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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number 0-22374
FIDELITY NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-14166811
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3490 Piedmont Road, Suite 1550, 30305
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (404) 240-1504
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
without stated par value
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 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 of this
Form 10-K. X .
---
The aggregate market value of the voting common equity held by non-affiliates of
the Registrant (assuming for these purposes, but without conceding, that all
executive officers and directors and greater than five percent shareholders are
"affiliates" of the Registrant) as of March 10, 1998 (based on the closing sale
price of the Common Stock as quoted on the Nasdaq National Market System on such
date) was $62,915,000.
At March 10, 1998, there were 8,116,316 shares of Common Stock outstanding,
without stated par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 1997 are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the 1998 Annual
Meeting of Shareholders are incorporated by reference into Part III.
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PART I
FORWARD-LOOKING STATEMENTS
This Form 10-K includes forward-looking statements within the meaning
of Section 27 A of the Securities Act of 1933, as amended, and Section 21 E of
the Securities Exchange Act of 1934, as amended, which involve known and unknown
risks and uncertainties or other factors that may cause actual results,
performance or achievements of the Registrant to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Readers are urged to consider statements labeled
with the terms "believes," "belief," "expects,", "intends," "plans" or
"anticipates" to be forward-looking statements.
ITEM 1. BUSINESS
GENERAL
Fidelity National Corporation (the "Registrant") was incorporated under
the laws of the State of Georgia in 1979 and acquired 100% of the common stock
of Fidelity National Bank ("FNB" or "Bank") in a stock-for-stock exchange. The
Registrant is a registered bank holding company headquartered in Atlanta,
Georgia. All of the Registrant's activities are currently conducted by its
wholly-owned subsidiaries: FNB, which was organized as a national banking
corporation in 1973, and its wholly-owned subsidiary Fidelity National Mortgage
Corp. ("FNMC"), organized as a Georgia corporation in 1979; and Fidelity
National Capital Investors, Inc. ("FNCI"), organized as a Georgia corporation in
May 1992.
The Bank provides traditional deposit, lending, mortgage, securities
brokerage, international trade services and trust products and services to its
commercial and retail customers. FNB is a full-service banking operation; FNMC
is a full-service residential mortgage banking operation; and FNCI is a
securities brokerage operation. The Company currently conducts its full-service
banking and residential mortgage lending through 16 locations in the
metropolitan Atlanta area.
The Registration conducts its indirect automobile lending (the purchase
of consumer automobile installment sales contracts from automobile dealers),
residential mortgage lending and residential construction lending through
certain of its Atlanta offices and the Registrant's Jacksonville, Florida
location. Indirect automobile lending is also conducted at the Tampa, Florida
location which was opened in 1995. At December 31, 1997, the Registrant had
total assets of $658 million, total loans of $437 million, total deposits of
$568 million and shareholders' equity of $52 million.
The term "Registrant" as used herein includes Fidelity National
Corporation and its subsidiaries unless the context otherwise requires.
RECENT DEVELOPMENTS
Growth during 1997 was restricted until the Registrant increased its
and FNB's capital ratios. During June and July 1997, the Registrant sold in a
private placement $6.15 million Non-Cumulative 8% Convertible Preferred Stock,
Series A ("Preferred Stock"). In December 1997, the Registrant sold in a public
offering 3,450,000 shares of Common Stock at a public offering price of $7.50
per share. The proceeds of these offerings, net of issuance costs, were used to
increase the Registrant's and FNB's capital ratios and for general corporate
purposes.
MARKET AREA
FNB conducts banking activities primarily through 16 branches in
Fulton, DeKalb, Cobb and Gwinnett counties, Georgia. Four of these branches were
opened in 1996 and FNB intends to open three additional branches in the Atlanta
metropolitan area during 1998. Customers of FNB are primarily small and medium
sized businesses and individuals. FNB's customer base for its credit card
portfolio is national in scope, with customers in all 50 states. FNB conducts
indirect
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automobile lending and residential construction lending from its Jacksonville,
Florida office in addition to its offices in Georgia. FNB also conducts indirect
automobile lending from its Tampa, Florida office. Customers of its other
services are located almost exclusively in Georgia.
PRODUCTS AND SERVICES
The Registrant's products and services include (i) depository accounts,
(ii) indirect automobile lending, (iii) credit card loans, (iv) construction and
residential real estate loans, (v) commercial loans, including commercial loans
secured by real estate, (vi) securities brokerage services, (vii) trust products
and services and (viii) international trading services.
Deposits
FNB offers a full range of depository accounts and services to both
individuals and businesses. As of December 31, 1997, the Registrant's deposit
base, totaling approximately $568 million, consisted of approximately $87
million in noninterest-bearing demand deposits (15.3% of total deposits),
approximately $84 million in interest-bearing demand deposits and money market
accounts (14.7% of total deposits), approximately $22 million in savings
deposits (3.8% of total deposits), approximately $278 million in time deposits
in amounts less than $100,000 (48.9% of total deposits), and approximately $98
million in time deposits of $100,000 or more (17.3% of total deposits). There
were no brokered deposits at December 31, 1997.
Lending
FNB's primarily lending activities include consumer loans (indirect
automobile and credit card loans), real estate loans and commercial loans to
small and medium sized businesses. FNB also makes secured construction loans to
home builders and residential mortgagees in the Atlanta, Georgia and
Jacksonville, Florida metropolitan areas. The loans are often secured by first
and second real estate mortgages. FNB offers direct installment loans to
consumers on both a secured and unsecured basis. Commercial lending includes the
extension of credit to a company directly or to individuals for business
purposes.
As of December 31, 1997, the Registrant had consumer (including
installment and credit card loans), real estate (including residential mortgage,
construction and commercial loans secured by real estate), and commercial loans
of $271 million, $113 million and $52 million, representing approximately 62.2%,
26.0% and 11.8%, respectively, of the Registrant's total loan portfolio. Real
estate loans included $45 million in construction loans, $14 million in
residential real estate loans and $51 million in commercial loans secured by
real estate. As of December 31, 1997, the Registrant's commercial loans,
including those commercial loans secured by real estate, totaled $103 million.
Indirect Automobile Lending
FNB acquires, on a non-recourse basis, consumer installment contracts
secured by new and used vehicles purchased by consumers from motor vehicle
dealers located primarily in Atlanta, Georgia and Jacksonville and Tampa,
Florida. As of December 31, 1997, the aggregate amount of
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indirect automobile loans outstanding was $152 million, representing 34.8% of
FNB's total loan portfolio. Approximately 69.6%, 18.2% and 12.2% of the
outstanding indirect automobile loans at December 31, 1997 were originated in
the Atlanta, Jacksonville and Tampa offices, respectively. An additional $160
million of indirect automobile loans originated and sold by FNB are being
serviced for others. Each potential sales finance contract is reviewed for
creditworthiness and collateral value by FNB, which notifies the dealer as to
the terms (including interest rate and length of contract) on which the loan
will be made to the dealer's customer. Since the sales finance contracts are
purchased by FNB on a nonrecourse basis, no credit is being extended to the
dealers and the dealers have no liability for the sales finance contracts
purchased from them, except to the extent of the dealer reserve discussed below
and representations and warranties in the dealer's agreement. Once the loan has
been documented, the dealer assigns the contract to FNB.
The interest rate quoted by a dealer on a sales finance contract may
exceed the interest charged by FNB on the particular contract. That interest
differential or flat fee, depending on dealer arrangement, is amortized in a
prepaid asset account. Usually 75% to 100% of the interest differential or flat
fee is immediately paid to the dealer as compensation for originating and
documenting the loan. The unpaid portion is retained in the dealer holdback
account and FNB may deduct from this account potential prepayments, rebates,
charge-offs and any rebates of interest charges due FNB on sales finance
contracts purchased from the dealer. If any amount is remaining in the holdback
account at the time all sales finance contracts purchased by FNB from the dealer
have been paid in full, such amount is paid to the dealer. As of December 31,
1997, the balance in the holdback account was $161,000. FNB's potential
charge-offs in excess of the holdback are provided for by the allowance for loan
losses. Net charge-offs on indirect automobile loans for the two years ended
December 31, 1997 and 1996, were $3.2 million and $1.6 million, respectively.
Credit Card Loans
FNB offers Visa, MasterCard, Visa Gold, affinity Visa programs and FNB
sponsored Visa/MasterCard agent bank relationships. These programs are offered
on a nationwide basis to persons, businesses, partnerships and associations who
meet FNB's established underwriting standards with respect to income, credit
rating, established residence or domicile and employment. Credit card loans are
subject to seasonal fluctuations based on consumer spending habits, with the
outstanding balances of such credit card loans rising at the end of each
calendar year. At December 31, 1997, credit card loans were approximately $120
million, or 27.4% of the Registrant's total loan portfolio. The credit card
portfolio was built substantially through affinity programs. FNB's affinity
programs include colleges, associations and other entities which contract to
assist FNB in marketing FNB's credit cards in return for issuance and
transaction fee income.
Residential Mortgage Banking
FNMC is engaged in the residential mortgage banking business, focusing
on one-to-four family properties. FNMC offers the Federal Housing Authority
("FHA"), Veterans Administration ("VA"), conventional and non-conforming loans
(those with balances over $227,150). In addition, FNMC purchases loans from
independent mortgage companies located in the Southeast. FNMC operates from the
Registrant's office in Corporate Square, Atlanta, Georgia as well as two other
locations in the Atlanta metropolitan area and also has a loan origination
office in Jacksonville,
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Florida. FNMC is an approved originator and servicer for Federal Home Loan
Mortgage Corporation ("FHLMC") and Federal National Mortgage Association
("FNMA") and is an approved originator for loans insured by Housing and Urban
Development ("HUD").
Mortgage loans held-for-sale fluctuate due to economic conditions,
interest rates, the level of real estate activity and seasonal factors. During
1997, FNMC originated approximately $7 million in loans to be held in FNB's
portfolio. FNMC typically retains the right to service mortgages sold to
investors, but from time to time sells servicing rights to other mortgage loan
servicers. Servicing activities include the collection of principal and interest
payments, maintenance of escrow balances and remittance of insurance and tax
payments on behalf of mortgagees and the offer of insurance products to
borrowers. In return for servicing mortgages, FNMC is entitled to a servicing
fee, generally .25% to .50% per annum of the outstanding principal balance of a
mortgage serviced. Due to normal amortization of the principal balance, the
dollar amount of the fee earned on a particular mortgage declines over time and
no further fee will be earned if the mortgage is prepaid or goes into default.
During 1997, FNMC closed $95 million of residential mortgage loans. All
servicing rights were retained, except for government and non-conforming loans.
As of December 31, 1997, FNMC serviced loans totaling $253 million, of which $14
million were held by FNB and $239 million were serviced for others.
Securities Brokerage Services
FNCI commenced business as a full-service broker in late 1992, after
registration as a broker-dealer with the Securities and Exchange Commission
("Commission") in October 1992 and with the State of Georgia on May 15, 1992. In
October 1992, FNCI registered as an investment advisor with the Commission,
received approval from the Federal Reserve to operate as a fully disclosed
introducing broker and became a member of the National Association of Securities
Dealers ("NASD"). FNCI operates from its headquarters in Atlanta and from three
other offices in FNB's banking facilities in the Atlanta metropolitan area.
Trust Products and Services
FNB provides investment products and services to individuals and
organizations under trust and agency agreements. At December 31, 1997, FNB
serviced approximately $299 million in assets, with the majority of accounts in
custodial and self-directed IRAs. Other services include personal trusts,
employee benefit trusts, guardianships, estate settlement accounts, management
agency accounts and corporate trusts.
International Trade Services
FNB provides services to individuals and business clients in meeting
their international business requirements. Letters of credit, foreign currency
drafts, foreign and documentary collections, export finance and international
wire transfers are some of the services provided.
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SIGNIFICANT OPERATING POLICIES
Lending Policy
Lending authority is delegated by the Board of Directors of FNB to loan
officers, each of whom is limited as to the amount of secured and unsecured
loans that he or she can make to a single borrower or related group of
borrowers. All loans in excess of $100,000 (new relationships) or $250,000
(existing relationships) must be approved by a committee of officers of the
Bank. All loans over $500,000 must be approved by the President and Chief
Executive Officer of the Bank or the Chairman of the Board of the Bank. All
loans to relationships in excess of $1,000,000 must be approved by the Loan and
Discount Committee of the Board of Directors of the Bank.
FNB provides written guidelines for lending activities. Secured loans,
except indirect installment loans which are generally secured by the vehicle
purchased, are made to persons who are well-established and have net worth,
collateral and cash flow to support the loan. Real estate loans are made only
when such loans are secured by real property located in Georgia or Florida.
Unsecured loans, except credit card loans, are normally made by FNB only to
persons who maintain depository relationships with FNB. The Registrant does not
have a rollover policy. Any loan renewal request is reviewed in the same manner
as an application for a new loan.
Under certain circumstances, FNB takes investment securities as
collateral for loans. If the purpose of the loan is to purchase or carry margin
stock, FNB will not advance loan proceeds of more than 50% of the market value
of the stock serving as collateral. If the loan proceeds will be used for
purposes other than purchasing or carrying margin stock, FNB generally will lend
up to 70% of the current market value of the stock serving as collateral.
Making loans to businesses for working capital is a traditional
function of commercial banks. Such loans are expected to be repaid out of the
current earnings of the commercial entity and the ability of the borrower to
service its debt is dependent upon the success of the commercial enterprise.
It is FNB's policy to secure these loans.
For loans that are collateralized by inventory, furniture, fixtures and
equipment, FNB does not generally advance loan proceeds of more than 50% of the
inventory value and more than 50% of the furniture, fixtures and equipment value
serving as collateral. When inventory serves as primary collateral, accounts
receivable generally will also be taken as collateral. Maximum collateral values
for accounts receivable is 80% of eligible receivables outstanding. No
collateral value will be assigned for accounts receivable outstanding past 90
days.
Many of FNB's commercial loans are secured by real estate (and thus are
categorized as real estate mortgage loans) because such collateral may be
superior to other types of collateral owned by small businesses. Loans secured
by commercial real estate, however, are subject to certain inherent risks.
Commercial real estate may be substantially illiquid, and commercial real estate
values are difficult to ascertain and are subject to wide fluctuations depending
upon economic conditions. For loans in excess of $250,000, FNB generally
requires that qualified independent appraisers determine the value of any
commercial real estate taken as collateral, and FNB will generally lend 75% of
the appraised value or the purchase price of the real estate, whichever is less.
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FNB originates short-term residential construction loans for detached
housing and a limited number of residential acquisition and development loans in
the Atlanta and Jacksonville metropolitan areas. Residential construction loans
are made through the use of officer guidance lines, which are approved, when
appropriate, by FNB's Loan and Discount Committee. Specific maximum loan
commitment and numbers of unsold houses allowed are clearly identified for each
of the approximately 75 builders' officer guidance lines. Each loan is
individually reviewed and approved by the loan officer and is subject to an
appraisal and a maximum 75% loan-to-value ratio.
These guidelines are approved for established builders with track
records and adequate financial strength to support the credit being requested.
Loans may be for speculative starts or for pre-sold residential property to
specific purchasers. As of December 31, 1997, approximately $45 million (10.5%
of total loans) was outstanding on total residential construction loans, of
which approximately $8 million was for acquisition and development loans.
Acquisition and development loans generally have 18 month or shorter maturities
and are for the purpose of developing lots for a builder's own building program
usage or are generally pre-sold to an established builder or builders.
Inter-agency guidelines adopted by Federal banking regulators,
including the OCC, require that financial institutions establish real estate
lending policies. The guidelines also established certain maximum allowable real
estate loan-to-value standards. FNB has adopted the Federal standards as its
maximum allowable standards, but has had in the past and now has in place loan
policies which are, in some cases, more conservative than the OCC guidelines.
The FNB and OCC guidelines require maximum allowable loan-to-value ratios for
various types of real estate loans as set forth below.
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<TABLE>
<CAPTION>
MAXIMUM ALLOWABLE
LOAN-TO-VALUE RATIO
----------------------
<S> <C>
LOAN CATEGORY
Land ................................. 65%
Land development ..................... 75
Construction:
Commercial, multifamily(1) and other
nonresidential ................... 80
One-to-four family residential ....... 85
Improved property .................... 85
Owner-occupied one-to-four family and
home equity(2) .................... --
</TABLE>
- ----------
(1) Multifamily construction includes condominiums and cooperatives.
(2) A loan-to-value limit has not been established for permanent mortgage
or home equity loans on owner-occupied, one-to-four family residential
property. However, for any such loan with a loan-to-value ratio that
equals or exceeds 90% at origination, appropriate credit enhancement in
the form of either mortgage insurance or readily marketable collateral
should be required.
Potential specific risk elements associated with each of FNB's lending
categories include the following:
<TABLE>
<S> <C>
Credit cards................................ Employment status, changes in local economy, unsecured
credit risks
Installment loans to
individuals................................ Employment status, changes in local economy, difficulty in
monitoring collateral (vehicle, boat, mobile home) and limited
personal contact as a result of indirect lending through dealers
Commercial, financial
and agricultural.......................... Industry concentrations, difficulty in monitoring the valuation
of collateral (inventory, accounts receivable and vehicles),
borrower management expertise, increased competition, and
specialized or obsolete equipment as collateral
Real estate-residential
construction ............................ Inadequate collateral and change in market conditions
Real estate-residential
mortgage.................................. Changes in local economy and caps on variable rate loans
</TABLE>
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Management believes that the outstanding loans included in each of
these categories do not represent more than the normal risks associated with
these categories, as described above. FNB's underwriting and asset quality
monitoring systems focus on minimizing the risks outlined above.
Loan Review and Nonperforming Assets
FNB's credit administration department reviews its loan portfolio to
identify potential deficiencies and appropriate corrective action. The credit
administration department attempts to review 30% to 45% of FNB's commercial and
construction loan portfolio, annually. The results of the reviews are presented
to FNB's Board of Directors on a monthly basis. Loan reviews are performed on
credits that are selected according to their risk. Past due loans are reviewed
weekly by each lending officer and by the credit administration department. A
summary report is reviewed monthly by FNB's Board of Directors. The Loan
Committee of the Board of Directors of FNB annually reviews all loans over $1.0
million.
Credit card accounts are reviewed on a monthly basis for compliance
with FNB credit policy. Review procedures include a determination of whether the
appropriate review of employment, residence and other information has been
completed, recalculation of the borrower's debt coverage ratio, and analysis of
the borrower's credit history to determine if it meets established FNB criteria.
Policy exceptions are analyzed monthly. Delinquencies are monitored daily.
Accounts are charged off after they are 180 days past due in accordance with
industry practice.
A sample of consumer loans is reviewed on a monthly basis in compliance
with FNB's policies and procedures.
A provision for loan losses and a corresponding increase in the
allowance for loan losses are recorded monthly, taking into consideration the
historical charge-off experience, delinquency and current economic conditions,
and management's estimate of losses inherent in the loan portfolio.
Asset/Liability Management
FNB's asset/liability committee (the "Committee") is comprised of
officers of the Registrant and FNB who are charged with managing the assets and
liabilities of the Registrant and FNB. The Committee attempts to manage asset
growth, liquidity and capital in order to maximize income and reduce interest
rate risk. The Committee directs the Registrant's and FNB's overall acquisition
and allocation of funds. At its monthly meetings, the Committee reviews and
discusses the monthly asset and liability funds budget and projections in
relation to the actual flow of funds. The Committee also reviews and discusses
peer group comparisons, the ratio of the amount of rate-sensitive assets to the
amount of rate-sensitive liabilities and other variables, such as expected loan
demand, investment opportunities, core deposit growth within specified
categories, regulatory changes, monetary policy adjustments and the overall
state of the economy.
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Investment Policy
FNB's investment portfolio policy is to maximize income consistent with
liquidity, asset quality, regulatory constraints and asset/liability objectives.
The policy is reviewed at least annually by FNB's Board of Directors. The Board
of Directors of FNB is provided information monthly concerning sales, purchases,
resulting gains or losses, average maturity, Federal taxable equivalent yields
and appreciation or depreciation by investment categories.
SUPERVISION AND REGULATION
Holding Company Regulation
The Registrant is a registered bank holding company subject to
regulation by the Federal Reserve Board ("Federal Reserve" or "FRB") under the
Bank Holding Company Act of 1956, as amended ("Holding Company Act"). The
Registrant is required to file financial information with the Federal Reserve
periodically and is subject to periodic examination by the Federal Reserve.
The Holding Company Act requires every bank holding company to obtain
the prior approval of the Federal Reserve (i) before it may acquire direct or
indirect ownership or control of more than 5% of the voting shares of any bank
that is not already controlled; (ii) before it or any of its subsidiaries, other
than a bank, may acquire all or substantially all of the assets of a bank; and
(iii) before it may merge or consolidate with any other bank holding company. In
addition, a bank holding company is generally prohibited from engaging in
non-banking activities, or acquiring direct or indirect control of voting shares
of any company engaged in such activities. This prohibition does not apply to
activities found by the Federal Reserve, by order or regulation, to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve has determined
by regulation or order to be closely related to banking are: making or servicing
loans and certain types of leases; performing certain data processing services;
acting as fiduciary or investment or financial advisor; providing discount
brokerage services; and making investments in corporations or projects designed
primarily to promote community welfare.
The Registrant must also register with the Georgia Department of
Banking and Finance ("DBF"). Such registration filing includes information with
respect to the financial condition, operations, management and intercompany
relationships of the Registrant, FNB and the Registrant's other subsidiaries,
and related matters. The DBF may also require such other information as is
necessary to keep itself informed as to whether the provisions of Georgia law
and the regulations and orders issued thereunder by the DBF have been complied
with, and the DBF may make examinations of the Registrant.
The Registrant, FNMC and FNCI are "affiliates" of FNB under the Federal
Reserve Act, which imposes certain restrictions on (i) loans by FNB to the
Registrant, (ii) investments in the stock or securities of the Registrant by
FNB, (iii) FNB's accepting the stock or securities of one of its affiliates from
a borrower as collateral for loans and (iv) the purchase of assets from the
Registrant by FNB. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
exercise of credit, lease or sale of property or furnishing of services.
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Bank Regulation
FNB is a national bank chartered under the National Bank Act. FNB and
its wholly-owned subsidiaries are subject to the supervision of, and are
regularly examined by, the OCC. The OCC regulates and monitors all areas of
FNB's and FNMC's operations and activities, including reserves, loans, mergers,
issuances of securities, payments of dividends, interest rates, mortgage
servicing, accounting and establishment of branches. Interest and certain other
charges collected or contracted for by FNB are also subject to state usury laws
or certain Federal laws concerning interest rates.
FNB is insured by the Federal Deposit Insurance Corporation (the
"FDIC"). The major functions of the FDIC with respect to insured banks include
paying depositors to the extent provided by law if an insured bank is closed
without adequate provision having been made to pay claims of depositors, acting
as a receiver of state banks placed in receivership when appointed receiver by
state authorities and preventing the development or continuance of unsound and
unsafe banking practices. The FDIC also has the authority to recommend to the
appropriate Federal agency supervising an insured bank that the agency take
informal action against such institution and to act to implement the enforcement
action itself if the agency fails to follow the FDIC's recommendation. The FDIC
also has the authority to examine all insured banks.
In 1991, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("1991 Act") was adopted, the principal initial effect of which was to
permit the Bank Insurance Fund ("BIF") to borrow up to $30 billion from the U.S.
Treasury (to be repaid through deposit insurance premiums over 15 years) and to
permit the BIF to borrow working capital from the Federal Financing Bank in an
amount up to 90% of the value of the assets the FDIC has acquired from failed
banks. The FDIC has implemented a risk-based assessment system whereby banks are
assessed on a sliding scale depending on their placement in nine separate
supervisory categories. Prior to June 1, 1995, the assessment scale ranged from
$.23 per $100 of deposits for the healthiest banks (those with the highest
capital to assets ratios, best management and best overall condition) to as much
as $.31 per $100 of deposits for the less healthy institutions. However,
effective June 1, 1995, the BIF reached the designated reserve ratio of 1.25% of
total estimated deposits and the FDIC lowered the assessment rate schedule for
BIF members to $0.04 per $100 of deposits for the healthiest banks to $.31 per
$100 of deposits for less healthy institutions. Prior to June 1, 1995, FNB's BIF
assessment was $.26 per $100 of deposits and after such date, the rate was
reduced to $.07 per $100 of deposits.
As a result of FNB's capital position in 1996, its FDIC assessments
increased significantly during 1997. The Registrant's total FDIC insurance and
SAIF Assessments for the three years ended December 31, 1995, 1996 and 1997 were
$795,000, $427,000 and $1,065,000, respectively. At December 31, 1997, the BIF
rate was $.24 per $100 of deposits.
Various other sections of the 1991 Act impose substantial new auditing
and reporting requirements and increase the role of independent accountants and
outside directors on banks having assets of $500 million or more, and regulators
may encourage smaller banks to comply with such requirements. The 1991 Act also
provides for a ban on the acceptance of brokered deposits except by well
capitalized institutions and by adequately capitalized institutions with the
permission of the FDIC, and for restrictions on the activities engaged in by
state banks and their subsidiaries as
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principal, including insurance underwriting, to the same activities permissible
for national banks and their subsidiaries, unless the state bank is well
capitalized and a determination is made by the FDIC that the activities do not
pose a significant risk to the insurance fund. The effect on the Registrant of
these measures contained in the bill will be to a great extent dependent upon
the manner in which bank regulatory authorities interpret and enforce
regulations that have been issued pursuant to the 1991 Act.
One-Time SAIF Assessment
In 1992 FNB acquired deposits from a savings and loan institution.
These deposits are subject to FDIC deposit insurance assessments for the SAIF.
On September 3, 1996, legislation authorizing the recapitalization of the SAIF
became effective. This legislation required the Registrant, and all other
depository institutions having SAIF insured deposits, to pay a one-time
assessment. FNB provided for this special assessment and recorded a pretax
charge of $250,000 in the third quarter of 1996.
Capital Requirements
The information contained in the Registrant's 1997 Annual Report to
Shareholders under the headings "Regulatory Agreements" and "Shareholders'
Equity" are incorporated herein by reference.
Interstate Banking Act
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act") became law. The Interstate
Banking Act has two major provisions regarding the merger, acquisition and
operation of banks across state lines. First it provides that effective
September 29, 1995, adequately capitalized and managed bank holding companies
will be permitted to acquire banks in any state. State laws prohibiting
interstate banking or discriminating against out-of-state banks will be
preempted as of the effective date. States cannot enact laws opting out of this
provision; however, states may adopt a minimum restriction requiring that target
banks located within the state be in existence for a period of years, up to a
maximum of five years, before such bank may be subject to the Interstate Banking
Act. The Interstate Banking Act establishes deposit caps which prohibit
acquisitions that would result in the acquirer controlling 30% or more of the
deposits of insured banks and thrifts held in the state in which the acquisition
or merger is occurring or in any state in which the target maintains a branch or
10% or more of the deposits nationwide. State-level deposit caps are not
preempted as long as they do not discriminate against out-of-state acquirers,
and the Federal deposit caps apply only to initial entry acquisitions.
The legislation also provides that, unless an individual state elects
beforehand either (i) to accelerate the effective date or (ii) to prohibit
out-of-state banks from operating interstate branches within its territory, on
or after June 1, 1997, adequately capitalized and managed bank holding companies
will be able to consolidate their multistate bank operations into a single bank
subsidiary and to branch interstate through acquisitions. De novo branching by
an out-of-state bank would be permitted only if it is expressly permitted by the
laws of the host state. The authority of a bank to establish and operate
branches within a state will continue to be subject to applicable state
branching laws. The State of Georgia has enacted legislation in connection with
the Interstate Banking Act
11
<PAGE> 13
which requires that a bank located within the state must be in existence for a
period of five years before it may be acquired by an out-of-state institution.
This state legislation also requires out-of-state institutions to purchase an
existing bank or branch in the state rather than starting a de novo bank. Many
states, including Georgia, have enacted legislation which permits banks with
different home states to merge if the states involved have enacted legislation
permitting interstate bank mergers prior to June 1, 1997. The Registrant
believes that this legislation may result in increased takeover activity of
Georgia financial institutions by out-of-state financial institutions. However,
the Registrant does not presently anticipate that such legislation will have a
material impact on its operations or future plans.
The Interstate Banking Act was amended on July 3, 1997, for the purpose
of ensuring that state banks are competitive with national banks under the new
interstate banking laws. The amendment provides that state law of the host state
applies to an out-of-state, state-chartered bank that branches in the host state
to the same extent that it applies to a national bank operating a branch in the
host state to the same extent that it applies to a national bank operating a
branch in the host state. The law also provides that bank branches operating in
the host state and chartered in another state may exercise powers they have
under their home-state charters if host state-chartered banks or national banks
may exercise those powers.
Under prior Georgia law which was applicable to national banks, the
establishment of new or additional branch banks in a county, other than the
county in which the parent bank was located, was prohibited except in very
narrow situations. Pursuant to legislation recently enacted, with the prior
approval of the appropriate regulator, after July 1, 1996, a state or national
bank may establish three new or additional branch banks de novo in the same
manner as currently provided for the establishment of bank offices under the
Georgia Financial Institutions Code. These branches may be located anywhere in
Georgia. If a bank is part of a bank holding company, all affiliates would be
treated as one bank and the holding company would be limited to branching to
only three counties. Otherwise, the same restrictions on Georgia banks' ability
to form or acquire branch banks that exist prior to July 1, 1996, continue to
apply until July 1, 1998. As of July 1, 1998, new or additional branch banks may
be established anywhere in the state with the prior approval of the appropriate
regulator. At December 31, 1997, FNB had authority to branch in four counties in
Georgia.
Regulation of Mortgage Banking
The mortgage banking industry is subject to the rules and regulations
of, and examinations by, the DBF, FNMA, FHLMC, Government National Mortgage
Association ("GNMA"), HUD, FHA and state regulatory authorities with respect to
originating, processing, underwriting, selling, securitizing and servicing
residential mortgage loans. In addition, there are other Federal and state
statutes and regulations affecting such activities. These rules and regulations,
among other things, require licensing of mortgage bankers, govern how mortgage
servicers process a mortgagor's payment, require an annual analysis of FNMC's
escrow balances and also regulate the procedure for making investor payments.
Many states have adopted statutes and regulations which require the
payment of interest on escrow accounts, but many of these provisions contain
exemptions from the requirement to pay interest. The common exemptions are:
interest is paid only on loans originated after enactment or
12
<PAGE> 14
a phase-in; interest need only be paid if the mortgage servicer earns interest
on the account; interest need not be paid by an out-of-state mortgage servicer;
and interest need not be paid on low loan-to-value loans or government loans or
where interest is offset by administrative expenses. It is presently unclear
whether these statutes and regulations, or some variation thereof, will be
implemented by other states and if so what effect that will have on the
Registrant and FNMC.
Effective July 1, 1993, the Georgia Legislature enacted registration
and licensing requirements for mortgage brokers and lenders engaged in making
loans secured by one-to-four family residential property located in Georgia (the
"Mortgage Act"). FNMC, as a subsidiary of a Georgia bank holding company subject
to examination by the DBF, is exempt from the licensing requirement of the
Mortgage Act, but is required to register with the DBF. FNMC must renew its
registration annually and provide the DBF in its renewal application with
information, including a general plan of the business, financial statements and
other financial information requested by the DBF and shareholders owning at
least 10% of the mortgage lender's equity. FNMC is required to maintain such
records as the DBF may require and is subject to examination by the DBF. In
addition, FNMC must file an annual report with the DBF each year.
The Mortgage Act requires that mortgage brokers and lenders, including
FNMC, make certain disclosures to applicants for mortgage loans. The Mortgage
Act also provides authority for the DBF to promulgate rules with respect to
escrow accounts and the advertising of mortgage loans, and the DBF has
promulgated regulations governing mortgage loan advertising. In addition, the
Mortgage Act imposes restrictions on unfair mortgage banking practices, as
defined by the Mortgage Act.
There are numerous rules and regulations imposed on mortgage loan
originators that require originators to obtain and maintain licenses; establish
eligibility criteria for mortgage loans; prohibit discrimination; regulate
advertising of loans; encourage lenders to identify and meet the credit needs of
the community, including low and moderate income neighborhoods, consistent with
sound lending practices, by requiring certain statistical information be
maintained and publicly available regarding mortgage lending practices within
certain geographical areas; provide for inspections and appraisals of
properties; require credit reports on prospective borrowers; regulate payment
features; and, in some cases, fix maximum interest rates, fees and loan amounts.
Failure to comply with these requirements can lead to loss of approved status,
termination of servicing contracts without compensation to the servicer, demands
for indemnification or loan repurchases, and administrative enforcement actions.
Broker-Dealer Regulation
Securities broker-dealers are subject to extensive regulation.
Generally, broker-dealers must register with the Commission and the states in
which they operate. All broker-dealers must be members of the NASD, subject to
its rules and disciplinary procedures. Personnel of broker-dealers engaged in
sales activities must be licensed as salespeople under the appropriate state
laws and register with the NASD. Registered broker-dealers are subject to
detailed record keeping and reporting requirements. The extent to which
broker-dealers can extend credit is also subject to regulation. FNCI, as a
registered broker-dealer, is also subject to rules regarding minimum capital,
disclosure obligations, restrictions on markups, and other matters.
13
<PAGE> 15
COMPETITION
The banking business is highly competitive. The Registrant's primary
market area, other than for credit cards, residential mortgages and indirect
automobile loans, consists of Fulton, DeKalb, Cobb and Gwinnett counties,
Georgia. FNB competes for traditional bank business with numerous other
commercial banks and thrift institutions with offices in the Registrant's
primary trade area, many of which have greater financial resources than FNB. The
Registrant also competes for loans with insurance companies, regulated small
loan companies, credit unions and certain governmental agencies. FNCI competes
with independent brokerage and investment companies as well as state and
national banks and their affiliates and other financial companies. There can be
no assurance that other companies will not offer products and services that are
competitive with those offered by the Registrant and its subsidiaries. The
emergence of such competitors could have a material adverse effect on the
results of operations and financial condition of the Registrant.
The credit card, indirect automobile financing and mortgage banking
industries are also highly competitive. The Registrant competes with banks and
special purpose credit card banks and companies throughout the United States as
well as entities such as AT&T and General Motors Corporation for credit card
customers. In the indirect automobile financing industry, the Registrant
competes with specialty consumer finance companies in addition to banks. FNMC
competes with independent mortgage banking companies, state and national banks
and their subsidiaries, as well as thrift institutions and insurance companies.
There can be no assurance that other companies will not offer products and
services that are competitive with those offered by the Registrant and its
subsidiaries. The emergence of such competitors could have a material adverse
effect on the results of operations and financial condition of the Registrant.
EMPLOYEES
As of December 31, 1997, the Registrant had 375 full-time equivalent
employees. Neither the Registrant nor any one of its subsidiaries is a party to
any collective bargaining agreement. The Registrant believes that its employee
relations are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers are elected by the Board of Directors annually at
the Board of Directors' meeting held directly after the Annual Meeting of
Shareholders and hold office until the next election, unless they sooner resign
or are removed from office.
The executive officers of the Registrant, their ages, their positions
with the Registrant and subsidiaries at March 10, 1998, and the period during
which the person served as an executive officer, are as follows:
14
<PAGE> 16
<TABLE>
<CAPTION>
Officer
Name Age Since Position
---- --- ----- --------
<S> <C> <C> <C>
James B. Miller, Jr. 57 1979 Chairman of the Board, President and Chief Executive Officer
of the Registrant since 1979; Chairman of FNB since 1998;
President of FNB from 1977 to 1997, Chairman of FNMC
since 1979, and Chairman of FNCI beginning in 1995.
Larry D. Peterson 49 1997 Vice President of the Registrant since 1997; President
and Chief Executive Officer of FNB since 1997.
Sharon R. Denney 59 1985 Executive Vice President of the Registrant and FNB
since 1992. Vice President of FNB since 1979.
M. Howard Griffith, Jr. 54 1994 Principal Accounting Officer of the Registrant and
Chief Financial Officer of FNB since February 1994;
Vice President and Treasurer of Synovus Financial
Corp., a bank holding company based in Columbus,
Georgia, from December 1992 through October 1993.
Palmer Proctor, Jr. 30 1996 Vice President of the Registrant since 1996; Vice
President of FNB since 1993. Joined FNB as a
Management Associate in 1990.
</TABLE>
ITEM 2. PROPERTIES
The Registrant's principal executive offices consist of 49,368 leased
square feet (of which 23,939 square feet are sublet) in Atlanta, Georgia. The
Bank leases 35,000 square feet (of which 29,928 square feet are sublet) in
Decatur, Georgia, where it maintains a full-service banking center. The
Registrant's operations are principally conducted from 80,000 square feet
located at 3 Corporate Square, Atlanta, Georgia. Of the other 15 branch offices
of the Bank located in Fulton, DeKalb, Cobb and Gwinnett Counties, Georgia, ten
are owned and five are leased. The three new branches to be opened in 1998 are
owned by the Bank. The Registrant leases loan production offices in Jacksonville
and Tampa, Florida.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is a party to claims and lawsuits arising in the course
of normal business activities. Although the ultimate outcome of these claims and
lawsuits cannot be ascertained at this time, it is the opinion of management
that none of these matters when resolved will have a material adverse effect on
the Registrant's consolidated results of operations or financial condition.
15
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
STOCK. The Registrant's Common Stock is listed on the Nasdaq National
Market under the trading symbol LION. There were approximately 575 holders of
record and approximately 1,970 beneficial owners whose shares of Registrant's
Common Stock are held by brokers, dealers and their nominees as of March 10,
1998.
Market prices of the Registrant's Common Stock included on the inside
back cover of the 1997 Annual Report to Shareholders are incorporated herein by
reference. The last sale price on December 31, 1997 was $9.50.
On September 30, 1996 the Registrant sold an aggregate of 44,015 shares
of Common Stock to directors and their affiliates in a private placement at
$12.625 per share paid in cash. This private placement of securities is exempt
from registration under Section 4(2) of the Securities Act of 1933.
During June 1997, the Registrant issued 752,000 shares of Preferred
Stock at a purchase price of $6.25 per share in a private placement. 704,000
shares of Preferred Stock were sold for cash aggregating $4,400,000 and 48,000
shares of Preferred Stock were exchanged for subordinated debt of the Registrant
in the principal amount of $300,000. During July 1997, an additional 232,000
shares of Preferred Stock were sold for $1,100,000 paid in cash and $350,000 in
exchange for subordinated debt of the Registrant in the principal amount of
$350,000. The sale of the Preferred Stock was exempt from registration under
Section 4(2) of the Securities Act of 1933 and Regulation D promulgated by the
Commission.
In connection with the public offering of Common Stock in December,
1997, the Registrant issued to Raymond James & Associates, Inc., the principal
underwriter, warrants to purchase 150,000 shares of Common Stock at a purchase
price of $8.25 per share. The warrants are exercisable during the four-year
period commencing December 12, 1998. The issuance of the warrants was exempt
from registration under Section 4(2) of the Securities Act of 1933.
DIVIDENDS. There were no cash dividends paid on the Registrant's Common
Stock during 1997. Cash dividends paid on the Registrant's Common Stock in 1996
was $.15 per share.
Restrictions on Dividends - Indenture. The indenture ("Indenture")
relating to the 8 1/2% Subordinated Notes ("Notes") provides that the Registrant
may not pay cash dividends on its capital stock or redeem any shares of its
capital stock if the cumulative dividends and redemptions would exceed
cumulative consolidated net income of the Registrant for the three-year period
ending on the dividend declaration date or redemption date. In addition, no
dividend can be declared on the capital stock if an event of default has
occurred and is continuing under the Notes, including the failure to
16
<PAGE> 18
pay interest on such indebtedness or default on other indebtedness exceeding $1
million. See Note 8 to the Consolidated Financial Statements.
The Registrant is currently in default of the covenant of the Indenture
restricting dividend payments. In December the Registrant declared and in
January paid a dividend on the Preferred Stock aggregating $123,000. If the
trustee of the Indenture or holders of ten percent of the Notes sends to the
Registrant a notice of default and the default continues for a period of thirty
days after the notice have been given, then the default will constitute an Event
of Default. Upon an Event of Default the trustee may, in its discretion, appoint
an observer to attend the meetings of the Board of Directors of the Registrant
and report thereon, to the holders of the Notes. Also, the trustee may take
appropriate judicial action as the trustee deems most effective to protect and
enforce the rights of the holders of the Notes.
Restriction on Dividends - FRB Agreement. The FRB Agreement provides
that no dividends are to be declared or paid on the Registrant's Common Stock
without the prior written approval of the FRB.
Restrictions on Dividends by FNB - Regulations. Under the regulations
of the Office Comptroller of the Currency ("OCC"), dividends of FNB may be
declared out of net profits of FNB. The approval of the OCC is required if the
total of all dividends declared by FNB exceeds the total of its net profits for
the year, combined with its retained net profits for the preceding two years.
The payment of dividends by FNB may also be affected or limited by other
factors, such as the requirement to maintain capital above regulatory
guidelines. At December 31, 1997, total shareholders' equity of FNB was $49
million. Currently, cumulative dividends do exceed cumulative consolidated net
income of FNB for the preceding three year period. Therefore, no dividends can
be declared by FNB on its common stock without regard to the limitations
contained in the OCC Agreement without the approval of the OCC. In addition, if,
in the opinion of the applicable regulatory authority, a bank under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending upon the financial condition of the bank, could
preclude the payment of dividends), such authority may require, after notice and
hearing, that such bank cease and desist from such practice.
Restrictions on Dividends by FNB - OCC Agreement. The OCC Agreement
permits FNB to pay dividends on its preferred stock as long as FNB is
"adequately capitalized," which it was on December 31, 1997. However, no
dividends can be paid on FNB's common stock unless FNB is in compliance with the
required capital ratios and the OCC approved the payment of the dividends by
FNB. FNB's capital ratios on December 31, 1997 exceeded the capital levels
required pursuant to the OCC Agreement.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for each of the five years ended December 31,
1997, is included in the Registrant's 1997 Annual Report to Shareholders and is
incorporated herein by reference.
17
<PAGE> 19
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results
of operations appear under the caption "Consolidated Financial Review" of the
Registrant's 1997 Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion on Market Risk appears under the caption "Consolidated
Financial Review" of the Registrant's 1997 Annual Report to Shareholder and is
incorporated herein by reference. Quarterly results of operations on page 19 of
the Registrant's 1997 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Auditors, the Consolidated Financial
Statements and Notes to the Consolidated Financial Statements of the
Registrant's 1997 Annual Report to Shareholders are incorporated herein 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
The information to be contained under the heading "Information About
Nominees for Director" in the definitive Proxy Statement to be sent to
shareholders in connection with the solicitation of proxies for the Registrant's
1998 Annual Meeting of Shareholders to be held on April 16, 1998, to be filed
with the Commission, is incorporated herein by reference. Pursuant to
instruction 3 to paragraph (b) of Item 401 of Regulation S-K, information
relating to the executive officers of the Registrant is included in Item I of
this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information to be contained under the headings "Executive
Compensation," "Compensation of Directors," "Compensation Committee Interlocks
and Insider Participation" in the definitive Proxy Statement to be sent to
shareholders in connection with the solicitation of proxies for the Registrant's
1998 Annual Meeting of Shareholders to be held on April 16, 1998, to be filed
with the Commission, is incorporated herein by reference.
18
<PAGE> 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be contained under the heading "Voting Securities
and Principal Holders" in the definitive Proxy Statement to be sent to
shareholders in connection with the solicitation of proxies for the Registrant's
1998 Annual Meeting of Shareholders to be held on April 16, 1998, to be filed
with the Commission, is incorporated herein by reference. For purposes of
determining the aggregate market value of the Registrant's voting stock held by
non-affiliates, shares held by all directors and executive officers of the
Registrant have been excluded. The exclusion of such shares is not intended to,
and shall not, constitute a determination as to which persons or entities may be
"affiliates" of the Registrant as defined by the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be contained under the heading "Compensation
Committee Interlocks and Insider Participation" in the definitive Proxy
Statement to be sent to shareholders in connection with the solicitation of
proxies for the Registrant's 1998 Annual Meeting of Shareholders to be held on
April 16, 1998, to be filed with the Commission, is incorporated herein by
reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements.
The following consolidated financial statements and notes thereto of
the Registrant are incorporated by reference in Item 8 of this Report:
Report of Independent Auditors
Consolidated Statements of Condition - December 31, 1997 and December
31, 1996
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements - December 31, 1997
(2) Financial Statement Schedules.
No financial statement schedules are required to be filed as part of
this Report on Form 10-K.
19
<PAGE> 21
(3) Exhibits.
(a) The following exhibits are required to be filed with this Report
by Item 601 of Regulation S-K. Items marked with an asterisk
relate to management contracts or compensatory plan or
arrangement.
<TABLE>
<CAPTION>
Exhibit No. Name of Exhibit
----------- ---------------
<S> <C>
3(a) and 4(a) Articles of Incorporation of the Registrant, as
amended (included as Exhibit 3(a) and 4(a) to the
Registrant's Registration Statement on Form 10, Commission
File No. 0-22374, filed with the Commission and incorporated
herein by reference).
3(b) ByLaws of the Registrant (included as Exhibit 3(b) and 4(b)
to the Registrant's Registration Statement on Form 10,
Commission File 0-22374, filed with the Commission and
incorporated herein by reference).
3(c) Articles of Amendment to the Articles of Incorporation of
Fidelity Southern Corporation (included as Exhibit 3(c) to
the Report filed on Form 8-K dated August 4, 1995 filed with
the Commission and incorporated herein by reference).
3(d) Articles of Amendment to the Articles of Incorporation of
Fidelity National Corporation increasing the number of
authorized shares of capital stock (included as Exhibit 3(d)
to the Report on Form 10-K for 1996 which is incorporated by
reference).
3(e) Articles of Amendment to the Articles of Incorporation of
Fidelity National Corporation authorizing the issuance of
preferred stock (included as Exhibit 3(e) to the Report on
Form 10-K for 1996 which is incorporated by reference).
3(f) Amendment to Articles of Incorporation of the Registrant
setting forth the terms of the Preferred Stock (included
herein by reference to Exhibit 3(a) to the Registrant's
report on Form 8-K dated June 23, 1997).
4(d) Form of Trust Indenture (included herein by reference as
Exhibit 4(a) of Amendment 1 to Registrant's Registration
Statement on From S-1, No.333-99174).
4(e) Form of Subordinated Note (included herein by reference to
Exhibit 4(b) of Amendment 1 to Registrant's Registration
Statement on From S-1, No. 33-99174).
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
Exhibit No. Name of Exhibit
----------- ---------------
<S> <C>
10(a) Fidelity National Bank Defined Contribution Master Plan and
Trust Agreement and related Adoption Agreement, as amended
(included as Exhibit 10(a) to the Registrant's Registration
Statement on Form 10, Commission File No. 0-22376, filed
with the Commission and incorporated herein by reference).
10(b) Lease Agreement dated February 6, 1989, by and between DELOS
and Fidelity National Bank and amendments thereto (included as
Exhibit 10(e) to the Registrant's Registration Statement on Form 10,
Commission File No. 0-22376, filed with the Commission and
incorporated herein by reference).
10(c) Lease Agreement dated September 7, 1995, by and between Toco
Hill, Inc. and Fidelity National Bank (included as Exhibit 10(f) to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference).
*10(d) Salary Continuation Agreement dated August 26, 1985, between
Fidelity National Bank and Sharon Denney as filed (included as
Exhibit 10(f) to the Registrant's Report on Form 10-K for the fiscal
year ended December 31, 1994) was extended by Resolution of the
Board of Directors until December 31, 2003 (included as Exhibit
10(g) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference).
10(e) Agreement dated November 14, 1996 between the OCC and the
Registrant (included as Exhibit 10(h) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996 which is incorporated herein by reference).
10(f) Resolution adopted by the Board of Directors of Registrant
on February 13, 1997 (included as Exhibit 10(i) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 which is incorporated herein by
reference).
*10(g) Employment Agreement between Registrant and James B. Miller,
Jr. dated as of September 18, 1997 (included as Exhibit 10(d) to
Registration Statement on Form S-2, No. 33-36377, which is
incorporated herein by reference).
*10(h) Employment Agreement among the Registrant, FNB and Larry D.
Peterson dated as of September 15, 1997 (included as Exhibit 10(c)
to Registration Statement on Form S-2, No. 333-36377, which is
incorporated herein by reference).
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
Exhibit No. Name of Exhibit
----------- ---------------
<S> <C>
*10(i) The Stock Option Plan (incorporated by reference to Exhibit A of
the Proxy Statement of Registrant dated April 21, 1997 for
the 1997 Annual Meeting of Shareholders).
13 1997 Annual Report to Shareholders. Certain portions of this
Exhibit are incorporated by reference into this Form 10-K; except as
so incorporated by reference, the 1997 Annual Report to
Shareholders is not deemed to be filed as part of this Report on
Form 10-K.
21 Subsidiaries of the Registrant (included as Exhibit 22 to the
Registrant's Registration Statement on Form 10, Commission File
No. 0-22376, filed with the Commission and incorporated herein by
reference).
23 Consent of Ernst & Young LLP
24 Powers of Attorney
27 Financial Data Schedule (for SEC use only)
</TABLE>
- -----------
* management contract or compensatory arrangement required to be filed as an
exhibit.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the fiscal
quarter ended December 31, 1997.
(c) Exhibits. See Item 14(a)(3) above.
(d) Financial Statement Schedules. See Item 14(a) (3) above.
22
<PAGE> 24
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.
FIDELITY NATIONAL CORPORATION
By: /s/ James B. Miller, Jr.
-------------------------------------
James B. Miller, Jr.
Chairman of the Board
March 26, 1998
SIGNATURES
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.
<TABLE>
<S> <C>
/s/ James B. Miller, Jr. Date: March 26, 1998
- --------------------------------------------
James B. Miller, Jr.
Chairman of the Board and Director
(Principal Executive Officer)
/s/ M. Howard Griffith, Jr. Date: March 26, 1998
- --------------------------------------------
M. Howard Griffith, Jr.
Chief Financial Officer
(Principal Financial and Accounting Officer)
* Date: March 26, 1998
- --------------------------------------------
David R. Bockel
Director
* Date: March 26, 1998
- --------------------------------------------
Edward G. Bowen, M.D.
Director
</TABLE>
23
<PAGE> 25
<TABLE>
<S> <C>
Date: March 26, 1998
- ----------------------------------
Kevin S. King
Director
* Date: March 26, 1998
- ----------------------------------
Larry D. Peterson
Director
Date: March 26, 1998
- ----------------------------------
Robert J. Rutland
Director
* Date: March 26, 1998
- ----------------------------------
W. Clyde Shepherd, Jr.
Director
* Date: March 26, 1998
- ----------------------------------
Gordon M. Sherman
Director
* Date: March 26, 1998
- ----------------------------------
R. Phillip Shinall, III
Director
* Date: March 26, 1998
- ----------------------------------
Rankin M. Smith, Jr.
Director
* Date: March 26, 1998
- ----------------------------------
Felker W. Ward, Jr.
Director
* /s/ M. Howard Griffith, Jr. Date: March 26, 1998
- ----------------------------------
M. Howard Griffith, Jr.
Attorney-in-fact
</TABLE>
24
<PAGE> 1
ABOUT THE COMPANY
Fidelity National Corporation ("FNC", "Fidelity National," or "the
Company,") is a Georgia corporation which was incorporated on August 3, 1979,
and is registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended.
Through Fidelity National companies, FNC provides a wide range of
personal and corporate banking services, including trust and investment
management, mortgage banking, and credit cards, as well as traditional deposit
and credit services, to a growing customer base. Fidelity National Bank,
Fidelity National Mortgage Corporation and Fidelity National Capital Investors,
Inc. are referred to as "Subsidiaries."
Fidelity National Bank ("the Bank"), a national banking association,
which opened February 10, 1974, has sixteen full-service offices in Georgia, and
two indirect car loan offices in Florida. There is a construction lending office
in Florida. The Bank's subsidiary, Fidelity National Mortgage Corporation, is a
Georgia corporation, organized in 1979, engaged in the residential mortgage
origination and servicing business. There are three mortgage offices in Georgia
and one in Florida. Fidelity National Capital Investors, Inc., a Georgia
corporation organized in 1992, provides retail brokerage and other securities
related services.
As of December 31, 1997, Fidelity National Corporation and its
subsidiaries had total assets and shareholders' equity of $658 million and $52
million, respectively.
The Company is an equal opportunity employer which had 375 full-time
employees at December 31, 1997. Employees are provided a variety of benefits
including hospitalization, medical-surgical, major medical, dental, group life
and disability income, and a 401(k) retirement plan.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
To Our Shareholders 1
Financial Highlights 3
Consolidated Financial Review 4
Report of Independent Auditors. 20
Financial Statements 21
Corporate Information 42
</TABLE>
BOARDS OF DIRECTORS:
FIDELITY NATIONAL CORPORATION
DAVID R. BOCKEL
President, Bockel & Company
DR. EDWARD G. BOWEN
Gynecology and Obstetrics
KEVIN S. KING
Attorney, King & Carragher
JAMES B. MILLER, JR.
Chairman and CEO, Fidelity National Corporation Chairman, Fidelity National
Bank, Fidelity National Mortgage Corporation, and Fidelity National Capital
Investors, Inc.
LARRY D. PETERSON
President and CEO,
Fidelity National Bank
ROBERT J. RUTLAND
Chairman and CEO, Allied Holdings, Inc.
W. CLYDE SHEPHERD, JR.
Secretary/Treasurer, Shepherd Construction Company
GORDON M. SHERMAN
Regional Commissioner, Social Security Administration
R. PHILLIP SHINALL III
Attorney, Holland & Knight LLP
RANKIN M. SMITH, JR.
Advisor to Atlanta Falcons
FELKER W. WARD, JR.
President, Ward & Associates, Inc.;
Principal, Pinnacle Investment Advisors, Inc.
DIRECTORS EMERITUS
James W. Anderson, Jr.
Mrs. Alice Shinall
FIDELITY NATIONAL BANK
James B. Miller, Jr., Chairman
David R. Bockel
Dr. Edward G. Bowen
Kevin S. King
Larry D. Peterson
Robert J. Rutland
W. Clyde Shepherd III
Gordon M. Sherman
R. Phillip Shinall III
Rankin M. Smith, Jr.
Felker W. Ward, Jr.
FIDELITY NATIONAL MORTGAGE CORPORATION
James B. Miller, Jr., Chairman
James W. Anderson, Jr.
Benjamin C. Bishop III
A. J. Facchinetti
B. Jefferson Russell
FIDELITY NATIONAL CAPITAL INVESTORS, INC.
James B. Miller, Jr., Chairman
Sharon R. Denney
Norman R. Hess
Amelia James
Karina L. Miller
W. Clyde Shepherd III
<PAGE> 2
TO OUR SHAREHOLDERS AND FRIENDS:
DR. MARVIN GOLDSTEIN, DIRECTOR
Marvin Goldstein's life was that of the honorable man who does God's
bidding. His work in the civil rights movement of our time is legendary. He also
had a pretty keen insight into business which those who knew him know he did not
hesitate putting to work. His interest in this Company and in insuring its
success helped greatly over the last two years. He never doubted that a quick
recovery would come because he knew the facts and the people involved. We are
grateful for the enduring presence of his friendship and example.
CAPITAL
A private placement of $6,150,000 Preferred Stock was completed in June
and July. In December, $25,875,000 in Common Stock was sold through Raymond
James & Associates, Inc. The stock is now fairly heavily traded.
MANAGEMENT
We continue to add strength to our management team. A few are noted
here. Larry Peterson joined us last fall as President of the Bank after a long
stint with KeyCorp. Rod Marlow, a CPA with 25 years of experience, joined the
Bank as Controller. Bill Fallaw will be the Company's Chief Credit Officer. He
has long experience at C & S and NationsBank in consumer and commercial lending.
NEW DIRECTORS
We were also fortunate to add four new directors to the Bank board:
Gordon Sherman, long-time Southeastern Regional Commissioner of the Social
Security Administration; David Bockel, President of Bockel & Company
Advertising; Kevin King, an attorney with King & Carragher; and Clyde Shepherd
III, Vice President of Toco Hill, Inc. Messrs. Sherman, Bockel and King will
also serve on the Holding Company board. Dr. Manning Pattillo retired from our
boards and we are thankful for his service.
1
<PAGE> 3
FOUNDING DIRECTORS
Jim Anderson has become Director Emeritus of the Bank and Holding
Company. He continues to be on the board of the Mortgage Company. Clyde
Shepherd, Jr. has become Director Emeritus of the Bank. He continues to serve on
the Holding Company board.
EARNINGS
Atlanta is ready for its own full service community bank and the time
is right for our plan to be a major financial company in Atlanta. Our focus on
building solid long-term value will be rewarded. As we go forward, the two years
of correction and reflection we've been through will prove to have been of value
more than equal to the cost we have incurred.
The problem in one of our affinity credit card programs is not over yet
but past dues and charge-offs are rapidly improving. Earnings will steadily
improve due to that and due to the fact that we can now permit the Company to
grow so that we can begin using the Company's excess capacity. Three branches
which we have owned and carried will open this year. Most important, our people
are relieved to be out calling for new business again.
REFLECTIONS
There is purpose in everything that happens. A couple who would not
want to be named stepped forward and increased their deposits by $15 million
last spring. Our customers, almost to the person, were steadfast. Our employees
believed in what they were building and rallied. Your directors provided the
solid, consistent leadership you expect of them. Friendship, steadfastness,
determination, honor, responsibility, never quitting, are qualities we can not
directly see or touch. Once experienced, however, they enrich us immeasurably
and forever.
Sincerely,
/s/ James B. Miller, Jr.
James B. Miller, Jr.
Chairman
2
<PAGE> 4
FIDELITY NATIONAL CORPORATION
FINANCIAL HIGHLIGHTS
(Dollars in Thousands Except Per Share data)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
FOR THE YEAR 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income $ 62,153 $ 59,800 $ 48,080 $ 35,887 $ 29,399
Net interest income 35,943 33,073 29,209 24,122 19,709
Provision for loan losses 14,435 25,127 8,090 4,125 4,200
Noninterest income, including securities gains 17,379 18,305 11,679 8,769 9,620
Securities gains, net 140 604 853 124 44
Noninterest expense 36,080 35,489 25,583 22,375 18,641
Income (loss) before cumulative effective of
change in accounting principle 1,834 (5,742) 4,649 4,299 4,271
Net Income (loss) 1,834 (5,742) 4,649 4,299 4,545
Dividends declared 251 693 644 628 472
PER SHARE DATA
Net Income loss before cumulative effect of
change in accounting principle $ .33 $ (1.24) $ 1.01 $ .93 $ 92
Net income (loss) .33 (1.24) 1.01 .93 .98
Book value 5.68 4.53 6.02 4.65 4.58
Dividends paid common -- .15 .14 .14 .10
Dividend payout ratio 13.61% *% 13.85% 14.62% 10.39%
Average shares outstanding 4,831,364 4,619,530 4,608,383 4,608,383 4,613,775
PROFITABILITY RATIOS
Return on average assets .30% *% 1.01% 1.15% 1.50%
Return on average equity 6.97 * 18.91 20.40 26.26
Net interest margin 6.41 5.97 6.87 6.95 6.49
Efficiency ratio 69.99 69.07 62.57 68.03 63.56
ASSET QUALITY RATIOS
Net charge-offs to average loans 3.58% 3.00% 2.37% 1.54% 1.65%
Allowance to period-end loans 3.31 3.85 1.54 1.31 1.97
Nonperforming assets to total loans and OREO .85 .85 1.22 .87 1.14
Allowance to nonperforming loans 10.07x 5.62x 1.80x 3.65x 7.20x
Allowance to nonperforming assets 3.89 4.71 1.25 1.50 1.72
LIQUIDITY RATIOS
Total loans to total deposits 76.90% 85.80% 87.30% 87.10% 82.40%
Average total loans to average earning assets 82.70 85.00 84.60 80.60 78.80
Noninterest-bearing deposits to total deposits 15.30 13.56 16.10 15.80 16.00
CAPITAL RATIOS
Leverage 7.77% 2.67% 5.42% 5.51% 5.73%
Risk-based capital
Tier 1 9.90 3.40 6.15 6.49 7.39
Total 14.36 6.38 10.47 8.25 9.06
Average equity to average assets 4.63 4.50 5.35 5.64 5.73
BALANCE SHEET DATA (AT END OF PERIOD)
Assets $ 657,804 $ 605,420 $ 524,822 $ 429,927 $ 331,956
Earnings assets 606,533 545,375 428,714 393,980 308,499
Total loans, net 437,182 467,390 407,290 333,674 249,912
Total deposits 568,317 544,713 466,507 383,016 303,297
Long-term debt 15,800 15,500 16,750 2,491 1,815
Shareholders' equity 52,219 21,073 27,762 21,430 21,131
Realized shareholders' equity 52,010 21,213 27,073 23,067 19,396
DAILY AVERAGE
Assets $ 608,569 $ 611,517 $ 459,251 $ 373,869 $ 302,267
Earnings assets 560,617 554,354 426,525 348,312 281,237
Total loans 463,898 471,200 360,915 280,593 221,745
Long-term debt 15,558 16,500 3,439 1,684 1,857
Shareholders' equity 26,330 27,484 24,589 21,077 17,310
</TABLE>
*NOT MEANINGFUL
3
<PAGE> 5
CONSOLIDATED FINANCIAL REVIEW
The following management's discussion and analysis reviews important factors
affecting the results of operations and financial condition of Fidelity National
Corporation and its subsidiaries (the "Company") for the periods shown. The
consolidated financial statements and related notes should be read in
conjunction with this review. In the discussion, net interest income and net
interest margin are presented on a fully taxable-equivalent basis.
OVERVIEW.
Fidelity National Corporation is a bank holding company headquarters in
Atlanta, Georgia. The Company commenced operations as Fidelity National Bank
(FNB), a full-service banking operation, in 1974. FNB provides traditional
deposit, lending, mortgage, securities brokerage, international trade services
and trust products and services to its commercial and retail customers. FNB's
wholly owned mortgage subsidiary, Fidelity National Mortgage Company is a
full-service residential mortgage banking operation; and Fidelity National
Corporation's wholly owned subsidiary, Fidelity National Capital Investors, Inc.
is a securities brokerage operation. The Company currently conducts full-service
banking and residential mortgage lending businesses through 16 locations in the
metropolitan Atlanta area. The Company conducts indirect automobile lending (the
purchase of consumer automobile installment sales contracts from automobile
dealers), residential mortgage lending and residential construction lending
through certain of its Atlanta offices and its Jacksonville, Florida location.
Indirect automobile lending is also conducted at the Tampa, Florida location.
Since its inception, the Company has pursued a strategy of growth
through internal expansion built on providing quality financial services in
selected market areas. At December 31, 1997, the Company had grown to $658
million in total assets from $332 million in total assets at December 31, 1993.
Historically, credit card loans have been an important part of the
Company's total loan portfolio. At December 31, 1993, credit card loans
represented 39.3% of the Company's total loan portfolio of $250 million. Credit
card loans declined as a percentage of total loans to 33.2% at December 31,
1994. In 1994, as a result of additional affinity programs and the introduction
of the Company's Olympic card, credit card loans outstandings increased. The
Company's affinity programs include colleges, associations and other entities
which contract to assist the Company in marketing the Company's credit cards in
return for issuance and transaction fee income. This growth continued through
1995 and into 1996, and at December 31, 1996, credit card loans totaled $144
million. During late 1996 and the first quarter of 1997, the Company's net
losses on its credit card loan portfolio increased significantly, reflecting a
national trend and credit quality issues related to an affinity program
introduced in the middle of 1995. This affinity program was subsequently
discontinued in May 1996. Since March of 1997, credit card net losses have
significantly declined. At December 31, 1997, credit card loans represented
27.4% of the Company's total loan portfolio of $437 million.
The Company has experienced significant growth in indirect automobile
lending since it implemented a strategy in 1993 to expand this activity. At
December 31, 1997, these loans totaled $152 million compared to $43 million at
December 31, 1993. During 1997 and 1996, the Company sold, either through whole
loan sales or securitization, approximately $92 million and $137 million,
respectively of indirect automobile loans with servicing retained to take
advantage of its ability to produce indirect automobile loans and to enhance
other noninterest income. In addition, during 1997 and 1996, the Company sold
$33 million and $38 million, respectively of indirect automobile loans,
servicing released. The Company anticipates that it will continue to sell
periodically, either through whole loan sales or securitization, a substantial
portion of its indirect automobile loan production to enhance noninterest income
and manage the relative level of indirect automobile loans in the Company's loan
portfolio.
Growth during 1997 was restricted until the Company increased the
Company's and FNB's capital ratios. During June and July 1997, the Company
issued through a private placement $6.15 million Non-Cumulative 1997 8%
Convertible Preferred Stock, Series A. In December 1997, the Company sold in a
public offering 3,450,000 shares of Common Stock at a price of $7.50 per share.
The proceeds of these offerings, net of issuance costs, were used to increase
FNB's capital ratios and for general corporate purposes.
RESULTS OF OPERATIONS.
NET INCOME. The Company's net income for the year ended December 31, 1997, was
$1.8 million or $.33 per share, compared to a net loss of $5.7 million or a
$1.24 loss per share for 1996. The major factors contributing to the improved
earnings for 1997 were a $10.7 million reduction in the provision for loan
losses and a $2.9 million increase in net interest income. The loss for 1996 was
due to a higher loan loss provision resulting from higher levels of
delinquencies and charge-offs in the Company's credit card loan portfolio.
During 1996, earnings were also adversely affected by expenses attributable to
recent corporate consolidation and systems upgrades. The Company's net income
for 1995 was $4.6 million or $1.01 per share.
NET INTEREST INCOME/MARGIN. Taxable-equivalent net interest income was $36.0
million in 1997, an increase of $2.9 million or 8.8% over the $33.1 million in
1996. This was primarily the result of a $2.7 million increase in yield on
earning assets due to a 55 basis point increase in the yield on
4
<PAGE> 6
loans and an 8 basis point decline in the cost of interest-bearing liabilities.
AVERAGE BALANCES, INTEREST AND YIELDS TABLE 1
<TABLE>
<CAPTION>
(Dollars in Thousands) For the Years Ended December 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
ASSETS Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- -------- ------ -------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans, net of unearned
income(1)(2)
Taxable $462,495 $ 55,928 12.09% $469,846 $ 54,206 11.55% $ 58,685 $ 43,572 12.15%
Tax-exempt(3) 1,495 134 8.96 1,355 127 9.37 2,230 227 10.18
-------- -------- -------- -------- -------- --------
Total loans 463,990 56,062 12.08 471,201 54,333 11.53 360,915 43,799 12.14
Investment securities
Taxable 71,548 4,835 6.76 73,433 4,956 6.75 60,060 4,025 6.70
Tax-exempt(3) -- -- -- -- -- -- 10 1 5.62
-------- -------- -------- -------- -------- --------
Total investment securities 71,548 4,835 6.76 73,433 4,956 6.75 60,070 4,026 6.70
Interest-bearing deposits 2,712 68 2.51 1,431 74 5.17 129 9 6.98
Federal funds sold 22,568 1,239 5.49 8,289 437 5.27 5,411 324 5.99
-------- -------- -------- -------- -------- --------
Total interest-earning assets 560,818 62,204 11.09 554,354 59,800 10.79 426,525 48,158 11.29
Cash and due from banks 20,438
Allowance for loan losses (15,865) (6,829) (4,487)
Premises and equipment 20,734 14,164 9,259
Other real estate owned 2,010 1,246 1,458
Other assets 20,436 26,598 11,851
-------- -------- --------
Total assets $608,569 $611,544 $459,251
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Demand deposits $ 82,298 2,298 2.79% $100,966 3,542 3.51% $ 92,107 3,148 3.42%
Savings deposits 28,963 1,032 3.56 26,516 1,058 3.99 15,292 520 3.40
Time deposits 363,148 20,906 5.76 344,551 19,933 5.79 243,617 14,260 5.85
-------- -------- -------- -------- -------- --------
Total interest-bearing deposits 474,409 24,236 5.11 472,033 24,533 5.20 351,016 17,928 5.11
Federal funds purchased 715 39 5.46 2,306 144 6.24 1,786 106 5.94
Securities sold under agreements
to repurchase 13,266 412 3.11 13,305 390 2.94 8,053 236 2.93
Other short-term borrowings 1,341 35 2.61 3,296 159 4.83 4,349 247 5.68
Long-term debt 15,558 1,488 9.56 16,500 1,501 9.10 3,439 354 10.29
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities 505,289 26,210 5.19 507,440 26,727 5.27 368,643 18,871 5.12
-------- -------- --------
Noninterest-bearing demand
deposits 72,807 70,073 60,131
Other liabilities 4,144 6,520 5,888
Shareholders' equity 26,330 27,484 24,589
-------- -------- --------
Total liabilities and
shareholders' equity $608,569 $611,517 $459,251
======== ======== ========
Net interest income/spread $ 35,994 5.90% $ 33,121 5.52% $ 29,287 6.17%
======== ======== ========
Net interest rate margin 6.42% 5.97% 6.87%
</TABLE>
(1) Fee income relating to loans of $3,720 in 1997, $4,007 in 1996, and
$3,854 in 1995 is included in interest income.
(2) Nonaccrual loans are included in average balances and income on such
loans, if recognized, is recognized on a cash basis.
(3) Interest income includes the effects of taxable-equivalent adjustments
of $50, $48 and, $77 for each of the three years ended December 31,
1997, 1996 and 1995, respectively using a Federal tax rate of 34%.
Average total loans declined $7.2 million during 1997, as the Company had to
restrict loan growth as a result of capital constraints. The public offering in
December 1997 significantly improved the Company's capital position. The decline
in loans was principally in credit card and construction loans, partially offset
by an increase in indirect automobile loans. The decline in average loans and
the $1.9 million decline in average investment securities was more than offset
by the $14.3 million average increase in Federal funds sold.
The $517,000 decrease in total interest expense in 1997 compared to
1996 was attributable primarily to an 8 basis point decrease in the rates paid
on average total interest-bearing liabilities, partially offset by a slight
increase in interest-bearing liabilities.
5
<PAGE> 7
Taxable-equivalent net interest income increased $3.9 million or 13.4%
in 1996 to $33.1 million from $29.2 million in 1995. This increase resulted from
a $128 million increase in average interest-earning assets to $554 million,
partially offset by a decrease in the yield on interest-earning assets to 10.79%
from 11.29%. Average total loans increased $103 million or 30.6% over average
total loans in 1995. While the increase in loan volume was primarily
attributable to indirect automobile and real estate construction loan growth,
increased loan volume occurred in all major loan categories as the economy
continued to grow. In summary, the increase in volume of every significant
category of earning assets in 1996 provided a $14.0 million increase in income
on interest earning assets, which was partially offset by a $2.3 million
decrease due to declining yields. This provided a net $11.7 million increase in
income from interest earning assets.
Average interest-bearing liabilities declined $2 million or 0.4%
following an increase of 37.7% or $139 million to $507 million in 1996. This
growth during 1996 primarily occurred in deposits. The rates paid on average
interest-bearing liabilities declined 8 basis points to 5.19% in 1997 after
increasing 15 basis points in 1996 to 5.27%, as market rates on deposits were
fairly stable during both years.
RATE/VOLUME ANALYSIS TABLE 2
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
Variance Attributed To(1) Variance Attributed To(1)
--------------------------------------- ---------------------------------------
Volume Rate Net Change Volume Rate Net Change
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net loans:
Taxable $ (642) $ 2,316 $ 1,674 $ 12,927 $ (2,245) $ 10,682
Tax-exempt(2) 10 (3) 7 (83) (17) (100)
Investment securities:
Taxable (95) (26) (121) 902 29 931
Tax-exempt(2) -- -- -- (1) -- (1)
Federal funds sold 388 414 802 156 (43) 113
Interest-bearing deposits 22 28 (6) 68 (3) 65
-------- -------- -------- -------- -------- --------
Total interest-earning assets $ (317) $ 2,673 $ 2,356 $ 13,969 $ (2,279) $ 11,690
======== ======== ======== ======== ======== ========
Interest-bearing deposits:
Demand $ (293) $ (950) $ (1,243) $ 309 $ 85 $ 394
Savings 46 (73) (27) 435 103 538
Time 531 442 973 5,841 (168) 5,673
-------- -------- -------- -------- -------- --------
Total interest-bearing deposits 284 (581) (297) 6,585 20 6,605
Federal funds purchased (44) (61) (105) 33 5 38
Securities sold under agreements
to repurchase 174 (152) 22 154 -- 154
Other short-term borrowings (35) (89) (124) (54) (34) (88)
Long-term debt (44) 31 (13) 1,192 (45) l,147
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities $ 335 $ (852) $ (517) $ 7,910 $ (54) $ 7,856
======== ======== ======== ======== ======== ========
</TABLE>
(1) The change in interest due to both rate and volume has been allocated
to the components in proportion to the relationship of the dollar
amounts of the change in each.
(2) Reflects fully taxable equivalent adjustments using a Federal tax rate
of 34%.
PROVISION FOR LOAN LOSSES. Management's policy is to maintain the allowance for
loan losses at a level sufficient to absorb estimated losses inherent in the
loan portfolio. The allowance is increased by the provision for loan losses and
decreased by charge-offs, net of recoveries. In determining inherent losses,
management considers financial services industry trends, conditions of
individual borrowers, historical loan loss experience and the general economic
environment. As these factors change, the level of loan loss provision changes.
The provision for loan losses was $14.4 million for 1997 compared to
$25.1 million in 1996.
The Company was able to reduce the provision for loan losses during
1997 as a result of declining credit card net charge-offs which peaked in March
of 1997.
For the same reason, during 1997, the Company was able to reduce the
allowance for loan losses and the allowance for loan losses allocated to credit
card loans during 1997. This decline in credit card net charge-offs was
primarily due to bringing credit card collections in-house, the discontinuance
of issuing preapproved credit cards to recent home buyers and the maturing of
the pre-approved credit cards in the portfolio.
6
<PAGE> 8
The following schedule summarizes credit card and total net charge-offs
for the past 3 years by quarter:
<TABLE>
<CAPTION>
Net Charge-offs
- -------------------------------------------------------------------------------------------------
Quarter Quarter
Ended Credit Card Total Ended Credit Card Total
- ------------------ ----------- ------ ------------------ ----------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
March 31, 1995 $1,348 $1,424 September 30, 1996 $4,471 $5,225
June 30, 1995 1,738 1,766 December 31, 1996 4,025 4,413
September 30, 1995 1,697 1,749 March 30, 1997 4,165 5,262
December 31, 1995 1,806 1,958 June 30, 1997 3,748 4,563
March 31, 1996 1,653 1,825 September 30, 1997 3,021 3,597
June 30, 1996 2,439 2,690 December 31, 1997 2,466 3,204
</TABLE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES TABLE 3
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $16,511 $ 5,537 $ 4,344 $ 4,550 $ 4,007
Charge-offs:
Commercial, financial and agricultural 154 3 60 226 18
Real estate-construction -- -- -- -- --
Real estate-mortgage -- -- -- -- 34
Consumer installment 3,367 1,657 328 88 36
Credit cards 14,735 13,156 7,051 4,466 4,091
------- ------- ------- ------- -------
Total charge-offs 18,256 14,816 7,439 4,780 4,179
Recoveries:
Commercial, financial and agricultural 103 31 42 29 122
Real estate-construction -- -- -- -- --
Real estate-mortgage -- -- -- 2 35
Consumer installment 192 64 38 24 11
Credit cards 1,335 568 462 394 354
------- ------- ------- ------- -------
Total recoveries 1,630 663 542 449 522
Net charge-offs 16,626 14,153 6,897 4,331 3,657
Provision for loan losses 14,435 25,127 8,090 4,125 4,200
------- ------- ------- ------- -------
Balance at end of period $14,320 $16,511 $ 5,537 $ 4,344 $ 4,550
======= ======= ======= ======= =======
Ratio of net charge-offs during period to
average loans outstanding, net 3.58% 3.00% 1.91% 1.54% 1.65%
Allowance for loan losses as a percentage of loans 3.31 3.85 1.54 1.31 1.97
</TABLE>
For the year ended December 31, 1996, the provision for loan losses was
$25.1 million compared to $8.1 million in 1995, an increase of 209.9%. The
increase in the provision for loan losses was the most significant factor
contributing to the decline in 1996 earnings of the Company. Net charge-offs
were $14.2 million in 1996 compared to $6.9 million in 1995. Net charge-offs to
average loans for 1996 were 3.00% compared to 2.37% in 1995. Approximately 88.9%
of the loan charge-offs in 1996 were attributable to credit card loans. This
significant increase in credit card losses in 1996 was due to several factors.
Nationally, credit card charge-offs reached record highs as consumers found
themselves unable to meet their credit card obligations. Many of these consumers
filed for bankruptcy and bankruptcies hit record levels. Moreover, a significant
portion of the Company's credit card portfolio's charge-offs were attributable
to one specific program. Under this program, which the Company initiated in the
middle of 1995 and discontinued in May 1996, the Company issued to recent home
buyers credit cards with a $3,000 credit limit, no annual fee in the first year,
a $30 annual fee thereafter and an interest rate of 14.9%. While it was, and
continues to be, the Company's policy not to issue credit cards without first
conducting a credit review, the Company initially issued preapproved credit
cards under this specific program without such a review. The reason for this
policy exception was that these customers had recently completed a credit review
necessary to secure residential mortgages from unrelated third-party lenders. In
May 1996, the Company ceased issuing preapproved credit cards under this
program. A substantial portion of the additional provision for loan losses
recorded in 1996 was to provide for losses deemed inherent in this portfolio as
of year end. As a result of the higher risk inherent in the preapproved program,
the rate on those cards was increased to 17.9% in November 1996.
7
<PAGE> 9
NONINTEREST INCOME. Noninterest income for 1997 was $17.4 million compared to
$18.3 million in 1996. The $1.5 million increase in service charge income,
credit card fees and other operating income during 1997 was more than offset by
the $2.0 million decline in income from mortgage banking activities and a
$464,000 decline in securities gains. For 1997 noninterest income benefited from
a $1.5 million gain on the sale of mortgage servicing rights, compared to $2.1
million in such gains during 1996. Primarily as a result of the sales of
mortgage servicing rights, mortgage servicing income declined $1.1 million in
1997. The 1997 gains from loan sales was $921,000 compared to a $672,000 gain on
sales of indirect automobile loans in 1996. There were no such sales in 1995.
Year-to-date noninterest income also benefited from a $620,000 increase in
indirect automobile loan servicing fees.
The profits from the sales of mortgage servicing rights in 1997 and
1996 mitigated the losses in the mortgage business due to declining loan
production and the sales reduced the Company's exposure to mortgage servicing
rights impairment due to mortgage loan prepayments.
Noninterest income for 1996 was $18.3 million compared to $11.7 million
in 1995. This increase resulted primarily from growth in residential mortgage
banking activities, brokerage operations, gains on loan sales and a loan
securitization, sale of mortgage servicing rights and increased fee income from
servicing indirect automobile loans which were sold. For 1996, noninterest
income benefited from a $2.1 million gain on sales of $286 million in mortgage
servicing rights and a $672,000 gain on sales of $195 million of indirect
automobile and credit card loans. There were no such sales in 1995. Noninterest
income in 1996 also benefited from a $1.0 million increase in brokerage fee
income, a $402,000 increase in mortgage servicing fee income, and a $707,000
increase in indirect automobile loan servicing fees.
The Company adopted Statement of Financial Standards (SFAS) No. 122,
"Accounting for Mortgage Servicing Rights" effective January 1, 1995. On January
1, 1997, the Company adopted SFAS No. 125, which supersedes SFAS No. 122.
Accordingly, the Company capitalized the cost of originated mortgage servicing
rights beginning in 1995. During 1997 and 1996, the Company capitalized
originated mortgage servicing rights and recorded related amortization of
$343,000 and $894,000 and $429,000 and $573,000, respectively. The Company
measures the value of mortgage servicing rights for impairment based on loan
type and rate structure. At December 31, 1997 and 1996, the fair value of these
rights approximated net book value.
NONINTEREST EXPENSE. Noninterest expense increased $591,000 or 1.7% in 1997 to
$36.1 million from $35.5 million in 1996. Salaries and employee benefits were up
3.7% in 1997 to $17.0 million. The increase in salaries and employee benefits
during 1997 was primarily due to normal salary increases, strengthening the
management team and bringing credit card collections in-house more than
offsetting employee reductions in other areas. The number of full time
equivalent employees at December 31, 1997, was 375 compared to 436 at December
31, 1996.
Noninterest expense increased $9.9 million or 38.7% in 1996 to $35.5
million from $25.6 million in 1995. Salaries and employee benefits, which
accounted for 46.2% of the total increase in noninterest expense, increased
39.1% in 1996 to $16.4 million from $11.8 million in 1995. The number of full
time equivalent employees was 311 at December 31, 1995. The increase in salaries
and employee benefits during 1996 was primarily attributable to expansion in
traditional banking activities and general corporate growth.
Expenses related to the amortization of mortgage servicing rights
declined to $788,000 in 1997 compared to $1.9 million in 1996 due to the 1996
and 1997 sales of mortgage servicing rights. Excluding mortgage servicing
rights, expenses related to mortgage banking activities were $3.8 million in
1997 compared to $4.5 million in 1996. Expenses related to securities brokerage
activities were $3.1 million in both 1997 and 1996.
The following schedule summarizes the change in mortgage servicing rights for
the three years ended December 31, 1997:
<TABLE>
<CAPTION>
Years Ended
December 31,
------------------------------
1997 1996 1995
---- ---- ----
(Dollars In Millions)
<S> <C> <C> <C>
Beginning balance $5.5 $7.8 $3.0
Add:
Bulk purchases -- -- 4.9
Originated servicing rights .3 .9 1.0
---- ---- ----
5.8 8.7 8.9
Less:
Amortization .5 .8 .7
Loan payoff .3 .8 .4
Bulk sale 2.8 1.6 --
---- ---- ----
Ending balance $2.2 $5.5 $7.8
==== ==== ====
</TABLE>
8
<PAGE> 10
Furniture and equipment expense and net occupancy costs increased
$950,000 during 1997 and $1.0 million during 1996 due to general corporate
growth including branch bank expansion, the consolidation of several departments
into a new operations center, and the opening of loan production offices. During
1997, the Company also absorbed the carrying cost of three complete full service
bank branches which could not be opened until the Company increased its capital.
The Company plans to open these branches in the middle of 1998. Other expenses
were also impacted by increased FDIC insurance and SAIF assessments which, for
the three years ended December 31, 1997, were $795,000, $427,000 and $1,065,000,
respectively.
The Company is implementing a program designed to ensure that its
operational and financial systems will be Year 2000 compliant. The program
involves examining both the Company's proprietary operating systems and the
Company's vendor-provided systems. The majority of application systems used by
the Company are products of established national vendors, which the Company is
working with to ensure that these systems are Year 2000 compliant.
The vendor providing midrange hardware and operating system software is
Year 2000 compliant and the Company is in the process of testing the
modifications and the interfaces to the operating system. The vendor providing
primary applications software which includes lending, deposit and general ledger
accounting is scheduled to deliver Year 2000 compliant modifications by mid-year
1998 and testing of these modifications will begin immediately upon receipt of
the modifications. All other major vendors have indicated that they will deliver
Year 2000 compliant modifications before the end of 1998 and the Company expects
to have testing completed or well underway on all major systems by December 31,
1998.
Based on currently available information, management does not
anticipate that the cost to address the Year 2000 issues will have a material
adverse impact on the Company's financial condition, results of operations, or
liquidity.
PROVISION FOR INCOME TAXES. The provision for income taxes consists of
provisions for Federal and state income taxes. The provision for income taxes
for 1997 was $1.0 million compared to a $3.5 million tax benefit for the same
period in 1996. In 1995, a $2.6 million provision for income taxes was recorded.
The Company's effective tax rate approximated statutory rates for all periods.
FINANCIAL CONDITION.
The Company manages its assets and liabilities to maximize long-term
earnings opportunities while maintaining the integrity of its financial position
and the quality of earnings. To accomplish this objective, management strives to
effect efficient management of interest rate risk and liquidity needs. The
primary objectives of interest-sensitivity management are to minimize the effect
of interest rate changes on the net interest margin and to manage the exposure
to risk while maintaining net interest income at acceptable levels. Liquidity is
provided by carefully structuring the balance sheet. The decline in capital
ratios to below statutory minimums at December 31, 1996, reduced the Company's
liquidity position and funding alternatives. As a result of the public offering
in December 1997, the Company has increased its funding alternatives and
significantly improved its capital and liquidity position at December 31, 1997.
The Company's Asset Liability Committee meets regularly to review both
the Company's interest rate sensitivity positions and liquidity.
MARKET RISK. The Company's primary market risk exposure is interest rate risk
and, to a lesser extent, credit risk and liquidity risk. The Company has little
or no risk related to trading accounts, commodities or foreign exchange.
Interest rate risk is the exposure of a banking organization's
financial condition and earnings ability to adverse movements in interest rates.
Accepting this risk can be an important source of profitability and shareholder
value; however, excessive levels of interest rate risk can pose a significant
threat to the Company's assets, earnings and capital base. Accordingly,
effective risk management that maintains interest rate risk at prudent levels is
essential to the Company's success.
The Company's Asset/Liability Management Committee ("ALCO"), which
includes senior management representatives, monitors and considers methods of
managing the rate and sensitivity repricing characteristics of the balance sheet
components consistent with maintaining acceptable levels of changes in portfolio
values and net interest income with changes in interest rates. A primary purpose
of the ALCO is to manage interest rate risk, to effectively invest the Company's
capital, and to preserve the value created by its core business operations. The
Company's exposure to interest rate risk is reviewed on at least a quarterly
basis by the Board of Directors.
Evaluating a financial institution's exposure to changes in interest
rates includes assessing both the adequacy of the management process used to
control interest rate risk and the organization's quantitative levels of
exposure. When assessing the interest rate risk management process, the Company
seeks to ensure that appropriate policies, procedures, management information
systems and internal controls are in place to maintain interest rate risk at
prudent levels with consistency and continuity. Evaluating the quantitative
level of interest rate risk exposure requires the Company to assess the existing
and potential future effects of changes in interest rates on its consolidated
financial condition, including capital adequacy, earnings, liquidity, and, where
appropriate, asset quality.
The Federal Reserve Board, together with the Office of the Comptroller
of the Currency and the Federal Deposit
9
<PAGE> 11
Insurance Corporation, adopted a Joint Agency Policy Statement on Interest Rate
Risk, effective June 26, 1996. The policy statement provides guidance to
examiners and bankers on sound practices for managing interest rate risk, which
will form the basis for ongoing evaluation of the adequacy of interest rate risk
management at supervised institutions. The policy statement also outlines
fundamental elements of sound management that have been identified in prior
Federal Reserve guidance and discusses the importance of these elements in the
context of managing interest rate risk.
Interest rate sensitivity analysis is used to measure the Company's
interest rate risk by computing estimated changes in earnings and the net
present value of its cash flows from assets, liabilities and off-balance sheet
items in the event of a range of assumed changes in market interest rates. Net
present value represents the market value of portfolio equity and is equal to
the market value of assets minus the market value of liabilities, with
adjustments made for off-balance sheet items. This analysis assesses the risk of
loss in market risk sensitive instruments in the event of a sudden and sustained
two hundred basis point increase or decrease in market interest rates.
The Company utilizes a statistical research firm specializing in the
banking industry to provide various quarterly analyses related to its current
and projected financial performance, including a Rate Shock Analysis.
Data sources for this and other analyses include quarterly FDIC Call
Reports and the Federal Reserve 4-9C, management assumptions, industry norms and
financial markets data. The standard algebraic formula for calculating present
value is used. Present value is the future cash flows of a financial investment,
or portfolio of financial instruments, discounted to the present. For purposes
of evaluating rate shock, rate change induced sensitivity tables are used in
determining repayments, prepayments and early withdrawals.
The following schedule sets forth an analysis of the Company's assumed
earnings market value risk and earnings risk inherent in its interest rate
sensitive instruments related to interest-rate swings of 200 basis points, both
above and below current levels (rate shock analysis). Earnings and fair value
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Assumptions have been made as to appropriate discount rates, prepayment speeds,
expected cash flows and other variables. Changes in assumptions significantly
affect the estimates and, as such, the derived earnings and fair value may not
be indicative of the value negotiated in an actual sale or comparable to that
reported by other financial institutions. In addition, the fair value estimates
are based on existing financial instruments without attempting to estimate the
value of anticipated future business. The tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimates.
Rate shock analysis provides only a limited, point in time view of the
Company's interest rate sensitivity. The gap analysis also does not reflect
factors such as the magnitude (versus the timing) of future interest rate
changes and asset prepayments. The actual impact of interest rate changes upon
the Company's earnings and net present value may differ from that implied by any
static rate shock measurement. In addition, the Company's net interest income
and net present value under various future interest rate scenarios are affected
by multiple other factors not embodied in a static rate shock analysis,
including competition, changes in the shape of the Treasury yield curve,
divergent movement among various interest rate indices, and the speed with which
interest rates change.
The following schedule illustrates the effects on annual earnings over
a one year period and the effects on net present value of the Company's assets,
liabilities and off-balance sheet items as a result of an immediate increase and
an immediate decrease of 200 basis points in market rates of interest:
RATE SHOCK ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------------- --------------------------------------
Market rates of interest +200 Basis Points -200 Basis Points +200 Basis Points -200 Basis Points
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Change in net present value $ (6,491) $ 4,536 $ (3,503) $ 1,707
========= ========= ========= =========
Percent change in net interest income 1.49% (1.76)% 3.57% (1.63)%
========= ========= ========= =========
Percent change in net income 4.01% (4.73)% *% *%
========= ========= ========= =========
</TABLE>
* Not meaningful due to 1996 operating loss
The analysis indicates that an immediate 200 basis point increase in
market rates of interest would reduce the net present value of the Company,
while an immediate 200 basis point decrease in market rates of interest would
increase the net present value. The impact on net present value has increased
under both scenarios when compared to 1996, primarily because of an increase in
asset maturities over one year and a decline in liability maturities over one
year. The analysis indicates that a similar rate increase would increase both
net interest income and net income over a one year period, while a similar
decrease would reduce both net interest income and net income. The projected
impact on
10
<PAGE> 12
earnings reflects the asset sensitive characteristics of the Company in the
short term. (See "Interest Rate Sensitivity"). The impact on percent change in
net interest income for 1997 is similar to that for 1996 and reflects the asset
sensitivity of the Company over a six month time horizon and the liability
sensitivity of the Company over a six to twelve month time horizon. The analysis
indicates that the effects of either an immediate and sustained increase or
decrease in market rates of interest of 200 basis points would not be material
to the Company's net present value or operating results over a one year period.
INTEREST RATE SENSITIVITY. The major elements used to manage interest rate risk
include the mix of fixed and variable rate assets and liabilities and the
maturity pattern of assets and liabilities. It is the Company's policy not to
invest in derivatives in the ordinary course of business. The Company performs a
monthly review of assets and liabilities that reprice and the time bands within
which the repricing occurs. Balances generally are reported in the time band
that corresponds to the instrument's next repricing date or contractual
maturity, whichever occurs first. However, fixed rate residential mortgage loans
are included based on scheduled payments, and credit card loans with a fixed
rate are spread based on historical run-off experience over an eight month
period. Through such analysis, the Company monitors and manages its interest
sensitivity gap to minimize the effects of changing interest rates.
The interest rate sensitivity structure within the Company's balance
sheet at December 31, 1997, indicated a cumulative net interest sensitivity
asset gap of 17.77% when projecting out one year. In the near term, defined as
90 days, the Company had a cumulative net interest sensitivity asset gap of
12.19% as of December 31, 1997. This information represents a general indication
of repricing characteristics over time; however, the sensitivity of certain
deposit products may vary during extreme swings in the interest rate cycle.
Since all interest rates and yields do not adjust at the same velocity, the
interest rate sensitivity gap is only a general indicator of the potential
effects of interest rate changes on net interest income.
The Company's policy states that the cumulative gap at the six month
and one year period should not exceed 10%. The Company interest rate shock
analysis indicates that the Company is relatively insensitive to an interest
rate shock of plus or minus 200 basis points. See "Market Risk" on the
proceeding page. The following table illustrates the Company's interest rate
sensitivity at December 31, 1997 as well as the cumulative position at December
31, 1997:
INTEREST RATE SENSITIVITY ANALYSIS(1) TABLE 4
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------------------------------------
(Dollars in Thousands) Repricing Within
0-30 31-60 61-90 91-120 121-150 151-180 One Over
Days Days Days Days Days Days Year One Year Total
-------- -------- -------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Investment securities
available-for-sale $ 34,850 $ -- $ -- $ -- $ -- $ -- $ -- $ 53,158 $ 88,008
Investment securities
held-to-maturity -- -- -- -- -- -- -- 37,925 37,925
Loans 147,999 6,876 4,837 5,914 5,322 4,837 28,453 228,583 432,821
Loans held for sale 4,361 -- -- -- -- -- -- -- 4,361
Federal funds sold 41,069 -- -- -- -- -- -- -- 41,069
Due from banks - interest earning 2,349 -- -- -- -- -- -- -- 2,349
-------- -------- -------- -------- -------- -------- --------- -------- --------
Total interest-earning assets 230,628 6,876 4,837 5,914 5,322 4,837 28,453 319,666 606,533
-------- -------- -------- -------- -------- -------- --------- -------- --------
Interest-bearing liabilities
Demand deposit accounts 4,530 4,530 4,530 4,530 4,530 4,530 27,181 33,143 87,504
Savings and NOW accounts 1,024 1,024 1,024 1,024 1,024 1,024 6,142 49,136 61,422
Money market 2,248 2,248 2,248 2,248 2,248 2,248 13,491 16,652 43,633
Time Deposits > $100,000 18,474 10,190 10,466 6,765 6,694 4,447 25,753 15,402 98,190
Time Deposits < $100,000 22,469 20,361 21,423 26,180 24,774 17,485 87,511 57,366 277,568
Long-term debt -- -- -- -- -- -- -- 15,800 15,800
Short-term borrowings 16,368 -- -- -- -- -- -- -- 16,368
-------- -------- -------- -------- -------- -------- --------- -------- --------
Total interest-bearing
liabilities 65,113 38,353 39,691 40,747 39,270 29,734 160,078 187,499 600,485
-------- -------- -------- -------- -------- -------- --------- -------- --------
Interest-sensitivity gap $165,515 $(31,477) $(34,854) $(34,833) $(33,948) $(24,897) $(131,625) $132,167 $ 6,048
======== ======== ======== ======== ======== ======== ========= ======== ========
Cumulative gap at 12/31/97 $165,515 $134,038 $ 99,184 $ 64,351 $ 30,403 $ 5,506 $(126,119) $ 6,048
======== ======== ======== ======== ======== ======== ========= ========
Ratio of cumulative gap to total
interest-earning assets 27.29% 22.10% 16.35% 10.61% 5.01% 0.91% (20.79)% 1.00%
Ratio of interest-sensitive assets
to interest-sensitive liabilities
(12/31/97) 354.20 17.93 12.19 14.51 13.55 16.27 17.77 170.49
</TABLE>
- --------------------
(1) The Company follows FDIC guidelines for non-maturity deposit accounts
across multiple time bands. Savings and NOW accounts are equally
distributed over 60 months with a limit of 40% of the total balance in
the three to five year time frame. Demand deposits and money market
accounts are distributed over 36 months with a limit of 40% of the
total balance in the one to three year time frame.
11
<PAGE> 13
LIQUIDITY. Market and public confidence in the financial strength of the Bank
and financial institutions in general will largely determine the Bank's access
to appropriate levels of liquidity. This confidence is significantly dependent
on the Bank's ability to maintain sound asset credit quality and appropriate
levels of capital resources.
Liquidity is defined as the ability of the Bank to meet anticipated
customer demands for funds under credit commitments and deposit withdrawals at a
reasonable cost and on a timely basis. Management measures the Bank's liquidity
position by giving consideration to both on-balance sheet and off-balance sheet
sources of and demands for funds on a daily and weekly basis.
Sources of liquidity include cash and cash equivalents, net of Federal
requirements to maintain reserves against deposit liabilities; investment
securities eligible for pledging to secure borrowings from dealers and customers
pursuant to securities sold under agreements to repurchase ("repurchase
agreements"); loan repayments; loan sales; deposits, and certain interest
rate-sensitive deposits; and borrowings under overnight Federal Fund lines
available from correspondent banks. During 1997 and 1996, the Company sold or
securitized $125 million and $195 million, respectively in indirect automobile
and credit card loans. In addition to interest rate-sensitive deposits, the
Bank's principal demand for liquidity is anticipated fundings under credit
commitments to customers.
Maintaining appropriate levels of capital is an important factor in
determining the availability of critical sources of liquidity. At December 31,
1997, capital ratios exceeded regulatory levels for a well capitalized
institution.
Management of the Bank seeks to maintain a stable net liquidity
position while optimizing operating results, as reflected in net interest
income, the net yield on earning assets and the cost of interest-bearing
liabilities in particular. Key management meets regularly to review the Bank's
current and projected net liquidity position and to review actions taken by
management to achieve this liquidity objective.
The Company's Consolidated Statements of Cash Flows included in the
accompanying Consolidated Financial Statements present certain information about
cash flows from operating, investing and financing activities. The Company's
principal cash flows relate to investing and financing activities of the Bank,
rather than operating activities. While the statement presents the periods' net
cash flows from lending and deposit activities, it does not reflect certain
important aspects of the Bank's liquidity described above, including (i)
anticipated liquidity requirements under outstanding credit commitments to
customers, (ii) intraperiod volatility of deposits, particularly fluctuations in
the volume of commercial customers' noninterest-bearing demand deposits, and
(iii) unused borrowings available under Federal funds lines, repurchase
agreements, and other arrangements. The Bank's principal source of operating
cash flows is net interest income.
The Company's liquidity is limited, and it primarily relies on equity
sales, interest income, management fees, and dividends from the Bank as sources
of liquidity. Interest and dividends from subsidiaries ordinarily provide a
source of liquidity to a bank holding company. Currently the Bank can pay
interest on its subordinated debt and cash dividends on its preferred stock
without the prior written consent of the OCC. As discussed later, FNC and the
Bank have entered into agreements which also impact their overall liquidity
position. See "Regulatory Agreements." In accordance with those agreements,
dividends on the Common Stock of the Bank can only be paid when the Bank is in
compliance with the OCC Agreement and with the prior written consent of the OCC.
In addition, FNC is prohibited from incurring additional debt and paying any
dividend on the Common Stock of the Company without the prior approval of the
FRB.
Net cash from operating activities primarily results from net income or
loss adjusted for the following noncash items: the provision for loan losses and
depreciation and amortization. Net cash provided by operations was positively
impacted in 1997 by the reduction in loans held-for-sale of $34 million. Net
cash flows provided by investing activities was negatively impacted by the net
purchases of investment securities of $48 million and a net increase in loans of
$146, million, offset in part by $125 million in proceeds from the sale of
loans. Net cash flows from financing activities was positively impacted by an
increase in deposits of $24 million, proceeds from the issuance of Preferred
Stock of $6 million and proceeds from the issuance of Common Stock of $23
million.
Cash increased by $36 million during the year and was available for the
purchase of earning assets to include investment securities and loans and for
other corporate purposes.
Cash flows from time deposits, which increased to $84 million in 1996,
were primarily used to support loan growth. In addition, during the year ended
December 31, 1996, the Company routinely utilized brokered deposits to fund
interim period loan growth for loan sales and a securitization. No such deposits
were outstanding as of December 31, 1997. The Company had unused sources of
liquidity in the form of unused unsecured Federal funds lines of $12 million at
December 31, 1997. The Company manages asset and liability growth through
pricing strategies within regulatory capital constraints.
Net cash provided by operations was negatively impacted in 1995 by an
increase in indirect automobile loans held-for-sale of $35 million. Significant
financing activities included growth in core deposits, short-term borrowings,
and long-term debt. In 1995, the Company sold $16.2 million in subordinated
notes and retired $1.5 million in subordinated debt. The resulting increase in
subordinated notes enhanced the Company's total risk-based capital ratio.
12
<PAGE> 14
Except for the possible adverse effects arising out of the FRB and OCC
Agreements, discussed in "Regulatory Agreements," and the level of the credit
card and indirect automobile loan delinquencies and charge-offs, there are no
known trends, events, or uncertainties of which the Company is aware that will
have or that are likely to have a material adverse effect on the Company's
liquidity, capital resources or operations.
LOANS. During 1997, total loans outstanding, including loans held-for-sale,
declined $30 million to $437 million. The decline in loans outstanding was
attributable to capital restraints on growth, not market conditions. By year end
1997, credit card loans had declined $24 million or 16.6%, real
estate-construction loans had declined $12 million or 20.9% and real
estate-mortgage loans had declined $7 million or 9.9%. These declines were
partially offset by increases in commercial and consumer installment loans.
Average loan balances for 1997 declined $7.2 million.
LOANS, BY CATEGORY TABLE 5
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial:
Commercial, financial and agricultural $ 50,169 $ 43,247 $ 37,778 $ 29,831 $ 19,732
Tax exempt 1,527 698 1,517 2,091 2,435
-------- -------- -------- -------- --------
Total commercial 51,696 43,945 39,295 31,922 22,167
Real estate-construction 44,536 56,325 40,955 32,355 20,012
Real estate-mortgage 64,602 71,719 61,247 66,707 47,064
Consumer installment 152,123 113,513 78,806 89,595 43,115
Credit cards 119,864 143,782 139,873 110,870 98,135
-------- -------- -------- -------- --------
Loans 432,821 429,284 360,176 331,449 230,493
Allowance for loan losses 14,320 16,511 5,536 4,344 4,550
-------- -------- -------- -------- --------
Loans, net $418,501 $412,773 $354,640 $327,105 $225,943
======== ======== ======== ======== ========
TOTAL LOANS
Loans $432,821 $429,284 $360,177 $331,449 $230,493
Loans held-for-sale:
Mortgage loans 4,361 13,106 12,113 2,225 19,419
Consumer installment -- 25,000 35,000 -- --
-------- -------- -------- -------- --------
Total loans held-for-sale 4,361 38,106 47,113 2,225 19,419
-------- -------- -------- -------- --------
Total loans $437,182 $467,390 $407,290 $333,674 $249,912
======== ======== ======== ======== ========
</TABLE>
The following table shows the maturity distribution and interest rate
sensitivity of the Company's loan portfolio at December 31, 1997:
LOAN MATURITY AND INTEREST RATE SENSITIVITY TABLE 6
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------
Within One Through Over
One Year Five Years Five Years Total
-------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Loan Maturity
Commercial, financial and agricultural $20,414 $23,941 $ 7,341 $51,696
Real estate-construction 39,913 3,404 1,219 44,536
------- ------- ------- -------
Total $60,327 $27,345 $ 8,560 $96,232
======= ======= ======= =======
Interest Rate Sensitivity
Selected loans with:
Predetermined interest rates:
Commercial, financial and agricultural $ 1,002 $ 2,447 $ 3,834 $ 7,283
Real estate-construction -- -- 66 66
Floating or adjustable interest rates:
Commercial, financial and agricultural 19,412 21,494 3,507 44,413
Real estate-construction 39,913 3,404 1,153 44,470
------- ------- ------- -------
Total $60,327 $27,345 $ 8,560 $96,232
======= ======= ======= =======
</TABLE>
During 1996, the Company experienced increases in every major loan
category. At December 31, 1996, total loans outstanding were $467 million
compared to $407 million at year end 1995, a 14.8% increase. Average total loans
during 1996 increased $110 million or 30.6%, to $471 million. The most
significant increases in 1996 occurred in real estate-construction loans which
increased $15 million, or 37.5%, to $56 million; real estate-mortgage loans
which increased $10 million, or 17.1%, to $72 million; and consumer installment
loans which increased $25 million, or 21.7%, to $139 million.
NONPERFORMING ASSETS. Nonperforming assets consist of nonaccrual and
restructured loans and other real estate. Nonaccrual loans are loans on which
the interest accruals have been discontinued when it appears that future
collection of principal or interest according to the contractual terms may be
doubtful. Interest on these loans is reported on the cash
13
<PAGE> 15
basis as received when the full recovery of principal is anticipated or after
full principal has been recovered when collection of interest is in question.
Restructured loans are those loans whose terms have been modified, because of
economic or legal reasons related to the debtor's financial difficulties, to
provide for a reduction in principal, change in terms, or modification of
interest rates to below market levels. Other real estate is real property
acquired by foreclosure or directly by title or deed transfer in settlement of
debt.
Nonperforming assets at December 31, 1997, were $3.7 million. Since
December 31, 1996, nonperforming assets have increased $175,000, or 5.0%. During
1997, other real estate increased $1.7 million to $2.3 million. At December 31,
1997 and 1996, there were no restructured loans. Nonperforming assets decreased
$.9 million in 1996 from $4.4 million at December 31, 1995. The ratio of
nonperforming assets to total loans and other real estate was 0.85% at December
31, 1997, compared to 0.82% and 1.24% at December 31, 1996 and 1995,
respectively. The ratio of loans past due 90 days and still accruing to total
loans was 1.43% at December 31, 1997. This ratio was 1.60% and .87% at December
31, 1996 and 1995, respectively.
When a loan is classified as nonaccrual, to the extent collection is in
question, previously accrued interest is reversed and interest income is
decreased to the extent of all interest accrued in the current year. If any
portion of the accrued interest had been accrued in the previous year, accrued
interest is decreased and a charge for that amount is made to the allowance for
loan losses. For 1997, the gross amount of interest income that would have been
recorded on nonaccrual and restructured loans, if all such loans had been
accruing interest at the original contract rate, was $73,000.
Credit card accounts are sampled on a quarterly basis and reviewed to
assure compliance with the Company's credit policy. Review procedures include
determination that the appropriate verification process has been completed,
recalculation of the borrower's debt ratio, and analysis of the borrower's
credit history to determine if it meets established Bank criteria. Policy
exceptions are analyzed monthly. Delinquent accounts are monitored daily and
charged off after 180 days past due, which is the industry standard. Prior to
charge-off, interest on credit card loans continues to accrue. Upon charge-off,
all current period interest income and related fees are charged against interest
income.
NONPERFORMING ASSETS TABLE 7
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonperforming Assets
Nonaccrual loans $1,422 $2,940 $3,105 $1,189 $ 632
Restructured loans -- -- -- -- --
Other real estate 2,260 567 1,339 1,714 2,016
------ ------ ------ ------ ------
Total nonperforming assets $3,682 $3,507 $4,444 $2,903 $2,648
====== ====== ====== ====== ======
Loans past due 90 days or more and still accruing $6,194 $6,890 $3,091 $2,134 $1,422
====== ====== ====== ====== ======
Ratio of past due loans to total loans 1.43% 1.60% .87% .64% .62%
Ratio of nonperforming assets to total
loans and other real estate .85% .82% 1.24% .87% 1.14%
</TABLE>
Management is not aware of any potential problem loans other than those
disclosed in the table above, which includes all loans recommended for such
classification by regulators, which would have a material impact on asset
quality. The adverse trends impacting the consumer portfolio, primarily credit
cards and indirect auto loans, have been discussed elsewhere herein.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. Allocation of the allowance for loan
losses is based primarily on historical loan loss experience, utilizing loss
migration analysis where appropriate, adjusted for changes in the risk
characteristics of each loan category. Additional amounts are allocated based on
the evaluation of the loss potential of individual troubled loans and the
anticipated effect of economic conditions on both individual loans and loan
categories. Since the allocation is based on estimates and subjective judgment,
it is not necessarily indicative of the specific amounts or loan categories in
which losses may ultimately occur.
At December 31,1997, the allowance for loan losses was $14.3 million,
or 3.31%, of loans compared to $16.5 million, or 3.85%, at December 31, 1996. At
December 31, 1997 and 1996, credit card loans totaled $120 million and $144
million, respectively or 27.7% and 33.5% of loans, respectively, compared to
$140 million, or 38.8%, at December 31, 1995. The amount of the allowance for
loan losses allocated to credit cards was $9.4 million at December 31, 1997,
compared to $13.7 million at December 31, 1996. The Company has reduced its
allowance for loans losses and particularly the allowance allocated to credit
card loans due to the decline in credit card loans outstanding, declining net
charge-offs and delinquencies and the projected decline in net charge-offs on
credit card loans. See "Provision for Loan Losses."
At December 31, 1995, the Company's allowance for loan losses as a
percentage of loans was 1.54%. The 1996 increase was due primarily to
unfavorable delinquency and charge-off trends related to credit card loans.
Although credit card balances increased nominally in 1996, this ratio was
significantly increased in 1996, as credit card delinquencies and net
charge-offs increased. During 1997, credit card delinquencies and credit card
charge-offs declined. See "Provision for Loan Losses". Management believes the
allowance for loan losses is adequate to provide for losses inherent in the loan
portfolio.
14
<PAGE> 16
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES TABLE 8
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
--------------------- --------------------- ---------------------
Allowance % Allowance % Allowance %
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 154 11.94% $ 98 10.24% $ 97 10.91%
Real estate-construction 48 10.29 35 13.12 30 11.37
Real estate-mortgage 65 14.93 350 16.71 8 17.00
Consumer installment 3,442 35.15 2,282 26.44 357 21.88
Credit cards 9,436 27.69 13,746 33.49 4,875 38.84
Unallocated 1,175 -- -- -- 169 --
------- ------ ------- ------ ------- ------
Total $14,320 100.00% $16,511 100.00% $ 5,536 100.00%
======= ====== ======= ====== ======= ======
<CAPTION>
December 31, 1994 December 31, 1993
--------------------- ---------------------
Allowance % Allowance %
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 54 9.64% $ 52 8.86%
Real estate-construction 26 9.85 17 8.04
Real estate-mortgage 16 20.10 24 26.59
Consumer installment 402 26.96 270 17.25
Credit cards 3,750 33.45 3,252 39.26
Unallocated 96 -- 935 --
------- ------ ------- ------
Total $ 4,344 100.00% $ 4,550 100.00%
======= ====== ======= ======
</TABLE>
The following table summarizes data related to the Company's
preapproved and other credit card activities:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1997 1996 1995 1994
-------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Loans outstanding:
Preapproved $ 46,868 $ 57,980 $ 30,690 $ --
Other 72,996 85,802 109,183 110,870
-------- -------- -------- --------
Total $119,864 $143,782 $139,873 $110,870
======== ======== ======== ========
Delinquencies 30+ days:
Preapproved $ 6,855 $ 8,665 $ 1,724 $ --
Other 4,197 6,715 6,055 5,553
-------- -------- -------- --------
Total $ 11,052 $ 15,380 $ 7,779 $ 5,553
======== ======== ======== ========
Net charge-offs:
Preapproved $ 7,810 $ 5,078 $ 52 $ 6,330
Other 5,590 7,510 6,537 4,605
-------- -------- -------- --------
Total $ 13,400 $ 12,588 $ 6,589 $ 10,935
======== ======== ======== ========
</TABLE>
INVESTMENT SECURITIES. The levels of taxable securities and short-term
investments reflect the Company's strategy of maximizing portfolio yields while
providing for liquidity needs. Investment securities totaled $126 million and
$78 million at December 31, 1997 and 1996, respectively. The majority of the
holdings are backed by U.S. Government or Federal agency guarantees limiting the
credit risks associated with these securities. The increase at December 31,
1997, compared to December 31, 1996, was primarily attributable to the purchase
of short-term discount notes totaling $35 million for the available-for-sale
portfolio and the purchase of $15 million in medium-term callable agency
securities and $14 million in mortgage-backed securities for the
held-to-maturity portfolio. The funds generated to purchase these securities
were provided from the sale of consumer installment loans, the sale of
mortgage-backed securities and the proceeds of the common stock offering.
Excluding the discount notes, the average maturity of the Company's securities
portfolio was 3.5 years at December 31, 1997. Including the discount notes, the
average maturity was 2.7 years. At year end 1997, approximately $88 million of
investment securities were classified as available-for-sale, compared to $70
million at December 31, 1996. The net unrealized gains on these securities at
December 31, 1997, was $.3 million before taxes compared to an unrealized loss
of $.2 million before taxes at December 31, 1996.
At December 31, 1997, the Company classified all but $38 million of its
investment securities as available-for-sale. The Company maintains a relatively
high percentage of its investment portfolio as available-for-sale for possible
liquidity needs related to loan production and credit card activities.
15
<PAGE> 17
DISTRIBUTION OF INVESTMENT SECURITIES TABLE 9
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
--------------------------------------------------------------------
1997 1996 1995
--------------------- ---------------------- --------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 94,272 $ 94,486 $ 54,128 $ 53,798 $ 30,950 $ 31,623
Mortgage-backed securities 28,899 29,022 21,754 21,740 24,780 25,248
Other investments 2,425 2,425 1,854 1,854 1,588 1,588
-------- -------- -------- -------- -------- --------
Total $125,596 $125,933 $ 77,736 $ 77,392 $ 57,318 $ 58,459
======== ======== ======== ======== ======== ========
</TABLE>
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES AND AVERAGE YIELDS(1) TABLE 10
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------------- ----------------------------------
Amortized Fair Average Amortized Fair Average
Cost Value Yield(2) Cost Value Yield(2)
--------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
Due in less than one year $34,850 $34,857 5.75% $17,993 $17,993 4.87%
Due after five years through ten years 25,442 25,578 6.96 17,436 17,362 6.96
Due after ten years 12,970 13,025 7.47 12,721 12,583 7.54
Mortgage-backed securities 14,409 14,548 6.61 21,754 21,740 5.73
------- ------- ------- -------
Total $87,671 $88,008 $69,904 $69,678
======= ======= ======= =======
HELD-TO-MATURITY
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies
Due after ten years $21,010 $21,026 6.93 $ 5,979 $ 5,860 7.19
Mortgage-backed securities 14,490 14,474 6.05 -- -- --
------- ------- ------- -------
Total $35,500 $35,500 $ 5,979 $ 5,860
======= ======= ======= =======
</TABLE>
- --------------------
(1) This table excludes equity investments which have no maturity date.
(2) Weighted average yields are calculated on the basis of the carrying
value of the security.
DEPOSITS AND FUNDS PURCHASED. Total deposits increased during 1997 to $568
million or 4.3%, from $545 million at December 31, 1996. On an average balance
basis, interest-bearing demand deposits declined $19 million, savings deposits
grew $2 million and time deposits grew $19 million. During 1996, brokered
deposits were used to support loan growth for loan sales. Brokered deposits were
not used during 1997. Core deposits, the Company's largest source of funding,
consist of all interest-bearing and noninterest-bearing deposits except time
deposits over $100,000. Core deposits are obtained from a broad range of
customers. Average interest-bearing core deposits were $384 million and $406 at
December 31, 1997 and 1996, respectively.
Total deposits as of December 31, 1996, increased $78 million or 16.8%
from $467 million as of December 31, 1995. On an average balance basis, all
categories of deposits except interest-bearing demand deposits reflected volume
increases.
Noninterest-bearing deposits are comprised of certain business
accounts, including correspondent bank accounts, escrow deposits, as well as
individual accounts. Average demand deposits noninterest bearing represented
18.96% of average core deposits in 1997 compared to 17.3% in 1996. The average
amount of, and average rate paid on, deposits by category for the periods shown
are presented below:
16
<PAGE> 18
SELECTED STATISTICAL INFORMATION FOR DEPOSITS TABLE 11
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
----------------------------------------------------------------
1997 1996 1995
------------------- ------------------- ------------------
Average Average Average
Amount Rate Amount Rate Amount Rate
------------------- ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 72,807 --% $ 70,074 --% $ 60,131 --%
Interest-bearing demand deposits 82,298 2.81 100,966 3.51 92,107 3.42
Savings deposits 28,963 3.56 26,516 3.99 15,292 4.30
Time deposits 363,148 5.75 344,551 5.79 243,617 5.85
-------- -------- --------
Total average deposits $547,216 5.10 $542,107 4.53 $411,147 4.36
======== ======== ========
</TABLE>
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1997
Maturity Distribution of Time Deposits $100,000 or More
-------------------------------------------------------------
<S> <C>
Three months or less $ 39,130
Over three through six months 17,905
Over six through twelve months 25,753
Over twelve months 15,402
--------
Total $ 98,190
========
</TABLE>
SCHEDULE OF SHORT - TERM BORROWINGS(1) TABLE 12
(Dollars in Thousands)
<TABLE>
Weighted
Maximum Average Interest Average
Year Ended Outstanding at Average Rate During Ending Interest Rate at
December 31, any Month-End Balance Year Balance Year-End
------------ ------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
1997 $29,020 $15,322 3.17% $16,368 2.96%
1996 25,760 18,907 3.67 17,184 3.06
1995 23,939 14,188 4.15 8,245 2.96
</TABLE>
(1) Consists of Federal funds purchased, securities sold under agreements
to repurchase, and borrowings from the Federal Home Loan Bank that
mature either overnight or on a fixed maturity not to exceed three
months.
No average balance of any single category of short-term borrowings
exceeded 30% of shareholders' equity for any period shown.
LONG-TERM DEBT. On December 12, 1995, the Company issued $15 million in 8.5%
Subordinated Notes due January 31, 2006. The Company loaned $10 million of the
proceeds to FNB to enhance FNB's total capital ratio. The balance of the
proceeds was used to retire certain previously issued subordinated notes and for
general corporate purposes.
SHAREHOLDERS' EQUITY. Shareholders' equity at December 31, 1997, was $52
million, an increase of $31 million, or 147.6%, from $21 million at December 31,
1996. Realized shareholders' equity (shareholders' equity excluding unrealized
gains or losses on investment securities available-for-sale) was $52 million at
December 31, 1997, and $21 million at December 31, 1996.
The 1997 increase in shareholders' equity was primarily attributable to
the net proceeds of $5,650,000 from the issuance of 984,000 shares, at $6.25 per
share, of Non-Cumulative 8% Convertible Preferred Stock and the net proceeds of
$23,467,000 from the issuance of 3,450,000 shares, at $7.50 per share, of Common
Stock through a public stock offering.
In 1997, the Company paid dividends of $251,000 on the preferred stock.
During 1997, the Company paid no dividends on Common Stock compared to $693,000
and $644,000 in 1996 and 1995, respectively. In addition, on October 9, 1995,
the Company paid a 10% Common Stock dividend to shareholders of record on
September 28, 1995. The following schedule reflects the Company's Common Stock
dividend payout for the past three years as restated to reflect the 10% Common
Stock dividend.
17
<PAGE> 19
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
First Quarter $ -- $.0375 $.0341
Second Quarter -- .0375 .0341
Third Quarter -- .0375 .0341
Fourth Quarter -- .0375 .0375
For the Year -- .1500 .1398
</TABLE>
REGULATORY AGREEMENTS. The Company and the Bank are principally regulated by the
FRB and the OCC, respectively. At periodic intervals, the OCC examines and
evaluates the financial condition, operations, and policies and procedures of
nationally chartered banks, such as the Bank, as part of its legally prescribed
oversight responsibilities
On November 14, 1996, the Bank entered into an agreement with the OCC
("OCC Agreement") which provides that the Bank (i) will appoint an "Oversight
Committee"; (ii) will achieve and maintain specified higher capital levels;
(iii) will develop a three-year capital program which will include, among other
things, certain restrictions on dividend payments by the Bank; and (iv) will
revise and amend its strategic plan.
On April 3, 1997, the OCC notified the Bank that since it did not meet
the minimum capital levels established for an "adequately capitalized" bank, the
Bank was deemed to be "undercapitalized" and was subject to prompt corrective
action pursuant to 12 U.S.C. Sec. 1831. As a result, the Bank was subject to
restrictions on its ability to pay dividends and management fees and to
restrictions on asset growth and expansion. The OCC may also impose other
supervisory actions. The Bank was also required to file a capital restoration
plan with the OCC before May 19, 1997, which was submitted and approved by the
OCC. In June and July, the Company issued $6.2 million in Preferred Stock, the
net cash proceeds of which were invested in preferred stock of the Bank. As a
result of the issuance of the Preferred Stock and subsequent investment in the
Bank, on September 30, 1997, the Company and the Bank were adequately
capitalized and no longer subject to such prompt corrective action.
The Oversight Committee is comprised of three members of the Board of
Directors of the Bank, a majority of whom are not employees of the Company. The
Oversight Committee, which meets and reports monthly to the Board of Directors,
is responsible for monitoring and coordinating compliance by the Bank with the
OCC Agreement.
On February 26, 1998, the Board of Directors of the Bank submitted the
Bank's revised strategic plan reflecting the Bank's December 31, 1997, capital
ratios. The strategic plan includes objectives for earnings performance, growth,
balance sheet mix, off-balance sheet activities, liability structure, capital
adequacy, product line development and market segments which the Bank intends to
promote or develop together with strategies to achieve these objectives. With
the submission of the Bank's strategic plan, management believes that it is in
compliance with all tenants of the OCC Agreement.
The Bank periodically submits reports to the OCC evidencing compliance
with the OCC Agreement. Even though the Bank meets the required capital levels,
the OCC Agreement continues in effect until it is amended or terminated. The OCC
Agreement can impair the ability of the Bank to declare and pay dividends to
Fidelity on its common stock without the approval of the OCC.
The OCC Agreement requires the Bank to maintain higher capital ratios
than those applicable under OCC regulations for an "adequately capitalized"
bank. At December 31, 1997, the capital ratios of the Bank exceed those
prescribed by the OCC Agreement.
For additional information, see Note 2 "Regulatory Agreements" of the
Notes to Consolidated Financial Statements.
The Board of Directors of the Company adopted a resolution ("FRB
Agreement") on February 13, 1997, as requested by the Federal Reserve Bank of
Atlanta, that prohibits the Company from redeeming its capital stock, paying
dividends on Common Stock or incurring debt without prior approval of the FRB.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock Based Compensation." SFAS 123 encourages
companies to adopt the fair value method for expense recognition for all
stock-based compensation plans. The Company, in accordance with SFAS 123, has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related Interpretations in accounting
for its employee stock options.
Beginning on January 1, 1997, the Company adopted the provisions of "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," SFAS No. 125, which provides new accounting and reporting
standards for sales, securitizations and servicing of receivable and other
financial assets and extinguishments of liabilities and supersedes SFAS 122.
SFAS No. 125 is effective for transactions occurring after December 31, 1996,
except those provisions relating to repurchase agreements, securities lending
and other similar transactions and pledged collateral, which have been delayed
until after December 31, 1997, by SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of Statement No. 125, an amendment of FASB Statement No.
125."
18
<PAGE> 20
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." The statement revises standards for computing and
presenting net income per share by (a) replacing primary net income per share
with basic net income per share, (b) requiring dual presentation of basic and
diluted net income per share for entities with complex capital structures, and
(c) requiring a reconciliation of the basic net income per share computation to
diluted net income per share. Basic net income per share is calculated by
dividing net income available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted net income per share
includes the effect of potential dilution that could occur if securities or
other contracts to issue Common Stock were exercised or converted into common
shares. The adoption of SFAS No. 128 did not have a material effect on the
Company's earnings per share calculations.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which is effective for annual and interim periods beginning after December 15,
1997. This statement requires that all items that are required to be recognized
under accounting standards as comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is effective for annual and interim
periods beginning after December 15, 1997. This statement establishes standards
for the method that public entities are to use to report information about
operating segments in annual financial statements and requires that those
enterprise reports be issued to shareholders. It also establishes standards for
related disclosures about products and services, geographical areas and major
customers.
QUARTERLY FINANCIAL INFORMATION
The following table sets forth, for the periods indicated, certain consolidated
quarterly financial information of the Company. This information is derived from
unaudited Consolidated Financial Statements which include, in the opinion of
management, all normal recurring adjustments which management considers
necessary for a fair presentation of the results for such periods. The results
for any quarter are not necessarily indicative of results for any future period.
This information should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this report.
The results for any quarter are not necessarily indicative of results for any
future period.
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) TABLE 13
<TABLE>
1997 1996
----------------------------------------- -----------------------------------------
(Dollars in Thousands) Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 15,343 $ 15,953 $ 15,611 $ 15,246 $ 15,475 $ 15,644 $ 14,963 $ 13,718
Interest expense 6,610 6,650 6,429 6,521 6,963 7,151 6,776 5,837
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income 8,733 9,303 9,182 8,725 8,512 8,493 8,187 7,881
Provision for loan losses 2,765 3,400 3,500 4,770 14,027 5,700 3,000 2,400
Noninterest income before
securities gain 4,251 4,173 3,581 5,234 5,450 4,053 4,830 3,368
Securities gains 140 -- -- -- 243 79 195 87
-------- -------- -------- -------- -------- -------- -------- --------
Total noninterest income 4,391 4,173 3,581 5,234 5,693 4,132 5,025 3,455
Noninterest expense 9,345 9,247 8,771 8,717 9,341 9,521 8,621 8,005
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes 1,014 829 492 472 (9,163) (2,596) 1,591 931
Income tax expense (benefit) 368 288 154 163 (3,417) (992) 586 328
-------- -------- -------- -------- -------- -------- -------- --------
Net Income (loss) $ 646 $ 541 $ 338 $ 309 $ (5,745) $ (1,604) $ 1,005 $ 603
======== ======== ======== ======== ======== ======== ======== ========
Basic and diluted earnings per share $ .10 $ .09 $ .07 $ .07 $ (1.24) $ (.35) $ .22 $ .13
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
19
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Fidelity National Corporation
We have audited the accompanying consolidated statements of condition of
Fidelity National Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fidelity National Corporation and subsidiaries at December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
February 26, 1998
20
<PAGE> 22
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks - Note 13 $ 25,843,295 $ 29,311,690
Interest-bearing deposits with banks 2,349,419 3,300,708
Federal funds sold 41,068,827 343,019
Investment securities available-for-sale - Note 3 88,007,985 69,677,643
Investment securities held-to-maturity
(fair values of $37,924,411 and $7,714,219
for 1997 and 1996, respectively) - Note 3 37,925,224 7,832,916
Loans held-for-sale 4,360,765 38,105,868
Loans, net of unearned income - Note 4 432,820,665 429,283,563
Allowance for loan losses - Note 4 (14,319,591) (16,510,842)
------------- -------------
Loans, net 418,501,074 412,772,721
Premises and equipment, net - Note 5 20,517,650 19,799,079
Other real estate - Note 4 2,259,704 566,751
Accrued interest receivable 4,492,422 5,007,876
Other assets 12,477,638 18,702,026
------------- -------------
Total assets $ 657,804,003 $ 605,420,297
============= =============
LIABILITIES
Deposits - Note 6
Noninterest-bearing demand deposits $ 87,054,288 $ 73,877,369
Interest-bearing deposits:
Demand and money market 83,756,126 78,451,267
Savings 21,748,732 38,867,549
Time deposits, $100,000 and over 98,190,352 94,465,163
Other time deposits 277,567,827 259,051,981
------------- -------------
Total deposits 568,317,325 544,713,329
Short-term borrowings - Note 7 16,367,839 17,183,769
Long-term debt - Note 8 15,800,000 16,500,000
Accrued interest payable 3,192,701 3,502,631
Other liabilities 1,906,800 2,447,752
------------- -------------
Total liabilities 605,584,665 584,347,481
------------- -------------
Commitments and contingencies - Notes 13 and 14
SHAREHOLDERS' EQUITY - Notes 2 and 11
Preferred Stock, no par value. Authorized
10,000,000 and none in 1996; 984,000 shares
of Non-cumulative 8% Convertible Preferred
Stock - Series A, stated value $6.25 in 1997;
none in 1996 6,150,000 --
Common Stock, no par value. Authorized
50,000,000; issued 8,125,499 and 4,665,256;
outstanding 8,114,407 and 4,654,164 in 1997
and 1996, respectively 34,943,110 11,878,597
Treasury stock (69,325) (69,325)
Net unrealized gains (losses) on investment
securities available-for-sale, net of tax 208,694 (140,241)
Retained earnings 10,986,859 9,403,785
------------- -------------
Total shareholders' equity 52,219,338 21,072,816
------------- -------------
Total liabilities and shareholders' equity $ 657,804,003 $ 605,420,297
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 23
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 56,010,450 $ 54,333,446 $ 43,722,346
Investment securities:
Taxable 4,835,128 4,956,072 4,024,715
Tax-exempt
-- -- 360
Federal funds sold 1,238,941 436,649 323,622
Deposits with other banks 68,463 74,104 8,947
------------ ------------ ------------
Total interest income 62,152,982 59,800,271 48,079,990
INTEREST EXPENSE
Deposits - Note 6 24,236,294 24,532,698 17,927,967
Short-term borrowings 485,593 692,591 589,733
Long-term debt 1,487,673 1,501,487 353,116
------------ ------------ ------------
Total interest expense 26,209,560 26,726,776 18,870,816
NET INTEREST INCOME 35,943,422 33,073,495 29,209,174
Provision for loan losses - Note 4 14,435,000 25,127,000 8,090,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 21,508,422 7,946,495 21,119,174
NONINTEREST INCOME
Service charges on deposit accounts 2,096,948 1,737,145 1,484,835
Credit card fees 3,083,913 2,927,992 2,470,531
Mortgage banking activities 4,902,945 6,900,260 3,337,767
Securities gains, net - Note 3 140,090 603,977 854,919
Other - Note 15 7,154,860 6,135,848 3,531,359
------------ ------------ ------------
Total noninterest income 17,378,756 18,305,222 11,679,411
NONINTEREST EXPENSE
Salaries and employee benefits - Note 10 17,012,788 16,411,631 11,794,559
Furniture and equipment 2,293,866 1,722,979 1,389,858
Net occupancy 2,974,877 2,596,155 1,905,762
Credit card processing and transaction fees 2,814,563 3,030,290 1,973,557
Amortization of mortgage servicing rights 788,201 1,927,250 1,136,299
Other - Note 15 10,195,859 9,800,355 7,383,149
------------ ------------ ------------
Total noninterest expense 36,080,154 35,488,660 25,583,184
------------ ------------ ------------
Income (loss) before income taxes 2,807,024 (9,236,943) 7,215,401
Income tax expense (benefit) - Note 9 972,875 (3,495,212) 2,566,019
------------ ------------ ------------
NET INCOME (LOSS) $ 1,834,149 $ (5,741,731) $ 4,649,382
============ ============ ============
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 1,583,074 $ (5,741,731) $ 4,649,382
============ ============ ============
BASIC AND DILUTED EARNINGS PER SHARE $ 0.33 $ (1.24) $ 1.01
============ ============ ============
Weighted average shares outstanding 4,831,364 4,619,530 4,608,383
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 24
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss) $ 1,834,149 $ (5,741,731) $ 4,649,382
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 14,435,000 25,127,000 8,090,000
Depreciation and amortization of premises and equipment 1,979,847 1,481,379 1,097,090
Amortization of mortgage servicing rights 788,201 1,927,250 1,136,299
Additions of originated mortgage servicing rights (343,974) (893,878) (1,031,548)
Purchases of investments held in trading accounts -- -- --
Securities gains, net (140,090) (603,977) (854,919)
Gain on loan sales and securitization (920,983) (672,012) (228,641)
Decrease (increase) in loans held-for-sale 33,745,103 9,006,667 (44,887,263)
Net decrease (increase) in accrued interest receivable 515,454 (1,430,014) (984,844)
Net (decrease) increase in accrued interest payable (309,930) 895,829 838,033
Net (decrease) increase in other liabilities (540,952) 502,481 (757,175)
Net decrease (increase) in other assets 5,780,161 (7,504,116) 229,358
Other, net (21,403) 54,117 (87,167)
------------- ------------- -------------
Net cash flows provided by (used in) operating activities 56,800,583 22,148,995 (32,791,395)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held-to-maturity (30,092,474) (33,294,485) (11,038,682)
Maturities of investment securities held-to-maturity -- 30,375,000 14,056,006
Sales of investment securities available-for-sale 9,117,568 43,781,536 34,233,853
Purchases of investment securities available-for-sale (79,833,616) (65,077,185) (43,826,318)
Maturities of investment securities available-for-sale 52,983,590 3,728,880 12,956,531
Net increase in loans (146,410,725) (286,040,758) (57,917,324)
Purchases of mortgage servicing rights -- -- (4,981,096)
Purchases of premises and equipment (2,698,418) (10,692,025) (2,863,948)
Proceeds from sale of loans 125,158,018 203,543,314 21,125,520
Proceeds from sales of other real estate 327,644 345,575 961,712
------------- ------------- -------------
Net cash flows used in investing activities (71,448,413) (113,330,148) (37,293,746)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, money market
accounts, and savings accounts 1,362,961 (5,693,692) 30,392,930
Net increase in time deposits 22,241,035 83,899,712 53,098,658
Proceeds from issuance of long-term debt -- -- 16,250,000
Proceeds from issuance of Preferred Stock 5,650,000 -- --
Proceeds from issuance of Common Stock 23,466,963 575,191 --
Repayment of long-term debt (700,000) (250,000) (1,991,000)
(Decrease) increase in short-term borrowings (815,930) 8,938,578 (10,695,102)
Dividends paid (251,075) (692,909) (644,135)
------------- ------------- -------------
Net cash flows provided by financing activities 50,953,954 86,776,880 86,411,351
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 36,306,124 (4,404,273) 16,326,210
Cash and cash equivalents, beginning of year 32,955,417 37,359,690 21,033,480
------------- ------------- -------------
Cash and cash equivalents, end of year $ 69,261,541 $ 32,955,417 $ 37,359,690
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 26,519,490 $ 25,830,947 $ 18,032,783
============= ============= =============
Income taxes $ 700,000 $ 1,375,000 $ 2,163,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
unrealized
gains
(losses) on
Preferred Stock Common Stock Treasury Stock Investment
------------------- ---------------------- ---------------- Securities Total
Available- Retained Shareholders'
Shares Amount Shares Amount Shares Amount for-Sale Earnings Equity
------- ---------- --------- ----------- ------ -------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1995 -- $ -- 4,200,600 $ 5,125,000 11,092 $(69,325) $(1,637,177) $18,838,42 $21,430,082
Net income -- -- -- -- -- -- -- 4,649,382 4,649,382
Dividends declared ($.1398
per share) -- -- -- -- -- -- -- (644,135) (641,135)
10% stock dividend -- -- 418,875 6,178,406 -- -- -- (6,178,406) --
Change in net unrealized
gains (losses) on
investment securities
available-for-sale,
net of tax -- -- -- -- -- -- 2,326,951 -- 2,326,951
------- ---------- --------- ----------- ------ -------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1995 -- -- 4,619,475 11,303,406 11,092 (69,325) 689,774 15,838,425 27,762,280
Net loss -- -- -- -- -- -- -- (5,741,731) (5,741,731)
Dividends declared ($.15
per share) -- -- -- -- -- -- -- (692,909) (692,909)
Common Stock issued under
Employee Stock
Purchase Plan -- -- 1,766 19,502 -- -- -- -- 19,502
Issuance of Common Stock
to Directors -- -- 44,015 555,689 -- -- -- -- 555,689
Change in net unrealized
gains (losses) on
investment securities
available-for-sale,
net of tax -- -- -- -- -- -- (830,015) -- (830,015)
------- ---------- --------- ----------- ------ -------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1996 -- -- 4,665,256 11,878,597 11,092 (69,325) (140,241) 9,403,785 21,072,816
Net income -- -- -- -- -- -- -- 1,834,149 1,834,149
Preferred Stock issued 984,000 6,150,000 -- (500,000) -- -- -- -- 5,650,000
Common Stock issued through
public offering -- -- 3,450,000 23,466,963 -- -- -- -- 23,466,963
Common Stock issued under
Employee Stock
Purchase Plan -- -- 10,243 97,550 -- -- -- -- 97,550
Preferred Dividends
declared ($.26 per
share) -- -- -- -- -- -- -- (251,075) (251,075)
Change in net unrealized
gains (losses) on
investment securities
available-for-sale,
net of tax -- -- -- -- -- -- 348,935 -- 348,935
------- ---------- --------- ----------- ------ -------- ----------- ----------- -----------
BALANCE DECEMBER 31, 1997 984,000 $6,150,000 8,125,499 $34,943,110 11,092 $(69,325) $ 208,694 $10,986,859 $52,219,338
======= ========== ========= =========== ====== ======== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 26
FIDELITY NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Fidelity National Corporation and its wholly owned subsidiaries
(collectively the "Company"). Fidelity National Corporation ("Fidelity") owns
100% of Fidelity National Bank (the "Bank") and Fidelity National Capital
Investors, Inc. Fidelity National Mortgage Corporation is a wholly owned
subsidiary of the Bank. The Company is engaged in the financial services
industry and offers traditional banking, mortgage, trust, and investment
services to its customers, who are generally individuals and small to medium
sized businesses. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The financial statements have been prepared in conformity with
generally accepted accounting principles followed within the financial services
industry. In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses,
servicing assets and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. Certain previously reported amounts
have been restated to conform to current presentation.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash on hand,
amounts due from banks, and federal funds sold. Generally, federal funds are
purchased and sold within one-day periods.
INVESTMENT SECURITIES. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" the Company classifies its investment securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. The Company had no trading securities at December 31, 1997 or 1996.
Held-to-maturity securities are those securities for which the Company has the
ability and positive intent to hold until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized gains and losses
on trading securities are included in income. Unrealized gains and losses, net
of related income taxes, on available-for-sale securities are excluded from
income and are reported as a separate component of shareholders' equity until
realized. Transfers of securities between categories are recorded at fair value
at the date of transfer. Unrealized gains and losses are recognized in income
for transfers into trading securities. The unrealized gains or losses included
in the separate component of shareholders' equity for securities transferred
from available-for-sale to held-to-maturity are maintained and amortized into
income over the remaining life of the related security as an adjustment to yield
in a manner consistent with the amortization or accretion of premium or discount
on the security.
A decline in the fair value below cost of any available-for-sale or
held-to-maturity security that is deemed other than temporary results in a
charge to income and the establishment of a new cost basis for the security.
Purchase premiums and discounts are amortized or accreted over the life
of the related investment securities as an adjustment to yield using the
effective interest method. Dividend and interest income are recognized when
earned. Realized gains and losses for securities sold are included in income and
are derived using the specific identification method for determining the cost of
securities sold.
LOANS AND INTEREST INCOME. Loans are reported at principal amounts outstanding
net of unearned income and deferred loan fees and costs. Interest income is
recognized in a manner that results in a level yield on principal amounts
outstanding. The accrual of interest is discontinued when, in management's
judgment, it is determined that the collectibility of interest or principal is
doubtful.
Rate related loan fee income is included in interest income. Loan
origination and commitment fees and certain direct origination costs are being
deferred and the net amount amortized as an adjustment of the yield over the
contractual lives of the related loans, taking into consideration assumed
prepayments.
Effective January 1, 1996, the Company modified its classification of
credit card current period interest charge-offs. In prior years, the Company
recorded credit card current period accrued interest meeting Company policy for
charge-off as a charge
25
<PAGE> 27
against the allowance for loan losses. Beginning January 1, 1996, the Company
commenced reversing current period accrued interest-related income on credit
card loans being charged off to interest income. For the year ended December 31,
1996, $1,965,202 of such interest had been reversed. Prior period statements do
not reflect this reclassification. The reclassification was made to conform to
industry practice.
Annual fees collected for credit cards are recognized on a
straight-line basis over the period the fee entitles the cardholder to use the
card.
Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's original effective interest rate, or
at the loan's observable market price, or the fair value of the collateral if
the loan is collateral dependent. Impaired loans are specifically reviewed loans
for which it is probable that the creditor will be unable to collect all amounts
due according to the terms of the loan agreement. A valuation allowance is
required to the extent that the measure of impaired loans is less than the
recorded investment. SFAS No. 114 "Accounting by Creditors for Impairment of a
Loan," does not apply to large groups of smaller balance, homogeneous loans,
which are consumer installment and credit card loans, and which are collectively
evaluated for impairment. Smaller balance commercial loans are also excluded
from the application of the statement. Interest on these loans is reported on
the cash basis as received when the full recovery of principal is anticipated,
or after full principal has been recovered when collection of interest is in
question.
CREDIT CARDS. Costs related to the origination of credit cards are capitalized
and amortized over one year using the straight-line method. The net amount of
capitalized costs remaining as of December 31, 1997 and 1996 is $38,000 and
$219,000, respectively.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established through
provisions charged to operations. Such provisions are based on management's
evaluation of the loan portfolio under current economic conditions, past loan
and credit card loss experience, adequacy of underlying collateral, and such
other factors which, in management's judgment, deserve recognition in estimating
loan losses. Loans are charged off when, in the opinion of management, such
loans are deemed to be uncollectible. Subsequent recoveries are added to the
allowance.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
A substantial portion of the Company's loans is secured by real estate
in metropolitan Atlanta, Georgia. In addition, a substantial portion of the
Company's other real estate is located in this same market area. Accordingly,
the ultimate collectibility of a substantial portion of the loan portfolio and
the recovery of a substantial portion of the carrying amount of other real
estate are susceptible to changes in market conditions in this market area.
LOANS HELD-FOR-SALE. Loans held-for-sale include mortgage loans at December 31,
1997, and mortgage loans and certain indirect automobile loans at December 31,
1996. Those loans held-for-sale are recorded at the lower of cost or market. For
mortgage loans, this is determined by outstanding commitments from investors for
committed loans and on the basis of current delivery prices in the secondary
mortgage market for uncommitted loans. For indirect automobile loans, the lower
of cost or market is determined based on evaluating the market value of the pool
selected for sale. Based upon available market information, no valuation
adjustment was required at December 31, 1997 or 1996, and fair values for such
loans held-for-sale approximated or exceeded their carrying values.
Gains and losses on sales of loans are recognized at the settlement
date. Gains and losses are determined by the difference between the net sales
proceeds, including the estimated value associated with excess or deficient
servicing fees to be received, and the carrying value of the loans sold.
PREMISES AND EQUIPMENT. Premises and equipment, including leasehold
improvements, are stated at cost less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are amortized using
the straight-line method over the lease term or estimated useful life, whichever
is shorter.
OTHER REAL ESTATE. Other real estate represents property acquired through
foreclosure or in satisfaction of loans. Other real estate is carried at the
lower of cost or fair value less estimated selling costs. Fair value is
determined on the basis of current appraisals, comparable sales, and other
estimates of value obtained principally from independent sources. Any excess of
the loan balance at the time of foreclosure or acceptance in satisfaction of
loans over the fair value of the real estate held as collateral is treated as a
loan loss and charged against the allowance for loan losses. Gain or loss on
sale and any subsequent adjustments to reflect changes in fair value and selling
costs are recorded as a component of income.
26
<PAGE> 28
INCOME TAXES. The Company files a consolidated federal income tax return. Taxes
are accounted for in accordance with SFAS No. 109, "Accounting for Income
Taxes." Under the liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are 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.
INCOME PER COMMON SHARE. The Company has adopted the provisions of SFAS No. 128,
"Earnings Per Share." SFAS 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods presented have been
restated to conform to the requirements of SFAS 128.
MORTGAGE BANKING ACTIVITIES. Effective January 1, 1995, the Company adopted SFAS
No. 122, "Accounting for Mortgage Servicing Rights, an Amendment of FASB
Statement No. 65." On January 1, 1997, the Company adopted SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," which superseded SFAS No. 122. SFAS No. 122 requires
capitalization of purchased as well as internally originated mortgage servicing
rights based on the fair value of the mortgage servicing rights relative to the
loan as a whole. Prior to the issuance of SFAS No. 122, capitalization of
mortgage servicing rights was limited to servicing rights purchased from third
parties. Mortgage servicing rights are amortized in proportion to and over the
period of estimated net servicing income. The fair value of mortgage servicing
rights is determined based on the present value of estimated expected future
cash flows determined using assumptions that market participants would use in
estimating future net servicing income which includes discount rate, prepayment
estimate, and per loan cost to service. Mortgage servicing rights are stratified
by loan type (government or conventional) and interest rate for purposes of
measuring impairment on a quarterly basis. An impairment loss is recognized to
the extent by which the amortized capitalized mortgage servicing rights for each
stratum exceeds the current fair value. Impairment losses are recognized as
reductions in the carrying value of the asset, through the use of a valuation
allowance.
During 1997 and 1996, the Company capitalized approximately $343,000
and $894,000, respectively of originated servicing rights and recorded
amortization of approximately $429,000 and $573,000, respectively and recorded a
valuation allowance of approximately $14,000 and $49,000, respectively related
to those rights. These amounts are included in other assets. The estimated fair
value of originated and purchased mortgage servicing rights at December 31, 1997
and 1996, was approximately $3,200,000 and $7,400,000, respectively.
STOCK OPTIONS. The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
RECENT ACCOUNTING PRONOUNCEMENTS. In June 1996, the Financial Accounting
Standards Board issued "Accounting For Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS No. 125, which provides new
accounting and reporting standards for sales, securitizations, and servicing of
receivables and other financial assets and extinguishments of liabilities. SFAS
No. 125 is effective for transactions occurring after December 31, 1996, except
those provisions relating to repurchase agreements, securities lending and other
similar transactions and pledged collateral, which have been delayed until after
December 31, 1997, by SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of Statement No. 125, an amendment of FASB Statement No. 125." These
standards were adopted as required in 1997, and did not have a material impact
on the Company's financial position or results of operations.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which is effective for annual and interim
periods beginning after December 15, 1997. This statement requires that all
items that are required to be recognized under accounting standards as
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which is effective for annual and interim periods beginning after December 15,
1997. This statement establishes standards for the method that public entities
are to use to report information about operating segments in annual financial
statements and requires that those enterprise reports be issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographical areas and major customers.
27
<PAGE> 29
2 - REGULATORY AGREEMENTS
The Bank is a national banking association and is subject to Federal
and state statutes applicable to banks chartered under the banking laws of the
United States, to members of the Federal Reserve System and to banks whose
deposits are insured by the Federal Deposit Insurance Corporation. The Board of
Governors of the Federal Reserve System and the Office of the Comptroller of the
Currency (the OCC) have established capital adequacy guidelines for bank holding
companies and national banks.
The Bank's principal regulator is the OCC. At periodic intervals, the
OCC examines and evaluates the financial condition, operations, and policies and
procedures of nationally chartered banks, such as the Bank, as part of its
legally prescribed oversight responsibilities. Based on its examinations, the
OCC can direct a national bank to adjust its financial statements in accordance
with the examination's findings. In view of the regulatory environment in which
banks operate, the extent, if any, to which future OCC examinations may
ultimately result in adjustments to the consolidated financial statements cannot
presently be determined.
In 1991, the Federal Deposit Insurance Corporation Improvement Act of
1991 ("1991 Act") was adopted. Additional supervisory powers and regulations
mandated by the 1991 Act include a "prompt corrective action" program based upon
five regulatory zones for banks in which all banks are placed, largely based on
their capital positions. Regulators are permitted to take increasingly harsh
action as a bank's financial condition declines. Regulators are also empowered
to place in receivership or require the sale of a bank to another depository
institution when a bank's capital leverage ratio reaches 2%. Better capitalized
institutions are subject to less onerous regulation and supervision than banks
with lesser amounts of capital.
To implement the prompt corrective action provisions of the 1991 Act,
the OCC adopted regulations, which became effective on December 19, 1992,
placing financial institutions in the following five categories based upon
capitalization ratios: (i) a "well capitalized" institution has a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based ratio of at least
6% and a leverage ratio of at least 5%, (ii) an "adequately capitalized"
institution has a total risk-based ratio of at least 8%, a Tier 1 risk-based
ratio of at least 4% and a leverage ratio of at least 3%; (iii) an
"undercapitalized" institution has a total risk-based ratio of under 8%, a Tier
1 risk-based ratio of under 4% or a leverage ratio of under 3%; (iv) a
"significantly undercapitalized" institution has a total risk-based ratio of
under 6%, a Tier 1 risk-based ratio of under 3% or a leverage ratio of under 3%;
and (v) a "critically undercapitalized" institution has a leverage ratio of 2%
or less. Institutions in any of the three undercapitalized categories are
prohibited from declaring dividends or making capital distributions. The
regulations also establish procedures for "downgrading" an institution to a
lower capital category based on supervisory factors other than capital.
Capital leverage ratio standards require a minimum ratio of capital to
adjusted total assets ("leverage ratio") for the Bank of 4.0%. Institutions
experiencing or anticipating significant growth or those with other than minimum
risk profiles may be expected to maintain capital above the minimum levels.
The FRB establishes capital requirements for the Company as a function
of its oversight of bank holding companies. Each bank holding company must
maintain (i) a minimum ratio of Tier 1 capital ("Tier 1 Capital") to total
risk-weighted assets of 4.0% and (ii) a minimum ratio of total qualifying
capital to total qualifying assets ("total risk-based capital ratio") of 8.0%
with the amount of the allowance for credit losses that may be included in
supplementary capital ("Tier 2 Capital") limited to 1.25% of total risk-weighted
assets. The leverage ratio established for a bank holding company is 3.0%.
The following table depicts the Company's capital ratios at December
31, 1997 and 1996, in relation to the minimum capital ratios established by the
regulations of the FRB (Dollars In Thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------- ---------------------
Amount Percent Amount Percent
------- ------- -------- -------
<S> <C> <C> <C> <C>
Tier 1 Capital:
Actual $48,979 9.91% $ 17,052 3.40%
Minimum 19,761 4.00 20,059 4.00
------- ----- -------- -----
Excess (Deficiency) $29,218 5.91% $ (3,007) (.60)%
======= ===== ======== =====
Total risk-based capital:
Actual $71,075 14.38% $ 31,976 6.38%
Minimum 39,582 8.00 40,118 8.00
------- ----- -------- -----
Excess (Deficiency) $31,443 6.38% $ (8,142) (1.62)%
======= ===== ======== =====
Tier 1 Capital Leverage Ratio:
Actual 8.00% 2.67%
Minimum 3.00 3.00
----- -----
Excess (Deficiency) 5.00% (.33)%
===== =====
</TABLE>
28
<PAGE> 30
The risk-based capital ratios of the Company and the Bank are
calculated under the guidelines by dividing their respective qualifying total
capital by their respective total risk-weighted assets. The Company's qualifying
total capital and total risk-weighted assets are determined on a fully
consolidated basis. Total qualifying capital is comprised of the sum of core
capital elements and supplementary capital elements. Tier 1 capital excludes any
net unrealized gains or losses resulting from the implementation of SFAS No.
115. Tier 2 capital includes subordinated debt and the allowance for credit
losses, subject to limitations.
Under the guidelines, total risk-weighted assets of the Company and the
Bank are determined by assigning balance sheet assets and credit equivalent
amounts of off-balance sheet financial instruments to one of four broad risk
categories having risk weights ranging from zero % to 100%. The aggregate dollar
amount of each category is multiplied by the risk weight associated with that
category and the resulting weighted values from each category are summed to
determine total risk-weighted assets.
The OCC and the Bank entered into an Agreement dated November 14, 1996,
("OCC Agreement"). The OCC Agreement provides that the Bank (i) appoint an
"Oversight Committee;" (ii) achieve and maintain specified higher capital
levels; (iii) develop a three-year capital program which will include, among
other things, certain restrictions on dividend payments by the Bank; and (iv)
revise and amend its strategic plan.
On April 3, 1997, the OCC notified the Bank that since it did not meet
the minimum capital levels established for an "adequately capitalized" bank as
of December 31, 1996, the Bank was deemed to be "undercapitalized" and was
subject to prompt corrective action pursuant to 12 U.S.C. Sec. 1831. As a
result, the Bank was subject to restrictions on its ability to pay dividends and
management fees and to restrictions on asset growth and expansion. In June and
July 1997, the Company issued $6.15 million in Preferred Stock, the net cash
proceeds of which were invested in preferred stock of the Bank.
In December 1997, the Company sold in a public offering 3,450,000
shares of Common Stock at a price of $7.50 per share. The proceeds of this
offering, net of issuance costs, were used to increase FNB's capital ratios and
for general corporate purposes.
The Oversight Committee is comprised of three members of the Board of
Directors of the Bank, a majority of whom are not employees of the Company. The
Oversight Committee, which meets and reports monthly to the Board of Directors,
is responsible for monitoring and coordinating compliance by the Bank with the
OCC Agreement.
On February 26, 1998, the Board of Directors of the Bank submitted the
Bank's revised strategic plan reflecting the Bank's December 31, 1997, capital
ratios. The strategic plan includes objectives for earnings performance, growth,
balance sheet mix, off-balance sheet activities, liability structure, capital
adequacy, product line development and market segments which the Bank intends to
promote or develop together with strategies to achieve these objectives.
The Bank periodically submits reports to the OCC evidencing compliance
with the OCC Agreement. Even though the Bank meets the required capital levels,
the OCC Agreement continues in effect until it is amended or terminated. The OCC
Agreement can impair the ability of the Bank to declare and pay dividends to the
Company.
The OCC Agreement requires the Bank to maintain higher capital ratios
than those applicable under OCC regulations for an "adequately capitalized"
bank. At December 31, 1997, the capital ratios of the Bank exceed those
prescribed by the OCC Agreement. As of its most recent notification from the
OCC, the Bank is considered by the OCC to be "adequately capitalized."
Management is aware of no events or conditions since that notification that
would change such category. The table below sets forth the capital
requirements for the Bank under OCC regulations, under the OCC Agreement and
the Bank's capital ratios at December 31, 1997:
<TABLE>
<CAPTION>
OCC Regulations
-------------------------
Adequately Well OCC Actual
Capital Ratios Capitalized Capitalized Agreement December 31, 1997
- ------------------- ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C>
Leverage 4.00% 5.00% 6.00% 7.46%
Risk-Based Capital:
Tier 1 4.00 6.00 7.00 9.23
Total 8.00 10.00 11.00 12.53
</TABLE>
Under the terms of the OCC Agreement, the Bank is permitted to pay
dividends on the preferred stock issued by the Bank to the Company, so long as
the Bank's capital ratios are at least 4% for leverage, 4% for Tier 1 risk-based
capital and 8% for total risk-based capital.
29
<PAGE> 31
Fidelity's Board of Directors on February 13, 1997, adopted a
resolution requested by the Federal Reserve Bank of Atlanta ("FRB Agreement").
The FRB Agreement, among other things, prohibits Fidelity from redeeming its
capital stocks, paying dividends on the Common Stock or incurring debt without
prior approval of the FRB. The FRB agreement continues until cancelled by the
FRB. Set forth below are pertinent capital ratios for the Company under the FRB
regulation as of December 31, 1997:
<TABLE>
<CAPTION>
Adequately Well Actual
Capital Ratios Capitalized Capitalized December 31, 1997
- ------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
Leverage 3.00% 5.00% 8.00%
Risk-Based Capital:
Tier 1 4.00 6.00 9.91
Total 8.00 10.00 14.38
</TABLE>
Generally, dividends that may be paid by the Bank to the Company are
subject to certain regulatory limitations. Under Federal banking law, the
approval of the OCC will be required if the total of all dividends declared in
any calendar year by the Bank exceeds the Bank's net profits to date for that
year combined with its retained net profits for the preceding two years, subject
to the maintenance of minimum required regulatory capital. At December 31, 1997,
total shareholders' equity of the Bank was $49 million.
3 - INVESTMENT SECURITIES
Investment securities at December 31, 1997 and 1996, are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Securities available-for-sale at December 31, 1997
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $73,261,961 $212,240 $ (14,376) $73,459,825
Mortgage-backed securities 14,409,423 141,440 (2,703) 14,548,160
----------- -------- --------- -----------
Total $87,671,384 $353,680 $ (17,079) $88,007,985
=========== ======== ========= ===========
Securities available-for-sale at December 31, 1996
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $48,149,420 $ 89,187 $(301,169) $47,937,438
Mortgage-backed securities 21,754,422 63,558 (77,775) 21,740,205
----------- -------- --------- -----------
Total $69,903,842 $152,745 $(378,944) $69,677,643
=========== ======== ========= ===========
Securities held-to-maturity December 31, 1997
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies $21,010,285 $ 15,540 $ -- $21,025,825
Mortgage-backed securities 14,489,939 -- (16,353) 14,473,586
Other securities 2,425,000 -- -- 2,425,000
----------- -------- --------- -----------
Total $37,925,224 $ 15,540 $ (16,353) $37,924,411
=========== ======== ========= ===========
Securities held-to-maturity at December 1996
U.S. Treasury securities and obligations of U.S.
Government corporation and agencies $ 5,979,017 $ -- $(118,697) $ 5,860,320
Other securities 1,853,899 -- -- 1,853,899
----------- -------- --------- -----------
Total $ 7,832,916 $ -- $(118,697) $ 7,714,219
=========== ======== ========= ===========
</TABLE>
Proceeds from sales of investment securities available-for-sale during
1997 and 1996 were $9,117,568 and $43,781,536, respectively. Gross gains of
$140,090 and $603,977 for 1997 and 1996, respectively, were realized on those
sales. Proceeds from the sale of investment securities were $34,233,853 in 1995
with related gross gains of $917,786 and gross losses of $62,867. Income tax
expense related to the sale of securities was $49,816, $214,776 and $304,036 in
1997, 1996 and 1995, respectively. There were no investments held in trading
accounts during 1997, 1996 or 1995.
30
<PAGE> 32
The following table depicts amortized cost and estimated fair value of
investment securities at December 31, 1997 and 1996 by contractual maturity.
Expected maturities may differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Also, other securities, which primarily consist of Federal Reserve
Bank common stock and Federal Home Loan Bank common stock, are not included in
the following table as they have no stated maturity.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------------- ----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE
U.S. Treasury Securities and obligations of U.S.
Government corporations and agencies
Due in one year or less $34,850,094 $34,856,375 $17,992,660 $17,992,660
Due after five years through ten years 25,441,677 25,577,705 17,436,200 17,361,645
Due after ten years or more 12,970,190 13,025,745 12,720,560 12,583,133
----------- ----------- ----------- -----------
73,261,961 73,459,825 48,149,420 47,937,438
Mortgage-backed securities 14,409,423 14,548,160 21,754,422 21,740,205
----------- ----------- ----------- -----------
Total $87,671,384 $88,007,985 $69,903,842 $69,677,643
=========== =========== =========== ===========
HELD-TO-MATURITY
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies
Due after ten years $21,010,285 $21,025,825 $ 5,979,017 $ 5,860,320
Mortgage-backed securities
14,489,939 14,473,586 -- --
----------- ----------- ----------- -----------
Total $35,500,224 $35,499,411 $ 5,979,017 $ 5,860,320
=========== =========== =========== ===========
</TABLE>
Investment securities with a carrying value of approximately
$58,330,000 and $56,280,000 at December 31, 1997 and 1996, respectively, were
pledged as collateral for public deposits, securities sold under agreements to
repurchase, and for other purposes required by law.
4 - LOANS
Loans outstanding, by classification, are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Credit cards $119,864,009 $143,781,711
Real estate-mortgage 64,601,854 71,718,792
Real estate-construction 44,535,553 56,325,014
Commercial, financial and agricultural 51,696,075 43,945,706
Consumer installment 152,123,174 113,512,340
------------ ------------
Total loans 432,820,665 429,283,563
Less:
Allowance for loan losses 14,319,591 16,510,842
------------ ------------
Loans, net $418,501,074 $412,772,721
============ ============
</TABLE>
Loans held for sale at December 31, 1997, totaled $4,360,765, all of
which were mortgage loans. The Company, through one of its subsidiaries, had
loan participations sold without recourse in the amount of $6.3 and $7.5 million
at December 31, 1997 and 1996, respectively. The Company, through its mortgage
subsidiary, was servicing loans for others of approximately $233.2 million,
$580.0 million, and $882.6 million at December 31, 1997, 1996 and 1995,
respectively.
Loans in nonaccrual status amounted to approximately $1,422,000,
$2,940,000 and $3,105,000 at December 31, 1997, 1996 and 1995, respectively. The
allowance for loan losses related to these impaired loans was $56,000, $561,000
and $383,000 at December 31, 1997, 1996 and 1995. The average recorded
investment in impaired loans during 1997, 1996 and 1995 was $1,592,000,
$3,135,000 and $1,689,028, respectively. If such impaired loans had been on a
full accruing basis, interest income on these loans would have been
approximately $73,000, $278,000 and $51,000 in 1997, 1996 and 1995,
respectively.
31
<PAGE> 33
Loans totaling approximately $2,011,000, $237,600 and $554,500 were
transferred to other real estate in 1997, 1996 and 1995, respectively. There
were no sales of other real estate in 1997 and 1996 financed by the Company. The
Company financed other real estate sales of approximately $401,000 in 1995.
Loans are reported net of deferred loan fees of $63,591, $104,669 and $389,355
at December 31, 1997, 1996 and 1995, respectively.
The Company has loans outstanding to various executive officers,
directors, and their associates. Management believes that all of these loans
were made in the ordinary course of business on substantially the same terms
including interest rate and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than the
normal risk. The following is a summary of activity during 1997 for such loans:
<TABLE>
<CAPTION>
<S> <C>
Loan balances at December 31, 1996 $ 3,270,741
New loans 1,945,862
Loan repayments (1,797,970)
-----------
Loan balances at December 31, 1997 $ 3,418,633
===========
</TABLE>
The following is a summary of activity in the allowance for loan losses:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Balance at beginning of year $ 16,510,842 $ 5,536,504 $ 4,343,657
Provision for loan losses 14,435,000 25,127,000 8,090,000
Loans charged off:
Credit cards (14,734,739) (13,156,340) (7,051,268)
Other loans (3,521,443) (1,659,492) (388,119)
Recoveries on loans charged off 1,629,931 663,170 542,234
------------ ------------ -----------
Balance at end of year $ 14,319,591 $ 16,510,842 $ 5,536,504
============ ============ ===========
</TABLE>
5 - PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Land $ 2,735,320 $ 2,735,320
Buildings and improvements 11,014,127 11,219,182
Furniture and equipment 16,411,152 13,543,963
----------- -----------
30,160,599 27,498,465
Less accumulated depreciation and amortization 9,642,949 7,699,386
----------- -----------
Premises and equipment, net $20,517,650 $19,799,079
=========== ===========
</TABLE>
At December 31, 1997, the Company had entered into two leases at market
terms with two corporations, one of which a director of the Company is a
director and the chief executive officer , and the other corporation of which a
director of the Company is a majority shareholder. The first lease is a bank
branch, for approximately 35,000 square feet at an approximate annual rate of
$17 per square foot, subject to pro rata increases for any increases in taxes,
insurance, utilities, and maintenance. The second lease is for a 2,200 square
foot bank branch at an approximate annual rate of $11 per square foot, subject
to pro rata increases for any increases in taxes and insurance.
6 - DEPOSITS
Time deposits over $100,000 as of December 31, 1997 and 1996, were
$98,190,352 and $94,465,163, respectively. Maturities for time deposits over
$100,000 as of December 31, 1997, in excess of one year are as follows:
$6,627,052 in one to two years, $3,937,313 in two to three years, $3,517,492 in
three to five years, and $1,319,932 after five years. Related interest expense
was $5,131,909, $5,042,964 and $3,920,000 for the years ended December 31, 1997,
1996 and 1995 respectively. Included in demand and money market deposits were
NOW accounts totaling $39,673,545 and $37,322,255 at December 31, 1997 and 1996,
respectively.
32
<PAGE> 34
7 - SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Federal funds purchased $ -- $ 500,000
Securities sold under agreements to repurchase 16,367,839 16,683,769
----------- -----------
Total $16,367,839 $17,183,769
=========== ===========
</TABLE>
The above borrowings mature either overnight or on a fixed maturity not
to exceed three months. At December 31, 1997, the Company had a line of credit
with the Federal Home Loan Bank to borrow up to a maximum of $10 million under a
warehouse line of credit and a maximum additional line of credit of $50 million,
both of which require loans secured by real estate, investment securities or
other acceptable collateral. The Bank also has unsecured short term lines of
credit available with several financial institutions totaling $12 million.
Interest expense on Federal Home Loan Bank advances was $36,720 in 1997 and
$158,838 in 1996. The weighted average rate on short-term borrowings outstanding
at December 31, 1997 and 1996, was 3.17% and 3.06%, respectively.
8 - LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Junior subordinated Series A capital notes with interest at prime plus 2%
due December 15, 1999; interest payable quarterly $ 50,000 $ 250,000
Subordinated capital notes with interest at 11% through March 27, 2000,
and at prime plus 2% thereafter, due March 27, 2002, interest payable
quarterly 750,000 1,000,000
Subordinated capital notes with interest at prime due October 1, 2002,
interest payable quarterly -- 250,000
8.5% subordinated notes due January 31, 2006, interest payable quarterly 15,000,000 15,000,000
----------- -----------
Total $15,800,000 $16,500,000
=========== ===========
</TABLE>
Note maturities as of December 31, 1997, are summarized as follows:
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
1998 $ --
1999 50,000
2000 --
2001 --
2002 750,000
Thereafter 15,000,000
-----------
Total $15,800,000
===========
</TABLE>
On December 12, 1995, the Company issued $15,000,000 in 8.5%
Subordinated Notes due January 31, 2006. Under the terms of the notes, the
Company has the right to redeem them on or after January 31, 2001, at 100% of
the principal amount plus accrued interest to the date of redemption. Under the
provisions of the notes, the Company may declare or pay dividends on any of its
capital stock as long as the amounts of dividends paid cumulatively for the
three-year period ending on the declaration date of the dividend does not exceed
cumulative consolidated net income of the Company for the three-year period
ending on the applicable declaration date. The cumulative consolidated net
income of the Company for the three-year period ended December 31, 1997, was
$742,000 and the dividends paid during such period were $1.6 million. In
addition, no dividend can be declared on the capital stock of the Company if an
event of default has occurred and is continuing under the Notes, including the
failure to pay interest on such indebtedness or default on other indebtedness
exceeding $1 million. The Company violated this provision during 1997 with the
declaration of a preferred stock dividend. Although a technical event of default
has occurred under the provisions of the Notes, the remedies available do not
include acceleration of the debt.
The subordinated notes due March 27, 2002, may be redeemed at the
option of the Company at any time after March 27, 2000, without penalty. All
other subordinated notes may be redeemed at the option of the Company without
penalty.
There was no indebtedness to directors, executive officers, or
principal holders of equity securities in excess of 5% of shareholders' equity
at December 31, 1997.
33
<PAGE> 35
9 - INCOME TAXES
Income tax expense (benefit) attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
Current Deferred Total
----------- ----------- -----------
<S> <C> <C> <C>
Year ended December 31, 1997:
Federal $ 702,777 $ 153,069 $ 855,846
State -- 117,029 117,029
----------- ----------- -----------
$ 702,777 $ 270,098 $ 972,875
=========== =========== ===========
Year ended December 31, 1996:
Federal $ 1,006,128 $(4,124,579) $(3,118,451)
State -- (376,761) (376,761)
----------- ----------- -----------
$ 1,006,128 $(4,501,340) $(3,495,212)
=========== =========== ===========
Year ended December 31, 1995:
Federal $ 2,366,181 $ 184,263 $ 2,550,446
State -- 15,573 15,573
----------- ----------- -----------
$ 2,366,181 $ 199,838 $ 2,566,019
=========== =========== ===========
</TABLE>
Income tax expense (benefit) differed from amounts computed by applying
the statutory U.S. Federal income tax rate to pretax income from continuing
operations as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Taxes at statutory rate $ 954,388 $(3,140,561) $ 2,453,236
Increase (reduction) in income taxes resulting from:
State income tax expense, net of Federal income tax benefit 77,239 (248,662) 10,278
Tax exempt income (23,014) (22,770) (35,848)
Other, net (35,738) (83,219) 138,353
----------- ----------- -----------
Income tax expense (benefit) $ 972,875 $(3,495,212) $ 2,566,019
=========== =========== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are presented below:
<TABLE>
<CAPTION>
Deferred Tax
-----------------------------------------------------------
1997 1996
--------------------------- ---------------------------
Assets Liabilities Assets Liabilities
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
State tax credit carryforwards $ 242,893 $ -- $ 208,091 $ --
Allowance for loan losses 3,762,518 -- 4,010,988 --
Accelerated depreciation -- 465,718 -- 514,645
Accretion on U.S. Treasury securities -- 37,391 -- 29,440
Deferred loan fees -- 122,912 -- 289,598
Other real estate 41,050 -- 41,050 --
Unearned income 151,683 -- 296,975 --
Unrealized holding gains on securities
securities available-for-sale -- 63,579 85,865 --
Capitalized mortgage servicing rights -- 206,521 -- 284,329
Other 78,463 14,572 94,722 2,497
---------- ---------- ---------- ----------
$4,276,607 $ 910,693 $4,737,691 $1,120,509
========== ========== ========== ==========
</TABLE>
10 - EMPLOYEE BENEFITS
The Chairman and the President of the Bank have entered into employment
agreements with the Bank for three-year periods commencing January 1, 1998, and
September 15, 1997, respectively, providing for the payment of or reimbursement
of certain split-dollar life, term life and disability insurance plans.
The Company maintains a 401(k) defined contribution retirement savings
plan for employees age 18 or older who have obtained ninety days of service.
Employee contributions to the plan are voluntary. The Company matches up to 15%
of the participants' eligible contributions. For the years ended December 31,
1997, 1996 and 1995, the Company contributed $62,348, $71,873 and $136,187,
respectively, to the plan.
34
<PAGE> 36
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
The Company's 1997 Incentive Stock Option Plan has authorized the grant
of options to management personnel for up to 500,000 shares of the Company's
Common Stock. All options granted have 5 to 7 year terms and vest and become
fully exercisable at the end of 4 to 5 years of continued employment.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The effects of applying SFAS 123 for providing pro forma disclosures
are not likely to be representative of the effects on reported net income for
future years.
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise Price
------- --------------
<S> <C> <C>
Under option, January 1, 1997 -- $ --
Granted 250,000 9.15
Exercised -- --
Expired -- --
------- -----
Under option, December 31, 1997 250,000 $9.15
======= =====
</TABLE>
At December 31, 1997 there were 250,000 options outstanding at a price
ranging from $9.00 to $9.90, with a weighted average price of $9.15. The
weighted average remaining contractual term of the options is six years.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------
Net Income Net Income
Net Per Share Per Share
Income Basic Diluted
---------- ---------- ----------
<S> <C> <C> <C>
As reported $1,834,149 $ 0.33 $ 0.33
Stock based compensation net of related
tax effect (25,662) (0.01) (0.01)
---------- ------ ------
As adjusted $1,808,487 $ 0.32 $ 0.32
========== ====== ======
</TABLE>
The per share weighted fair value of stock options granted during 1997
was $2.77 using the Black-Scholes option pricing model. The fair value of the
options granted during the year was based upon the discounted value of future
cash flows of options using the following assumptions:
<TABLE>
<CAPTION>
1997
------
<S> <C>
Risk-free rate 5.12%
Expected life of the options (in years) 5-7
Expected dividends (as a percent of the fair value of the stock) 0%
Volatility 27.50%
</TABLE>
11 - SHAREHOLDERS' EQUITY
In addition to the previously mentioned regulatory agreements,
dividends that may be paid by the Bank to Fidelity are subject to certain other
regulatory limitations. Under Federal banking law, the approval of the OCC will
be required if the total of all dividends declared in any calendar year by the
Bank exceeds the Bank's net profits to date for that year combined with its
retained net profits for the preceding two years, subject to the maintenance of
minimum required regulatory capital. For additional dividend restrictions see
Note 8. At December 31, 1997, total shareholders' equity of the Bank was
approximately $48.6 million. Also, under current Federal Reserve System
regulations, the Bank is limited in the amount it may loan to its nonbank
affiliates, including Fidelity. As of December 31, 1997, there were no loans
outstanding from the Bank to Fidelity.
35
<PAGE> 37
During mid-1997 the Company sold, in a private placement, $6.15 million
Non-Cumulative 8% Convertible Preferred Stock, Series A ("Preferred Stock"). In
December 1997, the Company sold in a public offering 3,450,000 shares of Common
Stock at a price of $7.50 per share. The proceeds, net of stock issuance costs,
from the Preferred Stock and Common Stock offerings were $5.6 million and $23.5
million, respectively. The proceeds were used to provide additional capital to
the Bank and for general corporate purposes. In connection with the public
offering, the Company agreed to issue to Raymond James & Associates, Inc.
warrants to purchase 150,000 shares of Common Stock at a purchase price of $8.25
per share. The warrants are exercisable during the four-year period commencing
December 12, 1998.
As of December 31, 1997, there were 984,000 shares of Preferred Stock
issued and outstanding. Each share of Preferred Stock may be converted by the
holder thereof at any time into .86926 of a share of Common Stock. Holders of
Preferred Stock are entitled to vote on each matter on which holders of Common
Stock are entitled to vote and are accorded all voting powers and rights of
holders of Common Stock. Each share of Preferred Stock has the number of votes
equal to the number of shares of Common Stock into which it is convertible.
The Preferred Stock is redeemable by the Company at its stated value of
$6.25, in whole or in part, at the Company's option, at any time after the later
of (i) the second anniversary of its issuance or (ii) the last day of a period
of ten (10) consecutive trading dates on which the closing price of a share of
Common Stock on each such day shall equal or exceed $10.00. Any redemption is
also subject to the prior approval of the FRB.
The Company has accorded each holder of Preferred Stock one demand
registration right covering the shares of Common Stock acquired upon the
conversion of the Preferred Stock into Common Stock.
12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on settlements using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison to
independent markets, and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The carrying amounts reported in the Statements of Condition for cash,
due from banks, and Federal funds sold, approximate those assets' fair values.
For investment securities, fair value equals quoted market price, if available.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities or dealer quotes.
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type. The fair value of
performing loans is calculated by discounting scheduled cash flows through the
remaining maturities using estimated market discount rates that reflect the
credit and interest rate risk inherent in the loan.
Fair value for significant nonperforming loans is estimated taking into
consideration recent external appraisals of the underlying collateral for loans
that are collateral dependent. If appraisals are not available or if the loan is
not collateral dependent, estimated cash flows are discounted using a rate
commensurate with the risk associated with the estimated cash flows. Assumptions
regarding credit risk, cash flows, and discount rates are judgmentally
determined using available market information and specific borrower information.
The fair value of deposits with stated maturity, such as
noninterest-bearing demand deposits, savings, interest-bearing demand, and money
market accounts, is equal to the amount payable on demand. The fair value of
time deposits is based on the discounted value of contractual cash flows based
on the discount rates currently offered for deposits of similar remaining
maturities.
The carrying amounts reported in the balance sheet for short-term debt
approximate those liabilities' fair values.
The fair value of the Company's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The carrying
amount of long-term debt approximates its estimated fair value.
36
<PAGE> 38
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
Carrying Fair Carrying
Amount Value Amount Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial instruments (assets)
Cash and due from banks $ 28,192,714 $ 28,192,714 $ 32,612,398 $ 32,612,398
Federal funds sold 41,068,827 41,068,827 343,019 343,019
Investment securities available-for-sale 88,007,985 88,007,985 71,230,743 71,230,743
Investment securities held-to-maturity 37,925,224 37,924,411 6,279,816 6,161,119
Loans, net of unearned income 437,181,430 438,831,812 467,389,431 468,578,264
------------ ------------ ------------ ------------
Total financial instruments (assets) 632,376,180 $634,025,749 577,855,407 $578,925,543
============ ============
Non-financial instruments (assets) 25,427,823 27,564,890
------------ ------------
Total assets $657,804,003 $605,420,297
============ ============
Financial instruments (liabilities)
Noninterest-bearing demand deposits $ 87,054,288 $ 87,054,288 $ 73,877,369 $ 73,877,369
Interest-bearing deposits 481,263,037 482,896,887 470,835,960 471,954,804
------------ ------------ ------------ ------------
Total deposits 568,317,325 569,951,175 544,713,329 545,832,173
Short-term borrowings 16,367,839 16,376,839 17,183,769 17,183,769
Long-term debt 15,800,000 15,800,000 16,500,000 16,500,000
------------ ------------ ------------ ------------
Total financial instruments (liabilities) 600,485,164 $602,128,014 578,397,098 $579,515,942
============ ============
Non-financial instruments
(liabilities and shareholders' equity) 57,318,839 27,023,199
------------ ------------
Total liabilities and shareholders' equity $657,804,003 $605,420,297
============ ============
</TABLE>
For off-balance sheet instruments, fair values are based on rates
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing for
loan commitments and letters of credit. The estimated fair values of the
Company's off-balance sheet financial instruments as of December 31, 1997 and
1996, are summarized below.
<TABLE>
<CAPTION>
1997 1996
Estimated Estimated
(Dollars in Thousands) Fair Value Fair Value
---------- ----------
<S> <C> <C>
Unfunded commitments to
extend credit $355,552 $388,711
Standby letters of credit 3,465 3,767
</TABLE>
This presentation excludes certain financial instruments and all
nonfinancial instruments. The disclosures also do not include certain intangible
assets, such as customer relationships, deposit base intangibles and goodwill.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
37
<PAGE> 39
13 - COMMITMENTS AND CONTINGENCIES
The approximate future minimum rental commitments as of December 31,
1997, for all noncancellable leases with initial or remaining terms of one year
or more are shown in the following table:
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
1998 $ 2,156,000
1999 2,255,000
2000 2,283,000
2001 2,108,000
Thereafter 8,368,000
-----------
Total $17,170,000
===========
</TABLE>
Rental expense for all leases amounted to approximately $2,282,000,
$1,740,000, and $1,550,000, in 1997, 1996 and 1995, respectively.
Due to the nature of their activities, Fidelity and the Bank are at
times engaged in various legal proceedings which arise in the normal course of
business, some of which are outstanding at December 31, 1997. While it is
difficult to predict or determine the outcome of these proceedings, it is the
opinion of management and its counsel that the ultimate liability, if any, will
not materially affect the Company's financial position.
The Federal Reserve Board requires that banks maintain cash on hand and
reserves in the form of average deposit balances at the Federal Reserve Bank
based on the Bank's average deposits. The Bank's reserve requirements at
December 31, 1997 and 1996, were $6,625,000 and $5,429,000 respectively.
14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, letters of
credit, and forward sales contracts. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated financial statements. The contract or notional
amounts of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss, in the event of nonperforming by
the customer for commitments to extend credit and letters of credit, is
represented by the contractual or notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for recorded loans. For forward sales contracts, the
contract or notional amounts do not represent exposure to credit loss; however,
these financial instruments represent interest rate risk to the Company. The
Company controls the interest rate risk of its forward sales contracts through
management approvals, dollar limits, and monitoring procedures.
A summary of the Company's financial instruments with off-balance sheet
risk at December 31, 1997, is as follows (in thousands):
<TABLE>
<S> <C>
Financial instruments whose contract amounts represent credit risk:
Loan commitments
Credit card lines $302,622
Home equity 9,236
Commercial real estate, construction and land development 23,415
Commercial 16,645
Mortgage loans 2,734
Lines of credit 900
Standby letters of credit 3,465
--------
Total loan commitments $359,017
========
Financial instruments whose notional or contractual amounts
represent interest rate risk -
Forward sales contracts $ 3,320
========
</TABLE>
38
<PAGE> 40
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the agreement.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies, but may
include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Company holds collateral
supporting those commitments as deemed necessary.
Forward sales contracts are contracts for delayed delivery of mortgage
loans in which the Company agrees to make delivery at a specified future date at
a specified price. Risks arise from the inability of counterparties to meet the
terms of their contracts and from movements in interest rates.
15 - SUPPLEMENTAL FINANCIAL DATA
Components of other income and expense in excess of 1% of total revenues
for any of the respective periods are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Other income:
Brokerage commissions $3,276,210 $3,201,220 $2,172,171
Trust income 1,131,220 845,794 563,375
Servicing fee income 1,326,958 707,342 24,434
Gain on sale of loans 920,983 672,012 228,641
Other expense:
Stationery and supplies 819,085 930,816 734,876
Postage 542,745 640,499 486,624
Deposit insurance premiums 1,196,001 556,771 684,375
Telephone 975,637 831,670 502,148
Credit card processing 2,814,563 3,030,290 1,973,557
</TABLE>
39
<PAGE> 41
16 - CONDENSED FINANCIAL INFORMATION OF FIDELITY NATIONAL CORPORATION
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 8,345,809 $ 1,157,191
Land 419,418 419,418
Investment in bank subsidiary 48,782,803 24,822,351
Investments in and amounts due from nonbank subsidiaries 501,974 359,018
Subordinated loan to bank subsidiary 10,000,000 10,000,000
Other assets 482,790 1,050,888
------------ ------------
Total assets $ 68,532,794 $ 37,808,866
============ ============
LIABILITIES
Long-term debt $ 15,800,000 $ 16,500,000
Other liabilities 513,456 236,050
------------ ------------
Total liabilities 16,313,456 16,736,050
SHAREHOLDERS' EQUITY
Preferred Stock 6,150,000 --
Common stock 34,943,110 11,878,597
Treasury stock (69,325) (69,325)
Net unrealized gains (losses) on investment securities
available-for-sale, net of tax 208,694 (140,241)
Retained earnings 10,986,859 9,403,785
------------ ------------
Total shareholders' equity 52,219,338 21,072,816
------------ ------------
Total liabilities and shareholders' equity $ 68,532,794 $ 37,808,866
============ ============
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans $ -- $ 272,941 $ 5,973
Deposits in bank 66,828 46,315 5,630
Subordinated loan to bank 850,000 768,542 40,164
----------- ----------- -----------
Total interest income 916,828 1,087,798 51,767
INTEREST EXPENSE - Long-term debt 1,431,971 1,501,488 353,284
----------- ----------- -----------
NET INTEREST EXPENSE (515,143) (413,690) (301,517)
OTHER INCOME
Lease income 120,000 120,000 120,000
Dividend from subsidiaries 428,444 1,600,000 950,000
Management fees 108,000 91,740 130,680
Other -- 3,157 6,525
----------- ----------- -----------
Total other income 656,444 1,814,897 1,207,205
OTHER EXPENSES 275,378 185,462 49,929
----------- ----------- -----------
(Loss) Income before income taxes and undistributed
income (loss) of subsidiary (134,077) 1,215,745 855,759
Income tax benefit 213,758 146,017 38,045
----------- ----------- -----------
Income before equity in undistributed income (loss)
of subsidiaries 79,681 1,361,762 893,804
Equity in undistributed income (loss) of subsidiaries 1,754,468 (7,103,493) 3,755,578
----------- ----------- -----------
NET INCOME (LOSS) $ 1,834,149 $(5,741,731) $ 4,649,382
=========== =========== ===========
</TABLE>
40
<PAGE> 42
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,834,149 $ (5,741,731) $ 4,649,382
Equity in undistributed income of subsidiaries (1,754,468) 7,103,493 (3,755,578)
(Increase) decrease in other assets 568,097 (102,509) (944,615)
Increase in other liabilities 277,406 76,341 130,084
------------ ------------ ------------
Net cash flows provided by operating activities 925,184 1,335,594 79,273
CASH FLOWS FROM INVESTING ACTIVITIES
Sale (purchase) of commercial loans -- 5,574,770 (5,574,770)
Net increase in loans to and investment in subsidiaries (20,745,263) (5,830,870) (8,071,122)
------------ ------------ ------------
Net cash flows used in investing activities (20,745,263) (256,100) (13,645,892)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of long-term debt -- -- 16,250,000
Repayment of long-term-debt (700,000) (250,000) (1,991,000)
Issuance of common stock 23,466,963 575,191 --
Issuance of preferred Stock 5,650,000 -- --
Dividends paid (251,075) (692,909) (644,135)
------------ ------------ ------------
Net cash flows provided by (used in) financing activities 28,165,888 (367,718) 13,614,865
------------ ------------ ------------
Net increase in cash 7,188,618 711,776 48,246
Cash, beginning of year 1,157,191 445,415 397,169
------------ ------------ ------------
Cash, end of year $ 8,345,809 $ 1,157,191 $ 445,415
============ ============ ============
</TABLE>
41
<PAGE> 43
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
Mailing Address
P.O. Box 105075
Atlanta, GA 30348-5075
(404) 639-6500
FIDELITY NATIONAL CORPORATION 3490 Piedmont Rd.
Suite 1550
Atlanta, GA 30305
(404) 639-6500
FIDELITY NATIONAL BANK
3500 Holcomb Bridge Rd.
Norcross, GA 30092
(404) 639-6500
FIDELITY NATIONAL MORTGAGE
CORPORATION
3 Corporate Square
Suite 700
Atlanta, GA 30329
(404) 639-6555
FIDELITY NATIONAL CAPITAL
INVESTORS, INC.
3490 Piedmont Rd.
Suite 1450
Atlanta, GA 30305
(404) 240-1600
AUDITORS
Ernst & Young LLP
Suite 2800
600 Peachtree St.
Atlanta, GA 30308-2215
ATTORNEYS
Miller & Martin LLP
100 Galleria Parkway, N.W.
Atlanta, GA 30339-3122
Holland & Knight LLP
One Atlantic Center
1201 West Peachtree St, N.E.
Suite 2000
Atlanta, GA 30309-3400
Kilpatrick & Stockton LLP
1100 Peachtree St.
Atlanta, GA 30309-4530
Schreeder, Wheeler & Flint
The Candler Building
Sixteenth Floor
127 Peachtree St., N.E.
Atlanta, GA 30303-1845
- --------------------------------------------------------------------------------
ANNUAL REPORTS AND FORM 10-K
Copies of Fidelity National Corporation's financial reports and form 10-K filed
with the Securities and Exchange Commission and supplemental quarterly
information are available on request.
ANNUAL MEETING
The annual meeting of shareholders will be held on Thursday, April 16th at three
p.m. in the Board Room of the Company in Suite 1550 at 3490 Piedmont Road,
Atlanta, GA.
- --------------------------------------------------------------------------------
SENIOR MANAGEMENT
JAMES B. MILLER, JR.
Chairman and CEO
LARRY D. PETERSON
President and CEO FNB
Vice President FNC
SHARON R. DENNEY
Executive Vice President
M. HOWARD GRIFFITH, JR.
Chief Financial Officer
H. PALMER PROCTOR, JR.
Vice President
AFFILIATE INFORMATION
BANKING SERVICES
Mailing Address
P.O. Box 105075
Atlanta, GA 30348
(404) 639-6500
BUCKHEAD
3490 Piedmont Rd.
Atlanta, GA 30305
(404) 814-8114
CANTON ROAD
830 Old Piedmont Rd.
Marietta, GA 30066
(770) 919-0175
CRABAPPLE
10920 Crabapple Rd.
Roswell, GA 30075
(770) 993-3438
DECATUR
160 Clairemont Ave.
Decatur, GA 30030
(404) 371-9333
DUNWOODY
1425 Dunwoody Village Pkwy
Atlanta, GA 30338
(770) 668-0527
LAWRENCEVILLE
415 Grayson Hwy.
Lawrenceville, GA 30245
(770) 237-0121
MERCHANT'S WALK
1223 Johnson Ferry Rd.
Marietta, GA 30068
(770) 973-5494
NORTHLAKE
2255 Northlake Pkwy.
Tucker, GA 30084
(770) 491-7770
PEACHTREE CENTER
235 Peachtree St., NE
Atlanta, GA 30303
(404) 524-1171
PEACHTREE CORNERS
3500 Holcomb Bridge Rd.
Norcross, GA 30092
(770) 448-0554
PERIMETER CENTER
2 Perimeter Center East
Atlanta, GA 30346
(770) 551-8662
ROSWELL
1325 Hembree Rd.
Roswell, GA 30076
(770) 667-9797
SANDY SPRINGS
225 Sandy Springs Cir.
Sandy Springs, GA 30328
(404) 252-3602
TERRELL MILL
1371 Powers Ferry Rd., SE
Marietta, GA 30067
(770) 952-0212
TOCO HILLS
2936 North Druid Hills Rd.
Atlanta, GA 30329
(404) 329-9595
VININGS
4200 Paces Ferry Rd.
Atlanta, GA 30339
(770) 434-7800
JACKSONVILLE, FL
10151 Deerwood Park Blvd
Bldg. 200, Ste. 100
Jacksonville, FL 32256
(904) 996-1000
TAMPA BAY, FL
905 MLK Drive
Tarpon Springs, FL 34689
1-800-689-8852
MORTGAGE SERVICES
ATLANTA
3 Corporate Square Suite
700Atlanta, GA 30329
(404) 639-6555
LAWRENCEVILLE
415 Grayson Hwy.
Lawrenceville, GA 30245
(770) 237-0533
MARIETTA
1223 Johnson Ferry Rd.
Marietta, GA 30068
(770) 973-6192
JACKSONVILLE, FL
10151 Deerwood Park Blvd
Bldg. 200, Ste. 100
Jacksonville, FL 32256
(904) 996-1000
TRUST SERVICES
BUCKHEAD
3490 Piedmont Rd.
Suite 1450
Atlanta, GA 30305
(404) 240-1519
INVESTMENT BROKERAGE
BUCKHEAD
3490 Piedmont Rd.
Suite 1450
Atlanta, GA 30305
(404) 240-1600
42
<PAGE> 44
SHAREHOLDER INFORMATION
COMMON STOCK
Fidelity National Corporation's Common Stock is registered with the Securities
and Exchange Commission. It is included in the NASDAQ National Market System
under the symbol "LION." It is listed in The Wall Street Journal under "FidNtl."
FINANCIAL INFORMATION
Analysts, investors and others seeking financial information about the Company
should contact:
Martha Fleming (404) 240-1504
or write:
Fidelity National Corporation
P.O. Box 105075
Atlanta, GA 30348
MARKET PRICES - COMMON STOCK
<TABLE>
<CAPTION>
1997 High Low
---- ---- ---
<S> <C> <C>
Fourth Quarter 9-3/4 7-1/2
Third Quarter 9-3/8 8-3/4
Second Quarter 9-5/8 7
First Quarter 13 8-1/2
1996
----
Fourth Quarter 12-3/8 9-3/4
Third Quarter 14-3/4 11-7/8
Second Quarter 16-1/4 13-7/8
First Quarter 16-3/4 14-1/2
</TABLE>
As of March 10, 1998, there were approximately 575 shareholders of record. In
addition, shares of approximately 1,970 beneficial owners of the Company's
Common Stock were held by brokers, dealers and their nominees.
SHAREHOLDER ASSISTANCE
Shareholders requiring a change of address, records or infor-mation about lost
certificates or dividend checks may contact the Company's transfer agent:
The Bank of New York
Investor Relations Department
P.O. Box 11258
Church Street Station
New York, NY 10286-1258
1-800-524-4458
MARKET MAKERS
Raymond James & Associates, Inc.
Sterne, Agee & Leach
BT Alex. Brown & Sons Inc.
Allen C. Ewing & Co.
Herzog, Heine, Geduld, Inc.
Knight Securities LP
Mayer & Schweitzer, Inc.
M. H. Meyerson & Co.
Nash Weiss/Div. of Shatkin Inv.
43
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Fidelity National Corporation and subsidiaries of our report dated February
26, 1998, included in the 1997 Annual Report to Shareholders of Fidelity
National Corporation and subsidiaries, and to the incorporation by reference in
the Registration Statement (Form S-8 No. 33- 11877) pertaining to the Employee
Stock Purchase Plan of Fidelity National Corporation and in the Registration
Statement (Form S-3 No. 33-11879) of Fidelity National Corporation and in the
related prospectus of our report dated February 26, 1998, with respect to the
consolidated financial statements of Fidelity National Corporation and
subsidiaries incorporated by reference in the Annual Report (Form 10-K) for the
year ended December 31, 1997.
Atlanta, Georgia /s/ Ernst & Young LLP
March 30, 1998 ---------------------
<PAGE> 1
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ James B. Miller, Jr.
---------------------------------------
JAMES B. MILLER, JR.
<PAGE> 2
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ Larry D. Peterson
----------------------------------------
LARRY D. PETERSON
<PAGE> 3
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ David R. Bockel
---------------------------------------
DAVID R. BOCKEL
<PAGE> 4
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ Dr. Edward G. Bowen
----------------------------------------
DR. EDWARD G. BOWEN
<PAGE> 5
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ W. Clyde Shepherd, Jr.
---------------------------------------
W. CLYDE SHEPHERD, JR.
<PAGE> 6
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ Gordon M. Sherman
---------------------------------------
GORDON M. SHERMAN
<PAGE> 7
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ R. Phillip Shinall, III
---------------------------------------
R. PHILLIP SHINALL, III
<PAGE> 8
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ Rankin Smith, Jr.
--------------------------------------
RANKIN SMITH, JR.
<PAGE> 9
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ Felker W. Ward, Jr.
---------------------------------------
FELKER W. WARD, JR.
<PAGE> 10
EXHIBIT 24
FIDELITY NATIONAL CORPORATION
POWER OF ATTORNEY
The undersigned director and/or officer of FIDELITY NATIONAL
CORPORATION, a Georgia corporation, does hereby make, constitute and appoint
James B. Miller, Jr., M. Howard Griffith, Jr. and Martha C. Fleming, and each of
them, the undersigned's true and lawful attorneys-in-fact, with power of
substitution, for the undersigned and in the undersigned's name, place and
stead, to sign and affix the undersigned's name as such director and/or officer
of said Corporation to the annual report for the Corporation's fiscal year
ending December 31, 1997, on Form 10-K, and all amendments thereto, to be filed
by said Corporation with the Securities and Exchange Commission, Washington,
D.C. pursuant to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended, and the regulations promulgated thereunder, and to file
the same, with all exhibits thereto and other supporting documents, with said
Commission, granting unto said attorneys-in-fact, and each of them, full power
and authority to do and perform any and all acts necessary or incidental to the
performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of March, 1998.
/s/ M. Howard Griffith, Jr.
---------------------------------------
M. HOWARD GRIFFITH, JR.
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