<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1993
FIRST ALABAMA BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-6159 63-0589368
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
417 North 20th Street, Birmingham, Alabama 35203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (205) 832-8450
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On December 31, 1993 (the "Effective Date"), First Alabama Bancshares, Inc.
("First Alabama") completed the acquisition of Secor Bank, Federal Savings Bank
("Secor"). The acquisition was accomplished by means of the merger ("the
Merger") with and into Secor of Secor Interim Federal Savings Bank ("Secor
Interim"), a newly-formed second tier subsidiary of First Alabama, pursuant to
the Amended and Restated Agreement and Plan of Reorganization between First
Alabama and Secor dated as of May 26, 1993 as amended and restated as of August
15, 1993 (the "Agreement"), and the related Agreement of Merger and Combination
between Secor and Secor Interim dated as of August 15, 1993. As a result of
the Merger, Secor became a wholly-owned second tier subsidiary of First Alabama.
In conjunction with and as a part of the Merger, each of the 4,707,840 shares
of Secor common stock was converted into 0.684 of a share of First Alabama
common stock. Immediately prior to the Effective Date, First Alabama had
37,829,163 shares of common stock issued and outstanding; 3,220,162 shares of
First Alabama common stock resulted from the conversion of Secor common stock;
and 41,049,325 shares of First Alabama common stock were issued and outstanding
immediately following the Merger.
On December 30, 1993, Secor paid to the Federal Deposit Insurance
Corporation, as manager of the FSLIC Resolution Fund, $30.8 million in cash for
warrants to acquire a 25% equity interest in Secor (the "Warrants"). The funds
used to purchase the Warrants came from Secor's general working capital funds.
The consideration given by First Alabama to Secor stockholders in the
Merger was determined in arms-length negotiations between First Alabama and
Secor. There were no material relationships between First Alabama and Secor,
or between the affiliates, directors and officers of First Alabama and their
associates, on the one side, and the affiliates, directors and officers of
Secor and their associates, on the other side. First Alabama attempted to
agree upon an exchange ratio that would be sufficiently attractive to Secor to
induce Secor's agreement, and not result in significant dilution to First
Alabama's earnings or shareholders' equity. First Alabama also took into
account the trading price of its common stock at the time it entered into the
agreement, and agreed that the exchange ratio would be adjusted, as provided
for in the Agreement, based on changes in the market price of First Alabama's
common stock between the time the Agreement was negotiated and the valuation
period specified in the Agreement. When the agreement was negotiated in May
1993, the market price of First Alabama's common stock approximated $33.00 per
share. The valuation period occurred in November, 1993, resulting in a exchange
ratio of 0.684 of a share of First Alabama for each one share of Secor common
stock. If the valuation had been based on $33.00 per share of First Alabama
common stock, the exchange ratio would have been 0.667. The cash consideration
paid by Secor to the FDIC for the Warrants was based on the same market
valuation used to determine the exchange ratio.
Secor is a Birmingham-based thrift institution with assets of
approximately $1.9 billion as of September 30, 1993, and with 23 banking
offices in Alabama, 15 in Louisiana and 4 in Florida. The Alabama branches,
except for one branch in Centre, Alabama, will be transferred to First Alabama
Bank, First Alabama's commercial banking subsidiary in Alabama, in January,
1994. The Centre branch is required to be divested as a condition to approval
of the Merger by the Board of Governors of the Federal Reserve System.
The plant, equipment, and other physical property acquired by First
Alabama in the Merger is not material.
<PAGE> 3
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of business acquired. The Consolidated
Statements of Financial Condition at December 31, 1992 and 1991, Consolidated
Statements of Operations, Consolidated Statements of Stockholders' Equity,
Consolidated Statements of Cash Flows, and Notes to Consolidated Statements
for the years ended December 31, 1992, 1991, and 1990 of Secor Bank, Federal
Savings Bank, are incorporated herein by reference to Exhibit 99.1 hereto.
The unaudited Consolidated Statement of Financial Condition at
September 30, 1993, unaudited Consolidated Statements of Operations,
unaudited Consolidated Statements of Cash Flows, and unaudited Notes to
Consolidated Statements for the nine months ended September 30, 1993 and 1992,
of Secor Bank, Federal Savings Bank, are incorporated herein by reference to
Exhibit 99.2 hereto.
(b) Pro Forma Financial Information. The pro forma combined condensed
Statement of Condition (unaudited) at September 30, 1993, and the pro forma
combined condensed Statements of Income (unaudited) for the nine months ended
September 30, 1993, and for the year ended December 31, 1992, are incorporated
herein by reference to Exhibit 99.3, hereto.
(c) Exhibits. The exhibits listed in the exhibit index are filed as a part
of or incorporated by reference in this current report on Form 8-K.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST ALABAMA BANCSHARES, INC. (Registrant)
By: /s/ Robert P. Houston
Executive Vice President
and Comptroller
Date: January 14, 1994
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page No.
<S> <C>
2.1 Amended and Restated Agreement and Plan of Reorganization dated as
of August 15, 1993, by and between First Alabama Bancshares, Inc. and Secor
Bank, Federal Savings Bank - incorporated by reference from First Alabama's
Registration Statement on Form S-4, No. 33-69612, filed under the Securities
Act of 1933.
2.2 Plan of Merger and Combination dated as of August 15, 1993, by and
between Secor Bank, Federal Savings Bank and Secor Interim Federal Savings Bank
- - incorporated by reference from First Alabama's Registration Statement on Form
S-4, No. 33-69612, filed under the Securities Act of 1933.
24. Consent of Arthur Andersen & Co.
99.1 Consolidated Statements of Financial Condition at December
31, 1992 and 1991, Consolidated Statements of Operations, Consolidated
Statements of Stockholders' Equity, Consolidated Statements of Cash Flows,
and Notes to Consolidated Statements for the years ended December 31, 1992,
1991, and 1990 of Secor Bank, Federal Savings Bank.
99.2 Unaudited Consolidated Statement of Financial Condition at
September 30, 1993, unaudited Consolidated Statements of Operations, unaudited
Consolidated Statements of Cash Flows, and unaudited Notes to Consolidated
Statements for the nine months ended September 30, 1993 and 1992, of Secor
Bank, Federal Savings Bank.
99.3 Pro forma combined condensed Statement of Condition (unaudited) at
September 30, 1993, and pro forma combined condensed Statements of Income
(unaudited) for the nine months ended September 30, 1993, and for the year
ended December 31, 1992.
99.4 Press Release dated January 3, 1994.
</TABLE>
<PAGE> 1
Exhibit 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion
in this Form 8-K of our report dated February 5, 1993 (except with respect to
the matters discussed in Note 15, as to which the date is June 11, 1993), on the
Secor Bank, Federal Savings Bank December 31, 1992, financial statements. It
should be noted that we have not audited any financial statements of Secor
Bank, Federal Savings Bank subsequent to December 31, 1992, or performed any
audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN & CO.
Birmingham, Alabama
January 13, 1994
<PAGE> 1
Exhibit 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Secor Bank, Federal Savings Bank:
We have audited the accompanying consolidated statements of financial
condition of Secor Bank, Federal Savings Bank (a Federally chartered savings
bank), and subsidiaries as of December 31, 1992 and 1991, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1992. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of Secor Bank, Federal Savings
Bank, and subsidiaries, as of December 31, 1992 and 1991, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1992, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN & CO.
Birmingham, Alabama
February 5, 1993 (except with respect
to the matters discussed in
Note 15, as to which the date is June 11, 1993)
<PAGE> 2
SECOR BANK, FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1992 1991
---------- ----------
(DOLLAR AMOUNTS IN
THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and Investments:
Cash on hand and in banks (Note 1).................................................... $ 1,054 $ 3,965
Interest-bearing deposits (Note 3).................................................... 44,910 47,098
Investment securities, at cost (fair value of $245,815 and $155,111, respectively)
(Note 3)............................................................................ 242,570 156,356
Accrued interest receivable........................................................... 3,992 4,200
---------- ----------
$ 292,526 $ 211,619
---------- ----------
Loans Receivable, Net (Notes 4 and 8)................................................... $1,069,755 $ 967,541
---------- ----------
Mortgage-Backed Securities, Net (fair value of $508,875 and $596,993, respectively)
(Notes 4 and 8)....................................................................... $ 492,214 $ 565,697
---------- ----------
Assets Held for Sale, Net (fair value of $14,296 and $133,219, respectively) (Note
14)................................................................................... $ 14,219 $ 121,374
---------- ----------
Covered Assets, Net (includes FRF assistance of $16,244 and $16,047, respectively)
(Notes 2, 6 and 11)................................................................... $ 62,589 $ 81,334
---------- ----------
Real Estate Owned, Net (Note 6)......................................................... $ 9,234 $ 16,532
---------- ----------
Land, Buildings and Equipment, Net (Notes 2 and 5)...................................... $ 19,234 $ 20,279
---------- ----------
Other Assets:
Due from FRF (Notes 2 and 6).......................................................... $ 2,271 $ 32,763
Prepaid expenses and other assets..................................................... 6,747 6,274
Accrued interest receivable on loans.................................................. 5,578 6,592
Accrued interest receivable on mortgage-backed securities............................. 4,387 6,626
Intangibles (Note 1):
Cost in excess of fair value of net assets acquired, net of amortization in 1991 of
$1,431............................................................................. -- 398
Market entry intangible, net of amortization of $3,341 and $3,151, respectively..... 2,087 2,277
Core deposit intangible, net of amortization of $4,484 and $3,774, respectively..... 2,094 2,804
Purchased mortgage servicing, net of amortization of $1,780 and $553,
respectively....................................................................... 3,082 4,285
---------- ----------
$ 26,246 $ 62,019
---------- ----------
$1,986,017 $2,046,395
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 7)..................................................................... $1,504,462 $1,644,983
Borrowings (Note 8)................................................................... 318,170 246,108
Deposits by borrowers for taxes and insurance......................................... 11,063 10,722
Accrued interest payable.............................................................. 12,794 16,393
Other liabilities..................................................................... 14,078 9,580
Accrued income taxes payable.......................................................... 658 30
---------- ----------
$1,861,225 $1,927,816
---------- ----------
Commitments and Contingencies (Notes 4, 9, and 11)
Stockholders' Equity (Notes 2, 9, 10, 11, and 12):
Preferred stock, Series B, Class 1, 12.5%, cumulative, stated redemption value of
$2,000 per share, 27,000 shares authorized, 26,670 shares issued and outstanding.... $ 53,340 $ 53,340
Convertible preferred stock, Series A, 8%, cumulative, $100 par value, 10,000 shares
authorized, issued and outstanding.................................................. 1,000 1,000
Common stock, $.01 par value, 15,000,000 shares authorized, 3,544,524 shares issued
and outstanding..................................................................... 35 35
Paid-in capital....................................................................... 18,159 18,159
Retained earnings..................................................................... 52,258 46,045
---------- ----------
$ 124,792 $ 118,579
---------- ----------
$1,986,017 $2,046,395
---------- ----------
---------- ----------
</TABLE>
The accompanying notes to consolidated statements are an integral part of these
statements.
<PAGE> 3
SECOR BANK, FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Interest Income:
Interest on loans.................................................. $ 96,339 $104,593 $110,088
Interest on mortgage-backed securities............................. 42,728 54,466 71,097
Interest on covered assets......................................... 4,611 5,713 7,473
Yield subsidy income on covered assets (Note 6).................... (1,785) 2,380 7,644
Interest and dividends on investment securities (includes interest
on FRF note of $0, $5,901, and $9,685, respectively)............. 16,244 30,905 21,096
Interest on collateralized mortgage obligation residuals (Notes 1
and 3)........................................................... (4,254) 2,839 1,948
Other interest income.............................................. 2,249 2,555 1,567
-------- -------- --------
Total interest income....................................... $156,132 $203,451 $220,913
-------- -------- --------
Interest Expense:
Interest on deposits (Note 7)...................................... $ 86,354 $113,542 $130,348
Interest on short-term borrowings.................................. 545 6,023 13,545
Interest on long-term borrowings................................... 20,573 23,767 31,521
Hedge expense, net................................................. 4,360 4,046 3,802
-------- -------- --------
Total interest expense...................................... $111,832 $147,378 $179,216
-------- -------- --------
Net interest income......................................... $ 44,300 $ 56,073 $ 41,697
-------- -------- --------
Provision for Losses on Loans........................................ 4,788 6,781 4,315
-------- -------- --------
Net interest income after provision for losses on loans..... $ 39,512 $ 49,292 $ 37,382
-------- -------- --------
Other Income:
Fees and miscellaneous charges on loans............................ $ 4,657 $ 3,518 $ 4,221
Gain on sale of loans, investments and mortgage-backed securities,
net.............................................................. 9,914 6,628 1,399
Miscellaneous operating and non-operating income, net.............. 5,014 4,573 4,429
-------- -------- --------
Total other income.......................................... $ 19,585 $ 14,719 $ 10,049
-------- -------- --------
Operating Expenses:
Salaries and employee benefits..................................... $ 19,225 $ 18,634 $ 18,892
Office building and equipment expense.............................. 5,944 7,297 8,809
Advertising........................................................ 1,419 920 746
Insurance expense (Note 11)........................................ 4,928 4,824 4,418
Data processing expense............................................ 3,794 3,695 3,916
Amortization of intangibles........................................ 1,298 4,996 1,373
Loss on real estate and covered assets............................. 6,224 8,358 3,442
Other operating expenses (Note 11)................................. 9,821 9,873 7,394
-------- -------- --------
Total operating expenses.................................... $ 52,653 $ 58,597 $ 48,990
-------- -------- --------
Income (loss) before income taxes, extraordinary item and
preferred stock dividends................................. $ 6,444 $ 5,414 $ (1,559)
Provision for Income Taxes (Note 13)................................. 876 577 --
-------- -------- --------
Income (loss) before extraordinary item and preferred stock
dividends.......................................................... $ 5,568 $ 4,837 $ (1,559)
Extraordinary Item (Notes 7 and 8)................................... 645 195 2,304
-------- -------- --------
Net income before preferred stock dividends................. $ 6,213 $ 5,032 $ 745
Preferred Stock Dividends Paid (Note 10)............................. -- -- 1,687
-------- -------- --------
Net income (loss)........................................... $ 6,213 $ 5,032 $ (942)
-------- -------- --------
-------- -------- --------
Earnings (Loss) Per Common Share (Note 1):
Loss before extraordinary item..................................... $ (0.33) $ (0.53) $ (2.34)
Extraordinary item (Notes 7 and 8)................................. 0.18 0.05 0.65
-------- -------- --------
Net loss per common share.......................................... $ (0.15) $ (0.48) $ (1.69)
-------- -------- --------
-------- -------- --------
Weighted average shares outstanding................................ 3,544 3,544 3,544
-------- -------- --------
-------- -------- --------
Annual preferred stock dividends in arrears (Note 10).............. $ 6,748 $ 6,748 $ 5,061
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated statements are an integral part of these
statements.
<PAGE> 4
SECOR BANK, FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
-----------------------------------------------------------
PREFERRED STOCK
(NOTES 2, 10, AND COMMON STOCK
11) (NOTE 10)
----------------- ------------------ PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------- --------- ------ ------- --------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1989.............. 36,670 $53,740 3,544,524 $ 35 $18,159 $ 42,309
Reduction of unfunded portion of
preferred stock issued in
connection with Employee Stock
Ownership Plan (Note 10)........... -- 400 -- -- -- --
Cash dividends on common stock, $.10
per share.......................... -- -- -- -- -- (354)
Net loss.............................. -- -- -- -- -- (942)
------ ------- --------- ------ ------- --------
BALANCE, December 31, 1990.............. 36,670 $54,140 3,544,524 $ 35 $18,159 $ 41,013
Reduction of unfunded portion of
preferred stock issued in
connection with Employee Stock
Ownership Plan (Note 10)........... -- 200 -- -- -- --
Net income............................ -- -- -- -- -- 5,032
------ ------- --------- ------ ------- --------
BALANCE, December 31, 1991.............. 36,670 $54,340 3,544,524 $ 35 $18,159 $ 46,045
Net income............................ -- -- -- -- -- 6,213
------ ------- --------- ------ ------- --------
BALANCE, December 31, 1992.............. 36,670 $54,340 3,544,524 $ 35 $18,159 $ 52,258
------ ------- --------- ------ ------- --------
------ ------- --------- ------ ------- --------
</TABLE>
The accompanying notes to consolidated statements are an integral part of these
statements.
<PAGE> 5
SECOR BANK, FEDERAL SAVINGS BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
(DOLLAR AMOUNTS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 6,213 $ 5,032 $ (942)
Adjustments to reconcile net income (loss) to net cash (used in) provided
from operating activities:
Extraordinary item....................................................... (645) (195) (2,304)
Depreciation............................................................. 3,678 4,480 4,842
Accretion of deferred income............................................. (3,983) (3,522) (4,520)
Accretion of negative goodwill........................................... (821) (821) (747)
Amortization of intangibles.............................................. 1,298 4,996 1,373
Provision for losses on loans, real estate owned, and covered assets..... 9,029 13,826 6,759
Net loan fees (expenses) deferred........................................ (876) 909 734
Federal Home Loan Bank stock dividend.................................... (1,362) (1,475) (1,613)
Net (gain) loss on sale of:
Loans, investments, and mortgage-backed securities..................... (9,914) (6,628) (1,399)
Land, buildings, and equipment......................................... (270) 222 (199)
Changes in assets and liabilities:
(Increase) Decrease in accrued interest on investments................. 208 5,775 (336)
Decrease in accrued interest on loans and mortgage-backed securities... 3,253 3,235 1,642
(Increase) Decrease in due from FRF.................................... 34,316 (35,194) 977
(Increase) in prepaid expenses and other assets........................ (473) (357) (367)
Increase (Decrease) in accrued interest payable........................ (3,599) (5,550) 2,313
Increase (Decrease) in other liabilities and accrued income taxes
payable.............................................................. 5,126 (440) (47)
Proceeds from sale of loans held for sale.............................. 111,181 75,508 --
--------- --------- ---------
Net cash (used in) provided from operating activities.............. $ 152,359 $ 59,801 $ 6,166
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from repayment of FRF note receivable............................. $ -- $ 94,689 $ --
Proceeds received from sale of investments................................. 4,806 -- --
Proceeds from investment maturities........................................ 63,602 272,441 69,107
Mortgage-backed securities purchased....................................... (70,579) (194,825) (110,709)
Repayments on mortgage-backed securities................................... 146,581 88,407 96,322
Proceeds from sale of loans................................................ 102,640 52,635 --
Proceeds from sale of mortgage-backed securities held for investment....... 36,974 233,391 40,013
Proceeds from sale of mortgage-backed securities held for sale............. 122,569 -- --
Proceeds received from sale of land, buildings, and equipment.............. 496 1,446 978
Proceeds received from disposition of covered assets and real estate
owned.................................................................... 21,658 73,885 22,445
Proceeds received from FSLIC/FRF for Louisiana acquisition................. -- -- 1,253
Termination of interest rate swaps......................................... -- (1,032) 638
Purchase of investments.................................................... (153,323) (229,687) (165,797)
Loan originations, net of repayments....................................... (363,735) (128,984) 29,786
Capital expenditures....................................................... (1,964) (829) (5,808)
Purchase of mortgage servicing rights...................................... -- (2,883) --
--------- --------- ---------
Net cash provided from (used in) investing activities.............. $ (90,275) $ 258,654 $ (21,772)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds received from borrowings.......................................... $ 289,866 $ 376,689 $ 807,213
Increase in deposits by borrowers for taxes and insurance.................. 341 186 1,214
Net increase (decrease) in deposits........................................ (139,648) 34,471 (40,974)
Repayments of borrowings................................................... (217,742) (719,234) (729,529)
Cash dividends on common stock............................................. -- -- (354)
Redemption of convertible subordinated debentures.......................... -- -- (5,829)
--------- --------- ---------
Net cash provided from (used in) financing activities.............. $ (67,183) $(307,888) $ 31,741
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents....................... $ (5,099) $ 10,567 $ 16,135
Cash and Cash Equivalents at Beginning of Year............................. 51,063 40,496 24,361
--------- --------- ---------
Cash and Cash Equivalents at End of Year................................... $ 45,964 $ 51,063 $ 40,496
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes to consolidated statements are an integral part of these
statements.
<PAGE> 6
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS
DECEMBER 31, 1992, 1991 AND 1990
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION --
The accompanying consolidated financial statements include the accounts of
Secor Bank, Federal Savings Bank ("the Bank"), and its wholly owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
INVESTMENTS, MORTGAGE-BACKED SECURITIES, AND ASSETS HELD FOR SALE --
The Bank purchases investment securities and mortgage-backed securities for
investment purposes. Under certain circumstances the Bank may determine that
certain securities, which were originally purchased with the intent to be held
until maturity and were classified as investments or mortgage-backed securities
held for investment, may be sold. Upon making such determination, the Bank
reclassifies all assets meeting the characteristics to Assets Held for Sale.
Circumstances which the Bank has determined would make such a reclassification
necessary include, but are not limited to the following:
-- The downgrading of the credit rating of investment securities below
a specified level.
-- The identification of a specific group of assets which the Office
of Thrift Supervision determines to be inappropriate investments for the
Bank.
-- The anticipation of the adoption of new accounting standards which
would make such actions appropriate.
Investments and mortgage-backed securities held for investment purposes are
stated at amortized cost as a result of management's intent and ability to hold
the securities until maturity. Related premiums are amortized and discounts are
accreted using the level yield method. Investments and mortgage-backed
securities held for sale are stated at the lower of cost or fair value. Gains
and losses on disposition of investments and mortgage-backed securities are
accounted for under the specific identification method.
The Bank recognizes income on the investments in CMO residuals and REMIC
"R" bonds in accordance with SFAS No. 91 which requires the use of the interest
method. The effective interest rate applied to the carrying value of the
investment is the discount rate that equates the present value of the estimated
future cash inflows to the initial purchase price of the investment. As the
estimate of future cash inflows changes, the Bank recalculates the effective
yield to reflect actual payments to date and the revised estimate of future cash
inflows. The net carrying value of the investment is adjusted to the amount that
would have existed had the revised effective yield been applied since the
purchase of the investment.
ALLOWANCE FOR LOSSES --
The Bank provides allowances for estimated losses on loans when the
borrower's ability to repay is doubtful and a significant decline in the value
of the underlying collateral occurs. The Bank also records a provision, based
upon a number of factors, including management's ongoing assessment of credit
risk inherent in its loan portfolio, historical experience, and general market
conditions, which is allocated to a general valuation allowance. While
management uses the best information available in establishing allowances for
losses, future adjustments to the allowances may be necessary if there are
significant changes in economic conditions. In addition, the Bank also provides
an allowance for delinquent interest on loans considered uncollectible.
<PAGE> 7
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
COVERED ASSETS --
Assets covered by the FRF assistance agreement ("covered assets") are
carried at the lower of cost or fair value estimated at the end of each
accounting period through a valuation allowance, which is adjusted on the basis
of these estimates.
The FRF agreed to contribute to the Bank 75% of each covered asset loss.
The Bank has recorded an asset, representing 75% of the estimated covered asset
losses, that is included in "Covered Assets, Net" in the consolidated statements
of financial condition. See Notes 2, 6, and 11 for additional information.
LOANS AND FEES --
Loan fees, net of certain direct costs associated with originating or
acquiring loans, are deferred and accreted over the contractual lives of the
loans originated using the level yield method, adjusted for prepayments as they
occur.
Origination fees on loans sold are recognized as loan fee income upon sale
of the loan. Service release fees received on loans sold are recognized in
income on the date the servicing of the loan is transferred.
Loan commitment fees are recognized in income upon expiration of the
commitment period unless the commitment results in the loan being funded.
BUILDINGS AND EQUIPMENT --
Buildings and equipment are stated at cost, and depreciation is provided at
straight-line rates over the estimated service lives of the related property.
Expenditures for repairs and maintenance that significantly extend the life of
an asset are capitalized and depreciated over its remaining useful life. Routine
repairs and maintenance costs are charged to expense in the period incurred.
REAL ESTATE OWNED --
Real estate owned is recorded at the lower of the recorded investment in
the loan or fair value of the foreclosed property, less estimated costs of
disposition. Any excess of the recorded investment over fair value of the
property is charged to the allowance for loan losses at the time of foreclosure.
Holding costs related to real estate owned are expensed as incurred. A provision
for estimated losses on real estate is charged to earnings when, in management's
opinion, such losses are anticipated.
Loans receivable that have been "in-substance" foreclosed are recorded in
the same manner and are reflected as "Real Estate Owned, Net" in the
consolidated statements of financial condition. The Bank considers a loan as an
"in-substance" foreclosure when (1) the borrower has little or no equity in the
collateral based on current fair value, and (2) the repayment of the loan is
expected to be generated only through the operation or sale of the collateral,
and (3) the borrower has either abandoned control of the collateral or retained
control of the collateral but repayment in the foreseeable future is doubtful.
The net book value of covered and non-covered loans which are deemed to be
"in-substance" foreclosures was $9,308,000 and $7,875,000 as of December 31,
1992 and 1991, respectively.
INTANGIBLES --
In connection with acquisitions made by the Bank, the total amount of
liabilities assumed which exceeded the fair value of assets acquired was
presented as "Cost in excess of fair value of net assets acquired" in the
consolidated statements of financial condition. The cost in excess of fair value
of net assets acquired was previously being amortized over 10 years using the
straight-line method. During 1991, the amortization period
<PAGE> 8
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
was adjusted in accordance with management's decision to dispose of the related
branch in 1992. See further discussion of branch sales pending at December 31,
1992, in Note 11.
In connection with deposit assumptions made by the Bank, the premium paid
for the Bank's entrance into new markets has been reflected as a "Market entry
intangible" in the consolidated statements of financial condition. The market
entry intangible is being amortized over 15 years using the straight-line
method.
In connection with the Bank's assumption of deposits, the premium paid by
the Bank for the core deposit bases was recorded as a core deposit intangible
and is classified in the consolidated statements of financial condition as "Core
deposit intangible." The core deposit intangible represents the present value of
the future benefits to be derived from the utilization of the assumed core
deposits over their expected lives. Core deposits are generally defined as
demand deposit transaction accounts, regular savings accounts and time deposit
accounts, excluding jumbo and brokered accounts. The core deposit intangible is
being amortized on a straight-line basis over the estimated life of the core
deposits (7 years).
In connection with management's implementation of the Bank's strategic plan
which provides for the disposal of certain branches, core deposit and market
entry intangibles were written down by $961,000 and $2,200,000, respectively, to
estimated net realizable value in 1991.
During 1989 and 1991, the Bank purchased mortgage servicing rights for
which the cost has been reflected as "Purchased mortgage servicing" in the
consolidated statements of financial condition. The cost of the mortgage
servicing rights is being amortized over the estimated economic lives of the
related servicing contracts to reflect a constant rate of return on the
servicing portfolio.
INTEREST RATE SWAPS --
The Bank enters into interest rate swaps as a means of managing interest
rate exposure. The differential to be paid or received on these agreements is
accrued at the rates specified over the life of the agreements, and is included
in "Hedge expense, net," in the consolidated statements of operations. When
interest rate swaps are sold or terminated simultaneously with the disposition
of the related assets or liabilities, any resulting gain or loss is recognized.
When interest rate swaps are sold or terminated without simultaneous disposition
of the related assets or liabilities, any resulting gain or loss is deferred and
amortized over the life of the related asset or liability.
EARNINGS (LOSS) PER COMMON SHARE --
During 1992, 1991 and 1990, earnings per common share were reduced by the
effect of $6,748,000, $6,748,000 and $5,061,000, respectively, in annual
preferred stock dividends in arrears. Earnings/(loss) per common share was
computed based on the weighted average number of common shares outstanding
during the periods presented.
<PAGE> 9
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS --
For purposes of the statements of cash flows, the Bank considers cash on
hand and in banks and interest bearing deposits to be cash and cash equivalents.
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash paid during the year for:
Interest on deposits and borrowings.......................... $125,384 $170,306 $208,910
Income taxes................................................. 224 577 69
Non-cash investing and financing activities:
Loans exchanged for mortgage-backed securities............... 36,678 69,442 10,076
Non-cash additions to real estate owned...................... 5,483 16,985 15,843
Addition to FRF Note in exchange for amount due from FRF..... -- -- 5,689
Decrease in guarantee of ESOP debt (Note 10)................. -- (200) (400)
Transfer of mortgage-backed securities from held for
investment to held for sale............................... -- 113,657 --
</TABLE>
INCOME TAXES --
During 1992, the Bank adopted the provisions of SFAS No. 109, "Accounting
for Income Taxes" (which supersedes SFAS No. 96). There was no earnings impact
or effect on financial position from implementing this new statement. SFAS No.
109 generally requires that deferred income taxes be provided based upon enacted
tax rates which would apply during the period the taxes become payable, and the
adjustment of deferred tax assets or liabilities for changes in future tax
rates. Deferred taxes arise because certain transactions affect the
determination of net income for financial reporting purposes in one period and
the determination of taxable income for tax return purposes in a different
period. See Note 13 for further discussion.
FAIR VALUES OF FINANCIAL INSTRUMENTS --
In December 1991, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." This
statement is effective for fiscal years ending after December 15, 1992, and
requires disclosure of fair values of financial instruments and the methodology
and assumptions used in estimating fair values. These disclosure requirements
have been incorporated throughout the following applicable Notes to Consolidated
Statements. In the event that quoted market prices are not available for certain
financial instruments, fair values are based on estimates using present value
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Therefore, the
derived fair value estimates for such assets or liabilities cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the financial instrument. All
nonfinancial instruments, by definition, are excluded from the fair market
disclosure requirements. As a result, the aggregate fair value amounts presented
herein do not represent the underlying value of the Bank and may not be
indicative of amounts that might ultimately be realized upon disposition of
those assets and liabilities.
The following methods and assumptions were used by the Bank in determining
estimates of fair value disclosures for financial instruments:
CASH ON HAND AND IN BANKS: The carrying amount for cash on hand and
in banks and interest bearing deposits approximates the fair value of these
financial instruments.
<PAGE> 10
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
INVESTMENTS AND MORTGAGE-BACKED SECURITIES: Fair values for
investments and mortgage-backed securities are based on quoted market
prices, where available. In the event that quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
LOANS RECEIVABLE: The fair value of loans receivable is estimated for
portfolios of loans with similar financial characteristics. The fair value
is estimated by discounting the future cash flows using the current
interest rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
ASSETS HELD FOR SALE: Fair value of assets held for sale are based
either on the contractual price agreed upon at the commitment date to be
paid upon settlement or quoted market prices.
COVERED ASSETS: The carrying amount for financial instruments
included in covered assets approximates the fair value of these financial
instruments.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values of the Bank's
off-balance-sheet financial instruments, including interest rate swaps,
standby letters of credit, over-the-counter put options and lending
commitments are based on derivatives of quoted market prices, current
settlement values, or pricing models.
DEPOSITS: The fair values disclosed for non-interest bearing deposit
accounts, NOW and money market deposits and regular savings accounts are
equal to the reported carrying amount, which is the amount payable on
demand as of the reporting date. Fair values for certificates of deposit
are estimated using a discounted cash flow method which applies rates
currently offered for deposits of similar remaining maturities.
BORROWINGS: The fair value of the Bank's borrowings are determined by
estimates using discounted cash flow analyses, based on the Bank's current
incremental borrowing rates for similar types of instruments.
FINANCIAL STATEMENT RECLASSIFICATIONS --
The consolidated financial statements for prior years have been
reclassified in certain instances in order to conform with the 1992 financial
statement presentation.
REGULATORY AGREEMENT --
On March 20, 1991, the Bank's Board of Directors signed an agreement with
the OTS to avoid the initiation of administrative proceedings by the OTS. The
provisions of the agreement, among other things, require the Bank (1) to obtain
OTS approval before the payment of dividends or the redemption of the preferred
stock issued to the FRF, (2) to modify or revise certain policies and procedures
related to asset classification, electronic data processing, interest rate risk,
and underwriting standards, (3) to develop a three-year strategic plan to be
approved by the OTS, and (4) to limit growth in total assets during a calendar
quarter to the amount of net interest credited to deposit liabilities during the
previous calendar quarter.
Management and the Board of Directors have taken steps to comply with all
provisions of the agreement; however, some of the actions have not been
completed. In the opinion of management, the agreement does not have a material
adverse effect on the accompanying financial statements.
2. ACQUISITIONS:
On December 31, 1987, the Bank acquired First Financial Bank, FSB, New
Orleans, Louisiana ("First Financial") and First Federal Savings Bank, Slidell,
Louisiana ("Slidell"). These institutions were Federally
<PAGE> 11
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
chartered savings banks insured by the FSLIC. In connection with the
acquisitions, the FSLIC agreed to provide financial assistance and
indemnification related to the acquired entities as discussed below.
The acquisitions were accounted for as purchases. The fair value of assets
acquired exceeded the fair value of liabilities assumed, after consideration of
FSLIC assistance, by $9,036,000. The excess was assigned to negative goodwill
which has been classified in the consolidated statements of financial condition
as a reduction of "Land, Buildings, and Equipment, Net" (See Note 5). The
negative goodwill is being accreted to income on a straight-line basis over the
weighted average remaining life of the fixed assets which is estimated to be ten
years and is reflected as a reduction in depreciation expense. The accretion of
the negative goodwill totaled $821,000, $821,000 and $747,000 during 1992, 1991
and 1990, respectively.
As discussed in Note 1, the FSLIC agreed to provide assistance with the
acquisitions. The FSLIC agreed to initially contribute $57,085,000 in cash and
an $89,000,000 interest bearing note. In addition, the interest-bearing note and
cash contribution were subsequently increased by approximately $5,689,000 and
$1,253,000, respectively, after completion of an acquisition audit by the FDIC
in 1990. The note receivable earned interest based on the average six-month
Treasury bill rate plus 225 basis points and was paid off on September 30, 1991.
The FSLIC also agreed to cancel $61,600,000 of Income Capital Certificates of
First Financial. In exchange for cancellation of these Income Capital
Certificates and $50,000,000 of the initial cash contribution, the Bank issued
non-voting preferred stock with a stated value of $53,340,000 (See Notes 10 and
11).
In addition to the above, the FSLIC also agreed to provide the Bank with
ongoing assistance in an amount equal to 75% of all covered asset losses, yield
maintenance and defined holding costs on covered assets, and indemnification
against undisclosed liabilities or possible litigation arising from the
acquisitions (See Notes 6 and 11). All such amounts received and to be received
from the FSLIC/FRF are nontaxable under the Internal Revenue Code.
See discussion in Note 11 regarding the Bank's recently executed Letter of
Intent to terminate the FRF assistance agreement.
The acquisitions were treated as tax-free mergers under special provisions
of the Internal Revenue Code related to "troubled" savings and loan
institutions. As a result, there exists significant differences in the carrying
values of assets acquired and liabilities assumed for income tax purposes versus
the carrying amounts for financial reporting purposes (See Note 13).
All interest-bearing assets and interest-bearing liabilities acquired or
assumed were recorded at their estimated market values as of December 31, 1987.
The resulting discounts and premiums, net of accumulated amortization and
accretion, at December 31, 1992 and 1991, were as follows:
<TABLE>
<CAPTION>
1992 1991
------- -------
<S> <C> <C>
(IN THOUSANDS)
Net discount on interest-bearing assets........................ $(3,865) $(6,719)
Net premium on interest-bearing liabilities.................... (494) (1,473)
------- -------
$(4,359) $(8,192)
------- -------
------- -------
</TABLE>
The discounts and premiums are included in the consolidated statements of
financial condition as an adjustment to the principal value of the applicable
asset/liability. The discounts and premiums are accreted/amortized using the
level yield method over the contractual lives of the related assets/liabilities
adjusted for actual prepayments. The net accretion recorded during 1992, 1991,
and 1990 was $1,037,000, $1,137,000 and $1,739,000, respectively. This
accretion/amortization is classified in the consolidated statements of
operations in the applicable interest income or interest expense category.
<PAGE> 12
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
3. INVESTMENT SECURITIES:
The book value and estimated fair value of the Bank's investment securities
as of December 31, 1992 and 1991, were as follows:
<TABLE>
<CAPTION>
1992
---------------------------------------------
GROSS GROSS
BOOK UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Government and Government agency
obligations................................. $ 40,079 $1,144 $ -- $ 41,223
Corporate debt securities..................... 11,494 202 -- 11,696
REMIC "R" bonds............................... 20 -- -- 20
CMO residuals................................. 3,668 -- (690) 2,978
Federal Home Loan Bank stock.................. 21,768 -- -- 21,768
Obligations of states and political
subdivisions................................ 10 -- -- 10
Planned amortization class bonds.............. 165,438 2,589 -- 168,027
Other debt securities......................... 93 -- -- 93
-------- ---------- ---------- --------
$242,570 $3,935 $ (690) $245,815
-------- ---------- ---------- --------
-------- ---------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
1991
---------------------------------------------
GROSS GROSS
BOOK UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
U.S. Government and Government agency
obligations................................. $ 18,636 $ 855 $ -- $ 19,491
Corporate debt securities..................... 18,666 473 -- 19,139
REMIC "R" bonds............................... 4,644 -- -- 4,644
CMO residuals................................. 12,180 -- (5,443) 6,737
Federal Home Loan Bank stock.................. 20,407 -- -- 20,407
Obligations of states and political
subdivisions................................ 10 -- -- 10
Planned amortization class bonds.............. 81,425 2,899 -- 84,324
Other debt securities......................... 388 -- (29) 359
-------- ---------- ---------- --------
$156,356 $4,227 $ (5,472) $155,111
-------- ---------- ---------- --------
-------- ---------- ---------- --------
</TABLE>
The book value and estimated fair value of investment securities at
December 31, 1992, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
BOOK FAIR
VALUE VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less........................................ $ 24,506 $ 24,778
Due after one year through five years.......................... 116,271 118,067
Due after five years through ten years......................... 76,244 78,111
Due after ten years............................................ 3,781 3,091
-------- ----------
$220,802 $ 224,047
-------- ----------
-------- ----------
FHLB stock..................................................... 21,768 21,768
-------- ----------
$242,570 $ 245,815
-------- ----------
-------- ----------
</TABLE>
<PAGE> 13
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
During 1992 and 1991, the Bank invested in REMIC Planned Amortization Class
bonds with maturities of less than five years, issued by the FNMA and the FHLMC.
These bonds generally maintain yield and average life stability over a range of
prepayment rates.
At December 31, 1992, interest-bearing deposits and investment securities
with a book value of $420,000 and $910,000, respectively, were pledged in
connection with public fund deposits and borrower guarantees. FHLB stock is
pledged as collateral to the FHLB for outstanding advances. See related
discussion in Note 8.
Proceeds from sales of investment securities during 1992, all of which were
classified as held for investment, were $4,806,000. Gross gains of $353,000 were
realized on these sales during 1992. These investments were sold as a result of
the downgrading of the credit rating of the securities.
4. LOANS RECEIVABLE AND MORTGAGE-BACKED SECURITIES:
Loans receivable at December 31, 1992 and 1991, consisted of the following:
<TABLE>
<CAPTION>
1992 1991
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Mortgage Loans:
Conventional loans................................................. $ 930,283 $834,788
FHA and VA loans................................................... 16,593 18,222
Construction and other............................................. 59,602 30,015
---------- --------
$1,006,478 $883,025
---------- --------
Other Loans:
Consumer installment loans, including consumer loan-backed
securities...................................................... $ 97,162 $ 96,651
Loans secured by deposits.......................................... 10,657 13,190
---------- --------
$ 107,819 $109,841
---------- --------
$1,114,297 $992,866
---------- --------
Deduct-
Undisbursed portion of loans....................................... $ (25,120) $ (2,810)
Unearned discounts, premiums and fees, net......................... (3,510) (6,409)
Unearned interest.................................................. (2,292) (3,645)
Acquisition discount and premium, net.............................. (2,575) (3,039)
---------- --------
$ (33,497) $(15,903)
---------- --------
$1,080,800 $976,963
Less-Allowance for losses............................................ (11,045) (9,422)
---------- --------
$1,069,755 $967,541
---------- --------
---------- --------
Estimated Fair Value................................................. $1,119,934
----------
----------
</TABLE>
An analysis of the Bank's allowance for loan losses for the three-year
period ended December 31, 1992, is detailed below:
<TABLE>
<CAPTION>
1992 1991 1990
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning Balance, January 1.......................... $ 9,422 $6,901 $3,182
Provision........................................... 4,788 6,781 4,315
Charge-offs......................................... (7,659) (4,866) (1,482)
Recoveries.......................................... 4,494 606 886
------- ------ ------
Ending Balance, December 31........................... $11,045 $9,422 $6,901
------- ------ ------
------- ------ ------
</TABLE>
<PAGE> 14
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
The amount of loans being serviced by the Bank for the benefit of others
was $620,029,000, $680,818,000 and $527,845,000 at December 31, 1992, 1991 and
1990, respectively. The 1991 amount includes $148,911,000 in loans being
sub-serviced by a third party.
The Bank had approximately $20,254,000 of loans sold to others with
recourse as of December 31, 1992.
In the ordinary course of business, the Bank makes loans to directors,
officers and principal stockholders of the Bank. In the opinion of management,
related party loans are made on substantially the same terms, including interest
rates and collateral, as comparable transactions with unrelated parties and do
not involve more than the normal risks of collectibility. The amount of such
related party loans was $2,170,000 and $2,525,000 at December 31, 1992 and 1991,
respectively. During 1992, $18,000 of such loans were made and repayments
totaled $373,000.
As a federal savings bank, the Bank has a credit concentration in
residential mortgages. Distribution of that concentration, among the Bank's
market areas is as follows as of December 31, 1992:
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT TOTAL LOAN
-------------- PORTFOLIO
(IN THOUSANDS) ----------
<S> <C> <C>
Alabama...................................................... $400,040 37.0%
New Orleans.................................................. 252,919 23.4
Other Louisiana locations.................................... 5,337 .5
Other states and purchased loans............................. 110,072 10.2
-------------- ----------
$768,368 71.1%
-------------- ----------
-------------- ----------
</TABLE>
Repayment of these loans, collateralized by owner-occupied residential
properties, is highly dependent upon the local economies of the markets, several
of which, including New Orleans, have higher unemployment rates than the
national average.
Mortgage-backed securities at December 31, 1992 and 1991, consisted of the
following:
<TABLE>
<CAPTION>
1992 1991
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Mortgage-backed securities............................................... $493,996 $574,497
-------- --------
Deduct
Unearned discounts and premiums, net................................... $ 111 $ (4,247)
Unaccreted acquisition discount........................................ (1,893) (4,553)
-------- --------
$ (1,782) $ (8,800)
-------- --------
$492,214 $565,697
-------- --------
-------- --------
</TABLE>
The Bank's mortgage-backed securities are stated at amortized cost. The
securities held at December 31, 1992 bear interest at fixed and adjustable rates
ranging from 5.5% to 11.5% and mature at various dates ranging from April 1996
to December 2029. At December 31, 1992 and 1991, gross unrealized gains and
losses in the portfolio totaled $18,796,000 and $2,135,000, respectively, and
$24,792,000 and $122,000, respectively.
As of December 31, 1992, the Bank has pledged mortgage and consumer
loan-backed securities with a book value of $285,201,000 in connection with
public fund deposits, interest rate swaps, borrower guarantees, and medium-term
notes. Loans are also pledged as disclosed in Notes 8 and 11.
<PAGE> 15
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
Proceeds from sales of mortgage-backed securities and realized gains and
losses on such sales for the years ended December 31, 1992, 1991, and 1990 are
as follows:
<TABLE>
<CAPTION>
1992 1991 1990
-------- -------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Proceeds from sales of mortgage-backed securities............... $159,543 $233,391 $40,013
-------- -------- -------
-------- -------- -------
Gross realized gains from sales of mortgage-backed securities... $ 9,666 $ 8,231 $ 655
Gross realized losses from sales of mortgage-backed
securities.................................................... (56) (333) --
-------- -------- -------
Net realized gain on sales of mortgage-backed securities........ $ 9,610 $ 7,898 $ 655
-------- -------- -------
-------- -------- -------
</TABLE>
Approximately $122.6 million of the 1992 proceeds from sales of
mortgage-backed securities resulted from sales of mortgage-backed securities
classified as held for sale at December 31, 1991 (see Note 14). All other
proceeds resulted from the sale of mortgage-backed securities held for
investment.
5. LAND, BUILDINGS AND EQUIPMENT:
Land, buildings and equipment, as reflected in the accompanying
consolidated statements of financial condition at December 31, 1992 and 1991,
consisted of the following:
<TABLE>
<CAPTION>
1992 1991
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Land........................................................... $ 6,257 $ 6,239
Buildings...................................................... 22,843 22,554
Equipment and other............................................ 14,938 13,870
Negative goodwill (Note 2)..................................... (4,929) (5,750)
-------- --------
$ 39,109 $ 36,913
Less-Accumulated depreciation and amortization................. (19,875) (16,634)
-------- --------
$ 19,234 $ 20,279
-------- --------
-------- --------
</TABLE>
6. COVERED ASSETS AND REAL ESTATE OWNED:
Covered assets and real estate owned at December 31, 1992 and 1991,
included the following:
<TABLE>
<CAPTION>
1992
---------------------------------
COVERED NON-COVERED TOTAL
-------- ----------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Real estate owned:
Acquired by foreclosure, deed in lieu of foreclosure or
in-substance foreclosure................................. $ 28,283 $ 9,552 $ 37,835
Acquired for development and sale........................... -- 1,753 1,753
Loans receivable.............................................. 42,630 -- 42,630
Accumulated depreciation, unearned interest and discounts to
facilitate.................................................. (1,709) (272) (1,981)
Valuation allowance........................................... (22,859) (1,799) (24,658)
FRF assistance receivable..................................... 16,244 -- 16,244
-------- ----------- --------
$ 62,589 $ 9,234 $ 71,823
-------- ----------- --------
-------- ----------- --------
</TABLE>
<PAGE> 16
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1991
---------------------------------
COVERED NON-COVERED TOTAL
-------- ----------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Real estate owned:
Acquired by foreclosure, deed in lieu of foreclosure or
in-substance foreclosure................................. $ 33,315 $14,486 $ 47,801
Acquired for development and sale........................... -- 3,176 3,176
Loans receivable.............................................. 55,241 -- 55,241
Accumulated depreciation, unearned interest, and discounts to
facilitate.................................................. (1,873) (69) (1,942)
Valuation allowance........................................... (21,396) (1,061) (22,457)
FRF assistance receivable..................................... 16,047 -- 16,047
-------- ----------- --------
$ 81,334 $16,532 $ 97,866
-------- ----------- --------
-------- ----------- --------
</TABLE>
In connection with the acquisitions of First Financial and Slidell as
discussed in Note 2, the FSLIC agreed to provide contributions for losses on
certain assets and maintain a specified yield on the assets. These FSLIC (now
FRF) commitments were required by the Bank to acquire the existing problem
assets and assume the existing liabilities. The agreement between the Bank and
FRF defines "covered" assets as (i) loans delinquent 90 days or more as of
December 31, 1987, and loans that became and remained 90 days delinquent on the
360th day after December 31, 1987, unless foreclosure occurred during the
period; (ii) loans to facilitate the sale of real estate owned on the books as
of December 31, 1987; (iii) FSLIC/FRF-approved loans to facilitate the sale of
covered assets after December 31, 1987; (iv) all real estate owned and
repossessed property on the books as of December 31, 1987; (v) all loans
originated prior to December 31, 1987, which were foreclosed during 1988; and
(vi) certain other assets specifically identified in the agreement. The FSLIC
agreed to contribute an amount equal to 75% of each covered asset loss incurred
prior to the termination of the assistance agreement. A covered asset loss is
defined in the agreement as the amount by which the book value of the covered
asset exceeds the net proceeds received by the Bank upon disposition of the
asset. In addition, the FRF may elect to reimburse the Bank for 75% of the
estimated loss, based on appraised value, of a covered asset prior to
disposition. Upon such an election, no further yield maintenance or expense
reimbursements are provided. Book value is defined as the value of a covered
asset reflected on the books of the Bank, not giving effect to any specific
reserve or valuation allowance. As a result of this agreement, the Bank has
recorded an asset, the FRF assistance as described above, that represents an
amount equal to 75% of the estimated covered asset losses. See discussion in
Note 11 regarding the recently executed Letter of Intent to terminate the FRF
assistance agreements in 1993.
As previously discussed above, the FSLIC also agreed to pay the Bank a
yield maintenance on certain covered assets, for the term of the agreement,
equal to the excess of the guaranteed yield amount over the actual yield. The
guaranteed yield amount was equal to (i) the average six-month Treasury bill
rate plus 200 basis points for 1988; (ii) the average six-month Treasury bill
rate plus 150 basis points for 1989; (iii) the average six-month Treasury bill
rate plus 100 basis points for 1990; and (iv) the average six-month Treasury
bill rate plus 50 basis points for the remaining years of the agreement. If the
actual yield on covered assets exceeded the guaranteed yield amount, the Bank
paid an amount equal to 50% of the excess to the FRF. The yield maintenance
earned by the Bank was recorded as income in the period to which it accrued. The
Letter of Intent to terminate the FRF assistance agreement (See Note 11 for
further discussion) provides that yield maintenance provisions of the agreement
will terminate as of September 30, 1992. Therefore, no yield maintenance income
or charge was recorded subsequent to September 30, 1992.
During the fourth quarter of 1991, the FRF elected to reimburse the Bank
for 75% of the estimated loss on certain commercial properties based on most
recent appraised values. This reimbursement, totaling $14,425,000, was received
during the first quarter of 1992 and is included in "Due from FRF" at
<PAGE> 17
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
December 31, 1991. The FRF will further reimburse the Bank for 75% of any
additional loss incurred upon the ultimate disposition of these properties.
However, as a result of this election, yield maintenance and expense
reimbursement for these properties has been discontinued.
The Bank has recorded a receivable in the amount of $2,271,000 and
$32,763,000 as of December 31, 1992 and 1991, respectively, which represents
fourth quarter amounts due from FRF for covered asset losses, yield subsidy
income on covered assets and other related claims. These amounts are included in
the consolidated statements of financial condition as "Due from FRF."
The Bank recognized $(1,785,000), $2,380,000 and $7,644,000 in yield
subsidy (expense)/income on covered assets, $157,000, $485,000, and $335,000 in
yield subsidy income on real estate operations and $414,000, $574,000, and
$819,000 in covered asset expense reimbursements by the FRF in 1992, 1991, and
1990, respectively.
The valuation allowances on covered assets and real estate owned at
December 31, 1992 and 1991, included the following:
<TABLE>
<CAPTION>
1992 1991
------- -------
<S> <C> <C>
(IN THOUSANDS)
Allowance for foreclosed or in-substance foreclosed property....... $21,325 $15,868
Allowance for property held for development and sale............... 603 453
Allowance for covered loans........................................ 2,730 6,136
------- -------
$24,658 $22,457
------- -------
------- -------
</TABLE>
An analysis of the Bank's valuation allowance on covered assets and real
estate owned for the three-year period ended December 31, 1992, is detailed as
follows:
<TABLE>
<CAPTION>
1992 1991 1990
------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Beginning Balance, January 1........................ $22,457 $ 50,648 $ 61,442
Provision......................................... 4,241 7,045 2,444
Charge-offs, net.................................. (2,040) (35,236) (13,238)
------- -------- --------
Ending Balance, December 31......................... $24,658 $ 22,457 $ 50,648
------- -------- --------
------- -------- --------
</TABLE>
<PAGE> 18
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
7. DEPOSITS:
The weighted average rate payable on all deposits at December 31, 1992 and
1991, was 4.92% and 6.41%, respectively. The rates at which the Bank paid
interest on deposits and the related balances of such deposits at December 31,
1992 and 1991, were as follows:
<TABLE>
<CAPTION>
1992
-------------------------
CARRYING FAIR
VALUE VALUE 1991
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Type and Rate:
Regular savings, from 2.75% to 5.00% at
December 31, 1992, and from 5.00% to 5.84% at
December 31, 1991............................ $ 137,622 $ 137,622 $ 84,444
NOW and money market deposits, from 2.25% to
7.38% at December 31, 1992, and from 4.13% to
7.70% at December 31, 1991................... 277,605 277,605 290,073
Certificates, from 2.75% to 12.50% at December
31, 1992, and from 3.88% to 12.50% at
December 31, 1991............................ 1,071,247 1,092,607 1,257,575
Non-interest bearing accounts.................. 17,494 17,494 11,418
Acquisition premium............................ 494 -- 1,473
---------- ---------- ----------
$1,504,462 $1,525,328 $1,644,983
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Interest on deposits consisted of the following:
<TABLE>
<CAPTION>
1992 1991 1990
------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Regular savings................................. $ 5,062 $ 3,698 $ 3,220
NOW and money market deposits................... 9,867 16,286 18,420
Certificates.................................... 71,425 93,558 108,708
------- -------- --------
$86,354 $113,542 $130,348
------- -------- --------
------- -------- --------
</TABLE>
At December 31, 1992 and 1991, the scheduled maturities of certificates
were as follows:
<TABLE>
<CAPTION>
1992 1991
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Within one year........................................... $ 648,553 $ 770,813
One to two years.......................................... 194,832 214,552
Two to three years........................................ 101,374 133,539
Thereafter................................................ 126,488 138,671
---------- ----------
$1,071,247 $1,257,575
---------- ----------
---------- ----------
</TABLE>
A gain of approximately $645,000, $195,000, and $423,000, respectively, was
recorded in 1992, 1991, and 1990 on the early redemption of approximately
$25,800,000, $7,500,000, and $8,100,000, respectively, of Loan-to-Lender
certificates of deposit arising from the acquisition of First Financial, as
discussed in Note 2. These certificates of deposit were issued by First
Financial in connection with various Louisiana Public Facilities Authority (the
"Authority") Loan-to-Lender Revenue Bond issues. Upon issuance of Revenue Bonds,
the Authority deposited the proceeds with First Financial which issued
Loan-to-Lender certificates of deposit which were "marked-to-market" in
connection with the Bank's acquisition of First Financial. The early redemption
of these certificates of deposit resulted from early retirement of the
associated bond issues.
<PAGE> 19
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
The gain recorded on the early redemption of these certificates of deposit
represents the unamortized premium remaining for the certificates which was
recorded in connection with the acquisition of First Financial. These amounts
are presented as an "Extraordinary Item" in the consolidated statements of
operations.
8. BORROWINGS:
Borrowings, net of related premiums, discounts and debt issuance costs, as
of December 31, 1992 and 1991, were as follows:
<TABLE>
<CAPTION>
1992
---------------------
CARRYING FAIR
VALUE VALUE 1991
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Federal Home Loan Bank advances.................... $270,252 $277,684 $188,234
Convertible subordinated debentures................ 8,753 7,751 8,719
Medium-term notes.................................. 35,850 39,450 45,739
Mortgages payable.................................. 3,315 3,325 3,371
Other.............................................. -- -- 45
-------- -------- --------
$318,170 $328,210 $246,108
-------- -------- --------
-------- -------- --------
</TABLE>
Borrowings as of December 31, 1992, mature as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
- ----------
<S> <C> <C>
1993............................................................ $ 91,712
1994............................................................ 74,751
1995............................................................ 50,175
1996............................................................ 38,310
1997............................................................ 23,863
Thereafter........................................................ 39,359
--------
$318,170
--------
--------
</TABLE>
The Bank has pledged as collateral for the Federal Home Loan Bank advances,
qualifying first mortgage loans in an amount in excess of approximately 125% of
the advances plus all of its Federal Home Loan Bank stock. The advances had
weighted average rates of 6.85% and 8.63% at December 31, 1992 and 1991,
respectively.
On June 2, 1986, the Bank issued $25 million principal amount of 7.5%
Convertible Subordinated Debentures due 2011. The debentures are convertible at
any time prior to maturity, unless previously redeemed, into shares of the
Bank's common stock at an initial conversion price of $10.22 per share. Interest
on the debentures is payable on June 1 and December 1 of each year. The
debentures are redeemable, in whole or in part, at the option of the Bank, at
declining redemption prices. The Bank is required to redeem annually
approximately 5% of the original principal amount of the debentures, commencing
on June 1, 1996, resulting in retirement of at least 75% of the original
principal amount of the debentures prior to maturity. No debentures were
converted to stock during 1992 and 1991. During 1990, the Bank redeemed
$7,957,000 of the convertible debt. A gain of $1,881,000 was recorded in
connection with the early extinguishment of the debt and this amount is
presented as an "Extraordinary Item" in the consolidated statements of
operations. See Note 7 for discussion of the remaining extraordinary gain in
1990. Debt issuance costs are being amortized over 25 years using the level
yield method. The Bank is allowed to include the debentures in supplementary
capital for purposes of determining total capital under the capital regulations
set forth by Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA") (See Note 10).
<PAGE> 20
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
In July 1987, the Bank filed a $200 million mortgage-backed medium-term
note shelf registration. The notes under this registration are issued in minimum
denominations of $100,000, range in maturity from nine months to fifteen years,
and are issued at fixed or variable rates of interest. During 1988, the Bank
issued $90.5 million in notes under the shelf registration. At December 31, 1992
and 1991, the interest rates on outstanding notes ranged from 9.33% to 9.63% and
9.15% to 9.63%, respectively. The notes outstanding at December 31, 1992, mature
at various dates ranging from August 1993 to August 1995. Mortgage-backed
securities with a book value of $64,581,000 are pledged as collateral on the
notes.
Mortgages payable at December 31, 1992, consisted primarily of a mortgage
on an apartment complex, representing the Bank's guarantee under a multifamily
housing bond issue. This mortgage bears interest at a fixed rate of 7.63% and
matures in October 1995. No principal is due prior to maturity.
Periodically, the Bank enters into sales of securities under agreements to
repurchase. The securities underlying the agreements remain in the asset
accounts in the consolidated statements of financial condition; however, the
securities underlying the agreements are physically delivered to national
securities dealers who arrange the transactions. During the terms of the
agreements, the dealers may have sold or loaned such securities to other parties
in the normal course of their operations and have agreed to resell to the Bank
the identical securities at the maturities of the agreements. At December 31,
1992 and 1991, there were no securities sold under agreements to repurchase.
Securities sold under agreements to repurchase averaged $5,644,000, $67,748,000
and $151,385,000 during 1992, 1991, and 1990, respectively, and the maximum
amount outstanding at any month-end during 1992, 1991, and 1990 was $24,634,000,
$200,394,000, and $266,878,000, respectively.
9. EMPLOYEE BENEFIT PLANS:
PROFIT SHARING PLAN --
The Bank has a defined contribution profit sharing plan. The Plan was
effective January 1, 1983, and covers all employees who meet certain age and
service requirements. The Bank's contributions to the Plan are comprised of an
amount determined at the discretion of the Board of Directors and a required
amount to match 25% of each employee's voluntary contribution up to 6% of the
employee's compensation. No discretionary contribution was made for 1992. The
discretionary contribution for 1991 and 1990 was $100,000 and $125,000,
respectively. Total expense to the Bank under the Plan was $198,000, $214,000,
and $219,000, in 1992, 1991, and 1990, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") --
In May 1985, the Bank adopted a defined contribution, leveraged, ESOP.
Under the ESOP, the Bank can make annual contributions for the benefit of
eligible employees, in the form of either cash, common shares, or preferred
shares of the Bank. The amount of the annual contribution is discretionary
except that it must be sufficient to enable the ESOP to meet its current
obligations. The Bank has received a determination letter from the Internal
Revenue Service qualifying the ESOP under the Internal Revenue Code. The annual
discretionary contribution was $150,000, $400,000, and $474,000 for 1992, 1991,
and 1990, respectively. Total expense to the Bank under the ESOP was $161,000,
$439,000, and $355,000 in 1992, 1991, and 1990, respectively.
The Bank is authorized to issue 10,000 shares of preferred stock, $100 par
value, that is restricted to ownership by the ESOP. During 1988, 10,000 shares
were issued to the Plan and were funded by a loan obtained by the ESOP from a
local commercial bank which was repaid in 1991.
A defined benefit pension plan of an acquired institution was terminated
effective December 31, 1988. The termination of this plan was approved by both
the Pension Benefit Guaranty Corporation and the Internal
<PAGE> 21
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
Revenue Service. Reversionary benefits of $134,000 are included in the Bank's
discretionary contribution to the ESOP in 1990 and reduced total expense to the
Bank for that year.
POST RETIREMENT BENEFITS --
In December, 1990, the FASB issued SFAS No. 106, "Accounting for Post
Retirement Benefits Other Than Pensions," adoption of which is required by 1993.
The Bank has not implemented SFAS No. 106 as of December 31, 1992; however, had
the new accounting standard been implemented by the Bank, the effect on the
consolidated financial statements would not have been significant.
10. STOCKHOLDERS' EQUITY:
Current regulations require that savings institutions maintain capital
sufficient to meet three requirements, as defined: (1) a leverage ratio
requirement, (2) a risk-based capital requirement, and (3) a tangible capital
requirement. The leverage capital requirement is equal to 3% of adjusted total
assets (the OTS has proposed to increase this minimum level to at least 4% for
all but the most highly rated institutions), the risk-based capital requirement
is equal to 8% of risk-based assets, and the tangible capital requirement is
equal to 1.5% of adjusted total assets. In December 1992, the capital standards
under FDICIA became effective. These regulations established capital standards
in five categories ranging from "critically undercapitalized" to "well
capitalized," and defined "adequately capitalized" as at least 4% for core
(leverage) capital. Institutions with a core capital level less than 4% or
risk-based capital less than 8% are considered "undercapitalized," and subject
to increasingly stringent prompt corrective action measures. The Bank was in
compliance with all three capital requirements as of December 31, 1992.
At the time of conversion from a mutual to stock association (November 6,
1985), the Bank was required by the Federal Home Loan Bank Board ("FHLBB") to
establish a "liquidation account" for the benefit of persons who were account
holders as of December 31, 1982, ("Eligible Account Holders") and persons who
were account holders as of June 30, 1985, ("Supplemental Eligible Account
Holders") who continue to maintain their account in the Bank after the date of
conversion. This special account was credited with an amount equal to the net
worth of the Bank on June 30, 1985 ($20,078,000 unaudited). Each Eligible
Account Holder and Supplemental Eligible Account Holder will, with respect to
each savings account held, have a related interest in a portion of the balance
of the liquidation account. This interest is referred to as a "subaccount
balance." The interest of each Eligible Account Holder and each Supplemental
Eligible Account Holder is reduced annually by an amount proportionate to any
reduction in savings account balances measured on December 31 of each year
beginning December 31, 1982, for Eligible Account Holders and December 31, 1985,
for Supplemental Eligible Account Holders. In the event of a complete
liquidation of the Bank, each such account holder will be entitled to a
liquidation distribution from the liquidation account in an amount equal to the
then current adjusted subaccount balance for savings accounts then held, before
any liquidation distribution may be made with respect to capital stock.
The Bank issued to the FSLIC 26,670 shares of Series B, Class 1 Preferred
Stock in conjunction with the acquisition of First Financial (See Note 2). The
preferred stock provides for quarterly payments of cumulative dividends of 12.5%
per annum, has a stated value of $2,000 per share, and is redeemable at the
option of the Bank at any time at a redemption value of $2,000 per share plus
any dividends accrued and unpaid. The Bank is also authorized to issue up to
27,000 shares of Series B, Class 2 Preferred Stock to any person purchasing the
Class 1 shares from the FRF. See discussion in Note 11 regarding the Bank's
recently executed Letter of Intent to repurchase the outstanding preferred stock
held by the FRF in 1993.
During 1988, the Bank issued 10,000 shares of Series A, 1987, 8% Cumulative
Convertible Preferred Stock, with a par value of $100 per share. The preferred
stock is unregistered and is restricted to ownership by the ESOP (See Note 9).
Each share of stock is convertible, at the option of the Bank, to 8.33 shares of
common stock. The ESOP will receive dividends, if declared, of 8% per annum per
share, payable on a semi-
<PAGE> 22
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
annual basis. The ESOP funded the purchase of the stock with a $1 million loan
from a commercial bank. The loan was repaid by the ESOP in quarterly
installments in the amount of $100,000 each, which began on December 31, 1988,
with interest at a rate of 8% per annum and was completely repaid in 1991. The
ESOP funded the repayment of the debt with contributions made by the Bank. As
the loan was repaid, the Bank reduced the liability and corresponding charge to
stockholders' equity recorded on its books.
The Bank may not pay dividends on or repurchase any of its common stock if
the effect thereof would reduce net worth below the amount required for the
liquidation account, below the fully phased-in capital requirements prescribed
by the OTS, or below the adequately capitalized level as defined by FDICIA.
On May 16, 1990, the Board of Directors suspended the declaration of all
dividends. Accordingly, no dividends were declared, accrued or paid subsequent
to that date. Preferred stock dividends not accrued or paid were $6,748,000
annually, or $1.90 per common share, for the years ended December 31, 1992 and
1991, and $5,061,000, or $1.43 per common share, for the year ended December 31,
1990. Earnings per share have been reduced by the effect of each year's
preferred stock dividends in arrears. Cumulative preferred stock dividends in
arrears at December 31, 1992, totaled $18,557,000. The resumption of the payment
of dividends must be approved by the OTS.
11. COMMITMENTS AND CONTINGENCIES:
The Bank 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 exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit,
over-the-counter put options, and interest rate swaps. These instruments
involve, to varying degrees, elements of credit, interest rate, and market risk
in excess of the amount recognized in the consolidated statements of financial
position. Credit risk is defined as the possibility that a loss may occur from
the failure of another party to perform according to the terms of the contract.
Market risk is defined as the possibility that future changes in the market
price may make a financial instrument less valuable or more costly. The contract
or notional amounts of those instruments reflect the extent of involvement the
Bank has in particular classes of financial instruments. Financial instruments
with off-balance-sheet risk at December 31, 1992, were:
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
---------------
(IN THOUSANDS)
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit (including commitments on loans to be
sold to investors)............................................... $ 142,467
Standby letters of credit........................................... 23,588
Unused consumer lines of credit..................................... 33,396
Financial instruments whose notional or contract amounts represent
market risk:
Interest rate swap agreements....................................... 169,900
Over-the-counter put options........................................ 10,000
</TABLE>
The Bank estimates the fair value of the above off-balance-sheet
commitments based upon the net current settlement values of the individual
instruments, which was a payable of $7,743,000 at December 31, 1992 (consisting
of a payable of $7.7 million on interest rate swap agreements offset by a
receivable on the over-the-counter put options of $24,000).
For commitments to extend credit and standby letters of credit, the Bank's
exposure to credit loss in the event of nonperformance by the other party is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. For interest rate swap transactions, the
contract or notional amounts do not
<PAGE> 23
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
represent exposure to credit loss but rather give an indication of the volume of
the transactions. The Bank controls the credit risk of its interest rate swap
agreements through credit approvals, limits, and monitoring procedures.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since a portion of the commitments are
expected to expire without being drawn upon, the total commitment amount does
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank, upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include real estate, personal property, and income-producing commercial
properties.
Outstanding commitments to extend credit are for loans with a weighted
average coupon rate of 7.74%, excluding discount points, and a weighted average
maturity of 25 years. Approximately 7% of these commitments are for loans to be
sold to investors upon final origination.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. These commitments
expire at various times between October 1995 and October 1997. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers. The commitments are collateralized by real
property. The extent of collateral held for these commitments at December 31,
1992, varies from 99% to 128% of the commitment amount; the average amount
collateralized is 111%. In addition, the Bank has pledged $24,542,000 in
mortgage-backed securities in connection with standby letters of credit
agreements.
To hedge/mitigate the aforementioned market risk inherent in the
origination of mortgage loans, the Bank uses over-the-counter put options.
Options are considered by many in the financial markets as "insurance" against
adverse price movement, while offering the flexibility to benefit from possible
favorable price movement. An option, when purchased, gives the buyer the right,
but not the obligation, to buy or sell a specific amount (the notional amount)
of a specific commodity at a specific price, within a specified period of time.
The Bank has entered into interest rate swap agreements with major
investment and banking firms for the purpose of hedging outstanding borrowings
to assist in its overall asset/liability management strategy. Interest rate swap
transactions generally involve the exchange of fixed and floating rate interest
payment obligations without the exchange of the underlying notional principal
amounts. The agreements, which expire from 1993 to 1996, provide for fixed and
variable rate interest payments (ranging from 3.12% to 13.43%) by the Bank and
fixed and variable rate interest receipts (ranging from 3.25% to 8.35%) on
approximately $169.9 million notional principal amount at December 31, 1992. At
December 31, 1992, the weighted average interest rate payable and receivable on
swap agreements was 7.82% and 5.05%, respectively. Interest expense, net of
interest income, on the swap agreements is classified as "Hedge expense, net" in
the consolidated statements of operations. The Bank has provided letters of
credit totaling $9,800,000 and mortgage-backed securities totaling $4,244,000 as
collateral for these agreements. The letters of credit were issued by the FHLB
on behalf of the Bank.
Entering into interest rate swap agreements involves not only the risk of
dealing with counterparties and their ability to meet the terms of the contracts
but also the interest rate risk associated with unmatched positions if a
counterparty defaults. Notional principal amounts often are used to express the
volume of these transactions, but the amounts potentially subject to credit risk
are limited to the interest receivable from the counterparty less any interest
owed to that party.
<PAGE> 24
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
CASH RESTRICTIONS --
As of December 31, 1992 and 1991, cash on hand and in banks includes
$3,700,000 and $3,645,000, respectively, of required reserves held on deposit
with the FHLB.
LEASES --
The Bank leases land and certain of its office and branch facilities under
noncancelable operating lease agreements which expire between 1993 and 2011. The
majority of the leases provide for renewal options to extend the life of the
lease. The Bank subleases certain of these properties. The aggregate future
minimum payments and receipts under such operating leases and subleases that
have initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1992, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING FUTURE MINIMUM FUTURE MINIMUM
DECEMBER 31 LEASE PAYMENTS SUBLEASE RECEIPTS
------------------------------------------------- -------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
1993............................................. $ 1,833 $ 469
1994............................................. 1,148 349
1995............................................. 811 341
1996............................................. 709 341
1997............................................. 674 60
After 1997....................................... 4,874 6
-------------- -------
$ 10,049 $1,566
-------------- -------
-------------- -------
</TABLE>
FDIC ASSESSMENTS --
The responsibility of insuring deposits of savings institutions rests with
the SAIF. This fund, which is supervised by the FDIC, keeps insurance fees and
assessments from savings institutions separate from those paid by banks and is
backed by the full faith and credit of the U.S. Government.
The FDIC-SAIF assessments became effective January 1, 1990. The FDIC
assessment rates were $2.08 per $1,000 of deposits until December 31, 1990 and
were $2.30 per $1,000 from January 1, 1991, until December 31, 1992. The FDIC
Improvement Act of 1991 expanded the FDIC's assessment latitude, including the
ability to base assessments on risk profiles. As of January 1, 1993, the Bank's
assessment rate increased to $2.90 per $1,000 of deposits. The Bank was assessed
insurance premiums of $3,654,000 during 1992 by the FDIC.
In addition to the insurance assessments discussed above, the OTS was
empowered to assess savings institutions a "general assessment." This
assessment, which is based on an institution's total assets, allows the OTS to
raise funds to cover supervisory and operating expenses. During 1992, 1991, and
1990, the Bank was assessed $332,000, $340,000, and $464,000, respectively.
These amounts are presented in the consolidated statements of operations as
"Other operating expenses."
LETTERS OF INTENT --
On February 24, 1992, the Bank executed a Letter of Intent setting forth an
agreement in principle for the acquisition of the Bank by Union Planters
Corporation ("UPC"), a multi-state bank holding company headquartered in
Memphis, Tennessee. The negotiations were terminated later in 1992 because the
two parties could not agree to mutually acceptable terms.
In December 1992, the FDIC approved a proposed transaction between the Bank
and the FDIC as manager of the FRF which would (1) allow the Bank to purchase
its $53,340,000 in preferred stock held by
<PAGE> 25
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
the FRF (See Notes 2 and 10) and (2) provide for a settlement and termination of
the assistance agreement between the FRF and the Bank (See Notes 2 and 6).
The proposed transaction, which the Bank anticipates to be completed in
April 1993, is subject to (1) the execution by the FDIC and the Bank of a
definitive agreement, (2) approval of the definitive agreement by the OTS and
(3) approval by the Bank's stockholders.
Consideration to be paid for the repurchase of the $53,340,000 in preferred
stock, together with all related unpaid dividends in arrears, which totaled
$18,336,000 at December 31, 1992, is proposed to consist of the following:
-- The payment to the FDIC of $27,000,000 in a combination of cash
(approximately $15,000,000) and an initial credit related to the
settlement and termination of the covered assets assistance agreement
(approximately $12,000,000).
-- The issuance to the FDIC by the Bank of $8,000,000 of seven year 9.5%
subordinated debentures which may be redeemed by the Bank at its option
during the first six months of issue at 78.5% of par and thereafter at
par.
-- The issuance to the FDIC by the Bank of ten year warrants to purchase
25% of the fully diluted shares of the Bank's common stock (or
approximately 1,600,000 shares) at an exercise price of $2.00 per share.
The proposed settlement and termination of the assistance agreement, which
originated with the Bank's acquisition of two Louisiana thrifts in 1987 (See
Notes 2 and 6), was also approved by the FDIC. In general, the settlement will
be based upon the valuation or disposition of the covered assets and contingent
liabilities of the acquired institutions, including pre-acquisition legal
matters referred to below.
Any loss resulting from the valuation or disposition of the covered assets
will be borne 75% by the FDIC and 25% by the Bank. The FDIC has agreed to pay
the Bank $3,000,000 to assume responsibility for contingent liabilities of the
acquired institutions.
PENDING TRANSACTIONS --
On September 3, 1992, the Bank signed a definitive agreement with AmSouth
Bank, N.A. for the sale of five of the Bank's Alabama branches and on October
20, 1992, the Bank signed a definitive agreement with West Alabama Bank and
Trust for the sale of three of the Bank's Alabama branches. These agreements are
subject to various regulatory approvals and are in accordance with the Bank's
strategic plan for downsizing the balance sheet through redefinition of the
Bank's branch delivery system. Based on December 31, 1992 balances, the proposed
branch sales will approximate $121,300,000 in deposits, $45,400,000 in loans,
and the sale of all related facilities and branch assets. It is anticipated that
these transactions will be closed in the first half of 1993.
LEGAL MATTERS --
The Bank is a party to a number of claims and lawsuits generally common to
its operations. Certain of these matters involve lawsuits filed against acquired
institutions on actions prior to their respective acquisition dates. In the
event actual losses related to the acquired institutions exceed reserves
established for such purposes at the acquisition dates, the Bank will be
reimbursed between 90% and 100% of losses in excess of such amounts, depending
on the specific assistance agreement. However, upon the completion of the
proposed settlement and termination of the assistance agreement discussed above,
the FDIC has agreed to pay the Bank $3,000,000 to assume responsibility for
contingent liabilities of the acquired institutions. Reserves have been provided
for the expected losses to be incurred with respect to claims and lawsuits and
are classified in "Other Liabilities" in the accompanying consolidated
statements of financial condition. Management is of the opinion
<PAGE> 26
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
that final disposition of these matters will not have a material effect on the
Bank's financial condition and results of operations.
In October, 1991, a jury in the Circuit Court of Jefferson County rendered
a verdict against the Bank in the aggregate amount of $3,525,000 (subsequently
reduced by a judgment to $2,100,000) for alleged breaches of contract, fraud,
and punitive damages. The judgment has been appealed by both parties. The Bank
recorded a provision in 1991 for management's estimate of probable loss in
connection with this matter.
12. STOCK OPTION PLAN:
The Bank has 161,771 shares of common stock reserved for issuance under the
1988 Stock Option Plan and 317,250 shares of common stock reserved for issuance
under the 1985 Stock Option Plan. The Bank has granted total options under both
plans, net of cancellations, for 337,625 shares as of December 31, 1992.
The Plans provide that the option price may not be less than the fair
market value of the shares on the date of the grant. The options granted can be
exercised beginning one year from the date of the grant (except the May 1986
options which were not exercisable until May 1988 and the December 1987 options
which were not exercisable until December 1989). The options under both Plans
expire ten years after the date of the grant. The Plans also provide that stock
appreciation rights may be granted concurrently with stock options under the
Plans. The appreciation rights entitle the participant to receive shares of
common stock or cash for the excess of the fair market value of the stock at the
date of exercise over the option price. Stock appreciation rights totalling
72,000 were outstanding under the Plans as of December 31, 1992.
Information with respect to the stock options for the years ended December
31, 1992, 1991, and 1990, is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICE
--------- ------------
<S> <C> <C>
Outstanding, December 31, 1989............................... 197,875 $5.11-10.33
Granted.................................................... 50,000 5.25
Canceled................................................... (39,750) 9.44-10.33
--------- ------------
Outstanding, December 31, 1990............................... 208,125 $5.11- 9.44
Granted.................................................... 94,500 3.88- 7.19
Canceled................................................... (33,375) 7.67- 9.44
--------- ------------
Outstanding, December 31, 1991............................... 269,250 $3.88- 9.44
Granted.................................................... 20,000 7.25
Canceled................................................... (67,500) 5.11- 7.19
--------- ------------
Outstanding, December 31, 1992............................... 221,750 $3.88- 9.44
--------- ------------
--------- ------------
</TABLE>
The weighted average exercise price of options outstanding at December 31,
1992, was $5.61.
<PAGE> 27
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
13. INCOME TAXES:
The provision for income taxes for each of the three years in the period
ended December 31, 1992, consisted of the following:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
(IN THOUSANDS)
Current --
Federal....................................................... $828 $567 $ --
State......................................................... 48 10 --
---- ---- ----
$876 $577 $ --
---- ---- ----
Deferred --
Federal....................................................... $ -- $ -- $ --
State......................................................... -- -- --
---- ---- ----
$ -- $ -- $ --
---- ---- ----
$876 $577 $ --
---- ---- ----
---- ---- ----
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory Federal income tax rate (34%) for the following reasons:
<TABLE>
<CAPTION>
1992 1991 1990
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Provision for Federal income taxes at statutory rate.... $ 2,410 $ 1,907 $ 253
Goodwill amortization................................... (80) 791 (106)
Core deposit amortization............................... 241 627 320
Bad debt deduction...................................... (3,335) (9,166) (3,038)
Tax benefit of net operating loss not recognized........ 554 9,524 9,445
Tax exempt interest income.............................. (34) (34) (34)
Tax exempt interest on FRF/FSLIC note................... (56) (2,066) (3,293)
Tax exempt FRF/FSLIC yield subsidy...................... 469 (1,033) (2,885)
Purchase discount accretion............................. (310) (554) (557)
Other, net.............................................. 141 4 (105)
Alternative minimum tax and state income tax............ 876 577 --
------- ------- -------
$ 876 $ 577 $ --
------- ------- -------
------- ------- -------
</TABLE>
Deferred income taxes result from differences in the timing of the
recognition of income and expense for tax and financial statement purposes. The
sources of these differences and their related tax effects were as follows:
<TABLE>
<CAPTION>
1992 1991 1990
------- ------- -----
<S> <C> <C> <C>
(IN THOUSANDS)
Loan fees and discounts deferred for tax purposes......... $(1,158) $ 186 $(626)
REMIC income.............................................. 8,443 (5,725) --
FHLB stock dividends...................................... (439) 503 535
Conversion from cash basis accounting to accrual basis
accounting for income tax purposes...................... -- -- (80)
Difference between tax and book basis of assets sold...... 170 (203) (75)
Other, net................................................ 974 (1,136) 397
Tax benefit of net operating loss recognized.............. (7,990) 6,375 (151)
------- ------- -----
Net deferred provision (credit)...................... $ -- $ -- $ --
------- ------- -----
------- ------- -----
</TABLE>
<PAGE> 28
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
For Federal income tax purposes, the Bank files a consolidated Federal
income tax return with its subsidiaries. The Bank files an Alabama financial
institution excise tax return and the subsidiaries file an Alabama domestic
corporation income tax return.
As a result of prior year income tax net operating losses and the
acquisition of First Financial (See Note 2), net operating losses of
approximately $88,000,000 are available at December 31, 1992, to reduce future
Federal income taxes payable through 2006. Net operating losses of approximately
$32,000,000 are also available at December 31, 1992, to reduce future State of
Alabama taxes payable. Additionally, at December 31, 1992, the tax basis of net
assets exceeded their related carrying values for financial reporting purposes
by approximately $53,000,000. These loss carryforwards and excess tax basis
result in a potential unrecorded tax benefit of $48,000,000 at a current
statutory income tax rate of 34%. Current proposals indicate these potential tax
benefits could be significantly reduced through changes in legislation.
Under the Tax Reform Act of 1986, the Bank is also subject to alternative
minimum tax. The Bank has approximately $43,000,000 in alternative minimum tax
("AMT") net operating loss carryforwards to reduce alternative minimum taxes
payable through 2005. The AMT net operating loss carryforwards may be used to
offset only 90% of the AMT taxable income each year.
The net operating loss carryforwards available to the Bank for income tax
purposes as of December 31, 1992, will expire as follows:
<TABLE>
<CAPTION>
FEDERAL
------------------
REGULAR AMT STATE
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
1993.................................................. $ 5,000 $ 8,000 $ --
1994.................................................. -- -- --
1995.................................................. -- -- --
1996.................................................. -- -- 14,000
1997.................................................. -- -- --
After 1997.............................................. 83,000 35,000 18,000
------- ------- -------
$88,000 $43,000 $32,000
------- ------- -------
------- ------- -------
</TABLE>
During 1991 and 1990, the Bank purchased REMIC "R" bonds (See Note 3). The
Bank, as holder of these bonds, must include the taxable income or loss of the
REMIC in determining its Federal taxable income. During the early years of the
REMIC, the REMIC's taxable income will exceed the income on the bonds reported
for financial statement purposes. Under current tax law and regulations, the
Bank may use future tax losses as well as current net operating loss
carryforwards to offset such taxable income. In the later years of the REMIC,
the REMIC will realize tax losses which will serve to reduce future taxable
income or generate net operating loss carryforwards.
14. ASSETS HELD FOR SALE:
Assets held for sale include mortgage loans originated and intended for
sale in the secondary market and mortgage-backed securities not held on a
long-term basis and are carried in the consolidated statements of financial
condition at the lower of cost or fair value. Assets held for sale at December
31, 1992 and 1991, consisted of the following:
<TABLE>
<CAPTION>
1992 1991
------- --------
<S> <C> <C>
(IN THOUSANDS)
Mortgage loans...................................... $14,219 $ 7,717
Mortgage-backed securities.......................... -- 113,657
------- --------
$14,219 $121,374
------- --------
------- --------
</TABLE>
<PAGE> 29
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS:
LETTER OF INTENT --
The transaction between the Bank and the FDIC regarding the repurchase of
the Bank's $53,340,000 in preferred stock and settlement of the assistance
agreement (See Note 11) was completed on April 30, 1993. The transaction
(including the redemption at 78.5% of par of the $8,000,000 subordinated
debentures on May 7, 1993), added approximately $20,000,000 to common
stockholders' equity.
DEFINITIVE AGREEMENT --
On May 26, 1993, the Bank executed a definitive agreement which provides
for the acquisition of the Bank by First Alabama Bancshares, Inc. ("First
Alabama"). The agreement provides that each share of the Bank's outstanding
stock would be converted into 0.667 of a share of First Alabama common stock,
subject to adjustment.
The proposed exchange ratio would be adjusted pursuant to a formula which
in effect offsets fifty percent of any decline in market value of First Alabama
common stock between $33.00 and $25.50 per share. Similarly, the exchange ratio
would be adjusted in a manner which would benefit each share of the Bank's stock
by fifty percent of any increase in the market value of First Alabama common
stock above $33.00 per share. The market value of First Alabama common stock to
be used in the pricing formula will be determined based upon the average closing
price over the ten trading days ending on the date that the parties receive the
approval of the OTS.
At a price of $33.00 per share of First Alabama common stock, the exchange
ratio would remain unchanged at 0.667, providing a market value equivalent of
$22.01 for each share of the Bank's common stock. At a price of $25.50 per share
of First Alabama common stock, the exchange ratio would be adjusted to 0.765,
the highest possible ratio under the formula, providing a market value
equivalent of $19.50 for each share of the Bank's common stock. If the market
value of First Alabama common stock were to be below $25.50, the exchange ratio
would remain unadjusted at 0.667 and the Bank would have the option of
terminating the transaction.
The increased market value of First Alabama common stock to be received by
the Bank's stockholders if the market value of First Alabama common stock
exceeds $33.50 per share is limited only by the formula's fifty percent sharing
arrangement.
The definitive agreement further provides that the warrants presently held
by the FDIC, as manager of the FSLIC Resolution Fund, to purchase in the
aggregate 1,577,875 shares of the Bank's common stock will be canceled at the
effective time of the transaction in consideration for a cash payment to the
FDIC. For each share of the Bank's common stock subject to a warrant, such cash
payment would be equal to the market value of the First Alabama common stock to
be received for each share of the Bank's common stock in the transaction less
the $2.00 exercise price of the warrant.
In addition, all stock options and outstanding convertible debentures
issued by the Bank will be assumed by First Alabama and the one series of
convertible preferred stock of the Bank currently outstanding and held by the
Bank's ESOP will be converted into First Alabama common stock, in each case on a
basis that reflects the exchange ratio of the Bank's common stock for First
Alabama common stock.
The proposed acquisition is subject to various conditions, including
completion of appropriate due diligence satisfactory to First Alabama, approval
of appropriate regulatory authorities, approval of the shareholders of the Bank,
and approval of the FDIC as manager of the FSLIC Resolution Fund.
<PAGE> 30
SECOR BANK, FEDERAL SAVINGS BANK
NOTES TO CONSOLIDATED STATEMENTS -- (CONTINUED)
COMPLETED BRANCH SALE --
On April 8, 1993, the Bank completed the sale of five of the Bank's Alabama
branches to AmSouth Bank, N.A. (See Note 11). The Bank received a premium of
approximately $2,400,000 for the sale of approximately $73,000,000 in deposits
and $34,000,000 in loans. It is anticipated that any gain on this transaction
will be offset by certain charges related to the branch restructuring plan.
LEGAL PROCEEDINGS --
On April 16, 1993, the Supreme Court of Alabama reversed the $2,100,000
judgment against the Bank related to the matter discussed in Note 11, and
remanded the matter to the trial court for a new trial.
<PAGE> 1
Exhibit 99.2
SECOR BANK, FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1993
-------------
ASSETS
- ------
<S> <C>
Cash and Investments:
Cash on hand and in banks $ 8,264
Interest bearing deposits 57,149
Investment securities, at cost 239,963
Accrued interest on investments 2,750
-----------
$ 308,126
-----------
Loans Held for Sale (Note 2) $ 15,960
-----------
Loans Receivable, Net $ 1,059,093
-----------
Mortgage-Backed Securities, Net $ 389,124
-----------
Covered Assets, Net (includes FRF $ 1,830
assistance of $1,416) -----------
Land, Buildings and Equipment, Net $ 17,262
-----------
Real Estate Owned, Net $ 7,064
-----------
Other Assets:
Due from FRF $ 5,333
Prepaid expenses and other assets 33,915
Accrued interest receivable on loans 6,685
Accrued interest receivable on
mortgage-backed securities 3,298
Core deposit intangible, net of
amortization of $6,057 521
Purchased mortgage servicing, net of
amortization of $2,911
1,808
-----------
$ 51,560
-----------
$ 1,850,019
===========
</TABLE>
See accompanying notes to consolidated statements.
<PAGE> 2
SECOR BANK, FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1993
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C>
Liabilities:
Deposits $ 1,363,919
Other borrowings 331,803
Deposits by borrowers for taxes
and insurance 15,021
Accrued interest payable 10,439
Other liabilities 17,088
Accrued income taxes payable 932
------------
$ 1,739,202
------------
Stockholders' Equity (Notes 3 and 4):
Preferred stock, Series B, Class 1,
12.5% cumulative, stated
redemption value of $2,000,
27,000 shares authorized,
none issued and outstanding at
September 30, 1993
(Note 4) $ -
Convertible preferred stock,
Series A, 8% cumulative,
$100 par value, 10,000
shares authorized,
issued and outstanding (Note 3) 1,000
Common stock, $.01 par value,
15,000,000 shares authorized,
4,547,540 shares
issued and outstanding 45
Common stock warrants (Note 4) 18,935
Paid-in capital 28,608
Retained earnings 62,229
------------
$ 110,817
------------
$ 1,850,019
============
</TABLE>
See accompanying notes to consolidated statements.
<PAGE> 3
SECOR BANK, FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1993 1992
-------- --------
Interest Income:
<S> <C> <C>
Interest on loans $ 71,828 $ 71,565
Interest on mortgage-backed securities 23,909 33,161
Interest on covered assets 2,975 3,420
Yield subsidy income on covered assets - (841)
Interest and dividends on investment securities 11,530 12,077
Interest on collateralized mortgage obligations 234 (4,758)
Other interest income 1,694 1,929
-------- --------
Total interest income $112,170 $116,553
-------- --------
Interest Expense:
Interest on deposits $ 50,592 $ 67,304
Interest on borrowings 18,420 15,432
Hedge expense, net 3,014 3,217
-------- --------
Total interest expense $ 72,026 $ 85,953
-------- --------
Net interest income $ 40,144 $ 30,600
Provision for Losses on Loans 1,250 3,110
-------- --------
Net interest income after provision for
losses on loans $ 38,894 $ 27,490
-------- --------
Other Income:
Fees and miscellaneous charges on loans $ 1,983 $ 3,691
Gain on sale of loans, investments and
mortgage-backed securities, net 334 9,526
Miscellaneous operating and nonoperating
income, net 4,099 3,698
-------- --------
Total other income $ 6,416 $ 16,915
-------- --------
Operating Expenses:
Salaries and employee benefits $ 14,666 $ 13,974
Office building and equipment expense 4,307 4,590
Advertising 900 1,103
Insurance expense 3,864 3,739
Data processing expense 2,659 2,803
Amortization of intangibles 511 1,073
Loss on real estate and covered
assets, net 1,795 4,458
Other operating expenses 6,012 7,077
-------- --------
Total operating expenses $ 34,714 $ 38,817
-------- --------
</TABLE>
See accompanying notes to consolidated statements.
<PAGE> 4
SECOR BANK, FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1993 1992
-------- ---------
<S> <C> <C>
Income before income taxes,
extraordinary item, and
preferred stock dividends $ 10,596 $ 5,588
Provision for Income Taxes 345 870
-------- --------
Income before extraordinary
item and preferred stock
dividends $ 10,251 $ 4,718
Extraordinary Item - 645
-------- --------
Net income before preferred
stock dividends (Note 4) $ 10,251 $ 5,363
Preferred stock dividends 280 -
-------- --------
Net Income $ 9,971 $ 5,363
======== ========
Earnings Per Share:
Primary
Income before extraordinary item $ 2.20 $ (.10)
Extraordinary Item - .18
------- --------
Net income $ 2.20 $ .08
======== ========
Fully Diluted
Income before extraordinary item $ 1.95
Extraordinary item -
--------
Net income $ 1.95
========
Weighted Average Shares Outstanding:
Primary 4,623 3,604
========= ========
Fully Diluted 5,483
=========
</TABLE>
See accompanying notes to consolidated statements.
<PAGE> 5
SECOR BANK, FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1993 1992
-------- --------
(Note 6)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 9,971 $ 5,363
Adjustments to reconcile net income
to net cash provided from operating
activities:
Extraordinary Item - (645)
Depreciation 2,434 2,763
Accretion of deferred income (2,173) (3,352)
Accretion of negative goodwill (616) (616)
Amortization of intangibles 1,785 1,073
Provision for losses on loans,
real estate owned and covered assets 2,377 6,394
Net loan fees (expenses) deferred (32) (540)
Federal Home Loan Bank stock dividend (946) (1,053)
Proceeds received from portfolio loan
sales 66,339 90,715
Charge-off of market entry and core
deposit intangibles 3,149 -
Net (gain)/loss on disposition/sale of:
Loans, mortgage-backed securities
and investments (334) (9,526)
Land, buildings and equipment (118) (224)
Changes in assets and liabilities:
(Increase)Decrease in accrued
interest on investments 1,242 (390)
(Increase)Decrease in accrued
interest on loans and mortgage-
backed securities (18) 2,510
(Increase)Decrease in due from FRF (3,062) 34,355
(Increase)Decrease in prepaid
expenses and other assets (27,168) 1,115
(Decrease) in accrued
interest payable (2,355) (2,757)
(Decrease)Increase in other
liabilities and accrued income
taxes payable (366) 5,368
-------- --------
Net cash provided from operating activities $ 50,109 $ 130,553
-------- --------
</TABLE>
See accompanying notes to consolidated statements.
<PAGE> 6
SECOR BANK, FEDERAL SAVINGS BANK
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1993 1992
--------------------
(Note 6)
<S> <C> <C>
Cash Flows From Investing Activities:
Proceeds received from maturing
investments $ 44,134 $ 44,013
Mortgage-backed securities purchased (10,025) (68,084)
Repayments on mortgage-backed securities 113,606 107,332
Proceeds received from investor loan sales 17,375 78,503
Proceeds received from sale of mortgage-
backed securities - 146,880
Loan originations, net of repayments (52,001) (254,170)
Proceeds received from disposition of
covered assets and real estate owned 43,811 15,332
Proceeds received from sale of land,
buildings and equipment 1,230 417
Purchase of investments (40,899) (153,323)
Capital expenditures (1,177) (1,054)
--------- ---------
Net cash provided from investing
activities $ 116,054 $ (84,154)
-------- --------
Cash Flows From Financing Activities:
Proceeds received from borrowings $ 108,000 $ 263,866
Net decrease in deposits (140,414) (103,471)
Repayments of borrowings (83,825) (202,727)
Increase in deposits by borrowers for
taxes and insurance 3,959 4,325
Proceeds received from exercise of stock
options 566 -
Redemption of FRF preferred stock (53,340) -
Discount of redemption of FRF debentures - -
Issuance of common stock warrants 18,935 -
Discount on redemption of FRF preferred
stock (595) -
--------- ---------
Net cash provided from (used in)
financing activities $(146,714) $ (38,007)
-------- --------
Net Increase in Cash and Cash Equivalents $ 19,449 $ 8,392
Cash and Cash Equivalents at Beginning of Period 45,964 51,063
-------- ---------
Cash and Cash Equivalents at End of Period $ 65,413 $ 59,455
======== ========
</TABLE>
See accompanying notes to consolidated statements.
<PAGE> 7
SECOR BANK, FEDERAL SAVINGS BANK
AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Secor Bank, Federal Savings Bank ("the Bank") and its
wholly owned subsidiaries. Significant intercompany balances and
transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present a fair presentation
of the consolidated financial condition and results of operations of
the Bank for the interim periods. The results of operations for the
nine months ended September 30, 1993, are not necessarily indicative
of the results which may be expected for the entire year.
The 1992 consolidated financial statements presented herein have been
reclassified in certain instances in order to conform with the 1993
financial statement presentation.
(2) LOANS HELD FOR SALE
Loans held for sale consist of loans originated and intended for sale
in the secondary market, and are carried in the consolidated
statement of financial condition at the lower of aggregate cost or
fair value.
(3) STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
On May 16, 1990, the Board of Directors suspended the declaration of
all dividends. Accordingly, except as discussed below, no dividends
were declared or paid during the periods ended September 30, 1993.
In the quarter ended September 30, 1993, the Bank, after having
received approval from the Office of Thrift Supervision ("OTS"), paid
$280,000 in preferred stock dividends related to its Series A, 8%
cumulative convertible preferred stock held by the Bank's Employee
Stock Ownership Plan ("ESOP"). This payment satisfied all current
dividends, as well as all dividends in arrears. On October 1, 1993,
this preferred stock issue was converted to 83,300 shares of the
Bank's common stock. The payment of the dividends, as well as the
subsequent conversion to common stock, is a result of the Bank's
planned termination of its ESOP to be effective with the pending
acquisition of the Bank by First Alabama Bancshares, Inc. (see Note
5).
On August 2, 1993, the Bank, after having received approval from the
OTS, issued notices of redemption on all of its 7.5% convertible
subordinated debentures. Under the terms of the debentures, the
debentures are convertible into shares of the Bank's common stock at a
conversion price of $10.22 per share.
<PAGE> 8
Subsequent to the issue of the notices of redemption and prior to the
stated redemption date (October 1, 1993), holders of $9,025,000 of
debentures elected to convert their debentures to 883,016 shares of
the Bank's common stock. The remaining $10,000 of debentures were
redeemed at the stated price of 102.25%. Unamortized debt issuance
cost related to the debentures of $258,364 was charged to paid-in
capital as of September 30, 1993.
As discussed in Note 4, on April 30, 1993, the Bank completed the
repurchase of its $53.3 million in preferred stock held by the Federal
Savings and Loan Insurance Corporation ("FSLIC") Resolution Fund
("FRF") and settlement of the covered assets assistance agreement. In
addition, cumulative dividends in arrears related to the FRF preferred
stock of $20,002,500 as of March 31, 1993, were relinquished.
As a result of the foregoing transactions, there were no cumulative
preferred stock dividends in arrears at September 30, 1993, compared
to $18,557,000 at December 31, 1992. For purposes of computing
earnings per share, preferred stock dividends have been deducted in
the amount of $20,000 and $60,000 for the nine months ended September
30, 1993, and $1,686,875 and $5,060,625 for the nine months ended
September 30, 1992.
(4) REPURCHASE OF FRF PREFERRED STOCK
On April 28, 1993, the Bank's shareholders approved a proposed
transaction between the Bank and the FDIC, as manager of the FRF, for
the (1) repurchase by the Bank of its $53,340,000 in preferred stock
held by the FRF and (2) settlement and termination of the assistance
agreement between the FRF and the Bank. The stock repurchase
transaction, which was consummated on April 30, 1993, consisted of the
following:
- The payment to the FDIC of approximately $27 million in a
combination of cash (approximately $15 million) and an initial
credit related to the settlement and termination of the
covered assets assistance agreement (approximately $12
million).
- The issuance to the FDIC by the Bank of $8 million of seven
year 9.5% subordinated debentures, which were redeemed by the
Bank at its option on May 7, 1993, at 78.5% of par.
- The issuance to the FDIC by the Bank of ten year warrants to
purchase 25% of the fully diluted shares of the Bank's common
stock (or 1,577,875 shares) at an exercise price of $2.00 per
share. See Note 5 which describes the impact of the warrants
on the pending acquisition of the Bank by First Alabama
Bancshares, Inc.
The impact of the above transaction, including the redemption of the
9.5% subordinated debentures, was to increase common stockholders'
equity by $20.1 million. In addition, cumulative dividends in arrears
as of March 31, 1993, of approximately $20 million were relinquished.
<PAGE> 9
Also, the Bank agreed to dismiss a lawsuit against the United States
in which the Bank claimed damages for breach of contract with respect
to the treatment of "supervisory goodwill" arising out of the Bank's
Louisiana acquisitions in 1987.
The termination of the covered assets assistance agreement was also
provided for in the settlement. In general, this settlement is based
upon the valuation or disposition of the covered assets and contingent
liabilities of the acquired institutions. Any loss resulting from the
valuation or disposition of the covered assets will be borne 75% by
the FDIC and 25% by the Bank. The Bank received a credit of $3
million as settlement for the contingent liabilities of the acquired
institutions. Management of the Bank does not anticipate future
charges to earnings resulting from the final settlement of covered
assets and contingent liabilities of the acquired institutions.
(5) DEFINITIVE AGREEMENT WITH FIRST ALABAMA BANCSHARES, INC.
On May 26, 1993, the Bank's Board of Directors approved the signing of
a definitive agreement which provides for the acquisition of the Bank
by First Alabama Bancshares, Inc. ("First Alabama"). An agreement in
principle had been announced on May 18, 1993.
The definitive agreement provides that each of the outstanding shares
of the Bank's common stock would be converted into 0.667 of a share of
First Alabama common stock, subject to adjustment.
The proposed exchange ratio would be adjusted pursuant to a formula
which in effect offsets fifty percent of any decline in value of First
Alabama common stock to be received for each share of the Bank's
common stock as a result of any possible future decline in the market
value of First Alabama common stock between $33.00 and $25.50.
Similarly, the exchange ratio will be adjusted so that the resulting
value of the First Alabama common stock received for each share of the
Bank's common stock would be increased by fifty percent of any
increase in the market value of First Alabama common stock above
$33.00. The market value of First Alabama stock to be used in the
pricing formula will be determined based upon the average closing
price over the ten trading days ending on the date that the parties
receive the approval of the OTS.
At a price of $33.00 per share of First Alabama common stock, the
exchange ratio would remain unchanged at 0.667, providing a market
value equivalent of $22.00 for each share of the Bank's common stock.
At a price of $25.50 per share of First Alabama common stock, the
exchange ratio would be adjusted to 0.765, the highest possible ratio
under the formula, providing a market value equivalent of $19.50 for
each share of the Bank's common stock. If the market value of First
Alabama common stock were to be below $25.50, the exchange ratio would
remain unadjusted at 0.667 and the Bank would have the option of
terminating the transaction.
The increased market value of First Alabama common stock to be
<PAGE> 10
received by the Bank's stockholders if the market value of First
Alabama common stock exceeds $33.00 per share is limited only by the
formula's fifty percent sharing arrangement.
The definitive agreement further provides that the warrants presently
held by the FDIC, as manager of the FSLIC Resolution Fund, to purchase
in the aggregate 1,577,875 shares of Secor common stock will be
canceled at the effective time of the transaction in consideration for
a cash payment to the FDIC. For each share of the Bank's common stock
subject to a warrant, such cash payment would be equal to the market
value of the First Alabama common stock to be received for each share
of Secor common stock in the transaction less the $2.00 exercise price
of the warrant.
In addition, all stock options and outstanding convertible debentures
issued by the Bank will be assumed by First Alabama and the one series
of convertible preferred stock of Secor currently outstanding and held
by the Bank's ESOP will be converted into First Alabama common stock,
in each case on a basis that reflects the exchange ratio of the Bank's
common stock for First Alabama common stock.
The proposed acquisition is subject to various conditions, including
approval of appropriate regulatory authorities, approval of the
shareholders of Secor, and approval of the FDIC as manager of the
FSLIC Resolution Fund.
Due diligence satisfactory to First Alabama was completed on June 25,
1993. On July 15, 1993, the Bank announced that the Board of
Directors of the FDIC, acting solely in its capacity as manager of the
FRF, consented to the terms of the purchase by First Alabama of the
warrants held by the FDIC in accordance with the terms set forth in
the definitive agreement, amended to reflect certain terms requested
by the FDIC and described below.
The warrants, if exercised by the FDIC, would result in the FDIC
owning 25% of the Bank's common stock on a fully-diluted basis. Under
the terms of the definitive agreement entered into by First Alabama
and the Bank, each of the warrants would be canceled upon the closing
of the acquisition, in consideration of a cash payment equal to the
difference between (1) the market value of the First Alabama common
stock into which each share of the Bank's common stock is to be
converted and (2) $2.00, the exercise price of the warrant. Under the
original terms of the agreement, the exchange ratio of First Alabama
common stock for the Bank's common stock would be determined at the
time the OTS approves the transaction and the market value used to
determine the warrant payment would be determined immediately prior to
closing. The FDIC conditioned its consent upon the agreement being
amended so that the market value of First Alabama common stock used to
determine the cash payment for each warrant is the same as the market
value used to determine the exchange ratio of First Alabama common
stock for the Bank's common stock. First Alabama and the Bank have
agreed to the amendment. No other terms of the agreement were
affected by the amendment.
The consent of the FDIC described above was given by the FDIC
<PAGE> 11
solely in its capacity as manager of the FRF, and was not made by the
FDIC in any regulatory or supervisory capacity. Such consent does not
imply any endorsement by the FDIC of the acquisition of the Bank by
First Alabama or any determination by the FDIC of the fairness of the
financial terms of the acquisition to the Bank's shareholders. The
acquisition remains subject to approval by the Bank's shareholders and
to various regulatory approvals.
(6) STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows for 1993 and 1992, the
Bank has considered cash on hand and in banks and interest bearing
deposits to be cash and cash equivalents. Total interest paid for the
nine months ended September 30, 1993 and 1992, was $72.7 million and
$96.4 million, respectively. Total income taxes paid for the nine
months ended September 30, 1993 and 1992 was $71,000 and $222,000,
respectively.
(7) REGULATIONS
The Bank is subject to examination and regulation by the OTS and the
FDIC.
On December 19, 1991, the Federal Deposit Insurance Corporation
("FDIC") Improvement Act of 1991 ("FDICIA") was signed into law. This
act, among other things, established new capital categories for banks
and thrifts, increased the borrowing authority of the Bank Insurance
Fund ("BIF"), and expanded industry reporting requirements and
regulatory authority. The FDICIA regulations established five capital
levels, with increasing regulatory authority for "prompt corrective
action" in the three "undercapitalized" levels. As of September 30,
1993, the Bank meets the requirements of the "adequately capitalized"
level.
<PAGE> 1
Exhibit 99.3
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed statement of condition
as of September 30, 1993, gives effect to (i) the acquisition of Secor Bank,
Federal Savings Bank ("Secor") by First Alabama Bancshares, Inc. ("First
Alabama") and (ii) the acquisition of First Federal Savings Bank of DeFuniak
Springs, Florida and First Federal Savings Bank of Marianna, Florida ("Other
Acquisitions") by First Alabama, assuming all the acquisitions are treated as
purchases for accounting purposes, as if all the transactions had been
consummated on September 30, 1993.
The following unaudited pro forma combined condensed statements of income
for the year ended December 31, 1992, and the nine months ended September 30,
1993, give effect to (i) the acquisition of Secor by First Alabama and (ii) the
Other Acquisitions by First Alabama, assuming that all the acquisitions are
treated as purchases for accounting purposes, as if all the transactions had
been consummated on January 1, 1992.
The unaudited pro forma combined condensed financial statements are
presented for information purposes only and are not necessarily indicative of
the combined financial position or results of operations which would actually
have occurred if the transactions had been consummated in the past or which may
be obtained in the future.
The Amended and Restated Agreement and Plan of Reorganization between
First Alabama and Secor dated as of May 26, 1993, and amended and restated as
of August 15, 1993 (the "Agreement"), provided that Secor would use its best
efforts to modify and change its loan and real estate valuation policies and
practices (including potential strategies for more rapid disposition and
recovery of certain classified assets) immediately prior to consummation of the
Merger so as to be consistent on a mutually satisfactory basis with those of
First Alabama and, in addition, immediately prior to consummation of the
Merger, Secor would record certain expenses incurred in connection with the
Merger and related matters. The aggregate amount of the pro forma adjustments
resulting from such actions, as reflected in the accompanying pro forma
financial information, is estimated based on current information and,
therefore, is subject to modification.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with the audited financial statements and notes of Secor,
included as Exhibit 99.1 to this Current Report on Form 8-K.
<PAGE> 2
FIRST ALABAMA BANCSHARES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
AS OF SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
FIRST
ALABAMA,
FIRST SECOR,
ALABAMA AND OTHER
ADJUSTMENTS AND SECOR ADJUSTMENTS ACQUISITIONS
FIRST INCREASE PRO FORMA OTHER INCREASE PRO FORMA
ALABAMA SECOR (DECREASE) COMBINED ACQUISITIONS (DECREASE) COMBINED
---------- ---------- ----------- ---------- ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks....... $ 405,484 $ 8,264 $ 846 (b) $ 414,594 $ 5,074 $ 351(f) $ 420,019
Interest-bearing deposits in
banks....................... 628 57,149 (30,761)(b) 27,016 1,961 28,977
Investment securities......... 1,646,778 629,087 17,629 (a) 2,293,494 32,098 (8,498)(h) 2,317,094
Trading account assets........ 9,897 9,897 9,897
Assets held for sale.......... 228,028 15,960 243,988 243,988
Federal funds sold and
securities purchased under
agreements to resell........ 5,391 5,391 2,914 8,305
Loans, net of unearned
income...................... 5,578,326 1,071,278 6,130 (a) 6,655,734 143,477 6,799,211
Less: Allowance for loan
losses...................... (86,939) (12,185) (2,400)(a) (101,524) (1,399) (102,923)
Covered assets................ 1,830 1,830 1,830
Premises and equipment, net... 118,775 17,262 292 (a) 136,329 2,574 138,903
Other real estate............. 13,878 7,064 (439)(a) 20,503 1,480 21,983
Excess purchase price......... 27,016 521 8,987 (a) 36,524 1,499(g) 40,406
2,383(h)
Purchased mortgage servicing
rights...................... 47,569 1,808 49,377 49,377
Due from customers on
acceptances................. 15,680 15,680 15,680
Deferred tax asset............ 21,160 (a) 21,160 21,160
Other assets.................. 135,327 51,981 187,308 1,419 188,727
---------- ---------- ----------- ---------- ------------ ----------- ------------
Total Assets.......... $8,145,838 $1,850,019 $ 21,444 $10,017,301 $189,598 $(4,265) $10,202,634
---------- ---------- ----------- ---------- ------------ ----------- ------------
---------- ---------- ----------- ---------- ------------ ----------- ------------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND EQUITY
Non-interest-bearing
deposits.................... $1,137,005 $ 23,674 $ $1,160,679 $ 28,688 $ $ 1,189,367
Interest-bearing deposits..... 5,906,041 1,340,245 12,645 (a) 7,258,931 139,208 7,398,139
Federal funds purchased and
securities sold under
agreements to repurchase.... 115,632 115,632 115,632
Other borrowed money.......... 164,220 331,803 7,363 (a) 503,386 503,386
Bank acceptances
outstanding................. 15,680 15,680 15,680
Other liabilities............. 101,244 43,480 8,000 (e) 152,724 1,263 153,987
---------- ---------- ----------- ---------- ------------ ------------
Total Liabilities..... 7,439,822 1,739,202 28,008 9,207,032 169,159 9,376,191
---------- ---------- ----------- ---------- ------------ ------------
Stockholders' Equity:
Preferred stock............. 1,000 (1,000)(c)
Common stock................ 24,430 45 1 (b) 26,443 1,382 94 (f) 26,443
(46)(c) (1,471)(i)
2,013 (d) (5)(j)
Common stock warrants....... 18,935 (18,935)(b)
Surplus..................... 269,527 28,608 (10,981)(b) 371,767 6,207 257 (f) 371,246
(17,627)(c) (521)(g)
102,240 (d) (3,741)(i)
(2,723)(j)
Retained earnings........... 442,955 62,229 (62,229)(c) 442,955 12,850 (9,463)(i) 442,955
(3,387)(j)
Less:
Treasury and unearned
restricted stock.......... (30,896) (30,896) 16,695 (g) (14,201)
---------- ---------- ----------- ---------- ------------ ----------- ------------
Total Stockholders'
Equity.............. 706,016 110,817 (6,564) 810,269 20,439 (4,265) 826,443
---------- ---------- ----------- ---------- ------------ ----------- ------------
Total Liabilities and
Equity.............. $8,145,838 $1,850,019 $ 21,444 $10,017,301 $189,598 $(4,265) $10,202,634
---------- ---------- ----------- ---------- ------------ ----------- ------------
---------- ---------- ----------- ---------- ------------ ----------- ------------
</TABLE>
See notes to unaudited pro forma combined condensed statement of condition.
<PAGE> 4
FIRST ALABAMA BANCSHARES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF CONDITION
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
(a) These amounts reflect the revaluation of assets and liabilities of
Secor in accordance with purchase accounting treatment. Current market values
of investment securities were determined using publicly quoted prices. Certain
long-term fixed rate loans and deposits were valued based on prevailing market
interest rates. The final purchase accounting adjustments may vary to the
extent that the market values of these assets and liabilities change. The
addition to the allowance for loan losses reflects the use of potential
strategies for more rapid disposition and recovery of certain classified assets.
Net assets acquired:
<TABLE>
<S> <C>
Stockholders' equity after adjustment(b)....................... $ 80,902
Fair value and pre-closing adjustments:
Investments.................................................. 17,629
Loans........................................................ 6,130
Allowance for loan losses.................................... (2,400)
Premises and equipment....................................... 292
Other real estate............................................ (439)
Excess purchase price........................................ 8,987
Deferred tax asset........................................... 20,000
Interest bearing deposits.................................... (12,645)
Other borrowed money......................................... (7,363)
--------
30,191
Deferred taxes at 35% on applicable items...................... 1,160
--------
$112,253
--------
--------
</TABLE>
The expected increase (decrease) for each of the twelve months ended
December 31, indicated below, on future income before taxes of the projected
aggregate purchase accounting adjustments reflected in the accompanying
unaudited pro forma combined condensed financial statements assuming the Merger
was consummated on January 1, 1992, are as follows:
<TABLE>
<S> <C>
1992............................................................ $ 527
1993............................................................ 399
1994............................................................ 1,136
1995............................................................ (2,440)
1996............................................................ (2,936)
</TABLE>
(b) To reflect the exercise of outstanding stock options and payment to the
FDIC of $30.8 million for warrants to acquire a 25% equity interest in Secor.
(c) Elimination of Secor capital accounts resulting from purchase
accounting.
(d) Upon consummation of the Merger, each holder of Secor Common Stock
received the equivalent of 0.684 of a share of First Alabama Common Stock.
The Merger was accounted for as a purchase. The unaudited pro forma financial
statements have been prepared assuming that First Alabama
<PAGE> 5
FIRST ALABAMA BANCSHARES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF CONDITION -- (CONTINUED)
issued 3,220,162 shares of First Alabama Common Stock to the holders of Secor
Common Stock.
<TABLE>
<CAPTION>
<S> <C>
Cost of Merger:
Stock consideration issued to Secor stockholders......................... $104,253
Estimated acquisition costs.............................................. 8,000
--------
$112,253
--------
--------
</TABLE>
(e) Accrual of estimated Merger related expenses and other
miscellaneous liabilities.
(f) To reflect the exercise of options to purchase 93,568 shares of
Marianna common stock at $3.75 each.
(g) To reflect the exchange of 490,133 shares of First Alabama Common
Stock for all the outstanding shares and options of Marianna, assuming a market
price for First Alabama Common Stock of $33.00 per share. The First Alabama
Common Stock exchanged is reflected as being reissued from treasury stock.
(h) Purchase of all outstanding stock and options (less the option
exercise price of $6.58 each) of DeFuniak Springs for $15.58 per share.
(i) Elimination of Marianna capital accounts resulting from purchase
accounting.
(j) Elimination of DeFuniak Springs capital accounts resulting from
purchase accounting.
<PAGE> 6
FIRST ALABAMA BANCSHARES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
FIRST ALABAMA,
FIRST SECOR,
ALABAMA AND OTHER
ADJUSTMENTS AND SECOR ACQUISITIONS
FIRST INCREASE PRO FORMA OTHER PRO FORMA
ALABAMA SECOR (DECREASE) COMBINED ACQUISITIONS COMBINED
-------- ------- ----------- --------- ------------ --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest income.................. $413,094 $112,170 $(3,658)(c) $519,028 $ 10,016 $529,044
(894)(e)
(1,684)(f)
Interest expense................. 158,519 72,026 (506)(a) 225,374 4,510 229,884
(4,665)(c)
-------- ------- ----------- --------- ------------ --------------
Net interest income.............. 254,575 40,144 (1,065) 293,654 5,506 299,160
Provision for loan losses........ 17,401 1,250 18,651 100 18,751
Noninterest income............... 97,390 6,416 103,806 1,099 104,905
Noninterest expense.............. 209,632 34,714 (675)(b) 244,326 3,492 247,818
709 (c)
(54)(e)
-------- ------- ----------- --------- ------------ --------------
Income before income
taxes.......................... 124,932 10,596 (1,045) 134,483 3,013 137,496
Provision for income taxes....... 40,946 345 2,931 (d) 44,222 1,096 45,318
-------- ------- ----------- --------- ------------ --------------
Net income................. $ 83,986 $10,251 $(3,976) $ 90,261 $ 1,917 $ 92,178
-------- ------- ----------- --------- ------------ --------------
-------- ------- ----------- --------- ------------ --------------
Earnings per common
share.......................... $ 2.26 $ 2.23 $ 2.26
-------- --------- --------------
-------- --------- --------------
Average common shares
outstanding.................... 37,167 40,387 40,877
-------- --------- --------------
-------- --------- --------------
</TABLE>
See notes to unaudited pro forma combined condensed statements of income.
<PAGE> 7
FIRST ALABAMA BANCSHARES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
FIRST ALABAMA,
FIRST SECOR,
ALABAMA AND OTHER
ADJUSTMENTS AND SECOR ACQUISITIONS
FIRST INCREASE PRO FORMA OTHER PRO FORMA
ALABAMA SECOR (DECREASE) COMBINED ACQUISITIONS COMBINED
-------- -------- ----------- --------- ------------ --------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest income................... $536,747 $156,132 $(5,353)(c) $684,206 $ 14,664 $698,870
(780)(e)
(2,540)(f)
Interest expense.................. 224,068 111,832 (675)(a) 328,345 7,558 335,903
(6,880)(c)
-------- -------- ----------- --------- ------------ --------------
Net interest income............. 312,679 44,300 (1,118) 355,861 7,106 362,967
Provision for loan losses......... 27,072 4,788 31,860 322 32,182
Noninterest income................ 119,077 19,585 138,662 1,725 140,387
Noninterest expense............... 264,659 52,653 (900)(b) 316,936 4,967 321,903
1,001 (c)
(477)(e)
-------- -------- ----------- --------- ------------ --------------
Income before income taxes and
extraordinary item............ 140,025 6,444 (742) 145,727 3,542 149,269
Provision for income taxes........ 44,977 876 1,123 (d) 46,976 1,298 48,274
-------- -------- ----------- --------- ------------ --------------
Income before extraordinary
item.......................... $ 95,048 $ 5,568 $(1,865) $ 98,751 $ 2,244 $100,995
-------- -------- ----------- --------- ------------ --------------
-------- -------- ----------- --------- ------------ --------------
Earnings per common
share........................... $ 2.60 $ 2.48 $ 2.51
-------- --------- --------------
-------- --------- --------------
Average common shares
outstanding..................... 36,532 39,752 40,242
-------- --------- --------------
-------- --------- --------------
</TABLE>
See notes to unaudited pro forma combined condensed statements of income.
<PAGE> 8
FIRST ALABAMA BANCSHARES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF INCOME
(a) Elimination of interest expense on Secor Convertible Debentures assumed to
have been converted as of January 1, 1992.
(b) Elimination of depreciation expense on Secor fixed assets disposed of in
connection with the Merger.
(c) Amortization of purchase accounting adjustments of loans, investments,
excess purchase price, interest-bearing deposits, and other borrowed money
in connection with the Secor acquisition.
(d) To reflect the income tax provision at First Alabama's effective tax rate
prior to the Merger.
(e) Elimination of amortization of intangibles and other existing Secor
purchase accounting adjustments written off at acquisition.
(f) Loss of income on earning assets used to fund payment by Secor for purchase
of the warrants held by the FDIC ($30.8 million) based on the average
rates earned on those assets during the periods presented.
<PAGE> 1
Exhibit 99.4
January 3, 1994
FIRST ALABAMA COMPLETES SECOR ACQUISITION
First Alabama Bancshares, Inc. announced today that the acquisition of Secor
Bank, Federal Savings Bank was completed on December 31, 1993.
First Alabama will issue approximately 3.2 million shares of its common
stock in exchange for all of Secor's outstanding common stock. The exchange
ratio will be 0.684 shares of First Alabama common stock for each share of
Secor common stock. Secor stockholders will receive a letter of instruction
early in January describing how to submit their Secor stock certificates for
exchange.
First Alabama's consolidated total assets, including Secor, are expected to
exceed $10 billion at year end 1993.
Secor Bank will operate as a separate subsidiary of First Alabama in
Florida and Louisiana, with customers of these offices seeing no immediate
changes. The thrift's Alabama offices, except for the office in Centre, will
be consolidated into First Alabama Bank during January. Customers in Alabama
have already been notified of changes that may affect them. Once the
consolidation has been completed, they should enjoy improved availability of
services and a wider range of banking products.
The Federal Reserve Board's approval of the transaction requires the
divestiture of Secor's Centre, Alabama branch. Arrangements for a sale of this
branch are being worked out. Until the sale is completed, the Centre office
will continue to operate as a Secor branch, with no customer impact.
For additional information, contact:
Analysts: Robert P. Houston 205/832-8494
Ronald C. Jackson 205/832-8493
News Media: William E. Askew 205/326-7650
