[COVER]
1994 Annual Report
First National Bancorp
ENTERING THE ERA OF EXCELLENCE.
[INSIDE FRONT COVER]
Financial Highlights
FIRST NATIONAL BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 Change Percent
<S> <C> <C> <C> <C>
For the Years Ended December 31:
Net income $ 28,134 $ 26,654 $ 1,480 5.6%
Net interest income 97,013 88,201 8,812 10.0
Net interest income (FTE) 103,424 94,131 9,293 9.9
Noninterest income 27,081 31,841 (4,760) (14.9)
Noninterest expense 86,639 81,144 5,495 6.8
Provision for loan losses (362) 2,985 (3,347) (112.1)
Per Share Data:
Net income $ 1.72 $ 1.68 $ .04 2.4%
Dividends declared .7775 .7050 .0725 10.3
Book value 13.72 13.60 .12 .9
Tangible book value 12.15 12.53 (.38) (3.0)
Weighted-average shares outstanding 16,394,974 15,842,510
Shares outstanding at year end 16,540,495 16,034,183
Financial Ratios:
Return on average assets 1.24% 1.29%
Return on average shareholders' equity 12.51 13.53
Net interest margin 4.96 4.89
Primary capital to adjusted assets:
Including intangibles 10.30 11.07
Excluding intangibles 9.96 10.77
Allowance for loan losses to loans,
net of unearned income:
Including mortgage loans held for sale 1.44 1.65
Excluding mortgage loans held for sale 1.45 1.74
Selected Balances as of December 31:
Total assets $2,380,548 $2,141,952 $238,596 11.1%
Earning assets 2,176,412 1,960,712 215,700 11.0
Loans, net of unearned income:
Including mortgage loans held for sale 1,424,246 1,306,564 117,682 9.0
Excluding mortgage loans held for sale 1,410,727 1,241,203 169,524 13.7
Allowance for loan losses 20,441 21,539 (1,098) (5.1)
Investment securities 706,999 549,620 157,379 28.6
Deposits 1,943,264 1,764,641 178,623 10.1
Short-term borrowings 105,129 77,186 27,943 36.2
Long-term debt 80,238 57,958 22,280 38.4
Shareholders' equity 226,957 218,059 8,898 4.1
</TABLE>
FTE - FULLY TAXABLE EQUIVALENT
ALL PREVIOUSLY REPORTED FIGURES HAVE BEEN RESTATED FOR AS A
POOLING-OF-INTERESTS.
<TABLE>
1994 Affiliate Financial Highlights
<CAPTION>
Deposits Net Allowance For Total Shareholder's
AS OF DECEMBER 31 (IN THOUSANDS) and Funds Loans Loan Losses Assets Equity
<S> <C> <C> <C> <C> <C>
The First National Bank of Gainesville $915,744 $619,653 $7,432 $998,053 $75,956
Citizens Bank, Cherokee Count 77,087 39,651 807 85,090 7,085
The Community Bank of Carrollton 36,882 27,874 439 41,953 4,861
Bank of Clayton 90,142 59,168 1,105 104,958 14,251
First National Bank of White County 97,877 75,149 972 114,724 16,241
First National Bank of Habersham 97,862 56,404 748 110,583 12,245
The Peoples Bank Of Forsyth County 110,154 88,040 979 121,639 10,912
The First National Bank of Paulding County 157,714 75,412 1,418 170,811 11,782
The Commercial Bank 124,336 73,444 1,738 136,877 12,017
Granite City Ban 88,626 42,112 871 102,794 13,717
First National Bank of Gilmer County 44,616 35,030 370 49,392 4,367
Bank of Banks County 54,113 43,150 575 58,798 4,340
Pickens County Bank 42,263 34,350 442 47,322 4,840
The First National Bank of Jackson County 53,777 40,599 606 59,178 5,117
The Citizens Bank 74,878 53,281 743 85,963 10,791
Bank of Villa Rica 44,518 28,401 574 48,936 4,302
Barrow Bank & Trust Company 46,312 32,528 622 52,254 5,732
</TABLE>
<PAGE> IFC
Our vision
The client is our lifeblood.
Passion for exceeding customers' expectations
flows throughout the company.
Bold creativity, unparalleled service
and a resolve to win
chart the course amid a world of choices.
Employees are stimulated by the personal opportunity,
professional growth and extraordinary rewards
of being part of a vital team in a learning environment.
Communities we serve
are better for our presence.
<PAGE> 1
[PHOTO -- RICHARD A. MCNEECE, CHAIRMAN & CEO W/GHOSTED BACKGROUND]
<PAGE> 2
TO OUR SHAREHOLDERS
It was a momentous year in 1994 for your company in many respects ...
record earnings, consummation/announcement of three significant mergers,
progress in management development and team building, continued strides
in business development efforts and customer satisfaction, and development
of a new and bold vision, strategic intent and mission for
the company ... all contributed to a successful 1994 and strengthened the
foundation for exceptional performance results throughout the remainder of
this decade.
Record earnings per share of $1.72 were up 2.4% over 1993, for a
return on average assets of 1.24%. Dividends per share increased by 10.3%
from $.7050 to $.7775. Particularly encouraging was the continued quarterly
improvement in the net interest margin, the largest single contributor to
profitability. While the full-year margin of 4.96% compared favorably to that
reported in 1993 and represented the highest level in over five years, the
fourth quarter margin of 4.94% provides a good foundation for continued
earnings improvement in 1995. Asset quality, which is always a high priority,
remained excellent during 1994 and improvement was a significant reason for
the lower loan loss provision. Period end total assets reached a record $2.4
billion as affiliates continued to aggressively pursue core balance sheet
growth opportunities. The community banking segment of our business had an
excellent year when compared to both 1993 and planned expectations for 1994.
The company's mortgage lending division, The Mortgage Source, contributed
significantly to profitability through 1993. However, 1994 performance was
materially impacted by the dramatic slowdown in refinancing activity,
heightened competition and, earlier in the year, accelerated
amortization in the company's portfolio of loans serviced for others.
We anticipate 1995 to be another good year for the company. While the
mortgage lending business will continue to present challenges due to the
economic and competitive environments, a management reorganization within this
line of business, geographical expansion and a cross sales emphasis will
enhance our opportunities. Even though asset quality should remain excellent,
we recognize the additional credit risks of this economic cycle and will
reserve appropriately in 1995 through higher provisions to the loan loss
reserve. Supported by a sound economy and emphasis
<PAGE> 3
[GRAPH --
PRIMARY CAPITAL TO ASSETS RATIO
1990 9.95%
1991 10.37%
1992 10.66%
1993 11.07%
1994 10.30%]
[GRAPH --
TOTAL ASSETS (MILLIONS)
1990 $1,829
1991 $1,890
1992 $2,028
1993 $2,142
1994 $2,381]
on sales management, core retail and commercial balance sheet growth should
remain strong and when complemented by the recent strength in the net
interest margin, the company's revenues are anticipated to show good growth.
Expense management is critical and will be a major focus in 1995 as it was in
1994. We anticipate substantial improvement in the company's ability to
produce higher revenues per dollar of noninterest expense.
We closed two previously announced mergers. The Commercial Bank in
Douglasville
officially joined us in February and brought the strength of another healthy,
growing market to our
franchise. While five of the last six mergers, including The Commercial Bank,
have been in the West Georgia area, we added another important market in 1994
when Barrow Bank & Trust Company in Winder became our 17th affiliate. This is
a key county in an attractive market between Gainesville, the headquarters of
First National Bancorp, Athens (home of the University of Georgia), and
metropolitan Atlanta.
We took our first step outside of North Georgia by signing a Letter
of Intent in October
and subsequently a Definitive Agreement with FF Bancorp of New Smyrna Beach,
Florida, a $600 million holding company consisting of one commercial bank and
two healthy and very profitable thrifts. FF Bancorp's strong community
banking philosophy fits well with First National Bancorp while providing a
reasonably-priced and stable source of core deposits and significant
opportunities to expand our mortgage lending, trust, bank card and
correspondent services business. The
<PAGE> 4
[GRAPH --
EARNINGS PER SHARE
1990 $1.23
1991 $1.32
1992 $1.50
1993 $1.68
1994 $1.72]
[GRAPH --
DIVIDENDS PER SHARE
1990 $.4600
1991 $.5500
1992 $.6400
1993 $.7050
1994 $.7775]
synergy created between our two companies will accrue to the benefit of our
shareholders in higher earnings and dividends per share. While our primary
merger focus continues to be the 48-county North Georgia area, if other
opportunities like FF Bancorp should present themselves outside this
particular region or out-of-state, we will pursue and take advantage of such
opportunities provided they are consistent with our basic business strategy.
As I previously indicated, 1994 was also significant as your
management team set their sights on a future for the company far greater than
current or historical results would suggest attainable. We all view the
future as an opportunity for great achievement, increased profitability and,
most importantly, a time to realize our Vision. A Vision which provides a
bold direction and intent to transform our company into one of distinction
... a company which will be recognized by our customers, competitors,
employee
s, directors and shareholders as a company of unparalleled quality.
A company that is entering the era of excellence.
This journey began with the recognition that the banking environment
will continue to change at an accelerated pace, and only those organizations
with the right customer-driven and technology-supported vision and focus and
the willingness to aggressively welcome this change will survive. We began
with a team building program that originally included 17 members of senior
and executive management and expanded to 50 to include executive management
of all Bancorp
<PAGE> 5
[GRAPH --
RETURN ON ASSETS
1990 1.09%
1991 1.12%
1992 1.20%
1993 1.29%
1994 1.24%]
[GRAPH --
RETURN ON EQUITY
1990 12.02%
1991 12.03%
1992 12.65%
1993 13.53%
1994 12.51%]
affiliates. The purpose was to build trust, respect, integrity and confidence
and move forward to the future as a team dedicated to a singular mission -
the pursuit of excellence. I have been very pleased with the results. Our
employees are communicating better, more honestly and candidly. A greater
team effort is emerging among department and affiliate lines resulting in
enhanced client satisfaction. In short, we're knocking down the walls of the
silos and bringing our people together to exceed the expectations of our
clients.
It was from this team building process that our Vision for this
company and its future was born. The quest for excellence has been embraced
and practiced by all of our employees. The Vision, which is supported by a
strategic intent to be achieved over the next six to eight years, created
great excitement in May when it was introduced to all employees and
directors. A copy of our Vision and core values now sits on the desk of every
employee throughout the company while large
[PHOTOS -- RICHARD A. MCNEECE
CHAIRMAN & CEO; PETER D. MILLER
PRESIDENT, CHIEF ADMINISTRATIVE & FINANCIAL OFFICER; C. TALMADGE GARRISON
SENIOR VICE PRESIDENT & SECRETARY; BRYAN F. BELL
SENIOR VICE PRESIDENT]
<PAGE> 6
[GRAPHIC -- 2-STATE MAP - CAPTION - FIRST NATIONAL BANCORP'S PRIMARY
EMPHASIS CONTINUES TO BE IN A 48-COUNTY REGION IN NORTH GEORGIA, CURRENTLY
WITH SEVENTEEN AFFILIATES IN 16 COUNTIES. THE COMPANY EXPECTS TO COMPLETE ITS
FIRST OUT-OF-STATE MERGER IN THE SPRING OF 1995, ADDING THREE AFFILIATES IN
THREE FLORIDA COUNTIES.]
framed versions hang in the lobbie
s of all our banks. They serve as daily reminders to our clients and
employees that our standards are high and so are our expectations to succeed.
Our Vision addresses three important keys to our success: our
clients, employees and communities.
THE CLIENT IS OUR LIFEBLOOD. Our clients know it, we know it and we
believe it. Our goal is simple: To exceed client expectations by performing
better than the client expects and better than the competition can deliver.
EMPLOYEES ARE STIMULATED BY THE PERSONAL OPPORTUNITY, PROFESSIONAL
GROWTH AND EXTRAORDINARY REWARDS OF BEING PART OF A VITAL TEAM IN A LEARNING
ORGANIZATION. While the client is our reason for existing, the heart of our
company lies with our employees. Our success as a company comes from the
investment we make in our staff to provide for the professional growth and
development which contributes to greater individual and collective
achievement. We are
[PHOTOS -- STEPHEN M. ROWND, SENIOR VICE PRESIDENT; MARY E. HENGEVELD, GROUP
VICE PRESIDENT, CHARLES A. ROBINSON, GENERAL AUDITOR; J. REID MOORE, GROUP
VICE PRESIDENT & CONTROLLER]
<PAGE> 7
[PHOTO -- JOAN JACKSON -- CAPTION: JOAN JACKSON, A 30-YEAR EMPLOYEE, WAS
INSPIRED BY THE COMPANY'S VISION AND COMMITMENT TO A LEARNING ORGANIZATION.
SHE MOVED TO AN AREA OF NEW RESPONSIBILITY, SAYING, "THIS GAVE ME AN
OPPORTUNITY TO LEARN SOMETHING NEW AND TO SAY, 'THIS ISN'T ONLY FOR THE YOUNG
PEOPLE, THE VISION IS A CHANCE FOR OLDER EMPLOYEES LIKE ME TO LEARN'."]
committed to appropriately recognizing and rewarding accomplishments and
contributions to the attainment of company and shareholder objectives.
COMMUNITIES WE SERVE WILL BE BETTER FOR OUR PRESENCE. We recognize
that the success
of our company is directly related to the economic health and quality of life
in each of our communities. To support this belief, our management team holds
leadership positions in local community chambers of commerce, economic
development and various community service organizations. Community bank
holding company is not a throw-away phrase for us; it is a serious way of
life in each of our markets. The bottom line is that if our markets prosper
ec
onomically, so will our shareholders.
Our Vision is supported by a strategic intent that, as Pete Miller,
the president of First National Bancorp, often points out, "is where the
rubber meets the road." The strategic intent will bring this Vision to life
through concrete, measurable goals and strategies.
WE WILL SET THE STANDARD OF PERFORMANCE AS THE PREFERRED FINANCIAL
PARTNER. Simply stated, our customers and competitors' customers will look
upon this company, through its affiliate banks and due to the performance we
deliver, as the organization of choice to satisfy all of their financial
needs. This environment will be delivered with a focus on:
"FIRST IN SERVICE." We will set the standard for service, performance
and delivery of value-added products. I want our relationship officers to be
perceived by the customer as indispensable assets in the attainment of the
customer's goals.
<PAGE> 8
[PHOTO -- LEARNING ENVIRONMENT -- CAPTION: FIRST NATIONAL BANCORP IS
COMMITTED TO A LEARNING ENVIRONMENT WHERE TRAINING AND EDUCATION PLAY VITAL
ROLES IN THE REALITY OF THE COMPANY'S VISION: "EMPLOYEES ARE STIMULATED BY
THE PERSONAL OPPORTUNITY, PROFESSIONAL GROWTH AND EXTRAORDINARY REWARDS OF
BEING PART OF A VITAL TEAM IN A LEARNING ENVIRONMENT."]
"FIRST IN INNOVATION." We must anticipate our customers' needs and
deliver products
and services to satisfy those needs in a fashion superior to the competition
and better than the customer expects. We have challenged our employees not to
be complacent and to reach beyond our clients' expectations -- to stay ahead
of our financial competitors.
"FIRST IN THE INDUSTRY." Our intent is to set the standard of
operating performance within the industry. We will be the example everyone
else aspires to and follows. We will have succeeded when our shareholders,
the financial community, our employees, directors and competition acknowledge
First National Bancorp as the company of excellence.
The map for attainment of our strategic intent has been developed
with specific strategies and tactics defined with aggressive dates for
completion. Three key objectives make the strategic intent achievable.
The first of those objectives is to create and maintain a learning
organization which will have significant impact on our future successes.
"ATTRACT, DEVELOP AND RETAIN THE BEST TALENT BY PROVIDING A LEARNING
ENVIRONMENT WHERE PEOPLE ARE REWARDED FOR TAKING RESPONSIBILITY AND
CONTINUOUS IMPROVEMENT IS A WAY OF LIFE."
[GRAPHIC -- PIE CHART -- BUSINESS MIX -- 23% Investing; 35% Retail Lending;
29% Commercial Lending; 4% Other; 1% Trust Services; 5% Service Charges on
Deposits; 3% Mortgage Lending Services]
<PAGE> 9
[PHOTO -- AFFILIATE BANKERS -- CAPTION: THROUGHOUT THE AFFILIATE BANKS,
EMPLOYEES ARE DEDICATED TO KNOWING THEIR MARKET SEGMENTS AND CLIENTS' NEEDS
BECAUSE "THE CLIENT IS OUR
LIFEBLOOD." BEVERLY LAMMERS, RITA MORGAN, REBECCA STOWE AND SID WOOTEN LED
THE DEVELOPMENT OF A NICHE PRODUCT NAMED "HERITAGE CLUB" FOR FIRST NATIONAL
BANK OF WHITE COUNTY'S 55 AND OLDER CLIENTS.]
We believe this to be critical to our future because it represents
our most important asset -- our people. It is not enough to simply hire the
best; we must create an environment in which they can achieve greater
potential and are rewarded for extraordinary results. Special emphasis is
being placed on training in sales, sales management, and coaching. Our
managers must focus their efforts, and those of our employees, toward
becoming an indispensable asset in making a difference in the lives of our
customers.
"DEVELOP THE LOWEST COST DELIVERY PROCESS WHICH ENSURES CLIENT
SATISFACTION, SUPERIOR PROFITABILITY AND MARKET SHARE GROWTH."
We are determined to provide superior customer service while
increasing the operating efficiency of the organization. The results of this
objective include: dramatically improved turn- around time and employee
productivity, the enhancement of product and service quality, attractive
pricing and streamlining of workflow. Most importantly, we continue to look
for ways to improve client satisfaction, realizing that the client must
always be the focal point of any successful change.
Improvement and re-engineering programs will be designed and
implemented throughout the company with particular emphasis in the areas of
information processing, retail, corporate banking and loan operations in
1995. The investment in this program will enable us to enhance productivity,
reduce costs and improve client service by maximizing and leveraging people
and physical resources. We are not asking our people to work harder, just
smarter. We anticipate an
<PAGE> 10
[PHOTO -- HERITAGE CLUB -- CAPTION: "PASSION FOR EXCEEDING CUSTOMERS'
EXPECTATIONS" WAS REALIZED IN WHITE COUNTY WHEN THE HERITAGE CLUB WAS KICKED
OFF IN GRAND STYLE LAST FALL. THE PRODUCT EXCEEDED 1994 GOALS BY 123%.]
investment return on our re-engineering to be 30% or higher for all programs.
"ACHIEVE TOTAL CLIENT SATISFACTION THROUGH AGGRESSIVE, TEAM-FOCUSED
RELATIONSHIP MARKETING, EXCELLENT PERSONALIZED SERVICE, CLIENT-DESIRED
PRODUCTS AND EFFICIENT DELIVERY SYSTEMS."
This objective speaks directly to the changing needs of our clients.
We must manage to that change by anticipating our clients' needs and
developing products and services that exceed those needs ... better than the
customer expects and better than the competition can deliver.
We have begun to introduce a needs-based selling culture where every
employee either sells or supports sales. In 1994, we implemented a sales
management methodology in which sales goals and effective selling become a
natural part of the culture. Our singular goal for this objective is
increased client satisfaction, which will lead to enhanced market share and
cross-sell growth, balance sheet growth and increased income statement
profitability. By the year 2000, our market segment goals are:
Retail: 40% household market share and 5 services per household
Corporate: 35% household market share and 4 services per household
Correspondent: 50% household market share and 5 services per household
Mortgage Services: 5% household market share and 50% volume penetration
<PAGE> 11
[PHOTO -- WHITE/PARKER -- CAPTION: "BOLD CREATIVITY, UNPARALLELED SERVICE AND
A RESOLVE TO WIN,"
IS DEMONSTRATED BY THE AFFILIATE PRESIDENTS WHO RIVAL TO BE THE BEST IN THE
COMPANY AND THE BEST IN EACH COMMUNITY. RICH WHITE (FRONT), PRESIDENT OF
FIRST NATIONAL BANK OF GAINESVILLE AND BOB PARKER (LEFT), PRESIDENT OF THE
CITIZENS BANK, TOCCOA.]
To enhance the growth and value of our franchise, we have adopted a
business development strategy that identifies
distinct market segments and addresses the different needs of each segment.
Households with a high net worth or household income
of $50,000 or greater are key consumer market segment for the company. The
needs of this segment are serviced through our Century Service product from
which they receive preferred pricing on deposits, including transaction
accounts, investment products and CDs, and all credit products from direct
lending to credit cards to home equity, as long as a minimum investment
account balance is kept. We offer optimum personal service to these clients
by assigning a relationship officer to each upscale relationship client.
Our Bonus Banking product services another growing retail market
segment. With a minimum deposit and/or loan relationship, these clients
receive a package which combines checking, a better interest rate on savings
and lower interest rates on installment loans, credit cards and home equity
lines of credit. This market has a higher need for loan products than the
upscale consumer market and also provides a great avenue for growth through
The Mortgage Source, our home mortgage division.
The corporate market is geared toward retail/small business,
partnerships/proprietorship and mid-market commercial. We place emphasis on
the further segmentation of the business market and the development of
"niche" products such as special loan programs for the agriculture/ poultry
sector, mid-size manufacturers and acquisition/development companies. Similar
to our retail
<PAGE> 12
[PHOTO -- FAIR/WILLIAMS -- CAPTION: "COMMUNITIES WE SERVE ARE BETTER FOR OUR
PRESENCE,"
WHEN AFFILIATE PRESIDENTS LIKE C.B. FAIR, PRESIDENT OF FIRST NATIONAL BANK OF
PAULDING COUNTY,
IS VICE CHAIRMAN OF THE LOCAL ECONOMIC DEVELOPMENT COMMITTEE. BOB WILLIAMS
(LEFT), PRESIDENT AND CFO OF CADILLAC PRODUCTS, CHOSE PAULDING COUNTY FOR A
NEW MANUFACTURING SITE DUE, IN PART, TO FAIR'S PERSEVERANCE.]
strategy, corporate clients are assigned banking professionals
who are accountable for the customers' total relationship. Our corporate
officers are also concentrating on cross-selling trust services such as
employee benefit plans, as well as consumer services such as mortgages,
deposits and loans to the appropriate corporate segments.
Our correspondent banking division offers a full range of products
and services which answer the needs of community banks we serve, primarily as
a source for purchased and sold federal funds, first mortgage residential
originations, data processing, trust services, credit cards, loan
participations and funds management. This sector calls for
business-to-business marketing, with in-depth segmentation and very
customized packages to accurately exceed the needs of correspondent banks.
The Mortgage Source, the company's first mortgage lending division,
services the needs of both retail and wholesale customers in Georgia and
throughout the Southeast. The division's $1.4 billion servicing portfolio
provides good income and will continue to grow.
First National Bancorp, through our affiliate banks, is deeply
committed to you, our shareholders. While our new Vision, strategic intent,
merger and business strategy are important to our management and 1,300
employees, more important is how they impact our shareholders and the value
you receive for your investment. The bottom line is to increase earnings and
dividends per share at an accelerated pace in an increasingly competitive
environment and that is why we faced a
<PAGE> 13
[PHOTOS -- FIRST NATIONAL BANCORP BOARD OF DIRECTORS -- Richard A. McNeece,
Chairman & Chief Executive Officer; Richard Shockley, Vice Chairman; Peter D.
Miller, President, Chief Administrative & Financial Officer; Arthur J.
Kunzer, Jr., Owner, Art Kunzer Men's Clothier; Bobby M. Thomas, Chairman, The
Peoples Bank of Forsyth County, Owner, Thomas Lumber Company]
re-focusing of this company in 1994.
We realize we have taken a major step toward a bold and bright future. Local
and national media have also realized this and acknowledged it by devoting
cover and front page stories to our new undertaking. Now that the foundation
has been firmly laid, we are prepared to move forward and create the desired
results.
Your management team is committed to this pursuit of excellence and I
am confident that we will attain and exceed our aggressive expectations.
In 1994, we welcomed five new directors to the First National Bancorp
board. Ken Nix, Mickey Womble, Jim Walters, John Ferguson and Bill Lester
have all made outstanding additions to the board and we are looking forward
to their continued contributions. In honor of our chairman emeritus, Ray
McRae, who retired from the board in 1994, we established a scholarship in
his name at the Terry College of Business Administration at the University of
Georgia. It is important to express my appreciation to the management and
staff who made the 1994 results possible and
[PHOTOS -- James H. Harris, Jr., CHAIRMAN, THE CITIZENS BANK, TOCCOA,
PRESIDENT,
J.H. ENTERPRISES, INC.; Loy D. Mullinax, CHAIRMAN, PICKENS COUNTY BANK,
PRESIDENT, MULLINAX BUILDING SYSTEMS, INC.; J. Kenneth Nix, CHAIRMAN, FIRST
NATIONAL BANK OF WHITE COUNTY, ATTORNEY AT LAW, STEWART, MELVIN & FROST; Joe
Wood, Jr., PRESIDENT, TURNER, WOOD & SMITH, INC.; J. Michael Womble,
CHAIRMAN, FIRST NATIONALBANK OF PAULDING COUNTY, PRESIDENT, SOUTHLIFE
DEVELOPMENT, INC.;
Mack G. West, CHAIRMAN, FIRST NATIONAL BANK OF GILMER COUNTY, RETIRED
BUSINESSMAN, MAYOR, CITY OF EAST ELLIJAY]
<PAGE> 14
[PHOTOS -- William L. Lester, Chairman, Granite, City Bank, Owner and
President, Lester Enterprises; Edwin C. Poss, Owner, Century 21, Poss Realty,
a Division of Edwin C. Poss, Inc.; John A. Ferguson, Jr., FACHE, President of
Northeast Georgia Health Services, Inc.; Harold L. Smith, Chairman, Turner,
Wood & Smith, Inc.; Mrs. Jane Wood Banks, Private Investor]
who helped us to position the
company for future greatness. I am tremendously grateful for the continued
confidence and support of our shareholders and clients. I look forward to
meeting with you at our annual shareholders' meeting on April 19, 1995, at
4:00 p.m. at the Georgia Mountains Center in downtown Gainesville.
Cordially,
/s/Richard A. McNeece
Chairman and CEO
January 27, 1995
[PHOTOS -- Thomas S. Cheek, Chairman, Bank of Banks County, Private Investor,
President, Mt. View, Inc.; W. Woodrow Stewart, Attorney at Law, Stewart,
Melvin & Frost; Ray C. Jones, President, J & S Farms; James A. Walters,
Chairman & CEO, Walters Management Company, Inc.; Paul J. Reeves, Chairman,
First National Bank of Habersham, President, Habersham Hardware; A. Roy
Roberts, Jr., Chairman, Citizens Bank, Cherokee County, Owner, A.R. Roberts
Co. Realtors]
<PAGE> 15
Senior Officers of Bancorp's Affiliate Banks
The First National
Bank Of Gainesville
Richard D. White
PRESIDENT AND CBO
Bruce L. Barefoot
EXECUTIVE VICE PRESIDENT
The Peoples Bank
Of Forsyth County
Rocklyn E. Hunt
PRESIDENT AND CEO
Louis J. Douglass, III
EXECUTIVE VICE PRESIDENT
Citizens Bank,
Cherokee County
Richard M. Zorn
PRESIDENT AND CEO
A. R. Roberts, III
EXECUTIVE VICE PRESIDENT
The First National
Bank Of Paulding
County
C. B. Fair, III
PRESIDENT AND CEO
Becky S. Echols
EXECUTIVE VICE PRESIDENT
The Commercial Bank,
Douglasville
John T. Stafford
PRESIDENT AND CEO
William F. Gnerre
Janice B. McCravy
EXECUTIVE VICE PRESIDENTS
The Community Bank
Of Carrollton
Timothy I. Warren
PRESIDENT AND CEO
F. Elton Brooks
EXECUTIVE VICE PRESIDENT
Bank Of Villa Rica
Fred L. O'Neal
PRESIDENT AND CEO
George M. Ray
EXECUTIVE VICE PRESIDENT
The Citizens Bank,
Toccoa
Robert A. Parker
PRESIDENT AND CEO
Granite City Bank
Edward B. Hall
PRESIDENT AND CEO
F. Davis Arnette, Jr.
EXECUTIVE VICE PRESIDENT
The First National Bank
Of Jackson County
Kelly G. Hillis
PRESIDENT AND CEO
James R. Shaw, Jr.
EXECUTIVE VICE PRESIDENT
Bank Of Banks
County
George W. Evans
PRESIDENT AND CEO
Steven R. Maney
EXECUTIVE VICE PRESIDENT
Barrow Bank
& Trust Company
David C. King
PRESIDENT AND CEO
T. Glenn Thompson
EXECUTIVE VICE PRESIDENT
Bank Of Clayton
William F. DeVane
PRESIDENT AND CEO
B. Allen Lancaster
EXECUTIVE VICE PRESIDENT
First National Bank
Of White County
Sidney J. Wooten, III
PRESIDENT AND CEO
Coleman Allen
EXECUTIVE VICE PRESIDENT
First National Bank
Of Gilmer County
Billy R. Loudermilk
PRESIDENT AND CEO
C. Wallace Sansbury
EXECUTIVE VICE PRESIDENT
Pickens County Bank
Dennis W. Burnette
PRESIDENT AND CEO
Marc J. Greene
EXECUTIVE VICE PRESIDENT
First National Bank
Of Habersham
Glenn C. Bell
PRESIDENT AND CEO
Eugene B. White
EXECUTIVE VICE PRESIDENT
[PHOTO -- SENIOR OFFICERS]
<PAGE> 16
1994 Consolidated Financial Statements
First National Bancorp
Management's Discussion and Analysis
of Financial Condition and Results of Operations.......... 18
Selected Statistical Information.......................... 36
Independent Auditors' Report.............................. 37
Consolidated Balance Sheets............................... 38
Consolidated Statements of Income......................... 39
Consolidated Statements of Shareholders' Equity........... 40
Consolidated Statements of Cash Flows..................... 41
Notes to Consolidated Financial Statements................ 42
<PAGE> 17
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Corporate Profile
First National Bancorp ("Company"), a $2.4 billion multi-bank holding
company with 17 affiliate banks, 54 full service banking facilities located
in North Georgia, and 1,299 full-time equivalent employees, is the second
largest bank holding company in Georgia headquartered outside metropolitan
Atlanta. Effective February 28, 1994, the Company acquired all of the common
stock of Metro Bancorp, Inc., a Douglas County bank holding company whose
wholly owned subsidiary was The Commercial Bank, a $140 million asset bank
located in Douglasville, Georgia. Effective July 31, 1994, the Company
acquired all of the common stock of Barrow Bancshares, Inc., a Barrow County
bank holding company whose wholly owned subsidiary was the Barrow Bank &
Trust Company, a $54 million asset bank located in Winder, Georgia. On
November 22, 1994, the Company signed an agreement and plan of merger with FF
Bancorp, Inc., located in New Smyrna Beach, Florida. FF Bancorp, Inc., is the
parent company of First Federal Savings Bank of New Smyrna Beach, a $318
million asset thrift headquartered in New Smyrna Beach, Florida, First
Federal Savings Bank of Citrus County, a $214 million asset thrift
headquartered in Inverness, Florida, and Key Bank of Florida, a $66 million
asset commercial bank located in Tampa, Florida. The acquisition of FF
Bancorp requires the approval of FF Bancorp shareholders and various
regulatory authorities. The Company anticipates completing the transaction in
the second quarter of 1995.
The Company's markets are supported by favorable rail and highway
systems, an abundance of natural resources, and an adequate labor pool. All
of the Company's current markets are within 11\2 hours of metropolitan
Atlanta via five major highway systems, and most markets are within or border
the southern end of the Appalachian Mountains, providing access to superior
recreational facilities and second/retirement home development. In terms of co
vered employment and wages, the Company's market area is well diversified.
Strong population and household growth coupled with above average growth in
household income bodes well for the region's demand for housing, services,
and retail products, all factors leading to above average growth in bankable
assets. The region's economic base is diverse with no major boom or bust
factors.
With a 33% share of total deposits, the Company maintains a strong
presence in the markets its affiliates serve. Company affiliates maintain a
deposit market leadership position in seven of the 16-county markets (and a
second or better position in 12 markets), providing the Company with a
significant competitive base to profitably grow. It is management's intent to
complement above average internal growth with an aggressive acquisition
program, concentrating on well-managed banks in growth markets as good as, if
not better than, the current franchise. Attractive opportunities outside of
North Georgia will be entertained, including out-of-state opportunities in
the Carolinas, Tennessee, and Alabama, as well as additional opportunities in
Florida.
Earnings per share have grown from $.83 in 1984 (on an originally
reported basis, restated for stock splits) to $1.72 in 1994, a compounded
annual growth rate of 6.8%. For the same period, dividends per share have
grown at a compounded annual rate of 17.25%. The Company has maintained an
above average profitability profile with a past five-year average return on
assets of 1.19%. In the early 1990s, Company earnings reflected the national
recession and moderate asset quality problems. During that period, management
was dedicated to building a stronger foundation on which to move the Company
forward, concentrating on enhanced delivery systems, credit processes,
internal controls, information technology, and personnel. Management is of
the opinion that the Company is beginning to return to an above average
growth environment as the economic factors that drive the region's fortunes
improve, although it would be unrealistic to anticipate future growth to
mirror that of the 1980s.
A primary capital ratio of 10.30% provides a sufficient base to
support future growth. With a core funding to core earning assets ratio of
112.73% and incremental funding to total funding ratio of 25.29%, the
Company's liquidity position is sound. In line with the industry, the
Company's asset quality ratios have improved over the past year. With a
nonperforming loans to total loan ratio of 1.33%, the Company's position is
very manageable.
Since 1985, the Company's stock has been traded on The Nasdaq Stock
Market under the trading symbol "FBAC." As of December 31, 1994,
institutional ownership was approximately 5.77% of outstanding shares while
insiders owned 7.33% of the shares. A majority of the Company's 7,100
shareholders reside in North Georgia.
The following is a discussion of the Company's financial condition
and results of its operations which should be read in conjunction with the
Company's consolidated financial statements and related notes appearing
elsewhere in this report.
Where applicable and unless otherwise indicated, all originally
reported financial information has been restated for the following
acquisitions which were accounted for as poolings-of-interests:
The First National Bank of Paulding County (1992)
Villa Rica Bancorp, Inc. (1993)
The Community Bank of Carrollton (1993)
Barrow Bancshares, Inc. (1994)
<PAGE> 18
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Performance Overview
Net income for 1994 totaled $28.1 million, compared to $26.7
million for 1993, an increase of 5.6%. Net income per share in 1994 was $1.72
compared to $1.68 reported in 1993, an increase of 2.4%. Weighted-average
shares outstanding for 1994 increased to 16,394,974, compared with the
15,842,510 weighted-average shares for 1993.
<TABLE>
<CAPTION>
TABLE 1 - SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Results of operations:
Interest income $163,145 $151,131 $156,473 $173,964 $181,494
Tax equivalent adjustment (a) 6,411 5,930 4,837 4,760 5,247
Interest income (fully tax equivalent) 169,556 157,061 161,310 178,724 186,741
Interest expense 66,132 62,930 74,954 99,467 110,726
Net interest income 103,424 94,131 86,356 79,257 76,015
Noninterest income 27,081 31,841 30,224 26,305 22,265
Total revenue 130,505 125,972 116,580 105,562 98,280
Provision for loan losses (362) 2,985 11,284 10,015 13,955
Noninterest expense 86,639 81,144 68,944 63,548 53,898
Income before income taxes 44,228 41,843 36,352 31,999 30,427
Tax equivalent adjustment 6,411 5,930 4,837 4,760 5,247
Income taxes 9,683 9,259 8,108 6,669 5,986
Net income $ 28,134 $26,654 $ 23,407 $ 20,570 $19,194
Per share data:
Net Income $ 1.72 $ 1.68 $ 1.50 $ 1.32 $ 1.23
Cash dividends declared $ .7775 $ .7050 $ .6400 $ .5500 $ .4600
Dividend payout ratio 45.20% 41.96% 42.67% 41.67% 37.40%
Book value $ 13.72 $ 13.60 $ 12.35 $ 11.42 $ 10.59
Year end balances:
Total assets $2,380,548 $2,141,952 $2,028,168 $1,890,422 $1,828,867
Earning assets 2,176,412 1,960,712 1,873,634 1,733,835 1,681,955
Loans, net of unearned income 1,424,246 1,306,564 1,250,890 1,208,023 1,147,811
Allowance for loan losses 20,441 21,539 24,046 20,265 19,396
Deposits and other
interest-bearing funds 2,128,631 1,899,785 1,820,831 1,700,304 1,646,088
Shareholders' equity 226,957 218,059 194,745 177,958 164,743
Average balances:
Total assets $2,272,788 $2,073,606 $1,955,405 $1,833,705 $1,763,945
Earning assets 2,086,513 1,926,131 1,810,437 1,687,937 1,614,179
Loans, net of unearned income 1,375,870 1,296,401 1,246,944 1,179,142 1,114,107
Allowance for loan losses 23,811 23,920 21,989 19,800 14,573
Deposits and other
interest-bearing funds 2,023,237 1,860,244 1,757,387 1,646,767 1,590,791
Shareholders' equity 224,894 197,060 185,096 171,026 159,704
Financial ratios:
Return on average assets 1.24% 1.29% 1.20% 1.12% 1.09%
Return on average equity 12.51 13.53 12.65 12.03 12.02
Net interest margin 4.96 4.89 4.77 4.70 4.71
Overhead ratio 66.55 64.80 60.42 60.20 54.84
Primary capital to adjusted assets 10.30 11.07 10.66 10.37 9.96
Average equity to average assets 9.90 9.50 9.47 9.33 9.05
</TABLE>
(a) Calculated assuming a 35% tax rate for 1994 and 1993, and a 34% tax
rate for 1992, 1991, and 1990.
<PAGE> 19
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Total year end assets increased from $2.1 billion at December 31,
1993, to a record $2.4 billion at December 31, 1994. Average earning assets
increased 8.3% during 1994, while average interest-bearing liabilities
increased 7.5% for the same period.
The return on average equity decreased from 13.53% in 1993 to 12.51%
in 1994. The return on average assets also decreased from 1.29% in 1993 to
1.24% in 1994, influenced primarily by the $4.8 million decrease in
noninterest income, primarily from mortgage origination activity, offset by
the negative provision expense in each of the last three quarters of 1994.
Other factors contributed to a lesser extent as shown below:
ANALYSIS OF RETURN ON AVERAGE ASSETS
TABLE 2
(dollars in thousands)
Years Ended December 31
Percent of Percent of
Average Average
1994 Assets 1993 Assets
Average Assets $2,272,788 $2,073,606
Net interest income,
tax equivalent $103,424 4.55% $ 94,131 4.54%
Noninterest income 27,081 1.19 31,841 1.54
Total revenue 130,505 5.74 125,972 6.08
Noninterest expense (86,639) (3.81) (81,144) (3.91)
Income before
provision for loan
losses and income tax 43,866 1.93 44,828 2.17
Provision for loan losses 362 .02 (2,985) (.14)
Income taxes and tax
equivalent adjustment (16,094) (.71) (15,189) (.74)
Net income $28,134 1.24% $ 26,654 1.29%
Net interest income as a percent of average earning assets increased
to its highest level since 1985, with a net interest margin of 4.96% for
1994, compared with 4.89% for 1993.
Growth in net interest income and a reduction in loan loss provision
expense, driven by an improvement in asset quality, both contributed to an
increase in earnings. Noninterest income was impacted by a significant
decrease in mortgage loan activity and related fees. Due to the acquisition
of The Commercial Bank, which was recorded under the purchase method of
accounting, noninterest expenses have shown a substantial increase over 1993
in absolute dollars, but declined as a percentage of assets, particularly in
the area of personnel related expenses. The following sections highlight in
greater detail various aspects of the Company's 1994 performance.
Financial Condition
The Company manages its balance sheet to maximize long-term earnings
opportunities while maintaining the integrity of its financial position and
quality of earnings. In this regard, management allocates earning assets and
total funding into core and incremental considerations. Core earning assets
represent commercial and retail loans. Incremental earning assets include
mortgage loans held-for-sale, investment portfolio securities,
interest-bearing deposits with financial institutions, and federal funds sold,
generally lower margin business than core earning assets. Incremental
funding includes federal funds purchased, repurchase agreements, treasury tax
and loan notes, certificates of deposit greater than $100,000, long-term
debt, and all other liabilities considered by management to be potentially
volatile. Core funding includes all funds not considered incremental --
basically, funding that is supported by multiple banking relationships.
Consequently, core funding sources may be considered more stable and
generally carry a lower funding cost. All noninterest-bearing demand deposits
are considered core funds.
The following provides a summary analysis of the changes in the
Company's balance sheet for the year ended December 31, 1994, as compared to
December 31, 1993:
<PAGE> 20
Management's Discussion and Analysis
of Financial Condition and Results of Operations
ANALYSIS OF BALANCE SHEET CHANGES
TABLE 3
(dollars in thousands)
December 31
1994 1993 Change Percent
Earning Assets:
Core earning assets:
Commercial loans $682,541 $587,336 $95,205 16.2%
Retail loans 669,251 602,199 67,052 11.1
Other core loans 58,935 51,668 7,267 14.1
Total core earning
assets 1,410,727 1,241,203 169,524 13.7
Incremental earning assets:
Mortgage loans
held-for-sale 13,519 65,361 (51,842) (79.3)
Investment securities 706,999 549,620 157,379 28.6
Interest-bearing
deposits in other
financial institutions 16,259 68,157 (51,898) (76.1)
Federal funds sold and
securities purchased
under agreements to
resell 28,908 36,371 (7,463) (20.5)
Total incremental
earning assets 765,685 719,509 46,176 6.4
Total earning assets $2,176,412 $1,960,712 $215,700 11.0%
Deposits and Funds:
Core funds:
Demand deposits $331,521 $285,510 $46,011 16.1%
Interest-bearing checking 199,645 172,183 27,462 15.9
Century Service and IMMA 315,859 306,105 9,754 3.2
Statement savings 115,148 83,412 31,736 38.0
Certificates less than
$100,000 and IRAs 628,162 582,827 45,335 7.8
Total core funds 1,590,335 1,430,037 160,298 11.2
Incremental funds:
Certificates over $100,000 189,431 152,761 36,670 24.0
Other large deposits 163,498 181,843 (18,345) (10.1)
Federal funds purchased 44,485 44,235 250 .6
Securities sold under
agreements to repurchase 54,217 19,144 35,073 183.2
Other short-term borrowings 6,427 13,807 (7,380) (53.5)
Long-term debt 80,238 57,958 22,280 38.4
Total incremental funds 538,296 469,748 68,548 14.6
Total funds $2,128,631 $1,899,785 $228,846 12.0%
In 1994, the Company experienced modest balance sheet growth, with
year end assets increasing $238.6 million or 11.1% with $136.9 million of the
increase attributable to the acquisition of The Commercial Bank. Total funds
growth was $228.8 million or 12.0% with $124.3 million of the growth from The
Commercial Bank acquisition.
Core Earning Assets
Period end core earning assets increased $169.5 million or 13.7%,
reflecting a stronger demand for commercial and real estate related loans in
1994. Although management anticipates a stronger increase in core lending in
1995, continued growth in core loans is dependent on, at a minimum, stability
in the economic environment. The majority of 1995 core loan growth is
anticipated to come from the commercial and real estate sectors with a modest
rebound in retail lending activity.
<PAGE> 21
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following further breaks down the total loan portfolio over the
past five years:
<TABLE>
ANALYSIS OF CORE AND INCREMENTAL LOANS
TABLE 4
(in thousands)
<CAPTION>
December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 483,116 $ 420,513 $ 444,293 $ 451,988 $ 432,466
Installment and single payment individual 368,113 348,246 290,129 259,346 291,477
Real estate - mortgage 425,709 393,732 389,107 341,370 326,562
Real estate - construction 142,097 95,184 66,866 63,337 52,995
Less: Unearned income (8,308) (16,472) (17,709) (16,732) (17,846)
Total core loans 1,410,727 1,241,203 1,172,686 1,099,309 1,085,654
Less: Allowance for loan losses (20,441) (21,539) (24,046) (20,265) (19,396)
Net core loans 1,390,286 1,219,664 1,148,640 1,079,044 1,066,258
Mortgage loans held-for-sale 13,519 65,361 78,204 108,714 62,157
Net loans $1,403,805 $1,285,025 $1,226,844 $1,187,758 $1,128,415
</TABLE>
Mortgage loans held-for-sale are not considered core loans. They are
reflected in incremental earning assets above and are discussed below. The
Company maintains no foreign or highly leveraged transaction loans.
The amount of total loans outstanding for selected categories as of
December 31, 1994, based on remaining scheduled repayments of principal, are
shown by maturity in the following table. All loans outstanding for the
selected categories mature within five years.
LOAN PORTFOLIO MATURITY
TABLE 5
(in thousands)
December 31, 1994
After 1
but with After
Within 1 Year 5 Years 5 Years Total
Selected loan categories:
Commercial, financial,
and agricultural $222,496 $233,595 $27,025 $483,116
Real estate - construction 142,097 - - 142,097
Total loans $364,593 $233,595 $27,025 $625,213
Loans with floating
or adjustable interes $140,343 $ 7,742
Loans with fixed interest rates 93,252 19,283
Total loans $233,595 $27,025
Incremental Earning Assets
Incremental earning assets grew $46.2 million, or 6.4% in 1994. The
increase in incremental earning assets was primarily based on the Company's
investment portfolio which increased $157.4 million, with off-setting
decreases of $51.9 million in interest-bearing deposits in other financial
institutions and $51.8 million in mortgage loans held-for-sale.
It is the Company's policy not to retain long-term fixed rate
residential mortgage loans for its own portfolio, although it may retain
adjustable rate or balloon mortgage loans according to specifically
identified strategies. Mortgage loans are securitized and sold in the
secondary market. The Company's portfolio of mortgage loans held-for-sale is
hedged against unfavorable interest rate swings through the use of a
combination of options contracts, futures contracts, and forward sales
agreements.
The Company's portfolio of residential mortgages serviced for others
at December 31, 1994, totaled $1.4 billion compared to $1.0 billion a year
ago. It is anticipated that the servicing portfolio will continue to grow
during 1995.
<PAGE> 22
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following table presents the carrying value of portfolio
securities for the past three years. Although interest-bearing deposits in
other financial institutions and federal funds sold are not formally
classified as investment securities in the consolidated financial statements,
management considers these assets as a part of the total managed pool of
incremental earning assets and, consequently, are included in the following
table of investments.
CARRYING VALUE OF INVESTMENTS
TABLE 6
(in thousands)
December 31
1994 1993 1992
Investment securities
available-for-sale:
U. S. Treasury $ 25,763 $ 9,361 $ 10,337
U. S. Government agencies 179,615 36,233 -
Mortgage-backed securities:
Fixed rate 111,543 122,758 19,242
Adjustable rate 225,220 233,085 -
Corporate bonds 511 563 -
State and municipal 1,062 3,146 445
Equity securities 5,718 5,106 129
Total investment securities
available-for-sale 549,432 410,252 30,153
Investment securities
held-to-maturity:
U. S. Treasury - - 18,013
U. S. Government agencies - - 52,856
Mortgage-backed securities:
Fixed rate - - 49,274
Adjustable rate - 449 235,101
State and municipal 157,567 138,919 115,319
Equity securities - - 2,650
Total investment securities
held-to-maturity 157,567 139,368 473,213
Federal funds sold and
securities purchased under
agreements to resell 28,908 36,371 52,497
Interest-bearing deposits in other
financial institutions 16,259 68,157 66,881
Total investment securities $752,166 $654,148 $622,744
Federal funds sold, interest-bearing deposits in other financial
institutions, and U.S. Treasuries and Government agencies are held primarily
for liquidity purposes while mortgage-backed securities are held primarily
for income purposes. The mortgage-backed security distribution between
adjustable and fixed rate securities is determined by rate sensitivity
requirements. The portfolio distribution between treasuries, agencies,
mortgage-backed, and state and municipal securities during 1995 is not
anticipated to change significantly compared to the December 31, 1994,
distribution.
The December 31, 1994, market value of held-to-maturity investment
securities as a percent of book value was 99.0%, down from the 109.1% in
1993. The market value of the portfolio of investment securities
held-to-maturity will change as interest rates change and such unrealized
gains or losses will not flow through the income statement unless the related
securities are called. Net gains on the sales of investment securities during
1994 primarily resulted from management's decision to sell certain Treasury
securities for reinvestment in higher yielding alternatives, and
mortgage-backed securities trading at unusually high price premiums. The
sales of investment securities held-to-maturity during 1994 resulted from the
issuers' exercise of early repayment call provisions.
The following table presents the current distribution of the total
portfolio by average maturity/earliest repricing date and average yields (for
all obligations on a fully taxable basis assuming a 35% tax rate) at December
31, 1994. Where applicable, the earliest repricing date, rather than
maturity, is indicated, as it is the repricing date and not the maturity date
that provides the greatest influence to changes in net income. This treatment
is primarily applicable to adjustable-rate mortgage-backed securities.
Maturity for fixed rate mortgage-backed securities is defined as the average
maturity rather than contractual life for purposes of the following
presentation. The use of average maturity reflects, more accurately, the cash
flow and repricing opportunities.
<PAGE> 23
Management's Discussion and Analysis
of Financial Condition and Results of Operations
<TABLE>
AVERAGE MATURITY OR EARLIEST REPRICING DISTRIBUTION OF INVESTMENTS
TABLE 7
(dollars in thousands)
<CAPTION>
December 31, 1994
After 1 but After 5 but
Within 1 Year within 5 Years within 10 Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
available-for-sale:
U. S. Treasury $ 16,447 5.36% $ 8,332 5.94% $ 984 8.24% $ - -%
U. S. Government agencies 114,534 5.59 48,965 6.22 16,116 6.48 - -
Mortgage-backed securities:
Fixed rate - - 105,810 6.80 4,993 7.83 740 7.39
Adjustable rate 225,220 6.13 - - - -
Corporate bonds - - 511 8.84 - - -
State and municipal 213 7.37 477 8.08 372 7.80 - -
Equity securities - - - - - - 5,718 6.74
Total investment securities
available-for-sale 356,414 5.92 164,095 6.59 22,465 6.88 6,458 6.81
State and municipal held-
to-maturity 10,332 12.25 48,671 12.29 12,488 9.72 86,076 8.65
Federal funds sold and
securities purchased
under agreements to resell 28,908 5.88 - - - - - -
Interest-bearing deposits in
other financial institution 16,259 5.90 - - - - - -
Total investment securities $411,913 6.08% $212,766 7.90% $34,953 7.89% $92,534 8.52%
</TABLE>
The composition and maturity/repricing distribution of the investment
portfolio is subject to change depending on rate sensitivity, capital needs,
and liquidity needs.
The following table presents the current distribution of total
investment securities and other funds by maturity date and average yields
(for all obligations on a fully taxable basis assuming a 35% tax rate) at
December 31, 1994:
<PAGE> 24
Management's Discussion and Analysis
of Financial Condition and Results of Operations
<TABLE>
EXPECTED MATURITY OF INVESTMENT SECURITIES AND OTHER FUNDS
TABLE 8
(dollars in thousands)
<CAPTION>
December 31, 1994
After 1 but After 5 but
Within 1 Year within 5 Years within 10 Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
available-for-sale:
U. S. Treasury $ 16,447 5.36% $ 8,332 5.94% $ 984 8.24% $ - -%
U. S. Government agencies 114,534 5.59 48,965 6.22 16,116 6.48 - -
Mortgage-backed securities:
Fixed rate - - 8,682 7.50 20,764 7.04 82,097 7.21
Adjustable rate - - 108 4.98 152 5.00 224,960 6.13
Corporate bonds - - 511 8.84 - - - -
State and municipal 213 7.37 477 8.08 372 7.80 - -
Equity securities - - - - - - 5,718 6.74
Total investment securities
available-for-sale 131,194 5.55 67,075 6.32 38,388 6.76 312,775 6.43
State and municipal
held-to-maturity 10,332 12.25 48,671 12.29 12,488 9.72 86,076 8.65
Federal funds sold and
securities purchased
under agreements to resell 28,908 5.88 - - - - - -
Interest-bearing deposits
in other financial institutions 16,259 5.90 - - - - - -
Total investment securities $186,693 6.00% $115,746 8.83% $50,876 7.49% $398,851 6.91%
</TABLE>
Core and Incremental Funding
The average amount of, and average rate paid on, total core and
incremental deposits by category for the last three years is listed below:
<TABLE>
AVERAGE CORE AND INCREMENTAL DEPOSITS
TABLE 9
(dollars in thousands)
<CAPTION>
Years Ended December 31
1994 1993 1992
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 302,167 - $ 259,659 - $ 224,971 -
Savings, NOW, and IMMA deposits 619,385 2.68% 551,729 2.76% 515,116 3.36%
Time deposits less than $100 592,060 4.74 588,386 4.75 616,330 5.57
Total core deposits 1,513,612 2.95 1,399,774 3.08 1,356,417 3.81
Other time deposits 346,018 4.11 321,063 4.55 311,679 6.38
Total core and incremental deposits $1,859,630 3.17% $1,720,837 3.36% $1,668,096 4.29%
</TABLE>
<PAGE> 25
Management's Discussion and Analysis
of Financial Condition and Results of Operations
All categories of average deposit funding increased by a total of
$138.8 million, or 8.1%, in 1994. The largest increase, $67.7 million, can be
attributed to increases in savings, NOW, and IMMA, primarily from The
Commercial Bank acquisition which accounted for $58.5 million of the change.
The increase in average noninterest-bearing demand deposits of $42.5 million
can be primarily attributed to escrow deposits retained with the Company's
portfolio of mortgage loans serviced for others and The Commercial Bank
acquisition.
Average incremental funding, including funding from sources other
than deposits, increased $49.2 million, or 10.7%, due primarily to long-term
debt consisting of intermediate term Federal Home Loan Bank advances, which
increased $44.8 million, or 54.8%, and wholesale certificates of deposit and
certificate of deposits in excess of $100,000, which in total increased $25.0
million, or 7.8%. In the current economic environment, management does not
anticipate significantly profitable incremental earning asset investment
opportunities and, consequently, does not anticipate material growth in the
incremental funding portfolio.
Management endeavors to maintain a core funding to core earning
assets ratio greater than 100%. Additionally, the Company's liquidity policy
requires that incremental funding as a percentage of total funding not exceed
40%. Although the December 31, 1994, incremental funds to total funds ratio
of 25.29% provides room for expansion of incremental funding, management does
not anticipate this ratio increasing materially.
The December 31, 1994, maturity distribution of incremental funding
is as follows:
<TABLE>
MATURITY OF INCREMENTAL FUNDING
TABLE 10
(in thousands)
<CAPTION>
Less Than 3 Months to 6 Months to More than
3 Months 6 Months 12 Months 12 Months Total
<S> <C> <C> <C> <C> <C>
Certificates greater than $10 $ 43,558 $ 40,666 $44,789 $ 60,418 $189,431
Other large deposits 45,240 34,807 30,363 53,088 163,498
Federal funds purchased 44,485 - - - 44,485
Securities sold under agreements to repurchase 22,082 28,611 3,524 - 54,217
U. S. Treasury note account 6,427 - - - 6,427
Long-term debt 258 20,160 316 59,504 80,238
Total incremental funding $162,050 $124,244 $78,992 $173,010 $538,296
</TABLE>
Details of the Company's short-term borrowings for the past three
years is shown in Table 11 below:
SHORT-TERM BORROWINGS
Table 11
(dollars in thousands)
Years ended December 31
1994 1993 1992
Balance at end of year $98,702 $ 63,379 $76,689
Weighted-average interest
rate at end of year 3.07% 4.88% 3.78%
Maximum month-end balance
during the year $98,702 $153,359 $95,236
Weighted-average daily balance 76,060 95,636 75,613
Average interest rate during
the year 3.99% 3.24% 3.82%
<PAGE> 26
Management's Discussion and Analysis
of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Net Interest Income
Growth in tax equivalent net interest income is derived through
growth in earning assets and the change in the net interest margin. The
following table shows the
change in net interest income for the past two years due to changes in
volumes and rates:
<TABLE>
CHANGE IN NET INTEREST INCOME, TAX EQUIVALENT BASIS
TABLE 12
(in thousands)
<CAPTION>
1993 to 1994 1992 to 1993
Change Due to Change Due to
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest-bearing deposits in
other financial institutions $(1,294) $ 210 $(1,084) $ 66 $ (823) $ (757)
Loans, net 7,036 670 7,706 4,614 (9,944) (5,330)
Investment securities, taxable 4,196 (558) 3,638 4,518 (3,511) 1,007
Investment securities, nontaxable 2,864 (1,234) 1,630 1,925 (235) 1,690
Federal funds sold and
securities purchased under
agreements to resell 459 146 605 (714) (145) (859)
Total interest income 13,261 (766) 12,495 10,409 (14,658) (4,249)
Interest expense:
Savings and IMMA deposits 1,824 (415) 1,409 1,167 (3,255) (2,088)
Time deposits 1,317 (1,622) (305) (1,065) (10,590) (11,655)
Federal funds purchased
and securities sold
under agreements to
repurchase (703) 638 (65) 691 (483) 208
Other borrowed funds 2,108 55 2,163 1,396 115 1,511
Total interest expense 4,546 (1,344) 3,202 2,189 (14,213) (12,024)
Net interest income,
tax equivalent basis $ 8,715 $ 578 $ 9,293 $ 8,220 $ (445) $ 7,775
</TABLE>
The change in interest, due to both rate and volume, has been
allocated to the volume and rate components in proportion to the relationship
of the dollar amounts of the change in each.
Net interest income on a fully taxable equivalent (FTE) basis for
1994 increased $9.3 million, or 9.9%, primarily volume driven by an average
earning asset growth of 8.3% and a seven basis point margin improvement from
4.89% to 4.96%. Despite recent interest rate increases, net interest income
was not impacted materially due to the relatively matched position of the
Company's balance sheet. For the year, the average rate on earning assets
decreased only two basis points from 8.15% in 1993 to 8.13% in 1994. The
average rate on interest-bearing liabilities declined by nine basis points as
longer-term, higher rate certificates of deposits matured earlier in the year
and were renewed at lower rates. This resulted in a seven basis point
increase in interest yield spread.
In comparison, net interest income (FTE) for 1993 increased $7.8
million, or 9.0%, over 1992. Significant changes within net interest income
occurred as a result of the declines in interest rates. Interest income
declined $4.2 million, which was more than offset by a decline in interest
expense of $12.0 million. The result was a 20-basis point increase in
interest yield spread and a 12-basis point increase in the margin from 4.77%
in 1992 to 4.89% in 1993.
The margin trend for the past eight quarters has been slowly
increasing at a stable pace, confirming the Company's matched rate
sensitivity profile.
Although a slightly higher average interest rate environment is
anticipated in 1995 compared to 1994, management anticipates a modest
increase in the net interest margin due to the composition of the balance
sheet and improving asset quality. The increased margin, combined with
moderate earning asset growth may provide the fundamentals for growth in net
interest income to exceed that experienced in 1994.
<PAGE> 27
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Noninterest Income
Noninterest income comparisons are as follows:
<TABLE>
ANALYSIS OF NONINTEREST INCOME
TABLE 13
(dollars in thousands)
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
1994 Change Percent 1993 Change Percent 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $10,452 $ 1,887 22.03% $ 8,565 $ 1,589 22.78% $ 6,976
Mortgage loan and other related fees 6,193 (5,468) (46.89) 11,661 (117) (.99) 11,778
Fees for trust services 2,345 95 4.22 2,250 (148) (6.17) 2,398
Credit card 1,753 330 23.19 1,423 195 15.88 1,228
Insurance premiums and commissions 965 (89) (8.44) 1,054 (121) (10.30) 1,175
Net gains on sales of
investment securities 318 (435) (57.77) 753 (1,717) (69.51) 2,470
Other noninterest income 5,055 (1,080) (17.60) 6,135 1,936 46.11 4,199
Total noninterest income $27,081 $(4,760) (14.95)% $31,841 $ 1,617 5.35% $30,224
Noninterest income as a percent of
average assets 1.19% 1.54% 1.55%
</TABLE>
Noninterest income for 1994 decreased $4.8 million, or 15.0%, primarily
the result of a significant decline in mortgage
loan fee income of $5.5 million and a decrease in net gains on sales of
investment securities of $435,000. The increase in service charges on
deposits of $1.9 million was primarily due to The Commercial Bank acquisition
which added $1.8 million to this category. The decrease in noninterest
income was driven by lower volumes of refinance activity as rates increased
sharply in 1994.
Management anticipates noninterest income to improve in 1995, as
initiatives to expand traditional fee-based banking services begin to be
realized and servicing revenue increases from the higher level of the
portfolio of mortgage loans serviced for others. Management, through its
community bank affiliates, continues to analyze new opportunities in
traditional banking services it offers to meet the growing needs of banking
customers, particularly in those communities developing near the Atlanta
suburbs. In addition, in late 1994, affiliate banks began offering a new
service in connection with the VISARegistration Mark debit card, as an
alternative to basic checking services for customers. As management continues
to expand services currently being offered and testing new products to
banking customers, additional sources of noninterest income are expected to
be realized.
Noninterest Expense
Noninterest expense comparisons are as follows:
<TABLE>
ANALYSIS OF NONINTEREST EXPENSE
TABLE 14
(dollars in thousands)
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
1994 Change Percent 1993 Change Percent 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $43,305 $2,932 7.26% $40,373 $ 6,509 19.22% $33,864
Furniture and equipment 6,124 296 5.08 5,828 1,089 22.98 4,739
Postage, telephone, and stationery 5,052 352 7.49 4,700 318 7.26 4,382
Net occupancy 4,713 484 11.44 4,229 (139) (3.20) 4,368
FDIC insurance premiums 4,124 201 5.12 3,923 231 6.26 3,692
Amortization of mortgage
loan servicing rights 2,762 (632) (18.62) 3,394 (1,551) (31.37) 4,945
Data processing 2,659 143 5.68 2,516 1,204 91.77 1,312
Promotional 2,277 637 38.84 1,640 205 14.29 1,435
Directors' fees 1,379 301 27.92 1,078 350 48.08 728
Travel and entertainment 1,204 192 18.97 1,012 (57) (5.33) 1,069
Legal fees 1,143 (82) (6.69) 1,225 452 58.47 773
Other real estate 820 (573) (41.13) 1,393 309 28.51 1,084
Amortization of goodwill 803 122 17.91 681 - - 681
Other noninterest expense 10,274 1,122 12.26 9,152 3,280 55.88 5,872
Total noninterest expense $86,639 $5,495 6.77% $81,144 $12,200 17.70% $68,944
Noninterest expense as a percent of
average assets 3.81% 3.91% 3.53%
Overhead ratio 66.55% 64.80% 60.42%
</TABLE>
<PAGE> 28
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Noninterest expense for 1994 increased $5.5 million, or 6.8%. The
single largest increase was due to personnel expenses increasing $2.9
million, which includes the impact of The Commercial Bank's $2.4 million in
personnel expenses for 1994. Excluding the increase due to The Commercial
Bank acquisition, personnel expenses increased only 1.3% in 1994 from 1993
levels. Other categories influencing the increase in noninterest expense
include promotional expenses and directors' fees, again the result of recent
acquisitions. Expenses associated with other real estate owned decreased
41.1%, the result of continuing improvement in resolving and working out
nonperforming assets.
FDIC insurance premiums continue to be a significant expense at $4.1
million in 1994, up 5.1% over the $3.9 million paid in 1993, and up 11.7%
over premiums paid in 1992. A majority, or $180,000, of the increase in 1994
FDIC premiums is the result of the inclusion of The Commercial Bank.
Noninterest expense for 1993 increased $12.2 million over 1992.
Material contributing factors included: salaries and benefits, furniture and
equipment, and data processing expenses.
The Company's primary measure of operating efficiency is the overhead
ratio, calculated by dividing noninterest expenses by total net revenue (FTE)
less securities transactions. The current overhead ratio of 66.6% was up from
the 64.8% in 1993, and 60.4% in 1992. Given the impact of the Company's
mortgage banking operations, the overhead ratio is a much better indicator of
expense control and management than absolute noninterest expense comparisons
and the ratio of noninterest expenses to average assets. The recent increases
in the overhead ratio can be attributed primarily to the significant decrease
in mortgage related noninterest income and the impact of The Commercial Bank
in 1994 to total noninterest expenses. Management continues to analyze nonint
erest expenses and to evaluate opportunities for cost reductions, in an
effort to lower the overhead ratio.
Noninterest expense growth in 1995 should moderate from that
experienced in 1994 although expense pressures in employee salaries and
benefits will continue. Management anticipates the overhead ratio to decline
in 1995 as overhead management initiatives are implemented and net revenues
increase.
Income Taxes
As reported in the Company's consolidated statements of income, the
Company's income before income taxes for financial statement purposes
increased to $37.8 million in 1994, up from $35.9 million in 1993, an
increase of $1.9 million, or 5.3%. The effective tax rate for the Company
decreased slightly to 25.6% in 1994, from 25.8% in 1993, due to higher
tax-exempt interest income in 1994. See Note 9 to the Company's consolidated
financial statements for an analysis of income taxes.
Asset Quality
The Company monitors and manages asset quality according to various
risk elements, summarized below:
<TABLE>
RISK ELEMENTS
TABLE 15
(dollars in thousands)
<CAPTION>
December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Nonperforming loans:
Nonaccrual loans $18,936 $20,509 $23,432 $29,185 $15,634
Renegotiated loans 45 364 2,645 217 194
Total nonperforming loans 18,981 20,873 26,077 29,402 15,828
Other real estate 9,813 9,532 11,663 9,786 5,799
Total nonperforming assets $28,794 $30,405 $37,740 $39,188 $21,627
Loans past due 90 days or more $ 214 $ 252 $ 650 $ 1,281 $ 2,943
Nonperforming loans as a percentage of loans, net
of unearned income (including mortgage
loans held-for-sale) 1.33% 1.60% 2.08% 2.43% 1.38%
Nonperforming assets as a percentage of loans,
net of unearned income, plus other real estate
(including mortgage loans held-for-sale) 2.01 2.31 2.99 3.22 1.87
Allowance for loan losses as a percentage of
nonperforming loans 107.69 103.19 92.21 68.92 122.54
Allowance for loan losses as a percentage of
nonperforming assets and loans past
due 90 days or more 70.47 70.26 62.64 50.08 78.94
</TABLE>
<PAGE> 29
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The Company experienced a decrease in nonperforming loans and assets
during 1994, as the Company's program of problem asset remediation resulted
in significant improvements. The $1.9 million decline in nonperforming loans
was accomplished despite the addition of $5.4 million in nonperforming loans
from The Commercial Bank acquisition. Similarly, the $1.6 million decrease in
nonperforming assets was achieved after the $9.7 million increase from The
Commercial Bank acquisition. The nonperforming assets to loans plus OREO
ratio declined from 2.31% in 1993 to 2.01% in 1994 and allowance for loan
losses to nonperforming loans increased from 103.19% in 1993 to 107.69% in
1994 due to the decline in nonperforming loans. The level of nonperforming
loans and assets in 1995 will be largely dependent on the continuing economic
recovery in the markets the Company serves. Management anticipates a
continuation of a slowly improving economy and, due to continued problem
asset remediation, continued improvement in nonperforming loans, assets, and
applicable asset quality ratios.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
either when reasonable doubt exists as to the full and timely collection of
interest or principal, or when a loan becomes contractually past due by 90
days or more with respect to interest or principal without a definitive plan
for repayment. When a loan is placed on nonaccrual status, all interest
previously accrued during the year, but not collected, is reversed against
current period interest income. Income on such loans is then recognized only
to the extent that cash is received and where the future collection of
principal is probable.
Interest income on nonaccrual loans in 1994 which would have been
reported on an accrual basis amounted to approximately $1.829 million.
Interest income of approximately $21 thousand was recognized in 1994 on loans
which are currently on a nonaccrual basis. Management is not aware of any
potential loans, other than those classified as nonperforming, which could
have a material impact of asset quality.
The Company's allocation of the allowance for loan losses is as
follows:
<TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
TABLE 16
(dollars in thousands)
<CAPTION>
December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $11,403 $12,605 $14,428 $11,754 $ 9,310
Real estate 6,802 8,210 8,176 5,269 6,013
Installment and single payment individual 2,236 724 1,442 3,242 4,073
Total allowance for loan losses $20,441 $21,539 $24,046 $20,265 $19,396
Loans outstanding by category as a percentage
of total loans:
Commercial, financial, and agricultural 34% 32% 35% 37% 37%
Real estate 41 41 42 42 38
Installment and single payment individual 25 27 23 21 25
Total loans 100% 100% 100% 100% 100%
</TABLE>
The allocation is based on (1) an evaluation of existing
nonperforming loans and other loans subject to internal classification, (2)
previous gross charge-off experience in each of the respective categories,
and (3) management's evaluation of future economic conditions and the impact
of such conditions on each respective loan category. Credit reviews of the
loan portfolio designed to identify potential charges to the allowance for
loan losses, as well as to determine the adequacy of the allowance, are made
on a continuous basis during the year under the Company's approved allowance
for loan losses methodology plan. These reviews of the loan portfolio are
conducted at the subsidiary banks and are designed to identify potential
problem loans, and potential charges to the allowance for loan losses and to
determine the adequacy of the allowance. Past performance, financial strength
of the borrower, collateral values, portfolio growth, industry
concentrations, portfolio maturity and composition, off-balance-sheet credit
risk, historical trends in delinquencies, nonaccruals, and national, regional
and industry economic conditions are considered in the evaluation.
<PAGE> 30
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Management is of the opinion that the current allowance is sufficient
to cover anticipated loan losses given the economic environment envisioned in
1995. Beginning in 1991, the Company's management took
steps to create a more uniform credit process in its affiliate banks,
with emphasis on policies, procedures, loan reviews, a refined allowance for
loan losses methodology, and other reporting systems designed to more
effectively monitor and measure the Company's credit risk. Organizationally,
credit review specialists report directly to the Company's Credit Policy
Officer ("CPO") who is responsible for (1) establishing loan quality goals
and tracking monthly performance to such goals, (2) insuring the consistent
application and accuracy of loan grades throughout the system, (3) active
management of the loan review process, and (4) adequacy of the allowance for
loan losses. The CPO reports directly to the Company's CEO. All overlines and
participations must first carry the approval of the CPO and credits in excess
of $1 million or "house limits" are closely evaluated by credit
administration. All affiliates operate under a standardized credit policy,
reflecting some latitude in loan approval limits and other factors depending
on an affiliate's risk profile and market dynamics.
The following summarizes net charge-off and allowance for loan losses
activity for the past five years:
<TABLE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
TABLE 17
(dollars in thousands)
<CAPTION>
Years Ended December 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average total loans, net of unearned income $1,375,870 $1,296,401 $1,246,944 $1,179,142 $1,114,107
Allowance for loan losses, beginning of year $ 21,539 $ 24,046 $ 20,265 $ 19,396 $ 13,258
Charge-offs:
Commercial, financial and agricultural 3,051 1,259 6,674 4,180 4,090
Installment and single payment individual 2,805 2,940 3,037 4,570 3,699
Real estate - mortgage 1,571 3,204 1,012 1,973 1,278
Total charge-offs 7,427 7,403 10,723 10,723 9,067
Recoveries on loans charged-off:
Commercial, financial and agricultural 843 409 754 663 226
Installment and single payment individual 1,463 1,042 816 756 725
Real estate - mortgage 345 460 131 158 299
Total recoveries 2,651 1,911 1,701 1,577 1,250
Net charge-offs 4,776 5,492 9,022 9,146 7,817
Provision for loan losses (362) 2,985 11,284 10,015 13,955
Allowance of subsidiary bank acquired 4,040 - 1,519 - -
Allowance for loan losses, end of year $ 20,441 $ 21,539 $ 24,046 $ 20,265 $ 19,396
Allowance for loan losses as a percentage
of loans, net of unearned income:
Including mortgage loans held-for-sale 1.44% 1.65% 1.92% 1.68% 1.69%
Excluding mortgage loans held-for-sale 1.45 1.74 2.05 1.84 1.79
Net loans charged off as a percentage
of average loans, net of unearned income:
Including mortgage loans held-for-sale .35 .42 .72 .78 .70
Excluding mortgage loans held-for-sale .35 .46 .80 .84 .72
</TABLE>
Included in the 1994 charge-offs are approximately $2.3 million of
charge-offs related to The Commercial Bank's loan portfolio, which had been
provided for by The Commercial Bank's allowance for loan losses in 1993.
<PAGE> 31
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following details the Company's loan and asset quality
concentrations by collateral type as of December 31, 1994:
<TABLE>
LOAN AND ASSET QUALITY CONCENTRATIONS
TABLE 18
(dollars in thousands)
<CAPTION>
Percent Other Real Loans 90 Days
Collateral Type Outstandings of Loans Nonaccrual Renegotiated Estate or more Past Due
<S> <C> <C> <C> <C> <C> <C>
Commercial mortgages:
Retail business $ 57,855 4.06% $1,799 $ - $ 613 $ -
Broiler operations 33,650 2.36 708 - - -
Egg operations 19,119 1.34 149 - 185 -
Farmland 21,772 1.53 83 - - -
Multi-family residential 20,820 1.46 446 - 1,220 -
Office buildings 36,040 2.53 262 - 1,411 -
Manufacturing/industrial 23,510 1.65 104 - 423 -
Hotel/motel 24,920 1.75 1,190 - - -
Recreational properties 12,383 .87 1,328 - 94 -
Shopping centers 17,575 1.23 319 - 751 -
Other commercial 107,504 7.55 1,613 - 1,809 -
Other 26,326 1.86 186 - 1,018 -
401,474 28.19 8,187 - 7,524 -
Acquisition and land
development:
Residential 37,409 2.63 30 - 458 -
Commercial 4,941 .35 - - 203 -
Construction 99,747 7.00 184 - 59 -
142,097 9.98 214 - 720 -
Residential mortgages:
Real estate dwelling 238,674 16.76 6,328 45 807 90
Mortgage loans held-for-sale 13,519 .95 - - - -
Residential lots 46,583 3.27 412 - 667 -
Mobile homes 33,632 2.36 726 - 95 33
Rental 34,958 2.45 515 - - -
Interval ownership 5,569 .39 - - - -
Mortgage loan investments 35,366 2.48 568 - - -
Home equity 29,802 2.09 - - - -
Other 1,125 .09 - - - -
439,228 30.84 8,549 45 1,569 123
Commercial products:
Assignment A/R and contracts 26,346 1.85 - - - -
Inventory 8,931 .63 150 - - -
Assignment of notes 8,091 .57 246 - - -
Automobiles - heavy trucks 4,482 .31 146 - - -
Floor plans 1,868 .13 - - - -
Other 23,616 1.66 442 - - -
73,334 5.15 984 - - -
Consumer goods:
Automobiles 225,275 15.82 715 - - 43
Unsecured 38,045 2.67 133 - - 23
Savings and certificates 32,191 2.26 20 - - -
Credit cards 21,786 1.53 - - - 19
Mobile homes without
real estate 7,103 .50 62 - - -
Unsecured consumer lines
of credit 3,874 .27 11 - - 6
Co-maker/guarantor 6,318 .44 9 - - -
Other 33,521 2.35 52 - - -
368,113 25.84 1,002 - - 91
Total concentrations $1,424,246 100.00% $18,936 $45 $9,813 $214
</TABLE>
<PAGE> 32
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Capital Resources and Adequacy
Leverage and risk-based capital positions as of December 31, 1994 and
1993, were as follows:
<TABLE>
ANALYSIS OF CAPITAL ADEQUACY
TABLE 19
(dollars in thousands)
<CAPTION>
Regulatory Internal
1994 1993 Guidelines Standards
<S> <C> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital to risk-adjusted assets 13.78% 15.12% 4.00% 9.00% (minimum)
Tier 2 capital to risk-adjusted assets 1.25 1.25 4.00 2.00 (maximum)
Total capital to risk-adjusted assets 15.03% 16.37% 8.00% 9.00% (minimum)
Leverage ratios:
Capital to assets 9.53% 10.18% 6.00% 6.50% (minimum)
Primary capital to adjusted assets (a) 10.30 11.07 5.50 8.00 (minimum)
Primary tangible capital to adjusted assets (b) 9.96 10.77 - 6.00 (minimum)
Tier 1 capital $ 217,733 $ 210,758
Tier 2 capital 19,746 17,428
Total capital $ 237,479 $ 228,186
Risk-adjusted assets $1,579,667 $1,394,270
</TABLE>
(a) Shareholders' equity plus the allowance for loan losses divided by total
assets plus the allowance for loan losses.
(b) Primary tangible capital equals primary capital less goodwill.
The Company's current leverage capital positions are well in excess
of minimum internal and regulatory guidelines and management anticipates this
to remain the case for the foreseeable future. The Company's existing
risk-adjusted capital position is also well in excess of regulatory
standards. Consequently, management does not anticipate any change in asset
allocation strategies to complement risk-adjusted capital requirements.
In January 1995, the Federal Financial Institutions Examination
Council issued a ruling that unrealized gains or losses on investment
securities available-for-sale, which are included as a component of
shareholders' equity in accordance with Statement of Financial Accounting
Standards No. 115, should not be included as a component of Tier I capital
when determining compliance with regulatory capital requirements, effective
March 31, 1995. If the unrealized losses on investment securities
available-for-sale at December 31, 1994, were excluded from Tier I capital,
the Tier I capital to risk-adjusted assets ratio would have been 14.59% and
the total capital to risk-adjusted assets ratio would have been 15.84%.
The Company has met all of its capital requirements through retained
earnings while steadily increasing regulatory and internally defined capital
ratio objectives. The following summarizes the Company's internal capital
generation and the factors that influence it:
INTERNAL CAPITAL GENERATION RATE
TABLE 20
Years Ended December 31
1994 1993 1992
Return on average assets 1.24% 1.29% 1.20%
divided by
Average equity as a % of average assets 9.91 9.53 9.49
equals
Return on average equity 12.51 13.53 12.65
times
Earnings retained 54.69 58.10 57.24
equals
Internal capital growth 6.84 7.86 7.24
Future dividend growth rate is likely to closely approximate the
growth in earnings per share. Other than common stock issued in connection
with future acquisitions, management anticipates that the internal capital
generation rate will be sufficient to support balance sheet growth for the
foreseeable period. The Company has plans for the investment of approximately
$5 million in facilities, equipment, and systems in 1995.
<PAGE> 33
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity
The Company manages its liquidity position to assure sufficient cash
to service net new loan demand and potential deposit and funds withdrawals.
In this regard, the composition and maturity structure of earning assets and
funding is evaluated by the asset liability management committee as is the
availability of off-balance-sheet funding sources and the potential for
liquidation of selected earning assets without a significant short or longer
term negative impact to profitability. Although numerous standards are
applied, the Company measures and manages its liquidity profile based on core
funding and incremental funding objectives.
It is the Company's objective for core liabilities to equal at least
100% of core earning assets and incremental funds not to exceed 40% of total
funding. These objectives may be changed depending on management's evaluation
of the maturity distribution of funding and earning assets and the nature of
those assets and funding. The Company's liquidity positions as of December
31, 1994 and 1993, was as follows:
LIQUIDITY ANALYSIS
TABLE 21
December 31
1994 1993
Core funding/core earning assets 112.73% 115.21%
Incremental funding/total funding 25.29 24.73
Management anticipates moderate improvements in the core funding
ratio in 1995, and knows of no demands or commitments that will result in or
that are likely to result in the Company's liquidity profile increasing or
decreasing in any material way.
Interest Rate Sensitivity Management
Interest rate sensitivity is defined as the exposure to variability
in net interest income resulting from changes in market-based interest rates.
It is the Company's philosophy to protect net interest income against
unexpected changes in interest rates through a controlled assumption of
interest rate risk for profit. This potential variability is closely
monitored by the Company's asset liability modeling and management of the
Company's traditional and beta adjusted gap positions. Since all interest rate
s and yields do not adjust in the same degree, the traditional and beta
adjusted gap analysis is only a general indicator of rate sensitivity and net
interest income volatility. Consequently, the Company relies heavily on
simulation analysis and modeling of the Company's balance sheet in varying
interest rate environments to gauge net income volatility and develop
appropriate balance sheet strategies to assure attainment of the Company's
objectives.
The Company's interest rate sensitivity at December 31, 1994, is as
follows:
INTEREST RATE SENSITIVITY
TABLE 22
(dollars in thousands)
3 Month 6 Month 12 Month
Standard gap position:
Rate sensitive assets $ 736,300 $ 947,071 $1,224,299
Rate sensitive liabilities 916,930 1,144,090 1,359,107
Dollar gap $(180,630) $ (197,019) $ (134,808)
Gap ratio .80 .83 .90
Beta-adjusted gap position:
Rate sensitive assets $ 723,065 $ 926,841 $1,196,499
Rate sensitive liabilities 747,285 990,142 1,215,648
Dollar gap $ (24,220) $ (63,301) $ (19,149)
Gap ratio .97 .94 .98
Company minimum standards .65 to 1.20 .65 to 1.20 .90 to 1.10
Management is of the opinion that the current rate sensitivity
profile meets the Company's objectives. No material changes in the interest
rate sensitivity profile are anticipated in 1995.
Fourth Quarter Results
For the fourth quarter of 1994, the Company recorded net income of
$7.2 million, or $.43 per share, compared with fourth quarter net income of
$7.9 million, or $.50 per share, in 1993.
Net interest income (FTE) totaled $26.9 million in the fourth quarter
of 1994, up from the $23.9 in 1993. Noninterest income was $5.9 million in
1994, down 39.2% from the fourth quarter 1993, primarily the result of a $2.5
million decrease in mortgage loan related revenues. Non-interest expenses for
the fourth quarter increased to $22.2 million in 1994, up 3.1% from the
fourth quarter 1993, almost entirely the result of The Commercial Bank
acquisition in 1994. Highlights of the Company's results on a quarter-by-quart
er basis can be seen in Note 18 - Consolidated Quarterly Financial
Information - Unaudited.
Recent Accounting Pronouncements
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement No. 114, "Accounting by Creditors for Impairment of a Loan."
Statement No. 114 requires impaired loans to be measured on the present value
of expected future cash flows, discounted at the loan's effective interest
rate, or at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent, beginning in 1995. In October
1994, the FASB issued Statement No. 118, "Accounting for Creditors for
Impairment of a Loan - Income Recognition and Disclosures" which amends
Statement No. 114 to require information about the recorded investment in
certain impaired loans and eliminates its provisions regarding
<PAGE> 34
Management's Discussion and Analysis
of Financial Condition and Results of Operations
how a creditor should report income on an impaired loan. Statement
No. 118 allows creditors to use existing methods for recognizing income on
impaired loans, including methods required by certain industry regulators.
The Company adopted Statement No. 114 and Statement No. 118 on January 1,
1995, and the impact to the consolidated financial statements was not
material.
Inflation
Inflation has an important impact on the growth of total assets in
the banking industry and may cause a need to increase equity capital at
higher than normal rates in order to maintain an appropriate equity to assets
ratio. The Company has been able to maintain a high level of equity, as
previously mentioned, through retention of an appropriate percentage of its
earnings and copes with the effects of inflation by managing its interest
rate sensitivity gap position through its asset/liability management program
and by periodically adjusting its pricing of services and banking products to
take into consideration current costs.
Business and Product Information
During the past three years, the consolidated income of the Company
and its subsidiaries has been provided through core banking services,
mortgage banking, and trust activities, as follows:
BUSINESS AND PRODUCT INFORMATION
TABLE 23
(in thousands)
Years Ended December 31
1994 1993 1992
Net interest income-fully taxable equivalent:
Core banking $101,034 $ 89,479 $82,334
Mortgage banking and servicing 2,390 4,652 4,022
Trust services - - -
Total 103,424 94,131 86,356
Noninterest income:
Core banking 16,992 15,330 15,081
Mortgage banking and servicing 7,744 14,261 12,745
Trust services 2,345 2,250 2,398
Total 27,081 31,841 30,224
Noninterest expense:
Core banking 72,966 66,174 56,649
Mortgage banking and servicing 11,349 12,784 10,502
Trust services 2,324 2,186 1,793
Total 86,639 81,144 68,944
Net income (loss):
Core banking 28,829 22,539 18,791
Mortgage banking and servicing (779) 3,984 4,134
Trust services 84 131 482
Total $28,134 $26,654 $23,407
Market, Stock Price, and Dividend Information
The following table sets forth the high and low market quotations in
The Nasdaq Stock Market, where the Company's common stock is traded, for the
years 1994, 1993, and 1992. The quotations are based upon prices quoted
electronically and represent quotations between
dealers, not actual transactions, and do not include retail mark-ups,
mark-downs, or commissions. As of December 31, 1994, there were approximately
7,100 holders of the Company's common stock.
STOCK PRICE INFORMATION
TABLE 24
1994 1993 1992
High Low High Low High Low
First Quarter $22 1\4 $20 1\4 $21 1\2 $17 1\2 $16 1\3 $15 1\2
Second Quarter 21 1\2 19 3\4 22 1\4 20 16 1\6 15 1\3
Third Quarter 22 1\4 20 22 1\2 19 3\4 18 1\3 15 1\2
Fourth Quarter 20 3\4 16 5\8 21 1\4 19 1\2 19 16 5\6
<PAGE> 35
Management's Discussion and Analysis
of Financial Condition and Results of Operations
PER SHARE DIVIDENDS AND NET INCOME
TABLE 25
1994 1993 1992
Dividends Income Dividends Income Dividends Income
First Quarter $.1900 $.40 $.1725 $.39 $.1500 $.33
Second Quarter .1925 .44 .1750 .36 .1600 .41
Third Quarter .1950 .44 .1775 .43 .1600 .39
Fourth Quarter .2000 .43 .1800 .50 .1700 .37
Due to rounding, per share amounts may not total year-to-date amounts
reported on the Consolidated Statements of Income.
SELECTED STATISTICAL INFORMATION
Condensed average daily balance sheets for the years indicated are
presented below:
<TABLE>
AVERAGE BALANCES, INTEREST, AND RATES
(dollars in thousands)
<CAPTION>
Years Ended December 31
1994 1993 1992
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Interest-bearing deposits in
other financial institutions $ 38,204 $ 1,666 4.36% $ 68,240 $ 2,750 4.03% $ 66,958 $ 3,507 5.24%
Net loans 1,375,870 121,878 8.86 1,296,401 114,172 8.81 1,246,944 119,502 9.58
Investment securities, taxable 489,712 28,200 5.76 417,032 24,562 5.89 344,891 23,555 6.83
Investment securities,
nontaxable 149,080 16,585 11.12 123,931 14,955 12.07 108,006 13,265 12.28
Federal funds sold and
securities purchased
under agreements to resell 33,647 1,227 3.65 20,527 622 3.03 43,638 1,481 3.39
Total earning assets 2,086,513 169,556 8.13 1,926,131 157,061 8.15 1,810,437 161,310 8.91
Cash and due from banks 70,152 61,865 57,007
Premises and equipment, net 54,679 48,428 41,659
Other assets 85,255 61,102 68,291
Less allowance for loan losses (23,811) (23,920) (21,989)
Total assets $2,272,788 $2,073,606 $1,955,405
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Savings and IMMA accounts $ 619,385 16,613 2.68 $ 551,729 15,204 2.76 $ 515,116 17,292 3.36
Time deposits 938,078 42,270 4.51 909,449 42,575 4.68 928,009 54,230 5.84
Federal funds purchased
and securities sold under
agreements to repurchase 76,060 3,031 3.99 95,636 3,096 3.24 75,613 2,888 3.82
Other borrowed funds 87,547 4,218 4.82 43,771 2,055 4.69 13,678 544 3.98
Total interest-
bearing liabilities 1,721,070 66,132 3.84 1,600,585 62,930 3.93 1,532,416 74,954 4.89
Noninterest-bearing
demand deposits 302,167 259,659 224,971
Other liabilities 24,657 16,302 12,922
Total liabilities 2,047,894 1,876,546 1,770,309
Total shareholders' equity 224,894 197,060 185,096
Total liabilities and
shareholders' equity $2,272,788 $2,073,606 $1,955,405
Net interest income $103,424 $94,131 $86,356
Interest spread 4.29% 4.22% 4.02%
Net interest margin 4.96% 4.89% 4.77%
</TABLE>
Loans are presented net of unearned income and include nonaccrual loans.
Interest income and rates include the effects of taxable
equivalent adjustments, using a 1994 and 1993 tax rate of 35 percent, and a
1992 tax rate of 34 percent, in adjusting tax-exempt interest on non-taxable
loans and investment securities, to a fully taxable basis.
<PAGE> 36
Independent Auditors' Report
[LOGO-- KPMG Peat Marwick LLP]
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
The Board of Directors and Shareholders
First National Bancorp
Gainesville, Georgia:
We have audited the accompanying consolidated balance sheets of First
National Bancorp and subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overal
l financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
First National Bancorp and subsidiaries as of December 31, 1994 and 1993 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 4, the Company changed its method of
accounting for investments to adopt the provisions of Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," at December 31, 1993. As discussed in Notes 1
and 9, the Company changed its method of accounting for income taxes in 1993
to adopt the provisions of SFAS the No. 109, "Accounting for Income Taxes."
As discussed in Notes 1 and 10, the Company also adopted the provisions of
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," in 1993.
/s/KPMG Peat Marwick LLP
January 27, 1995
<PAGE> 37
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
At December 31
1994 1993
ASSETS
Cash and due from banks (Note 3) $ 84,260 $ 86,599
Federal funds sold and securities
purchased under
agreements to resell 28,908 36,371
Cash and cash equivalents 113,168 122,970
Interest-bearing deposits in other
financial institutions 16,259 68,157
Investment securities available-for-sale
(Note 4) 549,432 410,252
Investment securities held-to-maturity
(market value $156,044 and $144,827,
respectively (Note 4) 157,567 139,368
Loans (Note 5 and 8) 1,432,554 1,323,036
Less: Unearned income (8,308) (16,472)
Allowance for loan losses (20,441) (21,539)
Net loans 1,403,805 1,285,025
Premises and equipment, net (Note 6 and 8) 57,004 49,630
Other assets (Note 9) 83,313 66,550
Total assets $2,380,548 $2,141,952
LIABILITIES
Deposits:
Noninterest-bearing $ 331,521 $ 285,510
Interest-bearing, including
certificates of deposit of
$100 or more of $189,431 and
$152,761, respectively 1,611,743 1,479,131
Total deposits 1,943,264 1,764,641
Federal funds purchased and securities sold
under agreements to repurchase (Note 7) 98,702 63,379
Other short-term borrowings (Note 7) 6,427 13,807
Long-term debt (Note 8) 80,238 57,958
Other liabilities (Note 10) 24,960 24,108
Total liabilities 2,153,591 1,923,893
SHAREHOLDERS' EQUITY (Note 15)
Common stock, par value $1 per share
authorized 30,000,000 shares; issued
and outstanding 16,540,495 and
16,034,183 shares, respectively (Note 11) 16,540 16,034
Additional paid-in capital 67,606 58,762
Retained earnings (Note 14) 155,541 139,996
Net unrealized holding (losses) gains
on securities available-for-sale (12,730) 3,267
Total shareholders' equity 226,957 218,059
Commitments and contingent liabilities
(Notes 12 and 13)
Total liabilities and shareholders' equity $2,380,548 $2,141,952
See accompanying notes to consolidated financial statements.
<PAGE> 38
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
Years Ended December 31
1994 1993 1992
Interest Income
Loans (including fees) $ 121,878 $ 114,172 $ 119,502
Interest-bearing deposits in other
financial institutions 1,666 2,750 3,507
Investment securities:
Tax-exempt 10,174 9,025 8,428
Taxable 28,200 24,562 23,555
Federal funds sold and securities
purchased under agreements
to resell 1,227 622 1,481
Total interest income 163,145 151,131 156,473
Interest Expense
Deposits, including interest
expense on certificates
of deposit of $100 or more
of $6,844, $7,817,
and $13,846 in 1994, 1993,
and 1992, respectively 58,883 57,779 71,522
Federal funds purchased and securities
sold under agreements to repurchase 3,031 3,096 2,888
Other short-term borrowings 221 209 279
Long-term debt 3,997 1,846 265
Total interest expense 66,132 62,930 74,954
Net Interest Income 97,013 88,201 81,519
Provision for loan losses (Note 5) (362) 2,985 11,284
Net interest income after provision
for loan losses 97,375 85,216 70,235
Noninterest Income
Fees for trust services 2,345 2,250 2,398
Service charges on deposit accounts 10,452 8,565 6,976
Net gains on sale of investment
securities (Note 4) 318 753 2,470
Other noninterest income (Note 17) 13,966 20,273 18,380
Total noninterest income 27,081 31,841 30,224
Noninterest Expense
Salaries and employee benefits
(Note 10) 43,305 40,373 33,864
Net occupancy 4,713 4,229 4,368
Furniture and equipment 6,124 5,828 4,739
Other noninterest expense (Note 17) 32,497 30,714 25,973
Total noninterest expense 86,639 81,144 68,944
Income Before Income Taxes and
Cumulative Effect of Accounting Change 37,817 35,913 31,515
Income tax expense (Note 9) 9,683 9,419 8,108
Income before cumulative effect
of accounting change 28,134 26,494 23,407
Cumulative effect at January 1, 1993
of change in accounting for
income taxes (Note 9) - 160 -
Net Income $ 28,134 $ 26,654 $ 23,407
Net Income Per Share:
Weighted-average shares outstanding 16,394,974 15,842,510 15,637,160
Income before cumulative effect of
accounting change $ 1.72 $ 1.67 $ 1.50
Cumulative effect of accounting change - .01 -
Net income per share $ 1.72 $ 1.68 $ 1.50
See accompanying notes to consolidated financial statements.
<PAGE> 39
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
<CAPTION>
Net
Unrealized
Holding
Gains (Losses)
On Investment
Additional Securities
Common Stock Paid-In Retained Available-
Shares Amount Capital Earnings For-Sale Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 15,584,951 $15,585 $52,225 $110,148 $ - $177,958
Net income - - - 23,407 - 23,407
Cash dividends declared - $.64 per share - - - (9,327) - (9,327)
Cash dividends of pooled subsidiaries
prior to acquisition - - - (126) - (126)
Proceeds from the exercise of stock
options by pooled subsidiary 2,405 2 19 - - 21
Issuance of common shares for
bank acquisition 97,525 98 1,471 - - 1,569
Stock options exercised 86,850 87 1,177 - - 1,264
Cash in lieu of fractional shares in
acquisition and stock split (537) (1) (20) - - (21)
Balance at December 31, 1992 15,771,194 15,771 54,872 124,102 - 194,745
Net income - - - 26,654 - 26,654
Cash dividends declared - $.705 per share - - - (10,640) - (10,640)
Cash dividends of pooled subsidiary prior
to acquisition - - - (120) - (120)
Proceeds from the exercise of stock
options by pooled subsidiary 22,973 23 216 - - 239
Issuance of additional common shares
for previous bank acquisition 63,676 64 954 - - 1,018
Stock options exercised 129,333 129 1,813 - - 1,942
Issuance of common stock for dividend
reinvestment 47,007 47 907 - - 954
Implementation of change in accounting for
investment securities available-for-sale,
net of tax effect of $2,066 - - - - 3,267 3,267
Balance at December 31, 1993 16,034,183 16,034 58,762 139,996 3,267 218,059
Net income - - - 28,134 - 28,134
Cash dividends declared - $.7775 per share - - - (12,589) - (12,589)
Proceeds from the exercise of stock options
by pooled subsidiary 20,372 20 199 - - 219
Issuance of common shares for
bank acquisition 266,414 266 5,112 - - 5,378
Stock options exercised 126,496 127 1,720 - - 1,847
Issuance of common stock for dividend
reinvestment 93,030 93 1,813 - - 1,906
Unrealized losses on investment securities
available-for-sale, net of tax effect
of $(10,167) - - - - (15,997) (15,997)
Balance at December 31, 1994 16,540,495 $16,540 $67,606 $155,541 $(12,730) $226,957
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 40
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Years ended December 31
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 28,134 $ 26,654 $ 23,407
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for loan losses (362) 2,985 11,284
Provision for other real estate owned 703 1,173 521
Depreciation 5,792 5,493 4,217
(Accretion) amortization, net (2,226) 4,758 1,734
Deferred income taxes (benefit) (209) (2,287) (2,192)
Net gains on sales of investment securities (318) (753) (2,470)
Gains on sales of mortgage loan servicing rights (2,213) (10,811) (10,721)
(Gains) losses on sales of assets acquired in
foreclosure and equipment (440) (743) 55
Excess servicing fees receivable resulting from
mortgage loan sales (413) (1,593) (4,570)
Decrease in mortgage loans held for sale 51,842 12,843 31,254
Other, net 2,458 9,238 (525)
Net cash provided by operating activities 83,166 46,957 51,994
Cash flows from investing activities:
Proceeds from sales/calls of investment securities held-to-maturity 4,685 44,649 104,029
Proceeds from principal collections on and maturities of investment
securities held-to-maturity 8,476 106,321 86,240
Purchases of investment securities held-to-maturity (29,031) (206,480) (274,789)
Proceeds from sales of investment securities available-for-sale 29,354 2,000 -
Proceeds from principal collections on and maturities of investment
securities available-for-sale 170,171 13,945 1,070
Purchases of investment securities available-for-sale (352,280) - -
Net decrease (increase) in interest-bearing deposits in
other financial institutions 52,494 (1,276) (7,469)
Net increase in loans (84,499) (78,185) (56,900)
Proceeds from sales of mortgage loan servicing rights 3,046 14,226 21,275
Purchases of mortgage loan servicing rights (10,541) (7,059) (2,494)
Purchases of premises and equipment (5,631) (10,129) (5,121)
Proceeds from sales of premises and equipment 360 1,932 92
Proceeds from sales of assets acquired in foreclosure 7,419 6,067 4,781
Purchase of First Citizens Bancorp of Cherokee
County, Inc., net of cash and cash equivalents acquired - (6) 12,036
Purchase of Metro Bancorp, Inc., net of
cash and cash equivalents acquired 24,563 - -
Net cash used in investing activities (181,414) (113,995) (117,250)
Cash flows from financing activities:
Net increase in deposits 46,582 42,868 67,200
Net increase (decrease) in short-term borrowings 27,943 (12,612) (9,603)
Proceeds from the issuance of long-term debt 33,000 50,055 4,950
Payments on long-term debt (10,950) (1,566) (2,307)
Proceeds from issuance of common
stock for options exercised 2,066 2,181 1,285
Payments of fractional shares in stock split - - (14)
Cash dividends paid on common stock (10,195) (8,910) (8,876)
Net cash provided by financing activities 88,446 72,016 52,635
Net (decrease) increase in cash and cash equivalents (9,802) 4,978 (12,621)
Cash and cash equivalents at beginning of year 122,970 117,992 130,613
Cash and cash equivalents at end of year $113,168 $122,970 $117,992
Supplemental disclosure of cash flow information:
Interest paid $ 65,142 $ 61,922 $ 75,035
Income taxes paid $ 11,776 $ 10,334 $ 9,881
See accompanying notes to consolidated financial statements.
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
Summary of Significant Accounting Policies
Business: First National Bancorp and subsidiaries ("Company") provide
a full range of banking and mortgage banking services to individual and
corporate customers through seventeen subsidiary banks located throughout
North Georgia. The Company primarily competes with other financial
institutions in its market area. The Company is subject to the regulations of
certain state and federal agencies and undergoes periodic examinations by
those regulatory authorities.
Basis of Presentation: The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly
owned. All significant intercompany balances and transactions are eliminated
in preparing the consolidated financial statements. For business combinations
accounted for as purchases, the results of operations of the acquired
business are included in the consolidated totals from the date of
acquisition.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the balance sheet and revenue and
expenses for the period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the
allowance for loan losses, the valuation of real estate acquired in connection
with foreclosures or in satisfaction of loans, and mortgage loan prepayment
assumptions used to determine the amount of amortization of purchased
mortgage loan servicing rights and excess servicing fee receivables. In
connection with the determination of the allowance for loan losses and the
value of real estate owned, management obtains independent appraisals for
significant properties. In connection with the determination of the
amortization of purchased mortgage loan servicing rights and excess servicing
fee receivables, management obtains independent estimates of mortgage loan
prepayment assumptions, which are based on historical prepayments and current
interest rates.
A substantial portion of the Company's loans are secured by real
estate located in North Georgia. Accordingly, the ultimate collectibility of
a substantial portion of the Company's loan portfolio is susceptible to
changes in the real estate market conditions of this market area.
Cash Equivalents: Cash equivalents, as presented in the consolidated
financial statements, include amounts due from banks, federal funds sold, and
securities purchased under agreements to resell. These instruments are
considered cash equivalents as they are highly liquid and generally mature
within one to 30 days. Generally, federal funds are sold for one-day periods.
Investment Securities: Investment securities at December 31, 1994 and
1993, consist of U.S. Treasury securities, obligations of the U.S. Government
corporations and agencies, state and municipal, mortgage-backed, and equity
securities. The Company adopted the provisions of Statement of Financial
Accounting Standards ("Statement") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" at December 31, 1993. Under
Statement No. 115, the Company classifies its investments into one of three
categories: trading, available-for-sale, or held-to-maturity.
Investment securities held-to-maturity are recorded at cost, adjusted
for the amortization of premiums and accretion of discounts, because it is
management's intention and ability to hold them to maturity. All other
securities not included in held-to-maturity are classified as available-
for-sale and are reported at fair value. Unrealized holding gains or
losses, net of the related tax effect, on available-for-sale securities does
not impact reported income and are reported as a separate component of shareho
lders' equity until realized. The net unrealized holding losses on investment
securities available-for-sale, net of income taxes, amounted to $12,730,000
at December 31, 1994.
In conjunction with the new definitions of investment securities
held-to-maturity and investment securities available-for-sale within
Statement No. 115, the Company transferred investment securities previously
accounted for at amortized costs totaling $384,186,000 to available-for-sale
at December 31, 1993.
Purchase premiums and discounts on investment securities are
amortized and accreted to interest income using a method which approximates a
level yield over the period to maturity of the related securities. Purchase
premiums and discounts on mortgage-backed securities are amortized and
accreted to interest income using a method which approximates a level yield
over the remaining lives of the securities, taking into consideration assumed
prepayment patterns. Interest and dividend income are recognized when earned.
Realized gains and losses for securities classified as available-for-sale and
held-to-maturity are included in income and are derived using the specific
identification method for determining the costs of securities sold.
The Company does not regularly engage in trading or holding financial
derivatives. The Company may invest in collateralized mortgage obligations
(CMOs), and in U.S. Government agency securities containing mandatory coupon
adjustments (step-up bonds). At December 31, 1994, the Company held
approximately $4.2 million in CMOs and $14.2 million in step-up bonds, all of
which are included in the available-for-sale portfolio. Management purchases
these securities under policies providing for specific evaluation of the
extra risks associated with such investments, at the time of purchase and on
an ongoing basis.
Loans and Interest Income: Loans are reported at the principal
amounts outstanding, net of unearned income and the allowance for loan
losses. Mortgage loans held-for-sale are carried at the lower of aggregate
cost or market with market determined on the basis of open commitments ments
for committed loans. For uncommitted loans, market is determined on the basis
of current delivery prices in the secondary mortgage market.
Unearned income, primarily arising from discount basis installment
loans, is recognized as income using a
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. (continued)
method which approximates a level yield. Interest income on other loans is
recognized using the simple interest method on the daily balance of the
principal amount outstanding. Loan fees, net of certain origination costs,
are deferred and amortized over the lives of the underlying loans using a
method which approximates a level yield.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
when reasonable doubt exists as to the full, timely collection of interest or
principal. Cash receipts on nonaccrual loans are applied to the outstanding
principal balance, until the principal is fully paid, at which time further
cash receipts are recognized as interest income until the interest is fully
collected. Interest accruals are recorded on such loans only when they are
brought fully current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both principal and interest.
Gains or losses on the sale of mortgage loans are recognized at
settlement dates and are computed as the difference between the sales
proceeds received and the net book value of the mortgage loans sold. Such
gains or losses are adjusted by the amount of any excess servicing fee
receivables resulting from the transactions.
Allowance for Loan Losses: The allowance for loan losses is
established through provisions for loan losses charged to operations. Loans
are charged against the allowance for loan losses when management believes
that the collection of the principal is unlikely. The allowance is an amount
that management has determined to be adequate through its allowance for loan
losses methodology to absorb losses inherent in existing loans and
commitments to extend credit. The allowance is established through
consideration of such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, adequacy of collateral, loan
concentrations, specific problem loans, and economic conditions that may
affect the borrowers' ability to pay.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgment about information available
to them at the time of their examination.
Postretirement Benefits: The Company sponsors a defined benefit
health care plan for substantially all retirees and employees. Effective
January 1, 1993, the Company adopted the provisions of Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions,"
which establishes a new accounting principle for the cost of retiree health
care and other post-retirement benefits. Prior to 1993, the Company
recognized these benefits on the pay-as-you-go method (i.e., cash basis). The
cumulative effect of the change in method of accounting for postretirements
benefits other than pensions at January 1, 1993 was $2,600,000 and is being
amortized to operations over a twenty-year period.
Premises and Equipment: Premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed using the
straight-line or accelerated methods over the estimated useful lives of the
related assets.
Other Real Estate: Other real estate includes properties obtained
through foreclosure or acceptance of a deed in lieu of foreclosure. When
properties are acquired through foreclosure or acceptance of a deed in lieu
of foreclosure, any excess of the loan balance at the time of foreclosure
over the fair value of the real estate held as collateral is recognized as a
loss and charged to the allowance for loan losses. After foreclosure, other
real estate is reported at the lower of fair value at acquisition date, or
fair value less estimated disposal costs. Fair value is determined on the
basis of current appraisals, comparable sales, and other estimates of value
obtained principally from independent sources. Subsequent write-downs are
charged to a separate allowance for losses pertaining to other real estate
established through provisions for other real estate losses charged to
operations. Based upon management's evaluation of other real estate,
additional expense is recorded when necessary in an amount sufficient to
restore the allowance to an adequate level. Gains and losses recognized on
the disposition of the properties are recorded in other noninterest income.
Costs of improvements to other real estate are capitalized, while
costs associated with holding other real estate are charged to operations.
Income Taxes: In February 1992, Financial
Accounting Standards Board (FASB) issued Statement No. 109,
"Accounting for Income Taxes." Statement No. 109 requires a change from the
deferred method of accounting for income taxes of Accounting Principles Board
("APB") Opinion 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized as
income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement No. 109 and
has reported the cumulative effect of that change in the method of accounting
for income taxes in the 1993 statement of income.
At December 31, 1994, management determined that the deferred tax
assets are fully realizable due to sufficient income taxes paid in 1992,
1993, and 1994 and the scheduled reversal of deferred tax liabilities to
offset reversing deferred tax assets in future periods. Accordingly, no
valuation allowance has been established against the deferred tax assets.
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. (continued)
Pursuant to the deferred method under APB Opinion 11, which was
applied in 1992 and prior years, deferred income taxes were recognized for
income and expense items reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year
of calculation. Under the deferred method, deferred taxes were not adjusted
for subsequent changes in the tax rates.
Net Income Per Share: Net income per share is calculated by using the
weighted-average number of shares outstanding during the period. The effect
of dilutive stock options are immaterial in 1994, 1993, and 1992.
Financial Instruments: The Company is a party to certain optional and
forward purchased and sale contracts in the management of its interest rate
exposure associated with its portfolio of mortgage loans held-for-sale and
commitments to originate mortgage loans to be held-for-sale. These options
and forward sales contracts are carried at cost
until expiration or until exercised, whichever occurs first. Realized
gains and losses are included in the determination of the gain or loss on the
sale of the related mortgage loans.
Mortgage Banking Activities: Purchased mortgage loan servicing rights
and excess servicing fee receivables resulting from loan sales with retention
of the loan servicing are included in other assets. Purchased mortgage loan
servicing rights are carried at cost less amounts amortized. The purchased
mortgage loan servicing rights are amortized in proportion to and over the
period of estimated net servicing income taking into consideration assumed
prepayment patterns. Excess servicing fee receivables are carried at the
present value of the estimated future excess net servicing fee income, over
the estimated lives of the related mortgage loans sold, less amounts
amortized. Amortization of the excess servicing fees receivable is computed
using an accelerated method over the estimated remaining lives of the related
loans taking into consideration assumed prepayment patterns.The carrying
values of the purchased mortgage loan servicing rights and excess servicing
fee receivables are evaluated and adjusted periodically based on actual portfo
lio prepayments and estimates of anticipated prepayments, so that recorded
amounts do not exceed the value of future net servicing income on a
disaggregated basis.
Fees for servicing loans for investors are based on the outstanding
principal balance of the loans serviced and are recognized as income when
earned.
At December 31, 1994, the Company was covered under a $12 million
banker's blanket bond policy and a $2 million errors and omissions policy.
Other: The excess of costs over the fair value of the net assets
acquired of purchased subsidiaries are being amortized using the
straight-line method over a period not to exceed twenty years. The
unamortized goodwill is periodically reviewed to ensure that conditions are
not present that indicate the recorded amount of goodwill is not recoverable
from future undiscounted cash flows. The review process includes an
evaluation of the earnings history of each subsidiary, its contribution to
the Company, capital levels and other factors. If events or changes in
circumstances indicate further evaluation is warranted, the undiscounted net
cash flows of the operations to which goodwill relates are estimated. If the
estimated undiscounted net cash flows are less than the carrying amount of
goodwill, a loss is recognized to reduce goodwill's carrying value to the
amount recoverable, and when appropriate the amortization period also is
reduced.
Property (other than cash deposits) held by the Company in a
fiduciary or agency capacity for its customers is not included in the
consolidated balance sheets since such items are not assets of the Company.
Recent Accounting Pronouncements: In May 1993, the FASB issued
Statement No. 114, "Accounting by Creditors for Impairment of a Loan."
Statement No. 114 requires impaired loans to be measured based on the present
value of expected future cash flows, discounted at the loan's effective intere
st rate, or at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent, beginning in 1995. In October
1994, the FASB issued Statement No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures," which amends the
requirements of Statement No. 114 regarding interest income recognition and
related disclosure requirements. Initial adoption of Statement No. 114 and
Statement No. 118 must be reflected prospectively. The Company adopted
Statement No. 114 and Statement No. 118 on January 1, 1995, and the impact to
the consolidated financial statements was not material. At January 1, 1995,
pursuant to the definition within Statement No. 114, the Company had
approximately $18,981,000 of impaired loans, all of which are classified as
nonaccrual.
Note 2.
Business Combinations
On November 22, 1994, the Company and FF Bancorp, Inc. ("FF
Bancorp"), New Smyrna Beach, Florida, entered into an Agreement and Plan of
Merger ("Agreement") as amended January 23, 1995, whereby the Company will
acquire all of the outstanding stock of the approximately $600 million asset
FF Bancorp. FF Bancorp is the holding company of First Federal Savings Bank
of New Smyrna Beach, Florida, a $318 million asset thrift institution, First
Federal Savings Bank of Citrus County, Florida, a $214 million asset thrift
headquartered in Inverness, Florida, and Key Bank of Florida, a $66 million
asset commercial bank located in Tampa, Florida. Under the Agreement, each
share of FF Bancorp stock will be exchanged for .825 shares of the Company
stock in a tax-free exchange to be accounted for as a pooling-of-interests.
The acquisition is subject to the approval of FF Bancorp shareholders and
various regulatory authorities. The Company anticipates completing the
transaction in the second quarter of 1995. Consolidated net earnings of
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. (continued)
FF Bancorp for the year ended December 31, 1994, was $6.5 million and
stockholders' equity at December 31, 1994, was $45.0 million.
On July 31, 1994, the Company completed its acquisition of Barrow
Bancshares, Inc. ("Barrow"), a bank holding company located in Winder,
Georgia, whose wholly owned subsidiary was Barrow Bank & Trust Company,
located in Barrow County, Georgia. The Company issued 521,700 shares of its
common stock in exchange for all of the issued and outstanding shares of
Barrow. No cash, except for fractional shares, was paid in the transaction.
The transaction was accounted for as a pooling-of-interests and, accordingly,
the consolidated financial statements for all periods presented have been
restated to include the financial position and results of operations of
Barrow. Pre-merger 1994 results of Barrow are not material. The Company's
consolidated financial data for the twelve months ended December 31, 1993 and
1992 have been restated as follows:
1993 1992
(in thousands, except per share data)
Net interest income:
First National Bancorp, before acquisition $85,562 $79,250
Barrow 2,639 2,269
Total $88,201 $81,519
Net income:
First National Bancorp, before acquisition $25,922 $22,830
Barrow 732 577
Total $26,654 $23,407
Net income per share:
First National Bancorp, before acquisition $ 1.69 $ 1.51
Effect of restatement for Barrow (.01) (.01)
Total $ 1.68 $ 1.50
On February 28, 1994, the Company acquired all of the outstanding
common stock of Metro Bancorp, Inc., ("Metro") the parent company of the $140
million asset The Commercial Bank, Douglasville, located in Douglas County,
Georgia. The Company issued 266,414 shares of its common stock and $250,243
in cash in exchange for all of the outstanding common shares of Metro.
Additionally, the Company paid $4,288,000 in cash to retire outstanding
preferred stock of Metro. The excess of the purchase price over the fair
value of the net assets acquired totaled $2,928,000 and was recorded as
goodwill. The goodwill is being amortized using the straight-line method over
a 15-year period. The purchase price is subject to adjustment based on asset
recoveries for up to an 18-month period after the agreement date. The maximum
amount of the adjustment is limited to $1,395,000 and will be recorded as
goodwill and amortized over 15 years, should any adjustment be required. This
transaction was accounted for as a purchase and, therefore, is not included
in the Company's results of operations or statements of financial position
prior to the date of acquisition. The pro forma impact on the Company's
results of operations for the twelve months ended December 31, 1994, 1993,
and 1992 had the purchase transaction been consummated as of January 1, 1992,
would have been:
1994 1993 1992
(dollars in thousands, except per share data)
Interest income $ 164,648 $ 160,576 $ 166,428
Noninterest income 27,531 34,890 32,945
Income before
cumulative effect of
accounting change 27,782 24,599 23,576
Cumulative effect of
accounting change - 562 -
Net income $ 27,782 $ 25,161 $ 23,576
Net income per share:
Income before cumulative
effect of accounting
change $ 1.69 $ 1.53 $ 1.48
Cumulative effect of
accounting change - .03 -
Net income $ 1.69 $ 1.56 $ 1.48
Weighted-average shares
outstanding 16,439,376 16,108,924 15,903,574
On August 31, 1993, the Company completed its acquisition of The
Community Bank of Carrollton ("Carrollton"), a bank located in Carroll
County, Georgia. The Company issued 331,122 shares of its common stock in
exchange for all of the issued and outstanding shares of Carrollton. The
transaction has been accounted for as a pooling-of-interests and,
accordingly, the consolidated statements for all periods presented have been
restated to include the financial condition and results of operations of
Carrollton.
On May 31, 1993, the Company completed its acquisition of Villa Rica
Bancorp, Inc., ("Villa Rica"), a bank holding company whose wholly-owned
subsidiary was the Bank of Villa Rica, also located in Carroll County,
Georgia. The Company issued 314,142 shares of its common stock in exchange
for all of the issued and outstanding shares of Villa Rica. The transaction
has been accounted for as a pooling-of-interests and, accordingly, the
consolidated statements for all periods presented have been restated to includ
e the financial condition and results of operations of Villa Rica.
On October 30, 1992, the Company completed its acquisition of First
Citizens Bancorp of Cherokee County, Inc., ("FCBCC") the parent company of
the $73.1 million asset Citizens Bank, Ball Ground, Georgia. The Company
issued 97,525 shares of its common stock and $152,000 in cash for all the
issued and outstanding shares of FCBCC. The transaction has been accounted
for as a purchase. The purchase price was subject to adjustment based on
certain asset recoveries less the effects of certain potential contingencies
for an 18-month period after the agreement date. On December 20, 1993,
$1,024,303 was paid to the
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. (continued)
previous FCBCC shareholders under this agreement. The additional purchase
price was paid through the issuance of 63,676 shares of the Company's common
stock and $6,000 in cash. The additional purchase price resulted in a
$579,000 write-up of premises and equipment to offset previously allocated
negative goodwill associated with the original transaction. The remainder of
the additional purchase price was recorded as goodwill. The goodwill was
subsequently eliminated by the recognition of income tax benefits associated
with available federal income tax net operating loss carryforwards.
On January 30, 1992, the Company completed its acquisition of First
National Bancshares of Paulding County, Inc. ("Paulding"), the parent company
of the $165 million asset The First National Bank of Paulding County, Dallas,
Georgia. The Company issued 1,086,600 shares of its common stock in exchange
for all the issued and outstanding shares of Paulding. The transaction was
accounted for as a pooling-of-interests.
Note 3.
Restrictions on Cash and Due from Banks
The subsidiary banks are required by the Federal Reserve Act to
maintain deposit reserves. The average aggregate amount of those reserve
balances for the year ended December 31, 1994, was $4,678,000.
Note 4.
Investment Securities
Investment securities are summarized as follows:
December 31, 1994
Gross Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Investment securities
available-for-sale:
U.S. Treasury and
U.S. Government
agencies $208,581 $ 38 $ 3,241 $205,378
Mortgage-backed
securities 354,325 162 17,724 336,763
State and municipal -
taxable 994 68 - 1,062
Corporate bonds 500 11 - 511
Equity securities 5,863 - 145 5,718
Total $570,263 $ 279 $21,110 $549,432
Investment securities
held-to-maturity:
State and municipal -
tax exempt $157,567 $4,339 $5,862 $156,044
December 31, 1993
Gross Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
Investment securities
available-for-sale:
U.S. Treasury and
U.S. Government
agencies $ 44,613 $ 1,101 $ 57 $ 45,657
Mortgage-backed
securities 351,560 6,164 1,881 355,843
State and municipal -
taxable 3,140 154 148 3,146
Corporate bonds 500 63 - 563
Equity securities 5,106 - - 5,106
Total $404,919 $ 7,482 $2,086 $410,315
Investment securities
held-to-maturity:
Mortgage-backed
securities $ 449 $ 2 $ - $ 451
State and municipal -
tax exempt 138,919 12,749 79 151,589
Total $139,368 $ 12,751 $ 79 $152,040
Barrow, which was acquired in July 1994, did not adopt Statement No.
115 until January 1, 1994. At December 31, 1993, Barrow had identified as
available-for-sale, certain U.S. Treasury and U.S. Government agency
securities with gross unrealized gains of $71,000 and gross unrealized losses
of $10,000, and certain mortgage-backed securities with gross unrealized
gains of $2,000, which are reflected in the above table for the year ended
December 31, 1993. However, the net gain of $63,000 is not reflected in the
carrying value of investment securities available-for-sale on the Company's
balance sheet for the year ended December 31, 1993.
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. (continued)
The amortized cost and fair value of investment securities at
December 31, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
Investment Securities Investment Securities
Available-for Sale Held-to-Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
(in thousands)
Due in one year or less $131,626 $131,194 $ 10,332 $ 10,570
Due after one year
through five years 60,106 58,285 48,671 51,849
Due after five years
through ten years 18,343 17,472 12,488 12,887
Due after ten years 5,863 5,718 86,076 80,738
215,938 212,669 157,567 156,044
Mortgage-backed
securities 354,325 336,763 - -
Total $570,263 $549,432 $157,567 $156,044
Proceeds from sales of investment securities during 1994, 1993, and
1992 totaled $34,039,000, $46,649,000 and $104,029,000, respectively. Gross
gains of $407,000, $759,000, and $2,613,000 and gross losses of $89,000,
$6,000, and $143,000 were realized on those sales for 1994, 1993, and 1992,
respectively. The sale of investment securities held-to-maturity during 1994
resulted from the issuer's exercise of early repayment call provisions.
Investment securities with an aggregate carrying amount of
approximately $351,379,000 and $278,343,000 at December 31, 1994 and 1993,
respectively, were pledged to secure public funds on deposit, securities sold
under agreements to repurchase, and for other purposes as required by various
statutes or agreements.
Note 5.
Loans
The following is a summary of loans, by classification, at December
31, 1994 and 1993:
1994 1993
(in thousands)
Commercial, financial
and agricultural $ 483,116 $ 420,513
Installment and single
payment individual 368,113 348,246
Mortgage loans held for sale 13,519 65,361
Real estate - mortgage 425,709 393,732
Real estate - construction 142,097 95,184
Total $1,432,554 $1,323,036
In addition, the Company was servicing residential mortgage loans for
others with aggregate principal balances of approximately $1,414,559,000,
$1,039,397,000, and $999,157,000 at December 31, 1994, 1993, and 1992,
respectively.
Loans to certain companies in which non-officer directors of the
Company or its significant subsidiaries have a ten percent or more beneficial
ownership interest and loans to executive officers, directors and their other
associates totaled $11,656,000 at December 31, 1994. All of these loans were
made in the ordinary course of business on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal credit risk or present other unfavorable features. The following is a
summary of activity during 1994 with respect to such aggregate loans to these
individuals and their associates and affiliated companies (in thousands):
Balance at December 31, 1993 $ 7,094
New loans 10,035
Repayments (5,992)
Change in directors 519
Balance at December 31, 1994 $11,656
The following is a summary of transactions in the allowance for loan
losses:
1994 1993 1992
(in thousands)
Balance at beginning of year $21,539 $24,046 $20,265
Loans charged off (7,427) (7,403) (10,723)
Recoveries on loans previously
charged off 2,651 1,911 1,701
Provision for loan losses (362) 2,985 11,284
Allowance of bank subsidiary
acquired 4,040 - 1,519
Balance at end of year $20,441 $21,539 $24,046
During 1994, 1993, and 1992, $5,981,000, $8,847,000, and 10,279,000,
respectively, were transferred from loans to other real estate upon
foreclosure of the collateral properties.
At December 31, 1994, 1993, and 1992, the Company had approximately
$18,981,000, $20,873,000, and $26,077,000, respectively, of nonperforming
loans. Interest income on nonaccrual loans in 1994, 1993, and 1992, which
would have been reported on an accrual basis, amounted to approximately
$1,829,000, $2,275,000, and $2,800,000, respectively. Interest income of
approximately $21,000, $31,000, and $800,000 was recognized in 1994, 1993,
and 1992, respectively, on loans which were on a nonaccrual basis.
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6.
Premises and Equipment
Premises and equipment is presented net of accumulated depreciation
totaling $38,094,946 and $30,349,545 at December 31, 1994 and 1993,
respectively.
Note 7.
Short-Term Borrowings
Short-term borrowings at December 31, 1994 and 1993, consist of:
1994 1993
(in thousands)
Federal funds purchased $ 44,485 $ 44,235
Securities sold under agreements to repurchase 54,217 19,144
Interest-bearing demand notes issued
to the U.S. Treasury 6,427 13,807
Total $105,129 $ 77,186
In June 1992, the Company entered into a $3 million revolving line of
credit with a commercial bank which can be renewed on an annual basis. The
agreement provides for the availability to the Company, at its option, of
short-term funding on a continuing basis at a rate equal to the daily
overnight cost of funds plus 1 percent, subject to compliance with its terms.
The Company is required to have no borrowings with respect to the line for a
30-day period each year. Proceeds from the line of credit may be used for
general corporate purposes. At December 31, 1994, the Company had no balance
drawn under this agreement.
NOTE 8.
Long-Term Debt
Long-term debt at December 31, 1994 and 1993 consists of:
1994 1993
(in thousands)
Industrial development revenue bond assumed
January 31, 1990, maturing on July 1, 2008, with
principal of $100 payable annually and interest, at a
tax effected prime rate, payable monthly, secured by
certain premises. $ 3,500 $ 3,600
Promissory term note, dated October 28, 1992, payable
over 15 years but subject to repricing every three
years, with principal of $155 plus interest at 6.15%
payable quarterly, secured by shares of common stock
of certain bank subsidiaries and certain premises. 6,260 3,880
Various advances from the Federal Home Loan Bank of
Atlanta with original maturities ranging from one to
five years and interest rates ranging from 4.51%
to 5.66%. 70,000 50,000
Other long-term debt 478 478
Total long-term debt $80,238 $57,958
The combined aggregate maturities for each of the next five years are
approximately $20,734,000 in 1995, $15,736,000 in 1996, $10,736,000 in 1997,
$15,759,000 in 1998 and $10,734,000 in 1999. At December 31, 1994, the Company
has pledged certain qualifying mortgage loans with unpaid principal balances
totaling approximately $22,747,000 and investment securities with an aggregate
carrying value of $93,758,000, as collateral for the Federal Home Loan Bank
of Atlanta advances.
Note 9.
Income Taxes
As discussed in Note 1, the Company adopted Statement No. 109 as of
January 1, 1993. The cumulative effect of this change in accounting for
income taxes of $160,000 has been determined as of January 1, 1993 and
reported separately in the consolidated income statement for the year ended
December 31, 1993. Prior year financial statements have not been restated to
apply the provisions of Statement No. 109.
Total income tax expense (benefit) for the years ended December 31,
1994 and 1993 is allocated as follows:
1994 1993 1992
(in thousands)
Income from continuing operations $9,683 $9,419 $8,108
Cumulative effect of a change in method of
accounting for income taxes - (160) -
Reduction of goodwill, for initial recognition of
acquired tax benefits that previously were
included in valuation allowance - (445) -
Total $9,683 $8,814 $8,108
In addition, the Company adopted Statement No. 115 on December 31,
1993 and has reported the entire cumulative effect of the change in the
method of accounting for certain investments in debt and equity securities as
a direct component of shareholders' equity, net of income taxes of
$2,066,000. During 1994, the tax effect of the net unrealized holding losses
on investment securities available-for-sale was a $10,167,000 benefit.
Income tax expense (benefit) attributable to income from continuing
operations consists of:
1994 1993 1992
(in thousands)
Current:
Federal $9,294 $10,625 $ 9,446
State 180 1,081 854
Total current taxes 9,474 11,706 10,300
Deferred:
Federal 179 (1,869) (1,851)
State 30 (418) (341)
Total deferred taxes 209 (2,287) (2,192)
Total $9,683 $ 9,419 $ 8,108
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. (continued)
The following is a summary of the differences between the total tax
expense as shown in the consolidated financial statements and the tax expense
that would result from applying the statutory federal income tax rate of 35%
for 1994 and 1993, and 34% for 1992, to income before income taxes and
cumulative effect of accounting change:
1994 1993 1992
(in thousands)
Tax expense at statutory rate $13,236 $12,570 $10,715
Increase (reduction) in income tax
resulting from:
Tax-exempt interest (3,720) (3,375) (3,343)
Disallowed interest expense 305 250 274
State income taxes, net of federal
tax benefit 137 446 340
Change in the valuation allowance
for deferred tax assets (257) - -
Other, net (18) (472) 122
Total $ 9,683 $ 9,419 $ 8,108
Following is a summary of the sources of the timing differences for
income tax and financial reporting purposes resulting in deferred tax
benefits in 1992 (in thousands):
Cash method of accounting for tax reporting purposes $ (21)
Provision for loan losses (1,269)
Excess servicing fees from loan sales (1,076)
Other, net 174
Total $(2,192)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax liabilities
as of December 31, 1994 and 1993, are presented below:
1994 1993
(in thousands)
Deferred tax assets:
Allowance for loan losses $ 7,199 $ 7,488
Net unrealized holding losses on investment
securities available-for-sale 8,101 -
Mortgage loan servicing rights 2,260 1,358
Allowance for valuation losses on other real estate 1,574 352
Net operating losses 1,387 983
Federal tax credits 215 -
Unearned loan fees, net 357 192
Deferred compensation 409 330
Accrued postretirement benefits 324 172
Other, net 233 379
Total gross deferred tax assets 22,059 11,254
Less valuation allowance - (257)
Net deferred tax assets 22,059 10,997
Deferred tax liabilities:
Net unrealized holding gains on investment
securities available-for-sale - 2,066
Depreciation 1,002 559
Purchase accounting adjustments
on premises and equipment 1,994 1,717
Prepaid expenses 134 127
Accretion on investment securities 975 896
Total gross deferred tax liabilities 4,105 5,365
Net deferred tax assets $17,954 $5,632
The utilization of net operating loss carryforwards in a previously
acquired subsidiary bank and the likelihood of
utilization of additional carryforwards in future years resulted in a
reduction of $257,000 in the valuation allowance for deferred tax assets in
1994.
Note 10.
Employee Benefit Plans
In the past, the Company has maintained a noncontributory pension
plan which covered substantially all full-time employees of the Company. The
benefits were based on years of service and the employee's five highest years
of compensation during the last ten years of employment. The Company's
philosophy was to fund annually the maximum amount allowable as a deduction
for federal income tax purposes. This policy resulted in the plan having
assets in the plan trust with a market value in excess of the accumulated
benefit obligation. In late 1991, following a study of the overall
compensation and benefits program of the Company and a resulting
recommendation that the entire compensation and benefits program be
restructured, the Board of Directors of the Company approved the termination
of the defined benefit pension plan and the establishment of a 401(k) plan.
As stated above, the plan was over funded at the time of termination, and the
Board of Directors determined that the excess assets which were already held
in the plan trust should be distributed to active participants using an
equitable formula rather than have the excess assets revert back to the
Company. The defined benefit pension plan went through the process of
termination during 1992, and the plan assets were distributed through (a) the
purchase of annuities for, or payment of lump sums to, the retiree's and
terminated vested former employees or (b) the purchase of an annuity or a
trust-to-trust transfer for those participants who were still active
employees or who had accounts under the 401(k) plan at time of termination.
All employees active at termination chose to have their balances transferred
to the 401(k) plan. These annuity purchases, distributions, or transfers
occurred in November 1992.
On March 31, 1992, the Company decided to vest and freeze all future
benefit accruals under its noncontributory pension plan in anticipation of
its termination. As a result, the Company recognized a curtailment gain of
$725,000 on March 31, 1992. Pension costs for 1992 were $37,000.
In 1990, the Company adopted a defined benefit supplemental executive
retirement plan covering certain executive officers. Net periodic pension
cost for 1994, 1993, and 1992 was $106,000, $131,000, and $68,000,
respectively. The projected benefit obligations as of December 31, 1994 and
1993, were $550,000 and $601,000, respectively, and are unfunded. The
actuarial present value of accumulated benefit obligations as of December 31,
1994 and 1993, were $550,000 and $601,000, respectively. No further officers
will qualify to participate in this plan in the future since the base
qualified defined benefit pension plan was terminated.
As part of the revisions to the compensation and benefits program,
the Company converted its qualified noncontributory profit sharing plan into
a 401(k) plan and all participant balances in the former profit sharing plan
remain in the 401(k) plan. The Company continues to make contributions to
participants' accounts, as well as
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. (continued)
providing a full match against a portion of employee pre-tax 401(k)
contributions. All employees participate in the 401(k) plan once they have
met service and age requirements. Contributions by the Company were
$1,872,000 in 1994, $1,793,000 in 1993, and $1,445,000 in 1992.
In 1992, the Company adopted a nonqualified supplemental executive
retirement plan for certain senior officers who may be limited from fully
participating in the qualified 401(k) plan due to federal limitations. The
participants' investment into the plan plus accumulated earnings on those
funds amounted to approximately $328,000 at December 31, 1994 and $145,000 at
December 31, 1993, and these amounts are carried as an accumulated obligation
of the Company apart from the qualified plan trust.
In addition to the changes in the Company's retirement plans, a major
benefits enhancement in 1992 was the introduction of a flexible benefits plan
in which participants could choose how the Company's total contributions to
healthcare and life benefits would be spent by electing from a range of
benefit options. This cafeteria plan approach allows employees to customize
their own benefits and pay for most of the benefits through payroll
deductions on a pre-tax basis. The Company benefits through reduced payroll
taxes as well.
The Company sponsors a defined benefit healthcare plan that provides
postretirement medical benefits to full-time employees who meet minimum age
and service requirements.
The Company's policy is to fund the cost of medical benefits in
amounts determined at the discretion of management. As discussed in Note 1,
in 1993 the Company adopted Statement No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
The Company provides retirees under age 65 with medical coverage up
to $5,600 per year through a traditional indemnity plan. For retirees over
65, the Company provides medical coverage up to $3,600 per year. Once the
premium cap is met, retirees are required to contribute any excess towards
the cost of coverage.
The following table presents the plan's funded status with amounts
recognized in the Company's Consolidated Balance Sheet at December 31, 1994
and 1993:
1994 1993
(in thousands)
Accumulated postretirement benefit obligation:
Retiree's $(1,684) $(1,316)
Fully eligible active plan participants (1,296) (1,023)
Tota (2,980) (2,339)
Plan assets at fair value - -
Accumulated postretirement benefit obligation in
excess of plan assets (2,980) (2,339)
Unrecognized net loss (gain) 342 (100)
Unrecognized transition obligation 2,128 2,247
Accrued postretirement benefit cost included
in other liabilities $ (510) $ (192)
Net periodic postretirement benefit cost for 1994 and 1993 includes
the following components.
1994 1993
(in thousands)
Service cost $157 $113
Interest cost 234 183
Net amortization and deferral 122 118
Net periodic postretirement benefit cost $513 $414
For measurement purposes, a 14.40% annual rate of increase in the per
capita cost of covered benefits is assumed for 1995 and 15.10% was assumed
for 1994, for those covered individuals under the age of 65. For those
covered individuals over 65, 10.60% is assumed in 1995 and 10.90% was assumed
for 1994. The rate was assumed to decrease gradually through 1998 (when the
premium caps are expected to be reached) after such time no increases are
assumed. The health care cost trend rate assumption has a significant effect
on the amounts reported, due to the premium caps. The weighted-average
discount rate used in determining the accumulated post-retirement benefit
obligation was 7.5% at December 31, 1994 and December 31, 1993.
The Company has a stock purchase plan for directors and employees
whereby it makes contributions equal to one-half of employee and director
voluntary contributions not to exceed the lesser of $2,000 or 10% of a
participant employee's annual salary, or $2,000 for a director. The funds are
used to purchase presently issued and outstanding shares of the Company's
common stock. The Company contributed $417,000, $348,000, and $287,000, to
this plan in 1994, 1993, and 1992, respectively.
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11.
Stock Option Plans
The Company has incentive stock option plans for certain senior
officers of the Company. The Company reserved 600,000 shares of previously
unissued common stock for issuance in connection with the plans. Shares can
be purchased at the current market price prevailing at the time the option is
granted. Options that do not exceed a $100,000 market value are exercisable
at any time up to five years from the date of grant. The options that exceed
the limit are not exercisable until future years.
A summary of stock option transactions under this plan is shown
below:
Option Price
Shares per Share Total
(dollars in thousands, except per share data)
Options outstanding at
December 31, 1991 383,712 $ 5,377
Granted 136,500 $15.917 2,173
Granted by pooled subsidiary
prior to acquisition 23,525 13.562 - 13.913 321
Exercised (86,850) 11.167 - 15.833 (1,264)
Expired (8,408) 15.167 - 15.833 (132)
Options outstanding at
December 31, 1992 448,479 6,475
Granted 130,250 18.75 2,442
Exercised (129,333) 11.167 - 15.917 (1,942)
Expired (3,500) 18.75 (66)
Options outstanding at
December 31, 1993 445,896 6,909
Granted 126,050 21.00 2,647
Exercised (126,496) 11.167 - 15.917 (1,847)
Expired (13,129) 15.917 - 21.00 (260)
Options outstanding at
December 31, 1994 432,321 $7,449
In January 1995, the Board of Directors approved the granting of
additional options under the grant date of January 20, 1995, for 158,600
shares of common stock at an option price of $18.50 per share. At December
31, 1994, options for 314,171 shares were exercisable.
In April 1994, the shareholders approved a Performance-Based
Restricted Stock Plan ("Plan") for certain executive officers
("Participants") of the Company. Under the terms of the Plan, there are
90,000 shares of common stock reserved for issuance as awards. Awards
of shares of Company stock will be made to Participants, without
payment by the Participants, if and when the Company's stock reaches
specified target values from $29.00 per share to $37.00 per share. Target
values must be met no later than December 31, 1999 for awards to be made
under the Plan. No awards were issued under this Plan during 1994.
Note 12.
Contingent Liabilities
In the normal course of business, the Company is party (both as
plaintiff and defendant) to a limited number of lawsuits primarily arising
from loan collections. In the opinion of management and counsel, none of
these cases, individually or in the aggregate, should have a material adverse
effect on the Company's consolidated financial position.
Note 13.
Financial Instruments with Off-Balance-Sheet Risk
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend
credit, standby and commercial letters of credit, loans sold with recourse,
forward sales contracts, put and call options purchased, and securities in
the process of settlement. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized
in the consolidated financial statements. The contract or notional amounts of
those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss, in the event of nonperformance
by the customer for commitments to extend credit and standby letters of
credit, is represented by the contractual or notional amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for recorded loans. For forward sales
contracts and options, the contract or notional amounts do not represent
exposure to credit loss; however, these financial instruments do expose the
Company to interest rate risk. The Company controls the interest rate risk of
its call and put options purchased and forward sales contracts through
management approvals, dollar limits, and monitoring procedures.
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. (continued)
A summary of the notional amounts of the Company's financial
instruments with off-balance-sheet risk at December 31, 1994, is as follows
(in thousands):
Financial instruments whose contract amounts represent credit risk:
Loan commitments:
Credit card lines $ 65,942
Home equity lines 30,259
Commercial real estate, construction and land development 120,654
Mortgage loans 30,249
Other 53,532
Total loan commitments 300,636
Other commitments:
Financial standby letters of credit 19,830
Performance standby and commercial letters of credit 2,656
Loans sold with recourse 2,536
Total other commitments 25,022
Total loan and other commitments $325,658
Financial instruments whose notional or contract amounts exceed the
amount of credit and/or market risk:
Forward sales contracts $ 22,400
Call options purchased 500
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the borrower.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, residential properties, and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. A
commercial letter of credit is a conditional commitment issued in connection
with trade transactions that secures the performance of a customer to a third
party. This instrument ensures prompt payment to the seller in accordance
with its terms. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Company holds collateral supporting those commitments as
deemed necessary.
Forward sales contracts are contracts for delayed delivery of
mortgage loans in which the Company agrees to make delivery, at a specified
future date, of mortgage loans, at a specified price. Risks arise from the
inability of counterparties to meet the terms of their contracts and from
movements in interest rates.
The Company enters into interest rate call options and put options in
managing its interest rate exposure associated with its portfolio of mortgage
loans held-for-sale and commitments to originate mortgage loans. The Company
receives premiums for options written and pays a premium for options
purchased. Call options allow the holder to purchase a financial instrument
at a specified price and within a specified period of time. Put options are
purchased by the Company to provide it with a means of selling a financial
instrument at a specified price within a specified period of time. Securities
in the process of settlement are commitments by the Company to purchase or
sell investment securities, but the security has not yet been delivered.
Note 14.
Parent Company Financial Information
The following represents parent company only ("Parent") condensed
financial information of the Company:
CONDENSED BALANCE SHEETS
(dollars in thousands, except per share data)
December 31
1994 1993
Assets
Cash $ 5,715 $ 6,639
Interest-bearing deposits with subsidiary bank 2,526 727
Cash and cash equivalents 8,241 7,366
Investment in bank subsidiaries, at equity 220,120 205,401
Premises and equipment, net 11,249 11,414
Goodwill 5,962 6,583
Other assets 3,810 5,100
Total assets $249,382 $235,864
Liabilities
Long-term debt $ 9,762 $ 7,673
Other liabilities 12,663 10,132
Total liabilities 22,425 17,805
Shareholders' Equity
Common stock, par value $1, authorized
30,000,000 shares, issued and outstanding
16,540,495 and 16,034,183 shares for 1994
and 1993, respectively 16,540 16,034
Additional paid-in capital 67,606 58,762
Retained earnings 155,541 139,996
Net unrealized holding (losses) gains on
investment securities available-for-sale (12,730) 3,267
Total shareholders' equity $226,957 $218,059
Total liabilities and shareholders' equity $249,382 $235,864
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. (continued)
CONDENSED STATEMENTS OF INCOME
(in thousands)
Years ended December 31
1994 1993 1992
Income
Interest and dividends $ 14 $ 54 $ 21
Dividends from subsidiaries 11,588 10,714 13,448
Other income 2,292 1,840 1,026
Total income 13,894 12,608 14,495
Expense
Interest 500 489 286
General and administrative 6,500 5,597 4,086
Total expense 7,000 6,086 4,372
Income before federal income tax
benefit and equity in undistributed
income of subsidiaries 6,894 6,522 10,123
Income tax benefit 1,706 1,702 977
Income before equity in undistributed
income of subsidiaries 8,600 8,224 11,100
Equity in undistributed income
of subsidiaries 19,534 18,430 12,307
Net Income $28,134 $26,654 $23,407
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31
1994 1993 1992
Cash flows from operating activities:
Net Income $28,134 $ 26,654 $ 23,407
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Equity in undistributed income
of subsidiaries (19,534) (18,430) (12,307)
Depreciation and amortization 1,176 1,198 1,054
Changes in other assets and
liabilities:
Decrease (increase) in other assets 1,067 (993) 679
Increase (decrease) increase in
other liabilities 1,791 (501) 734
Net cash provided by operating
activities 12,634 7,928 13,567
Cash flows from investing activities:
Purchase of bank subsidiaries
net of cash acquired 5 - (152)
Capital contribution to acquired
bank subsidiaries (5,288) - (3,405)
Purchases of premise and
equipment, net (436) (517) (324)
Net cash used in investing activities (5,719) (517) (3,881)
Cash flows from financing activities:
Net (decrease) increase in
short-term borrowings - (2,250) 2,250
Proceeds from the issuance of
long-term debt 3,000 - 4,950
Payments on long-term debt (911) (1,555) (2,299)
Proceeds from issuance of common
stock for stock options exercised 2,066 2,181 1,285
Payments of fractional shares in
stock split - - (14)
Cash dividends paid on common stock (10,195) (8,910) (8,876)
Net cash used in financing activities (6,040) (10,534) (2,704)
Net increase (decrease) in cash and
cash equivalents 875 (3,123) 6,982
Cash and cash equivalents at beginning
of year 7,366 10,489 3,507
Cash and cash equivalents at end of
year $ 8,241 $ 7,366 $ 10,489
Supplemental disclosure of cash
flow information:
Interest paid $ 519 $ 489 $ 269
Income taxes paid $11,735 $ 10,334 $ 9,881
The primary source of funds available to the Parent to pay
shareholder dividends and other expenses is from its subsidiary banks. Bank
regulatory authorities impose restrictions on the amount of dividends that
may be declared by the subsidiary banks. Further restrictions could result
from a review by regulatory authorities of each bank's capital adequacy,
which is the relationship between a bank's capital and its assets and
deposits and other such ratios. The amount of cash dividends available from
the subsidiary banks for payment in 1995 without such prior approval, is
approximately $31,870,000, plus 1995 net earnings of the six subsidiary
national banks. At December 31, 1994, approximately $188,250,000 of the
Parent's investment in bank subsidiaries was restricted as to dividend
payments from the banks to the Parent under the foregoing regulatory
limitations.
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15.
Regulatory Matters
The Department of Banking and Finance of the State of Georgia
requires that state chartered banks maintain a minimum ratio of capital, as
defined, to assets of 6%.
Under the provisions of the Financial Institutions Reform, Recovery,
and Enforcement Act ("FIRREA") of 1989, the Company's subsidiary banks are
required to meet certain core, tangible, and risk-based capital ratios.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
was signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992.
In addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for
certain kinds of deposits, increased supervision by the federal regulatory
agencies, increased reporting requirements for insured institutions, and new
regulations concerning internal controls, accounting, and operations.
The prompt corrective actions regulations define specific capital
categories based on an institution's capital ratios. The capital categories,
in declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse
are subject to certain restrictions, including the requirement to file a
capital plan with their primary federal regulator, prohibitions on the payment
of dividends and management fees, restrictions on executive compensation,
and increased supervisory monitoring, among other things. Other restrictions
may be imposed on the institution either by its primary federal regulator or
by the Federal Deposit Insurance Corporation, including requirements to raise
additional capital, sell assets, or sell the entire institution. Once an
institution becomes "critically undercapitalized," it must generally be
placed in receivership or conservatorship within 90 days.
To be considered "well capitalized," an institution must generally
have a leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at
least 6%, and a total risk-based capital ratio of at least 10%. An
institution is deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less.
At December 31, 1994, all of the subsidiary banks of the Company were
categorized as "well capitalized" under the FDICIA requirements.
Note 16.
Fair Values of Financial Instruments
Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future
cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions would significantly affect the estimates. Statement No. 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements.
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments and other recorded assets and liabilities without
attempting to estimate the value of anticipated future business. The value of
significant portions of the bank subsidiaries that generate substantial
income annually, such as trust and mortgage banking operations, have not been
estimated. In addition, tax ramifications related to the realization of
unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in any of the estimates. Accordingly,
the aggregate fair value amounts presented do not represent the underlying
value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments and certain
other assets and liabilities:
Cash and cash equivalents: The carrying amounts of cash and cash
equivalents approximate those assets' fair values.
Interest-bearing deposits in other financial institutions: The
carrying amounts of interest-bearing deposits in other financial institutions
approximate their fair value.
Investment securities (including mortgage-backed securities): Fair
values for securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16. (continued)
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for all other loans are estimated using discounted cash flow
analysis, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Off-balance-sheet instruments: Fair values for the Company's
off-balance-sheet instruments are based on a comparison with terms, including
interest rate and commitment period currently prevailing to enter into
similar agreements, taking into account credit standings. The carrying and
fair values of off-balance-sheet instruments at December 31, 1994 and 1993,
were not material.
Purchased mortgage loan servicing rights and excess servicing fee
receivables: Fair value of purchased mortgage loan servicing rights and
excess servicing fees receivables are determined by estimating the present
value of the future net servicing income, on a disaggregated basis, using
anticipated prepayment assumptions.
Deposits: Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates of similar terms of maturity.
The carrying amounts of all other deposits, due to their nature, approximate
their fair values.
Short-term borrowings: The carrying amounts of federal funds
purchased, securities sold under agreement to repurchase, and other
short-term borrowings approximate their fair values.
Long-term debt: The fair values of the Company's long-term debt are
estimated using discounted cash flow analysis, based on the Company's current
borrowing rates for similar types of borrowing arrangements.
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands)
<S> <C> <C> <C> <C>
Assets
Cash and due from banks $ 84,260 $ 84,260 $ 86,599 $ 86,599
Federal funds sold and securities purchased
under agreements to resell 28,908 28,908 36,371 36,371
Interest-bearing deposits in other
financial institutions 16,259 16,259 68,157 68,157
Investment securities 706,999 705,476 549,620 562,292
Loans, net 1,403,805 1,373,717 1,285,025 1,289,094
Purchased mortgage loan servicing rights 16,775 20,678 9,829 9,829
Excess servicing fee receivables 2,090 2,334 4,825 4,825
Liabilities
Deposits:
Noninterest-bearing 331,521 331,521 285,510 285,510
Interest-bearing transaction and savings 630,651 630,651 561,892 561,892
Certificates of deposit 981,092 972,694 917,239 922,088
Federal funds purchased and securities
sold under agreements to repurchase 98,702 98,702 63,379 63,379
Other short-term borrowings 6,427 6,427 13,807 13,807
Long-term debt 80,238 76,131 57,958 58,315
</TABLE>
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17.
Supplemental Financial Data
Components of other noninterest income and expense in excess of 1% of
income for the respective periods are as follows.
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
Income:
Mortgage loan servicing fees, net $3,876 $ 3,069 $ 3,251
Gains on sales of mortgage loan servicing rights 2,213 10,811 10,721
Losses on sales of mortgage loans (529) (5,083) (8,771)
Net gains on sales of mortgage loans and
servicing rights 1,684 5,728 1,950
Expenses:
Postage, telephone, and stationary 5,052 4,700 4,382
FDIC insurance premiums 4,124 3,923 3,692
Amortization and write-off of mortgage
loan servicing rights 2,762 3,394 4,945
Data processing 2,659 2,516 1,312
Promotional 2,277 1,640 1,435
</TABLE>
Note 18.
Consolidated Quarterly Financial Information - Unaudited
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1994 and December 31,
1993.
<TABLE>
<CAPTION>
Total 1994 Quarter Ended
Year Dec. 31 Sept. 30 June 30 March 31
<S> <C> <C> <C> <C> <C>
Interest income $163,145 $43,569 $41,847 $40,276 $37,453
Interest expense 66,132 18,277 16,640 15,983 15,232
Net interest income 97,013 25,292 25,207 24,293 22,221
Provision for loan losses (362) (226) (159) (343) 366
Net gains on sales of investment securities 318 152 (21) 24 163
Noninterest income 26,763 5,720 6,621 7,689 6,733
Noninterest expense 86,639 22,198 21,777 22,293 20,371
Income before income taxes 37,817 9,192 10,189 10,056 8,380
Income taxes 9,683 2,038 2,952 2,767 1,926
Net income $ 28,134 $ 7,154 $ 7,237 $7,289 $ 6,454
Net income per share $ 1.72 $ .43 $ .44 $ .44 $ .40
Due to rounding, per share amounts may not total year-to-date amounts
reported on the Consolidated Statements of Income.
Total 1993 Quarter Ended
Year Dec. 31 Sept. 30 June 30 March 31
Interest income $151,131 $37,711 $37,963 $38,291 $ 37,166
Interest expense 62,930 15,334 15,659 15,920 16,017
Net interest income 88,201 22,377 22,304 22,371 21,149
Provision for loan losses 2,985 324 509 1,037 1,115
Net gains on sales of investment securities 753 9 64 314 366
Noninterest income 31,088 9,654 7,948 6,560 6,926
Noninterest expense 81,144 21,532 20,119 20,519 18,974
Income before income taxes and cumulative
effect of accounting change 35,913 10,184 9,688 7,689 8,352
Income taxes 9,419 2,255 2,870 1,933 2,361
Cumulative effect of accounting change 160 - - - 160
Net income $ 26,654 $ 7,929 $ 6,818 $ 5,756 $ 6,151
Per share:
Income before cumulative effect of accounting change $ 1.67 $ .50 $ .43 $ .36 $ .38
Cumulative effect of accounting change .01 - - - .01
Net income $ 1.68 $ .50 $ .43 $ .36 $ .39
</TABLE>
<PAGE> 56
1994 REGIONAL REPORT
FIRST NATIONAL BANCORP AFFILIATES
Entering The Era Of Excellence.
[GRAPHIC -- GHOSTED PHOTO OF A GROUP OF PEOPLE W/ WORDING IN FORGROUND]
<PAGE> 57
THE BANCORP AFFILIATE MARKET OVERVIEW
First National Bancorp's 17 affiliates are currently divided into three
economic regions: the metro-fringe region, the manufacturing/industrial
region, and the second-home/retirement/tourism region. Each region represents
significant, unique opportunities for the company's growth and profitability
and provides diversification to the company's revenue stream.
In the spring of 1995, the anticipated completed merger with FF
Bancorp of New Smyrna Beach, Florida, will add yet another distinct region to
the company. This $600 million holding company consists of one commercial
bank and two healthy and very profitable thrifts in three separate areas of
the state. These financial institutions offer First National Bancorp a
reasonably priced and stable source of core deposits as well as significant
opportunities to expand the company's mortgage lending, trust, bank card and
correspondent services business.
[GRAPHIC -- MAP -- METRO FRINGE REGION -- CAPTION: THE METRO-FRINGE REGION
CONSISTS OF HALL, FORSYTH, PAULDING, CHEROKEE, CARROLL AND DOUGLAS COUNTIES,
AND IS HOME TO SEVEN OF THE COMPANY'S 17 BANKS. THESE ARE AFFLUENT MARKETS
(MEDIAN HOUSEHOLD INCOME IS AROUND $40,000 IN EACH COUNTY) WITHIN COMMUTING
DISTANCE TO METRO ATLANTA AND ARE AMONG THE NATION'S FASTEST-GROWING
COUNTIES. THE RAPID GROWTH IN THESE COUNTIES IS BEGINNING TO PROVIDE A
RESIDENTIAL BOOM, RESULTING IN TREMENDOUS OPPORTUNITY FOR THE MORTGAGE
SOURCE.]
The First National Bank Of Gainesville
Richard A. McNeece, Chairman
Richard L. Shockley, Vice Chairman
Richard D. White, President & CBO
Mrs. Jane Wood Banks
John A. Ferguson, Jr.
Alvin Gibson
Ray C. Jones
Arthur J. Kunzer, Jr.
Thomas C. Mundy
Harold L. Smith
W. Woodrow Stewart
James A. Walters
Joe Wood, Jr.
[PHOTO -- FNB GAINESVILLE -- CAPTION: AT RIGHT, THE BOARD OF THE FIRST
NATIONAL BANK OF GAINESVILLE IN THE CASK ROOM
OF CHATEAU ELAN WINERY. A FIRST NATIONAL CUSTOMER FROM THE VERY BEGINNING,
CHATEAU ELAN ALSO FEATURES AN EXQUISITE RESORT ON ITS GROUNDS.]
<PAGE> 58
The Peoples Bank Of Forsyth County
Bobby M. Thomas, Chairman
Rocklyn E. Hunt, President & CEO
Louis J. Douglass, III, Executive Vice President
Jimmy S. Fagan
Jim Grogan
Robert L. McGuinn
Howard R. Noles
Lamar V. Sexton
Richard L. Shockley
Charles R. Smith
Kenneth J. Vanderhoff, Jr.
[PHOTO -- PEOPLES BANK -- CAPTION: AT LEFT, THE BOARD OF THE PEOPLES BANK OF
FORSYTH COUNTY AT THE DRAG RACING SHOP
OF CUSTOMER BOB VANDERGRIFF WHOSE SON, BOBBY, IS THE DRIVER OF THE TOP FUEL
DRAGSTER.]
Citizens Bank, Cherokee County
A. Roy Roberts, Jr., Chairman
Richard M. Zorn, President & CEO
A. R. (Rick) Roberts, III, Executive Vice President
Bryan F. Bell
Dr. D. T. Darnell
H. Lamar Harris
T. A. Roach
McDonald Willis
[PHOTO -- CITIZENS BANK, CHEROKEE -- CAPTION: AT RIGHT, THE BOARD OF THE
CITIZENS BANK, CHEROKEE COUNTY AT THE NELSON BALL GROUND TELEPHONE COMPANY.
THIS INDEPENDENT PHONE COMPANY PROVIDES PHONE SERVICE,
INCLUDING CELLULAR, TO CHEROKEE, PICKENS AND DAWSON COUNTIES.]
The First National Bank Of Paulding County
J. Michael Womble, Chairman
C. B. Fair, III, President & CEO
Becky S. Echols, Executive Vice President
David M. Cooper
Charles L. Hardy
Dean P. Hardy
John H. Henderson
Peter D. Miller
Dewey P. Pendley, Sr.
Kenneth G. Vinson
G. Hudson Warren
J. Franklin Welch
Donald W. York
[PHOTO -- FNB PAUDLING -- CAPTION: AT LEFT, THE BOARD OF THE FIRST NATIONAL
BANK OF PAULDING COUNTY AT THE BUILDING SITE OF CADILLAC PRODUCTS, A
MULTI-FACETED COMPANY WHICH WILL PRODUCE PLASTIC PACKAGING.]
<PAGE> 59
The Commercial Bank, Douglasville
Robert R. Pope, Chairman
John T. Stafford, President & CEO
Johnny L. Blankenship
Solon H. Boggus
A. B. Craven
C. B. Fair, III
H. E. (Bill) Gray
Walter A. Hudson
Jerre A. O'Neal
A. Clark Robinson
[PHOTO -- COMMERCIAL BANK -- CAPTION: AT LEFT, THE BOARD OF THE COMMERCIAL
BANK OF DOUGLASVILLE AT AUSTRAL INSULATED PRODUCTS, A LARGE MANUFACTURER OF
COPPER WIRE.]
The Community Bank Of Carrollton
J. Wayne Garner, Chairman
Timothy I. Warren, President & CEO
F. Elton Brooks, Executive Vice President
John B. Bohannon
Ann C. Carter
Donald C. Costley
Dr. Alvin Crews, Jr.
C. B. Fair, III
Lester H. Harmon
William P. Johnson
Phillip Kauffman
Charles J. Puckett
William C. Seaton
M. S. "Buck" Swindle
[PHOTO -- COMMUNITY BANK OF CARROLLTON -- CAPTION: AT RIGHT, THE BOARD OF THE
COMMUNITY BANK OF CARROLLTON AT SUPERIOR SAMPLES,
A NATIONAL MAKER FOR WALLPAPER SAMPLE BOOKS.]
Bank Of Villa Rica
J. Richard Smith, Chairman
William C. Candler, Director Emeritus
Fred L. O'Neal, President & CEO
J. Larry Boss
W. J. Candler
C. B. Fair, III
S. Doug Hembree
Lamar Moody
L. Burnell Redding
[PHOTO -- BANK OF VILLA RICA -- CAPTION:AT LEFT, THE BOARD OF THE BANK OF
VILLA RICA AT VINCE HOSIERY, WHICH MANUFACTURES
NAME BRAND SOCKS FOR NATIONALLY KNOWN CORPORATIONS.]
<PAGE> 60
[GRAPHIC MANUFACTURING/INDUSTRIAL REGION MAP -- CAPTION: THE
MANUFACTURING/INDUSTRIAL REGION IS REPRESENTED BY STEPHENS, ELBERT, JACKSON,
BARROW AND BANKS COUNTIES. THESE COUNTIES REPRESENT A GOOD CORE OF RETAIL
BUSINESS -- BANKS IS MOVING QUICKLY TO BECOME THE OUTLET CAPITAL OF THE STATE
- -- AND A WEALTH OF SMALL BUSINESS OPPORTUNITY. JACKSON COUNTY, BECAUSE OF ITS
PROXIMITY TO I-85, HAS BEGUN TO SEE A TREMENDOUS BOOM OF MANUFACTURERS
LOCATING THERE. THE ADDITION OF BARROW BANK & TRUST COMPANY TO THE ORGANIZATION
IN 1994 HAS PROVIDED A VERY IMPORTANT LINK IN THE
GAINESVILLE/ATHENS/ATLANTA CORRIDOR.]
The Citizens Bank, Toccoa
James H. Harris, Jr., Chairman
Robert A. Parker, President & CEO
J. B. Hudgins, Jr.
David C. King
Charles G. Maypole
Allan R. Ramsay
Richard L. Shockley
Harold L. Watson
Jerry E. Wright
[PHOTO -- CITIZENS BANK-TOCCOA -- CAPTION: AT RIGHT, THE BOARD OF THE
CITIZENS BANK, TOCCOA, AT HABERSHAM PLANTATION, A LOCALLY-OWNED MANUFACTURER
OF FINE FURNITURE WHICH HAS ACHIEVED INTERNATIONAL FAME.]
Granite City Bank
William L. Lester, Chairman
Edward B. Hall, President & CEO
F. Davis Arnette, Jr., Executive Vice President
Walter E. Eaves
Joe Fernandez
E. Freeman Leverett
George T. Oglesby, Jr.
W. Harold Prather
Edward H. Phillips
Richard L. Shockley
L. Lamar Walker, Jr.
[PHOTO -- GRANITE BANK -- CAPTION: AT LEFT, THE BOARD OF GRANITE CITY BANK AT
TORRINGTON, A COMPANY WHICH MAKES
STEERING COLUMNS FOR FORD MOTOR COMPANY.]
<PAGE> 61
The First National Bank Of Jackson County
Henry D. Robinson, Chairman
Kelly G. Hillis, President & CEO
Henry L. Asbury
James V. Joiner
Jon M. Milford
William F. Mitchell
D. Dwight Porter, Sr.
Randall Pugh
Richard L. Shockley
Donald S. Shubert
[PHOTO -- THR FIRST NATIONAL BANK OF JACKSON COUNTY -- CAPTION: AT LEFT, THE
BOARD OF FIRST NATIONAL BANK OF JACKSON COUNTY AT SOLARTECH, A
CABINET-MAKING COMPANY WHICH EMPLOYS THE DEVELOPMENTALLY DISABLED.]
Bank Of Banks County
Thomas S. Cheek, Chairman
George W. Evans, President & CEO
Steven R. Maney, Executive Vice President
Milton L. Dalton
Richard L. Shockley
James Short
Eugene Sims
[PHOTO -- BARROW BANK & TRUST COMPANY -- CAPTION: AT RIGHT, THE BOARD OF BANK
OF BANKS COUNTY AT COMMERCE PLASTICS, A RECENTLY
RELOCATED COMPANY WHICH MAKES TELEVISION BACKS FOR MITSUBISHI.]
<PAGE> 62
[GRAPHIC -- MAP SECOND HOME/RETIREMENT REGION -- CAPTION: The second
home/retirement/tourism region is composed of Rabun, White, Gilmer, Pickens
and Habersham counties. Tourists, retirees and second-home owners are lured
into these beautiful counties for lakeside living and other recreational
activities. The retirees
represent a source of stable core deposit growth and a need for
the company's upscale Century Service product and personal trust services,
while second-home owners offer mortgage opportunities
to the company. Rabun and White counties have shown particularly stong net
migration over the past few years indicating significant growth in those
areas.]
Bank Of Clayton
A. W. Adams, Chairman
William F. DeVane, President & CEO
B. Allen Lancaster, Executive Vice President
Dr. Lawrence Gillespie
Gene Head
Elliott Keller
Paul D. Lutz
Edwin C. Poss
Lewis F. Reeves, Jr.
Richard L. Shockley
Edwin L. West
[PHOTO -- BANK OF CLAYTON -- CAPTION: AT RIGHT, THE BOARD OF THE BANK OF
CLAYTON IN THE TEXTILE MILL OF FRUIT OF THE LOOM,
THE COMPANY'S LARGEST MANUFACTURING PLANT IN THE UNITED STATES.]
First National Bank Of White County
J. Kenneth Nix, Chairman
Sidney J. Wooten, III, President & CEO
Coleman Allen, Executive Vice President
Roy Ash, Jr.
Charles D. Black, Sr.
E. Ray Black
Richard L. Shockley
Harold Turner
Jere Westmoreland
[PHOTO -- FIRST NATIONAL BANK OF WHITE COUNTY -- CAPTION: AT LEFT, THE BOARD
OF FIRST NATIONAL BANK OF WHITE COUNTY AT MT. YONAH LUMBER COMPANY. LUMBER
IS A HEALTHY PART OF THIS COUNTY'S ECONOMY.]
<PAGE> 63
First National Bank Of Gilmer County
Mack G. West, Chairman
Billy R. Loudermilk, President & CEO
George N. Bunch, III
James P. Garrett
David J. Pierce
Richard L. Shockley
David W. Stover
John W. Thomas, Jr.
[PHOTO -- FIRST NATIONAL BANK OF GILMER COUNTY -- CAPTION: AT LEFT, THE BOARD
OF THE FIRST NATIONAL BANK OF GILMER COUNTY AT BLUE RIDGE CARPET MILLS,
MAKERS OF COMMERCIAL CARPET.]
Pickens County Bank
Loy D. Mullinax, Chairman
Dennis W. Burnette, President & CEO
Marc J. Greene, Executive Vice President
James D. Boggus
E. Calvin Dubose, Sr.
G. William Glazebrook, M.D.
James R. Jones
Howard H. Ray
Richard L. Shockley
[PHOTO -- PICKENS COUNTY BANK -- CAPTION: AT RIGHT, THE BOARD OF PICKENS
COUNTY BANK AT THE WOODBRIDGE INN,
A QUAINT INN AND RESTAURANT WHICH CATERS TO LOCAL RESIDENTS AND TOURISTS.]
First National Bank Of Habersham
Paul J. Reeves, Chairman
Glenn C. Bell, President & CEO
Eugene B. White, Executive Vice President
J. Philip Ballard, Jr.
Nathan Burgen
John C. Foster
Fred K. Hamby
Richard L. Shockley
William J. Shortt
H. Milton Stewart, Jr.
E. Hal Woods, Jr.
[PHOTO -- FIRST NATIONAL BANK OF HABERSHAM -- CAPTION: AT LEFT, THE BOARD OF
THE FIRST NATIONAL BANK OF HABERSHAM AT CHATTAHOOCHEE LOCOMOTIVE COMPANY,
WHICH SPECIALIZES IN THE DESIGN AND REMANUFACTURING OF LOCOMOTIVES.]
<PAGE> 64
SHAREHOLDERS INFORMATION
Annual Meeting
The Annual Meeting of the Shareholders
of First National Bancorp will be held at
4:00 p.m. on Wednesday, April 19, 1995,
in the theatre of the Georgia Mountains
Center, 301 Main Street, S.W., Gainesville,
Georgia. There will be a reception in
Rooms B and C of the Georgia Mountains
Center beginning at 3:30 p.m. All Shareholders are invited to attend.
Corporate Reports
The Annual Report, quarterly interim
reports, and copies of First National
Bancorp's Annual Report to the Securities
and Exchange Commission, Form 10-K,
are available upon written request
without charge.
For copies, please write:
C. Talmadge Garrison
First National Bancorp
P.O. Drawer 937
Gainesville, GA 30503
Transfer Agent
Mellon Securities Transfer Services
85 Challenger Road
Ridgefield Park, New Jersey 07660
Independent Auditors
KPMG Peat Marwick LLP
Atlanta, Georgia
Counsel
Stewart, Melvin & Frost
Gainesville, Georgia
Media Contact
Ronda Rich
Director of Corporate Communications
(404) 503-2306
Market Makers
Robinson Humphrey Co., Inc.
A. G. Edwards & Sons, Inc.
Interstate/Johnson Lane Co.
Sterne, Agee & Leach
Herzog, Heine, Geduld, Inc.
John G. Kinnard & Co., Inc.
Morgan, Keegan & Co.
Mayer & Schweitzer, Inc.
J. C. Bradford & Co.
Robert W. Baird & Co., Inc.
Stock Information
First National Bancorp common stock is
traded on the over-the-counter market and quoted through The Nasdaq Stock
Market under the trading symbol "FBAC." Shareholders wishing recent price
information may obtain
it from their registered broker.
first national
bancorp officers
Richard A. McNeece
Chairman and
Chief Executive Officer
Peter D. Miller
President, Chief Administrative
and Financial Officer
C. Talmadge Garrison
Senior Vice President
and Secretary
Bryan F. Bell
Senior Vice President
Stephen M. Rownd
Senior Vice President
J. Reid Moore
Group Vice President
and Controller
Mary E. Hengeveld
Group Vice President
Charles A. Robinson
General Auditor
Sandra L. Berg
First Vice President
Arlene M. Lucas
First Vice President
Ray McRae
Chairman Emeritus
Richard L. Shockley
Vice Chairman
<PAGE> IBC
First National Bancorp
P.O. Drawer 937
Gainesville, Georgia 30503
<PAGE> BC
