<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 1, 1996
REGIONS FINANCIAL CORPORATION
------------------------------------------------------
(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, including zip code, of principal executive offices)
(205) 326-7100
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On March 1, 1996, (the "Effective Date"), Regions Financial Corporation
("Regions") completed the combination with First National Bancorp ("FNB"). The
combination was accomplished by means of the merger ("the Merger") of FNB with
and into Regions Merger Subsidiary, Inc. ("Merger Corp"), a newly-formed
subsidiary of Regions, pursuant to the Agreement and Plan of Reorganization
between Regions and FNB dated as of October 22, 1995 (the "Agreement"), and the
related Plan of Merger between FNB and Merger Corp dated as of February 22,
1996. As a result of the Merger, Merger Corp as successor to FNB is a wholly
owned operating subsidiary of Regions. In conjunction with and as a part of
the Merger, each of the 20,947,510 shares of FNB common stock was converted
into 0.76 of a share of Regions common stock. Immediately prior to the
Effective Date, Regions had 46,399,356 shares of common stock issued, including
160,000 shares of treasury stock; 15,920,108 shares of Regions common stock
resulted from the conversion of FNB common stock; and 62,159,464 shares of
Regions common stock were issued and outstanding immediately following the
Merger.
The consideration given by Regions to FNB stockholders in the Merger
was determined in arms-length negotiations between Regions and FNB. There were
no material relationships between Regions and FNB, or between the affiliates,
directors and officers of Regions and their associates, on the one side, and
the affiliates, directors and officers of FNB and their associates, on the
other side. Regions attempted to agree upon an exchange ratio that would be
sufficiently attractive to FNB to induce FNB's agreement, and not be
detrimental to Region's existing stockholders. Regions also took into account
the trading price of its common stock at the time it entered into the
Agreement.
FNB was a bank holding company based in Gainesville, Georgia with
assets of approximately $3.1 billion as of December 31, 1995, with 55 banking
offices in Georgia and nine in Florida.
The plant, equipment, and other physical property acquired by Regions
in the Merger is not material.
<PAGE> 3
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired. Historical
financial statements of First National Bancorp are included as Exhibit 99.2
(b) Pro Forma financial information. Unaudited Pro Forma financial
information of Regions Financial Corporation is included as Exhibit 99.3.
(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.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this amendment No. 1 to report on Form 8-K
to be signed on its behalf by the undersigned hereunto duly authorized.
Regions Financial Corporation (Registrant)
By: /s/ Robert P. Houston
Executive Vice President and
Comptroller
Date: March 28, 1996
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page No.
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of October
22, 1995 by and between Regions Financial Corporation and First National
Bancorp - incorporated by reference from Regions's Registration Statement on
Form S-4, No. 33-64549, filed under the Securities Act of 1933.
2.2 Plan of Merger dated as of February 22, 1996, by and between
First National Bancorp and Regions Merger Subsidiary, Inc. - incorporated by
reference from Regions Registration Statement on Form S-4, No. 33-64549, filed
under the Securities Act of 1933.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Hacker, Johnson, Cohen & Grieb.
99.1 Press Release dated March 1, 1996.
99.2 Historical Financial Statements of First National Bancorp.
99.3 Unaudited Pro Forma Financial Information of Regions Financial
Corporation.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Independent Accountants' Consent
The Board of Directors
Regions Financial Corporation:
We consent to the incorporation by reference in the registration statements No.
33-41784, No. 33-40728, No. 2-95291, No. 33-36936, No. 33-24370, No. 33-58469,
No. 33-58979 on Form S-8 and No. 33-59735 on Form S-3 of Regions Financial
Corporation, of our report dated January 27, 1995, except as to Note 2, which
is dated July 3, 1995, and except as to Note 19 which is dated October 22,
1995, with respect to the consolidated balance sheets of First National Bancorp
and subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1994, which report appears in
Form 8-K/A No. 1, dated March 28, 1996, to the Form 8-K of Regions Financial
Corporation dated March 1, 1996.
Our report refers to a change in the method of accounting for investment
securities to adopt the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," at December 31, 1993, a change in the method of accounting for
income taxes in 1993 to adopt the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," and a change in
the method of accounting for postretirement benefits other than pensions in
1993 to adopt the provisions of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting For Postretirement Benefits Other than
Pensions."
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 27, 1996
<PAGE> 1
EXHIBIT 23.2
Independent Accountants' Consent
The Board of Directors
Regions Financial Corporation:
We consent to the inclusion of our report dated January 27, 1995, with respect
to the consolidated balance sheets of FF Bancorp, Inc. and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1994, in this Amendment No. 1 to the Form
8-K of Regions Financial Corporation dated March 1, 1996.
Our report refers to a change in the method of accounting for income taxes in
1993 to adopt the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," and a change in the method of accounting
for investment securities to adopt the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," at December 31, 1993.
/s/ Hacker, Johnson, Cohen & Grieb
Tampa, Florida
March 26, 1996
<PAGE> 1
EXHIBIT 99.1
REGIONS FINANCIAL COMPLETES
FIRST NATIONAL BANCORP ACQUISITION
Regions Financial Corporation announced today that the previously announced
acquisition of First National Bancorp of Gainesville, Georgia, has been
completed.
Under the terms of the transaction, Regions will issue approximately
15,918,000 shares of its common stock in exchange for all of First National's
outstanding common stock. The exchange ratio will be 0.76 shares of Regions
common stock for each share of First National common stock. First National
stockholders will receive a letter of instruction describing the procedures for
exchanging their certificates in the near future."
J. Stanley Mackin, chairman and chief executive officer of Regions stated: "We
are extremely pleased to welcome the First National shareholders into the
Region's family. This merger was completed in record time because of the hard
work and dedication of employees at both Regions and First National. The
addition of First National gives Regions a dominant market share position in
North Georgia. Continued expansion in Georgia fits perfectly in our strategic
vision for the future."
During the coming months, Regions expects to consolidate First National's 18
Georgia banks into its existing Georgia franchise, resulting in one
state-chartered Georgia bank to be known as Regions Bank. Under Regions'
management approach, however, the Presidents of the local banks will continue
to have substantial autonomy, enabling them to address the needs of the
communities they serve. The consolidation of First National's separate
subsidiaries and other efforts are expected to result in significant
reductions of non-interest expense. Management hopes to achieve cost savings
of approximately $30 million annually, with approximately one-half of this
amount realizable in 1996. Regions expects that it will take a restructuring
and merger-related charge of approximately $8 million in the first quarter of
1996 to cover the estimated costs of one-time charges related to the First
National merger.
Peter D. Miller, President First National Bancorp stated: "We are pleased to
now be a part of the Regions' family and enthusiastically look forward to
becoming a major contributor to the company's success. While the legal
structure of First National Bancorp and its affiliates will change over time,
our unified commitment to our customers and communities is stronger than ever.
Regions' philosophy that local banking decisions need to be made at the local
community level provides the environment whereby our existing line management
and staff can continue to deliver competitive financial products and services
at a level exceeding customer expectations."
Regions Financial Corporations operates 351 banking offices in Alabama,
Florida, Georgia, Louisiana and Tennessee. Regions currently has four pending
acquisitions, which, in the aggregate, have approximately $440 million in
assets. All of these transactions are expected to be completed by the end of
the third quarter of 1996, pending stockholder and regulatory approvals and
certain other conditions. After reflecting the First National transaction and
the four pending transactions, Regions' total asset size will be approximately
$17.6 billion.
Regions Financial Corporation is a multi-bank regional holding company
providing banking services and bank-related services in the fields of mortgage
banking, credit-related insurance and securities brokerage. Regions' common
stock is traded on the NASDAQ National Market under the symbol "RGBK".
For additional information contact:
Ronald C. Jackson, Assistant Comptroller and Director of Investor Relations
334/832-8493.
<PAGE> 1
EXHIBIT 99.2
Restated Historical Financial Statements of First National Bancorp
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORTS
FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
Consolidated Balance Sheets as of
December 31, 1994 and 1993
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND
1994
Consolidated Balance Sheet
as of September 30, 1995 (Unaudited)
Consolidated Statements of Income (Unaudited)
Consolidated Statements of Cash Flows (Unaudited)
Notes to Unaudited Consolidated Interim Financial Statements
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
First National Bancorp:
We have audited the accompanying consolidated balance sheets of First National
Bancorp and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the years in the three year-period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of FF Bancorp, Inc. and subsidiaries, wholly-owned subsidiaries of
First National Bancorp, whose statements reflect total assets constituting
19.9 percent and 20.3 percent at December 31, 1994 and 1993, and total revenues
constituting 18.7 percent, 18.3 percent, and 19.4 percent, in 1994, 1993, and
1992, respectively, of the consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for FF Bancorp, Inc.and
subsidiaries, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of First National Bancorp and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 4, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," at December 31, 1993.
As discussed in Notes 1 and 9, the Company changed its method of accounting for
income taxes in 1993 to adopt the provisions of the Financial Accounting
Standards Board's SFAS No. 109, "Accounting for Income Taxes". As discussed in
Notes 1 and 10, the Company also adopted the provisions of the Financial
Accounting Standards Board's SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," in 1993.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
January 27, 1995, except as to
Note 2, which is as of July 3, 1995,
and except as to Note 19 which is
as of October 22, 1995
<PAGE> 3
HACKER, JOHNSON, COHEN & GRIEB
================================================================================
A Professional Association of
Certified Public Accountants
500 North Westshore Boulevard
Post Office Box 20368
Tampa, Florida 33622-0365
(813) 286-2424
Independent Auditors' Report
The Board of Directors
FF Bancorp, Inc.
New Smyrna Beach, Florida:
We have audited the accompanying consolidated balance sheets of FF Bancorp,
Inc. and Subsidiaries (the "Company") as of December 31, 1994 and 1993 and the
related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1994 and 1993 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1994 in
conformity with generally accepted accounting principles.
As discussed in Notes 1, 2 and 3 to the consolidated financial statements, the
Company changed its method of accounting for investment and mortgage-backed
securities as of December 31, 1993, to conform with Statement of Financial
Accounting Standards No. 115. Also, as discussed in Notes 1 and 10 to the
consolidated financial statements, the Company changed its method of accounting
for income taxes as of January 1, 1993, to conform with Statement of Financial
Accounting Standards No. 109.
/s/ Hacker, Johnson, Cohen & Grieb
HACKER, JOHNSON, COHEN & GRIEB
Tampa, Florida
January 27, 1995
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1993
----------------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 3) $ 96,433 $ 94,243
Federal funds sold and securities purchased under
agreements to resell 117,789 124,231
- ---------------------------------------------------------------------------------------
Cash and cash equivalents 214,222 218,474
Interest-bearing deposits in other financial institutions 16,259 68,157
Investment securities available-for-sale (Note 4) 579,536 433,591
Investment securities held-to-maturity (market value $156,044
and $205,189 in 1994 and 1993, respectively (Notes 4 and 8) 157,567 191,381
Loans (Notes 5 and 8) 1,863,188 1,683,912
Less: Unearned income (12,276) (20,866)
Allowance for loan losses (26,476) (24,265)
- ---------------------------------------------------------------------------------------
Net loans 1,824,436 1,638,781
Premises and equipment, net (Notes 6 and 8) 66,973 57,721
Other assets (Note 9) 111,763 78,708
- ---------------------------------------------------------------------------------------
Total assets $2,970,756 $2,686,813
=======================================================================================
LIABILITIES
Deposits:
Noninterest-bearing $ 349,121 $ 291,710
Interest-bearing, including certificates of deposit of
$100 or more of $223,531 and $195,161 in 1994
and 1993, respectively 2,133,337 1,962,972
- ---------------------------------------------------------------------------------------
Total deposits 2,482,458 2,254,682
Federal funds purchased and securities sold
under agreements to repurchase (Note 7) 98,702 63,379
Other short-term borrowings (Note 7) 6,427 13,807
Long-term debt (Note 8) 80,238 62,958
Other liabilities (Note 10) 30,479 31,651
- ---------------------------------------------------------------------------------------
Total liabilities 2,698,304 2,426,477
SHAREHOLDERS' EQUITY (Note 15)
Common stock, par value $1 per share, authorized
30,000,000 shares; issued and outstanding 20,402,235 and
19,309,979 shares for 1994 and 1993, respectively (Note 11) 20,402 19,310
Additional paid-in capital 84,464 68,356
Retained earnings (Note 14) 181,395 167,903
Net unrealized holding (losses) gains on investment
securities available-for-sale (13,723) 4,940
Stock Held by Management Recognition Plan (86) (173)
- ---------------------------------------------------------------------------------------
Total shareholders' equity 272,452 260,336
Commitments and contingent liabilities (Notes 12 and 13)
- ---------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $2,970,756 $2,686,813
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
1994 1993 1992
-----------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $ 155,730 $ 144,672 $ 152,498
Interest-bearing deposits in other financial institutions 1,666 2,750 3,507
Investment securities:
Tax-exempt 10,174 9,025 8,428
Taxable 33,369 31,263 31,972
Other interest-earning assets 4,975 3,167 3,942
- ---------------------------------------------------------------------------------------------------
Total interest income 205,914 190,877 200,347
- ---------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits, including interest expense on
certificates of deposit of $100 or more of
$8,366, $9,860 and $16,629 in 1994, 1993
and 1992, respectively 78,748 77,154 96,665
Federal funds purchased and securities sold
under agreements to repurchase 3,031 3,096 2,888
Other short-term borrowings 221 209 279
Long-term debt 4,018 2,122 520
- ---------------------------------------------------------------------------------------------------
Total interest expense 86,018 82,581 100,352
- ---------------------------------------------------------------------------------------------------
NET INTEREST INCOME 119,896 108,296 99,995
Provision for loan losses (Note 5) 1,577 3,162 12,295
- ---------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 118,319 105,134 87,700
- ---------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Fees for trust services 2,345 2,250 2,398
Service charges on deposit accounts 11,764 9,427 7,819
Net (loss) gain on sale of investment securities (Note 4) (283) 753 2,470
Other noninterest income (Note 17) 14,286 20,609 18,596
- ---------------------------------------------------------------------------------------------------
Total noninterest income 28,112 33,039 31,283
- ---------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits (Note 10) 49,033 44,584 37,587
Net occupancy 6,526 5,913 5,857
Furniture and equipment 6,124 5,828 4,739
Other noninterest expense (Note 17) 37,097 34,696 30,437
- ---------------------------------------------------------------------------------------------------
Total noninterest expense 98,780 91,021 78,620
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CUMMULATIVE EFFECT OF ACCOUNTING CHANGE 47,651 47,152 40,363
Income tax expense (Note 9) 13,015 13,677 11,428
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE CUMMULATIVE EFFECT
OF ACCOUNTING CHANGE 34,636 33,475 28,935
Cumulative effect at January 1, 1993 of change in
accounting for income taxes (Note 9) --- 984 ---
- ---------------------------------------------------------------------------------------------------
NET INCOME $ 34,636 $ 34,459 $ 28,935
===================================================================================================
NET INCOME PER SHARE:
Weighted-average shares outstanding 20,132,098 19,668,272 19,304,996
Income before cummulative effect of accounting change $ 1.72 $ 1.70 $ 1.50
Cummulative effect of accounting change --- 0.05 ---
- ---------------------------------------------------------------------------------------------------
Net income per share $ 1.72 $ 1.75 $ 1.50
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Net
Unrealized
Holding
(Losses) Gains
On Investment Stock Held
Common Stock Additional Securities by Management
------------------------ Paid-In Retained Available- Recognition
Shares Amount Capital Earnings For-Sale Plan Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1991, as originally
reported 15,584,951 $ 15,585 $ 52,225 $ 110,148 $ - $ - $ 177,958
Restatement for effect
of acquisition of
FF Bancorp, Inc.
(Note 2) 2,846,250 2,846 7,811 17,761 - (345) 28,073
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1991, as restated 18,431,201 18,431 60,036 127,909 - (345) 206,031
Net income - - - 28,935 - - 28,935
Cash dividends
declared - $.6400
per share - - - (9,327) - - (9,327)
Cash dividends of
pooled subsidiaries
prior to acquisition - - - (1,287) - - (1,287)
Net Proceeds from
the sale of common
stock by pooled
subsidiary 377,571 378 1,682 - - - 2,060
Proceeds from the
exercise of stock
options by pooled
subsidiaries 34,575 34 117 - - - 151
Issuance of 21,344
shares of common
stock held by
Management Recognition
Plan - - - - - 86 86
Issuance of common
shares for bank
acquisition 97,525 98 1,471 - - - 1,569
Stock options
exercised 86,850 87 1,177 - - - 1,264
Cash in lieu of
fractional shares
in acquisition
and stock split (537) (1) (20) - - - (21)
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1992 19,027,185 19,027 64,463 146,230 - (259) 229,461
Net income - - - 34,459 - - 34,459
Retirement of common
stock of pooled
subsidiary (19,800) (20) (275) - - - (295)
Cash dividends
declared - $.7050
per share - - - (10,640) - - (10,640)
Cash dividends of
pooled subsidiary
prior to acquisition - - - (2,146) - - (2,146)
Issuance of 21,349
shares of common
stock held by
Management Recognition
Plan - - 149 - - 86 235
Proceeds from the
exercise of stock
options by pooled
subsidiaries 62,578 63 345 - - - 408
Issuance of additional
common shares for
previous bank
acquisition 63,676 64 954 - - - 1,018
Stock options
exercised 129,333 129 1,813 - - - 1,942
Issuance of common
stock dividend
reinvestment 47,007 47 907 - - - 954
Implementation of
change in accounting
for investment securities
available-for-sale
net of tax effect of
$3,091 - - - - 4,940 - 4,940
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31,
1993 19,309,979 19,310 68,356 167,903 4,940 (173) 260,336
Net income - - - 34,636 - - 34,636
Cash dividends declared
- $.7775 per share - - - (12,589) - - (12,589)
Cash dividends of pooled
subsidiary prior
to acquisition - - - (2,445) - - (2,445)
10% stock dividend of
pooled subsidiary
prior to acquisition 350,669 351 5,759 (6,110) - - -
Retirement of common
stock of pooled
subsidiary (80,768) (81) (1,103) - - - (1,184)
Issuance of 21,349
shares of common
stock held by
Management Recognition
Plan - - 224 - - 87 311
Proceeds from the
exercise of stock
options by pooled
subsidiary 277,723 277 1,753 - - - 2,030
Issuance of common
shares for
bank acquisitions 325,106 325 5,942 - - - 6,267
Stock options exercised 126,496 127 1,720 - - - 1,847
Issuance of common
stock for dividend
reinvestment 93,030 93 1,813 - - - 1,906
Unrealized losses on
investment
securities available-
for-sale, net
of tax benefits of
$11,779 - - - - (18,663) - (18,663)
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 20,402,235 $ 20,402 $ 84,464 $ 181,395 $(13,723) $ (86) $ 272,452
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------
1994 1993 1992
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 34,636 $ 34,459 $ 28,935
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,577 3,162 12,295
Provision for other real estate owned 1,020 1,485 1,060
Depreciation 6,538 6,127 4,791
(Accretion) amortization, net (3,431) 3,507 421
Deferred income tax benefit (93) (2,307) (2,250)
Net loss (gain) on sale of investment securities 283 (753) (2,470)
Gains on sales of mortgage loan servicing rights (2,213) (10,811) (10,721)
Gains on sales of assets acquired in
foreclosure and equipment (944) (1,052) (266)
Excess servicing fees receivable resulting from
mortgage loan sales (413) (1,593) (4,570)
Decrease in mortgage loans held for sale 51,842 12,843 31,254
Issuance of common stock held by Management
Recognition Plan 311 235 86
Cumulative effect of change in accounting principle - (984) -
Other, net 1,625 9,191 1,729
-----------------------------------------------
Net cash provided by operating activities 90,738 53,509 60,294
-----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales/calls of investment securities held-to-maturity 4,685 44,649 104,029
Proceeds from principal collections on, and maturities of investment
securities held-to-maturity 19,641 151,590 127,060
Purchases of investment securities held-to-maturity (31,066) (231,727) (290,072)
Proceeds from sales/calls of investment securities available-for-sale 44,914 2,000 -
Proceeds from principal collections on, and maturities of investment
securities available-for-sale 186,593 13,945 1,070
Purchases of investment securities available-for-sale (352,280) - -
Net decrease (increase) in interest-bearing deposits in
other financial institutions 52,494 (1,276) (7,469)
Net increase in loans (106,503) (86,939) (44,941)
Proceeds from sales of mortgage loan servicing rights 3,046 14,226 21,275
Purchases of mortgage loan servicing rights (10,541) (7,059) (2,494)
Purchases of premises and equipment (7,132) (11,152) (5,734)
Proceeds from sales of premises and equipment 360 1,934 98
Proceeds from sales of assets acquired in foreclosure 9,072 7,163 7,990
Purchases of First Citizens Bancorp of Cherokee
County, Inc., net of cash equivalents acquired - (6) 12,036
Purchase of Key Bancshares, Inc., net of
cash and cash equivalents acquired 2,952 - -
Purchase of Metro Bancorp, Inc., net of
cash and cash equivalents acquired 24,563 - -
-----------------------------------------------
Net cash used in investing activities (159,202) (102,652) (77,152)
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 29,642 31,813 50,309
Net increase (decrease) in short-term borrowings 27,943 (12,612) (9,603)
Proceeds from the issuance of long-term debt 33,000 50,055 9,950
Payments on long-term debt (15,950) (1,566) (2,307)
Proceeds from issuance of common
stock and for options exercised 3,401 2,350 3,475
Payments of fractional shares in stock split - - (14)
Purchase of and retirement of common stock (1,184) (295) -
Cash dividends paid on common stock (12,640) (10,936) (10,037)
-----------------------------------------------
Net cash provided by financing activities 64,212 58,809 41,773
-----------------------------------------------
Net (decrease) increase in cash and cash equivalents (4,252) 9,666 24,915
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 218,474 208,808 183,893
-----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 214,222 $ 218,474 $ 202,808
===============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 84,923 $ 81,303 $ 100,518
===============================================
Income taxes paid $ 16,067 $ 14,966 $ 12,004
===============================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: First National Bancorp and subsidiaries ("Company") provide
a full range of banking and mortgage banking services to individual and
corporate customers through eighteen subsidiary banks and two subsidiary
thrifts located throughout North Georgia and Central Florida. The Company
primarily competes with other financial institutions in its market areas. The
Company is subject to the regulations of certain state and federal agencies and
undergoes periodic examinations by those regulatory authorities.
BASIS OF PRESENTATION: The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are
wholly-owned. All significant intercompany balances and transactions are
eliminated in preparing the consolidated financial statements. For business
combinations accounted for as purchases, the results of operations of the
acquired business are included in the consolidated totals from the date of
acquisition.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenue and
expenses for the period. Actual results could differ significantly from those
estimates. Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for loan
losses, the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans, and mortgage loan prepayment assumptions used to
determine the amount of amortization of purchased mortgage loan servicing
rights and excess servicing fee receivables. In connection with the
determination of the allowance for loan losses and the value of real estate
owned, management obtains independent appraisals for significant properties.
In connection with the determination of the amortization of purchased mortgage
loan servicing rights and excess servicing fee receivables, management obtains
independent estimates of mortgage loan prepayment assumptions, which are based
on historical prepayments and current interest rates.
A substantial portion of the Company's loans are secured by real
estate located in North Georgia and Central Florida. Accordingly, the ultimate
collectibility of a substantial portion of the Company's loan portfolio is
susceptible to changes in the real estate market conditions of these market
areas.
CASH EQUIVALENTS: Cash equivalents, as presented in the consolidated
financial statements, include amounts due from banks, federal funds sold and
securities purchased under agreements to resell. These instruments are
considered cash equivalents as they are highly liquid and generally mature
within 1 to 30 days. Generally, federal funds are sold for one-day periods.
INVESTMENT SECURITIES: Investment securities at December 31, 1994 and
1993, consists of U.S. Treasury Securities, obligations of U.S. Government
corporations and agencies, obligations of states and municipalities,
mortgage-backed, and equity securities. The Company adopted the provisions of
Statement of Financial Accounting Standards ("Statement") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" at December 31, 1993.
Under Statement No. 115, the Company classifies its investments into one of
three categories; trading, available-for-sale, or held-to-maturity.
Investment securities held-to-maturity are recorded at cost, adjusted
for the amortization of premiums and accretion of discounts, because it is
management's intention and ability to hold them to maturity. All other
securities not included in held-to-maturity are classified as
available-for-sale and are reported at fair value. Unrealized holding gains or
losses, net of the related tax effect, on available-for-sale securities are
excluded from income and are reported as a separate component of shareholders'
equity until realized. The net unrealized holding losses on investment
securities available-for-sale, net of income taxes, amounted to $13,723,000 at
December 31, 1994.
Upon adoption of Statement No. 115 and in conjunction with the new
definitions of investment securities held-to-maturity and investment
securities available-for-sale within Statement No. 115, the Company transferred
investment securities previously accounted for at amortized costs totaling
$404,827,000 to available-for-sale at December 31, 1993, and reported net
unrealized holding gains of $4,940,000 as a separate component of shareholders'
equity.
<PAGE> 9
Purchase premiums and discounts on investment securities are amortized
and accreted to interest income using a method which approximates a level yield
over the period to maturity of the related securities. Purchase premiums and
discounts on mortgage-backed securities are amortized and accreted to interest
income using a method which approximates a level yield over the remaining lives
of the securities, taking into consideration assumed prepayment patterns.
Interest and dividend income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity are
included in income and are derived using the specific identification method for
determining the costs of securities sold.
The Company does not regularly engage in trading or holding financial
derivatives. The company may invest in collateralized mortgage obligations
(CMOs), and in U.S. Government agency securities containing mandatory coupon
adjustments (step-up bonds). At December 31, 1994, the Company held
approximately $10.7 million in CMOs and $19.0 million in step-up bonds, all of
which are included in the available-for-sale portfolio. Management purchases
these securities under policies providing for specific evaluation of the extra
risks associated with such investments, at the time of purchase and on an
ongoing basis.
LOANS AND INTEREST INCOME: Loans are reported at the principal
amounts outstanding, net of unearned income and the allowance for loan losses.
Mortgage loans held-for-sale are carried at the lower of aggregate cost or
market with market determined on the basis of open commitments for committed
loans. For uncommitted loans, market is determined on the basis of current
delivery prices in the secondary mortgage market.
Unearned income, primarily arising from discount basis installment
loans, is recognized as income using a method which approximates a level-yield.
Interest income on other loans is recognized using the simple interest method
on the daily balance of the principal amount outstanding. Loan fees, net of
certain origination costs are deferred and amortized over the lives of the
underlying loans using a method which approximates a level yield.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
when reasonable doubt exists as to the full, timely collection of interest or
principal. Interest accruals are recorded on such loans only when they are
brought fully current with respect to interest and principal and when, in the
judgment of management, the loans are estimated to be fully collectible as to
both principal and interest.
Gains or losses on the sale of mortgage loans are recognized at
settlement dates and are computed as the difference between the sales proceeds
received and the net book value of the mortgage loans sold. Such gains or
losses are adjusted by the amount of any excess servicing fee receivables
resulting from the transactions.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is
established through provisions for loan losses charged to operations. Loans
are charged against the allowance for loan losses when management believes that
the collection of the principal is unlikely. The allowance is an amount that
management has determined to be adequate through its allowance for loan losses
methodology to absorb losses inherent in existing loans and commitments to
extend credit. The allowance is established through consideration of such
factors as changes in the nature and volume of the portfolio, overall portfolio
quality, adequacy of collateral, loan concentrations, specific problem loans,
and economic conditions that may affect the borrowers' ability to pay.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgment about information available to them at the
time of their examination.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed using the
straight-line or accelerated methods over the estimated useful lives of the
related assets.
<PAGE> 10
OTHER REAL ESTATE: Other real estate includes properties obtained
through foreclosure or acceptance of a deed in lieu of foreclosure. When
properties are acquired through foreclosure or acceptance of a deed in lieu of
foreclosure, any excess of the loan balance, at the time of foreclosure, over
the fair value of the real estate held as collateral is recognized as a loss
and charged to the allowance for loan losses. After foreclosure, other real
estate is reported at the lower of fair value at acquisition date, or fair
value less estimated disposal costs. Fair value is determined on the basis of
current appraisals, comparable sales, and other estimates of value obtained
principally from independent sources. Subsequent write-downs are charged to a
separate allowance for losses pertaining to other real estate established
through provisions for other real estate losses charged to operations. Based
upon management's evaluation of other real estate, additional expense is
recorded when necessary in an amount sufficient to restore the allowance to an
adequate level. Gains recognized on the disposition of the properties are
recorded in other noninterest income.
Costs of improvements to other real estate are capitalized, while
costs associated with holding other real estate are charged to operations.
INCOME TAXES: In February 1992, Financial Accounting Standards Board
(FASB) issued Statement No. 109, "Accounting for Income Taxes." Statement No.
109 requires a change from the deferred method of accounting for income taxes
of Accounting Principles Board ("APB") Opinion 11 to the asset and liability
method of accounting for income taxes. Under the asset and liability method of
Statement No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Effective January 1, 1993, the Company adopted Statement No. 109 and
has reported the cumulative effect of that change in the method of accounting
for income taxes in the 1993 statement of income.
At December 31, 1994, management has determined that the deferred tax
assets are fully realizable due to sufficient income taxes paid in 1992, 1993,
and 1994 and the scheduled reversal of deferred tax liabilities to offset
reversing deferred tax assets in future periods. Accordingly, no valuation
allowance has been established against the deferred tax assets.
Pursuant to the deferred method under APB Opinion 11, which was
applied in 1992 and prior years, deferred income taxes were recognized for
income and expense items that were reported in different years for financial
reporting purposes and income tax purposes using the tax rate applicable for
the year of calculation. Under the deferred method, deferred taxes were not
adjusted for subsequent changes in the tax rates.
NET INCOME PER SHARE: Net income per share is calculated by using the
weighted-average number of shares outstanding during the period. The effect of
dilutive stock options and stock awards are immaterial in 1994, 1993, and 1992.
FINANCIAL INSTRUMENTS: The Company is a party to certain interest
rate futures, options, and forward sales contracts in the management of its
interest rate exposure associated with its portfolio of mortgage loans
held-for-sale and commitments to originate mortgage loans to be held for sale.
These interest rate futures, options, and forward sales contracts are carried
at cost until expiration or until exercised, whichever occurs first. Realized
gains and losses are included in the determination of the gain or loss on the
sale of the related mortgage loans.
<PAGE> 11
MORTGAGE BANKING ACTIVITIES: Purchased mortgage loan servicing rights
and excess servicing fee receivables resulting from loan sales with retention
of the loan servicing are included in other assets. Purchased mortgage loan
servicing rights are carried at cost less amounts amortized. The purchased
mortgage loan servicing rights are amortized in proportion to and over the
period of estimated net servicing income taking into consideration assumed
prepayment patterns. Excess servicing fee receivables are carried at the
present value of the estimated future excess net servicing fee income, over the
estimated lives of the related mortgage loans sold, less amounts amortized.
Amortization of the excess servicing fees receivable is computed using an
accelerated method over the estimated remaining lives of the related loans
taking into consideration assumed prepayment patterns. The carrying values of
the purchased mortgage loan servicing rights and excess servicing fee
receivables are evaluated and adjusted periodically based on actual portfolio
prepayments and estimates of anticipated prepayments, so that recorded amounts
do not exceed the value of future net servicing income on a disaggregated
basis.
Fees for servicing loans for investors are based on the outstanding
principal balance of the loans serviced and are recognized as income when
earned.
At December 31, 1994, the Company was covered under a $12,000,000
banker's blanket bond policy and a $2,000,000 errors and omissions policy.
EMPLOYEE BENEFIT PLANS: The Company sponsors a defined benefit health
care plan for substantially all retirees and employees. Effective January 1,
1993, the Company adopted the provisions of Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," which establishes
a new accounting principle for the cost of retiree health care and other
postretirement benefits. Prior to 1993, the Company recognized these benefits
on the pay-as-you-go method (i.e. cash basis). The cumulative effect of the
change in method of accounting for postretirement benefits other than pensions
at January 1, 1993 was $2,600,000 and is being amortized to operations over a
twenty year period.
The Company has three noncontributory defined benefit plans covering
certain employees who meet certain eligibility requirements. Pension costs are
computed based on the provisions of Statement No. 87, "Employers' Accounting
for Pensions".
OTHER: The excess of costs over the fair value of the net assets
acquired of purchased subsidiaries are being amortized using the straight-line
method over a period not to exceed twenty years. The unamoritized goodwill is
periodically reviewed to ensure that conditions are not present that indicate
the recorded amount of goodwill is not recoverable from future undiscounted
cash flows. The review process includes an evaluation of the earnings history
of each subsidiary, its contribution to the Company, capital levels and other
factors. If events or changes in circumstances indicate further evaluation is
warranted, the undiscounted cash flows of the operations to which goodwill
relates are estimated. If the estimated undiscounted net cash flows are less
than the carrying amount of goodwill, a loss is recognized to reduce goodwill's
carrying value to the amount recoverable, and when appropriate, the
amortization period is reduced.
Property (other than cash deposits) held by the Company in a fiduciary
or agency capacity for its customers is not included in the consolidated
balance sheets since such items are not assets of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS: In May 1993, FASB issued Statement
No. 114, "Accounting by Creditors for Impairment of a Loan." Statement No.
114 requires impaired loans to be measured based on the present value of
expected future cash flows, discounted at the loan's effective interest rate,
or at the loan's observable market price, or the fair value of the collateral
if the loan is collateral dependent, beginning in 1995. In October 1994, FASB
issued Statement No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures," which amends the requirements of
Statement No. 114 regarding interest income recognition and related disclosure
requirements. Initial adoption of Statement No. 114 and Statement No.118 must
be reflected prospectively. The Company adopted Statement No. 114, as amended
by Statement No. 118 on January 1, 1995, and the impact to the consolidated
financial statements was not material. At January 1. 1995, pursuant to the
definition within Statement No. 114, the Company had approximately $21,781,000
of impaired loans, all of which are classified as nonaccrual.
<PAGE> 12
NOTE 2. BUSINESS COMBINATIONS
On July 3, 1995, the Company completed its acquisition of FF Bancorp,
Inc. ("FF Bancorp"), New Smyrna Beach, Florida. FF Bancorp is the
holding company of First Federal Savings Bank of New Smyrna, New
Smyrna Beach, Florida, a thrift institution, First Federal Savings
Bank of Citrus County, Florida, a thrift headquartered in Inverness,
Florida, and Key Bank of Florida, a commercial bank located in Tampa,
Florida. The Company exchanged 3,884,587 shares of its common stock
for all of the 4,706,163 shares of FF Bancorp stock outstanding. No
cash, except for fractional shares, was paid in the transaction. The
transaction was accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements for all periods
presented have been restated to include the financial position and
results of operations of FF Bancorp. Certain amounts in the historical
financial statements of FF Bancorp, Inc. have been reclassified to
conform with the basis of presentation of the Company. Such
reclassifications had no effect on net income as reported by FF
Bancorp. The Company's consolidated financial data for the twelve
months ended December 31, 1994, 1993, and 1992 have been restated as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net interest income:
First National Bancorp, before acquisition $ 97,013 $ 88,201 $ 81,519
FF Bancorp 22,883 20,095 18,476
---------- ---------- ---------
Total $ 119,896 $ 108,296 $ 99,995
========== ========== =========
Net Income:
First National Bancorp, before acquisition $ 28,134 $ 26,654 $ 23,407
FF Bancorp 6,502 7,805 5,528
--------- ---------- ---------
Total $ 34,636 $ 34,459 $ 28,935
========= ========== =========
Net Income per share:
First National Bancorp, before acquisition $ 1.72 $ 1.68 $ 1.50
Effect of restatement for FF Bancorp --- .07 ---
--------- ---------- ---------
Total $ 1.72 $ 1.75 $ 1.50
========= ========== =========
</TABLE>
On July 31, 1994, the Company completed its acquisition of Barrow
Bancshares, Inc. ("Barrow"), a bank holding company located in Winder, Georgia,
whose wholly-owned subsidiary was Barrow Bank & Trust Company, located in
Barrow County, Georgia. The Company issued 521,700 shares of its common stock
in exchange for all of the issued and outstanding shares of Barrow. No cash,
except for fractional shares, was paid in the transaction. The transaction
was accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements for all periods presented have been restated to include
the financial position and results of operations of Barrow. The 1994, 1993, and
1992 results of Barrow are not material.
On February 28, 1994, the Company acquired all of the outstanding
common stock of Metro Bancorp, Inc., ("Metro") the parent company of the $140
million asset The Commercial Bank, Douglasville, located in Douglas County,
Georgia. The Company issued 266,414 shares of its common stock and $250,243 in
cash in exchange for all of the outstanding shares of Metro. Additionally, the
Company paid $4,288,000 in cash to retire outstanding preferred stock of Metro.
The excess of the purchase price over the fair value of the net assets acquired
totaled $2,928,000 and was recorded as goodwill. The goodwill is being
amortized using the straight-line method over a 15-year period. The purchase
price is subject to adjustment based on asset recoveries for up to an eighteen
month period after the agreement date. The maximum amount of the adjustment is
limited to $1,395,000 and will be recorded as goodwill and amortized over 15
years, should any adjustment be required. This transaction was accounted for
as a purchase, and therefore, is not included in the Company's results of
operations or statements of financial position prior to the date of
acquisition.
On April 8, 1994, FF Bancorp acquired the outstanding common stock of
Key Bancshares, Inc.,("Key") the parent company of the $71 million asset The
Key Bank of Florida, located in Tampa, Florida. FF Bancorp issued 58,692 shares
of its common stock (adjusted by the exchange ratio of .825 for Company shares)
and $2.6 million in cash in exchange for the outstanding shares of Key. The
transaction was accounted for as a purchase effective March 31, 1994, and
therefore, is not included in the Company's results of operations or statements
of financial position prior to the date of acquisition. Negative
<PAGE> 13
goodwill of $771,000 resulted from this transaction. The negative goodwill was
allocated to reduce premises and equipment and will be amortized over the lives
of these assets.
The pro forma impact on the Company's results of operations for the
twelve months ended December 31, 1994, 1993, and 1992, had these purchase
transactions been consummated as of January 1, 1992, would have been:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C>
Interest income $ 208,575 $ 205,516 $ 217,883
Noninterest income 28,956 36,925 35,204
Income before cumulative effect of
accounting change 34,073 31,411 26,773
Cumulative effect of accounting change --- 1,386 ---
------------------------------------------------
Net income $ 34,073 $ 32,797 $ 26,773
================================================
Net income per share:
Income before cumulative effect of
accounting change $ 1.68 $ 1.57 $ 1.36
Cumulative effect of accounting change: --- .07 ---
------------------------------------------------
Net Income $ 1.68 $ 1.64 $ 1.36
================================================
Weighted-average shares outstanding 20,227,752 19,997,628 19,618,398
================================================
</TABLE>
On August 31, 1993, the Company completed its acquisition of The
Community Bank of Carrollton ("Carrollton"), a bank located in Carroll County,
Georgia. The Company issued 331,122 shares of its common stock in exchange for
all of the issued and outstanding shares of Carrollton. The transaction has
been accounted for as a pooling-of-interests.
On May 31, 1993, the Company completed its acquisition of Villa Rica
Bancorp, Inc., ("Villa Rica"), a bank holding company whose wholly-owned
subsidiary was the Bank of Villa Rica, also located in Carroll County, Georgia.
The Company issued 314,142 shares of its common stock in exchange for all of the
issued and outstanding shares of Villa Rica. The transaction has been accounted
for as a pooling-of-interests.
On October 30, 1992, the Company completed its acquisition of First
Citizens Bancorp of Cherokee County, Inc., ("FCBCC") the parent company of the
$73.1 million asset Citizens Bank, Ball Ground, Georgia. The Company issued
97,525 shares of its common stock and $152,000 in cash for all the issued and
outstanding shares of FCBCC. The transaction has been accounted for as a
purchase. The purchase price was subject to adjustment based on certain asset
recoveries less the effects of certain potential contingencies for an eighteen
month period after the agreement date. On December 20, 1993, $1,024,303 was
paid to the previous FCBCC shareholders under this agreement. The additional
purchase price was paid through the issuance of 63,676 shares of the Company's
common stock and $6,000 in cash. The additional purchase price resulted in a
$579,000 write-up of premises and equipment to offset previously allocated
negative goodwill associated with the original transaction. The remainder of
the additional purchase price was recorded as goodwill. The goodwill was
subsequently eliminated by the recognition of income tax benefits associated
with available Federal income tax net operating loss carryforwards.
FF Bancorp was established on May 12, 1992. On July 8, 1992, FF
Bancorp acquired all of the outstanding common stock of First Federal Savings
Bank of New Smyrna. FF Bancorp issued all 2,846,250 shares of its common stock
(adjusted by the exchange ratio of .825 for Company shares) in exchange for all
of the issued and outstanding shares of First Federal Savings Bank of New
Smyrna. Additionally, on July 8, 1992, First Federal Savings Bank of Citrus
County was reorganized and converted from a Federally chartered mutual savings
association to a Federally chartered stock savings bank, and was
correspondingly acquired by FF Bancorp for 125,857 shares of its common stock
(adjusted by the exchange ratio of .825 for Company shares). Both transactions
have been accounted for as poolings-of-interests.
On January 30, 1992, the Company completed its acquisition of First
National Bancshares of Paulding County, Inc. ("Paulding") the parent company of
$165 million asset First National Bank of Paulding County, Dallas, Georgia.
The Company issued 1,086,600 shares of its common stock in exchange for all the
issued and outstanding shares of Paulding. The transaction was accounted for
as a poolings-of-interests.
NOTE 3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The subsidiary banks and thrifts are required by the Federal Reserve
Act to maintain deposit reserves. The average aggregate amount of those
reserve balances for the year ended December 31, 1994 was $6,123,000.
<PAGE> 14
NOTE 4. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Investment securities available-for-sale:
U.S.Treasury and
U.S. Government agencies $217,756 $ 38 $ 3,483 $214,311
Mortgage-backed securities 371,750 180 18,383 353,547
State and municipal - taxable 994 68 --- 1,062
Corporate bonds 500 11 --- 511
Other investments 10,966 1,234 2,095 10,105
-------------------------------------------
Total $601,966 $1,531 $23,961 $579,536
===========================================
Investment securities held-to-maturity:
State and municipal - tax exempt $157,567 $4,339 $ 5,862 $156,044
===========================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Investment securities available-for-sale:
U.S.Treasury and
U.S. Government agencies $ 44,613 $ 1,101 $ 57 $ 45,657
Mortgage-backed securities 372,098 7,645 1,881 377,862
State and municipal - taxable 3,140 154 148 3,146
Corporate bonds 500 63 --- 563
Other investments 5,209 1,217 --- 6,426
-------------------------------------------
Total $425,560 $10,180 $2,086 $433,654
===========================================
Investment securities held-to-maturity:
Mortgage-backed securities $ 42,382 $ 1,560 $ 11 $ 43,931
State and municipal - tax exempt 138,919 12,749 79 151,589
Other investments 10,080 214 625 9,669
-------------------------------------------
Total $191,381 $14,523 $ 715 $205,189
===========================================
</TABLE>
Barrow, which was acquired in July 1994, did not adopt Statement No.
115 until January 1, 1994. At December 31, 1993, Barrow had identified as
available-for-sale, certain U.S. Treasury and U.S. Government agencies with
gross unrealized gains of $71,000 and gross unrealized losses of $10,000, and
certain mortgage-backed securities with gross unrealized gains of $2,000, which
are reflected in the above table for the year ended December 31, 1993.
However, the net gain of $63,000 is not reflected in the carrying value of
investment securities available-for-sale on the Company's balance sheet for the
year ended December 31, 1993.
The amortized cost and fair value of investment securities at December
31, 1994, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<PAGE> 15
<TABLE>
<CAPTION>
Investment Securities Investment Securities
Available-for-Sale Held-to-Maturity
--------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $136,114 $135,666 $ 10,332 $ 10,570
Due after one year through five years 64,793 62,746 48,671 51,849
Due after five years through ten years 23,343 20,522 12,488 12,887
Due after ten years 5,966 7,055 86,076 80,738
--------------------------------------------------
230,216 225,989 157,567 156,044
Mortgage-backed securities 371,750 353,547 --- ---
--------------------------------------------------
Total $601,966 $579,536 $157,567 $156,044
==================================================
</TABLE>
Proceeds from sales of investment securities during 1994, 1993, and
1992 totaled $49,599,000, $46,649,000, and $104,029,000, respectively. Gross
gains of $420,000, $759,000, and $2,613,000 and gross losses of $703,000,
$6,000, and $143,000 were realized on those sales for 1994, 1993, and 1992
respectively. The sale of investment securities held-to-maturity during 1994
resulted from the issuer's exercise of early repayment call provisions.
Investment securities with an aggregate carrying amount of
approximately $351,379,000 and $284,307,000 at December 31, 1994, and December
31, 1993, respectively, were pledged to secure public funds on deposit,
securities sold under agreements to repurchase, long-term debt and for other
purposes as required by various statutes or agreements.
NOTE 5. LOANS
The following is a summary of loans, by classification, at December
31, 1994, and December 31, 1993:
<TABLE>
<CAPTION>
1994 1993
--------------------------
(in thousands)
<S> <C> <C>
Commercial, financial
and agricultural $ 483,116 $ 420,513
Installment and single
payment individual 375,902 353,105
Mortgage loans held for sale 13,519 65,361
Real estate - mortgage 845,055 745,788
Real estate - construction 145,596 99,145
--------------------------
Total $ 1,863,188 $1,683,912
==========================
</TABLE>
In addition, the Company was servicing residential mortgage loans for
others with aggregate principal balances of approximately $1,439,576,000,
$1,071,626,000, and $1,053,250,000 at December 31, 1994, 1993, and 1992,
respectively.
Loans to certain companies in which non-officer directors of the
Company or its significant subsidiaries have a ten percent or more beneficial
ownership interest, and loans to executive officers, directors and their other
associates totaled $12,396,000 at December 31, 1994. All of these loans were
made in the ordinary course of business on substantially the same terms,
including interest rate and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal credit risk of collectability or present other unfavorable features. The
following is a summary of transactions in the allowance for loan losses:
<PAGE> 16
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $24,265 $26,629 $21,973
Loans charged off (7,915) (7,437) (10,859)
Recoveries on loans previously
charged off 2,651 1,911 1,701
Provisions for loan losses 1,577 3,162 12,295
Allowance of bank subsidiary
acquired 5,898 --- 1,519
-------------------------------------------
Balance at end of year $26,476 $24,265 $26,629
===========================================
</TABLE>
During 1994, 1993, and 1992, $7,859,000, $9,810,000, and 16,284,000,
respectively, was transferred from loans to other real estate upon foreclosure
of the collateral properties.
At December 31, 1994, 1993, and 1992, the Company had approximately
$21,809,000, $22,908,000, and $28,583,000, respectively of nonperforming loans.
Interest income on nonaccrual loans in 1994, 1993, and 1992, which would have
been reported on an accrual basis amounted to approximately $2,067,000,
$2,444,000, and $3,031,000 respectively. Interest income of approximately
$91,000, $83,000, and $918,000 was recognized in 1994, 1993, and 1992,
respectively, on loans which were on a nonaccrual basis.
NOTE 6. PREMISES AND EQUIPMENT
Premises and equipment is presented net of accumulated depreciation
totaling $43,164,946 and $35,097,545 at December 31, 1994, and 1993,
respectively.
NOTE 7. SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1994 and December 31, 1993
consist of:
<TABLE>
<CAPTION>
1994 1993
--------------------
(in thousands)
<S> <C> <C>
Federal funds purchased $ 44,485 $ 44,235
Securities sold under agreements to repurchase 54,217 19,144
Interest-bearing demand notes issued
to the U.S. Treasury 6,427 13,807
--------------------
Total $ 105,129 $ 77,186
====================
</TABLE>
In June 1992, the Company entered into a $3,000,000 revolving line of
credit with a commercial bank which can be renewed on an annual basis. The
agreement provides for the availability to the Company, at its option, of
short-term funding on a continuing basis at a rate equal to the daily overnight
cost of funds plus 1 percent, subject to compliance with its terms. The
Company is required to have no borrowings with respect to the line for a 30 day
period each year. Proceeds from the line of credit may be used for general
corporate purposes. At December 31, 1994, the Company had no balance drawn
under this agreement.
<PAGE> 17
NOTE 8. LONG-TERM DEBT
Long-term debt at December 31, 1994, and December 31, 1993, consists
of:
<TABLE>
<CAPTION>
1994 1993
----------------------
(in thousands)
<S> <C> <C>
Industrial development revenue bond assumed
January 31, 1990, maturing on July 1, 2008, with principal of
$100 payable annually and interest, at a tax effected prime
rate, payable monthly, secured by certain premises. $ 3,500 $ 3,600
Promissory term note, dated October 28, 1992, payable over fifteen
years but subject to repricing every three years,
with principal of $155 plus interest at 6.15% payable quarterly,
secured by shares of common stock of certain bank
subsidiaries and certain premises. 6,260 3,880
Various advances from the Federal Home Loan Bank of Atlanta
with original maturities ranging from one to five years and fixed interest
rates ranging from 4.63% to 5.66%. 70,000 55,000
Other long-term debt 478 478
----------------------
Total long-term debt $ 80,238 $ 62,958
======================
</TABLE>
The combined aggregate maturities for each of the next five years are
approximately $20,734,000 in 1995, $15,736,000 in 1996, $10,736,000 in 1997,
$15,759,000 in 1998, and $10,734,000 in 1999. At December 31, 1994, the
Company has pledged certain qualifying mortgage loans with unpaid principal
balances totaling approximately $22,747,000 and investment securities with an
aggregate carrying value of $93,758,000, as collateral for the Federal Home
Loan Bank of Atlanta advances.
NOTE 9. INCOME TAXES
As discussed in Note 1, the Company adopted Statement No. 109 as of
January 1, 1993. The cumulative effect of this change in accounting for income
taxes of $984,000 has been determined as of January 1, 1993 and reported
separately in the consolidated income statement for the year ended December 31,
1993. Prior year financial statements have not been restated to apply the
provisions of Statement No. 109.
Total income tax expense (benefit) for the years ended December 31,
1994 and 1993 is allocated as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------
(in thousands)
<S> <C> <C> <C>
Income from continuing operations $13,015 $13,677 $11,428
Cumulative effect of a change in method of accounting
for income taxes --- (984) ---
Reduction of goodwill, for initial recognition of
acquired tax benefits that previously were included in
valuation allowance --- (445) ---
----------------------------
Total $13,015 $12,248 $11,428
============================
</TABLE>
In addition, the Company adopted Statement No. 115 on December 31,
1993, and has reported the entire cumulative effect of the change in the method
of accounting for certain investments in debt and equity securities as a direct
<PAGE> 18
component of shareholders' equity, net of income taxes of $3,091,000. During
1994, the tax effect of the net unrealized holding losses on investment
securities available-for-sale was a $11,799,000 benefit. Income tax expense
(benefit) attributable to income from continuing operations consists of:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $12,336 $14,379 $12,529
State 772 1,605 1,149
----------------------------
Total current taxes 13,108 15,984 13,678
----------------------------
Deferred:
Federal (78) (1,888) (1,884)
State (15) (419) (366)
----------------------------
Total deferred taxes (93) (2,307) (2,250)
----------------------------
Total $13,015 $13,677 $11,428
----------------------------
</TABLE>
The following is a summary of the differences between the total tax
expense as shown in the consolidated financial statements and the tax expense
that would result from applying the statutory Federal income tax rate of 35%
for 1994 and 1993, and 34% for 1992, to income before income taxes and
cumulative effect of accounting change:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------
(in thousands)
<S> <C> <C> <C>
Tax expense at statutory rate $16,678 $16,503 $13,723
Increase (reduction) in income tax resulting from:
Tax-exempt interest (3,720) (3,375) (3,343)
Disallowed interest expense 305 250 274
State income taxes, net of Federal tax benefit 492 771 517
Change in the valuation allowance
for deferred tax assets (257) --- ---
Other, net (483) (472) 257
----------------------------
$13,015 $13,677 $11,428
Total ============================
</TABLE>
Following is a summary of the sources of the timing differences for
income tax and financial reporting purposes resulting in deferred tax benefits
in 1992 (in thousands):
<TABLE>
<S> <C>
Cash method of accounting for tax reporting purposes $ (143)
Provision for loan losses (1,214)
Excess servicing fees from loan sales (1,076)
Other, net 183
-------
Total $(2,250)
=======
</TABLE>
<PAGE> 19
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1994 and 1993, are presented below:
<TABLE>
<CAPTION>
1994 1993
-----------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 8,619 $ 8,306
Net unrealized holding losses on investment
securities available-for-sale 8,708 ---
Mortgage loan servicing rights 2,260 1,358
Allowance for valuation losses on other real estate 1,574 352
Net operating losses 2,306 983
Federal tax credits 215 ---
Deferred compensation 409 330
Accrued postretirement benefits 324 172
Other, net 420 489
-----------------
Total gross deferred tax assets 24,835 11,990
Less valuation allowance --- (257)
-----------------
Deferred tax assets $24,835 $11,733
-----------------
Deferred tax liabilities:
Net unrealized holding gains on investment
securities available-for-sale $ --- $ 3,091
Depreciation 1,097 746
Purchase accounting adjustments
on premises and equipment 1,571 1,717
Prepaid expenses 134 127
Deferred loan costs, net 372 501
Accretion on investment securities 975 896
Federal Home Loan Bank stock 538 548
Other, net 98 280
-----------------
Deferred tax liabilities 4,785 7,906
-----------------
Net deferred tax assets $20,050 $ 3,827
=================
</TABLE>
The utilization of net operating loss carryforwards in a previously
acquired subsidiary bank and the likelihood of a utilization of additional
carryforwards in future years resulted in a reduction of $257,000 in the
valuation allowance for deferred tax assets in 1994.
Retained earnings at December 31, 1994 and 1993 include approximately
$3,912,000 and $4,088,000, respectively, for which no deferred federal income
tax liability has been recognized. These amounts represent an allocation of
income to the bad debt deduction for tax purposes only. Reduction of amounts so
allocated for purposes other than tax bad debt losses or adjustments arising
from carryback of net operating losses would create income for tax purposes
only, which would be subject to the then current corporate income tax rate. The
unrecorded deferred income tax liability on the above amounts was approximately
$1,478,000 and $1,533,000 at December 31, 1994 and 1993, respectively.
NOTE 10. EMPLOYEE BENEFIT PLANS
In the past, the Company has maintained a noncontributory pension plan
which covered substantially all full-time employees of the Company. The
benefits were based on years of service and the employee's five highest years
of
<PAGE> 20
compensation during the last ten years of employment. The Company's philosophy
was to fund annually the maximum amount allowable as a deduction for federal
income tax purposes. This policy resulted in the plan having assets in the
plan trust with a market value in excess of the accumulated benefit obligation.
In late 1991, following a study of the overall compensation and benefits
program of the Company and a resulting recommendation that the entire
compensation and benefits program be restructured, the Board of Directors of
the Company approved the termination of the defined benefit pension plan and
the establishment of a 401(k) plan. As stated above, the plan was over funded
at the time of termination, and the Board of Directors determined that the
excess assets which were already held in the plan trust should be distributed
to active participants using an equitable formula rather than have the excess
assets revert back to the Company. The defined benefit pension plan went
through the process of termination during 1992, and the plan assets were
distributed through (a) the purchase of annuities for, or payment of lump sums
to, the retirees and terminated vested former employees or (b) the purchase of
an annuity or a trust-to-trust transfer for those participants who were still
active employees or who had accounts under the 401(k) plan at time of
termination. All employees active at termination chose to have their balance
transferred to the 401(k) plan. These annuity purchases, distributions, or
transfers occurred in November 1992.
On March 31, 1992, the Company decided to vest and freeze all future
benefit accruals under its noncontributory pension plan in anticipation of its
termination. As a result, the Company recognized a curtailment gain of
$725,000 on March 31, 1992. Pension costs for 1992 were $37,000.
In 1990, the Company adopted a defined benefit supplemental executive
retirement plan covering certain executive officers. Net periodic pension cost
for 1994, 1993, and 1992 was $106,000, $131,000, and $68,000, respectively.
The projected benefit obligations as of December 31, 1994 and 1993, were
$550,000 and $601,000, respectively, and are unfunded. The actuarial present
value of accumulated benefit obligations as of December 31, 1994 and 1993, were
$550,000 and $601,000, respectively. No further officers will qualify to
participate in this plan in the future since the base qualified defined benefit
pension plan was terminated.
First Federal Savings Bank of New Smyrna, a wholly owned thrift
subsidiary, has a qualified noncontributory defined benefit retirement plan
covering substantially all of its full-time employees who have met certain age
and length of service requirements. The benefits are based on each employee's
years of service and average monthly compensation. The current funding policy
is to make an annual contribution that will not be less than the minimum
required contribution nor greater than the maximum federal income tax
deductible limit. The plan's funded status at October 1 is as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested employees $ 1,656 $ 1,596
Nonvested employees 59 88
-------------------------
Total accumulated benefit obligation $ 1,715 $ 1,684
=========================
Projected benefit obligations for services rendered to date $(2,488) $(2,748)
Plan assets at fair value 1,976 1,666
-------------------------
Projected benefit obligations in excess of plan assets (512) (1,082)
Unrecognized net transition liability existing at date of
adoption of Statement No. 87 being amortized 503 1,111
-------------------------
Prepaid (accrued) pension costs $ (9) $ 29
=========================
</TABLE>
Net periodic pension expense included the following components (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the year $ 161 $ 137 $ 99
Interest cost on projected benefit obligations 179 163 137
Actual return on plan assets (161) (139) (118)
Net amortization and deferral 48 38 20
------------------------------------------
Net periodic pension expense $ 227 $ 199 $ 138
==========================================
</TABLE>
<PAGE> 21
In 1994 and 1993, the expected long-term rate of return on plan assets
was 9% and the discount rate and rate of increase in future compensation levels
used in determining the actuarial present value of the accumulated benefit
obligations were 6.50% and 7.25%, and 6.00% and 8.25% in 1994 and 1993
respectively. Plan assets are invested primarily in guaranteed accumulation
contracts. The guaranteed accumulation contracts include a general account
comprising 66% of the plan assets and separate accounts representing 34% of the
plan assets. The assets comprising the portfolio of the general account are
bonds, mortgages, real estate and other assets.
As part of the revisions to the compensation and benefits program, the
Company converted its qualified noncontributory profit sharing plan into a
401(k) plan and all participant balances in the former profit sharing plan
remain in the 401(k) plan. The Company continues to make contributions to
participants' accounts, as well as providing a full match against a portion of
employee pre-tax 401(k) contributions. All employees participate in the 401(k)
plan once they have met service and age requirements. Contributions by the
Company were $1,872,000 in 1994, $1,793,000 in 1993, and $1,445,000 in 1992.
In 1992, the Company adopted a nonqualified supplemental executive
retirement plan for certain senior officers who may be limited from fully
participating in the qualified 401(k) plan due to federal limitations. The
participants' investment into the plan plus accumulated earnings on those funds
amounted to approximately $328,000 at December 31, 1994 and $145,000 at
December 31, 1993, and these amounts are carried as an accumulated obligation
of the Company apart from the qualified plan trust.
In addition to the changes in the Company's retirement plans, a major
benefits enhancement in 1992 was the introduction of a flexible benefits plan
in which participants could choose how the Company's total contributions to
healthcare and life benefits would be spent by electing from among a range of
benefit options. This cafeteria plan approach allows employees to customize
their own benefits and pay for most of the benefits through payroll deductions
on a pre-tax basis. The Company benefits through reduced payroll taxes as
well.
The Company sponsors a defined benefit healthcare plan that provides
post-retirement medical benefits to full-time employees who meet minimum age
and service requirements.
The Company's policy is to fund the cost of medical benefits in
amounts determined at the discretion of management. As discussed in Note 1, in
1993 the Company adopted Statement No. 106 "Employers' Accounting for Post-
retirement Benefits Other Than Pensions".
The Company provides retirees under age 65 with medical coverage up to
$5,600 per year through a traditional indemnity plan. For retirees over 65,
the Company provides medical coverage up to $3,600 per year. Once the premium
cap is met, retirees are required to contribute any excess towards the cost of
coverage.
The following table presents the plan's funded status with amounts
recognized in the Company's Consolidated Balance Sheet at December 31, 1994 and
1993:
<TABLE>
<CAPTION>
1994 1993
------------------------------
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (1,684) $ (1,316)
Fully eligible active plan participants (1,296) (1,023)
------------------------------
Total (2,980) (2,339)
Plan assets at fair value ---- ----
------------------------------
Accumulated postretirement benefit obligation in
excess of plan assets (2,980) (2,339)
Unrecognized net loss (gain) 342 (100)
Unrecognized transition obligation 2,128 2,247
------------------------------
Accrued postretirement benefit cost included
in other liabilities $ (510) $ (192)
==============================
</TABLE>
Net periodic postretirement benefit cost for 1994 and 1993 includes
the following components:
<PAGE> 22
<TABLE>
<CAPTION>
1994 1993
----------------
(in thousands)
<S> <C> <C>
Service cost $157 $113
Interest cost 234 183
Net amortization and deferral 122 118
----------------
Net periodic postretirement benefit cost $513 $414
================
</TABLE>
For measurement purposes, a 14.40% annual rate of increase in the per
capita cost of covered benefits is assumed for 1995 and 15.10% was assumed for
1994, for those covered individuals under the age of 65. For those covered
individuals over 65, 10.60% is assumed in 1995 and 10.90% was assumed for 1994.
The rate was assumed to decrease gradually through 1998 (when the premium caps
are expected to be reached) after such time no increases are assumed. The
health care cost trend rate assumption has a significant effect on the amounts
reported, due to the premium caps. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.5% at
December 31, 1994 and December 31, 1993.
The Company has a stock purchase plan for directors and employees
whereby it makes contributions equal to one-half of employee and director
voluntary contributions not to exceed the lesser of $2,000 or 10% of a
participant employee's annual salary, or $2,000 for a director. The funds are
used to purchase presently issued and outstanding shares of the Company's
common stock. The Company contributed $417,000, $348,000, and $287,000, to this
plan in 1994, 1993, and 1992, respectively.
<PAGE> 23
NOTE 11. STOCK OPTION PLANS
The Company has incentive stock option plans for certain senior
officers of the Company. The Company reserved 600,000 shares of previously
unissued common stock for issuance in connection with the plans. Shares can be
purchased at the current market price prevailing at the time the option is
granted. Options that do not exceed a $100,000 market value are exercisable
at any time up to five years from the date of grant. The options that exceed
the limit, are not exercisable until future years.
A summary of stock option transactions under this plan is shown below:
<TABLE>
<CAPTION>
Option Price
Shares Per Share Total
-------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Options outstanding at December 31, 1991 383,712 $ 5,377
Granted 136,500 $15.917 2,173
Granted by pooled subsidiary prior to acquisition 23,525 13.562 - 13.913 321
Exercised (86,850) 11.167 - 15.833 (1,264)
Expired (8,408) 15.167 - 15.833 (132)
-------- -------
Options outstanding at December 31, 1992 448,479 6,475
-------- -------
Granted 130,250 18.75 2,442
Exercised (129,333) 11.167 - 15.917 (1,942)
Expired (3,500) 18.75 (66)
-------- -------
Options outstanding at December 31, 1993 445,896 6,909
-------- -------
Granted 126,050 21.00 2,647
Exercised (126,496) 11.167 - 15.917 (1,847)
Expired (13,129) 15.917 - 21.00 (260)
-------- -------
Options outstanding at December 31, 1994 432,321 $ 7,449
======== =======
</TABLE>
In January 1995, the Board of Directors approved the granting of
additional options under the grant date of January 20, 1995, for 158,600 shares
of common stock at an option price of $18.50 per share. At December 31, 1994,
options for 314,171 shares were exercisable.
In conjunction with the acquisition of FF Bancorp, the Company will
convert certain unvested options of an executive officer of FF Bancorp, at the
acquisition exchange ratio of .825, to options to acquire 46,251 shares of
Company stock at prices ranging from $4.59 to $5.83 per share. The shares for
such options will be registered by the Company.
In April 1994, the shareholders approved a Performance-Based
Restricted Stock Plan ("Plan") for certain executive officers ("Participants")
of the Company. Under the terms of the Plan, there are 90,000 shares of common
stock reserved for issuance as awards. Awards of shares of Company stock will
be made to Participants, without payment by the Participants, if and when the
Company's stock reaches specified target values from $29.00 per share to $37.00
per share. Target values must be met no later than December 31, 1999, for
awards to be made under the Plan. No awards were issued under this Plan during
1994.
NOTE 12. CONTINGENT LIABILITIES
In the normal course of business, the Company is party (both as
plaintiff and defendant) to a limited number of lawsuits, primarily arising
from loan collections. In the opinion of management and counsel, none of these
cases should have a material adverse effect on the Company's consolidated
financial position.
<PAGE> 24
NOTE 13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby and
commercial letters of credit, loans sold with recourse, forward sales
contracts, put and call options purchased and securities in the process of
settlement. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
financial statements. The contract or notional amounts of those instruments
reflect the extent of involvement the Company has in particular classes of
financial instruments.
The Company's exposure to credit loss, in the event of nonperformance
by the customer for commitments to extend credit and standby letters of credit,
is represented by the contractual or notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for recorded loans. For forward sales contracts, and
options, the contract or notional amounts do not represent exposure to credit
loss; however, these financial instruments do expose the Company to interest
rate risk. The Company controls the interest rate risk of its call and put
options purchased and forward sales contracts through management approvals,
dollar limits, and monitoring procedures.
A summary of the notional amounts of the Company's financial
instruments with off-balance sheet risk at December 31, 1994, is as follows (in
thousands):
<TABLE>
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Loan commitments:
Credit card lines $ 65,942
Home equity lines 30,259
Commercial real estate, constuction and land development 120,654
Mortgage loans 38,567
Other 58,126
--------
Total loan commitments 313,548
Other commitments:
Financial standby letters of credit 20,548
Performance standby and commercial letters of credit 2,656
Loans sold with recourse 2,536
--------
Total other commitments 25,740
--------
Total loan and other commitments $339,288
========
Financial instuments whose notional or contract amounts exceed the
amount of credit and/or market risk:
Forward sales contracts $ 22,400
Call options purchased 500
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the borrower. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. A
commercial letter of credit is a conditional commitment issued in connection
with trade transactions that secures the performance of a customer to a third
party. This instrument ensures prompt payment to the
<PAGE> 25
seller in accordance with its terms. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Company holds collateral supporting those
commitments as deemed necessary.
Forward sales contracts are contracts for delayed delivery of mortgage
loans in which the Company agrees to make delivery, at a specified future date,
of mortgage loans, at a specified price. Risks arise from the inability of
counterparties to meet the terms of their contracts and from movements in
interest rates.
The Company enters into interest rate call options and put options in
managing its interest rate exposure associated with its portfolio of mortgage
loans held for sale and commitments to originate mortgage loans. The Company
receives premiums for call options written and pays a premium for put options
purchased. Call options allow the holder to purchase a financial instrument at
a specified price and within a specified period of time. Put options are
purchased by the Company to provide it with a means of selling a financial
instrument at a specified price within a specified period of time. Securities
in the process of settlement are commitments by the Company to purchase or sell
investment securities, but the security has not yet been delivered.
<PAGE> 26
NOTE 14. PARENT COMPANY FINANCIAL INFORMATION
The following represents parent company only ("Parent") condensed
financial information of the Company:
CONDENSED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31
---------------------
1994 1993
---------------------
<S> <C> <C>
ASSETS
Cash $ 5,715 $ 6,639
Interest-bearing deposits with subsidiary bank 2,526 727
---------------------
Cash and cash equivalents 8,241 7,366
Investment in bank and thrift subsidiaries, at equity 265,615 247,678
Premises and equipment, net 11,249 11,414
Goodwill 5,962 6,583
Other assets 3,810 5,100
---------------------
Total assets $294,877 $278,141
=====================
LIABILITIES
Long-term debt $ 9,762 $ 7,673
Other liabilities 12,663 10,132
---------------------
Total liabilities 22,425 17,805
SHAREHOLDERS' EQUITY
Common stock, par value $1, authorized 30,000,000
shares, issued and outstanding 20,402,235 and
19,309,979 shares for 1994 and 1993, respectively 20,402 19,310
Additional paid-in capital 84,464 68,356
Retained earnings 181,395 167,903
Net unrealized holding (losses) gains on
investment securities available-for-sale (13,723) 4,940
Stock held by Management Recognition Plan (86) (173)
---------------------
Total shareholders' equity 272,452 260,336
---------------------
Total liabilities and shareholders' equity $294,877 $278,141
=====================
</TABLE>
<PAGE> 27
CONDENSED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------
1994 1993 1992
-----------------------------
<S> <C> <C> <C>
INCOME
Interest and dividends $ 14 $ 54 $ 21
Dividends from subsidiaries 14,033 12,740 13,737
Other income 2,292 1,840 1,026
-----------------------------
Total income 16,339 14,634 14,784
-----------------------------
EXPENSE
Interest 500 489 286
General and administrative 6,500 5,597 4,086
-----------------------------
Total expense 7,000 6,086 4,372
-----------------------------
Income before federal income tax benefit and
equity in undistributed income of subsidiaries 9,339 8,548 10,412
Income tax benefit 1,706 1,702 977
-----------------------------
Income before equity in undistributed income
of subsidiaries 11,045 10,250 11,389
Equity in undistributed income of subsidiaries 23,591 24,209 17,546
-----------------------------
NET INCOME $34,636 $34,459 $28,935
=============================
</TABLE>
<PAGE> 28
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1994 1993 1992
--------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 34,636 $ 34,459 $ 28,935
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (23,591) (24,209) (17,546)
Depreciation and amortization 1,176 1,198 1,054
Changes in other assets and liabilities:
Decrease (increase) in other assets 1,067 (993) 679
Increase (decrease) in other liabilities 1,791 (501) 734
--------------------------------
Net cash provided by operating activities 15,079 9,954 13,856
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of bank subsidiaries net of cash acquired 5 --- (152)
Capital contribution to acquired bank subsidiaries (5,288) --- (3,405)
Purchases of premise and equipment, net (436) (517) (324)
--------------------------------
Net cash used in investing activities (5,719) (517) (3,881)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings --- (2,250) 2,250
Proceeds from the issuance of long-term debt 3,000 --- 4,950
Payments on long-term debt (911) (1,555) (2,299)
Proceeds from issuance of common stock
for stock options exercised 2,066 2,181 1,285
Payments of fractional shares in stock split --- --- (14)
Cash dividends paid on common stock (12,640) (10,936) (9,165)
--------------------------------
Net cash used in financing activities (8,485) (12,560) (2,993)
--------------------------------
Net increase (decrease) in cash and cash equivalents 875 (3,123) 6,982
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,366 10,489 3,507
--------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,241 $ 7,366 $ 10,489
================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 519 $ 489 $ 269
================================
Income taxes paid $ 16,067 $ 14,966 $ 12,004
================================
</TABLE>
The primary source of funds available to the Parent to pay shareholder
dividends and other expenses is from its subsidiary banks and thrifts. Bank
and thrift regulatory authorities impose restrictions on the amounts of
dividends that may be declared by the subsidiary banks and thrifts. Further
restrictions could result from a review by regulatory authorities of each
bank's or thrift's capital adequacy, which is the relationship between a bank's
or thrift's capital and its assets and deposits, and other such ratios. The
amount of cash dividends available from the subsidiary banks and thrifts for
payment in 1995 without such prior approval, is approximately $31,870,000, plus
1995 net earnings of the six subsidiary national banks and the excess of the
thrift's equity over the amount required for their respective liquidation
accounts or regulatory capital requirements upon approval by the thrift's
primary regulator. At December 31, 1994, approximately $233,745,000 of the
Parent's investment in bank and thrift subsidiaries was restricted as to
dividend payments from the banks and thrifts to the Parent under the foregoing
regulatory limitations.
<PAGE> 29
NOTE 15. REGULATORY MATTERS
The Department of Banking and Finance of the State of Georgia requires
that state chartered banks maintain a minimum ratio of capital, as defined, to
assets of 6%.
Under the provisions of the Financial Institutions Reform, Recovery,
and Enforcement Act ("FIRREA") of 1989, the Company's subsidiary banks and
thrifts are required to meet certain core, tangible, and risk-based capital
ratios.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
was signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992.
In addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective actions regulations define specific capital
categories based on an institution's capital ratios. The capital categories,
in declining order, are well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse are
subject to certain restrictions, including the requirement to file a capital
plan with their primary federal regulator, prohibitions on the payment of
dividends and management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things. Other restrictions may
be imposed on the institution either by its primary federal regulator or by the
Federal Deposit Insurance Corporation, including requirements to raise
additional capital, sell assets, or sell the entire institution. Once an
institution becomes "critically undercapitalized," it must generally be placed
in receivership or conservatorship within 90 days.
To be considered "adequately capitalized," an institution must
generally have a leverage ratio of at least 4%, a Tier 1 risk-based capital
ratio of at least 4%, and a total risk-based capital ratio of at least 8%. An
institution is deemed to be "critically undercapitalized" if it has a tangible
equity ratio of 2% or less. Additionally, thrift institutions are required to
have minimum regulatory tangible capital equal to 1.5% of total assets and a
minimum core capital ratio of 3%.
At December 31, 1994, all of the subsidiary banks and thrifts exceeded
the minimum "adequately capitalized" aforementioned capital requirements.
NOTE 16. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions would significantly affect the estimates. Statement No. 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments and other recorded assets and liabilities without
attempting to estimate the value of anticipated future business. The value of
significant portions of the bank and thrift subsidiaries that generate
substantial income annually, such as trust and mortgage banking operations,
have not been estimated. In addition, tax ramifications related to the
realization of unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in any of the estimates.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments and certain
other assets and liabilities:
CASH AND CASH EQUIVALENTS: The carrying amounts of cash and cash
equivalents approximate those assets' fair values.
INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS: The
carrying amounts of interest-bearing deposits in other financial institutions
approximate their fair value.
<PAGE> 30
INVESTMENT SECURITIES (INCLUDING MORTGAGE-BACKED SECURITIES): Fair
values for securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
LOANS: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for all other loans are estimated using discounted cash flow
analysis, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's
off-balance-sheet instruments are based on a comparison with terms, including
interest rate and commitment period currently prevailing to enter into similar
agreements, taking into account credit standings. The carrying and fair values
of off-balance-sheet instruments at December 31, 1994 and 1993, were not
material.
PURCHASED MORTGAGE LOAN SERVICING RIGHTS AND EXCESS SERVICING FEE
RECEIVABLES: Fair values of purchased mortgage loan servicing rights and excess
servicing fees receivables are determined by estimating the present value of
the future net servicing income, on a disaggregated basis, using anticipated
prepayment assumptions.
DEPOSITS: Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates of similar terms of maturity. The
carrying amounts of all other deposits, due to their nature, approximate their
fair values.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds
purchased, securities sold under agreements to repurchase, and other short-term
borrowings approximate their fair values.
LONG-TERM DEBT: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's current
borrowing rates for similar types of borrowing arrangements.
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
-------------------------------------------------
Book Fair Book Fair
Value Value Value Value
-------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 96,433 $ 96,433 $ 94,243 $ 94,243
Federal funds sold and securities purchased
under agreements to resell 117,789 117,789 124,231 124,231
Interest-bearing deposits in other
financial institutions 16,259 16,259 68,157 68,157
Investment securities 737,103 735,580 624,972 638,780
Loans, net 1,824,436 1,785,033 1,638,781 1,660,094
Purchased mortgage loan servicing
rights - unaudited 16,775 20,678 9,829 9,829
Excess servicing fee receivables 2,090 2,334 4,825 4,825
LIABILITIES
Deposits:
Noninterest-bearing 349,121 349,121 291,710 291,710
Interest-bearing transactions and savings 808,282 808,282 733,421 733,421
Certificates of deposits 1,325,055 1,310,479 1,229,551 1,241,359
Federal funds purchased and securities
sold under agreements to repurchase 98,702 98,702 63,379 63,379
Other short-term borrowings 6,427 6,427 13,807 13,807
Long-term debt 80,238 76,131 62,958 63,315
</TABLE>
<PAGE> 31
NOTE 17. SUPPLEMENTAL FINANCIAL DATA
Components of other noninterest income and expense in excess of 1% of income
for the respective periods are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
------------------------
1994 1993 1992
------------------------
(in thousands)
<S> <C> <C> <C>
INCOME:
Mortgage loan servicing fees, net $3,876 $ 3,069 $ 3,251
Gains on sales of mortgage loan servicing rights 2,213 10,811 10,721
Losses on sales of mortgage loans (529) (5,083) (8,771)
------------------------
Net gains on sales of mortgage loans and servicing rights 1,684 5,728 1,950
EXPENSES:
Postage, telephone, and stationary 5,695 5,291 4,932
FDIC insurance premiums 5,499 5,248 4,942
Amortization and write-off of mortgage
loan servicing rights 2,762 3,394 4,945
Data processing 3,514 3,190 1,917
Promotional 2,464 1,828 1,620
</TABLE>
<PAGE> 32
NOTE 18. CONSOLIDATED QUARTERLY FINANCIAL INFORMATION - UNAUDITED
Presented below is a summary of the unaudited consolidated quarterly financial
information for the years ended December 31, 1994, and 1993.
<TABLE>
<CAPTION>
Total 1994 Quarter Ended
--------------------------------------
Year Dec. 31 Sept. 30 June 30 March 31
------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $205,914 $54,825 $52,931 $51,187 $46,971
Interest expense 86,018 23,556 21,746 20,987 19,729
------------------------------------------------
Net interest income 119,896 31,269 31,185 30,200 27,242
Provision for loan losses 1,577 1,713 (159) (343) 366
Net (loss) gain on sales of investment securities (283) (449) (21) 24 163
Noninterest income 28,395 5,830 7,261 8,275 7,029
Noninterest expense 98,780 25,838 24,833 25,381 22,728
------------------------------------------------
Income before income taxes 47,651 9,099 13,751 13,461 11,340
Income taxes 13,015 1,907 4,314 3,775 3,019
------------------------------------------------
Net income $ 34,636 $ 7,192 $ 9,437 $ 9,686 $ 8,321
================================================
Per share:
Net income $ 1.72 $ .35 $ .47 $ .48 $ .42
================================================
</TABLE>
<TABLE>
<CAPTION>
Total 1993 Quarter Ended
--------------------------------------
Year Dec. 31 Sept. 30 June 30 March 31
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $190,877 $47,352 $47,784 $48,356 $47,385
Interest expense 82,581 20,055 20,480 20,884 21,162
------------------------------------------------
Net interest income 108,296 27,297 27,304 27,472 26,223
Provision for loan losses 3,162 324 531 1,113 1,194
Net gains on sales of investment securities 753 9 64 314 366
Noninterest income 32,286 9,961 8,245 6,883 7,197
Noninterest expense 91,021 24,152 22,550 23,028 21,291
------------------------------------------------
Income before income taxes and cummulative
effect of accounting change 47,152 12,791 12,532 10,528 11,301
Income taxes 13,677 3,261 3,943 3,022 3,451
Cumulative effect of accounting change 984 --- --- --- 984
------------------------------------------------
Net income $ 34,459 $ 9,530 $ 8,589 $ 7,506 $ 8,834
================================================
Per share:
Income before cummulative effect of accounting change $ 1.70 $ .49 $ .44 $ .38 $ .39
Cummulative effect of accounting change .05 --- --- --- .05
------------------------------------------------
Net income $ 1.75 $ .49 $ .44 $ .38 $ .44
================================================
</TABLE>
NOTE 19. SUBSEQUENT EVENT
On October 22, 1995, the Company entered into an Agreement and Plan of
Reorganization ("the Agreement") whereby the Company will be acquired by
Regions Financial Corporation ("Regions"), headquartered in Birmingham,
Alabama. Under the terms of the Agreement, Regions will exchange .76 shares of
its common stock for each outstanding common share of the Company. In
connection with executing the Agreement, the Company granted to Regions an
option to purchase up to 4,089,234 shares of the Company's common stock, at a
purchase price of $27.00 per share, upon certain terms and in accordance with
certain conditions. The transaction is subject to approval by the shareholders
of Regions and the Company, and various regulatory agencies, and is anticipated
to be consumated in the first half of 1996.
<PAGE> 33
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
September 30
1995
-------------
<S> <C>
ASSETS
Cash and due from banks $ 98,244
Federal funds sold 91,652
- -------------------------------------------------------------------------
Cash and cash equivalents 189,896
Interest-bearing deposits in other financial institutions 10,708
Investment securities available-for-sale 663,106
Investment securities held-to-maturity (market value $156,931) 152,312
Loans 1,970,654
Allowance for loan losses (26,016)
- -------------------------------------------------------------------------
Net loans 1,944,638
Premises and equipment, net 67,209
Other assets 84,006
- -------------------------------------------------------------------------
Total assets $3,111,875
=========================================================================
LIABILITIES
Deposits:
Noninterest-bearing demand deposits $ 335,441
Interest-bearing checking deposits 221,907
Money market deposits 111,023
Certificates of deposit less than $100 887,347
Certificates of deposit greater than $100 261,954
Other interest-bearing deposits 769,451
- -------------------------------------------------------------------------
Total deposits 2,587,123
Federal funds purchased 32,092
Securities sold under agreements
to repurchase 51,817
Other short-term borrowings 11,173
Long-term debt 79,641
Other liabilities 45,763
- -------------------------------------------------------------------------
Total liabilities 2,807,609
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share, authorized
30,000,000 shares; issued and outstanding 20,529,193
20,425,181 and 20,349,722 shares, respectively 20,529
Additional paid-in capital 86,468
Retained earnings 194,731
Net unrealized holding gains on investment securities
available-for-sale 2,538
- -------------------------------------------------------------------------
Total shareholders' equity 304,266
- -------------------------------------------------------------------------
Total liabilities and shareholders' equity $3,111,875
=========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 34
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
<TABLE>
<CAPTION>
(unaudited) Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1995 1994 1995 1994
------------------ -----------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans (including fees) $47,057 $39,899 $135,131 $114,357
Interest-bearing deposits in other
financial institutions 215 413 689 1,485
Investment securities:
Tax-exempt 2,820 2,538 8,148 7,635
Taxable 10,452 8,812 30,224 24,229
Federal funds sold 1,558 1,269 5,528 3,383
- -------------------------------------------------------------------------------------------------------
Total interest income 62,102 52,931 179,720 151,089
- -------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits, including interest expense on certificates
of deposit of $100 or more of $2,738, $1,833
$7,328 and $5,315, respectively. 27,781 19,765 77,180 57,135
Federal funds purchased and securities
sold under agreements to repurchase 1,204 845 4,190 2,201
Other short-term borrowings 118 39 274 156
Long-term debt 1,092 1,097 3,350 2,970
- -------------------------------------------------------------------------------------------------------
Total interest expense 30,195 21,746 84,994 62,462
- -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 31,907 31,185 94,726 88,627
Provision for loan losses 920 (159) 1,963 (136)
- -------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 30,987 31,344 92,763 88,763
- -------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 3,080 3,016 9,100 8,369
Mortgage loan and other related fees 1,290 1,249 3,945 5,037
Fees for trust services 591 591 1,766 1,746
Credit card fees 491 453 1,275 1,220
Insurance premiums and commissions 190 227 901 968
Net gain (loss) on sales of investment securities 69 (21) 291 166
Other noninterest income 1,745 1,725 4,513 5,059
- -------------------------------------------------------------------------------------------------------
Total noninterest income 7,456 7,240 21,791 22,565
- -------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 12,773 12,348 40,600 36,695
Furniture and equipment 1,567 1,631 4,735 4,883
Postage, telephone and stationary 1,534 1,344 4,543 4,133
Net occupancy 1,500 1,548 4,464 4,394
FDIC insurance premiums 113 1,416 2,979 4,082
Data processing 813 812 2,696 2,441
Promotional 703 557 2,044 1,742
Other noninterest expense 5,044 5,177 15,310 14,406
- -------------------------------------------------------------------------------------------------------
Total noninterest expense 24,047 24,833 77,371 72,776
- -------------------------------------------------------------------------------------------------------
Income before income taxes 14,396 13,751 37,183 38,552
Income tax expense 4,591 4,314 11,332 11,108
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 9,805 $ 9,437 $ 25,851 $ 27,444
=======================================================================================================
Weighted-average shares outstanding 20,497 20,303 20,465 20,053
Net income per share $ .48 $ .47 $ 1.26 $ 1.37
Dividends declared per share $ .2125 $ .1950 $ .6250 $ .5775
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 35
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
(unaudited) Nine Months Ended September 30
------------------------------
1995 1994
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 25,851 $ 27,444
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,963 (136)
Provision for other real estate losses 896 426
Depreciation 4,552 4,761
Amortization and accretion, net (5,577) (1,177)
Deferred income tax expense (benefit) 1,614 (6,280)
Losses (gains) on sales of investment securities (291) 166
Gains on sales of mortgage loan servicing rights (68) (2,295)
Gains on sales of assets acquired in
forclosure and equipment (973) (519)
Excess servicing fees receivable resulting from
first mortgage loan sales (1,158) (413)
(Increase) decrease in mortgage loans held-for-sale (11,576) 50,932
Other, net 14,527 6,426
- ----------------------------------------------------------------------------------------
Net cash provided by operating activities 29,760 79,335
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales/calls of investment securities held-to-maturity 9,750 3,649
Proceeds from principal collections on and maturities of
investment securities held-to-maturity 3,450 9,766
Purchases of investment securities held-to-maturity (12,261) (18,780)
Proceeds from sales of investment securities available-for-sale 54,309 27,215
Proceeds from principal collections on and maturities of
investment securities available-for-sale 254,487 131,468
Purchases of investment securities available-for-sale (359,043) (260,429)
Net decrease in interest-bearing deposits in
other financial institutions 5,551 46,452
Net increase in loans (111,427) (72,169)
Proceeds from sale of mortgage loan servicing rights 15,396 3,128
Purchases of mortgage loan servicing rights (1,575) (10,461)
Purchases of premises and equipment (5,710) (4,965)
Proceeds from sales of premises and equipment 759 138
Proceeds from sales of assets acquired in forclosure 7,340 7,519
Net cash and cash equivalents acquired in the
purchase of bank subsidiary --- 27,515
- ----------------------------------------------------------------------------------------
Net cash used in investing activities (138,974) (109,954)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 104,665 (12,450)
Net decrease in short-term borrowings (10,047) (1,815)
Proceeds from the issuance of long-term debt 10,000 33,000
Payments on long-term debt (10,597) (5,596)
Proceeds from issuance of common stock for stock options exercised 1,587 1,446
Proceeds from issuance of common stock for dividend reinvest plan 511 --
Cash dividends paid on common stock (11,231) (9,245)
- ----------------------------------------------------------------------------------------
Net cash provided by financing activities 84,888 5,340
- ----------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (24,326) (25,279)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 214,222 218,268
- ----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 189,896 $ 192,989
========================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 84,016 $ 62,092
========================================================================================
Income taxes paid $ 7,920 $ 13,328
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the interim periods are not necessarily indicative of the
results that may be expected for the full year or any other interim period.
Certain reclassifications have been made to amounts previously presented to
conform with current period presentations. Such reclassifications had no
effect on net income. For further information, refer to the consolidated
financial statements and footnotes thereto incorporated by reference in
First National Bancorp's (the "Company") annual report on Form 10-K for the
year ended December 31, 1994 which have been subsequently restated and
refiled under Form 8-K on November 21, 1995, to give effect to the
acquisition of FF Bancorp, Inc., on July 3, 1995.
2. BUSINESS COMBINATIONS
On October 22, 1995, the Company entered into an Agreement and Plan of
Reorganization ("the Agreement") whereby the Company will be acquired by
Regions Financial Corporation ("Regions"), headquartered in Birmingham,
Alabama. Under the terms of the Agreement, Regions will exchange .76 shares
of its common stock for each share of the Company. In connection with
executing the Agreement, the Company granted to Regions an option to
purchase up to 4,089,234 shares of the Company's common stock, at a
purchase price of $27.00 per share, upon certain terms and in accordance
with certain conditions. The transaction is subject to approval by the
shareholders of Regions and the Company, and various regulatory agencies,
and is anticipated to be consumated in the first quarter of 1996.
On July 25, 1995, the Company entered into a Letter of Intent, and on
August 3, 1995 signed an Agreement of Reorganization and Plan of Merger
("the Agreement"), to acquire The Bank of Heard County ("Heard"), a $40
million asset commercial bank located in Franklin County, Georgia. The
Agreement calls for the transaction to be structured as a tax-free exchange
of stock whereby the Company will exchange 325.58 shares of its common
stock for each of the 1,000 outstanding common shares of Heard. The merger
is subject to the approval of Heard shareholders and various regulatory
agencies.
On July 3, 1995, the Company completed its acquisition of FF Bancorp, Inc.
("FF Bancorp"), New Smyrna Beach, Florida. FF Bancorp is the holding
company of First Federal Savings Bank of New Smyrna, New Smyrna Beach,
Florida, a thrift institution, First Federal Savings Bank of Citrus County,
Florida, a thrift headquartered in Inverness, Florida, and Key Bank
of Florida, a commercial bank located in Tampa, Florida. The Company
exchanged 3,884,587 shares of its common stock for all of the 4,706,163
shares of FF Bancorp stock outstanding. No cash, except for fractional
shares, was paid in the transaction. The transaction was accounted for as
a pooling-of-interests and, accordingly, the consolidated financial
statements for all periods presented have been restated to include the
financial position and results of operations of FF Bancorp. Certain amounts
in the historical financial statements of FF Bancorp, Inc. have been
reclassified to conform with the basis of presentation of the Company. Such
reclassifications had no effect on net income. The Company's Consolidated
financial data for the six months ended June 30, 1995 and the three and
nine month periods ended September 30, 1994 have been restated as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Six months ended Three months ended Nine months ended
6/30/95 9/30/94 9/30/94
------- ------- -------
<S> <C> <C> <C>
Net interest income:
First National Bancorp, before acquisition $51,132 $25,207 $71,721
FF Bancorp 11,614 5,978 16,906
------- ------- -------
Total $62,746 $31,185 $88,627
======= ======= =======
Net Income:
First National Bancorp, before acquisition $12,859 $ 7,237 $20,980
FF Bancorp 3,187 2,200 6,464
------- ------- -------
Total $16,046 $ 9,437 $27,444
======= ======= =======
Net Income per share:
First National Bancorp, before acquisition $ .78 $ .44 $ 1.28
Effect of restatement for FF Bancorp -- .03 .09
------- ------- -------
Total $ .78 $ .47 $ 1.37
======= ======= =======
</TABLE>
3. LOANS
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("FAS") 114, "Accounting by
Creditors for Impairment of a Loan." FAS 114 requires impaired loans to be
measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate, or at the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent, beginning in 1995. In October 1994, the FASB issued
FAS 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," which amends the requirements of FAS 114
regarding interest income recognition and related disclosure requirements.
On January 1, 1995, the Company adopted FAS 114 and FAS 118. At September
30, 1995, pursuant to the definitions within FAS 114, the Company had
approximately $20,224,000 of impaired loans, of which $19,129,000 are
classified as nonaccrual. A valuation reserve in the amount of $458,000
has been established for approximately $6,480,000 of these impaired loans.
4. MORTGAGE SERVICING RIGHTS
In May 1995, the FASB issued FAS 122, "Accounting for Mortgage
Servicing Rights and Excess Servicing Receivables and for Securitization of
Mortgage Loans," as an amendment to FAS 65, "Accounting for Certain
Mortgage Banking Activities." This statement is effective for fiscal years
beginning after December 15, 1995, however earlier adoption is permitted.
The Company adopted FAS 122 effective April 1, 1995. FAS 122 requires that
a mortgage banking enterprise recognize as separate assets, rights to
service mortgage loans for others regardless of whether such servicing
rights are acquired through either the purchase or
<PAGE> 37
origination of mortgage loans. The statement also requires that the mortgage
banking enterprise assess its capitalized mortgage servicing rights for
impairment based upon the fair value of those rights, including those rights
purchased before adoption of FAS 122. Impairment should be recognized through
a valuation allowance. As a result of the adoption of FAS 122, the Company
recognized additional earnings of $252,000 during the three month period ended
June 30, 1995 over the amount that would have been recognized under FAS 65.
During the three month period ended September 30, 1995, the Company capitalized
all mortgage servicing rights. At September 30, 1995, the fair value of the
Company's capitalized mortgage servicing rights was $4,024,000 and the
valuation allowance was $5,000. Fair value was estimated by determining the
present value of the estimated future cash flows using discount rates
commensurate with the risks involved. In determining the present value, the
Company stratifies its mortgage servicing rights based on risk characteristics
such as loan type, note rates, origination dates, and note term.
<PAGE> 1
EXHIBIT 99.3
Unaudited Pro Forma Financial Information
The following unaudited pro forma combined condensed statement of condition as
of September 30, 1995, gives effect to (i) the acquisitions of First National
and Delta by Regions, assuming such acquisitions are accounted for as poolings
of interests, and (ii) the Prudential Transaction and the acquisitions of
Enterprise, Metro, First Federal and First Gwinnett, assuming such
acquisitions are treated as purchases for accounting purposes, as if all such
transactions had been consummated on September 30,1995.
The following unaudited pro forma combined condensed statements of income for
the nine months ended September 30, 1995, and year ended December 31, 1994,
give effect to (i) the acquisitions of First National and Delta by Regions,
assuming such acquisitions are accounted for as poolings of interests, and (ii)
the acquisitions of Enterprise, Metro, First Federal and First Gwinnett,
assuming such acquisitions are treated as a purchase for accounting purposes,
as if all such transactions had been consummated on January 1, 1994.
The following unaudited pro forma combined condensed statements of income for
the years ended December 31, 1993 and 1992, give effect to the acquisitions of
First National and Delta by Regions, assuming such acquisitions are accounted
for as poolings of interests and had been consummated on January 1, 1992.
The effect of an anticipated restructuring charge, resulting directly
from the merger with Regions and estimated for purposes of the pro forma
financial statements at $5.6 million net of taxes which will be taken by First
National, has been reflected in the pro forma combined condensed statement of
condition; however, since the anticipated restructuring charge is nonrecurring,
it has not been reflected in the pro forma combined condensed statements of
income. The pro forma financial data does not give effect to anticipated
reductions in expenses at First National in connection with its merger with
Regions.
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 at the date and for the
periods indicated or which may be obtained in the future.
<PAGE> 2
Regions Financial Corporation
Unaudited Pro Forma Combined Condensed Statement of Condition
As of September 30, 1995
(in thousands)
<TABLE>
<CAPTION>
Prudential First First
Regions Enterprise Transaction Metro Federal Gwinnett
--------- ---------- ----------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
Cash and due from banks $636,158 $5,183 $28,920 $969 $803 $6,301
Interest-bearing deposits in other banks 14,922 1,663 5,116 695
Investment securities 2,145,891 2,450 23,843 1,856
Securities available for sale 887,309 10,645 17,540 19,415 10,121
Trading account assets 17,942
Mortgage loans held for sale 98,046 14,177
Federal fund sold and securities
purchased under agreements to resell 1,639 2,680 2,100
Loans, net of unearned income 9,596,673 31,853 23,230 134,703 62,968 38,506
Allowance for loan losses (131,426) (320) (1,643) (648) (456)
Premises and equipment, net 188,054 1,466 808 1,426 936 1,817
Other real estate 5,537 275 860 30
Excess purchase price 105,002 4,295
Due from customers on acceptances 15,561
Other assets 266,602 483 9 4,410 947 1,581
----------- ------- ------- -------- ------- -------
TOTAL ASSETS $13,847,910 $54,440 $57,262 $197,363 $90,397 $62,551
==========================================================================
<CAPTION>
Adjustments Regions and
First Increase All Acquisitions
National Delta (Decrease) Pro Forma Combined
-------- ----- ---------- ------------------
<S> <C> <C> <C> <C>
Cash and due from banks $98,244 $11,887 $788,465
Interest-bearing deposits in other banks 10,708 ($8,474)a 24,630
Investment securities 152,312 59,994 2,386,346
Securities available for sale 663,106 22,437 (57,045)b 1,573,528
Trading account assets 17,942
Mortgage loans held for sale 112,223
Federal fund sold and securities
purchased under agreements to resell 91,652 3,050 101,121
Loans, net of unearned income 1,970,654 91,705 11,950,292
Allowance for loan losses (26,016) (1,256) (161,765)
Premises and equipment, net 67,209 5,163 266,879
Other real estate 9,138 557 16,397
Excess purchase price 9,000 2,774 a 145,924
15,840 c
3,210 d
5,803 e
Due from customers on acceptances 15,561
Other assets 65,868 3,804 343,704
---------- -------- -------- -----------
TOTAL ASSETS $3,111,875 $197,341 ($37,892) $17,581,247
=====================================================
<CAPTION>
Prudential First First
LIABILITIES AND STOCKHOLDERS' EQUITY Regions Enterprise Transaction Metro Federal Gwinnett
------- ---------- ----------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing deposits $ 1,461,775 $13,185 $ 3,159 $ 10,289 $ 441 $ 9,950
Interest-bearing deposits 9,280,412 33,327 54,103 167,330 76,534 43,466
Federal funds purchased and securities
sold under agreements to repurchase 1,216,763 1,990
Other borrowed funds 624,240 3,700 475 36
Bank acceptances outstanding 15,561
Other liabilities 135,369 238 2,865 475 1,511
----------- ------- ------- -------- ------- -------
Total liabilities 12,734,120 48,740 57,262 184,184 77,925 54,963
Common stock 29,704 3,450 1,657 3 292
Surplus 418,453 6,471 9,345 2,703 5,691
Undivided profits 676,285 (4,145) 2,532 9,743 1,606
Less: Treasury and unearned restricted stock (14,239) (36)
Unrealized gain (loss) on securities AFS, net 3,587 (76) (355) 23 35
----------- ------- ------- -------- ------- -------
Total Stockholders' Equity 1,113,790 5,700 0 13,179 12,472 7,588
----------- ------- ------- -------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,847,910 $54,440 $57,262 $197,363 $90,397 $62,551
==========================================================================
<CAPTION>
Adjustments Regions and
First Increase All Acquisitions
LIABILITIES AND STOCKHOLDERS' EQUITY National Delta (Decrease) Pro Forma Combined
-------- ----- ----------- ------------------
<S> <C> <C> <C> <C>
Non-interest bearing deposits $ 335,441 $ 48,468 $ 1,882,708
Interest-bearing deposits 2,251,682 124,988 12,031,842
Federal funds purchased and securities
sold under agreements to repurchase 83,909 1,302,662
Other borrowed funds 90,814 4,830 724,095
Bank acceptances outstanding 15,561
Other liabilities 45,763 2,233 5,600 h 194,054
---------- -------- -------- -----------
Total liabilities 2,807,609 180,519 5,600 16,150,922
Common stock 20,529 1,872 ($3,450) a 39,999
(1,657) c
(3) d
(292) e
16 e
(10,778) f
(1,344) g
Surplus 86,468 4,064 (6,471) a 522,138
(9,345) c
(2,703) d
(5,691) e
1,031 e
10,778 f
1,344 g
Undivided profits 194,731 10,882 4,145 a 876,298
(2,532) c
(9,743) d
(1,606) e
(5,600) h
Less: Treasury and unearned restricted stock (57,045) b (14,239)
29,019 c
15,682 d
36 e
12,344 e
Unrealized gain (loss) on securities AFS, net 2,538 4 76 a 6,129
355 c
(23) d
(35) e
---------- -------- -------- -----------
Total Stockholders' Equity 304,266 16,822 (43,492) 1,430,325
---------- -------- -------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,111,875 $197,341 ($37,892) $17,581,247
============================================ ===========
</TABLE>
See notes to the unaudited pro forma combined condensed statement of condition.
<PAGE> 3
Regions Financial Corporation
Notes to Unaudited Pro Forma Combined Condensed Statement of Condition
a) To reflect the elimination of Enterprise's capital accounts in accordance
with purchase accounting, and corresponding payment of $8,474,000 in
exchange for all of Enterprise's outstanding shares and options.
b) To reflect the purchase, in the open market, of 1,404,180 shares of Regions
Common Stock, at $40.625 per share, to be reissued in the Metro, First
Federal and First Gwinnett transactions.
c) To reflect the elimination of Metro's capital accounts in accordance with
purchase accounting, and corresponding exchange of 714,303 shares of Regions
Common Stock for all the outstanding shares of Metro common stock, assuming a
market price of $40.625 per share for Regions Common Stock. The Regions
Common Stock exchanged is reflected as being issued from treasury stock.
d) To reflect the elimination of First Federal's capital accounts in accordance
with purchase accounting, and corresponding exchange of 386,014 shares of
Regions Common Stock for all the outstanding shares of First Federal common
stock, assuming a market price of $40.625 per share for Regions Common Stock.
The Regions Common Stock exchanged is reflected as being issued from treasury
stock.
e) To reflect the elimination of First Gwinnett's capital accounts in
accordance with purchase accounting, and corresponding exchange of 329,634
shares of Regions Common Stock for all the outstanding shares of First
Gwinnett common stock, assuming a market price of $40.625 per share for
Regions Common Stock. Of the Regions Common Stock exchanged 303,863 shares
are reflected as being issued from treasury stock and 25,711 shares as newly
issued.
f) To reflect the issuance of 15,602,040 shares of Regions Common Stock to
effect the First National transaction. The First National transaction will be
accounted for as a pooling of interests, therefore the effect upon
stockholders' equity will be to increase Regions stockholders' equity by the
total equity of First National. The unaudited pro forma financial statements
have been prepared assuming Regions will issue 15,602,040 shares of Regions
Common Stock in exchange for all the outstanding shares of First National.
A reclassification from common stock to surplus results from the issuance of
the shares.
g) To reflect the issuance of 844,991 shares of Regions Common Stock to effect
the Delta transaction. The Delta transaction will be accounted for as a
pooling of interests, therefore the effect upon stockholders' equity will be
to increase Regions stockholders' equity by the total equity of Delta. The
unaudited pro forma financial statements have been prepared assuming Regions
will issue 844,991 shares of Regions Common Stock in exchange for all the
outstanding shares of Delta. A reclassification from common stock to surplus
results from the issuance of the shares.
h) In connection with its merger with Regions, it is anticipated that First
National will take a one-time restructuring charge estimated for purposes of
the pro forma financial statements of approximately $6.6 million ($5.6
million net of taxes), prior to or at the time of consummation of its merger
with Regions. The restructuring charge results from data processing contract
termination costs, reductions in the carrying value of unnecessary equipment,
severance costs for anticipated staff reductions, additional income taxes
related to the recapture of savings and loan bad debt reserves, and other
one-time costs directly related to the merger of First National with Regions.
The effect of the anticipated restructuring charge has been reflected in the
pro forma combined condensed statement of condition; however, since the
anticipated restructuring charge is nonrecurring, it has not been reflected
in the pro forma combined condensed statements of income.
<PAGE> 4
Regions Financial Corporation
Unaudited Pro Forma Combined Condensed Statement of Income
Nine months ended September 30, 1995
<TABLE>
<CAPTION>
(in thousands, except per share amounts) First First First
Regions Enterprise Metro Federal Gwinnett National Delta
-------- ---------- ----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $757,460 $3,278 $11,783 $4,726 $3,781 $179,720 $11,000
Interest expense 387,112 1,377 6,529 2,757 1,604 84,994 3,668
------- ------ ------- ------ ------ -------- -------
Net interest income 370,348 1,901 5,254 1,969 2,177 94,726 7,332
Provision for loan losses 15,312 76 125 104 90 1,963 0
Non-interest income 117,435 293 1,943 413 193 21,791 1,415
Non-interest expense 278,363 1,595 4,789 1,104 1,281 77,371 6,393
Income before income taxes 194,108 523 2,283 1,174 999 37,183 2,354
Applicable income taxes 66,007 850 347 343 11,332 662
------- ------ ------- ------ ------ -------- -------
Net Income $128,101 $ 523 $ 1,433 $ 827 $ 656 $ 25,851 $ 1,692
======================================================================
Earnings per common share $2.77
=======
Average common shares outstanding(e) 46,212 15,553 845
<CAPTION>
Adjustments Regions and
(in thousands, except per share amounts) Increase Pending Acquisitions
(Decrease) Pro Forma Combined
----------- ------------------
<C> <C>
Interest income ($392)a $968,527
(2,829)b
Interest expense 488,041
-------- --------
Net interest income (3,221) 480,486
Provision for loan losses 17,670
Non-interest income 143,483
Non-interest expense 1,148 c 372,044
-------- --------
Income before income taxes (4,369) 234,255
Applicable income taxes (1,095)d 78,446
-------- --------
Net Income ($3,274) $155,809
======= ========
Earnings per common share $ 2.49
========
Average common shares outstanding(e) 62,610
</TABLE>
See notes to unaudited pro forma combined condensed statements of income.
<PAGE> 5
Regions Financial Corporation
Unaudited Pro Forma Combined Condensed Statement of Income
Twelve months ended December 31, 1994
<TABLE>
<CAPTION>
(in thousands, except per share amounts) First First First
Regions Enterprise Metro Federal Gwinnett National Delta
------- ---------- ----- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $785,779 $3,697 $12,768 $5,518 $4,058 $205,914 $13,604
Interest expense 350,139 1,458 6,087 2,653 1,484 86,018 4,029
-------- ------ ------- ------ ------ -------- -------
Net interest income 435,640 2,239 6,681 2,865 2,574 119,896 9,575
Provision for loan losses 19,003 124 315 (77) 2 1,577 405
Non-interest income 143,408 539 1,484 415 269 28,112 1,834
Non-interest expense 343,067 2,133 6,047 1,355 1,769 98,780 8,884
-------- ------ ------- ------ ------ -------- -------
Income before income taxes 216,978 521 1,803 2,002 1,072 47,651 2,120
Applicable income taxes 71,094 628 602 342 13,015 535
-------- ------ ------- ------ ------ -------- -------
Net Income $145,884 $521 $ 1,175 $1,400 $730 $34,636 $1,585
=========================================================================
Earnings per common share $3.40
========
Average common shares outstanding(e) 42,906 15,300 845
<CAPTION>
Adjustments Regions and
(in thousands, except per share amounts) Increase Pending Acquisitions
(Decrease) Pro Forma Combined
---------- ------------------
<S> <C> <C>
Interest income ($276)a $1,027,388
(3,674)b
Interest expense 451,868
------- ----------
Net interest income (3,950) 575,520
Provision for loan losses 21,349
Non-interest income 176,061
Non-interest expense 1,535 c 463,570
------- ----------
Income before income taxes (5,485) 266,662
Applicable income taxes (1,294)d 84,922
------- ----------
Net Income ($4,191) $181,740
=============================
Earnings per common share $3.08
==========
Average common shares outstanding(e) 59,051
</TABLE>
See notes to unaudited pro forma combined condensed statements of income.
<PAGE> 6
Regions Financial Corporation
Unaudited Pro Forma Combined Condensed Statement of Income
Twelve months ended December 31, 1993
<TABLE>
<CAPTION>
Regions and All
(in thousands, except per share amounts) First Pooling-of-Interests Acquisitions
Regions National Delta Pro Forma Combined
------- -------- ----- ------------------
<S> <C> <C> <C> <C>
Interest income $555,667 190,877 13,613 $760,157
Interest expense 213,614 82,581 3,948 300,143
-------- ------- ------ --------
Net interest income 342,053 108,296 9,665 460,014
Provision for loan losses 21,533 3,162 620 25,315
Non-interest income 132,027 33,039 2,098 167,164
Non-interest expense 287,026 91,021 9,187 387,234
-------- ------- ------ --------
Income before income taxes 165,521 47,152 1,956 214,629
Applicable income taxes 53,476 13,677 537 67,690
-------- ------- ------ --------
Income before cumulative effect of change
in accounting principle and
extraordinary item $112,045 $33,475 $1,419 $146,939
======== ======= ====== ========
Earnings per common share $3.01 $2.77
======== ========
Average common shares outstanding (e) 37,205 14,948 845 52,998
</TABLE>
<PAGE> 7
Regions Financial Corporation
Unaudited Pro Forma Combined Condensed Statement of Income
Twelve months ended December 31, 1992
<TABLE>
<CAPTION>
Regions and All
(in thousands, except per share amounts) First Pooling-of-Interests Acquisitions
Regions National Delta Pro Forma Combined
------- -------- ----- ------------------
<S> <C> <C> <C> <C>
Interest income $536,747 200,347 11,320 $748,414
Interest expense 224,068 100,352 4,001 328,421
-------- ------- ------ --------
Net interest income 312,679 99,995 7,319 419,993
Provision for loan losses 27,072 12,295 570 39,937
Non-interest income 119,077 31,283 1,483 151,843
Non-interest expense 264,659 78,620 5,727 349,006
-------- ------- ------ --------
Income before income taxes 140,025 40,363 2,505 182,893
Applicable income taxes 44,977 11,428 711 57,116
-------- ------- ------ --------
Net Income $95,048 $28,935 $1,794 $125,777
======== ======= ====== ========
Earnings per common share $ 2.60 $ 2.42
======== ========
Average common shares outstanding(e) 36,532 14,672 845 52,049
</TABLE>
<PAGE> 8
Regions Financial Corporation
Notes to Unaudited Pro Forma Combined Condensed Statements of Income
a) To reflect elimination of interest income that would have been foregone on
the cash paid to the shareholders of Enterprise.
b) To reflect elimination of interest income that would have been foregone on
the securities used to fund the purchase of the Regions Common Stock to be
issued in the Metro, First Federal and First Gwinnett transactions.
c) To reflect amortization, over 18 years, of excess purchase price resulting
from acquisitions.
d) To reflect the income tax provision related to adjustments to income
arising out of the acquisition transactions.
e) Pro forma earnings per share are based on the weighted average number of
shares outstanding for the period adjusted for the applicable exchange
ratio.
