<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8K
CURRENT REPORT
Current Report Pursuant
to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: October 3, 1995
Date of earliest event reported: October 3, 1995
FIRST AMERICAN CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE
(State or other jurisdiction of incorporation)
0-6198 62-0799975
(Commission File Number) (I.R.S. Employer
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
<PAGE> 2
Item 5. Other Event
- ------- -----------
As previously reported by Current Reports on Forms 8-K dated
February 23, 1995, May 22, 1995, and August 15, 1995,
respectively, First American has entered into a definitive
Agreement and Plan of Merger dated February 21, 1995 with
Heritage Federal Bancshares, Inc., and a definitive Agreement
and Plan of Reorganization dated May 17, 1995 with Charter
Federal Savings Bank. Attached hereto and incorporated by
reference herein as Exhibit 99 (a) is revised First American
unaudited pro forma combined condensed financial data in
respect to these transactions.
Exhibit No. Description
- ----------- -----------
2 (a). Agreement and Plan of Merger dated February 21, 1995
by and between Heritage Federal Bancshares, Inc. and
First American Corporation (previously filed as
Exhibit 2 to a Current Report on Form 8-K dated
February 23, 1995, and incorporated herein by
reference).
2 (b). Agreement and Plan of Reorganization dated May 17,
1995 by and between Charter Federal Savings Bank and
First American Corporation (previously filed as
Exhibit 2 to a current Report on Form 8-K dated May
22, 1995, and incorporated herein by reference).
20 (a). Press release dated February 21, 1995 (previously
filed as Exhibit 20 (a) to a Current Report on Form
8-K dated February 23, 1995, and incorporated herein
by reference).
20 (b). Press release dated February 22, 1995 (previously
filed as Exhibit 20 (b) to a Current Report on Form
8-K dated February 23, 1995, and incorporated herein
by reference).
20 (c). Press Release dated May 17, 1995 (previously filed as
Exhibit 20 to a Current Report on Form 8-K dated May
22, 1995, and incorporated herein by reference).
99. First American Corporation unaudited pro forma
combined condensed financial data reflecting
acquisition by First American of Heritage Federal
Bancshares, Inc. and Charter Federal Savings Bank
(previously filed as Exhibit 99 to a Current Report
on Form 8-K dated August 15, 1995, and incorporated
herein by reference).
99 (a). Revised First American Corporation unaudited pro
forma combined condensed financial data reflecting
acquisition by First American of Heritage Federal
Bancshares, Inc. and Charter Federal Savings Bank
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST AMERICAN CORPORATION
--------------------------
(Registrant)
Date: October 3, 1995 /s/ Mary Neil Price
--------------------------------
Name: Mary Neil Price
Title: Senior Vice President and
Assistant Secretary
3
<PAGE> 4
EXHIBIT INDEX
Exhibit No: Description
- ----------- -----------
2 (a) Agreement and Plan of Merger dated February 21, 1995,
by and between Heritage Federal Bancshares, Inc. and
First American Corporation (incorporated by
reference)
2 (b) Agreement and Plan of Reorganization dated May 17,
1995, by and between Charter Federal Savings Bank and
First American Corporation (incorporated by
reference)
20 (a) Press release dated February 21,1995 (incorporated by
reference)
20 (b) Press release dated February 22, 1995 (incorporated
by reference)
20 (c) Press Release dated May 17, 1995 (incorporated by
reference)
99). First American Corporation unaudited pro forma
combined condensed financial data reflecting
acquisition by First American of Heritage Federal
Bancshares, Inc. and Charter Federal Savings Bank
(incorporated by reference).
99 (a). Revised First American Corporation unaudited pro
forma combined condensed financial data reflecting
acquisition by First American of Heritage Federal
Bancshares, Inc. and Charter Federal Savings Bank
4
<PAGE> 1
EXHIBIT 99(a)
SELECTED FINANCIAL DATA
The following tables set forth certain historical financial data and pro
forma financial information for First American, Heritage and Charter.
The selected financial data for First American for the five years ended
December 31, 1994 and for the six months ended June 30, 1995 and 1994, are
derived from the consolidated financial statements of First American. The
selected financial data for Heritage, for Charter, for First American pro forma
combined with Heritage, and First American fully pro forma combined for the five
years ended June 30, 1995 are derived from the respective consolidated financial
statements of Heritage, Charter and First American. The pro forma information
gives effect to the expected merger of First American with Heritage under the
pooling-of-interests method of accounting and gives effect to the expected
affiliation of First American with Charter under the purchase method of
accounting. The pooling-of-interests method of accounting combines assets and
liabilities at their historical bases and restates the results of operations as
if First American and Heritage had been combined at the beginning of the
earliest reported period. The purchase method of accounting requires that all
assets and liabilities of Charter be adjusted to their estimated fair market
value as of the date of acquisition. Since purchase accounting does not permit
restatement of results for prior periods, Charter pro forma information is only
presented as of and for the year ended June 30, 1995. This summary should be
read in connection with the financial statements, Management's Discussion and
Analysis of Results of Operations and Financial Condition and other financial
information included in documents incorporated herein by reference. See
"AVAILABLE INFORMATION."
FIRST AMERICAN CORPORATION
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED
JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME DATA
(in thousands)
Net interest income.............. $146,111 $138,589 $279,626 $267,439 $251,688 $216,460 $226,853
Provision for loan losses........ -- -- (10,000) (42,000) 38,500 51,570 193,677
Non-interest income.............. 49,701 47,726 84,856 85,817 74,691 80,493 111,168
Non-interest expense............. 119,138 114,898 229,615 235,963 228,426 221,685 221,134
Income tax (benefit)............. 28,190 27,417 54,135 57,396 17,481 6,761 (14,369)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before cumulative
effect of changes in
accounting principles........ $ 48,484 $ 44,000 $ 90,732 $101,897 $ 41,972 $ 16,937 $(62,421)
======== ======== ======== ======== ======== ======== ========
END OF PERIOD BALANCE SHEET ITEMS
(in millions)
Assets........................... $ 8,071 $ 7,228 $ 7,757 $ 7,188 $ 6,716 $ 6,377 $ 6,480
Total net loans.................. 5,154 4,381 4,736 4,206 3,518 3,626 4,036
Deposits......................... 6,158 5,701 5,861 5,691 5,522 5,332 5,556
Long-term debt................... 252 52 252 66 17 17 18
Shareholders' equity............. 638 581 617 582 468 385 368
PER SHARE DATA
Income (loss) before cumulative
effect of changes in accounting
principles..................... $ 1.87 $ 1.69 $ 3.48 $ 3.93 $ 1.74 $ .73 $ (2.69)
Cash dividends declared.......... .50 .42 .88 .55 .20 -- .31
Book value, end of period........ 25.09 22.27 23.59 22.38 18.16 16.47 15.79
SHARES OUTSTANDING
(in thousands)
Average.......................... 25,911 26,057 26,093 25,913 24,082 23,337 23,224
End of period.................... 25,426 26,094 26,145 25,988 25,786 23,395 23,311
</TABLE>
14
<PAGE> 2
HERITAGE FEDERAL BANCSHARES, INC.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30,
-------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCOME DATA
(in thousands)
Net interest income.................... $18,181 $19,063 $19,761 $16,509 $13,520
Provision for loan losses.............. 82 487 595 749 1,496
Non-interest income.................... 2,755 2,484 3,110 2,634 2,421
Non-interest expense................... 12,241 11,354 12,812 11,673 11,089
Income tax............................. 3,146 3,502 3,952 2,540 2,244
------- ------- ------- ------- -------
Income before cumulative effect of
changes in accounting
principles........................ $ 5,467 $ 6,204 $ 5,512 $ 4,181 $ 1,112
======= ======= ======= ======= =======
END OF PERIOD BALANCE SHEET ITEMS
(in millions)
Assets................................. $ 528 $ 516 $ 519 $ 540 $ 507
Total net loans........................ 298 309 327 358 364
Deposits............................... 449 451 460 497 484
Long-term debt......................... 17 11 11 2 1
Shareholders' equity................... 54 49 42 36 16
PER SHARE DATA
Income before cumulative effect of
changes in accounting principles.... $ 1.58 $ 1.85 $ 1.67 $ n/a n/a
Cash dividends declared................ .38 .25 -- n/a n/a
Book value, end of period.............. 16.88 15.29 13.23 11.90 n/a
SHARES OUTSTANDING
(in thousands)
Average (a)............................ 3,464 3,372 3,309 n/a n/a
End of period.......................... 3,186 3,173 3,165 2,990 n/a
</TABLE>
- ---------------
n/a Not applicable for periods prior to HFB's conversion from mutual to stock
ownership during the fiscal year ended June 30, 1992.
(a) Includes common share equivalents.
15
<PAGE> 3
FIRST AMERICAN PRO FORMA COMBINED WITH HERITAGE
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME DATA
(in thousands)
Net interest income............... $305,329 $293,613 $282,375 $248,185 $227,825
Provision for loan losses......... (9,918) (33,513) 10,595 41,519 102,805
Non-interest income............... 89,586 93,974 81,889 81,978 79,492
Non-interest expense.............. 246,096 249,624 242,259 236,464 224,204
Income tax........................ 58,054 62,825 38,755 16,598 2,281
-------- -------- -------- -------- --------
Income (loss) before cumulative
effect of changes in
accounting principles........ $100,683 $108,651 $ 72,655 $ 35,582 $(21,973)
======== ======== ======== ======== ========
END OF PERIOD BALANCE SHEET ITEMS
(in millions)
Assets............................ $ 8,601 $ 7,744 $ 7,241 $ 7,113 $ 6,718
Total net loans................... 5,451 4,690 3,946 3,826 4,080
Deposits.......................... 6,608 6,152 5,906 5,937 5,712
Long-term debt.................... 269 63 77 19 18
Shareholders' equity.............. 687 630 551 441 388
PER SHARE DATA
Income before cumulative effect of
changes in accounting
principles..................... $ 3.52 $ 3.78 $ 2.60 $ n/a n/a
Cash dividends declared........... .96 .72 .45 -- --
Book value, end of period......... 24.54 21.96 19.33 16.96 n/a
SHARES OUTSTANDING
(in thousands)
Average........................... 28,606 28,746 27,955 n/a n/a
End of period..................... 28,012 28,669 28,488 26,003 n/a
</TABLE>
- ---------------
n/a First American pro forma combined data is not presented for periods prior to
Heritage Bank's conversion from mutual to stock ownership during the fiscal
year ended June 30, 1992.
16
<PAGE> 4
CHARTER FEDERAL SAVINGS BANK
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30,
--------------------------------------------------
1995 1994 1993 1992 1991
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
INCOME DATA
(in thousands)
Net interest income......................... $22,299 $25,534 $ 25,454 $18,211 $ 11,929
Provision for loan losses................... 1,975 2,150 5,087 (1,011) 9,791
Non-interest income......................... 5,282 1,990 3,523 4,718 3,607
Non-interest expense(a)..................... 16,676 17,103 59,204(a) 19,539 19,169
Income tax (benefit)........................ 3,373 (322) 1,778 -- --
------- ------- -------- ------- --------
Income (loss) before extraordinary item
and cumulative effect of changes in
accounting principles.................. $ 5,557 $ 8,593 $(37,092) $ 4,401 $(13,424)
======= ======= ======== ======= ========
END OF PERIOD BALANCE SHEET ITEMS
(in millions)
Assets...................................... $ 751 $ 733 $ 678 $ 822 $ 843
Total net loans............................. 404 389 404 424 405
Deposits.................................... 525 548 573 617 627
Long-term debt.............................. 105 105 105 105 105
Shareholders' equity........................ 46 42 (10) 26 18
PER SHARE DATA
Income (loss) before extraordinary item and
cumulative effect of changes in
accounting principles.................... $ 1.08 $ 1.87 $ (50.72) $ 6.02 $ (18.36)
Cash dividends declared..................... .275 -- -- -- --
Book value, end of period................... 9.06 8.24 (13.51) 35.52 25.02
SHARES OUTSTANDING
(in thousands)
Average..................................... 5,125 4,596 731 731 731
End of period............................... 5,125 5,125 731 731 731
</TABLE>
- ---------------
(a) The 1993 non-interest expense amount includes a write-off of $41.1 million
of remaining goodwill as of March 31, 1993.
17
<PAGE> 5
FIRST AMERICAN FULLY PRO FORMA COMBINED(A)
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME DATA
(in thousands)
Net interest income............... $321,545 $293,613 $282,375 $248,185 $227,825
Provision for loan losses......... (7,943) (33,513) 10,595 41,519 102,805
Non-interest income............... 94,868 93,974 81,889 81,978 79,492
Non-interest expense.............. 265,322 249,624 242,259 236,464 224,204
Income tax........................ 58,711 62,825 38,755 16,598 2,281
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of changes
in accounting principles..... $100,323 $108,651 $ 72,655 $ 35,582 $(21,973)
======== ======== ======== ======== ========
END OF PERIOD BALANCE SHEET ITEMS
(in millions)
Assets............................ $ 9,327 $ 7,744 $ 7,241 $ 7,113 $ 6,718
Total net loans................... 5,847 4,690 3,946 3,826 4,080
Deposits.......................... 7,129 6,152 5,906 5,937 5,712
Long-term debt.................... 370 63 77 19 18
Shareholders' equity.............. 708 630 551 441 388
PER SHARE DATA
Income before extraordinary item
and cumulative effect of
changes in accounting
principles..................... $ 3.44 $ 3.78 $ 2.60 $ n/a n/a
Cash dividends declared........... .96 .72 .45 -- --
Book value, end of period......... 24.77 21.96 19.33 16.96 n/a
SHARES OUTSTANDING
(in thousands)
Average........................... 29,186 28,746 27,955 n/a n/a
End of period..................... 28,592 28,669 28,488 26,003 n/a
</TABLE>
- ---------------
(a) Represents First American, Heritage and Charter on a fully pro forma
combined basis.
n/a First American fully pro forma combined data is not presented for periods
prior to Heritage Bank's conversion from mutual to stock ownership during
the fiscal year ended June 30, 1992.
18
<PAGE> 6
UNAUDITED FULLY PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following pro forma combined condensed financial statements combine the
historical financial statements of FAC, HFB, and Charter. The pro forma combined
condensed balance sheet as of June 30, 1995 gives effect to the affiliations of
HFB and Charter with FAC as if the affiliations occurred on June 30, 1995. The
pro forma combined condensed statements of income for the years ended June 30,
1995, 1994 and 1993 give effect to the affiliation of FAC and HFB as of the
beginning of the earliest year and the affiliation of FAC and Charter as of the
beginning of the most recent year. The pro forma combined condensed statements
give effect to the expected merger with HFB under the pooling-of-interests
method of accounting and give effect to the expected affiliation of FAC with
Charter under the purchase method of accounting. The pooling-of-interests method
of accounting combines assets and liabilities at their historical bases and
restates the results of operations as if FAC and HFB had been combined at the
beginning of the reported period. The purchase method of accounting requires
that all assets and liabilities of Charter be adjusted to their estimated fair
market value as of the date of acquisition.
The unaudited pro forma combined condensed statements of income do not
include nonrecurring merger-related one-time charges. It is anticipated that
approximately $4.7 million, net of taxes, will be expensed as incurred in
connection with the merger of FAC and HFB. Additionally, the unaudited pro forma
combined condensed financial statements do not give effect to any cost savings
which may be realized following the two mergers. Any anticipated transfers of
assets and liabilities to other banking entities of FAC are not reflected in the
Unaudited Fully Pro Forma Combined Condensed Financial Statements.
The pro forma combined condensed financial statements are provided for
informational purposes. The pro forma combined condensed statements of income
are not necessarily indicative of the actual results that would have been
achieved had the acquisitions been consummated at the beginning of the period
presented, and are not indicative of future results. The pro forma financial
statements should be read in conjunction with the audited financial statements
and the notes thereto of FAC and HFB incorporated by reference or included
herein. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
FAC reports its financial information on the basis of a December 31 fiscal
year. Heritage and Charter report their financial information on the basis of a
June 30 fiscal year. The information for FAC in the pro forma combined condensed
statements of income has been restated with Heritage's and Charter's fiscal year
end.
19
<PAGE> 7
UNAUDITED FULLY PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1995
<TABLE>
<CAPTION>
FAC FAC
PRO FORMA FULLY
POOLING WITH PURCHASE PRO FORMA
FAC HFB ADJUSTMENTS HFB CHARTER ADJUSTMENTS COMBINED
---------- -------- ----------- ---------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.......... $ 413,232 $ 14,878 $ $ 428,110 $ 24,150 $ (49,340)(d) $ 402,920
Time deposits with other banks... 26,284 26,284 26,284
Securities:
Held to maturity............... 1,461,960 170,622 1,632,582 295,191 (814)(d) 1,926,959
Available for sale............. 558,671 20,213 578,884 7,603 586,487
---------- -------- ------- ---------- -------- -------- ----------
Total securities........... 2,020,631 190,835 2,211,466 302,794 (814) 2,513,446
---------- -------- ------- ---------- -------- -------- ----------
Federal funds sold and securities
purchased under agreements to
resell......................... 83,805 7,000 90,805 90,805
Trading account securities....... 29,224 29,224 29,224
Total loans...................... 5,285,743 301,768 5,587,511 410,104 (8,529)(d) 5,989,086
Unearned discount and net
deferred loan fees............. 5,463 1,908 7,371 1,272 8,643
---------- -------- ------- ---------- -------- -------- ----------
Loans, net of unearned discount
and net deferred loan fees... 5,280,280 299,860 5,580,140 408,832 (8,529) 5,980,443
Allowance for possible loan
losses......................... 126,575 2,327 128,902 5,021 133,923
---------- -------- ------- ---------- -------- -------- ----------
Total net loans............ 5,153,705 297,533 5,451,238 403,811 (8,529) 5,846,520
---------- -------- ------- ---------- -------- -------- ----------
Premises and equipment, net...... 110,186 6,786 116,972 5,876 122,848
Foreclosed properties............ 9,256 9,256 7,006 16,262
Other assets..................... 224,823 11,137 1,572 (a) 237,667 7,690 8,822 (d) 278,954
135 (c) 24,775 (d)
---------- -------- ------- ---------- -------- -------- ----------
Total assets................... $8,071,146 $528,169 $ 1,707 $8,601,022 $751,327 $ (25,086) $9,327,263
========== ======== ======= ========== ======== ======== ==========
LIABILITIES
Deposits......................... $6,158,336 $449,318 $ $6,607,654 $525,400 $ (3,854)(d) $7,129,200
Short-term borrowings............ 819,993 789 820,782 63,614 884,396
Long-term debt................... 251,637 17,452 269,089 104,500 (3,947)(d) 369,642
Other liabilities................ 203,124 6,836 6,075 (a) 216,035 11,389 7,210 (d) 235,756
1,122 (d)
---------- -------- ------- ---------- -------- -------- ----------
Total liabilities.............. 7,433,090 474,395 6,075 7,913,560 704,903 531 8,618,994
---------- -------- ------- ---------- -------- -------- ----------
SHAREHOLDERS' EQUITY
Common stock..................... 127,132 3,186 9,744 (b) 140,062 51 2,900 (d) 142,962
(51)(d)
Capital surplus.................. 96,223 16,510 (9,744)(b) 102,989 52,006 17,907 (d) 120,896
(52,006)(d)
Retained earnings................ 416,898 35,070 (4,503)(a) 447,245 (5,612) 5,612 (d) 447,245
(220)(c)
Other............................ (1,696) (1,076) 355 (c) (2,417) (49) 49 (d) (2,417)
---------- -------- ------- ---------- -------- -------- ----------
Realized shareholders'
equity....................... 638,557 53,690 (4,368) 687,879 46,396 (25,589) 708,686
Net unrealized gains (losses) on
securities available for sale,
net of tax..................... (501) 84 (417) 28 (28)(d) (417)
---------- -------- ------- ---------- -------- -------- ----------
Total shareholders'
equity................... 638,056 53,774 (4,368) 687,462 46,424 (25,617) 708,269
---------- -------- ------- ---------- -------- -------- ----------
Total liabilities and
shareholders' equity..... $8,071,146 $528,169 $ 1,707 $8,601,022 $751,327 $ (25,086) $9,327,263
========== ======== ======= ========== ======== ======== ==========
</TABLE>
(See footnotes on following page.)
20
<PAGE> 8
FOOTNOTES TO UNAUDITED FULLY PRO FORMA COMBINED CONDENSED
BALANCE SHEET
The pro forma adjustments are based on the best available preliminary
information as of June 30, 1995, and may be different from the actual
adjustments to reflect the fair value of the net assets purchased as of the date
of acquisition of Charter. The final allocation of the purchase price of Charter
has not been determined. Subsequent changes to the purchase adjustments, as well
as the final allocation of the intangible assets between goodwill and other
identifiable intangible assets may result in an adjustment to goodwill, which
may have a corresponding impact on amortization expense.
(a) To record a liability for estimated one-time charges of $4,042,000 for
various items such as severance and systems conversions and record a
related deferred tax asset in the amount of $1,572,000, plus record a
$2,033,000 estimated liability related to recapture of tax bad debt reserve
related to conversion of Heritage Bank to a commercial bank.
(b) Reclassification of $9,744,000 of capital surplus to FAC Common Stock to
reflect the FAC Common Stock of $127,132,000 plus the $5 par value of
2,586,000 shares of FAC Common Stock to be issued to effect the Merger.
(c) To record one-time charge of $355,000, net of deferred tax asset of
$135,000, related to immediate vesting of restricted stock upon completion
of the Merger and reduce unearned compensation of the Management Recognition
Plan within other shareholders' equity by $355,000.
(d) Based on an exchange ratio of .38 share of FAC Common Stock to one share of
Charter Common Stock, FAC will exchange 1,955,342 shares of FAC Common Stock
for the shares of Charter Common Stock. Based on the closing price of FAC
Common Stock on June 30, 1995 of $35.875, the purchase price of Charter is
approximately $70,147,000. To close the transaction, FAC expects to reissue
580,000 shares of FAC Common Stock purchased in the open market prior to
June 30, 1995, and purchase an additional 1,375,342 shares of FAC Common
Stock after June 30, 1995, for reissuance in the acquisition of Charter. The
580,000 shares of FAC Common Stock were purchased for approximately
$20,000,000. Under Tennessee law, such shares have been recognized as
authorized but unissued with the excess of purchase price over par reflected
as a reduction from capital surplus. Based on a price per share of FAC
Common Stock of $35.875, the reissuance of the 580,000 shares of stock will
result in an increase in common stock of $2,900,000 and an increase in
surplus of $17,907,000. Additionally, the purchase of an additional
1,375,342 shares of FAC Common Stock to exchange with Charter shareholders
will result in a decrease in cash of approximately $49,340,000 based on a
price of FAC Common Stock of $35.875 per share.
The following adjustments are currently expected to be made to reflect the
estimated fair value of assets acquired and estimated fair value of
liabilities assumed: held to maturity securities are estimated to decrease
$814,000, loans are estimated to decrease $8,529,000, core deposit rights of
$8,200,000 and loan servicing rights of $622,000 are expected to be recorded
as other assets, deposits are estimated to decrease $3,854,000, and
long-term debt is estimated to decrease $3,947,000.
A total of $7,210,000 of other liabilities are expected to be recorded to
reflect various estimated one-time charges consisting of $4,410,000 for
various items such as severance and systems conversions, $1,400,000 of
estimated deferred taxes related to Statement of Financial Accounting
Standards No. 109, and a $1,400,000 estimated liability related to tax loss
carryforward.
An estimated net deferred tax liability in the amount of $1,122,000 is
expected to be recorded at the rate of 38.9% related to the effect of the
fair value adjustments and the $4,410,000 of certain one-time charges
discussed above.
Purchase accounting requires that the various components of Charter's equity
be reclassified to surplus which is then eliminated on a consolidated basis.
The elimination results in a common stock decrease of $51,000, a surplus
decrease of $52,006,000, a retained earnings increase of $5,612,000, an
other equity increase of $49,000, and a decrease in net unrealized gains on
securities available for sale of $28,000.
21
<PAGE> 9
All of the above is expected to result in an increase in the goodwill
balance of $24,775,000 to reflect the excess of the total acquisition cost
over the estimated fair value of the assets acquired less liabilities
assumed.
The following summarizes the above and provides detail of the estimated
allocation of the purchase price for the Charter acquisition:
<TABLE>
<S> <C>
Total shareholders' equity............................................... $46,424,000
Estimated fair value adjustments:
Held to maturity securities............................................ (814,000)
Loans.................................................................. (8,529,000)
Core deposit rights.................................................... 8,200,000
Loan servicing rights.................................................. 622,000
Deposits............................................................... 3,854,000
Long-term debt......................................................... 3,947,000
Estimated one-time charges:
Severance and systems conversions, etc................................. (4,410,000)
Deferred taxes related to Statement of Financial Accounting Standards
No. 109............................................................. (1,400,000)
Liability related to tax loss carryforward............................. (1,400,000)
Estimated net deferred tax liability related to fair value adjustments
and the $4,410,000 of one-time charges above........................... (1,122,000)
Goodwill................................................................. 24,775,000
-----------
Total purchase price..................................................... $70,147,000
==========
</TABLE>
22
<PAGE> 10
UNAUDITED FULLY PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
FAC FAC
PRO FORMA FULLY
POOLING WITH PURCHASE PRO FORMA
FAC HFB ADJUSTMENTS HFB CHARTER ADJUSTMENTS COMBINED
-------- ------- ----------- --------- ------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............... $525,989 $35,979 $561,968 $53,117 $ 779 (a) $612,903
(2,961)(b)
Interest expense.............. 238,841 17,798 256,639 30,818 3,901 (c) 291,358
------- -------- -------- -------- ------- ------- --------
Net interest income......... 287,148 18,181 305,329 22,299 (6,083) 321,545
Provision for loan losses..... (10,000) 82 (9,918) 1,975 (7,943)
------- -------- -------- -------- ------- ------- --------
Net interest income after
provision................. 297,148 18,099 315,247 20,324 (6,083) 329,488
Non-interest income........... 86,831 2,755 89,586 5,282 94,868
Non-interest expense.......... 233,855 12,241 246,096 16,676 898 (d) 265,322
1,652 (e)
------- -------- -------- -------- ------- ------- --------
Income before income tax
expense and cumulative
effect of changes in
accounting principles....... 150,124 8,613 158,737 8,930 (8,633) 159,034
Income tax expense............ 54,908 3,146 58,054 3,373 (2,716)(f) 58,711
------- -------- -------- -------- ------- ------- --------
Income before cumulative
effect of changes in
accounting principles..... $ 95,216 $ 5,467 $100,683 $ 5,557 $(5,917) $100,323
======= ======== ======== ======== ======= ======= ========
Earnings before cumulative
effect of changes in
accounting principles per
share....................... $ 3.66 $ 3.52 $ 3.44
Weighted average common shares
outstanding................. 26,020 28,606 29,186
</TABLE>
FOOTNOTES TO UNAUDITED FULLY PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(a) $779,000 of accretion associated with purchase accounting adjustments
related to securities and loans accreted over 12 years, the estimated
remaining lives of the related assets.
(b) Estimated reduction in interest income of $2,961,000 at a rate of 6%, which
represents an investment rate at June 30, 1995, related to $49,340,000 of
cash used to purchase FAC Common Stock to exchange with Charter
shareholders.
(c) $3,901,000 of amortization associated with purchase accounting adjustments
related to time deposits and long-term debt amortized over 2 years, the
estimated remaining lives of the liabilities.
(d) $898,000 of amortization associated with purchase accounting adjustments
related to core deposit rights and loan servicing rights amortized over 10
and 8 years, respectively, the estimated remaining lives of the assets.
(e) $1,652,000 of amortization associated with purchase accounting adjustments
related to goodwill amortized over 15 years, the estimated life of the
asset.
(f) Reduction in income tax at a rate of 38.9% related to net of amounts in
(a), (b), (c), and (d).
23
<PAGE> 11
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
FAC
POOLING PRO FORMA
FAC HFB ADJUSTMENTS WITH HFB
-------- ------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income....................................... $449,776 $35,550 $ 485,326
Interest expense...................................... 175,226 16,487 191,713
-------- ------- ----------- ---------
Net interest income......................... 274,550 19,063 293,613
Provision for loan losses............................. (34,000) 487 (33,513)
Net interest income after provision......... 308,550 18,576 327,126
Non-interest income................................... 91,490 2,484 93,974
Non-interest expense.................................. 238,270 11,354 249,624
-------- ------- ----------- ---------
Income before income tax expense and cumulative effect
of changes in accounting principles................. 161,770 9,706 171,476
Income tax expense.................................... 59,323 3,502 62,825
-------- ------- ----------- ---------
Income before cumulative effect of changes in
accounting principles............................... $102,447 $ 6,204 $ 108,651
======== ======= ========= ========
Earnings before cumulative effect of changes in
accounting principles per share..................... $ 3.94 $ 3.78
Weighted average common shares outstanding............ 26,010 28,746
</TABLE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1993
<TABLE>
<CAPTION>
FAC
POOLING PRO FORMA
FAC HFB ADJUSTMENTS WITH HFB
-------- ------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income....................................... $430,316 $39,066 $ 469,382
Interest expense...................................... 167,702 19,305 187,007
-------- ------- ----------- ---------
Net interest income......................... 262,614 19,761 282,375
Provision for loan losses............................. 10,000 595 10,595
-------- ------- ----------- ---------
Net interest income after provision......... 252,614 19,166 271,780
Non-interest income................................... 78,779 3,110 81,889
Non-interest expense.................................. 229,447 12,812 242,259
-------- ------- ----------- ---------
Income before income tax expense and cumulative effect
of changes in accounting principles................. 101,946 9,464 111,410
Income tax expense.................................... 34,803 3,952 38,755
-------- ------- ----------- ---------
Income before cumulative effect of changes in
accounting principles............................... $ 67,143 $ 5,512 $ 72,655
======== ======= ========= ========
Earnings before cumulative effect of changes in
accounting principles per share..................... $ 2.66 $ 2.60
Weighted average common shares outstanding............ 25,269 27,955
</TABLE>
24
