<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
November 21, 1995
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
FIRST NATIONAL BANCORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 0-10657 58-1415138
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction File No.) Identification
of incorporation) Number)
303 Jesse Jewell Parkway, Suite 700 Gainesville, Georgia 30501
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 503-2000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
No Change
- --------------------------------------------------------------------------------
(Former name or address, if changed since last report)
1
<PAGE> 2
ITEM 5. OTHER EVENTS
On July 3, 1995, First National Bancorp ("Registrant") completed its acquisition
of FF Bancorp, Inc. ("FF Bancorp") as previously described in the Form 8-K
Current Report dated July 5, 1995. The transaction was accounted for as a
pooling-of-interests and, accordingly, consolidated financial statements of
Registrant issued after the acquisition date, which include pre-acquisition
results of operations, must be restated to include the financial position and
results of operations of FF Bancorp.
On October 22, 1995, as previously reported under Form 8-K Current Report dated
October 22, 1995, Registrant and Regions Financial Corporation ("Regions")
entered into an Agreement and Plan of Reorganization whereby Registrant will be
acquired by Regions. It is the desire of Registrant and Regions to consummate
this proposed transaction as soon as possible, and Regions plans to file a Form
S-4 Registration Statement for the proposed acquisition shortly. Such Form S-4
will require the audited restated (for Registrant's completed acquisition of FF
Bancorp) consolidated balance sheets of Registrant as of December 31, 1994 and
1993, and the related restated consolidated statements of income, shareholders'
equity, and cash flows for each of the years in the three year period ended
December 31, 1994. These restated financial statements have been included in
this Form 8-K Current Report. Also included in this Form 8-K Current Report is
Registrants' restated managements' discussion and analysis of financial
condition and results of operations for each of the years in the three year
period ended December 31, 1994.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Hacker, Johnson, Cohen & Grieb
99.1 Restated Historical Financial Statements of First National
Bancorp
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST NATIONAL BANCORP
-----------------------
(Registrant)
By: /s/ J. Reid Moore
-----------------------------
J. Reid Moore
Group Vice President and
Controller
By: /s/ C. Talmadge Garrison
-----------------------------
C. Talmadge Garrison
Senior Vice President and
Secretary and Treasurer
Date: November 21, 1995
-------------------------
2
<PAGE> 3
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- ----------
<S> <C> <C>
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Hacker, Johnson, Cohen & Grieb
99.1 Restated Historical Financial Statements of
First National Bancorp
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Independent Accountants' Consent
The Board of Directors
First National Bancorp:
We consent to incorporation by reference in the Registration Statements (No.
33-32997), (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, except as to Note 2, which is dated July 3,
1995, and except as to Note 19 which is dated October 22, 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 report appears in the November 21, 1995
current report on Form 8-K of First National Bancorp.
Our report refers to a change in the method of accounting for investment
securities to adopt the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," at December 31, 1993, a change in the method of accounting for
income taxes in 1993 to adopt the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," and a change in
the method of accounting for postretirement benefits other than pensions in
1993 to adopt the provisions of Statement of Financial Accounting Standards No.
106, "Employers' Accounting For Postretirement Benefits Other than Pensions".
KPMG PEAT MARWICK LLP
Atlanta, Georgia
November 21, 1995
<PAGE> 1
EXHIBIT 23.2
Independent Accountants' Consent
The Board of Directors
First National Bancorp:
We consent to the incorporation by reference in the Registration Statements
(No. 33-32997), (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, with respect to the consolidated balance
sheets of FF Bancorp, Inc. and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1994, which report appears in the Form 8-K of First National Bancorp dated
November 21, 1995.
Our report refers to a change in the method of accounting for income taxes in
1993 to adopt the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," and a change in the method of accounting
for investment securities to adopt the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," at December 31, 1993.
Hacker, Johnson, Cohen & Grieb
Tampa, Florida
November 21, 1995
<PAGE> 1
EXHIBIT 99.1
- TABLE OF CONTENTS -
RESTATED HISTORICAL FINANCIAL STATEMENTS
and Management's Discussion and Analysis of
Financial Condition and Results of Operations
OF
FIRST NATIONAL BANCORP
Gainesville, Georgia
<TABLE>
<S> <C>
Consolidated Balance Sheets as of December 31, 1994 and 1993 . . . . . . . . . . . . . . . . 1
Consolidated Statements of Income for each of the Years
in the Three Year Period Ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Shareholders' Equity for each of the Years
in the Three Year Period Ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows for each of the Years
in the Three Year Period Ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 5
Independant Auditors' Reports:
KPMG Peat Marwick LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Hacker, Johnson, Cohen & Grieb . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Management's Discussion and Analysis of Financial Condition and Results of Operations . . . 32
</TABLE>
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1993
----------------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 3) $ 96,433 $ 94,243
Federal funds sold and securities purchased under
agreements to resell 117,789 124,231
- ---------------------------------------------------------------------------------------
Cash and cash equivalents 214,222 218,474
Interest-bearing deposits in other financial institutions 16,259 68,157
Investment securities available-for-sale (Note 4) 579,536 433,591
Investment securities held-to-maturity (market value $156,044
and $205,189 in 1994 and 1993, respectively (Notes 4 and 8) 157,567 191,381
Loans (Notes 5 and 8) 1,863,188 1,683,912
Less: Unearned income (12,276) (20,866)
Allowance for loan losses (26,476) (24,265)
- ---------------------------------------------------------------------------------------
Net loans 1,824,436 1,638,781
Premises and equipment, net (Notes 6 and 8) 66,973 57,721
Other assets (Note 9) 111,763 78,708
- ---------------------------------------------------------------------------------------
Total assets $2,970,756 $2,686,813
=======================================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 349,121 $ 291,710
Interest-bearing, including certificates of deposit of
$100 or more of $223,531 and $195,161 in 1994
and 1993, respectively 2,133,337 1,962,972
- ---------------------------------------------------------------------------------------
Total deposits 2,482,458 2,254,682
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 62,958
Other liabilities (Note 10) 30,479 31,651
- ---------------------------------------------------------------------------------------
Total liabilities 2,698,304 2,426,477
SHAREHOLDERS' EQUITY (Note 15)
Common stock, par value $1 per share, authorized
30,000,000 shares; issued and outstanding 20,402,235 and
19,309,979 shares for 1994 and 1993, respectively (Note 11) 20,402 19,310
Additional paid-in capital 84,464 68,356
Retained earnings (Note 14) 181,395 167,903
Net unrealized holding (losses) gains on investment
securities available-for-sale (13,723) 4,940
Stock Held by Management Recognition Plan (86) (173)
- ---------------------------------------------------------------------------------------
Total shareholders' equity 272,452 260,336
Commitments and contingent liabilities (Notes 12 and 13)
- ---------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,970,756 $2,686,813
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $ 155,730 $ 144,672 $ 152,498
Interest-bearing deposits in other financial institutions 1,666 2,750 3,507
Investment securities:
Tax-exempt 10,174 9,025 8,428
Taxable 33,369 31,263 31,972
Other interest-earning assets 4,975 3,167 3,942
- ---------------------------------------------------------------------------------------------------
Total interest income 205,914 190,877 200,347
- ---------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits, including interest expense on
certificates of deposit of $100 or more of
$8,366, $9,860 and $16,629 in 1994, 1993
and 1992, respectively 78,748 77,154 96,665
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 4,018 2,122 520
- ---------------------------------------------------------------------------------------------------
Total interest expense 86,018 82,581 100,352
- ---------------------------------------------------------------------------------------------------
NET INTEREST INCOME 119,896 108,296 99,995
Provision for loan losses (Note 5) 1,577 3,162 12,295
- ---------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 118,319 105,134 87,700
- ---------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Fees for trust services 2,345 2,250 2,398
Service charges on deposit accounts 11,764 9,427 7,819
Net (loss) gain on sale of investment securities (Note 4) (283) 753 2,470
Other noninterest income (Note 17) 14,286 20,609 18,596
- ---------------------------------------------------------------------------------------------------
Total noninterest income 28,112 33,039 31,283
- ---------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits (Note 10) 49,033 44,584 37,587
Net occupancy 6,526 5,913 5,857
Furniture and equipment 6,124 5,828 4,739
Other noninterest expense (Note 17) 37,097 34,696 30,437
- ---------------------------------------------------------------------------------------------------
Total noninterest expense 98,780 91,021 78,620
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMMULATIVE EFFECT OF ACCOUNTING CHANGE 47,651 47,152 40,363
Income tax expense (Note 9) 13,015 13,677 11,428
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE CUMMULATIVE EFFECT
OF ACCOUNTING CHANGE 34,636 33,475 28,935
Cumulative effect at January 1, 1993 of change in
accounting for income taxes (Note 9) --- 984 ---
- ---------------------------------------------------------------------------------------------------
NET INCOME $ 34,636 $ 34,459 $ 28,935
===================================================================================================
NET INCOME PER SHARE:
Weighted-average shares outstanding 20,132,098 19,668,272 19,304,996
Income before cummulative effect of accounting change $ 1.72 $ 1.70 $ 1.50
Cummulative effect of accounting change --- 0.05 ---
- ---------------------------------------------------------------------------------------------------
Net income per share $ 1.72 $ 1.75 $ 1.50
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Net
Unrealized
Holding
(Losses) Gains
On Investment Stock Held
Common Stock Additional Securities by Management
------------------------ Paid-In Retained Available- Recognition
Shares Amount Capital Earnings For-Sale Plan Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991, as originally
reported 15,584,951 15,585 52,225 110,148 - - 177,958
Restatement for effect
of acquisition of
FF Bancorp, Inc.
(Note 2) 2,846,250 2,846 7,811 17,761 - (345) 28,073
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1991, as restated 18,431,201 $ 18,431 $ 60,036 $ 127,909 $ - $ (345) $ 206,031
Net income - - - 28,935 - - 28,935
Cash dividends
declared - $.6400
per share - - - (9,327) - - (9,327)
Cash dividends of
pooled subsidiaries
prior to acquisition - - - (1,287) - - (1,287)
Net Proceeds from
the sale of common
stock by pooled
subsidiary 377,571 378 1,682 - - - 2,060
Proceeds from the
exercise of stock
options by pooled
subsidiaries 34,575 34 117 - - - 151
Issuance of 21,344
shares of common
stock held by
Management Recognition
Plan - - - - - 86 86
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 19,027,185 19,027 64,463 146,230 - (259) 229,461
Net income - - - 34,459 - - 34,459
Retirement of common
stock of pooled
subsidiary (19,800) (20) (275) - - - (295)
Cash dividends
declared - $.7050
per share - - - (10,640) - - (10,640)
Cash dividends of
pooled subsidiary
prior to acquisition - - - (2,146) - - (2,146)
Issuance of 21,349
shares of common
stock held by
Management Recognition
Plan - - 149 - - 86 235
Proceeds from the
exercise of stock
options by pooled
subsidiaries 62,578 63 345 - - - 408
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 dividend
reinvestment 47,007 47 907 - - - 954
Implementation of
change in accounting
for investment securities
available-for-sale
net of tax effect of
$3,091 - - - - 4,940 - 4,940
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1993 19,309,979 19,310 68,356 167,903 4,940 (173) 260,336
Net income - - - 34,636 - - 34,636
Cash dividends declared
- $.7775 per share - - - (12,589) - - (12,589)
Cash dividends of pooled
subsidiary prior
to acquisition - - - (2,445) - - (2,445)
10% stock dividend of
pooled subsidiary
prior to acquisition 350,669 351 5,759 (6,110) - - -
Retirement of common
stock of pooled
subsidiary (80,768) (81) (1,103) - - - (1,184)
Issuance of 21,349
shares of common
stock held by
Management Recognition
Plan - - 224 - - 87 311
Proceeds from the
exercise of stock
options by pooled
subsidiary 277,723 277 1,753 - - - 2,030
Issuance of common
shares for
bank acquisitions 325,106 325 5,942 - - - 6,267
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 benefits of
$11,779 - - - - (18,663) - (18,663)
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 20,402,235 $ 20,402 $ 84,464 $ 181,395 $(13,723) $ (86) $ 272,452
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------
1994 1993 1992
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 34,636 $ 34,459 $ 28,935
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,577 3,162 12,295
Provision for other real estate owned 1,020 1,485 1,060
Depreciation 6,538 6,127 4,791
(Accretion) amortization, net (3,431) 3,507 421
Deferred income tax benefit (93) (2,307) (2,250)
Net loss (gain) on sale of investment securities 283 (753) (2,470)
Gains on sales of mortgage loan servicing rights (2,213) (10,811) (10,721)
Gains on sales of assets acquired in
foreclosure and equipment (944) (1,052) (266)
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
Issuance of common stock held by Management
Recognition Plan 311 235 86
Cumulative effect of change in accounting principle - (984) -
Other, net 1,625 9,191 1,729
-----------------------------------------------
Net cash provided by operating activities 90,738 53,509 60,294
-----------------------------------------------
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 19,641 151,590 127,060
Purchases of investment securities held-to-maturity (31,066) (231,727) (290,072)
Proceeds from sales/calls of investment securities available-for-sale 44,914 2,000 -
Proceeds from principal collections on, and maturities of investment
securities available-for-sale 186,593 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 (106,503) (86,939) (44,941)
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 (7,132) (11,152) (5,734)
Proceeds from sales of premises and equipment 360 1,934 98
Proceeds from sales of assets acquired in foreclosure 9,072 7,163 7,990
Purchases of First Citizens Bancorp of Cherokee
County, Inc., net of cash equivalents acquired - (6) 12,036
Purchase of Key Bancshares, Inc., net of
cash and cash equivalents acquired 2,952 - -
Purchase of Metro Bancorp, Inc., net of
cash and cash equivalents acquired 24,563 - -
-----------------------------------------------
Net cash used in investing activities (159,202) (102,652) (77,152)
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 29,642 31,813 50,309
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 9,950
Payments on long-term debt (15,950) (1,566) (2,307)
Proceeds from issuance of common
stock and for options exercised 3,401 2,350 3,475
Payments of fractional shares in stock split - - (14)
Purchase of and retirement of common stock (1,184) (295) -
Cash dividends paid on common stock (12,640) (10,936) (10,037)
-----------------------------------------------
Net cash provided by financing activities 64,212 58,809 41,773
-----------------------------------------------
Net (decrease) increase in cash and cash equivalents (4,252) 9,666 24,915
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 218,474 208,808 183,893
-----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 214,222 $ 218,474 $ 202,808
===============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 84,923 $ 81,303 $ 100,518
===============================================
Income taxes paid $ 16,067 $ 14,966 $ 12,004
===============================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
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 eighteen subsidiary banks and two subsidiary
thrifts located throughout North Georgia and Central Florida. The Company
primarily competes with other financial institutions in its market areas. 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 and Central Florida. 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 these market
areas.
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 1 to 30 days. Generally, federal funds are sold for one-day periods.
INVESTMENT SECURITIES: Investment securities at December 31, 1994 and
1993, consists of U.S. Treasury Securities, obligations of U.S. Government
corporations and agencies, obligations of states and municipalities,
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 are
excluded from income and are reported as a separate component of shareholders'
equity until realized. The net unrealized holding losses on investment
securities available-for-sale, net of income taxes, amounted to $13,723,000 at
December 31, 1994.
Upon adoption of Statement No. 115 and 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
$404,827,000 to available-for-sale at December 31, 1993, and reported net
unrealized holding gains of $4,940,000 as a separate component of shareholders'
equity.
5
<PAGE> 7
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 $10.7 million in CMOs and $19.0 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 for committed
loans. For uncommitted loans, market is determined on the basis of current
delivery prices in the secondary mortgage market.
Unearned income, primarily arising from discount basis installment
loans, is recognized as income using a method which approximates a level-yield.
Interest income on other loans is recognized using the simple interest method
on the daily balance of the principal amount outstanding. Loan fees, net of
certain origination costs are deferred and amortized over the lives of the
underlying loans using a method which approximates a level yield.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
when reasonable doubt exists as to the full, timely collection of interest or
principal. Interest accruals are recorded on such loans only when they are
brought fully current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both principal and interest.
Gains or losses on the sale of mortgage loans are recognized at
settlement dates and are computed as the difference between the sales proceeds
received and the net book value of the mortgage loans sold. Such gains or
losses are adjusted by the amount of any excess servicing fee receivables
resulting from the transactions.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is
established through provisions for loan losses charged to operations. Loans
are charged against the allowance for loan losses when management believes that
the collection of the principal is 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.
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.
6
<PAGE> 8
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 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 in income in the period that includes the
enactment date.
Effective January 1, 1993, the Company adopted Statement No. 109 and
has reported the cumulative effect of that change in the method of accounting
for income taxes in the 1993 statement of income.
At December 31, 1994, management has 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.
Pursuant to the deferred method under APB Opinion 11, which was
applied in 1992 and prior years, deferred income taxes were recognized for
income and expense items that were reported in different years for financial
reporting purposes and income tax purposes using the tax rate applicable for
the year of 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 and stock awards are immaterial in 1994, 1993, and 1992.
FINANCIAL INSTRUMENTS: The Company is a party to certain interest
rate futures, options, and forward sales contracts in the management of its
interest rate exposure associated with its portfolio of mortgage loans
held-for-sale and commitments to originate mortgage loans to be held for sale.
These interest rate futures, options, and forward sales contracts are carried
at cost until expiration or until exercised, whichever occurs first. Realized
gains and losses are included in the determination of the gain or loss on the
sale of the related mortgage loans.
7
<PAGE> 9
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 portfolio
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 $12,000,000
banker's blanket bond policy and a $2,000,000 errors and omissions policy.
EMPLOYEE BENEFIT PLANS: The Company sponsors a defined benefit health
care plan for substantially all retirees and employees. Effective January 1,
1993, the Company adopted 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
postretirement benefits. Prior to 1993, the Company recognized these benefits
on the pay-as-you-go method (i.e. cash basis). The cumulative effect of the
change in method of accounting for postretirement benefits other than pensions
at January 1, 1993 was $2,600,000 and is being amortized to operations over a
twenty year period.
The Company has three noncontributory defined benefit plans covering
certain employees who meet certain eligibility requirements. Pension costs are
computed based on the provisions of Statement No. 87, "Employers' Accounting
for Pensions".
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 unamoritized 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 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 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, 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 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, 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, as amended
by 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 $21,781,000
of impaired loans, all of which are classified as nonaccrual.
8
<PAGE> 10
NOTE 2. BUSINESS COMBINATIONS
On July 3, 1995, the Company completed its acquisition of FF Bancorp,
Inc. ("FF Bancorp"), New Smyrna Beach, Florida. FF Bancorp is the
holding company of First Federal Savings Bank of New Smyrna, New
Smyrna Beach, Florida, a thrift institution, First Federal Savings
Bank of Citrus County, Florida, a thrift headquartered in Inverness,
Florida, and Key Bank of Florida, a commercial bank located in Tampa,
Florida. The Company exchanged 3,884,587 shares of its common stock
for all of the 4,706,163 shares of FF Bancorp stock outstanding. No
cash, except for fractional shares, was paid in the transaction. The
transaction was accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements for all periods
presented have been restated to include the financial position and
results of operations of FF Bancorp. Certain amounts in the historical
financial statements of FF Bancorp, Inc. have been reclassified to
conform with the basis of presentation of the Company. Such
reclassifications had no effect on net income as reported by FF
Bancorp. The Company's consolidated financial data for the twelve
months ended December 31, 1994, 1993, and 1992 have been restated as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net interest income:
First National Bancorp, before acquisition $ 97,013 $ 88,201 $ 81,519
FF Bancorp 22,883 20,095 18,476
---------- ---------- ---------
Total $ 119,896 $ 108,296 $ 99,995
========== ========== =========
Net Income:
First National Bancorp, before acquisition $ 28,134 $ 26,654 $ 23,407
FF Bancorp 6,502 7,805 5,528
--------- ---------- ---------
Total $ 34,636 $ 34,459 $ 28,935
========= ========== =========
Net Income per share:
First National Bancorp, before acquisition $ 1.72 $ 1.68 $ 1.50
Effect of restatement for FF Bancorp --- .07 ---
--------- ---------- ---------
Total $ 1.72 $ 1.75 $ 1.50
========= ========== =========
</TABLE>
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. The 1994, 1993, and
1992 results of Barrow are not material.
On February 28, 1994, the Company acquired all of the outstanding
common stock of Metro Bancorp, Inc., ("Metro") the parent company of the $140
million asset The Commercial Bank, Douglasville, located in Douglas County,
Georgia. The Company issued 266,414 shares of its common stock and $250,243 in
cash in exchange for all of the outstanding shares of Metro. 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 eighteen
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.
On April 8, 1994, FF Bancorp acquired the outstanding common stock of
Key Bancshares, Inc.,("Key") the parent company of the $71 million asset The
Key Bank of Florida, located in Tampa, Florida. FF Bancorp issued 58,692 shares
of its common stock (adjusted by the exchange ratio of .825 for Company shares)
and $2.6 million in cash in exchange for the outstanding shares of Key. The
transaction was accounted for as a purchase effective March 31, 1994, and
therefore, is not included in the Company's results of operations or statements
of financial position prior to the date of acquisition. Negative
9
<PAGE> 11
goodwill of $771,000 resulted from this transaction. The negative goodwill was
allocated to reduce premises and equipment and will be amortized over the lives
of these assets.
The pro forma impact on the Company's results of operations for the
twelve months ended December 31, 1994, 1993, and 1992, had these purchase
transactions been consummated as of January 1, 1992, would have been:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C>
Interest income $ 208,575 $ 205,516 $ 217,883
Noninterest income 28,956 36,925 35,204
Income before cumulative effect of
accounting change 34,073 31,411 26,773
Cumulative effect of accounting change --- 1,386 ---
------------------------------------------------
Net income $ 34,073 $ 32,797 $ 26,773
================================================
Net income per share:
Income before cumulative effect of
accounting change $ 1.68 $ 1.57 $ 1.36
Cumulative effect of accounting change: --- .07 ---
------------------------------------------------
Net Income $ 1.68 $ 1.64 $ 1.36
================================================
Weighted-average shares outstanding 20,227,752 19,997,628 19,618,398
================================================
</TABLE>
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.
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.
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 eighteen
month period after the agreement date. On December 20, 1993, $1,024,303 was
paid to the previous FCBCC shareholders under this agreement. The additional
purchase price was paid through the issuance of 63,676 shares of the Company's
common stock and $6,000 in cash. The additional purchase price resulted in a
$579,000 write-up of premises and equipment to offset previously allocated
negative goodwill associated with the original transaction. The remainder of
the additional purchase price was recorded as goodwill. The goodwill was
subsequently eliminated by the recognition of income tax benefits associated
with available Federal income tax net operating loss carryforwards.
FF Bancorp was established on May 12, 1992. On July 8, 1992, FF
Bancorp acquired all of the outstanding common stock of First Federal Savings
Bank of New Smyrna. FF Bancorp issued all 2,846,250 shares of its common stock
(adjusted by the exchange ratio of .825 for Company shares) in exchange for all
of the issued and outstanding shares of First Federal Savings Bank of New
Smyrna. Additionally, on July 8, 1992, First Federal Savings Bank of Citrus
County was reorganized and converted from a Federally chartered mutual savings
association to a Federally chartered stock savings bank, and was
correspondingly acquired by FF Bancorp for 125,857 shares of its common stock
(adjusted by the exchange ratio of .825 for Company shares). Both transactions
have been accounted for as poolings-of-interests.
On January 30, 1992, the Company completed its acquisition of First
National Bancshares of Paulding County, Inc. ("Paulding") the parent company of
$165 million asset First National Bank of Paulding County, Dallas, Georgia.
The Company issued 1,086,600 shares of its common stock in exchange for all 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 and thrifts 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 $6,123,000.
10
<PAGE> 12
NOTE 4. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Investment securities available-for-sale:
U.S.Treasury and
U.S. Government agencies $217,756 $ 38 $ 3,483 $214,311
Mortgage-backed securities 371,750 180 18,383 353,547
State and municipal - taxable 994 68 --- 1,062
Corporate bonds 500 11 --- 511
Other investments 10,966 1,234 2,095 10,105
-------------------------------------------
Total $601,966 $1,531 $23,961 $579,536
===========================================
Investment securities held-to-maturity:
State and municipal - tax exempt $157,567 $4,339 $ 5,862 $156,044
===========================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Investment securities available-for-sale:
U.S.Treasury and
U.S. Government agencies $ 44,613 $ 1,101 $ 57 $ 45,657
Mortgage-backed securities 372,098 7,645 1,881 377,862
State and municipal - taxable 3,140 154 148 3,146
Corporate bonds 500 63 --- 563
Other investments 5,209 1,217 --- 6,426
-------------------------------------------
Total $425,560 $10,180 $2,086 $433,654
===========================================
Investment securities held-to-maturity:
Mortgage-backed securities $ 42,382 $ 1,560 $ 11 $ 43,931
State and municipal - tax exempt 138,919 12,749 79 151,589
Other investments 10,080 214 625 9,669
-------------------------------------------
Total $191,381 $14,523 $ 715 $205,189
===========================================
</TABLE>
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 agencies 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.
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.
11
<PAGE> 13
<TABLE>
<CAPTION>
Investment Securities Investment Securities
Available-for-Sale Held-to-Maturity
--------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $136,114 $135,666 $ 10,332 $ 10,570
Due after one year through five years 64,793 62,746 48,671 51,849
Due after five years through ten years 23,343 20,522 12,488 12,887
Due after ten years 5,966 7,055 86,076 80,738
--------------------------------------------------
230,216 225,989 157,567 156,044
Mortgage-backed securities 371,750 353,547 --- ---
--------------------------------------------------
Total $601,966 $579,536 $157,567 $156,044
==================================================
</TABLE>
Proceeds from sales of investment securities during 1994, 1993, and
1992 totaled $49,599,000, $46,649,000, and $104,029,000, respectively. Gross
gains of $420,000, $759,000, and $2,613,000 and gross losses of $703,000,
$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 $284,307,000 at December 31, 1994, and December
31, 1993, respectively, were pledged to secure public funds on deposit,
securities sold under agreements to repurchase, long-term debt 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 December 31, 1993:
<TABLE>
<CAPTION>
1994 1993
--------------------------
(in thousands)
<S> <C> <C>
Commercial, financial
and agricultural $ 483,116 $ 420,513
Installment and single
payment individual 375,902 353,105
Mortgage loans held for sale 13,519 65,361
Real estate - mortgage 845,055 745,788
Real estate - construction 145,596 99,145
--------------------------
Total $ 1,863,188 $1,683,912
==========================
</TABLE>
In addition, the Company was servicing residential mortgage loans for
others with aggregate principal balances of approximately $1,439,576,000,
$1,071,626,000, and $1,053,250,000 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 $12,396,000 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 of collectability or present other unfavorable features. The
following is a summary of transactions in the allowance for loan losses:
12
<PAGE> 14
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $24,265 $26,629 $21,973
Loans charged off (7,915) (7,437) (10,859)
Recoveries on loans previously
charged off 2,651 1,911 1,701
Provisions for loan losses 1,577 3,162 12,295
Allowance of bank subsidiary
acquired 5,898 --- 1,519
-------------------------------------------
Balance at end of year $26,476 $24,265 $26,629
===========================================
</TABLE>
During 1994, 1993, and 1992, $7,859,000, $9,810,000, and 16,284,000,
respectively, was transferred from loans to other real estate upon foreclosure
of the collateral properties.
At December 31, 1994, 1993, and 1992, the Company had approximately
$21,809,000, $22,908,000, and $28,583,000, 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 $2,067,000,
$2,444,000, and $3,031,000 respectively. Interest income of approximately
$91,000, $83,000, and $918,000 was recognized in 1994, 1993, and 1992,
respectively, on loans which were on a nonaccrual basis.
NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment is presented net of accumulated depreciation
totaling $43,164,946 and $35,097,545 at December 31, 1994, and 1993,
respectively.
NOTE 7. SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1994 and December 31, 1993
consist of:
<TABLE>
<CAPTION>
1994 1993
--------------------
(in thousands)
<S> <C> <C>
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
====================
</TABLE>
In June 1992, the Company entered into a $3,000,000 revolving line of
credit with a commercial bank which can be renewed on an annual basis. The
agreement provides for the availability to the Company, at its option, of
short-term funding on a continuing basis at a rate equal to the daily overnight
cost of funds plus 1 percent, subject to compliance with its terms. The
Company is required to 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.
13
<PAGE> 15
NOTE 8. LONG-TERM DEBT
Long-term debt at December 31, 1994, and December 31, 1993, consists
of:
<TABLE>
<CAPTION>
1994 1993
----------------------
(in thousands)
<S> <C> <C>
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 fifteen
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 fixed interest
rates ranging from 4.63% to 5.66%. 70,000 55,000
Other long-term debt 478 478
----------------------
Total long-term debt $ 80,238 $ 62,958
======================
</TABLE>
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 $984,000 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:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------
(in thousands)
<S> <C> <C> <C>
Income from continuing operations $13,015 $13,677 $11,428
Cumulative effect of a change in method of accounting
for income taxes --- (984) ---
Reduction of goodwill, for initial recognition of
acquired tax benefits that previously were included in
valuation allowance --- (445) ---
----------------------------
Total $13,015 $12,248 $11,428
============================
</TABLE>
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
14
<PAGE> 16
component of shareholders' equity, net of income taxes of $3,091,000. During
1994, the tax effect of the net unrealized holding losses on investment
securities available-for-sale was a $11,799,000 benefit. Income tax expense
(benefit) attributable to income from continuing operations consists of:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $12,336 $14,379 $12,529
State 772 1,605 1,149
----------------------------
Total current taxes 13,108 15,984 13,678
----------------------------
Deferred:
Federal (78) (1,888) (1,884)
State (15) (419) (366)
----------------------------
Total deferred taxes (93) (2,307) (2,250)
----------------------------
Total $13,015 $13,677 $11,428
----------------------------
</TABLE>
The following is a summary of the differences between the total tax
expense as shown in the consolidated financial statements and the tax expense
that would result from applying the statutory Federal income tax rate of 35%
for 1994 and 1993, and 34% for 1992, to income before income taxes and
cumulative effect of accounting change:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------
(in thousands)
<S> <C> <C> <C>
Tax expense at statutory rate $16,678 $16,503 $13,723
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 492 771 517
Change in the valuation allowance
for deferred tax assets (257) --- ---
Other, net (483) (472) 257
----------------------------
$13,015 $13,677 $11,428
Total ============================
</TABLE>
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):
<TABLE>
<S> <C>
Cash method of accounting for tax reporting purposes $ (143)
Provision for loan losses (1,214)
Excess servicing fees from loan sales (1,076)
Other, net 183
-------
Total $(2,250)
=======
</TABLE>
15
<PAGE> 17
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:
<TABLE>
<CAPTION>
1994 1993
-----------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 8,619 $ 8,306
Net unrealized holding losses on investment
securities available-for-sale 8,708 ---
Mortgage loan servicing rights 2,260 1,358
Allowance for valuation losses on other real estate 1,574 352
Net operating losses 2,306 983
Federal tax credits 215 ---
Deferred compensation 409 330
Accrued postretirement benefits 324 172
Other, net 420 489
-----------------
Total gross deferred tax assets 24,835 11,990
Less valuation allowance --- (257)
-----------------
Deferred tax assets $24,835 $11,733
-----------------
Deferred tax liabilities:
Net unrealized holding gains on investment
securities available-for-sale $ --- $ 3,091
Depreciation 1,097 746
Purchase accounting adjustments
on premises and equipment 1,571 1,717
Prepaid expenses 134 127
Deferred loan costs, net 372 501
Accretion on investment securities 975 896
Federal Home Loan Bank stock 538 548
Other, net 98 280
-----------------
Deferred tax liabilities 4,785 7,906
-----------------
Net deferred tax assets $20,050 $ 3,827
=================
</TABLE>
The utilization of net operating loss carryforwards in a previously
acquired subsidiary bank and the likelihood of a utilization of additional
carryforwards in future years resulted in a reduction of $257,000 in the
valuation allowance for deferred tax assets in 1994.
Retained earnings at December 31, 1994 and 1993 include approximately
$3,912,000 and $4,088,000, respectively, for which no deferred federal income
tax liability has been recognized. These amounts represent an allocation of
income to the bad debt deduction for tax purposes only. Reduction of amounts so
allocated for purposes other than tax bad debt losses or adjustments arising
from carryback of net operating losses would create income for tax purposes
only, which would be subject to the then current corporate income tax rate. The
unrecorded deferred income tax liability on the above amounts was approximately
$1,478,000 and $1,533,000 at December 31, 1994 and 1993, respectively.
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
16
<PAGE> 18
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 retirees and terminated vested former employees or (b) the purchase of
an annuity or a trust-to-trust transfer for those participants who were still
active employees or who had accounts under the 401(k) plan at time of
termination. All employees active at termination chose to have their balance
transferred to the 401(k) plan. These annuity purchases, distributions, or
transfers occurred in November 1992.
On March 31, 1992, the Company decided to vest and freeze all future
benefit accruals under its noncontributory pension plan in anticipation of its
termination. As a result, the Company recognized a curtailment gain of
$725,000 on March 31, 1992. 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.
First Federal Savings Bank of New Smyrna, a wholly owned thrift
subsidiary, has a qualified noncontributory defined benefit retirement plan
covering substantially all of its full-time employees who have met certain age
and length of service requirements. The benefits are based on each employee's
years of service and average monthly compensation. The current funding policy
is to make an annual contribution that will not be less than the minimum
required contribution nor greater than the maximum federal income tax
deductible limit. The plan's funded status at October 1 is as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested employees $ 1,656 $ 1,596
Nonvested employees 59 88
-------------------------
Total accumulated benefit obligation $ 1,715 $ 1,684
=========================
Projected benefit obligations for services rendered to date $(2,488) $(2,748)
Plan assets at fair value 1,976 1,666
-------------------------
Projected benefit obligations in excess of plan assets (512) (1,082)
Unrecognized net transition liability existing at date of
adoption of Statement No. 87 being amortized 503 1,111
-------------------------
Prepaid (accrued) pension costs $ (9) $ 29
=========================
</TABLE>
Net periodic pension expense included the following components (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 161 $ 137 $ 99
Interest cost on projected benefit obligations 179 163 137
Actual return on plan assets (161) (139) (118)
Net amortization and deferral 48 38 20
------------------------------------------
Net periodic pension expense $ 227 $ 199 $ 138
==========================================
</TABLE>
17
<PAGE> 19
In 1994 and 1993, the expected long-term rate of return on plan assets
was 9% and the discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the accumulated benefit
obligations were 6.50% and 7.25%, and 6.00% and 8.25% in 1994 and 1993
respectively. Plan assets are invested primarily in guaranteed accumulation
contracts. The guaranteed accumulation contracts include a general account
comprising 66% of the plan assets and separate accounts representing 34% of the
plan assets. The assets comprising the portfolio of the general account are
bonds, mortgages, real estate and other assets.
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 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 among a range of
benefit options. This cafeteria plan approach allows employees to customize
their own benefits and pay for most of the benefits through payroll deductions
on a pre-tax basis. The Company benefits through reduced payroll taxes as
well.
The Company sponsors a defined benefit healthcare plan that provides
post-retirement 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 Post-
retirement 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:
<TABLE>
<CAPTION>
1994 1993
------------------------------
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (1,684) $ (1,316)
Fully eligible active plan participants (1,296) (1,023)
------------------------------
Total (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)
==============================
</TABLE>
Net periodic postretirement benefit cost for 1994 and 1993 includes
the following components:
18
<PAGE> 20
<TABLE>
<CAPTION>
1994 1993
----------------
(in thousands)
<S> <C> <C>
Service cost $157 $113
Interest cost 234 183
Net amortization and deferral 122 118
----------------
Net periodic postretirement benefit cost $513 $414
================
</TABLE>
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 postretirement 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.
19
<PAGE> 21
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:
<TABLE>
<CAPTION>
Option Price
Shares Per Share Total
-------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
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
======== =======
</TABLE>
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 conjunction with the acquisition of FF Bancorp, the Company will
convert certain unvested options of an executive officer of FF Bancorp, at the
acquisition exchange ratio of .825, to options to acquire 46,251 shares of
Company stock at prices ranging from $4.59 to $5.83 per share. The shares for
such options will be registered by the Company.
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 should have a material adverse effect on the Company's consolidated
financial position.
20
<PAGE> 22
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.
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):
<TABLE>
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Loan commitments:
Credit card lines $ 65,942
Home equity lines 30,259
Commercial real estate, constuction and land development 120,654
Mortgage loans 38,567
Other 58,126
--------
Total loan commitments 313,548
Other commitments:
Financial standby letters of credit 20,548
Performance standby and commercial letters of credit 2,656
Loans sold with recourse 2,536
--------
Total other commitments 25,740
--------
Total loan and other commitments $339,288
========
Financial instuments whose notional or contract amounts exceed the
amount of credit and/or market risk:
Forward sales contracts $ 22,400
Call options purchased 500
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the borrower. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are 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
21
<PAGE> 23
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 call options written and pays a premium for put options
purchased. Call options allow the holder to purchase a financial instrument at
a specified price and within a specified period of time. Put options are
purchased by the Company to provide it with a means of selling a financial
instrument at a specified price within a specified period of time. Securities
in the process of settlement are commitments by the Company to purchase or sell
investment securities, but the security has not yet been delivered.
22
<PAGE> 24
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)
<TABLE>
<CAPTION>
December 31
---------------------
1994 1993
---------------------
<S> <C> <C>
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 and thrift subsidiaries, at equity 265,615 247,678
Premises and equipment, net 11,249 11,414
Goodwill 5,962 6,583
Other assets 3,810 5,100
---------------------
Total assets $294,877 $278,141
=====================
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 20,402,235 and
19,309,979 shares for 1994 and 1993, respectively 20,402 19,310
Additional paid-in capital 84,464 68,356
Retained earnings 181,395 167,903
Net unrealized holding (losses) gains on
investment securities available-for-sale (13,723) 4,940
Stock held by Management Recognition Plan (86) (173)
---------------------
Total shareholders' equity 272,452 260,336
---------------------
Total liabilities and shareholders' equity $294,877 $278,141
=====================
</TABLE>
23
<PAGE> 25
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 14,033 12,740 13,737
Other income 2,292 1,840 1,026
-----------------------------
Total income 16,339 14,634 14,784
-----------------------------
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 9,339 8,548 10,412
Income tax benefit 1,706 1,702 977
-----------------------------
Income before equity in undistributed income
of subsidiaries 11,045 10,250 11,389
Equity in undistributed income of subsidiaries 23,591 24,209 17,546
-----------------------------
NET INCOME $34,636 $34,459 $28,935
=============================
</TABLE>
24
<PAGE> 26
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 $ 34,636 $ 34,459 $ 28,935
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (23,591) (24,209) (17,546)
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) in other liabilities 1,791 (501) 734
--------------------------------
Net cash provided by operating activities 15,079 9,954 13,856
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 (12,640) (10,936) (9,165)
--------------------------------
Net cash used in financing activities (8,485) (12,560) (2,993)
--------------------------------
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 $ 16,067 $ 14,966 $ 12,004
================================
</TABLE>
The primary source of funds available to the Parent to pay shareholder
dividends and other expenses is from its subsidiary banks and thrifts. Bank
and thrift regulatory authorities impose restrictions on the amounts of
dividends that may be declared by the subsidiary banks and thrifts. Further
restrictions could result from a review by regulatory authorities of each
bank's or thrift's capital adequacy, which is the relationship between a bank's
or thrift's capital and its assets and deposits, and other such ratios. The
amount of cash dividends available from the subsidiary banks and thrifts for
payment in 1995 without such prior approval, is approximately $31,870,000, plus
1995 net earnings of the six subsidiary national banks and the excess of the
thrift's equity over the amount required for their respective liquidation
accounts or regulatory capital requirements upon approval by the thrift's
primary regulator. At December 31, 1994, approximately $233,745,000 of the
Parent's investment in bank and thrift subsidiaries was restricted as to
dividend payments from the banks and thrifts to the Parent under the foregoing
regulatory limitations.
25
<PAGE> 27
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 and
thrifts 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 "adequately capitalized," an institution must
generally have a leverage ratio of at least 4%, a Tier 1 risk-based capital
ratio of at least 4%, and a total risk-based capital ratio of at least 8%. An
institution is deemed to be "critically undercapitalized" if it has a tangible
equity ratio of 2% or less. Additionally, thrift institutions are required to
have minimum regulatory tangible capital equal to 1.5% of total assets and a
minimum core capital ratio of 3%.
At December 31, 1994, all of the subsidiary banks and thrifts exceeded
the minimum "adequately capitalized" aforementioned capital 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 and thrift 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.
26
<PAGE> 28
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.
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 values 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 agreements 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 analyses, based on the Company's current
borrowing rates for similar types of borrowing arrangements.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
-------------------------------------------------
Book Fair Book Fair
Value Value Value Value
-------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 96,433 $ 96,433 $ 94,243 $ 94,243
Federal funds sold and securities purchased
under agreements to resell 117,789 117,789 124,231 124,231
Interest-bearing deposits in other
financial institutions 16,259 16,259 68,157 68,157
Investment securities 737,103 735,580 624,972 638,780
Loans, net 1,824,436 1,785,033 1,638,781 1,660,094
Purchased mortgage loan servicing
rights - unaudited 16,775 20,678 9,829 9,829
Excess servicing fee receivables 2,090 2,334 4,825 4,825
LIABILITIES
Deposits:
Noninterest-bearing 349,121 349,121 291,710 291,710
Interest-bearing transactions and savings 808,282 808,282 733,421 733,421
Certificates of deposits 1,325,055 1,310,479 1,229,551 1,241,359
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 62,958 63,315
</TABLE>
27
<PAGE> 29
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 5,695 5,291 4,932
FDIC insurance premiums 5,499 5,248 4,942
Amortization and write-off of mortgage
loan servicing rights 2,762 3,394 4,945
Data processing 3,514 3,190 1,917
Promotional 2,464 1,828 1,620
</TABLE>
28
<PAGE> 30
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 1993.
<TABLE>
<CAPTION>
Total 1994 Quarter Ended
--------------------------------------
Year Dec. 31 Sept. 30 June 30 March 31
------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $205,914 $54,825 $52,931 $51,187 $46,971
Interest expense 86,018 23,556 21,746 20,987 19,729
------------------------------------------------
Net interest income 119,896 31,269 31,185 30,200 27,242
Provision for loan losses 1,577 1,713 (159) (343) 366
Net (loss) gain on sales of investment securities (283) (449) (21) 24 163
Noninterest income 28,395 5,830 7,261 8,275 7,029
Noninterest expense 98,780 25,838 24,833 25,381 22,728
------------------------------------------------
Income before income taxes 47,651 9,099 13,751 13,461 11,340
Income taxes 13,015 1,907 4,314 3,775 3,019
------------------------------------------------
Net income $ 34,636 $ 7,192 $ 9,437 $ 9,686 $ 8,321
================================================
Per share:
Net income $ 1.72 $ .35 $ .47 $ .48 $ .42
================================================
</TABLE>
<TABLE>
<CAPTION>
Total 1993 Quarter Ended
--------------------------------------
Year Dec. 31 Sept. 30 June 30 March 31
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $190,877 $47,352 $47,784 $48,356 $47,385
Interest expense 82,581 20,055 20,480 20,884 21,162
------------------------------------------------
Net interest income 108,296 27,297 27,304 27,472 26,223
Provision for loan losses 3,162 324 531 1,113 1,194
Net gains on sales of investment securities 753 9 64 314 366
Noninterest income 32,286 9,961 8,245 6,883 7,197
Noninterest expense 91,021 24,152 22,550 23,028 21,291
------------------------------------------------
Income before income taxes and cummulative
effect of accounting change 47,152 12,791 12,532 10,528 11,301
Income taxes 13,677 3,261 3,943 3,022 3,451
Cumulative effect of accounting change 984 --- --- --- 984
------------------------------------------------
Net income $ 34,459 $ 9,530 $ 8,589 $ 7,506 $ 8,834
================================================
Per share:
Income before cummulative effect of accounting change $ 1.70 $ .49 $ .44 $ .38 $ .39
Cummulative effect of accounting change .05 --- --- --- .05
------------------------------------------------
Net income $ 1.75 $ .49 $ .44 $ .38 $ .44
================================================
</TABLE>
NOTE 19. SUBSEQUENT EVENT
On October 22, 1995, the Company entered into an Agreement and Plan of
Reorganization ("the Agreement") whereby the Company will be acquired by
Regions Financial Corporation ("Regions"), headquartered in Birmingham,
Alabama. Under the terms of the Agreement, Regions will exchange .76 shares of
its common stock for each outstanding common share of the Company. In
connection with executing the Agreement, the Company granted to Regions an
option to purchase up to 4,089,234 shares of the Company's common stock, at a
purchase price of $27.00 per share, upon certain terms and in accordance with
certain conditions. The transaction is subject to approval by the shareholders
of Regions and the Company, and various regulatory agencies, and is anticipated
to be consumated in the first quarter of 1996.
29
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
First National Bancorp:
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 did not audit the financial
statements of FF Bancorp, Inc. and subsidiaries, wholly-owned subsidiaries of
First National Bancorp, whose statements reflect total assets constituting
19.9 percent and 20.3 percent at December 31, 1994 and 1993, and total revenues
constituting 18.7 percent, 18.3 percent, and 19.4 percent, in 1994, 1993, and
1992, respectively, of the consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for FF Bancorp, Inc.and
subsidiaries, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, 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 the Financial Accounting Standards
Board's Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," at December 31, 1993.
As discussed in Notes 1 and 9, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of the Financial Accounting
Standards Board's SFAS No. 109, "Accounting for Income Taxes". As discussed in
Notes 1 and 10, the Company also adopted the provisions of the Financial
Accounting Standards Board's SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," in 1993.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
January 27, 1995, except as to
Note 2, which is as of July 3, 1995,
and except as to Note 19 which is
as of October 22, 1995
30
<PAGE> 32
HACKER, JOHNSON, COHEN & GRIEB
================================================================================
A Professional Association of
Certified Public Accountants
500 North Westshore Boulevard
Post Office Box 20368
Tampa, Florida 33622-0365
(813) 286-2424
Independent Auditors' Report
The Board of Directors
FF Bancorp, Inc.
New Smyrna Beach, Florida:
We have audited the accompanying consolidated balance sheets of FF Bancorp,
Inc. and Subsidiaries (the "Company") as of December 31, 1994 and 1993 and the
related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1994 and 1993 and the results of its operations and its 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, 2 and 3 to the consolidated financial statements, the
Company changed its method of accounting for investment and mortgage-backed
securities as of December 31, 1993, to conform with Statement of Financial
Accounting Standards No. 115. Also, as discussed in Notes 1 and 10 to the
consolidated financial statements, the Company changed its method of accounting
for income taxes as of January 1, 1993, to conform with Statement of Financial
Accounting Standards No. 109.
/s/ Hacker, Johnson, Cohen & Grieb
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
January 27, 1995
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
CORPORATE PROFILE
First National Bancorp ("Company"), a $3.0 billion multi-bank holding
company with eighteen affiliate commercial banks and two thrift savings banks,
has 63 full service banking facilities located in North Georgia and Central
Florida. The Company employees 1,478 full-time equivalent employees and is the
second largest bank holding company in Georgia headquartered outside
metropolitan Atlanta. On July 3, 1995, the Company completed its acquisition of
FF Bancorp, Inc. ("FF Bancorp"), New Smyrna Beach, Florida. FF Bancorp is the
holding company of First Federal Savings Bank of New Smyrna, New Smyrna Beach,
Florida, a thrift institution, First Federal Savings Bank of Citrus County,
Florida, Inverness, Florida, a thrift institution, and Key Bank of Florida, a
commercial bank located in Tampa, Florida. The transaction was accounted for as
a pooling-of-interests and accordingly, the financial information included in
the accompanying management's discussion and analysis of financial condition
and results of operations for all periods presented has been restated to
include the financial position and results of operations of FF Bancorp.
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 April 8, 1994 FF Bancorp acquired Key
Bancshares, Inc., headquartered in Tampa, Florida whose wholly owned subsidiary
was Key Bank of Florida ("Key Bank"), a $71 million asset commercial bank in
Tampa, Florida. 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.
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 Georgia markets are within 1 1/2 hours of metropolitan
Atlanta via five major highway systems and most markets are within or border
the southern end of the Appalachian mountains, providing access to superior
recreational facilities and second/retirement home development. The Company's
Florida markets are also well diversified, with manufacturing, wholesale and
retail trade, government services and tourism as the major industries in the
region. In terms of covered employment and wages, the Company's market area
is well diversified. Strong population and household growth coupled with
above average growth in household income bodes well for the region's demand for
housing, services and retail products, all factors leading to above average
growth in bankable assets. The region's economic base is diverse with no major
boom or bust factors.
With a 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 eight of the 19 county markets (and a
second or better position in 14 markets), providing the Company with a
significant competitive base to profitably grow. On October 22, 1995, the
Company entered into an Agreement and Plan of Reorganization ("the Agreement")
whereby the Company will be acquired by Regions Financial Corporation
("Regions"), headquartered in Birmingham, Alabama. Under the terms of the
Agreement, Regions will exchange .76 shares of its common stock for each
outstanding common share of the Company. In connection with executing the
Agreement, the Company granted to Regions an option to purchase up to 4,089,234
shares of the Company's common stock, at a purchase price of $27.00 per share,
upon certain terms and in accordance with certain conditions. The transaction
is subject to approval by the shareholders of Regions and the Company, and
various regulatory agencies, and is anticipated to be consumated in the first
quarter of 1996.
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 1.10%. 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 1980's.
A consolidated primary capital ratio of 9.97% provides a sufficient
base to support future growth. With a core funding to core earning assets
ratio of 114.04% and incremental funding to total funding ratio of 21.46%, 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 (net of unearned income) of 1.18%, the
Company's position is very manageable.
Since 1985, the Company's stock has been traded in the
over-the-counter market and quoted through the Nasdaq Stock Market under the
trading symbol "FBAC." As of December 31, 1994, institutional ownership was
approximately 6% of outstanding shares while insiders owned 10.73% of the
shares. A majority of the Company's 8,030 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.
32
<PAGE> 34
FF Bancorp (1995)
First National Bank of Paulding County (1992)
Villa Rica Bancorp, Inc. (1993) The Community Bank of Carrollton (1993)
Barrow Bancshares, Inc. (1994)
PERFORMANCE OVERVIEW
Net income for 1994 totaled $34.6 million, compared to $34.5 million
for 1993, an increase of .5%. Net income per share in 1994 was $1.72 compared
to $1.75 reported in 1993, a decrease of 1.7%. Weighted-average shares
outstanding for 1994 increased to 20,132,098 compared with the 19,668,272
weighted-average shares for 1993.
33
<PAGE> 35
<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 $ 205,914 $ 190,877 $ 200,347 $ 222,027 $ 230,415
Tax equivalent adjustment (a) 6,411 5,930 4,837 4,760 5,247
- ------------------------------------------------------------------------------------------------------------------------
Interest income (fully tax equivalent) 212,325 196,807 205,184 226,787 235,662
Interest expense 86,018 82,581 100,352 136,066 149,703
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 126,307 114,226 104,832 90,721 85,959
Noninterest income 28,112 33,039 31,283 27,686 23,319
- ------------------------------------------------------------------------------------------------------------------------
Total revenue 154,419 147,265 136,115 118,407 109,278
Provision for loan losses 1,577 3,162 12,295 10,874 15,051
Noninterest expense 98,780 91,021 78,620 72,455 62,740
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 54,062 53,082 45,200 35,078 31,487
Tax equivalent adjustment 6,411 5,930 4,837 4,760 5,247
Income taxes 13,015 12,693 11,428 7,842 6,750
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 34,636 $ 34,459 $ 28,935 $ 22,476 $ 19,490
========================================================================================================================
Per share data:
Net Income $ 1.72 $ 1.75 $ 1.50 $ 1.22 $ 1.06
Cash dividends declared $ .7775 $ .7050 $ .6400 $ .5500 $ .4600
Dividend payout ratio 45.20% 40.29% 42.67% 45.08% 43.40%
Book value $ 13.35 $ 13.48 $ 12.06 $ 11.18 $ 9.68
Year end balances:
Total assets $ 2,970,756 $2,686,813 $ 2,576,650 $ 2,442,995 $ 2,347,164
Earning assets 2,716,028 2,477,680 2,393,613 2,257,895 2,170,674
Loans, net of unearned income 1,850,912 1,663,046 1,593,230 1,560,574 1,512,317
Allowance for loan losses 26,476 24,265 26,629 21,973 21,547
Deposits 2,482,458 2,254,682 2,222,659 2,130,703 2,136,727
Short-term debt 105,129 77,186 89,798 87,479 57,567
Long-term debt 80,238 62,958 14,470 5,679 6,645
Shareholders' equity 272,452 260,336 229,461 206,031 180,805
Average balances:
Total assets $ 2,858,597 $2,620,202 $ 2,503,499 $ 2,382,543 $ 2,291,923
Earning assets 2,645,343 2,445,140 2,332,006 2,209,716 2,130,892
Loans, net of unearned income 1,775,838 1,641,438 1,593,494 1,538,868 1,483,509
Securities 711,144 633,834 559,730 531,901 452,485
Deposits 2,381,032 2,213,509 2,170,733 2,090,807 2,088,636
Short-term debt 81,874 102,488 82,524 59,909 66,513
Long-term debt 82,159 41,919 11,355 5,811 4,745
Shareholders' equity 269,651 235,128 216,254 193,409 175,619
Financial ratios:
Return on average assets 1.21% 1.32% 1.16% 0.94% 0.85%
Return on average equity 12.84% 14.66% 13.38% 11.62% 11.10%
Net interest margin 4.77% 4.67% 4.50% 4.11% 4.03%
Overhead ratio 63.85% 62.13% 58.83% 61.40% 57.47%
Average equity to average assets 9.43% 8.97% 8.64% 8.12% 7.66%
</TABLE>
(a) Calculated assuming a 35% tax rate for 1994 and 1993, and a 34% tax rate
for 1992, 1991 and 1990.
(b) FF Bancorp was formed in 1992 with the issuance of 3,131,000 shares. Prior
to that time, the individual thrift subsidiaries were mutual associations
that had no outstanding stock. For purposes of net income and book value
per share presentations in 1991 and 1990, the Company assumed that the
initial shares issued to form FF Bancorp were outstanding in 1991 and 1990.
34
<PAGE> 36
Total year end assets increased from $2.7 billion to a record $3.0
billion. Average earning assets increased 8.2% during 1994, while average
interest-bearing liabilities increased 6.9% for the same period.
The return on average equity decreased from 14.66% in 1993 to 12.84%
in 1994. The return on average assets also decreased from 1.32% in 1993 to
1.21% in 1994, influenced primarily by the $4.9 million decrease in noninterest
income, primarily from mortgage origination activity, offset by the negative
provision expense in two of the last three quarters of 1994. Other factors
contributed to a lesser extent as shown below:
<TABLE>
<CAPTION> PERCENTAGE PERCENTAGE
AVERAGE AVERAGE
YEARS ENDED DECEMBER 31 1994 ASSETS 1993 ASSETS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Average Assets $2,858,597 $2,620,202
Net interest income, tax equivalent $ 126,307 4.42 % $ 114,226 4.36 %
Noninterest income 28,112 .98 33,039 1.26
--------------------------------------------------------------
Total revenue 154,419 5.40 147,265 5.62
Noninterest expense (98,780) (3.45) (91,021) (3.47)
Income before provision for loan
losses and income taxes 55,639 1.95 56,244 2.15
Provision for loan losses (1,577) (.06) (3,162) (.12)
Income taxes and tax equivalent adjustment (19,426) (.68) (18,623) (.71)
--------------------------------------------------------------
Net income $ 34,636 1.21 % $ 34,459 1.32 %
==============================================================
</TABLE>
Net interest income as a percent of average earning assets increased
to its highest level since 1985, with a net interest margin of 4.77% for 1994,
compared with 4.67% 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 acquisitions
of The Commercial Bank and Key Bank, which were 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 average assets,
particularly in the area of personnel related expenses. The following sections
highlight in greater detail various aspects of the Company's 1994 performance
as compared to 1993 and 1992.
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:
35
<PAGE> 37
<TABLE>
<CAPTION>
TABLE 3: ANALYSIS OF BALANCE SHEET CHANGES
(dollars in thousands)
December 31
------------------------
<S> <C> <C> <C> <C>
1994 1993 Change Percent
--------------------------------------------------------------------------------
Earning Assets:
Core earning assets:
Commercial loans $ 682,541 $ 587,336 $ 95,205 16.2%
Retail loans 677,040 607,058 69,982 11.5
Other core loans 477,812 403,291 74,521 18.5
---------- ---------- --------
Total core earning 1,837,393 1,597,685 239,708 15.0
---------- ---------- --------
Incremental earning assets:
Mortgage loans held-for-sale 13,519 65,361 (51,842) (79.3)
Investment securities 737,103 624,972 112,131 17.9
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 117,789 124,231 (6,442) (5.2)
---------- ---------- --------
Total incremental earning assets 884,670 882,721 1,949 0.2
---------- ---------- --------
Total earning assets $2,722,063 $2,480,406 $241,657 9.7%
========== ========== ========
Deposits and Funds:
Core funds:
Demand deposits $ 349,121 $ 291,710 $ 57,411 19.7%
Interest-bearing checking 247,084 214,690 32,394 15.1
Century Service and IMMA 358,978 345,828 13,150 3.8
Statement savings 202,221 172,711 29,510 17.1
Certificates less than
$100,000 and IRAs 938,025 852,739 85,286 10.0
---------- ---------- --------
Total core funds 2,095,429 1,877,678 217,751 11.6
---------- ---------- --------
Incremental funds:
Certificates over $100 223,531 195,161 28,370 14.5
Other large deposits 163,498 181,843 (18,345) (10.1)
Federal funds purchased 44,485 44,235 250 0.6
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 62,958 17,280 27.4
---------- ---------- --------
Total incremental funds 572,396 517,148 55,248 10.7
---------- ---------- --------
Total funds $2,667,825 $2,394,826 $272,999 11.4%
========== ========== ========
</TABLE>
In 1994, the Company experienced modest balance sheet growth, with
year-end assets increasing $283.9 million or 10.6% with $204.1 million of the
increase attributable to the acquisitions of The Commercial Bank and Key Bank.
Total deposit growth was $227.8 million or 10.1% with $186.1 million of the
growth from The Commercial Bank and Key Bank acquisitions.
36
<PAGE> 38
CORE EARNING ASSETS
Period end core earning assets increased $239.7 million or 15.0% ,
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.
The following further breaks down the total loan portfolio over the
past five years:
TABLE 4: ANALYSIS OF CORE AND INCREMENTAL LOANS
(dollars in thousands)
<TABLE>
<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 150,256 154,093 139,802 137,579 154,959
Installment - Automobile 225,646 199,012 154,755 127,472 142,865
Real estate - residential mortgage 596,638 535,303 503,923 478,699 488,911
Real estate - other mortgage 248,417 210,485 223,809 209,222 195,245
Real estate - construction 145,596 99,145 70,287 67,851 58,097
Less: Unearned income (12,276) (20,866) (21,843) (20,951) (22,383)
---------- ---------- ---------- ---------- ----------
Total core loans 1,837,393 1,597,685 1,515,026 1,451,860 1,450,160
Less: Allowance for
loan losses (26,476) (24,265) (26,629) (21,973) (21,547)
---------- ---------- ---------- ---------- ----------
Net core loans 1,810,917 1,573,420 1,488,397 1,429,887 1,428,613
Mortgage loans held-
for-sale 13,519 65,361 78,204 108,714 62,157
---------- ---------- ---------- ---------- ----------
Net loans $1,824,436 $1,638,781 $1,566,601 $1,538,601 $1,490,770
========== ========== ========== ========== ==========
</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.
37
<PAGE> 39
<TABLE>
<CAPTION>
TABLE 5 - LOAN PORTFOLIO MATURITY
(in thousands)
After 1 But
December 31, 1994 Within 1 Year Within 5 Years After 5 Years Total
- ----------------------------------------------- ----------------------------------------------- ------------
<S> <C> <C> <C> <C>
Selected loan categories:
Commercial, financial, and agricultural $ 222,496 $ 233,595 $ 27,025 $ 483,116
Real estate - construction 142,861 1,152 1,583 145,596
---------------------------------------------------------------
Total loans $ 365,357 $ 234,747 $ 28,608 $ 628,712
===============================================================
Loans with floating or adjustable interest rates $ 140,732 $ 8,277
Loans with fixed interest rates 94,015 20,331
-----------------------------
Total loans $ 234,747 $ 28,608
=============================
</TABLE>
INCREMENTAL EARNING ASSETS
Incremental earning assets grew $1.9 million, or .2%. The increase in
incremental earning assets was primarily based on the Company's investment
portfolio which increased $112.1million, with offsetting 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 except in its thrift
subsidiaries. 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
totaled $1.4 billion compared to $1.1 billion a year ago.
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 shown in the following table of
investments.
38
<PAGE> 40
TABLE 6 - CARRYING VALUE OF INVESTMENTS
(in thousands)
<TABLE>
<CAPTION>
December 31
----------------------------------
1994 1993 1992
----------------------------------
<S> <C> <C> <C>
Investment securities available-for-sale:
U.S. Treasury $ 34,696 $ 9,361 $ 10,337
U.S. Government agencies 179,615 36,233 ----
Mortgage-backed securities 353,547 377,862 19,242
Corporate bonds 511 563 ----
State and municipal 1,062 3,146 445
Other investments 10,105 6,426 129
----------------------------------
Total investment securities
available-for-sale 579,536 433,591 30,153
----------------------------------
Investment securities held-to-maturity:
U.S. Treasury ---- ---- 23,024
U.S. Government agencies ---- ---- 52,856
Mortgage-backed securities ---- 42,382 366,704
State and municipal 157,567 138,919 115,319
Other investments ---- 10,080 7,914
----------------------------------
Total investment securities
held-to-maturity 157,567 191,381 565,817
----------------------------------
Federal funds sold and
securities puchased under
agreements to resell 117,789 124,231 135,777
Interest-bearing deposits in other
financial institutions 16,259 68,157 66,881
----------------------------------
Total investment securities $ 871,151 $ 817,360 $ 798,628
==================================
</TABLE>
Federal funds sold, interest-bearing deposits in other financial institutions
and U.S. Treasuries and Government agencies are held primarily for liquidity
purposes while mortgage-backed securities are held primarily for income
purposes. The 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 107.2% in 1993.
The market value of the portfolio of held-to-maturity investment securities
will change as interest rates change and such unrealized gains or losses will
not flow through the income statement unless the related securities are called.
Net gains on sales of investment securities during 1994 primarily
resulted from management's decisions 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
prepayment call provisions.
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 the
total investment securities and other funds by maturity date, expected
principal repayments and average yields (for all obligations on a fully taxable
basis assuming a 35% tax rate) at December 31, 1994:
39
<PAGE> 41
TABLE 7: EXPECTED MATURITY OF INVESTMENTS (SECURITIES AND OTHER FUNDS)
(dollars in thousands)
<TABLE>
<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 $ 20,919 5.07% $ 12,793 6.19% $ 984 8.24% $ --- ---%
U.S. Government agencies 114,534 5.59 48,965 6.22 16,116 6.59 --- ---
Mortgage-backed securities 1,231 7.66 18,740 7.64 26,519 7.03 307,057 7.54
Corporate bonds 511 8.84 --- --- --- ---
State and municipal 213 7.37 477 8.08 372 7.80 --- ---
Other investments --- --- --- --- 3,050 7.15 7,055 6.57
-----------------------------------------------------------------------------------
Total investment securities
available-for-sale 136,897 5.53 81,486 6.57 47,041 6.92 314,112 7.52
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 117,789 4.71 --- --- --- --- --- ---
Interest-bearing deposits in
other financial institutions 16,259 5.90 --- --- --- --- --- ---
-----------------------------------------------------------------------------------
Total investment securities $281,277 5.46% $130,157 8.71% $59,529 7.50% $400,188 7.76%
===================================================================================
</TABLE>
Average Deposits
The average amount of, and average rate paid on, total deposits by
category for the last three years is listed below:
TABLE 8-AVERAGE DEPOSITS
(dollars in thousands)
<TABLE>
<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 $ 314,067 -- $ 263,609 -- $ 226,671 --
Savings, NOW, and
IMMA deposits 802,711 2.65% 724,925 2.70% 662,900 3.36%
Time deposits 1,273,154 4.52 1,228,925 4.68 1,282,862 5.80
----------- ----------- -----------
Total deposits $ 2,389,932 3.29% $ 2,217,459 3.48% $ 2,172,433 4.45%
=========== =========== ===========
</TABLE>
All categories of average deposit funding increased by a total of
$172.9 million or 7.8% in 1994. The largest increase, $77.8 million, can be
attributed to increases in savings, NOW and IMMA, primarily from The Commercial
Bank and Key Bank acquisitions which accounted for $70.0 million of the change.
The increase in noninterest-bearing demand deposits, can be attributed to
escrow deposits retained with the Company's portfolio of mortgage loans
serviced for others and The Commercial Bank and Key Bank acquisitions which
added $53.4 million to this category.
Average incremental funding, including funding from sources other than
deposits, increased $19.6 million or 13.6%, due primarily to long-term debt
consisting of intermediate term Federal Home Loan Bank advances, which
increased $39.2 million, or 80.4%. In the current economic environment,
management does not anticipate sufficiently profitable incremental earning
asset investment opportunities and consequently does not anticipate material
growth in the incremental funding portfolio. However, through its lead bank,
the Company will increase its advances from the Federal Home Loan Bank system
potentially utilizing up to $20 million in additional intermediate term
borrowings to support a growing book of adjustable rate and 5 to 7 year balloon
first mortgage loans.
Management endeavors to maintain a core funding to core earning assets
ratio greater than 100%. Additionally, the Company's liquidity policy requires
that incremental funding as a percentage of total funding not exceed 40%.
Although the December 31, 1994, incremental funds to total funds ratio of
21.46% provides room for expansion of incremental funding, management does not
anticipate this ratio increasing materially.
40
<PAGE> 42
The December 31, 1994, maturity distribution of incremental funding is as
follows:
<TABLE>
<CAPTION>
Table 9
LESS THAN 3 MONTHS TO 6 MONTHS TO MORE THAN
3 MONTHS 6 MONTHS 12 MONTHS 12 MONTHS TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates greater
than $100 $ 50,880 $ 47,989 $52,112 $ 72,550 $223,531
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 $169,372 $131,567 $86,315 $185,142 $572,396
=============================================================================
</TABLE>
Details of the Company's short-term borrowings for the past three years is
shown in Table 10 below:
Table 10 - SHORT-TERM BORROWINGS
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
41
<PAGE> 43
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 11 - CHANGE IN NET INTEREST INCOME, TAX EQUIVALENT BASIS
(in thousands)
<TABLE>
<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 11,789 (731) 11,058 4,488 (12,314) (7,826)
Investment securities, taxable 3,121 (1,015) 2,106 3,848 (4,557) (709)
Investment securities, nontaxable 2,864 (1,234) 1,630 1,925 (235) 1,690
Federal funds sold and
securities purchased under
agreements to resell 645 1,163 1,808 (341) (434) (775)
- ----------------------------------------------------------------------------------------------------------------
Total interest income 17,125 (1,607) 15,518 9,986 (18,363) (8,377)
- ----------------------------------------------------------------------------------------------------------------
Interest expense:
Savings and IMMA deposits 2,312 (682) 1,630 1,952 (4,611) (2,659)
Time deposits 2,169 (2,205) (36) (3,020) (13,832) (16,852)
Federal funds purchased
and securities sold
under agreements to
repurchase (703) 638 (65) 691 (483) 208
Other borrowed funds 1,889 19 1,908 1,451 81 1,532
- ----------------------------------------------------------------------------------------------------------------
Total interest expense 5,667 (2,230) 3,437 1,074 (18,845) (17,771)
- ----------------------------------------------------------------------------------------------------------------
Net interest income,
tax equivalent
basis $ 11,458 $ 623 $ 12,081 $ 8,912 $ 482 $ 9,394
================================================================================================================
</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 $12.1 million or 10.6%, primarily volume driven by an average earning
asset growth of 8.2% and a 10 basis point margin improvement from 4.67% to
4.77%. 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
2 basis points from 8.05% in 1993 to 8.03% in 1994. The average rate on
interest-bearing liabilities declined by 10 basis points as longer term, higher
rate certificates of deposit matured earlier in the year and were renewed at
lower rates. This resulted in an eight basis point increase in interest yield
spread.
In comparison, net interest income (FTE) for 1993 increased $9.4
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 $8.4 million,
42
<PAGE> 44
which was more than offset by a decline in interest expense of $17.8 million.
The result was a 23 basis point increase in interest yield spread and a 17
basis point increase in the margin from 4.50% in 1992 to 4.67% 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 as higher costing certificates of deposits are
repriced. The increased margin, combined with moderate earning asset growth
may provide the fundamentals for growth in net interest income to exceed that
experienced in 1994.
NONINTEREST INCOME
Noninterest income for 1994 decreased $4.9 million or 14.9%,
primarily the result of a significant decline in mortgage loan income of $4.0
million and a decrease in net gains on sales of investment securities of $1.0
million. The increase in service charges on deposits of $2.3 million was
primarily due to The Commercial Bank and Key Bank acquisitions. The decrease in
other noninterest income of $6.3 million, was driven by lower gains on sales
of mortgage loan servicing rights.
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
and thrift 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 VISA(R) 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 non interest income are expected to be realized.
NONINTEREST EXPENSE
Noninterest expense for 1994 increased $7.8 million or 8.5%. The
single largest increase was due to personnel expenses increasing $4.4 million,
which includes the impact of The Commercial Bank and Key Bank's $3.3 million in
personnel expenses for 1994. Excluding the increase due to The Commercial Bank
and Key Bank acquisitions, personnel expenses increased only 2.6% 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.
FDIC insurance premiums continue to be a significant expense at
$5.5 million in 1994, up 4.8% over the $5.2 million paid in 1993, and up 6.2%
over premiums paid in 1992. A majority of the increase in 1994 deposit
premiums is the result of the inclusion of The Commercial Bank and Key Bank.
Noninterest expense for 1993 increased $12.4 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 63.74% was up from
the 62.13% in 1993, and 58.83% 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
and Key Bank in 1994 to total noninterest expenses. Management continues to
analyze noninterest expenses in an effort 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.
43
<PAGE> 45
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 $47.7 million in 1994, up from $47.2 million in 1993, an increase of $.5
million, or 1.1%. The effective tax rate for the Company decreased to 27.3% in
1994, from 29.0% 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 12: RISK ELEMENTS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
----------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------
<S> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $21,764 $22,544 $25,938 $34,299 $21,415
Renegotiated loans 45 364 2,645 217 194
- -------------------------------------------------------------------------------------------------------
Total nonperforming loans 21,809 22,908 28,583 34,516 21,609
Other real estate 15,176 14,301 21,763 20,633 16,179
- -------------------------------------------------------------------------------------------------------
Total nonperforming assets $36,985 $37,209 $50,346 $55,149 $37,788
=======================================================================================================
Loans past due 90 days or more $ 220 $ 252 $ 650 $ 1,466 $ 2,975
=======================================================================================================
Nonperforming loans as a percentage of loans, net
of unearned income (including mortgage
loans held-for-sale) 1.18% 1.38% 1.80% 2.21% 1.43%
Nonperforming assets as a percentage of loans,
net of unearned income, plus other real estate
(including mortgage loans held-for-sale) 1.99 2.22 3.12 3.48 2.47
Allowance for loan losses as a percentage of
nonperforming loans 121.40 105.92 93.16 63.66 99.71
Allowance for loan losses as a percentage of
nonperforming assets and loans past
due 90 days or more 71.16 64.77 52.22 38.81 52.86
</TABLE>
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 $1.1 million decline in nonperforming loans was
accomplished dispite the addition of $6.7 million in nonperforming loans from
The Commercial Bank and Key Bank acquisitions. Similarly, the $.224 million
decrease in nonperforming assets was achieved after the $12.6 million increase
from these acquisitions. The nonperforming assets to loans plus OREO ratio
declined from 2.22% in 1993 to 1.99% in 1994 and loan loss reserve to
nonperforming loans increased from 105.92% in 1993 to 121.40% in 1994, due to
the decline in nonperforming loans and the $2.2 million increase in the
allowance for loan losses. 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 loan, assets, and applicable asset quality ratios.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
either when reasonable doubt exists as to the full, timely collection of
interest or principal or when a loan becomes contractually past due by 90 days
or more with respect to interest or principal without a definitive plan for
repayment. When a loan is placed on nonaccrual status, all interest
previously accrued during the year but not collected is reversed against
current period interest income. Income on such loans is then recognized only
to the extent that cash is received and where the future collection of
principal is probable.
Interest income on the nonaccrual loans in 1994 which would have been
reported on an accrual basis amounted to approximately $2.1 million. Interest
income of approximately $91,000 was recognized in 1994 on loans which are
44
<PAGE> 46
currently on a nonaccrual basis. Management is not aware of any potential
problem loans, other than those classified as nonperforming, which could have a
material impact on asset quality.
The Company's allocation of the allowance for loan losses is as
follows:
TABLE 13 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------
1994 1993 1992 1991 1990
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 14,437 $ 13,212 $ 14,914 $ 12,320 $ 9,983
Real estate 10,053 10,278 10,209 6,351 7,474
Installment and single payment individual 1,986 775 1,506 3,302 4,090
-----------------------------------------------------------
Total allowance for loan losses $ 26,476 $ 24,265 $ 26,629 $ 21,973 $ 21,547
===========================================================
Loans outstanding by catagory as a percent of total loans:
Commercial, financial, and agricultural 26% 25% 28% 28% 28%
Real estate 54 54 54 55 53
Installment and single payment individual 20 21 18 17 19
-----------------------------------------------------------
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 affiliates and
are designed to identify potential problem loans, potential charges to the
allowance for loan losses and to determine the adequacy of the allowance. Past
performance, financial strength of the borrower, collateral values, portfolio
growth, industry concentrations, portfolio maturity and composition, off-balance
sheet credit risk, historical trends in delinquencies, non accruals and
national, regional and industry economic conditions are considered in the
evaluation. 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 and thrifts, 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 First National Bancorp'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:
45
<PAGE> 47
TABLE 14: LOAN CHARGE-OFF ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------------------
1994 1993 1992 1991 1990
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average total loans, net of unearned income $1,775,838 $1,641,438 $1,593,494 $1,538,868 $1,483,509
============================================================================================================================
Allowance for loan losses, beginning of year $ 24,265 $ 26,629 $ 21,973 $ 21,547 $ 16,584
Charge-offs:
Commercial, financial, and agricultural 3,241 1,259 6,674 4,602 5,261
Installment and single payment individual 2,852 2,940 3,037 4,643 3,699
Real estate - mortgage 1,822 3,238 1,148 2,780 2,378
- ----------------------------------------------------------------------------------------------------------------------------
Total charge-offs 7,915 7,437 10,859 12,025 11,338
- ----------------------------------------------------------------------------------------------------------------------------
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 5,264 5,526 9,158 10,448 10,088
Provision for loan losses 1,577 3,162 12,295 10,874 15,051
Allowance of subsidiary banks acquired 5,898 --- 1,519 --- ---
- ----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses, end of year $ 26,476 $ 24,265 $ 26,629 $ 21,973 $ 21,547
============================================================================================================================
Allowance for loan losses as a percentage
of loans, net of unearned income:
Including mortgage loans held-for-sale 1.43% 1.46% 1.67% 1.40% 1.42%
Excluding mortgage loans held-for-sale 1.44 1.52 1.76 1.51 1.48
Net loans charged off as a percentage
of average loans, net of unearned income:
Including mortgage loans held-for-sale 0.30 0.34 0.57 0.68 0.68
Excluding mortgage loans held-for-sale 0.30 0.36 0.62 0.72 0.69
</TABLE>
Included in the 1994 charge-offs are approximately $2.6 million of
charge-offs related to The Commercial Bank's and Key Bank of Florida's loan
portfolio, which had been provided for by The Commerical Bank's and Key Bank of
Florida's allowance for loan losses in 1993.
46
<PAGE> 48
CAPITAL RESOURCES AND ADEQUACY
Leverage and risk-based capital positions as of December 31, 1994 were
as follows:
TABLE 15: ANALYSIS OF CAPITAL ADEQUACY
(dollars in thousands)
<TABLE>
<CAPTION>
REGULATORY INTERNAL
1994 GUIDELINES STANDARDS
------------------------------------------------------
<S> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets 13.93% 4.00% 9.00% (minimum)
Tier 2 capital to risk-adjusted assets 1.25 4.00 2.00 (maximum)
-----------------------------
Total capital to risk-adjusted assets 15.18% 8.00% 9.00% (minimum)
=============================
Leverage ratios:
Capital to assets 9.17% 6.00 6.50% (minimum)
Primary capital to adjusted assets (a) 9.97 5.50 8.00 (minimum)
Primary tangible capital to adjusted assets (b) 9.79 -- 6.00 (minimum)
Tier 1 capital $ 263,228
Tier 2 capital 23,627
----------
Total capital 286,855
==========
Risk-adjusted assets $1,890,142
==========
</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-based
capital position is also well in excess of regulatory standards. Consequently,
management does not anticipate any change in asset allocation strategies to
complement risk-based capital requirements.
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 1 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 1 capital, the Tier 1 capital to risk-adjusted
assets ratio would have been 14.65% and the total capital to risk-adjusted
assets ratio would have been 15.99%.
47
<PAGE> 49
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:
TABLE 16: INTERNAL CAPITAL GENERATION RATE
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------------------
1994 1993 1992
----------------------------------------------
<S> <C> <C> <C>
Return on average assets 1.21% 1.32% 1.16%
- -------------------------------------------------- ----------------------------------------------
divided by
- --------------------------------------------------
Average equity as a% of average assets 9.43 8.97 8.64
- -------------------------------------------------- ----------------------------------------------
equals
- --------------------------------------------------
Return on average equity 12.84 14.66 13.38
- -------------------------------------------------- ----------------------------------------------
times
- --------------------------------------------------
Earnings retained 54.80 59.71 57.33
- -------------------------------------------------- ----------------------------------------------
equals
- --------------------------------------------------
Internal capital growth 7.04 8.75 7.67
================================================== ==============================================
</TABLE>
The 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
$5.5 million in facilities, equipment, and systems in 1995.
LIQUIDITY
The Company manages its liquidity positions to assure sufficient cash
to service net new loan demand and potential deposit and funds withdrawals. In
this regard, the composition and maturity structure of earning assets and
funding is evaluated by the asset liability management committee as is the
availability of off-balance sheet funding sources and the potential for
liquidation of selected earning assets without a significant short or longer
term negative impact to profitability. Although numerous standards are applied,
the Company measures and manages its liquidity profile based on core funding
and incremental funding objectives.
It is the Company's objective for core liabilities to equal at least
100% of core earning assets and incremental funds not to exceed 40% of total
funding. These objectives may be changed depending on management's evaluation
of the maturity distribution of funding and earning assets and the nature of
those assets and funding. The Company's liquidity position as of December 31,
1994, and December 31, 1993, was as follows:
TABLE 17 - LIQUIDITY ANALYSIS
<TABLE>
<CAPTION>
December 31
----------------------------
1994 1993
------ ------
<S> <C> <C>
Core funding/core earning assets 114.04% 117.52%
Incremental funding/total funding 21.46 21.59
</TABLE>
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.
48
<PAGE> 50
INTEREST RATE SENSITIVITY MANAGEMENT
Interest rate sensitivity is defined as the exposure to variability in
net interest income resulting from changes in market based interest rates. It
is the Company's philosophy to protect net interest income against unexpected
changes in interest rates through a controlled assumption of interest rate risk
for profit. This potential variability is closely monitored by the Company's
asset liability modeling and management of the Company's traditional and beta
adjusted gap positions. Since all interest rates and yields do not adjust in
the same degree, the traditional and beta adjusted gap analysis is only a
general indicator of rate sensitivity and net interest income volatility.
Consequently, the Company also performs simulation analyses and modeling of
the Company's balance sheet in varying interest rate environments to gauge net
income volatility and develop appropriate balance sheet strategies to assure
attainment of the Company's objectives.
The Company's interest rate sensitivity position at December 31, 1994
is presented in the following table. For purposes of this analysis the
maturity and repricing distributions within each time horizon are based upon
the contractual terms of the underlying interest-earning assets and
interest-bearing liabilities. Savings, Now, and money market accounts are
presented as repricing in the earliest time horizon presented, as they are
subject to immediate withdrawal.
Table 18 - Interest Rate Sensitivity
<TABLE>
<CAPTION>
ASSETS AND LIABILITIES REPRICING WITHIN
------------------------------------------------------
0-3 4-12 1-5 OVER 5
(dollars in thousands) MONTHS MONTHS YEARS YEARS TOTAL
- ---------------------- ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits in
other financial institutions $ 10,709 $ 5,550 $ - $ - $ 16,259
Net loans (a) 628,965 369,944 744,114 86,108 1,829,131
Investment securities available-for-sale 131,005 234,417 182,141 31,973 579,536
Investment securities held-to-maturity 2,373 7,959 48,671 98,564 157,567
Federal funds sold and securities
purchased under agreements to
resell 117,789 - - - 117,789
----------------------------------------------------------
Total earning-assets 890,841 617,870 974,926 216,645 2,700,282
----------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings and IMMA accounts 608,638 - - - 608,638
Time deposits 486,802 537,770 499,598 529 1,524,699
Federal funds purchased and
securities sold under agreements
to repurchase 66,567 28,611 3,524 - 98,702
Other borrowed funds 6,417 30,248 40,000 10,000 86,665
----------------------------------------------------------
Total interest-bearing
liabilities 1,168,424 596,629 543,122 10,529 2,318,704
----------------------------------------------------------
Interest sensitivity gap $ (277,583) $ 21,241 $ 431,804 $ 206,116 $ 381,578
==========================================================
Cumulative interest sensitivity gap $ (277,583) $(256,342) $ 175,462 $ 381,578
============================================
Cumulative interest sensitivity gap
ratio (cumulative interest-earning
assets/cumulative interest-bearing
liabilities) .76 .85 1.08 1.16
============================================
Targeted Gap Range .65-1.20 .65-1.20 .80-1.20 .80-1.20
</TABLE>
(a) Excludes nonaccrual loans and overdraft accounts.
At December 31, 1994, the Company is liability sensitive for the next 12 month
horizon. This suggests that if interest rates should continue to increase, as
they have throughout 1994, the Company could be negatively impacted through a
decline in the net interest margin. Conversely, if rates were to decrease, the
Company could be positively impacted by a higher net interest margin as
interest-bearing deposits would reprice quicker than the Company's
interest-earning assets.
In addition to the above standard gap analysis, the Company monitors and
manages its interest rate sensitivity position through a Beta adjusted gap
model. The Beta adjusted gap model measures the Company's exposure to changes
in interest rates based on its current balance sheet structure and mix of
interest-earning assets and interest-bearing liabilities, considering that such
assets and liabilities do not reprice at the same speeds. The primary
difference from the standard gap model is the elasticity of the Company's
deposits to changes in interest rates. For purposes of the Beta adjusted gap
analysis, management assumes that the majority of its Century Service deposit
products, which are long-term customer relationship money market accounts would
not reprice as rapidly as other more traditional money market accounts.
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 $.35 per share compared with fourth quarter net income of $9.5
million or $.49 per share in 1993.
Net interest income totaled $31.3 million in the fourth quarter of
1994, up from the $27.3 in 1993. Noninterest income was $5.8 million in 1994,
down 41.5% from the fourth quarter 1993, primarily the result of a $2.5 million
decrease in mortgage loan related revenues. Noninterest expense for the
fourth quarter increased to $25.8 million in 1994, up 7.0% from the fourth
quarter 1993, almost entirely the result of The Commercial Bank and Key Bank
acquisitions in 1994. Highlights of the Company's results on a
quarter-by-quarter 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 provisions regarding 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 effective 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.
49
<PAGE> 51
BUSINESS AND PRODUCT INFORMATION
During the past three years, the consolidated income of the Company
and its subsidiaries has been provided through core banking and thrift
services, mortgage banking, and trust activities as follows:
Table 17 - Business and Product Information
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------------------
1994 1993 1992
--------------------------------------------
<S> <C> <C> <C>
Net interest income fully-taxable equivalent:
Core banking and thrift $ 123,917 $ 109,574 $ 100,810
Mortgage banking and servicing 2,390 4,652 4,022
Trust services --- --- ---
--------------------------------------------
Total 126,307 114,226 104,832
Noninterest income:
Core banking and thrift 18,023 16,528 16,140
Mortgage banking and servicing 7,744 14,261 12,745
Trust services 2,345 2,250 2,398
--------------------------------------------
Total 28,112 33,039 31,283
Noninterest expense:
Core banking and thrift 85,107 76,051 66,325
Mortgage banking and servicing 11,349 12,784 10,502
Trust services 2,324 2,186 1,793
--------------------------------------------
Total 98,780 91,021 78,620
Net income (loss):
Core banking and thrift 35,331 30,344 24,319
Mortgage banking and servicing (779) 3,984 4,134
Trust services 84 131 482
--------------------------------------------
Total $ 34,636 $ 34,459 $ 28,935
============================================
</TABLE>
50
<PAGE> 52
MARKET, STOCK PRICE AND DIVIDEND INFORMATION
The following table sets forth the high and low bid 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 8,030 holders of record of
the Company's common stock.
TABLE 20 - STOCK PRICE INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------
High Low High Low High Low
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
TABLE 21 - PER SHARE DIVIDENDS AND NET INCOME
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------
Dividends Income Dividends Income Dividends Income
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ .1900 $ .42 $ .1725 $ .44 $ .1500 $ .35
Second Quarter .1925 .48 .1750 .38 .1600 .38
Third Quarter .1950 .47 .1775 .44 .1600 .41
Fourth Quarter .2000 .35 .1800 .49 .1700 .36
</TABLE>
Due to rounding, per share amounts may not total year-to-date amounts reported
on the Consolidated Statements of Income.
51
<PAGE> 53
SELECTED STATISTICAL INFORMATION
Condensed average daily balance sheets for the years indicated are
presented below:
AVERAGE BALANCES, INTEREST, AND RATES
(dollars in thousands)
<TABLE>
<CAPTION>
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 1,775,838 155,730 8.77 1,641,438 144,672 8.81 1,593,494 152,498 9.57
Investment securities, taxable 562,064 33,369 5.94 509,903 31,263 6.13 451,724 31,972 7.08
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 120,157 4,975 4.14 101,628 3,167 3.12 111,824 3,942 3.53
- --------------------------------------------------------------- --------------------- --------------------
Total earning assets 2,645,343 212,325 8.03 2,445,140 196,807 8.05 2,332,006 205,184 8.80
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets 213,254 175,062 171,493
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $2,858,597 $2,620,202 $2,503,499
=================================================== ========== ==========
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Savings and IMMA accounts $ 802,711 21,239 2.65 $ 724,925 19,609 2.70 $ 662,900 22,268 3.36
Time deposits 1,276,154 57,509 4.51 1,228,925 57,545 4.68 1,282,862 74,397 5.80
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 87,973 4,239 4.82 48,771 2,331 4.78 18,266 799 4.37
- --------------------------------------------------------------- --------------------- --------------------
Total interest-
bearing liabilities 2,242,898 86,018 3.84 2,098,257 82,581 3.94 2,039,641 100,352 4.92
- --------------------------------------------------------------- --------------------- --------------------
Other liabilities 346,048 286,817 247,604
- --------------------------------------------------- ---------- ----------
Total liabilities 2,588,946 2,385,074 2,287,245
Total shareholders' equity 269,651 235,128 216,254
- --------------------------------------------------- ---------- ----------
Total liabilities and
shareholders' equity $2,858,597 $2,620,202 $2,503,499
=================================================== ========== ==========
Net interest income $126,307 $114,226 $104,832
=============================================================== ======== ========
Interest spread 4.19% 4.11% 3.88%
===================================================================== ==== ====
Net interest margin 4.77% 4.67% 4.50%
===================================================================== ==== ====
</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.
52
