<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended Commission File
December 31, 1994 Number 0-10657
FIRST NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
Georgia 58-1415138
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 Jesse Jewell Parkway, Suite 700 30501
Gainesville, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (404) 503-2000
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $1.00 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to the Form 10-K. (X)
The aggregate market value of voting stock (based on a per share price
of $20.25 which is closing price as quoted by The Nasdaq Stock Market as
of March 27, 1995) held by persons other than directors or executive
officers on December 31, 1994 was $310,422,780. The basis of this
calculation does not constitute a determination by the registrant that
all of its directors and executive officers are affiliates as defined in
Rule 405.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of March 27, 1995, the number of shares of the registrant's common
stock outstanding was 16,561,515 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain pages of the 1994 Annual Report to shareholders and the Proxy
Statement for the Annual Meeting of Shareholders to be held on April 19,
1995, are incorporated herein by reference in Parts, I, II, III, and IV
of this Form 10-K.
<PAGE> 2
FIRST NATIONAL BANCORP AND SUBSIDIARIES
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Part I. Page
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 8
Part III.
Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners
and Management 9
Item 13. Certain Relationships and Related Transactions 9
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 10
Signatures 11
</TABLE>
<PAGE> 3
FIRST NATIONAL BANCORP AND SUBSIDIARIES
FORM 10-K
PART I
ITEM 1. BUSINESS
First National Bancorp (Registrant) was incorporated as a Georgia
business corporation in 1980. In July 1981, through a plan of
reorganization, the Registrant acquired all of the issued and
outstanding common stock of The First National Bank of Gainesville
(FNBG), Gainesville, Georgia in exchange for Registrant's common stock.
Since its formation in 1980 through December 31, 1994, the Registrant
has acquired sixteen banks in addition to the founding bank, FNBG.
Those banks which have been acquired and some information about each is
presented in the "Acquisition Schedule, Properties, and Other
Information" table below.
Because of its ownership of all the issued and outstanding shares of
common stock of the following banks, Registrant is a "bank holding
company" as that term is defined under Federal law in the Bank Holding
Company Act of 1956, as amended, and under the bank holding company laws
of the State of Georgia. As a bank holding company, the Registrant is
subject to the applicable provisions of the Federal Reserve System and
the Georgia State Department of Banking and Finance. The Registrant's
primary business as a bank holding company is to manage the business and
affairs of its banking subsidiaries. The Registrant's subsidiary banks
provide a full range of banking and mortgage banking services to their
customers.
The following table lists the Registrant and subsidiaries, disclosing
information pertinent to Part I, Item 1 and properties information
disclosure as required in Part I, Item 2 of Form 10-K instructions.
<TABLE>
<CAPTION>
Acquisition Schedule, Properties, and Other Information
First National Bancorp and Subsidiaries
At December 31, 1994
Banking
Bancorp Locations in
Bank Acquisition Accounting Shares Addition to
Acquired Date County Method Issued Main Office
<S> <C> <C> <C> <C> <C>
First National Bancorp (Parent) --- Hall --- --- ---
The First National Bank of Gainesville 7/31/81 Hall Exchange 5,760,000 6
First National Bank of Habersham 3/1/83 Habersham Purchase --- 2
Granite City Bank 8/31/84 Elberton Purchase 1,318,266 3
Bank of Clayton 10/18/84 Rabun Purchase 1,121,880 1
First National Bank of White County 9/30/85 White Purchase 1,900,638 1
The First National Bank of Jackson County 3/31/86 Jackson Purchase 298,350 1
The Citizens Bank 12/31/86 Stephens Pooling 655,091 1
Bank of Banks County 7/30/87 Banks Pooling 239,921 2
First National Bank of Gilmer 12/31/87 Gilmer Pooling 359,835 1
The Peoples Bank of Forsyth County 4/12/89 Forsyth Pooling 1,070,328 3
Pickens County Bank 7/30/89 Pickens Pooling 556,704 0
The First National Bank of Paulding County 1/30/92 Paulding Pooling 1,086,600 5
Citizens Bank, Cherokee County 10/30/92 Cherokee Purchase 161,201 3
Bank of Villa Rica 5/31/93 Carroll Pooling 314,142 0
The Community Bank of Carrollton 8/31/93 Carroll Pooling 331,122 0
The Commercial Bank 2/28/94 Douglas Purchase 266,414 8
Barrow Bank & Trust Company 7/31/94 Barrow Pooling 521,700 1
</TABLE>
Share numbers provided above have been restated for stock splits. Cash
or notes issued in purchase accounting acquisitions are not shown. All
locations are in counties of Georgia.
<PAGE> 4
The deposits of all subsidiary banks are insured through the Federal
Deposit Insurance Corporation. Of the above subsidiaries, only those
banks chartered as national banks (FNBG, First National Bank of
Habersham, First National Bank of White County, First National Bank of
Jackson County, First National Bank of Gilmer County, and The First
National Bank of Paulding County) are members of the Federal Reserve.
The necessary Federal Reserve services needed by non-member subsidiary
banks are provided on a pass-through basis by FNBG or a correspondent
bank.
All subsidiary banks provide a complete range of retail banking
services to individuals. These services include checking and savings
accounts, certificates of deposit, personal loans, mortgage loan
services, credit card services, loans for education, and other consumer
oriented financial services as well as safe deposit and night depository
facilities. They provide lending, depository, and related financial
services to commercial and industrial, financial, and governmental
customers. Included in the loan portfolio are short- and medium-term
loans and revolving credit arrangements, letters of credit, inventory
financing, and real estate construction loans. Registrant also engages
in mortgage banking activities through a division of FNBG. Neither
Registrant nor its subsidiaries engage in any foreign operations.
All subsidiary banks offer their customers twenty-four hour automated
teller services. This service allows customers to execute many banking
functions normally associated with a full-service teller.
FNBG, as the lead bank of Registrant, offers a wide variety of trust
services, including administering (as trustee and in other fiduciary and
representative capacities) pension, profit-sharing, and other employee
benefit plans; corporate and personal trusts; and estates. These trust
services are offered by FNBG to the customers of all the other
subsidiary banks. FNBG provides data processing services for all of the
Registrant's affiliated banks, and one non-affiliated bank located in
northeast Georgia.
On November 22, 1994, the Company and FF Bancorp, Inc. ("FF
Bancorp"), New Smyrna Beach, Florida, entered into an Agreement and Plan
of Merger ("Agreement") whereby the Company will acquire all of the
outstanding stock of the $590 million asset FF Bancorp. FF Bancorp is
the holding company of First Federal Savings Bank of New Smyrna Beach,
Florida, a $318 million asset thrift institution, First Federal Savings
Bank of Citrus County, Florida, a $214 million asset thrift
headquartered in Inverness, Florida, and Key Bank of Florida, a $66
million asset commercial bank located in Tampa, Florida. Under the
Agreement, each share of FF Bancorp stock will be exchanged for .825
shares of the Company stock in a tax-free exchange to be accounted for
as a pooling-of-interests. The acquisition is subject to the approval
of FF Bancorp shareholders and various regulatory authorities. The
Company anticipates completing the transaction in the second quarter of
1995. Consolidated net earnings of FF Bancorp for the year ended
December 31, 1994, was $6.5 million and stockholders' equity at December
31, 1994, was $45.0 million.
Competition
Each of Registrant's seventeen subsidiary banks competes actively with
other banks located in or near its service area. Such competition
encompasses efforts to obtain new deposits, type and convenience of
services offered, loan rates, and interest rates paid on time deposits,
as well as other aspects of banking. This is compounded by the entrance
into the markets of large banking and super-regional out-of-state banks,
which are crossing over state lines and competing with smaller, locally
owned, community banks. In addition, affiliate banks encounter
substantial competition from other financial services companies engaged
in the business of making loans or accepting savings deposits, such as
savings and loan associations, savings banks, small loan companies,
credit unions, certain governmental agencies, insurance companies, and
various mutual and money market funds.
Employees
At December 31, 1994, the Company and its subsidiary banks had 1,299
full-time equivalent employees. Registrant provides a wide range of
benefits to employees, including educational opportunities, group life
and medical insurance programs, and savings and stock purchase plans.
Registrant is not a party to any collective bargaining agreements and
believes that its employee relations are excellent.
<PAGE> 5
Monetary Policies
The results of operations of the subsidiary banks, and therefore of
Registrant, are affected by credit policies of monetary authorities,
particularly the Board of Governors of the Federal Reserve System (the
"Federal Reserve"). The Federal Reserve regulates the national supply
of bank credit, and utilizes its powers in efforts to curb inflationary
pressures and combat economic recession. Among the means available to
the Federal Reserve are open market operations in U. S. Government
securities, changes in the discount rate on bank borrowings and changes
in reserve requirements against member bank deposits. These means are
used in varying combinations to influence overall growth and
distribution of bank loans, investments, and deposits, and their use may
also affect interest rates charged on loans or paid for deposits.
Federal Reserve monetary policies have materially affected the
operating results of commercial banks in the past and are expected to
continue to do so in the future. The historical statements of income of
Registrant reflect the effects of monetary policies during the periods
covered thereby. The nature of future monetary policies and the effects
thereof on the future business and earnings of Registrant and its
affiliate banks cannot be predicted.
Additional information in response to this item is incorporated by
reference to "Management's Discussion and Analysis of Finanical
Condition and Results of Operations" and "Selected Statistical
Information" appearing on pages 18 through 36, and "Note 7 Short-Term
Borrowings" on page 48 of the 1994 Annual Report to shareholders, is
incorporated by reference in this Form 10-K Annual Report.
Supervision and Regulation
Bank and bank holding company operations are highly regulated, both at
the federal and state levels. Registrant's activities are regulated by
the Federal Bank Holding Company Act of 1956 (the "Act), which requires
each bank holding company to obtain the prior approval of the Federal
Reserve before acquiring direct or indirect ownership or control of more
than five percent (5%) of the voting shares of any bank. The Act
prohibits acquisition of shares of a bank located outside the state in
which the operations of Registrant's affiliate banks are principally
conducted, unless specifically authorized by statute of the other state.
The Act also prohibits, with certain exceptions, acquisitions of more
than five percent (5%) of the voting shares of any company which is not
a bank and the conduct by a holding company (directly or through its
subsidiaries) of any business other than banking, or performing services
for its subsidiaries, without prior approval of the Federal Reserve.
Pursuant to the Act, Registrant is supervised and regularly examined
by the Federal Reserve.
The laws of Georgia require annual registration with the Georgia
Department of Banking and Finance (GDBF) by all Georgia bank holding
companies. Such registration includes information with respect to the
financial condition, operations, management, and intercompany
relationships of the bank holding company and its subsidiaries and
related matters. The GDBF may also require such other information as is
necessary to keep itself informed as to whether the provisions of
Georgia law and the regulations and orders issued thereunder by the GDBF
have been complied with, which may, from time to time, include
examinations.
The State of Georgia has allowed regional interstate banking by
permitting banking organizations in certain Southeastern states to
acquire Georgia banking organizations, if Georgia banking organizations
were allowed to acquire banking organizations in their states (commonly
known as the "Southeast Compact"). As a result of the Southeast
Compact, banking organizations in other Southeastern states have entered
the Georgia market through acquisitions of many Georgia institutions.
Those acquisitions were subject to federal and Georgia approval.
Banking organizations outside of the Southeast Compact were prevented
from acquiring banking institutions in Georgia and Georgia institutions
were prevented from acquiring banks outside of this region. On March
16, 1994, the Georgia Legislature passed a measure to allow interstate
banking, by removing the Southeast Compact barrier and the Governor of
Georgia signed the measure into law shortly thereafter. The law
becomes effective on July 1, 1995.
On September 29, 1994, the "Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994" (the "Interstate Banking Act") was
enacted. In general, the Interstate Banking Act will, among other
matters, permit bank holding companies, upon receipt of appropriate
regulatory approvals, (i) to merge their multistate bank subsidiaries
into a single bank by June 1, 1994, unless the state legislatures act to
"opt-out" of this provision; and (ii) to acquire banks in any state one
year after the effective date of the Interstate Banking Act. It will
also permit banks, upon receipt of appropriate regulatory approvals, to
<PAGE> 6
establish de novo branches across state lines, so long as the individual
states into which the potential entrant proposes to branch specifically
pass legislation to "opt-in" and allow out-of-state banks to branch in
that state on a de novo basis.
Each of Registrant's banking affiliates is also supervised and
regularly examined by regulatory agencies pursuant to applicable banking
laws. The deposits of each affiliate bank are insured by the Bank
Insurance Fund (BIF) administered by the Federal Deposit Insurance
Corporation (FDIC). State-chartered banks are supervised by the GDBF
and are regularly examined by that agency and the FDIC. Affiliate banks
which are national banks are supervised and regularly examined by the
Office of the Comptroller of the Currency (OCC), and are also subject to
regulation by the Federal Reserve and the FDIC.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 (FIRREA) adopted on August 9, 1989, has significantly affected the
operation of financial institutions. As was authorized by FIRREA,
deposit insurance premiums payable by affiliate banks to the BIF, have
been significantly increased. FIRREA also redefined applicable capital
standards for the affiliate banks. Regulations adopted by the FDIC and
the OCC since the enactment of FIRREA have established new minimum
leverage capital requirements for banks. All of Registrant's affiliate
banks are in compliance with the minimum capital requirements applicable
to them.
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) was inacted into law. FDICIA provides
for, among other things, establishment by the federal banking agencies
of revised risk-based capital requirements designed to account for
interest rate risk, concentration of credit risk, and the risks of
nontraditional activities; the recapitalization of BIF; enhanced federal
supervision of depository institutions, including greater authority for
the appointment of a conservator or receiver for undercapitalized
institutions; the establishment of risk-based deposit insurance
premiums; limitation of equity investments and other activities
permissible to state and national banks, among other financial
institutions; greater restrictions on transactions with affiliates; and
mandatory consumer protection disclosures with respect to deposit
accounts. Certain provisions of FDICIA which are applicable to
Registrant and its affiliate banks are discussed below.
FDICIA requires the federal banking regulators to define five levels
of regulatory capital (i.e., well capitalized, adquately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized), and mandates specific enforcement actions that the
federal banking agencies must take with respect to depository
institutions whose capital level is significantly below the required
minimums. Depending on the capital level which the institution fails to
meet, such an institution may be prohibited from increasing its assets,
acquiring another institution, establishing a branch, engaging in any
new activities, or making capital distributions. Any company
controlling such an institution, such as Registrant, may be required to
guarantee that the institution will achieve minimum capital levels in
accordance with a capital restoration plan approved by the federal
banking agency. Other actions which the federal banking agencies may
take with respect to such an institution include requiring the issuance
of additional voting securities; placing limitations on asset growth;
mandating asset reduction; mandating changes in senior management;
requiring the divestiture, merger or acquisition of the institution;
placing restrictions on executive compensation; and any other action
that the agency deems appropriate. If the depository institution's
capital levels fall below certin levels, FDICIA requires that the
appropriate federal banking agency be appointed as a receiver or
conservator of the institution. All of Registrant's affiliate banks
fall into the category of well-capitalized at December 31, 1994.
Additional information is incorporated by reference to "Management's
Discussion and Analysis of Finanical Condition, pages 33 and Note 15 of
the Notes to Consolidated Financial Statements, page 54, of the 1994
Annual Report to shareholders, incorporated by reference in this Form 10-
K Annual Report.
The FDIC also adopted a final rule establishing a risk-based insurance
premium assessment system which took effect on January 1, 1993. Under
this regulation, insurance premiums, paid into BIF, will range between
$.23 and $.31 on each $100 of deposits, depending on the regulatory
capital level and supervisory rating of the institution. This risk-
based premium assessment system did not result in any material increase
in insurance premium assessments applicable to Registrant's affilate
banks, due to their relatively high levels of regulatory capital and
generally favorable supervisory ratings. However, the FDIC has
indicated that it will review the adequacy of the premium assessment
levels from time to time and will make further changes in premium rates
as necessary to assure sufficient reserves are maintained in BIF.
Proposals for new legislation or rule making affecting the financial
services industry are continuously being advanced and considered at both
the national and state levels. Current proposals are focused primarily
upon restructuring and strengthening regulations and supervison to
reduce the risks to which assets of banks are exposed. There can be no
assurance as to the substance of any legislation or regulations that may
ultimately emerge from such proposals or what effect they may have on
Registrant and its operations in the future.
<PAGE> 7
Executive Officers of the Registrant
Certain information concerning the executive officers of the Registrant
is set forth below:
<TABLE>
<CAPTION>
Years of Service
with Registrant and/or
Name Age Position with the Registrant Subsidiary
<S> <C> <C> <C>
Richard A. McNeece 55 Director, Chairman, and CEO of Registrant; Chairman, 7
Director and CEO of FNBG
Peter D. Miller 48 Director, President, CAO, and CFO of Registrant; 17
Senior Vice President and CFO of FNBG
C. Talmadge Garrison 62 Senior Vice President and Secretary of Registrant 31
and FNBG
Bryan F. Bell 48 Senior Vice President/Affiliate Credit Administration of
Registrant; Director of Citizens Bank, Cherokee County 9
Stephen Rownd 35 Senior Vice President/Credit Policy of Registrant and
Group Vice President/Credit Policy of FNBG 3
Richard D. White 45 Director and President of FNBG 23
J. Reid Moore 41 Group Vice President and Controller 5
</TABLE>
All of the above named individuals have been employed by Registrant or
its affiliates in various executive, senior management, or policy making
positions for at least five years, with the exception of Mr. Rownd. Mr.
Rownd joined the Registrant in 1991. Prior thereto, Mr. Rownd was
Senior Vice President, Credit Policy, with Barnett Bank of Atlanta, from
1990 to 1991; and Vice President - Credit Administration Manager, with
Barnett Bank of South Florida in Miami, from 1988 to 1990.
All executive officers of Registrant serve at the pleasure of the
Board of Directors. There are not any family relationships between any
executive officer and/or directors and there are no arrangements or
understandings between any such officer and any other person pursuant to
which such officer was elected, other than arrangements or
understandings with directors or executive officers of Registrant acting
solely in their capacities as such.
Other
For additional disclosure of certain selected statistical information
of the Registrant and its subsidiaries see Management's Discussion and
Analysis of Financial Condition and Results of Operations and the
Selected Statistical Information appearing on pages 18 through 36 of the
Registrant's 1994 Annual Report to shareholders which is incorporated by
reference in this Form 10-K Annual Report.
ITEM 2. PROPERTIES
Registrant's seventeen subsidiary banks operate as autonomously as is
possible under a holding company structure within their particular
counties and maintain separate banking facilities, which each subsidiary
bank owns or leases. In addition, Registrant owns a main office
building, used as its corporate offices, and several other offices used
to house banking support operations. See Item 1. Business for
additional information concerning properties.
ITEM 3. LEGAL PROCEEDINGS
The nature of the business of Registrant and its subsidiaries
ordinarily results in a certain amount of litigation. Accordingly,
Registrant and its subsidiaries are parties (both as plaintiff and
defendant) to a limited number of lawsuits incidental to their business
and, in certain of such suits, claims or counterclaims have been
asserted. In the opinion of management and counsel for Registrant,
these lawsuits are considered ordinary litigation incidental to the
conduct of business and in none of these cases should the ultimate
outcome have a material adverse effect on Registrant's financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of 1994.
<PAGE> 8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The market, stock price, and dividend information which appears on
page 35 and 36 of Registrant's Management's Discussion and Analysis of
Financial Condition and Results of Operations section, included in
Registrant's 1994 Annual Report to shareholders, is incorporated by
reference in this Form 10-K Annual Report. The discussion of source of
dividends and restrictions on dividends, which may be declared by the
subsidiary banks, appearing on page 53, Note 14, of Registrant's 1994
Annual Report to shareholders, is incorporated by reference in this Form
10-K Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data which appears as a part of Management's
Discussion and Analysis of Financial Condition and Results of Operations
on page 19 of Registrant's 1994 Annual Report to shareholders, is
incorporated by reference in this Form 10-K Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Interest Rate Sensitivity Table is provided:
<TABLE>
<CAPTION>
0-3 4-12 1-5 Over 5
Months Months Years Years
<S> <C> <C> <C> <C>
Investment securities - taxable $141,377 $232,296 $164,095 $ 28,923
Investment securities - tax free 2,373 7,959 48,671 98,564
Loans, net of unearned income 564,642 241,105 566,823 32,695
Other 28,908 --- --- ---
Interest sensitive assets $736,300 $481,360 $779,589 $160,182
IMMA and savings $431,007 --- --- ---
Other deposits 412,929 390,042 303,215 529
Other borrowings 72,994 52,134 40,000 10,000
Interest sensitive liabilities 916,930 442,176 343,215 10,529
Interest sensitivity gap ($180,630) $ 39,184 $436,375 $149,653
Cumulative interest
sensitivity gap ($180,630) ($141,446) $294,928 $444,581
Cumulative interest
sensitivity gap as a
percentage of interest
sensitive assets (8.37)% (6.56)% 13.67% 20.61%
</TABLE>
Additional information relating to Management's Discussion and
Analysis of Financial Condition and Results of Operations appears on
pages 18 through 36 of Registrant's 1994 Annual Report to shareholders,
including a discussion of interest rate sensitivity management on page
34, and is incorporated by reference in this Form 10-K Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated
Financial Statements, together with the report thereon of KPMG Peat
Marwick LLP, dated January 27, 1995, appearing on pages 37 through 56 of
Registrant's 1994 Annual Report to shareholders, are incorporated by
reference in this Form 10-K Annual Report.
Consolidated quarterly financial information appearing on page 56 of
the Registrant's 1994 Annual Report to shareholders, is incorporated by
reference in this Form 10-K Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Within the twenty-four month period prior to the date of Registrant's
most recent financial statements, and for the year ended December 31,
1994, Registrant did not change accountants and had no disagreements
with its accountants on any matter of accounting principles, practices,
or financial statement disclosure.
<PAGE> 9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors is presented on pages 2 through 7
of the Proxy Statement for Annual Meeting of Shareholders, to be held
April 19, 1995, which information is incorporated by reference in this
Form 10-K Annual Report.
Information concerning executive officers of Registrant is set forth
under the caption "Executive Officers of the Registrant" in Item 1.
Business, hereof.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation is shown under Compensation of Executive
Officers on pages 9 through 17 of the Proxy Statement for Annual Meeting
of Shareholders, to be held April 19, 1995, which is incorporated by
reference in this Form 10-K Annual Report.
Compensation of Directors is shown under Compensation of Directors on
pages 17 and 18 of the Proxy Statement For Annual Meeting of
Shareholders, to be held April 19, 1995, which is incorporated by
reference in this Form 10-K Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Shareholders of Registrant which appears on page 8 of the
Proxy Statement For Annual Meeting of Shareholders, to be held April 19,
1995, is incorporated by reference in this Form 10-K Annual Report.
Security Ownership of Directors, Nominees, Executive Officers, and
Directors and Executive Officers, as a group, which appears on pages 7
and 8 of the Proxy Statement For Annual Meeting of Shareholders, to be
held April 19, 1995, is incorporated by reference in this Form 10-K
Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management which appears on page 18 of the Proxy
Statement For Annual Meeting of Shareholders, to be held April 19, 1995,
is incorporated by reference in this Form 10-K Annual Report.
<PAGE> 10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)1. Financial Statements
The following consolidated financial statements of Registrant
and its subsidiaries and independent auditors' report, incorporated
herein by reference from pages 37 through 56 of Registrant's 1994
Annual Report to shareholders, have been filed as Item 8 in Part II
of this report:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Income - Years ended December 31,
1994, 1993, and 1992
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1994, 1993, and 1992
Consolidated Statements of Cash Flows - Years ended December 31,
1994, 1993, and 1992
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules
Financial statement schedules are omitted as the required
information is not applicable.
(a)3. Exhibits List
See Exhibit Index included as page 13 of this report, which is
incorporated herein by reference.
(b)Reports on Form 8-K
Current Report on Form 8-K, dated November 22, 1994, was filed on
November 23, 1994, pertaining to the signing of an Agreement and
Plan of Merger, by and between Registrant and FF Bancorp, whereby
Registrant will exchange .825 shares of Registrant's common
stock for each share of FF Bancorp stock in a transaction to be
accounted for as a pooling-of-interests.
Current Report on Form 8-K, dated October 27, 1994, was filed on
October 28, 1994, pertaining to signing of a Letter of Intent, by
Registant and FF Bancorp, whereby Registrant will exchange .825
shares of Registrant's common stock for each share of FF
Bancorp stock in a transaction to be accounted for as a pooling-of-
interests.
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, First National Bancorp has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST NATIONAL BANCORP
By: /s/ Richard A. McNeece
------------------------------------
Richard A. McNeece,
Chairman and Chief Executive Officer
Date: March 29, 1994
<PAGE> 12
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
First National Bancorp and in the capacities and on the dates indicated.
/s/ Richard A. McNeece 3/29/95
--------------------------------------
Richard A. McNeece Date
Chairman and CEO
/s/ Richard L. Shockley 3/29/95
--------------------------------------
Richard L. Shockley Date
Vice Chairman
/s/ Jane Wood Banks 3/29/95
--------------------------------------
Jane Wood Banks, Director Date
/s/ Paul J. Reeves 3/29/95
--------------------------------------
Paul J. Reeves, Director Date
/s/ Thomas S. Cheek 3/29/95
--------------------------------------
Thomas S. Cheek, Director Date
--------------------------------------
A. Roy Roberts, Jr., Director Date
/s/ John A. Ferguson, Jr. 3/29/95
--------------------------------------
John A. Ferguson, Jr., Dirctor Date
/s/ Harold L. Smith 3/29/95
--------------------------------------
Harold L. Smith, Director Date
/s/ James H. Harris 3/29/95
--------------------------------------
James H. Harris, Dirctor Date
/s/ W. Woodrow Stewart 3/29/95
--------------------------------------
W. Woodrow Stewart, Director Date
/s/ Ray C. Jones 3/29/95
--------------------------------------
Ray C. Jones, Director Date
/s/ Bobby M. Thomas 3/29/95
--------------------------------------
Bobby M. Thomas, Director Date
/s/ Arthur J. Kunzer, Jr. 3/29/95
--------------------------------------
Arthur J. Kunzer, Jr., Director Date
--------------------------------------
James A. Walters, Director Date
--------------------------------------
W. L. Lester, Director Date
--------------------------------------
Mack G. West, Director Date
/s/ Peter D. Miller 3/29/95
--------------------------------------
Peter D. Miller, Director, Date
President, CAO and CFO
--------------------------------------
J. Michael Womble, Director Date
/s/ Joe Wood, Jr. 3/29/95
--------------------------------------
Joe Wood, Jr. Date
--------------------------------------
Loy D. Mullinax, Director Date
/s/ J. Reid Moore 3/29/95
--------------------------------------
J. Reid Moore, Group Date
Vice President and Controller
--------------------------------------
J. Kenneth Nix, Sr., Director Date
--------------------------------------
Edwin C. Poss, Director Date
<PAGE> 13
EXHIBITS INDEX
Sequential
Exhibit Page
Number Description Number
3.1 Articles of Incorporation of First National Bancorp, as amended,
(incorporated by reference to such - -
document filed as Exhibit 3.1 to Registrant's Registration Statement
No. 33-64590 on Form S-4).
3.2 Bylaws of First National Bancorp currently in effect (incorporated
by reference to Exhibit 3.2 - -
of Registrant's Registration Statement No. 33-64590 on Form S-4).
10.1 1988 Employee Stock Option Plan of First National Bancorp
(incorporated by reference to such - -
document filed as Exhibit 4.1 to Registrant's Registration Statement
No. 33-24985 on Form S-8).
10.2 1990 Employee Stock Option Plan of First National Bancorp
and Amendment thereto dated July 17, 1991 - -
(incorporated herein by reference to such document filed as Exhibit
10.3 of Registrant's Registration Statement No. 33-64590 on Form S-4).
10.3 Change of Control Agreement, dated June 23, 1992, between
First National Bancorp and Richard A. McNeece - -
(incorporated herein by reference to such document filed as Exhibit
10.7 of Registrant's Registration Statement No. 33-50422 on Form S-4).
10.4 Change of Control Agreement, dated June 16, 1992, between
First National Bancorp and Peter D. Miller - -
(incorporated herein by reference to such document filed as Exhibit
10.8 of Registrant's Registration Statement No. 33-50422 on Form S-4).
10.5 Change of Control Agreement, dated June 16, 1992, between
First National Bancorp and C. Talmadge Garrison - -
(incorporated herein by reference to such document filed as Exhibit
10.9 of Registrant's Registration Statement No. 33-50422 on Form S-4).
10.6 Change of Control Agreement, dated June 24, 1992, between
First National Bancorp and Richard D. White - -
(incorporated herein by reference to such document filed as Exhibit
10.10 of Registrant's Registration Statement No. 33-50422 on Form S-4).
10.7 1993 Employee Stock Option Plan of Registrant dated April
26, 1993 (incorporated herein by reference - -
to such document filed as Exhibit 10.11 of Registrant's Registration
Statement No. 33-64590 on Form S-4).
10.8 First National Bancorp Incentive Compensation Plan
(incorporated by reference to Exhibit 10.12 of Registrant's - -
Registration Statement No. 33-64590 on Form S-4).
10.9 Change of Control Agreement, dated June 16, 1993, between
First National Bancorp and Bryan F. Bell - -
(incorporated herein by reference to such document filed in Form 10-
K for the year ended December 31, 1993, SEC File No. 0-10657).
<PAGE> 14
EXHIBITS INDEX
(continued)
Sequential
Exhibit Page
Number Description Number
10.10 Change in Control Agreement, dated July 1, 1992, between
First National Bancorp and Stephen M. Rownd - -
(incorporated herein by reference to such document filed as Exhibit
10.10 of Registrant's Registration Statement No. 33-57681 on Form S-4).
10.11 First National Bancorp Performance-Based Restrictive
Stock Plan approved by the shareholders on - -
April 20, 1994 (incorporated herein to such document filed as
Exhibit 10.10 of First National Bancorp's Registration
Statement No. 33-53719 on Form S-4.
11.1 Computation of Net Income per Common Share. 15
13.1 1994 Annual Report to shareholders for the year ended
December 31, 1994, including certain pages of 16
which are incorporated herein by reference.
21.1 Subsidiaries of the Registrant at December 31, 1994, are
incorporated by reference to Acquisition Schedule, - -
Properties, and Other Information, provided under Item I.
Business of this document.
23.1 Independent Auditors' Consent to incorporation by reference in
Registrant's Registration Statements No. 82
33-32997, No. 33-24985, 33-41878, 33-61586, 33-68770,
and 33-56969 on Form S-8, No. 33-57019 on Form S-3.
27.1 Financial Data Schedule (for SEC use only) 83
99.1 Proxy Statement For Annual Meeting of Shareholders, to be
held April 19, 1995, certain pages of which are 84
incorporated herein by reference.
<PAGE> 1
Exhibit 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
12/31/94 12/31/93 12/31/94 12/31/93
<S> <C> <C> <C> <C>
EARNINGS PER SHARE
Weighted average shares outstanding 16,506,140 15,914,931 16,394,974 15,842,510
Net income per share $.43 $.50 $1.72 $1.68
PRIMARY EARNINGS PER SHARE
Weighted average shares outstanding 16,506,140 15,914,931 16,394,974 15,842,510
Dilutive stock options 158,648 99,115 220,770 97,908
16,664,788 16,014,046 16,615,744 15,940,418
Net income per share $.43 $.50 $1.69 $1.67
FULLY DILUTED EARNINGS PER SHARE
Weighted average shares outstanding 16,506,140 15,914,931 16,394,974 15,842,510
Dilutive stock options 164,990 102,904 220,770 102,904
16,671,130 16,017,835 16,615,744 15,945,414
Net income per share $.43 $.50 $1.69 $1.67
</TABLE>
<PAGE> 1
[COVER]
1994 Annual Report
First National Bancorp
ENTERING THE ERA OF EXCELLENCE.
[INSIDE FRONT COVER]
Financial Highlights
FIRST NATIONAL BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 CHANGE PERCENT
<S> <C> <C> <C> <C>
For the Years Ended December 31:
Net income $ 28,134 $ 26,654 $ 1,480 5.6%
Net interest income 97,013 88,201 8,812 10.0
Net interest income (FTE) 103,424 94,131 9,293 9.9
Noninterest income 27,081 31,841 (4,760) (14.9)
Noninterest expense 86,639 81,144 5,495 6.8
Provision for loan losses (362) 2,985 (3,347) (112.1)
Per Share Data:
Net income $ 1.72 $ 1.68 $ .04 2.4%
Dividends declared .7775 .7050 .0725 10.3
Book value 13.72 13.60 .12 .9
Tangible book value 12.15 12.53 (.38) (3.0)
Weighted-average shares outstanding 16,394,974 15,842,510
Shares outstanding at year end 16,540,495 16,034,183
Financial Ratios:
Return on average assets 1.24% 1.29%
Return on average shareholders' equity 12.51 13.53
Net interest margin 4.96 4.89
Primary capital to adjusted assets:
Including intangibles 10.30 11.07
Excluding intangibles 9.96 10.77
Allowance for loan losses to loans,
net of unearned income:
Including mortgage loans held for sale 1.44 1.65
Excluding mortgage loans held for sale 1.45 1.74
Selected Balances as of December 31:
Total assets $2,380,548 $2,141,952 $238,596 11.1%
Earning assets 2,176,412 1,960,712 215,700 11.0
Loans, net of unearned income:
Including mortgage loans held for sale 1,424,246 1,306,564 117,682 9.0
Excluding mortgage loans held for sale 1,410,727 1,241,203 169,524 13.7
Allowance for loan losses 20,441 21,539 (1,098) (5.1)
Investment securities 706,999 549,620 157,379 28.6
Deposits 1,943,264 1,764,641 178,623 10.1
Short-term borrowings 105,129 77,186 27,943 36.2
Long-term debt 80,238 57,958 22,280 38.4
Shareholders' equity 226,957 218,059 8,898 4.1
</TABLE>
FTE - FULLY TAXABLE EQUIVALENT
ALL PREVIOUSLY REPORTED FIGURES HAVE BEEN RESTATED FOR AS A
POOLING-OF-INTERESTS.
<TABLE>
1994 Affiliate Financial Highlights
<CAPTION>
Deposits Net Allowance For Total Shareholder's
AS OF DECEMBER 31 (IN THOUSANDS) and Funds Loans Loan Losses Assets Equity
<S> <C> <C> <C> <C> <C>
The First National Bank of Gainesville $915,744 $619,653 $7,432 $998,053 $75,956
Citizens Bank, Cherokee Count 77,087 39,651 807 85,090 7,085
The Community Bank of Carrollton 36,882 27,874 439 41,953 4,861
Bank of Clayton 90,142 59,168 1,105 104,958 14,251
First National Bank of White County 97,877 75,149 972 114,724 16,241
First National Bank of Habersham 97,862 56,404 748 110,583 12,245
The Peoples Bank Of Forsyth County 110,154 88,040 979 121,639 10,912
The First National Bank of Paulding County 157,714 75,412 1,418 170,811 11,782
The Commercial Bank 124,336 73,444 1,738 136,877 12,017
Granite City Ban 88,626 42,112 871 102,794 13,717
First National Bank of Gilmer County 44,616 35,030 370 49,392 4,367
Bank of Banks County 54,113 43,150 575 58,798 4,340
Pickens County Bank 42,263 34,350 442 47,322 4,840
The First National Bank of Jackson County 53,777 40,599 606 59,178 5,117
The Citizens Bank 74,878 53,281 743 85,963 10,791
Bank of Villa Rica 44,518 28,401 574 48,936 4,302
Barrow Bank & Trust Company 46,312 32,528 622 52,254 5,732
</TABLE>
<PAGE> 2
Our vision
The client is our lifeblood.
Passion for exceeding customers' expectations
flows throughout the company.
Bold creativity, unparalleled service
and a resolve to win
chart the course amid a world of choices.
Employees are stimulated by the personal opportunity,
professional growth and extraordinary rewards
of being part of a vital team in a learning environment.
Communities we serve
are better for our presence.
<PAGE> 3
[PHOTO -- RICHARD A. MCNEECE, CHAIRMAN & CEO W/GHOSTED BACKGROUND]
<PAGE> 4
TO OUR SHAREHOLDERS
It was a momentous year in 1994 for your company in many respects ...
record earnings, consummation/announcement of three significant mergers,
progress in management development and team building, continued strides
in business development efforts and customer satisfaction, and development
of a new and bold vision, strategic intent and mission for
the company ... all contributed to a successful 1994 and strengthened the
foundation for exceptional performance results throughout the remainder of
this decade.
Record earnings per share of $1.72 were up 2.4% over 1993, for a
return on average assets of 1.24%. Dividends per share increased by 10.3%
from $.7050 to $.7775. Particularly encouraging was the continued quarterly
improvement in the net interest margin, the largest single contributor to
profitability. While the full-year margin of 4.96% compared favorably to that
reported in 1993 and represented the highest level in over five years, the
fourth quarter margin of 4.94% provides a good foundation for continued
earnings improvement in 1995. Asset quality, which is always a high priority,
remained excellent during 1994 and improvement was a significant reason for
the lower loan loss provision. Period end total assets reached a record $2.4
billion as affiliates continued to aggressively pursue core balance sheet
growth opportunities. The community banking segment of our business had an
excellent year when compared to both 1993 and planned expectations for 1994.
The company's mortgage lending division, The Mortgage Source, contributed
significantly to profitability through 1993. However, 1994 performance was
materially impacted by the dramatic slowdown in refinancing activity,
heightened competition and, earlier in the year, accelerated
amortization in the company's portfolio of loans serviced for others.
We anticipate 1995 to be another good year for the company. While the
mortgage lending business will continue to present challenges due to the
economic and competitive environments, a management reorganization within this
line of business, geographical expansion and a cross sales emphasis will
enhance our opportunities. Even though asset quality should remain excellent,
we recognize the additional credit risks of this economic cycle and will
reserve appropriately in 1995 through higher provisions to the loan loss
reserve. Supported by a sound economy and emphasis
<PAGE> 5
[GRAPH --
PRIMARY CAPITAL TO ASSETS RATIO
1990 9.95%
1991 10.37%
1992 10.66%
1993 11.07%
1994 10.30%]
[GRAPH --
TOTAL ASSETS (MILLIONS)
1990 $1,829
1991 $1,890
1992 $2,028
1993 $2,142
1994 $2,381]
on sales management, core retail and commercial balance sheet growth should
remain strong and when complemented by the recent strength in the net
interest margin, the company's revenues are anticipated to show good growth.
Expense management is critical and will be a major focus in 1995 as it was in
1994. We anticipate substantial improvement in the company's ability to
produce higher revenues per dollar of noninterest expense.
We closed two previously announced mergers. The Commercial Bank in
Douglasville officially joined us in February and brought the strength of
another healthy, growing market to our franchise. While five of the last six
mergers, including The Commercial Bank, have been in the West Georgia area, we
added another important market in 1994 when Barrow Bank & Trust Company in
Winder became our 17th affiliate. This is a key county in an attractive market
between Gainesville, the headquarters of First National Bancorp, Athens (home
of the University of Georgia), and metropolitan Atlanta.
We took our first step outside of North Georgia by signing a Letter of
Intent in October and subsequently a Definitive Agreement with FF Bancorp of
New Smyrna Beach, Florida, a $600 million holding company consisting of one
commercial bank and two healthy and very profitable thrifts. FF Bancorp's
strong community banking philosophy fits well with First National Bancorp
while providing a reasonably-priced and stable source of core deposits and
significant opportunities to expand our mortgage lending, trust, bank card and
correspondent services business. The
<PAGE> 6
[GRAPH --
EARNINGS PER SHARE
1990 $1.23
1991 $1.32
1992 $1.50
1993 $1.68
1994 $1.72]
[GRAPH --
DIVIDENDS PER SHARE
1990 $.4600
1991 $.5500
1992 $.6400
1993 $.7050
1994 $.7775]
synergy created between our two companies will accrue to the benefit of our
shareholders in higher earnings and dividends per share. While our primary
merger focus continues to be the 48-county North Georgia area, if other
opportunities like FF Bancorp should present themselves outside this
particular region or out-of-state, we will pursue and take advantage of such
opportunities provided they are consistent with our basic business strategy.
As I previously indicated, 1994 was also significant as your
management team set their sights on a future for the company far greater than
current or historical results would suggest attainable. We all view the
future as an opportunity for great achievement, increased profitability and,
most importantly, a time to realize our Vision. A Vision which provides a
bold direction and intent to transform our company into one of distinction
... a company which will be recognized by our customers, competitors,
employees, directors and shareholders as a company of unparalleled quality.
A company that is entering the era of excellence.
This journey began with the recognition that the banking environment
will continue to change at an accelerated pace, and only those organizations
with the right customer-driven and technology-supported vision and focus and
the willingness to aggressively welcome this change will survive. We began
with a team building program that originally included 17 members of senior
and executive management and expanded to 50 to include executive management
of all Bancorp
<PAGE> 7
[GRAPH --
RETURN ON ASSETS
1990 1.09%
1991 1.12%
1992 1.20%
1993 1.29%
1994 1.24%]
[GRAPH --
RETURN ON EQUITY
1990 12.02%
1991 12.03%
1992 12.65%
1993 13.53%
1994 12.51%]
affiliates. The purpose was to build trust, respect, integrity and confidence
and move forward to the future as a team dedicated to a singular mission -
the pursuit of excellence. I have been very pleased with the results. Our
employees are communicating better, more honestly and candidly. A greater
team effort is emerging among department and affiliate lines resulting in
enhanced client satisfaction. In short, we're knocking down the walls of the
silos and bringing our people together to exceed the expectations of our
clients.
It was from this team building process that our Vision for this
company and its future was born. The quest for excellence has been embraced
and practiced by all of our employees. The Vision, which is supported by a
strategic intent to be achieved over the next six to eight years, created
great excitement in May when it was introduced to all employees and
directors. A copy of our Vision and core values now sits on the desk of every
employee throughout the company while large
[PHOTOS -- RICHARD A. MCNEECE
CHAIRMAN & CEO; PETER D. MILLER
PRESIDENT, CHIEF ADMINISTRATIVE & FINANCIAL OFFICER; C. TALMADGE GARRISON
SENIOR VICE PRESIDENT & SECRETARY; BRYAN F. BELL
SENIOR VICE PRESIDENT]
<PAGE> 8
[GRAPHIC -- 2-STATE MAP - CAPTION - FIRST NATIONAL BANCORP'S PRIMARY
EMPHASIS CONTINUES TO BE IN A 48-COUNTY REGION IN NORTH GEORGIA, CURRENTLY
WITH SEVENTEEN AFFILIATES IN 16 COUNTIES. THE COMPANY EXPECTS TO COMPLETE ITS
FIRST OUT-OF-STATE MERGER IN THE SPRING OF 1995, ADDING THREE AFFILIATES IN
THREE FLORIDA COUNTIES.]
framed versions hang in the lobbies of all our banks. They serve as daily
reminders to our clients and employees that our standards are high and so are
our expectations to succeed.
Our Vision addresses three important keys to our success: our
clients, employees and communities.
THE CLIENT IS OUR LIFEBLOOD. Our clients know it, we know it and we
believe it. Our goal is simple: To exceed client expectations by performing
better than the client expects and better than the competition can deliver.
EMPLOYEES ARE STIMULATED BY THE PERSONAL OPPORTUNITY, PROFESSIONAL
GROWTH AND EXTRAORDINARY REWARDS OF BEING PART OF A VITAL TEAM IN A LEARNING
ORGANIZATION. While the client is our reason for existing, the heart of our
company lies with our employees. Our success as a company comes from the
investment we make in our staff to provide for the professional growth and
development which contributes to greater individual and collective
achievement. We are
[PHOTOS -- STEPHEN M. ROWND, SENIOR VICE PRESIDENT; MARY E. HENGEVELD, GROUP
VICE PRESIDENT, CHARLES A. ROBINSON, GENERAL AUDITOR; J. REID MOORE, GROUP
VICE PRESIDENT & CONTROLLER]
<PAGE> 9
[PHOTO -- JOAN JACKSON -- CAPTION: JOAN JACKSON, A 30-YEAR EMPLOYEE, WAS
INSPIRED BY THE COMPANY'S VISION AND COMMITMENT TO A LEARNING ORGANIZATION.
SHE MOVED TO AN AREA OF NEW RESPONSIBILITY, SAYING, "THIS GAVE ME AN
OPPORTUNITY TO LEARN SOMETHING NEW AND TO SAY, 'THIS ISN'T ONLY FOR THE YOUNG
PEOPLE, THE VISION IS A CHANCE FOR OLDER EMPLOYEES LIKE ME TO LEARN'."]
committed to appropriately recognizing and rewarding accomplishments and
contributions to the attainment of company and shareholder objectives.
COMMUNITIES WE SERVE WILL BE BETTER FOR OUR PRESENCE. We recognize
that the success of our company is directly related to the economic health and
quality of life in each of our communities. To support this belief, our
management team holds leadership positions in local community chambers of
commerce, economic development and various community service organizations.
Community bank holding company is not a throw-away phrase for us; it is a
serious way of life in each of our markets. The bottom line is that if our
markets prosper economically, so will our shareholders.
Our Vision is supported by a strategic intent that, as Pete Miller,
the president of First National Bancorp, often points out, "is where the
rubber meets the road." The strategic intent will bring this Vision to life
through concrete, measurable goals and strategies.
WE WILL SET THE STANDARD OF PERFORMANCE AS THE PREFERRED FINANCIAL
PARTNER. Simply stated, our customers and competitors' customers will look
upon this company, through its affiliate banks and due to the performance we
deliver, as the organization of choice to satisfy all of their financial
needs. This environment will be delivered with a focus on:
"FIRST IN SERVICE." We will set the standard for service, performance
and delivery of value-added products. I want our relationship officers to be
perceived by the customer as indispensable assets in the attainment of the
customer's goals.
<PAGE> 10
[PHOTO -- LEARNING ENVIRONMENT -- CAPTION: FIRST NATIONAL BANCORP IS
COMMITTED TO A LEARNING ENVIRONMENT WHERE TRAINING AND EDUCATION PLAY VITAL
ROLES IN THE REALITY OF THE COMPANY'S VISION: "EMPLOYEES ARE STIMULATED BY
THE PERSONAL OPPORTUNITY, PROFESSIONAL GROWTH AND EXTRAORDINARY REWARDS OF
BEING PART OF A VITAL TEAM IN A LEARNING ENVIRONMENT."]
"FIRST IN INNOVATION." We must anticipate our customers' needs and
deliver products and services to satisfy those needs in a fashion superior to
the competition and better than the customer expects. We have challenged our
employees not to be complacent and to reach beyond our clients' expectations
-- to stay ahead of our financial competitors.
"FIRST IN THE INDUSTRY." Our intent is to set the standard of
operating performance within the industry. We will be the example everyone
else aspires to and follows. We will have succeeded when our shareholders,
the financial community, our employees, directors and competition acknowledge
First National Bancorp as the company of excellence.
The map for attainment of our strategic intent has been developed
with specific strategies and tactics defined with aggressive dates for
completion. Three key objectives make the strategic intent achievable.
The first of those objectives is to create and maintain a learning
organization which will have significant impact on our future successes.
"ATTRACT, DEVELOP AND RETAIN THE BEST TALENT BY PROVIDING A LEARNING
ENVIRONMENT WHERE PEOPLE ARE REWARDED FOR TAKING RESPONSIBILITY AND
CONTINUOUS IMPROVEMENT IS A WAY OF LIFE."
[GRAPHIC -- PIE CHART -- BUSINESS MIX -- 23% Investing; 35% Retail Lending;
29% Commercial Lending; 4% Other; 1% Trust Services; 5% Service Charges on
Deposits; 3% Mortgage Lending Services]
<PAGE> 11
[PHOTO -- AFFILIATE BANKERS -- CAPTION: THROUGHOUT THE AFFILIATE BANKS,
EMPLOYEES ARE DEDICATED TO KNOWING THEIR MARKET SEGMENTS AND CLIENTS' NEEDS
BECAUSE "THE CLIENT IS OUR LIFEBLOOD." BEVERLY LAMMERS, RITA MORGAN, REBECCA
STOWE AND SID WOOTEN LED THE DEVELOPMENT OF A NICHE PRODUCT NAMED "HERITAGE
CLUB" FOR FIRST NATIONAL BANK OF WHITE COUNTY'S 55 AND OLDER CLIENTS.]
We believe this to be critical to our future because it represents
our most important asset -- our people. It is not enough to simply hire the
best; we must create an environment in which they can achieve greater
potential and are rewarded for extraordinary results. Special emphasis is
being placed on training in sales, sales management, and coaching. Our
managers must focus their efforts, and those of our employees, toward
becoming an indispensable asset in making a difference in the lives of our
customers.
"DEVELOP THE LOWEST COST DELIVERY PROCESS WHICH ENSURES CLIENT
SATISFACTION, SUPERIOR PROFITABILITY AND MARKET SHARE GROWTH."
We are determined to provide superior customer service while
increasing the operating efficiency of the organization. The results of this
objective include: dramatically improved turn-around time and employee
productivity, the enhancement of product and service quality, attractive
pricing and streamlining of workflow. Most importantly, we continue to look
for ways to improve client satisfaction, realizing that the client must
always be the focal point of any successful change.
Improvement and re-engineering programs will be designed and
implemented throughout the company with particular emphasis in the areas of
information processing, retail, corporate banking and loan operations in
1995. The investment in this program will enable us to enhance productivity,
reduce costs and improve client service by maximizing and leveraging people
and physical resources. We are not asking our people to work harder, just
smarter. We anticipate an
<PAGE> 12
[PHOTO -- HERITAGE CLUB -- CAPTION: "PASSION FOR EXCEEDING CUSTOMERS'
EXPECTATIONS" WAS REALIZED IN WHITE COUNTY WHEN THE HERITAGE CLUB WAS KICKED
OFF IN GRAND STYLE LAST FALL. THE PRODUCT EXCEEDED 1994 GOALS BY 123%.]
investment return on our re-engineering to be 30% or higher for all programs.
"ACHIEVE TOTAL CLIENT SATISFACTION THROUGH AGGRESSIVE, TEAM-FOCUSED
RELATIONSHIP MARKETING, EXCELLENT PERSONALIZED SERVICE, CLIENT-DESIRED
PRODUCTS AND EFFICIENT DELIVERY SYSTEMS."
This objective speaks directly to the changing needs of our clients.
We must manage to that change by anticipating our clients' needs and
developing products and services that exceed those needs ... better than the
customer expects and better than the competition can deliver.
We have begun to introduce a needs-based selling culture where every
employee either sells or supports sales. In 1994, we implemented a sales
management methodology in which sales goals and effective selling become a
natural part of the culture. Our singular goal for this objective is
increased client satisfaction, which will lead to enhanced market share and
cross-sell growth, balance sheet growth and increased income statement
profitability. By the year 2000, our market segment goals are:
Retail: 40% household market share and 5 services per household
Corporate: 35% household market share and 4 services per household
Correspondent: 50% household market share and 5 services per household
Mortgage Services: 5% household market share and 50% volume penetration
<PAGE> 13
[PHOTO -- WHITE/PARKER -- CAPTION: "BOLD CREATIVITY, UNPARALLELED SERVICE AND
A RESOLVE TO WIN,"
IS DEMONSTRATED BY THE AFFILIATE PRESIDENTS WHO RIVAL TO BE THE BEST IN THE
COMPANY AND THE BEST IN EACH COMMUNITY. RICH WHITE (FRONT), PRESIDENT OF
FIRST NATIONAL BANK OF GAINESVILLE AND BOB PARKER (LEFT), PRESIDENT OF THE
CITIZENS BANK, TOCCOA.]
To enhance the growth and value of our franchise, we have adopted a
business development strategy that identifies distinct market segments and
addresses the different needs of each segment. Households with a high net
worth or household income of $50,000 or greater are key consumer market
segment for the company. The needs of this segment are serviced through our
Century Service product from which they receive preferred pricing on deposits,
including transaction accounts, investment products and CDs, and all credit
products from direct lending to credit cards to home equity, as long as a
minimum investment account balance is kept. We offer optimum personal service
to these clients by assigning a relationship officer to each upscale
relationship client.
Our Bonus Banking product services another growing retail market
segment. With a minimum deposit and/or loan relationship, these clients
receive a package which combines checking, a better interest rate on savings
and lower interest rates on installment loans, credit cards and home equity
lines of credit. This market has a higher need for loan products than the
upscale consumer market and also provides a great avenue for growth through
The Mortgage Source, our home mortgage division.
The corporate market is geared toward retail/small business,
partnerships/proprietorship and mid-market commercial. We place emphasis on
the further segmentation of the business market and the development of
"niche" products such as special loan programs for the agriculture/ poultry
sector, mid-size manufacturers and acquisition/development companies. Similar
to our retail
<PAGE> 14
[PHOTO -- FAIR/WILLIAMS -- CAPTION: "COMMUNITIES WE SERVE ARE BETTER FOR OUR
PRESENCE,"
WHEN AFFILIATE PRESIDENTS LIKE C.B. FAIR, PRESIDENT OF FIRST NATIONAL
BANK OF PAULDING COUNTY, IS VICE CHAIRMAN OF THE LOCAL ECONOMIC DEVELOPMENT
COMMITTEE. BOB WILLIAMS (LEFT), PRESIDENT AND CFO OF CADILLAC PRODUCTS, CHOSE
PAULDING COUNTY FOR A NEW MANUFACTURING SITE DUE, IN PART, TO FAIR'S
PERSEVERANCE.]
strategy, corporate clients are assigned banking professionals
who are accountable for the customers' total relationship. Our corporate
officers are also concentrating on cross-selling trust services such as
employee benefit plans, as well as consumer services such as mortgages,
deposits and loans to the appropriate corporate segments.
Our correspondent banking division offers a full range of products
and services which answer the needs of community banks we serve, primarily as
a source for purchased and sold federal funds, first mortgage residential
originations, data processing, trust services, credit cards, loan
participations and funds management. This sector calls for
business-to-business marketing, with in-depth segmentation and very
customized packages to accurately exceed the needs of correspondent banks.
The Mortgage Source, the company's first mortgage lending division,
services the needs of both retail and wholesale customers in Georgia and
throughout the Southeast. The division's $1.4 billion servicing portfolio
provides good income and will continue to grow.
First National Bancorp, through our affiliate banks, is deeply
committed to you, our shareholders. While our new Vision, strategic intent,
merger and business strategy are important to our management and 1,300
employees, more important is how they impact our shareholders and the value
you receive for your investment. The bottom line is to increase earnings and
dividends per share at an accelerated pace in an increasingly competitive
environment and that is why we faced a
<PAGE> 15
[PHOTOS -- FIRST NATIONAL BANCORP BOARD OF DIRECTORS -- Richard A. McNeece,
Chairman & Chief Executive Officer; Richard Shockley, Vice Chairman; Peter D.
Miller, President, Chief Administrative & Financial Officer; Arthur J.
Kunzer, Jr., Owner, Art Kunzer Men's Clothier; Bobby M. Thomas, Chairman, The
Peoples Bank of Forsyth County, Owner, Thomas Lumber Company]
re-focusing of this company in 1994. We realize we have taken a major
step toward a bold and bright future. Local and national media have also
realized this and acknowledged it by devoting cover and front page stories to
our new undertaking. Now that the foundation has been firmly laid, we are
prepared to move forward and create the desired results.
Your management team is committed to this pursuit of excellence and I
am confident that we will attain and exceed our aggressive expectations.
In 1994, we welcomed five new directors to the First National Bancorp
board. Ken Nix, Mickey Womble, Jim Walters, John Ferguson and Bill Lester
have all made outstanding additions to the board and we are looking forward
to their continued contributions. In honor of our chairman emeritus, Ray
McRae, who retired from the board in 1994, we established a scholarship in
his name at the Terry College of Business Administration at the University of
Georgia. It is important to express my appreciation to the management and
staff who made the 1994 results possible and
[PHOTOS -- James H. Harris, Jr., CHAIRMAN, THE CITIZENS BANK, TOCCOA,
PRESIDENT, J.H. ENTERPRISES, INC.; Loy D. Mullinax, CHAIRMAN, PICKENS COUNTY
BANK, PRESIDENT, MULLINAX BUILDING SYSTEMS, INC.; J. Kenneth Nix, CHAIRMAN,
FIRST NATIONAL BANK OF WHITE COUNTY, ATTORNEY AT LAW, STEWART, MELVIN & FROST;
Joe Wood, Jr., PRESIDENT, TURNER, WOOD & SMITH, INC.; J. Michael Womble,
CHAIRMAN, FIRST NATIONALBANK OF PAULDING COUNTY, PRESIDENT, SOUTHLIFE
DEVELOPMENT, INC.; Mack G. West, CHAIRMAN, FIRST NATIONAL BANK OF GILMER
COUNTY, RETIRED BUSINESSMAN, MAYOR, CITY OF EAST ELLIJAY]
<PAGE> 16
[PHOTOS -- William L. Lester, Chairman, Granite, City Bank, Owner and
President, Lester Enterprises; Edwin C. Poss, Owner, Century 21, Poss Realty,
a Division of Edwin C. Poss, Inc.; John A. Ferguson, Jr., FACHE, President of
Northeast Georgia Health Services, Inc.; Harold L. Smith, Chairman, Turner,
Wood & Smith, Inc.; Mrs. Jane Wood Banks, Private Investor]
who helped us to position the company for future greatness. I am tremendously
grateful for the continued confidence and support of our shareholders and
clients. I look forward to meeting with you at our annual shareholders' meeting
on April 19, 1995, at 4:00 p.m. at the Georgia Mountains Center in downtown
Gainesville.
Cordially,
/s/Richard A. McNeece
Chairman and CEO
January 27, 1995
[PHOTOS -- Thomas S. Cheek, Chairman, Bank of Banks County, Private Investor,
President, Mt. View, Inc.; W. Woodrow Stewart, Attorney at Law, Stewart,
Melvin & Frost; Ray C. Jones, President, J & S Farms; James A. Walters,
Chairman & CEO, Walters Management Company, Inc.; 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]
<PAGE> 17
Senior Officers of Bancorp's Affiliate Banks
The First National
Bank Of Gainesville
Richard D. White
PRESIDENT AND CBO
Bruce L. Barefoot
EXECUTIVE VICE PRESIDENT
The Peoples Bank
Of Forsyth County
Rocklyn E. Hunt
PRESIDENT AND CEO
Louis J. Douglass, III
EXECUTIVE VICE PRESIDENT
Citizens Bank,
Cherokee County
Richard M. Zorn
PRESIDENT AND CEO
A. R. Roberts, III
EXECUTIVE VICE PRESIDENT
The First National
Bank Of Paulding
County
C. B. Fair, III
PRESIDENT AND CEO
Becky S. Echols
EXECUTIVE VICE PRESIDENT
The Commercial Bank,
Douglasville
John T. Stafford
PRESIDENT AND CEO
William F. Gnerre
Janice B. McCravy
EXECUTIVE VICE PRESIDENTS
The Community Bank
Of Carrollton
Timothy I. Warren
PRESIDENT AND CEO
F. Elton Brooks
EXECUTIVE VICE PRESIDENT
Bank Of Villa Rica
Fred L. O'Neal
PRESIDENT AND CEO
George M. Ray
EXECUTIVE VICE PRESIDENT
The Citizens Bank,
Toccoa
Robert A. Parker
PRESIDENT AND CEO
Granite City Bank
Edward B. Hall
PRESIDENT AND CEO
F. Davis Arnette, Jr.
EXECUTIVE VICE PRESIDENT
The First National Bank
Of Jackson County
Kelly G. Hillis
PRESIDENT AND CEO
James R. Shaw, Jr.
EXECUTIVE VICE PRESIDENT
Bank Of Banks
County
George W. Evans
PRESIDENT AND CEO
Steven R. Maney
EXECUTIVE VICE PRESIDENT
Barrow Bank
& Trust Company
David C. King
PRESIDENT AND CEO
T. Glenn Thompson
EXECUTIVE VICE PRESIDENT
Bank Of Clayton
William F. DeVane
PRESIDENT AND CEO
B. Allen Lancaster
EXECUTIVE VICE PRESIDENT
First National Bank
Of White County
Sidney J. Wooten, III
PRESIDENT AND CEO
Coleman Allen
EXECUTIVE VICE PRESIDENT
First National Bank
Of Gilmer County
Billy R. Loudermilk
PRESIDENT AND CEO
C. Wallace Sansbury
EXECUTIVE VICE PRESIDENT
Pickens County Bank
Dennis W. Burnette
PRESIDENT AND CEO
Marc J. Greene
EXECUTIVE VICE PRESIDENT
First National Bank
Of Habersham
Glenn C. Bell
PRESIDENT AND CEO
Eugene B. White
EXECUTIVE VICE PRESIDENT
[PHOTO -- SENIOR OFFICERS]
<PAGE> 18
1994 Consolidated Financial Statements
First National Bancorp
Management's Discussion and Analysis
of Financial Condition and Results of Operations.......... 18
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
<PAGE> 19
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Corporate Profile
First National Bancorp ("Company"), a $2.4 billion multi-bank holding
company with 17 affiliate banks, 54 full service banking facilities located
in North Georgia, and 1,299 full-time equivalent employees, is the second
largest bank holding company in Georgia headquartered outside metropolitan
Atlanta. Effective February 28, 1994, the Company acquired all of the common
stock of Metro Bancorp, Inc., a Douglas County bank holding company whose
wholly owned subsidiary was The Commercial Bank, a $140 million asset bank
located in Douglasville, Georgia. Effective July 31, 1994, the Company
acquired all of the common stock of Barrow Bancshares, Inc., a Barrow County
bank holding company whose wholly owned subsidiary was the Barrow Bank &
Trust Company, a $54 million asset bank located in Winder, Georgia. On
November 22, 1994, the Company signed an agreement and plan of merger with FF
Bancorp, Inc., located in New Smyrna Beach, Florida. FF Bancorp, Inc., is the
parent company of First Federal Savings Bank of New Smyrna Beach, a $318
million asset thrift headquartered in New Smyrna Beach, Florida, First
Federal Savings Bank of Citrus County, a $214 million asset thrift
headquartered in Inverness, Florida, and Key Bank of Florida, a $66 million
asset commercial bank located in Tampa, Florida. The acquisition of FF
Bancorp requires the approval of FF Bancorp shareholders and various
regulatory authorities. The Company anticipates completing the transaction in
the second quarter of 1995.
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 current markets are within 11\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 co
vered 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 33% 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 seven of the 16-county markets (and a
second or better position in 12 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
the Carolinas, Tennessee, and Alabama, as well as additional opportunities in
Florida.
Earnings per share have grown from $.83 in 1984 (on an originally
reported basis, restated for stock splits) to $1.72 in 1994, a compounded
annual growth rate of 6.8%. For the same period, dividends per share have
grown at a compounded annual rate of 17.25%. The Company has maintained an
above average profitability profile with a past five-year average return on
assets of 1.19%. In the early 1990s, Company earnings reflected the national
recession and moderate asset quality problems. During that period, management
was dedicated to building a stronger foundation on which to move the Company
forward, concentrating on enhanced delivery systems, credit processes,
internal controls, information technology, and personnel. Management is of
the opinion that the Company is beginning to 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 10.30% provides a sufficient base to
support future growth. With a core funding to core earning assets ratio of
112.73% and incremental funding to total funding ratio of 25.29%, 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 loans to total loan ratio of 1.33%, the Company's position is
very manageable.
Since 1985, the Company's stock has been traded on The Nasdaq Stock
Market under the trading symbol "FBAC." As of December 31, 1994,
institutional ownership was approximately 5.77% of outstanding shares while
insiders owned 7.33% of the shares. A majority of the Company's 7,100
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-interests:
The First National Bank of Paulding County (1992)
Villa Rica Bancorp, Inc. (1993)
The Community Bank of Carrollton (1993)
Barrow Bancshares, Inc. (1994)
<PAGE> 20
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Performance Overview
Net income for 1994 totaled $28.1 million, compared to $26.7
million for 1993, an increase of 5.6%. Net income per share in 1994 was $1.72
compared to $1.68 reported in 1993, an increase of 2.4%. Weighted-average
shares outstanding for 1994 increased to 16,394,974, compared with the
15,842,510 weighted-average shares for 1993.
<TABLE>
<CAPTION>
TABLE 1 - SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Results of operations:
Interest income $163,145 $151,131 $156,473 $173,964 $181,494
Tax equivalent adjustment (a) 6,411 5,930 4,837 4,760 5,247
Interest income (fully tax equivalent) 169,556 157,061 161,310 178,724 186,741
Interest expense 66,132 62,930 74,954 99,467 110,726
Net interest income 103,424 94,131 86,356 79,257 76,015
Noninterest income 27,081 31,841 30,224 26,305 22,265
Total revenue 130,505 125,972 116,580 105,562 98,280
Provision for loan losses (362) 2,985 11,284 10,015 13,955
Noninterest expense 86,639 81,144 68,944 63,548 53,898
Income before income taxes 44,228 41,843 36,352 31,999 30,427
Tax equivalent adjustment 6,411 5,930 4,837 4,760 5,247
Income taxes 9,683 9,259 8,108 6,669 5,986
Net income $ 28,134 $26,654 $ 23,407 $ 20,570 $19,194
Per share data:
Net Income $ 1.72 $ 1.68 $ 1.50 $ 1.32 $ 1.23
Cash dividends declared $ .7775 $ .7050 $ .6400 $ .5500 $ .4600
Dividend payout ratio 45.20% 41.96% 42.67% 41.67% 37.40%
Book value $ 13.72 $ 13.60 $ 12.35 $ 11.42 $ 10.59
Year end balances:
Total assets $2,380,548 $2,141,952 $2,028,168 $1,890,422 $1,828,867
Earning assets 2,176,412 1,960,712 1,873,634 1,733,835 1,681,955
Loans, net of unearned income 1,424,246 1,306,564 1,250,890 1,208,023 1,147,811
Allowance for loan losses 20,441 21,539 24,046 20,265 19,396
Deposits and other
interest-bearing funds 2,128,631 1,899,785 1,820,831 1,700,304 1,646,088
Shareholders' equity 226,957 218,059 194,745 177,958 164,743
Average balances:
Total assets $2,272,788 $2,073,606 $1,955,405 $1,833,705 $1,763,945
Earning assets 2,086,513 1,926,131 1,810,437 1,687,937 1,614,179
Loans, net of unearned income 1,375,870 1,296,401 1,246,944 1,179,142 1,114,107
Allowance for loan losses 23,811 23,920 21,989 19,800 14,573
Deposits and other
interest-bearing funds 2,023,237 1,860,244 1,757,387 1,646,767 1,590,791
Shareholders' equity 224,894 197,060 185,096 171,026 159,704
Financial ratios:
Return on average assets 1.24% 1.29% 1.20% 1.12% 1.09%
Return on average equity 12.51 13.53 12.65 12.03 12.02
Net interest margin 4.96 4.89 4.77 4.70 4.71
Overhead ratio 66.55 64.80 60.42 60.20 54.84
Primary capital to adjusted assets 10.30 11.07 10.66 10.37 9.96
Average equity to average assets 9.90 9.50 9.47 9.33 9.05
</TABLE>
(a) Calculated assuming a 35% tax rate for 1994 and 1993, and a 34% tax
rate for 1992, 1991, and 1990.
<PAGE> 21
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Total year end assets increased from $2.1 billion at December 31,
1993, to a record $2.4 billion at December 31, 1994. Average earning assets
increased 8.3% during 1994, while average interest-bearing liabilities
increased 7.5% for the same period.
The return on average equity decreased from 13.53% in 1993 to 12.51%
in 1994. The return on average assets also decreased from 1.29% in 1993 to
1.24% in 1994, influenced primarily by the $4.8 million decrease in
noninterest income, primarily from mortgage origination activity, offset by
the negative provision expense in each of the last three quarters of 1994.
Other factors contributed to a lesser extent as shown below:
ANALYSIS OF RETURN ON AVERAGE ASSETS
TABLE 2
(dollars in thousands)
Years Ended December 31
Percent of Percent of
Average Average
1994 Assets 1993 Assets
Average Assets $2,272,788 $2,073,606
Net interest income,
tax equivalent $103,424 4.55% $ 94,131 4.54%
Noninterest income 27,081 1.19 31,841 1.54
Total revenue 130,505 5.74 125,972 6.08
Noninterest expense (86,639) (3.81) (81,144) (3.91)
Income before
provision for loan
losses and income tax 43,866 1.93 44,828 2.17
Provision for loan losses 362 .02 (2,985) (.14)
Income taxes and tax
equivalent adjustment (16,094) (.71) (15,189) (.74)
Net income $28,134 1.24% $ 26,654 1.29%
Net interest income as a percent of average earning assets increased
to its highest level since 1985, with a net interest margin of 4.96% for
1994, compared with 4.89% for 1993.
Growth in net interest income and a reduction in loan loss provision
expense, driven by an improvement in asset quality, both contributed to an
increase in earnings. Noninterest income was impacted by a significant
decrease in mortgage loan activity and related fees. Due to the acquisition
of The Commercial Bank, which was recorded under the purchase method of
accounting, noninterest expenses have shown a substantial increase over 1993
in absolute dollars, but declined as a percentage of assets, particularly in
the area of personnel related expenses. The following sections highlight in
greater detail various aspects of the Company's 1994 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
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, 1994, as compared to
December 31, 1993:
<PAGE> 22
Management's Discussion and Analysis
of Financial Condition and Results of Operations
ANALYSIS OF BALANCE SHEET CHANGES
TABLE 3
(dollars in thousands)
December 31
1994 1993 Change Percent
Earning Assets:
Core earning assets:
Commercial loans $682,541 $587,336 $95,205 16.2%
Retail loans 669,251 602,199 67,052 11.1
Other core loans 58,935 51,668 7,267 14.1
Total core earning
assets 1,410,727 1,241,203 169,524 13.7
Incremental earning assets:
Mortgage loans
held-for-sale 13,519 65,361 (51,842) (79.3)
Investment securities 706,999 549,620 157,379 28.6
Interest-bearing
deposits in other
financial institutions 16,259 68,157 (51,898) (76.1)
Federal funds sold and
securities purchased
under agreements to
resell 28,908 36,371 (7,463) (20.5)
Total incremental
earning assets 765,685 719,509 46,176 6.4
Total earning assets $2,176,412 $1,960,712 $215,700 11.0%
Deposits and Funds:
Core funds:
Demand deposits $331,521 $285,510 $46,011 16.1%
Interest-bearing checking 199,645 172,183 27,462 15.9
Century Service and IMMA 315,859 306,105 9,754 3.2
Statement savings 115,148 83,412 31,736 38.0
Certificates less than
$100,000 and IRAs 628,162 582,827 45,335 7.8
Total core funds 1,590,335 1,430,037 160,298 11.2
Incremental funds:
Certificates over $100,000 189,431 152,761 36,670 24.0
Other large deposits 163,498 181,843 (18,345) (10.1)
Federal funds purchased 44,485 44,235 250 .6
Securities sold under
agreements to repurchase 54,217 19,144 35,073 183.2
Other short-term borrowings 6,427 13,807 (7,380) (53.5)
Long-term debt 80,238 57,958 22,280 38.4
Total incremental funds 538,296 469,748 68,548 14.6
Total funds $2,128,631 $1,899,785 $228,846 12.0%
In 1994, the Company experienced modest balance sheet growth, with
year end assets increasing $238.6 million or 11.1% with $136.9 million of the
increase attributable to the acquisition of The Commercial Bank. Total funds
growth was $228.8 million or 12.0% with $124.3 million of the growth from The
Commercial Bank acquisition.
Core Earning Assets
Period end core earning assets increased $169.5 million or 13.7%,
reflecting a stronger demand for commercial and real estate related loans in
1994. Although management anticipates a stronger increase in core lending in
1995, continued growth in core loans is dependent on, at a minimum, stability
in the economic environment. The majority of 1995 core loan growth is
anticipated to come from the commercial and real estate sectors with a modest
rebound in retail lending activity.
<PAGE> 23
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:
<TABLE>
ANALYSIS OF CORE AND INCREMENTAL LOANS
TABLE 4
(in thousands)
<CAPTION>
December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 483,116 $ 420,513 $ 444,293 $ 451,988 $ 432,466
Installment and single payment individual 368,113 348,246 290,129 259,346 291,477
Real estate - mortgage 425,709 393,732 389,107 341,370 326,562
Real estate - construction 142,097 95,184 66,866 63,337 52,995
Less: Unearned income (8,308) (16,472) (17,709) (16,732) (17,846)
Total core loans 1,410,727 1,241,203 1,172,686 1,099,309 1,085,654
Less: Allowance for loan losses (20,441) (21,539) (24,046) (20,265) (19,396)
Net core loans 1,390,286 1,219,664 1,148,640 1,079,044 1,066,258
Mortgage loans held-for-sale 13,519 65,361 78,204 108,714 62,157
Net loans $1,403,805 $1,285,025 $1,226,844 $1,187,758 $1,128,415
</TABLE>
Mortgage loans held-for-sale are not considered core loans. They are
reflected in incremental earning assets 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, 1994, based on remaining scheduled repayments of principal, are
shown by maturity in the following table. All loans outstanding for the
selected categories mature within five years.
LOAN PORTFOLIO MATURITY
TABLE 5
(in thousands)
December 31, 1994
After 1
but with After
Within 1 Year 5 Years 5 Years Total
Selected loan categories:
Commercial, financial,
and agricultural $222,496 $233,595 $27,025 $483,116
Real estate - construction 142,097 - - 142,097
Total loans $364,593 $233,595 $27,025 $625,213
Loans with floating
or adjustable interes $140,343 $ 7,742
Loans with fixed interest rates 93,252 19,283
Total loans $233,595 $27,025
Incremental Earning Assets
Incremental earning assets grew $46.2 million, or 6.4% in 1994. The
increase in incremental earning assets was primarily based on the Company's
investment portfolio which increased $157.4 million, with off-setting
decreases of $51.9 million in interest-bearing deposits in other financial
institutions and $51.8 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, although it may retain
adjustable rate or balloon mortgage loans according to specifically
identified strategies. Mortgage loans are securitized and sold in the
secondary market. The Company's portfolio of mortgage loans held-for-sale is
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
at December 31, 1994, totaled $1.4 billion compared to $1.0 billion a year
ago. It is anticipated that the servicing portfolio will continue to grow
during 1995.
<PAGE> 24
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following table presents the carrying value of portfolio
securities for the past three years. Although interest-bearing deposits in
other 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 included in the following
table of investments.
CARRYING VALUE OF INVESTMENTS
TABLE 6
(in thousands)
December 31
1994 1993 1992
Investment securities
available-for-sale:
U. S. Treasury $ 25,763 $ 9,361 $ 10,337
U. S. Government agencies 179,615 36,233 -
Mortgage-backed securities:
Fixed rate 111,543 122,758 19,242
Adjustable rate 225,220 233,085 -
Corporate bonds 511 563 -
State and municipal 1,062 3,146 445
Equity securities 5,718 5,106 129
Total investment securities
available-for-sale 549,432 410,252 30,153
Investment securities
held-to-maturity:
U. S. Treasury - - 18,013
U. S. Government agencies - - 52,856
Mortgage-backed securities:
Fixed rate - - 49,274
Adjustable rate - 449 235,101
State and municipal 157,567 138,919 115,319
Equity securities - - 2,650
Total investment securities
held-to-maturity 157,567 139,368 473,213
Federal funds sold and
securities purchased under
agreements to resell 28,908 36,371 52,497
Interest-bearing deposits in other
financial institutions 16,259 68,157 66,881
Total investment securities $752,166 $654,148 $622,744
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 1995 is not
anticipated to change significantly compared to the December 31, 1994,
distribution.
The December 31, 1994, market value of held-to-maturity investment
securities as a percent of book value was 99.0%, down from the 109.1% in
1993. The market value of the portfolio of investment securities
held-to-maturity 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
1994 primarily resulted from management's decision to sell certain Treasury
securities for reinvestment in higher yielding alternatives, and
mortgage-backed securities trading at unusually high price premiums. The
sales of investment securities held-to-maturity during 1994 resulted from the
issuers' exercise of early repayment call provisions.
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, 1994. 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 contractual life for purposes of the following
presentation. The use of average maturity reflects, more accurately, the cash
flow and repricing opportunities.
<PAGE> 25
Management's Discussion and Analysis
of Financial Condition and Results of Operations
<TABLE>
AVERAGE MATURITY OR EARLIEST REPRICING DISTRIBUTION OF INVESTMENTS
TABLE 7
(dollars in thousands)
<CAPTION>
December 31, 1994
After 1 but After 5 but
Within 1 Year within 5 Years within 10 Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
available-for-sale:
U. S. Treasury $ 16,447 5.36% $ 8,332 5.94% $ 984 8.24% $ - -%
U. S. Government agencies 114,534 5.59 48,965 6.22 16,116 6.48 - -
Mortgage-backed securities:
Fixed rate - - 105,810 6.80 4,993 7.83 740 7.39
Adjustable rate 225,220 6.13 - - - -
Corporate bonds - - 511 8.84 - - -
State and municipal 213 7.37 477 8.08 372 7.80 - -
Equity securities - - - - - - 5,718 6.74
Total investment securities
available-for-sale 356,414 5.92 164,095 6.59 22,465 6.88 6,458 6.81
State and municipal held-
to-maturity 10,332 12.25 48,671 12.29 12,488 9.72 86,076 8.65
Federal funds sold and
securities purchased
under agreements to resell 28,908 5.88 - - - - - -
Interest-bearing deposits in
other financial institution 16,259 5.90 - - - - - -
Total investment securities $411,913 6.08% $212,766 7.90% $34,953 7.89% $92,534 8.52%
</TABLE>
The composition and maturity/repricing distribution of the investment
portfolio is subject to change depending on rate sensitivity, capital needs,
and liquidity needs.
The following table presents the current distribution of total
investment securities and other funds by maturity date and average yields
(for all obligations on a fully taxable basis assuming a 35% tax rate) at
December 31, 1994:
<PAGE> 26
Management's Discussion and Analysis
of Financial Condition and Results of Operations
<TABLE>
EXPECTED MATURITY OF INVESTMENT SECURITIES AND OTHER FUNDS
TABLE 8
(dollars in thousands)
<CAPTION>
December 31, 1994
After 1 but After 5 but
Within 1 Year within 5 Years within 10 Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
available-for-sale:
U. S. Treasury $ 16,447 5.36% $ 8,332 5.94% $ 984 8.24% $ - -%
U. S. Government agencies 114,534 5.59 48,965 6.22 16,116 6.48 - -
Mortgage-backed securities:
Fixed rate - - 8,682 7.50 20,764 7.04 82,097 7.21
Adjustable rate - - 108 4.98 152 5.00 224,960 6.13
Corporate bonds - - 511 8.84 - - - -
State and municipal 213 7.37 477 8.08 372 7.80 - -
Equity securities - - - - - - 5,718 6.74
Total investment securities
available-for-sale 131,194 5.55 67,075 6.32 38,388 6.76 312,775 6.43
State and municipal
held-to-maturity 10,332 12.25 48,671 12.29 12,488 9.72 86,076 8.65
Federal funds sold and
securities purchased
under agreements to resell 28,908 5.88 - - - - - -
Interest-bearing deposits
in other financial institutions 16,259 5.90 - - - - - -
Total investment securities $186,693 6.00% $115,746 8.83% $50,876 7.49% $398,851 6.91%
</TABLE>
Core and Incremental 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:
<TABLE>
AVERAGE CORE AND INCREMENTAL DEPOSITS
TABLE 9
(dollars in thousands)
<CAPTION>
Years Ended December 31
1994 1993 1992
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 302,167 - $ 259,659 - $ 224,971 -
Savings, NOW, and IMMA deposits 619,385 2.68% 551,729 2.76% 515,116 3.36%
Time deposits less than $100 592,060 4.74 588,386 4.75 616,330 5.57
Total core deposits 1,513,612 2.95 1,399,774 3.08 1,356,417 3.81
Other time deposits 346,018 4.11 321,063 4.55 311,679 6.38
Total core and incremental deposits $1,859,630 3.17% $1,720,837 3.36% $1,668,096 4.29%
</TABLE>
<PAGE> 27
Management's Discussion and Analysis
of Financial Condition and Results of Operations
All categories of average deposit funding increased by a total of
$138.8 million, or 8.1%, in 1994. The largest increase, $67.7 million, can be
attributed to increases in savings, NOW, and IMMA, primarily from The
Commercial Bank acquisition which accounted for $58.5 million of the change.
The increase in average noninterest-bearing demand deposits of $42.5 million
can be primarily attributed to escrow deposits retained with the Company's
portfolio of mortgage loans serviced for others and The Commercial Bank
acquisition.
Average incremental funding, including funding from sources other
than deposits, increased $49.2 million, or 10.7%, due primarily to long-term
debt consisting of intermediate term Federal Home Loan Bank advances, which
increased $44.8 million, or 54.8%, and wholesale certificates of deposit and
certificate of deposits in excess of $100,000, which in total increased $25.0
million, or 7.8%. In the current economic environment, management does not
anticipate significantly profitable incremental earning asset investment
opportunities and, consequently, does not anticipate material growth in the
incremental funding portfolio.
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, 1994, incremental funds to total funds ratio
of 25.29% provides room for expansion of incremental funding, management does
not anticipate this ratio increasing materially.
The December 31, 1994, maturity distribution of incremental funding
is as follows:
<TABLE>
MATURITY OF INCREMENTAL FUNDING
TABLE 10
(in thousands)
<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 $10 $ 43,558 $ 40,666 $44,789 $ 60,418 $189,431
Other large deposits 45,240 34,807 30,363 53,088 163,498
Federal funds purchased 44,485 - - - 44,485
Securities sold under agreements to repurchase 22,082 28,611 3,524 - 54,217
U. S. Treasury note account 6,427 - - - 6,427
Long-term debt 258 20,160 316 59,504 80,238
Total incremental funding $162,050 $124,244 $78,992 $173,010 $538,296
</TABLE>
Details of the Company's short-term borrowings for the past three
years is shown in Table 11 below:
SHORT-TERM BORROWINGS
Table 11
(dollars in thousands)
Years ended December 31
1994 1993 1992
Balance at end of year $98,702 $ 63,379 $76,689
Weighted-average interest
rate at end of year 3.07% 4.88% 3.78%
Maximum month-end balance
during the year $98,702 $153,359 $95,236
Weighted-average daily balance 76,060 95,636 75,613
Average interest rate during
the year 3.99% 3.24% 3.82%
<PAGE> 28
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 changes in volumes and rates:
<TABLE>
CHANGE IN NET INTEREST INCOME, TAX EQUIVALENT BASIS
TABLE 12
(in thousands)
<CAPTION>
1993 to 1994 1992 to 1993
Change Due to Change Due to
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest-bearing deposits in
other financial institutions $(1,294) $ 210 $(1,084) $ 66 $ (823) $ (757)
Loans, net 7,036 670 7,706 4,614 (9,944) (5,330)
Investment securities, taxable 4,196 (558) 3,638 4,518 (3,511) 1,007
Investment securities, nontaxable 2,864 (1,234) 1,630 1,925 (235) 1,690
Federal funds sold and
securities purchased under
agreements to resell 459 146 605 (714) (145) (859)
Total interest income 13,261 (766) 12,495 10,409 (14,658) (4,249)
Interest expense:
Savings and IMMA deposits 1,824 (415) 1,409 1,167 (3,255) (2,088)
Time deposits 1,317 (1,622) (305) (1,065) (10,590) (11,655)
Federal funds purchased
and securities sold
under agreements to
repurchase (703) 638 (65) 691 (483) 208
Other borrowed funds 2,108 55 2,163 1,396 115 1,511
Total interest expense 4,546 (1,344) 3,202 2,189 (14,213) (12,024)
Net interest income,
tax equivalent basis $ 8,715 $ 578 $ 9,293 $ 8,220 $ (445) $ 7,775
</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 dollar amounts of the change in each.
Net interest income on a fully taxable equivalent (FTE) basis for
1994 increased $9.3 million, or 9.9%, primarily volume driven by an average
earning asset growth of 8.3% and a seven basis point margin improvement from
4.89% to 4.96%. Despite recent interest rate increases, net interest income
was not impacted materially due to the relatively matched position of the
Company's balance sheet. For the year, the average rate on earning assets
decreased only two basis points from 8.15% in 1993 to 8.13% in 1994. The
average rate on interest-bearing liabilities declined by nine basis points as
longer-term, higher rate certificates of deposits matured earlier in the year
and were renewed at lower rates. This resulted in a seven basis point
increase in interest yield spread.
In comparison, net interest income (FTE) for 1993 increased $7.8
million, or 9.0%, over 1992. Significant changes within net interest income
occurred as a result of the declines in interest rates. Interest income
declined $4.2 million, which was more than offset by a decline in interest
expense of $12.0 million. The result was a 20-basis point increase in
interest yield spread and a 12-basis point increase in the margin from 4.77%
in 1992 to 4.89% in 1993.
The margin trend for the past eight quarters has been slowly
increasing at a stable pace, confirming the Company's matched rate
sensitivity profile.
Although a slightly higher average interest rate environment is
anticipated in 1995 compared to 1994, management anticipates a modest
increase in the net interest margin due to the composition of the balance
sheet and improving asset quality. The increased margin, combined with
moderate earning asset growth may provide the fundamentals for growth in net
interest income to exceed that experienced in 1994.
<PAGE> 29
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Noninterest Income
Noninterest income comparisons are as follows:
<TABLE>
ANALYSIS OF NONINTEREST INCOME
TABLE 13
(dollars in thousands)
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
1994 Change Percent 1993 Change Percent 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $10,452 $ 1,887 22.03% $ 8,565 $ 1,589 22.78% $ 6,976
Mortgage loan and other related fees 6,193 (5,468) (46.89) 11,661 (117) (.99) 11,778
Fees for trust services 2,345 95 4.22 2,250 (148) (6.17) 2,398
Credit card 1,753 330 23.19 1,423 195 15.88 1,228
Insurance premiums and commissions 965 (89) (8.44) 1,054 (121) (10.30) 1,175
Net gains on sales of
investment securities 318 (435) (57.77) 753 (1,717) (69.51) 2,470
Other noninterest income 5,055 (1,080) (17.60) 6,135 1,936 46.11 4,199
Total noninterest income $27,081 $(4,760) (14.95)% $31,841 $ 1,617 5.35% $30,224
Noninterest income as a percent of
average assets 1.19% 1.54% 1.55%
</TABLE>
Noninterest income for 1994 decreased $4.8 million, or 15.0%, primarily
the result of a significant decline in mortgage loan fee income of $5.5 million
and a decrease in net gains on sales of investment securities of $435,000. The
increase in service charges on deposits of $1.9 million was primarily due to
The Commercial Bank acquisition which added $1.8 million to this category. The
decrease in noninterest income was driven by lower volumes of refinance
activity as rates increased sharply in 1994.
Management anticipates noninterest income to improve in 1995, as
initiatives to expand traditional fee-based banking services begin to be
realized and servicing revenue increases from the higher level of the
portfolio of mortgage loans serviced for others. Management, through its
community bank affiliates, continues to analyze new opportunities in
traditional banking services it offers to meet the growing needs of banking
customers, particularly in those communities developing near the Atlanta
suburbs. In addition, in late 1994, affiliate banks began offering a new
service in connection with the VISARegistration Mark debit card, as an
alternative to basic checking services for customers. As management continues
to expand services currently being offered and testing new products to
banking customers, additional sources of noninterest income are expected to
be realized.
Noninterest Expense
Noninterest expense comparisons are as follows:
<TABLE>
ANALYSIS OF NONINTEREST EXPENSE
TABLE 14
(dollars in thousands)
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
1994 Change Percent 1993 Change Percent 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $43,305 $2,932 7.26% $40,373 $ 6,509 19.22% $33,864
Furniture and equipment 6,124 296 5.08 5,828 1,089 22.98 4,739
Postage, telephone, and stationery 5,052 352 7.49 4,700 318 7.26 4,382
Net occupancy 4,713 484 11.44 4,229 (139) (3.20) 4,368
FDIC insurance premiums 4,124 201 5.12 3,923 231 6.26 3,692
Amortization of mortgage
loan servicing rights 2,762 (632) (18.62) 3,394 (1,551) (31.37) 4,945
Data processing 2,659 143 5.68 2,516 1,204 91.77 1,312
Promotional 2,277 637 38.84 1,640 205 14.29 1,435
Directors' fees 1,379 301 27.92 1,078 350 48.08 728
Travel and entertainment 1,204 192 18.97 1,012 (57) (5.33) 1,069
Legal fees 1,143 (82) (6.69) 1,225 452 58.47 773
Other real estate 820 (573) (41.13) 1,393 309 28.51 1,084
Amortization of goodwill 803 122 17.91 681 - - 681
Other noninterest expense 10,274 1,122 12.26 9,152 3,280 55.88 5,872
Total noninterest expense $86,639 $5,495 6.77% $81,144 $12,200 17.70% $68,944
Noninterest expense as a percent of
average assets 3.81% 3.91% 3.53%
Overhead ratio 66.55% 64.80% 60.42%
</TABLE>
<PAGE> 30
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Noninterest expense for 1994 increased $5.5 million, or 6.8%. The
single largest increase was due to personnel expenses increasing $2.9
million, which includes the impact of The Commercial Bank's $2.4 million in
personnel expenses for 1994. Excluding the increase due to The Commercial
Bank acquisition, personnel expenses increased only 1.3% in 1994 from 1993
levels. Other categories influencing the increase in noninterest expense
include promotional expenses and directors' fees, again the result of recent
acquisitions. Expenses associated with other real estate owned decreased
41.1%, the result of continuing improvement in resolving and working out
nonperforming assets.
FDIC insurance premiums continue to be a significant expense at $4.1
million in 1994, up 5.1% over the $3.9 million paid in 1993, and up 11.7%
over premiums paid in 1992. A majority, or $180,000, of the increase in 1994
FDIC premiums is the result of the inclusion of The Commercial Bank.
Noninterest expense for 1993 increased $12.2 million over 1992.
Material contributing factors included: salaries and benefits, furniture and
equipment, and data processing expenses.
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 66.6% was up from
the 64.8% in 1993, and 60.4% 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. The recent increases
in the overhead ratio can be attributed primarily to the significant decrease
in mortgage related noninterest income and the impact of The Commercial Bank
in 1994 to total noninterest expenses. Management continues to analyze nonint
erest expenses and to evaluate opportunities for cost reductions, in an
effort to lower the overhead ratio.
Noninterest expense growth in 1995 should moderate from that
experienced in 1994 although expense pressures in employee salaries and
benefits will continue. Management anticipates the overhead ratio to decline
in 1995 as overhead management initiatives are implemented and net revenues
increase.
Income Taxes
As reported in the Company's consolidated statements of income, the
Company's income before income taxes for financial statement purposes
increased to $37.8 million in 1994, up from $35.9 million in 1993, an
increase of $1.9 million, or 5.3%. The effective tax rate for the Company
decreased slightly to 25.6% in 1994, from 25.8% in 1993, due to higher
tax-exempt interest income in 1994. 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:
<TABLE>
RISK ELEMENTS
TABLE 15
(dollars in thousands)
<CAPTION>
December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $18,936 $20,509 $23,432 $29,185 $15,634
Renegotiated loans 45 364 2,645 217 194
Total nonperforming loans 18,981 20,873 26,077 29,402 15,828
Other real estate 9,813 9,532 11,663 9,786 5,799
Total nonperforming assets $28,794 $30,405 $37,740 $39,188 $21,627
Loans past due 90 days or more $ 214 $ 252 $ 650 $ 1,281 $ 2,943
Nonperforming loans as a percentage of loans, net
of unearned income (including mortgage
loans held-for-sale) 1.33% 1.60% 2.08% 2.43% 1.38%
Nonperforming assets as a percentage of loans,
net of unearned income, plus other real estate
(including mortgage loans held-for-sale) 2.01 2.31 2.99 3.22 1.87
Allowance for loan losses as a percentage of
nonperforming loans 107.69 103.19 92.21 68.92 122.54
Allowance for loan losses as a percentage of
nonperforming assets and loans past
due 90 days or more 70.47 70.26 62.64 50.08 78.94
</TABLE>
<PAGE> 31
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The Company experienced a decrease in nonperforming loans and assets
during 1994, as the Company's program of problem asset remediation resulted
in significant improvements. The $1.9 million decline in nonperforming loans
was accomplished despite the addition of $5.4 million in nonperforming loans
from The Commercial Bank acquisition. Similarly, the $1.6 million decrease in
nonperforming assets was achieved after the $9.7 million increase from The
Commercial Bank acquisition. The nonperforming assets to loans plus OREO
ratio declined from 2.31% in 1993 to 2.01% in 1994 and allowance for loan
losses to nonperforming loans increased from 103.19% in 1993 to 107.69% in
1994 due to the decline in nonperforming loans. The level of nonperforming
loans and assets in 1995 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 and 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 nonaccrual loans in 1994 which would have been
reported on an accrual basis amounted to approximately $1.829 million.
Interest income of approximately $21 thousand was recognized in 1994 on loans
which are currently on a nonaccrual basis. Management is not aware of any
potential loans, other than those classified as nonperforming, which could
have a material impact of asset quality.
The Company's allocation of the allowance for loan losses is as
follows:
<TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
TABLE 16
(dollars in thousands)
<CAPTION>
December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $11,403 $12,605 $14,428 $11,754 $ 9,310
Real estate 6,802 8,210 8,176 5,269 6,013
Installment and single payment individual 2,236 724 1,442 3,242 4,073
Total allowance for loan losses $20,441 $21,539 $24,046 $20,265 $19,396
Loans outstanding by category as a percentage
of total loans:
Commercial, financial, and agricultural 34% 32% 35% 37% 37%
Real estate 41 41 42 42 38
Installment and single payment individual 25 27 23 21 25
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, and 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.
<PAGE> 32
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
1995. Beginning in 1991, 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-off and allowance for loan losses
activity for the past five years:
<TABLE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
TABLE 17
(dollars in thousands)
<CAPTION>
Years Ended December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average total loans, net of unearned income $1,375,870 $1,296,401 $1,246,944 $1,179,142 $1,114,107
Allowance for loan losses, beginning of year $ 21,539 $ 24,046 $ 20,265 $ 19,396 $ 13,258
Charge-offs:
Commercial, financial and agricultural 3,051 1,259 6,674 4,180 4,090
Installment and single payment individual 2,805 2,940 3,037 4,570 3,699
Real estate - mortgage 1,571 3,204 1,012 1,973 1,278
Total charge-offs 7,427 7,403 10,723 10,723 9,067
Recoveries on loans charged-off:
Commercial, financial and agricultural 843 409 754 663 226
Installment and single payment individual 1,463 1,042 816 756 725
Real estate - mortgage 345 460 131 158 299
Total recoveries 2,651 1,911 1,701 1,577 1,250
Net charge-offs 4,776 5,492 9,022 9,146 7,817
Provision for loan losses (362) 2,985 11,284 10,015 13,955
Allowance of subsidiary bank acquired 4,040 - 1,519 - -
Allowance for loan losses, end of year $ 20,441 $ 21,539 $ 24,046 $ 20,265 $ 19,396
Allowance for loan losses as a percentage
of loans, net of unearned income:
Including mortgage loans held-for-sale 1.44% 1.65% 1.92% 1.68% 1.69%
Excluding mortgage loans held-for-sale 1.45 1.74 2.05 1.84 1.79
Net loans charged off as a percentage
of average loans, net of unearned income:
Including mortgage loans held-for-sale .35 .42 .72 .78 .70
Excluding mortgage loans held-for-sale .35 .46 .80 .84 .72
</TABLE>
Included in the 1994 charge-offs are approximately $2.3 million of
charge-offs related to The Commercial Bank's loan portfolio, which had been
provided for by The Commercial Bank's allowance for loan losses in 1993.
<PAGE> 33
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, 1994:
<TABLE>
LOAN AND ASSET QUALITY CONCENTRATIONS
TABLE 18
(dollars in thousands)
<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 $ 57,855 4.06% $1,799 $ - $ 613 $ -
Broiler operations 33,650 2.36 708 - - -
Egg operations 19,119 1.34 149 - 185 -
Farmland 21,772 1.53 83 - - -
Multi-family residential 20,820 1.46 446 - 1,220 -
Office buildings 36,040 2.53 262 - 1,411 -
Manufacturing/industrial 23,510 1.65 104 - 423 -
Hotel/motel 24,920 1.75 1,190 - - -
Recreational properties 12,383 .87 1,328 - 94 -
Shopping centers 17,575 1.23 319 - 751 -
Other commercial 107,504 7.55 1,613 - 1,809 -
Other 26,326 1.86 186 - 1,018 -
401,474 28.19 8,187 - 7,524 -
Acquisition and land
development:
Residential 37,409 2.63 30 - 458 -
Commercial 4,941 .35 - - 203 -
Construction 99,747 7.00 184 - 59 -
142,097 9.98 214 - 720 -
Residential mortgages:
Real estate dwelling 238,674 16.76 6,328 45 807 90
Mortgage loans held-for-sale 13,519 .95 - - - -
Residential lots 46,583 3.27 412 - 667 -
Mobile homes 33,632 2.36 726 - 95 33
Rental 34,958 2.45 515 - - -
Interval ownership 5,569 .39 - - - -
Mortgage loan investments 35,366 2.48 568 - - -
Home equity 29,802 2.09 - - - -
Other 1,125 .09 - - - -
439,228 30.84 8,549 45 1,569 123
Commercial products:
Assignment A/R and contracts 26,346 1.85 - - - -
Inventory 8,931 .63 150 - - -
Assignment of notes 8,091 .57 246 - - -
Automobiles - heavy trucks 4,482 .31 146 - - -
Floor plans 1,868 .13 - - - -
Other 23,616 1.66 442 - - -
73,334 5.15 984 - - -
Consumer goods:
Automobiles 225,275 15.82 715 - - 43
Unsecured 38,045 2.67 133 - - 23
Savings and certificates 32,191 2.26 20 - - -
Credit cards 21,786 1.53 - - - 19
Mobile homes without
real estate 7,103 .50 62 - - -
Unsecured consumer lines
of credit 3,874 .27 11 - - 6
Co-maker/guarantor 6,318 .44 9 - - -
Other 33,521 2.35 52 - - -
368,113 25.84 1,002 - - 91
Total concentrations $1,424,246 100.00% $18,936 $45 $9,813 $214
</TABLE>
<PAGE> 34
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, 1994 and
1993, were as follows:
<TABLE>
ANALYSIS OF CAPITAL ADEQUACY
TABLE 19
(dollars in thousands)
<CAPTION>
Regulatory Internal
1994 1993 Guidelines Standards
<S> <C> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets 13.78% 15.12% 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 15.03% 16.37% 8.00% 9.00% (minimum)
Leverage ratios:
Capital to assets 9.53% 10.18% 6.00% 6.50% (minimum)
Primary capital to adjusted assets (a) 10.30 11.07 5.50 8.00 (minimum)
Primary tangible capital to adjusted assets (b) 9.96 10.77 - 6.00 (minimum)
Tier 1 capital $ 217,733 $ 210,758
Tier 2 capital 19,746 17,428
Total capital $ 237,479 $ 228,186
Risk-adjusted assets $1,579,667 $1,394,270
</TABLE>
(a) Shareholders' equity plus the allowance for loan losses divided by total
assets plus the allowance for loan losses.
(b) Primary tangible capital equals primary capital 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-adjusted capital position is also well in excess of regulatory
standards. Consequently, management does not anticipate any change in asset
allocation strategies to complement risk-adjusted capital requirements.
In January 1995, the Federal Financial Institutions Examination
Council issued a ruling that unrealized gains or losses on investment
securities available-for-sale, which are included as a component of
shareholders' equity in accordance with Statement of Financial Accounting
Standards No. 115, should not be included as a component of Tier I capital
when determining compliance with regulatory capital requirements, effective
March 31, 1995. If the unrealized losses on investment securities
available-for-sale at December 31, 1994, were excluded from Tier I capital,
the Tier I capital to risk-adjusted assets ratio would have been 14.59% and
the total capital to risk-adjusted assets ratio would have been 15.84%.
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
Years Ended December 31
1994 1993 1992
Return on average assets 1.24% 1.29% 1.20%
divided by
Average equity as a % of average assets 9.91 9.53 9.49
equals
Return on average equity 12.51 13.53 12.65
times
Earnings retained 54.69 58.10 57.24
equals
Internal capital growth 6.84 7.86 7.24
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
$5 million in facilities, equipment, and systems in 1995.
<PAGE> 35
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity
The Company manages its liquidity position 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 positions as of December
31, 1994 and 1993, was as follows:
LIQUIDITY ANALYSIS
TABLE 21
December 31
1994 1993
Core funding/core earning assets 112.73% 115.21%
Incremental funding/total funding 25.29 24.73
Management anticipates moderate improvements in the core funding
ratio in 1995, and knows of no 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 rate
s 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 analysis 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, 1994, is as
follows:
INTEREST RATE SENSITIVITY
TABLE 22
(dollars in thousands)
3 Month 6 Month 12 Month
Standard gap position:
Rate sensitive assets $ 736,300 $ 947,071 $1,224,299
Rate sensitive liabilities 916,930 1,144,090 1,359,107
Dollar gap $(180,630) $ (197,019) $ (134,808)
Gap ratio .80 .83 .90
Beta-adjusted gap position:
Rate sensitive assets $ 723,065 $ 926,841 $1,196,499
Rate sensitive liabilities 747,285 990,142 1,215,648
Dollar gap $ (24,220) $ (63,301) $ (19,149)
Gap ratio .97 .94 .98
Company minimum standards .65 to 1.20 .65 to 1.20 .90 to 1.10
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 1995.
Fourth Quarter Results
For the fourth quarter of 1994, the Company recorded net income of
$7.2 million, or $.43 per share, compared with fourth quarter net income of
$7.9 million, or $.50 per share, in 1993.
Net interest income (FTE) totaled $26.9 million in the fourth quarter
of 1994, up from the $23.9 in 1993. Noninterest income was $5.9 million in
1994, down 39.2% from the fourth quarter 1993, primarily the result of a $2.5
million decrease in mortgage loan related revenues. Non-interest expenses for
the fourth quarter increased to $22.2 million in 1994, up 3.1% from the
fourth quarter 1993, almost entirely the result of The Commercial Bank
acquisition in 1994. Highlights of the Company's results on a quarter-by-quart
er basis can be seen 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 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, beginning in 1995. In October
1994, the FASB issued Statement No. 118, "Accounting for Creditors for
Impairment of a Loan - Income Recognition and Disclosures" which amends
Statement No. 114 to require information about the recorded investment in
certain impaired loans and eliminates its provisions regarding
<PAGE> 36
Management's Discussion and Analysis
of Financial Condition and Results of Operations
how a creditor should report income on an impaired loan. Statement
No. 118 allows creditors to use existing methods for recognizing income on
impaired loans, including methods required by certain industry regulators.
The Company adopted Statement No. 114 and Statement No. 118 on January 1,
1995, and the impact to the consolidated financial statements was not
material.
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.
Business and Product Information
During the past three years, the consolidated income of the Company
and its subsidiaries has been provided through core banking services,
mortgage banking, and trust activities, as follows:
BUSINESS AND PRODUCT INFORMATION
TABLE 23
(in thousands)
Years Ended December 31
1994 1993 1992
Net interest income-fully taxable equivalent:
Core banking $101,034 $ 89,479 $82,334
Mortgage banking and servicing 2,390 4,652 4,022
Trust services - - -
Total 103,424 94,131 86,356
Noninterest income:
Core banking 16,992 15,330 15,081
Mortgage banking and servicing 7,744 14,261 12,745
Trust services 2,345 2,250 2,398
Total 27,081 31,841 30,224
Noninterest expense:
Core banking 72,966 66,174 56,649
Mortgage banking and servicing 11,349 12,784 10,502
Trust services 2,324 2,186 1,793
Total 86,639 81,144 68,944
Net income (loss):
Core banking 28,829 22,539 18,791
Mortgage banking and servicing (779) 3,984 4,134
Trust services 84 131 482
Total $28,134 $26,654 $23,407
Market, Stock Price, and Dividend Information
The following table sets forth the high and low market quotations in
The Nasdaq Stock Market, where the Company's common stock is traded, for the
years 1994, 1993, and 1992. The quotations are based upon prices quoted
electronically and represent quotations between
dealers, not actual transactions, and do not include retail mark-ups,
mark-downs, or commissions. As of December 31, 1994, there were approximately
7,100 holders of the Company's common stock.
STOCK PRICE INFORMATION
TABLE 24
1994 1993 1992
High Low High Low High Low
First Quarter $22 1\4 $20 1\4 $21 1\2 $17 1\2 $16 1\3 $15 1\2
Second Quarter 21 1\2 19 3\4 22 1\4 20 16 1\6 15 1\3
Third Quarter 22 1\4 20 22 1\2 19 3\4 18 1\3 15 1\2
Fourth Quarter 20 3\4 16 5\8 21 1\4 19 1\2 19 16 5\6
<PAGE> 37
Management's Discussion and Analysis
of Financial Condition and Results of Operations
PER SHARE DIVIDENDS AND NET INCOME
TABLE 25
1994 1993 1992
Dividends Income Dividends Income Dividends Income
First Quarter $.1900 $.40 $.1725 $.39 $.1500 $.33
Second Quarter .1925 .44 .1750 .36 .1600 .41
Third Quarter .1950 .44 .1775 .43 .1600 .39
Fourth Quarter .2000 .43 .1800 .50 .1700 .37
Due to rounding, per share amounts may not total year-to-date amounts
reported on the Consolidated Statements of Income.
SELECTED STATISTICAL INFORMATION
Condensed average daily balance sheets for the years indicated are
presented below:
<TABLE>
AVERAGE BALANCES, INTEREST, AND RATES
(dollars in thousands)
<CAPTION>
Years Ended December 31
1994 1993 1992
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 $ 38,204 $ 1,666 4.36% $ 68,240 $ 2,750 4.03% $ 66,958 $ 3,507 5.24%
Net loans 1,375,870 121,878 8.86 1,296,401 114,172 8.81 1,246,944 119,502 9.58
Investment securities, taxable 489,712 28,200 5.76 417,032 24,562 5.89 344,891 23,555 6.83
Investment securities,
nontaxable 149,080 16,585 11.12 123,931 14,955 12.07 108,006 13,265 12.28
Federal funds sold and
securities purchased
under agreements to resell 33,647 1,227 3.65 20,527 622 3.03 43,638 1,481 3.39
Total earning assets 2,086,513 169,556 8.13 1,926,131 157,061 8.15 1,810,437 161,310 8.91
Cash and due from banks 70,152 61,865 57,007
Premises and equipment, net 54,679 48,428 41,659
Other assets 85,255 61,102 68,291
Less allowance for loan losses (23,811) (23,920) (21,989)
Total assets $2,272,788 $2,073,606 $1,955,405
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Savings and IMMA accounts $ 619,385 16,613 2.68 $ 551,729 15,204 2.76 $ 515,116 17,292 3.36
Time deposits 938,078 42,270 4.51 909,449 42,575 4.68 928,009 54,230 5.84
Federal funds purchased
and securities sold under
agreements to repurchase 76,060 3,031 3.99 95,636 3,096 3.24 75,613 2,888 3.82
Other borrowed funds 87,547 4,218 4.82 43,771 2,055 4.69 13,678 544 3.98
Total interest-
bearing liabilities 1,721,070 66,132 3.84 1,600,585 62,930 3.93 1,532,416 74,954 4.89
Noninterest-bearing
demand deposits 302,167 259,659 224,971
Other liabilities 24,657 16,302 12,922
Total liabilities 2,047,894 1,876,546 1,770,309
Total shareholders' equity 224,894 197,060 185,096
Total liabilities and
shareholders' equity $2,272,788 $2,073,606 $1,955,405
Net interest income $103,424 $94,131 $86,356
Interest spread 4.29% 4.22% 4.02%
Net interest margin 4.96% 4.89% 4.77%
</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 1994 and 1993 tax rate of 35 percent, and a
1992 tax rate of 34 percent, in adjusting tax-exempt interest on non-taxable
loans and investment securities, to a fully taxable basis.
<PAGE> 38
Independent Auditors' Report
[LOGO-- KPMG Peat Marwick LLP]
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, 1994 and 1993 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, 1994.
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 overal
l 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, 1994 and 1993 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 4, the Company changed its method of
accounting for investments to adopt the provisions of 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 SFAS the No. 109, "Accounting for Income Taxes."
As discussed in Notes 1 and 10, the Company also adopted the provisions of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," in 1993.
/s/KPMG Peat Marwick LLP
January 27, 1995
<PAGE> 39
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
At December 31
1994 1993
ASSETS
Cash and due from banks (Note 3) $ 84,260 $ 86,599
Federal funds sold and securities
purchased under
agreements to resell 28,908 36,371
Cash and cash equivalents 113,168 122,970
Interest-bearing deposits in other
financial institutions 16,259 68,157
Investment securities available-for-sale
(Note 4) 549,432 410,252
Investment securities held-to-maturity
(market value $156,044 and $144,827,
respectively (Note 4) 157,567 139,368
Loans (Note 5 and 8) 1,432,554 1,323,036
Less: Unearned income (8,308) (16,472)
Allowance for loan losses (20,441) (21,539)
Net loans 1,403,805 1,285,025
Premises and equipment, net (Note 6 and 8) 57,004 49,630
Other assets (Note 9) 83,313 66,550
Total assets $2,380,548 $2,141,952
LIABILITIES
Deposits:
Noninterest-bearing $ 331,521 $ 285,510
Interest-bearing, including
certificates of deposit of
$100 or more of $189,431 and
$152,761, respectively 1,611,743 1,479,131
Total deposits 1,943,264 1,764,641
Federal funds purchased and securities sold
under agreements to repurchase (Note 7) 98,702 63,379
Other short-term borrowings (Note 7) 6,427 13,807
Long-term debt (Note 8) 80,238 57,958
Other liabilities (Note 10) 24,960 24,108
Total liabilities 2,153,591 1,923,893
SHAREHOLDERS' EQUITY (Note 15)
Common stock, par value $1 per share
authorized 30,000,000 shares; issued
and outstanding 16,540,495 and
16,034,183 shares, respectively (Note 11) 16,540 16,034
Additional paid-in capital 67,606 58,762
Retained earnings (Note 14) 155,541 139,996
Net unrealized holding (losses) gains
on securities available-for-sale (12,730) 3,267
Total shareholders' equity 226,957 218,059
Commitments and contingent liabilities
(Notes 12 and 13)
Total liabilities and shareholders' equity $2,380,548 $2,141,952
See accompanying notes to consolidated financial statements.
<PAGE> 40
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Years Ended December 31
1994 1993 1992
Interest Income
Loans (including fees) $ 121,878 $ 114,172 $ 119,502
Interest-bearing deposits in other
financial institutions 1,666 2,750 3,507
Investment securities:
Tax-exempt 10,174 9,025 8,428
Taxable 28,200 24,562 23,555
Federal funds sold and securities
purchased under agreements
to resell 1,227 622 1,481
Total interest income 163,145 151,131 156,473
Interest Expense
Deposits, including interest
expense on certificates
of deposit of $100 or more
of $6,844, $7,817,
and $13,846 in 1994, 1993,
and 1992, respectively 58,883 57,779 71,522
Federal funds purchased and securities
sold under agreements to repurchase 3,031 3,096 2,888
Other short-term borrowings 221 209 279
Long-term debt 3,997 1,846 265
Total interest expense 66,132 62,930 74,954
Net Interest Income 97,013 88,201 81,519
Provision for loan losses (Note 5) (362) 2,985 11,284
Net interest income after provision
for loan losses 97,375 85,216 70,235
Noninterest Income
Fees for trust services 2,345 2,250 2,398
Service charges on deposit accounts 10,452 8,565 6,976
Net gains on sale of investment
securities (Note 4) 318 753 2,470
Other noninterest income (Note 17) 13,966 20,273 18,380
Total noninterest income 27,081 31,841 30,224
Noninterest Expense
Salaries and employee benefits
(Note 10) 43,305 40,373 33,864
Net occupancy 4,713 4,229 4,368
Furniture and equipment 6,124 5,828 4,739
Other noninterest expense (Note 17) 32,497 30,714 25,973
Total noninterest expense 86,639 81,144 68,944
Income Before Income Taxes and
Cumulative Effect of Accounting Change 37,817 35,913 31,515
Income tax expense (Note 9) 9,683 9,419 8,108
Income before cumulative effect
of accounting change 28,134 26,494 23,407
Cumulative effect at January 1, 1993
of change in accounting for
income taxes (Note 9) - 160 -
Net Income $ 28,134 $ 26,654 $ 23,407
Net Income Per Share:
Weighted-average shares outstanding 16,394,974 15,842,510 15,637,160
Income before cumulative effect of
accounting change $ 1.72 $ 1.67 $ 1.50
Cumulative effect of accounting change - .01 -
Net income per share $ 1.72 $ 1.68 $ 1.50
See accompanying notes to consolidated financial statements.
<PAGE> 41
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
<CAPTION>
Net
Unrealized
Holding
Gains (Losses)
On Investment
Additional Securities
Common Stock Paid-In Retained Available-
Shares Amount Capital Earnings For-Sale Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 15,584,951 $15,585 $52,225 $110,148 $ - $177,958
Net income - - - 23,407 - 23,407
Cash dividends declared - $.64 per share - - - (9,327) - (9,327)
Cash dividends of pooled subsidiaries
prior to acquisition - - - (126) - (126)
Proceeds from the exercise of stock
options by pooled subsidiary 2,405 2 19 - - 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 15,771,194 15,771 54,872 124,102 - 194,745
Net income - - - 26,654 - 26,654
Cash dividends declared - $.705 per share - - - (10,640) - (10,640)
Cash dividends of pooled subsidiary prior
to acquisition - - - (120) - (120)
Proceeds from the exercise of stock
options by pooled subsidiary 22,973 23 216 - - 239
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 $2,066 - - - - 3,267 3,267
Balance at December 31, 1993 16,034,183 16,034 58,762 139,996 3,267 218,059
Net income - - - 28,134 - 28,134
Cash dividends declared - $.7775 per share - - - (12,589) - (12,589)
Proceeds from the exercise of stock options
by pooled subsidiary 20,372 20 199 - - 219
Issuance of common shares for
bank acquisition 266,414 266 5,112 - - 5,378
Stock options exercised 126,496 127 1,720 - - 1,847
Issuance of common stock for dividend
reinvestment 93,030 93 1,813 - - 1,906
Unrealized losses on investment securities
available-for-sale, net of tax effect
of $(10,167) - - - - (15,997) (15,997)
Balance at December 31, 1994 16,540,495 $16,540 $67,606 $155,541 $(12,730) $226,957
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 42
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Years ended December 31
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 28,134 $ 26,654 $ 23,407
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses (362) 2,985 11,284
Provision for other real estate owned 703 1,173 521
Depreciation 5,792 5,493 4,217
(Accretion) amortization, net (2,226) 4,758 1,734
Deferred income taxes (benefit) (209) (2,287) (2,192)
Net gains on sales of investment securities (318) (753) (2,470)
Gains on sales of mortgage loan servicing rights (2,213) (10,811) (10,721)
(Gains) losses on sales of assets acquired in
foreclosure and equipment (440) (743) 55
Excess servicing fees receivable resulting from
mortgage loan sales (413) (1,593) (4,570)
Decrease in mortgage loans held for sale 51,842 12,843 31,254
Other, net 2,458 9,238 (525)
Net cash provided by operating activities 83,166 46,957 51,994
Cash flows from investing activities:
Proceeds from sales/calls of investment securities held-to-maturity 4,685 44,649 104,029
Proceeds from principal collections on and maturities of investment
securities held-to-maturity 8,476 106,321 86,240
Purchases of investment securities held-to-maturity (29,031) (206,480) (274,789)
Proceeds from sales of investment securities available-for-sale 29,354 2,000 -
Proceeds from principal collections on and maturities of investment
securities available-for-sale 170,171 13,945 1,070
Purchases of investment securities available-for-sale (352,280) - -
Net decrease (increase) in interest-bearing deposits in
other financial institutions 52,494 (1,276) (7,469)
Net increase in loans (84,499) (78,185) (56,900)
Proceeds from sales of mortgage loan servicing rights 3,046 14,226 21,275
Purchases of mortgage loan servicing rights (10,541) (7,059) (2,494)
Purchases of premises and equipment (5,631) (10,129) (5,121)
Proceeds from sales of premises and equipment 360 1,932 92
Proceeds from sales of assets acquired in foreclosure 7,419 6,067 4,781
Purchase of First Citizens Bancorp of Cherokee
County, Inc., net of cash and cash equivalents acquired - (6) 12,036
Purchase of Metro Bancorp, Inc., net of
cash and cash equivalents acquired 24,563 - -
Net cash used in investing activities (181,414) (113,995) (117,250)
Cash flows from financing activities:
Net increase in deposits 46,582 42,868 67,200
Net increase (decrease) in short-term borrowings 27,943 (12,612) (9,603)
Proceeds from the issuance of long-term debt 33,000 50,055 4,950
Payments on long-term debt (10,950) (1,566) (2,307)
Proceeds from issuance of common
stock for options exercised 2,066 2,181 1,285
Payments of fractional shares in stock split - - (14)
Cash dividends paid on common stock (10,195) (8,910) (8,876)
Net cash provided by financing activities 88,446 72,016 52,635
Net (decrease) increase in cash and cash equivalents (9,802) 4,978 (12,621)
Cash and cash equivalents at beginning of year 122,970 117,992 130,613
Cash and cash equivalents at end of year $113,168 $122,970 $117,992
Supplemental disclosure of cash flow information:
Interest paid $ 65,142 $ 61,922 $ 75,035
Income taxes paid $ 11,776 $ 10,334 $ 9,881
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
Summary of Significant Accounting Policies
Business: First National Bancorp and subsidiaries ("Company") provide
a full range of banking and mortgage banking services to individual and
corporate customers through seventeen 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, 1994 and
1993, consist of U.S. Treasury securities, obligations of the 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 investments into 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 does
not impact reported income and are reported as a separate component of shareho
lders' equity until realized. The net unrealized holding losses on investment
securities available-for-sale, net of income taxes, amounted to $12,730,000
at December 31, 1994.
In conjunction with the new definitions of investment securities
held-to-maturity and investment securities available-for-sale within
Statement No. 115, the Company transferred investment securities previously
accounted for at amortized costs totaling $384,186,000 to available-for-sale
at December 31, 1993.
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.
The Company does not regularly engage in trading or holding financial
derivatives. The Company may invest in collateralized mortgage obligations
(CMOs), and in U.S. Government agency securities containing mandatory coupon
adjustments (step-up bonds). At December 31, 1994, the Company held
approximately $4.2 million in CMOs and $14.2 million in step-up bonds, all of
which are included in the available-for-sale portfolio. Management purchases
these securities under policies providing for specific evaluation of the
extra risks associated with such investments, at the time of purchase and on
an ongoing basis.
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 ments
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
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. (continued)
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. Cash receipts on nonaccrual loans are applied to the outstanding
principal balance, until the principal is fully paid, at which time further
cash receipts are recognized as interest income until the interest is fully
collected. 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 unlikely. 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.
Postretirement Benefits: The Company sponsors a defined benefit
health care plan for substantially all retirees and employees. Effective
January 1, 1993, the Company adopted the provisions of 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 post-retirement 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 postretirements
benefits other than pensions at January 1, 1993 was $2,600,000 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 or acceptance of a deed in lieu of foreclosure. When
properties are acquired through foreclosure or acceptance of a deed in lieu
of foreclosure, 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 and losses recognized on
the disposition of the properties are recorded in other noninterest income.
Costs of improvements to other real estate are capitalized, while
costs associated with holding other real estate are charged to operations.
Income Taxes: In February 1992, 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 as
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, 1994, management determined that the deferred tax
assets are fully realizable due to sufficient income taxes paid in 1992,
1993, and 1994 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.
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. (continued)
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 reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year
of 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 1994, 1993, and 1992.
Financial Instruments: The Company is a party to certain optional and
forward purchased and sale 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 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 fees receivable 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 portfo
lio prepayments and estimates of anticipated prepayments, so that recorded
amounts do not exceed the value of future net servicing income on a
disaggregated 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, 1994, the Company was covered under a $12 million
banker's blanket bond policy and a $2 million errors and omissions policy.
Other: The excess of costs over the fair value of the net assets
acquired of purchased subsidiaries are being amortized using the
straight-line method over a period not to exceed twenty years. The
unamortized goodwill is periodically reviewed to ensure that conditions are
not present that indicate the recorded amount of goodwill is not recoverable
from future undiscounted cash flows. The review process includes an
evaluation of the earnings history of each subsidiary, its contribution to
the Company, capital levels and other factors. If events or changes in
circumstances indicate further evaluation is warranted, the undiscounted net
cash flows of the operations to which goodwill relates are estimated. If the
estimated undiscounted net cash flows are less than the carrying amount of
goodwill, a loss is recognized to reduce goodwill's carrying value to the
amount recoverable, and when appropriate the amortization period also is
reduced.
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 based on the present
value of expected future cash flows, discounted at the loan's effective intere
st rate, or at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent, beginning in 1995. In October
1994, the FASB issued Statement No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures," which amends the
requirements of Statement No. 114 regarding interest income recognition and
related disclosure requirements. Initial adoption of Statement No. 114 and
Statement No. 118 must be reflected prospectively. The Company adopted
Statement No. 114 and Statement No. 118 on January 1, 1995, and the impact to
the consolidated financial statements was not material. At January 1, 1995,
pursuant to the definition within Statement No. 114, the Company had
approximately $18,981,000 of impaired loans, all of which are classified as
nonaccrual.
Note 2.
Business Combinations
On November 22, 1994, the Company and FF Bancorp, Inc. ("FF
Bancorp"), New Smyrna Beach, Florida, entered into an Agreement and Plan of
Merger ("Agreement") as amended January 23, 1995, whereby the Company will
acquire all of the outstanding stock of the approximately $600 million asset
FF Bancorp. FF Bancorp is the holding company of First Federal Savings Bank
of New Smyrna Beach, Florida, a $318 million asset thrift institution, First
Federal Savings Bank of Citrus County, Florida, a $214 million asset thrift
headquartered in Inverness, Florida, and Key Bank of Florida, a $66 million
asset commercial bank located in Tampa, Florida. Under the Agreement, each
share of FF Bancorp stock will be exchanged for .825 shares of the Company
stock in a tax-free exchange to be accounted for as a pooling-of-interests.
The acquisition is subject to the approval of FF Bancorp shareholders and
various regulatory authorities. The Company anticipates completing the
transaction in the second quarter of 1995. Consolidated net earnings of
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. (continued)
FF Bancorp for the year ended December 31, 1994, was $6.5 million and
stockholders' equity at December 31, 1994, was $45.0 million.
On July 31, 1994, the Company completed its acquisition of Barrow
Bancshares, Inc. ("Barrow"), a bank holding company located in Winder,
Georgia, whose wholly owned subsidiary was Barrow Bank & Trust Company,
located in Barrow County, Georgia. The Company issued 521,700 shares of its
common stock in exchange for all of the issued and outstanding shares of
Barrow. No cash, except for fractional shares, was paid in the transaction.
The transaction was accounted for as a pooling-of-interests and, accordingly,
the consolidated financial statements for all periods presented have been
restated to include the financial position and results of operations of
Barrow. Pre-merger 1994 results of Barrow are not material. The Company's
consolidated financial data for the twelve months ended December 31, 1993 and
1992 have been restated as follows:
1993 1992
(in thousands, except per share data)
Net interest income:
First National Bancorp, before acquisition $85,562 $79,250
Barrow 2,639 2,269
Total $88,201 $81,519
Net income:
First National Bancorp, before acquisition $25,922 $22,830
Barrow 732 577
Total $26,654 $23,407
Net income per share:
First National Bancorp, before acquisition $ 1.69 $ 1.51
Effect of restatement for Barrow (.01) (.01)
Total $ 1.68 $ 1.50
On February 28, 1994, the Company acquired all of the outstanding
common stock of Metro Bancorp, Inc., ("Metro") the parent company of the $140
million asset The Commercial Bank, Douglasville, located in Douglas County,
Georgia. The Company issued 266,414 shares of its common stock and $250,243
in cash in exchange for all of the outstanding common shares of Metro.
Additionally, the Company paid $4,288,000 in cash to retire outstanding
preferred stock of Metro. The excess of the purchase price over the fair
value of the net assets acquired totaled $2,928,000 and was recorded as
goodwill. The goodwill is being amortized using the straight-line method over
a 15-year period. The purchase price is subject to adjustment based on asset
recoveries for up to an 18-month period after the agreement date. The maximum
amount of the adjustment is limited to $1,395,000 and will be recorded as
goodwill and amortized over 15 years, should any adjustment be required. This
transaction was accounted for as a purchase and, therefore, is not included
in the Company's results of operations or statements of financial position
prior to the date of acquisition. The pro forma impact on the Company's
results of operations for the twelve months ended December 31, 1994, 1993,
and 1992 had the purchase transaction been consummated as of January 1, 1992,
would have been:
1994 1993 1992
(dollars in thousands, except per share data)
Interest income $ 164,648 $ 160,576 $ 166,428
Noninterest income 27,531 34,890 32,945
Income before
cumulative effect of
accounting change 27,782 24,599 23,576
Cumulative effect of
accounting change - 562 -
Net income $ 27,782 $ 25,161 $ 23,576
Net income per share:
Income before cumulative
effect of accounting
change $ 1.69 $ 1.53 $ 1.48
Cumulative effect of
accounting change - .03 -
Net income $ 1.69 $ 1.56 $ 1.48
Weighted-average shares
outstanding 16,439,376 16,108,924 15,903,574
On August 31, 1993, the Company completed its acquisition of The
Community Bank of Carrollton ("Carrollton"), a bank 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 statements for all periods presented have been
restated to include the financial condition and results of operations of
Carrollton.
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, also 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 statements for all periods presented have been restated to includ
e the financial condition and results of operations of Villa Rica.
On October 30, 1992, the Company completed its acquisition of First
Citizens Bancorp of Cherokee County, Inc., ("FCBCC") the parent company of
the $73.1 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 18-month period after the agreement date. On December 20, 1993,
$1,024,303 was paid to the
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. (continued)
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.
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 The First National Bank of Paulding County, Dallas,
Georgia. The Company issued 1,086,600 shares of its common stock in exchange
for all the issued and outstanding shares of Paulding. The transaction was
accounted for as a pooling-of-interests.
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, 1994, was $4,678,000.
Note 4.
Investment Securities
Investment securities are summarized as follows:
December 31, 1994
Gross Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Investment securities
available-for-sale:
U.S. Treasury and
U.S. Government
agencies $208,581 $ 38 $ 3,241 $205,378
Mortgage-backed
securities 354,325 162 17,724 336,763
State and municipal -
taxable 994 68 - 1,062
Corporate bonds 500 11 - 511
Equity securities 5,863 - 145 5,718
Total $570,263 $ 279 $21,110 $549,432
Investment securities
held-to-maturity:
State and municipal -
tax exempt $157,567 $4,339 $5,862 $156,044
December 31, 1993
Gross Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Investment securities
available-for-sale:
U.S. Treasury and
U.S. Government
agencies $ 44,613 $ 1,101 $ 57 $ 45,657
Mortgage-backed
securities 351,560 6,164 1,881 355,843
State and municipal -
taxable 3,140 154 148 3,146
Corporate bonds 500 63 - 563
Equity securities 5,106 - - 5,106
Total $404,919 $ 7,482 $2,086 $410,315
Investment securities
held-to-maturity:
Mortgage-backed
securities $ 449 $ 2 $ - $ 451
State and municipal -
tax exempt 138,919 12,749 79 151,589
Total $139,368 $ 12,751 $ 79 $152,040
Barrow, which was acquired in July 1994, did not adopt Statement No.
115 until January 1, 1994. At December 31, 1993, Barrow had identified as
available-for-sale, certain U.S. Treasury and U.S. Government agency
securities with gross unrealized gains of $71,000 and gross unrealized losses
of $10,000, and certain mortgage-backed securities with gross unrealized
gains of $2,000, which are reflected in the above table for the year ended
December 31, 1993. However, the net gain of $63,000 is not reflected in the
carrying value of investment securities available-for-sale on the Company's
balance sheet for the year ended December 31, 1993.
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. (continued)
The amortized cost and fair value of investment securities at
December 31, 1994, 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.
Investment Securities Investment Securities
Available-for Sale Held-to-Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(in thousands)
Due in one year or less $131,626 $131,194 $ 10,332 $ 10,570
Due after one year
through five years 60,106 58,285 48,671 51,849
Due after five years
through ten years 18,343 17,472 12,488 12,887
Due after ten years 5,863 5,718 86,076 80,738
215,938 212,669 157,567 156,044
Mortgage-backed
securities 354,325 336,763 - -
Total $570,263 $549,432 $157,567 $156,044
Proceeds from sales of investment securities during 1994, 1993, and
1992 totaled $34,039,000, $46,649,000 and $104,029,000, respectively. Gross
gains of $407,000, $759,000, and $2,613,000 and gross losses of $89,000,
$6,000, and $143,000 were realized on those sales for 1994, 1993, and 1992,
respectively. The sale of investment securities held-to-maturity during 1994
resulted from the issuer's exercise of early repayment call provisions.
Investment securities with an aggregate carrying amount of
approximately $351,379,000 and $278,343,000 at December 31, 1994 and 1993,
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, 1994 and 1993:
1994 1993
(in thousands)
Commercial, financial
and agricultural $ 483,116 $ 420,513
Installment and single
payment individual 368,113 348,246
Mortgage loans held for sale 13,519 65,361
Real estate - mortgage 425,709 393,732
Real estate - construction 142,097 95,184
Total $1,432,554 $1,323,036
In addition, the Company was servicing residential mortgage loans for
others with aggregate principal balances of approximately $1,414,559,000,
$1,039,397,000, and $999,157,000 at December 31, 1994, 1993, and 1992,
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 $11,656,000 at December 31, 1994. 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 or present other unfavorable features. The following is a
summary of activity during 1994 with respect to such aggregate loans to these
individuals and their associates and affiliated companies (in thousands):
Balance at December 31, 1993 $ 7,094
New loans 10,035
Repayments (5,992)
Change in directors 519
Balance at December 31, 1994 $11,656
The following is a summary of transactions in the allowance for loan
losses:
1994 1993 1992
(in thousands)
Balance at beginning of year $21,539 $24,046 $20,265
Loans charged off (7,427) (7,403) (10,723)
Recoveries on loans previously
charged off 2,651 1,911 1,701
Provision for loan losses (362) 2,985 11,284
Allowance of bank subsidiary
acquired 4,040 - 1,519
Balance at end of year $20,441 $21,539 $24,046
During 1994, 1993, and 1992, $5,981,000, $8,847,000, and 10,279,000,
respectively, were transferred from loans to other real estate upon
foreclosure of the collateral properties.
At December 31, 1994, 1993, and 1992, the Company had approximately
$18,981,000, $20,873,000, and $26,077,000, respectively, of nonperforming
loans. Interest income on nonaccrual loans in 1994, 1993, and 1992, which
would have been reported on an accrual basis, amounted to approximately
$1,829,000, $2,275,000, and $2,800,000, respectively. Interest income of
approximately $21,000, $31,000, and $800,000 was recognized in 1994, 1993,
and 1992, respectively, on loans which were on a nonaccrual basis.
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6.
Premises and Equipment
Premises and equipment is presented net of accumulated depreciation
totaling $38,094,946 and $30,349,545 at December 31, 1994 and 1993,
respectively.
Note 7.
Short-Term Borrowings
Short-term borrowings at December 31, 1994 and 1993, consist of:
1994 1993
(in thousands)
Federal funds purchased $ 44,485 $ 44,235
Securities sold under agreements to repurchase 54,217 19,144
Interest-bearing demand notes issued
to the U.S. Treasury 6,427 13,807
Total $105,129 $ 77,186
In June 1992, the Company entered into a $3 million 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 have no borrowings with respect to 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, 1994, the Company had no balance
drawn under this agreement.
NOTE 8.
Long-Term Debt
Long-term debt at December 31, 1994 and 1993 consists of:
1994 1993
(in thousands)
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. $ 3,500 $ 3,600
Promissory term note, dated October 28, 1992, payable
over 15 years but subject to repricing every three
years, with principal of $155 plus interest at 6.15%
payable quarterly, secured by shares of common stock
of certain bank subsidiaries and certain premises. 6,260 3,880
Various advances from the Federal Home Loan Bank of
Atlanta with original maturities ranging from one to
five years and interest rates ranging from 4.51%
to 5.66%. 70,000 50,000
Other long-term debt 478 478
Total long-term debt $80,238 $57,958
The combined aggregate maturities for each of the next five years are
approximately $20,734,000 in 1995, $15,736,000 in 1996, $10,736,000 in 1997,
$15,759,000 in 1998 and $10,734,000 in 1999. At December 31, 1994, the Company
has pledged certain qualifying mortgage loans with unpaid principal balances
totaling approximately $22,747,000 and investment securities with an aggregate
carrying value of $93,758,000, as collateral for the Federal Home Loan Bank
of Atlanta advances.
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 years ended December 31,
1994 and 1993 is allocated as follows:
1994 1993 1992
(in thousands)
Income from continuing operations $9,683 $9,419 $8,108
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) -
Total $9,683 $8,814 $8,108
In addition, the Company adopted Statement No. 115 on December 31,
1993 and has reported the entire cumulative effect of the change in the
method of accounting for certain investments in debt and equity securities as
a direct component of shareholders' equity, net of income taxes of
$2,066,000. During 1994, the tax effect of the net unrealized holding losses
on investment securities available-for-sale was a $10,167,000 benefit.
Income tax expense (benefit) attributable to income from continuing
operations consists of:
1994 1993 1992
(in thousands)
Current:
Federal $9,294 $10,625 $ 9,446
State 180 1,081 854
Total current taxes 9,474 11,706 10,300
Deferred:
Federal 179 (1,869) (1,851)
State 30 (418) (341)
Total deferred taxes 209 (2,287) (2,192)
Total $9,683 $ 9,419 $ 8,108
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. (continued)
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 1994 and 1993, and 34% for 1992, to income before income taxes and
cumulative effect of accounting change:
1994 1993 1992
(in thousands)
Tax expense at statutory rate $13,236 $12,570 $10,715
Increase (reduction) in income tax
resulting from:
Tax-exempt interest (3,720) (3,375) (3,343)
Disallowed interest expense 305 250 274
State income taxes, net of federal
tax benefit 137 446 340
Change in the valuation allowance
for deferred tax assets (257) - -
Other, net (18) (472) 122
Total $ 9,683 $ 9,419 $ 8,108
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 (in thousands):
Cash method of accounting for tax reporting purposes $ (21)
Provision for loan losses (1,269)
Excess servicing fees from loan sales (1,076)
Other, net 174
Total $(2,192)
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, 1994 and 1993, are presented below:
1994 1993
(in thousands)
Deferred tax assets:
Allowance for loan losses $ 7,199 $ 7,488
Net unrealized holding losses on investment
securities available-for-sale 8,101 -
Mortgage loan servicing rights 2,260 1,358
Allowance for valuation losses on other real estate 1,574 352
Net operating losses 1,387 983
Federal tax credits 215 -
Unearned loan fees, net 357 192
Deferred compensation 409 330
Accrued postretirement benefits 324 172
Other, net 233 379
Total gross deferred tax assets 22,059 11,254
Less valuation allowance - (257)
Net deferred tax assets 22,059 10,997
Deferred tax liabilities:
Net unrealized holding gains on investment
securities available-for-sale - 2,066
Depreciation 1,002 559
Purchase accounting adjustments
on premises and equipment 1,994 1,717
Prepaid expenses 134 127
Accretion on investment securities 975 896
Total gross deferred tax liabilities 4,105 5,365
Net deferred tax assets $17,954 $5,632
The utilization of net operating loss carryforwards in a previously
acquired subsidiary bank and the likelihood of
utilization of additional carryforwards in future years resulted in a
reduction of $257,000 in the valuation allowance for deferred tax assets in
1994.
Note 10.
Employee Benefit Plans
In the past, the Company has maintained a noncontributory 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 defined benefit 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 retiree's 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 balances 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. Pension costs for 1992 were $37,000.
In 1990, the Company adopted a defined benefit supplemental executive
retirement plan covering certain executive officers. Net periodic pension
cost for 1994, 1993, and 1992 was $106,000, $131,000, and $68,000,
respectively. The projected benefit obligations as of December 31, 1994 and
1993, were $550,000 and $601,000, respectively, and are unfunded. The
actuarial present value of accumulated benefit obligations as of December 31,
1994 and 1993, were $550,000 and $601,000, respectively. No further officers
will qualify to participate in this plan in the future since the base
qualified defined benefit pension plan was terminated.
As part of the revisions to the compensation and benefits program,
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
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. (continued)
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
$1,872,000 in 1994, $1,793,000 in 1993, and $1,445,000 in 1992.
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 $328,000 at December 31, 1994 and $145,000 at
December 31, 1993, and these amounts are 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 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 healthcare 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, 1994
and 1993:
1994 1993
(in thousands)
Accumulated postretirement benefit obligation:
Retiree's $(1,684) $(1,316)
Fully eligible active plan participants (1,296) (1,023)
Tota (2,980) (2,339)
Plan assets at fair value - -
Accumulated postretirement benefit obligation in
excess of plan assets (2,980) (2,339)
Unrecognized net loss (gain) 342 (100)
Unrecognized transition obligation 2,128 2,247
Accrued postretirement benefit cost included
in other liabilities $ (510) $ (192)
Net periodic postretirement benefit cost for 1994 and 1993 includes
the following components.
1994 1993
(in thousands)
Service cost $157 $113
Interest cost 234 183
Net amortization and deferral 122 118
Net periodic postretirement benefit cost $513 $414
For measurement purposes, a 14.40% annual rate of increase in the per
capita cost of covered benefits is assumed for 1995 and 15.10% was assumed
for 1994, for those covered individuals under the age of 65. For those
covered individuals over 65, 10.60% is assumed in 1995 and 10.90% was assumed
for 1994. 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 has a significant effect
on the amounts reported, due to the premium caps. The weighted-average
discount rate used in determining the accumulated post-retirement benefit
obligation was 7.5% at December 31, 1994 and 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 $417,000, $348,000, and $287,000, to
this plan in 1994, 1993, and 1992, respectively.
<PAGE> 52
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 this plan is shown
below:
Option Price
Shares per Share Total
(dollars in thousands, except per share data)
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 (8,408) 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 - 15.917 (1,942)
Expired (3,500) 18.75 (66)
Options outstanding at
December 31, 1993 445,896 6,909
Granted 126,050 21.00 2,647
Exercised (126,496) 11.167 - 15.917 (1,847)
Expired (13,129) 15.917 - 21.00 (260)
Options outstanding at
December 31, 1994 432,321 $7,449
In January 1995, the Board of Directors approved the granting of
additional options under the grant date of January 20, 1995, for 158,600
shares of common stock at an option price of $18.50 per share. At December
31, 1994, options for 314,171 shares were exercisable.
In April 1994, the shareholders approved a Performance-Based
Restricted Stock Plan ("Plan") for certain executive officers
("Participants") of the Company. Under the terms of the Plan, there are
90,000 shares of common stock reserved for issuance as awards. Awards
of shares of Company stock will be made to Participants, without
payment by the Participants, if and when the Company's stock reaches
specified target values from $29.00 per share to $37.00 per share. Target
values must be met no later than December 31, 1999 for awards to be made
under the Plan. No awards were issued under this Plan during 1994.
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 primarily arising
from loan collections. In the opinion of management and counsel, none of
these cases, individually or in the aggregate, 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 sales
contracts and options, the contract or notional amounts do not represent
exposure to credit loss; however, these financial instruments do expose the
Company to interest rate risk. The Company controls the interest rate risk of
its call and put options purchased and forward sales contracts through
management approvals, dollar limits, and monitoring procedures.
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. (continued)
A summary of the notional amounts of the Company's financial
instruments with off-balance-sheet risk at December 31, 1994, is as follows
(in thousands):
Financial instruments whose contract amounts represent credit risk:
Loan commitments:
Credit card lines $ 65,942
Home equity lines 30,259
Commercial real estate, construction and land development 120,654
Mortgage loans 30,249
Other 53,532
Total loan commitments 300,636
Other commitments:
Financial standby letters of credit 19,830
Performance standby and commercial letters of credit 2,656
Loans sold with recourse 2,536
Total other commitments 25,022
Total loan and other commitments $325,658
Financial instruments whose notional or contract amounts exceed the
amount of credit and/or market risk:
Forward sales contracts $ 22,400
Call options purchased 500
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, residential properties, and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. A
commercial letter of credit is a conditional 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 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 options written and pays a premium for 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 or
sell 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
(dollars in thousands, except per share data)
December 31
1994 1993
Assets
Cash $ 5,715 $ 6,639
Interest-bearing deposits with subsidiary bank 2,526 727
Cash and cash equivalents 8,241 7,366
Investment in bank subsidiaries, at equity 220,120 205,401
Premises and equipment, net 11,249 11,414
Goodwill 5,962 6,583
Other assets 3,810 5,100
Total assets $249,382 $235,864
Liabilities
Long-term debt $ 9,762 $ 7,673
Other liabilities 12,663 10,132
Total liabilities 22,425 17,805
Shareholders' Equity
Common stock, par value $1, authorized
30,000,000 shares, issued and outstanding
16,540,495 and 16,034,183 shares for 1994
and 1993, respectively 16,540 16,034
Additional paid-in capital 67,606 58,762
Retained earnings 155,541 139,996
Net unrealized holding (losses) gains on
investment securities available-for-sale (12,730) 3,267
Total shareholders' equity $226,957 $218,059
Total liabilities and shareholders' equity $249,382 $235,864
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. (continued)
CONDENSED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31
1994 1993 1992
<S> <C> <C> <C>
Income
Interest and dividends $ 14 $ 54 $ 21
Dividends from subsidiaries 11,588 10,714 13,448
Other income 2,292 1,840 1,026
Total income 13,894 12,608 14,495
Expense
Interest 500 489 286
General and administrative 6,500 5,597 4,086
Total expense 7,000 6,086 4,372
Income before federal income tax
benefit and equity in undistributed
income of subsidiaries 6,894 6,522 10,123
Income tax benefit 1,706 1,702 977
Income before equity in undistributed
income of subsidiaries 8,600 8,224 11,100
Equity in undistributed income
of subsidiaries 19,534 18,430 12,307
Net Income $28,134 $26,654 $23,407
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $28,134 $ 26,654 $ 23,407
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Equity in undistributed income
of subsidiaries (19,534) (18,430) (12,307)
Depreciation and amortization 1,176 1,198 1,054
Changes in other assets and
liabilities:
Decrease (increase) in other assets 1,067 (993) 679
Increase (decrease) increase in
other liabilities 1,791 (501) 734
Net cash provided by operating
activities 12,634 7,928 13,567
Cash flows from investing activities:
Purchase of bank subsidiaries
net of cash acquired 5 - (152)
Capital contribution to acquired
bank subsidiaries (5,288) - (3,405)
Purchases of premise and
equipment, net (436) (517) (324)
Net cash used in investing activities (5,719) (517) (3,881)
Cash flows from financing activities:
Net (decrease) increase in
short-term borrowings - (2,250) 2,250
Proceeds from the issuance of
long-term debt 3,000 - 4,950
Payments on long-term debt (911) (1,555) (2,299)
Proceeds from issuance of common
stock for stock options exercised 2,066 2,181 1,285
Payments of fractional shares in
stock split - - (14)
Cash dividends paid on common stock (10,195) (8,910) (8,876)
Net cash used in financing activities (6,040) (10,534) (2,704)
Net increase (decrease) in cash and
cash equivalents 875 (3,123) 6,982
Cash and cash equivalents at beginning
of year 7,366 10,489 3,507
Cash and cash equivalents at end of
year $ 8,241 $ 7,366 $ 10,489
Supplemental disclosure of cash
flow information:
Interest paid $ 519 $ 489 $ 269
Income taxes paid $11,735 $ 10,334 $ 9,881
</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 amount 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 1995 without such prior approval, is
approximately $31,870,000, plus 1995 net earnings of the six subsidiary
national banks. At December 31, 1994, approximately $188,250,000 of the
Parent's investment in bank subsidiaries was restricted as to dividend
payments from the banks to the Parent under the foregoing regulatory
limitations.
<PAGE> 55
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 the 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 action 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 their 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 "well capitalized," an institution must generally
have a leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at
least 6%, and a total risk-based capital ratio of at least 10%. An
institution is deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less.
At December 31, 1994, all of the subsidiary banks of the Company were
categorized as "well capitalized" under the FDICIA requirements.
Note 16.
Fair Values of Financial Instruments
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
judgment 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.
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
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 amounts 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 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.
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16. (continued)
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for all other loans are estimated using discounted cash flow
analysis, 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 a comparison with terms, including
interest rate and commitment period currently prevailing to enter into
similar agreements, taking into account credit standings. The carrying and
fair values of off-balance-sheet instruments at December 31, 1994 and 1993,
were not material.
Purchased mortgage loan servicing rights and excess servicing fee
receivables: Fair value of purchased mortgage loan servicing rights and
excess servicing fees receivables are determined by estimating the present
value of the future net servicing income, on a disaggregated basis, using
anticipated prepayment assumptions.
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 agreement to repurchase, and other
short-term borrowings approximate their fair values.
Long-term debt: The fair values of the Company's long-term debt are
estimated using discounted cash flow analysis, based on the Company's current
borrowing rates for similar types of borrowing arrangements.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands)
<S> <C> <C> <C> <C>
Assets
Cash and due from banks $ 84,260 $ 84,260 $ 86,599 $ 86,599
Federal funds sold and securities purchased
under agreements to resell 28,908 28,908 36,371 36,371
Interest-bearing deposits in other
financial institutions 16,259 16,259 68,157 68,157
Investment securities 706,999 705,476 549,620 562,292
Loans, net 1,403,805 1,373,717 1,285,025 1,289,094
Purchased mortgage loan servicing rights 16,775 20,678 9,829 9,829
Excess servicing fee receivables 2,090 2,334 4,825 4,825
Liabilities
Deposits:
Noninterest-bearing 331,521 331,521 285,510 285,510
Interest-bearing transaction and savings 630,651 630,651 561,892 561,892
Certificates of deposit 981,092 972,694 917,239 922,088
Federal funds purchased and securities
sold under agreements to repurchase 98,702 98,702 63,379 63,379
Other short-term borrowings 6,427 6,427 13,807 13,807
Long-term debt 80,238 76,131 57,958 58,315
</TABLE>
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17.
Supplemental Financial Data
Components of other noninterest income and expense in excess of 1% of
income for the respective periods are as follows.
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
Income:
Mortgage loan servicing fees, net $3,876 $ 3,069 $ 3,251
Gains on sales of mortgage loan servicing rights 2,213 10,811 10,721
Losses on sales of mortgage loans (529) (5,083) (8,771)
Net gains on sales of mortgage loans and
servicing rights 1,684 5,728 1,950
Expenses:
Postage, telephone, and stationary 5,052 4,700 4,382
FDIC insurance premiums 4,124 3,923 3,692
Amortization and write-off of mortgage
loan servicing rights 2,762 3,394 4,945
Data processing 2,659 2,516 1,312
Promotional 2,277 1,640 1,435
</TABLE>
Note 18.
Consolidated Quarterly Financial Information - Unaudited
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1994 and December 31,
1993.
<TABLE>
<CAPTION>
Total 1994 Quarter Ended
Year Dec. 31 Sept. 30 June 30 March 31
<S> <C> <C> <C> <C> <C>
Interest income $163,145 $43,569 $41,847 $40,276 $37,453
Interest expense 66,132 18,277 16,640 15,983 15,232
Net interest income 97,013 25,292 25,207 24,293 22,221
Provision for loan losses (362) (226) (159) (343) 366
Net gains on sales of investment securities 318 152 (21) 24 163
Noninterest income 26,763 5,720 6,621 7,689 6,733
Noninterest expense 86,639 22,198 21,777 22,293 20,371
Income before income taxes 37,817 9,192 10,189 10,056 8,380
Income taxes 9,683 2,038 2,952 2,767 1,926
Net income $ 28,134 $ 7,154 $ 7,237 $7,289 $ 6,454
Net income per share $ 1.72 $ .43 $ .44 $ .44 $ .40
Due to rounding, per share amounts may not total year-to-date amounts
reported on the Consolidated Statements of Income.
Total 1993 Quarter Ended
Year Dec. 31 Sept. 30 June 30 March 31
Interest income $151,131 $37,711 $37,963 $38,291 $ 37,166
Interest expense 62,930 15,334 15,659 15,920 16,017
Net interest income 88,201 22,377 22,304 22,371 21,149
Provision for loan losses 2,985 324 509 1,037 1,115
Net gains on sales of investment securities 753 9 64 314 366
Noninterest income 31,088 9,654 7,948 6,560 6,926
Noninterest expense 81,144 21,532 20,119 20,519 18,974
Income before income taxes and cumulative
effect of accounting change 35,913 10,184 9,688 7,689 8,352
Income taxes 9,419 2,255 2,870 1,933 2,361
Cumulative effect of accounting change 160 - - - 160
Net income $ 26,654 $ 7,929 $ 6,818 $ 5,756 $ 6,151
Per share:
Income before cumulative effect of accounting change $ 1.67 $ .50 $ .43 $ .36 $ .38
Cumulative effect of accounting change .01 - - - .01
Net income $ 1.68 $ .50 $ .43 $ .36 $ .39
</TABLE>
<PAGE> 58
1994 REGIONAL REPORT
FIRST NATIONAL BANCORP AFFILIATES
Entering The Era Of Excellence.
[GRAPHIC -- GHOSTED PHOTO OF A GROUP OF PEOPLE W/ WORDING IN FORGROUND]
<PAGE> 59
THE BANCORP AFFILIATE MARKET OVERVIEW
First National Bancorp's 17 affiliates are currently divided into three
economic regions: the metro-fringe region, the manufacturing/industrial
region, and the second-home/retirement/tourism region. Each region represents
significant, unique opportunities for the company's growth and profitability
and provides diversification to the company's revenue stream.
In the spring of 1995, the anticipated completed merger with FF
Bancorp of New Smyrna Beach, Florida, will add yet another distinct region to
the company. This $600 million holding company consists of one commercial
bank and two healthy and very profitable thrifts in three separate areas of
the state. These financial institutions offer First National Bancorp a
reasonably priced and stable source of core deposits as well as significant
opportunities to expand the company's mortgage lending, trust, bank card and
correspondent services business.
[GRAPHIC -- MAP -- METRO FRINGE REGION -- CAPTION: THE METRO-FRINGE REGION
CONSISTS OF HALL, FORSYTH, PAULDING, CHEROKEE, CARROLL AND DOUGLAS COUNTIES,
AND IS HOME TO SEVEN OF THE COMPANY'S 17 BANKS. THESE ARE AFFLUENT MARKETS
(MEDIAN HOUSEHOLD INCOME IS AROUND $40,000 IN EACH COUNTY) WITHIN COMMUTING
DISTANCE TO METRO ATLANTA AND ARE AMONG THE NATION'S FASTEST-GROWING
COUNTIES. THE RAPID GROWTH IN THESE COUNTIES IS BEGINNING TO PROVIDE A
RESIDENTIAL BOOM, RESULTING IN TREMENDOUS OPPORTUNITY FOR THE MORTGAGE
SOURCE.]
The First National Bank Of Gainesville
Richard A. McNeece, Chairman
Richard L. Shockley, Vice Chairman
Richard D. White, President & CBO
Mrs. Jane Wood Banks
John A. Ferguson, Jr.
Alvin Gibson
Ray C. Jones
Arthur J. Kunzer, Jr.
Thomas C. Mundy
Harold L. Smith
W. Woodrow Stewart
James A. Walters
Joe Wood, Jr.
[PHOTO -- FNB GAINESVILLE -- CAPTION: AT RIGHT, THE BOARD OF THE FIRST
NATIONAL BANK OF GAINESVILLE IN THE CASK ROOM
OF CHATEAU ELAN WINERY. A FIRST NATIONAL CUSTOMER FROM THE VERY BEGINNING,
CHATEAU ELAN ALSO FEATURES AN EXQUISITE RESORT ON ITS GROUNDS.]
<PAGE> 60
The Peoples Bank Of Forsyth County
Bobby M. Thomas, Chairman
Rocklyn E. Hunt, President & CEO
Louis J. Douglass, III, Executive Vice President
Jimmy S. Fagan
Jim Grogan
Robert L. McGuinn
Howard R. Noles
Lamar V. Sexton
Richard L. Shockley
Charles R. Smith
Kenneth J. Vanderhoff, Jr.
[PHOTO -- PEOPLES BANK -- CAPTION: AT LEFT, THE BOARD OF THE PEOPLES BANK OF
FORSYTH COUNTY AT THE DRAG RACING SHOP
OF CUSTOMER BOB VANDERGRIFF WHOSE SON, BOBBY, IS THE DRIVER OF THE TOP FUEL
DRAGSTER.]
Citizens Bank, Cherokee County
A. Roy Roberts, Jr., Chairman
Richard M. Zorn, President & CEO
A. R. (Rick) Roberts, III, Executive Vice President
Bryan F. Bell
Dr. D. T. Darnell
H. Lamar Harris
T. A. Roach
McDonald Willis
[PHOTO -- CITIZENS BANK, CHEROKEE -- CAPTION: AT RIGHT, THE BOARD OF THE
CITIZENS BANK, CHEROKEE COUNTY AT THE NELSON BALL GROUND TELEPHONE COMPANY.
THIS INDEPENDENT PHONE COMPANY PROVIDES PHONE SERVICE,
INCLUDING CELLULAR, TO CHEROKEE, PICKENS AND DAWSON COUNTIES.]
The First National Bank Of Paulding County
J. Michael Womble, Chairman
C. B. Fair, III, President & CEO
Becky S. Echols, Executive Vice President
David M. Cooper
Charles L. Hardy
Dean P. Hardy
John H. Henderson
Peter D. Miller
Dewey P. Pendley, Sr.
Kenneth G. Vinson
G. Hudson Warren
J. Franklin Welch
Donald W. York
[PHOTO -- FNB PAUDLING -- CAPTION: AT LEFT, THE BOARD OF THE FIRST NATIONAL
BANK OF PAULDING COUNTY AT THE BUILDING SITE OF CADILLAC PRODUCTS, A
MULTI-FACETED COMPANY WHICH WILL PRODUCE PLASTIC PACKAGING.]
<PAGE> 61
The Commercial Bank, Douglasville
Robert R. Pope, Chairman
John T. Stafford, President & CEO
Johnny L. Blankenship
Solon H. Boggus
A. B. Craven
C. B. Fair, III
H. E. (Bill) Gray
Walter A. Hudson
Jerre A. O'Neal
A. Clark Robinson
[PHOTO -- COMMERCIAL BANK -- CAPTION: AT LEFT, THE BOARD OF THE COMMERCIAL
BANK OF DOUGLASVILLE AT AUSTRAL INSULATED PRODUCTS, A LARGE MANUFACTURER OF
COPPER WIRE.]
The Community Bank Of Carrollton
J. Wayne Garner, Chairman
Timothy I. Warren, President & CEO
F. Elton Brooks, Executive Vice President
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
[PHOTO -- COMMUNITY BANK OF CARROLLTON -- CAPTION: AT RIGHT, THE BOARD OF THE
COMMUNITY BANK OF CARROLLTON AT SUPERIOR SAMPLES,
A NATIONAL MAKER FOR WALLPAPER SAMPLE BOOKS.]
Bank Of Villa Rica
J. Richard Smith, Chairman
William C. Candler, Director Emeritus
Fred L. O'Neal, President & CEO
J. Larry Boss
W. J. Candler
C. B. Fair, III
S. Doug Hembree
Lamar Moody
L. Burnell Redding
[PHOTO -- BANK OF VILLA RICA -- CAPTION:AT LEFT, THE BOARD OF THE BANK OF
VILLA RICA AT VINCE HOSIERY, WHICH MANUFACTURES
NAME BRAND SOCKS FOR NATIONALLY KNOWN CORPORATIONS.]
<PAGE> 62
[GRAPHIC MANUFACTURING/INDUSTRIAL REGION MAP -- CAPTION: THE
MANUFACTURING/INDUSTRIAL REGION IS REPRESENTED BY STEPHENS, ELBERT, JACKSON,
BARROW AND BANKS COUNTIES. THESE COUNTIES REPRESENT A GOOD CORE OF RETAIL
BUSINESS -- BANKS IS MOVING QUICKLY TO BECOME THE OUTLET CAPITAL OF THE STATE
-- AND A WEALTH OF SMALL BUSINESS OPPORTUNITY. JACKSON COUNTY, BECAUSE OF ITS
PROXIMITY TO I-85, HAS BEGUN TO SEE A TREMENDOUS BOOM OF MANUFACTURERS
LOCATING THERE. THE ADDITION OF BARROW BANK & TRUST COMPANY TO THE ORGANIZATION
IN 1994 HAS PROVIDED A VERY IMPORTANT LINK IN THE
GAINESVILLE/ATHENS/ATLANTA CORRIDOR.]
The Citizens Bank, Toccoa
James H. Harris, Jr., Chairman
Robert A. Parker, President & CEO
J. B. Hudgins, Jr.
David C. King
Charles G. Maypole
Allan R. Ramsay
Richard L. Shockley
Harold L. Watson
Jerry E. Wright
[PHOTO -- CITIZENS BANK-TOCCOA -- CAPTION: AT RIGHT, THE BOARD OF THE
CITIZENS BANK, TOCCOA, AT HABERSHAM PLANTATION, A LOCALLY-OWNED MANUFACTURER
OF FINE FURNITURE WHICH HAS ACHIEVED INTERNATIONAL FAME.]
Granite City Bank
William L. Lester, Chairman
Edward B. Hall, President & CEO
F. Davis Arnette, Jr., Executive Vice President
Walter E. Eaves
Joe Fernandez
E. Freeman Leverett
George T. Oglesby, Jr.
W. Harold Prather
Edward H. Phillips
Richard L. Shockley
L. Lamar Walker, Jr.
[PHOTO -- GRANITE BANK -- CAPTION: AT LEFT, THE BOARD OF GRANITE CITY BANK AT
TORRINGTON, A COMPANY WHICH MAKES
STEERING COLUMNS FOR FORD MOTOR COMPANY.]
<PAGE> 63
The First National Bank Of Jackson County
Henry D. Robinson, Chairman
Kelly G. Hillis, President & CEO
Henry L. Asbury
James V. Joiner
Jon M. Milford
William F. Mitchell
D. Dwight Porter, Sr.
Randall Pugh
Richard L. Shockley
Donald S. Shubert
[PHOTO -- THR FIRST NATIONAL BANK OF JACKSON COUNTY -- CAPTION: AT LEFT, THE
BOARD OF FIRST NATIONAL BANK OF JACKSON COUNTY AT SOLARTECH, A
CABINET-MAKING COMPANY WHICH EMPLOYS THE DEVELOPMENTALLY DISABLED.]
Bank Of Banks County
Thomas S. Cheek, Chairman
George W. Evans, President & CEO
Steven R. Maney, Executive Vice President
Milton L. Dalton
Richard L. Shockley
James Short
Eugene Sims
[PHOTO -- BARROW BANK & TRUST COMPANY -- CAPTION: AT RIGHT, THE BOARD OF BANK
OF BANKS COUNTY AT COMMERCE PLASTICS, A RECENTLY
RELOCATED COMPANY WHICH MAKES TELEVISION BACKS FOR MITSUBISHI.]
<PAGE> 64
[GRAPHIC -- MAP SECOND HOME/RETIREMENT REGION -- CAPTION: The second
home/retirement/tourism region is composed of Rabun, White, Gilmer, Pickens
and Habersham counties. Tourists, retirees and second-home owners are lured
into these beautiful counties for lakeside living and other recreational
activities. The retirees
represent a source of stable core deposit growth and a need for
the company's upscale Century Service product and personal trust services,
while second-home owners offer mortgage opportunities
to the company. Rabun and White counties have shown particularly stong net
migration over the past few years indicating significant growth in those
areas.]
Bank Of Clayton
A. W. Adams, Chairman
William F. DeVane, President & 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
[PHOTO -- BANK OF CLAYTON -- CAPTION: AT RIGHT, THE BOARD OF THE BANK OF
CLAYTON IN THE TEXTILE MILL OF FRUIT OF THE LOOM,
THE COMPANY'S LARGEST MANUFACTURING PLANT IN THE UNITED STATES.]
First National Bank Of White County
J. Kenneth Nix, Chairman
Sidney J. Wooten, III, President & CEO
Coleman Allen, Executive Vice President
Roy Ash, Jr.
Charles D. Black, Sr.
E. Ray Black
Richard L. Shockley
Harold Turner
Jere Westmoreland
[PHOTO -- FIRST NATIONAL BANK OF WHITE COUNTY -- CAPTION: AT LEFT, THE BOARD
OF FIRST NATIONAL BANK OF WHITE COUNTY AT MT. YONAH LUMBER COMPANY. LUMBER
IS A HEALTHY PART OF THIS COUNTY'S ECONOMY.]
<PAGE> 65
First National Bank Of Gilmer County
Mack G. West, Chairman
Billy R. Loudermilk, President & CEO
George N. Bunch, III
James P. Garrett
David J. Pierce
Richard L. Shockley
David W. Stover
John W. Thomas, Jr.
[PHOTO -- FIRST NATIONAL BANK OF GILMER COUNTY -- CAPTION: AT LEFT, THE BOARD
OF THE FIRST NATIONAL BANK OF GILMER COUNTY AT BLUE RIDGE CARPET MILLS,
MAKERS OF COMMERCIAL CARPET.]
Pickens County Bank
Loy D. Mullinax, Chairman
Dennis W. Burnette, President & CEO
Marc J. Greene, Executive Vice President
James D. Boggus
E. Calvin Dubose, Sr.
G. William Glazebrook, M.D.
James R. Jones
Howard H. Ray
Richard L. Shockley
[PHOTO -- PICKENS COUNTY BANK -- CAPTION: AT RIGHT, THE BOARD OF PICKENS
COUNTY BANK AT THE WOODBRIDGE INN,
A QUAINT INN AND RESTAURANT WHICH CATERS TO LOCAL RESIDENTS AND TOURISTS.]
First National Bank Of Habersham
Paul J. Reeves, Chairman
Glenn C. Bell, President & CEO
Eugene B. White, Executive Vice President
J. Philip Ballard, Jr.
Nathan Burgen
John C. Foster
Fred K. Hamby
Richard L. Shockley
William J. Shortt
H. Milton Stewart, Jr.
E. Hal Woods, Jr.
[PHOTO -- FIRST NATIONAL BANK OF HABERSHAM -- CAPTION: AT LEFT, THE BOARD OF
THE FIRST NATIONAL BANK OF HABERSHAM AT CHATTAHOOCHEE LOCOMOTIVE COMPANY,
WHICH SPECIALIZES IN THE DESIGN AND REMANUFACTURING OF LOCOMOTIVES.]
<PAGE> 66
SHAREHOLDERS INFORMATION
Annual Meeting
The Annual Meeting of the Shareholders
of First National Bancorp will be held at
4:00 p.m. on Wednesday, April 19, 1995,
in the theatre of the Georgia Mountains
Center, 301 Main Street, S.W., Gainesville,
Georgia. There will be a reception in
Rooms B and C of the Georgia Mountains
Center beginning at 3:30 p.m. All Shareholders are invited to attend.
Corporate Reports
The Annual Report, quarterly interim
reports, and copies of First National
Bancorp's Annual Report to the Securities
and Exchange Commission, Form 10-K,
are available upon written request
without charge.
For copies, please write:
C. Talmadge Garrison
First National Bancorp
P.O. Drawer 937
Gainesville, GA 30503
Transfer Agent
Mellon Securities Transfer Services
85 Challenger Road
Ridgefield Park, New Jersey 07660
Independent Auditors
KPMG Peat Marwick LLP
Atlanta, Georgia
Counsel
Stewart, Melvin & Frost
Gainesville, Georgia
Media Contact
Ronda Rich
Director of Corporate Communications
(404) 503-2306
Market Makers
Robinson Humphrey Co., Inc.
A. G. Edwards & Sons, Inc.
Interstate/Johnson Lane Co.
Sterne, Agee & Leach
Herzog, Heine, Geduld, Inc.
John G. Kinnard & Co., Inc.
Morgan, Keegan & Co.
Mayer & Schweitzer, Inc.
J. C. Bradford & Co.
Robert W. Baird & Co., Inc.
Stock Information
First National Bancorp common stock is
traded on the over-the-counter market and quoted through The Nasdaq Stock
Market under the trading symbol "FBAC." Shareholders wishing recent price
information may obtain it from their registered broker.
first national
bancorp officers
Richard A. McNeece
Chairman and
Chief Executive Officer
Peter D. Miller
President, Chief Administrative
and Financial Officer
C. Talmadge Garrison
Senior Vice President
and Secretary
Bryan F. Bell
Senior Vice President
Stephen M. Rownd
Senior Vice President
J. Reid Moore
Group Vice President
and Controller
Mary E. Hengeveld
Group Vice President
Charles A. Robinson
General Auditor
Sandra L. Berg
First Vice President
Arlene M. Lucas
First Vice President
Ray McRae
Chairman Emeritus
Richard L. Shockley
Vice Chairman
<PAGE> 67
First National Bancorp
P.O. Drawer 937
Gainesville, Georgia 30503
<PAGE> 68
BC
<PAGE> 1
Independent Accountant's Consent
The Board of Directors
First National Bancorp:
We consent to the incorporation by reference in the
Registration Statements (No. 33-32997), (No. 33-24985),
(No. 33-41878), (No. 33-61586), (No. 33-68770) and (No.
33-56969) on Form S-8 and (No. 33-57019) on Form S-3 of
First National Bancorp of our report dated January 27,
1995, relating to the consolidated balance sheets of
First National Bancorp and subsidiaries as of December
31, 1994 and 1993, 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, 1994, which is report is
incorporated by reference in the December 31, 1994
annual report on Form 10-K of First National Bancorp.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of
accounting for investments to adopt the provisions of
Statements 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 to the consolidated financial
statements, the Company changed its method of
accounting for income taxes in 1993 to adopt the
provisions of SFAS No. 109, Accounting for Income
Taxes. As discussed in Notes 1 and 10 to the
consolidated financial statements, the Company also
adopted the provisions of SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other than
Pensions, in 1993.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANTS
DECEMBER 31, 1994 ANNUAL REPORT, AS FILED ON FORM 10-K WITH THE SECURITIES AND
EXCHANGE COMMISSION, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 84260
<INT-BEARING-DEPOSITS> 16259
<FED-FUNDS-SOLD> 28908
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 549432
<INVESTMENTS-CARRYING> 157567
<INVESTMENTS-MARKET> 156044
<LOANS> 1424246
<ALLOWANCE> 20441
<TOTAL-ASSETS> 2380548
<DEPOSITS> 1943264
<SHORT-TERM> 105129
<LIABILITIES-OTHER> 24960
<LONG-TERM> 80238
<COMMON> 16540
0
0
<OTHER-SE> 210417
<TOTAL-LIABILITIES-AND-EQUITY> 2380548
<INTEREST-LOAN> 121878
<INTEREST-INVEST> 38374
<INTEREST-OTHER> 2893
<INTEREST-TOTAL> 163145
<INTEREST-DEPOSIT> 58883
<INTEREST-EXPENSE> 66132
<INTEREST-INCOME-NET> 97013
<LOAN-LOSSES> (362)
<SECURITIES-GAINS> 318
<EXPENSE-OTHER> 86639
<INCOME-PRETAX> 37817
<INCOME-PRE-EXTRAORDINARY> 37817
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28134
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
<YIELD-ACTUAL> 5
<LOANS-NON> 18936
<LOANS-PAST> 214
<LOANS-TROUBLED> 45
<LOANS-PROBLEM> 101899
<ALLOWANCE-OPEN> 21539
<CHARGE-OFFS> 7427
<RECOVERIES> 2651
<ALLOWANCE-CLOSE> 20441
<ALLOWANCE-DOMESTIC> 20441
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
[LETTERHEAD]
February 28, 1995
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 19, 1995. 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 1995 Employee Stock Option Plan proposal, and "FOR" the proposal to ratify
KPMG Peat Marwick LLP as independent auditors of the Company for the 1995 year.
We look forward to being with you at the meeting.
Cordially,
Richard A. McNeece
------------------
Richard A. McNeece
Chairman and Chief Executive Officer
Enclosures
<PAGE> 2
FIRST NATIONAL BANCORP
GAINESVILLE, GEORGIA 30503
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 19, 1995
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 19, 1995, at 4:00 p.m., Gainesville time, for the
following purposes:
1. To elect twenty-two Directors to serve until the 1996 Annual Meeting of
Shareholders.
2. To vote on the proposal to establish the 1995 Employee Stock Option Plan.
3. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the fiscal year ending December 31, 1995.
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 17, 1995, are
entitled to notice of and to vote at the meeting or any adjournment thereof.
For the Board of Directors,
Richard A. McNeece
------------------
Richard A. McNeece
Chairman and Chief Executive Officer
Gainesville, Georgia
February 28, 1995
IMPORTANT
SHAREHOLDERS CAN HELP THE COMPANY AVOID THE NECESSITY AND EXPENSE OF SENDING
FOLLOW-UP LETTERS TO ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY.
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN ORDER THAT THE
NECESSARY QUORUM MAY BE REPRESENTED AT THE MEETING. THE ENCLOSED ENVELOPE
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
FIRST NATIONAL BANCORP
GAINESVILLE, GEORGIA 30503
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 19, 1995
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 19,
1995, 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 February 28, 1995.
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 17, 1995, 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 16,557,045 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 that shareholder 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
that shareholder 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> 4
DIRECTOR AND MANAGEMENT INFORMATION
The twenty-two (22) persons listed below as Director Nominees will be
nominated to serve until the 1996 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. 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 MACK 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 68, 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 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 63, became a Director in 1987 when the Bank of
Banks County became an affiliate of the Company. Mr. Cheek is President of Mt.
View Enterprises, Inc., a company concentrating in land development. Mt. View
Enterprises, 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 Mt.
View Enterprises, 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 from 1967 until he
resigned as a Director and Officer in January 1990. Vintage Enterprises, Inc.,
manufactured factory built homes. The manufacturing plant is now closed. Mr.
Cheek has served as a Director and as the Chairman of Bank of Banks County,
Homer, Georgia, since the bank was founded in 1974.
Mr. John A. Ferguson, Jr. age 55, became a Director of the Company in 1994.
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 69, 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
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<PAGE> 5
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's Board of Directors.
Mr. Ray C. Jones, age 65, 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 61, became a Director of the Company in
1982. Mr. Kunzer was co-owner and Vice President of Frierson's from 1969 until
1994 and in 1994 became the sole owner under the name Art Kunzer Men's Clothier.
The store is located in Gainesville, Georgia. Mr. Kunzer has also served as a
Director of The First National Bank of Gainesville since 1982.
Mr. W. L. "Bill" Lester, age 65, became a Director of the Company in 1994.
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 currently serves as
Chairman of that bank's Board of Directors.
Mr. Richard A. McNeece, age 55, 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 48, 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 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 positions including 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 63, 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, became a Director of the Company in 1994.
Mr. Nix is an attorney and has been a partner in the law firm Stewart, Melvin &
Frost (formerly Stewart, Melvin & House) in Gainesville, Georgia since 1977.
Stewart, Melvin & Frost 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
currently serves as Chairman of that bank's Board of Directors.
Mr. Edwin C. Poss, age 67, 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 the Bank of Clayton since 1983.
Mr. Paul J. Reeves, age 69, 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
3
<PAGE> 6
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's Board of
Directors.
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's Board of
Directors, where he has been a director since 1966. Mr. Roberts is owner of A.
R. Roberts Co., Realtors, which is located in Cherokee County.
Mr. Richard L. Shockley, age 69, 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 51, 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 was also owner and
Vice-Chairman of Associated Risk Services, an insurance service provider in
Atlanta from 1987 until 1993. Mr. Smith has served as a Director of The First
National Bank of Gainesville since 1984.
Mr. W. Woodrow Stewart, age 56, became a Director at the origination of the
Company in 1981. Mr. Stewart, an attorney, has been a partner in Stewart, Melvin
& Frost (formerly Stewart, Melvin & House), a law firm in Gainesville, Georgia,
since 1967. Stewart, Melvin & Frost 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 48, 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 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 57, became a Director of the Company in 1994. 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 provides management services to
forty-two consumer finance companies, three rent-to-own locations, and one
furniture store, that are owned by Mr. Walters and located in Georgia and Texas.
Mr. Walters is a founding partner of Express Mortgage Company in Gainesville,
Georgia, and is involved in a number of commercial real estate holdings. Mr.
Walters was elected a Director of The First National Bank of Gainesville in
1993.
Mr. Mack G. West, age 59, became a Director of the Company in 1992. Mr.
West has been the owner of the Sears catalogue and appliance store in Ellijay
since 1974. He has also been 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 42, became a Director of the Company in 1994. 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 and currently serves as a
4
<PAGE> 7
Director and 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 40, 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 five 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 48, is currently serving as Senior Vice President,
Affiliate Credit Administration, for the Company. Mr. Bell served as President
and C.E.O. of the First National Bank of White County, an affiliate of the
Company, from 1986 until 1991. 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 62 is currently serving as Senior Vice
President, Secretary and Treasurer of the Company. He also currently serves as
Senior Vice President and Secretary of The First National Bank of Gainesville.
Mr. Garrison has been associated with the Company and The First National Bank of
Gainesville in various management positions since 1963.
Mr. J. Reid Moore, age, 41, is currently serving as Group Vice President
and Controller, for the Company. Mr. Moore joined the Company in this position
in 1993. From 1990 to 1993, Mr. Moore served as the Controller for the Company's
lead bank The First National Bank of Gainesville. From 1982 until 1990, Mr.
Moore worked for Peoples Bancorporation in Rocky Mount, North Carolina, most
recently as Senior Vice President and Controller.
Mr. Stephen Rownd, age 35, 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 45, is currently serving as President and a
Director of The First National Bank of Gainesville. Mr. White has served in
various bank 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. None of the above Director Nominees or Management
personnel have been involved during the last five years in legal proceedings
relating to the Bankruptcy Act, criminal proceedings, or securities violations.
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 1996 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; (i) 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
5
<PAGE> 8
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, 1994. 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 three times during 1994. Audit Committee
members for 1994 were Ray C. Jones, Chairman, Arthur J. Kunzer, William L.
Lester, Edwin C. Poss, James A. Walters, J. Michael Womble, and Joe Wood, Jr.
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 Executive Compensation Committee for 1994
met three times in 1994 and, on January 18, 1995, to consider compensation
matters for 1994. Executive Compensation Committee members for 1994 were W.
Woodrow Stewart, Chairman, John A. Ferguson, Jr., James H. Harris, Jr., Harold
L. Smith, Bobby M. Thomas, and J. Michael Womble, who was appointed in April
1994.
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 Employee Benefit Committee also receives audit and
performance reports prepared on the various benefit plans. The Employee Benefit
Committee met three times, once in regular session and twice by telephone
conference, in 1994. Employee Benefit Committee members for 1994 were Jane W.
Banks, Chairperson, Thomas S. Cheek, Loy D. Mullinax, Paul J. Reeves, A. Roy
Roberts, Jr., Richard L. Shockley and Mack 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 1994 were Richard A. McNeece, Chairman, Jane W. Banks, James H.
Harris, Jr., Ray C. Jones, J. Kenneth Nix, Sr., Paul J. Reeves, W. Woodrow
Stewart, and Bobby M. Thomas. The committee met three times, once in regular
session and twice by telephone conference, during 1994.
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<PAGE> 9
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.
All Directors attended 75% or more of the aggregate of all Board of
Directors meetings and all meetings of the Committees of the Board of Directors
with the exception of Messrs. Miller, Smith, and Thomas. President Miller's
attendance would have been 100% had he not been out of state in Florida
conducting negotiations on the currently proposed merger of FF Bancorp, Inc.
with and into the Company.
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, 1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP(1)(2)(3) OF CLASS(1)(2)(3)
------------------------------------------------------- ----------------------------- -----------------
<S> <C> <C>
Jane Wood Banks........................................ 187,710 1.13%
Thomas S. Cheek........................................ 39,354 .24%
John A. Ferguson, Jr................................... 2,727 .02%
James H. Harris, Jr.................................... 18,012 .11%
Ray C. Jones........................................... 103,612 .63%
Arthur J. Kunzer, Jr................................... 26,639 .16%
W. L. Lester........................................... 20,895 .13%
Richard A. McNeece..................................... 93,351 .56%
Peter D. Miller........................................ 56,032 .34%
Loy D. Mullinax........................................ 21,517 .13%
J. Kenneth Nix, Sr..................................... 163,103 .99%
Edwin C. Poss.......................................... 7,957 .05%
Paul J. Reeves......................................... 69,623 .42%
A. Roy Roberts, Jr..................................... 59,232 .36%
Richard L. Shockley.................................... 49,562 .30%
Harold L. Smith........................................ 67,535 .41%
W. Woodrow Stewart..................................... 4,010 .02%
Bobby M. Thomas........................................ 55,271 .33%
James A. Walters....................................... 3,533 .02%
Mack G. West........................................... 5,854 .04%
J. Michael Womble...................................... 14,649 .09%
Joe Wood, Jr........................................... 45,763 .28%
Bryan F. Bell.......................................... 19,714 .12%
C. Talmadge Garrison................................... 45,159 .27%
J. Reid Moore.......................................... 3,421 .02%
Stephen M. Rownd....................................... 1,593 .01%
Richard D. White....................................... 25,147 .15%
All Directors and Executive Officers as a Group (27
persons)............................................. 1,210,975 7.28%
</TABLE>
---------------
(1) Included in the listing above for Jane Wood Banks are 100,000 shares held in
a partnership account over which Mrs. Banks has voting and investment power.
Not included in the listing are 302,201 shares owned by adult sons, one
adult daughter and by 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 may assert voting or investment power. Included in the listing
above for James H. Harris, Jr., are 562 shares owned by his wife and adult
son to which he shares voting and investment power. Included in the listing
above for Ray C. Jones are 5,608 shares held in his wife's name over which
he shares voting and investment power. Not included in the listing for Mr.
Jones are 19,428 shares in the names of his adult children or held jointly
with their spouses over which he has no voting or investment power. Included
in the listing above for Arthur J. Kunzer, Jr., are 2,616 shares owned by
his wife to which he shares voting and investment power. Included in the
listing above for W. L. Lester are 6,699 shares held jointly with his wife
over which he shares voting and investment power. Not included in the
listing above for Loy D. Mullinax are 1,449 shares owned by his adult son
and adult daughter and by his grandchildren to which he asserts no voting or
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<PAGE> 10
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 576 shares in a
grantor trust, to which he has voting and investment power. Not included in
the listing above for Mr. Nix are 36,131 shares owned by trusts for Mr.
Nix's children for which Mr. Nix's mother serves as trustee, and over which
Mr. Nix asserts no voting or 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 7,348 shares owned
jointly by him, his wife and sons to which he shares voting and investment
power. Included in the listing above for Mr. Smith are 3,696 shares owned by
his wife to which he shares voting and investment power. Not included in the
listing above for Mr. Smith are 1,213 shares owned by his adult son over
which he has no voting or 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 Mr. Wood are
16,614 shares either held by his wife and/or held jointly with his wife and
shares held in custody for minor children to which he shares voting and
investment powers. 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 2,083 shares owned
by Mr. Garrison's adult son and adult daughter over which he has no voting
or investment power. Included in the listing above for Bryan F. Bell are
8,835 shares held jointly with his wife, to which he shares voting and
investment power. Also included in the listing above for Mr. Bell are 300
shares held in custody for minor children as to which he has 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, 1994 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, 1994 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 1994. 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 $21.00 per share for options issued
in 1994. 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. Shockley,
6,750 shares; Mr. McNeece, 24,732 shares; Mr. Miller, 20,510 shares; Mr.
Garrison, 16,750 shares; Mr. White, 15,510 shares; Mr. Bell, 6,630 shares;
Mr. Rownd, 1,540 shares; Mr. Moore, 2,660 shares; and all directors, and
executive officers (including the above individuals), 95,082 shares.
Directors who are not also executive officers or former executive officers
do not participate in the stock option plans.
(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 September 30, 1994, Mr. McNeece, with funds in
his 401(k) account invested in Company stock, had 6,667 shares in his
401(k). Mr. Bell with funds in his 401(k) account invested in Company stock,
had 2,175 shares. Mr. Moore held 437 shares of Company stock 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, 1994.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OWNERSHIP OF CLASS
------------------------------------------------------------------ -------------------- --------
<S> <C> <C>
Edrayco........................................................... 1,135,501 6.86%
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, 1994, the Trust Department of The First National Bank of
Gainesville had sole voting power with respect to 705,689 shares and sole
investment power with respect to 714,775 shares, shared voting power with
respect to 315,268 shares and shared investment power with respect to 334,487
shares. Not included in the listing above are 10,963 shares held in trust
accounts over which the Trust Department has no voting or investment power.
8
<PAGE> 11
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 southeastern 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 southeastern 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
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
southeastern financial institutions (the "compensation peer group"). Competitive
base compensation medians are determined annually utilizing various industry
sources of information on the compensation peer group, with validation by the
Company's consultants. Since the Company's return on average assets for 1993
placed the Company in the upper range of performance among the compensation peer
group, the Compensation 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 compensation 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 compensation peer group surveys as obtained by various
compensation consulting organizations. In setting the salary ranges for 1994,
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 compensation peer group and the Company's five
year cumulative total return for the Company's 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 1993 was determined to be in the upper level range of the
compensation peer group. The five year cumulative
9
<PAGE> 12
total return for the Company's stock showed an increase of 20.7% from 1993 to
1994. This compared to an increase of 20.0% for the NASDAQ Market Value Index
and an increase of 7.5% for the Dow Jones Industry Peer Group. Since the return
was significantly above the Dow Jones performance, and slightly above the NASDAQ
Market Value Index performance, the Compensation Committee determined the 20.7%
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 salary range as established.
The competitive median salary for 1994, which was arrived at by taking 1993
salary information and projecting the amounts forward for 1994, for CEOs based
on the compensation peer group review was determined to be $355,000. CEO
McNeece's salary for fiscal year 1993 was $336,300. Since it was determined that
the Company performed in the upper range of performance in comparison with the
compensation 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 CEOs of the compensation peer group. The Committee's
policy over the last three years has been to gradually increase the compensation
of the CEO to a level closer to the compensation peer group median. The
Committee proposed a 1.5% increase, or $5,000, for CEO McNeece for 1994, for
this purpose.
A merit increase was also considered due to the performance of Bancorp for
1993 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 1993 were
met, including (i) attainment of earnings per share objectives, (ii) performance
of the Company's stock above the level of performance of the peer group of
southeastern banks, (iii) continued promotion of the investor relations program
to attract additional investment by institutional investors and to increase
trading volume in the company's stock, (iv) acquisition of two affiliate banks
through merger and the negotiation of a definitive agreement for the acquisition
of a third affiliate bank, and (v) overall management leadership in ensuring
that the banking needs of the Company's customer base and banking needs of the
communities in the Company's market area are met. Consequently, CEO McNeece's
performance rating qualified him for an upward adjustment in his annual salary.
Using the 1994 merit increase guidelines applicable to all executive officers,
CEO McNeece's performance qualified him for a 7.4% merit increase ($25,000) in
annual salary. The aggregate increases to annual salary for CEO McNeece
described above were $30,000, thus raising his annual salary for 1994 to
$366,300.
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 1993 and prior years, for the incentive plan to be operative for any
participant, the Company had to first attain a minimum level of performance,
defined as follows: (1) 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 bank
holding companies which are comparable in asset size to the Company as
determined in the Bank Holding Company Information Report as published by the
Federal Reserve Bank of Atlanta. In addition, the Company had to have attained
at least a net income
10
<PAGE> 13
performance equivalent to 90% of business plan net income. Once those criteria
were met, the plan became operative for Company and affiliate bank participants
who had to then meet further performance criteria under the earnings, asset
quality, and strategic goals categories.
For 1994 and future years, the Committee considered, approved and
recommended to the Company's directors that the levels of performance under the
incentive compensation plan be relaxed so that a participant could reasonably
expect to achieve some award under the plan with proper performance. The
Committee approved and recommended an amendment to delete the requirement that
the Company attain an average return on assets of at least 90% of the three
preceding years' average return on assets. The 90% of business plan net income
threshold was retained, however. Another amendment approved and recommended by
the Committee revised the requirement that a participant attain 100% of plan
expectations under the earnings, asset quality and strategic goals criteria, to
require that a participant need attain only 90% of plan expectations for a
criterion to earn an award of incentive compensation for performance under that
criterion, with payout levels reduced for a participant's performance between
90% and 100% of plan expectations for each criterion. That is, full payout with
respect to a criterion is made only if the participant meets 100% of plan
expectations for that criterion. The board of directors of the Company approved
the above-described changes to the incentive compensation plan on January 19,
1994. Under the earnings criterion the Company CEO and President receive awards
only if the Company meets the earnings per share goals. For all other
participants, the Company and affiliate banks are required to meet net income to
plan expectations. Under asset quality goals the Company officers listed in the
Compensation Table and most other participants receive awards only if the
Company or the individual participants affiliate bank meet the allowance for
loan and lease losses ratio goals which are established annually. Under the
strategic objective goals, objectives are customized and strategic priorities
are defined in the respective annual business plans and accomplishments are then
measured against the plan. 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 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, based on information presented by management,
that the required standards under the incentive compensation plan were met by
the Company and by several of the affiliate banks for 1994. 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. CEO
McNeece qualified for an award of $87,188, based on his performance under the
incentive compensation plan criteria, as weighted, for 1994. However, CEO
McNeece elected not to receive the award he qualified for in 1994 under the
incentive compensation plan. Mr. Miller made the same election with respect to
incentive compensation he qualified for in 1994. CEO McNeece and Mr. Miller
explained to the Committee their reason for not accepting the awards was that
though the performance of the Company in 1994 was good, it did not meet their
expectations, particularly due to the revenue decline in the Mortgage Source
division of The First National Bank of Gainesville. CEO McNeece reported to the
Committee that several of the affiliate banks had performed extremely well in
1994, and that these affiliate banks' CEOs and other executive officers should
receive their awards under the incentive compensation plan. The Committee
accepted CEO McNeece's and Mr. Miller's elections not to receive an award of
incentive compensation.
The Committee has determined that stock options should be provided to key
executives to provide incentive for longer term corporate performance and to
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
11
<PAGE> 14
then divided by the option price (fair market value of a share of Company stock
at the date of grant) to 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 19, 1994 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.
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 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.
The Compensation Committee recommended that the Company's board of
directors approve and adopt the Performance-Based Restricted Stock Plan (the
"Restricted Stock Plan") for the benefit of Messrs. McNeece, Miller, and Richard
D. White, the President of The First National Bank of Gainesville. The directors
of the Company approved and adopted this plan in January 1994, and it was
presented to and approved by the shareholders at the annual shareholder's
meeting on April 20, 1994. A full discussion of the major terms, limitations,
and conditions of the plan was presented in the proxy statement for the 1994
annual shareholder's meeting, beginning at page 19 of that proxy statement under
the caption "Performance-Based Restricted Stock Plan Proposal."
The Restricted Stock Plan provides for 90,000 shares of Company stock to be
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. The Restricted Stock Plan provides for awards of Company stock to be made
to CEO McNeece, President, CAO and CFO Miller, and Richard D. White, President
of The First National Bank of Gainesville, if and when specified target prices
are reached over a sixty consecutive day period by Company stock. The target
prices are $29.00 per share, $33.00 per share, and $37.00 per share. CEO McNeece
will be awarded 13,333 shares each time a target price is met, or a total
maximum of 40,000 shares. Mr. Miller will be awarded 10,000 shares each time a
target price is met, or a total maximum of 30,000 shares. Mr. White will be
awarded 6,667 shares each time a target price is met, or a total maximum of
20,000 shares. The Restricted Stock Plan provides that all awards must have been
earned by December 31, 1999.
Shares which are actually awarded under the Restricted Stock Plan to
Messrs. McNeece, Miller and White upon attainment of one or more target prices
by the Company's stock, are subject to forfeiture if (1) the participant does
not meet the specified level of stock ownership required under the Target
Ownership Plan (described above) by the date vesting under the Restricted Stock
Plan would otherwise occur, or (2) the participant terminates employment prior
to the earlier of age 65 or completion of eight years of service after
12
<PAGE> 15
the shares are awarded, for reasons other than death, disability, a change of
control of the Company, or an involuntary termination without reasonable cause.
<TABLE>
<S> <C>
W. Woodrow Stewart, Chairman Harold L. Smith
John A. Ferguson, Jr. Bobby M. Thomas
James H. Harris, Jr. J. Michael Womble
</TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
The table and graph below present for the fiscal years indicated, 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 1989 1990 1991 1992 1993 1994
--------------------------------------------- ---- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
First National Bancorp, Georgia 100 81.72 112.50 134.15 161.97 153.69
Peer Group, Dow Jones, BAS 100 70.55 122.96 166.56 176.19 175.19
Broad Market Index, NASDAQ 100 81.12 104.14 105.16 126.14 132.44
</TABLE>
<TABLE>
<CAPTION>
Dow Jones
First Industry, Nasdaq Mar-
Measurement Period National Southern ket Valu e
(Fiscal Year Covered) Bancorp Banks Index
<S> <C> <C> <C>
1989 100 100 100
1990 81.72 70.55 81.12
1991 112.50 122.96 104.14
1992 134.15 166.56 105.16
1993 161.97 176.19 126.14
1994 153.69 175.19 132.44
</TABLE>
ASSUMES $100 INVESTED ON JANUARY 1, 1990; ASSUMES DIVIDEND REINVESTED.
FISCAL YEAR ENDING DECEMBER 31ST
13
<PAGE> 16
SUMMARY COMPENSATION TABLE
The following table summarizes the key elements of executive compensation
previously discussed. The Summary Compensation Table includes individual
compensation information on the Chief Executive Officer and the four other most
highly compensated executive officers of the Company for services rendered in
all capacities during the fiscal years ended December 31, 1994, 1993, and 1992.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
---------------------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) COMPENSATION ($)(2) OPTIONS (#)
------------------------------ ---- ----------- ------------ ------------------- ------------
<S> <C> <C> <C> <C> <C>
Richard A. McNeece 1994 $ 366,300 $ -0- $ 1,000 15,200
Chairman and C.E.O. 1993 336,300 117,705 1,000 16,000
1992 300,000 21,000 1,000 16,500
Peter D. Miller 1994 265,200 -0- 1,000 8,750
President, C.A.O., and C.F.O. 1993 245,200 61,300 1,000 9,400
1992 225,000 16,313 1,000 7,500
C. Talmadge Garrison 1994 155,500 14,623 1,000 4,250
Senior Vice President, 1993 149,400 22,410 1,000 6,000
Secretary & Treasurer 1992 143,400 8,604 1,000 6,750
Richard D. White 1994 215,000 -0- 1,000 5,550
President, The First National 1993 195,000 39,000 1,000 6,000
Bank of Gainesville 1992 170,000 10,880 1,000 6,000
Bryan F. Bell 1994 117,300 23,843 1,000 2,650
Senior Vice President, Credit 1993 110,800 24,930 1,000 4,000
First National Bancorp 1992 105,500 7,955 1,000 4,500
<CAPTION>
NAME AND ALL OTHER
PRINCIPAL POSITION COMPENSATION ($)
------------------------------ ----------------
<S> <C>
Richard A. McNeece $ 32,359(3)
Chairman and C.E.O. 36,818(3)
24,000(3)
Peter D. Miller 21,629(3)
President, C.A.O., and C.F.O. 25,402(3)
18,000(3)
C. Talmadge Garrison 12,571(3)
Senior Vice President, 13,984(3)
Secretary & Treasurer 11,472(3)
Richard D. White 12,000(3)
President, The First National 17,550(3)
Bank of Gainesville 13,600(3)
Bryan F. Bell 12,778(3)
Senior Vice President, Credit 9,972(3)
First National Bancorp 8,440(3)
</TABLE>
---------------
(1) These amounts are awards made to the officer under the Company's incentive
compensation plan. See the subsection entitled "Compensation Committee
Report." Under the incentive compensation plan, Mr. McNeece was eligible to
receive an award of $87,188 for 1994, and Mr. Miller was eligible to receive
an award of $42,212 for 1994. Messrs. McNeece and Miller each elected not to
receive awards they qualified for in 1994 under the incentive compensation
plan. The rationale for these elections is explained in the Compensation
Committee Report above.
(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 1994, 1993 and 1992, 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 each year, 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.
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 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. In 1994, base compensation was at the
competitive median for Mr. Miller and Mr. White and somewhat above the
competitive median for Mr. McNeece. See the discussion of how base compensation
is determined in the Compensation Committee Report.
14
<PAGE> 17
In 1992, incentive awards were modest relative to target and maximum
potential payouts. The lower payment of awards for 1992 reflects actual earnings
and loan quality results below plan expectations. In 1993 and 1994, 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 1992 and 1993, 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 adopted a performance based restricted stock
plan for three of its key officers in 1994. A description of the restricted
stock plan is located in the Compensation Committee Report above.
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 1994 and the
projected value of those stock options:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SECURITIES PERCENT OF ASSUMED ANNUAL RATES OF STOCK
UNDERLYING TOTAL OPTIONS EXERCISE PRICE APPRECIATION FOR OPTION
OPTIONS GRANTED TO OR BASE TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME AND PRINCIPAL POSITION (#)(1) FISCAL YEAR ($/SHARE) DATE 0%($)(3) 5%($) 10%($)
------------------------------ ---------- -------------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard A. McNeece 15,200 12.39% $ 21.00 1/19/04 $0 $200,743 $508,723
Chairman and C.E.O.
Peter D. Miller 8,750 7.13% $ 21.00 1/19/04 $0 115,559 292,850
President, C.A.O., and
C.F.O.
C. Talmadge Garrison 4,250 3.46% $ 21.00 1/19/04 $0 56,129 142,242
Senior Vice President,
Secretary & Treasurer
Richard D. White 5,550 4.52% $ 21.00 1/19/04 $0 73,298 185,751
President, The First
National
Bank of Gainesville
Bryan F. Bell 2,650 2.16% $ 21.00 1/19/04 $0 34,998 88,692
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 19, 1995.
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,
1994 and the exercise price shown in the table, if the Potential Realizable
Values were realized at the 5% annual rate of appreciation for the option term,
the realized appreciation to all Company shareholders would be $218,447,000. At
the 10% annual rate of appreciation for the option term, the realized value for
all shareholders would be $553,587,000.
All the above options were granted during the year 1994 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 4,554 of the
option shares granted to Mr. McNeece which are non-qualified. 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 $100,000
limit refers to the price that the officer would pay to purchase the stock upon
exercise of the option and has no relation to any profit or gain which the
officer might receive upon exercise of the option.
15
<PAGE> 18
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table below sets forth the aggregated stock options exercised during
the fiscal year ended December 31, 1994 and the year-end option values. The
table also sets forth the number of shares received upon exercise of options and
the aggregate dollar value realized upon exercise, which is the difference
between the fair market value of the stock acquired upon exercise of the options
and the exercise price for such options. The table also sets forth the total
number of unexercised options held at December 31, 1994, separately identifying
those options currently exercisable and unexercisable. The table indicates the
value of those options which are "in-the-money", which means the amount by which
the fair market value of stock underlying certain options exceeds the exercise
price of such options at December 31, 1994.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME AND PRINCIPAL POSITION ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(2)
---------------------------------------- --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Richard A. McNeece 1,208 $ 3,624 14,566/ $ 39,523/
Chairman and C.E.O. 31,936 $ 15,669
Peter D. Miller 6,750 $ 14,904 16,880/ $ 82,678/
President, C.A.O., and C.F.O. 16,270 $ 2,030
C. Talmadge Garrison 11,999 $ 44,998 14,700/ $ 74,277/
Senior Vice President, 9,050 $ 1,296
Secretary & Treasurer
Richard D. White 5,249 $ 11,590 13,200/ $ 66,060/
President, The First National 10,350 $ 1,296
Bank of Gainesville
Bryan F. Bell 8,250 $ 66,123 5,300/ $ 14,180/
Senior Vice President, 5,850 $ 864
Credit Officer
</TABLE>
---------------
(1) Relative to those shares acquired on exercise: in the case of Messrs.
McNeece, Miller, and White the market value was calculated using the average
of the high and low sales price of the shares as quoted on NASDAQ on the
date of exercise; in the case of Mr. Garrison and Mr. Bell, the market value
was determined using the actual prices received by Mr. Garrison and Mr. Bell
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.
(2) In calculating the value of unexercised in-the-money options, the average of
the high and low sales price of shares as quoted on NASDAQ on December 30,
1994 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 as well as others. 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) 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.
16
<PAGE> 19
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
Compensation Committee serves from April to April, rather than the calendar
year. The Compensation Committee members serving from April 1994 until April
1995 are W. Woodrow Stewart, Chairman, John A. Ferguson, Jr., James H. Harris,
Jr., Harold L. Smith, Bobby M. Thomas and J. Michael Womble. The Committee
members who served from April 1993 until April 1994 were W. Woodrow Stewart,
Chairman, James H. Harris, Jr., J. B. McKibbon, Jr., J. M. "Ray" McRae (former
C.E.O. of the Company and currently Chairman Emeritus of the Company), J. L. Nix
(former Chairman and C.E.O. of the First National Bank of White County), Harold
L. Smith, and Bobby M. Thomas.
Mr. Stewart is a partner in the law firm Stewart, Melvin, & Frost in
Gainesville, Georgia. Stewart, Melvin & Frost (formerly Stewart, Melvin & House)
provided legal services to the Company and one or more of its affiliate banks
during 1994; and it is anticipated that the firm will provide legal services to
the Company in 1995. During 1994, the Company paid the firm of Stewart, Melvin &
Frost (formerly Stewart, Melvin & House) $102,194 in legal fees, and the
Company's subsidiary banks, in the aggregate, paid the firm $369,450 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 this firm in connection with
certain transactions in which the firm represented the Company or one of its
subsidiaries.
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 1994, non-management Directors
of the Company received a fee of $5,000 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 1994 for committee meeting attendance.
Each of the non-management Directors of the Company also
17
<PAGE> 20
served as a director on the board of one of the seventeen 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 1994, and the Company contributed $1,000 to each participating Director's
plan account during 1994.
In 1994, the Company had consulting agreements with Messrs. J. M. "Ray"
McRae and Richard L. Shockley, former officers of the Company. Under these
agreements, Messrs. McRae and Shockley provided consulting services to the
Company and were paid $24,667 and $41,000, respectively, during 1994. Mr. McRae
provided services in carrying on established customer contacts, customer
relations and working with current and prospective affiliate banks until his
contract expired in April 1994. Mr. Shockley provides services in customer
relations and serves as a liaison on the boards of several of the Company
affiliate banks. Mr. McRae was named Chairman Emeritus of the Company following
the termination of his service as an active Director in April 1994. Mr. McRae as
Chairman Emeritus, receives fees as an honorary Director of The First National
Bank of Gainesville and the Company, the same as other honorary Directors of
those stated entities.
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 in
the ordinary course of business, 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., a Director who has served since 1994, are partners in the law firm of
Stewart, Melvin & Frost (formerly Stewart, Melvin & House) located in
Gainesville, Georgia. Mr. Stewart and Mr. Nix, who have been nominated for
re-election to the Board, through their firm, provided legal services to the
Company and several of its subsidiaries during 1994, and it is anticipated that
their firm will also provide legal services to the Company during 1995. The
amount of fees for legal services to the Company and its affiliate banks paid to
Stewart, Melvin & Frost during 1994 is set forth above in the subsection
entitled "Compensation Committee Interlocks and Insider Participation".
STOCK OPTION PLAN PROPOSAL
The Board of Directors recommends the shareholders approve the
establishment of the "1995 Employee Stock Option Plan" for senior officers of
the Company or affiliate banks. In 1985, the Board of Directors of the Company
became increasingly aware of the use of stock option programs by other financial
institutions. At that time, the Company established the 1985 Employee Stock
Option Plan. The number of stock options authorized in the 1985 Plan were fully
granted. In 1988, 1990 and again in 1993, the Board of Directors adopted and the
shareholders of the Company approved the 1988 Employee Stock Option Plan (the
"1988 Plan"), the 1990 Employee Stock Option Plan (the "1990 Plan"), and the
1993 Employee Stock Option Plan (the "1993" Plan) in order to authorize the
grant of additional option shares. The purpose of establishing a
18
<PAGE> 21
stock option benefit for senior officers was to retain and attract qualified
individuals in those positions of responsibility within the Company's
organizational structure.
Over the past seven years, the options previously authorized under the 1988
Plan and the 1990 Plan have been fully allocated and options authorized under
the 1993 Plan have been almost fully allocated. Management believes that an
ongoing options program is highly desirable in order that the Company may
continue to attract and retain management personnel capable of moving the
Company forward in the coming years. The stock to be used for the program would
be the common stock of the Company.
The Board of Directors of the Company at its meeting on October 19, 1994,
authorized and adopted the 1995 Employee Stock Option Plan (referred to herein
as the "Plan" or the "1995 Plan") and directed that the Plan be submitted to the
shareholders for their approval. Under the Plan, the Board of Directors of the
Company is authorized to issue stock options from time to time to senior
officers of the Company or its affiliate banks. The approximate number of senior
officers who may be eligible to be granted options is 70. Eligibility for
participation and the extent of participation is determined at the sole
discretion of the Board of Directors of the Company. Any option granted under
the Plan must be granted within ten (10) years of the date of adoption of the
Plan by the Board. Any options issued would be for the $1.00 par value common
stock of the Company, and the aggregate amount of stock for which options may be
granted under the Plan is 500,000 shares. Options may be granted as qualified or
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code, or as nonqualified options. The senior officers who are granted options
under the Plan are not required to pay any consideration for the grant of the
options. The purchase price for a share of stock under any option, qualified or
nonqualified, granted under the Plan shall not be less than the fair market
value of the stock on the date of the grant of the option (110% of fair market
value in the case of any ten percent (10%) shareholder). As of February 9, 1995,
the market value of Company stock was $19.375 per share based on the last trade
price. With respect to options granted under the Plan as incentive stock options
under Section 422 of the Internal Revenue Code, the aggregate fair market value
of stock (determined at the time of the grant of the option) with respect to
which options are exercisable for the first time by any senior officer during
any calendar year will not exceed $100,000, in order that the options will not
exceed the dollar limits for incentive stock options under Section 422 of the
Internal Revenue Code. The Board of Directors of the Company has adopted a
policy relating to the Plan which requires that as many of the options granted
to a senior officer for a particular calendar year be designated as incentive
stock options as possible without exceeding the $100,000 cap described above,
which is imposed by Section 422 of the Internal Revenue Code. Options granted to
a senior officer for a calendar year which may not be designated as incentive
stock options without causing the $100,000 cap to be exceeded, will be
designated as nonqualified stock options. The tax consequences of incentive
stock options and nonqualified stock options are discussed below.
The Plan also provides that any option granted under the Plan shall contain
additional provisions as established by the Board of Directors, setting forth
the manner of exercise of such option and additional terms and restrictions
which are consistent with the terms of the Plan. Each option agreement is
required to contain, at a minimum, the number of shares to which the option
pertains, the option price which is to be not less than fair market value on the
date of grant, the terms and conditions for payment (which may include payment
for shares purchased under options with other shares of the Company owned by the
optionee), the term of the option and the period or periods during the term in
which the option or portions thereof may be exercised (not to exceed ten years
from date of grant), and a provision that the option is not transferable other
than by will or the laws of descent and distribution and is exercisable during
the optionee's lifetime only by the optionee.
The Board has adopted a policy that each option granted under the Plan will
have a ten-year term and will provide that the optionee may only exercise the
right to purchase 20% of the shares after the expiration of one year of
continuous employment by the Company or an affiliate bank from the date of grant
of the option to the optionee, that the optionee may only exercise the right to
purchase up to an additional 20% of the shares after the expiration of two years
of continuous employment, and so forth as to the remaining shares. In effect the
optionee becomes entitled to exercise the right to purchase 20% of the shares
under the option after the expiration of each year during a five-year period of
continuous employment by the Company or an affiliate bank.
19
<PAGE> 22
In addition, the adopted policy of the Board requires that each option
granted under the Plan shall contain a provision providing for accelerated
vesting of the optionee's right to exercise the options (where the options are
not immediately exercisable as set forth in the preceding paragraph) upon the
first occurrence of a "Change in Control" of the Company. A "Change in Control"
generally occurs when there is a change in control over management through
change in stock ownership due to merger, tender offer, sale of substantially all
the assets of the Company, or other event effectively changing the control over
management and the Company.
The Plan may not be amended in any manner to increase the cost thereof to
the Company without prior shareholder approval; however, the Board policies set
forth in the two preceding paragraphs may be changed without shareholder
approval. In addition, the current Compensation Committee and Board policies and
methodology concerning allocations of stock options between the executive
officers and groups of employees shown in the New Plan Benefits Table below can
be changed without shareholder approval. See the discussion of the stock option
grant methodology in the Compensation Committee Report above. No amendment,
without the prior approval of the shareholders, shall adversely affect the
exercise of options granted before the date of the amendment.
The New Plan Benefits table below sets forth, to the extent determinable at
this time, the benefits to be derived by the executive officers and other
employee groups shown in the table with respect to the proposed 1995 Employee
Stock Option Plan.
NEW PLAN BENEFITS
1995 EMPLOYEE STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE ($)(1) NUMBER OF UNITS(2)
-------------------------------- ------------------- ------------------
<S> <C> <C>
Richard A. McNeece, $ 0 15,200
Chairman & CEO
Peter D. Miller $ 0 8,750
President, C.A.O., and C.F.O.
C. Talmadge Garrison $ 0 4,250
Senior Vice President,
Secretary & Treasurer
Richard D. White $ 0 5,550
President, The First National
Bank of Gainesville
Bryan F. Bell $ 0 2,650
Senior Vice President,
Credit Officer
Executive Group $ 0 40,550
Non-Executive Officer Employee
Group $ 0 82,150
</TABLE>
---------------
(1) The purchase price to exercise options granted under the 1995 Employee Stock
Option Plan will be the fair market value of the stock underlying the option
grants on the grant date. No dollar value or gain to the optionees is
possible without appreciation in the stock price after the grant date.
(2) The number of units shown corresponds to the number of Company shares
underlying options which would have been granted to the optionee(s) shown
had the 1995 Employee Stock Option Plan been in existence in 1994. The
number of units shown for the optionees is the number of Company shares
underlying options actually granted to the optionees in 1994 under the 1993
Employee Stock Option Plan. The actual benefits or amounts which may become
payable to the optionees under the 1995 Employee Stock Option Plan is not
determinable at this time.
No grant of options under the proposed 1995 Plan has been made and it is
anticipated that no grant of options will be made or committed to until January
1996.
Under the Internal Revenue Code, the options designated as incentive stock
options will have certain tax consequences. The grant of the option to an
employee will not be a taxable event to the employee. The transfer of stock to
an employee upon his exercise of an incentive stock option is tax-free under the
regular income tax
20
<PAGE> 23
provided that (i) the employee is continuously employed with the Company or an
affiliate bank until at least the day which is three (3) months before the
exercise of the option and (ii) the stock is not disposed of by the employee
until at least two (2) years after the option was granted and one (1) year after
the option was exercised. Disabled employees are allowed one (1) year from
termination of employment to exercise their options. Though the exercise of an
incentive stock option has no regular income tax consequences, the amount by
which fair market value of the stock at exercise exceeds the option price is an
adjustment used in computing alternative minimum taxable income. Gain on the
subsequent sale of the stock is long-term capital gain if the employee has held
the stock for more than one (1) year. If this holding period requirement is not
met, the gain may be part compensation income and part capital gain, depending
on the spread between the option price and the value of the stock. The Company
will not be entitled to any deduction for the stock transferred to the employee
except to the extent the employee realizes ordinary income upon sale of the
stock. If the employee disposes of the stock, other than in an insolvency
proceeding, within two (2) years after the option was granted or within a year
after receiving the stock, the employee realizes ordinary income in the taxable
year of disposition as to any gain up to the amount by which the stock's value
on the date the option was exercised exceeds the employee's adjusted basis in
the stock, or up to the excess of the amount realized upon disposition of the
stock over the employee's basis in the stock, if the amount realized is less
than the stock's value at the date of exercise of the option.
The options designated as nonqualified options receive a different
treatment under the Internal Revenue Code in certain respects as compared to the
incentive stock options discussed above. An employee is not taxed upon grant of
a nonqualified option, unless the option (not the shares underlying the option)
has a readily ascertainable market value. The Internal Revenue Service generally
holds that nonqualified stock options do not have a readily ascertainable market
value. The transfer of stock to an employee upon his exercise of a nonqualified
stock option generally results in compensation income to the employee which is
measured by the difference between the fair market value of the stock on the
date of exercise of the option and the purchase price paid pursuant to the
option. The Company will be entitled to a deduction for any compensation income
realized by the employee for the taxable year of the Company in which the
employee exercises the option and realizes compensation income. Upon a
subsequent sale of the stock by the employee, the employee will report gain or
loss as capital gain or loss, based upon the selling price as compared to the
employee's tax basis in the shares. The employee's tax basis in the shares will
include the price paid for the shares plus any compensation income realized by
the employee upon exercise of the option.
Under Internal Revenue Code Section 422, options qualify as incentive stock
options to the extent that options which are first exercisable in any calendar
year do not exceed $100,000 (based on the exercise price of the options). To the
extent that options which are first exercisable during a calendar year exceed
$100,000, the options are nonqualified options. In determining which options are
counted in the $100,000 cap amount, the Internal Revenue Code requires that the
option be considered in the chronological order in which they were granted. In
the event that the right to exercise options granted under the Plan is
accelerated upon a Change in Control, as described above, all or a portion of
the options which were granted as incentive stock options might become
nonqualified stock options since the acceleration of their exercise date into
the calendar year of the Change in Control could cause the $100,000 cap to be
exceeded.
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 registrations will be borne by the
Company.
As provided above, only senior officers of the Company or its affiliate
banks will be eligible to receive stock options under the Plan at the discretion
of the Board of Directors of the Company. This would include the executive
officers listed in the Summary Compensation Table included under the section
entitled "COMPENSATION OF EXECUTIVE OFFICERS" in this Proxy Statement.
The stock options previously granted to senior officers of the Company and
its affiliate banks under the prior employee stock option plans, and information
on options exercised during the last fiscal year, are reflected in tables
contained in the section of this Proxy Statement entitled "COMPENSATION OF
EXECUTIVE OFFICERS."
21
<PAGE> 24
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 1995 EMPLOYEE STOCK OPTION
PLAN.
SHAREHOLDER PROPOSALS
Any proposal that a shareholder intends to present at the 1996 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 1, 1995. 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 LLP to serve as
independent auditors of the Company for the fiscal year ending December 31,
1995, subject to ratification of this appointment by the shareholders of the
Company. KPMG Peat Marwick LLP 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 LLP 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 LLP, 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 LLP AS INDEPENDENT AUDITORS OF THE
COMPANY FOR THE 1995 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.
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 1994 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.
22
<PAGE> 25
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 1994 ANNUAL REPORT ON FORM 10-K WILL BE PROVIDED WITHOUT CHARGE.
February 28, 1995
23
<PAGE> 26
FIRST NATIONAL BANCORP
