "PERFORMANCE-BASED RESTRICTED STOCK PLAN PROPOSAL"
below.
OPTION GRANTS TO EXECUTIVE OFFICERS IN LAST FISCAL YEAR
The following table sets forth the stock options granted to the executive
officers named in the Summary Compensation Table during fiscal year 1993 and the
projected value of those stock options:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL
TOTAL OPTIONS RATES OF STOCK PRICE
GRANTED TO EXERCISE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES OR BASE TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION ------------------------------
NAME AND PRINCIPAL POSITION (#)(1) YEAR ($/SHARE) DATE 0%($)(3) 5%($) 10%($)
- ----------------------------- ------- ------------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard A. McNeece 16,000 12.28% $ 18.75 1/20/03 $0 $188,668 $478,123
Chairman and C.E.O.
Peter D. Miller 9,400 7.22% $ 18.75 1/20/03 $0 110,843 280,897
President, C.A.O., and
C.F.O.
C. Talmadge Garrison 6,000 4.61% $ 18.75 1/20/03 $0 70,751 179,296
Senior Vice President &
Secretary
Richard D. White 6,000 4.61% $ 18.75 1/20/03 $0 70,751 179,296
President, The First
National
Bank of Gainesville
Bryan F. Bell 4,000 3.07% $ 18.75 1/20/03 $0 47,167 119,531
Senior Vice President,
Credit Officer
</TABLE>
- ---------------
(1) These options were issued with a five year, 20% per year vesting schedule
for exercisability with the first 20% being exercisable on January 20, 1994.
These options were issued with a maximum 10 year exercise period.
(2) The dollar amounts under these columns are the result of calculations at 0%,
5% and 10% assumed annual appreciation in stock price (compounded annually
over the option term) and therefore are not intended to forecast actual
expected future appreciation, if any, of the Company's stock price. The
Company did not use an alternative formula for an expiration date valuation,
since the Company is not aware of any formula which will determine with
reasonable accuracy an expiration date value based on future unknown or
volatile factors. The potential realizable value to the optionee is the
difference between the exercise price and the appreciated stock price at the
assumed annual rates of appreciation multiplied by the number of option
shares.
(3) No gain to the optionees is possible without appreciation in the stock
price, which will benefit all shareholders commensurately. Zero percent
appreciation in the stock price will result in zero dollars for the
optionees.
Based on the number of outstanding shares of Company stock at December 31,
1993 and the exercise price shown in the table, if the Potential Realizable
Values were realized at the 5% annual rate of appreciation
15
<PAGE> 19
for the option term, the realized appreciation to all Company shareholders would
be $183,159,923. At the 10% annual rate of appreciation for the option term, the
realized value for all shareholders would be $464,163,197.
All the above options were granted during the year 1993 with a five year
vesting schedule and ten year exercise period. Due to the exercise dates for
such options, all options would be qualified options except for 1,208 of the
option shares granted to Mr. McNeece which are nonqualified. Under a qualified
plan, the aggregate fair market value of stock (determined at the time of grant
of the option) with respect to which options are exercisable for the first time
by any optionee during any calendar year cannot exceed $100,000. This $100,000
limit refers to the price that the officer would pay to purchase the stock upon
exercise of the option and has no relation to any profit or gain which the
officer might receive upon exercise of the option.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table below sets forth the aggregated stock options exercised during
the fiscal year ended December 31, 1993 and the year-end option values. The
table also sets forth the number of shares received upon exercise of options and
the aggregate dollar value realized upon exercise, which is the difference
between the fair market value of the stock acquired upon exercise of the options
and the exercise price for such options. The table also sets forth the total
number of unexercised options held at December 31, 1993, separately identifying
those options currently exercisable and unexercisable. The table indicates the
value of options which are "in-the-money", which means the amount by which the
fair market value of the underlying stock exceeds the exercise price of the
options outstanding at December 31, 1993.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS
OPTIONS(#) AT FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME AND PRINCIPAL POSITION ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(1)
- ---------------------------------- --------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Richard A. McNeece 22,200 $139,488 16,500/ $ 77,686/
16,000 $ 30,000
Peter D. Miller 6,000 $ 28,752 21,751/ $143,113/
9,400 $ 17,625
C. Talmadge Garrison 0 $ 0 25,499/ $157,119/
6,000 $ 11,250
Richard D. White 4,500 $ 16,501 17,249/ $113,651/
6,000 $ 11,250
Bryan F. Bell 3,750 $ 15,626 12,750/ $ 84,217/
4,000 $ 7,500
</TABLE>
- ---------------
(1) Relative to those shares acquired on exercise: in the case of Messrs.
McNeece, Miller, and Bell the market value was calculated using the average
of the bid and asked price of the shares as quoted on NASDAQ on the date of
exercise; in the case of Mr. White, the market value was determined using
the actual prices received by Mr. White upon sale of some shares immediately
after exercise, such sales being permitted under S.E.C. Release No. 34-28869
and S.E.C. Rule 16b-3. In calculating the value of unexercised in-the-money
options, the average of the bid and asked price of shares as quoted on
NASDAQ on December 31, 1993 was used.
TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
The Company has entered into change of control agreements with certain key
officers of the Company or affiliates, including Messrs. McNeece, Miller,
Garrison, White and Bell. Each agreement provides for compensation and other
benefits to be payable to the officer in the event that the officer is
involuntarily terminated without cause, or voluntarily terminates on account of
a material change in such officer's duties, within two years following any
change of control. A change of control includes any change in control (including
successive changes in control), whether by merger, tender offer, sale of
substantially all the assets of the Company or other event which results or is
likely to result in a change in the control of management of the Company. A
"change in duties" which would permit an officer to voluntarily terminate
employment and receive payments under his change of control agreement (after the
occurrence of a change of control)
16
<PAGE> 20
includes: (1) any significant change in the officer's title or the nature or
scope of the officer's authorities or duties, (2) a reduction in base salary,
(3) any reduction in employee benefits or perquisites, (4) relocation of the
officer by more than 50 miles from his office at the time of the change in
control, and (5) any adverse effect caused by the change in control on the
officer's ability to exercise the authorities, powers, functions or duties
attached to his position with the Company. Each change of control agreement has
a three year term.
The compensation and benefits to which an officer is entitled under his
change of control agreement includes a payment equal to a multiple of the
officer's base salary in effect prior to the change in control of the Company or
at his date of termination, whichever base salary is greater. For Messrs.
McNeece, Miller, Garrison, and White, these multiples of base salary are,
respectively, 262%, 185.5%, 114.5% and 114.5%. For Mr. Bell, the level of payout
is 100% of base salary plus an amount equal to the average of the annual amounts
received during the preceding three years under the Company's incentive
compensation plan. The level of payout to executive officers was based on
recommendations by the Company's compensation consultants.
In addition to the multiple of base salary payout, the officer will
continue to be covered, or receive payment from the Company for the equivalent
cost of coverage, under those medical, dental, life insurance and long-term
disability programs available to Company employees generally on the date of the
officer's termination. These coverages will be provided for two years after the
date of termination, and the officer will be required to pay for any portion of
such coverages for which employees of Company are required to pay.
With respect to stock options held by each officer, the change of control
agreement provides that any restrictions on exercisability lapse and the officer
may either exercise the options or may exercise the right to have the Company
pay him the difference between the value of the stock and the exercise price of
the stock, within six months following termination of employment. For this
purpose the value of the stock is deemed to be the greater of the value on the
date the officer notifies the Company of his exercise of the right to take a
cash payment or the value at the time of the change of control.
Each change of control agreement also provides that, if any payments under
the agreement are "excess parachute payments" as defined in the Internal Revenue
code, the payments to the officer will be "grossed up" so that, after the
officer pays any excise taxes applicable to the excess parachute payments, the
officer will receive the amounts he would have received under the change of
control agreement if the payments had not been treated as excess parachute
payments.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee members are approved each year at the meeting of
the Board of Directors following the annual shareholders meeting in April. The
Committee serves from April to April, rather than the calendar year. The
Committee members serving from April 1993 until April 1994 are W. Woodrow
Stewart, Chairman, James H. Harris, Jr., J. B. McKibbon, Jr., J. M. "Ray" McRae
(former C.E.O. of the Company and presently a consultant to the Company), J. L.
Nix (former C.E.O. of the First National Bank of White County), Harold L. Smith,
and Bobby M. Thomas. The Committee members who served from April 1992 until
April 1993 were the same as above, except Mr. Smith did not serve on the
Committee for the 1992-93 year.
Mr. Stewart is a partner in the law firm Stewart, Melvin, & House in
Gainesville, Georgia. Stewart, Melvin & House provided legal services to the
Company and one or more of its affiliate banks during 1993; and it is
anticipated that the firm will provide legal services to the Company in 1994.
During 1993, the Company paid the firm of Stewart, Melvin & House $98,800 in
legal fees, and the Company's subsidiary banks, in the aggregate, paid the firm
$328,400 in legal fees. In addition to fees paid to the firm by the Company and
its subsidiaries, independent third party debtors paid legal fees to the firm in
connection with certain transactions in which the firm represented the Company
or one of its subsidiaries.
TARGET OWNERSHIP PLAN
The Target Ownership Plan of the Company, which requires key officers of
the Company and its affiliate banks to achieve a designated level of ownership
of Company stock, was recommended by the Compensation
17
<PAGE> 21
Committee and approved by the Board of Directors in January 1994. The Target
Ownership Plan requires key officers, through personal initiative to achieve a
level of stock ownership which ensures (1) that the key officers share an
"owners" perspective and are focused on long-term shareholder value creation,
and (2) that key officer wealth accumulation is directly linked to Company
shareholder returns. The plan applies to the executive officers of the Company
listed in the Summary Compensation Table above, other key Company officers,
affiliate bank chief executive officers and affiliate bank executive vice
presidents. The Target Ownership Plan requires that those named officers
accumulate a target number of Company shares within a five year period. The
target for each officer is based on a multiple of the compensation of the
particular officer, with the market value of shares to be acquired being equal
to a multiple of five times compensation for the chief executive officer of the
Company, four times compensation for the president of the Company, two times
compensation for the president of the largest affiliate bank, and one times
compensation for all other officers under the plan. The Target Ownership Plan is
non-compensatory. Under the plan no shares or options are granted by the Company
to the key officers.
COMPENSATION OF DIRECTORS
Officers who are also Directors do not receive any fee or remuneration for
services as members of the Board of Directors. In 1993, non-management Directors
of the Company received a fee of $4,000 per year for their services. All
non-management Directors received $200 for each committee meeting they attended
which was not held on the same day as a regular Board meeting. None of the
Directors received more than $800 during 1993 for committee meeting attendance.
Each of the non-management Directors of the Company also served as a director on
the board of one of the fifteen affiliate banks of the Company, for which each
received fees for serving as a director of the particular affiliate bank.
All Directors are eligible to participate under the Company's employee and
director stock purchase plan. The plan is generally described above in Footnote
(2) to the Summary Compensation Table, and under the plan each Director may
contribute up to $2,000 to his plan account. Upon such contribution, the Company
then contributes to the Director's plan account an amount equal to 50% of the
Director's contribution. All of the Directors participated under the plan during
1993, and the Company contributed $1,000 to each participating Director's plan
account during 1993.
In 1993, the Company had consulting agreements with Messrs. J. M "Ray"
McRae and Richard L. Shockley, former officers and current directors of the
Company. Under these agreements, Messrs. McRae and Shockley provided consulting
services to the Company and were paid $74,000 and $39,000, respectively, during
1993. Mr. McRae provides services in carrying on established customer contacts,
customer relations and working with current and prospective affiliate banks. Mr.
Shockley provides services in customer relations and serves as a liaison on the
boards of several of the Company affiliate banks. Mr. McRae is not seeking
reelection as a Company Director at the 1994 Annual Shareholders Meeting. His
service as a consultant to the Company will also cease after the election of
Directors by the shareholders in 1994. Mr. Shockley will continue to serve as a
consultant in 1994.
18
<PAGE> 22
TRANSACTIONS WITH MANAGEMENT
In the ordinary course of business, the Company and the subsidiary banks
have had and anticipate that they will continue to have transactions with
various directors, officers, principal shareholders, and their associates. All
loans and commitments to extend loans included in such transactions were made
substantially on the same terms, including interest rates and collateral, as
those prevailing from time to time for comparable transactions with other
unaffiliated persons, and in the opinion of the management of the banks, do not
involve more than a normal risk of collectibility or present any other
unfavorable features. In management's opinion, the aggregate amount of
extensions of credit outstanding at any time from the beginning of the last
fiscal year to the date hereof, to a Director, Director Nominee, Executive
Officer or Principal Security Holder and their associates did not exceed the
maximum permitted under applicable banking regulations.
Mr. W. Woodrow Stewart, a Director who has served since 1981 and J. Kenneth
Nix, Sr., who is a new Director Nominee, are partners in the law firm of
Stewart, Melvin & House located in Gainesville, Georgia. Mr. Stewart, who has
been nominated for re-election to the Board, and Mr. Nix, who has been nominated
for election to the Board, through their firm, provided legal services to the
Company and several of its subsidiaries during 1993, and it is anticipated that
their firm will also provide legal services to the Company during 1994. The
amount of fees for legal services to the Company and its affiliate banks paid to
Stewart, Melvin & House during 1993 is set forth above in the subsection
entitled "Compensation Committee Interlocks and Insider Participation".
PERFORMANCE-BASED RESTRICTED STOCK PLAN PROPOSAL
The Board of Directors recommends the shareholders approve the
establishment of the Performance-Based Restricted Stock Plan (the "Plan"), for
certain executive officers of the Company and The First National Bank of
Gainesville (the "Participants"), namely Messrs. Richard A. McNeece, Peter D.
Miller, and Richard D. White, who are, respectively, the Chief Executive Officer
and Chairman of the Company, the President and Chief Financial and
Administrative officer of the Company, and the President of The First National
Bank of Gainesville. The purposes of the Plan are: (1) to provide incentives to
the Participants by providing them with opportunities to acquire common stock of
the Company when and if the price of Company stock attains target price levels
and (2) to provide appropriate incentives to retain the participants in the
active employment of the Company.
The Board of Directors of the Company at its meeting on January 19, 1994,
authorized and adopted the Plan and directed that the Plan be submitted to the
shareholders for their approval.
Under the terms of the Plan, there are 90,000 shares of the common stock of
the Company reserved for issuance as awards under the Plan, plus sufficient
additional shares to be purchased with cash dividends paid on the shares awarded
under the Plan. Awards of shares of Company stock will be made to the
Participants, without payment therefor by the Participants, if and when the
Company's stock reaches specified target values. The target values must be met
no later than December 31, 1999 for awards to be made under the Plan. The awards
of Company shares to be provided under the Plan (the "Award Shares") will be in
the following amounts when the specified target prices are met:
<TABLE>
<CAPTION>
PARTICIPANT'S
TARGET PRICE PER SHARE NAME AND POSITION SHARES AWARDED
- ---------------------- ------------------- --------------
<C> <S> <C>
$29.00 Richard A. McNeece 13,333
CEO, Chairman
Peter D. Miller 10,000
President, CFO
Richard D. White 6,666
President FNB
Gainesville
</TABLE>
19
<PAGE> 23
<TABLE>
<CAPTION>
PARTICIPANT'S
TARGET PRICE PER SHARE NAME AND POSITION SHARES AWARDED
- ---------------------- ------------------- --------------
<C> <S> <C>
$33.00 Richard A. McNeece 13,333
CEO, Chairman
Peter D. Miller 10,000
President, CFO
Richard D. White, 6,667
President FNB
Gainesville
$37.00 Richard A. McNeece 13,334
CEO, Chairman
Peter D. Miller 10,000
President, CFO
Richard D. White, 6,667
President FNB
Gainesville
</TABLE>
In order for awards to be made, the trading price for Company stock must
average, over a period of sixty consecutive days, a price which equals or
exceeds one of the target prices shown above. The trading price of Company stock
for any day in the 60-day period is the average of the bid and asked prices of
the stock for such days as quoted on NASDAQ (or any subsequent national exchange
on which the Company stock is listed), or the last available trading price
(computed in the same manner) for days included in the 60-day period on which
the NASDAQ is not open for trading. For example, in order for awards to be made
at the first target price, $29.00 per share, the average trading price for
Company stock during a 60-day period would have to be at least $29.00. If the
Company is being acquired when a 60-day period described above expires, then the
awards of shares hereunder will be deferred until it is determined whether the
Company is acquired. If the Company is acquired, then any awards due under the
Plan will be made immediately prior to the acquisition. If for any reason the
Company is not acquired, then the requirements for an award under the Plan must
be met during a 60-day period which commences after it is determined that the
acquisition did not occur.
Award Shares may be voted by the Participants unless such shares are
forfeited as described below. All cash dividends on Award Shares will be
reinvested in additional shares of the Company's stock (the "Additional Shares")
and the Additional Shares will also be subject to the same forfeiture
restrictions applicable to the Award Shares to which they are attributable.
Award Shares and Additional Shares are not transferable by the Participant until
all forfeiture restrictions applicable to the shares have lapsed or are of no
further effect. Award shares and Additional Shares, even those which are not
subject to forfeiture restrictions, must be held by the Participant for not less
than six months from the date of grant of the shares to the Participant before
they may be sold by the Participant.
Award Shares and Additional Shares are subject to several restrictions,
including (1) a forfeiture of certain shares which have been awarded in the
event the Participant does not meet a specified level of Bancorp stock ownership
(other than pursuant to the Plan) by the date vesting under the plan would
otherwise occur, and (2) a complete forfeiture of any Award Shares and
Additional Shares in the event that the Participant terminates employment prior
to the earlier of age 65 or completion of eight years of service after the date
the Award Shares are earned. However, the restrictions on the awards lapse in
the event of a Participant's death, disability, a change of control of the
Company, or the involuntary termination of the Participant's employment without
reasonable cause.
The Award Shares and Additional Shares will be held by an escrow agent
designated by the Compensation Committee of the Company's Board. The
Compensation Committee will be responsible for the administration of the Plan.
The Plan may not be amended or terminated without approval of the Board and the
approval of the shareholders, if required, but in any event the Plan may not be
amended more than once
20
<PAGE> 24
during any six-month period except for compliance with changes in the Internal
Revenue Code or regulations promulgated thereunder.
If the number of issued shares of Company stock are changed by reason of
stock split, stock dividend, combinations or exchanges of shares,
recapitalization or similar capital adjustments, the total number of shares
reserved for issuance under the Plan and the number of Award Shares and
Additional Shares shall be adjusted so that the value of such shares shall not
be changed.
A Participant will report compensation income for income tax purposes on
the Award Shares and Additional Shares in the first taxable year of the
Participant in which the shares are transferable or not subject to a substantial
risk of forfeiture. The forfeiture restrictions contained in the plan will be
substantial risks of forfeiture under the federal tax statute. A Participant is
also permitted to make a special election to report compensation income in the
taxable year of the Participant in which the Award Shares or Additional Shares
are awarded. At such time as the shares are included as compensation income by
the Participant, the Company will be entitled to a business expense deduction.
If the Plan is approved by the shareholders, the Company anticipates that
the shares subject to the Plan will be registered with the Securities and
Exchange Commission and with any applicable state securities commission where
registration is required. The cost of such registration will be borne by the
Company.
The table below illustrates the dollar values which will be awarded, valued
as of the date the Target prices are met, under the Plan if the Target Prices of
$29.00 per share, $33.00 per share and $37.00 per share are met, shares are
awarded under the Plan, and the shares are not forfeited by the person to whom
they are awarded.
PERFORMANCE-BASED RESTRICTED STOCK PLAN
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE($) NUMBER OF UNIT(#)
- ------------------------------- ---------------- ------------------
<S> <C> <C>
Richard A. McNeece $ 386,657(1) 13,333 shares(1)
Chairman and CEO $ 439,989(2) 13,333 shares(2)
$ 493,358(3) 13,334 shares(3)
Peter D. Miller $ 290,000(1) 10,000 shares(1)
President, CFO $ 330,000(2) 10,000 shares(2)
$ 370,000(3) 10,000 shares(3)
C. Talmadge Garrison N/A N/A
Senior V.P. and Secretary
Richard D. White $ 193,314(1) 6,666 shares(1)
President, The First National $ 220,011(2) 6,667 shares(2)
Bank of Gainesville $ 246,679(3) 6,667 shares(3)
Bryan F. Bell N/A N/A
Senior V.P., Credit,
First National Bancorp
Executive Group $ 869,971(1) 29,999 shares(1)
$ 990,000(2) 30,000 shares(2)
$1,110,037(3) 30,001 shares(3)
Non-Executive Director Group N/A N/A
Non-Executive
Officer Employee Group N/A N/A
</TABLE>
- ---------------
(1) This is the value of the stock awarded, as of the date the award is earned,
with respect to the Target Price of $29.00 per share, if the average trading
price for Company stock during the 60-day computation period is exactly
$29.00 per share. If the average trading price for Company stock exceeded
$29.00 per share, the value of the award would likely be greater than that
shown in the table. The
21
<PAGE> 25
value shown in the table does not consider the value of any cash dividends
which might be paid on the shares, which under the plan are used to purchase
additional shares, as described above.
(2) This is the value of stock awarded, as of the date the award is earned, with
respect to the Target Price of $33.00 per share, if the average trading
price for Company stock during the 60-day computation period is exactly
$33.00 per share. If the average trading price for Company stock exceeded
$33.00 per share, the value of the award would likely be greater than that
shown in the table. The value shown in the table does not consider the value
of any cash dividends which might be paid on the shares, which under the
Plan are used to purchase additional shares, as described above.
(3) This is the value of the stock awarded, as of the date the award is earned,
with respect to the Target Price of $37.00 per share, if the average trading
price for Company stock during the 60-day computation period is exactly
$37.00 per share. If the average trading price for Company stock exceeded
$37.00 per share, the value of the award would likely be greater than that
shown in the table. The value shown in the table does not consider the value
of any cash dividends which might be paid on the shares, which under the
Plan are used to purchase additional shares, as described above.
Approval of the Plan requires the affirmative vote of a majority of the
total number of shares voted at the Annual Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PERFORMANCE-BASED
RESTRICTED STOCK PLAN.
SHAREHOLDER PROPOSALS
Any proposal that a shareholder intends to present at the 1995 Annual
Meeting must be received at the Company's Principal Executive Offices (please
address to the attention of C. Talmadge Garrison, Secretary) not later than
November 30, 1994. Any such proposal must comply with Rule 14a-8 of Regulation
14A of the proxy rules of the Securities and Exchange Commission.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company, upon the recommendation of the Audit
Committee, has appointed the firm of KPMG Peat Marwick to serve as independent
auditors of the Company for the fiscal year ending December 31, 1994, subject to
ratification of this appointment by the shareholders of the Company. KPMG Peat
Marwick has served as independent auditors of the Company for several years and
is considered by management of the Company to be well qualified. The Company has
been advised by that firm that neither it nor any member thereof has any
financial interest, direct or indirect, in the Company or any of its
subsidiaries in any capacity.
One or more representatives of KPMG Peat Marwick will be present at the
Annual Meeting of Shareholders, will have an opportunity to make a statement if
he or she desires to do so, and will be available to respond to appropriate
questions.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of the shares of Common Stock of the Company
present in person or by proxy and voting on this proposal at the Annual Meeting
of Shareholders. If the shareholders fail to ratify the appointment of KPMG Peat
Marwick, the Board of Directors will reconsider the appointment.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE PROPOSAL TO
RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK AS INDEPENDENT AUDITORS OF THE
COMPANY FOR THE 1994 FISCAL YEAR.
OPTIONS, WARRANTS, OR RIGHTS
To the best of management's knowledge, the only options, warrants or rights
associated with the common stock of the Company outstanding at the present time
are those options issued to key officers of the Company or affiliate banks as
described in this Proxy Statement.
22
<PAGE> 26
OTHER BUSINESS
Action will be taken on whatever other business may properly come before
the meeting. Management is not aware of any other business matters to be
considered at the Annual Meeting except the Report of Management and
presentation of financial statements. If other matters properly come before the
meeting, the persons named in the Proxy will have discretionary authority to
vote proxies with respect to such matters after considering the recommendations
of management.
The minutes of the 1993 Annual Meeting will be presented at the meeting for
approval. It is not intended that approval of those minutes will constitute
ratification of matters referred to therein.
Management urges you to sign and return the enclosed proxy as promptly as
possible, whether or not you plan to attend the meeting in person. IF YOU DO
ATTEND, YOU MAY THEN WITHDRAW YOUR PROXY.
UPON WRITTEN REQUEST BY ANY SHAREHOLDER TO C. TALMADGE GARRISON, SECRETARY,
FIRST NATIONAL BANCORP, P.O. DRAWER 937, GAINESVILLE, GEORGIA 30503, A COPY OF
THE COMPANY'S 1993 ANNUAL REPORT ON FORM 10-K WILL BE PROVIDED WITHOUT CHARGE.
March 18, 1994
23
<PAGE> 27
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS Jane W. Banks, Thomas S. Cheek, John A. Ferguson, Jr.,
James H. Harris, Jr., Ray C. Jones, Arthur J. Kunzer,
FOR WITHHOLD Jr., W.L. Lester, Richard A. McNeece, Peter D. Miller,
all nominees listed at AUTHORITY Loy D. Mullinax, J. Kenneth Nix, Sr., Edwin C. Poss,
right (except as to vote for all nominees Paul J. Reeves, A. Roy Roberts, Jr., Richard L.
marked listed at right Shockley, Harold L. Smith, W. Woodrow Stewart, Bobby
to the contrary.) M. Thomas, James A. Walters, Mack G. West, J. Michael
Womble, Joe Wood, Jr.
/ / / /
(INSTRUCTION: To withhold authority to vote for any
individual nominee, write that nominee's name on the
space provided below.)
-----------------------------------------------------
2. RESTRICTED STOCK PLAN: TO VOTE AS INDICATED ON THE 3. TO RATIFY THE APPOINTMENT OF KPMG IN THEIR DISCRETION, THE
PROPOSAL TO ESTABLISH THE PERFORMANCE PEAT MARWICK AS THE COMPANY'S NAMED PROXIES ARE AUTHORIZED
BASED RESTRICTED STOCK PLAN. INDEPENDENT AUDITORS FOR THE TO VOTE WITH RESPECT TO ANY
FISCAL YEAR ENDING DECEMBER 31, 1994. OTHER MATTERS WHICH MAY
PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN THEREOF AND WHICH THE
BOARD OF DIRECTORS DID NOT
/ / / / / / / / / / / / KNOW WERE TO BE PRESENTED
AS OF THE DATE OF THE PROXY
STATEMENT.
PLEASE VOTE, DATE AND SIGN THIS PROXY AND RETURN IT AT ONCE WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING. YOU MAY VOTE IN PERSON IF YOU DO
ATTEND.
Dated:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
Signature(s)
NOTE: If signing for estates, trustees or corporation, title of
capacity should be stated. If shares are held jointly, each holder
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS should sign.
</TABLE>
FIRST NATIONAL BANCORP
PROXY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned shareholder of First
National Bancorp (the "Company") hereby appoints, James F. Bagwell, Charles R.
Frierson, Jr. and Charles J. Thurmond or any of them, as proxies, with full
power of substitution, to vote as designated on the reverse side, on behalf of
the undersigned the number of votes to which the undersigned is entitled, at
the Annual Meeting of Shareholders of First National Bancorp to be held on
Wednesday, April 20, 1994; at 4:00 PM in the Theatre of the Georgia Mountains
Center, 301 Main Street, Gainesville, Georgia, 30501, or at any adjournments
thereof.
Unless a contrary direction is indicated, the shares represented by the
proxy will be voted for all nominees for directors named in the proxy statement
enclosed herewith and for Proposals 2 and 3; if specific instructions are
indicated, this proxy will be voted in accordance with such instructions. Said
nominations and proposals are being made by the Board of Directors of First
National Bancorp, and the approval of one matter is unrelated to the approval
of any other matter proposed.
<PAGE> 28
FIRST NATIONAL BANCORP PERFORMANCE-BASED
RESTRICTED STOCK PLAN
1. PURPOSE. The First National Bancorp Performance-Based Restricted
Stock Plan (the "Plan") is intended to provide incentives to certain key
employees of First National Bancorp ("Bancorp") and The First National Bank of
Gainesville ("FNB"), namely, the current Bancorp CEO and Chairman, the current
Bancorp President and Chief Financial and Administrative Officer and the
current FNB President, by providing them with opportunities to acquire common
stock of Bancorp pursuant to awards (the "Awards") described herein.
2. ADMINISTRATION OF PLAN. The Compensation Committee of the Bancorp
Board of Directors shall supervise and administer the Plan. Any questions of
interpretation of the Plan or of any Awards issued under the Plan shall be
determined by the Compensation Committee and such determination shall be final
and binding upon all persons. The Plan may not be amended or terminated
without approval of the Bancorp Board of Directors, and, if required by law or
by resolution of the Bancorp Board of Directors, the approval of the Bancorp
shareholders. The Plan provisions may not be amended more than once during any
six-month period, unless such amendment is for purposes of comporting with
changes in the Internal Revenue Code, the Employee Retirement Security Act of
1974 (but only to the extent such statute is applicable to the Plan), or any
rules or regulations promulgated under such statutes. Any determination of the
Compensation Committee under the Plan may be made without notice or meeting of
the Compensation Committee by a writing signed by a majority of the Committee
members.
3. PARTICIPANTS. The participants under the Plan (the
"Participants") shall be the individuals who hold the offices of the Bancorp
CEO and Chairman, the Bancorp President and Chief Financial and Administrative
Officer and the FNB President, as of the Effective Date of the Plan, as defined
herein.
4. SHARES RESERVED UNDER THE PLAN. There is hereby reserved for
issuance as Awards under the Plan an aggregate of 90,000 shares of the common
stock, par value $1.00, of Bancorp, plus sufficient shares of such stock to
award the Additional Shares described in Paragraph 9(c) herein. Any shares
which are granted but are thereafter forfeited pursuant to restrictions on the
shares shall not again be reissued as Awards or Additional Shares under this
Plan, the intent being that only the current officers of Bancorp and FNB who
are designated as Participants in Paragraph 3 shall be permitted to receive any
Awards or Additional Shares under the Plan.
5. AWARDS. Awards will consist of Common Stock transferred to
Participants, with applicable restrictions, as a bonus for service rendered to
the Company or FNB without other payment therefor. Awards shall be made
pursuant to Restricted Stock Agreements that contain terms consistent with the
terms of the Plan
<PAGE> 29
and shall be made in the amounts and at the times specified by the formula in
Paragraph 8 below. No Awards will be made under the Plan with respect to any
"Award Threshhold," as defined in Paragraph 8(a) hereof, which is attained
after December 31, 1999.
6. ADJUSTMENT PROVISIONS. If Bancorp shall at any time change
the number of issued shares of new Common Stock without new consideration
to Bancorp (by stock dividends, stock splits, combinations or exchanges of
shares, recapitalization, or similar capital adjustment), the total number
of shares reserved for issuance under the Plan, the number of shares
covered by each outstanding Award, and the number of Additional Shares as
defined in Paragraph 9(c), shall be adjusted so that the value of each such
Award and such Additional Shares shall not be changed.
7. NONTRANSFERABILITY. Each Award and Additional Shares granted
under the Plan to a Participant shall not be transferable by him otherwise
than by will or the laws of descent and distribution until all restrictions
on such Award and Additional Shares have lapsed or are otherwise no longer
applicable pursuant to the terms of the Plan. A Participant's death prior to
the date on which he would otherwise be entitled to be granted Award(s)
hereunder shall terminate the Participant's rights to any Awards which may
be granted hereunder after the Participant's death. Provided, however, if
the Participant is living on the date on which he would be entitled to be
granted an Award, but he dies prior to the date the award is actually
granted, the Participant's Award shall be granted to his estate.
8. FORMULA FOR AWARDS. Awards shall be made to the Participants
specified in Paragraph 3 based upon the performance of the stock price of
Bancorp stock in accordance with the following formulae:
(a) An "Award Threshhold" occurs the first time Bancorp stock has
traded for an "Average Trading Price" which is at least equal to a "Threshold
Trigger Price" for a period of sixty consecutive calendar days, with a
separate computation period for purposes of determining the "Average Trading
Price" beginning on each date said Threshhold Trigger Price is attained.
Awards shall be made to the Participants based upon the "Award Threshholds"
which have been attained.
(b) Definitions - For purposes of the Plan, the following terms are
defined:
(1) "Average Trading Price" means the average of the trading
prices of Bancorp stock determined by adding the "Trading Price" for each day
of any sixty consecutive day period specified in Paragraph 8(a), and dividing
said sum by sixty (60).
(2) The "Trading Price" of Bancorp stock for any day shall be
-2-
<PAGE> 30
the average of the bid and asked prices for Bancorp stock as quoted
on NASDAQ (or the closing trading price on any subsequent national exchange
on which the Company stock may be listed) as of the end of such day. The
Trading Price for any Saturday, Sunday, national holiday, or other day on
which NASDAQ (or subsequent national exchange) is not open for trading shall
be the same as the Trading Price for Bancorp stock on the last day prior to
such date on which the NASDAQ (or subsequent national exchange) was open for
trading.
(3) The "Threshhold Trigger Prices" shall mean Trading Prices of
$29.00 per share, $33.00 per share, and $37.00 per share. Such Threshhold
Trigger Prices shall be equitably adjusted by the Compensation Committee to
reflect changes in the Trading Price caused solely by reason of stock
dividends, stock splits, combinations or exchanges of shares, recapitalization,
or similar capital adjustments.
(c) Awards shall be made to the Participants when Award Threshholds
have been met, as determined under Paragraph 8(a), as follows:
<TABLE>
<CAPTION>
Award Threshhold Price Participant Shares Awarded
- ---------------------- ----------- --------------
<S> <C> <C>
$29.00 CEO, Chairman 13,333
President, CFO 10,000
FNB President 6,666
$33.00 CEO, Chairman 13,333
President, CFO 10,000
FNB President 6,667
$37.00 CEO, Chairman 13,334
President, CFO 10,000
FNB President 6,667
</TABLE>
(d) Provided, however, in the event that a transaction in which
Bancorp is to be acquired is approved by Bancorp's Board of Directors, or
any person makes a tender offer to the Bancorp shareholders to acquire more
than fifty percent (50%) of all Bancorp shares, during any computation period
for determining whether an Award Threshhold has been met, and an Award
Threshhold is met prior to consummation of the acquisition transaction or
completion of the tender offer, no Award shall be made based on such Award
Threshhold until immediately prior to the consummation of the acquisition
transaction, or, in the case of a tender offer, until the tender offer has
been successfully completed (i.e., the tender offeror has acquired more than
fifty percent (50%) of all Bancorp stock). Award Shares to which a
Participant is entitled immediately prior to the consummation of an
acquisition transaction shall be converted into the consideration paid by the
entity which acquires Bancorp, on the same basis that Bancorp shares generally
are converted in such acquisition transaction. In the event that
-3-
<PAGE> 31
the acquisition transaction is not consummated for any reason, or if
the tender offer fails, then no Award shall be made under the Plan until an
Award Threshhold has been attained (in the same manner as prescribed in
Paragraph 8(a)) during any sixty (60) consecutive calendar day period
commencing on or after the date it is finally determined that the acquisition
transaction will not be consummated or that the tender offer has failed, as
applicable.
(e) Provided, however, that no Awards will be made in any event if
the Award Threshhold is attained after December 31, 1999.
9. RESTRICTIONS APPLICABLE TO AWARDS. Each Award to a Participant
hereunder shall be subject to the following restrictions:
(a) All or a portion of the Awards and Additional Shares, as
defined below, issued to a Participant will be forfeited if the Participant
does not own the targeted level of Bancorp stock ownership required for such
Participant by the First National Bancorp Target Ownership Plan dated January
19, 1994 (the "Target Plan") (without regard to the January 1, 1994 deadline
applicable to the Target Plan) as of the date vesting would otherwise occur
under subsection (b) hereof. All of the Award Shares and Additional Shares
shall be forfeited if the targeted ownership is not attained by the date
vesting occurs under subsection (b), unless vesting occurs pursuant to
subparagraphs (i)-(iv) of subsection (b). If vesting occurs pursuant to
subparagraph (i)-(iv) of subsection (b), the number of Award Shares and
Additional Shares which shall be forfeited by the Participant will be the
number of Bancorp shares by which the Participant failed to meet the
required ownership under the Target Plan. All stock certificates issued
to the Participant evidencing the Awards and Additional Shares which are
forfeited under this provision will be cancelled and Participant shall have no
rights of ownership in such stock after January 1, 1999. For purposes of the
Plan, in determining the required level of ownership under the Target Plan as
of any date vesting occurs under the Plan, the Participant's compensation
which is considered under the formula for share ownership in the Target Plan
shall be his compensation as of the date vesting occurs under the Plan.
(b) Each Award, and all Additional Shares attributable to such
Award, granted to a Participant will be forfeited if the Participant leaves
the active employment of Bancorp or FNB, other than for the reasons specified
below, prior to the earlier of (1) age 65 or (2) completion of eight years of
service from the date the Award Threshhold applicable to such Award was
attained. At such time as the earlier of conditions (1) or (2) in the
preceding sentence has occurred, the forfeiture restrictions applicable to
such Award shall lapse and be of no further effect. Provided, however, that
the above forfeiture restrictions shall also lapse and be of no further effect
when and if a Participant leaves the active employment of Bancorp or FNB by
reason of: (i) the
-4-
<PAGE> 32
Participant's death, (ii) the Participant's disability entitling the
Participant to disability benefits under Social Security or under any
disability plan sponsored by Bancorp or FNB, (iii) any Change of Control,
as defined in the Participant's Change of Control Agreement with Bancorp or
FNB, or (iv) any involuntary termination of Participant which is not a
Termination for Cause as defined in Paragraph 2(h) of the Participant's
Change of Control Agreement with Bancorp or FNB, whether or not a Change of
Control has occurred at the time the Participant is involuntarily terminated by
Bancorp or FNB.
(c) A Participant shall not be entitled to receive any cash
dividends on shares which are the subject of an Award hereunder (or cash
dividends on any Additional Shares awarded herein) until all restrictions on
said shares have lapsed. All cash dividends on shares which are the subject
of an Award shall be reinvested in Bancorp stock (the "Additional Shares"), and
the Additional Shares shall be awarded to the Participant, subject to the
same restrictions applicable to the Award shares from which the dividends
used to purchase the Additional Shares arose. Cash dividends on Additional
Shares shall also be reinvested in Bancorp stock and be awarded as Additional
Shares. If the Award shares are forfeited hereunder, then the Participant will
not be entitled to receive any of the Additional Shares attributable to such
Award shares; that is, the right to receive Additional Shares will also be
forfeited. When all restrictions applicable to an Award have lapsed, then
all restrictions shall be deemed to have lapsed with respect to the
Additional Shares which are attributable to the Award shares on which
restrictions have lapsed (except the restriction under subparagraph (f)
below which applies separately to all Award shares and Additional Shares).
(d) Stock certificates representing Awards or Additional Shares
issued hereunder shall be issued in the Participant's name and be held by
an escrow agent designated by the Compensation Committee, but shall not
be delivered to the Participant until all restrictions on such shares are
no longer applicable. If a forfeiture occurs as described herein, the stock
certificates will be delivered by the escrow agent to the Compensation
Committee which will then have the shares cancelled.
(e) A Participant shall have full voting rights on all shares
which are the subject of an Award hereunder, and on all Additional Shares,
unless said shares are forfeited as provided herein, at all times after the
Award or the award of such Additional Shares has been made.
(f) Notwithstanding anything to the contrary herein, Award shares
and Additional Shares must be held not less than six months from the date of
award of such shares to the Participant before such shares may be sold by the
Participant.
-5-
<PAGE> 33
(g) Stock certificates issued as Awards or Additional Shares
hereunder shall each contain a legend which states as follows:
"The shares represented by this certificate are subject to certain
restrictions under the First National Bancorp Performance-Based
Restricted Stock Plan (the "Plan") dated January 19, 1994, and may
not be transferred by the owner hereof until the restrictions have
lapsed or are no longer applicable pursuant to the terms of the Plan."
10. SECTION 83(B) ELECTIONS AND WITHHOLDING. The Restricted
Stock Agreements shall require each Participant to notify the Compensation
Committee if and when the Participant makes any election under Section
83(b) of the Internal Revenue Code upon the issuance of an Award or
Additional Shares hereunder. Each Participant shall agree in his respective
Restricted Stock Agreement(s) that Bancorp or FNB, as applicable, shall have
the right to require the Participant to remit to Bancorp or FNB, or withhold
from other amounts payable to the Participant, an amount sufficient to satisfy
all federal, state and local withholding tax requirements applicable to each
Award or Additional Shares hereunder, whether or not an election under
Section 83(b) is made when the Award is made.
11. GOVERNING LAW. This Plan shall be governed by the laws of
the State of Georgia. Notwithstanding anything herein to the contrary,
Bancorp's obligation to issue or deliver certificates evidencing the Award
shares shall be subject to all applicable laws, rules and regulations and to
such approvals by any government agencies or national securities exchanges as
may be required.
12. TENURE. A Participant's right, if any, to continue to serve
Bancorp or FNB as an officer, employee or otherwise, shall not be enlarged or
otherwise affected by his designation as a Participant under the Plan.
13. APPROVAL OF SHAREHOLDERS OF BANCORP. This Plan must be approved
by the affirmative votes of a majority of the shares of Bancorp present, or
represented, and entitled to vote at the annual shareholders' meeting of
Bancorp shareholders to be held in 1994.
14. EFFECTIVE DATE OF PLAN. The Effective Date of the Plan is
January 1, 1994. The date of adoption of the Plan by the Bancorp Board of
Directors is January 19, 1994.
-6-
<PAGE> 1
FIRST
NATIONAL
BANCORP
1993 ANNUAL REPORT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 Financial Highlights
2 To Our Friends and Shareholders
5 First National Bancorp Directors
6 The Bancorp vision. A focus on excellence.
8 The challenge of change. A new horizon in banking.
10 The Bancorp business development strategy.
12 Expansive opportunity. A view of the Bancorp market.
14 Telling the Bancorp story.
16 Senior Officers of Bancorp's Affiliate Banks.
17 Consolidated Financial Statements.
37 Independent Auditors' Report.
57 First National Bancorp Affiliates 1993 Regional Report.
73 Shareholder Information
</TABLE>
<PAGE> 3
FINANCIAL HIGHLIGHTS
FIRST NATIONAL BANCORP AND SUBSIDIARIES
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1993 1992* CHANGE PERCENT
---------------------------------------------------------
<S> <C> <C> <C> <C>
For The Years Ended December 31
Net income $ 25,922 $ 22,830 $ 3,092 13.54%
Net interest income 85,562 79,250 6,312 7.96
Net interest income (FTE) 90,250 83,993 6,257 7.45
Noninterest income 31,654 29,959 1,695 5.66
Noninterest expenses 79,356 67,290 12,066 17.93
Provision for loan losses 2,974 11,181 (8,207) (73.40)
- --------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net income $ 1.69 $ 1.51 $ .18 11.92%
Dividends declared .7050 .6400 .0650 10.16
Book value 13.69 12.43 1.26 10.14
Tangible book value 12.58 11.38 1.20 10.54
Weighted average shares outstanding 15,361,244 15,158,805
Shares outstanding at year end 15,532,855 15,292,839
- --------------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Return on average assets 1.28% 1.20% .08%
Return on average equity 13.36 12.63 .73
Net interest margin 4.80 4.75 .05
Primary capital to adjusted assets 11.08 10.66 .42
Allowance for loan losses to loans, net of unearned income:
Including mortgage loans held for sale 1.66 1.94 (.33)
Excluding mortgage loans held for sale 1.75 2.07 (.32)
- --------------------------------------------------------------------------------------------------------------------------------
Selected Balances as of December 31
Total assets $ 2,087,530 $ 1,980,770 $ 106,760 5.39%
Loans, net of unearned income:
Including mortgage loans held for sale 1,269,747 1,217,695 52,052 4.27
Excluding mortgage loans held for sale 1,204,386 1,139,491 64,895 5.70
Allowance for loan losses 21,073 23,589 (2,516) (10.67)
Investment securities 536,116 492,958 43,158 8.75
Deposits 1,716,191 1,679,696 36,495 2.17
Other interest-bearing funds 134,763 98,538 36,225 36.76
Shareholders' equity 212,603 190,140 22,463 11.81
FTE-Fully Taxable Equivalent
*Restated to include the results of Villa Rica Bancorp, Inc., and The Community Bank of Carrollton,
accounted for as poolings of interests.
================================================================================================================================
</TABLE>
1993 AFFILIATE FINANCIAL HIGHLIGHTS
(in thousands)
<TABLE>
<CAPTION>
DEPOSITS NET ALLOWANCE FOR TOTAL SHAREHOLDER'S
& FUNDS LOANS LOAN LOSSES ASSETS EQUITY
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The First National Bank of Gainesville $889,141 $623,009 $8,514 $976,146 $75,260
Citizens Bank, Cherokee County 69,775 32,235 1,475 77,660 7,228
Bank of Clayton 92,587 57,343 1,485 107,351 14,132
First National Bank of White County 86,877 63,139 768 102,836 15,362
First National Bank of Habersham 98,915 52,713 779 111,620 12,217
The Peoples Bank of Forsyth County 99,678 75,514 1,139 110,315 10,124
The First National Bank of Paulding County 146,426 70,070 1,428 159,938 12,398
Granite City Bank 89,307 39,017 1,005 103,514 13,636
First National Bank of Gilmer County 41,485 30,448 484 46,022 4,226
Bank of Banks County 48,874 37,181 545 53,412 4,142
Pickens County Bank 39,844 28,854 641 44,622 4,603
The First National Bank of Jackson County 49,507 36,801 768 54,708 4,896
The Citizens Bank, Toccoa 78,102 48,234 880 89,298 10,660
Bank of Villa Rica 48,335 29,959 669 53,264 4,811
The Community Bank of Carrollton 32,091 24,157 493 37,310 4,952
</TABLE>
1
<PAGE> 4
TO OUR FRIENDS AND SHAREHOLDERS
I am pleased to report that First National Bancorp experienced its most
successful year ever in 1993. Earnings reached a record level as we focused on
the key priorities of quality customer service, asset quality, state-
of-the-art technology, management and staff development, retaining the
company's competitive advantage and providing a solid foundation for 1994 and
beyond.
A review of financial highlights shows:
- Earnings grew 13.5% to $25.9 million vs.
$22.8 million in 1992
- Earnings per share were $1.69, up from
$1.51 in 1992
- Dividends declared per share increased
10.2% to $.705 from $.640
- Shareholders' equity grew 11.8% to a
record $212.6 million from $190.1 million
in 1992
- Assets increased 5.4% to a new high of
$2.1 billion
- Return on Average Assets (ROAA)
increased to 1.28% from 1.20%
- The allowance for loan losses as a
percentage of nonperforming loans
increased to 101%
- An already strong primary capital to
adjusted asset ratio grew to 11.08%
Asset quality has been a high priority for each of the last few years. The
significant results achieved in the fourth quarter of 1992 were surpassed by
those recorded throughout 1993. The dedication and hard work of our bankers
were gratifying as virtually all asset quality ratios exceeded company
standards. Past due loans reached their lowest level at .83%. Total
nonperforming loans as a percent of loans outstanding fell from 2.13%
in 1992 to 1.64%. Total nonperforming assets as a percent of loans plus
other real estate owned declined from 3.06% to 2.38%. Because of the
remediation of nonperforming loans, your company was able to reduce the loan
loss provision from the level recorded in 1992 and increase the reserve
coverage to 101% of all nonperforming loans.
We introduced the GNA Century Investment Center program to provide alternative
investments to meet the changing needs of our customers. This strategy is one
more step toward making available a more complete range of services at our
banks. The GNA Century Investment Center has attracted new deposits to the
retail banking organization, new customer assets to be managed by the Trust
division, and produced fee income from the sale of mutual funds and annuities.
We are pleased with the success of the program and look to substantially
improved results in 1994 as the program is fully implemented in all affiliates.
Primary Capital to
Adjusted Assets Ratio
(Graph)
Last year, we welcomed two new affiliates -- Bank of Villa Rica (May) and The
Community Bank of Carrollton (August). These affiliates are located in
distinctly different market areas within Carroll County, a county experiencing
significant growth, exceeding the growth rates of Georgia and the average for
the United States. On February 28, 1994, we anticipate the completion of a
pending merger with Metro Bancorp, the parent company of The Commercial
Bank of Douglasville, which is located in Douglas County. Douglas County is
part of the attractive Northwest Georgia contiguous markets which include
Carroll, Paulding and Cherokee counties, where your company has a strong
presence.
2
<PAGE> 5
(Photo)
Earnings Dividends Declared
Per Share Per Share
(Graph) (Graph)
On January 19th, we announced the signing of a Letter of Intent with
Barrow Bancshares, parent company of Barrow Bank & Trust Company, in Barrow
County. This county is an attractive market which is a key part of the economic
triangle linking Gainesville/Hall County with Athens/Clarke County (home of the
University of Georgia) and metropolitan Atlanta. We're very excited to be in
this area and look forward to having The Commercial Bank of Douglasville and
Barrow Bank & Trust Company as members of the First Team.
During the first half of 1993, we completed a successful conversion to
a new data processing system furnished by M&I Data Services, Inc., of
Milwaukee, Wisconsin. This new system provides state-of-the-art technology on a
cost-effective basis to improve the quality of service to our customers,
enhance the productivity and efficiency of our banking operations, and provide
the information and tools to support an effective selling effort to meet the
changing financial needs of our customers.
We believe that banking is a personal service business and that our people are
our greatest resource. Your company's officers and staff are encouraged to
develop to their full potential, and a strong commitment was made during 1993
to several training programs which focused on the development of skills to
enhance the effectiveness of our bankers in serving the customers and in
preparing our employees for greater responsibilities.
Management continued to refine the company's loan policy to enable our
affiliate banks to better serve our customers while improving asset quality.
We also developed and implemented a lender development program during the
year. The Lender's Academy is intense, challenging and competitive and focuses
on technical lending skills, critical thinking for loan underwriting, customer
communications and responsiveness, selling skills, loan policy and practices,
and teamwork. Early indications are that The Lender's Academy is highly
successful, and it will continue to be offered in 1994.
3
<PAGE> 6
At this year's annual meeting, four valued friends and directors will retire
from the board. Ray McRae, who served the First National Bank of Gainesville
in various capacities and who was instrumental in forming your company in 1982,
joined the bank in 1953 and retired from active management of the company in
1992. Since that time, he has served as chairman emeritus and has been a
great personal friend and partner. He has achieved a distinguished career,
highlighted by significant contributions to the successes of your company,
Hall County, North Georgia and the entire state.
Joining Ray in retirement will be Jack McKibbon, a valued director of First
National Bank of Gainesville; J. L. Nix, chairman of First National Bank of
White County and one of the most influential businessmen in North Georgia; and
Harold Prather, chairman of Granite City Bank in Elberton. These men brought a
high level of business acumen, valued judgement and commitment to the board,
and we will miss them.
We were pleased to see your company receive national recognition for innovation
and performance during the year. The highlights included two major stories in
American Banker, a leading industry daily newspaper. The October 1, 1993,
issue recognized your company for the innovation and success of our mutual
fund strategy. The January 3, 1994, article featured your company's growth and
expansion strategy. Two national magazines singled your company out as an
excellent investment. FW (Financial World) selected First National Bancorp as
one of the Top 20 Best Investments for midcap companies, and an investment
counselor interviewed by Barrons selected us as one of his top five stock
recommendations.
Total Assets
(in millions)
(Graph)
I express my appreciation to the management and staff who made 1993 results
possible. Through hard work, dedication and perseverance, our banking
professionals produced good results. With a slightly improving economy, we look
for a greater, more profitable year in 1994. Without a doubt, we have the team
of professionals in place to take advantage of the improving economy. I know
you join me in thanking them for a superior effort.
Also, importantly, the continued confidence and support of our customers is
greatly appreciated. Please invite your friends and associates to bank with any
of our 15 banks and 43 conveniently located banking offices in North Georgia.
I look forward to meeting with you at our annual shareholders' meeting on April
20, 1994, at 4:00 p.m. at the Georgia Mountains Center in downtown Gainesville.
Cordially,
/s/ Richard A. McNeece
- ----------------------
Richard A. McNeece
Chairman and CEO
January 31, 1994
4
<PAGE> 7
The Board of First National Bancorp at the Performing Arts Center of West
Georgia College, which is located in Carroll County, home of two of First
National Bancorp's newest affiliates, The Community Bank of Carrollton and
Bank of Villa Rica.
First National Bancorp
DIRECTORS
RICHARD A. MCNEECE
Chairman and
Chief Executive Officer
RAY MCRAE
Chairman Emeritus
MRS. JANE WOOD BANKS
Private Investor
THOMAS S. CHEEK
Chairman, Bank of Banks County
Private Investor
President, Mt. View, Inc., A real
estate development company
JAMES H. HARRIS, JR.
Chairman, The Citizens Bank,
Toccoa
President, J.H. Enterprises, Inc.
JOHN H. HENDERSON
Chairman, First National Bank
of Paulding County
Owner, State Farm Insurance
RAY C. JONES
President, J&S Farms
ARTHUR J. KUNZER, JR.
Co-owner, Frierson-McEver Co.
JACK B. MCKIBBON, JR.
Chairman, McKibbon Brothers, Inc.
PETER D. MILLER
President, Chief Administrative
and Financial Officer
LOY D. MULLINAX
Chairman, Pickens County Bank
Owner, Mullinax Truss Company
J. L. NIX
Chairman, First National Bank
of White County
Owner, Nix Hardware and Furniture Co.
EDWIN C. POSS
Owner, Century 21 Poss Realty
A Division of Edwin C. Poss, Inc.
W. HAROLD PRATHER
Chairman, Granite City Bank
PAUL J. REEVES
Chairman, First National Bank
of Habersham
President, Habersham Hardware
A. ROY ROBERTS, JR.
Chairman, Citizens Bank, Cherokee County
Owner, A. R. Roberts Co. Realtors
RICHARD L. SHOCKLEY
Vice Chairman
HAROLD L. SMITH
Chairman, Turner, Wood & Smith, Inc.
W. WOODROW STEWART
Attorney at Law
Stewart, Melvin & House
BOBBY M. THOMAS
Chairman, The Peoples Bank
of Forsyth County
Owner, Thomas Lumber Co.
MACK G. WEST
Chairman, First National Bank
of Gilmer County
Retired Businessman
Mayor, City of East Ellijay
JOE WOOD, JR.
President, Turner, Wood & Smith, Inc.
(Photo)
5
<PAGE> 8
THE BANCORP VISION. A FOCUS ON EXCELLENCE.
(Photo)
6
<PAGE> 9
The primary market for future First National Bancorp growth is a
48-county North Georgia area. The company presently has 15 affiliate banks in
14 counties.
(Map)
The First National Bancorp vision is to be recognized by the
company's officers, employees and directors, the regulatory authorities, the
investment community (regionally and nationally) and people in the communities
we serve--our customers, competitors and our shareholders--for excellence as
- --the premier financial service company in each of the markets the company
serves and as the model of outstanding performance within the industry.
The quest for excellence for this $2.1 billion, 15 bank holding company
focuses on a four-pronged corporate mission and eight corporate objectives.
CORPORATE MISSION
SHAREHOLDERS: to achieve over time a superior rate of return for our
shareholders by (1) providing above-average, consistent, predictable and
quality earnings per share growth; (2) ensuring a sound financial position;
(3) operating efficiently and effectively a quality, expanding banking
organization.
Return on Return on
Average Assets Average Equity
(Graph) (Graph)
CUSTOMERS: to provide superior, quality, personalized service supported
by an array of financial products to meet the changing needs of our customers;
these products will be priced to provide value to our customers and a fair
profit to the company.
EMPLOYEES: to maintain a professional environment which fosters the
growth and development of our employees, encourages them to assume expanded or
greater responsibilities and recognizes and rewards employee performance.
COMMUNITY: to support economic growth and quality of life in each
community we serve, through prudent lending and banking to meet the needs of
our customers and communities, and a commitment of financial resources as
appropriate, and through the participation and leadership by our employees and
their families in community activities.
CORPORATE OBJECTIVES
- Return on Average Assets from 1.20% to 1.45%
- Annual compounded growth rate in core
loans and core deposits of at least 9.50%
- Increase in deposit and loan market share
from the current 32% to 37% by 1997
- Net interest margin of at least
5.00% by 1997
- Overhead ratio not to exceed 60% by 1997
- Primary capital to asset ratio of not less
than 9.00%
- On average, a nonperforming loan to
loans plus OREO ratio not to exceed 2.00%
- On average, net charge-offs not to exceed
.50% of loans
By focusing on the vision, First National Bancorp will be well on its
way to achieving its corporate mission and objectives. This focus is critical
as the banking industry faces unprecedented change.
7
<PAGE> 10
THE CHALLENGE OF CHANGE. A NEW HORIZON IN BANKING.
(Photo)
8
<PAGE> 11
A slower-growth economic environment. Intensified competition from banking and
non-banking influences. A more complicated regulatory environment that has,
yet, and will not likely, provide for a level playing field. These are the
factors that are changing the very nature of the financial services industry.
This is the new horizon in banking. The result is a real need to evaluate new
ways of doing business to profitably serve the customers' changing needs. A
strong focus is necessary to meet these challenges.
Management is committed and able to do those things necessary to
effectively manage change. This proactive approach is critical as we refine the
ways we do business to meet our customers' changing needs. Traditional
approaches must be reevaluated and constructive and difficult decisions made.
Only those banks that anticipate, understand, endorse and manage change will
thrive. There is a strong sense of urgency in this directive. It is one that
requires that First National Bancorp strengthen its already solid foundation
and enhance the company's business development initiatives to attain financial
objectives on a consistent and predictable basis.
Over the past four years, First National Bancorp has placed a major
emphasis on developing and implementing the appropriate framework to manage
this challenging environment. The company has concentrated on enhanced
delivery systems, operations, credit administration, internal controls,
information technology, an effective compensation strategy, and the acquisition
and retainment of qualified management and operational personnel. This is the
solid foundation that must continue to be strengthened by focusing on the
following ten-point strategic framework.
The company is developing commercial lending opportunities in residential
construction and development outside existing trade areas, such as East
Hampton, a John Wieland Homes development located in Marietta, Georgia.
John Wieland was recently named National Builder of the Year by Professional
Builder Magazine.
STRATEGIC FRAMEWORK
1. Ensure safety and soundness by maintaining superior
strength in capital, funding, rate sensitivity and liquidity; and
provide for proper controls in accountability, internal audit and
credit review.
2. Ensure a business development strategy that emphasizes
(a) the highest level of customer satisfaction through a
continuous commitment to superior sales and service,
and (b) strengthening and expanding the company's core
portfolio of business where banking affiliates can develop
and maintain a clear competitive advantage in image, service,
products, and customer relationships, while continuously
exceeding customer expectations.
3. Provide for an organization that allows for rapid communication,
promotes accountability, minimizes layers of management between
decision makers and customers, and provides the ability to
quickly adapt to change.
4. Provide for enthusiastically committed, innovative,
motivated and properly trained accountability-oriented management;
supported by a management process that adequately links
expectations, capabilities and reward/recognition.
5. Ensure a compensation and benefits methodology that
encourages retention and acquisition of key corporate and
operational managers through:
(a) competitive base compensation,
(b) performance-based incentives, and
(c) increased management ownership of the company.
6. Provide for a superior information technology framework
that delivers the right operational and customer information, at
the right time to the right people.
7. Provide for strong overhead management through stringent
corporate standards, affiliate and business unit accountability,
and selected centralization and consolidation, operating at the
lowest cost possible, consistent with quality customer service.
8. Ensure a sound asset quality profile, reflective of the
company's internal potential and comparing favorably to peer
results.
9. Geographical diversification and franchise growth
through inter- and intra-market acquisitions.
10. Provide for an investor relations program designed to
achieve a market price that reflects the full value of the
company's stock when compared to similar investments.
9
<PAGE> 12
THE BANCORP BUSINESS DEVELOPMENT STRATEGY.
As the new horizon of banking comes into focus, First National Bancorp's
objective is to be recognized as the premier financial services provider in
each market the company services. This is to be achieved through a retail and
corporate business strategy that sets First National Bancorp apart from its
competitors by concentrating on growth and profitability through customer
relationships. This focus will allow the company to quickly and effectively
adapt to the rapidly changing environment. It is a strategy that focuses on
satisfying the customers' needs profitably. The company has identified five key
customer segments--consumer, business, public, wholesale and financial
institutions. Profitability in these segments is obtained by delivering a full
array of profitably priced products on a cost-effective basis and by leveraging
our current customer relationships.
First National Bancorp's strategic emphasis strives for a diversified
business portfolio that minimizes the impact of negative economic influences,
while providing stability to the company's income. This is achieved through an
appropriate mix of commercial, retail, wholesale lending, mortgage banking,
correspondent and trust services. While this mix is important, these product
lines exist for one reason only...to meet the changing needs of our customers.
The company's long-term direction calls for the strategic initiatives on the
right that focus on satisfying those needs while profitably growing the
company.
(Photo) (Photo) (Photo)
CONSUMER UPSCALE MARKET
The foundation of meeting the changing needs of the upscale consumer
market is Century Service, an exclusive network of financial services including
a premium priced investment account, checking, a Gold MasterCard(TM), a
combined statement, personal trust and investment management services, estate
management services, annuities and mutual funds, and mortgage lending, all
serviced by a personal relationship banker charged with continuously exceeding
customer expectations. The ultimate goal is for our relationship bankers to
have on hand the right package of products for each customer's unique
situation. The needs of this upscale market are continuously evaluated to
insure customer satisfaction and a competitive advantage.
CONSUMER MIDDLE MARKET
The consumer middle market has a higher need for loan products than the
upscale consumer market. This is the basis of Bonus Banking, a package of
financial services that combines checking, a better interest rate on savings,
and lower interest rates on installment loans, credit cards and home equity
lines of credit. The middle market is continuously evaluated so that existing
products can be refined and new ones developed to better meet customer needs.
Investment needs of this market are complimented by the offering of mutual
funds and annuities through the GNA Century Investment Center, products that
require a minimal initial investment. The Mortgage Source also offers great
opportunity for customer relationship growth through the cross-selling of home
equity lines of credit and other needed products.
CORPORATE MARKET
The business development strategy for corporate services does not differ in
philosophy from that of the consumer market. Emphasis is placed on the further
segmentation of the business market and the development of "niche" products
such as special loan programs for the agricultural/poultry sector, mid-size
manufacturers and acquisition/development companies. There is also a focus on
the development of a package to meet the complex needs of the professional
customer. Corporate officers also are concentrating on the cross-sell of trust
services such as employee benefit plans, as well as consumer services such as
mortgages, deposits and loans to the appropriate corporate segments.
10
<PAGE> 13
BANCORP'S OVERALL BUSINESS
NET DEVELOPMENT INITIATIVES
REVENUE
- Position the company's focus on
customer and market segments.
- Maintain a comprehensive under-
standing of the changing needs of
the customer through market
research and instant access, by
(Graph) relationship bankers, to cusomters'
total banking relationships.
- Provide a full array of differentiated,
value-added financial products to
meet the changing needs and desires
of each customer segment.
- Emphasize our customer focus
through a sales strategy and a
commitment to providing a level
of personalized service exceeding
customer expectations.
- Minimize managerial layers between
customer expectations.
- Develop a highly motivated and
skilled sales team.
- Offer financial and non-financial
rewards and recognition to encourage
employees to achieve business
development objectives.
- Provide for the best products and
service delivery system that meets
the needs of each customer segment
on a cost-effective basis.
(Photo) (Photo) (Photo)
FINANCIAL INSTITUTIONS
First National Bancorp has a full complement of products and services in place
to answer the needs of targeted correspondent banks. Retail and wholesale
mortgage services; trust services, including personal trusts and employee
benefit plans; funds management services, including bond accounting, investment
agency accounts and federal funds purchased and sold; credit card services; and
data processing services are all available for use by targeted financial
institutions. This sector calls for business-to-business marketing, which
requires even more in-depth segmentation and very customized packages to
accurately meet the needs of targeted correspondent banks.
PUBLIC MARKET
The public market consists of city, county and state government entities. This
sector is serviced through specialized lending, trust services and deposit
services. As active bidders in the public debt market, Bancorp affiliates are
prepared to participate in normal bond and other bid packages as well as
arrange for specialized loan packages for unusual needs. Other products
marketed to this segment include short-term investment services and employee
benefit plans.
MORTGAGE LENDING
Through The Mortgage Source, First National Bancorp services the mortgage
origination needs of both retail and wholesale customers in the Southeast. The
division's $1 billion first-mortgage servicing portfolio provides excellent
income opportunities and is anticipated to grow substantially over the next
five years.
11
<PAGE> 14
EXPANSIVE OPPORTUNITY. A VIEW OF THE BANCORP MARKET.
(Photo)
12
<PAGE> 15
When Bancorp's leadership looks out across the North Georgia horizon, expansive
opportunity comes into view. The 15 affiliate markets, located within 1 1/2
hours of Atlanta, are in communities with good rail and highway systems, have a
strong labor pool and boast very strong population and income growth. While
the economic backbone of North Georgia is a well-diversified mix of tourism,
textiles, poultry and manufacturing, most encouraging are the economic
indicators and demographic profiles of each affiliate market, which compare
favorably to those of the state and nation. These excellent indicators of
Bancorp's potential for profitability strongly support our corporate objectives
and market segmentation strategy.
A healthy portion of North Georgia's diversified economy is based in the
tourism and recreation industry. Shown at left, the alpine village of Helen,
Georgia, attracts approximately three million visitors annually.
Population and household income growth are two indices in which Bancorp's
affiliates have surpassed state averages. Bancorp's 14 counties have seen 65%
of their 10-year population gains come through new people moving into the area
(net migration). This is well above the Georgia average of 52% and is indeed
one of the most positive demographic indices. It is a trend that is expected
to continue and one that shows strong potential for growth of deposits, loans
and other fee-based products. While the median household income for Bancorp's
affiliate markets is slightly less than Georgia's and the United States', the
past ten-year growth in median household income has exceeded that of the state
and the nation.
It is expected that the area's median household income will come more
in line with, and likely surpass, state and national averages as net migration
increases, particularly with respect to retirees and second home purchases.
The economic indicators of North Georgia position Bancorp to grow profitably
through a disciplined merger and acquisition strategy. The company's primary
market is the 48-county North Georgia region which provides above-average
growth potential that is as good as, if not better than, the current markets of
Bancorp's affiliates. The company has the systems, management, financial
strength and controls in place to continue to build a strong presence in North
Georgia through friendly mergers. Acquisitions will continue to center on
well-managed, profitable banks with a good presence in markets that are
receptive to the company's retail and corporate business strategies.
During 1993, Bancorp's acquisition strategy focused on Northwest Georgia. Two
new affiliates, the $36 million asset The Community Bank of Carrollton and the
$52 million asset Bank of Villa Rica, both located in Carroll County, were
added, and a third, the $134 million asset The Commercial Bank of Douglasville,
signed a definitive agreement in late 1993. These banks, combined with First
National Bank of Paulding County and The Citizens Bank, Cherokee County, also
located in the Northwest region, place $462 million of the company's total
assets in four of the system's most potentially lucrative markets. Management
believes that these markets, in particular, offer a tremendous opportunity
because of the impact from Atlanta's growth as it continues to attract high
profile companies, conferences and events like the 1996 Summer Olympic Games.
As metro- or metro-fringe counties, strong growth in population through net
migration is also expected. First National Bancorp plans to continue pursuing
acquisitions similar to those in Carroll County and Douglas County that offer
such strong opportunity for growth.
13
<PAGE> 16
TELLING THE BANCORP STORY.
(Photo)
14
<PAGE> 17
Success, ultimately, can best be measured by the performance of First National
Bancorp stock, absolutely and relative to its banking peers. In this regard,
management seeks to achieve a market price for Bancorp stock that reflects the
company's operating performance and expectations. For an emerging company,
investor relations play a major role in this goal.
Bancorp senior management enhanced its investor relations efforts in 1992 and
1993 through broker-sponsored, institutional presentations throughout the state
and in New York, Boston, Baltimore and Philadelphia. During 1993, several
investment firms joined the list of companies issuing research reports that
reflect confidence in First National Bancorp. Management is appreciative of
this recognition.
Georgia's poultry and egg industries are major players in the international
export market. Service companies, like Georgia Freezer featured at the left,
have a significant impact on the area's economy. In 1993 alone, over one-half
billion pounds of poultry were blast-frozen, stored and distributed from
Georgia Freezer's facilities.
To ensure that the Bancorp story is strongly communicated to potential
investors, management intends to continue placing an emphasis on investor
relations in 1994. Analysts and potential investors will continue to hear about
the foundations that have been built for the company to excel as the changing
banking industry comes into focus. First National Bancorp is a company with
the right focus...a plan for profitability...the right organization...the
proper framework for growth...and the right team...all supported by strong
markets.
Bancorp is a company that has the vision, the ability, and the resources to
make a difference. This is a company that has developed a clear, competitive
advantage ... an advantage that will ensure attainment of its quest for
excellence.
Stock Volumes-Quarterly
(in thousands)
(Graph)
Price Per Share-Quarterly
(Graph)
15
<PAGE> 18
SENIOR OFFICERS OF BANCORP'S AFFILIATE BANKS
<TABLE>
<S> <C> <C> <C>
THE FIRST NATIONAL FIRST NATIONAL BANK GRANITE CITY BANK THE FIRST NATIONAL BANK
BANK OF GAINESVILLE OF WHITE COUNTY Edward B. Hall OF JACKSON COUNTY
Richard D. White Sidney J. Woolen, III President and CEO Kelly G. Hillis
President President and CEO F. Davis Arnette, Jr. President and CEO
Bruce L. Barefoot Coleman Allen Executive Vice President James R. Shaw, Jr.
Executive Vice President Executive Vice President Executive Vice President
CITIZENS BANK, FIRST NATIONAL BANK FIRST NATIONAL BANK THE CITIZENS BANK, TOCCOA
CHEROKEE COUNTY OF HABERSHAM OF GILMER COUNTY Robert A. Parker
Richard M. Zorn Glenn C. Bell Billy R. Loudermilk President and CEO
President and CEO President and CEO President and CEO David C. King
A. R. Roberts, III Eugene B. White C. Wallace Sansbury Executive Vice President
Executive Vice President Executive Vice President Executive Vice President
THE COMMUNITY BANK THE PEOPLES BANK BANK OF BANKS COUNTY BANK OF VILLA RICA
OF CARROLLTON OF FORSYTH COUNTY George W. Evans Fred L. O'Neal
Timothy I. Warren Rocklyn E. Hunt President and CEO President and CEO
President and CEO President and CEO Steven R. Maney George M. Ray
F. Elton Brooks Louis J. Douglass, III Executive Vice President Executive Vice President
Executive Vice President Executive Vice President
BANK OF CLAYTON THE FIRST NATIONAL PICKENS COUNTY BANK
William F. DeVane BANK OF PAULDING Dennis W. Burnette
President and CEO COUNTY President and CEO
B. Allen Lancaster C. B. Fair, III Marc J. Greene
Executive Vice President President and CEO Executive Vice President
Becky S. Echols
Executive Vice President
</TABLE>
(Photo)
16
<PAGE> 19
FIRST
NATIONAL
BANCORP
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 19
Selected Statistical Information . . . . . . . . . . . . . . . . . . . 36
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 37
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 38
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . 39
Consolidated Statements of Shareholders' Equity . . . . . . . . . . . . 40
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . 41
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 42
</TABLE>
<PAGE> 20
FINANCIAL HIGHLIGHTS
FIRST NATIONAL BANCORP AND SUBSIDIARIES
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1993 1992* CHANGE PERCENT
--------------------------------------------
<S> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31:
Net income $ 25,922 $ 22,830 $ 3,092 13.54%
Net interest income 85,562 79,250 6,312 7.96
Net interest income (FTE) 90,250 83,993 6,257 7.45
Noninterest income 31,654 29,959 1,695 5.66
Noninterest expense 79,356 67,290 12,066 17.93
Provision for loan losses 2,974 11,181 (8,207) (73.40)
- -------------------------------------------------------------------------------------------------
PER SHARE DATA:
Net income $ 1.69 $ 1.51 $ .18 11.92%
Dividends declared .7050 .6400 .0650 10.16
Book value 13.69 12.43 1.26 10.14
Tangible book value 12.58 11.38 1.20 10.54
Weighted average shares outstanding 15,361,244 15,158,805
Shares outstanding at year end 15,532,855 15,292,839
- ------------------------------------------------------------------------------------------------
FINANCIAL RATIOS:
Return on average assets 1.28% 1.20% .08%
Return on average equity 13.36 12.63 .73
Net interest margin 4.80 4.75 .05
Primary capital to adjusted assets 11.08 10.66 .42
Allowance for loan losses to loans, net of
unearned income:
Including mortgage loans held for sale 1.66 1.94 (.28)
Excluding mortgage loans held for sale 1.75 2.07 (.32)
- ------------------------------------------------------------------------------------------------
SELECTED BALANCES AS OF DECEMBER 31:
Total assets $ 2,087,530 $ 1,980,770 $106,760 5.39%
Loans, net of unearned income:
Including mortgage loans held for sale 1,269,747 1,217,695 52,052 4.27
Excluding mortgage loans held for sale 1,204,386 1,139,491 64,895 5.70
Allowance for loan losses 21,073 23,589 (2,516) (10.67)
Investment securities 536,116 492,958 43,158 8.75
Deposits 1,716,191 1,679,696 36,495 2.17
Other interest-bearing funds 134,763 98,538 36,225 36.76
Shareholders' equity 212,603 190,140 22,463 11.81
- ------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Total assets $ 2,024,897 $ 1,910,300 $114,597 6.00%
Loans, net of unearned income:
Including mortgage loans held for sale 1,261,739 1,215,232 46,507 3.83
Excluding mortgage loans held for sale 1,167,832 1,096,708 71,124 6.49
Allowance for loan losses 23,456 21,583 1,873 8.68
Investment securities 529,688 442,926 86,762 19.59
Deposits 1,675,157 1,628,475 46,682 2.87
Other interest-bearing funds 139,602 88,757 50,845 57.29
Shareholders' equity 193,987 180,737 13,250 7.33
- ------------------------------------------------------------------------------------------------
ASSET QUALITY:
Nonperforming assets as a percent of loans, net of
unearned income plus other real estate 2.38% 3.06% (.68)%
Nonperforming loans as a percent
of loans, net of unearned income 1.64 2.13 (.49)
Loans past due 90 days or more, still accruing, as a
percent of loans, net of unearned income .02 .05 (.03)
Net loan charge-offs as a percent
of average loans, net of unearned income .44 .74 (.30)
</TABLE>
- - Restated to include the results of Villa Rica Bancorp, Inc. and The
Community Bank of Carrollton, accounted for as pooling-of-interests.
F I R S T N A T I O N A L B A N C O R P
-18-
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CORPORATE PROFILE
First National Bancorp ("Company"), a $2.1 billion multi-bank holding
company with fifteen affiliate banks, 43 full service banking facilities
located in North Georgia and 1,174 full-time equivalent employees, is the
second largest bank holding company in Georgia headquartered outside
metropolitan Atlanta. Effective May 31, 1993, the Company acquired all of the
common stock of Villa Rica Bancorp, In., a bank holding company whose
wholly-owned subsidiary was the Bank of Villa Rica, located in Carroll County,
Georgia. Effective August 31, 1993, the Company acquired all of the common
stock of The Community Bank of Carrollton, located in Carroll County, Georgia.
On October 1, 1993, the Company signed a definitive merger agreement with Metro
Bancorp, Inc., whose wholly-owned subsidiary is the $135 million asset, The
Commercial Bank, Douglasville, located in Douglas County, Georgia. On January
19, 1994, the Company announced that it had signed a letter of intent to merge
with Barrow Bankshares, whose wholly-owned subsidiary is the $54 million asset
Barrow Bank & Trust, located in Barrow County, Georgia.
The Company's markets are supported by favorable rail and highway systems,
an abundance of natural resources and an adequate labor pool. All of the
Company's markets are within 1 1/2 hours of metropolitan Atlanta via five major
highway systems and most markets are within or border the southern end of the
Appalachian mountains, providing access to superior recreational facilities and
second/retirement home development. In terms of covered employment and wages,
the Company's market area is well diversified. Strong population and household
growth coupled with above average growth in household income bodes well for the
region's demand for housing, services and retail products, all factors leading
to above average growth in bankable assets. The region's economic base is
diverse with no major boom or bust factors.
With a 32% share of total deposits, the Company maintains a strong
presence in the markets its affiliates serve. Company affiliates maintain a
deposit market leadership position in six of the fourteen county markets (and a
second or better position in eleven markets), providing the Company with a
significant competitive base to profitably grow. It is management's intent to
complement above average internal growth with an aggressive acquisition
program, concentrating on well managed banks in growth markets as good as, if
not better than, the current franchise. Attractive opportunities outside of
North Georgia will be entertained, including out of state opportunities in
North Carolina, South Carolina, Tennessee and Alabama.
Earnings per share have grown from $.67 in 1983 (on an originally reported
basis prior to acquisitions, restated for stock splits) to $1.69 in 1993, a
compounded annual growth rate of 9.69%. For the same period, dividends per
share have grown at a compounded annual rate of 18.12%. The Company has
maintained an above average profitability profile with a past five year average
return on assets of 1.29%. For the years ended 1992 and 1991, earnings
reflected the national recession and moderate asset quality problems. During
this period, management was dedicated to building a stronger foundation on
which to move the Company forward, concentrating on enhanced delivery systems,
credit process, internal controls, information technology and personnel.
Management is of the opinion that the Company will return to an above average
growth environment as the economic factors that drive the region's fortunes
improve, although it would be unrealistic to anticipate future growth to mirror
that of the 1980s.
A primary capital ratio of 11.08% provides a sufficient base to support
future growth. With a core funding to core loan and incremental funds to total
funding ratios of 115.24% and 25.02% respectively, the Company's liquidity
position is sound. In line with the industry, the Company's asset quality
ratios have improved over the past year. With a nonperforming loan to total
loan ratio of 1.64%, the Company's position is very manageable.
Since 1985, the Company's stock has been traded on the Over the Counter
National Market System under the symbol FBAC. As of September 30, 1993,
institutional ownership was 3.88% of outstanding shares while insiders owned
16% of the shares. A majority of the Company's 6,500 shareholders reside in
North Georgia.
The following is a discussion of the Company's financial condition and
results of its operations which should be read in conjunction with the
Company's consolidated financial statements and related notes appearing
elsewhere in this report. Where applicable and unless otherwise indicated, all
originally reported financial information has been restated for the following
acquisitions which were accounted for as poolings-of-interest.
<TABLE>
<S> <C>
First National Bank of Paulding County (1992)
Villa Rica Bancorp, In. (1993)
The Community Bank of Carrollton (1993)
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-19-
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PERFORMANCE OVERVIEW
Net income for 1993 totaled $25.9 million, compared to $22.8 million for
1992, an increase of 13.54%. Net income per share in 1993 was $1.69 compared
to $1.51 reported in 1992, an increase of 11.92%. The return on average equity
increased from 12.63% in 1992 to 13.36% in 1993.
SELECTED FINANCIAL DATA
TABLE 1
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED 1992 TO 1993
DECEMBER 31 CHANGE
-------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 AMOUNT PERCENT
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATION:
Interest income $ 146,866 $ 152,420 $ 169,975 $ 178,014 $ 166,412 $ (5,554) (3.64)%
Tax equivalent adjustment (a) 4,688 4,743 4,760 5,247 5,836 (55) (1.16)
- --------------------------------------------------------------------------------------------------------------------------
Interest income (tax
equivalent) 151,554 157,163 174,735 183,261 172,248 (5,609) (3.57)
Interest expense 61,304 73,170 97,287 108,651 101,291 (11,866) (16.22)
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 90,250 83,993 77,448 74,610 70,957 6,257 7.45
Noninterest income 31,654 29,959 26,083 22,103 16,227 1,695 5.66
- --------------------------------------------------------------------------------------------------------------------------
Total revenue 121,904 113,952 103,531 96,713 87,184 7,952 6.98
Provision for loan losses 2,974 11,181 9,870 13,893 5,839 (8,207) (73.40)
Noninterest expenses 79,356 67,290 62,167 52,680 46,802 12,066 17.93
- --------------------------------------------------------------------------------------------------------------------------
Income before taxes 39,574 35,481 31,494 30,140 34,543 4,093 11.54
Tax equivalent adjustment 4,688 4,743 4,760 5,247 5,836 (55) (1.16)
Income taxes 8,964 7,908 6,548 5,915 6,737 1,056 13.35
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 25,922 $ 22,830 $ 20,186 $ 18,978 $ 21,970 $ 3,092 13.54%
==========================================================================================================================
PER SHARE DATA:
Net Income $ 1.69 $ 1.51 $ 1.34 $ 1.26 $ 1.46
Cash dividends declared $ .705 $ .64 $ .55 $ .46 $ .39
Dividend payout ratio 41.72% 42.38% 41.04% 36.51% 26.71%
Book value $ 13.69 $ 12.43 $ 11.51 $ 10.67 $ 9.83
YEAR END BALANCES:
Total assets $2,087,530 $1,980,770 $1,847,242 $1,793,954 $1,654,267 $106,760 5.39%
Loans, net of unearned
income 1,269,747 1,217,695 1,179,621 1,124,808 1,053,085 52,052 4.27
Earning assets 1,909,891 1,830,031 1,694,642 1,650,801 1,517,928 79,860 4.36
Allowance for loan losses 21,073 23,589 19,911 19,142 13,060 (2,516) (10.67)
Deposits and other interest
bearing funds 1,850,954 1,778,234 1,661,306 1,615,035 1,490,784 72,720 4.09
Long-term debt 57,867 9,370 5,572 6,533 5,106 48,497 517.58
Shareholders' equity 212,603 190,140 173,846 160,972 148,434 22,463 11.81
AVERAGE BALANCES:
Total assets $2,024,897 $1,910,300 $1,794,658 $1,731,468 $1,560,630 $114,597 6.00
Loans, net of unearned
income 1,261,739 1,215,232 1,153,439 1,093,211 996,414 46,507 3.83
Earning assets 1,880,095 1,768,200 1,652,763 1,585,296 1,432,843 111,895 6.33
Allowance for loan losses 23,456 21,583 19,496 14,347 11,575 1,873 8.68
Deposits and other interest
bearing funds 1,814,769 1,717,232 1,611,741 1,562,066 1,407,439 97,527 5.68
Shareholders' equity 193,987 180,737 167,084 156,052 139,885 13,250 7.33
FINANCIAL RATIOS:
Return on average assets 1.28% 1.20% 1.12% 1.10% 1.41%
Return on average
equity 13.36 12.63 12.08 12.16 15.71
Net interest margin 4.80 4.75 4.69 4.71 4.95
Overhead ratio 65.48 60.33 60.29 54.54 53.70
Primary capital to assets 11.08 10.66 10.38 9.93 9.69
Average equity to
average assets 9.58 9.46 9.31 9.01 8.96
</TABLE>
(a) Calculated assuming a 35% tax rate for 1993 and a 34% tax rate for
1992, 1991, 1990, and 1989.
F I R S T N A T I O N A L B A N C O R P
-20-
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Total year end assets increased from $1.98 billion to a record $2.09
billion. Core loans and core deposits increased 5.70% and 1.30%, respectively.
The return on average assets increased from 1.20% in 1992 to 1.28% in
1993, influenced primarily by the 44 basis point decrease in the provision for
loan losses, although other factors contributed to a lesser extent as shown
below:
ANALYSIS OF RETURN ON AVERAGE ASSETS
TABLE 2
(dollars in thousands)
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
YEARS ENDED AVERAGE AVERAGE
DECEMBER 31 1993 ASSETS 1992 ASSETS
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Assets $ 2,024,897 $1,910,300
Net interest
income,
tax equivalent $ 90,250 4.46 % $ 83,993 4.40 %
Noninterest
income 31,654 1.56 29,959 1.57
- -----------------------------------------------------------------------------------------
Total revenue 121,904 6.02 113,952 5.97
Noninterest
expenses (79,356) (3.92) (67,290) (3.52)
Income prior to
provision for
loan losses and
income taxes 42,548 2.10 46,662 2.45
Provision for
loan losses (2,974) (.15) (11,181) (.59)
Income taxes and
tax equivalent
adjustment (13,652) (.67) (12,651) (.66)
- ------------------------------------------------------------------------------------------
Net income $ 25,922 1.28 % $ 22,830 1.20 %
=========================================================================================
</TABLE>
Net interest income as a percentage of average assets increased
slightly as the Company's net interest margin grew from 4.75% in 1992 to 4.80%
in 1993.
The material change in the provision for loan losses was driven by
significant improvement in the Company's asset quality.
Noninterest expense ratios were influenced by increases in salaries
and employee benefits, amortization of the capitalized cost of mortgage loan
servicing rights, and other miscellaneous expenses.
The following sections highlight in greater detail various aspects of
the Company's 1993 performance.
FINANCIAL CONDITION
The Company manages its balance sheet to maximize long-term earnings
opportunities while maintaining the integrity of its financial position and
quality of earnings. In this regard, management allocates earning assets and
total funding into core and incremental considerations. Core earning assets
represent commercial and retail loans. Incremental earning assets include first
mortgage loans held for sale, investment portfolio securities, interest-bearing
deposits with financial institutions and federal funds sold, generally lower
margin business than core earning assets. Incremental funding includes federal
funds purchased, repurchase agreements, treasury tax and loan notes,
certificates of deposit greater than $100,000, long-term debt, and all other
liabilities considered by management to be potentially volatile. Core funding
includes all funds not considered incremental--basically funding that is
supported by multiple banking relationships. Consequently, core funding sources
may be considered more stable and generally carry a lower funding cost. All
noninterest-bearing demand deposits are considered core funds.
The following provides a summary analysis of the changes in the
Company's balance sheet for the year ended December 31, 1993, as compared to
December 31, 1992.
F I R S T N A T I O N A L B A N C O R P
-21-
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF BALANCE SHEET CHANGES
TABLE 3
(dollars in thousands)
<TABLE>
<CAPTION>
1993 1992 CHANGE PERCENT
----------------------------------------------
<S> <C> <C> <C> <C>
EARNING ASSETS:
Core earning assets:
Commercial loans $ 559,229 $ 539,482 $ 19,747 3.66 %
Retail loans 617,305 589,380 27,925 4.74
Other core loans 27,852 10,629 17,223 162.04
- ---------------------------------------------------------------------
Total core
earning
assets 1,204,386 1,139,491 64,895 5.70
- ---------------------------------------------------------------------
Incremental
earning assets:
First mortgage
loans held for
sale 65,361 78,204 (12,843) (16.42)
Investment
securities 536,116 492,958 43,158 8.76
Interest-bearing
deposits with
financial
institutions 68,157 66,881 1,276 1.91
Federal funds
sold and
repurchase
agreements 35,871 52,497 (16,626) (31.67)
- ---------------------------------------------------------------------
Total
incremental
earning
assets 705,505 690,540 14,965 2.17
- ---------------------------------------------------------------------
Total earning assets $1,909,891 $1,830,031 $ 79,860 4.36 %
=====================================================================
DEPOSITS AND
FUNDS:
Core funds:
Demand deposits $ 280,037 $ 239,709 $ 40,328 16.82 %
Interest-bearing
checking 167,955 148,052 19,903 13.44
Century Service
and IMMA 300,557 322,659 (22,102) (6.85)
Statement savings 77,938 69,747 8,191 11.74
Certificates less
than $100,000
and IRAs 561,446 589,963 (28,517) (4.83)
- ---------------------------------------------------------------------
Total core
funds 1,387,933 1,370,130 17,803 1.30
- ---------------------------------------------------------------------
Incremental funds:
Certificates over
$100,000 146,416 173,745 (27,329) (15.73)
Other large
deposits 181,842 135,821 46,021 33.88
Federal funds
purchased 43,945 47,989 (4,044) (8.43)
Repurchase
agreements 19,144 28,070 (8,926) (31.80)
Other short-term
borrowings 13,807 13,109 698 5.32
Long-term debt 57,867 9,370 48,497 517.58
- ---------------------------------------------------------------------
Total
incremental
funds 463,021 408,104 54,917 13.46
- ---------------------------------------------------------------------
Total funds $1,850,954 $1,778,234 $ 72,720 4.09 %
=====================================================================
</TABLE>
In 1993, the Company experienced modest balance sheet growth, with
year end assets increasing $106.8 million or 5.39% as the Company's service
area continued to experience low loan demand and management decided to leverage
the Company's balance sheet with additional incremental funding arbitrages.
Total funds growth was less at $72.7 million or 4.09%. Given slow core loan
demand, it was the Company's strategy to maintain a deposit maintenance rather
than an acquisition profile in core funding with any additional funding
provided by incremental sources.
CORE EARNING ASSETS
Period end core earning assets increased $64.9 million or 5.70%,
reflecting the weak economic environment in commercial lending. Although
management anticipates a stronger increase in core lending in 1994, attainment
of better growth is dependent on, at a minimum, stability in the economic
environment. The majority of 1994 core loan growth is anticipated to come from
the commercial and real estate sectors with a modest rebound in retail lending
activity.
F I R S T N A T I O N A L B A N C O R P
-22-
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following further breaks down the total loan portfolio over the
past five years.
ANALYSIS OF CORE EARNING ASSETS
TABLE 4
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------
1993 1992 1991 1990 1989
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $ 407,132 $ 433,103 $ 439,658 $ 423,002 $ 368,812
Installment and single payment
individual 346,797 287,214 255,513 285,730 272,849
Real estate--mortgage 378,280 377,309 333,680 323,262 316,452
Real estate--construction 88,630 59,520 58,783 48,536 58,257
Less: Unearned income (16,453) (17,655) (16,727) (17,879) (14,068)
- -----------------------------------------------------------------------------------------------------------------------------
Total core loans 1,204,386 1,139,491 1,070,907 1,062,651 1,002,302
Less: Allowance for loan losses (21,073) (23,589) (19,911) (19,142) (13,060)
- -----------------------------------------------------------------------------------------------------------------------------
Net core loans 1,183,313 1,115,902 1,050,996 1,043,509 989,242
Mortgage loans held for sale 65,361 78,204 108,714 62,157 50,783
- -----------------------------------------------------------------------------------------------------------------------------
Net loans $1,248,674 $1,194,106 $1,159,710 $1,105,666 $1,040,025
=============================================================================================================================
</TABLE>
Mortgage loans held for sale are not considered core loans. However,
they are reflected in the table above and are discussed below.
The Company maintains no foreign or highly leveraged transaction loans.
The amount of total loans outstanding for selected categories as of
December 31, 1993, based on remaining scheduled repayments of principal, are
shown by maturity in the following table.
LOAN PORTFOLIO MATURITY
TABLE 5
(dollars in thousands)
<TABLE>
<CAPTION>
AFTER 1 BUT
DECEMBER 31, 1993 WITHIN 1 YEAR WITHIN 5 YEARS AFTER 5 YEARS TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Selected loan
categories:
Commercial,
financial and
agricultural $160,615 $244,563 $1,954 $407,132
Real estate--
construction 88,630 -- -- 88,630
- --------------------------------------------------------------------------------
Total loans $249,245 $244,563 $1,954 $495,762
================================================================================
Loans with floating
or adjustable
interest rates $132,507 $1,682
Loans with fixed
interest rates 112,056 272
- ------------------- -----------------------
Total loans $244,563 $1,954
=================== =======================
</TABLE>
INCREMENTAL EARNING ASSETS
Incremental earning assets grew $15.0 million, or 2.17%. The modest
increase in incremental earning assets was primarily based on the Company's
investment portfolio which increased $43.2 million, with offsetting decreases
of $16.6 million in federal funds sold and a decrease of $12.8 million in
mortgage loans held for sale.
It is the Company's policy not to retain long-term fixed rate residential
mortgage loans for its own portfolio. Mortgage loans are securitized and sold
in the secondary market. The Company's portfolio of mortgage loans held for
sale is substantially hedged against unfavorable interest rate swings through
the use of a combination of options contracts, futures contracts and forward
sales agreements.
The Company's portfolio of residential mortgages serviced for others
totaled $1.039 billion compared to $.999 billion a year ago. It is the
Company's objective for the amount of purchased and excess mortgage loan
servicing rights not to exceed 25% of the stated capital of the Company's lead
bank, The First National Bank of Gainesville.
F I R S T N A T I O N A L B A N C O R P
-23-
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table presents the carrying value of investment securities
for the past three years. Although interest-bearing deposits with financial
institutions and federal funds sold are not formally classified as investment
securities in the consolidated financial statements, management considers these
assets as a part of the total managed pool of incremental earning assets and
consequently are shown in the following table of investments.
CARRYING VALUE OF INVESTMENTS
TABLE 6
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1993 1992 1991
----------------------------------
<S> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury $ 8,155 $ 10,337 $ --
U.S. Government agencies 31,465 -- --
Mortgage-backed securities:
Fixed rate 122,756 19,242 --
Adjustable rate 232,694 -- --
Corporate bonds 563 -- --
State and municipal 3,146 445 --
Other investments 4,901 129 --
- ----------------------------------------------------------------
Total securities
available-for-sale 403,680 30,153 --
- ----------------------------------------------------------------
Securities held-to-maturity:
U.S. Treasury -- 17,710 7,103
U.S. Government agencies -- 47,758 35,967
Mortgage-backed securities:
Payments receivable -- -- 1,673
Fixed rate -- 48,648 108,192
Adjustable rate -- 234,604 122,445
State and municipal 132,436 111,435 105,298
Other investments -- 2,650 1,922
- ----------------------------------------------------------------
Investment securities
held-to-investments 132,436 462,805 382,600
- ----------------------------------------------------------------
Federal funds sold 35,871 52,497 73,407
Interest-bearing deposits in other
financial institutions 68,157 66,881 59,014
- ----------------------------------------------------------------
Total investments $640,144 $612,336 $515,021
- ----------------------------------------------------------------
</TABLE>
Federal funds sold, interest-bearing deposits in other financial
institutions and U.S. Treasuries and Government agencies are held primarily for
liquidity purposes while mortgage-backed securities are held primarily for
income purposes. The mortgage-backed security distribution between adjustable
and fixed rate securities is determined by rate sensitivity requirements. The
portfolio distribution between treasuries, agencies, mortgage-backed and state
and municipal securities during 1994, is not anticipated to change
significantly compared to the December 31, 1993, distribution.
The December 31, 1993, market value of held-to maturity investment
securities as a percent of book value was 109.36%, up from 103.60% in 1992. The
market value of the portfolio of held-to-maturity investment securities will
change as interest rates change and such unrealized gains or losses will not
flow through the income statement unless the related securities are called. Net
gains on the sales of investment securities during 1993 resulted from the early
calls of state and municipal securities and management's decision to sell
mortgage-backed securities with small remaining principal amounts (under $1.0
million) and replace them with larger securities.
The following table presents the current distribution of the total
portfolio by average maturity/earliest repricing date and average yields (for
all obligations on a fully taxable basis assuming a 35% tax rate) at December
31, 1993. Where applicable, the earliest repricing date, rather than maturity,
is indicated, as it is the repricing date and not the maturity date that
provides the greatest influence to changes in net income. This treatment is
primarily applicable to adjustable-rate mortgage backed securities. Maturity
for fixed rate mortgage-backed securities is defined as the average maturity
rather than final life for purposes of the following presentation. The use of
average life reflects, more accurately, the cash flow and repricing
opportunities.
F I R S T N A T I O N A L B A N C O R P
-24-
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AVERAGE MATURITY OR EARLIEST REPRICING DISTRIBUTION OF INVESTMENTS
TABLE 7
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,1993
--------------------------------------------------------------------------
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 $ 3,057 5.11% $ 4,033 6.34% $ 1,065 8.24% $ -- --%
U. S. Government agencies 3,687 6.98 15,369 5.21 12,409 7.20 -- --
Mortgage-backed securities:
Fixed rate 1,561 8.77 112,875 7.15 7,545 7.55 775 7.30
Adjustable rate 232,694 5.46 -- -- -- -- -- --
Corporate bonds -- -- 563 8.84 -- -- -- --
State and municipal 1,049 9.19 728 12.09 407 12.01 962 6.62
Other investments -- -- -- -- -- -- 4,901 5.05
- -------------------------------------------------------------------------------------------------------------------------
Total investment securities
available-for-sale 242,048 5.52 133,568 6.94 21,426 7.47 6,638 4.69
- -------------------------------------------------------------------------------------------------------------------------
State and municipal held-to-maturity 7,505 11.77 53,516 12.79 13,917 11.34 57,498 10.32
Federal funds sold 35,871 3.50 -- -- -- -- -- --
Interest-bearing deposits in other financial
institutions 66,673 3.86 1,484 4.86 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total investments $352,097 5.13% $188,568 8.58% $35,343 8.99% $ 64,136 9.74%
=========================================================================================================================
</TABLE>
The composition and maturity/repricing distribution of the investment
portfolio is subject to change depending on the rate sensitivity, capital and
liquidity needs.
The following table presents the current distribution of the total
portfolio by maturity date, expected principal repayments and average yields
(for all obligations on a fully taxable basis assuming a 35% tax rate) at
December 31, 1993.
MATURITY OF INVESTMENTS (SECURITIES AND OTHER FUNDS)
TABLE 8
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1983
--------------------------------------------------------------------------
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 $ 3,057 5.11% $ 4,033 6.34% $ 1,065 8.24% $ -- --%
U. S. Government agencies 3,687 6.98 15,369 5.21 12,409 7.20 -- --
Mortgage-backed securities:
Fixed rate -- -- 5,882 8.28 27,814 7.17 89,060 7.20
Adjustable rate -- -- -- -- 1,959 5.84 230,735 5.46
Corporate bonds -- -- 563 8.84 -- -- -- --
State and municipal 1,049 9.19 728 12.09 407 12.01 962 6.62
Other investments -- -- -- -- -- -- 4,901 5.05
- -------------------------------------------------------------------------------------------------------------------------
Total investment securities
available-for-sale 7,793 5.30 26,575 6.00 43,654 7.08 325,658 5.91
- -------------------------------------------------------------------------------------------------------------------------
State and municipal held-to-maturity 7,505 11.77 53,516 12.79 13,917 11.34 57,498 6.71
Federal funds sold 35,871 3.50 -- -- -- -- -- --
Interest-bearing deposits in other financial
institutions 66,673 3.86 1,484 4.86 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total investments $117,842 4.35% $81,575 10.44% $57,571 8.11% $ 383,156 6.57%
=========================================================================================================================
</TABLE>
CORE FUNDING
The average amount of, and average rate paid on, total core and
incremental deposits by category for the last three years is listed below.
CORE AND INCREMENTAL DEPOSITS
TABLE 9
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1993 1992 1991
-----------------------------------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 254,436 -- $ 220,838 -- $ 182,361 --
Savings, NOW and IMMA deposits 538,267 2.75% 504,665 3.35% 431,642 5.30%
Time deposits 882,454 4.69 902,972 5.85 923,175 7.58
- ------------------------------------------------------------------------------------------------------
Total average deposits 1,675,157 3.35% $1,628,475 4.28% $1,537,178 6.04%
======================================================================================================
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-25-
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Core funding increased $17.8 million or 1.30% in 1993, substantially less
than the dollar and percent increase in core earning assets. Approximately
16.82% of the growth was attributable to noninterest-bearing demand deposits,
mostly associated with escrow deposits retained with the Company's portfolio
of mortgage loans serviced for others. However, the Company did experience net
balance increases in interest-bearing transaction accounts, but experienced a
drop in certificates of deposit less than $100,000 due to the higher level of
interest rates in the market for alternative products.
INCREMENTAL FUNDING
Period end incremental funding increased $54.9 million or 13.46%, due
primarily to profitable arbitrage opportunities with Federal Home Loan Bank
advances. The Company's portfolio of certificates of deposit in excess of
$100,000 declined by $27.3 million and repurchase agreements declined by $8.9
million. In the current economic environment, management does not anticipate
sufficiently profitable incremental earning asset investment opportunities and
consequently does not anticipate material growth in the incremental funding
portfolio. However, through its lead bank, the Company will increase its
advances from the Federal Home Loan Bank system potentially utilizing up to $40
million in additional intermediate-term borrowing to support a growing book of
adjustable rate and five to seven year balloon first mortgage loans.
Management endeavors to maintain a core funding to core earning assets
ratio greater than 100%. Additionally, the Company's liquidity policy requires
that incremental funding as a percentage of total funding not exceed 40%.
Although the December 31, 1993, incremental funds to total funds ratio of
25.02% provides room for expansion of incremental funding, management does not
anticipate this ratio increasing materially.
The December 31, 1993, maturity distribution of incremental funding is
as follows:
MATURITY OF INCREMENTAL FUNDING
TABLE 10
(in thousands)
<TABLE>
<CAPTION>
LESS THAN 3 MONTHS TO 6 MONTHS TO MORE THAN
3 MONTHS 6 MONTHS 12 MONTHS 12 MONTHS TOTAL
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates greater than $100,000 $ 57,592 $29,103 $37,896 $ 21,825 $146,416
Other large deposits 82,103 46,333 24,162 29,244 181,842
Securities sold under agreements
to repurchase 5,446 11,588 767 1,343 19,144
Federal funds purchased 43,945 -- -- -- 43,945
Other short-term borrowing 13,807 -- -- -- 13,807
Long-term debt -- -- 614 57,253 57,867
- -------------------------------------------------------------------------------------------
Total incremental funding $202,893 $87,024 $63,439 $109,665 $463,021
===========================================================================================
</TABLE>
Federal funds purchased represent overnight or short-term borrowing
transactions. Securities sold under agreements to repurchase generally
represent short-term borrowing transactions with terms of 180 days or less.
The following summarizes pertinent data related to these short-term borrowings
for the past three years:
SHORT-TERM BORROWINGS
TABLE 11
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1993 1992 1991
-------------------------------
<S> <C> <C> <C>
Balance at end of year $ 63,089 $76,059 $87,479
Weighted average interest
rate at end of year 4.90% 3.78% 5.25%
Maximum month-end
balance during the year 153,069 $94,606 $87,479
Weighted average daily
balance $ 95,926 $75,182 $59,909
Average interest rate
during the year 3.22% 3.83% 6.02%
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-26-
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET INTEREST INCOME
Growth in tax equivalent net interest income is derived through growth in
earning assets and the change in the net interest margin. The following table
shows the change in net interest income for the past two years due to a shift
in volume and rate.
CHANGE IN NET INTEREST INCOME, TAX EQUIVALENT BASIS
TABLE 12
(dollars in thousands)
<TABLE>
<CAPTION>
1992 to 1993 1991 to 1992
CHANGE DUE TO CHANGE DUE
--------------- -------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest-bearing deposit in other
financial institutions $ 68 $ (821) $ (753) $ 10 $ (1,532) $ (1,522)
Loans, net 4,330 (9,923) (5,593) 6,646 (19,562) (12,916)
Taxable investment securities 4,579 (3,377) 1,202 3,948 (6,115) (2,167)
Nontaxable investment securities 1,574 (1,158) 416 435 (484) (49)
Federal funds sold (674) (206) (880) 4 (923) (919)
- --------------------------------------------------------------------------------------------------------------------
Total interest income 9,877 (15,485) (5,608) 11,043 (28,616) (17,573)
- --------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Savings and IMMA deposit 1,071 (3,164) (2,093) 3,420 (9,378) (5,958)
Time deposits (1,177) (10,329) (11,506) (1,501) (15,620) (17,121)
Federal funds purchased and securities sold
under agreements to repurchase 714 (500) 214 782 (1,513) (731)
Other borrowed funds 1,391 128 1,519 (58) (249) (307)
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 1,999 (13,865) (11,866) 2,643 (26,760) (24,117)
- --------------------------------------------------------------------------------------------------------------------
Net interest income, tax equivalent basis $ 7,878 $ (1,620) $ 6,258 $ 8,400 $ (1856) $ 6,544
====================================================================================================================
</TABLE>
The change in interest due to both rate and volume has been allocated to
the volume and rate components in proportion to the relationship of the
absolute dollar amounts of the change in each.
Net interest income for 1993 increased $6.3 million or 7.96%, driven by an
average earning asset growth of 6.33% and a five basis point margin improvement
from 4.75% to 4.80%. The margin increased despite pressure from the lower
interest rate environment. The net interest income increase was attributable
to the positive change in the yield spread as the cost of interest-bearing
liabilities fell 96 basis points against a drop in the earning asset yield of
83 basis points.
In comparison, net interest income for 1992 increased $6.5 million or
8.45%. The increase was due mainly to the 6.98% increase in average earning
assets, coupled with a six basis point increase in the margin from 4.69% in
1991 to 4.75% in 1992.
The margin trend for the past eight quarters has been relatively stable
despite the rapid drop in market and administered rates, confirming the
Company's matched rate sensitivity profile.
Although a slightly higher average interest rate environment is
anticipated in 1994 compared to 1993, management anticipates a modest increase
in the net interest margin as higher costing certificates of deposits are
repriced. The increased margin, combined with moderate earning asset growth may
provide the fundamentals for growth in net interest income to exceed that
experienced in 1993.
F I R S T N A T I O N A L B A N C O R P
-27-
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NONINTEREST INCOME
Noninterest income comparisons are as follows:
ANALYSIS OF CHANGE IN NONINTEREST INCOME
TABLE 13
<TABLE>
<CAPTION>
(dollars in thousands) INCREASE/(DECREASE) INCREASE/(DECREASE)
------------------- ------------------
1993 AMOUNT PERCENT 1992 AMOUNT PERCENT 1991
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fees for trust services $ 2,250 $ (148) (6.17)% $ 2,398 $ (212) (8.12)% $ 2,610
Service charges on deposit accounts 8,469 1,625 23.74 6,844 (300) 4.20 7,144
Net gains on sales of investment
securities 711 (1,695) (70.45) 2,406 2,010 507.58 396
Insurance premiums and commissions 1,046 (129) (10.98) 1,175 (126) (9.70) 1,301
Mortgage loan and other related fees 11,633 (145) (1.23) 11,778 396 3.48 11,382
Other noninterest income 7,545 2,187 40.82 5,358 2,108 64.90 3,250
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest income $31,654 $ 1,695 5.66% $29,959 $3,876 14.86% $26,083
================================================================================================================================
Noninterest income as a percent of
average assets 1.56% 1.57% 1.45%
======== ======== ========
</TABLE>
Noninterest income for 1993 increased only 5.66% or $1.7 million, the
result of the following key influences:
- A significant contribution from service charges, up $1.6
million. While the Ball Ground acquisition in the fourth quarter of
1992 (accounted for as a purchase) contributed to the income increase,
some improvement was made from increases in service charges.
- $711 thousand in net security gains in 1993 compared to $2.4
million in 1992. Security gains resulted from management's emphasis on
eliminating smaller, illiquid mortgage-backed security positions and
early calls on selected securities.
- A significant increase in other noninterest income driven by
increases in gains on sales of mortgage servicing rights and gains on
the sale of mortgages in the secondary market.
Noninterest income for 1992 increased 14.86%, or $3.9 million.
Approximately 51% of the increase was attributable to gains on the sales of
investment securities which increased $2.0 million and the remainder from
mortgage banking operations, due to the high level of refinance activity as
rates dropped sharply from 1991 levels.
Management anticipates noninterest income to decline in 1994 due to a
reduction in gains on the sale of mortgage servicing rights and lower gains on
the sale of mortgages in the secondary market as well as lower gains from the
sale of investment securities.
ANALYSIS OF NONINTEREST EXPENSE
TABLE 14
<TABLE>
<CAPTION>
(dollars in thousands) INCREASE/(DECREASE) INCREASE/(DECREASE)
------------------- -------------------
1993 AMOUNT PERCENT 1992 AMOUNT PERCENT 1991
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $39,426 $ 6,398 19.37% $33,028 $ 1,527 4.85% $31,501
Furniture and equipment 5,689 1,044 22.48 4,645 203 4.57 4,442
Net occupancy 4,127 (99) (2.34) 4,226 872 26.00 3,354
Promotional 1,604 226 16.40 1,378 143 11.58 1,235
Postage, telephone and stationery 4,592 291 6.77 4,301 510 13.45 3,791
Amortization of mortgage loan
servicing rights 3,311 (1,634) (33.04) 4,945 4,315 684.92 630
Other:
FDIC insurance premiums 3,828 214 5.92 3,614 358 11.00 3,256
Amortization of goodwill 681 -- -- 681 60 9.66 621
Other 16,098 5,626 53.72 10,472 (2,865) (21.48) 13,337
- --------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $79,356 $12,066 17.93% $67,290 $ 5,123 8.24% $62,167
================================================================================================================================
Noninterest expense as a percent of
average assets 3.92% 3.52% 3.46%
======= ======= =======
Overhead ratio 65.48% 60.32% 60.29%
======= ======= =======
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-28-
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NONINTEREST EXPENSE
Noninterest expense for 1993 increased $12.1 million or 17.93%. The
increase was heavily influenced by higher expenses associated with the
Company's mortgage lending and servicing activities and initial expenses
associated with the data processing conversion from an in-house system to an
outsourcing environment.
The Company's primary measure of operating efficiency is the overhead
ratio, calculated by dividing noninterest expenses by total net revenue (FTE)
less securities transactions. The current overhead ratio of 65.48% was up from
the 60.32% in 1992. Given the impact of the Company's mortgage banking
operations, the overhead ratio is a much better indicator of expense control
and management than absolute noninterest expense comparisons and the ratio of
noninterest expenses to average assets.
Noninterest expense growth in 1994 should moderate from that experienced
in 1993 although expense pressures in employee salaries and benefits will
continue. Management anticipates the overhead ratio to decline in 1994.
Total noninterest expenses increased $5.1 million in 1992 over 1991.
Material contributing factors included: salaries and benefits, mortgage loan
expenses, and FDIC premiums.
INCOME TAXES
As reported in the Company's Consolidated Statements of Income, the
Company's income before income taxes and cumulative effect of accounting change
for financial statement purposes increased to $34.9 million in 1993, up from
$30.7 million in 1992, an increase of $4.2 million, or 13.68%. The effective
tax rate for the Company decreased slightly to 25.69% in 1993 from 25.72% in
1992 and 24.49% in 1991. The Company adopted Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, effective January
1, 1993, and has reported the cumulative effect of that change in the method of
accounting for income taxes, aggregating $160,000, in the 1993 Consolidated
Statements of Income. See Note 9 to the Company's consolidated financial
statements for an analysis of income taxes.
ASSET QUALITY
The Company monitors and manages asset quality according to various risk
elements, summarized below:
RISK ELEMENTS
TABLE 15
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------
1993 1992 1991 1990 1989
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $20,509 $23,316 $29,185 $15,414 $8,582
Renegotiated loans 364 2,645 217 194 48
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 20,873 25,961 29,402 15,608 8,630
Other real estate 9,532 11,655 9,653 5,799 4,739
- -----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets 30,405 37,616 39,055 21,407 13,369
Loans past due 90 days or more, still accruing 224 650 1,281 2,893 3420
Nonperforming loans as a percent of loans, net of
unearned income 1.64% 2.13% 2.49% 1.39% .82%
Nonperforming assets as a percent of loans, net of unearned
income, plus other real estate 2.38 3.06 3.28 1.89 1.26
Allowance for loan losses as a percent of
nonperforming loans 100.95 90.86 67.72 122.64 151.33
Allowance for loan losses as a percent of
nonperforming assets 69.31 62.71 50.98 89.42 97.69
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-29-
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ASSET QUALITY (CONTINUED)
The Company experienced a decrease in nonperforming loans and assets during
1993, as the Company's program of problem asset remediation resulted in
significant improvements. The $5.1 million decline in nonperforming loans was
complemented by the $2.1 million decrease in other real estate as the natural
migration process took place. The ratio of nonperforming loans to loans
declined from 2.13% in 1992 to 1.64% for 1993. The allowance for loan losses to
nonperforming loans ratio increased significantly, from 90.86% in 1992 to
100.95% for 1993 due to:
(1) the decline in nonperforming loans
(2) slower core loan growth
The level of nonperforming loans and assets in 1994 will 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.
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is discontinued, either when
reasonable doubt exists as to the full, timely collection of interest or
principal, or when a loan becomes contractually past due by 90 days or more
with respect to interest or principal without a definitive plan for repayment.
When a loan is placed on nonaccrual status, all interest previously accrued
during the year, but not collected, is reversed against current period interest
income. Income on such loans is then recognized only to the extent that cash is
received and where the future collection of principal is probable.
Interest income on the nonaccrual loans in 1993 which would have been
reported on an accrual basis amounted to approximately $2.2 million. Interest
income of approximately $31,000 was recognized in 1993 on loans which are
currently on a nonaccrual basis. Management is not aware of any potential
problem loans, other than those classified as nonperforming, which would have a
material impact on asset quality.
The Company's allocation of the allowance for loan losses is as follows:
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
TABLE 16
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------
1993 1992 1991 1990 1989
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $12,333 $14,154 $11,548 $ 9,188 $ 8,098
Real estate 8,031 8,020 5,177 5,934 1,306
Installment and single payment individual 709 1,415 3,186 4,020 3,656
- -------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses $21,073 $23,589 $19,911 $19,142 $13,060
===============================================================================================================================
Loans outstanding by category as a percent of total loans:
Commercial, financial and agricultural 32% 35% 37% 37% 35%
Real estate 41 42 42 38 39
Installment and single payment individual 27 23 21 25 26
- -------------------------------------------------------------------------------------------------------------------------------
Total loans 100% 100% 100% 100% 100%
===============================================================================================================================
</TABLE>
The allocation is based on (1) an evaluation of existing nonperforming loans
and other loans subject to internal classification, (2) previous gross
charge-off experience in each of the respective categories and (3) management's
evaluation of future economic conditions and the impact of such conditions on
each respective loan category. Credit reviews of the loan portfolio designed to
identify potential charges to the allowance for loan losses, as well as to
determine the adequacy of the allowance, are made on a continuous basis during
the year under the Company's approved allowance for loan losses methodology
plan. These reviews of the loan portfolio are conducted at the subsidiary banks
and are designed to identify potential problem loans, potential charges to the
allowance for loan losses and to determine the adequacy of the allowance. Past
performance, financial strength of the borrower, collateral values, portfolio
growth, industry concentrations, portfolio maturity and composition,
off-balance sheet credit risk, historical trends in delinquencies, nonaccruals
and national, regional and industry economic conditions are considered in the
evaluation.
F I R S T N A T I O N A L B A N C O R P
-30-
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management is of the opinion that the current allowance is sufficient to cover
anticipated loan losses given the economic environment envisioned in 1994. In
1991 and 1992, the Company's management took steps to create a more uniform
credit process in its affiliate banks, with emphasis on policies, procedures,
loan reviews, a refined allowance for loan losses methodology and other
reporting systems designed to more effectively monitor and measure the
Company's credit risk. Organizationally, credit review specialists report
directly to the Company's Credit Policy Officer ("CPO"), who is responsible for
(1) establishing loan quality goals and tracking monthly performance to such
goals; (2) insuring the consistent application and accuracy of loan grades
throughout the system; (3) active management of the loan review process; and
(4) adequacy of the allowance for loan losses. The CPO reports directly to the
Company's CEO. All overlines and participations must first carry the approval
of the CPO and credits in excess of $1 million or "House Limits" are closely
evaluated by credit administration. All affiliates operate under a standardized
credit policy, reflecting some latitude in loan approval limits and other
factors depending on an affiliate's risk profile and market dynamics.
The following summarizes net charge-offs and allowance for loan losses
activity for the past five years:
LOAN CHARGE-OFF ANALYSIS
TABLE 17
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------------
1993 1992 1991 1990 1989
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average total loans, net of unearned income $1,261,739 $1,215,232 $1,153,439 $1,093,211 $ 996,414
=======================================================================================================
Allowance for loan losses, beginning of year 23,589 19,911 19,142 13,060 10,428
Charge-offs:
Commercial, financial and agricultural 1,259 6,670 4,137 4,086 1,427
Installment and single payment individual 2,940 3,037 4,566 3,696 2,333
Real estate--mortgage 3,199 1,012 1,973 1,278 641
- -------------------------------------------------------------------------------------------------------
Total charge-offs 7,398 10,719 10,676 9,060 4,401
- -------------------------------------------------------------------------------------------------------
Recoveries on loans charged-off
Commercial, financial and agricultural 406 750 661 225 309
Installment and single payment individual 1,042 816 756 725 734
Real estate--mortgage 460 131 158 299 151
- -------------------------------------------------------------------------------------------------------
Total recoveries 1,908 1,697 1,575 1,249 1,194
- -------------------------------------------------------------------------------------------------------
Net charge-offs 5,490 9,022 9,101 7,811 3,207
Provision for loan losses 2,974 11,181 9,870 13,893 5,839
Allowance of subsidiary bank acquired -- 1,519 -- -- --
- --------------------------------------------------------------------------------------------------------
Allowance for loan losses, end of year $ 21,073 $ 23,589 $ 19,911 $ 19,142 $ 13,060
========================================================================================================
Allowance for loan losses as a percent of
loans:
Including mortgage loans held for sale 1.66% 1.94% 1.69% 1.70% 1.24
Excluding mortgage loans held for sale 1.76 2.07 1.86 1.80 1.30
Net loans charged off as a percent of
average loans, net of unearned income .44 .74 .79 .71 .32
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-31-
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following details the Company's loan and asset quality concentrations
by collateral type as of December 31,1993.
LOAN AND ASSET QUALITY CONCENTRATIONS
TABLE 18
(dollars in thousands)
<TABLE>
<CAPTION>
PERCENT OTHER REAL LOANS 90 DAYS
COLLATERAL TYPE OUTSTANDINGS OF LOANS NONACCRUAL RENEGOTIATED ESTATE OR MORE PAST DUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial mortgages:
Retail business $ 29,668 2.34% $ 821 $ - $ 396 $ -
Broiler operations 26,819 2.11 160 - - -
Egg operations 11,697 .92 171 - 145 -
Farmland 20,451 1.61 185 - - -
Multi-family residential 20,181 1.59 465 - 1,345 -
Office buildings 28,158 2.22 - - 23 -
Manufacturing/industrial 22,399 1.76 902 - 460 -
Hotel/motel 15,952 1.26 - - 954 -
Recreational properties 8,136 .64 1,824 - 1,144 -
Shopping centers 13,384 1.05 294 - 326 -
Other commercial 94,460 7.44 2,391 - 1,711 -
Other 28,145 2.22 632 - 317 -
- -----------------------------------------------------------------------------------------------------------------------
319,450 25.16 7,845 - 6,821 -
Acquisition and land development:
Residential 26,654 2.10 209 - 332 -
Commercial 6,508 .51 - - 52 -
Construction 55,468 4.37 381 - 102 -
- -----------------------------------------------------------------------------------------------------------------------
88,630 6.98 590 - 486 -
Residential mortgages:
Real estate dwelling 210,401 16.57 4,601 50 1,085 35
Mortgage loans held for sale 65,361 5.15 - - - -
Residential lots 38,668 3.05 1,039 121 660 7
Mobile homes 31,564 2.49 856 - 63 -
Rental 29,707 2.34 2,155 ]93 417 -
Interval ownership 9,579 .75 25 - - 4
Mortgage loan investments 22,126 1.74 - - - -
Mortgage warehousing 7,918 .62 - - - -
Home equity 20,100 1.58 73 - - -
Other 1,343 .11 7 - - -
- -----------------------------------------------------------------------------------------------------------------------
436,767 34.40 8,756 364 2,225 46
Commercial products:
Assignment A/R and contracts 15,551 1.22 - - - -
Inventory 11,103 .87 - - - -
Assignment of notes 8,245 .65 354 - - -
Automobiles--heavy trucks 3,652 .29 - - - -
Floor plans 1,856 .15 - - - -
Other 74,776 5.89 1,368 - - 2
- -----------------------------------------------------------------------------------------------------------------------
115,183 9.07 1,722 -- -- 2
Consumer goods:
Automobiles 198,715 15.65 658 - - 60
Unsecured 32,759 2.58 - - - 14
Savings and certificates 28,473 2.24 - - - -
Credit cards 20,617 1.63 - - - 91
Mobile homes without real estate 7,535 .59 2 - - -
Unsecured consumer lines of credit 3,459 .27 10 - - 3
Co-maker/guarantor 5,353 .42 - - - -
Other 12 806 1.01 926 - - 8
- -----------------------------------------------------------------------------------------------------------------------
309,717 24.39 1,596 - - 176
- -----------------------------------------------------------------------------------------------------------------------
Total concentrations $1,269,747 100.00% $ 20,509 $ 364 $ 9,532 $ 224
=======================================================================================================================
</TABLE>
32
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND ADEQUACY
Leverage and risk-based capital positions as of December 31, 1993, and
December 31, 1992, were as follows:
ANALYSIS OF CAPITAL ADEQUACY
TABLE 19
(dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31 REGULATORY INTERNAL
1993 1992 GUIDELINES STANDARDS
----------------------------------------------------------
<S> <C> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets 15.09% 12.79% 4.00% 9.00% (minimum)
- -------------------------------------------------------------------------------------
Tier 2 capital to risk adjusted assets 1.25 1.25 4.00 2.00 (maximum)
- -------------------------------------------------------------------------------------
Total capital to risk adjusted assets 16.34 14.04 8.00 9.00 (minimum)
- -------------------------------------------------------------------------------------
Leverage ratios:
Capital to assets 10.18% 9.60% 6.00% 6.50% (minimum)
Primary capital to adjusted assets (a) 11.08 10.66 5.00 8.00 (minimum)
Primary tangible capital to
adjusted assets (b) 10.77 10.31 - 6.00 (minimum)
Tier 1 capital $ 205,302 $ 182,158
Tier 2 capital 17,001 17,804
- -----------------------------------------------------------------------
Total capital $ 222,303 $ 199,962
=======================================================================
Risk-adjusted assets $1,360,146 $1,424,329
</TABLE>
(a) Shareholders' equity plus the allowance for loan losses divided by total
assets plus the allowance for loan losses.
(b) Tangible capital equals shareholders' equity less goodwill.
The Company's current leverage capital positions are well in excess of
minimum internal and regulatory guidelines and management anticipates this to
remain the case for the foreseeable future. The Company's existing risk-based
capital position is also well in excess of regulatory standards. Consequently,
management does not anticipate any change in asset allocation strategies to
complement risk-based capital requirements.
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 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1993 1992 1991
----------------------------
<S> <C> <C> <C>
Return on average assets 1.28% 1.20% 1.12%
- ------------------------------------------------------------------------
divided by
- ------------------------------------------------------------------------
Average equity as a % of average assets 9.58 9.46 9.31
- ------------------------------------------------------------------------
equals
- ------------------------------------------------------------------------
Return on average equity (%) 13.36 12.68 12.08
- ------------------------------------------------------------------------
times
- ------------------------------------------------------------------------
Earnings retained 58.28 57.62 58.96
- ------------------------------------------------------------------------
equals
- ------------------------------------------------------------------------
Internal capital growth (%) 7.79 7.31 7.12
========================================================================
</TABLE>
Future dividend growth rate is likely to closely approximate the growth in
earnings per share. Other than common stock issued in connection with future
acquisitions, management anticipates that the internal capital generation rate
will be sufficient to support balance sheet growth for the foreseeable period.
The Company has plans for the investment of approximately $4.8 million in
facilities, equipment and systems in 1994.
F I R S T N A T I O N A L B A N C O R P
-33-
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY
The Company manages its liquidity positions to assure sufficient cash to
service net new loan demand and potential deposit and funds withdrawals. In
this regard, the composition and maturity structure of earning assets and
funding is evaluated by the asset liability management committee as is the
availability of off-balance sheet funding sources and the potential for
liquidation of selected earning assets without a significant short or longer
term negative impact to profitability. Although numerous standards are applied,
the Company measures and manages its liquidity profile based on core funding
and incremental funding objectives.
It is the Company's objective for core liabilities to equal at least 100%
of core earning assets and incremental funds not to exceed 40% of total
funding. These objectives may be changed depending on management's evaluation
of the maturity distribution of funding and earning assets and the nature of
those assets and funding. The Company's liquidity position as of December 31,
1993, and December 31, 1992, was as follows:
LIQUIDITY ANALYSIS
TABLE 21
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1993 1992
---------------
<S> <C> <C>
Core funding/core earning assets 115.24% 120.24%
Incremental funding/total funding 25.02% 22.95%
</TABLE>
Management does not anticipate any material change in the core or
incremental funding ratios in 1994, and is not aware of any demands or
commitments that will result in, or that are likely to result in, the Company's
liquidity profile increasing or decreasing in any material way.
INTEREST RATE SENSITIVITY MANAGEMENT
Interest 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 against unexpected
changes in interest rates through a controlled assumption of interest rate risk
for profit. This potential variability is closely monitored by the Company's
asset liability modeling and management of the Company's traditional and beta
adjusted gap positions. Since all interest rates and yields do not adjust in
the same degree, the traditional and beta adjusted gap analysis is only a
general indicator of rate sensitivity and net interest income volatility.
Consequently, the Company relies heavily on simulation analyses and modeling of
the Company's balance sheet in varying interest rate environments to gauge net
income volatility and develop appropriate balance sheet strategies to assure
attainment of the Company's objectives.
The Company's interest rate sensitivity at December 31, 1993, is as follows:
INTEREST RATE SENSITIVITY
TABLE 22
(dollars in thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31,1993
-------------------
3 MONTH 6 MONTH 12 MONTH
--------------------------------
<S> <C> <C> <C>
Standard gap position:
Rate sensitive assets $ 695,356 $ 910,383 $1,154,547
Rate sensitive liabilities 863,905 1,062,660 1,221,056
- ---------------------------------------------------------------------------
Dollar gap $(168,549) $(152,277) $ (66,509)
===========================================================================
Gap ratio .80 .86 .95
Beta-adjusted gap position:
Rate sensitive assets $ 665,729 $ 872,915 $1,109,978
Rate sensitive liabilities 701,198 899,982 1,064,584
- ---------------------------------------------------------------------------
Dollar gap $ (35,469) $ (27,067) $ 45,394
===========================================================================
Gap ratio .95 .97 1.04
Company minimum
standards .65 to .65 to .90 to
1.20x 1.20x 1.10x
</TABLE>
Management is of the opinion that the current rate sensitivity profile
meets the Company's objectives. No material changes in the interest rate
sensitivity profile are anticipated in 1994.
FOURTH QUARTER RESULTS
For the fourth quarter of 1993, the Company recorded net income of $7.7
million or $.50 per share compared with fourth quarter net income of $5.7
million or $.37 per share in 1992.
Net interest income (FTE) totaled $22.8 million in the fourth quarter of
1993, up from the $21.8 million reported in 1992. Noninterest income was $9.6
million in 1993, up 29.4% from the fourth quarter 1992. Noninterest expense
increased to $21.1 million in 1993, up 19.2% from the fourth quarter 1992.
Highlights of the Company's results on a quarter-by-quarter basis are provided
in Note 18--Consolidated Quarterly Financial Information-Unaudited.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement No. 114, "Accounting by Creditors for Impairment of a Loan."
Statement No. 114 requires impaired loans to be
F I R S T N A T I O N A L B A N C O R P
-34-
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
measured 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. Statement
No. 114 is effective for fiscal years beginning after December 15, 1994, but
can be adopted earlier. Initial application of this statement shall be as of
the beginning of the year and prior periods shall not be restated. The Company
has not yet determined the actual impact of Statement No. 114 on its financial
statements or made a determination of whether it will adopt Statement No. 114
prior to 1995.
INFLATION
Inflation has an important impact on the growth of total assets in the
banking industry and may cause a need to increase equity capital at higher than
normal rates in order to maintain an appropriate equity to assets ratio. The
Company has been able to maintain a high level of equity, as previously
mentioned, through retention of an appropriate percentage of its earnings, and
copes with the effects of inflation by managing its interest rate sensitivity
gap position through its asset/liability management program, and by
periodically adjusting its pricing of services and banking products to take
into consideration current costs.
LINE OF BUSINESS INFORMATION
During the past three years, the consolidated income of the Company and its
subsidiaries has been provided through banking activities.
MARKET, STOCK PRICE AND DIVIDEND INFORMATION
The following table sets forth the high and low bid quotations in the over
the counter market, where the Company's common stock is traded, for the years
1993, 1992 and 1991. The quotations are based upon prices quoted electronically
through the National Association of Securities Dealers Automated Quotations
System (NASDAQ) and represent quotations between dealers, not actual
transactions, and do not include retail mark-ups, mark-downs, or commissions.
As of December 31, 1993, there were approximately 6,500 holders of record of
the Company's common stock.
STOCK PRICE INFORMATION
TABLE 23
<TABLE>
<CAPTION>
1993 1992 1991
----------------------------------------------------------------------------------------
HIGH LOW HIGH LOW HIGH LOW
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 20 3/4 $ 17 1/2 $ 15 5/6 $ 15 1/2 $ 12 2/3 $ 11 1/2
Second Quarter 21 20 15 5/6 15 1/3 12 2/3 11 2/3
Third Quarter 21 3/4 19 3/4 17 1/2 15 1/2 17 1/6 11 2/3
Fourth Quarter 20 1/2 19 18 16 5/6 16 1/3 14
</TABLE>
PER SHARE DIVIDENDS AND NET INCOME
TABLE 24
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------------------------------------------------------------------------
DIVIDEND INCOME DIVIDEND INCOME DIVIDEND INCOME
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $.1725 $.39 $.1500 $.33 $.1267 $.34
Second Quarter .1750 .37 .1600 .42 .1333 .38
Third Quarter .1775 .43 .1600 .39 .1400 .36
Fourth Quarter .1800 .50 .1700 .37 .1467 .26
</TABLE>
F I R S T N A T I O N A L B A N C O R P
- 35 -
<PAGE> 38
SELECTED STATISTICAL INFORMATION
Condensed average daily balance sheets for the years indicated are presented
below.
AVERAGE BALANCES, INTEREST AND RATES
(dollars in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
---------------------------------------------------------------------------------------
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 $ 68,240 $ 2,750 4.03% $ 66,923 $ 3,503 5.23% $ 66,794 $ 5,025 7.52%
Net loans 1,261,739 110,604 8.77 1,215,232 116,198 9.56 1,153,439 129,113 11.19
Investment securities, taxable 410,823 24,198 5.89 337,501 22,996 6.81 287,522 25,163 8.75
Investment securities, non-taxable 118,865 13,421 11.29 105,425 13,005 12.34 101,967 13,054 12.80
Federal funds sold 20,428 581 2.84 43,119 1,461 3.39 43,041 2,380 5.53
- ------------------------------------------------------------ ------------------- ----------------------
Total earning assets 1,880,095 151,554 8.06 1,768,200 157,163 8.89 1,652,763 174,735 10.57
- ------------------------------------------------------------ ------------------- ----------------------
Cash and due from banks 60,284 56,251 54,383
Premises and equipment, net 46,427 39,746 38,296
Other assets 61,547 67,686 68,712
Less allowance for loan losses (23,456) (21,583) (19,496)
- --------------------------------------------------- --------- ------------
Total assets $2,024,897 $1,910,300 $1,794,658
================================================== ========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and IMMA accounts $ 538,267 14,813 2.75 $ 504,665 $ 16,906 3.35 $ 431,642 $ 22,864 5.30
Time deposits 882,454 41,351 4.69 902,972 52,857 5.85 923,175 69,979 7.58
Federal funds purchased and
securities sold under
agreements to repurchase 95,926 3,092 3.22 75,182 2,879 3.83 59,909 3,609 6.02
Other borrowed funds 43,676 2,048 4.69 13,575 528 3.89 14,654 835 5.70
- ------------------------------------------------------------ ------------------- ----------------------
Total interest-bearing liabilities 1,560,323 61,304 3.93 1,496,394 73,170 4.89 1,429,380 97,287 6.81
- ------------------------------------------------------------ ------------------- ----------------------
Noninterest-bearing demand deposits 254,436 220,838 182,361
Other liabilities 16,151 12,331 15,833
- -------------------------------------------------- --------- -----------
Total liabilities 1,810,910 1,729,563 1,627,574
Total shareholders' equity 193,987 180,737 167,084
- -------------------------------------------------- --------- -----------
Total liabilities and
shareholders' equity $2,024,897 $1,910,300 $1,794,658
================================================== ========= ===========
Net interest income $ 90,250 $ 83,993 $ 77,448
============================================================ ======== =======
Interest spread 4.13% 4.00% 3.76%
=================================================================== ===== ====
Net interest margin 4.80% 4.75% 4.69%
=================================================================== ===== ====
</TABLE>
Loans are presented net of unearned income and include nonaccrual loans.
Interest income and rates include the effects of taxable equivalent
adjustments, using a 1993 tax rate of 35 percent, and a 1992 and 1991 tax rate
of 34 percent, in adjusting tax-exempt interest on non-taxable loans and
investment securities, to a fully taxable basis.
F I R S T N A T I O N A L B A N C O R P
-36-
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
KPMG PEAT MARWICK
CERTIFIED PUBLIC ACCOUNTANTS
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
The Board of Directors and Shareholders
First National Bancorp
Gainesville, Georgia:
We have audited the accompanying consolidated balance sheets of First
National Bancorp and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
National Bancorp and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities, at December 31, 1993. As
discussed in Notes 1 and 9, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of the Financial Accounting
Standards Board's SFAS No. 109, Accounting for Income Taxes. As discussed in
Notes 1 and 10, the Company also adopted the provisions of the Financial
Accounting Standards Board's SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, in 1993.
/s/ KPMG Peat Marwick
January 28, 1994
F I R S T N A T I O N A L B A N C O R P
- 37 -
<PAGE> 40
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1993 1992
-------------------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 3) $ 85,097 $ 63,761
Federal funds sold and securities purchased under
agreements to resell 35,871 52,497
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 120,968 116,258
Interest-bearing deposits in other financial institutions 68,157 66,881
Investment securities available-for-sale (Note 4) 403,680 30,153
Investment securities held-to-maturity (Market value 1993--$144,827;
1992--$479,457 (Note 4) 132,436 462,805
Loans (Notes 5 and 8): 1,286,200 1,235,350
Less: Unearned income (16,453) (17,655)
Allowance for loan losses (21,073) (23,589)
- -------------------------------------------------------------------------------------------------------------------
Net loans 1,248,674 1,194,106
Premises and equipment, net (Notes 6 and 8) 47,554 42,622
Other assets (Note 9) 66,061 67,945
- -------------------------------------------------------------------------------------------------------------------
Total assets $2,087,530 $1,980,770
===================================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 280,037 $ 239,709
Interest-bearing, including certificates of deposit of $100
or more of $146,416 for 1993 and $173,745 for 1992 1,436,154 1,439,987
- -------------------------------------------------------------------------------------------------------------------
Total deposits 1,716,191 1,679,696
Federal funds purchased and securities sold
under agreements to repurchase (Note 7) 63,089 76,059
Other short-term borrowings (Note 7) 13,807 13,109
Long-term debt (Note 8) 57,867 9,370
Other liabilities (Note 10) 23,973 12,396
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 1,874,927 1,790,630
SHAREHOLDERS' EQUITY (Note 15)
Common stock, par value $1 per share (Note 11)
authorized 30,000,000 shares; issued and outstanding
15,532,855 and 15,292,839 shares for 1993 and 1992,
respectively 15,533 15,293
Additional paid-in capital 55,403 51,729
Retained earnings (Note 14) 138,400 123,118
Net unrealized holding gains on investment securities available-for-sale 3,267 --
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 212,603 190,140
Commitments and contingent liabilities (Notes 12 and 13)
Total liabilities and shareholders' equity $2,087,530 $1,980,770
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F I R S T N A T I O N A L B A N C O R P
-38-
<PAGE> 41
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1993 1992 1991
--------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $110,604 $116,197 $129,113
Interest-bearing deposits in other
financial institutions 2,750 3,503 5,025
Investment securities:
Tax-exempt 8,733 8,263 8,294
Taxable 24,198 22,996 25,163
Federal funds sold and securities purchased
under agreements to resell 581 1,461 2,380
- ----------------------------------------------------------------------------------------------------------------
Total interest income 146,866 152,420 169,975
- ----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits, including interest expense on certificates of deposit
of $100 or more of $12,803, $18,333, and $19,444 for
1993, 1992, and 1991, respectively 56,164 69,763 92,843
Federal funds purchased and securities
sold under agreements to repurchase 3,092 2,879 3,609
Other short-term borrowings 202 279 472
Long-term debt 1,846 249 363
- ----------------------------------------------------------------------------------------------------------------
Total interest expense 61,304 73,170 97,287
- ----------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 85,562 79,250 72,688
Provision for loan losses (Note 5) 2,974 11,181 9,870
- ----------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 82,588 68,069 62,818
- ----------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Fees for trust services 2,250 2,398 2,610
Service charges on deposit accounts 8,469 6,844 7,144
Net gains on sale of investment securities (Note 4) 711 2,406 396
Other noninterest income (Note 17) 20,224 18,311 15,933
- ----------------------------------------------------------------------------------------------------------------
Total noninterest income 31,654 29,959 26,083
- ----------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits (Note 10) 39,426 33,028 31,501
Net occupancy 4,127 4,226 3,354
Furniture and equipment 5,689 4,645 4,442
Other noninterest expense (Note 17) 30,114 25,391 22,870
- ----------------------------------------------------------------------------------------------------------------
Total noninterest expense 79,356 67,290 62,167
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 34,886 30,738 26,734
Income tax expense (Note 9) 9,124 7,908 6,548
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 25,762 22,830 20,186
Cumulative effect at January 1, 1993 of change in
accounting for income taxes (Note 9) 160 -- --
- ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 25,922 $ 22,830 $ 20,186
================================================================================================================
NET INCOME PER SHARE:
Based on weighted-average shares outstanding of 15,361,244
in 1993, 15,158,805 in 1992, and 15,109,001 in 1991:
Income before cumulative effect of accounting change $1.68 $1.51 $1.34
Cumulative effect of accounting change .01 -- --
- ----------------------------------------------------------------------------------------------------------------
Net income per share $1.69 $1.51 $1.34
================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F I R S T N A T I O N A L B A N C O R P
-39-
<PAGE> 42
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
NET
UNREALIZED
HOLDING
GAINS 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 December 31, 1990 15,092,699 $15,093 $48,897 $ 96,982 $ -- $160,972
Net income -- -- -- 20,186 -- 20,186
Cash dividends declared--$.55 per share -- -- -- (7,313) -- (7,313)
Cash dividends of pooled subsidiary prior
to acquisition -- -- -- (210) -- (210)
Proceeds from the exercise of stock options
by pooled subsidiary 16,302 16 204 -- -- 220
Acquisition and sale of treasury stock by
pooled subsidiary -- -- -- (9) -- (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 15,109,001 15,109 49,101 109,636 -- 173,846
Net income -- -- -- 22,830 -- 22,830
Cash dividends declared--$.64 per share -- -- -- (9,327) -- (9,327)
Cash dividends of pooled subsidiary prior
to acquisition -- -- -- (21) -- (21)
Issuance of common shares for
bank acquisition 97,525 98 1,471 -- -- 1,569
Stock options exercised 86,850 87 1,177 -- -- 1,264
Cash in lieu of fractional shares in
acquisition and stock split (537) (1) (20) -- -- (21)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 15,292,839 15,293 51,729 123,118 -- 190,140
NET INCOME -- -- -- 25,922 -- 25,922
CASH DIVIDENDS DECLARED--$.705 PER SHARE -- -- -- (10,640) -- (10,640)
ISSUANCE OF ADDITIONAL COMMON SHARES FOR
PREVIOUS BANK ACQUISITION 63,676 64 954 -- -- 1,018
STOCK OPTIONS EXERCISED 129,333 129 1,813 -- -- 1,942
ISSUANCE OF COMMON STOCK FOR DIVIDEND
REINVESTMENT 47,007 47 907 -- -- 954
IMPLEMENTATION OF CHANGE IN ACCOUNTING FOR
INVESTMENT SECURITIES AVAILABLE-FOR-SALE,
NET OF TAX EFFECT OF $2,062 -- -- -- -- 3,267 3,267
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 15,532,855 $15,533 $55,403 $138,400 $3,267 $212,603
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F I R S T N A T I O N A L B A N C O R P
-40-
<PAGE> 43
CONS0LIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1993 1992 1991
----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,922 $ 22,830 $ 20,186
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses 2,974 11,181 9,870
Provision for other real estate losses 1,173 521 238
Depreciation 5,348 4,115 3,958
Amortization, net 4,753 1,729 686
Deferred income tax benefit (2,255) (2,125) (3,435)
Net gains on sales of investment securities (711) (2,406) (396)
Gains on sales of mortgage loan servicing rights (10,811) (10,721) (1,673)
Losses (gains) on sales of assets acquired in
foreclosure and equipment (743) 55 (37)
Excess servicing fees receivable resulting from
mortgage loan sales (1,593) (4,570) (6,994)
Decrease (increase) in mortgage loans held for sale 12,843 31,254 (46,557)
Other, net 9,576 (804) (4,832)
-------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 46,476 51,059 (28,986)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities 44,243 100,745 43,368
Proceeds from maturities of investment securities 104,821 85,640 61,606
Purchases of investment securities (201,480) (268,924) (75,987)
Proceeds from sales of investment securities available-for-sale 2,000 -- --
Principal collection on investment securities available-for-sale 13,945 1,070 --
Net decrease (increase) in interest-bearing deposits in
other financial institutions (1,276) (7,867) 23,421
Net increase in loans (74,577) (52,108) (27,086)
Proceeds from sales of mortgage loan servicing rights 14,226 21,275 14,890
Purchases of mortgage loan servicing rights (7,059) (2,494) (8,720)
Purchases of premises and equipment (9,877) (4,905) (4,342)
Proceeds from sales of premises and equipment 1,932 92 109
Proceeds from sales of assets acquired in foreclosure 6,067 4,781 1,287
Purchase of First Citizens Bancorp of Cherokee
County, Inc., net of cash and cash equivalents acquired (6) 12,036 --
-------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (107,041) (110,659) 28,546
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 36,495 64,224 10,406
Net increase (decrease) in short-term borrowings (12,272) (10,233) 30,551
Proceeds from the issuance of long-term debt 50,055 4,950 --
Payments on long-term debt (1,558) (2,300) (961)
Proceeds from issuance of common stock for stock options exercised 1,942 1,264 220
Payments for fractional shares in stock split -- (14) --
Proceeds from sale of treasury stock by pooled subsidiary -- -- 10
Purchases for treasury stock by pooled subsidiary -- -- (19)
Cash dividends paid on common stock (9,387) (8,793) (7,157)
-------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 65,275 49,098 33,050
-------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,710 (10,502) 32,610
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 116,258 126,760 94,150
-------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR S 120,968 $ 116,258 $ 126,760
=============================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 60,413 $ 73,270 $ 98,614
=============================================================================================================
Income taxes paid $ 10,334 $ 9,881 $ 9,403
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F I R S T N A T I O N A L B A N C O R P
- 41 -
<PAGE> 44
NOTES TO CONS0LIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: First National Bancorp and subsidiaries (the Company) provide a
full range of banking and mortgage banking services to individual and corporate
customers through fifteen subsidiary banks located throughout North Georgia.
The Company primarily competes with other financial institutions in its market
area. The Company is subject to the regulations of certain state and Federal
agencies and undergoes periodic examinations by those regulatory authorities.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-owned.
All significant intercompany balances and transactions are eliminated in
preparing the consolidated financial statements. For business combinations
accounted for as purchases, the results of operations of the acquired business
are included in the consolidated totals from the date of acquisition.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenue and expenses
for the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses, the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans, and mortgage loan prepayment assumptions used to
determine the amount of amortization of purchased mortgage loan servicing
rights and excess servicing fee receivables. In connection with the
determination of the allowance for loan losses and the value of real estate
owned, management obtains independent appraisals for significant properties.
In connection with the determination of the amortization of purchased mortgage
loan servicing rights and excess servicing fee receivables, management obtains
independent estimates of mortgage loan prepayment assumptions, which are based
on historical prepayments and current interest rates.
A substantial portion of the Company's loans are secured by real estate
located in North Georgia. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio is susceptible to changes
in the real estate market conditions of this market area.
CASH EQUIVALENTS: Cash equivalents, as presented in the consolidated
financial statements, include amounts due from banks, federal funds sold, and
securities purchased under agreements to resell. These instruments are
considered cash equivalents as they are highly liquid and generally mature
within one to 30 days. Generally, federal funds are sold for one-day periods.
INVESTMENT SECURITIES: Investment securities at December 31, 1993, and
1992, consist of U.S. Treasury Securities, obligations of U.S. Government
corporations and agencies, state and municipal, mortgage-backed, and equity
securities. The Company adopted the provisions of Statement of Financial
Accounting Standards ("Statement") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" at December 31, 1993. Under Statement No. 115,
the Company classifies its investment securities in one of three categories;
trading, available-for-sale, or held-to-maturity.
Investment securities held-to-maturity are recorded at cost, adjusted for
the amortization of premiums and accretion of discounts, because it is
management's intention and ability to hold them to maturity. All other
securities not included in held-to-maturity are classified as
available-for-sale and are reported at fair value. Unrealized holding gains or
losses, net of the related tax effect, on available-for-sale securities are
excluded from income and are reported as a separate component of shareholders'
equity until realized. The net unrealized holding gains on investment
securities available-for-sale, net of income taxes, amounted to $3,267,000 at
December 31, 1993.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to income
resulting in the establishment of a new cost basis for the security.
Purchase premiums and discounts on investment securities are amortized and
accreted to interest income using a method which approximates a level yield
over the period to maturity of the related securities. Purchase premiums and
discounts on mortgage-backed securities are amortized and accreted to interest
income using a method which approximates a level yield over the remaining lives
of the securities, taking into consideration assumed prepayment patterns.
Interest and dividend income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity are
included in income and are derived using the specific identification method for
determining the costs of securities sold.
In conjunction with the new definitions of securities held-to-maturity and
securities available-for-sale within Statement No. 115, the Company
transferred securities previously accounted for at amortized cost totaling
$384,186,000 to available-for-sale at December 31, 1993.
Investment securities available-for-sale at December 31, 1992 are reported
at the lower of their aggregate cost or market value, pursuant to Statement No.
12 which was applied prior to the adoption of Statement No. 115.
F I R S T N A T I O N A L B A N C O R P
- 42 -
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. (CONTINUED)
LOANS AND INTEREST INCOME: Loans are reported at the principal amounts
outstanding, net of unearned income and the allowance for loan losses. Mortgage
loans held for sale are carried at the lower of aggregate cost or market with
market determined on the basis of open commitments for committed loans. For
uncommitted loans, market is determined on the basis of current delivery prices
in the secondary mortgage market.
Unearned income, primarily arising from discount basis installment
loans, is recognized as income using a method which approximates a level-yield.
Interest income on other loans is recognized using the simple interest method
on the daily balance of the principal amount outstanding. Loan fees, net of
certain origination costs are deferred and amortized over the lives of the
underlying loans using a method which approximates a level yield.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
when reasonable doubt exists as to the full, timely collection of interest or
principal. Interest accruals are recorded on such loans only when they are
brought fully current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both principal and interest.
Gains or losses on the sale of mortgage loans are recognized at
settlement dates and are computed as the difference between the sales proceeds
received and the net book value of the mortgage loans sold. Such gains or
losses are adjusted by the amount of any excess servicing fee receivables
resulting from the transactions.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is
established through provisions for loan losses charged to operations. Loans are
charged against the allowance for loan losses when management believes that the
collection of the principal is not probable. Subsequent recoveries are added to
the allowance. The allowance is an amount that management has determined to be
adequate through its allowance for loan losses methodology to absorb losses
inherent in existing loans and commitments to extend credit. The allowance is
established through consideration of such factors as changes in the nature and
volume of the portfolio, overall portfolio quality, adequacy of collateral,
loan concentrations, specific problem loans, and economic conditions that may
affect the borrowers' ability to pay.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgment about information available to them at the
time of their examination.
EMPLOYEE BENEFIT PLANS: The Company sponsors a defined benefit health
care plan for substantially all retirees and employees. Effective January 1,
1993, the Company adopted Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," which establishes a new
accounting principle for the cost of retiree health care and other
postretirement benefits. Prior to 1993, the Company recognized these benefits
on the pay-as-you-go method (i.e., cash basis). The cumulative effect of the
change in method of accounting for postretirement benefits other than pensions
at January 1, 1993 was $2.6 million and is being amortized to operations over a
twenty year period.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line or
accelerated methods over the estimated useful lives of the related assets.
OTHER REAL ESTATE: Other real estate includes properties obtained
through foreclosure and in-substance foreclosures. In-substance foreclosures
include loans where the debtor has little or no equity in the collateral,
proceeds for repayment of the loan can only be collected through the operation
or sale of the collateral, and the debtor has either abandoned control of the
collateral or retained control, but it is doubtful that value can be restored.
When properties are acquired through foreclosure or classified as
in-substance foreclosures, any excess of the loan balance, at the time of
foreclosure, over the fair value of the real estate held as collateral is
recognized as a loss and charged to the allowance for loan losses. After
foreclosure, other real estate is reported at the lower of fair value at
acquisition date, or fair value less estimated disposal costs. Fair value is
determined on the basis of current appraisals, comparable sales, and other
estimates of value obtained principally from independent sources. Subsequent
write-downs are charged to a separate allowance for losses pertaining to other
real estate established through provisions for other real estate losses charged
to operations. Based upon management's evaluation of other real estate,
additional expense is recorded when necessary in an amount sufficient to
restore the allowance to an adequate level. Gains recognized on the disposition
of the properties are recorded in other noninterest income.
F I R S T N A T I O N A L B A N C O R P
- 43 -
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. (CONTINUED)
Costs of improvements to real estate are capitalized, while costs
associated with holding the real estate are charged to operations.
INCOME TAXES: In February 1992, the Financial Accounting Standards
Board (FASB) issued Statement No. 109, "Accounting for Income Taxes." Statement
No. 109 requires a change from the deferred method of accounting for income
taxes of Accounting Principles Board ("APB") Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset and liability
method of Statement No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Statement No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Effective January 1, 1993, the Company adopted Statement No. 109 and
has reported the cumulative effect of that change in the method of accounting
for income taxes in the 1993 statement of income.
At December 31, 1993, management has determined that the deferred tax
assets are fully realizable due to sufficient income taxes paid in 1991, 1992,
and 1993 and the scheduled reversal of deferred tax liabilities to offset
reversing deferred tax assets in future periods. Accordingly, no valuation
allowance has been established against the deferred tax assets.
Pursuant to the deferred method under APB Opinion 11, which was
applied in 1992 and prior years, deferred income taxes were recognized for
income and expense items that were reported in different years for financial
reporting purposes and income tax purposes using the tax rate applicable for
the year of the calculation. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in the tax rates.
NET INCOME PER SHARE: Net income per share is calculated by using the
weighted average number of shares outstanding during the period. The effect of
dilutive stock options are immaterial in 1993, 1992, and 1991.
FINANCIAL INSTRUMENTS: The Company is a party to certain interest rate
futures, options, and forward sales contracts in the management of its interest
rate exposure associated with its portfolio of mortgage loans held for sale and
commitments to originate mortgage loans to be held for sale. These interest
rate futures, options, and forward sales contracts are carried at cost until
expiration or until exercised, whichever occurs first. Realized gains and
losses are included in the determination of the gain or loss on the sale of the
related mortgage loans.
MORTGAGE BANKING ACTIVITIES: Purchased mortgage loan servicing rights
and excess servicing fee receivables resulting from loan sales with retention
of the loan servicing are included in other assets. Purchased mortgage loan
servicing rights are carried at cost less amounts amortized. The purchased
mortgage loan servicing rights are amortized in proportion to and over the
period of estimated net servicing income, taking into consideration assumed
prepayment patterns. Excess servicing fee receivables are carried at the
present value of the estimated future excess net servicing fee income, over the
estimated lives of the related mortgage loans sold, less amounts amortized.
Amortization of the excess servicing fee receivables is computed using an
accelerated method over the estimated remaining lives of the related loans
taking into consideration assumed prepayment patterns. The carrying values of
the purchased mortgage loan servicing rights and excess servicing fee
receivables are evaluated and adjusted periodically based on actual portfolio
prepayments and estimates of anticipated prepayments, so that recorded amounts
do not exceed the present value of future net servicing income on a
disagregated basis.
Fees for servicing loans for investors are based on the outstanding
principal balance of the loans serviced and are recognized as income when
earned.
At December 31, 1993, the Company was covered under a $12,000,000
banker's blanket bond policy and a $2,000,000 errors and omissions policy.
RECLASSIFICATIONS: Certain reclassifications have been made to the
1992 and 1991 consolidated financial statements to conform with the 1993
presentation. Such reclassifications had no effect on net income or
shareholders' equity.
OTHER: The excess of costs over the fair value of the net assets
acquired of purchased subsidiaries is being amortized using the straight-line
method over a 20-year period.
Property (other than cash deposits) held by the Company in a fiduciary
or agency capacity for its customers is not included in the consolidated
balance sheets since such items are not assets of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS: In May 1993, the FASB issued
Statement No. 114, "Accounting by Creditors for Impairment of a Loan."
Statement No. 114 requires impaired loans to be measured on the present value
of expected future
F I R S T N A T I O N A L B A N C O R P
- 44 -
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. (CONTINUED)
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. Statement No. 114 is effective for fiscal years beginning
after December 15, 1994 but can be adopted earlier. Initial application of this
statement shall be as of the beginning of the year and prior periods shall not
be restated. The Company has not yet determined the actual impact of Statement
No. 114 on its consolidated financial statements or made a determination of
whether it will adopt Statement No. 114 prior to 1995.
NOTE 2.
BUSINESS COMBINATIONS
On May 31, 1993, the Company completed its acquisition of Villa Rica
Bancorp, Inc., ("Villa Rica"), a bank holding company whose wholly-owned
subsidiary was the Bank of Villa Rica, located in Carroll County, Georgia. The
Company issued 314,142 shares of its common stock in exchange for all of the
issued and outstanding shares of Villa Rica. The transaction has been accounted
for as a pooling-of-interests and, accordingly, the consolidated financial
statements for all periods presented have been restated to include the
financial position and results of operations of Villa Rica. Pre-merger 1993
results of operations of Villa Rica are not material.
On August 31, 1993, the Company completed its acquisition of The Community
Bank of Carrollton ("Carrollton"), a bank also located in Carroll County,
Georgia. The Company issued 331,122 shares of its common stock in exchange for
all of the issued and outstanding shares of Carrollton. The transaction has
been accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements for all periods presented have been restated to include
the financial position and results of operations of Carrollton. Pre-merger 1993
results of operations of Carrollton are not material.
The Company's consolidated financial data for the years ended December 31,
1992 and 1991 have been restated as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
1992 1991
-----------------------
<S> <C> <C>
NET INTEREST INCOME:
First National Bancorp,
before acquisitions $75,341 $69,464
Villa Rica Bancorp, Inc. 2,135 1,931
The Community Bank of Carrollton 1,774 1,293
- -------------------------------------------------------------------
TOTAL $79,250 $72,688
===================================================================
NET INCOME (LOSS):
First National Bancorp,
before acquisitions $22,289 $20,395
Villa Rica Bancorp, Inc. 225 (290)
The Community Bank of Carrollton 316 81
- -------------------------------------------------------------------
TOTAL $22,830 $20,186
===================================================================
NET INCOME PER SHARE:
First National Bancorp,
before acquisitions $1.54 $1.41
Effect of restatement for:
Villa Rica Bancorp, Inc. (.02) (.05)
The Community Bank of Carrollton (.01) (.02)
- -------------------------------------------------------------------
TOTAL $1.51 $1.34
===================================================================
</TABLE>
On January 30, 1992, the Company completed its acquisition of First
National Bancshares of Paulding County, Inc. ("Paulding") the parent company of
the $165 million asset First National Bank of Paulding County, Dallas, Georgia.
The Company issued 1,086,600 shares of its common stock in exchange for all of
the issued and outstanding shares of Paulding. The transaction was accounted
for as a pooling-of-interests.
On October 30, 1992, the Company completed its acquisition of First
Citizens Bancorp of Cherokee County, Inc. ("FCBCC"), the parent company of the
$73 million asset Citizens Bank, Ball Ground, Georgia. The Company issued
97,525 shares of its common stock and $152,000 in cash for all the issued and
outstanding shares of FCBCC. The transaction has been accounted for as a
purchase. The purchase price was subject to adjustment based on certain asset
recoveries less the effects of certain potential contingencies for an eighteen
month period after the agreement date. On December 20, 1993, $1,024,303 was
paid to the previous FCBCC shareholders under this agreement. The additional
purchase price was paid through the issuance of 63,676 shares of the Company's
common stock and $6,000 in cash. The additional purchase price resulted in a
$579,000 write-up of premises and equipment to offset previously allocated
negative goodwill associated with the original transaction. The remainder of
the additional purchase price was recorded as goodwill. The goodwill was
subsequently eliminated by the recognition of income tax benefits associated
with available Federal income tax net operating loss carryforwards.
F I R S T N A T I O N A L B A N C O R P
- 45 -
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. (continued)
On October 1, 1993, the Company signed a definitive merger agreement with
Metro Bancorp, Inc., ("Metro"), whose wholly-owned subsidiary is The Commercial
Bank, Douglasville, located in Douglas County, Georgia. The merger is
structured as a tax-free exchange whereby Metro shareholders may elect to take
$4.00 in cash or an exchange of .20 share of First National Bancorp stock for
each share of Metro stock. This transaction will be treated as a purchase and
is anticipated to close on February 28, 1994. The purchase price is subject to
adjustment and could increase to a maximum of $5.00 per share depending on
Metro's success in resolving selected problem loans. The acquisition is subject
to approval by Metro's shareholders and various regulatory agencies. As of
December 31, 1993, total consolidated assets of Metro was approximately
$135,000,000 and shareholders' equity was approximately $7,073,000.
On January 19, 1994, the Company signed a letter of intent to merge with
Barrow Bankshares, Inc., ("Barrow"), whose wholly-owned subsidiary is Barrow
Bank & Trust, located in Barrow County, Georgia. Under the terms of the merger,
the Company will exchange 1.37 shares of its common stock for each share of
Barrow stock outstanding. This merger is subject to the execution of a
definitive agreement and approval of the shareholders of Barrow and various
regulatory authorities. As of December 31, 1993, total consolidated assets of
Barrow was approximately $54,248,000 and shareholders' equity was approximately
$5,456,000.
NOTE 3.
RESTRICTIONS ON CASH AND DUE FROM BANKS
The subsidiary banks are required by the Federal Reserve Act to maintain
deposit reserves. The average aggregate amount of those reserve balances for
the year ended December 31, 1993 was $7,105,000.
NOTE 4.
INVESTMENT SECURITIES
Investment securities are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Investment securities available-for-sale:
U.S. Treasury and
U.S. Government
Agencies $ 38,637 $ 1,030 $ 47 $ 39,620
Mortgage-backed
securities 351,169 6,162 1,881 355,450
State and municipal--
taxable 3,140 154 148 3,146
Other investments 5,401 63 -- 5,464
- ------------------------------------------------------------------------------------------
Total $398,347 $ 7,409 $2,076 $403,680
==========================================================================================
Investment securities held-to-maturity:
State and municipal--
tax exempt $132,436 $12,450 $ 59 $144,827
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1992
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Investment securities available for-sale:
U.S. Treasury and U.S.
Government Agencies $ 10,337 $ 104 $ 4 $ 10,437
Mortgage-backed
securities 19,242 548 -- 19,790
State and municipal 445 -- -- 445
Other investments 129 -- -- 129
- ------------------------------------------------------------------------------------------
Total $ 30,153 $ 652 $ 4 $ 30,801
==========================================================================================
Investment securities held-to-maturity:
U.S. Treasury and U.S.
Government Agencies $ 65,468 $ 1,534 $ 101 $ 66,901
Mortgage-backed
securities 283,252 6,064 921 288,395
State and municipal 111,435 10,101 75 121,461
Other investments 2,650 50 -- 2,700
- ------------------------------------------------------------------------------------------
Total $462,805 $17,749 $1,097 $479,457
==========================================================================================
</TABLE>
The amortized cost and fair value of investment securities at December 31,
1993, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
--------------------------------------------
INVESTMENT SECURITIES INVESTMENT SECURITIES
AVAILABLE-FOR-SALE HELD-TO-MATURITY
--------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 7,723 $ 7,793 $ 7,505 $ 7,625
Due after one year through
five years 20,153 20,693 53,516 60,186
Due after five years through
ten years 13,291 13,881 13,917 15,901
Due after ten years 6,011 5,863 57,498 61,115
- -----------------------------------------------------------------------------------
Total debt securities 47,178 48,230 132,436 144,827
Mortgage-backed securities 351,169 355,450 -- --
- -----------------------------------------------------------------------------------
Total $398,347 $403,680 $132,436 $144,827
===================================================================================
</TABLE>
F I R S T N A T I O N A L B A N C O R P
- 46 -
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. (continued)
Proceeds from sales of investment securities during 1993, 1992, and 1991
were $46,243,000, $100,745,000 and $43,368,000, respectively. Gross gains of
$717,000, $2,547,000, and $466,000 and gross losses of $6,000, $141,000, and
$70,000 were realized on those sales for 1993, 1992, and 1991, respectively.
Investment securities with an aggregate carrying amount of approximately
$273,470,000 and $202,828,000 at December 31, 1993, and December 31, 1992,
respectively, were pledged to secure public funds on deposit, securities sold
under agreements to repurchase, and for other purposes as required by various
statutes or agreements.
NOTE 5.
LOANS
The following is a summary of loans, by classification, at December 31,
1993 and December 31, 1992:
<TABLE>
<CAPTION>
1993 1992
-------------------------------
(in thousands)
<S> <C> <C>
Commercial, financial,
and agricultural $ 407,132 $ 433,103
Installment and single payment
individual 346,797 287,214
First mortgage loans held for sale 65,361 78,204
Real estate - mortgage 378,280 377,309
Real estate construction 88,630 59,520
- ------------------------------------------------------------------------
Total $1,286,200 $1,235,350
========================================================================
</TABLE>
In addition, the Company was servicing loans for others with aggregate
principal balances of approximately $1,039,397,000, $999,157,000, and
$1,201,928,000 at December 31, 1993, 1992, and 1991, respectively.
Loans to certain companies in which non-officer directors of the Company or
its significant subsidiaries have a ten percent or more beneficial ownership
interest, and loans to executive officers, directors and their other associates
totaled $7.094 million at December 31, 1993. All of these loans were made in
the ordinary course of business on substantially the same terms, including
interest rate and collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than the normal
credit risk of collectibility or present other unfavorable features. The
following is a summary of activity during 1993 with respect to such aggregate
loans to these individuals and their associates and affiliated companies:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Balance at December 31,1992 $ 4,965
New loans 3,897
Repayments 1,768
- ----------------------------------------------------------------------
Balance at December 31,1993 $ 7,094
======================================================================
</TABLE>
The following is a summary of transactions in the allowance for loan losses:
<TABLE>
<CAPTION>
1993 1992 1991
-------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $23,589 $19,911 $19,142
Loans charged off (7,398) (10,719) (10,676)
Recoveries on loans previously
charged off 1,908 1,697 1,575
Provision for loan losses 2,974 11,181 9,870
Allowance of bank subsidiary
acquired -- 1,519 --
- ----------------------------------------------------------------------------
Balance at end of year $21,073 $23,589 $19,911
============================================================================
</TABLE>
During 1993, 1992, and 1991, $8,847,000, $10,279,000, and $10,741,000,
respectively, was transferred from loans to other real estate upon foreclosure
of the collateral properties.
At December 31, 1993 and 1992, the Company had approximately $20.9 million
and $26.0 million, respectively of nonperforming loans. Interest income on
nonaccrual loans in 1993 and 1992 which would have been reported on an accrual
basis amounted to approximately $2.2 million and $2.8 million, respectively.
Interest income of approximately $31,000 and $800,000 was recognized in 1993
and 1992, respectively, on loans which were on a nonaccrual basis.
NOTE 6.
PREMISES AND EQUIPMENT
Premises and equipment is presented net of accumulated depreciation
totaling $29,853,000 and $27,732,000 at December 31, 1993 and 1992,
respectively.
NOTE 7.
SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1993 and December 31, 1992 consist
of:
<TABLE>
<CAPTION>
1993 1992
-------------------------
(in thousands)
<S> <C> <C>
Federal funds purchased $43,945 $47,989
Securities sold under agreements to repurchase 19,144 28,070
Interest-bearing demand notes issued
to the U.S. Treasury 13,807 10,859
Other short-term borrowings -- 2,250
- -----------------------------------------------------------------------------
Total $76,896 $89,168
=============================================================================
</TABLE>
In June 1992, the Company entered into a $3,000,000 revolving line of
credit with a commercial bank which can be renewed on an annual basis. The
agreement provides for the availability to the Company, at its option, of
short-term funding on a continuing basis at a rate equal to the daily overnight
cost of funds plus 1 percent, subject to compliance with its terms. The Company
is required to remain out of the line for a 30-day period each year. Proceeds
from the line of credit may be used for general corporate purposes. At December
31, 1993, the entire $3,000,000 line of credit was available to the Company
under this agreement.
F I R S T N A T I O N A L B A N C O R P
- 47 -
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8.
LONG-TERM DEBT
Long-term debt at December 31, 1993, and December 31, 1992, consists
of:
<TABLE>
<CAPTION>
1993 1992
-------------------------
(in thousands)
<S> <C> <C>
Industrial development revenue bond dated
December 27, 1984, and due December 27,
1994 plus interest at 82% of prime payable
quarterly, secured by shares of common stock
of certain bank subsidiaries. $ 190 $ 380
Industrial development revenue bond assumed
January 31, 1990, maturing on July 1, 2008,
with principal of $100 payable annually and
interest, at a tax effected prime rate, payable
monthly, secured by certain premises. 3,600 3,700
Promissory installment note, dated September
l, 1988, bearing interest at 9% with monthly
payments of $1 and a final payment of $26 on
August 1, 1998. 39 42
Subordinated notes, dated October 18, 1984, at
prime, with principal payable in ten annual
installments beginning June 30, 1986, and
interest payable quarterly. 3 4
Promissory term note, dated October 28, 1992,
to be amortized over fifteen years but
maturing every three years, with principal of
$80 plus interest at 6.25% payable quarterly,
secured by shares of common stock of certain
bank subsidiaries and certain premises. 3,880 4,200
Promissory note at a prime rate, with principal
payable in equal annual installments plus
interest through October 1998. The Company
elected to pay off this obligation in 1993. -- 194
Promissory note at a prime rate plus one
percent, with interest payable quarterly and
principal payable in annual installments
through July 2003. The Company elected to
pay off this obligation in 1993. -- 750
Various advances from the Federal Home Loan
Bank of Atlanta with maturities ranging from
two to five years and fixed interest rates
ranging from 4.51%, to 5.66%. 50,000 --
Capital lease dated January 13,1993, at a fixed
rate of 3% with monthly payments of $2,
secured by equipment. 55 --
Unsecured promissory note dated October 1990,
with interest payable monthly. 100 100
- ----------------------------------------------------------------------------
Total $57,867 $9,370
============================================================================
</TABLE>
The combined aggregate maturities for each of the next five years are
approximately $614,000 in 1994, $10,424,000 in 1995, $15,424,000 in 1996,
$10,423,000 in 1997, and $5,446,000 in 1998. At December 31, 1993, the Company
has pledged certain qualifying mortgage loans with unpaid principal balances
totaling approximately $2,800,000.
NOTE 9.
INCOME TAXES
As discussed in Note 1, the Company adopted Statement No. 109 as of January
1, 1993. The cumulative effect of this change in accounting for income taxes of
$160,000 has been determined as of January 1, 1993 and reported separately in
the consolidated income statement for the year ended December 31, 1993. Prior
year financial statements have not been restated to apply the provisions of
Statement No. 109.
Total income tax expense (benefit) for the year ended December 31, 1993 is
allocated as follows (in thousands):
<TABLE>
<S> <C>
Income from continuing operations $9,124
Cumulative effect of a change in method of
accounting for income taxes (160)
Reduction of goodwill, for initial recognition of
acquired tax benefits that previously were included in
valuation allowance (445)
------
$8,619
======
</TABLE>
In addition, the Company adopted Statement No. 115 on December 31, 1993,
and has reported the entire net unrealized holding gains related to investments
available-for-sale as a direct component of shareholders' equity, net of income
taxes of $2,062,000.
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
1993 1992 1991
-------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $10,298 $ 9,179 $ 8,994
State 1,081 854 989
- -----------------------------------------------------------------------------------
Total current taxes 11,379 10,033 9,983
- -----------------------------------------------------------------------------------
Deferred:
Federal (1,837) (1,784) (2,928)
State (418) (341) (507)
- -----------------------------------------------------------------------------------
Total deferred taxes (2,255) (2,125) (3,435)
- -----------------------------------------------------------------------------------
Total $ 9,124 $ 7,908 $ 6,548
===================================================================================
</TABLE>
The following is a summary of the differences between the total tax expense
as shown in the consolidated financial statements and the tax expense that
would result from applying the statutory Federal income tax rate of 35% for
1993 and 34% for 1992 and 1991 to income before income taxes and cumulative
effect of accounting change:
<TABLE>
<CAPTION>
1993 1992 1991
-------------------------------------------
(in thousands)
<S> <C> <C> <C>
Tax expense at statutory rate $12,210 $10,451 $ 9,090
Increase (reduction) in income
tax resulting from:
Tax-exempt interest (3,287) (3,294) (3,593)
Disallowed interest expense 260 274 403
State income taxes, net of
Federal tax benefit 431 339 317
Other, net (480) 138 331
- -----------------------------------------------------------------------------------
Total $ 9,124 $ 7,908 $ 6,548
===================================================================================
</TABLE>
F I R S T N A T I O N A L B A N C O R P
- 48 -
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. (CONTINUED)
Following is a summary of the sources of the timing differences for income
tax and financial reporting purposes resulting in deferred tax benefits in 1992
and 1991:
<TABLE>
<CAPTION>
1992 1991
---------------------
(in thousands)
<S> <C> <C>
Cash method of accounting for tax
reporting purposes $ 13 $ 13
Provision for loan losses (1,219) (368)
Excess servicing fees from loan sales (1,076) (2,580)
Other, net 167 (500)
- --------------------------------------------------------------------------
Total $(2,125) $(3,435)
==========================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1993, are presented below (in thousands):
<TABLE>
<S> <C>
DEFERRED TAX ASSETS:
Allowance for loan losses $ 7,836
Mortgage loan servicing rights 1,347
Allowance for valuation losses on other real estate 677
Unearned loan fees 314
Accrued postretirement benefits 175
Other, net 327
- --------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX ASSETS 10,676
- --------------------------------------------------------------------------
LESS VALUATION ALLOWANCE --
NET DEFERRED TAX ASSETS $10,676
- --------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Net unrealized holding gains on
securities available-for-sale $ 2,062
Depreciation 445
Purchase accounting adjustments--
premises and equipment 1,717
Prepaid expenses 350
Deferred loan costs 262
Accretion of investment securities 967
- --------------------------------------------------------------------------
TOTAL GROSS DEFERRED TAX LIABILITIES 5,803
- --------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 4,873
==========================================================================
</TABLE>
NOTE 10.
EMPLOYEE BENEFIT PLANS
In the past, the Company has maintained a noncontributory defined
benefit pension plan which covered substantially all full-time employees of the
Company. The benefits were based on years of service and the employee's five
highest years of compensation during the last ten years of employment. The
Company's philosophy was to fund annually the maximum amount allowable as a
deduction for federal income tax purposes. This policy resulted in the plan
having assets in the plan trust with a market value in excess of the
accumulated benefit obligation. In late 1991, following a study of the overall
compensation and benefits program of the Company and a resulting recommendation
that the entire compensation and benefits program be restructured, the Board of
Directors of the Company approved the termination of the pension plan and the
establishment of a 401(k) plan. As stated above, the plan was over-funded at
the time of termination, and the Board of Directors determined that the excess
assets which were already held in the plan trust should be distributed to
active participants using an equitable formula rather than have the excess
assets revert back to the Company. The defined benefit pension plan went
through the process of termination during 1992, and the plan assets were
distributed through (a) the purchase of annuities for, or payment of lump sums
to, the retirees and terminated vested former employees or (b) the purchase of
an annuity or a trust-to-trust transfer for those participants who were still
active employees or who had accounts under the 401(k) plan at time of
termination. All employees active at termination chose to have their balance
transferred to the 401(k) plan. These annuity purchases, distributions or
transfers occurred in November 1992.
On March 31, 1992, the Company decided to vest and freeze all future benefit
accruals under its noncontributory pension plan in anticipation of its
termination. As a result, the Company recognized a curtailment gain of $725,000
on March 31, 1992, determined as follows:
<TABLE>
<CAPTION>
BEFORE AFTER
REALIZATION REALIZATION
OF OF
CURTAILMENT EFFECT OF CURTAILMENT
GAIN CURTAILMENT GAIN
-----------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Assets and Obligations:
Vested benefit obligation,
inclusive of excess assets
to be distributed to
participants $ (9,053) $ -- $ (9,053)
Non vested benefits -- -- --
- ---------------------------------------------------------------------------------------------
Accumulated benefit
obligation (9,053) -- (9,053)
Effects of projected future
compensation levels (2,480) 2,480 --
- ---------------------------------------------------------------------------------------------
Projected benefit obligation (11,533) 2,480 (9,053)
Plan assets at fair value 9,053 -- 9,053
Items not yet recognized in
earnings:
Unrecognized net asset at
transition (1,368) 1,368 --
Unrecognized prior service
cost subsequent to
transition 1,508 (1,508) --
Unrecognized net loss
subsequent to transition 1,615 (1,615) --
- ---------------------------------------------------------------------------------------------
(Accrued)/prepaid
pension cost $ (725) $ 725 $ --
=============================================================================================
</TABLE>
Pension cost for 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
1992 1991
--------------------------
(in thousands)
<S> <C> <C>
Service cost for benefits earned $ 144 $ 504
Interest cost on projected benefit
obligations 137 507
Actual return on plan assets (44) (1,378)
Net amortization and deferral (200) 531
- -----------------------------------------------------------------------
Net pension cost $ 37 $ 164
=======================================================================
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-49-
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. (CONTINUED)
In 1990, the Company adopted a defined benefit supplemental executive
retirement plan covering certain executive officers. Net periodic pension cost
for 1993, 1992, and 1991 was $108,000, $68,000, and $71,000, respectively. The
projected benefit obligations as of December 31, 1993 and 1992, were $601,000
and $328,000, respectively, and are unfunded. The actuarial present value of
accumulated benefit obligations as of December 31, 1993 and 1992, were $601,000
and $328,000, respectively. No further officers will qualify to participate in
this plan in the future since the base qualified defined benefit pension plan
has now been terminated.
As part of the revisions to the compensation and benefits program of the
Company in 1992, the Company converted its qualified noncontributory profit
sharing plan into a 401(k) plan and all participant balances in the former
profit sharing plan remain in the 401(k) plan. The Company continues to make
contributions to participants' accounts, as well as providing a full match
against a portion of employee pre-tax 401(k) contributions. All employees
participate in the 401(k) plan once they have met service and age requirements.
Contributions by the Company were approximately $1,781,000 in 1993 and
$1,445,000 in 1992 under the 401(k) plan and approximately $1,600,000 in 1991
under the profit sharing plan.
In 1992, the Company adopted a nonqualified supplemental executive
retirement plan for certain senior officers who may be limited from fully
participating in the qualified 401(k) plan due to Federal limitations. The
participants' investment into the plan plus accumulated earnings on those funds
amounted to approximately $145,000 at December 31, 1993 and $40,000 at December
31, 1992 and this amount is carried as an accumulated obligation of the Company
apart from the qualified plan trust.
In addition to the changes in the Company's retirement plans, a major
benefits enhancement in 1992 was the introduction of a flexible benefits plan
in which participants could choose how the Company's total contributions to
healthcare and life benefits would be spent by electing from among a range of
benefit options. This cafeteria plan approach allows employees to customize
their own benefits and pay for most of the benefits through payroll deductions
on a pre-tax basis. The Company benefits through reduced payroll taxes as well.
The Company sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who meet minimum age and
service requirements.
The Company's policy is to fund the cost of medical benefits in amounts
determined at the discretion of management. As discussed in Note 1, in 1993 the
Company adopted Statement No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions."
The Company provides retirees under age 65 with medical coverage up to
$5,600 per year through a traditional indemnity plan. For retirees over 65, the
Company provides medical coverage up to $3,600 per year. Once the premium cap
is met, retirees are required to contribute any excess towards the cost of
coverage.
The following table presents the plan's funded status with amounts
recognized in the Company's consolidated balance sheet at December 31, 1993:
(in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ (1,367)
Fully eligible active plan participants (1,117)
- -----------------------------------------------------------------------------
Total (2,484)
Plan assets at fair value -
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation in
excess of plan assets (2,484)
Unrecognized net loss 46
Unrecognized transition obligation 2,246
- -----------------------------------------------------------------------------
Accrued postretirement benefit cost included in
other liabilities $ (192)
=============================================================================
</TABLE>
Net periodic postretirement benefit cost for 1993 includes the following
components (in thousands):
<TABLE>
<S> <C> <C>
Service cost $ 124
Interest cost 183
Net amortization and deferral 118
- -----------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 425
=============================================================================
</TABLE>
For measurement purposes, a 15.10% annual rate of increase in the per
capita cost of covered benefits was assumed for 1994 for those covered
individuals under the age of 65, and 10.90% for those covered individuals over
age 65. The rate was assumed to decrease gradually through 1998 (when the
premium caps are expected to be reached) after such time no increases are
assumed. The health care cost trend rate assumption does not have a significant
effect on the amounts reported, due to the premium caps. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% at December 31, 1993.
The Company has a stock purchase plan for directors and employees whereby
it makes contributions equal to one-half of employee and director voluntary
contributions not to exceed the lesser of $2,000 or 10% of a participant
employee's annual salary, or $2,000 for a director. The funds are used to
purchase presently issued and outstanding shares of the Company's common stock.
The Company contributed $348,000, $287,000, and $263,000, to this plan in 1993,
1992, and 1991, respectively.
F I R S T N A T I O N A L B A N C O R P
- 50 -
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11.
STOCK OPTION PLANS
The Company has incentive stock option plans for certain senior officers of
the Company. The Company reserved 600,000 shares of previously unissued common
stock for issuance in connection with the plans. Shares can be purchased at the
current market price prevailing at the time the option is granted. Options that
do not exceed a $100,000 market value are exercisable at any time up to five
years from the date of grant. The options that exceed the limit, are not
exercisable until future years.
A summary of stock option transactions under these plans is shown below:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE TOTAL
--------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Options outstanding at
December 31, 1990 293,753 $4,651
Granted 141,022 $11.167 and 15.167 1,627
Granted by pooled
subsidiary prior to
acquisition 5,187 13.495 70
Expired (56,250) 15.167-17.667 (971)
- --------------------------------------------------------------------------------
Options outstanding at
December 31, 1991 383,712 5,377
Granted 136,500 15.917 2,173
Granted by pooled
subsidiary prior to
acquisition 23,525 13.562-13.913 321
Exercised (86,850) 11.167-15.833 (1,264)
Expired (8408) 15.167-15.833 (132)
- --------------------------------------------------------------------------------
Options outstanding at
December 31, 1992 448,479 6,475
GRANTED 130,250 18.75 2,442
EXERCISED (129,333) 11.167-16.917 (1,942)
EXPIRED (3,500) 18.75 (66)
- --------------------------------------------------------------------------------
OPTIONS OUTSTANDING AT
DECEMBER 31, 1993 445,896 $6,909
================================================================================
</TABLE>
In January 1994, the Board of Directors approved the granting of additional
options under the grant date of January 19, 1994, for 126,050 shares of common
stock at an option price of $21.00 per share. At December 31, 1993, 315,210 of
the outstanding options were exerciseable.
NOTE 12.
CONTINGENT LIABILITIES
In the normal course of business, the Company is party (both as plaintiff
and defendant) to a limited number of lawsuits. In the opinion of management
and counsel, none of these cases should have a material adverse effect on the
Company's consolidated financial position.
NOTE 13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit, standby and
commercial letters of credit, loans sold with recourse, forward sales
contracts, put and call options purchased and securities in the process of
settlement. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
financial statements. The contract or notional amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit loss, in the event of nonperformance by
the customer for commitments to extend credit and standby letters of credit, is
represented by the contractual or notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for recorded loans. For forward and futures contracts,
and options, the contract or notional amounts do not represent exposure to
credit loss; however, these purchased financial instruments do expose the
Company to interest rate risk. The Company controls the interest rate risk of
its options written, put options purchased, and forward sales contracts through
management approvals, dollar limits, and monitoring procedures.
A summary of the notional amounts of the Company's financial instruments
with off-balance-sheet risk at December 31, 1993, is as follows (in thousands):
<TABLE>
<S> <C>
Financial instruments whose contract amounts
represent credit risk:
Loan commitments:
Credit card lines $ 60,281
Home equity lines 21,374
Commercial real estate, construction and
land development 113,693
Mortgage loans 43,269
Other 37,153
- ------------------------------------------------------------------------
Total loan commitments 275,770
Other commitments:
Financial standby letters of credit 16,371
Performance standby and commercial
letters of credit 87
Loans sold with recourse 2,950
- ------------------------------------------------------------------------
Total other commitments 19,408
- ------------------------------------------------------------------------
Total loan and other commitments $295,178
========================================================================
Financial instruments whose notional or contract
amounts exceed the amount of credit and/or
market risk:
Forward sales contracts $ 81,710
Put options purchased 5,000
Call options written 1,000
Securities in the process of settlement 11,324
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-51-
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the borrower. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are commitments issued by the Company to
guarantee the performance of a customer to a third party. A commercial letter
of credit is a commitment issued in connection with trade transactions that
secures the performance of a customer to a third party. This instrument ensures
prompt payment to the seller in accordance with its terms. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Company holds collateral
supporting those commitments as deemed necessary.
Forward sales contracts are contracts for delayed delivery of mortgage
loans in which the Company agrees to make delivery, at a specified future date,
of mortgage loans, at a specified price. Risks arise from the inability of
counterparties to meet the terms of their contracts and from movements in
interest rates.
The Company enters into interest rate call options and purchases put
options in managing its interest rate exposure associated with its portfolio of
mortgage loans held for sale and commitments to originate mortgage loans. The
Company receives premiums for call options written and pays a premium for put
options purchased. Call options allow the holder to purchase a financial
instrument at a specified price and within a specified period of time. Put
options are purchased by the Company to provide it with a means of selling a
financial instrument at a specified price within a specified period of time.
Securities in the process of settlement are commitments by the Company to
purchase investment securities, but the security has not yet been delivered.
NOTE 14.
PARENT COMPANY FINANCIAL INFORMATION
The following represents parent company only ("Parent") condensed financial
information of the Company.
CONDENSED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1993 1992
------------------
<S> <C> <C>
ASSETS
Cash $ 6,429 $ 7,548
Interest-bearing deposits with subsidiary bank 727 2,932
- --------------------------------------------------------------------------------------
Cash and cash equivalents 7,156 10,480
Investment in bank subsidiaries, at equity 200,160 178,143
Premises and equipment, net 8,440 8,495
Goodwill 6,583 7,204
Other assets 2,289 1,253
- --------------------------------------------------------------------------------------
Total assets $224,628 $205,575
======================================================================================
LIABILITIES
Long-term debt $ 7,673 $ 9,228
Short-term borrowings -- 2,250
Other liabilities 4,352 3,957
- --------------------------------------------------------------------------------------
Total liabilities 12,025 15,435
- --------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, par value $1, authorized
30,000,000 shares, issued 15,532,855 and
15,292,839 shares in 1993 and 1992,
respectively 15,533 15,293
Additional paid-in capital 55,403 51,729
Retained earnings 138,400 123,118
Net unrealized holding gains on investment
securities available-for-sale 3,267 --
- --------------------------------------------------------------------------------------
Total shareholders' equity 212,603 190,140
- --------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $224,628 $205,575
======================================================================================
</TABLE>
CONDENSED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1993 1992 1991
---------------------------------
<S> <C> <C> <C>
INCOME
Interest and dividends $ 54 $ 26 $ 110
Dividends from subsidiaries 10,625 13,414 8,483
Other income 1,840 1,020 762
- --------------------------------------------------------------------------------------
Total income 12,519 14,460 9,355
EXPENSE
Interest 489 286 397
General and administrative 5,585 4,074 3,549
- --------------------------------------------------------------------------------------
Total expense 6,074 4,360 3,946
- --------------------------------------------------------------------------------------
Income before federal income tax
benefit and equity in undistributed
income of subsidiaries 6,445 10,100 5,409
Income tax benefit 1,702 977 887
- --------------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiaries 8,147 11,077 6,296
Equity in undistributed income of
subsidiaries 17,775 11,753 13,890
- --------------------------------------------------------------------------------------
NET INCOME $25,922 $22,830 $20,186
======================================================================================
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-52-
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. (continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31
------------------------------------------
1993 1992 1991
------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 25,922 $ 22,830 $ 20,186
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (17,775) (11,753) (13,890)
Depreciation and amortization 1,193 1,123 1,160
Gain on sale of other real estate -- (74) --
Changes in other assets and liabilities:
Decrease (increase) in other assets (987) 621 (191)
Increase (decrease) in other liabilities 96 735 (200)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,449 13,556 7,065
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of premises and equipment, net (517) (324) (104)
Purchase of bank subsidiary, net of cash acquired (6) (152) --
Capital contribution to acquired bank subsidiary -- (3,405) (150)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (523) (3,881) (254)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings (2,250) 2,250 --
Proceeds from the issuance of long-term debt -- 4,950 --
Payments on long-term debt (1,555) (2,298) (959)
Proceeds from issuance of common stock for stock options exercised 1,942 1,264 --
Payments for fractional shares in stock split -- (14) --
Proceeds from sale of treasury stock by pooled subsidiary -- -- 10
Purchases of treasury stock by pooled subsidiary -- -- (19)
Cash dividends paid on common stock (9,387) (8,793) (7,157)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (11,250) (2,641) (8,125)
- -------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,324) 7,034 (1,314)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,480 3,446 4,760
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEARS $ 7,156 $ 10,480 $ 3,446
===============================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 489 $ 269 $ 388
- -------------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 10,334 $ 9,881 $ 9,403
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The primary source of funds available to the Parent to pay shareholder
dividends and other expenses is from its subsidiary banks. Bank regulatory
authorities impose restrictions on the amounts of dividends that may be
declared by the subsidiary banks. Further restrictions could result from a
review by regulatory authorities of each bank's capital adequacy, which is the
relationship between a bank's capital and its assets and deposits, and other
such ratios. The amount of cash dividends available from the subsidiary banks
for payment in 1994 without such prior approval, is approximately $25,479,000
plus 1994 net earnings of the six subsidiary national banks. At December 31,
1993, approximately $164,680,000 of Parent's investment in bank subsidiaries
was restricted as to dividend payments from the banks to Parent under the
foregoing regulatory limitations.
F I R S T N A T I O N A L B A N C O R P
-53-
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15.
REGULATORY MATTERS
The Department of Banking and Finance of the State of Georgia requires that
"state" chartered banks maintain a minimum ratio of capital, as defined, to
assets of 6%.
Under provisions of the Financial Institutions Reform, Recovery, and
Enforcement Act ("FIRREA") of 1989, the Company's subsidiary banks are required
to meet certain core, tangible, and risk-based capital ratios.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA") was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992.
In addition to the prompt corrective actions requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective actions regulations define specific capital
categories based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse are
subject to certain restrictions, including the requirement to file a capital
plan with its primary Federal regulator, prohibitions on the payment of
dividends and management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things. Other restrictions may
be imposed on the institution either by its primary Federal regulator or by the
Federal Deposit Insurance Corporation, including requirements to raise
additional capital, sell assets, or sell the entire institution. Once an
institution becomes "critically undercapitalized," it must generally be placed
in receivership or conservatorship within 90 days.
To be considered "adequately capitalized," an institution must generally
have a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of at
least 4%, and a total risk-based capital ratio of at least 8%. An institution
is deemed to be "critically undercapitalized" if it has a tangible equity ratio
of 2% or less. At December 31, 1993, all of the subsidiary banks exceeded the
minimum aforementioned capital requirements.
NOTE 16. FAIR VALUES OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. These estimates are subjective in
nature and involve uncertainties and matters of significant judgement and
therefore cannot be determined with precision. Changes in assumptions would
significantly affect the estimates. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. However, the Company has elected to expand the disclosure to
incorporate fair values for recorded assets and liabilities that are not
financial instruments.
Fair value estimates are based on existing on-and off-balance sheet
financial instruments and other recorded assets and liabilities without
attempting to estimate the value of anticipated future business. The value of
significant portions of the bank subsidiaries that generate substantial income
annually, such as trust and mortgage banking operations, have not been
estimated. In addition, tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates. Accordingly,
the aggregate fair value amounts presented do not represent the underlying
value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments and certain
other assets and liabilities:
CASH AND CASH EQUIVALENTS: The carrying amount of cash and cash equivalents
approximate those assets' fair values.
INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS: The carrying
amounts of interest-bearing deposits in other financial institutions approximate
their fair value.
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES): Fair values
for investment securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
LOANS: For variable-rate loans that reprice frequently and with no
significant change in credit
F I R S T N A T I O N A L B A N C O R P
- 54 -
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. (continued)
risk, fair values are based on carrying values. The fair values for all other
loans are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality.
OFF-BALANCE SHEET INSTRUMENTS: Fair values for the Company's off-balance
sheet instruments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
credit standings.
PURCHASED MORTGAGE LOAN SERVICING RIGHTS AND EXCESS SERVICING FEE
RECEIVABLES: Fair value of purchased mortgage loan servicing rights and excess
servicing fee receivables are determined by estimating the present value of the
future net servicing income, on a disaggregated basis, using anticipated
prepayment assumptions.
PREMISES AND EQUIPMENT: Fair values of premises (land and buildings) are
based on current local government appraisals for tax purposes. The depreciated
book value of equipment approximates its fair value.
OTHER ASSETS: The carrying amounts of other assets, consisting primarily of
accrued interest and other real estate, approximate their fair value.
DEPOSITS: Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates of similar terms of maturity. The carrying
amounts of all other deposits, due to their nature, approximate their fair
values.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds purchased,
securities sold under agreements to repurchase, and other short-term borrowings
approximate their fair values.
LONG-TERM DEBT: The fair values of the Company's long-term borrowings are
estimated using discounted cash flow analyses, based on the Company's current
borrowing rates for similar types of borrowing arrangements.
OTHER LIABILITIES: The carrying amounts of other liabilities, consisting
primarily of accrued interest, approximate their fair values.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31,1992
-------------------------- --------------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
- ------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $85,097 $ 85,097 $ 63,761 $ 63,761
Federal funds sold and securities
purchased under agreements to resell 35,871 35,871 52,497 52,497
Interest-bearing deposits in other
financial institutions 68,157 68,157 66,881 66,881
Investment securities 536,116 548,507 492,958 510,258
Loans 1,248,674 1,252,760 1,194,106 1,202,757
Off-balance-sheet items:
Forward sales contracts, options, and
other purchase commitments -- (35) -- (59)
Loan and other commitments -- (1,379) -- (839)
Purchased mortgage loan servicing
rights--unaudited 9,829 9,829 7,870 7,870
Excess servicing fee receivables 4,825 4,825 7,868 7,868
Premises and equipment--unaudited 47,554 51,808 42,622 50,805
Other assets--unaudited 51,407 51,407 52,207 52,207
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS--UNAUDITED $2,087,530 $2,106,847 $1,980,770 $2,014,006
==============================================================================================================
LIABILITIES AND EQUITY
Deposits:
Noninterest-bearing $ 280,037 $ 280,037 $ 239,709 $ 239,709
Interest-bearing transaction
and savings 546,642 546,642 540,458 540,458
Certificates of deposit 889,512 894,315 899,529 906,443
Federal funds purchased and securities
sold under agreements to repurchase 63,089 63,089 76,059 76,059
Other short-term borrowings 13,807 13,807 13,109 13,109
Long-term debt 57,867 58,224 9,370 9,370
Other liabilities--unaudited 23,973 23,973 12,396 12,396
Equity--unaudited 212,603 226,760 190,140 216,462
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY--
UNAUDITED S2,087,530 $2,106,847 $1,980,770 $2,014,006
==============================================================================================================
</TABLE>
F I R S T N A T I O N A L B A N C O R P
-55-
<PAGE> 58
NOTES T0 CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17.
SUPPLEMENTAL FINANCIAL DATA
Components of other noninterest income and expenses in excess of 1% of
income for the respective periods are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1993 1992 1991
--------------------------------------
(in thousands)
<S> <C> <C> <C>
INCOME:
Mortgage loan servicing fees/ net $ 324 $ 3,251 $5,269
Gains on sales of mortgage loan servicing rights 10,811 10,721 1,673
Losses on sales of mortgage loans 5,083 8,771 370
- -------------------------------------------------------------------------------------------------------------------------------
Net gains on sales of mortgage loans and servicing rights 5,728 1 ,950 1,303
EXPENSE:
FDIC insurance premiums 3,828 3,614 3,256
Amortization and write-off of purchased mortgage loan servicing rights 3,311 4,945 630
</TABLE>
NOTE 18.
CONSOLIDATED QUARTERLY FINANCIAL INFORMTATION-UNAUDITED
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1993 and December 31,
1992.
<TABLE>
<CAPTION>
1993 QUARTER ENDED
TOTAL --------------------------------------------------------
YEAR DEC. 31 SEPT. 30 JUNE 30 MARCH 31
--------- --------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $146,866 $ 36,568 $ 36,872 $ 37,257 $ 36,169
Interest expense 61,304 14,916 15,257 15,514 15,617
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income 85,562 21,652 21,615 21,743 20,552
Provision for loan losses 2,974 324 503 1,032 1,115
Net gains on sales of investment securities 711 20 167 159 365
Noninterest income 30,943 9,577 7,982 6,506 6,878
Noninterest expense 79,356 21,058 19,835 19,929 18,534
- -------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect
of accounting change 34,886 9,867 9,426 7,447 8,146
Income taxes 9,124 2,156 2,800 1,862 2,306
Cumulative effect of accounting change 160 -- -- -- 160
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 25,922 $ 7,711 $ 6,626 $ 5,585 $ 6,000
===============================================================================================================================
Per share:
Income before cumulative effect of accounting change $1.68 $ .50 $ .43 $ .37 $ .38
Cumulative effect of accounting change .01 -- -- -- .01
- -------------------------------------------------------------------------------------------------------------------------------
Net income $1.69 $ .50 $ .43 $ .37 $ .39
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1992 QUARTER ENDED
TOTAL -----------------------------------------
YEAR DEC. 31 SEPT. 30 JUNE 30 MARCH 31
--------- -----------------------------------------
(in thousnnds, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $ 152,420 $ 37,207 $ 37,667 $38,180 $39,366
Interest expese 73,170 16,598 17,471 18,969 20,132
- ------------------------------------------------------------------------------------------------------------------
Net interest income 79,250 20,609 20,196 19,211 19,234
Provision for loan losses 11,181 2,790 3,008 2,148 3,235
Net gains on sales of investment securities 2,406 - 1,220 276 910
Noninterest income 27,553 7,402 7,371 6,651 6,129
Noninterest expense 67,290 17,665 17,481 15,431 16,713
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 30,738 7,556 8,298 8,559 6,325
Income taxes 7,908 1,871 2,362 2,192 1,483
- ------------------------------------------------------------------------------------------------------------------
Net income $ 22,830 $ 5,685 $ 5,936 $ 6,367 $ 4,842
==================================================================================================================
Per share:
Net income $1.51 $ .37 $ .39 $ .42 $ 33
==================================================================================================================
</TABLE>
F I R S T N A T I O N A L B A N C O R P
- 56-
<PAGE> 59
The First National Bank of Gainesville
The Peoples Bank of Forsyth County
The First National Bank of Paulding County
FIRST
NATIONAL Citizens Bank, Cherokee County
BANCORP
AFFILIATES The Community Bank of Carrollton
Bank of Villa Rica
The Citizens Bank, Toccoa
Granite City Bank
Bank of Banks County
The First National Bank of Jackson County
Bank of Clayton
First National Bank of White County
First National Bank of Gilmer County
Pickens County Bank
First National Bank of Habersham
1993 REGIONAL REPORT
57
<PAGE> 60
METRO-FRINGE REGION THE FIRST NATIONAL BANK
OF GAINESVILLE
Hall County DIRECTORS
Forsyth County Richard A. McNeece
Paulding County Chairman and CEO
Cherokee County Ray McNeece
Carroll County Chairman Emeritus
Richard L. Shockley
Vice Chairman
Richard D. White
President
Mrs. Jane Wood Banks
John A. Ferguson, Jr.
Ray C. Jones
Arthur J. Kunzer, Jr.
Jack B. McKibbon, Jr.
Harold L. Smith
W. Woodrow Stewart
Economically, First National Bancorp's 15 James A. Walters
affiliate banks fall within three regions Joe Wood, Jr.
- --in North Georgia--the metro-fringe region,
the manufacturing/industrial region, and the
second home/retirement/tourism region. Each
region offers unique opportunities for the
organization's growth.
(Map)
The metro-fringe region consists of Hall,
Forsyth, Paulding, Cherokee and Carroll
counties, which are represented by six of THE PEOPLES BANK OF
the affiliate banks with total assets of FORSYTH COUNTY
$1.4 billion. As Atlanta continues to grow
and people continue to look for a better DIRECTORS
quality of life in smaller convenient Bobby M. Thomas
communities, these counties should experience Chairman
above-average growth, particularly in the Jimmy S. Fagan
residential sector. Vice Chairman
Rocklyn E. Hunt
The First National Bank of Gainesville, President and CEO
Bancorp's lead bank, is located in Hall Louis J. Douglass, III
County, which serves as a regional center Executive Vice President
for North Georgia. Residents througout the Jim Grogan
northern portion of the state come to Robert L. McGuinn
Gainesville for shopping, dining, Howard R. Noles
entertainment, and health services. The Lamar V. Sexton
county also has strong tourism and Richard L. Shockley
manufacturing bases. There are 184 Charles R. Smith
manufacturing plants with over 30 Fortune Kenneth J. Vanderhoff, Jr.
500 and over 35 international companies
having facilities in Hall County.
The Peoples Bank of Forsyth County continues
to benefit from its proximity to metro
Atlanta. With Atlanta's rapid expansion,
the county is a residential haven for
commuters and a thriving market for The
Mortgage Source, The First National Bank of
Gainesville's mortgage lending division, which
provides services to all of Bancorp's
affiliate banks. From 1980 to 1990, Forsyth
County had a 58% population growth, of which
82% was from net migration, or people moving
into the area. The median household income
of the county is estimated at $40,306, and is
expected to be $50,383 by 1995. This compares
to a 1995 statewide estimate of $36,995.
58
<PAGE> 61
(Photo)
(Photo)
59
<PAGE> 62
METRO-FRINGE REGION
THE FIRST NATIONAL BANK OF
PAULDING COUNTY
Cherokee County
Paulding County DIRECTORS
John H. Henderson
Chairman
C. B. Fair, III
President and CEO
Becky S. Echols
Executive Vice President
David M. Cooper
Charles L. Hardy
Dean P. Hardy
Peter D. Miller
Dewey P. Pendley, Sr.
Kenneth G. Vinson
G. Hudson Warren
J. Franklin Welch
J. Micheal Womble
Donald W. York
The First National Bank of Paulding County is
located in the fourth fastest-growing county
in Georgia and 16th in the nation. During the
past decade, it experienced a 59% surge in
population with 78% coming from net migration.
An additional 46% increase in population is
expected by the year 2000. This will make
Paulding County the fastest-growing county
in the Bancorp franchise. Much of the growth
stems from the attractiveness of the county's
relatively low median housing price of
$68,580, when compared to metro Atlanta
housing prices.
(Map)
CITIZENS BANK,
Cherokee County, home of Bancorp affiliate CHEROKEE COUNTY
Citizens Bank, is curently the state's fifth
fastest-growing county. With a 75% growth in DIRECTORS
population in the past decade, Cherokee County A. Roy Roberts, Jr.
is expected to grow an additional 45% by the Chairman
turn of the century, which will make it the Richard M. Zorn
second fastest-growing Bancorp franchise President and CEO
county. Currently, it is the 22nd fastest- A. R. Roberts, III
growing county in the nation. With an Executive Vice President
estimated median household income of $42,537, Bryan F. Bell
it is the highest of any Bancorp franchise Dr. D. T. Darnell
county, well in excess of Georgia's 1990 H. Lamar Harris
average of $29,021. T. A. Roach
John C. Wheeler
McDonald Willis
60
<PAGE> 63
(Photo)
(Photo)
61
<PAGE> 64
METRO-FRINGE REGION
THE COMMUNITY BANK OF
CARROLLTON
Carroll County
DIRECTORS
J. Wayne Garner
Chairman
Timothy I. Warren
President and CEO
John B. Bohannon
Ann C. Carter
Donald C. Costley
Dr. Alvin Crews, Jr.
C. B. Fair, III
Lester H. Harmon
William P. Johnson
Phillip Kauffman
Charles J. Puckett
William C. Seaton
M. S. "Buck" Swindle
(Map)
BANK OF VILLA RICA
Carroll County is home to two of Bancorp's newest
affiliates, The Community Bank of Carrollton and DIRECTORS
the Bank of Villa Rica. Located just along the S. Doug Hembree
Interstate 20 corridor, the county has been Chairman
referred to by Georgia Trend magazine as "The Blue Fred L. O'Neal
Chip County" for the West Georgia region. It, too, President and CEO
has experienced the bulk of its population growth J. Larry Boss
from net migration--67% from 1980 to 1990. And, William C. Candler
its slow median housing price of $60,293 makes the C. B. Fair, III
county extremely attractive to Atlanta commuters L. Burnell Redding
looking for a friendlier community to live in. J. Richard Smith
The 1993 annoucement of the development of a
"Gone With The Wind" theme park has increased
growth expectations for the county. It is also
home to West Georgia College, a four-year liberal
arts college and unit of the University System of
Georgia. The college has a current enrollment of
over 8,000 students.
62
<PAGE> 65
(Photo)
(Photo)
63
<PAGE> 66
MANUFACTURING/INDUSTRIAL REGION
THE CITIZENS BANK, TOCCOA
DIRECTORS
Stephens County James H. Harris, Jr.
Elbert County Chairman
Jackson County Robert A. Parker
Banks County President and CEO
David C. King
Executive Vice President
Edward L. Holcomb
J. B. Huggins, Jr.
Allan R. Ramsey
Richard L. Shockley
Harold L. Watson
Jerry E. Wright
The manufacturing/Industrial region is
made up of Stephens, Elbert, Jackson and
Banks counties represented by four
affiliates with total assets of $300
million. There is a dichotomy in this
region as two of the affiliates' local
economies move more toward a retail
base.
(Map)
Stephens County, home of The Citizens GRANITE CITY BANK
Bank, Toccoa, is in close proximity to
both Atlanta, Georgia, and Greenville, DIRECTORS
South Carolina, which makes it a prime W. Harold Prather
location for business and industry. Of Chairman
all the Bancorp counties, Stephens has Edward B. Hall
the largest sector employed in President and CEO
manufacturing--36%. Many Fortune F. Davis Arnette, Jr.
500 and international companies make Executive Vice President
up its strong manufacturing base. Walter E. Eaves
Joe Fernandez
William L. Lester
Granite City Bank, located in Elbert E. Freeman Leverette
County, has strong ties to manufacturing George T. Oglesby, Jr.
... particularly the granite industry. Edward H. Phillips
It is home to five international Richard L. Shockley
companies and has 35% of the working L. Lamar Walker, Jr.
population employed in manufacturing.
64
<PAGE> 67
(Photo)
(Photo)
65
<PAGE> 68
MANUFACTURING/INDUSTRIAL REGION
BANKS OF BANKS COUNTY
Banks County DIRECTORS
Jackson County Thomas S. Cheek
Chairman
George W. Evans
President and CEO
Steven R. Maney
Executive Vice President
Milton L. Dalton
Richard L. Shockley
James Short
Eugene Sims
Located along the I-85 corridor, both Banks
County, home of Bank of Banks County,
and Jackson County, home of The First
National Bank of Jackson County, have
strong manufacturing bases. The I-85
corridor, touted as "The Boom Belt" by THE FIRST NATIONAL
Business Week magazine, will continue to BANK OF JACKSON COUNTY
drive these economies and attract industry
and trade to the area. The corridor makes DIRECTORS
the counties very accessible to metro Henry D. Robinson
Atlanta and it is fueling unprecedented growth Chairman
in the retail services sector. Henry L. Asbury
Vice Chairman
Kelly G. Hillis
(Map) President and CEO
James R. Shaw, Jr.
Executive Vice President
Banks County is quickly becoming a major James V. Joiner
retail center in Georgia and in the South- J. Albert Minish
east. From 1988 to 1992, the county saw William F. Mitchell
a 143% jump in taxable sales. As the only D. Dwight Porter, Sr.
financial institution in the county, Bank Randall Pugh
of Banks County maintains a 100% market Richard L. Shockley
share. Jackson County is positioned between Donald S. Shubert
Gainesville, Atlanta and Athens. It also
experienced strong growth in taxable sales--
34%, and was deemed a "Blue Chip County"
by Georgia Trend.
66
<PAGE> 69
(Photo)
(Photo)
67
<PAGE> 70
SECOND HOME/RETIREMENT/TOURISM REGION
Rabun County BANK OF CLAYTON
White County
Gilmer County DIRECTORS
Pickens County A. W. Adams
Habersham County Chairman
William F. DeVane
President and CEO
B. Allen Lancaster
Executive Vice President
Dr. Lawrence Gillespie
Gene Head
Elliott Keller
Paul D. Lutz
Edwin C. Poss
Lewis F. Reeves, Jr.
Richard L. Shockley
Edwin L. West
The Second Home/Retirement/Tourism
region consists of Rabun, White, Gilmer,
Pickens and Habersham counties represented
by five affiliate banks with total assets of
$412 million. The beauty of the area attracts
tourists, retirees and second-home residents.
Lake resorts, ski resorts, wineries, state
parks, historic sites, golf courses and outdoor
adventure opportunities also draw people
to the area.
(Map) FIRST NATIONAL BANK OF
WHITE COUNTY
Bank of Clayton, located in picturesque DIRECTORS
Rabun County, has a 53% deposit market J. L. Nix
share. The fact that 85% of the county's Chairman
population growth in the last decade was Sidney J. Wooten, III
from net migration indicates that retire- President and CEO
ment relocation continues to be a driving Coleman Allen
economic force. The county has a median Executive Vice President
age of 39.8 as compared to Georgia's Roy Ash, Jr.
median age of 31.6. This older population Charles D. Black
makes Rabun County a prime target for E. Ray Black
the upscale Century Service product and J. Kenneth Nix
personal trust services. Richard L. Shockley
Harold Turner
With a 52% deposit market share, Jere Westmoreland
First National Bank of White County
benefits from the area's strong tourism
industry. The bank's main office is
located in Cleveland, Georgia, which is
home to Babyland General, birthplace
of the famous Cabbage Patch Dolls (TM).
The alpine village of Helen also draws
visitors from throughout the country
to experience a glimpse of Bavarian life.
Like Rabun County, White County has
experienced the majority of its population
growth over the past decade through net
migration, 81%, and the median age at
36.8 is higher than that of the state's at
31.6. These are strong indicators for
growth in the upscale market.
68
<PAGE> 71
(Photo)
(Photo)
69
<PAGE> 72
SECOND HOME/RETIREMENT/TOURISM REGION
FIRST NATIONAL BANK OF
GILMER COUNTY
Gilmer County
Pickens County DIRECTORS
Mack G. West
Chairman
Billy R. Loudermilk
President and CEO
George N. Bunch, III
James P. Garrett
David J. Pierce
Richard L. Shockley
David W. Stover
John W. Thomas, Jr.
Nestled in the foothills of the vast, un-
spoiled Chattahoochee National Forest and
the Appalachian Mountains, Gilmer County
is the apple capital of Georgia and the home
of the First National Bank of Gilmer County.
Conveniently linked to Atlanta by I-575 and
the Appalachian Highway, the county is a
popular destination for tourists and second-
home residents from the metropolitan area.
The county's population growth during the
last decade again stemmed from strong net
migration of 74%.
(Map)
PICKENS COUNTY BANK
Adjacent to Gilmer County is Pickens DIRECTORS
County, home of Bancorp affiliate Loy D. Mullinax
Pickens County Bank. While tourism Chairman
and retirement relocation are important Dennis W. Burnette
economic factors, the county also has President and CEO
a strong manufacturing base. Of the Marc J. Greene
working population, 27% are employed Executive Vice President
in manufacturing as compared to the James D. Boggus
state average of 19%. The county is E. Calvin Dubose, Sr.
known worldwide for its vast production G. William Glazebrook, M.D.
of marble. Over the past decade, the James R. Jones
county's population growth also stemmed Howard H. Ray
from a strong net migration, 77%, as Richard L. Shockley
retirees continued to relocate to the area.
70
<PAGE> 73
(Photo)
(Photo)
71
<PAGE> 74
SECOND HOME/RETIREMENT/TOURISM REGION
Habersham County
(Map)
FIRST NATIONAL BANK
OF HABERSHAM
First National Bancorp's affiliates are
economically well-balanced and offer DIRECTORS
tremendous opportunity for diversified Paul J. Reeves
growth. Each market has unique advantages Chairman
and potential. Management's strategy is Glenn C. Bell
to focus on each market, its inherent President and CEO
strengths and its customer segments. Eugene B. White
Executive Vice President
The economic base of First National Bank J.P. Ballard, Jr.
of Habersham's market is well- Nathan Burgen
diversified among tourism, poultry, John C. Foster
manufacturing, construction, services and Fred K. Hamby
wholesale/retail trade. A strong Richard L. Shockley
manufacturing base accounts for 34% of William J. Shortt
employment, while tourism alone brought H. Milton Stewart, Jr.
over $28 million to the local economy in E. Hal Woods, Jr.
1992. These two sectors, along with
retirement relocation, are expected
to continue as major economic influences
because of the country's convenient
access to Atlanta and the mountains.
(Photo)
72
<PAGE> 75
SHAREHOLDER INFORMATION
ANNUAL MEETING FIRST NATIONAL BANCORP OFFICERS
The Annual Meeting of the Shareholders
of First National Bancorp will be held Richard A. McNeece
at 4:00 p.m. on Wednesday, April 20, Chairman and
1994 in the theatre of the Georgia Chief Executive Officer
Mountains Center, 301 Main Street, S.W.,
Gainesville, Georgia. There will be a Peter D. Miller
reception in Rooms B and C of the President, Chief Administrative
Georgia Mountains Center begininng at and Financial Officer
3:30 p.m. All Shareholders are invited
to attend.
C. Talmadge Garrison
CORPORATE REPORTS Senior Vice President
The Annual Report, quarterly interim and Secretary
reports, and copies of First National
Bancorp's Annual Report to the Bryan F. Bell
Securities and Exchange Commission, Form Senior Vice President
10-K, are available upon written request
without charge. Stephen M. Rownd
For copies, please write: Senior Vice President
C. Talmadge Garrison
First National Bancorp J. Reid Moore
P.O. Drawer 937 Group Vice President
Gainesville, GA 30503 and Controller
TRANSFER AGENT Mary E. Hengeveld
Mellon Securities Transfer Services Group Vice President
85 Challenger Road
Ridgefield Park, New Jersey 07660 Charles A. Robinson
General Auditor
INDEPENDENT AUDITORS
KPMG Peat Marwick Arlene M. Lucas
Atlanta, Georgia First Vice President
COUNSEL
Stewart, Melvin & House ------------------------
Gainesville, Georgia
Ray McRae
MARKET MAKERS Chairman Emeritus
Robinson Humphrey Co., Inc.
A.G. Edwards & Sons, Inc. Richard L. Shockley
Dillon, Read & Co., Inc. Vice Chairman
Interstate/Johnson Lane Co.
Sterne, Agee & Leach
Herzog, Heine, Geduld, Inc.
John G. Kinnard & Co., Inc.
Morgan, Keegan & Company
Mayer & Schweitzer, Inc.
Wheat First Securities, Inc.
J.C. Bradford & Co.
73
<PAGE> 76
FIRST
NATIONAL
BANCORP
P.O. Drawer 937
Gainesville, Georgia 30503
<PAGE> 77
Appendix to Electronic Format Document
Page 2 (graph central-right) - Detailing Primary Capital to Adjusted Assets
Ratio: 1989, 9.69%; 1990, 9.93%; 1991, 10.38%; 1992, 10.66%; 1993,
11.08%.
Page 3 (photo upper-left) - Shown is Richard A. McNeece, Chairman and CEO.
Page 3 (graph center-left) - Detailing Earnings Per Share: 1989, $1.46; 1990,
$1.26; 1991, $1.34; 1992, $1.51; 1993, $1.69.
Page 3 (graph center-left) - Detailing Dividends Declared Per Share; 1989,
$.390; 1990, $.460; 1991, $.550; 1992, $.640; 1993, $.705.
Page 4 (graph upper-right) - Detailing Total Assets (in millions): 1989,
$1,654; 1990, $1,794; 1991, $1,847; 1992, $1,981; 1993, $2,088.
Page 5 (bottom) - Pictured are the Directors of First National Bancorp.
Page 6 (photo-center) - The senior management of First National Bancorp. From
left to right, seated: Richard A. McNeece, Chairman and Chief
Executive Officer; Peter D. Miller, President, Chief Administrative
and Financial Officer; Mary E. Hengweld, Group Vice President; and
J. Reid Moore, Group Vice President and Controller. From left to
right, standing: C. Talmadge Garrison, Senior Vice President and
Secretary; Stephen M. Rownd, Senior Vice President; Charles A.
Robinson, General Auditor; and Bryan F. Bell, Senior Vice President.
Page 7 (map left-center) - Shown is a map of Georgia, detailing the central
and northern county lines, which serve as registrant's potential market,
counties with affiliate banks, pending affiliate banks and
metro Altanta.
Page 7 (graph upper-right) - Detailing Return on Average Assets: 1989, 1.41%;
1990, 1.10%; 1991, 1.12%; 1992, 1.20%; 1993, 1.28%.
Page 7 (graph upper-right) - Detailing Return on Average Equity: 1989, 15.71%;
1990, 12.16%; 1991, 12.08%; 1992, 12.63%; 1993, 13.36%.
Page 8 (photo center) - Shown are homes in the various stages of construction
in Marietta, Georgia.
Page 10 (photo center-left) - Shown are guests at The Spa, Chateau Elan, in
Braselton, Georgia.
Page 10 (photo center) - Shown are customers and employees at one of the 43
branch offices.
Page 10 (photo center-right) - Shown are three individuals reviewing financial
information.
Page 11 (graph upper-left) - Detailing First National Bancorp's Percentage of
Net Revenue from Net Interest Income (FTE) and Non Interest Income:
Commercial Lending - 24%, Investing - 26%, Retail Lending - 33%,
Mortgage Lending Services - 6%, Service Charges on Deposits - 5%,
Trust Services - 1% and Other - 5%.
Page 11 (photo center-left) - Shown are employees of the Funds Management group.
Page 11 (photo center) - Shown is a commercial building under construction.
Page 11 (photo center-right) - Shown is a happy couple moving belongings into
their new home.
Page 12 (photo-center) - Shown are some of the many gift shops in Helen,
Georgia which attracts visitors to the Northeast Georgia mountains.
Page 14 (photo-center) - Shown is a warehouse of Georgia Freezer, a company
which serves Georgia's significant poultry industry.
Page 15 (graph upper-right) - Comparing Registrant's Quarterly Stock Volumes (in
thousands) between 1992 and 1993: March 1992 - 546, March 1993 - 522,
June 1992 - 441, June 1993 - 365, September 1992 - 670, September
1993 - 575, December 1992 - 639, December 1993 - 507.
Page 15 (graph center-right) Comparing Price Per Share on a Quarterly basis
between 1992 and 1993: March 1992 - $16.20, March 1993 - $19.81,
June 1992 - $15.80, June 1993 - $21.11, September 1992 - $17.70,
September 1993 - $20.54, December 1992 - $18.00, December 1993 - $21.00.
Page 16 (photo bottom) - Shown are the senior officers of registrant's 15
affiliate banks.
Page 58 (map left-center) - Shown is a map of Georgia, detailing the central
and northern county lines, which serve as registrant's potential
market, counties with affiliate banks, pending affiliate banks and
metro Altanta.
Page 59 (photo top) - Shown are the Directors of The First National Bank of
Gainesville.
Page 59 (photo bottom) - Shown are Directors of The Peoples Bank of Forsyth
County.
Page 60 (map left-center) - Shown is a map of Georgia, detailing the central
and northern county lines, which serve as registrant's potential
market, counties with affiliate banks, pending affiliate banks and
metro Altanta.
Page 61 (photo top) - Shown are the Directors of The First National Bank of
Paulding County.
Page 61 (photo bottom) - Shown are the Directors of Citizens Bank, Cherokee
County.
Page 62 (map left-center) - Shown is a map of Georgia, detailing the central
and northern county lines, which serve as registrant's potential
market, counties with affiliate banks, pending affiliate banks and
metro Altanta.
Page 63 (photo top) - Shown are the Directors of The Community Bank of
Carrollton.
Page 63 (photo bottom) - Shown are the Directors of Bank of Villa Rica.
Page 64 (map left-center) - Shown is a map of Georgia, detailing the central
and northern county lines, which serve as registrant's potential
market, counties with affiliate banks, pending affiliate banks and
metro Altanta.
Page 65 (photo top) - Shown are the Directors of The Citizens Bank, Toccoa.
Page 65 (photo bottom) - Shown are the Directors of Granite City Bank.
Page 66 (map left-center) - Shown is a map of Georgia, detailing the central
and northern county lines, which serve as registrant's potential
market, counties with affiliate banks, pending affiliate banks and
metro Altanta.
Page 67 (photo top) - Shown are the Directors of Bank of Banks County.
Page 67 (photo bottom) - Shown are the Directors of The First National Bank of
Jackson County.
Page 68 (map left-center) - Shown is a map of Georgia, detailing the central
and northern county lines, which serve as registrant's potential
market, counties with affiliate banks, pending affiliate banks and
metro Altanta.
Page 69 (photo top) - Shown are the Directors of Bank of Clayton.
Page 69 (photo bottom) - Shown are the Directors of First National Bank of White
County.
Page 70 (map left-center) - Shown is a map of Georgia, detailing the central
and northern county lines, which serve as registrant's potential
market, counties with affiliate banks, pending affiliate banks and
metro Altanta.
Page 71 (photo top) - Shown are the Directors of First National Bank of Gilmer
County.
Page 71 (photo bottom) - Shown are the Directors of Pickens County Bank.
Page 72 (map left-center) - Shown is a map of Georgia, detailing the central
and northern county lines, which serve as registrant's potential
market, counties with affiliate banks, pending affiliate banks and
metro Altanta.
Page 72 (photo bottom) - Shown are the Directors of First National Bank of
Habersham.
