<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993. Commission file number 0-6198.
FIRST AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 62-0799975
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
FIRST AMERICAN CENTER,
NASHVILLE, TENNESSEE 37237-0700
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 615/748-2000
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $5 PER SHARE AND ASSOCIATED
SERIES A JUNIOR PREFERRED STOCK PURCHASE RIGHTS
(Title of Class)
________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value (computed on the basis of the reported last
sale price on February 10, 1994) of shares of Common Stock, par value $5 per
share, held by non-affiliates of the Registrant was $714,701,955.30. The market
value calculation assumes (i) that all shares beneficially held by members of
the Board of Directors of the Registrant are shares owned by "affiliates," a
status which each of the directors individually disclaims, and (ii) that shares
beneficially owned by the Registrant's subsidiaries are owned by "affiliates".
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Outstanding at
Class February 10, 1994
----- -----------------
Common Stock, $5 par value: 26,052,826
DOCUMENTS INCORPORATED BY REFERENCE:
Document from which portions are Part of Form 10-K
incorporated by reference to which incorporated
- ------------------------- ---------------------
1. Proxy Statement dated March 17, 1994 Part III
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
Item 1-2 Business and Properties . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Statistical Information . . . . . . . . . . . . . . . . . . . . . 2
Supervision and Regulation . . . . . . . . . . . . . . . . . . . 3
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . 12
PART II
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters . . . . . . . . . . . . . . . . . 13
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 13
Item 7 Management's Discussion and Analysis of Results
of Operations and Financial Condition . . . . . . . . . . . . . . 13
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . 57
Item 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . 57
PART III
Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . 57
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 62
Item 12 Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . 62
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . 62
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
i
<PAGE> 3
PART I
ITEMS 1-2: BUSINESS AND PROPERTIES
GENERAL
First American Corporation (the "Corporation") is a registered bank
holding company which was incorporated under the laws of Tennessee in 1968.
The Corporation's principal subsidiary is First American National
Bank, headquartered in Nashville, Tennessee ("FANB"), which was founded in
1883. At December 31, 1993, FANB had 134 banking offices in 28 Tennessee
counties containing approximately 69% of Tennessee's population. On the basis
of deposits at June 30, 1993, FANB was the second largest bank in Tennessee,
and had the second largest deposit base in the Nashville-Davidson County
market, the second largest deposit base in the Tri-Cities market, the third
largest deposit base in the Knoxville (Knox County) market, the fifth largest
deposit base in the Memphis (Shelby County) market, and the seventh largest
deposit base in the Chattanooga (Hamilton County) market. On the basis of the
aggregate deposits held by FANB at June 30, 1993, the Corporation was the
second largest bank holding company headquartered in Tennessee.
Effective October 1, 1993, the Corporation acquired First American
National Bank of Kentucky ("FANBKY"), formerly First Federal Savings and Loan
Association of Bowling Green. At December 31, 1993, FANBKY had three banking
offices in two Kentucky counties, Warren and Simpson, which contain
approximately 3% of Kentucky's population. On the basis of deposits at June
30, 1993, FANBKY had the second largest deposit base in the Bowling Green,
Kentucky market.
In addition to FANB and FANBKY, the Corporation owns First American
Trust Company, N.A., which engages in trust and investment advisory services.
The Corporation is a legal entity separate and distinct from its
subsidiaries. The Corporation coordinates the financial resources of the
consolidated enterprise and maintains systems of financial, operational and
administrative controls that allow coordination of selected policies and
activities. The Corporation derives its income from interest, dividends and
management fees received from subsidiaries. The principal executive offices of
the Corporation are located at First American Center, Nashville, Tennessee
37237-0700, and its telephone number is (615) 748-2000.
Commercial Banking
At December 31, 1993, FANB had bank offices in the fifteen largest
counties in Tennessee (measured by aggregate bank deposits of banks in the
county at June 30, 1993) and in thirteen of the fifteen most populous Tennessee
cities.
1
<PAGE> 4
FANB offers the services generally performed by commercial banks of
like size and character. FANB also offers 24-hour banking service through
automated teller machines located at a majority of its banking offices and at
other locations. At December 31, 1993, FANB operated a total of 135 automated
teller machines.
FANB owns First Amtenn Life Insurance Company which underwrites credit
life and accident and health insurance on extensions of credit made by FANB.
FANB also owns Ameristar Capital Markets, Inc., which provides securities
brokerage services.
Like FANB, FANBKY also offers the services generally performed by
commercial banks of like size and character, as well as 24-hour banking service
through three automated teller machines as of December 31, 1993.
Trust and Investment Management
The trust functions, both individual and corporate, of the
Corporation, are provided by First American Trust Company, N.A. ("FATC"), a
subsidiary of the Corporation which is also a national bank. FATC owns all of
the stock of Lee, Robinson & Steine, Inc. ("LRS"), a non-banking subsidiary
which is a registered investment advisor. At December 31, 1993 the total
market value of assets under trust of FATC and LRS was approximately $3.9
billion, including $2.3 billion of assets managed with discretionary investment
authority.
Recent Developments
On November 8, 1993, the Corporation and FANB entered into a stock
purchase agreement to acquire 100% of the issued and outstanding capital stock
of Fidelity Crossville Corporation ("FCC"), a one savings bank holding company
which owns First Fidelity Savings Bank, F.S.B. ("First Fidelity"), a federal
stock savings bank headquartered in Crossville, Tennessee. It is anticipated
that simultaneously with the acquisition, First Fidelity will be merged into
FANB. As of December 31, 1993, First Fidelity operated two offices in
Cumberland County, Tennessee and had assets of approximately $50.0 million.
The acquisition of FCC and the merger of First Fidelity into FANB are expected
to be completed in the first half of 1994 subject to various conditions,
including regulatory approval.
STATISTICAL INFORMATION
Management's Discussion and Analysis of Results of Operations and
Financial Condition and the Consolidated Year-End Balance Sheets, which discuss
the Corporation from a financial perspective, are contained in Item 7 of this
Report.
2
<PAGE> 5
SUPERVISION AND REGULATION
General
The Corporation and its subsidiaries are subject to extensive
regulation under state and federal statutes and regulations. The discussion in
this section, which briefly summarizes certain of such statutes, does not
purport to be complete and is qualified in its entirety by reference to such
statutes. Other state and federal legislation and regulations directly and
indirectly affecting banks and other financial institutions are likely to be
enacted or implemented in the future and may have a material impact on the
business of the Corporation and one or more of its subsidiaries.
The Corporation is a bank holding company subject to the supervision
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended (the "Act"). As
a bank holding company, the Corporation is required to file annual reports
with, and is subject to supervision by, the Federal Reserve Board. FANB,
FANBKY and FATC are national banks and, as such, are subject to the supervision
of, and are regularly examined by, the Office of the Comptroller of the
Currency (the "OCC"). The Corporation and its subsidiary banks are also
subject to certain of the state banking laws of each state in which such banks
are located. Each of the Corporation's banking subsidiaries is also insured by,
and subject to the regulations of, the Federal Deposit Insurance Corporation
(the "FDIC"), and is also affected significantly by the actions of the Federal
Reserve Board by virtue of its role in regulating money supply and credit
availability, as well as the U.S. economy in general. Areas subject to
regulation by federal authorities include loan loss reserves, investments,
loans, mergers, issuance of securities, payment of dividends, establishment and
closing of branches, and other aspects of operations.
The Corporation's non-banking subsidiaries are also subject to the
supervision of the Federal Reserve Board and other regulatory agencies
including the Securities and Exchange Commission, the National Association of
Securities Dealers, Inc. and state securities regulators.
Agreement with the Comptroller of the Currency
On September 20, 1990, FANB entered into an agreement with the OCC
(the "Agreement"), under which FANB committed, among other matters, to maintain
a total risk-based capital ratio of no less than 8.25 percent and a leverage
ratio of "Tier 1" capital to total assets of no less than 4.50 percent and not
to pay future dividends if the OCC should object. FANB was advised of its
release from the Agreement on April 2, 1993.
3
<PAGE> 6
Capital
The Federal Reserve Board has adopted risk-based capital guidelines
for bank holding companies. The minimum guideline for the ratio of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet activities, such as standby letters of credit) is 8.00%. At
least half of the Total Capital must be composed of common stockholders'
equity, and to the extent applicable, minority interests in the equity accounts
of consolidated subsidiaries, non-cumulative perpetual preferred stock and a
limited amount of cumulative perpetual preferred stock, less goodwill ("Tier 1
Capital"). The remainder, which is "Tier 2 Capital", may consist of
subordinated debt (or certain other qualifying debt issued prior to March 12,
1988), other preferred stock and a limited amount of loan loss reserves. The
Federal Reserve Board expects bank holding companies, especially those
expanding through mergers and acquisitions, to operate well above the minimum
risk-based capital ratios. At December 31, 1993, the Corporation's Tier 1
risk-based capital and total risk-based capital ratios were 10.89% and 13.16%,
respectively, both of which exceeded the minimum ratios established by the
Federal Reserve Board.
In addition, the Federal Reserve Board has established minimum
leverage capital ratio guidelines for bank holding companies. These guidelines
provide for a minimum Tier 1 leverage capital ratio (Tier 1 Capital to total
assets, less goodwill) of 4% to 5% for most bank holding companies. The
Corporation's Tier 1 leverage capital ratio at December 31, 1993 was 7.59%.
The Corporation's subsidiary national banks are also subject to
similar capital requirements adopted by the OCC. At December 31, 1993, FANB's
Tier 1 risk-based, total risk-based and Tier 1 leverage capital ratios were
10.28%, 11.55% and 7.25%, respectively and FANBKY's were 18.66%, 19.89% and
9.32%, respectively, all of which exceeded the minimum ratios established by
the OCC.
Payment of Dividends
The Corporation is a legal entity separate and distinct from its
subsidiary banks and its nonbank subsidiaries. The Corporation's revenues (on a
parent company only basis) result, in part, from dividends paid to the
Corporation by its subsidiaries. The right of the Corporation, and
consequently the right of creditors and shareholders of the Corporation, to
participate in any distribution of the assets or earnings of any subsidiary
through the payment of such dividends or otherwise is necessarily subject to
the prior claims of creditors of the subsidiary (including depositors, in the
case of banking subsidiaries), except to the extent that claims of the
Corporation in its capacity as a creditor may be recognized.
There are statutory and regulatory requirements applicable to the
payment of dividends by subsidiary banks to the Corporation. National banks
are required to obtain the prior approval of the OCC for the payment of
dividends if the total of all dividends
4
<PAGE> 7
declared in any year exceeds the total of (i) such bank's net profits (as
defined by the OCC) for that year plus (ii) the retained net profits (as
defined by the OCC) for the preceding two years, less any required transfers to
surplus. In addition, national banks may only pay dividends to the extent that
retained net profits (including the portion transferred to surplus) exceed
statutory bad debts. In accordance with these regulations, at December 31,
1993, FANB had approximately $123 million, FANBKY had approximately $443,000
and FATC had approximately $1.5 million available for distribution as dividends
to the Corporation without the prior approval of the OCC.
In 1993, the Corporation was further restricted by the terms of the
Indenture for its 7.625% Debentures due 2002 and by the terms of its
$50,000,000 revolving credit facility, for which Chemical Bank serves as agent.
This facility was not drawn upon by the Corporation during 1993. The
Corporation redeemed the 7.625% Debentures on January 31, 1994. Under the most
restrictive debt covenant in effect during 1993 (contained in the revolving
credit agreement), approximately $155.7 million of the Corporation's retained
earnings were available to pay dividends on December 31, 1993.
It is the policy of the Federal Reserve Board that bank holding
companies should pay dividends only out of current operating earnings. Federal
banking regulators also have the authority to prohibit banks and bank holding
companies from paying dividends if they deem such payment to be an unsafe or
unsound banking practice. In addition, it is the position of the Federal
Reserve Board that the Corporation is expected to act as a source of financial
strength to each subsidiary bank. See "The Corporation's Support of its
Subsidiary Banks."
Certain Transactions with Affiliates
Provisions of the Federal Reserve Act impose restrictions on the type,
quantity and quality of transactions between affiliates of an insured bank
(including the holding company and its nonbank subsidiaries) and the insured
bank. The purpose of these restrictions is to prevent the misuse of the
resources of the bank by its uninsured affiliates. An exception to most of
these restrictions is provided for transactions between two insured banks that
are within the same holding company where the holding company owns 80% or more
of each bank. An insured bank and its subsidiaries are limited in engaging in
"covered transactions" with its nonbank or nonsavings bank affiliates to the
following amounts: (i) in the case of any such affiliate, the aggregate amount
of covered transactions of the insured bank and its subsidiaries will not
exceed 10% of the capital stock and surplus of the insured bank; and (ii) in
the case of all affiliates, the aggregate amount of covered transactions of the
insured bank and its subsidiaries will not exceed 20% of the capital stock and
surplus of the bank. "Covered transactions" are defined by statute to include
a loan or extension of credit, as well as a purchase of securities issued by an
affiliate, a purchase of assets (unless otherwise exempted by the Federal
Reserve Board), the acceptance of securities issued by the affiliate as
collateral for a loan and the issuance of a guarantee, acceptance, or letter of
credit on
5
<PAGE> 8
behalf of an affiliate. Further, provisions of the Act prohibit a bank
holding company and its subsidiaries from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
The Corporation's Support of its Subsidiary Banks
Under Federal Reserve Board policy, the Corporation is expected to act
as a source of financial and managerial strength to each of its subsidiary
banks and to commit resources to support each of them. This support may be
required at times when the Corporation would not otherwise be inclined to
provide it.
Under the "cross guarantee" provisions of the Federal Deposit
Insurance Act, any FDIC-insured subsidiary of the Corporation can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with (i) the default of a commonly controlled FDIC-insured
subsidiary or (ii) any assistance provided by the FDIC to any commonly
controlled FDIC-insured subsidiary "in danger of default." "Default" is
defined generally as the appointment of a conservator or receiver and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment over certain
other creditors.
Acquisition and Expansion
The Act requires any bank holding company to obtain the prior approval
of the Federal Reserve Board before it may acquire substantially all the assets
of any bank, or ownership or control of any voting shares of any bank, if,
after acquiring such shares, it would own or control, directly or indirectly,
more than 5% of the voting shares of such bank. Under the Tennessee Bank
Structure Act of 1974, if the acquisition by a bank holding company of a bank
would result in the control of 16.5% or more of the total individual,
partnership and corporate demand and other transaction accounts, savings
accounts and time deposits (excluding all correspondent, governmental, and
international deposits and certificates of deposit of more than $100,000) in
all federally insured financial institutions in Tennessee, the acquisition is
prohibited. As of December 31, 1993, the Corporation estimates it held
approximately 11.2% of such deposits. Furthermore, except for the acquisition
of banks in the four most populous Tennessee counties (Shelby, Davidson, Knox
and Hamilton), no bank holding company may acquire any bank in Tennessee that
has been in operation less than five years or organize a new bank in Tennessee,
except in the case
6
<PAGE> 9
of certain interim bank mergers and acquisitions of banks in financial
difficulty. Also, banks in Tennessee which have been in operation at least
five years may merge and continue branching in their respective counties. The
effect of these provisions is that the Corporation in the future may acquire
banks in Tennessee which have been in operation for over five years but may not
form a new bank in any Tennessee county other than the four most populous
counties. In addition, state banks and national banks in Tennessee can branch
anywhere in the state. With certain limited exceptions, Kentucky banks are
prohibited by law from branching outside the county in which their principal
place of business is located. Since January 1, 1991, Tennessee law has allowed
banks and bank holding companies in any state to acquire banks and bank holding
companies in Tennessee on a reciprocal basis. Kentucky also permits reciprocal
interstate banking acquisitions. In general, acquisitions of banks or bank
holding companies in Tennessee require the approval of the Tennessee
Commissioner of Financial Institutions and acquisitions of banks or bank
holding companies in Kentucky require the approval of the Kentucky Commissioner
of Financial Institutions.
The Act also prohibits a bank holding company, with certain
exceptions, from acquiring more than 5% of the voting shares of any company
that is not a bank and from engaging in any business other than banking or
managing or controlling banks. The Federal Reserve Board is authorized to
approve ownership of shares by a bank holding company in any company, the
activities of which the Federal Reserve Board has determined to be so closely
related to banking or to managing or controlling banks as to be a proper
incident thereto. Certain activities have been found to be closely related to
banking by Federal Reserve Board regulations, including operating a trust
company, mortgage company, finance company or factoring company; performing
data processing operations; providing investment advice; and engaging in
certain kinds of credit-related insurance activities.
Recent Banking Legislation
In 1991, Congress enacted the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") which among other matters, authorized
additional borrowings by the FDIC in order to provide funds for the resolution
of failing financial institutions. FDICIA also instituted certain changes to
the supervisory process, including provisions that mandate certain regulatory
agency actions against undercapitalized institutions within specified time
limits.
Prompt Corrective Regulatory Action. FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories: "well capitalized", "adequately capitalized" or one of three
undercapitalized categories, and to take progressively more restrictive actions
towards an institution depending upon the assigned category. Under the "prompt
corrective action" regulations adopted pursuant to FDICIA, in order to be
considered "adequately capitalized", national banks must have a Tier 1
risk-based capital ratio of at least 4%, a total risk-based capital ratio of at
least 8% and a Tier 1 leverage ratio of at least 4%. Well capitalized
institutions are those with a Tier 1 risk-
7
<PAGE> 10
based capital ratio above 6%, a total risk-based capital ratio above 10%, and a
Tier 1 leverage capital ratio above 5% and are not subject to a written
agreement, order or capital directive to maintain capital at a specified level.
Both FANB and FANBKY exceeded the minimum capital ratios of the "well
capitalized" category as of December 31, 1993.
All institutions, regardless of their capital levels, are restricted
from making any capital distribution or paying any management fees that would
cause the institution to fail to satisfy the minimum levels for any of its
capital requirements. Furthermore, national banks are prohibited from paying
dividends, making other distributions or paying any management fees to a parent
corporation if, after such payment, the bank would fail to have a Tier 1
risk-based capital ratio of 4%, a total risk-based capital ratio of 8% and a
Tier 1 leverage ratio of 4%. An institution that fails to meet the minimum
level for any relevant capital measure (an "undercapitalized institution") may
be: (i) subject to increased monitoring by the appropriate federal banking
regulator; (ii) required to submit an acceptable capital restoration plan
within 45 days; (iii) subject to asset growth limits; and (iv) required to
obtain prior regulatory approval for acquisitions, branching and new lines of
businesses. The capital restoration plan must include a guarantee by the
institution's holding company (under which the holding company would be liable
up to the lesser of 5% of the institution's total assets or the amount
necessary to bring the institution into capital compliance as of the date it
failed to comply with its capital restoration plan) that the institution will
comply with the plan until it has been adequately capitalized on average for
four consecutive quarters.
The bank regulatory agencies have discretionary authority to
reclassify well capitalized institutions as adequately capitalized or to impose
on adequately capitalized institutions requirements or actions specified for
undercapitalized institutions if the agency determines after notice and an
opportunity for hearing that the institution is in an unsafe or unsound
condition or is engaging in an unsafe or unsound practice, which can consist of
the receipt of an unsatisfactory examination rating if the deficiencies cited
are not corrected. A significantly undercapitalized institution, as well as
any undercapitalized institution that did not submit an acceptable capital
restoration plan, may be subject to regulatory demands for recapitalization,
broader application of restrictions on transactions with affiliates,
limitations on interest rates paid on deposits, asset growth and other
activities, possible replacement of directors and officers, and restrictions on
capital distributions by any bank holding company controlling the institution.
Any company controlling the institution could also be required to divest the
institution or the institution could be required to divest subsidiaries. The
senior executive officers of a significantly undercapitalized institution may
not receive bonuses or increases in compensation without prior approval and the
institution is prohibited from making payments of principal or interest on its
subordinated debt. If an institution's ratio of tangible capital to total
assets falls below a level established by the appropriate federal banking
regulator, which may not be less than 2% nor more than 65% of the minimum
tangible capital level otherwise required (the "critically under capitalized
level"), the institution will be subject to conservatorship or receivership
within 90 days unless
8
<PAGE> 11
periodic determinations are made that forbearance from such action would better
protect the deposit insurance fund. Unless appropriate findings and
certifications are made by the appropriate federal bank regulatory agencies, a
critically undercapitalized institution must be placed in receivership if it
remains critically undercapitalized on average during the calendar quarter
beginning 270 days after the date it became critically undercapitalized.
FDIC Insurance. The Corporation's subsidiary banks are subject to
FDIC deposit insurance assessments. Pursuant to FDICIA, the FDIC has
promulgated risk-based deposit insurance assessment regulations which became
effective in 1993. Under these regulations, insured institutions are assigned
assessment risk classifications based upon capital levels and supervisory
evaluations. The annual assessment rates for insured institutions for
semi-annual periods in 1994 range from 0.23% to 0.31%, depending on the
institution's assessment risk classification. Under these regulations, both
FANB's and FANBKY's assigned assessment rates for the first semi-annual period
of 1994 are 0.23%. FANB pays its premiums into the Bank Insurance Fund, and, as
a former savings and loan association, FANBKY pays its premiums into the
Savings Association Insurance Fund.
Under FDICIA, the FDIC is required to pursue the least costly approach
to resolving failed banks. After 1994, the FDIC may not protect uninsured
deposits of failed banks except in extraordinary circumstances. If it does,
the FDIC must levy a special assessment against all insured banks to cover the
cost.
Standards for Safety and Soundness. Under FDICIA, federal bank
regulatory agencies have also proposed standards for all insured depository
institutions and depository institution holding companies relating to: (i)
internal controls, information systems and audit systems; (ii) loan
documentation; (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset growth; and (vi) compensation, fees and benefits. The compensation
standards prohibit employment contracts, compensation or benefit arrangements,
stock option plans, fee arrangements or other compensatory arrangements that
provide excessive compensation, fees or benefits or that could lead to material
financial loss. In addition, regulations have also been proposed which set
forth standards for: (i) maximum classified assets to capital ratios; (ii)
minimum earnings sufficient to absorb losses without impairing capital; and
(iii) to the extent feasible, a minimum ratio of market value to book value for
publicly traded shares of depository institutions and depository institution
holding companies.
Brokered Deposits. FDICIA amended the Federal Deposit Insurance Act
to prohibit insured depository institutions that are adequately capitalized
(but do not meet the capital standards for well capitalized institutions) from
accepting brokered deposits unless a waiver has been obtained from the FDIC and
generally bars undercapitalized institutions from accepting any brokered
deposits. Deposit brokers are required to register with the FDIC. The
Corporation's subsidiary banks are not prohibited from accepting brokered
deposits and are not required to seek a waiver under these regulations.
9
<PAGE> 12
Consumer Protection Provision. FDICIA seeks to encourage enforcement
of existing consumer protection laws and enacts new consumer oriented
provisions including a requirement of notice to regulators and customers for
any proposed branch closing and provisions intended to encourage the offering
of "lifeline" banking accounts and lending in distressed communities. FDICIA
also requires depository institutions to make additional disclosures to
depositors with respect to the rate of interest and the terms of their deposit
accounts. Extensive regulations governing "Truth in Savings" became effective
in 1993.
Miscellaneous. FDICIA also made extensive changes in the applicable
rules regarding audit, examinations and accounting. FDICIA generally requires
annual on-site full-scope examinations by each bank's primary federal
regulator. FDICIA also imposes new responsibilities on management, the
independent audit committee and outside accountants to develop, approve, or
attest to reports regarding the effectiveness of internal controls, legal
compliance and off-balance sheet liabilities and assets.
FDICIA also required the Federal Reserve Board to prescribe standards
that limit the risks posed by an insured institution's "exposure" to any other
depository institution in order to limit the risk that a failure of a large
depository institution would pose to an insured depository institution. FDICIA
broadly defines exposure to include extensions of credit to the other
institution; purchases of, or investments in, securities issued by the other
institution; securities issued by the other institution and accepted as
collateral for an extension of credit to any person; and similar transactions
defined by regulation to constitute exposure. Accordingly, the Federal Reserve
Board has established procedures and "benchmark" standards to limit an insured
depository institution's credit and settlement exposure to each of its
correspondent banks.
Under FDICIA, the federal bank regulatory agencies have also
established minimum loan to value ratios (with limited permitted exceptions)
for real estate mortgage and construction loans.
Interest Rate Limitations
The maximum permissible rates of interest on most commercial and
consumer loans made by FANB are governed by Tennessee's general usury law and
the Tennessee Industrial Loan and Thrift Companies Act ("Industrial Loan Act").
Most commercial and consumer loans made by FANBKY are governed by Kentucky's
general usury law. Certain other usury laws affect limited classes of loans,
but the laws referenced above are by far the most significant. Tennessee's
general usury law authorizes a floating rate of 4% per annum over the average
prime or base commercial loan rate, as published by the Federal Reserve Board
from time to time, subject to an absolute 24% per annum limit. The Industrial
Loan Act, which also is generally applicable to most of the loans made by FANB
in Tennessee, authorizes an interest rate of 24% per annum and also allows
certain loan charges, generally on a more liberal basis than does the general
usury law. Kentucky's general usury law
10
<PAGE> 13
provides for a legal rate of interest of 8% or less per annum; however, by
written agreement, parties may agree for the payment of interest at any rate
under any written contract or other written obligation where the original
principal amount is in excess of $15,000. For loans where the original
principal amount is $15,000 or less, any rate allowed national banking
associations under federal law is permissible.
Environmental Regulation
As real estate lenders and as owners of real property, financial
institutions such as the Corporation and its subsidiary banks may become
subject to liability under various statutes and regulations applicable to
property owners, specifically including those which impose liability with
respect to the environmental condition of real property. The Corporation's
primary exposure under these statutes and regulations stems from the lending
activities of its subsidiary commercial banks, both of which have adopted
policies and procedures to identify and monitor their exposure to avoid any
material loss or liability related to the environmental condition of mortgaged
property.
COMPETITION
The activities in which the Corporation engages are very competitive.
Generally, the lines of activity and markets served by the Corporation involve
competition with money market mutual funds, national and state banks, mutual
savings banks, savings and loan associations, finance companies, brokerage
firms, credit unions and other financial institutions located primarily in the
southeastern region of the United States. The principal methods of competition
center around such aspects as interest rates on loans and deposits, lending
limits, customer services, location of offices, and other service delivery
systems. Some of the Corporation's competitors are major corporations with
substantially more assets and personnel than the Corporation and its
subsidiaries.
FANB and FANBKY actively compete for loans and deposits with other
commercial banks, savings and loan associations and credit unions. Consumer
finance companies, department stores, factors, mortgage brokers and insurance
companies are also significant competitors for various types of loans. FATC
competes for various types of fiduciary and trust business from other banks,
trust and investment companies, investment advisory firms and others.
EMPLOYEES
As of December 31, 1993, the Corporation and its subsidiaries employed
3,138 full-time equivalent officers and employees, compared with 3,075 at
December 31, 1992.
11
<PAGE> 14
ITEM 3: LEGAL PROCEEDINGS
Note 17 to the Consolidated Financial Statements, included in this
Report under Item 8, is hereby incorporated in this Item 3 by reference.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1993.
12
<PAGE> 15
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Corporation's Common Stock is traded on the national
over-the-counter market (NASDAQ symbol: FATN), and is quoted on the National
Market System of the National Association of Securities Dealers Automated
Quotation System (the "National Market System"). At the close of business on
February 10, 1994, there were approximately 9,590 holders of record of the
Corporation's common stock. The following table sets out the quarterly high and
low sales prices of the Corporation's common stock. The dividends declared
during each quarter for the last two years are also shown. In the first
quarter of 1994, the Corporation declared a dividend of $.21 per share, an
increase of 40%.
<TABLE>
<CAPTION>
Stock Prices Dividends
High Low Declared
---- --- --------
<S> <C> <C> <C>
1992
----
First Quarter $23.375 $18.000 -
Second Quarter 25.750 20.875 -
Third Quarter 24.625 19.875 $.10
Fourth Quarter 28.125 21.000 $.10
====== ====== ====
1993
----
First Quarter $30.250 $25.250 $.10
Second Quarter 33.750 27.000 .15
Third Quarter 34.500 28.250 .15
Fourth Quarter 34.125 28.125 .15
====== ====== ===
</TABLE>
See SUPERVISION AND REGULATION, Payment of Dividends. See also, notes 9 and 17
to the Corporation's Consolidated Financial Statements, included in this Report
under Item 8, which are incorporated herein by reference.
ITEM 6: SELECTED FINANCIAL DATA
The table "Selected Financial Data" on page 17 hereof is incorporated
in this Item 6 by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
13
<PAGE> 16
OVERVIEW
The following is management's discussion and analysis of the
Corporation's results of operations and financial condition for 1993. The
purpose of this discussion, including the accompanying tables, is to provide
additional insight into the Corporation's consolidated financial statements and
accompanying notes. It should be read in conjunction with such consolidated
financial statements and notes and other data included herein. To the extent
that this discussion includes assessments of future financial performance or
trends, the assessments are based on information known at the date this
discussion was prepared.
Results for 1993 included several significant accomplishments which
are highlighted as follows and are discussed in more detail in the sections
which follow.
- Net income was $101.8 million in 1993, a 143% increase
from $42.0 million in 1992. On a per share basis, net
income in 1993 increased to $3.93 from $1.74 in 1992.
The primary factors contributing to increased earnings
include:
- Net interest income on a taxable equivalent basis
increased to $271.5 million in 1993, an increase
of 6% from $255.8 million in 1992 due to a $286.1
million (5%) increase in average earning assets
and a slightly improved net interest margin
(4.39% in 1993 versus 4.34% in 1992). The net
interest margin improved primarily as a result of
a more rapid decline in average rates paid on
interest-bearing liabilities (down 77 basis
points) as compared to the decline in the average
yield of earning assets (down 64 basis points).
- The pace of credit quality improvement
accelerated in 1993, which resulted in a
reduction in the allowance for possible loan
losses. Nonperforming assets declined 54% to
$40.5 million at December 31, 1993, as compared
with $89.0 million at December 31, 1992. Net
charge-offs decreased 84% to $6.3 million in 1993
versus $38.4 million in 1992. During 1993, the
Corporation had a $42.0 million negative
provision for loan losses, down $80.5 million
from the $38.5 million provision in 1992. During
the third quarter of 1993, management reviewed
the Corporation's allowance for possible loan
loss methodology. This review resulted in
certain refinements to the methodology which will
assist management in continuously arriving at an
appropriate level for the allowance for possible
loan losses on a quarterly basis. The revised
methodology was used by the Corporation during
third and fourth quarters of 1993.
- Non-interest income increased $11.5 million (15%)
to $90.1 million in 1993 from $78.6 million in
1992, primarily due to increased fee income
resulting from new products and services
introduced in 1993. Approximately $6.1
14
<PAGE> 17
million of the increase resulted from additional
investment services income earned on expanded
investment services in 1993.
- The Corporation was successful in controlling
non-interest expense during 1993. Non-interest
expense totalled $240.3 million in 1993, a $7.9
million or 3% increase from $232.4 million in
1992. The Corporation's non-interest expenses
for 1993 include a $10.0 million charitable
contribution to First American Foundation, a
not-for-profit private foundation formed in 1993
to facilitate the Corporation's charitable
contributions. Exclusive of the contribution,
non-interest expense decreased $2.1 million or
1%. The operating efficiency ratio, which
represents the ratio of operating expenses to
taxable equivalent net interest income plus
non-interest income, improved to 63.7% in 1993
(exclusive of the Foundation contribution) from
69.5% in 1992.
- Adjusted to exclude negative provisions for loan
losses of $44 million recorded by the Corporation
in the last three quarters of the year, the $10
million Foundation contribution, and the
cumulative effect of accounting changes, earnings
per share would have equaled $3.08 for 1993, a
77% increase over 1992.
- Two key measures of profitability, return on average
assets (ROA) and return on average equity (ROE),
increased in 1993. The ROA increased to 1.50% in 1993
from .65% in 1992. The ROE increased in 1993 to
19.90% from 10.03% in 1992. Excluding the effect of
the Foundation contribution and the negative
provisions for loan losses, the Corporation's ROA and
ROE were 1.17% and 15.58%, respectively, for 1993.
- The average equity to assets ratio was 7.52% for the
year ended December 31, 1993, compared with 6.47% one
year earlier. The Corporation's total risk-based
capital ratio was 13.16% at December 31, 1993,
compared with 11.76% at the end of the prior year.
- Dividends paid amounted to $.55 per share for 1993 as
compared to $.20 per share in 1992. The Board of
Directors voted to increase the quarterly cash
dividend from $.10 per share to $.15 per share during
second quarter 1993. Subsequently, the quarterly
dividend was increased to $.21 per share in January
1994. The increased dividend was the result of the
Corporation's continued improvement in financial
performance.
- As a result of improvements in asset quality,
operating processes, and earnings, FANB's agreement
with the Office of the Comptroller of the Currency was
terminated in second quarter 1993.
15
<PAGE> 18
- The Corporation consummated its acquisition of all of
the outstanding shares of First American National Bank
of Kentucky ("FANBKY"), formerly known as First
Federal Savings and Loan Association of Bowling Green,
a $219 million national bank headquartered in Bowling
Green, Kentucky, for $27.5 million. FANBKY operates
three branches in Warren and Simpson counties in
southern Kentucky. The transaction was accounted for
as a purchase; thus, the Corporation's financial
results include the financial results of FANBKY only
from the date of acquisition (October 1, 1993).
- The Corporation signed a definitive stock purchase
agreement to acquire Fidelity Crossville Corporation
("FCC"), the parent company of First Fidelity Savings
Bank, F.S.B. ("First Fidelity") located in Crossville,
Tennessee for $6.5 million. First Fidelity, with
approximately $50 million in total assets at December
31, 1993, has offices in Crossville and Fairfield
Glade. The acquisition is expected to be completed in
the first half of 1994, subject to various conditions,
including regulatory approval.
- The Corporation filed a shelf registration statement
with the Securities and Exchange Commission to issue
up to $100 million of subordinated debt securities.
An initial $50 million of subordinated debt was issued
during second quarter 1993.
- The Corporation's average total assets increased
$340.2 million or 5% to $6.81 billion in 1993.
Average loans grew $188.6 million (5%) to $3.87
billion in 1993, with growth in both commercial and
consumer loans. Total assets at December 31, 1993,
amounted to $7.19 billion, as compared to $6.72
billion at December 31, 1992, an increase of $472.0
million or 7%.
- The Corporation adopted four new Statements of
Financial Accounting Standards (SFAS) during 1993:
SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions"; SFAS No.
109, "Accounting for Income Taxes"; SFAS No. 112,
"Employers' Accounting for Postemployment Benefits";
and SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." On a net basis, there
was essentially no initial impact to 1993 net income
($84,000 after tax expense) from the adoption of these
accounting standards. Shareholders' equity increased
approximately $22.0 million, after tax, as a result of
adopting these accounting standards.
Table 1 presents selected financial data for the Corporation for the
past five years. A more detailed discussion and analysis of the 1993 results
of operations and financial condition is contained in subsequent sections.
16
<PAGE> 19
TABLE 1: SELECTED FINANCIAL DATA: 1989-1993
<TABLE>
<CAPTION>
====================================================================================================================================
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share amounts) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income, taxable equivalent
basis* $ 271,481 $ 255,848 $ 223,089 $ 237,943 $ 265,362
Taxable equivalent adjustment (4,042) (4,160) (6,629) (11,090) (15,454)
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 267,439 251,688 216,460 226,853 249,908
Provision for loan losses 42,000 (38,500) (51,570) (193,677) (109,701)
Non-interest income 90,147 78,648 84,696 116,195 82,230
Non-interest expense (240,293) (232,383) (225,888) (226,161) (229,466)
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax
(expense) benefit and
cumulative effect of
changes in accounting
principles 159,293 59,453 23,698 (76,790) (7,029)
Income tax (expense) benefit (57,396) (17,481) (6,761) 14,369 11,265
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of changes in accounting
principles 101,897 41,972 16,937 (62,421) 4,236
Cumulative effect of changes in
accounting principles,
net of tax (84) - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 101,813 $ 41,972 $ 16,937 $ (62,421) $ 4,236
====================================================================================================================================
Per common share:
Income (loss) before cumulative
effect of changes in accounting
principles $ 3.93 $ 1.74 $ .73 $ (2.69) $ .18
Net income (loss) 3.93 1.74 .73 (2.69) .18
Cash dividends declared .55 .20 - .31 1.25
Cash dividends paid .55 .20 - .63 1.25
Book value end of year 22.38 18.16 16.47 15.79 18.82
Market price end of year 32.00 27.50 18.00 6.38 20.75
====================================================================================================================================
Averages:
Assets $6,806,492 $6,466,297 $6,192,106 $6,898,181 $7,009,471
Deposits 5,514,068 5,414,165 5,240,438 5,666,069 5,686,745
Earning assets 6,182,257 5,896,212 5,654,669 6,334,529 6,405,869
Loans, net of unearned discount
and net deferred loan fees 3,871,555 3,682,891 3,954,369 4,462,207 4,547,150
Shareholders' equity 512,099 418,507 376,085 410,104 467,061
====================================================================================================================================
Significant ratios:
Return on average assets 1.50% .65% .27% (.90)% .06%
Return on average common
equity 19.90 10.03 4.50 (15.22) .91
Dividends declared per
share to net
income per share
(dividend payout ratio) 13.99 11.49 - N/A N/A
Operating efficiency
ratio** 63.68 69.47 73.39 63.86 66.02
Average equity to
average assets 7.52 6.47 6.07 5.95 6.66
Average loans to average
deposits 70.21 68.02 75.46 78.75 79.96
Average core deposits to
average
total deposits 93.19 92.84 92.89 89.40 86.83
Allowance to net loans
(end of year) 3.09 4.90 4.75 4.50 2.52
Allowance to
nonperforming loans
(end of year) 619.05 300.10 202.30 118.30 112.16
Nonperforming assets to
loans and foreclosed
properties (end of year) .93 2.39 3.68 4.91 2.48
Net interest margin 4.39 4.34 3.95 3.76 4.14
Market/book (end of
year) 1.43x 1.51x 1.09x .40x 1.10x
====================================================================================================================================
Other statistics:
Number of common shareholders
(end of year) 9,606 9,453 10,284 10,609 9,985
Average common shares
outstanding (in thousands) 25,913 24,082 23,337 23,224 23,041
Number of full-time equivalent
employees (end of year) 3,138 3,075 3,126 3,539 3,934
Number of banking offices 138 134 135 141 147
Number of automatic
teller machines 138 122 120 123 125
====================================================================================================================================
</TABLE>
* Adjusted to a taxable equivalent basis based on the statutory Federal income
tax rates, adjusted for applicable state income taxes net of the related
Federal tax benefit.
** Ratio of operating expenses to taxable equivalent net interest income plus
non-interest income. For 1993, calculation excludes the $10 million Foundation
contribution.
N/A - Information not considered meaningful.
17
<PAGE> 20
NET INCOME (LOSS) PER SHARE:
(Graph)
18
<PAGE> 21
RETURN ON AVERAGE EQUITY
(Graph)
RETURN ON AVERAGE ASSETS
(Graph)
19
<PAGE> 22
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, which is the Corporation's primary source of
income, was $271.5 million in 1993 on a taxable equivalent basis, compared with
$255.8 million in 1992, an increase of $15.7 million or 6%. Net interest
income is the difference between total interest income earned on earning assets
and total interest expense incurred on interest-bearing liabilities. Total
interest income, total interest expense and net interest income are all
impacted by fluctuations in the volume and mix of earning assets and
interest-bearing liabilities and the corresponding interest yields and costs.
Changes in the level of nonperforming assets, together with interest lost and
recovered on those assets, also impact net interest income.
The following table provides a recap of net interest income to assist
in discussing the increase in 1993 net interest income from 1992. Throughout
this discussion, tax-exempt interest income has been adjusted to a fully
taxable equivalent basis (TEB) in order to be comparable to interest income
which is subject to Federal income tax. This adjustment has been calculated
using a Federal income tax rate of 35% in 1993 and 34% in 1992, adjusted for
applicable non-deductible interest expense (for tax purposes) to purchase or
carry tax-exempt obligations.
TABLE 2: RATE-VOLUME RECAP
<TABLE>
<CAPTION>
=============================================================================================================================
1993 from 1992
------------------------------------------------------------------
Change* Due to Yields, Net
Total ---------------- Rates, and Interest
(in millions) Change* Volume Rate Spreads Margin
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income and average yield, 1992 $448.7 7.61%
Change in interest on:
Securities:
Taxable 4.0 $23.7 $(19.7)
Tax-exempt .3 .3 -
Loans (12.5) 15.4 (27.9)
Federal funds sold and securities (4.5) (3.8) (.7)
purchased under agreements to resell
Time deposits with other banks (4.8) (4.6) (.2)
Other (.3) (.3) -
------
Total change in interest and average (17.8) 21.8 (39.6) (.64)
yield ------ -----
Total interest income and average yield, 1993 430.9 6.97
------ -----
Total interest expense and average rate paid, 1992 192.9 3.91
Change in interest on:
NOW, money market and savings accounts (11.9) 4.2 (16.1)
Certificates of deposit (19.5) (4.8) (14.7)
Other interest-bearing deposits (4.5) (1.3) (3.2)
Short-term borrowings - 3.1 (3.1)
Long-term debt 2.4 2.6 (.2)
------
Total change in interest and average (33.5) 5.6 (39.1) (.77)
rate paid ------ -----
Total interest expense and average rate paid, 1993 159.4 3.14
------ -----
Net interest income, spread, and margin, 1992 255.8 3.70 4.34%
Change in net interest income, spread, and margin 15.7 $12.4 $ 3.3 .13 .05
------ ===== ====== ------ ------
Net interest income, spread, and margin, 1993 $271.5 3.83% 4.39%
====== ====== ======
====================================================================================================================================
</TABLE>
20
<PAGE> 23
* Amounts are adjusted to a fully taxable equivalent basis, based on the
statutory Federal income tax rates, adjusted for applicable state income taxes
net of the related Federal tax benefit. The effect of volume changes is
computed by multiplying the change in volume for each item by the prior year
rate. The effect of rate changes is computed by multiplying the change in rate
by the prior year volume. Rate/volume changes are computed by multiplying the
change in volume by the change in rate and are included in the effect on income
of rate changes.
Total interest income on earning assets was $430.9 million in 1993
compared with $448.7 million in 1992. The $17.8 million or 4% decrease in
total interest income was due primarily to lower average yields on earnings
assets, which was partially offset by a higher level of earning assets in 1993
over 1992. The average rate earned on earning assets was 6.97% in 1993
compared with 7.61% in 1992, a decline of 64 basis points. The Corporation's
lower average yield earned on earning assets in 1993 resulted primarily from a
lower interest rate environment in 1993 from prior years. The average national
prime lending rate and other longer-term market indices significantly impact
market rates charged on loans. During periods of declining national rates, the
Corporation's yield on loans will decline. The decline will not be precisely
of the same magnitude or will not occur at the same time as declines in
national indices, since a portion of the Corporation's earning assets do not
reprice immediately upon a change in national rates. The decline in the
Corporation's yield on earning assets generally reflects declines in national
rates, such as the average national prime lending rate (6.00% in 1993, 6.25% in
1992, and 8.46% in 1991).
The impact of the change in average yields on earning assets was to
reduce total interest income in 1993 by $39.6 million. Average earning assets
in 1993 were $6.18 billion, an increase of $286.1 million or 5% from $5.90
billion in 1992. The increase in earning assets added $21.8 million to total
interest income, partially offsetting the decline due to reduced yields.
Interest earned on earning assets does not include interest income
which would have been recognized on nonperforming loans if such loans were
performing. The amount of interest not recognized on nonperforming loans
approximated $1.1 million in 1993 compared with $3.7 million in 1992. Earning
asset yields would have been 2 and 6 basis points higher in 1993 and 1992,
respectively, if all loans had been performing. Net interest spreads and
margins would also have been higher by approximately the same number of basis
points.
Total interest expense on interest-bearing liabilities in 1993 was
$159.4 million, a $33.5 million or 17% decline from $192.9 million in 1992.
This decline was due to lower average rates paid on interest-bearing funds as a
result of the lower interest rate environment, which was partially offset by
increased volumes of interest-bearing liabilities. The average cost of
interest-bearing funds in 1993 was 3.14% as compared with 3.91% in 1992, a
decline of 77 basis points. Changes in rates paid on the Corporation's
interest-bearing liabilities are primarily impacted by changes in national
market indices such as the Federal funds rate, London Interbank Offered Rate
(LIBOR), and other longer-term indices. Like the average yield earned on
earning assets, the average rate paid on interest-bearing liabilities tends to
follow changes in national rate indices. For example, the decline
21
<PAGE> 24
in the Corporation's average rate paid on interest-bearing liabilities reflects
declines in the average national Federal funds rate (3.02% in 1993, 3.52% in
1992, and 5.69% in 1991).
Competitive factors also impact changes in rates earned on earning
assets and rates paid on interest-bearing liabilities. During the first six
months of 1993, loan demand was relatively slow in the banking industry,
resulting in little need to increase funding requirements. As deposit growth
increased, the banking industry was able to reduce rates paid on deposits
relative to market indices. In 1993, the average rate paid on interest-bearing
deposits was only 14 basis points higher than the average national Federal
funds rate (3.16% deposit rate versus 3.02% average national Federal funds
rate), compared with 47 basis points higher in 1992 (3.99% deposit rate versus
3.52% average national Federal funds rate).
The decline in average rates paid on interest-bearing liabilities
reduced interest expense in 1993 from 1992 by $39.1 million. The impact of the
increase in average interest-bearing liabilities ($5.07 billion in 1993 versus
$4.93 billion in 1992) was to increase interest expense $5.6 million.
Net interest income increased as a result of the increase in the
volume of earning assets and a higher net interest spread, which is the
difference between the average yield on earning assets and the average rate
paid on interest-bearing liabilities. During 1993, the Corporation's net
interest spread increased 13 basis points to 3.83% from 3.70% in 1992. The
higher net interest spread was achieved through reductions in interest-bearing
liability costs (primarily deposits), which declined more rapidly than yields
on earning assets (primarily loans and securities). Also contributing to the
Corporation's increased net interest spread in 1993 was a reduction in the
level of nonperforming loans and a more favorable mix of funding sources. The
volume of non-interest-bearing deposits and lower-cost savings and NOW
accounts increased, while the volume of relatively higher-cost certificates of
deposit declined.
Changes in net interest spreads for different financial institutions
generally vary based on the mix of earning assets and interest-bearing
liabilities, as well as the timing of repricings of various longer-term earning
assets and interest-bearing liabilities.
As the Corporation's net interest spread widened, the net interest
margin, which is net interest income expressed as a percentage of average
earning assets, increased to 4.39% in 1993 from 4.34% in 1992, an improvement
of 5 basis points. The net interest spread and margin were also aided by First
American's interest sensitivity position, which enabled the Corporation to
benefit from a declining interest rate environment in 1993. As a result, the
Corporation had a higher volume of interest-bearing liabilities repricing in
the lower interest rate environment than earning assets repricing. (See
"Asset/Liability Management and Liquidity" section.)
22
<PAGE> 25
INTEREST INCOME, INTEREST EXPENSE AND NET INTEREST INCOME
(Graph)
AVERAGE YIELDS/RATES PAID
(Graph)
23
<PAGE> 26
Based on current projections, management anticipates that the net
interest margin may decline in 1994. However, net interest income is expected
to increase due to an increase in the level of earning assets in 1994, as loan
growth, which increased during the last six months of 1993, is expected to
continue.
Management continues to concentrate on improving the mix of earning
assets, increasing the ratio of earning assets to total assets, and managing
interest rate sensitivity. Various techniques are used to assist in managing
of the Corporation's interest rate sensitivity, including off-balance-sheet
hedging strategies. Unforeseen changes in the interest rate environment (such
as narrowing of the difference between the average national prime lending rate
and the average national Federal funds rate), increased levels of competition
for loans and deposits among financial institutions, or other factors could
adversely affect management's plan to increase net interest income in 1994.
TABLE 3: CONSOLIDATED AVERAGE BALANCES, TAXABLE EQUIVALENT INCOME/EXPENSE AND
YIELDS/RATES
<TABLE>
<CAPTION>
For the Years Ended December 31, 1993, 1992 and 1991
(in millions)
Average Balance Average Yield/Rate Interest Income/Expense
------------------------ --------------------- -----------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
------------------------ --------------------- -----------------------
INTEREST INCOME
Securities:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$2,108.4 $1,788.8 $1,382.7 6.48% 7.42% 7.91% Taxable $136.7 $132.7 $109.4
10.9 6.3 20.8 6.86 7.23 8.43 Tax-exempt .7 .4 1.8
---------------------------------------------------------------------------------------------------------------------------
2,119.3 1,795.1 1,403.5 6.48 7.42 7.92 Total securities 137.4 133.1 111.2
---------------------------------------------------------------------------------------------------------------------------
Federal funds sold and repurchase
143.8 244.7 196.5 3.20 3.76 6.06 agreements 4.6 9.1 11.9
Loans, net of unearned discount and net
deferred loan fees:
1,767.6 1,733.2 1,887.4 6.33 6.95 8.80 Commercial 111.9 120.4 166.2
772.6 555.7 526.0 8.18 9.42 10.63 Consumer - amortizing mortgages 63.2 52.4 55.9
921.8 895.9 951.6 8.62 9.51 10.65 Consumer - other 79.5 85.2 101.3
104.2 152.5 218.9 7.95 8.00 8.97 Real estate - construction 8.3 12.2 19.6
Real estate- commercial mortgages
305.3 345.6 370.5 7.98 8.57 10.17 and other 24.4 29.6 37.7
---------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount
3,871.5 3,682.9 3,954.4 7.42 8.14 9.63 and net deferred loan fees 287.3 299.8 380.7
---------------------------------------------------------------------------------------------------------------------------
47.7 173.5 100.3 3.35 3.86 6.01 Other 1.6 6.7 6.1
---------------------------------------------------------------------------------------------------------------------------
$6,182.3 $5,896.2 $5,654.7 6.97% 7.61% 9.02% Total interest income $430.9 $448.7 $509.9
===========================================================================================================================
INTEREST EXPENSE
Interest-bearing deposits:
$ 722.9 $ 625.9 $ 538.4 2.00% 2.56% 4.00% NOW accounts $14.5 $16.0 $21.5
1,392.0 1,408.3 1,427.5 2.76 3.38 5.51 Money market accounts 38.3 47.6 78.7
405.0 352.8 304.5 2.51 3.21 5.14 Regular savings 10.2 11.4 15.7
Certificates of deposit under
1,151.5 1,232.3 1,388.0 3.90 4.88 6.76 $100,000 45.0 60.1 93.8
Certificates of deposit $100,000 and
349.9 368.6 360.1 3.74 4.75 6.86 over 13.1 17.5 24.7
337.7 366.7 332.0 4.96 5.78 7.17 Other time 16.7 21.2 23.8
25.8 19.2 12.7 2.74 3.61 5.65 Foreign .7 .7 .7
---------------------------------------------------------------------------------------------------------------------------
4,384.8 4,373.8 4,363.2 3.16 3.99 5.93 Total interest-bearing deposits 138.5 174.5 258.9
---------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and repurchase
587.1 519.5 457.3 2.64 3.14 5.48 agreements 15.5 16.3 25.1
49.8 20.2 22.8 3.19 3.82 6.26 Other short-term borrowings 1.6 .8 1.4
51.5 17.1 17.4 7.48 7.69 7.79 Long-term debt 3.8 1.3 1.4
---------------------------------------------------------------------------------------------------------------------------
$5,073.2 $4,930.6 $4,860.7 3.14% 3.91% 5.90% Total interest expense $159.4 $192.9 $286.8
===========================================================================================================================
3.83% 3.70% 3.12% Net interest spread
Net interest margin and net interest
4.39% 4.34% 3.95% income $271.5 $255.8 $223.1
===========================================================================================================================
</TABLE>
24
<PAGE> 27
* Loan fees and amortization of net deferred loan fees (costs), which are
considered an integral part of the lending function and are included in rates
and related interest categories, amounted to $2.2 million in 1993, $(.8)
million in 1992, and $(2.7) million in 1991. Yields/rates and income/expense
amounts are presented on a fully taxable equivalent basis based on the
statutory Federal income tax rates adjusted for applicable state income taxes
net of the related Federal tax benefit; related interest income includes
taxable equivalent adjustments of $4.0 million in 1993, $4.2 million in 1992,
and $6.6 million in 1991. Non-accrual and restructured loans are included in
average loans and average earning assets. Consequently, yields on these items
are lower than they would have been if these loans had earned at their
contractual rate of interest.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents a charge (credit) to earnings
necessary, after loan charge-offs and recoveries, to maintain the allowance for
possible loan losses at an appropriate level which is adequate to absorb
estimated losses inherent in the loan portfolio. The level of the allowance
for possible loan losses is determined on a quarterly basis using procedures
which include: (1) an evaluation of individual criticized and classified
credits as determined by internal reviews, of other significant credits, and of
non-criticized/classified commercial and commercial real estate credits, to
determine estimates of loss probability; (2) an evaluation of various consumer
loan categories to determine an estimation of loss on such loans based
primarily on historical loss experience of the category; (3) a review of
unfunded commitments; and (4) an assessment of various other factors, such as
changes in credit concentrations, loan mix, and economic conditions which may
not be specifically quantified in the loan analysis process. During third
quarter 1993, management reviewed the Corporation's allowance for possible loan
loss methodology, resulting in refinements to such methodology which will
assist management in continuously arriving at an appropriate level for the
allowance for possible loan losses on a quarterly basis. Determining the
appropriate level of the allowance and the amount of the provision for loan
losses involves uncertainties and matters of judgment and therefore cannot be
determined with precision.
The allowance for possible loan losses consists of an allocated
portion and an unallocated, or general, portion. The allocated portion is
maintained to cover estimated losses applicable to specific segments of the
loan portfolio. The unallocated portion is maintained to absorb losses which
probably exist as of the evaluation date but are not identified by the more
objective processes used for the allocated portion of the allowance for loan
losses due to risk of error or imprecision. While the total allowance consists
of an allocated portion and an unallocated portion, these terms are primarily
used to describe a process. Both portions of the allowance are available to
provide for inherent loss in the entire portfolio. Table 4 includes the
allocation of the allowance for possible loan losses between the various loan
portfolios and the unallocated portion of the allowance for each of the past
five years.
Based on the reviews of the appropriateness of the allowance
throughout 1993, as described above, determinations were made that the
allowance for possible loan losses should be reduced. Accordingly, reductions
were effected by negative provisions for loan
25
<PAGE> 28
losses of $44.0 million recorded by the Corporation in the last three quarters
of the year. As a result, the provision for loan losses amounted to a negative
$42.0 million for 1993, compared to a $38.5 million charge for 1992. The
primary factor leading to the negative provisions for loan losses in 1993 was
the Corporation's continued improvement in asset quality. Nonperforming loans
totalled $21.7 million at December 31, 1993, a 64% decrease from $60.3 million
at year-end 1992. A further indication of continued asset quality improvement
is the reduced level of net loan charge-offs. Net charge-offs were $6.3
million in 1993, a decline of $32.1 million or 84% from $38.4 million in 1992.
This decrease resulted primarily from a $20.5 million decline in commercial
loan net charge-offs, combined with a $7.4 million decline in consumer loan net
charge-offs. The ratio of net charge-offs to average loans was .16% in 1993
compared with 1.04% in 1992. Net charge-offs are likely to be higher in 1994
than in 1993, as the level of recoveries experienced in 1993 is not expected to
continue in 1994. Management currently does not anticipate that the provision
for possible loan losses will be significant, if any, in 1994.
The allowance for possible loan losses amounted to $134.1 million at
December 31, 1993, compared with $181.1 million at December 31, 1992. The
allowance for possible loan losses represented 3.09% and 4.90% of net loans at
December 31, 1993 and 1992, respectively.
Table 4 presents a recap of the activity in the allowance for possible
loan losses for the past five years. A more detailed discussion of
nonperforming assets is presented under the caption, "Asset Quality."
26
<PAGE> 29
TABLE 4: ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
===========================================================================================================================
(in thousands) 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses, beginning
of year $ 181,108 $ 181,031 $ 190,000 $ 116,658 $ 74,940
Loans charged off:
Commercial 10,094 28,047 36,610 71,159 45,961
Consumer--amortizing mortgages 1,365 3,268 2,513 2,317 328
Consumer--other 13,232 16,870 15,394 19,472 21,513
Real estate--construction 594 2,462 15,123 9,155 750
Real estate--commercial
mortgages and other 1,332 3,265 6,069 30,897 5,030
--------------------------------------------------------------------------------------------------------------------------
Total charge-offs 26,617 53,912 75,709 133,000 73,582
--------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged
off:
Commercial 10,432 7,860 9,742 8,355 2,750
Consumer--amortizing mortgages 1,462 451 131 130 21
Consumer--other 7,606 6,782 3,934 3,233 2,646
Real estate--construction 128 198 432 160 2
Real estate--commercial
mortgages and other 709 198 931 2,140 180
--------------------------------------------------------------------------------------------------------------------------
Total recoveries 20,337 15,489 15,170 14,018 5,599
--------------------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries):
Commercial (338) 20,187 26,868 62,804 43,211
Consumer--amortizing mortgages (97) 2,817 2,382 2,187 307
Consumer--other 5,626 10,088 11,460 16,239 18,867
Real estate--construction 466 2,264 14,691 8,995 748
Real estate--commercial
mortgages and other 623 3,067 5,138 28,757 4,850
--------------------------------------------------------------------------------------------------------------------------
Net charge-offs 6,280 38,423 60,539 118,982 67,983
--------------------------------------------------------------------------------------------------------------------------
Change in allowance due to subsidiaries
purchased (sold) 1,296 - - (1,353) -
Provision charged (credited) to operating
expenses (42,000) 38,500 51,570 193,677 109,701
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 134,124 $ 181,108 $ 181,031 $ 190,000 $ 116,658
==========================================================================================================================
Allocation of allowance for possible loan
losses, end of year*:
Commercial $ 35,174 $ 73,801 $ 87,309 $ 89,797 $ 18,284
Consumer loans 31,716 43,200 37,869 39,917 -
Real estate 14,832 21,735 28,386 43,786 500
Unallocated/general 52,402 42,372 27,467 16,500 97,874
--------------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 134,124 $ 181,108 $ 181,031 $ 190,000 $ 116,658
==========================================================================================================================
Average loans outstanding, net of unearned
discount and net deferred loan fees $3,871,555 $3,682,891 $3,954,369 $4,462,207 $4,547,150
==========================================================================================================================
Loans outstanding at December 31, net of
unearned discount and net deferred loan
fees $4,340,088 $3,699,301 $3,807,257 $4,225,854 $4,637,469
==========================================================================================================================
Net charge-offs (recoveries) to average loan
type:
Commercial (.02)% 1.16% 1.42% 2.97% 2.03%
Consumer--amortizing mortgages (.01) .51 .45 .41 .06
Consumer--other .61 1.13 1.20 1.52 1.72
Real estate--construction .45 1.48 6.71 2.69 .21
Real estate--commercial mortgages and
other .20 .89 1.39 6.97 1.09
Total .16 1.04 1.53 2.67 1.50
Other ratios:
Allowance to net loans (end of year) 3.09 4.90 4.75 4.50 2.52
Provision for loan losses to average
loans N/A 1.05 1.30 4.34 2.41
==========================================================================================================================
Percent of total year-end loans:
Commercial 44.9% 46.9% 46.7% 47.6% 45.1%
Consumer--amortizing mortgages 23.4 17.3 13.6 12.4 11.3
Consumer--other 22.3 24.1 25.2 24.5 26.1
Real estate--construction 2.4 3.0 4.8 6.6 8.0
Real estate--commercial mortgages and
other 7.0 8.7 9.7 8.9 9.5
--------------------------------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
==========================================================================================================================
</TABLE>
27
<PAGE> 30
*Allowance amounts for commercial and real estate loans for 1989 are for
specific loans. During this year, the unallocated/general reserve was not
allocated to individual loan categories.
NON-INTEREST INCOME
Non-interest income in 1993 was $90.1 million, an increase of $11.5
million or 15% from $78.6 million in 1992. Non- interest income, excluding net
securities losses ($2.0 million in 1993 and $3.0 million in 1992) and gain on
sale of branch office ($607,000 in 1992), totalled $92.2 million for 1993, an
increase of $11.2 million (14%) from $81.0 million in 1992. The increase from
1992 is primarily attributable to increases in service charges on deposit
accounts and increases in investment services income. Service charges on
deposit accounts, which consist primarily of analysis fees and other deposit
account charges, amounted to $39.2 million in 1993, a $2.3 million or 6%
increase from $36.9 million in 1992. This increase is partially due to higher
volumes of deposit accounts in 1993, combined with additional fees generated
from ValueFirst Checking, a new deposit product introduced in late 1992.
Investment services income totalled $7.7 million for the year ended December
31, 1993, an increase of $6.1 million from the prior year amount of $1.6
million. This increase is primarily due to increased revenues generated in
1993 from executing annuities, mutual funds, and other investment product
transactions for customers. Commissions and fees on fiduciary activities
totalled $15.3 million in 1993, an increase of $.6 million (4%), due to
increased customer activity in estates and personal and corporate trusts.
Other increases in non-interest income occurred in merchant discount fees,
which represents income earned from credit card receipts collected by merchants
and discounted at First American (increase of $.5 million), trading account
revenue, which represents net gains or losses and commissions on securities
trading activities (up $.1 million), and other income (up $1.6 million).
Management currently expects non-interest income to continue to
increase in 1994, as developing new fee income opportunities is one of
management's primary objectives over the next several years.
<TABLE>
<CAPTION>
TABLE 5: NON-INTEREST INCOME
================================================================================================================================
Year Ended December 31 Growth Rates
---------------------------------------------------- ---------------------
(in thousands) 1993 1992 1991 1990 1989 1993/1992 1993/1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $39,169 $36,871 $35,495 $33,494 $32,753 6.2% 4.6%
Commissions and fees on fiduciary activities 15,250 14,650 12,964 12,753 14,155 4.1 1.9
Investment services income 7,667 1,569 1,523 698 1,588 388.7 48.2
Merchant discount fees 6,529 6,045 6,657 7,625 6,959 8.0 (1.6)
Trading account revenue 2,493 2,435 2,874 2,969 3,671 2.4 (9.2)
Other income 21,067 19,445 18,151 20,613 22,837 8.3 (2.0)
- --------------------------------------------------------------------------------------------------------------------------------
Subtotal 92,175 81,015 77,664 78,152 81,963 13.8 3.0
Net gain (loss) on sale of securities
available for sale (2,028) (2,974) 3,654 (330) 267 (31.8) -
Gain on sales of branch offices and
subsidiary bank - 607 3,378 4,050 - - -
Gain on sale of credit card receivables - - - 34,323 - - -
- --------------------------------------------------------------------------------------------------------------------------------
Total non-interest income $90,147 $78,648 $84,696 $116,195 $82,230 14.6% 2.3%
================================================================================================================================
</TABLE>
28
<PAGE> 31
NON-INTEREST EXPENSE
Non-interest expense was $240.3 million in 1993, an increase of $7.9
million or 3% from $232.4 million in 1992. As previously mentioned, the First
American Foundation was incorporated in 1993 and received a $10.0 million
charitable contribution from the Corporation in the fourth quarter. The
Corporation's 1993 contribution of $10.0 million is included in non-interest
expense. Exclusive of this charitable contribution, non-interest expenses
decreased $2.1 million or 1%.
Salaries and employee benefits increased $8.1 million to $117.3
million for the year ended December 31, 1993, compared with $109.2 million in
1992. Salaries and employee benefits represented 49% of total non-interest
expense for 1993, as compared to 47% for the prior year. Salaries expense
increased $5.2 million in 1993, reflecting additional employees, merit
increases and additional incentive compensation. The number of full-time
equivalent employees increased to 3,138 at year-end 1993 as compared to 3,075
in 1992, primarily as a result of the acquisition of FANBKY in fourth quarter
1993, which had 54 employees at year-end. Incentive compensation increased
$2.7 million or 65% as a result of higher corporate and individual performances
and a higher volume of investment services product sales. Employee benefits
expense increased $2.9 million or 15% during 1993. A primary factor
contributing to the employee benefit increase is $1.7 million of additional
corporate matching contributions to the Corporation's savings/thrift plan
("FIRST Plan") in 1993 ($2.9 million in 1993 versus $1.2 million in 1992).
During 1993, the Corporation matched participating employees' qualifying
contributions by 100%, as compared to 50% in 1992, as a result of improved
corporate performance and the achievement of the highest level of contribution
criteria.
Exclusive of personnel-related expenses, non-interest expense
decreased $.2 million from 1992. Net foreclosed properties expense decreased
$13.1 million in 1993 ($2.5 million of net foreclosed properties income in 1993
versus net foreclosed properties expense of $10.6 million in 1992). The
Corporation recorded net gains on disposals of foreclosed properties and
in-substance foreclosures amounting to $3.8 million in 1993, as compared to net
losses on disposals of $7.6 million in 1992. Operating costs associated with
foreclosed properties declined, as the level of foreclosed properties
decreased. Also, other decreases in non-interest expenses occurred in
supplies expense (down $.8 million), communication expense (down $.1 million)
and other expenses (down $.8 million). These decreases are partially offset by
the $10.0 million contribution to First American Foundation in 1993. Other
increases in non-interest expense occurred in equipment expense (increase of
$1.9 million) and net occupancy expense (increase of $1.1 million), primarily
related to branch automation and personal computer network upgrades; FDIC
insurance expense (increase of $1.1 million), due to an increase in the FDIC
assessment rate and increased deposit volumes in 1993; and systems and
processing expense (increase of $.5 million) due to a higher volume of
business. Certain software programming functions which were contracted with an
outside vendor during 1993 are expected to be performed internally during 1994.
29
<PAGE> 32
As a result, systems and processing expense would decline and various other
categories of non-interest expense, such as salaries and employee benefits,
would increase during 1994.
The operating efficiency ratio, which represents the ratio of
operating expenses to taxable equivalent net interest income plus non-interest
income, improved to 63.7% in 1993 (exclusive of the Foundation contribution
expense) from 69.5% in 1992. Management continues to emphasize expense control
as a means to improve efficiency and profitability.
TABLE 6: NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
===============================================================================================================================
Year Ended December 31 Growth rates
----------------------------------------------------- --------------------
(in thousands) 1993 1992 1991 1990 1989 1993/1992 1993/1989
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $117,347 $109,245 $109,928 $120,445 $122,032 7.4% (1.0)%
Net occupancy expense 22,043 20,930 19,844 19,935 19,264 5.3 3.4
Equipment expense 14,436 12,513 14,175 16,687 17,039 15.4 (4.1)
Systems and processing expense 14,388 13,878 7,172 1,771 1,630 3.7 72.4
FDIC insurance expense 12,946 11,863 11,109 6,658 4,468 9.1 30.5
Communication expense 7,137 7,243 8,454 10,191 11,175 (1.5) (10.6)
Supplies expense 4,524 5,285 4,845 6,475 7,778 (14.4) (12.7)
Foreclosed properties expense (income), net (2,481) 10,653 13,844 5,323 6,236 (123.3) -
Other expenses 39,953 40,773 36,517 38,676 39,844 (2.0) .1
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal 230,293 232,383 225,888 226,161 229,466 (.9) .1
Contribution to First American Foundation 10,000 - - - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense $240,293 $232,383 $225,888 $226,161 $229,466 3.4% 1.2%
===============================================================================================================================
</TABLE>
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 106 requires that the
cost of postretirement benefits other than pensions be recognized on an accrual
basis as employees perform services to earn such benefits. Like most
companies, the Corporation previously expensed such postretirement benefits,
which include retiree medical and death benefits, on a pay-as-you-go basis.
The Corporation recognized the transition obligation related to this item
during first quarter 1993 as a cumulative effect of a change in accounting
principle, resulting in a one-time non-cash charge of $17.5 million before
taxes, or $11.6 million after taxes. This charge represents the discounted
present value of expected future retiree medical and death benefits attributed
to employees' service rendered prior to 1993. The additional cost for these
benefits on an annual basis is approximately $.6 million more than the
pay-as-you-go cost.
Effective December 31, 1993, the Corporation adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which requires employers
to recognize a liability for postemployment benefits under certain
circumstances. The Corporation's short-term and long-term disability
benefits, survivor income benefits, and certain other benefits are governed by
this statement. The Corporation recognized this item during fourth quarter
1993 as a cumulative effect of a change in accounting principle, resulting in a
one-time non-cash charge of $2.0 million before taxes ($1.3 million after
taxes). The annual impact of the Corporation's adoption of SFAS No. 112 in
future years is not expected to be significant to First American's consolidated
financial condition or results of operations.
30
<PAGE> 33
INCOME TAXES
The Corporation's income tax expense was $57.4 million in 1993, an
increase of $39.9 million from 1992 income tax expense of $17.5 million. The
major factor resulting in the increase was the Corporation's higher taxable
income.
Net deferred tax asset balances carried on the consolidated balance
sheets amounted to $38.2 million at December 31, 1993, and $47.3 million at
December 31, 1992. The extent to which deferred tax assets may continue to be
recognized in the future is discussed below.
Effective January 1, 1993, the Corporation adopted SFAS No. 109,
"Accounting for Income Taxes," which requires a change from the deferred method
(an income statement approach) of accounting for income taxes as required by
Accounting Principles Bulletin No. 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS No.
109, deferred tax assets or 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. Additionally, the effect
on deferred taxes of future changes in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced by a
valuation allowance, if necessary, to an amount that more likely than not will
be realized.
The cumulative effect of the initial adoption of SFAS No. 109 was to
increase net income by $12.8 million or $.50 per share in the first quarter of
1993. The statement was applied without restating prior years' consolidated
financial statements. SFAS No. 109 requires that the tax benefit of
deductible temporary differences be recorded as an asset to the extent that
management estimates that such assets "more likely than not" will be realized.
In accordance with SFAS No. 109, the realization of tax benefits of deductible
temporary differences is based, in part, on whether the Corporation has
sufficient taxable income within the carryback period and management's
expectation of taxable income in the carryforward period permitted by the tax
law to allow for utilization of the deductible amounts. As of January 1, 1993,
the Corporation had net deductible temporary differences of $165.5 million.
For Federal tax purposes, taxable income in the carryback and estimates of
taxable income in the carryforward periods were expected to be sufficient to
utilize this amount; however, for state tax purposes, Tennessee law does not
permit carrybacks and thus a valuation allowance of $3.9 million at January 1,
1993, was established to address management's estimate of the deductible
temporary differences which did not meet the realization criteria. The net
change in the total valuation allowance for the twelve months ended December
31, 1993, was a net decrease of $2.6 million, composed of an increase related
to the adoption of SFAS No. 106 of $1.1 million, an increase related to the
adoption of SFAS No. 112 of $.1 million, and a decrease of $3.8 million related
to continuing operations. The valuation allowance at December 31, 1993, was
$1.3 million.
31
<PAGE> 34
During third quarter 1993, the Omnibus Budget Reconciliation Act of
1993 was signed into law. The new law includes an increase in the Federal
corporate income tax rate from 34% to 35% effective January 1, 1993. The
impact of the rate change as of the enactment date was an increase in current
tax expense of $.5 million and a decrease in deferred tax expense of $1.7
million (as a result of the effect on deferred tax assets), resulting in a net
tax reduction of $1.2 million, which was included in income tax expense in the
third quarter. The increased Federal income tax rate of 35% from 34% applied
to 1993 operations (income before income tax expense and cumulative effect of
changes in accounting principles) resulted in an additional $1.5 million of
income tax expense.
For additional information on income taxes of the Corporation and the
status of Internal Revenue Service examinations, see note 13 to the
consolidated financial statements.
FINANCIAL CONDITION
BALANCE SHEET SUMMARY
At December 31, 1993, the Corporation's total assets were $7.19
billion, a 7% increase ($472.0 million) from $6.72 billion at year-end 1992.
Total securities were up $62.9 million (3%) to $2.05 billion at December 31,
1993, from $1.99 billion at December 31, 1992. Loans, net of unearned discount
and net deferred loan fees, increased $640.8 million (17%) to $4.34 billion at
December 31, 1993, from $3.70 billion at December 31, 1992, due to increased
loan demand and the acquisition of FANBKY ($166.9 million of loans at December
31, 1993). Other earning assets (primarily Federal funds sold and securities
purchased under agreements to resell, time deposits with other banks and
trading account securities) decreased $61.3 million.
Total deposits increased $168.7 million (3%) to $5.69 billion at
December 31, 1993, from $5.52 billion a year earlier, primarily due to
additional deposits from the acquisition of FANBKY ($184.3 million of deposits
at December 31, 1993). Approximately $5.36 billion or 94% of total deposits
were core deposits, which are defined as total deposits excluding certificates
of deposit $100,000 and over and foreign deposits. This represents a $205.0
million increase in core deposits in 1993 from year-end 1992, with the largest
growth in demand deposits (up $106.3 million), NOW accounts (up $77.5 million)
and money market accounts (up $55.8 million). Short-term borrowings, which
include Federal funds purchased and securities sold under agreements to
repurchase and other short-term borrowings, increased $148.2 million or 24% and
long-term debt increased $49.0 million as a result of the Corporation's $50.0
million subordinated note offering. A detailed discussion of capital, assets,
and liabilities follows.
32
<PAGE> 35
CAPITAL POSITION
Shareholders' equity amounted to $581.7 million or 8.09% of total
assets at December 31, 1993, which is an increase of $113.4 million or 24% from
the year-end 1992 balance of $468.3 million or 6.97% of total assets. This
increase primarily reflects the Corporation's 1993 earnings retention of $87.5
million. Also, the issuance of approximately 191,000 shares of common stock in
connection with the Corporation's employee benefit plans increased equity $3.4
million. Additionally, effective December 31, 1993, the Corporation adopted
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." As a result, unrealized gains and losses on securities available
for sale are recorded as a separate component of shareholders' equity, net of
tax. At December 31, 1993, total net unrealized appreciation on securities
available for sale amounted to $36.1 million, resulting in an increase in
equity of $22.0 million, net of taxes. There was no impact on the
Corporation's consolidated net income as a result of the adoption of SFAS No.
115.
The Corporation's total risk-based capital ratio, a regulatory ratio
which is discussed below, increased 140 basis points to 13.16% at December 31,
1993, as compared to 11.76% at year-end 1992. The increase was partially
attributable to the issuance of $50 million of subordinated debt (a component
of total risk-based capital) in second quarter 1993 and to increases in common
shareholders' equity. The Corporation's capital position and ratios for the
past five years are presented in Table 7.
33
<PAGE> 36
AVERAGE EQUITY TO AVERAGE ASSETS
(Graph)
34
<PAGE> 37
The Federal Reserve Board and the OCC risk-based capital guidelines
and regulations for bank holding companies and national banks require minimum
levels of capital based upon applying various risk ratings to defined
categories of assets and to certain off- balance-sheet items. Under the
risk-based capital requirements, total capital consists of Tier I capital
(essentially realized common equity less intangible assets) and Tier II capital
(essentially qualifying long-term debt and a portion of the allowance for
possible loan losses). Assets by type, or category, are assigned risk-weights
of 0% to 100%, depending on regulatory assigned levels of credit risk
associated with such assets. Off-balance-sheet items are considered in the
calculation of risk-adjusted assets through conversion factors established by
regulators. These items are assigned the same risk-weighting as
on-balance-sheet items and are included in total risk-adjusted assets.
At December 31, 1993, these regulations required bank holding
companies and national banks to maintain certain minimum capital ratios. As
summarized in Table 8, the Corporation's ratios exceed the current regulatory
minimum requirements. The Tier I, total risk-based capital, and leverage
ratios for FANB were 10.28%, 11.55%, and 7.25%, respectively, at December 31,
1993. For FANBKY, these ratios were 18.66%, 19.89%, and 9.32%, respectively.
All risk-based capital ratios are computed using realized equity (total
shareholders' equity less net unrealized gains on securities available for
sale, net of tax) and exclude the 7 5/8% debentures scheduled for redemption
January 31, 1994 (see "Other Borrowed Funds" section). All of these ratios are
above the current regulatory minimum requirements.
TABLE 7: CAPITAL ANALYSIS DATA
(Balance sheet items represented by averages unless indicated otherwise)
<TABLE>
<CAPTION>
====================================================================================================================================
December 31
---------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total risk-based capital ratio* 13.16% 11.76% 9.84% 8.80% N/A%
Tier I risk-based capital ratio* 10.89 10.14 8.22 7.20 N/A
Tier I leverage ratio (based on average
assets)* 7.59 6.87 5.96 5.44 5.87
Average equity to average assets 7.52 6.47 6.07 5.95 6.66
Dividends declared per share $ .55 $ .20 $ - $ .31 $1.25
Asset growth 5.26% 4.43% (10.24)% (1.59)% (.52)%
Internal capital generation ratio 17.11 8.85 4.50 (16.98) (5.26)
Return on average assets 1.50 .65 .27 (.90) .06
Return on average common equity 19.90 10.03 4.50 (15.22) .91
====================================================================================================================================
</TABLE>
* Risk-based capital ratios are computed using realized equity (total
shareholders' equity less net unrealized gains on securities available for
sale, net of tax) and exclude the 7 5/8% debentures scheduled for redemption
January 31, 1994.
N/A - Not available, as regulatory guidelines were introduced in 1990.
35
<PAGE> 38
TABLE 8: RISK-BASED CAPITAL
<TABLE>
<CAPTION>
================================================================================================================
December 31
Regulatory -------------------------------
(in thousands) Minimum Ratio 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL COMPONENTS - CORPORATION
Tier I capital:
Shareholders' common equity $ 559,660 $ 468,321
Less goodwill (18,965) (13,242)
- ----------------------------------------------------------------------------------------------------------------
Total Tier I capital 540,695 455,079
- ----------------------------------------------------------------------------------------------------------------
Tier II capital:
Allowable allowance for
possible loan losses 62,932 57,662
Unsecured holding company
debt 49,703 15,093
- ----------------------------------------------------------------------------------------------------------------
Total Tier II capital 112,635 72,755
- ----------------------------------------------------------------------------------------------------------------
Total capital $ 653,330 $ 527,834
================================================================================================================
Risk-adjusted assets $4,963,377 $4,489,484
Quarterly average assets 7,123,221 6,627,399
================================================================================================================
CAPITAL RATIOS - CORPORATION
Tier I risk-based capital
ratio* 4.00% 10.89% 10.14%
Total risk-based capital
ratio* 8.00 13.16 11.76
Tier I leverage ratio* 4.00 - 5.00 7.59 6.87
================================================================================================================
</TABLE>
* Risk-based capital ratios are computed using realized equity (total
shareholders' equity less net unrealized gains on securities available for
sale, net of tax) and exclude the 7 5/8% debentures scheduled for redemption
January 31, 1994.
ASSET/LIABILITY MANAGEMENT AND LIQUIDITY
The function of asset/liability management is to manage the mix of
various balance sheet lending and funding factors which could result in
interest rate risk exposure to the Corporation. Through this process, the
Corporation seeks to maximize net interest income within liquidity, capital and
interest rate risk constraints established by management. Asset/liability
management is overseen by the Corporation's asset/liability committee, which is
comprised of senior executives of the Corporation. The committee reviews the
Corporation's balance sheet, net interest income performance, and forecasts of
net interest income under alternative simulated interest rate environments in
order to identify issues, risks, and opportunities relative to balance sheet
and margin strategies. Additionally, the committee formulates related policies
and guidelines and monitors ongoing compliance with these policies and
guidelines.
Interest rate sensitivity management focuses on monitoring the
earnings risk associated with changes in the external interest rate environment
and the resulting impact on the Corporation. Through the use of an earnings
simulation model, the asset/liability committee evaluates the impact of various
possible interest rate scenarios on net interest income and identifies
strategies for achieving the optimum mix of assets and liabilities to achieve
the goals of stability and growth in earnings. The Corporation's objective is
that net income will not be impacted more than 5% from results simulated for
the interest rate environment that the Corporation considers most likely,
assuming that interest rates do not vary more than 150 basis points from the
most likely scenario within the next twelve months.
36
<PAGE> 39
One measurement of interest rate risk is the volume of assets and
liabilities subject to repricing over a series of future time periods. Table 9
presents the Corporation's interest rate sensitivity at both year-end 1993 and
1992 and reflects that the Corporation is positioned more favorably for a lower
interest rate environment than for a higher interest rate environment. The
Corporation's ratio of net risk-sensitive assets or liabilities to earning
assets was a cumulative net liability of 15.6% over a one-year repricing period
(1992 cumulative one-year repricing amount was a cumulative 16.6%). This means
that the amount of liabilities repricing in 1994 in excess of the amount of
assets repricing in 1994, net of related off-balance-sheet hedging activities,
was 15.6% of all earning assets at year-end 1993. For interest rate
sensitivity purposes, the Corporation classifies savings, NOW, and money market
deposits, which in aggregate amount to $2.66 billion or 41% of earning assets,
as immediately rate-sensitive since none of these deposits carry contractual
rate guarantees or early withdrawal penalties. Management believes that rates
paid on these deposits will not rise or fall in tandem with or to the extent
that external interest rates rise or fall. Based on the current interest rate
sensitivity position, management believes it is meeting its objectives of
interest rate sensitivity management.
The Corporation utilizes off-balance-sheet ("derivative") products in
managing its interest rate sensitivity. Derivatives reduce the Corporation's
vulnerability to changes in the interest rate environment. All
off-balance-sheet hedging vehicles bear a correlation to an asset or liability
or to a group of assets or liabilities on the balance sheet. By using
derivative products such as interest rate swaps and futures contracts, the
derivative product offsets fluctuations in net interest income from the
otherwise unhedged position. In other words, if net interest income from the
otherwise unhedged position changes (increases or decreases) by a given amount,
the derivative product should result in close to the opposite result, making
the combined amount (otherwise unhedged position impact plus the derivative
product position impact) essentially unchanged. Included within net interest
income for 1993 is a derivative product net expense of $8.3 million ($.8
million for 1992). Derivative products have enabled the Corporation to improve
its balance between interest sensitive assets and interest sensitive
liabilities by reducing interest rate risk, while continuing to meet lending
and deposit needs of its customers.
Credit risk exposure due to off-balance-sheet hedging is closely
monitored, and counterparts to these contracts are selected on the basis of
their credit worthiness, as well as their market-making ability. The
Corporation does not use derivative products for speculative purposes.
Derivatives that the Corporation utilizes include interest rate swaps,
interest rate floors, futures contracts and basis swaps. Interest rate swap
transactions generally involve the exchange of fixed and floating rate interest
payment obligations without the exchange of the underlying principal amounts.
Interest rate floors represent obligations by counterparts whereby the
Corporation receives payment when the underlying rate index falls below a
stipulated level. The Corporation pays a fee for interest rate floors.
Futures
37
<PAGE> 40
contracts are contracts for delayed delivery of securities or money market
instruments in which the seller agrees to make delivery at a specified future
date of a specified financial instrument, at a specified price or yield. Basis
swaps represent interest rate contracts which are based on different market
interest rate indices and are a protection against adverse changes in the shape
("steepness" or "flatness") of the interest rate yield curve.
In conjunction with managing interest rate sensitivity, at December
31, 1993, the Corporation was the fixed-rate payor on $900 million of interest
rate swaps, of which $450 million mature within one year and $450 million
mature thereafter. Through these swaps, the Corporation receives variable
payments based on the then current three-month LIBOR rate. The Corporation
also had a $300 million short position of Eurodollar futures contracts at
December 31, 1993, which in aggregate essentially simulated a $100 million
one-year interest rate swap. At December 31, 1992, the Corporation was the
fixed rate payor on $550 million of interest rate swaps, of which $100 million
matured in 1993 ($450 million beyond 1993), and was receiving payments on a
$200 million interest rate floor (purchased in 1991) which matured in 1993.
Amounts for interest rate swaps and floors as presented in Table 9 represent
the net effect of the swaps and the floor in each future time period.
38
<PAGE> 41
TABLE 9: INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Interest Sensitive Periods
---------------------------------------------------------------------------------------------
Months
-----------------------------------------------
Over Over Over
One Three Six Total
Within Through Through Through One 1-5 Over 5
(in millions) One Three Six Twelve Year Years Years Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993
Earning assets:
Securities $ 339.6 $ 155.2 $ 96.1 $ 200.6 $ 791.5 $ 998.1 $ 261.2 $2,050.8
Loans 1,470.4 157.6 215.4 410.8 2,254.2 1,620.4 465.5 4,340.1
Other earning assets 159.2 - - - 159.2 - - 159.2
- -------------------------------------------------------------------------------------------------------------------------------
Total earning
assets $ 1,969.2 $ 312.8 $ 311.5 $ 611.4 $ 3,204.9 $2,618.5 $ 726.7 $6,550.1
===============================================================================================================================
Interest-bearing liabilities:
Interest-bearing
deposits:
NOW, money market, and
savings accounts $ 2,664.2 $ - $ - $ - $ 2,664.2 $ - $ - $2,664.2
Certificates of
deposit 192.4 316.3 379.6 253.2 1,141.5 290.0 2.8 1,434.3
Other interest-bearing
deposits 76.7 38.3 52.1 46.1 213.2 145.9 - 359.1
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 2,933.3 354.6 431.7 299.3 4,018.9 435.9 2.8 4,457.6
- -------------------------------------------------------------------------------------------------------------------------------
Other borrowed funds 735.8 10.0 11.0 - 756.8 - 65.9 822.7
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 3,669.1 364.6 442.7 299.3 4,775.7 435.9 68.7 5,280.3
- -------------------------------------------------------------------------------------------------------------------------------
Net effect of swaps
and floors (150.0) (750.0) 150.0 200.0 (550.0) 550.0 - -
- -------------------------------------------------------------------------------------------------------------------------------
Adjusted interest-
bearing liabilities $ 3,519.1 $(385.4) $ 592.7 $ 499.3 $ 4,225.7 $ 985.9 $ 68.7 $5,280.3
===============================================================================================================================
Interest sensitivity gap:
For the indicated
period $(1,549.9) $ 698.2 $ (281.2) $ 112.1 $(1,020.8) $1,632.6 $ 658.0 $1,269.8
Cumulative (1,549.9) (851.7) (1,132.9) (1,020.8) (1,020.8) 611.8 1,269.8 1,269.8
Cumulative, as a
percent of total
earning assets (23.66)% (13.00)% (17.30)% (15.58)% (15.58)% 9.34% 19.38% 19.38%
===============================================================================================================================
DECEMBER 31, 1992
Earning assets:
Securities $ 96.5 $ 272.9 $ 98.1 $ 292.7 $ 760.2 $ 790.6 $ 437.2 $1,988.0
Loans 1,706.7 121.4 158.4 264.2 2,250.7 1,192.9 255.7 3,699.3
Other earning assets 185.4 35.0 - - 220.4 - - 220.4
- -------------------------------------------------------------------------------------------------------------------------------
Total earning assets $ 1,988.6 $ 429.3 $ 256.5 $ 556.9 $ 3,231.3 $1,983.5 $ 692.9 $5,907.7
===============================================================================================================================
Interest-bearing liabilities:
Interest-bearing
deposits:
NOW, money market, and
savings accounts $ 2,497.8 $ - $ - $ - $ 2,497.8 $ - $ - $2,497.8
Certificates of
deposit 182.4 362.4 413.6 381.4 1,339.8 180.1 .5 1,520.4
Other interest-bearing
deposits 86.3 24.4 35.7 70.6 217.0 138.0 22.0 377.0
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 2,766.5 386.8 449.3 452.0 4,054.6 318.1 22.5 4,395.2
- -------------------------------------------------------------------------------------------------------------------------------
Other borrowed funds 607.6 1.0 - - 608.6 - 16.9 625.5
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 3,374.1 387.8 449.3 452.0 4,663.2 318.1 39.4 5,020.7
- -------------------------------------------------------------------------------------------------------------------------------
Net effect of swaps
and floors (100.0) (250.0) (100.0) - (450.0) 450.0 - -
- -------------------------------------------------------------------------------------------------------------------------------
Adjusted interest-
bearing liabilities $ 3,274.1 $ 137.8 $ 349.3 $ 452.0 $ 4,213.2 $ 768.1 $ 39.4 $5,020.7
===============================================================================================================================
Interest sensitivity gap:
For the indicated
period $(1,285.5) $ 291.5 $ (92.8) $ 104.9 $ (981.9) $1,215.4 $ 653.5 $ 887.0
Cumulative (1,285.5) (994.0) (1,086.8) (981.9) (981.9) 233.5 887.0 887.0
Cumulative, as
percent of
total earning assets (21.76)% (16.83)% (18.40)% (16.62)% (16.62)% 3.95% 15.01% 15.01%
===============================================================================================================================
</TABLE>
39
<PAGE> 42
Each column includes earning assets and interest-bearing liabilities
that are estimated to mature or reprice within the respective time frame. All
floating rate balance sheet items are included as "within one month" regardless
of maturity. Non-earning assets (cash and due from banks, premises and
equipment, foreclosed properties, and other assets), non-interest-bearing
liabilities (demand deposits and other liabilities) and shareholders' equity
are considered to be non interest sensitive for purposes of this presentation
and thus are not included in the above table.
In the table, all NOW, money market, and savings accounts are
reflected as interest sensitive within one month. NOW accounts, savings, and
certain money market accounts are not totally interest sensitive in all
interest rate environments. If NOW and regular savings accounts were not
considered interest sensitive, the one year cumulative net asset interest
sensitive gap position and percent of earning assets would be $201.0 million
and 3.07%, respectively, for 1993 as compared to a net asset interest sensitive
gap position of $129.4 million and 2.20%, respectively, for 1992.
Liquidity management consists of maintaining sufficient cash levels
(including the ability to access markets to raise additional cash) to fund
operations and to meet the requirements of borrowers, depositors, and
creditors. Higher levels of liquidity bear higher corresponding costs,
measured in terms of lower yields on short-term, more liquid earning assets,
and higher interest expense involved in extending liability maturities. Liquid
assets include cash and cash equivalents, money market instruments, and
securities that mature within one year. At December 31, 1993, the carrying
value of First American's liquid assets amounted to $883.7 million or 13% of
earning assets, which compares with $1.64 billion or 28% at December 31, 1992.
Additionally, the Corporation has securities available for sale maturing after
one year which can be sold to meet liquidity needs. The carrying value of
securities available for sale which mature after one year increased to $1.25
billion at December 31, 1993, from $439.6 million at December 31, 1992, as the
Corporation had more securities classified as securities available for sale at
year-end 1993 than at year-end 1992.
Liquidity is reinforced by maintaining a relatively stable funding
base, which is achieved by diversifying funding sources, extending the
contractual maturity of liabilities, and limiting corporate reliance on
volatile short-term purchased funds. The Corporation's policy is to fund
earning assets to the maximum extent possible with core deposits, which provide
the Corporation with a sizable source of relatively stable and low-cost funds.
Core deposits were $5.36 billion or 94% of total deposits at December 31, 1993,
compared with $5.16 billion or 93% at December 31, 1992.
In order to provide additional liquidity and flexibility, the
Corporation issued $50 million of subordinated debentures in second quarter
1993 under a $100 million shelf registration statement. Additionally, the
Corporation has a $50 million revolving credit agreement expiring March 31,
1994. The Corporation had no borrowings outstanding under this agreement at
December 31, 1993, or during the year ended December 31, 1993.
Management believes the Corporation has sufficient liquidity to meet
all reasonable borrower, depositor, and creditor needs in the present economic
environment.
40
<PAGE> 43
ASSET QUALITY
Nonperforming assets of the Corporation, which include non-accrual and
restructured loans and foreclosed properties, showed significant improvement
during 1993. Nonperforming assets were $40.5 million at December 31, 1993, a
$48.5 million or 54% decline from $89.0 million at December 31, 1992. The 1993
decline in nonperforming assets follows a 1992 decrease of $53.2 million or 37%
from $142.2 million at December 31, 1991, resulting in a two-year decline in
nonperforming assets of $101.7 million. The ratio of nonperforming assets to
total loans and foreclosed properties was .93% at December 31, 1993, compared
with 2.39% a year earlier. The 1993 decrease is primarily the result of a
$32.1 million decline in commercial non-accrual loans combined with a $9.8
million decrease in foreclosed properties. The improvement in asset quality
resulted from the continuation of the Corporation's efforts to improve overall
asset quality, to collect the full balance due on nonperforming assets, and to
reduce the level of loans criticized or classified by the Corporation's
internal loan grading and review process. During the past two years the
Corporation has, among other things, reviewed and taken measures to strengthen
lending, credit review, and credit administration procedures, including problem
loan identification, insider lending procedures, non-accrual loan policies, the
real estate appraisal process, credit concentration policy and procedures, and
loan loss methodology.
Nonperforming loans represent $21.7 million or 53% of nonperforming
assets at December 31, 1993, compared with $60.3 million or 68% at year-end
1992. Table 10 summarizes changes in nonperforming assets for each of the past
five years and presents the composition of the nonperforming asset balance at
the end of each year. In addition, the accompanying graph reflects the level
of nonperforming assets at the end of each of the last five years.
TABLE 10: NONPERFORMING ASSET ACTIVITY
<TABLE>
<CAPTION>
===============================================================================================================================
Year Ended December 31
-----------------------------------------------------------------------------
(in thousands) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1 $ 88,995 $142,154 $209,691 $115,061 $ 72,904
Transfer from earning status and advances 36,962 69,448 116,559 231,794 124,733
New foreclosed properties 3,895 9,756 15,255 26,974 16,530
- -------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets to manage 129,852 221,358 341,505 373,829 214,167
- -------------------------------------------------------------------------------------------------------------------------------
Decreases in nonperforming assets:
Payments received 58,107 59,136 80,686 54,580 27,269
Sales of foreclosed properties 14,972 27,711 40,535 24,652 14,875
Charge-offs and writedowns 9,582 37,600 59,688 78,680 46,973
Return to earning status 6,644 7,916 18,442 6,226 9,989
- -------------------------------------------------------------------------------------------------------------------------------
Total decreases 89,305 132,363 199,351 164,138 99,106
- -------------------------------------------------------------------------------------------------------------------------------
Balance, December 31 $ 40,547 $ 88,995 $142,154 $209,691 $115,061
===============================================================================================================================
Non-accrual loans $ 21,666 $ 59,894 $ 87,283 $160,605 $102,529
Restructured loans - 455 2,205 - 1,480
- -------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 21,666 60,349 89,488 160,605 104,009
- -------------------------------------------------------------------------------------------------------------------------------
Foreclosed properties 18,881 28,646 52,666 49,086 11,052
Total nonperforming assets $ 40,547 $ 88,995 $142,154 $209,691 $115,061
===============================================================================================================================
Nonperforming assets to total loans plus
foreclosed properties .93% 2.39% 3.68% 4.91% 2.48%
Allowance to nonperforming loans 619.05 300.10 202.30 118.30 112.16
===============================================================================================================================
90 days or more past due (not included in
non-accrual category) $ 4,764 $ 7,434 $ 12,287 $ 13,495 $ 15,127
===============================================================================================================================
</TABLE>
41
<PAGE> 44
NONPERFORMING ASSETS
GRAPH
42
<PAGE> 45
Other potential problem loans consist of loans that are currently not
considered nonperforming but where information about possible credit problems
has caused the Corporation to have doubts as to the ability of the borrowers to
comply fully with present repayment terms. At December 31, 1993, loans
totalling approximately $75.1 million, while not considered nonperforming
loans, were classified in the Corporation's internal loan grading system as
substandard or worse, compared with $133.6 million of such loans at December
31, 1992. Depending on the economy and other factors, these loans and others
which may not be presently identified could become future nonperforming assets.
The following table recaps loans, foreclosed properties, and
nonperforming assets by asset category.
TABLE 11: LOANS, FORECLOSED PROPERTIES, AND NONPERFORMING ASSETS
<TABLE>
<CAPTION>
==============================================================================================================================
Loans and Nonperforming
Foreclosed Properties Assets
-------------------------------- -----------------------------------
December 31 December 31
-------------------------------- -----------------------------------
(in thousands) 1993 1992 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial loans
Secured by real estate $ 569,005 $ 524,528 $ 9,566 $21,840
Other 1,384,978 1,217,761 8,149 28,007
- ------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 1,953,983 1,742,289 17,715 49,847
- ------------------------------------------------------------------------------------------------------------------------------
Consumer loans
Consumer--amortizing mortgages 1,015,852 641,953 606 1,772
Consumer--other 969,929 895,827 93 405
- ------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 1,985,781 1,537,780 699 2,177
- ------------------------------------------------------------------------------------------------------------------------------
Real estate loans
Real estate--construction 106,624 110,452 310 1,062
Real estate--commercial mortgages
and other 302,772 325,475 2,942 7,263
- ------------------------------------------------------------------------------------------------------------------------------
Total real estate loans 409,396 435,927 3,252 8,325
- ------------------------------------------------------------------------------------------------------------------------------
Total loans 4,349,160 3,715,996 21,666 60,349
Unearned income and net deferred loan fees 9,072 16,695 - -
- ------------------------------------------------------------------------------------------------------------------------------
Total net loans 4,340,088 3,699,301 21,666 60,349
- ------------------------------------------------------------------------------------------------------------------------------
Foreclosed properties
Residential 960 2,600 960 2,600
Multi-family 278 - 278 -
Retail 3,769 6,582 3,769 6,582
Office 741 1,778 741 1,778
Lodging - 2,285 - 2,285
Commercial land 8,235 8,832 8,235 8,832
Farm land 2,476 2,974 2,476 2,974
Other 2,422 3,595 2,422 3,595
- ------------------------------------------------------------------------------------------------------------------------------
Total foreclosed properties 18,881 28,646 18,881 28,646
- ------------------------------------------------------------------------------------------------------------------------------
Total loans and foreclosed properties $4,358,969 $3,727,947 $40,547 $88,995
==============================================================================================================================
</TABLE>
43
<PAGE> 46
LOANS
Loans represent the Corporation's largest component of earning assets
and, accordingly, are the Corporation's primary source of income. Total
outstanding loans averaged $3.87 billion during 1993, compared with $3.68
billion in 1992. During 1993, average loans increased 5% or $188.7 million,
which is primarily attributable to increased loan demand resulting from lower
interest rates in 1993 and from the acquisition of FANBKY. A trend of
consecutive quarterly increases in average loans emerged during 1993 and gained
momentum during the last half of the year. Average loans grew $328.2 million
during fourth quarter 1993, of which $164.4 million was due to the FANBKY
acquisition. Exclusive of loan growth attributable to the FANBKY acquisition,
average loans grew 17% on an annualized basis during the fourth quarter of
1993. Management currently expects loan growth to continue during 1994,
although not necessarily at the same rate experienced during the last quarter
of 1993.
The Corporation's loan portfolio is essentially composed of three
major categories: commercial, consumer, and commercial real estate loans, each
of which is further discussed below. Table 12 presents the loan portfolio by
category for the past five years and Table 13 presents the maturities of loans
outstanding at December 31, 1993, exclusive of consumer loans. Exclusive of
consumer loans, loans due after one year with predetermined interest rates
amounted to $614.3 million at December 31, 1993, and loans due after one year
with floating or adjustable rates amounted to $549.9 million at December 31,
1993.
TABLE 12: LOAN CATEGORIES
<TABLE>
<CAPTION>
==================================================================================================================================
December 31
-----------------------------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $1,954.0 $1,742.3 $1,792.9 $2,034.3 $2,123.9
Consumer:
Consumer--amortizing mortgages 1,015.9 642.0 522.9 531.5 532.5
Consumer--other 969.9 895.8 967.5 1,047.3 1,226.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 1,985.8 1,537.8 1,490.4 1,578.8 1,759.4
- ----------------------------------------------------------------------------------------------------------------------------------
Real estate:
Real estate--construction 106.6 110.4 183.6 284.2 377.6
Real estate--commercial mortgages and
other 302.8 325.5 374.7 381.9 446.0
- ----------------------------------------------------------------------------------------------------------------------------------
Total real estate loans 409.4 435.9 558.3 666.1 823.6
- ----------------------------------------------------------------------------------------------------------------------------------
Total loans $4,349.2 $3,716.0 $3,841.6 $4,279.2 $4,706.9
==================================================================================================================================
Percent of total year-end loans:
Commercial 44.9% 46.9% 46.7% 47.6% 45.1%
Consumer:
Consumer--amortizing mortgages 23.4 17.3 13.6 12.4 11.3
Consumer--other 22.3 24.1 25.2 24.5 26.1
- ----------------------------------------------------------------------------------------------------------------------------------
Total consumer 45.7 41.4 38.8 36.9 37.4
- ----------------------------------------------------------------------------------------------------------------------------------
Real estate:
Real estate--construction 2.4 3.0 4.8 6.6 8.0
Real estate--commercial
mortgages and other 7.0 8.7 9.7 8.9 9.5
- ----------------------------------------------------------------------------------------------------------------------------------
Total real estate 9.4 11.7 14.5 15.5 17.5
- ----------------------------------------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
==================================================================================================================================
</TABLE>
44
<PAGE> 47
TABLE 13: MATURITIES OF LOANS, EXCLUSIVE OF CONSUMER LOANS
<TABLE>
<CAPTION>
===================================================================================================================================
Maturity at December 31, 1993
---------------------------------------------------------------------------------
Within 1-5 After
(in millions) 1 Year Years 5 Years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial loans $1,046.0 $747.9 $160.0 $1,953.9
Real estate--construction loans 61.8 37.2 7.6 106.6
Real estate--commercial mortgages
and other 90.7 138.2 73.9 302.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total $1,198.5 $923.3 $241.5 $2,363.3
===================================================================================================================================
</TABLE>
Commercial loans increased $211.7 million (12%) to $1.95 billion at
December 31, 1993, from $1.74 billion at December 31, 1992, as a result of
additional loan demand, primarily in the fourth quarter of 1993. At December
31, 1993 and 1992, commercial loans represented 45% and 47% of total loans,
respectively.
Consumer loans, which consist of consumer amortizing mortgages and
other consumer loans, totalled $1.99 billion at December 31, 1993, as compared
with $1.54 billion at December 31, 1992, an increase of $448.0 million or 29%.
The fourth quarter 1993 acquisition of FANKBY added $166.7 million of consumer
loans at December 31, 1993. The growth in consumer loans accounted for 71% of
the total loan growth for the year. Consumer amortizing mortgages increased
$373.9 million (58%) in 1993 as a result of the FANBKY acquisition, additional
residential mortgage lending demand, and nationwide refinancing of residential
mortgages resulting primarily from the lower interest rate environment for such
mortgages. Other consumer loans increased $74.1 million or 8% in 1993,
primarily due to an increase in installment loan demand. Consumer loans were
46% of total loans at December 31, 1993, compared with 41% at year-end 1992.
Commercial real estate loans, which include real estate construction
and real estate commercial mortgages, totalled $409.4 million at December 31,
1993, compared with $435.9 million at year-end 1992, a decrease of $26.5
million or 6%. This decline in commercial real estate loans reflects reduced
loan demand and selective loan underwriting. Commercial real estate loans
represented 9% of total loans at December 31, 1993, compared with 12% at
December 31, 1992.
Essentially all of the Corporation's loans are to borrowers residing
in or doing business in Tennessee and adjacent states. The Corporation seeks
to exercise prudent risk management in lending, including diversification by
loan category and by industry segment, as well as by identification of credit
risks. The Corporation's lending activities are performed by relationship
managers organized by broad industry classification. The Corporation's ten
largest outstanding loan relationships at December 31, 1993, amounted to $225.7
million compared to $177.0 million at year-end 1992. The increase from 1992 is
primarily due to higher utilization of credit commitments. At December 31,
1993, the Corporation had no loans classified as highly leveraged transactions,
as defined by banking regulations. Additionally, the Corporation had
essentially no international loans outstanding at December 31, 1993.
Concentrations of credits (both funded and unfunded) by major
45
<PAGE> 48
Standard Industrial Classification codes for 1993 and 1992 are presented in
note 4 to the consolidated financial statements. Also, note 16 to the
consolidated financial statements discusses off-balance-sheet loan commitments
and risks.
SECURITIES/MONEY MARKET INSTRUMENTS
The Corporation's securities portfolio amounted to $2.05 billion at
December 31, 1993, compared to $1.99 billion at December 31, 1992.
Effective December 31, 1993, the Corporation adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." SFAS
No. 115 requires investments in equity securities that have a readily
determinable fair value and investments in debt securities to be classified
into three categories, as follows: held to maturity debt securities, which
are reported at amortized cost; trading securities, which are reported at
fair value with unrealized gains and losses included in earnings; and
securities available for sale, which are reported at fair value, with
unrealized gains and losses excluded from earnings and reported, net of
tax, as a separate component of shareholders' equity. In conjunction with
the adoption of this standard on December 31, 1993, the Corporation
reclassified $368.6 million of securities to the available for sale
classification from the former investment, now held to maturity, category.
At December 31, 1993, the securities portfolio consisted of $657.8 million
of securities held to maturity (at amortized cost) and $1,393.0 million of
securities available for sale (at market value). Unrealized net
appreciation on the total securities available for sale portfolio amounted
to $36.1 million at December 31, 1993, resulting in an increase in equity
of $22.0 million, net of taxes. There was no impact on the Corporation's
consolidated net income as a result of the adoption of SFAS No. 115.
Securities available for sale and money market instruments (time
deposits with other banks, Federal funds sold and securities purchased
under agreements to resell, and trading account securities) are managed to
provide liquidity, to balance interest rate risk, and to produce interest
income. Management of the securities portfolio and money market instruments
allows for diversification of interest income, diversification of credit
risk, and satisfaction of legal and other pledging requirements. The
portfolio is managed so that marketable securities or money market
instruments mature periodically to enable the Corporation to satisfy
potential customer needs for banking services. Purchases of securities
(and sales from the securities available for sale portfolio) are made after
taking into consideration previously determined corporate objectives, as
well as the Corporation's ability to meet customer demands on a current
basis.
46
<PAGE> 49
COMPOSITION OF SECURITIES AND MONEY MARKET INSTRUMENTS
GRAPH
47
<PAGE> 50
Average securities and money market instruments amounted to $2.31 billion
during 1993, an increase of $97.4 million or 4% from the 1992 average.
Average securities increased $324.2 million (18%) to $2.12 billion in 1993 from
$1.80 billion in 1992. Average money market instruments decreased $226.8
million (54%) to $191.5 million in 1993 from $418.3 million in 1992. Money
market instruments yielded 3.26% in 1993, a decline of 52 basis points from
3.78% in 1992, reflecting the generally lower interest rate environment.
The average yield for the total securities portfolio was 6.48% in 1993
compared with 7.42% in 1992. The average estimated maturity of the total
securities portfolio was 4.9 years at December 31, 1993 (4.4 years for
securities held to maturity portfolio and 5.1 years for securities available
for sale portfolio), compared with 3.2 years at year-end 1992 (3.2 years for
securities held to maturity portfolio and 3.3 years for securities available
for sale portfolio). The expected maturity for government and corporate
securities is the stated maturity, and the expected maturity for
mortgage-backed securities is based on current estimates of average maturities.
The following table presents the estimated average maturity and weighted
average yields for securities held to maturity and securities available for
sale at December 31, 1993.
TABLE 14: SECURITY PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
========================================================================================================
Estimated Maturity at December 31, 1993
-------------------------------------------------------------------------
Within 1 Year 1-5 Years 5-10 Years After 10 Years
-------------------------------------------------------------------------
(in millions) Amount Yield Amount Yield Amount Yield Amount Yield s
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
U.S. Treasury $ .2 3.32% $ 51.2 5.09% $ - - % $ - - %
U.S. Gov. agencies
and corporations 70.0 7.22 371.3 6.04 44.6 4.70 89.9 5.72
State and municipal
obligations* 4.0 4.76 2.9 7.23 6.1 5.44 8.3 4.60
Other debt securities 3.9 7.72 5.2 7.78 .2 10.05 - -
-----------------------------------------------------------------------
Total debt securities
held to maturity $ 78.1 7.11% $ 430.6 5.95% $50.9 4.81% $98.2 5.62%
=======================================================================
SECURITIES AVAILABLE FOR
SALE:
U.S. Treasury $ 12.8 4.42% $ 327.0 6.03% $ - - % $ - - %
U.S. Gov. agencies
and corporations 108.0 6.21 554.8 7.08 178.1 5.65 151.8 4.91
Other debt securities 15.6 6.60 - - - - - -
-----------------------------------------------------------------------
Total debt securities $136.4 6.09% $ 881.8 6.69% $178.1 5.65% $151.8 4.91%
=======================================================================
Total equity
securities
Total securities
available for sale
TOTAL SECURITIES:
Total debt securities $214.5 6.46% $1,312.4 6.45% $ 229.0 5.46% $250.0 5.19%
=======================================================================
Total equity
securities
Total securities
</TABLE>
<TABLE>
<CAPTION>
==============================================================================
Estimated Maturity at December 31, 1993
-----------------------------------------------
Total Market Average
Amortized Cost Value Maturity
-----------------------------------------------
(in millions) Amount Yield Amount Years
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
U.S. Treasury $ 51.4 5.08% $ 52.2 1.6
U.S. Gov. agencies
and corporations 575.8 6.03 587.6 4.6
State and municipal
obligations* 21.3 5.23 21.3 8.0
Other debt securities 9.3 7.81 9.7 1.9
---------------------------------------------
Total debt securities
held to maturity $ 657.8 5.95% $ 670.8 4.4
=============================================
SECURITIES AVAILABLE FOR
SALE:
U.S. Treasury $ 339.8 5.97% $351.7 3.6
U.S. Gov. agencies
and corporations 992.7 6.40 1,016.8 5.6
Other debt securities 15.6 6.60 15.7 .1
---------------------------------------------
Total debt securities $1,348.1 6.29% $1,384.2 5.1
======= =========
Total equity
securities 8.8 8.8
-------- --------
Total securities
available for sale $1,356.9 $1,393.0
======== =========
TOTAL SECURITIES:
Total debt securities $2,005.9 6.18% $2,055.0 4.9
======= ==========
Total equity
securities 8.8 8.8
-------- --------
Total securities $2,014.7 $2,063.8
======== =========
</TABLE>
* Yields presented on a taxable equivalent basis, based on the statutory
Federal income tax rate, adjusted for applicable State income taxes net of the
related Federal tax benefit.
48
<PAGE> 51
Included in U.S. Treasury and other U.S. Government agencies and
corporations were mortgage-backed securities with carrying values totalling
$1,497.2 million at December 31, 1993, compared with $1,203.0 million at
December 31, 1992. All of these mortgage-backed securities were issued or
guaranteed by the Government National Mortgage Association (Ginnie Mae), the
Federal National Mortgage Association (Fannie Mae), or the Federal Home Loan
Mortgage Corporation (Freddie Mac). Also included in other debt securities
were mortgage-backed securities with carrying values of $22.6 million at
December 31, 1993, compared with $35.5 million at December 31, 1992. On
December 31, 1993, mortgage-backed security holdings included $139.1 million
Ginnie Mae adjustable-rate mortgage pass-through securities ($88.8 million at
December 31, 1992) and $289.5 million floating rate mortgage-backed securities
(none at December 31, 1992). At both dates, essentially all other
mortgage-backed securities consisted of Planned Amortization Class (PAC)
collateralized mortgage obligations (CMOs), which were purchased because of
their high credit quality and relatively certain average lives.
At December 31, 1993, the estimated market value of the total
securities portfolio exceeded amortized cost by $49.0 million (total unrealized
gains of $50.9 million less total unrealized losses of $1.9 million).
Approximately $36.1 million of net unrealized appreciation at December 31,
1993, is attributable to the securities available for sale portfolio, and in
accordance with SFAS No. 115 is reflected in the carrying value of such
securities. At December 31, 1992, the estimated market value of the total
securities portfolio exceeded carrying value by $41.0 million (total unrealized
gains of $43.1 million less total unrealized losses of $2.1 million). See note
3 to the consolidated financial statements for details of unrealized gross
gains and losses for the securities held to maturity portfolio and the
securities available for sale portfolio. At year-end 1993, approximately $2.1
million of the Corporation's securities were unrated, and none were below
investment grade.
During 1993, the Corporation made securities purchases totalling $2.05
billion, of which $461.3 million were for the securities held to maturity
portfolio and $1,593.4 million were for the securities available for sale
portfolio. Securities purchases were directed toward replacing maturing
securities and utilizing excess corporate liquidity so as to improve net
interest income. The Corporation made aggregate sales of $858.6 million, all
of which were from the available for sale portfolio. Such sales resulted in a
$2.0 million net realized loss in 1993 ($1.7 million gains less $3.7 million
losses) compared with a net realized loss of $3.0 million in 1992 ($3.3 million
gains less $6.3 million losses). Security sales were made in order to better
structure the portfolio for future profitability and liquidity. See note 3 to
the consolidated financial statements for a detail of realized gross gains and
losses by category of securities.
49
<PAGE> 52
DEPOSITS
Total deposits, which are the Corporation's largest source of funding,
amounted to $5.69 billion at December 31, 1993, compared with $5.52 billion at
December 31, 1992, an increase of $168.7 million or 3%. First American's core
deposit base, which represents total deposits excluding certificates of deposit
$100,000 and over and foreign deposits, totalled $5.36 billion or 94% of total
deposits at December 31, 1993, as compared with $5.16 billion or 93% of total
deposits at the end of the prior year. Core deposits provide a stable,
low-cost source of funds for the Corporation. A primary factor contributing to
the deposit growth was the fourth quarter 1993 acquisition of FANBKY, which had
$184.3 million of core deposits at December 31, 1993. Increases in 1993
versus 1992 occurred in non-interest-bearing demand deposits of $106.3 million
(9%), NOW accounts of $77.5 million (11%), money market accounts of $55.8
million (4%), and regular savings of $33.0 million (8%). These increases were
partially offset by a $52.6 million (4%) decline in certificates of deposit
under $100,000, as lower interest rates became less attractive to customers.
The average rate paid on total interest-bearing deposits was 3.16% for
1993, 83 basis points lower than the average rate in 1992, reflecting the lower
interest rate environment in 1993 and the change in deposit mix toward more
liquid accounts.
<TABLE>
<CAPTION>
TABLE 15: CERTIFICATES OF DEPOSIT $100,000 AND OVER
====================================================================
MATURITY AT DECEMBER 31
-------------------------
(in thousands) 1993 1992
- --------------------------------------------------------------------
<S> <C> <C>
3 months or less $139,532 $170,562
Over 3 through 6 months 74,784 75,033
Over 6 through 12 months 40,691 54,270
Over 12 months 41,278 30,029
- --------------------------------------------------------------------
Total $296,285 $329,894
====================================================================
</TABLE>
OTHER BORROWED FUNDS
In addition to deposits, other sources of funding utilized by the
Corporation include short-term borrowings and long-term debt. Total short-term
borrowings include Federal funds purchased from correspondent banks, securities
sold under agreements to repurchase (repurchase agreements), and other
short-term borrowings, principally funds due to the U.S. Treasury Department in
tax and loan accounts.
Federal funds purchased and securities sold under repurchase
agreements increased $75.9 million or 13% to $664.8 million at December 31,
1993. The net funds purchased position (Federal funds purchased and repurchase
agreements less Federal funds sold and securities purchased under agreements to
resell) at year-end 1993 was $520.0 million, up from $493.5 million at year-end
1992. The average rate paid on Federal funds purchased and securities sold
under repurchase agreements for 1993 was 2.64%, 50 basis points less than the
3.14% average rate paid in 1992.
50
<PAGE> 53
Other short-term borrowings amounted to $91.9 million at December 31,
1993, compared with $19.6 million at December 31, 1992. The increase from
year-end 1992 is primarily due to a higher U.S. Treasury tax and loan balance
outstanding. The average rate paid on other short-term borrowings was 3.19% in
1993, a decrease of 63 basis points from 3.82% in 1992.
At December 31, 1993 and 1992, long-term debt totalled $65.9 million
and $16.9 million, respectively. During first quarter, the Corporation filed a
shelf registration statement with the Securities and Exchange Commission to
issue $100 million of subordinated debt securities. The Corporation issued $50
million of subordinated notes under the shelf registration statement during
second quarter 1993. The notes mature in 2003 and bear interest at a face
amount of 6.875%, payable semi-annually. The notes were sold at a discount,
resulting in an effective interest rate of 6.965%. The Corporation used a
portion of the proceeds ($27.5 million) from the subordinated notes issued for
the acquisition of FANBKY. The balance of such proceeds is available for other
acquisitions and for general corporate purposes.
Notification has been given to holders of the Corporation's 7 5/8%
debentures, due 2002, that the Corporation will redeem these debentures on
January 31, 1994, at a price of 101.22%. At December 31, 1993, there were
approximately $13.6 million of these debentures outstanding.
The average rate paid on long-term borrowings was 7.48% in 1993
compared to 7.69% in 1992. The long-term debt to equity ratio was 11.34% at
December 31, 1993, compared to 3.61% at December 31, 1992, which is reflective
of the additional debt issued during 1993.
51
<PAGE> 54
TABLE 16: CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT
INCOME/EXPENSE AND YIELDS/RATES
<TABLE>
<CAPTION>
1993
------------------------------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter
---------------------------- -------------------------- --------------------------
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities:
Taxable $2,059.9 $32.6 6.28% $2,085.9 $33.2 6.31% $2,209.7 $35.8 6.50%
Tax-exempt 20.6 .4 7.74 7.4 .1 4.11 7.6 .1 8.14
-------------------------------------------------------------------------------------------------------------------------------
Total securities 2,080.5 33.0 6.29 2,093.3 33.3 6.30 2,217.3 35.9 6.50
-------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
repurchase agreements 227.6 1.8 3.16 159.9 1.2 3.20 92.9 .7 3.15
Loans, net of unearned
discount and net
deferred loan fees:
Commercial 1,821.2 28.7 6.25 1,739.7 27.9 6.37 1,758.5 27.9 6.37
Consumer-amortizing
mortgages 979.5 19.2 7.77 761.8 15.5 8.08 691.3 14.5 8.41
Consumer-other 964.1 20.3 8.37 933.4 20.2 8.58 904.1 20.0 8.85
Real estate-construction 101.9 2.1 7.94 100.8 2.0 7.90 105.6 2.2 8.28
Real estate-commercial
mortgages and other 300.4 6.0 7.95 303.2 6.2 8.05 301.2 5.9 7.93
-------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned
discount and net
deferred loan fees 4,167.1 76.3 7.26 3,838.9 71.8 7.42 3,760.7 70.5 7.52
- --------------------------------------------------------------------------------------------------------------------------------
Other 28.2 .2 3.21 19.6 .2 3.65 41.0 .4 3.53
-------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,503.4 $111.3 6.79% 6,111.7 $106.5 6.91% 6,111.9 $107.5 7.05%
-------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses (159.4) (168.8) (180.8)
Cash and due from banks 489.5 461.1 488.0
Other assets 305.3 321.0 316.2
-------------------------------------------------------------------------------------------------------------------------------
Total assets $7,138.8 $6,725.0 $6,735.3
===============================================================================================================================
Deposits and borrowed funds:
Demand deposits $1,225.9 $1,119.5 $1,113.5
Interest-bearing deposits:
NOW accounts 774.7 $3.8 1.94% 721.2 $3.6 1.97% 709.2 $3.7 2.06%
Money market accounts 1,424.2 9.8 2.74 1,370.5 9.4 2.72 1,378.7 9.4 2.73
Regular savings 423.2 2.7 2.51 402.8 2.5 2.50 399.9 2.5 2.50
Certificates of deposit
under $100,000 1,161.9 10.8 3.70 1,113.6 10.9 3.89 1,151.9 11.4 3.97
Certificates of deposit
$100,000 and over 320.7 2.9 3.61 345.0 3.2 3.67 387.2 3.6 3.71
Other time 334.8 3.9 4.56 330.8 4.2 4.98 341.5 4.3 5.04
Foreign 24.2 .2 2.80 22.2 .1 2.67 21.0 .1 2.72
-------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 4,463.7 34.1 3.03 4,306.1 33.9 3.13 4,389.4 35.0 3.19
-------------------------------------------------------------------------------------------------------------------------------
Total deposits 5,689.6 5,425.6 5,502.9
Federal funds purchased and
repurchase agreements 692.7 4.7 2.72 542.3 3.6 2.60 545.2 3.5 2.60
Other short-term borrowings 39.5 .3 3.28 76.7 .6 3.12 52.9 .4 3.27
Long-term debt 67.2 1.4 8.06 66.3 1.2 7.11 55.0 1.0 7.20
-------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits and borrowed
funds 5,263.1 $40.5 3.06% 4,991.4 $39.3 3.12% 5,042.5 $39.9 3.17%
-------------------------------------------------------------------------------------------------------------------------------
Total deposits and borrowed
funds 6,489.0 6,110.9 6,156.0
Other liabilities 103.5 92.4 81.3
Shareholders' equity 546.3 521.7 498.0
-------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $7,138.8 $6,725.0 $6,735.3
================================================================================================================================
Net interest income $70.8 $67.2 $67.6
Provision for loan losses (24.0) (10.0) (10.0)
Non-interest income 23.8 24.3 22.6
Non-interest expense 69.5 58.2 57.9
-------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense
and cumulative effect of
changes in accounting principles 49.1 43.3 42.3
Income tax expense 18.4 15.6 16.3
-------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting
principles 30.7 27.7 26.0
Cumulative effect of changes in
accounting principles, net of
tax (1.3) - -
-------------------------------------------------------------------------------------------------------------------------------
Net income $29.4 $27.7 $26.0
===============================================================================================================================
Net interest spread 3.73% 3.79% 3.88%
Benefit of interest-free funding .59 .58 .56
-------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.32% 4.37% 4.44%
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1993
-------------------------------
First Quarter
------------------------------------------------------------------------------
Average
Average Income/ Yield/
Balance Expense Rate
------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Securities:
Taxable $2,078.4 $35.1 6.84%
Tax-exempt 7.7 .1 5.90
------------------------------------------------------------------------------
Total securities 2,086.1 35.2 6.84
------------------------------------------------------------------------------
Federal funds sold and
repurchase agreements 93.0 .8 3.37
Loans, net of unearned
discount and net
deferred loan fees:
Commercial 1,750.4 27.4 6.35
Consumer-amortizing
mortgages 654.6 14.0 8.69
Consumer-other 884.6 19.0 8.71
Real estate-construction 108.7 2.1 7.69
Real estate-commercial
mortgages and other 316.6 6.2 8.00
------------------------------------------------------------------------------
Loans, net of unearned
discount and net deferred
loan fees 3,714.9 68.7 7.50
------------------------------------------------------------------------------
Other 103.3 .9 3.39
------------------------------------------------------------------------------
Total earning assets 5,997.3 $105.6 7.14%
------------------------------------------------------------------------------
Allowance for possible loan losses (183.2)
Cash and due from banks 485.2
Other assets 322.8
------------------------------------------------------------------------------
Total assets $6,622.1
==============================================================================
Deposits and borrowed funds:
Demand deposits $1,056.4
Interest-bearing deposits:
NOW accounts 685.5 $3.5 2.06%
Money market accounts 1,394.6 9.7 2.83
Regular savings 393.7 2.5 2.51
Certificates of deposit
under $100,000 1,179.3 11.8 4.06
Certificates of deposit
$100,000 and over 347.1 3.4 3.98
Other time 343.8 4.5 5.26
Foreign 36.0 .2 2.75
------------------------------------------------------------------------------
Total interest-bearing
deposits 4,380.0 35.6 3.29
------------------------------------------------------------------------------
Total deposits 5,436.4
Federal funds purchased and
repurchase agreements 567.1 3.7 2.62
Other short-term borrowings 29.7 .2 3.10
Long-term debt 16.9 .3 7.56
------------------------------------------------------------------------------
Total interest-bearing
deposits and borrowed
funds 4,993.7 $39.8 3.23%
------------------------------------------------------------------------------
Total deposits and borrowed
funds 6,050.1
Other liabilities 90.5
Shareholders' equity 481.5
------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $6,622.1
==============================================================================
Net interest income $65.8
Provision for loan losses 2.0
Non-interest income 19.4
Non-interest expense 54.6
------------------------------------------------------------------------------
Income before income tax expense
and cumulative effect of
changes in accounting principles 28.6
Income tax expense 11.2
------------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting
principles 17.4
Cumulative effect of changes in
accounting principles, net of
tax 1.2
------------------------------------------------------------------------------
Net income $18.6
==============================================================================
Net interest spread 3.91%
Benefit of interest-free funding .54
------------------------------------------------------------------------------
Net interest margin 4.45%
==============================================================================
</TABLE>
Rates and income/expense amounts are presented on a fully taxable equivalent
basis based on the statutory Federal income tax rates. Loan fees considered an
integral part of the lending function are included in rates and related
interest categories.
52
<PAGE> 55
TABLE 16: CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT
INCOME/EXPENSE AND YIELDS/RATES
<TABLE>
<CAPTION>
1992
- -----------------------------------------------------------------------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter
------------------------------ ---------------------------- ----------------------------
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities:
Taxable $1,974.4 $35.7 7.20% $1,935.3 $ 35.4 7.28% $1,595.4 $ 30.2 7.62%
Tax-exempt 6.6 .1 7.19 6.0 .1 7.16 5.8 .1 7.81
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities 1,981.0 35.8 7.20 1,941.3 35.5 7.28 1,601.2 30.3 7.62
- -----------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and
repurchase agreements 241.8 2.0 3.31 220.2 1.9 3.50 367.4 3.6 3.94
Loans, net of unearned
discount and net
deferred loan fees:
Commercial 1,736.6 27.9 6.39 1,669.4 27.7 6.60 1,736.7 31.3 7.26
Consumer-amortizing
mortgages 612.7 13.6 8.84 561.1 12.9 9.18 530.2 12.6 9.54
Consumer-other 878.1 20.4 9.23 890.7 21.0 9.38 897.7 21.4 9.57
Real estate-construction 116.3 2.4 8.10 150.5 3.0 7.83 165.8 3.3 8.04
Real estate-commercial
mortgages and other 321.5 6.5 8.11 344.6 7.6 8.77 351.8 7.5 8.59
- -----------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned
discount and net
deferred loan fees 3,665.2 70.8 7.69 3,616.3 72.2 7.94 3,682.2 $176.1 8.31
- -----------------------------------------------------------------------------------------------------------------------------------
Other 145.1 1.3 3.37 151.0 1.4 3.63 228.5 2.4 4.13
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 6,033.1 $109.9 7.25% 5,928.8 $111.0 7.45% 5,879.3 12.4 7.69%
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses (186.3) (186.3) (187.4)
Cash and due from banks 488.1 445.6 446.7
Other assets 304.7 301.2 287.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $6,639.6 $6,489.3 $6,426.4
===================================================================================================================================
Deposits and borrowed funds:
Demand deposits $1,134.9 $1,038.3 $1,019.7
Interest-bearing deposits:
NOW accounts 659.8 $ 3.4 2.07% 629.5 $ 3.6 2.29% 619.8 4.4 2.86%
Money market accounts 1,391.4 10.0 2.87 1,396.9 10.9 3.12 1,399.0 12.6 3.61
Regular savings 376.3 2.6 2.75 350.0 2.6 2.91 348.0 3.0 3.41
Certificates of deposit
under $100,000 1,205.8 13.0 4.28 1,244.2 14.6 4.67 1,253.5 15.7 5.05
Certificates of deposit
$100,000 and over 365.5 3.9 4.23 395.2 4.6 4.61 392.0 4.7 4.88
Other time 351.3 4.8 5.43 376.1 5.4 5.67 375.1 5.5 5.87
Foreign 20.2 .2 3.11 18.3 .1 3.43 19.2 .2 3.92
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 4,370.3 37.9 3.45 4,410.2 41.8 3.77 4,406.6 46.1 4.21
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 5,505.2 5,448.5 5,426.3
Federal funds purchased and
repurchase agreements 551.8 3.7 2.64 510.9 3.7 2.86 492.8 4.2 3.43
Other short-term borrowings 18.5 .1 3.50 20.1 .2 3.51 19.4 .2 3.82
Long-term debt 16.9 .3 7.68 17.0 .3 7.62 17.1 .3 7.75
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits and borrowed
funds 4,957.5 $ 42.0 3.37% 4,958.2 $ 46.0 3.69% 4,935.9 50.8 4.14%
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits and borrowed
funds 6,092.4 5,996.5 5,955.6
Other liabilities 82.6 78.7 67.5
Shareholders' equity 464.6 414.1 403.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $6,639.6 $6,489.3 $6,426.4
===================================================================================================================================
Net interest income $ 67.9 $ 65.0 61.6
Provision for loan losses 9.0 9.0 8.5
Non-interest income 20.4 20.2 19.0
Non-interest expense 60.7 60.1 56.8
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense
and cumulative effect of
changes in accounting principle 18.6 16.1 15.3
Income tax expense 5.8 5.2 5.5
- -----------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting
principles 12.8 10.9 9.8
Cumulative effect of changes in
accounting principles, net of
tax - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 12.8 $ 10.9 $ 9.8
===================================================================================================================================
Net interest spread 3.88% 3.76% 3.55%
Benefit of interest-free funding .59 .60 .67
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.47% 4.36% 4.22%
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1992
----------------------------------
First Quarter
- ----------------------------------------------------------------------------
Average
Average Income/ Yield/
Balance Expense Rate
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-earning assets:
Securities:
Taxable $1,646.5 $ 31.4 7.66%
Tax-exempt 6.5 .1 6.81
- ----------------------------------------------------------------------------
Total securities 1,653.0 31.5 7.65
- ----------------------------------------------------------------------------
Federal funds sold and
repurchase agreements 149.9 1.6 4.17
Loans, net of unearned
discount and net
deferred loan fees:
Commercial 1,790.9 33.4 7.51
Consumer-amortizing
mortgages 518.1 13.1 10.17
Consumer-other 917.5 22.6 9.89
Real estate-construction 177.8 3.6 8.06
Real estate-commercial
mortgages and other 364.5 7.9 8.77
- ----------------------------------------------------------------------------
Loans, net of unearned
discount and net
deferred loan fees 3,768.8 80.6 8.60
- ----------------------------------------------------------------------------
Other 170.1 1.7 4.16
- ----------------------------------------------------------------------------
Total earning assets 5,741.8 $115.4 8.08%
- ----------------------------------------------------------------------------
Allowance for possible loan losses (186.3)
Cash and due from banks 448.8
Other assets 303.4
- ----------------------------------------------------------------------------
Total assets $6,307.7
============================================================================
Deposits and borrowed funds:
Demand deposits $ 967.5
Interest-bearing deposits:
NOW accounts 594.2 $ 4.5 3.08%
Money market accounts 1,446.1 14.1 3.91
Regular savings 336.5 3.2 3.85
Certificates of deposit
under $100,000 1,225.9 16.8 5.50
Certificates of deposit
$100,000 and over 321.5 4.3 5.37
Other time 364.3 5.6 6.16
Foreign 19.3 .2 4.02
- ----------------------------------------------------------------------------
Total interest-bearing
deposits 4,307.8 48.7 4.54
- ----------------------------------------------------------------------------
Total deposits 5,275.3
Federal funds purchased and
repurchase agreements 522.2 4.8 3.67
Other short-term borrowings 22.7 .2 4.35
Long-term debt 17.3 .3 7.71
- ----------------------------------------------------------------------------
Total interest-bearing
deposits and borrowed
funds 4,870.0 $ 54.0 4.46%
- ----------------------------------------------------------------------------
Total deposits and borrowed
funds 5,837.5
Other liabilities 78.7
Shareholders' equity 391.5
- ----------------------------------------------------------------------------
Total liabilities and
shareholders' equity $6,307.7
============================================================================
Net interest income $61.4
Provision for loan losses 12.0
Non-interest income 18.9
Non-interest expense 54.7
- ----------------------------------------------------------------------------
Income before income tax expense
and cumulative effect of
changes in accounting principals 13.6
Income tax expense 5.1
- ----------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting
principles 8.5
Cumulative effect of changes in
accounting principles, net of
tax -
- ----------------------------------------------------------------------------
Net income $8.5
============================================================================
Net interest spread 3.62%
Benefit of interest-free funding .68
- ----------------------------------------------------------------------------
Net interest margin 4.30%
============================================================================
</TABLE>
Rates and income/expense amounts are presented on a fully taxable equivalent
basis based on the statutory Federal income tax rates. Loan fees considered an
integral part of the lending function are included in rates and related
interest categories.
53
<PAGE> 56
TABLE 17: QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
=========================================================================================================================
Three Months Ended
------------------------------------------------------------
(in thousands) December 31 September 30 June 30 March 31
- -------------------------------------------------------------------------------------------------------------------------
1993
<S> <C> <C> <C> <C>
Net interest income $69,552 $66,409 $66,665 $64,813
Net interest income, taxable equivalent basis* 70,791 67,252 67,632 65,806
Provision for loan losses (24,000) (10,000) (10,000) 2,000
Non-interest income 23,785 24,309 22,624 19,429
Non-interest expense 69,501 58,201 57,990 54,601
Income before cumulative effect of changes in
accounting principles 30,723 27,724 26,030 17,420
Net income 29,423 27,724 26,030 18,636
=========================================================================================================================
Per common share:
Income before cumulative effect of changes
in accounting principles $ 1.18 $ 1.07 $ 1.01 $ .67
Net income 1.13 1.07 1.01 .72
Cash dividends paid .15 .15 .15 .10
Common stock price
High 34.13 34.50 33.75 30.25
Low 28.13 28.25 27.00 25.25
Last trade 32.00 33.75 29.38 29.50
=========================================================================================================================
Selected ratios:
Return on average assets** 1.71% 1.64% 1.55% 1.07%
Return on average common equity** 22.32 21.08 20.96 14.67
Net interest margin 4.32 4.37 4.44 4.45
=========================================================================================================================
1992
Net interest income $66,798 $64,338 $60,464 $60,088
Net interest income, taxable equivalent basis* 67,862 65,002 61,615 61,369
Provision for loan losses 9,000 9,000 8,500 12,000
Non-interest income 20,392 20,291 19,028 18,937
Non-interest expense 60,681 60,132 56,848 54,722
Net income 12,775 10,918 9,751 8,528
=========================================================================================================================
Per common share:
Net income $ .50 $ .46 $ .42 $ .36
Cash dividends paid .10 .10 - -
Common stock price
High 28.13 24.63 25.75 23.38
Low 21.00 19.88 20.88 18.00
Last trade 27.50 22.38 23.00 23.13
=========================================================================================================================
Selected ratios:
Return on average assets** .77% .67% .61% .54%
Return on average common equity** 10.94 10.49 9.72 8.76
Net interest margin 4.47 4.36 4.22 4.30
=========================================================================================================================
</TABLE>
*Adjusted to a taxable equivalent basis based on the statutory Federal income
tax rates, adjusted for applicable state income taxes net of the related
Federal tax benefit.
**Calculated based on income before cumulative effect of changes in accounting
principles.
54
<PAGE> 57
EARNINGS PERFORMANCE FOR 1992 VERSUS 1991
The previous discussion has concentrated on the Corporation's 1993
results of operations and financial condition. The following discussion recaps
the Corporation's results of operations for 1992 compared to 1991.
Net income for 1992 was $42.0 million or $1.74 per share as compared
with $16.9 million or $.73 per share for 1991. The earnings improvement was
primarily attributable to higher taxable equivalent basis net interest income
($255.8 million in 1992 compared to $223.1 million in 1991) and a lower loan
loss provision ($38.5 million in 1992 versus $51.6 million in 1991).
Net interest income (computed on a taxable equivalent basis) in 1992
was $255.8 million, an increase of $32.7 million or 15% from 1991. This
increase was primarily due to an increase in the volume of earning assets and a
higher net interest spread. Average earning assets increased 4% to $5.90
billion in 1992 from $5.65 billion in 1991, while the net interest spread on
earning assets increased 58 basis points to 3.70%. The net interest margin
increased to 4.34% in 1992 from 3.95% in 1991. The net interest spread and
margin improvements in 1992 generally reflect a lower and more favorable
interest rate environment for the Corporation. During 1992, the Corporation
had a higher volume of interest-bearing liabilities repricing at a lower
interest rate than earning assets repricing; thus, net interest income
benefited from declining interest rates.
The 1992 provision for loan losses was $38.5 million, a decrease of
$13.1 million (25%) from the 1991 provision of $51.6 million. The lower
provision for loan losses resulted primarily from improved asset quality as
evidenced by a $29.2 million decrease in nonperforming loans ($60.3 million at
December 31, 1992, versus $89.5 million at year-end 1991) and a $22.1 million
decline in net charge-offs ($38.4 million in 1992 versus $60.5 million in
1991).
Total non-interest income in 1992 was $78.6 million compared with
$84.7 million in 1991. Exclusive of the gain on sales of branch offices and
gains and losses on the sale of securities ($3.0 million net loss in 1992 and
$3.7 million net gain in 1991), non-interest income increased $3.3 million or
4% to $81.0 million in 1992 from $77.7 million in 1991. This increase resulted
primarily from higher service charge income on deposit accounts and higher
commissions and fees on fiduciary activities.
Total non-interest expense in 1992 was $232.4 million as compared with
$225.9 million in 1991. During 1992, salaries and employee benefits declined
$.7 million from 1991, reflective of a 2% decrease in the number of full-time
equivalent employees since December 31, 1991. The impact of the decline in the
number of employees was partially offset by merit increases and by a $1.9
million charge associated with an early retirement program involving six
officers of the Corporation. Non-personnel related expense for 1992 increased
55
<PAGE> 58
$7.2 million or 6% from 1991. This increase was primarily due to increases in
systems and processing expense ($6.7 million increase) and "other expenses"
($4.3 million increase), partially offset by a decline in foreclosed properties
expense ($3.2 million decrease).
The Corporation's income tax expense was $17.5 million in 1992, an
increase of $10.7 million over the 1991 income tax expense of $6.8 million.
The major factor for the increase was the Corporation's higher taxable income,
along with a reduction in the proportionate amount of tax-exempt revenue in
1992 as compared with 1991.
TABLE 18: RATE-VOLUME RECAP - 1992 FROM 1991
<TABLE>
<CAPTION>
============================================================================================================================
1992 from 1991
-------------------------------------------------------------------
Yields,
Change* Due to Rates, Net
Total ----------------- and Interest
(in millions) Change* Volume Rate Spreads Margin
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total interest income and average yield, 1991 $509.9 9.02%
Change in interest on:
Securities:
Taxable 23.3 $ 32.1 $ (8.8)
Tax-exempt (1.4) (1.2) (.2)
Loans (81.0) (26.1) (54.9)
Federal funds sold and securities
purchased under agreements to resell (2.7) 2.9 (5.6)
Time deposits with other banks 2.1 5.4 (3.3)
Other (1.5) (1.2) (.3)
Total change in interest and average ------
yield (61.2) 21.8 (83.0) (1.41)
------ ------
Total interest income and average yield, 1992 448.7 7.61
------ -------
Total interest expense and average rate paid, 1991 286.8 5.90
Change in interest on:
NOW, money market and savings accounts (40.9) 5.9 (46.8)
Certificates of deposit (40.9) (10.0) (30.9)
Other interest-bearing deposits (2.6) 2.9 (5.5)
Short-term borrowings (9.4) 3.3 (12.7)
Long-term debt (.1) - (.1)
Total change in interest and average ------
rate paid (93.9) 4.1 (98.0) (1.99)
------ ------
Total interest expense and average rate paid, 1992 192.9 3.91
------ -------
Net interest income, spread, and margin, 1991 223.1 3.12 3.95%
Change in net interest income, spread, and margin $ 9.5 $ 23.2
32.7 ===== ====== .58 .39
------ ------- ------
Net interest income, spread, and margin, 1992 $255.8 3.70% 4.34%
====== ======= ======
============================================================================================================================
</TABLE>
* Amounts are adjusted to a fully taxable equivalent basis, based on the
statutory Federal income tax rate, adjusted for applicable state income taxes
net of the related Federal tax benefit. The effect of volume changes is
computed by multiplying the change in volume for each item by the prior year
rate. The effect of rate changes is computed by multiplying the change in rate
by the prior year volume. Rate/volume changes are computed by multiplying the
change in volume by the change in rate and are included in the effect on income
of rate changes.
56
<PAGE> 59
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedule listed in Item 14(a)(1) and (2)
are included in this Report beginning on Page 68 and are incorporated in this
Item 8 by reference. The table "Quarterly Financial Data" on page 54 hereof,
"Consolidated Year-End Balance Sheets" on page 105 hereof, and "Consolidated
Average Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates"
on pages 101-104 hereof are incorporated in this Item 8 by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers of the Registrant
The following is a list of the Corporation's executive officers, their
ages and their positions and offices during the last five years (listed
alphabetically).
Officer Age Business Experience - Past 5 years
- ------- --- ----------------------------------
James C. Armistead, Jr. 46 Since June 1992, Mr. Armistead has served as
Executive Vice President-Middle
Market/Corporate Banking of FANB. From August
1991 until June 1992 he served as a Senior
Vice President of FANB. From 1984 until April
1991 he served as Senior Executive Vice
President and head of the banking division of
Metropolitan Federal Savings and Loan
Association in Nashville, which in 1991
changed its name to Metropolitan Federal Bank,
F.S.B. ("Metropolitan"). In April 1991,
Metropolitan was declared insolvent by the
Office of Thrift Supervision ("OTS") and
placed in receivership with the Resolution
Trust
57
<PAGE> 60
Corporation appointed as receiver. The assets
of Metropolitan were transferred to
Metropolitan Federal Savings and Loan
Association, F.A., a new thrift institution
created by the OTS. From April 1991 until
August 1991 Mr. Armistead was an officer of
Metropolitan Federal Savings and Loan
Association, F.A.
Dennis C. Bottorff 49 Mr. Bottorff serves as President and Chief
Executive Officer of the Corporation and as
Chief Executive Officer of FANB. From November
1991 until January, 1994, Mr. Bottorff also
served as President of FANB. From September
1990 until November 1991, he was President and
Chief Operating Officer of C&S/Sovran
Corporation. From April 1989 until September
1990, he was President of Sovran Financial
Corp., from November 1987 until April 1989, he
was Vice Chairman of Sovran Financial Corp.
and from April 1988 until September 1990 he
was Chief Operating Officer of Sovran
Financial Corp.
John W. Boyle, Jr. 53 Mr. Boyle is President, Corporate Bank of
FANB and has served in such capacity since
January 1992. From 1990 to January 1992,
he was group executive vice president of
C&S/Sovran Corporation, U.S. Banking Group.
From 1984 to 1990, he was Executive Vice
President, National/ Corporate Banking for
Sovran Bank, N.A., Richmond, Virginia.
R. Booth Chapman 53 Since September 1991 Mr. Chapman has served as
Executive Vice President - Independent Loan
Review of FANB. From December 1990 to
September 1991, he was Senior Vice President,
Corporate Special Assets, for C&S/Sovran
Corporation. From 1985 to 1990, he was Senior
Vice President and Manager of Real Estate
Lending of
58
<PAGE> 61
Middle Tennessee for Sovran Bank of Tennessee.
Emery F. Hill 50 Mr. Hill is Executive Vice President -
Operations and Technology of FANB and has
served in this position since March 1992.
From 1981 through 1990 he served in a similar
position with Sovran Bank of Tennessee and
also served as Group Executive Officer of
Information Management with C&S/Sovran
Corporation from 1990 to September 1991 and
with NationsBank from September 1991 until
March 1992.
Dennis J. Hooks 37 Mr. Hooks is Executive Vice President -
Marketing of FANB and has served in this
position since April 1992. From July 1987
until April 1992, he was Director of Marketing
of First Tennessee National Bank.
Rufus B. King 48 Mr. King is Executive Vice President and Chief
Credit Officer of FANB and has served in such
position since July 1989. From April 1987
until July 1989 he served as Vice Chairman of
FANB - Knoxville, Tennessee.
John W. Logan 51 Mr. Logan is Executive Vice President -
Investment Division of FANB. From August 1987
until 1991 Mr. Logan was Executive Vice
President of First American Corporation.
Robert A. McCabe, Jr. 43 Mr. McCabe is President - First American
Enterprises and Vice Chairman of the Board of
Directors of the Corporation and FANB. From
January 1992 until January 1994, he served as
President, General Banking of FANB. From March
1991 until January 1992 he served as
President, Corporate Banking of FANB. From
April 1987 until March 1991, Mr. McCabe served
as President and Chief
59
<PAGE> 62
Operating Officer of FANB -
Knoxville, Tennessee
Robert E. McNeilly, Jr. 61 Mr. McNeilly is President of FATC, and has
served in this position since January 1992.
From 1986 through 1991 he served as Chairman
of the Board of Directors of FANB-Nashville.
Dale W. Polley 44 Mr. Polley serves as Vice Chairman of the Board
of Directors and Principal Financial Officer of
the Corporation and FANB and also serves as
President of FANB. From December 1991 until
January 1994, he served as Vice Chairman and
Chief Administrative Officer of the Corporation
and FANB and since November 1992, also served
as Principal Financial Officer of the
Corporation and FANB. From 1990 until December
1991, he was group executive vice president and
treasurer of C&S/Sovran Corporation. From 1988
until 1990, he was Senior Executive Vice
President, Chief Financial Officer and
Treasurer of Sovran Financial Corp.
Martin E. Simmons 54 Mr. Simmons is Executive Vice President -
Administration, Secretary and General Counsel
of the Corporation and FANB. From August 1992
until January 1994, he served as Executive Vice
President, Secretary and General Counsel of the
Corporation and FANB. From 1973 to August 1992,
Mr. Simmons was a partner with the Nashville
law firm of Dearborn & Ewing and served as
Chairman of the firm's management committee
from 1988 through 1991 and during previous
periods.
John W. Smithwick 50 Mr. Smithwick is Executive Vice President -
Human Resources of FANB and has served in such
capacity since 1986.
60
<PAGE> 63
<TABLE>
<S> <C> <C>
Terry S. Spencer 37 Mr. Spencer serves as Executive Vice
President - Development of FANB and has
served in such capacity since September
1993. From December 1991 until September
1993, he served as Senior Vice President
-Director of Strategic Planning of FANB.
From 1989 until December 1991 he served as
Senior Vice President - Manager of
Strategic Planning and from 1988 to 1989 as
Manager, Strategic Planning of Sovran
Financial Corporation.
M. Terry Turner 39 Mr. Turner serves as President - General
Bank of FANB and has served in this
position since January, 1994. He served as
Executive Vice President Business and
Professional Banking of FANB from January
1991 until January 1994. From June 1990
until January 1991, he was City President
of FANB in Nashville. From 1987 through
June 1990, he was an Executive Vice
President of FANB-Nashville.
Marvin J. Vannatta, Jr. 50 Since January 1994, Mr. Vannatta has served
as Senior Vice President, Principal
Accounting Officer and Controller of the
Corporation and FANB and as the Cashier of
FANB. From 1981 until January, 1994 he was
Senior Vice President and Controller of
FANB and the Cashier of FANB.
Alexander P. Waddell, IV 47 Mr. Waddell is Senior Vice President and
Treasurer of the Corporation and FANB, and
has served in such capacity since 1982.
</TABLE>
The additional information required by Item 405 of Regulation S-K is
contained in the Corporation's Notice of 1994 Annual Meeting of Shareholders
and Proxy Statement (the "1994 Proxy Statement") filed with the Securities and
Exchange Commission within 120 days of the Corporation's year-end pursuant to
Regulation 14A. Such information appears in the sections entitled "Election of
Directors" and "Reports of Beneficial Ownership" in the 1994 Proxy Statement
and is incorporated herein by reference.
61
<PAGE> 64
ITEM 11: EXECUTIVE COMPENSATION
This information appears in the sections entitled "Executive Compensation",
"Human Resources Committee Interlocks and Insider Participation",
"Compensation of Directors" and "Retirement Plans" in the 1994 Proxy Statement,
and is incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information appears in the section entitled "Security Ownership
of Certain Beneficial Owners and Management" in the 1994 Proxy Statement, and
is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information appears in the sections entitled "Certain Transactions"
and "Human Resources Committee Interlocks and Insider Participation" in the
1994 Proxy Statement, and is incorporated herein by reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
1. Financial Statements
The Report of KPMG Peat Marwick, Independent Certified Public
Accountants
Consolidated Income Statements of First American Corporation and
Subsidiaries for the three years ended December 31, 1993, 1992,
and 1991
Consolidated Balance Sheets of First American Corporation and
Subsidiaries at December 31, 1993 and 1992
Consolidated Statements of Changes in Shareholders' Equity of
First American Corporation and Subsidiaries for the three years
ended December 31, 1993, 1992, and 1991
Consolidated Statements of Cash Flows of First American
Corporation and Subsidiaries for the three years ended December 31,
1993, 1992, and 1991
Notes to Consolidated Financial Statements
62
<PAGE> 65
2. Financial Statement Schedules
All schedules are omitted because they are not applicable or
the required information is shown in the Consolidated
Financial Statements or the notes thereto.
The following reports and consents are submitted herewith:
Accountants' Consent by
KPMG Peat Marwick. Exhibit 23
3. Exhibits
Exhibit
Number Description
------- -----------
3.1 Restated Charter (previously filed as Exhibit 1 to
the Corporation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991, and
incorporated herein by reference).
3.2 By-Laws of the Corporation currently in effect
(previously filed as Exhibit 3.2 to the
Corporation's Annual Report on Form 10-K for the
year ended December 31, 1992).
4.1 The Corporation agrees to provide the SEC, upon
request, copies of instruments defining the rights
of holders of long-term debt of the Corporation,
and all of its subsidiaries for which consolidated
or unconsolidated financial statements are required
to be filed with the SEC.
4.2 Rights Agreement, dated December 14, 1988,
between First American Corporation and First
American Trust Company, N.A. (previously filed as
Exhibit 1 to a Current Report on Form 8-K dated
December 14, 1988, and incorporated herein by
reference).
4.3(a) Indenture, dated as of December 15, 1972,
between First Amtenn Corporation and the Chase
Manhattan Bank, National Association, as Trustee
(previously filed as Exhibit 4(b) to Registration
Statement No. 2-46447 and incorporated herein by
reference).
63
<PAGE> 66
4.3(b) Indenture, dated as of April 22, 1993, between
First American Corporation and Chemical Bank,
as Trustee (previously filed as Exhibit 4.1 to
Registration Statement No. 33-59844 and incorporated
herein by reference).
4.3(c) Supplemental Indenture, dated as of April 22, 1993,
between First American Corporation and Chemical
Bank, as Trustee (previously filed as Exhibit 4.2 to
Registration Statement No. 33-59844 and incorporated
herein by reference).
10.3(a) First American STAR Award Plan (previously filed as
Exhibit 10.03(b) to the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1986 and
incorporated herein by reference).
10.3(b) First American Corporation 1991 Employee Stock
Incentive Plan (previously filed as part of the
Corporation's Notice of Annual Meeting and Proxy
Statement dated March 18, 1991 for the annual meeting
of shareholders held April 18, 1991 and incorporated
herein by reference).
10.3(c) 1993 Non-Employee Director Stock Option Plan
(previously filed as part of the corporation's Notice
of Annual Meeting and Proxy Statement dated March 18,
1993 for the annual meeting of shareholders held
April 15, 1993 and incorporated herein by reference).
10.3(d) Consulting Agreement (previously filed as Exhibit
10.3(a) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1992 and
incorporated herein by reference) with James F. Smith
dated January 1, 1993.
10.3(e) First American Corporation 1992 Executive Early
Retirement Program (previously filed as Exhibit
10.4(a) to the Corporation's Annual Report on Form
10-K for the year ended December 31, 1992 and
incorporated herein by reference).
10.3(f) First American Corporation Director's Deferred
Compensation Plan (previously filed as Exhibit 19.1
to the Corporation's Annual Report on Form 10-K for
the year ended December 31, 1992 and incorporated
herein by reference).
64
<PAGE> 67
10.3(g) First American Corporation Supplemental Executive
Retirement Program dated as of January 1, 1989
(previously filed as Exhibit 19.2 to the
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1992 and incorporated herein by
reference).
10.3(h) Form of Deferred Compensation Agreement approved by
the Human Resources Committee of the Board of
Directors of the Corporation on December 16, 1993
and entered into by the Corporation and John
Boyle and Dennis Bottorff, included on page 110
hereof.
11 Calculation of earnings per share is included in
note 1 to the consolidated financial statements,
contained herein under Item 8 on page 57 and
incorporated herein by reference.
13 First American Corporation's Annual Report to
Shareholders for the fiscal year ended December 31,
1993. Such report, except for the portions included
herein, is furnished for the information of the
Securities and Exchange Commission and is not "filed"
as part of this Report.
21 List of Subsidiaries included on page 119
hereof.
23 Consent of KPMG Peat Marwick, independent accountants
included on page 121 hereof.
Upon written or oral request, a copy of the above exhibits will be
furnished at cost.
(b) No reports on Form 8-K were filed during the last quarter of 1993.
65
<PAGE> 68
<TABLE>
<CAPTION>
FIRST AMERICAN CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTAL DATA
Page
----
<S> <C>
Independent Accountants' Report 67
Financial Statements:
Consolidated Income Statements of First American Corporation and Subsidiaries for the three years
ended December 31, 1993, 1992, and 1991 68
Consolidated Balance Sheets of First American Corporation and Subsidiaries at December 31, 1993
and 1992 69
Consolidated Statements of Changes in Shareholders' Equity of First American Corporation and
Subsidiaries for the three years ended December 31, 1993, 1992, and 1991 70
Consolidated Statements of Cash Flows of First American Corporation and Subsidiaries for the three
years ended December 31, 1993, 1992, and 1991 71
Notes to Consolidated Financial Statements 72
Supplemental Data:
Consolidated Average Balance Sheets and Taxable Equivalent Income/Expense and Yields/Rates for the
six years ended December 31, 1993, 1992, 1991 1990, 1989 and 1988 101
Consolidated Year-End Balance Sheets of First American Corporation and Subsidiaries at December
31, 1993, 1992, 1991, 1990, 1989, and 1988 105
</TABLE>
66
<PAGE> 69
INDEPENDENT AUDITOR'S REPORT.
The Board of Directors and Shareholders
First American Corporation
We have audited the accompanying consolidated balance sheets of First
American Corporation and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1993. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the 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 First
American Corporation and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in note 14 to the consolidated financial statements, the
Corporation adopted in 1993 the provisions of the Financial Accounting
Standards Board's Statements of Financial Accounting Standards No. 109,
Accounting for Income Taxes; No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions; No. 112, Employers' Accounting for Postemployment
Benefits; and No. 115, Accounting for Certain Investments in Debt and Equity
Securities.
KPMG Peat Marwick
/s/ KPMG Peat Marwick
Nashville, Tennessee ---------------------
January 21, 1994
67
<PAGE> 70
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENTS
First American Corporation and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------
(in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $283,570 $295,791 $374,842
Interest and dividends on securities 137,125 132,984 110,669
Interest on Federal funds sold and securities purchased
under agreements to resell 4,602 9,105 11,916
Interest on time deposits with other banks and other
interest 1,600 6,666 5,803
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income 426,897 444,546 503,230
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
NOW accounts 14,488 16,006 21,523
Money market accounts 38,351 47,622 78,710
Regular savings 10,150 11,330 15,653
Certificates of deposit under $100,000 44,960 60,088 93,770
Certificates of deposit $100,000 and over 13,095 17,519 24,717
Other time 17,460 21,898 24,537
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest on deposits 138,504 174,463 258,910
- -----------------------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 17,100 17,083 26,503
Interest on long-term debt (note 9) 3,854 1,312 1,357
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 159,458 192,858 286,770
- -----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 267,439 251,688 216,460
Provision for loan losses (note 4) (42,000) 38,500 51,570
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 309,439 213,188 164,890
- -----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 39,169 36,871 35,495
Commissions and fees on fiduciary activities 15,250 14,650 12,964
Investment services income 7,667 1,569 1,523
Merchant discount fees 6,529 6,045 6,657
Trading account revenue 2,493 2,435 2,874
Net gain (loss) on sale of securities available for
sale (note 3) (2,028) (2,974) 3,654
Gain on sales of branch offices (note 11) - 607 3,378
Other income 21,067 19,445 18,151
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest income 90,147 78,648 84,696
- -----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 117,347 109,245 109,928
Net occupancy expense (note 5) 22,043 20,930 19,844
Equipment expense 14,436 12,513 14,175
Systems and processing expense (note 5) 14,388 13,878 7,172
FDIC insurance expense 12,946 11,863 11,109
Contribution to First American Foundation (note 12) 10,000 - -
Communication expense 7,137 7,243 8,454
Supplies expense 4,524 5,285 4,845
Foreclosed properties expense (income), net (2,481) 10,653 13,844
Other expenses 39,953 40,773 36,517
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 240,293 232,383 225,888
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE AND CUMULATIVE EFFECT OF
CHANGES IN ACCOUNTING PRINCIPLES 159,293 59,453 23,698
Income tax expense (note 13) 57,396 17,481 6,761
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING
PRINCIPLES 101,897 41,972 16,937
Cumulative effect of changes in accounting principles,
net of tax (note 14) (84) - -
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $101,813 $ 41,972 $ 16,937
===================================================================================================================================
PER COMMON SHARE:
Income before cumulative effect of changes in
accounting principles and net income $ 3.93 $ 1.74 $ .73
Dividends declared .55 .20 -
===================================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 25,913 24,082 23,337
===================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
68
<PAGE> 71
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
First American Corporation and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------
December 31
----------------------------------
(in thousands) 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks (note 2) $ 500,119 $ 672,747
Time deposits with other banks 2,195 117,185
Securities (note 3):
Held to maturity (market value $670,764 and $1,419,061,
respectively) 657,835 1,397,557
Available for sale (amortized cost $1,356,896 in 1993 and
market value $609,910 in 1992) 1,392,984 590,387
- -----------------------------------------------------------------------------------------------------------------------
Total securities 2,050,819 1,987,944
- -----------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under agreements to resell 144,785 95,450
Trading account securities 12,263 7,881
Loans (note 4):
Commercial 1,953,983 1,742,289
Consumer--amortizing mortgages 1,015,852 641,953
Consumer--other 969,929 895,827
Real estate--construction 106,624 110,452
Real estate--commercial mortgages and other 302,772 325,475
- -----------------------------------------------------------------------------------------------------------------------
Total loans 4,349,160 3,715,996
Unearned discount and net deferred loan fees 9,072 16,695
- -----------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and net deferred loan
fees 4,340,088 3,699,301
Allowance for possible loan losses 134,124 181,108
- -----------------------------------------------------------------------------------------------------------------------
Total net loans 4,205,964 3,518,193
- -----------------------------------------------------------------------------------------------------------------------
Premises and equipment, net (note 5) 102,596 101,324
Foreclosed properties 18,881 28,646
Other assets (notes 6 and 13) 150,700 186,950
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $7,188,322 $6,716,320
=======================================================================================================================
LIABILITIES
Deposits (note 7):
Demand (non-interest-bearing) $1,232,951 $1,126,615
NOW accounts 797,343 719,797
Money market accounts 1,442,316 1,386,552
Regular savings 424,492 391,465
Certificates of deposit under $100,000 1,137,965 1,190,569
Certificates of deposit $100,000 and over 296,285 329,894
Other time 327,231 342,346
Foreign 31,975 34,601
- -----------------------------------------------------------------------------------------------------------------------
Total deposits 5,690,558 5,521,839
- -----------------------------------------------------------------------------------------------------------------------
Short-term borrowings (note 8) 756,763 608,579
Long-term debt (note 9) 65,945 16,896
Other liabilities (note 10) 93,347 100,685
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,606,613 6,247,999
- -----------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (notes 4, 5, 10, 11, 13, 16, and 17)
SHAREHOLDERS' EQUITY (NOTES 3, 9, 10, 15, AND 17)
Preferred stock, without par value; authorized 2,500,000 shares - -
Common stock, $5 par value; authorized 50,000,000 shares; issued:
25,988,201 shares at December 31, 1993; 25,786,205 shares at
December 31, 1992 129,941 128,931
Capital surplus 117,015 114,350
Retained earnings 313,644 226,113
Deferred compensation on restricted stock (940) (1,073)
- -----------------------------------------------------------------------------------------------------------------------
Realized Shareholders' Equity 559,660 468,321
Net unrealized gains on securities available for sale, net of tax
(note 3) 22,049 -
- -----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 581,709 468,321
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,188,322 $6,716,320
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE> 72
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
First American Corporation and Subsidiaries
- -----------------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Deferred Gains on
Compensation Securities
Common Capital Retained on Restricted Available
(in thousands) Stock Surplus Earnings Stock for Sale Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1990 $116,557 $ 79,309 $172,143 $ - $ - $368,009
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of 43,778 common shares in connection
with Employee Benefit and Dividend
Reinvestment Plans (note 10) 219 145 - - - 364
Issuance of 40,000 shares of restricted common
stock (note 10) 200 453 - (653) - -
Net income, 1991 - - 16,937 - - 16,937
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 116,976 79,907 189,080 (653) - 385,310
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of 2,012,500 common shares in
connection with public stock offering
(note 15) 10,063 30,738 - - - 40,801
Issuance of 342,945 common shares in
connection with Employee Benefit and
Dividend Reinvestment Plans (note 10) 1,714 3,073 - - - 4,787
Issuance of 35,600 shares of restricted common
stock (note 10) 178 632 - (810) - -
Amortization of deferred compensation on
restricted stock (note 10) - - - 390 - 390
Net income, 1992 - - 41,972 - - 41,972
Cash dividends declared ($.20 per common
share) (note 17) - - (4,939) - - (4,939)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 128,931 114,350 226,113 (1,073) - 468,321
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of 191,396 common shares in
connection with Employee Benefit Plan,
net of discount on Dividend
Reinvestment Plan (note 10) 957 2,424 - - - 3,381
Issuance of 10,600 shares of restricted common
stock (note 10) 53 241 - (294) - -
Amortization of deferred compensation on
restricted stock (note 10) - - - 427 - 427
Net income, 1993 - - 101,813 - - 101,813
Cash dividends declared ($.55 per common
share) (note 17) - - (14,282) - - (14,282)
Net unrealized gains on securities available
for sale, net of tax (notes 3 and 14) - - - - 22,049 22,049
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 $129,941 $117,015 $313,644 $ (940) $22,049 $581,709
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
70
<PAGE> 73
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
First American Corporation and Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------------
(in thousands) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $101,813 $ 41,972 $ 16,937
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses (42,000) 38,500 51,570
Write-down on foreclosed properties 1,251 10,255 10,982
Depreciation of premises and equipment 13,831 12,310 13,259
Cumulative effect of changes in accounting principles, net of tax 84 - -
Amortization of intangible assets 2,546 2,382 2,743
Other amortization, net 4,137 546 956
Deferred income tax expense (benefit) 11,088 (6,250) (969)
Net (gain) loss on sale of securities available for sale 2,028 2,974 (3,654)
Net loss on sale or write-down of premises and equipment 525 2,319 1,773
Gain on sales of branch offices - (607) (3,378)
Change in assets and liabilities, net of effects from purchase
of bank subsidiary and sales of branch offices:
Decrease in accrued interest receivable 6,149 6,073 9,405
Decrease in accrued interest payable (3,885) (13,523) (8,642)
(Increase) decrease in trading account
securities (4,382) 8,675 (3,766)
(Increase) decrease in other assets 40,476 (34,839) (17,284)
Increase (decrease) in other liabilities (27,993) (991) 55,798
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 105,668 69,796 125,730
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net (increase) decrease in time deposits with other banks 115,104 (40,095) (64,996)
Proceeds from sale of securities available for sale 858,609 500,447 624,187
Proceeds from maturities of securities available for sale 348,476 2,327 20,247
Purchases of securities available for sale (1,593,399) (585,969) (534,975)
Proceeds from maturities of securities held to maturity 855,435 608,964 243,881
Purchases of securities held to maturity (461,324) (855,040) (503,650)
Net (increase) decrease in Federal funds sold and securities
purchased under agreements to resell (47,585) 64,568 (88,198)
Purchase of bank subsidiary, net of cash acquired (25,572) - -
Sales of branch offices, net of cash sold - (10,642) (36,546)
Net (increase) decrease in loans (483,011) 69,533 343,737
Proceeds from sale of premises and equipment 656 1,098 4,003
Purchases of premises and equipment (14,024) (8,839) (8,783)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (446,635) (253,648) (1,093)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits (16,820) 201,026 (169,116)
Net increase in short-term borrowings 148,184 87,801 57,892
Proceeds from issuance of long-term debt 49,680 - -
Net repayment of long-term debt (1,804) (425) (311)
Issuance of common shares:
Public stock offering - 40,801 -
Employee Benefit and Dividend Reinvestment Plans 3,381 4,787 364
Cash dividends paid (14,282) (4,939) -
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 168,339 329,051 (111,171)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and due from banks (172,628) 145,199 13,466
Cash and due from banks, beginning of year 672,747 527,548 514,082
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of year $500,119 $672,747 $527,548
==================================================================================================================================
Cash paid during the year for:
Interest expense $163,028 $206,425 $295,776
Income taxes 47,195 16,498 3,684
Noncash investing activities:
Foreclosures 16,054 21,507 71,201
Securities transferred to the available for sale
classification from the former investment, now held
to maturity, category (note 3) 368,638 - -
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
71
<PAGE> 74
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of First American Corporation
have been prepared in conformity with generally accepted accounting principles
including general practices of the banking industry. Certain prior year
amounts have been reclassified to conform with current year presentation. The
following is a summary of the more significant accounting policies of the
Corporation.
CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiaries, including its principal
subsidiary First American National Bank, as well as First American National
Bank of Kentucky and First American Trust Company, N.A. All significant
intercompany accounts and transactions have been eliminated in consolidation.
SECURITIES
Effective December 31, 1993, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires investments
in equity securities that have a readily determinable fair value and
investments in debt securities to be classified into three categories, as
follows: held to maturity debt securities, trading securities, and securities
available for sale.
Under SFAS No. 115, classification of a debt security as held to
maturity is based on the Corporation's positive intent and ability to hold such
security to maturity. Securities held to maturity are stated at cost adjusted
for amortization of premiums and accretion of discounts, unless there is a
decline in value which is considered to be other than temporary, in which case
the cost basis of such security is written down to market and the amount of the
write-down is included in earnings.
Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading account securities,
which are valued at market with unrealized gains and losses included in
earnings. Interest rate futures contracts which provide for hedging of trading
account securities are also valued at market. Gains or losses
72
<PAGE> 75
on sales and adjustments to market value of trading account securities are
included in non-interest income in the consolidated income statements.
Securities classified as available for sale, which are reported at
market value with unrealized gains and losses excluded from earnings and
reported, net of tax, in a separate component of shareholders' equity, include
all securities not classified as trading account securities or securities held
to maturity. These include securities used as part of the Corporation's
asset/liability strategy which may be sold in response to changes in interest
rates, prepayment risk, the need or desire to increase capital, and other
similar factors. Gains or losses on sale of securities available for sale are
recognized at the time of sale, based upon specific identification of the
security sold, and are included in non-interest income in the consolidated
income statements.
FINANCIAL INSTRUMENTS
The Corporation enters into interest rate swap and basis swap
transactions in connection with its asset/liability management program in
managing interest rate exposure. The impact of interest rate swaps and basis
swaps is accrued based on expected settlement payments and is recorded as an
adjustment to interest income and expense over the life of the related
agreements.
The Corporation also enters into interest rate swap agreements with
customers desiring protection from possible adverse future fluctuations in
interest rates. As an intermediary, the Corporation maintains a portfolio of
generally matched offsetting swap agreements. At inception of the swap
agreements, the portion of the compensation related to credit risk and ongoing
servicing, if any, is deferred and taken into income over the term of the swap
agreements.
The Corporation also enters into interest rate caps, floors, options,
and forward and futures contracts for its asset/liability management program
and for its trading activities. Realized and unrealized gains and losses on
such instruments which are designated as effective hedges of interest rate
exposure are deferred and recognized as interest income or interest expense
over the covered periods or lives of the hedged assets or liabilities. Such
instruments used in trading activities are carried at market value, and
realized and unrealized gains and losses are included in trading account
revenue in the consolidated income statements.
LOANS
Loans are stated at the principal amount outstanding. Unearned
discount, deferred loan fees net of loan acquisition costs, and the allowance
for possible loan losses are shown as reductions of loans. Loan origination
and commitment fees and certain loan related costs are being deferred and the
net amount amortized as an adjustment of the related loan's
73
<PAGE> 76
yield over the contractual life of the related loan. Unearned discount
represents the unamortized amount of finance charges, principally related to
certain installment loans. Interest income on loans is generally computed on
the outstanding loan balance. Interest income on installment loans which have
unearned discount is recognized primarily by the sum-of-the-month's digits
method.
Interest income is generally accrued on all loans. Commercial loans
are placed on non-accrual status when doubt as to timely collection of
principal or interest exists, or when principal or interest is past due 90 days
or more unless such loans are well-secured and in the process of collection.
The decision to place a loan on non-accrual status is based on an evaluation of
the borrower's financial condition, collateral, liquidation value, and other
factors that affect the borrower's ability to pay. Generally, at the time a
loan is placed on a non-accrual status, all interest accrued and uncollected on
the loan in the current fiscal year is reversed from income, and all interest
accrued and uncollected from the prior year is charged off against the
allowance for possible loan losses. Thereafter, interest on non-accrual loans
is recognized in interest income only to the extent that cash is received and
future collection of principal is not in doubt. If the collectibility of
outstanding principal is doubtful, such interest received is applied as a
reduction of principal. A non-accrual loan may be restored to an accruing
status when principal and interest are no longer past due and unpaid and future
collection of principal and interest on a timely basis is not in doubt.
Generally, consumer loans on which interest or principal is past due more than
120 days are charged off.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for loan losses represents a charge (credit) to earnings
necessary, after loan charge-offs and recoveries, to maintain the allowance for
possible loan losses at an appropriate level which is adequate to absorb
estimated losses inherent in the loan portfolio. Such estimated losses arise
primarily from the loan portfolio but may also be derived from other sources,
including commitments to extend credit and standby letters of credit. The
level of the allowance for possible loan losses is determined on a quarterly
basis using procedures which include: (1) an evaluation of individual
criticized and classified credits as determined by internal reviews, of other
significant credits, and of non-criticized/classified commercial and commercial
real estate credits, to determine estimates of loss probability; (2) an
evaluation of various consumer loan categories to determine an estimation of
loss on such loans based primarily on historical loss experience of the
category; (3) a review of unfunded commitments; and (4) an assessment of
various other factors, such as changes in credit concentrations, loan mix, and
economic conditions which may not be specifically quantified in the loan
analysis process.
The allowance for possible loan losses consists of an allocated
portion and an unallocated, or general, portion. The allocated portion is
maintained to cover estimated losses applicable to specific segments of the
loan portfolio. The unallocated portion is
74
<PAGE> 77
maintained to absorb losses which probably exist as of the evaluation date but
are not identified by the more objective processes used for the allocated
portion of the allowance for loan losses due to risk of error or imprecision.
While the total allowance consists of an allocated portion and an unallocated
portion, these terms are primarily used to describe a process. Both portions
of the allowance are available to provide for inherent loss in the entire
portfolio.
The allowance for possible loan losses is increased (decreased) by
provisions for loan losses charged (credited) to expense and is reduced
(increased) by loans charged off net of recoveries on loans previously charged
off. The provision for loan losses is based on management's determination of
the amount of the allowance necessary to provide for estimated loan losses
based on its evaluation of the loan portfolio. Determining the appropriate
level of the allowance and the amount of the provision for loan losses involves
uncertainties and matters of judgment and therefore cannot be determined with
precision.
FORECLOSED PROPERTIES
Foreclosed properties include property acquired through foreclosure
and in-substance foreclosures. In-substance foreclosed properties are those
properties where the borrower retains title but has little or no remaining
equity in the property considering its fair value; where repayment can only be
expected to come from the operation or sale of the property; and where the
borrower has effectively abandoned control of the property or it is doubtful
that the borrower will be able to rebuild equity in the property. Foreclosed
properties are valued at the lower of cost or fair value minus estimated costs
to sell. The fair value of the assets is the amount that the Corporation could
reasonably expect to receive for them in a current sale between a willing buyer
and a willing seller, that is, other than in a forced or liquidation sale.
Cost includes loan principal, accrued interest, foreclosure expense, and
expenditures for subsequent improvements. The excess of cost over fair value
minus estimated costs to sell at the time of foreclosure is charged to the
allowance for possible loan losses. Provisions for subsequent declines in fair
value minus estimated costs to sell are included in foreclosed properties
expense.
DEPRECIATION AND AMORTIZATION
Premises and equipment is stated at cost less accumulated depreciation
and amortization, which is computed principally on the straight-line method
based on the estimated useful lives of the respective assets.
For bank acquisitions accounted for as purchases, the net assets of
the banks have been adjusted to their fair values as of the respective
acquisition dates. The value of deposit rights and the excess of the purchase
price of subsidiaries over net assets acquired are being amortized on a
straight-line basis over periods ranging from ten to twenty years. Deposit
75
<PAGE> 78
rights and the excess of the purchase price of subsidiaries over net assets
acquired, net of amounts amortized, are included in other assets in the
consolidated balance sheets.
EMPLOYEE BENEFIT PLANS
The Corporation provides a variety of benefit plans to eligible
employees. Retirement plan expense is accrued each year, and plan funding
represents at least the minimum amount required by the Employee Retirement
Income Security Act of 1974, as amended. Differences between expense and
funded amounts are carried in other assets or other liabilities. Beginning in
1993, the Corporation recognizes postretirement benefits other than pensions on
an accrual basis, and effective December 31, 1993, other postemployment
benefits are also recognized on an accrual basis. The Corporation also makes
contributions to an employee thrift and profit-sharing plan based on employee
contributions and profitability levels of the Corporation.
INCOME TAXES
The Corporation files a consolidated Federal income tax return, except
for its credit life insurance subsidiary, which files a separate return.
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," which
requires a change from the deferred method of accounting under Accounting
Principles Bulletin No. 11 to the asset and liability method of accounting for
income taxes. Under SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets are reduced by a valuation
allowance, if necessary, to an amount that more likely than not will be
realized.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share amounts are computed by dividing net
income (loss) by the weighted average number of common shares outstanding
during each year.
ESTIMATED FAIR VALUES
Estimates of the fair value of financial instruments are presented
within the notes to the consolidated financial statements. Fair value
estimates are made at a point in time, based on relevant market information and
information about the financial instrument. Such estimates involve
uncertainties and matters of judgment and therefore cannot be determined with
precision. The more significant assumptions used in preparing the
Corporation's fair value estimates are set forth below.
76
<PAGE> 79
For cash and due from banks, time deposits with other banks, and
Federal funds sold and securities purchased under agreements to resell, fair
value is estimated to approximate the carrying amount since such instruments
mature within 90 days or less and do not present unanticipated credit concerns.
The fair value of trading account securities is based on quoted market prices
or dealer quotes. Fair values for securities are based on quoted market prices
or dealer quotes, if available; however, if a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities. For most loans, fair value is estimated by discounting estimated
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit risk and for similar remaining maturities.
For certain homogeneous categories of loans, such as residential mortgages,
fair value is estimated using quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics.
Under SFAS No. 107, the fair value of deposits with no stated
maturity, such as demand deposits, NOW accounts, money market accounts, and
regular savings accounts, is equal to the amount payable on demand at the
reporting date. The fair value of certificates of deposit and other fixed
maturity time deposits is estimated using the rates currently offered for
deposits of similar remaining maturities. For foreign deposits, the carrying
amount is considered a reasonable estimate of fair value due to the frequency
with which rates for such deposits are adjusted to a market rate. For
short-term borrowings, fair value is estimated to equal the carrying amount
since these instruments have a relatively short maturity. Rates for long-term
debt with similar terms and remaining maturities are used to estimate fair
value of the Corporation's long-term debt.
The fair value of commitments to extend credit is estimated based on
unamortized deferred loan fees and costs. The estimated fair value of the
Corporation's outstanding interest rate floor contracts is based on dealer
quotes. The estimated fair value of the Corporation's outstanding interest
rate and basis swaps is based on estimated costs to settle the obligations with
the counterparts at the reporting date.
NOTE 2: CASH AND DUE FROM BANKS
The Corporation's bank subsidiaries are required to maintain reserves,
in the form of cash and balances with the Federal Reserve Bank, against its
deposit liabilities. Approximately $171.8 million and $145.5 million of the
cash and due from banks balance at December 31, 1993 and 1992, respectively,
represented reserves maintained in order to meet Federal Reserve requirements.
77
<PAGE> 80
NOTE 3: SECURITIES
SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains, gross unrealized losses,
and approximate market values of securities held to maturity at December 31,
1993 and 1992, are presented in the following table:
<TABLE>
<CAPTION>
Amortized Unrealized Market
----------------------
(in thousands) Cost Gains Losses Value
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
U.S. Treasury and other U.S. Government
agencies and corporations $ 627,229 $12,805 $ 258 $ 639,776
Other debt securities 30,606 593 211 30,988
---------------------------------------------------------------------------------------------------------
Total securities held to maturity $ 657,835 $13,398 $ 469 $ 670,764
=========================================================================================================
DECEMBER 31, 1992
U.S. Treasury and other U.S. Government
agencies and corporations $1,345,681 $20,905 $1,360 $1,365,226
Other debt securities 46,417 1,964 5 48,376
---------------------------------------------------------------------------------------------------------
Total debt securities 1,392,098 22,869 1,365 1,413,602
Equity securities (essentially Federal
Reserve Bank stock) 5,459 - - 5,459
---------------------------------------------------------------------------------------------------------
Total securities held to maturity $1,397,557 $22,869 $1,365 $1,419,061
=========================================================================================================
</TABLE>
Included in U.S. Treasury and other U.S. Government agencies and corporations
securities held to maturity were agency-issued mortgage-backed securities
amounting to $480.5 million ($492.3 million market value) at December 31, 1993,
and $943.7 million ($959.8 million market value) at December 31, 1992.
Mortgage-backed securities included in other debt securities amounted to $6.9
million ($7.2 million market value) at December 31, 1993, and $35.5 million
($37.3 million market value) at December 31, 1992.
SECURITIES AVAILABLE FOR SALE
The amortized cost, gross unrealized gains, gross unrealized losses,
and approximate market values of securities available for sale at December 31,
1993 and 1992, are presented in the following table:
78
<PAGE> 81
<TABLE>
<CAPTION>
Amortized Unrealized Market
---------------------
(in thousands) Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
U.S. Treasury and other U.S. Government
agencies and corporations $1,332,536 $37,397 $1,450 $1,368,483
Other debt securities (mortgage-backed
securities) 15,593 141 - 15,734
---------------------------------------------------------------------------------------------------------
Total debt securities 1,348,129 37,538 1,450 1,384,217
Equity securities (essentially Federal
Reserve Bank and Federal Home Loan
Bank stock) 8,767 - - 8,767
---------------------------------------------------------------------------------------------------------
Total securities available for sale $1,356,896 $37,538 $1,450 $1,392,984
=========================================================================================================
DECEMBER 31, 1992
U.S. Treasury and other U.S. Government
agencies and corporations $ 590,387 $20,300 $ 777 $ 609,910
---------------------------------------------------------------------------------------------------------
Total securities available for sale $ 590,387 $20,300 $ 777 $ 609,910
=========================================================================================================
</TABLE>
Included in U.S. Treasury and other U.S. Government agencies and corporations
securities available for sale were agency-issued mortgage-backed securities
amounting to $992.7 million ($1,016.8 million market value) at December 31,
1993, and $259.3 million ($270.8 million market value) at December 31, 1992.
Effective December 31, 1993, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 requires investments
in equity securities that have a readily determinable fair value and
investments in debt securities to be classified into three categories, as
follows: held to maturity debt securities, trading securities, and available
for sale securities. In conjunction with the adoption of SFAS No. 115 on
December 31, 1993, the Corporation reclassified $368.6 million of securities to
the available for sale classification from the former investment, now held to
maturity, category. At that date, unrealized appreciation on total securities
available for sale amounted to $36.1 million, resulting in an increase in
shareholders' equity of $22.0 million, net of taxes. There was no impact on
the Corporation's consolidated net income as a result of the adoption of SFAS
No. 115.
Net realized gains (losses) from the sale of securities available for
sale for the years ended December 31, 1993, 1992, and 1991, amounted to
$(2,028,000), $(2,974,000), and $3,654,000, respectively. Gross realized gains
and losses on such sales were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------
1993 1992 1991
------------------- ----------------------- -----------------
Gross Gross Gross Gross Gross Gross
Realized Realized Realized Realized Realized Realized
(in thousands) Gains Losses Gains Losses Gains Losses
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies and corporations $1,680 $3,708 $3,367 $6,275 $4,918 $2,079
Obligations of states and political
subdivisions - - - - 1,261 657
Other debt securities - - - 66 216 5
-----------------------------------------------------------------------------------------------------------
Total securities available for sale $1,680 $3,708 $3,367 $6,341 $6,395 $2,741
===========================================================================================================
</TABLE>
79
<PAGE> 82
TOTAL SECURITIES
The amortized cost and approximate market values of debt securities at
December 31, 1993, by average estimated maturity are shown below. The expected
maturity for governmental and corporate securities is the stated maturity, and
the expected maturity for mortgage-backed securities and other asset-backed
securities is based on current estimates of average maturities.
<TABLE>
<CAPTION>
Securities Held to Maturity Securities Available for Sale
--------------------------- -----------------------------
Amortized Market Amortized Market
(in thousands) Cost Value Cost Value
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 78,065 $ 78,645 $ 136,447 $ 137,508
Due after one year through five years 430,574 439,421 881,832 917,042
Due after five years through ten years 50,956 51,292 178,108 177,837
Due after ten years 98,240 101,406 151,742 151,830
-----------------------------------------------------------------------------------------------------------
Total debt securities 657,835 670,764 1,348,129 1,384,217
Equity securities - - 8,767 8,767
-----------------------------------------------------------------------------------------------------------
Total securities $657,835 $670,764 $1,356,896 $1,392,984
==========================================================================================================
</TABLE>
At December 31, 1993 and 1992, the Corporation held securities with
amortized cost amounting to $503.7 million and $528.5 million, respectively,
which were issued or guaranteed by the Federal National Mortgage Association
and $856.1 million and $597.6 million, respectively, which were issued or
guaranteed by the Federal Home Loan Mortgage Corporation.
Securities carried in the consolidated balance sheets at approximately
$1,310.0 million and $909.1 million at December 31, 1993 and 1992,
respectively, were pledged to secure public and trust deposits and for other
purposes as required or permitted by law.
NOTE 4: LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Corporation's bank subsidiaries make commercial, consumer, and
real estate loans to its customers, located principally within the
Corporation's primary market, which consists of Tennessee and selected portions
of adjacent states. Although the bank subsidiaries have a diversified loan
portfolio, a substantial portion of their debtors' ability to honor their
contracts is dependent upon economic conditions in the Corporation's primary
market.
Loans are either secured or unsecured based on the type of loan and
the financial condition of the borrower. The loans are generally expected to
be repaid from cash flow or proceeds from the sale of selected assets of the
borrower; however, the Corporation is exposed to risk of loss on loans due to
the borrower's difficulties, which may arise from any number of factors
including problems within the respective industry or economic conditions,
including those within the Corporation's primary market.
Directors and executive officers (and their associates, including
companies in which they hold ten percent or more ownership) of the Corporation
and its significant subsidiary,
80
<PAGE> 83
First American National Bank, had loans outstanding with the Corporation and
its subsidiaries of $17,124,000 and $9,277,000 at December 31, 1993 and 1992,
respectively. During 1993, $701,791,000 of new loans or advances on existing
loans were made to such related persons, repayments from such persons totalled
$693,872,000, and other reductions for loans which are no longer related were
$72,000. The Corporation believes that such loans were made on substantially
the same terms, including interest and collateral, as those prevailing at the
time for comparable transactions with other borrowers and did not involve more
than the normal risk of collectibility or present other unfavorable features at
the time such loans were made.
The following table is a summary of loans to customers as classified
by Standard Industrial Classification (SIC) codes as of December 31, 1993 and
1992. SIC codes are governed by the borrower's type of business, and since
balance sheet classifications are governed by the anticipated source of
repayment, there are classification differences between the following table and
the accompanying consolidated balance sheets.
<TABLE>
<CAPTION>
Percent Total Percent of
Funded of Funded Unfunded Funded and Funded and
(dollars in thousands) Balance Balance Commitments Unfunded Unfunded
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993
Consumer $2,056,182 47.4% $283,730 $2,339,912 41.2%
Contractors/Developers 111,688 2.6 65,368 177,056 3.1
Manufacturing 352,548 8.1 269,614 622,162 11.0
Transportation/Communication/Utilities 133,469 3.1 120,668 254,137 4.5
Wholesale 217,059 5.0 147,623 364,682 6.4
Retail 388,573 9.0 181,870 570,443 10.1
Finance/Insurance/Real Estate 497,034 11.4 99,957 596,991 10.5
Services 504,030 11.6 133,090 637,120 11.2
Unclassified/Other 79,505 1.8 34,221 113,726 2.0
-------------------------------------------------------------------------------------------------------------
Total $4,340,088 100.0% $1,336,141 $5,676,229 100.0%
=============================================================================================================
DECEMBER 31, 1992
Consumer $1,629,035 44.0% $260,622 $1,889,657 39.4%
Contractors/Developers 125,808 3.4 59,491 185,299 3.9
Manufacturing 349,972 9.5 203,595 553,567 11.5
Transportation/Communication/Utilities 88,188 2.4 105,482 193,670 4.0
Wholesale 204,004 5.5 121,132 325,136 6.8
Retail 274,856 7.4 159,585 434,441 9.1
Finance/Insurance/Real Estate 519,178 14.0 79,403 598,581 12.4
Services 418,597 11.3 94,803 513,400 10.7
Unclassified/Other 89,663 2.5 15,978 105,641 2.2
-------------------------------------------------------------------------------------------------------------
Total $3,699,301 100.0% $1,100,091 $4,799,392 100.0%
=============================================================================================================
</TABLE>
Consumer loans include amortizing mortgages, installment loans, single
payment loans, and open end loans and are made for varying purposes. At
year-end 1993 and 1992, outstanding consumer installment automobile loans, net
of unearned discount and net deferred loan fees, were $623.7 million and $532.0
million, respectively, and consumer amortizing mortgage loans amounted to
$1,015.9 million and $642.0 million, respectively.
81
<PAGE> 84
The estimated fair value of total loans, net of unearned discount and
net deferred loan fees, outstanding at December 31, 1993 and 1992, was
$4,295.0 million and $3,649.1 million, respectively. The estimated fair value
of loans includes credit risk considerations. At year-end 1993 and 1992, the
carrying value of loans, net of unearned discount and net deferred loan fees,
was $4,340.1 million and $3,699.3 million, respectively.
At December 31, 1993 and 1992, loans on a non-accrual status amounted
to $21.7 million and $59.9 million, respectively. Interest income not
recognized on non-accrual loans was approximately $1.1 million in 1993, $3.6
million in 1992, and $8.3 million in 1991. Interest income recognized on a
cash basis on non-accrual loans was $1.2 million, $1.0 million, and $1.1
million for the same respective periods. Restructured loans amounted to
approximately $.5 million at December 31, 1992, and $2.2 million at December
31, 1991 (none at December 31, 1993). Restructured loans had little effect on
interest income during 1993, 1992, or 1991.
Transactions in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
(in thousands) 1993 1992 1991
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $181,108 $181,031 $190,000
Provision (credited) charged to operating expenses (42,000) 38,500 51,570
Allowance of subsidiary purchased (note 11) 1,296 - -
----------------------------------------------------------------------------------------------------------
Subtotal 140,404 219,531 241,570
Less loans charged off, net of recoveries of $20,337,
$15,489, and $15,170, respectively (6,280) (38,423) (60,539)
----------------------------------------------------------------------------------------------------------
Balance, December 31 $134,124 $181,108 $181,031
==========================================================================================================
</TABLE>
Net charge-offs (recoveries) by major loan categories were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
(in thousands) 1993 1992 1991
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ (338) $20,187 $26,868
Consumer--amortizing mortgages (97) 2,817 2,382
Consumer--other 5,626 10,088 11,460
Real estate--construction 466 2,264 14,691
Real estate--commercial mortgages and other 623 3,067 5,138
----------------------------------------------------------------------------------------------------------
Total net charge-offs $6,280 $38,423 $60,539
==========================================================================================================
</TABLE>
During May 1993, the Financial Accounting Standards Board issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan," which must be
adopted on a prospective basis by January 1995. SFAS No. 114 requires that
impaired loans be measured at the present value of expected future cash flows
discounted at the loan's effective interest rate, at the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. At this time, the Corporation is evaluating when and how it will
adopt SFAS No. 114, as well as the possible financial impact of this statement
to the Corporation.
82
<PAGE> 85
NOTE 5: PREMISES AND EQUIPMENT AND LEASE COMMITMENTS
Premises and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31
----------------------
(in thousands) 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C>
Land $ 19,223 $ 18,415
Buildings 92,329 90,163
Furniture and equipment 91,426 82,368
Leasehold improvements 16,729 15,857
-------------------------------------------------------------------------------
Subtotal 219,707 206,803
Accumulated depreciation and amortization 117,111 105,479
-------------------------------------------------------------------------------
Total premises and equipment $102,596 $101,324
===============================================================================
</TABLE>
Depreciation and amortization expense of premises and equipment for
1993, 1992, and 1991 was $13,831,000, $12,310,000, and $13,259,000,
respectively.
Non-cancelable minimum operating lease commitments for real property
amount to $7,850,000 for 1994; $7,607,000 for 1995; $7,393,000 for 1996;
$6,982,000 for 1997; $6,464,000 for 1998; and $41,510,000 thereafter. In the
normal course of business, management expects that leases will be renewed or
replaced by other leases. Rent expense, net of rental income on bank premises,
for 1993, 1992, and 1991 was $3,522,000, $4,126,000, and $5,187,000,
respectively. Rental income on bank premises for 1993, 1992, and 1991 was
$3,959,000, $3,809,000, and $3,722,000, respectively.
The Corporation also has a data processing outsourcing agreement
expiring in 2001 that has an annual base expense of $12 million. Total annual
fees can vary with cost of living adjustments and changes in services provided
by the vendor, which services depend upon the Corporation's volume of business
and system needs. The related expense is included in systems and processing
expense in the consolidated income statements.
NOTE 6: INTANGIBLE ASSETS
Total intangible assets representing deposit rights and excess of
purchase price of subsidiaries over net assets acquired amounted to $25,963,000
and $20,040,000 at December 31, 1993 and 1992, respectively, and are included
in other assets on the consolidated balance sheets (see note 11).
Approximately $6,998,000 of the intangible asset balance at December 31, 1993,
is available for future tax deductibility as a core deposit intangible.
Amortization expense of intangible assets was $2,546,000, $2,382,000, and
$2,743,000 in 1993, 1992, and 1991, respectively.
NOTE 7: DEPOSITS
As the Corporation's average contractual rates on its outstanding time
deposits are estimated to be higher than rates currently offered for comparable
new time deposits, the Corporation's estimated fair value of total deposits
($5,699.1 million) exceeds the carrying amount of total deposits ($5,690.6
million) by $8.5 million at December 31, 1993. At year-
83
<PAGE> 86
end 1992, the estimated fair value of total deposits was $5,528.1 million
compared with a carrying amount of $5,521.8 million.
NOTE 8: SHORT-TERM BORROWINGS
Short-term borrowings are issued on normal banking terms and consisted
of the following:
<TABLE>
<CAPTION>
December 31
-----------------------
(in thousands) 1993 1992
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and securities sold under agreements to repurchase $664,826 $588,950
Other short-term borrowings 91,937 19,629
----------------------------------------------------------------------------------------------------------
Total short-term borrowings $756,763 $608,579
==========================================================================================================
</TABLE>
At December 31, 1993, Federal funds purchased and securities sold under
agreements to repurchase included $55.0 million of Federal funds purchased due
within five months. Other short-term borrowings is essentially composed of
U.S. Treasury tax and loan accounts. The carrying amount of short-term
borrowings approximates fair value due to the short maturity of these financial
instruments.
The following table presents information regarding Federal funds
purchased and securities sold under agreements to repurchase.
<TABLE>
<CAPTION>
December 31
---------------------------------------------
(in thousands) 1993 1992 1991
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased and securities sold under agreements
to repurchase:
Amount outstanding at December 31 $664,826 $588,950 $496,691
Average rate at December 31 2.75% 2.71% 4.00%
Average amount outstanding during the year $587,059 $519,521 $457,262
Average rate paid for year 2.64% 3.14% 5.48%
Maximum amount outstanding at any month-end $672,614 $588,950 $516,684
==============================================================================================================
</TABLE>
NOTE 9: LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31
------------------------
(in thousands) 1993 1992
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
6 7/8% subordinated notes (effective rate of 6.965%) due 2003, interest
payable semiannually (less unamortized discount of $297) $49,703 $ -
7 5/8% debentures due December 15, 2002, interest payable semiannually 13,593 15,093
Other 2,649 1,803
----------------------------------------------------------------------------------------------------------
Total long-term debt $65,945 $16,896
==========================================================================================================
</TABLE>
During first quarter 1993, the Corporation filed a shelf registration
statement with the Securities and Exchange Commission to issue $100 million of
subordinated debt securities. The Corporation issued $50 million of
subordinated notes under the shelf registration statement during second quarter
1993. The notes are non-callable.
84
<PAGE> 87
The 7 5/8% debentures amounted to $13.6 million at December 31, 1993,
from the original issuance amount of $25,000,000 under an indenture dated
December 15, 1972. These debentures will be redeemed at 101.22% of the
principal amount, effective January 31, 1994.
The Corporation owns a parking garage which was financed through an
Industrial Revenue Bond due April 1, 1997. Indebtedness at December 31, 1993
and 1992, totalled $1,420,000 and $1,735,000, respectively. Sinking fund
requirements of this debt amount to $330,000 for 1994; $345,000 for 1995;
$365,000 for 1996; and $380,000 for 1997. The interest rate on these bonds is
5.9% for the remaining life of the bonds.
At December 31, 1993, the Corporation had outstanding advances from
the Federal Home Loan Bank of $1,150,000 maturing September 28, 2007, at an
interest rate of 3.891%.
On December 31, 1993, the Corporation had a revolving credit agreement
with three banks which provided for loans of up to $50 million. Under the
terms of the revolving credit agreement, which expires in March 1994, the
Corporation pays a fee for the availability of these funds. Interest to be
paid on outstanding balances will be computed based on the prime interest rate
of the lending banks, Eurodollar rates, or adjusted certificate of deposit
rates, as selected by the Corporation. The Corporation had no revolving credit
borrowings outstanding at December 31, 1993 or 1992.
The terms of these agreements provide, among other things, for
restrictions on payment of cash dividends and purchases, redemptions, and
retirement of capital shares. Under the Corporation's most restrictive debt
covenant, approximately $155.7 million of retained earnings was available to
pay dividends as of December 31, 1993.
The estimated fair value of long-term debt outstanding at December 31,
1993 and 1992, was $66.5 million and $16.7 million, respectively, as compared
with carrying value of $65.9 million and $16.9 million, respectively. The
differences reflect that the Corporation's contractual rates on its existing
long-term debt outstanding are slightly higher (lower for 1992) than rates
estimated to be currently offered for comparable new long-term debt.
NOTE 10: EMPLOYEE BENEFITS
RETIREMENT PLAN
The Corporation and its subsidiaries participate in a non-contributory
retirement plan with death and disability benefits covering substantially all
employees with one or more years of service. The benefits are based on years
of service and average monthly earnings of a participant for the 60 consecutive
months which produce the highest average earnings.
85
<PAGE> 88
The following table sets forth the plan's funded status and amounts
recognized in the Corporation's consolidated balance sheets at December 31,
1993 and 1992:
<TABLE>
<CAPTION>
(in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value, primarily U.S. bonds and listed stocks $84,540 $77,809
- -------------------------------------------------------------------------------------------------------------
Actuarial present value of benefits for service rendered to date:
Accumulated benefit obligation, including vested benefits of $71,258 and
$63,272, respectively 74,431 64,567
Additional benefits based on projected future compensation 12,046 11,925
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation 86,477 76,492
- -------------------------------------------------------------------------------------------------------------
Plan assets in excess of accumulated benefit obligation 10,109 13,242
- -------------------------------------------------------------------------------------------------------------
Plan assets greater (less) than projected benefit obligation (1,937) 1,317
Unrecognized net loss from past experience different from that assumed and
effects of changes in assumptions 6,009 1,870
Unrecognized net transition asset (2,105) (2,406)
Unrecognized prior service cost 760 900
- -------------------------------------------------------------------------------------------------------------
Prepaid pension cost $ 2,727 $ 1,681
=============================================================================================================
</TABLE>
Net pension expense included the following components:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the period $2,484 $2,383 $2,479
Interest cost on projected benefit obligation 6,096 5,593 5,270
Actual return on plan assets (6,987) (4,003) (12,608)
Net amortization and deferral 956 (1,804) 8,069
- -------------------------------------------------------------------------------------------------------------
Net periodic pension expense $2,549 $2,169 $3,210
=============================================================================================================
</TABLE>
The following table presents assumptions used in determining the actuarial
present value of the projected benefit obligation for the pension plan:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1993 1992
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Weighted average discount rate 7.5% 8.0%
Rate of increase in future compensation level 4.5 5.0
Expected long-term rate of return on plan assets 9.0 9.0
=========================================================================================
</TABLE>
SUPPLEMENTAL RETIREMENT PLAN
The Corporation has a supplemental retirement plan which provides
supplemental retirement benefits to certain executives of the Corporation.
This plan became effective on January 1, 1989, and the expense was $82,000 in
1993, $707,000 in 1992, and $213,000 in 1991. The higher level of expense in
1992 was due to early retirements. Benefit payments from the plan are made
from general assets of the Corporation. The weighted average discount rate and
rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation in 1993 were 7.5%
and 4.5%, respectively, and in 1992 were 8.0% and 5.0%, respectively.
86
<PAGE> 89
OTHER POSTRETIREMENT BENEFITS
In addition to pension benefits, the Corporation and its subsidiaries
have defined postretirement benefit plans that provide medical insurance and
death benefits for retirees and eligible dependents. Because the death benefit
plan is not significant, it is combined with the health care plan for
disclosure purposes.
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires the cost of
postretirement benefits other than pensions to be recognized on an accrual
basis as employees perform services to earn such benefits. The Corporation's
previous practice, like most companies, was to expense such costs on a
pay-as-you-go basis. The Corporation recognized this change during 1993 as a
cumulative effect of a change in accounting principle, resulting in a one-time
non-cash charge of $17.5 million before taxes ($11.6 million after taxes).
This charge represents the discounted present value of expected future retiree
medical and death benefits attributed to employees' service rendered prior to
1993. See note 14.
The status of the plans at December 31, 1993, was as follows:
<TABLE>
<CAPTION>
(in thousands) 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $12,699
Fully eligible active plan participants 1,358
Other active plan participants 4,176
- ------------------------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 18,233
Plan assets at market value -
- ------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in excess of plan assets 18,233
Unrecognized net gain from past experience different from that assumed
and effects of changes in assumptions (510)
- ------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $17,723
============================================================================================================
</TABLE>
The components of net periodic expense for postretirement benefits in
1993 were as follows:
<TABLE>
<CAPTION>
(in thousands) 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Service cost - benefits earned during the year $ 314
Interest cost on accumulated postretirement benefit obligation 1,355
- -----------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit expense $ 1,669
===========================================================================================================
</TABLE>
The Corporation continues to fund medical and death benefit costs
principally on a pay-as-you-go basis. Postretirement benefit expense for 1992
and 1991, which were recorded on a cash basis, have not been restated and were
$.6 million and $.7 million, respectively.
For measurement purposes, a 10.75% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1994, declining
gradually to 5.5% per year by 2011 and remaining at that level thereafter. The
discount rate used to determine the
87
<PAGE> 90
accumulated postretirement benefit obligation was 7.5%, and the assumed
long-term rate of compensation increase was 4.5%.
The health care cost trend rate assumption has a significant effect on
the accumulated postretirement benefit obligation and net periodic benefit
costs. A 1% increase in the trend rate for health care costs would have
increased the accumulated postretirement benefit obligation by $1.7 million as
of December 31, 1993, and the net periodic expense (service cost and interest
cost) would have increased by $138,000 for 1993.
POSTEMPLOYMENT BENEFITS
Effective December 31, 1993, the Corporation adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which requires employers
to recognize a liability for postemployment benefits under certain
circumstances. The Corporation's short-term and long-term disability
benefits, survivor income benefits, and certain other benefits are governed by
this statement. The Corporation recognized this item during fourth quarter
1993 as a cumulative effect of a change in accounting principle, resulting in a
one-time non-cash charge of $2.0 million before taxes ($1.3 million after
taxes). Prior to this date, postemployment benefit expenses were recognized on
a pay-as-you-go basis. See note 14.
OTHER EMPLOYEE BENEFITS
The Corporation has executive incentive compensation plans covering
certain officers and other key employees of the Corporation. The plans provide
for incentives based on the attainment of annual and long-term performance
goals. Executive incentive compensation plans also include stock option
programs, which provide for the granting of incentive stock options and non-
statutory options to key employees. Additionally, the Corporation has a
stock option plan for non-employee directors. As of December 31, 1993, the
Corporation had approximately 1.8 million shares of common stock reserved for
issuance under these plans.
During 1991 through 1993, the Corporation has issued 86,200 shares of
restricted common stock to certain executive officers. The restrictions lapse
within 15 years; however, if certain performance criteria are met, restrictions
will lapse earlier. The amount recorded for the restricted stock issued is
based on the market value of the Corporation's common stock on the award dates
and is shown as deferred compensation in the consolidated statements of changes
in shareholders' equity. Such compensation expense is recognized over a 3- to
15-year period.
Stock options granted under option programs have been at 85% to 100%
of the market price on the day of grant. Each stock option is for one share of
common stock. Some options are exercisable immediately, while some options are
exercisable over a period of time and may be exercisable earlier if certain
performance criteria are met. All options
88
<PAGE> 91
expire within a ten-year period from the date of grant. The market price of
the Corporation's stock was $32.00 at December 31, 1993.
The following table presents a summary of stock option and restricted
stock activity:
<TABLE>
<S> <C> <C> <C> <C>
Total Exercisable Exercise
Available Option Shares Option Shares Price
for Grant Outstanding Outstanding Per Share
- -------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING, DECEMBER 31, 1990 238,465 1,055,669 909,514 $15.83 -$27.375
Shares reserved 1,001,472 - - N/A
Options granted (633,500) 633,500 - 8.875 - 16.875
Restricted stock incentive awards (40,000) - - N/A
Options which became exercisable - - 139,347 15.83 - 21.875
Options exercised - (22,045) (22,045) 8.875- 15.83
Options cancelled or expired 225,536 (225,536) (221,399) 15.83 - 27.375
- -------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING, DECEMBER 31, 1991 791,973 1,441,588 805,417 8.875 - 27.375
Shares reserved 209,289 - - N/A
Options granted (404,455) 404,455 - 20.875 - 22.875
Restricted stock incentive awards (35,600) - - N/A
Options which became exercisable - - 546,926 8.875 - 26.875
Options exercised - (279,417) (279,417) 8.875 - 23.50
Options cancelled or expired 227,681 (227,681) (214,181) 8.875 - 27.375
Expiration of shares available for (304,682) - - N/A
grant
- -------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING, DECEMBER 31, 1992 484,206 1,338,945 858,745 8.875 - 27.375
Shares reserved 200,000 - - N/A
Options granted (234,500) 234,500 - 25.50 - 33.125
Restricted stock incentive awards (10,600) - - N/A
Options which became exercisable - - 106,440 14.75 - 22.875
Options exercised - (190,411) (190,411) 8.875 - 27.375
Options cancelled or expired 4,250 (19,731) (16,181) 21.125 - 27.375
- -------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING, DECEMBER 31, 1993 443,356 1,363,303 758,593 $ 8.875 -$33.125
=============================================================================================================
</TABLE>
The Corporation has a combination savings thrift and profit-sharing
plan ("FIRST Plan") available to substantially all full-time employees. In
connection with the plan, 1,350,000 shares of the Corporation's common stock
have been reserved for issuance. At year-end 1993, 580,000 of these shares had
been issued. The plan is funded by employee and employer contributions. The
Corporation's annual contribution to the plan is based upon the amount of basic
contributions of participants, participants' compensation, and the achievement
of certain corporate performance standards and may be made in the form of cash
or the Corporation's common stock with a market value equal to the cash
contribution amount. During 1993, 1992, and 1991, 94,193 shares, 3,538 shares,
and 172,557 shares, respectively, were purchased in the open market for the
FIRST Plan. During 1992, 62,961 shares were issued by the Corporation in
connection with the FIRST Plan (none in 1993 or 1991). Total plan expense in
1993, 1992, and 1991 was $2,919,000, $1,203,000, and $551,000, respectively.
During 1993, 1992, and 1991, the Corporation matched participating employees'
qualifying contributions by 100%, 50%, and 25%, respectively.
NOTE 11: ACQUISITIONS AND SALES
On October 1, 1993, the Corporation acquired all of the outstanding
shares of First American National Bank of Kentucky (FANBKY), formerly known as
First Federal Savings
89
<PAGE> 92
and Loan Association of Bowling Green, a $219.0 million national bank
headquartered in Bowling Green, Kentucky, for $27.5 million. This transaction
was accounted for as a purchase. All financial data after the acquisition date
has been adjusted to reflect the purchase and, consistent with the purchase
method of accounting, the results of operations of FANBKY are included in the
Corporation's consolidated income statement beginning October 1, 1993. Total
fair value of net assets of FANBKY on the acquisition date was approximately
$19,051,000. The excess of the purchase price over the fair value of the net
assets acquired was $8,449,000 at the acquisition date and is being amortized
over 10 years. Net interest income and net income of FANBKY for the year ended
December 31, 1992, were $8,325,000 and $2,541,000, respectively, and for the
first nine months of 1993 were $5,156,000 and $1,837,000, respectively. FANBKY
operates three branches in Warren and Simpson Counties in southern Kentucky.
During fourth quarter 1993, the Corporation signed a definitive stock
purchase agreement for the Corporation to acquire Fidelity Crossville
Corporation (FCC), the parent company of First Fidelity Savings Bank, F. S. B.
(First Fidelity) located in Crossville, Tennessee for $6.5 million. First
Fidelity, with approximately $50 million in total assets at December 31, 1993,
has offices in Crossville and Fairfield Glade. The acquisition of FCC and the
merger of First Fidelity into First American National Bank are expected to be
completed in the first half of 1994, subject to various conditions, including
regulatory approval. The transaction will be accounted for as a purchase.
The Corporation consummated the sale of one branch office in 1992,
with deposits of approximately $11.3 million at the date of sale, and three
branch offices in 1991, with deposits aggregating approximately $54.8 million
at the respective dates of sale. These transactions resulted in a 1992 pre-tax
gain of approximately $.6 million and a 1991 aggregate pre-tax gain of
approximately $3.4 million.
NOTE 12: FIRST AMERICAN FOUNDATION
The Corporation's non-interest expenses for 1993 include a $10.0
million charitable contribution to First American Foundation, a not-for-profit
private foundation formed in 1993 to facilitate the Corporation's charitable
contributions.
NOTE 13: INCOME TAXES
Effective January 1, 1993, the Corporation prospectively adopted
Statement of Financial Accounting Standards (SFAS) No. 109, which requires a
change from the deferred method (an income statement approach) of accounting
for income taxes under Accounting Principles Bulletin No. 11 to the asset and
liability method of accounting for income taxes. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
90
<PAGE> 93
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 SFAS 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. The
cumulative effect of the adoption of SFAS No. 109 was a $12.8 million benefit.
See note 14.
SFAS No. 109 requires that the tax benefit of deductible temporary
differences be recorded as an asset to the extent that management assesses the
utilization of such temporary differences to be "more likely than not." In
accordance with SFAS No. 109, the realization of tax benefits of deductible
temporary differences depends on whether the Corporation has sufficient taxable
income within the carryback and carryforward period permitted by the tax law to
allow for utilization of the deductible amounts. As of January 1, 1993, the
Corporation had net deductible temporary differences of $165.5 million. For
Federal tax purposes, taxable income in the carryback and estimates of taxable
income in the carryforward periods were expected to be sufficient to utilize
this amount; however, for state purposes Tennessee law does not permit
carrybacks and thus a valuation allowance was established for the portion of
the net deductible temporary differences that was not expected to be realized
within a twelve-month carryforward period, which is the period over which
management believes is prudent to make projections of taxable income for such
purposes. Based on projections of Tennessee 1993 taxable income at the
beginning of 1993, a valuation allowance of $3,942,000 was established
(as of January 1, 1993).
The net change in the total valuation allowance for the year ended
December 31, 1993, was a net decrease of $2,596,000; consisting of an increase
related to the adoption of SFAS No. 106 (accounting for postretirement
benefits) of $1,050,000, an increase related to the adoption of SFAS No. 112
(accounting for postemployment benefits) of $120,000, and a decrease of
$3,766,000 related to continuing operations. The valuation allowance for
deferred tax assets as of December 31, 1993, was $1,346,000.
91
<PAGE> 94
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense:
Federal $39,221 $19,254 $7,715
State 7,087 4,477 15
- -------------------------------------------------------------------------------------------------------------
Total current income tax expense 46,308 23,731 7,730
- -------------------------------------------------------------------------------------------------------------
Deferred income tax expense (benefit):
Federal 12,495 (6,247) (969)
State (1,407) (3) -
- -------------------------------------------------------------------------------------------------------------
Total deferred income tax expense (benefit) from operations 11,088 (6,250) (969)
- -------------------------------------------------------------------------------------------------------------
Total income tax expense from operations 57,396 17,481 6,761
- -------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) on cumulative effect of change
in accounting principles
SFAS No. 106 regarding postretirement benefits
Federal (5,950) - -
State - - -
- -------------------------------------------------------------------------------------------------------------
Total income tax benefit of adoption of SFAS No. 106 (5,950) - -
- -------------------------------------------------------------------------------------------------------------
SFAS No. 109 regarding income taxes
Federal (6,771) - -
State (5,995) - -
- -------------------------------------------------------------------------------------------------------------
Total income tax benefit of adoption of SFAS No. 109 (12,766) - -
- -------------------------------------------------------------------------------------------------------------
SFAS No. 112 regarding postemployment benefits
Federal (700) - -
State - - -
- -------------------------------------------------------------------------------------------------------------
Total income tax benefit of adoption of SFAS No. 112 (700) - -
- -------------------------------------------------------------------------------------------------------------
Total income tax benefit on cumulative effect of
change in accounting principles (19,416) - -
- -------------------------------------------------------------------------------------------------------------
Total income tax expense affecting shareholders' equity $37,980 $17,481 $6,761
=============================================================================================================
</TABLE>
In addition to amounts in the above table, the Corporation provided
taxes relating to the adoption of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". In accordance with SFAS No. 115,
there were $36,088,000 of unrealized gains on securities available for sale
being credited directly to shareholder's equity. The tax effect applicable to
the unrealized gain was $14,039,000 (composed of $11,873,000 Federal tax and
$2,166,000 state tax).
Total income tax expense (benefit) includes the effect of related tax
expense (benefit) on security transactions amounting to $(789,000) in 1993,
$(1,129,000) in 1992, and $731,000 in 1991.
The following table presents a reconciliation of the provision for
income taxes as shown in the consolidated income statements with that which
would be computed by applying the statutory Federal income tax rates of 35% for
1993 and 34% for 1992 and 1991 to income (loss) before income taxes, including
security transactions.
92
<PAGE> 95
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
(in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at statutory rates $55,753 $20,214 $8,057
Increase (decrease) in taxes resulting from:
Tax-exempt interest (2,378) (2,771) (4,395)
State income taxes, net of Federal income tax 3,692 2,953 10
Federal income tax rate change adjustment of deferred
taxes (1,781) - -
Provision for audits in process - 1,000 2,100
Utilization of tax credits - (5,623) -
Other, net 2,110 1,708 989
- ------------------------------------------------------------------------------------------------------------
Actual tax expense from operations $57,396 $17,481 $6,761
============================================================================================================
</TABLE>
The 1992 total income tax expense for financial reporting purposes
included the benefit from utilization of tax credit carryforwards amounting to
$5.6 million (general business credit carryforwards of $4.9 million and
alternative minimum tax credits of $.7 million).
The current portion of income tax expense is based on tax return
computations, essentially regular tax (imposed at 35% on taxable income in 1993
and 34% on taxable income in 1992 and 1991) adjusted for alternative minimum
taxes, if any. Current Federal income tax expense includes the utilization of
alternative minimum tax credits amounting to $3,401,000 in 1992 and $381,000 in
1991.
Accumulated deferred taxes aggregated net assets of $38,249,000 at
December 31, 1993, and $47,303,000 at December 31, 1992, and are included in
other assets on the consolidated balance sheets. Management believes that it
is more likely than not that the deferred tax assets, net of the valuation
allowance, will be realized. The tax effects of temporary differences that
give rise to the significant portions of deferred tax assets and deferred tax
liabilities at December 31, 1993, are as follows:
<TABLE>
<CAPTION>
(in thousands) December 31, 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Deferred tax assets
Allowance for loan losses $49,952
Postretirement benefit obligation 7,391
Deferred directors' compensation 1,993
Deferred loan fees 2,008
Other 8,716
- --------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 70,060
Less valuation allowance (1,346)
- --------------------------------------------------------------------------------------------------------------
Net deferred tax assets, net of valuation allowance 68,714
- --------------------------------------------------------------------------------------------------------------
Deferred tax liabilities
Property, plant, and equipment 6,041
Direct lease financing 5,000
Unrealized gain on securities available for sale 14,039
Core deposit intangibles 2,475
Other 2,910
- --------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 30,465
- --------------------------------------------------------------------------------------------------------------
Net deferred tax assets $38,249
==============================================================================================================
</TABLE>
93
<PAGE> 96
Income tax expense from operations for 1993 includes deferred taxes of
$11,088,000. Included in this amount is a $3,766,000 benefit applicable to a
decrease in the valuation allowance and a $1,781,000 benefit applicable to a
change in the Federal income tax rate from 34% in 1992 to 35% in 1993.
The tax effects of timing differences that give rise to significant
portions of deferred tax expense (benefit) for the years ended December 31,
1992, and December 31, 1991, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
(in thousands) 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Provision for loan losses $ (29) $ 3,062
Leasing operations (1,100) (2,611)
Accelerated depreciation (1,793) (1,066)
Deferred loan fees (1,342) (174)
Pension expense 343 (144)
Write-down on foreclosed properties (398) (1,156)
Accreted discount 114 (305)
Directors' deferred compensation (111) (71)
Legal contingency 133 228
Charitable contributions 61 525
Other, net (419) 84
- ---------------------------------------------------------------------------------------------------------------
Total deferred income tax benefit available (4,541) (1,628)
Deferred tax assets (recognized) not recognized (1,709) 659
- ---------------------------------------------------------------------------------------------------------------
Total deferred income tax benefit $(6,250) $ (969)
===============================================================================================================
</TABLE>
During 1993, the Corporation and the Internal Revenue Service (IRS)
reached a settlement agreement of the IRS's examination of the Corporation's
1987 and 1988 consolidated Federal income tax returns. The results of this
settlement have been previously reflected in the Corporation's consolidated
financial statements. The IRS is currently examining the 1989 and 1990
consolidated Federal income tax returns of First American Corporation and
subsidiaries. No material unrecorded tax liability is expected to result from
the current examination.
NOTE 14: CHANGES IN ACCOUNTING PRINCIPLES
The cumulative effect of changes in accounting principles reflected in
the 1993 consolidated income statement relates to the Corporation's 1993
adoption of Statements of Financial Accounting Standards (SFAS), as follows:
<TABLE>
<CAPTION>
Year Ended
(in thousands) December 31, 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C>
SFAS No. 106 regarding postretirement benefits, net of tax $(11,550)
SFAS No. 109 regarding income taxes 12,766
SFAS No. 112 regarding postemployment benefits, net of tax (1,300)
- -------------------------------------------------------------------------------------------------------------
Total $ (84)
=============================================================================================================
</TABLE>
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and No. 112, "Employers' Accounting for Postemployment Benefits,"
are discussed in note 10 (employee benefits), and SFAS No. 109, "Accounting for
Income Taxes," is addressed in
94
<PAGE> 97
note 13 (income taxes). See note 3 for a discussion regarding the impact to
the 1993 consolidated financial statements resulting from the December 31,
1993, adoption of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
NOTE 15: COMMON STOCK ISSUANCE
On September 30, 1992, the Corporation completed an underwritten
public offering of its common stock at $21.25 per share, resulting in the
issuance of 2,012,500 shares. A $40.8 million addition to shareholders' equity
in 1992 resulted from the offering.
NOTE 16: OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the normal course of business, the Corporation is a party to
financial transactions which have off-balance-sheet risk. Such transactions
arise in meeting customers' financing needs and from the Corporation's
activities in reducing its own exposure to fluctuations in interest rates.
Off-balance-sheet items involving customers consist primarily of commitments to
extend credit and letters of credit, which generally have fixed expiration
dates. These instruments may involve, to varying degrees, elements of credit
and interest rate risk. To evaluate credit risk, the Corporation uses the same
credit policies in making commitments and conditional obligations on these
instruments as it does for instruments reflected on the balance sheet.
Collateral obtained, if any, varies but may include deposits held in financial
institutions; U.S. Treasury securities or other marketable securities;
income-producing commercial properties; accounts receivable; property, plant,
and equipment; and inventory. The Corporation's exposure to credit risk under
commitments to extend credit and letters of credit is the contractual
(notional) amount of the instruments. Interest rate caps, floors, swap
transactions, futures contracts, and forward contracts may have credit and
interest rate risk significantly less than the contractual amount.
Commitments to extend secured or unsecured credit are contractual
agreements to lend money providing there is no violation of any condition.
Commitments 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. At year-end 1993 and 1992,
respectively, the Corporation had $1.3 billion and $1.1 billion of unfunded
commitments to extend credit. Of these amounts, unfunded commitments for
borrowers with loans on non-accrual status were $5.3 million at December 31,
1993, and $3.1 million at December 31, 1992. The fair value of commitments to
extend credit is estimated based on unamortized deferred loan fees and costs,
both of which amounted to $2.6 million and $.5 million of unearned income (a
liability) at December 31, 1993 and 1992, respectively.
Standby letters of credit are conditional commitments issued by the
Corporation to guarantee the performance of a customer to a third party. As of
December 31, 1993 and 1992, the Corporation had standby letters of credit
issued amounting to approximately
95
<PAGE> 98
$135.4 million and $143.7 million, respectively. The Corporation also had
commercial letters of credit of $56.1 million and $35.7 million at December 31,
1993 and 1992, respectively. Commercial letters of credit are conditional
commitments issued by the Corporation to facilitate trade for corporate
customers. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The fair value of letters of credit is estimated based on
unamortized deferred fees and costs, both of which amounted to $.7 million and
$.6 million of unearned income (a liability) at December 31, 1993 and 1992,
respectively.
The Corporation also makes certain loans with an interest rate cap or
collar (a paired interest rate cap and floor) feature. On December 31, 1993
and 1992, respectively, $47.8 million and $82.8 million in commercial and real
estate loans were subject to interest rate caps and $34.4 million and $58.0
million were subject to interest rate floors.
Interest rate caps and floors written by the Corporation are interest
rate contracts which enable customers to transfer, modify, or reduce their
interest rate risk. The Corporation minimizes its exposure to market risk on
these instruments by entering into offsetting interest rate contract positions
that essentially counterbalance each other. Other than for loans, at December
31, 1993 and 1992, the Corporation had no outstanding interest rate cap or
floor contracts written. At December 31, 1992, the Corporation held $200.0
million of interest rate floor contracts (none at year-end 1993), which were
entered into to protect the Corporation from falling interest rates. If
settled at December 31, 1992, the Corporation's outstanding interest rate floor
contracts would have resulted in a $2.1 million pre-tax earnings benefit to the
Corporation.
Futures and forward contracts are contracts for delayed delivery of
securities or money market instruments in which the seller agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Risks arise from the possible inability of counterparts to
meet the terms of their contracts and from movements in securities' values and
interest rates. At December 31, 1993, the Corporation had $300.0 million of
futures contracts outstanding (none at December 31, 1992), which were entered
into to protect the Corporation's interest rate spread from rising interest
rates. Of this amount, the Corporation had $100.0 million of three-month
futures contracts which expire in December 1994, $100.0 million of three-month
futures contracts which expire in March 1995, and $100.0 million of three-month
futures contracts which expire in June 1995. The estimated fair value of the
Corporation's outstanding futures contracts was immaterial at December 31,
1993. The Corporation contracts to buy and sell foreign exchange in order to
meet the financing needs of its customers and to hedge its own exposure against
market risk. At December 31, 1993 and 1992, the Corporation had $12.7 million
and $18.9 million, respectively, of foreign exchange forward contracts, which
is the sum of customers' contracts with the Corporation and the Corporation's
offsetting contracts to minimize its exposure. The estimated fair value of the
Corporation's foreign exchange forward contracts was immaterial at December 31,
1993 and 1992.
96
<PAGE> 99
Interest rate swap transactions generally involve the exchange of
fixed and floating rate interest payment obligations without the exchange of
the underlying principal amounts. Entering into interest rate swap agreements
involves not only the risk of dealing with counterparts and their ability to
meet the terms of the contracts but also the interest rate risk associated with
unmatched positions. At December 31, 1993, the contractual amount of the
Corporation's interest rate swap contracts, which were for interest rate
management purposes, was $900.0 million. Of this amount, the Corporation had
$450.0 million of interest rate swaps which expire in 1994, $400.0 million
which expire in 1995, and $50.0 million which expire in 1998. At December 31,
1992, the contractual amount of the Corporation's interest rate swap contracts
was $550.0 million. If settled at December 31, 1993, the Corporation's
outstanding interest rate swaps would require a $2.4 million expense (a
payment) by the Corporation ($3.0 million expense if at December 31, 1992).
Basis swaps represent interest rate contracts which are based on
different market interest rate indices and are a protection against adverse
changes in the shape ("steepness" or "flatness") of the interest rate yield
curve. Entering into basis swap agreements involves not only the risk of
dealing with counterparts and their ability to meet the terms of the contracts
but also the interest rate risk associated with different indices. At December
31, 1993, the contractual amount of the Corporation's basis swap contracts was
$200.0 million (none at year end 1992). The Corporation receives a floating
rate based on 3-month LIBOR and pays a floating rate based on 5-year constant
maturity Treasury rates. The settlement for the difference in the paying and
receiving indices occurs every three months, and the indices are reset for the
subsequent three-month period. These contracts expire in April 1995. If
settled at December 31, 1993, the Corporation's outstanding basis swaps would
require a $.6 million expense (a payment) by the Corporation.
NOTE 17: LEGAL AND REGULATORY MATTERS
In April 1993, written notice was received that the Office of the
Comptroller of the Currency (OCC) terminated the supervisory agreement between
the Corporation's principal bank subsidiary, First American National Bank
(FANB), and the OCC. The formal agreement between the OCC and FANB was signed
in September 1990. Under the agreement, FANB was required, among other things,
to maintain minimum capital ratios, to review and to strengthen the bank's
lending, credit review and credit administration procedures and to not pay
dividends if the OCC objected. Also in April 1993, the Federal Reserve Bank of
Atlanta advised the Corporation that it would no longer require its prior
consent relating to dividend payments, repurchasing outstanding stock, and
incurring additional debt.
The extent to which dividends may be paid to the Corporation from its
subsidiaries is governed by applicable laws and regulations. For the
Corporation's national bank subsidiaries, the approval of the OCC is required
if dividends declared in any year exceed net profits for that year (as defined
under the National Bank Act) combined with the
97
<PAGE> 100
retained net profits of the two preceding years. In addition, under recently
adopted OCC regulations, a national bank may not pay a dividend, make any other
capital distribution, or pay management fees if such payment would cause it to
fail to satisfy certain minimum capital requirements. In accordance with the
most restrictive of these restrictions, at December 31, 1993, FANB and FANBKY
had $123.4 million and $.4 million, respectively, available for distribution as
dividends to the Corporation. For the trust company bank subsidiary,
approximately $1.5 million was available for distribution as dividends to the
Corporation as of December 31, 1993.
The Corporation and seven other financial institutions are defendants
in a class action lawsuit brought in the Circuit Court of Shelby County,
Tennessee. The lawsuit alleges anti-trust, unconscionability, usury, and
contract claims arising out of the defendants' returned check charges. The
asserted plaintiff class consists of depositors who have been charged returned
check or overdraft fees. The plaintiffs are requesting compensatory and
punitive damages of $25 million against each defendant. The anti-trust,
unconscionability, and usury claims were previously dismissed, and in December
1993 the Circuit Court granted the defendants' motion for summary judgment and
dismissed the remaining claim. The plaintiffs have appealed. In addition, an
antitrust lawsuit alleging a price fixing conspiracy has been filed against the
Corporation and eight other financial institutions by the plaintiffs in the
U.S. District Court for the Western District of Tennessee. The defendants have
filed a motion for summary judgment in this action, which is pending. The
Corporation believes these suits are without merit and, based upon information
currently known and on advice of counsel, that they will not have a material
adverse effect on the Corporation's consolidated financial statements.
Also, there are from time to time other legal proceedings pending
against the Corporation and its subsidiaries. In the opinion of management and
counsel, liabilities, if any, arising from such proceedings presently pending
would not have a material adverse effect on the consolidated financial
statements of the Corporation.
NOTE 18: PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for First American Corporation (Parent
Company only) was as follows:
98
<PAGE> 101
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
----------------------------
(in thousands) 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 41 $ 40
Securities held to maturity 174 244
Short-term investments with subsidiary 70,067 50,939
Investment in subsidiaries, at cost adjusted for equity in earnings and
net unrealized gains on securities available for sale 571,727 428,682
Other assets 7,135 5,587
- -----------------------------------------------------------------------------------------------------------
Total assets $649,144 $485,492
===========================================================================================================
Liabilities and shareholders' equity
Long-term debt $ 63,296 $ 15,093
Other liabilities 4,139 2,078
- -----------------------------------------------------------------------------------------------------------
Total liabilities 67,435 17,171
- -----------------------------------------------------------------------------------------------------------
Preferred stock, without par value - -
Common stock, $5 par value 129,941 128,931
Capital surplus 117,015 114,350
Retained earnings 313,644 226,113
Deferred compensation on restricted stock (940) (1,073)
- -----------------------------------------------------------------------------------------------------------
Realized shareholders' equity 559,660 468,321
Net unrealized gains on securities available for sale, net of tax 22,049 -
- -----------------------------------------------------------------------------------------------------------
Total shareholders' equity 581,709 468,321
- -----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $649,144 $485,492
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED INCOME STATEMENTS
Year Ended December 31
------------------------------------------
(in thousands) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from subsidiaries:
Banks $ 11,763 $ 4,481 $ -
Trust Company 2,491 750 909
Fees from subsidiaries - 866 550
Interest from subsidiaries 1,359 912 1,261
Interest on time deposits with other banks and other
income 1,131 309 607
- ----------------------------------------------------------------------------------------------------------
Total income 16,744 7,318 3,327
- ----------------------------------------------------------------------------------------------------------
Expenses
Interest expense on long term debt 3,751 1,191 1,213
Other expenses 1,357 1,043 611
- ----------------------------------------------------------------------------------------------------------
Total expenses 5,108 2,234 1,824
- ----------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect of changes
in accounting principles 11,636 5,084 1,503
Reduction to (increase in) consolidated income taxes arising
from parent company (income) loss 998 50 (202)
- ----------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings (loss) of
subsidiaries and cumulative effect of changes in accounting
principles 12,634 5,134 1,301
- ----------------------------------------------------------------------------------------------------------
Equity in undistributed earnings (loss) of subsidiaries
before cumulative effect of changes in accounting
principles:
Banks 89,411 35,145 14,690
Trust Company (148) 1,693 946
- ----------------------------------------------------------------------------------------------------------
Total equity in undistributed earnings of subsidiaries 89,263 36,838 15,636
- ----------------------------------------------------------------------------------------------------------
Net income before cumulative effect of changes in accounting
principles 101,897 41,972 16,937
Cumulative effect of changes in accounting principles, net
of tax (84) - -
- ----------------------------------------------------------------------------------------------------------
Net income $101,813 $41,972 $16,937
==========================================================================================================
</TABLE>
99
<PAGE> 102
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
(in thousands) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $101,813 $41,972 $16,937
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Undistributed income of subsidiaries (89,263) (36,838) (15,636)
Cumulative effect of changes in accounting principles,
net of tax 84 - -
Amortization/write-off of intangible assets - - (401)
Other amortization 735 - -
Deferred income tax expense 44 219 358
Change in assets and liabilities, net of effects from
merger of subsidiary into parent company:
Increase (decrease) in accrued interest payable 724 (16) 16
(Increase) decrease in other assets (459) 1,643 (1,761)
Increase (decrease) in other liabilities 1,293 (2,446) (470)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 14,971 4,534 (957)
- -------------------------------------------------------------------------------------------------------------
Investing activities
Net (increase) decrease in short-term investment
securities with subsidiary (19,128) (30,268) 115
Proceeds from maturity of securities held to maturity 50,070 85 46
Purchases of securities held to maturity (50,691) - -
Purchase of bank subsidiary (27,500) - -
Capital contributions to bank subsidiary (5,000) (15,000) -
Proceeds from merger of subsidiary into parent company - - 444
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (52,249) (45,183) 605
- -------------------------------------------------------------------------------------------------------------
Financing activities
Proceeds from issuance of long-term debt 49,680 - -
Repayment of long-term debt (1,500) - -
Issuance of common shares:
Public stock offering - 40,801 -
Employee Benefit and Dividend Reinvestment Plans 3,381 4,787 364
Cash dividends paid (14,282) (4,939) -
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 37,279 40,649 364
- -------------------------------------------------------------------------------------------------------------
Increase in cash 1 - 12
Cash, beginning of year 40 40 28
- -------------------------------------------------------------------------------------------------------------
Cash, end of year $ 41 $ 40 $ 40
=============================================================================================================
Cash paid during the year for:
Interest expense $ 3,027 $ 1,207 $ 1,197
Income taxes 43,363 16,466 5,117
- -------------------------------------------------------------------------------------------------------------
</TABLE>
100
<PAGE> 103
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
YIELDS/RATES
<TABLE>
<CAPTION>
December 31, 1993, 1992, 1991, 1993 1992 1991
1990, 1989, and ------------------------------ ---------------------------- -------------------------------
1988
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(in millions) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets*:
Securities:
Taxable $2,108.4 $136.7 6.48% $1,788.8 $132.7 7.42% $1,382.7 $109.4 7.91%
Tax-exempt 10.9 .7 6.86 6.3 .4 7.23 20.8 1.8 8.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities 2,119.3 137.4 6.48 1,795.1 133.1 7.42 1,403.5 111.2 7.92
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and repurchase
agreements 143.8 4.6 3.20 244.7 9.1 3.76 196.5 11.9 6.06
Loans, net of unearned discount
and net deferred loan fees:
Commercial 1,767.6 111.9 6.33 1,733.2 120.4 6.95 1,887.4 166.2 8.80
Consumer-amortizing
mortgages 772.6 63.2 8.18 555.7 52.4 9.42 526.0 55.9 10.63
Consumer-other 921.8 79.5 8.62 895.9 85.2 9.51 951.6 101.3 10.65
Real estate-construction 104.2 8.3 7.95 152.5 12.2 8.00 218.9 19.6 8.97
Real estate-commercial
mortgages and other 305.3 24.4 7.98 345.6 29.6 8.57 370.5 37.7 10.17
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount
and net deferred loan fees 3,871.5 287.3 7.42 3,682.9 299.8 8.14 3,954.4 380.7 9.63
- ------------------------------------------------------------------------------------------------------------------------------------
Other 47.7 1.6 3.35 173.5 6.7 3.86 100.3 6.1 6.01
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets* 6,182.3 $430.9 6.97% 5,896.2 $448.7 7.61% 5,654.7 $509.9 9.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses (173.0) (186.6) (189.9)
Cash and due from banks 480.9 457.4 399.7
Other assets 316.3 299.3 327.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $6,806.5 $6,466.3 $6,192.1
====================================================================================================================================
Deposits and borrowed funds:
Demand deposits $1,129.3 $1,040.3 $ 877.2
Interest-bearing deposits:
NOW accounts 722.9 $ 14.5 2.00% 625.9 $ 16.0 2.56% 538.4 $ 21.5 4.00%
Money market accounts 1,392.0 38.3 2.76 1,408.3 47.6 3.38 1,427.5 78.7 5.51
Regular savings 405.0 10.2 2.51 352.8 11.4 3.21 304.5 15.7 5.14
Certificates of deposit
under $100,000 1,151.5 45.0 3.90 1,232.3 60.1 4.88 1,388.0 93.8 6.76
Certificates of deposit
$100,000 and over 349.9 13.1 3.74 368.6 17.5 4.75 360.1 24.7 6.86
Other time 337.7 16.7 4.96 366.7 21.2 5.78 332.0 23.8 7.17
Foreign 25.8 .7 2.74 19.2 .7 3.61 12.7 .7 5.65
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 4,384.8 138.5 3.16 4,373.8 174.5 3.99 4,363.2 258.9 5.93
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits 5,514.1 5,414.1 5,240.4
Federal funds purchased and
repurchase agreements 587.1 15.5 2.64 519.5 16.3 3.14 457.3 25.1 5.48
Other short-term borrowings 49.8 1.6 3.19 20.2 .8 3.82 22.8 1.4 6.26
Long-term debt 51.5 3.8 7.48 17.1 1.3 7.69 17.4 1.4 7.79
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits
and borrowed funds 5,073.2 $159.4 3.14% 4,930.6 $192.9 3.91% 4,860.7 $286.8 5.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Total deposits and borrowed
funds 6,202.5 5,970.9 5,737.9
Other liabilities 91.9 76.9 78.1
Shareholders' equity 512.1 418.5 376.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $6,806.5 $6,466.3 $6,192.1
====================================================================================================================================
</TABLE>
101
<PAGE> 104
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net interest income* $271.5 $255.8 $223.1
Provision for loan losses 42.0 (38.5) (51.6)
Non-interest income 90.1 78.7 84.7
Non-interest expense (240.3) (232.4) (225.9)
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax
(expense) benefit and
cumulative effect of changes
in accounting principles 163.3 63.6 30.3
Income tax (expense) benefit (61.4) (21.6) (13.4)
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative
effect of changes in
accounting principles 101.9 42.0 16.9
Cumulative effect of changes in
accounting principles, net of
tax (.1) - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $101.8 $42.0 $16.9
==================================================================================================================================
Net interest spread 3.83% 3.70% 3.12%
Benefit of interest-free funding .56 .64 .83
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.39% 4.34% 3.95%
==================================================================================================================================
</TABLE>
* Loan fees and amortization of net deferred loan fees (costs), which are
considered an integral part of the lending function and are included in rates
and related interest categories, amounted to $2.2 million in 1993, $(.8)
million in 1992, $(2.7) million in 1991, $(.3) million in 1990, $6.2 million in
1989, and $7.3 million in 1988. Yields/rates and income/expense amounts are
presented on a fully taxable equivalent basis based on the statutory Federal
income tax rates adjusted for applicable state income taxes net of the related
Federal tax benefit; related interest income includes taxable equivalent
adjustments of $4.0 million in 1993, $4.2 million in 1992, $6.6 million in
1991, $11.1 million in 1990, $15.5 million in 1989, and $17.8 million in 1988.
Non-accrual and restructured loans are included in average loans and average
earning assets. Consequently, yields on these items are lower than they would
have been if these loans had earned at their contractual rate of interest.
102
<PAGE> 105
<TABLE>
<CAPTION>
1990 1989 1988 Average Balance Income/Expense
- ------------------------ -------------------------- -------------------------- -------------------- ---------------------
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ One Year Compounded One Year Compounded
Balance Expense Rate Balance Expense Rate Balance Expense Rate 1993/1992 1993/1988 1993/1992 1993/1988
- ------------------------ -------------------------- -------------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,409.3 $121.2 8.60% $1,370.8 $115.9 8.45% $1,546.5 $129.3 8.36% 17.87% 6.39% 3.01% 1.12%
124.1 11.1 8.93 156.2 14.3 9.15 186.7 17.2 9.20 73.02 (43.34) 75.00 (47.29)
- ---------------------------------------------------------------------------------------------------------------------------------
1,533.4 132.3 8.63 1,527.0 130.2 8.52 1,733.2 146.5 8.45 18.06 4.10 3.23 (1.27)
- ---------------------------------------------------------------------------------------------------------------------------------
264.0 21.9 8.28 162.4 15.2 9.36 86.2 6.8 7.90 (41.23) 10.78 (50.00) (7.52)
2,114.4 214.4 10.14 2,124.5 237.2 11.17 2,163.4 220.6 10.20 1.98 (3.96) (7.06) (12.69)
534.1 58.4 10.94 514.4 57.5 11.18 438.8 47.1 10.72 39.03 11.98 20.84 6.06
1,066.6 123.1 11.54 1,099.7 133.7 12.15 1,003.3 118.2 11.78 2.89 (1.68) (6.69) (7.63)
334.7 31.2 9.33 363.9 41.3 11.35 298.6 30.7 10.29 (31.67) (18.99) (31.97) (23.02)
412.4 44.7 10.84 444.6 54.5 12.25 390.2 44.9 11.48 (11.66) (4.79) (17.57) (11.48)
- ---------------------------------------------------------------------------------------------------------------------------------
4,462.2 471.8 10.57 4,547.1 524.2 11.53 4,294.3 461.5 10.75 5.12 (2.05) (4.14) (9.04)
- ---------------------------------------------------------------------------------------------------------------------------------
74.9 6.2 8.38 169.4 14.3 8.44 300.7 23.8 7.93 (72.51) (30.80) (76.12) (41.72)
- ---------------------------------------------------------------------------------------------------------------------------------
6,334.5 $632.2 9.98% 6,405.9 $683.9 10.68% 6,414.4 $638.6 9.96% 4.85 (.73) (3.97)% (7.57)%
- ---------------------------------------------------------------------------------------------------------------------------------
(150.2) (79.4) (68.9) (7.29) 20.22
391.3 397.1 409.3 5.14 3.28
322.6 285.9 291.2 5.68 1.67
- ---------------------------------------------------------------------------------------------------------------------------------
6,898.2 $7,009.5 $7,046.0 5.26% (.69)%
=================================================================================================================================
$ 920.1 $ 944.7 $999.2 8.56% 2.48%
530.4 $ 22.9 4.32% 540.5 $ 23.7 4.38% 555.0 $ 24.8 4.47% 15.50 5.43 (9.38)% (10.18)%
1,422.6 102.1 7.17 1,130.2 85.6 7.58 634.4 37.7 5.94 (1.16) 17.02 (19.54) .32
321.5 17.0 5.28 373.7 19.7 5.27 458.6 24.2 5.28 14.83 (2.46) (10.53) (15.87)
1,546.6 121.0 7.83 1,659.1 135.2 8.15 1,618.2 117.5 7.26 (6.56) (6.58) (25.12) (17.47)
576.2 46.4 8.05 703.6 60.2 8.56 923.9 68.0 7.36 (5.07) (17.65) (25.14) (28.06)
324.2 25.5 7.87 289.3 22.7 7.83 304.6 20.8 6.82 (7.91) 2.08 (21.23) (4.30)
24.5 1.9 7.71 45.6 4.2 9.23 85.0 6.7 7.86 33.68 (21.22) - (36.35)
- ---------------------------------------------------------------------------------------------------------------------------------
4,746.0 336.8 7.10 4,742.0 351.3 7.41 4,579.7 299.7 6.54 .25 (.87) (20.63) (14.31)
- ---------------------------------------------------------------------------------------------------------------------------------
5,666.1 5,686.7 5,578.9 1.85 (.23)
650.3 51.2 7.88 679.6 59.3 8.72 813.8 57.4 7.06 13.01 (6.32) (4.91) (23.04)
57.1 4.9 8.58 73.3 6.4 8.74 75.2 6.0 8.00 146.53 (7.91) 100.0 (23.23)
18.0 1.4 7.82 18.7 1.5 8.04 25.8 2.2 8.41 201.17 14.83 192.31 11.55
- ---------------------------------------------------------------------------------------------------------------------------------
5,471.4 $394.3 7.21% 5,513.6 $418.5 7.59% 5,494.5 $365.3 6.65% 2.89 (1.58) (17.37)% (15.28)%
- ---------------------------------------------------------------------------------------------------------------------------------
6,391.5 6,458.3 6,493.7 3.88 (.91)
96.6 84.1 86.1 19.51 1.31
410.1 467.1 466.2 22.37 1.90
- ---------------------------------------------------------------------------------------------------------------------------------
$6,898.2 $7,009.5 $7,046.0 5.26% (.69)%
=================================================================================================================================
</TABLE>
103
<PAGE> 106
<TABLE>
<S> <C> <C> <C> <C>
$237.9 $265.4 $273.3 6.14% (.13)%
(193.7) (109.7) (73.9) (209.09) -
116.2 82.2 77.8 14.63 2.98
(226.1) (229.5) (226.9) 3.44 1.15
- --------------------------------------------------------------------------------------------------------------------------
(65.7) 8.4 50.3 156.76 26.56
3.3 (4.2) (19.9) 184.26 25.27
- --------------------------------------------------------------------------------------------------------------------------
(62.4) 4.2 30.4 142.62 27.37
- - - - -
- --------------------------------------------------------------------------------------------------------------------------
$(62.4) $ 4.2 $ 30.4 142.38% 27.34%
==========================================================================================================================
2.77% 3.09% 3.31%
.99 1.05 .95
- --------------------------------------------------------------------------------------------------------------------------
3.76% 4.14% 4.26%
==========================================================================================================================
</TABLE>
104
<PAGE> 107
<TABLE>
<CAPTION>
CONSOLIDATED YEAR-END BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------------
December 31
-----------------------------------------------------------------------------------
(in thousands) 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 500,119 $ 672,747 $ 527,548 $ 514,082 $ 450,052 $ 461,046
Securities:
U.S. Treasury and other U.S. Government
agencies and corporations 1,995,712 1,936,068 1,562,805 1,232,793 1,064,821 918,106
Obligations of states and political
subdivisions 21,326 9,304 8,234 105,670 141,633 169,277
Other 33,781 42,572 90,764 170,332 355,118 607,737
- --------------------------------------------------------------------------------------------------------------------------------
Total securities 2,050,819 1,987,944 1,661,803 1,508,795 1,561,572 1,695,120
- --------------------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities
purchased under agreements to
resell 144,785 95,450 160,018 71,820 186,030 37,487
Loans:
Commercial
Commercial and industrial 1,440,707 1,280,016 1,342,874 1,622,421 1,702,289 1,726,188
For purchasing or carrying
securities 41,098 43,128 63,600 49,606 48,856 35,700
Financial institutions 98,462 92,353 92,023 69,001 52,688 84,006
Other domestic loans 373,716 326,622 293,818 292,243 318,610 352,268
International - 170 563 1,017 1,446 597
- --------------------------------------------------------------------------------------------------------------------------------
Total commercial loans 1,953,983 1,742,289 1,792,878 2,034,288 2,123,889 2,198,759
- --------------------------------------------------------------------------------------------------------------------------------
Consumer
Amortizing mortgages 1,015,852 641,953 522,952 531,555 532,538 492,227
Installment 788,281 701,679 702,094 729,455 715,485 666,071
Single payment 21,747 30,711 95,818 134,826 157,149 156,357
Open end and credit card 159,901 163,437 169,566 183,038 354,302 326,375
- --------------------------------------------------------------------------------------------------------------------------------
Total consumer loans 1,985,781 1,537,780 1,490,430 1,578,874 1,759,474 1,641,030
- --------------------------------------------------------------------------------------------------------------------------------
Real estate
Construction 106,624 110,452 183,583 284,159 377,565 328,986
Commercial mortgages and other 302,772 325,475 374,755 381,864 446,013 414,289
- --------------------------------------------------------------------------------------------------------------------------------
Total real estate loans 409,396 435,927 558,338 666,023 823,578 743,275
- --------------------------------------------------------------------------------------------------------------------------------
Total loans 4,349,160 3,715,996 3,841,646 4,279,185 4,706,941 4,583,064
Unearned discount and net deferred
loan fees (9,072) (16,695) (34,389) (53,331) (69,472) (82,408)
- --------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and
net deferred loan fees 4,340,088 3,699,301 3,807,257 4,225,854 4,637,469 4,500,656
Allowance for possible loan losses (134,124) (181,108) (181,031) (190,000) (116,658) (74,940)
- --------------------------------------------------------------------------------------------------------------------------------
Total net loans 4,205,964 3,518,193 3,626,226 4,035,854 4,520,811 4,425,716
- --------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 102,596 101,324 108,259 119,327 132,732 130,931
Foreclosed properties 18,881 28,646 52,666 49,086 11,052 17,684
Other assets 165,158 312,016 240,447 181,298 196,078 435,977
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $7,188,322 $6,716,320 $6,376,967 $6,480,262 $7,058,327 $7,203,961
================================================================================================================================
LIABILITIES
Deposits:
Demand (non-interest-bearing) $1,232,951 $1,126,615 $1,033,068 $1,015,748 $1,023,647 $1,059,491
Time 4,425,632 4,360,623 4,282,240 4,526,129 4,781,165 4,632,366
Foreign 31,975 34,601 16,757 14,149 19,752 125,962
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 5,690,558 5,521,839 5,332,065 5,556,026 5,824,564 5,817,819
- --------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold under agreements to
repurchase 664,826 588,950 496,691 440,475 617,178 725,783
Other short-term borrowings 91,937 19,629 24,087 22,411 80,650 85,752
Long-term debt 65,945 16,896 17,321 17,632 18,616 18,732
Other liabilities 93,347 100,685 121,493 75,709 82,680 97,568
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,606,613 6,247,999 5,991,657 6,112,253 6,623,688 6,745,654
- --------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock 129,941 128,931 116,976 116,557 115,460 115,099
Capital surplus 117,015 114,350 79,907 79,309 77,390 76,844
Retained earnings 313,644 226,113 189,080 172,143 241,789 266,364
Deferred compensation on restricted
stock (940) (1,073) (653) - - -
Net unrealized gains on securities
available for sale, net of tax 22,049 - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 581,709 468,321 385,310 368,009 434,639 458,307
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $7,188,322 $6,716,320 $6,376,967 $6,480,262 $7,058,327 $7,203,961
================================================================================================================================
</TABLE>
105
<PAGE> 108
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST AMERICAN CORPORATION
(Registrant)
BY:/s/ Dennis C. Bottorff
--------------------------
DENNIS C. BOTTORFF,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Date: March 17, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Dennis C. Bottorff /s/ Dale W. Polley
- ------------------------------ ---------------------------
Dennis C. Bottorff Dale W. Polley
President and Chief Executive Vice Chairman, Director and
Officer and Director Principal Financial Officer
Dated: March 17, 1994 Dated: March 17, 1994
/s/ Marvin J. Vannatta, Jr.
--------------------------
Marvin J. Vannatta, Jr.
Senior Vice President,
Controller and Principal
Accounting Officer
Dated: March 17, 1994
106
<PAGE> 109
<TABLE>
<S> <C>
/s/ Earnest W. Deavenport, Jr.
--------------------------- --------------------------------
Samuel E. Beall Earnest W. Davenport, Jr.
Director Director
Dated: March 17, 1994 Dated: March 17, 1994
/s/ Reginald D. Dickson /s/ T. Scott Fillebrown, Jr.
--------------------------- --------------------------------
Reginald D. Dickson T. Scott Fillebrown, Jr.
Director Director
Dated: March 17, 1994 Dated: March 17, 1994
/s/ James A. Haslam, II /s/ Martha R. Ingram
--------------------------- --------------------------------
James A. Haslam, II Martha R. Ingram
Director Director
Dated: March 17, 1994 Dated: March 17, 1994
/s/ Walter G. Knestrick /s/ Gene C. Koonce
--------------------------- --------------------------------
Walter G. Knestrick Gene C. Koonce
Director Director
Dated: March 17, 1994 Dated: March 17, 1994
/s/ James R. Martin /s/ Robert A. McCabe, Jr.
--------------------------- ------------------------------
James R. Martin Robert A. McCabe, Jr.
Director Director
Dated: March 17, 1994 Dated: March 17, 1994
/s/ Toy F. Reid /s/ William O. McCoy
--------------------------- --------------------------------
Toy F. Reid William O. McCoy
Director Director
Dated: March 17, 1994 Dated: March 17, 1994
/s/ James F. Smith, Jr. /s/ Dr. Roscoe R. Robinson
--------------------------- --------------------------------
James F. Smith, Jr. Dr. Roscoe R. Robinson
Chairman of the Board and Director
Director Dated: March 17, 1994
Dated: March 17, 1994
/s/ David K. Wilson /s/ Cal Turner, Jr.
--------------------------- --------------------------------
David K. Wilson Cal Turner, Jr.
Director Director
Dated: March 17, 1994 Dated: March 17, 1994
/s/ William S. Wire II /s/ Toby S. Wilt
--------------------------- --------------------------------
William S. Wire II Toby S. Wilt
Director Director
Dated: March 17, 1994 Dated: March 17, 1994
</TABLE>
107
<PAGE> 110
For purposes of EDGAR filing
for 12/31/93 Form 10-K:
APPENDIX TO ELECTRONIC FORMAT DOCUMENT
Graph #1: In the Overview section of Management's Discussion and Analysis,
this bar graph depicts the Corporation's net income(loss) per
share for 1989 through 1993. For 1993, this graph also depicts
the Corporation's 1993 earnings per share based on earnings
exclusive of negative loan loss provisions in the last three
quarters of 1993 and charitable contribution to First American
Foundation in the fourth quarter of 1993. This graph appears in
the paper format version of the document and not in this electronic
filing.
Graph #2: In the Overview section of Management's Discussion and Analysis,
this bar graph depicts the Corporation's return on average equity
for 1989 through 1993. For 1993, this graph also depicts the
Corporation's 1993 return on average equity based on earnings
exclusive of negative loan loss provisions in the last three
quarters of 1993 and charitable contribution to First American
Foundation in the fourth quarter of 1993. This graph appears in
the paper format version of the document and not in this
electronic filing.
Graph #3: In the Overview section of Management's Discussion and Analysis,
this bar graph depicts the Corporation's return on average assets
for 1989 through 1993. For 1993, this graph also depicts the
Corporation's 1993 return on average assets based on earnings
exclusive of negative loan loss provisions in the last three
quarters of 1993 and charitable contribution to First American
Foundation in the fourth quarter of 1993. This graph appears in
the paper format version of the document and not in this
electronic filing.
Graph #4: In the Net Interest Income section of Management's Discussion
and Analysis, this line graph depicts the Corporation's interest
income (taxable equivalent basis), interest expense, and net
interest income (taxable equivalent basis) for 1989 through 1993.
This graph appears in the paper format version of the document and
not in this electronic filing.
Graph #5: In the Net Interest Income section of Management's Discussion and
Analysis, this line graph depicts the Corporation's average yield
on earning assets (taxable equivalent basis), net interest margin,
average national prime lending rate, and average rate paid as a
percent of earning assets for 1989 through 1993. This graph
appears in the paper format version of the document and not in this
electronic filing.
1
<PAGE> 111
Graph #6: In the Capital Position section of Management's Discussion and
Analysis, this bar graph depicts the Corporation's average equity to
average assets for 1989 through 1993. This graph appears in the
paper format version of the document and not in this electronic
filing.
Graph #7: In the Asset Quality section of Management's Discussion and
Analysis, this line graph depicts the Corporation's nonperforming
assets, nonperforming loans, and foreclosed properties at year-end
1989 through 1993. This graph appears in the paper format version
of the document and not in this electronic filing.
Graph #8: In the Securities/Money Market Instruments section of Management's
Discussion and Analysis, this bar graph depicts the composition
of the Corporation's securities and money market instruments at
year-end 1989 through 1993. Categories depicted at each year-end
include U.S. Treasury and other U.S. Government securities,
obligations of states and political subdivisions, other securities,
and money market instruments. This graph appears in the paper
format version of the document and not in this electronic filing.
2
<PAGE> 112
EXHIBIT INDEX
Number Name Page
Exhibit 10.3(h) Salary Deferral Agreement 110
Exhibit 21 List of Subsidiaries 119
Exhibit 23 Accountants' Consent 121
108
<PAGE> 1
EXHIBIT 10.3(H)
109
<PAGE> 2
EXHIBIT 10.3(H)
SALARY DEFERRAL AGREEMENT
THIS AGREEMENT, dated as of December __, 199___, between First American
Corporation (the "Company") and
(the "Executive").
WITNESSETH:
WHEREAS, the Executive is serving as an executive of the Company at an
annual rate of $____________ as of December __, 199___; and
WHEREAS, the Executive and the Company desire to enter into an
agreement with respect to the deferred payment of a portion of the Executive's
salary upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Company and the Executive hereby agree as follows:
1. $__________ of the Executive's 199___ annual salary will be deferred
by the Company, in equal installments, from the semi-monthly salary
payments paid to the Executive during such year. The deferred salary
is subject to FICA tax at the time the salary payments are made.
However, the Executive and the Company agree that the FICA tax will be
paid out of the remaining non-deferred balance, if any, of the
Executive's semi-monthly salary payments or, if the remaining
non-deferred balance is not sufficient to pay the FICA tax, by the
Executive's personal check payable to the Company and delivered to the
Payroll Department of the Company. Such deferred salary plus interest
computed and accrued as set forth in Article 2 hereof (the "Deferred
Compensation") will be payable to the Executive, the Executive's
designated beneficiary, or the Executive's estate as set forth in this
Agreement.
2. Interest will be credited to the Executive's account on
________________. Interest will accrue at a rate equal to that earned
on one-year treasury notes of the U. S. Government determined as of
December 31, 199___. Interest will accrue on the average daily
balance of the Executive's account beginning with the date on which
the deferred compensation or accrued interest is credited to the
Executive's account and ending with the date on which the deferred
compensation or accrued interest is actually paid.
Executive's Initials
110
<PAGE> 3
The Executive may elect payment of the account balance either in
installments or in a lump sum. Installment payments will be computed by
dividing the combined total of deferred compensation and credited interest,
as of the prior year-end, by the number of installments remaining. Lump-sum
and final installment payments will include principal and interest credited
to the Executive's account as of the prior year-end and all interest accrued
subsequently in the year of payment.
3. Deferred Compensation will be paid to the executive following the first to
occur of the listed events and in accordance with the method of payment and
commencement date selected by the Executive on the attached Exhibit A
which is made a part of this Agreement.
Notwithstanding the foregoing, the Company will immediately pay the
Executive the Deferred Compensation in a lump sum in the event of a Change
in Control of the Company as defined in the 1991 Stock Option Plan and in
the event the Executive's employment is terminated, as defined below, within
two (2) years after the Change in Control has occurred:
(a) involuntarily, other than an involuntary termination for cause or
other than occurring as the result of death, disability, or
terminating at or after attaining normal retirement age, or
(b) voluntarily, following:
(i) any reduction in the Executive's (a) base salary from the
level existing at the time of the most recent Change in
Control, (b) in the combined base salary and annual bonus from
that for that the year immediately preceding the Change in
Control, or (c) annual bonus opportunity available immediately
preceding the Change in Control, or
(ii) any relocation to which the Executive has not agreed to an
office of the Company more than thirty-five (35) miles from
the office where Executive was located at the time of any
Change in Control or any increase in Executive's required
travel amounting to a constructive relocation, or
(iii) any material reduction in the level of responsibility,
position (including status, office, title, reporting
relationships or working conditions), authority or duties of
Executive immediately preceding the Change in Control, or
111
<PAGE> 4
(iv) any material reduction in the aggregate fringe benefits and
perquisites available to Executive immediately preceding the
Change in Control not offset by salary or annual bonus increases,
or
(c) voluntarily if, following a Change in Control, any successor or
acquiror of Company either announces that it will not honor or cause
the Company to honor the terms of this Agreement or if, at any time,
the Company fails to confirm in writing to the Executive within
fifteen (15) business days of a request by Executive that it will
honor and will cause the Company to honor the terms of this Agreement.
The Executive should notify Human Resources immediately upon the
occurrence of the triggering event to ensure timely payment. For
purposes of Exhibit A, the term "effective date" means the Executive's
last day of employment.
For purposes of this Article 3, the Executive will be deemed to be
continuously employed by the Company or any affiliate of the Company if
the Executive is reemployed by the Company or an affiliate of the
Company within four weeks of the date the Executive's employment first
ceased.
4. The Executive will have the right to designate a beneficiary who, in the
event of the Executive's death prior to the payment of any or all of the
Deferred Compensation pursuant to this Agreement, will receive the unpaid
Deferred Compensation. Such designation will be made by the Executive on
the form attached hereto. The Executive may, at any time, change or
revoke such designation by written notice to the Director, Compensation
and Benefits.
5. (a) If the Executive dies prior to the receipt of any or all of the
Deferred compensation, no deferred Compensation will be paid for a
period of thirty days from the date the Director, Compensation and
Benefits, receives written notice of the Executive's death.
(b) As soon as practical following such thirty-day period, the unpaid
Deferred Compensation will be paid to the designated beneficiary
in a lump sum, unless the Executive's beneficiary elects within
such thirty-day period, by written notice to the Director,
Compensation and Benefits, that the deferred Compensation be paid
to such beneficiary in annual (2-10) installments or not
be paid at all.
(c) If the designated beneficiary predeceases the Executive, the unpaid
Deferred Compensation plus accrued interest will be paid to the
contingent beneficiary, if living, or the Executive's estate in
a lump sum as soon as practical.
(d) If the designated beneficiary dies after the Executive but
prior to the payment of the Deferred Compensation and has not
elected to receive such Deferred
112
<PAGE> 5
Compensation, no Deferred Compensation will be paid for a
period of thirty days from the date the Director,
Compensation and Benefits receives written notice of the
death of the designated beneficiary. The Deferred
Compensation plus accrued interest will then be paid to
the contingent beneficiary, if living, or the estate of the
designated beneficiary in a lump sum as soon as practical.
6. The Company will pay to the Executive during the term of the
Executive's employment that portion of the Deferred Compensation which
will be necessary to meet a financial hardship arising from an
emergency. For purposes of this Article 6, such emergency payment
will be made only in instances of hardship arising from causes beyond
the Executive's control for unexpected and unreimbursed expenses and
only in the amount that the Human Resources Committee of the Board of
Directors of the Company (the "Human Resources Committee") determines
is necessary to meet the hardship. The Executive will apply to the
Human Resources Committee for any emergency payment under this Article
6 and will furnish to the Human Resources Committee such information
as the Executive deems appropriate and as the Company and counsel for
the Company deem necessary and appropriate to make such determination.
The determination of the Human Resources Committee as to whether a
payment is warranted under this Article 6, and the amount of such
payment, will be conclusive and binding on the Executive and Company.
7. The Deferred Compensation will be paid out of the general funds of the
Company and no funds will be set aside therefor. The Deferred
Compensation will be subject to the claims of the Company's general
creditors.
8. Any right under this Agreement to receive Deferred Compensation will
be non-assignable, and any attempted assignment will be null and void
and will extinguish the Company's obligation under this Agreement to
pay Deferred Compensation.
9. Any amount of salary deferred pursuant to this Agreement will be
included in the Executive's compensation base for purposes of
determining entitlements under the Master Retirement Plan and/or the
Supplemental Executive Retirement Plan, the life insurance plan and
short- and long-term disability plans.
10. The Executive and the Company acknowledge that this Agreement is not
an employment agreement between the Executive and the Company, and the
Company and the Executive each have the right to terminate the
Executive's employment at any time for any reason, unless there is a
written employment agreement to the contrary.
11. This Agreement will be binding upon any successor to the Company by
merger, consolidation, purchase or otherwise.
113
<PAGE> 6
12. This Agreement, together with the Executive's beneficiary designation,
constitutes the entire agreement between the Company and the Executive
regarding the Deferred Compensation and will not be modified except
upon the written agreement of the Company and the Executive.
13. This Agreement will be governed in accordance with the laws of the
State of Tennessee.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day and year first above written.
Executive
Social Security Number
FIRST AMERICAN CORPORATION
By:
Title:
Beneficiary: Name, Relationship, and Social Security Number
Contingent or Secondary Beneficiary: Name, Relationship, and Social
Security Number (if the beneficiary designated above is not living at the time
of the death of the employee)
Executive
114
<PAGE> 7
EXHIBIT A
TO SALARY DEFERRAL AGREEMENT
DATED AS OF DECEMBER __, 199__
INSTRUCTIONS: Select one (1) Method of Payment and one (1) Commencement date
for each event listed and then initial the Exhibit where indicated. The "FIXED
DATE" event is optional and should not be completed unless some form of
distribution is desired prior to retirement or termination.
EVENT TRIGGERING PAYMENT
Early Retirement
----------------
<TABLE>
<CAPTION>
METHOD OF PAYMENT COMMENCEMENT DATE
<S> <C> <C> <C>
/ / Lump Sum = deferred amount plus / / February 1 of the year
accrued interest. following effective date of
early retirement.
/ / Annual Installments
Select 2-10: / / February 1 of the year
account balance plus interest following a fixed date after
credited thereto divided by early retirement. Insert year:
number of installments
outstanding. .
</TABLE>
Normal Retirement
-----------------
<TABLE>
<CAPTION>
METHOD OF PAYMENT COMMENCEMENT DATE
<S> <C> <C> <C>
/ / Lump Sum = deferred amount plus / / February 1 of the year
accrued interest. following effective date of
normal retirement.
/ / Annual Installments
Select 2-10: / / February 1 of the year
account balance plus interest following a fixed date after
credited thereto divided by normal retirement. Insert
number of installments year:
outstanding.
.
Executive's Initials
</TABLE>
115
<PAGE> 8
EVENT TRIGGERING PAYMENT
Voluntary or Involuntary Termination
------------------------------------
<TABLE>
<CAPTION>
METHOD OF PAYMENT COMMENCEMENT DATE
<S> <C> <C> <C>
/ / Lump Sum = deferred amount plus / / February 1 of the year
accrued interest. following effective date of
voluntary or involuntary
/ / Annual Installments termination.
Select 2-10:
account balance plus interest / / February 1 of the year
credited thereto divided by following a fixed date after
number of installments voluntary or involuntary
outstanding. termination. Insert year:
</TABLE>
.
Disability Termination
----------------------
<TABLE>
<CAPTION>
METHOD OF PAYMENT COMMENCEMENT DATE
<S> <C> <C> <C>
/ / Lump Sum = deferred amount plus / / February 1 of the year
accrued interest. following effective date of
disability termination.
/ / Annual Installments
Select 2-10: / / February 1 of the year
account balance plus interest following a fixed date after
credited thereto divided by disability termination. Insert
number of installments year:
outstanding.
.
Executive's Initials
</TABLE>
THE TERM "EFFECTIVE DATE" MEANS THE EXECUTIVE'S LAST DAY OF EMPLOYMENT.
116
<PAGE> 9
EVENT TRIGGERING PAYMENT
Fixed Date
Full Payment Optional
<TABLE>
<CAPTION>
METHOD OF PAYMENT COMMENCEMENT DATE
<S> <C> <C> <C>
/ / Lump Sum = deferred amount plus / / February 1 following fixed
accrued interest. date. Insert year: .
/ / Annual Installments
Select 2-10:
account balance plus interest
credited thereto divided by
number of installments
outstanding.
</TABLE>
Fixed Date
Partial Payment (Optional)
<TABLE>
<CAPTION>
METHOD OF PAYMENT COMMENCEMENT DATE
<S> <C> <C> <C>
/ / Lump Sum = partial payment / / February 1 following fixed
amount with the remainder to be date. Insert year: .
paid as indicated by the first
appropriate event triggering
payment. Amount: $ or %
/ / Annual Installments
Select 2-10:
payment amount divided by
number of installments
outstanding with the remainder
to be paid as indicated by the
first appropriate event
triggering payment.
Executive's Initials
</TABLE>
117
<PAGE> 1
EXHIBIT 21
118
<PAGE> 2
EXHIBIT 21
LIST OF SUBSIDIARIES OF REGISTRANT
AT DECEMBER 31, 1993
NAME STATE OR JURISDICTION
OF INCORPORATION
- - First American National Bank U.S.A.
- Ameristar Capital Markets, Inc. Tennessee
- Guaranty Title Company Tennessee
- First Amtenn Life Insurance Co. Arizona
- First Charlotte Corp. Tennessee
- First Deaderick Corp. Tennessee
- - First American Trust Company, N.A. U.S.A.
- Lee, Robinson & Steine, Inc. Tennessee
- - First American National Bank of Kentucky U.S.A.
NON-PROFIT CORPORATIONS
NAME STATE OR JURISDICTION
OF INCORPORATION
- - First American Community
Development Corporation Tennessee
- - First American Foundation Tennessee
119
<PAGE> 1
EXHIBIT 23
120
<PAGE> 2
EXHIBIT 23
ACCOUNTANTS' CONSENT
The Board of Directors
First American Corporation:
We consent to incorporation by reference in the registration
statements (No. 33-44286) on Form S-8, (No. 33-5497) on Form S-3 as amended,
(No. 33-59844) on Form S-3, (No. 2-81920) on Form S-8, (No. 2-81685) on Form
S-8 as amended, (No. 33-44775) on Form S-8, and (No. 33-63188) on Form S-8 of
First American Corporation of our report dated January 21, 1994, relating to
the consolidated balance sheets of First American Corporation and subsidiaries
as of December 31, 1993 and 1992, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1993, which report appears in the
1993 Form 10-K of First American Corporation.
Our report refers to changes in accounting principles related to the
adoption in 1993 of the provisions of the Financial Accounting Standards
Board's Statements of Financial Accounting Standards No. 109, Accounting for
Income Taxes; No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions; No. 112, Employers' Accounting for Postemployment Benefits; and
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
KPMG Peat Marwick
/s/ KPMG Peat Marwick
---------------------
Nashville, Tennessee
March 22, 1994
121
