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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
COMMISSION FILE NUMBER 0-24528
PREMIER BANCSHARES, INC.
(Exact name of Registrant as specified in its Charter)
GEORGIA 58-1793778
(State of Incorporation) (I.R.S. Employer Identification No.)
2180 Atlanta Plaza
950 E. Paces Ferry Road
Atlanta, Georgia 30326
(Address of principal office, including zip code)
(404) 814-3090
Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act: NONE
Securities Registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $1.00
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
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This Report contains a total of 34 pages; the Exhibit Index begins on Page 35.
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[ ] 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 this Form 10-K or any amendment to this Form
10-K.
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant at March 26, 1997, was approximately $41,678,294 based on $13.875 per
share, the closing price of the Common Stock as quoted on the American Stock
Exchange.
The number of shares of the Registrant's Common Stock outstanding at April
18, 1997, was 4,249,401 shares.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December
31, 1996, are incorporated by reference into Parts I and II of this report.
Portions of the Proxy Statement for the 1997 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission within 120 days of the
Registrant's 1996 fiscal year end are incorporated by reference into Part III of
this report. Such Proxy Statement is contained in the Registrant's Form S-4
Registration Statement filed with the Securities and Exchange Commission on
April 4, 1997.
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PART I
ITEM 1. BUSINESS
THE COMPANY
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Premier Bancshares, Inc. (the "Company") formerly known as First
Alliance/Premier Bancshares, Inc. and also formerly known as First Alliance
Bancorp, Inc. was incorporated as a Georgia corporation in 1988 under the laws
of the state of Georgia and the regulations of the Bank Holding Company Act of
1956.
The Company's largest subsidiary, First Alliance Bank (the "First Alliance
Bank"), is a commercial bank that opened for business in 1984. On August 31,
1996, the Company acquired, through a pooling of interests, a thrift holding
company named Premier Bancshares, Inc. ("Premier"). Premier owned two
subsidiaries: Premier Lending Corporation ("Premier Lending") and Premier Bank,
FSB ("Premier Bank") which became wholly-owned subsidiaries of the Company.
Premier Lending engages in the business of residential mortgage, construction
and commercial finance loan originations. Premier Bank is a savings and loan
association that engages in the business of providing savings banking services
including personal and business checking accounts and other accounts and
residential, commercial and consumer lending activities. The Company also owns
a majority interest in a consumer finance company named Alliance Finance
Inc. ("Alliance Finance"). For more in-depth background on all of the
above companies, the reader is referred to the Registration Statement on Form S-
4 filed with the Securities and Exchange Commission on April 4, 1997.
Any additional non-banking activities to be conducted by the Company may
include financial and other activities permitted by law, and such activities
could be conducted by subsidiary corporations that have not yet been organized.
Commencement of non-banking operations by the Company or by its subsidiaries, if
they are organized, will be contingent upon approval by the Board of Directors
of the Company and by appropriate regulatory authorities.
The Company's main office is located at 2180 Atlanta Plaza, 950 E. Paces
Ferry Road, Atlanta, Georgia 30326. At the present time, the Company does not
have any plans to establish additional offices, but its subsidiaries will
establish new branch offices from time to time.
RECENT DEVELOPMENTS
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PROPOSED MERGER WITH THE CENTRAL AND SOUTHERN HOLDING COMPANY
On February 3, 1997, the Company entered into an Agreement and Plan of
Reorganization with The Central and Southern Holding Company ("Central and
Southern") of Milledgeville, Georgia (the "Agreement"). Pursuant to the
Agreement, Central and Southern will merge with and
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into the Company and The Central and Southern Bank of Georgia and The Central
and Southern Bank of North Georgia, F.S.B., which are wholly-owned subsidiaries
of Central and Southern, will become wholly-owned subsidiaries of the Company.
Upon consummation of the merger, each share of Central and Southern common stock
issued and outstanding will be converted into and exchanged for the right to
receive one share of the Company's common stock. Consummation of the merger is
subject to certain conditions, including approval of the Agreement by the
Company and Central and Southern shareholders and approval of the merger by the
various regulatory agencies.
In contemplation of the merger, the Board of Directors changed the
Company's name to "Premier Bancshares, Inc." and approved a 1.8055-for-one split
of the common stock of the Company which had a record date of March 6, 1997 and
a distribution date of March 20, 1997. On March 26, 1997, the Agreement was
amended to allow for the substitution of Central and Southern's outstanding
stock options for options under the Company's proposed 1997 Stock Option Plan
upon consummation of the Merger.
PROPOSED TRANSACTION AMONG PREMIER BANK, FIRST ALLIANCE BANK AND NET.B@NK
Premier Bank has entered into a Purchase and Assumption Agreement with
First Alliance Bank dated December 19, 1996, whereby First Alliance Bank has
agreed to purchase and assume substantially all of the assets and liabilities,
respectively, of Premier Bank (except for Premier Bank's savings bank charter
and approximately $5 million of assets and $5 million of deposit liabilities).
Immediately following consummation of the Purchase and Assumption Agreement, all
of the outstanding common stock of Premier Bank, now owned by Premier, will be
purchased by Net.B@nk, Inc., a corporation organized and existing under the laws
of the State of Georgia ("Net.B@nk"), pursuant to that certain Amended and
Restated Stock Purchase Agreement by and between Premier and Net.B@nk dated
December 19, 1996 (the "Stock Purchase Agreement").
On February 25, 1997, Premier and Net.B@nk executed a First Amendment to
the Stock Purchase Agreement for the purpose of extending the termination date
of the Stock Purchase Agreement to May 31, 1997, increasing the amount of
Net.B@nk stock to be paid to Premier, and requiring a $150,000 cash payment from
Net.B@nk to Premier for the purpose of reimbursing expenses incurred by Premier
in connection with the Stock Purchase Agreement. In addition, the Purchase and
Assumption Agreement was amended on March 13, 1997 for the purpose of extending
the termination date to April 30, 1997. The Purchase and Assumption Agreement
was amended again on March 25, 1997 to further extend the termination date to
May 31, 1997. Under the Stock Purchase Agreement, as amended, Net.B@nk will
transfer to Premier 1,250 shares of the common stock of Net.B@nk in exchange for
the Premier Bank common stock. The Purchase and Assumption Agreement is subject
to the approval of the Georgia Department of Banking and Finance (the "Georgia
Department") and the Federal Deposit Insurance Corporation. Approval from the
Federal Deposit Insurance Corporation was obtained on April 14, 1997. In
addition, Net.B@nk's purchase of the Premier Bank common stock is subject to the
approval of the Federal Reserve Bank of Richmond and the OTS. In connection with
the regulatory application filed with the OTS seeking approval of the
transactions contemplated in the Stock Purchase Agreement, the OTS has raised
certain policy issues which could delay or effectively prohibit the consummation
of such transactions. The transfer of all the Premier Bank common stock from
Premier to Net.B@nk is also contingent upon the successful completion of
Net.B@nk's $10 million initial public offering.
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On March 17, 1997, Net.B@nk declared a 33.125 for 1 split of its common
stock which will be payable on the effective date of Net.B@nk's initial public
offering. As a result, upon consummation of the Stock Purchase Agreement,
Premier will receive 41,406 shares or approximately .73% of Net.B@nk's common
stock following its initial public offering. The sale of Premier Bank's savings
bank charter will not have a material impact upon Premier's future financial
position, operating results or liquidity. Management believes that the sale of
the charter could enhance Premier's future profitability due to the reductions
of duplicative operating expenses. The purpose of the Purchase and Assumption
Agreement is to consolidate the operations of Premier Bank and First Alliance
Bank. In the event that the transactions described in the Stock Purchase
Agreement and the Assumption Agreement, as amended, have not been consummated by
May 31, 1997, then the Purchase and Assumption Agreement shall, unless otherwise
extended or modified, terminate under its own terms. In the event of the
termination of the transactions in connection with Net.B@nk, Purchase and
Assumption Agreement, Premier Bank and First Alliance Bank intend to merge
pursuant to an Agreement and Plan of Merger by and between Premier Bank and
First Alliance Bank whereby Premier Bank would merge with and into First
Alliance Bank, with First Alliance Bank being the surviving institution.
FIRST ALLIANCE BANK
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GENERAL
First Alliance Bank is organized under the laws of the state of Georgia and
operates a full-service commercial banking business based in northern Cobb
County, Georgia. It provides all customary banking services such as checking
and savings accounts, various types of time deposits, money transfers, safe
deposit facilities, all types of credit and debit cards, and individual
retirement accounts. It also finances short-and medium-term commercial
transactions, makes secured and unsecured loans and provides other ancillary
financial services to its customers. In addition, the Bank provides a
traditional first mortgage product to its customers providing financing for
single-family homes on a permanent basis. First Alliance Bank's main office is
located at 63 Barrett Parkway, Marietta, Georgia.
MARKET AREA AND COMPETITION
First Alliance Bank has five locations in Marietta, Georgia, from which it
serves its primary market area of northern Metropolitan Atlanta (as defined by
Cobb, DeKalb, Fulton and Gwinnett Counties) and Cherokee, Paulding and Bartow
Counties. First Alliance Bank competes for both deposits and loan customers
with many other financial institutions with equal or greater resources than are
available to First Alliance Bank. Currently, there are approximately 20
different commercial banks located in the northern Metropolitan Atlanta banking
market. The banking business in this market is highly competitive.
DEPOSITS
First Alliance Bank offers a wide range of commercial and consumer deposit
accounts, including non-interest bearing checking accounts, money market
checking accounts (consumer and commercial), negotiable order of withdrawal
("NOW") accounts, individual retirement accounts, time certificates of deposit,
and regular savings accounts. The sources of deposits typically are residents
and businesses and their employees within First Alliance Bank's market area and
are obtained through personal solicitation by First Alliance Bank's officers and
directors, direct mail solicitation, and advertisements published in the local
media. First Alliance Bank pays competitive interest rates on time and savings
deposits and has implemented a service charge fee schedule
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competitive with other financial institutions in First Alliance Bank's market
area, covering such matters as maintenance fees on checking accounts, per item
processing fees on checking accounts, returned check charges, and the like.
For additional information regarding First Alliance Bank, see the
information set forth under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operation" in the Company's 1996 Annual
Report to Shareholders, which is included as Exhibit 13.1 to this Annual Report
on Form 10-K and is incorporated herein by reference.
LENDING ACTIVITIES
As is typical of community banks in First Alliance Bank's primary market
area, First Alliance Bank makes loans primarily secured by real estate for
single family home construction, owner-occupied commercial buildings, and other
loans to small businesses and individuals who secure these loans by mortgages on
their homes (76% of total loans). In addition, loans are made to small- and
medium-sized commercial business (15% of total loans), as well as to consumers
for a variety of purposes (9% of total loans). With the exception of single
family home construction loans, repayment of the Bank's loans does not depend on
the sale or cash flow from the collateral securing the loan.
For information concerning the dollar amount of each of the following loan
types and loan loss experience associated with the loan types, see the
information set forth under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operation" in the Company's 1996 Annual
Report to Stockholders, which is included as Exhibit 13.1 to this Annual Report
on Form 10-K and is incorporated herein by reference.
Real Estate Loans. First Alliance Bank makes single-family residential
construction loans, generally for one-to-four unit structures. First Alliance
Bank requires a first lien position on the land associated with the construction
projects and offers these loans only to bona fide professional building
contractors. Loan disbursements require independent, on-site inspections to
assure the project is on budget and that the loan proceeds are being used in
accordance with the plans, specifications and survey for the construction
project and not being diverted to other uses. The loan-to-value ratio for such
loans is predominately 75% of the as-built appraised value. Loans for
construction can present a high degree of risk to the lender, depending on,
among other things, whether the builder can sell the home to a buyer, whether
the buyer can obtain permanent financing, whether the transaction produces
income in the interim, and the nature of changing economic conditions. The Bank
seeks to reduce this risk by limiting the number of loans to any one builder and
the number of loans made in any one subdivision.
Additionally, First Alliance Bank makes acquisition and development loans
to approved developers for the purpose of developing acreage into single-family
lots on which houses will be built. These loans are carefully scrutinized by
outside members of the Board of Directors as well as the senior officers of
First Alliance Bank and require independent inspection of the project by
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professional inspectors to ensure adherence to the loan agreement as well as to
the construction budget. The loan-to-value ratio for such loans does not exceed
80%, or 100% of the discounted value, whichever is less, as defined by an
independent appraisal. Loans for acquisition and development can present a high
degree of risk to the lender, depending upon, among other things, whether the
developer can find builders to buy the lots, whether the builder can obtain
financing, whether the transaction produces income in the interim, and the
nature of changing economic conditions. First Alliance Bank seeks to reduce
this risk by limiting the number of loans to any one developer and the size of
the development.
Consumer Loans. First Alliance Bank makes consumer loans, consisting
primarily of installment loans to individuals for personal, family and household
purposes including loans for automobiles, home improvements and investments.
Consumer lending decisions are based on a determination of the borrower's
ability and willingness to repay the loan, which in turn are impacted by such
factors as the borrower's income, job stability, length of time as a resident in
the community, previous credit history and collateral for the loan. Risks
associated with these loans include, but are not limited to, fraud, deteriorated
or non-existing collateral, general economic downturn, and customer financial
problems.
Commercial Loans. Commercial lending is directed principally toward
businesses (a) whose annual sales are in the $1 to $5 million category within
the defined trade area of First Alliance Bank or whose demand for funds falls
within First Alliance Banks's legal lending limits and (b) which are existing or
potential deposit customers of First Alliance Bank. Commercial lending
decisions are based upon a determination of the borrower's ability and
willingness to repay the loan, which in turn are impacted by such factors as the
borrower's cash flow, sales trends and inventory levels, as well as relevant
economic conditions. This category includes loans made to individual,
partnership or corporate borrowers and obtained for a variety of purposes.
Risks associated with these loans can be significant. Risks include, but are
not limited to, fraud, bankruptcy, economic downturn, deteriorated or non-
existing collateral, and changes in interest rates.
INVESTMENT ACTIVITIES
After establishing necessary cash reserves and funding loans, First
Alliance Bank invests its remaining liquid assets in investments allowed under
banking laws and regulations. First Alliance Bank invests primarily in
obligations of the United States or obligations guaranteed as to principal and
interest by the United States, and other taxable securities and in certain
obligations of states and municipalities. First Alliance Bank also engages in
Federal Funds transactions with its principal correspondent banks and primarily
acts as a net seller of such funds. The sale of Federal Funds amounts to a
short-term loan from First Alliance Bank to another bank. Risks associated with
these investments include, but are not limited to, mismanagement in terms of
interest rate, maturity and concentration. Historically, losses associated with
the investment portfolio have been minimal.
For additional information concerning Investment Activities, see the
information set forth under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operation" in the Company's 1996 Annual
Report to Shareholders, which is included as Exhibit 13.1 to this Annual Report
on Form 10-K and is incorporated herein by reference.
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ASSET/LIABILITY MANAGEMENT
It is the objective of First Alliance Bank to manage its assets and
liabilities to provided a satisfactory, consistent level of profitability within
the framework of established cash, loan, investment, borrowing and capital
policies. Certain officers of First Alliance Bank are charged with the
responsibility for developing and monitoring policies and procedures that are
designed to insure acceptable composition of the asset/liability mix. It is the
overall philosophy of management to support asset growth primarily through
growth of core deposits, which include deposits of all categories made by
individuals, partnerships and corporations. Management of First Alliance Bank
seeks to invest the largest portion of First Alliance Bank's assets in loans to
local builders, small businesses and individuals. First Alliance Bank's
asset/liability mix is monitored on a timely basis with a report reflecting
interest-sensitive assets and interest-sensitive liabilities being prepared and
presented to the asset/liability committee of First Alliance Bank's Board of
Directors on a quarterly basis. In addition, First Alliance Bank's liquidity is
monitored on a monthly basis by its Board of Directors. The objective of this
policy is to manage interest-sensitive assets and liabilities so as to minimize
the impact of substantial movements in interest rates on First Alliance Bank's
earnings. See the information set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operation" in the
Company's 1996 Annual Report to Shareholders, which is included as Exhibit 13.1
to this Annual Report on Form 10-K and is incorporated herein by reference.
EMPLOYEES
As of April 30, 1997, First Alliance Bank employed approximately 88 full-
time equivalent employees. First Alliance Bank is not a party to any collective
bargaining agreement, and, in the opinion of management, enjoys excellent
relations with its employees.
PREMIER BANK
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GENERAL
Premier Bank received its charter as a federal stock savings bank from the
Federal Home Loan Bank Board, the predecessor of the Office of Thrift
Supervision ("OTS"), on November 21, 1986. Premier Bank commenced operations
on March 29, 1988. The primary business of Premier Bank is to attract deposits
from the general public and invest those funds in residential real estate loans,
commercial real estate loans, commercial loans and consumer loans. Customer
deposits with Premier Bank are insured to the maximum extent provided by law
through the Savings Association Insurance Fund, a unit of the Federal Deposit
Insurance Corporation. Premier Bank is also a member of the Federal Home Loan
Bank System.
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MARKET AREA AND COMPETITION
Premier Bank's primary service area is currently Cobb County, Cherokee
County, Bartow County, Gwinnett County and Paulding County, and the northern
part of Fulton and DeKalb Counties, Georgia. Premier Bank's main office is
located at 4900 Ross Road in Acworth, Cobb County, Georgia.
Premier Bank experiences competition in attracting and retaining business
and personal checking and savings accounts and in making residential real
estate, commercial real estate and consumer loans in its primary service area.
The principal factors in competing for such accounts are interest rates, the
range of financial services offered, convenience of office and branch locations
and flexible office hours. Direct competition for such accounts comes from
other savings institutions, commercial banks, credit unions, brokerage firms and
money market funds. The primary factors in competing for loans are interest
rates, loan origination fees and the range of lending services offered. The
competition for origination of loans normally comes from other savings
institutions, commercial banks, credit unions and mortgage banking firms. Such
entities may have competitive advantages as a result of greater resources and
higher lending limits (by virtue of greater capitalization) and may offer their
customers certain services which Premier Bank may not presently provide.
OPERATIONS
Premier Bank's income is primarily derived from interest and fees collected
on loans and interest on investment securities and gains received on sales of
loans. The principal expenses of Premier Bank are interest paid on deposits,
interest paid on other borrowings by Premier Bank, employee compensation, office
expenses and other overhead expenses.
Premier Bank offers a full range of banking services to individuals,
professional and business customers in its primary service area. These services
include personal and business checking accounts and savings and other time
certificates of deposit. Premier Bank acts as a merchant depository for
cardholder drafts under both VISA and Mastercard. Premier Bank offers night
depository and bank-by-mail services and sells official checks and travelers
checks (issued by an independent entity). In addition, Premier Bank originates
loans to small businesses secured by real estate and other collateral, which
loans are in part (up to 75% of each loan) guaranteed by the U.S. Small Business
Administration ("SBA") and are generally in amounts less than $500,000; and
Premier Bank has been designated by the SBA as a certified lender.
LENDING ACTIVITIES
Premier Bank's residential real estate lending activities are directed
primarily toward individuals requiring a 15- to 30-year mortgage loan.
Commercial real estate lending activities are directed primarily toward builders
and developers and are generally short- and medium-term loans. Commercial
lending activities are primarily directed toward current customers for such
purposes as business equipment, working capital, lines of credit and letters of
credit secured by certificates of deposit. In addition, Premier Bank originates
loans to small businesses secured by real estate and other collateral, which
loans are in part (up to 75% of each loan) guaranteed by the U.S. Small Business
Administration ("SBA") and are generally in amounts less than $500,000; and
Premier Bank has been designated by the SBA as a Certified Lender. Consumer
lending is oriented primarily to the needs of Premier Bank's customers for such
purposes as automobiles and personal needs. Premier Bank also originates a
limited number of variable rate and fixed rate mortgage loans for its own
account and both variable and fixed rate mortgage loans for resale.
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EMPLOYEES
As of April 30, 1997, Premier Bank employed approximately 27 full-time
equivalent employees. Premier Bank is not a party to any collective bargaining
agreement and management believes that Premier Bank enjoys satisfactory
relations with its employees.
PREMIER LENDING CORPORATION
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GENERAL
Premier Lending Corporation ("Premier Lending") is primarily a mortgage
banker and acts as an intermediary between purchasers of residential real estate
or homeowners refinancing their residences and correspondent or institutional
investors seeking to purchase mortgage loan investments. Premier Lending is a
retail originator of residential mortgage loans, which loans are then sold to
correspondent mortgage investors.
Premier Lending is an approved Federal National Mortgage Association
("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") seller-
servicer of mortgage loans. Premier Lending is also an approved Department of
Housing and Urban Development ("HUD") and Veterans Administration ("VA")
mortgage originator. The approval process under these federal programs
requires, among other matters, evidence of industry experience, character
references and credit reports of principals, financial statements, corporate net
worth or bonding capacity, and a business plan.
Premier Lending's administrative offices are located at 2759 Delk Road,
Suite 20, Marietta, Georgia 30067, and its telephone number is (770) 952-0606.
MARKET AREA AND COMPETITION
Premier Lending's primary service area for its residential loan
originations and its mortgage banking operations is the greater Atlanta, Georgia
metropolitan area. Premier Lending operates from its administrative offices in
Marietta (Cobb County), and has loan production offices in Gwinnett County,
Fulton County, Henry County, DeKalb County and Cobb County.
The mortgage banking business is highly competitive and fragmented.
Premier Lending competes with other mortgage bankers, state and national banks,
thrift institutions and insurance companies for loan originations. Many of its
competitors have substantially greater resources than Premier Lending.
OPERATIONS
Premier Lending's loan officers originate residential mortgage loans
through referrals from real estate agents and brokers, builders, developers, and
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other relationships developed over the past years by management, as well as
through direct solicitation of borrowers. The level of Premier Lending's loan
originations is subject to seasonal variations with the heaviest demand
occurring in the spring, summer and fall and with the lightest demand occurring
in the winter.
Premier Lending originates the mortgages and sells the loans to Premier
Bank which independently underwrites the credit. Premier Bank holds these
mortgage loans for a period ranging from one to 20 days after closing. During
the holding period the loans are serviced by Premier Lending.
The results of operations of Premier Lending depend primarily upon its
ability to originate, fund and sell residential mortgage loans. This ability,
in turn, depends substantially upon current interest rate levels and national
economic conditions, which affect the degree to which prospective purchasers of
residential real estate and homeowners considering refinancing their existing
mortgage loans seek such mortgage financing. For example, mortgage loan
origination activity is generally greater in a period of declining interest
rates and favorable economic conditions. Economic conditions in Premier
Lending's service area will also have a significant effect on the residential
housing market and, therefore, on Premier Lending's mortgage loan origination
activities.
Loan Servicing. Premier Lending does not generally retain servicing of
the permanent mortgage loans which it originates. However, Premier does service
commercial finance loans for other investors. The servicing rights on all of
Premier Lending's permanent mortgage loans are sold for a fee along with the
loans to correspondent or institutional mortgage investors.
Permanent Loan Market. Premier Lending's operations depend on the ability
of its prospective borrowers to qualify for and obtain permanent loans through
Premier Lending from correspondent or institutional mortgage investors.
Accordingly, any significant change in the permanent loan market which reduces
the ability of Premier Lending's borrowers to obtain permanent financing on a
timely and acceptable basis, including a change in the operations, level of
activity, or underwriting criteria of such correspondent or institutional
investors or other permanent lenders, could have a material adverse effect on
Premier Lending's business and the results of operations.
Sale of Residential Loans. Premier Lending sells the mortgage loans which
it originates or purchases indirectly through Premier Bank to correspondent or
institutional mortgage investors. These loans are sold on a loan-by-loan basis,
and the sales are made without recourse.
LENDING ACTIVITIES
Residential Loan Originations. Premier Lending principally originates
conventional residential first and second mortgage loans primarily secured by
one-to-four family residential properties. Premier Lending also originates both
FNMA and FHLMC loans. Premier Lending concentrates on compliance with the
spirit of the Community Reinvestment Act through originating government insured
or guaranteed mortgages such as FHA, VA and state bond issues. Although Premier
Lending's emphasis is on loan amounts which are considered "conforming" (less
than $214,000), Premier Lending also originates a number of "non-conforming"
loans (more than $214,000). Premier Lending has a subsidiary, Premier
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Acceptance Corporation, which originates sub prime loans which assist borrowers
with credit impairments. Management believes that the loans originated through
Premier Acceptance pose only a minimal increased credit risk over the
residential mortgage loans originated by Premier Lending because such loans are
held by Premier Acceptance for a short period of time and they sold without
recourse.
The level of revenues per loan from Premier Lending's loan originations are
primarily a function of the sale of the loans and servicing to correspondent or
institutional investors and the fees Premier Lending can charge.
Premier Lending seeks to originate commercial finance loans which focus on
revolving lines of credit secured primarily by receivables and, to a lesser
extent, inventory. These loans are funded through loan participation from other
financial institutions (including First Alliance Bank and Premier Bank) and
lines of credit. Management will consider term loans secured by machinery,
equipment or real estate based on traditional underwriting criteria, as well as
prior experience of management with the borrower. Management focuses its
commercial finance lending toward small and medium sized businesses that
generally are not being served by banks or finance companies in the market area,
especially as a result of the bank consolidation in Premier Lending's market
area.
In addition, Premier Lending originates commercial real estate loans which
typically range from $500,000 to $5,000,000. These loans provide construction
and permanent financing for both owner-occupied and income-producing properties;
and, like the commercial finance loans, are funded through loan participations
with other financial institutions (including First Alliance Bank and Premier
Bank) and lines of credit.
EMPLOYEES
At April 30, 1997, Premier Lending employed approximately 125 full time
equivalent persons. Premier Lending is not a party to any collective bargaining
agreement and management believes that Premier Lending enjoys satisfactory
relations with its employees.
ALLIANCE FINANCE, INC.
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Alliance Finance is a traditional consumer finance company that makes small
loans to individuals secured by varied collateral. Alliance Finance had assets
of approximately $3,300,000, net loans of approximately $2,900,000 and
shareholders' equity of approximately $68,000, with net income for the year
ended December 31, 1996 of approximately $59,000. At February 28, 1997, Alliance
Finance employed approximately 6 full time equivalent persons.
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SUPERVISION AND REGULATION
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GENERAL
Bank holding companies, thrift holding companies, banks, and thrifts are
extensively regulated under both Federal and state law. The following is a
brief summary of certain statutes and rules and regulations affecting the
Company, the bank and the thrift. This summary is qualified in its entirety by
reference to the particular statutes and regulatory provisions referred to below
and is not intended to be an exhaustive description of the statutes or
regulations applicable to the business of the Company and its subsidiaries.
Supervision, regulation and examination of the Company and its subsidiaries by
the bank and thrift regulatory agencies are intended primarily for the
protection of depositors rather than shareholders of the Company.
The Company is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and the Georgia Bank Holding
Company Act (the "Georgia Bank Holding Company Act") and is regulated under such
acts by the Board of Governors of the Federal Reserve System (the "Federal
Reserve") and the Georgia Department, respectively. As a savings and loan
holding company, the Company is also registered with the OTS and is subject to
regulation, supervision, and examination by and the reporting requirements of
the OTS.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company. Similar federal statutes require savings and loan holding
companies and other companies to obtain the prior approval of the OTS before
acquiring direct or indirect ownership or control of a savings bank or savings
association.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the communities
to be served. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the Riegle-
Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Banking Act"), which became effective on September 29, 1995, repealed the prior
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statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that Premier, and any other bank holding company located in
Georgia, may now acquire a bank located in any other state, and any bank holding
company located outside Georgia may lawfully acquire any Georgia-based bank,
regardless of state law to the contrary, in either case subject to certain
deposit-percentage, aging requirements, and other restrictions. The Interstate
Banking Act also generally provides that, after June 1, 1997, national and
state-chartered banks may branch interstate through acquisitions of banks in
other states. By adopting legislation prior to that date, a state has the
ability either to "opt in" and accelerate the date after which interstate
branching is permissible or "opt out" and prohibit interstate branching
altogether.
In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, effective July 1, 1995. The Georgia
Interstate Banking Act provides that (i) interstate acquisitions by institutions
located in Georgia will be permitted in states which also allow national
interstate acquisitions, and (ii) interstate acquisitions of institutions
located in Georgia will be permitted by institutions located in states which
allow national interstate acquisitions.
Additionally, in February 1996, the Georgia Legislature adopted the Georgia
Interstate Branching Act which permits Georgia-based banks and bank holding
companies owning or acquiring banks outside of Georgia and all non-Georgia banks
and bank holding companies owning or acquiring banks in Georgia the right to
merge any lawfully acquired bank into an interstate branch network. Finally,
the Georgia Intrastate Branching Act also allows banks to establish de novo
branches on a limited basis beginning July 1, 1996. Beginning July 1, 1998, the
number of de novo branches which may be established will no longer be limited.
The BHC Act generally prohibits a bank holding company from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In
determining whether a particular activity is permissible, the Federal Reserve
must consider whether the performance of such an activity reasonably can be
expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. For example,
factoring accounts receivable, acquiring or servicing loans, leasing personal
property, conducting discount securities brokerage activities, performing
certain data processing services, acting as agent or broker in selling credit
life insurance and certain other types of insurance in connection with credit
transactions, and performing certain insurance underwriting activities all
have been determined by the Federal Reserve to be permissible activities of bank
holding companies. The BHC Act does not place territorial limitations on
permissible non-banking activities of bank holding companies. Despite prior
approval, the Federal Reserve has the power to order a holding company or its
subsidiaries to terminate any activity or to terminate its ownership or control
of any subsidiary when it has reasonable cause to believe that continuation of
such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
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Each of the bank and thrift subsidiaries of Premier and Central and
Southern is a member of the Federal Deposit Insurance Corporation (the "FDIC"),
and as such, its deposits are insured by the FDIC to the maximum extent provided
by law. Each such subsidiary is also subject to numerous state and federal
statutes and regulations that affect its business, activities, and operations,
and each is supervised and examined by one or more state or federal bank
regulatory agencies.
First Alliance Bank is subject to regulation, supervision, and examination
by the FDIC and the Georgia Department. Premier Bank is subject to regulation,
supervision, and examination by the OTS and the FDIC. The federal banking
regulators for the bank and thrift subsidiaries of Premier as well as the
Georgia Department in the case of First Alliance Bank, regularly examine the
operations of First Alliance Bank and Premier Bank and are given authority to
approve or disapprove mergers, consolidations, the establishment of branches,
and similar corporate actions. The federal banking regulators and the Georgia
Department also have the power to prevent the continuance or development of
unsafe or unsound banking practices or other violations of law.
PAYMENT OF DIVIDENDS
Premier is a legal entity separate and distinct from its banking and other
subsidiaries. The principal sources of cash flow of Premier, including cash
flow to pay dividends to its shareholders, are dividends from Premier Bank,
Premier Lending Corporation, First Alliance Bank and Alliance Finance. There
are statutory and regulatory limitations on the payment of dividends by Premier
Bank and First Alliance Bank to Premier as well as by Premier to its
shareholders.
If, in the opinion of the federal banking regulators, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking regulators have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "--Prompt Corrective
Action." Moreover, the federal agencies have issued policy statements that
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
At December 31, 1996, under dividend restrictions imposed under federal and
state laws, Premier Bank and First Alliance Bank, without obtaining governmental
approvals, could declare aggregate dividends to Premier of approximately
$1,345,000.
The payment of dividends by Premier and its subsidiaries may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
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CAPITAL ADEQUACY
Premier and its bank and thrift subsidiaries are required to comply with
the capital adequacy standards established by the Federal Reserve and the OTS,
and the appropriate federal banking regulator in the case of their banking and
thrift subsidiaries. There are two basic measures of capital adequacy for bank
holding companies that have been promulgated by the Federal Reserve: a risk-
based measure and a leverage measure. All applicable capital standards must be
satisfied for a bank holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital Ratio")
of total capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%. At least
half of Total Capital must be comprised of common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves ("Tier 2 Capital"). At December 31, 1996,
Premier's consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based
Capital Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were
10.79% and 9.69%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including those having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis
points. Premier's Leverage Ratio at December 31, 1996, was 7.27%. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it
will consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all
intangibles) and other indicia of capital strength in evaluating proposals for
expansion or new activities.
Premier Bank and First Alliance Bank are subject to risk-based and leverage
capital requirements adopted by their respective federal banking regulators,
which are substantially similar to those adopted by the Federal Reserve for bank
holding companies.
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Similarly, the OTS' regulatory capital regulations specify capital
standards for thrifts and thrift holding companies consisting of three
components: a "core capital" requirement, a "tangible capital" requirement, and
a "risk-based capital" requirement. These regulations require thrifts to
maintain core capital in an amount not less than 3% of adjusted total assets and
to maintain tangible capital in an amount not less than 1.5% of adjusted total
assets. Under the OTS' regulatory capital regulations, thrifts are required to
maintain capital equal to 8% of risk-weighted assets. The OTS requires assets
to be weighed on the basis of risk and assigns a weighing factor of between 0%
and 100%. Approximately one-half of risk-based capital must consist of core
capital and one-half may consist of other preferred stock, a portion of general
loan loss reserves and other hybrid capital instruments such as convertible and
subordinated debentures.
In determining compliance with the capital standards, all of a thrift's
investments in and extensions of credit to any subsidiary engaged in activity
not permissible for a national bank are deducted from the savings association
capital.
Each of the subsidiary depository institutions was in compliance with
applicable minimum capital requirements as of December 31, 1996. Premier has
not been advised by any federal banking regulator of any specific minimum
capital ratio requirement applicable to it or its subsidiary depository
institutions.
Failure to meet capital guidelines could subject a bank or thrift to a
variety of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As described
below, substantial additional restrictions can be imposed upon FDIC-insured
depository institutions that fail to meet applicable capital requirements. See
"Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve and the FDIC have, pursuant to
FDICIA, proposed an amendment to the risk-based capital standards that would
calculate the change in an institution's net economic value attributable to
increases and decreases in market interest rates and would require banks with
excessive interest rate risk exposure to hold additional amounts of capital
against such exposures. The OTS has already included an interest-rate risk
component in its risk-based capital guidelines for savings associations that it
regulates.
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, Premier is expected to act as a source of
financial strength for, and to commit resources to support, each of its banking
subsidiaries. This support may be required at times when, absent such Federal
Reserve policy, Premier may not be inclined to provide it. In addition, any
capital loans by a bank holding company to any of its banking subsidiaries are
subordinate in right of payment to deposits and to certain other indebtedness of
such banks. In the event of a bank holding company's bankruptcy, any commitment
by the bank holding company to a federal bank regulatory agency to maintain the
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capital of a banking subsidiary will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(i) the default of a commonly controlled FDIC-insured depository institution or
(ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally
as the appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of shareholders of the insured
depository institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to
a narrow exception, FDICIA requires the banking regulator to appoint a receiver
or conservator for an institution that is critically undercapitalized. The
federal banking agencies have specified by regulation the relevant capital level
for each category.
Under the final agency rules implementing the prompt corrective action
provisions, an institution that (i) has a Total Risk-Based Capital Ratio of 10%
or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, and a Leverage
Ratio of 5.0% or greater and (ii) is not subject to any written agreement,
order, capital directive, or prompt corrective action directive issued by the
appropriate federal banking agency is deemed to be well capitalized. An
institution with a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1
Risk-Based Capital Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or
greater is considered to be adequately capitalized. A depository institution
that has a Total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based
Capital Ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is
considered to be undercapitalized. A depository institution that has a Total
Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of
less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be
significantly undercapitalized, and an institution that has a tangible equity
capital to assets ratio equal to or less than 2.0% is deemed to be critically
undercapitalized. For purposes of the regulation, the term "tangible equity"
includes core capital elements counted as Tier 1 Capital for purposes of the
risk-based capital standards, plus the amount of outstanding cumulative
perpetual preferred stock (including related surplus), minus all intangible
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assets with certain exceptions. A depository institution may be deemed to be in
a capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In
addition, the appropriate federal banking agency is given authority with respect
to any undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the appropriate
federal banking agency must require the institution to take one or more of the
following actions: (i) sell enough shares, including voting shares, to become
adequately capitalized; (ii) merge with (or be sold to) another institution (or
holding company), but only if grounds exist for appointing a conservator or
receiver; (iii) restrict certain transactions with banking affiliates as if the
"sister bank" exception to the requirements of Section 23A of the Federal
Reserve Act did not exist; (iv) otherwise restrict transactions with bank or
non-bank affiliates; (v) restrict interest rates that the institution pays on
deposits to "prevailing rates" in the institution's "region"; (vi) restrict
asset growth or reduce total assets; (vii) alter, reduce, or terminate
activities; (viii) hold a new election of directors; (ix) dismiss any director
or senior executive officer who held office for more than 180 days immediately
before the institution became undercapitalized, provided that in requiring
dismissal of a director or senior executive officer, the regulator must comply
with certain procedural requirements, including the opportunity for an appeal in
which the director or officer will have the burden of proving his or her value
to the institution; (x) employ "qualified" senior executive officers; (xi) cease
accepting deposits from correspondent depository institutions; (xii) divest
certain nondepository affiliates which pose a danger to the institution; or
(xiii) be divested by a parent holding company. In addition, without the prior
approval of the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to any senior executive
officer or increase the rate of compensation for such an officer.
At December 31, 1996, First Alliance and Premier had the requisite capital
levels to qualify as well capitalized.
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FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, and replaced a transitional
system that the FDIC had utilized for the 1993 calendar year, assigns an
institution to one of three capital categories: (i) well capitalized; (ii)
adequately capitalized; and (iii) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the final risk-based assessment system, as well as the
prior transitional system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for members of both the Bank
Insurance Fund ("BIF") and the Savings Association Insurance Fund (SAIF) for the
first half of 1995, as they had during 1994, ranged from 23 basis points (0.23%
of deposits) for an institution in the highest category (i.e., "well
capitalized" and "healthy") to 31 basis points (0.31% of deposits) for an
institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern"). These rates were established for both funds to achieve a
designated ratio of reserves to insured deposits (i.e., 1.25%) within a
specified period of time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC was
authorized to reduce the minimum assessment rate below the 23 basis points and
to set future assessment rates at such levels that would maintain the fund's
reserve ratio at the designated level. In August 1995, the FDIC adopted
regulations reducing the assessment rates for BIF-member banks. Under the
revised schedule, BIF-member banks, starting with the second half of 1995, were
to pay assessments ranging from 4 basis points to 31 basis points, with an
average assessment rate of 4.5 basis points. Refunds with interest were paid
for assessments for the month(s) after the month in which the designated reserve
ratio for the BIF was reached. Subsequently, on November 14, 1995, the FDIC
announced that, beginning in 1997, it would further reduce the deposit insurance
premiums for 92% of all BIF members that are in the highest capital and
supervisory categories to $2,000 per year, regardless of deposit size. At the
same time, the FDIC elected to retain the existing assessment rate range of 23
to 31 basis points for SAIF members for the foreseeable future given the
undercapitalized nature of that insurance fund. Thrift industry representatives
argued that this significant premium disparity resulted in savings associations
having to operate at a competitive disadvantage to their BIF insured bank
counterparts.
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On September 30, 1996, the President signed the Deposit Insurance Fund Act
of 1996 ("DIFA") which was part of the omnibus spending bill enacted by Congress
at the end of its 1996 session. DIFA mandated that the FDIC impose a one-time
special assessment on the SAIF-assessable deposits of each insured depository
institution at a rate applicable to all such institutions that the FDIC
determined would cause the SAIF to achieve its designated reserve ratio of 1.25%
as of October 1, 1996. The assessment was based on the amount of SAIF-insured
deposits owned by each institution as of March 31, 1995, the record date
established in the original drafts of the legislation. DIFA allowed the FDIC to
exempt any insured institution that it determined to be weak from paying the
special assessment if the FDIC determined that the exemption would reduce the
risk to the SAIF.
DIFA provides that the FDIC may not set semi-annual assessments with
respect to SAIF or BIF in excess of the amount needed to maintain the 1.25%
designated reserve ratio or, if the reserve ratio is less than the designated
reserve ratio, to increase the reserve ratio to the designated reserve ratio.
On October 10, 1996, the FDIC adopted a Final Rule governing the payment of
the SAIF special assessment. The FDIC imposed a special assessment in the
amount of 65.7 basis points. The SAIF special assessment was due by November 27,
1996. Premier Bank's portion of this special assessment amounted to $202,000.
Premier Bank accrued this amount in the quarter ended September 30, 1996, as
mandated by the Financial Accounting Standards Board that ruled that the SAIF
special assessment should be recorded as an ordinary non-interest expense for
the quarter ended September 30, 1996.
In addition, DIFA mandates the merger of the SAIF and BIF, effective
January 1, 1999, but only if no insured depository institution is a savings
association on that date. The combined deposit insurance fund would be called
the "deposit insurance fund" or "DIF."
Prior to DIFA, federal regulators and thrift industry trade groups were
predicting that a default would occur on the bonds issued by the Financing
Corporation ("FICO") as early as 1998, as SAIF-assessable deposits continued to
decline. DIFA amends the Federal Home Loan Bank Act to impose the FICO
assessment against both SAIF and BIF deposits beginning after December 31, 1996.
But the assessment imposed on insured depository institutions with respect to
any BIF-assessable deposit will be assessed at a range equal to one-fifth (1/5)
of the rate (approximately 1.3 basis points) of the assessments imposed on
insured depository institutions with respect to any SAIF-assessable deposit
(approximately 6.7 basis points). The FICO assessment for 1996 was paid
entirely by SAIF-insured institutions. BIF-insured banks will pay the same FICO
assessment as SAIF-insured institutions beginning as of the earlier of December
31, 1999, or the date as of which the last savings association ceases to exist.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
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SAFETY AND SOUNDNESS STANDARDS
The FDIA, as amended by the FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation and compensation, fees and benefits,
and such other operational and managerial standards as the agencies deem
appropriate. The federal bank regulatory agencies have adopted, effective
August 9, 1995, a set of guidelines prescribing safety and soundness standards
pursuant to FDICIA, as amended. The guidelines establish general standards
relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth
and compensation and fees and benefits. In general, the guidelines require,
among other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director, or principal shareholders. The federal banking agencies determined
that stock valuation standards were not appropriate. In addition, the agencies
adopted regulations that authorize, but do not require, an agency to order an
institution that has been given notice by an agency that it is not satisfying
any of such safety and soundness standards to submit a compliance plan. If,
after being so notified, an institution fails to submit an acceptable compliance
plan or fails in any material respect to implement an acceptable compliance
plan, the agency must issue an order directing action to correct the deficiency
and may issue an order directing other actions of the types to which an
undercapitalized institution is subject under the "prompt corrective action"
provisions of FDICIA. See "Prompt Corrective Action." If an institution fails
to comply with such an order, the agency may seek to enforce such order in
judicial proceedings and to impose civil money penalties. The federal bank
regulatory agencies also proposed guidelines for asset quality and earnings
standards.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation against an
insured depository institution would be afforded a priority over other general
unsecured claims against such an institution in the "liquidation or other
resolution" of such an institution by any receiver.
CERTAIN APPLICABLE THRIFT REGULATIONS
Premier Bank, as a thrift institution, is subject to extensive regulation
by the OTS. The lending activities and other investments of thrift institutions
must comply with various regulatory requirements.
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Qualified Thrift Lender Test. One such set of requirements relates to an
institution's status as a "Qualified Thrift Lender." Unless an institution so
qualifies, its borrowing privileges from a Federal Home Loan Bank may be
restricted, and it may be subject to other operating limitations. To meet the
Qualified Thrift Lender Test ("QTL Test"), an institution must maintain at least
65% of its assets in "Qualified Thrift Investments," which under the regulations
consist of (i) loans made to purchase, refinance, construct, improve or repair
domestic residential or manufactured housing, (ii) home equity loans, (iii)
securities backed by or representing an interest in mortgages on domestic,
residential, or manufactured housing, and (iv) obligations issued by federal
deposit insurance agencies. Subject to a 15%-of-assets limitation, "Qualified
Thrift Investments" may also include consumer loans, investments in certain
subsidiaries, loans for construction of schools, churches, nursing homes and
hospitals, and 200% of investments in loans for low-to-moderate-income housing
and certain other community oriented investments.
In September, 1996, the Economic Growth and Regulatory Paperwork Reduction
Act of 1996 (the "Economic Growth Act of 1996") was signed into law and
contained provisions which significantly affected the QTL Test.
The Economic Growth Act of 1996 liberalized the QTL Test for savings
associations by permitting them to satisfy a similar, but different, 60% asset
test under the Internal Revenue Code. Alternatively, savings associations may
meet the QTL Test by satisfying a more liberal 65% asset test that allows an
institution to include small business, credit card and education loans as
qualified investments for purposes of the test. Furthermore, consumer loans now
count as qualified thrift investments up to 20% of portfolio assets. On
November 27, 1996, the OTS issued an Interim Final Rule that implements
provisions of the Economic Growth Act of 1996, including the amended QTL Test.
At December 31, 1996, approximately 75.6% of Premier Bank's assets were invested
in Qualified Thrift Investments as currently defined.
Liquidity Requirements. Thrift institutions, including Premier Bank, are
required to maintain average daily balances of liquid assets sufficient to meet
the institution's foreseeable cash needs. Specifically, Premier Bank must
maintain liquid assets (consisting of cash, certain time deposits, bankers
acceptance, highly rated corporate debt and commercial paper, securities of
certain mutual funds, and specific U.S. government, state or federal agency
obligations) of not less than 5% of the total amount of the institution's net
withdrawable savings deposits plus short-term borrowings, and to maintain
average daily balances of short-term liquid assets of not less than 1% of such
total amount. The liquidity ratio of Premier Bank at December 31, 1996 was
8.83%.
FUTURE REQUIREMENTS
Statutes and regulations are regularly introduced which contain wide-
ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company and its subsidiaries may be affected
by such statutes or regulations.
23
<PAGE>
MONETARY POLICY
The earnings of the Company are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States government and its agencies.
The Federal Reserve has had, and will continue to have, an important impact
on the operating results of commercial banks through its power to implement
national monetary policy in order, among other things, to mitigate recessionary
and inflationary pressures by regulating the national money supply. The
techniques used by the Federal Reserve include setting the reserve requirements
of member banks and establishing the discount rate on member bank borrowings.
The Federal Reserve also conducts open market transactions in United States
government securities.
ITEM 2. PROPERTIES
The Company has 16 offices, five are offices of First Alliance Bank, three
are offices of Premier Bank, seven are offices of Premier Lending, and two are
Alliance Finance offices. First Alliance Bank's five offices are located in
Marietta, Georgia at 63 Barrett Parkway; 2760 Cobb Parkway; 4210 Wade Green
Road; 833 South Cobb Drive; and 1269 Barclay Circle. Premier Bank's offices are
located at 4900 Ross Road, Acworth, Georgia; 2390 Mt. Vernon Road, Suite 100,
Dunwoody, Georgia; and 875 Oak Road, Suite 101, Lawrenceville, Georgia; Premier
Lending offices are located at 17 Executive Park Drive, Suite 290, Atlanta,
Georgia; 2019 Scenic Highway, Snellville, Georgia; 205 Market Place, Suite 102,
Roswell, Georgia; 1235 Eagle's Landing Parkway, Suite A, Stockbridge, Georgia;
3075 Breckenridge Boulevard, Suite 425, Duluth, Georgia; and 2759 Delk Road,
Suite 201, Marietta, Georgia. Alliance Finance's two offices are located at
3451 South Cobb Drive, Smyrna, Georgia and 680 Hiram/Acworth Road, Hiram,
Georgia.
First Alliance Bank leases the land on which its main office is located
pursuant to an agreement dated August 28, 1985, as amended. The lease provides
for an initial term of 5 years following capitalization of First Peoples Bank of
Cobb (a predecessor to the Company) with 9 renewal periods of 5 years each.
Rent escalation features include a 5% increase every 5 years plus an additional
amount equal to the average yearly amount for the Consumer Price Index (CPI) for
metropolitan Atlanta for the previous five years, not to exceed 8% per year. At
any time after the first 5 years, the Bank may exercise an option to purchase
the property for $1,000,000. The Bank also leases its branch office at Barclay
Circle pursuant to an agreement dated December 6, 1990. The lease provides for
an initial term of 5 years following regulatory approval of the branch with 2
renewal periods of 4 years each. By letter agreement dated December 15, 1995,
the parties agreed to renew the lease for 3 years at the then current annual
rental amount. The Bank owns the remaining branches without encumbrance.
Premier Bank owns its main office location in Acworth which contains
approximately 4,880 square feet of space. Premier Bank leases its branch office
in Dunwoody (which lease expires in July 2000) and leases its branch office in
Lawrenceville (which lease expires in March 2001).
24
<PAGE>
Premier Lending leases its administrative and loan production offices and
does not own any real estate. Premier Lending leases the following seven
locations in Fulton County, Gwinnett County, Henry County, DeKalb County and
Cobb County.
<TABLE>
<CAPTION>
LOCATION PRIMARY USE LEASE EXPIRATION DATE
- ----------------------------- ------------------- ---------------------
<S> <C> <C>
17 Executive Park Drive Loan production May 2001
Suite 290 -- DeKalb County
Atlanta, Georgia 30329
2019 Scenic Highway Loan production May 2001
Snellville, Georgia 30278 -- Gwinnett County
205 Market Place, Suite 102 Loan production September 1999
Roswell, Georgia 30075 -- Fulton County
1235 Eagle's Landing Loan production May 1998
Parkway, Suite A -- Henry County
Stockbridge, Georgia 30281
3075 Breckenridge Blvd. Loan production January 1999
Suite 425 -- Gwinnett County
Duluth, Georgia 30136
2759 Delk Road, Suite 201 Mortgage Division December 1999
Marietta, Georgia 30067 and Loan production
-- Cobb County
</TABLE>
Alliance Finance leases its main office pursuant to an agreement dated
March 23, 1996. The lease, as amended, provides for an initial term of one year
(from May 1, 1993 through April 30, 1994) with four renewal periods of one year
each. Alliance Finance owns its other office without encumbrance.
Other than normal real estate and commercial lending activities of the
Bank, the Company generally does not invest in real estate, interests in real
estate, real estate mortgages, or securities of or interests in persons
primarily engaged in real estate activities.
ITEM 3. LEGAL PROCEEDINGS
25
<PAGE>
There are no material pending proceedings to which the Company is a party
or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company, or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
26
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock has been listed for quotation on the American
Stock Exchange under the symbol "PMB" since January 10, 1997. Prior to that
date, the Company's common stock was on the NASDAQ Small Cap Market under the
symbol "FABC." On May 1, 1997 there were 601 record holders of the Company's
Common Stock and approximately 1,600 beneficial holders.
The following table sets forth, for the indicated periods, the
high and low closing sales prices for the Company's common stock as reported by
American Stock Exchange and on NASDAQ Small Cap Market for prior periods since
January 25, 1995 and the high and low sales prices for the Company's common
stock for each of the quarters in which trading occurred in 1995. Historical
stock prices have been adjusted to reflect the 1.8055-for-one split of the
common stock of the Company effective on March 6, 1997.
<TABLE>
<CAPTION>
SALES PRICE
------------------
CALENDAR PERIOD HIGH LOW
- ---------------------------------------- ------- --------
1995
<S> <C> <C>
First Quarter........................... $ 7.66 $ 6.86
Second Quarter.......................... 8.31 6.98
Third Quarter........................... 8.72 7.75
Fourth Quarter.......................... 9.28 8.72
1996
First Quarter........................... $ 9.83 $ 8.86
Second Quarter.......................... 10.80 7.28
Third Quarter........................... 11.63 10.37
Fourth Quarter.......................... 11.77 10.39
1997
First Quarter (through March 25, 1997).. $14.19 $11.77
</TABLE>
The holders of the Company's Common Stock are entitled to receive dividends
when and if declared by the Board of Directors out of funds legally available
therefor. Premier paid a $.56 per share cash dividend on January 27, 1997 to
its shareholders. The decision to declare this dividend was based on Premier's
performance in 1996. The Company plans to pay quarterly dividends on an ongoing
basis. The future declaration and payment of dividends will depend upon the
earnings of its bank subsidiaries, business conditions, operating results,
capital and reserve requirements, and the Board of Directors' consideration of
other relevant factors.
27
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of the Company. The financial highlights have been restated
to reflect the business combination of First Alliance Bancorp, Inc. and Premier
Bancshares, Inc. which was consummated on August 31, 1996. The financial
statements for the years ended December 31, 1992 through 1996, and the operating
data for the years ended December 31, 1992 through 1996 are derived from
financial statements which reflect, in the opinion of the Company's management,
all normal recurring adjustments necessary to present fairly such information
for such periods. The following data should be read in conjunction with the
Company's consolidated financial statements and the related notes contained
elsewhere in this report.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
(Dollars in Thousands, Except Per Share Amounts)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total assets $294,158 $237,525 $151,526 $140,313 $130,383
Loans held for sale 24,408 25,912 26,047 4,446 -
Loans, net 184,452 131,072 81,097 83,838 82,221
Securities available-for-sale 35,154 45,795 11,584 26,427 25,444
Federal funds sold 21,680 2,530 19,110 10,880 9,027
Interest-bearing deposits 1,447 9,948 - 703 794
Deposits 236,733 178,453 118,166 117,323 113,751
Borrowings 30,221 30,692 14,429 4,399
Stockholders' equity 23,275 23,430 17,554 17,860 14,205
OPERATING DATA:
Interest income 23,016 17,301 10,954 10,296 10,359
Interest expense 11,282 8,281 4,111 3,897 4,928
Net interest income 11,734 9,020 6,843 6,399 5,431
Provisions for losses on loans 598 338 285 1,007 441
Net interest income after
provision for losses on loans 11,136 8,682 6,558 5,392 4,990
Other income 11,855 8,153 2,962 2,915 1,446
Other expenses 19,371 13,696 8,660 7,900 6,277
Income tax expense 1,068 1,137 569 98 5
Net income 2,552 2,002 291 309 154
Net income per share .59 .48 .08 .11 .06
Cash Dividends Declared .58 .01 .09 - -
</TABLE>
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operation" in the Company's 1996
Annual Report to Shareholders, which is included as Exhibit 13.1 to this Annual
Report on Form 10-K, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements contained in the Company's 1996 Annual Report to
Shareholders, which is included as Exhibit 13.1 to this Annual Report on Form
10-K, is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors" in the
Form S-4 Registration Statement filed by the Company which contains the Proxy
Statement used in connection with the Company's 1997 Annual Shareholders
Meeting, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Form S-4 Registration Statement filed by the Company which contains the Proxy
Statement used in connection with the Company's 1997 Annual Shareholders
Meeting, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Form S-4 Registration Statement filed
by the Company which
29
<PAGE>
contains the Proxy Statement used in connection with the Company's 1997 Annual
Shareholders Meeting, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Form S-4 Registration Statement filed by the
Company which contains the Proxy Statement used in connection with the Company's
1997 Annual Shareholders Meeting, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
----------------------------------------------------------------
Exhibits
Exhibit
Number Exhibit
------- -------
2 Agreement and Plan of Reorganization dated February 3, 1997 between
First Alliance/Premier Bancshares, Inc. and The Central and Southern
Holding Company. (incorporated by reference as Exhibit 2 from the
Registrant's Form 10-K for the year ended December 31, 1996)
2.1 First Amendment to Agreement and Plan of Reorganization dated March
26, 1997 between Premier Bancshares, Inc. and The Central and
Southern Holding Company. (incorporated by reference as 2.1 from the
Registrant's Form 10-K for the year ended December 31, 1996)
3.1 Articles of Incorporation (incorporated by reference as Exhibit 3.1
to the Registrant's Form 10-QSB for the quarter ended September 30,
1996).
3.2 Articles of Amendment dated February 4, 1997 (incorporated by
reference as Exhibit 3.2 from the Registrant's Form 10-k for the
year ended December 31, 1996).
3.3 Bylaws of Registrant, as amended (incorporated by reference as
Exhibit 3.2 from the Registrant's Form 10-QSB for the quarter ended
September 30, 1996).
4.1 Form of Common Stock Certificate (incorporated by reference as
Exhibit 4.1 from the Registrant's Form 10-K for the year ended
December 31, 1996).
10.1 First Alliance Bancorp, Inc. 1995 Stock Option Plan, dated as of
August 8, 1995, and amended as of March 12, 1996 and related form of
Employee Incentive Stock Option Agreement (incorporated by reference
as Exhibit 10.6 to the Registrant's Form 10-KSB for the year ended
December 31, 1995)./1/
30
<PAGE>
10.2 Guaranty, dated March 25, 1996, by First Alliance Bancorp, Inc.
relating to a $2,000,000 loan made by The Bankers Bank to Interim
Alliance Corporation d/b/a Alliance Finance (incorporated by
reference as Exhibit 10.7 to the Registrant's Form 10-KSB for the
year ended December 31, 1995).
10.3 Employment Agreement dated July 1, 1995 by and between Premier,
First Alliance Bank and J. Edward Mulkey, Jr. (incorporated by
reference as Exhibit 10.5 to the Registrant's Form 10-KSB for the
year ended December 31, 1995)./1/
10.4 Employment Agreement dated January 1, 1997, by and between Premier
Lending Corporation and George S. Phelps (incorporated by reference
as Exhibit 10.4 from the Registrant's Form 10-K for the year ended
December 31, 1996)./1/
10.5 Employment Agreement dated January 1, 1997, by and between Premier
Lending Corporation and Michael W. Lane (incorporated by reference
as Exhibit 10.5 from the Registrant's Form 10-K for the year ended
December 31, 1996)./1/
10.6 Employment Agreement dated January 1, 1997, by and between Premier
Lending Corporation and Brian D. Schmitt (incorporated by reference
as Exhibit 10.6 from the Registrant's Form 10-K for the year ended
December 31, 1996)./1/
10.7 Amendment to Employment Agreement dated January 1, 1997, by and
between First Alliance/Premier Bancshares, Inc. and Darrell D.
Pittard (incorporated by reference as Exhibit 10.7 from the
Registrant's Form 10-K for the year ended December 31, 1996)./1/
10.8 Form of Employment Agreement by and between Premier Bancshares, Inc,
Premier Lending Corporation and Darrell D. Pittard (incorporated
by reference as Exhibit 10.8 from the Registrant's Form 10-K for the
year ended December 31, 1996)./1/
10.9 Amended and Restated Stock Purchase Agreement by and between Premier
Bancshares, Inc. (formerly known as First Alliance/Premier
Bancshares, Inc.) and Net.B@nk, Inc. dated December 19, 1996
(incorporated by reference as Exhibit 10.9 from the Registrant's
Form 10-K for the year ended December 31, 1996).
10.10 First Amendment to the Amended and Restated Stock Purchase Agreement
by and between Premier Bancshares, Inc. and Net.B@nk, Inc. dated
December 19, 1996 (incorporated by reference as Exhibit 10.10 from
the Registrant's Form 10-K for the year ended December 31, 1996).
10.11 Purchase and Assumption Agreement by and between Premier Bank, FSB
and First Alliance Bank dated December 19, 1996 (incorporated by
reference as Exhibit 10.11 from the Registrant's Form 10-K for the
year ended December 31, 1996).
10.12 First Amendment to Purchase and Assumption Agreement by and between
Premier Bank, FSB and First Alliance Bank dated March 13, 1997
(incorporated by reference as Exhibit 10.12 from the Registrant's
Form 10-K for the year ended December 31, 1996).
10.13 Second Amendment to Purchase and Assumption Agreement by and between
Premier Bank, FSB and First Alliance Bank dated March 25, 1997
(incorporated by reference as Exhibit 10.13 from the Registrant's
Form 10-K for the year ended December 31, 1996).
10.14 Premier Bancshares, Inc. 1997 Stock Option Plan./1/
10.15 Premier Bancshares, Inc. Directors' Stock Option Plan./1/
11.1 Statement of Per Share Earnings.
31
<PAGE>
13.1 Registrant's 1996 Annual Report to Shareholders. Only those portions
of the Annual Report to Shareholders that are specifically
incorporated by reference into this report on Form 10-K shall be
deemed filed with the Commission.
21 Subsidiaries of Premier Bancshares, Inc. (incorporated by reference
as Exhibit 21 from the Registrant's Form 10-K for the year ended
December 31, 1996)
23 Consent of Mauldin & Jenkins, LLC
24 Power of Attorney (appears on the signature pages to this
Form 10-K).
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
None.
- --------
/1/ Registrant's plans, management contract and compensatory arrangements.
32
<PAGE>
SIGNATURES
In accordance with 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.
PREMIER BANCSHARES, INC.
Date: May 9, 1997
By: /s/ Darrell D. Pittard
----------------------
Darrell D. Pittard, Chairman and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears on
the signature page to this report constitutes and appoints Darrell D. Pittard
and Frank H. Roach, and each of them, his or her true and lawful attorneys-in-
fact and agents, with full power of substitution and resubstitution, for the
undersigned and in his or her name, place, and stead, in any and all capacities,
to sign any and all amendments to this report, and to file the same, with all
exhibits hereto, and other documents in connection herewith with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
In accordance with 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.
Signature Title Date
--------- ----- ----
/s/ N. Michael Anderson* Director May 9, 1997
- ---------------------------
N. Michael Anderson
/s/ James L. Coxwell, Sr.* Director May 9, 1997
- ---------------------------
James L. Coxwell, Sr.
/s/ William M. Evans, Jr.* Director May 9, 1997
- ---------------------------
William M. Evans, Jr.
/s/ James E. Freeman* Director May 9, 1997
- ---------------------------
James E. Freeman
33
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Robin R. Howell* Director May 9, 1997
- ---------------------------
Robin R. Howell
/s/ Billy H. Martin* Director May 9, 1997
- ---------------------------
Billy H. Martin
/s/ J. Edward Mulkey, Jr.* Director, President and May 9, 1997
- --------------------------- Chief
J. Edward Mulkey, Jr. Operating Officer
/s/ Darrell D. Pittard Chairman and Chief Executive May 9, 1997
- --------------------------- Officer (Principal Executive
Darrell D. Pittard Officer)
/s/ Frank H. Roach Chief Financial Officer May 9, 1997
- --------------------------- (Principal Financial and
Frank H. Roach Accounting Officer)
*
- ---------------------------
By: Darrell D. Pittard,
Attorney in Fact
34
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------------------------------------------------------
2 Agreement and Plan of Reorganization dated February 3, 1997 between
First Alliance/Premier Bancshares, Inc. and The Central and Southern
Holding Company. (incorporated by reference as Exhibit 2 from the
Registrant's Form 10-K for the year ended December 31, 1996)
2.1 First Amendment to Agreement and Plan of Reorganization dated March
26, 1997 between Premier Bancshares, Inc. and The Central and
Southern Holding Company. (incorporated by reference as 2.1 from the
Registrant's Form 10-K for the year ended December 31, 1996)
3.1 Articles of Incorporation (incorporated by reference as Exhibit 3.1
to the Registrant's Form 10-QSB for the quarter ended September 30,
1996).
3.2 Articles of Amendment dated February 4, 1997 (incorporated by
reference as Exhibit 3.2 from the Registrant's Form 10-k for the
year ended December 31, 1996).
3.3 Bylaws of Registrant, as amended (incorporated by reference as
Exhibit 3.2 from the Registrant's Form 10-QSB for the quarter ended
September 30, 1996).
4.1 Form of Common Stock Certificate (incorporated by reference as
Exhibit 4.1 from the Registrant's Form 10-K for the year ended
December 31, 1996).
10.1 First Alliance Bancorp, Inc. 1995 Stock Option Plan, dated as of
August 8, 1995, and amended as of March 12, 1996 and related form of
Employee Incentive Stock Option Agreement (incorporated by reference
as Exhibit 10.6 to the Registrant's Form 10-KSB for the year ended
December 31, 1995)./1/
10.2 Guaranty, dated March 25, 1996, by First Alliance Bancorp, Inc.
relating to a $2,000,000 loan made by The Bankers Bank to Interim
Alliance Corporation d/b/a Alliance Finance (incorporated by
reference as Exhibit 10.7 to the Registrant's Form 10-KSB for the
year ended December 31, 1995).
10.3 Employment Agreement dated July 1, 1995 by and between Premier,
First Alliance Bank and J. Edward Mulkey, Jr. (incorporated by
reference as Exhibit 10.5 to the Registrant's Form 10-KSB for the
year ended December 31, 1995)./1/
10.4 Employment Agreement dated January 1, 1997, by and between Premier
Lending Corporation and George S. Phelps (incorporated by reference
as Exhibit 10.4 from the Registrant's Form 10-K for the year ended
December 31, 1996)./1/
10.5 Employment Agreement dated January 1, 1997, by and between Premier
Lending Corporation and Michael W. Lane (incorporated by reference
as Exhibit 10.5 from the Registrant's Form 10-K for the year ended
December 31, 1996)./1/
35
<PAGE>
10.6 Employment Agreement dated January 1, 1997, by and between Premier
Lending Corporation and Brian D. Schmitt (incorporated by reference
as Exhibit 10.6 from the Registrant's Form 10-K for the year ended
December 31, 1996)./1/
10.7 Amendment to Employment Agreement dated January 1, 1997, by and
between First Alliance/Premier Bancshares, Inc. and Darrell D.
Pittard (incorporated by reference as Exhibit 10.7 from the
Registrant's Form 10-K for the year ended December 31, 1996)./1/
10.8 Form of Employment Agreement by and between Premier Bancshares, Inc,
Premier Lending Corporation and Darrell D. Pittard (incorporated
by reference as Exhibit 10.8 from the Registrant's Form 10-K for the
year ended December 31, 1996)./1/
10.9 Amended and Restated Stock Purchase Agreement by and between Premier
Bancshares, Inc. (formerly known as First Alliance/Premier
Bancshares, Inc.) and Net.B@nk, Inc. dated December 19, 1996
(incorporated by reference as Exhibit 10.9 from the Registrant's
Form 10-K for the year ended December 31, 1996).
10.10 First Amendment to the Amended and Restated Stock Purchase Agreement
by and between Premier Bancshares, Inc. and Net.B@nk, Inc. dated
December 19, 1996 (incorporated by reference as Exhibit 10.10 from
the Registrant's Form 10-K for the year ended December 31, 1996).
10.11 Purchase and Assumption Agreement by and between Premier Bank, FSB
and First Alliance Bank dated December 19, 1996 (incorporated by
reference as Exhibit 10.11 from the Registrant's Form 10-K for the
year ended December 31, 1996).
10.12 First Amendment to Purchase and Assumption Agreement by and between
Premier Bank, FSB and First Alliance Bank dated March 13, 1997
(incorporated by reference as Exhibit 10.12 from the Registrant's
Form 10-K for the year ended December 31, 1996).
10.13 Second Amendment to Purchase and Assumption Agreement by and between
Premier Bank, FSB and First Alliance Bank dated March 25, 1997
(incorporated by reference as Exhibit 10.13 from the Registrant's
Form 10-K for the year ended December 31, 1996).
10.14 Premier Bancshares, Inc. 1997 Stock Option Plan. (Incorporated by
reference from Appendix D to the Registrant's Amendment No. 1 to
Form S-4 filed on May 8, 1997)./1/
10.15 Premier Bancshares, Inc. Directors' Stock Option Plan (Incorporated
by reference from Appendix E to the Registrant's Amendment No. 1 to
Form S-4 filed with on May 8, 1997)./1/
11.1 Statement of Per Share Earnings.
13.1 Registrant's 1996 Annual Report to Shareholders. Only those portions
of the Annual Report to Shareholders that are specifically
incorporated by reference into this report on Form 10-K shall be
deemed filed with the Commission.
21 Subsidiaries of Premier Bancshares, Inc. (incorporated by reference
as Exhibit 21 from the Registrant's Form 10-K for the year ended
December 31, 1996)
23 Consent of Mauldin & Jenkins, LLC
24 Power of Attorney (appears on the signature pages to this
Form 10-K).
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
None.
- --------
/1/ Registrant's plans, management contract and compensatory arrangements.
36
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31,
1996 1995 1994
---------- ---------- ----------
Primary
Weighted average Premier common shares
outstanding during the year 4,245,697 4,084,980 3,550,168
Common shares issuable in connection
with assumed exercise of options under
the treasury stock method 61,138 51,280 20,282
---------- ---------- ----------
Total 4,306,835 4,136,260 3,570,450
========== ========== ==========
Net income $2,539,716 $1,988,949 $ 291,148
========== ========== ==========
Per share earnings $ 0.59 $ 0.48 $ 0.08
========== ========== ==========
<PAGE>
EXHIBIT 13.1
PREMIER MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
BACKGROUND
Premier was incorporated in 1988 under the laws of Georgia and is a bank
holding company registered under the regulations of the Federal Reserve, and a
registered thrift holding company under the regulations of the OTS. Premier's
bank subsidiary, First Alliance Bank is a commercial bank which opened for
business in 1984. On August 31, 1996, Premier acquired, through a pooling of
interests, Premier Bancshares, Inc., a thrift holding company. Premier
Bancshares, Inc. operated two 100% owned subsidiaries, Premier Lending and
Premier Bank. Premier also owns 80% of Alliance Finance.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of Premier to meet those needs. Premier seeks to meet
liquidity requirements primarily through management of short-term investments
(principally Federal Funds sold and overnight funds), monthly amortizing loans,
repayment of single payment loans, periodic repayments of mortgage-backed
securities, and draws on lines of credit. In addition, at December 31, 1996,
First Alliance Bank and Premier Bank had $11,000,000 in approved Federal Funds
lines with correspondent banks which could provide funds on an immediate basis
if the need arose. Also, First Alliance Bank has access to various Certificate
of Deposit ("CD") networks which would allow it to raise deposits from credit
unions and other small banks for varying time periods at rates comparable to
the short-term U.S. Government Bond rate. These deposits are not brokered and
no fee outside of the market rate is paid.
First Alliance Bank and Premier Bank are members of the Federal Home Loan
Bank system. At December 31, 1996, First Alliance Bank and Premier Bank had the
ability to borrow approximately $20 million by pledging qualifying loans and
securities as collateral.
The liquidity and capital resources of, First Alliance Bank and Premier Bank
are monitored on a periodic basis by federal regulatory authorities. In
addition, management performs liquidity analyses in the same manner as the
federal regulatory agencies. As of December 31, 1996, the various liquidity
ratios were considered adequate by regulatory definitions. In management's
opinion, First Alliance Bank, and Premier Bank maintained liquidity that was
adequate to meet their respective needs.
First Alliance Bank, and Premier Bank continue to be well-capitalized by both
industry and regulatory definitions. At December 31, 1996, Premier's
consolidated capital ratios were as follows:
<TABLE>
<CAPTION>
MINIMUM REGULATORY
REQUIREMENT
---------------------
<S> <C> <C>
Leverage Capital Ratio............................ 7.27% 5.00%
Risk Based Capital Ratios:
Tier 1 Capital.................................. 9.69% 6.00%
Total Capital................................... 10.79% 10.00%
</TABLE>
A more detailed chart of regulatory capital ratios is included in Note 13 of
the Notes to Consolidated Financial Statements. Management is not aware of any
current recommendations of the regulatory authorities which, if they were
implemented, would have a material effect on Premier's liquidity, capital
resources, or operations.
Premier regularly evaluates business combination opportunities and conducts
due diligence activities in connection with possible business combinations. As
a result, business combination discussions and, in some cases, negotiations
take place, and future business combinations involving cash, debt, or equity
securities may
1
<PAGE>
be expected. Any future business combination or series of business
combinations that Premier might undertake may be material, in terms of assets
acquired or liabilities assumed, to Premier's financial condition.
ASSET/LIABILITY MANAGEMENT
At December 31, 1996, Premier, utilizing a "static gap" view of interest
rate sensitivity, was positioned in an asset-sensitive position (1.44%) at
three months and a slightly asset-sensitive position (1.01%) at one year. This
"static gap" view of interest rate sensitivity at a point in time looks at the
volume of assets and liabilities that will mature or reprice within varying
time periods. Such a view does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the repricing of
various categories of assets and liabilities is subject to competitive
pressures and the needs of Premier's customers. It is also probable that
actual repricing may happen at different times than estimated and at different
rates than anticipated.
Management also utilizes a forecasting model for First Alliance Bank and
Premier Bank which attempts to project the net interest margin in various
rising, flat, and falling interest rate scenarios. The model assumes that
First Alliance Bank and Premier Bank make no material changes in the
composition, maturity, or interest rate sensitivity of their earning assets
and interest-bearing liabilities as a result of a change in interest rate
cycles. The model projects that in the next 12 months, First Alliance Bank and
Premier Bank combined would earn approximately 4.93% more net interest income
in a 200 basis point rising rate environment and approximately 5.12% less in a
200 basis point falling rate environment. However, management will act to
change Premier's asset or liability composition and interest rate sensitivity
in response to a definitive change in the direction of interest rates.
Specifically, Premier actively manages the mix of asset and liability
maturities to control the effects of changes in the general level of interest
rates on net interest income. Except for its effect on the general level of
interest rates, inflation does not have a material impact on Premier due to
the rate variability and short-term maturities of its earning assets.
Interest Rate Sensitivity
<TABLE>
<CAPTION>
AFTER AFTER
THREE ONE YEAR
MONTHS BUT
WITHIN BUT WITHIN
THREE WITHIN FIVE AFTER
MONTHS ONE YEAR YEARS FIVE YEARS TOTAL
-------- -------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earning assets:
Interest bearing deposits... $ 1,447 $ -- $ -- $ -- $ 1,447
Federal funds sold.......... 21,680 -- -- -- 21,680
Securities.................. 6,814 6,107 19,770 2,463 3,515
Loans....................... 146,216 16,029 42,782 6,237 211,264
-------- -------- ------- ------- --------
Total interest earning
assets................... 176,157 22,136 62,552 8,700 269,545
-------- -------- ------- ------- --------
Interest bearing liabilities:
Interest bearing demand
deposits................... 57,562 -- -- -- 57,562
Savings..................... 8,302 -- -- -- 8,302
Time deposits, less than
$100,000................... 23,273 52,842 29,465 -- 105,580
Time deposits, $100,000 and
over....................... 10,476 17,712 6,916 -- 35,104
Other borrowings............ 22,824 2,755 1,980 2,661 30,220
-------- -------- ------- ------- --------
Total interest bearing
liabilities.............. 122,437 73,309 38,361 2,661 236,768
-------- -------- ------- ------- --------
Interest rate sensitivity
gap.......................... $ 53,720 $(51,173) 24,191 $ 6,039 $ 32,777
======== ======== ======= ======= ========
Cumulative interest rate sen-
sitivity gap................. 53,720 $ 2,547 26,738 $32,777
======== ======== ======= =======
Interest rate sensitivity gap
ratio........................ 1.44 0.30 1.63 3.27
======== ======== ======= =======
Cumulative interest rate sen-
sitivity gap ratio........... 1.44 1.01 1.11 1.14
======== ======== ======= =======
</TABLE>
2
<PAGE>
CHANGES IN FINANCIAL CONDITION
Cash and Short-term Assets
Total assets as of December 31, 1996 increased $56,633,000 since December
31, 1995. Non-earning cash and due from banks increased $2,088,000 as of
December 31, 1996, from December 31, 1995. This change is representative of
normal daily fluctuations in cash and check clearings and an increase in
transaction account balances of $17,513,000. Interest-bearing deposits of
First Alliance Bank and Premier Bank decreased $8,501,000 to $1,447,000 at
December 31, 1996. This balance is primarily excess funds that are held at the
Federal Home Loan Bank and accrue interest at a rate approximately equal to
the Federal Funds rate. Federal Funds sold increased $19,150,000 from December
31, 1995 to $21,680,000 at December 31, 1996. The increase in Federal Funds is
the result of seasonal deposits placed in First Alliance Bank by a local
municipality and the movement of Premier Bank's excess cash from the Federal
Home Loan Bank to the Federal Funds market.
Securities Portfolio
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Types of Securities:
U.S. Government and agency securities................ $19,577 $22,313 $12,092
Municipal securities................................. 105 304 292
Mortgage-backed securities........................... 13,693 21,767 19,033
Equity securities.................................... 1,779 1,412 1,089
------- ------- -------
$35,154 $45,796 $32,506
======= ======= =======
</TABLE>
- --------
All securities are held as available-for-sale and are reported at their fair
values.
Maturities
The amounts of securities in each category as of December 31, 1996 are shown
in the following table according to contractual maturity classifications (i)
one year or less, (ii) after one year through five years, (iii) after five
years through ten years, and (iv) after ten years.
<TABLE>
<CAPTION>
U.S. GOVERNMENT AND
AGENCY SECURITIES
AND MORTGAGE-BACKED MUNICIPAL OTHER
SECURITIES(1) SECURITIES(2) SECURITIES
----------------------- ----------------- -------------------
AMOUNT YIELD(3) AMOUNT YIELD(3) AMOUNT YIELD(3)
----------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
One year or less........ $ -- -- $ -- -- $ 380,600 7.86%
After one year through
five years............. 19,327,933 6.12% 104,691 8.60% -- --
After five years through
ten years.............. 5,408,410 6.08% -- -- -- --
After ten years......... 8,533,131 6.01% -- -- 1,398,876 6.40%
----------- -------- ----------
Total................. $33,269,474(1) $104,691 $1,779,476
=========== ======== ==========
</TABLE>
- --------
(1) Includes mortgage-backed securities based on their contractual maturity
date.
(2) Yields on municipal securities have not been computed on a tax equivalent
basis.
(3) Yields were computed using coupon interest, adding discount accretion, or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the carrying value of each security in that
range.
Premier's investment portfolio consists of U.S. Government and agency
securities, municipal securities, various equity securities and Government
agency sponsored mortgage-backed securities. A mortgage-backed security relies
on the underlying mortgage pools of loans to provide a cash flow of principal
and interest. The actual maturities of these securities will differ from the
contractual maturities because these borrowers may have the right to prepay
obligations with or without prepayment penalties. Decreases in interest rates
will generally
3
<PAGE>
cause prepayments to accelerate. In a declining interest rate environment,
Premier may not be able to reinvest the proceeds from these prepayments in
assets which have comparable yields. However, because the majority of the
mortgage-backed securities have adjustable rates, the negative effects of
changes in interest rates on earnings and the carrying values of these
securities are mitigated. At December 31, 1996 Premier had $10,068,000 in
collateralized mortgage obligations ("CMOs") and $3,625,000 in mortgage-backed
pass-through securities, the majority of which are issued by or backed by
Federal agencies. At December 31, 1996, Premier did not have with any one
issuer, securities in aggregate in excess of ten percent of equity.
Changes in Securities Portfolio
Securities available-for-sale on December 31, 1996 decreased $10,643,000
from December 31, 1995. In the first quarter of 1996, Premier sold
approximately $10,000,000 in securities from the available-for-sale portfolio.
These sales represented the termination of an arbitrage transaction made up of
these assets and various floating rate deposits and borrowings. These
securities were primarily floating rate collateralized mortgage obligations
and mortgage-backed passthroughs. The proceeds from the sale of securities
provided funding for the increase in loans.
LOAN PORTFOLIO
Types of Loans
Management realizes that Premier's loan portfolio is concentrated in loans
secured by real estate. Real estate loans include real estate mortgages, real
estate construction projects, and consumer home equity lines. The amount of
loans outstanding at the indicated dates are shown in the following table
according to the type of loan. The other concentration is in commercial and
financial loans which are made primarily to businesses in the Atlanta, Georgia
metropolitan area. The following table presents this major category of net
loans for each period, excluding the allowance for loan losses.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real Estate:
Secured by Mortgages............... $ 73,272 $ 58,463 $46,602 $46,278 $46,895
Construction....................... 67,432 36,987 19,518 15,326 9,131
Consumer and other loans............. 17,553 15,242 10,656 15,983 17,825
Commercial and financial............. 28,599 22,182 6,275 7,833 9,773
-------- -------- ------- ------- -------
$186,856 $132,874 $83,051 $85,420 $83,624
======== ======== ======= ======= =======
</TABLE>
Maturities and Sensitivity to Changes in Interest Rates
Total loans as of December 31, 1996 are shown in the following table
according to maturity classifications (i) one year or less, (ii) after one
year through five years, and (iii) after five years.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Maturity:
One year or less................................. $ 74,368
After one year through five years................ 104,399
After five years................................. 8,089
--------
$186,856
========
</TABLE>
The following table summarizes loans at December 31, 1996 with due dates
after one year which have predetermined and floating or adjustable interest
rates.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Predetermined interest rates....................... $ 42,032
Floating or adjustable interest rates.............. 70,456
--------
$112,488
========
</TABLE>
4
<PAGE>
<PAGE>
Changes in Loan Portfolio
Loans held for sale decreased $1,504,000 from December 31, 1995 to December
31, 1996. These loans represent first mortgage loans which have been
originated by Premier Lending and have been sold to third party investors and
are waiting for funding from the investor. This balance fluctuates based on
time of month, new loan volumes, and length of investor closing periods. These
loans are sold servicing released and the investor commitment price is
obtained simultaneously with the closing of most loans; therefore, minimizing
the effect of interest rate fluctuation.
Loans grew by $53,982,000 at December 31, 1996 from December 31, 1995. In
addition, at December 31, 1996, construction loans increased $30,445,000,
other loans secured by real estate increased $14,809,000, commercial loans
increased $6,417,000, and consumer loans increased $2,311,000 from December
31, 1995. The primary reason for these increases was the addition of five
experienced real estate and commercial loan officers. Loan officers at Premier
Lending generate loans that are specifically underwritten by First Alliance
Bank. In prior periods, the majority of these loans were sold to third party
financial institutions due to the former Premier Bancshares, Inc. group's not
having the capital to fund these loans.
DEPOSITS
Deposits and the yield on those deposits classified as to noninterest-
bearing demand, interest-bearing demand, savings, and time deposits, for the
years indicated are presented below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand................... $ 29,472 -- % $ 24,936 -- % $ 21,652 -- %
Interest-bearing demand... 50,993 3.09 37,833 3.39 36,407 2.97
Savings................... 8,515 2.96 10,438 2.66 11,048 2.96
Time...................... 114,961 5.95 78,736 5.72 53,551 4.41
-------- -------- --------
Total deposits.......... $203,941 $151,943 $122,658
======== ======== ========
</TABLE>
The amount of time deposits issued in amounts of $100,000 or more as of
December 31, 1996 are shown below by category, which is based on time
remaining until maturity of (i) three months or less, (ii) over three through
12 months, and (iii) over 12 months.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Three months or less............................... $10,477
Over three through six months...................... 10,996
Over six through twelve months..................... 6,811
Over twelve months................................. 6,820
-------
Total............................................ $35,104
=======
</TABLE>
Changes in Deposits
Total deposits grew $58,280,000 at December 31, 1996 from December 31, 1995.
Non-interest bearing demand deposits increased $889,000 at December 31, 1996
from December 31, 1995. Interest-bearing demand deposits were up $16,624,000
primarily due to a seasonal increase in the balances of a local municipal
depositor and growth in commercial money market accounts. Other time deposits
increased by $40,767,000 at December 31, 1996 from December 31, 1995 as both
First Alliance Bank and Premier Bank aggressively marketed for deposits in
several key submarkets in Premier's market area.
5
<PAGE>
OTHER BORROWINGS
The following table sets forth certain information regarding securities sold
under repurchase agreements, FHLB borrowings, and other borrowings.
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31.............................. $30,221 $31,862 $14,429
Weighted average interest rate at December 31....... 6.72 8.09 7.54
Maximum month end balance during year............... 30,221 60,731 14,429
Average amount outstanding during the year.......... 38,600 32,715 5,371
Weighted average interest rate during the year...... 6.77 6.77 6.31
</TABLE>
Federal Home Loan Bank advances were down $6,500,000 at December 31, 1996
compared to December 31, 1995 due to the sale of securities involved in an
arbitrage funded primarily by FHLB advances. Retail repurchase agreements
increased by $7,135,000 as First Alliance Bank received a $6,000,000
repurchase agreement from a corporate customer in the first quarter of 1996.
It is anticipated that this balance will remain in First Alliance Bank for the
foreseeable future. Other borrowings decreased by $2,276,000 at December 31,
1996 compared to December 31, 1995 due primarily to First Alliance Bank's and
Premier Bank's increasing their purchases of the mortgage loans from Premier
Lending by funding those purchases with increases in other time deposits.
In addition to the above, Premier Lending and Alliance Finance also utilize
a combination of subordinated debentures and revolving lines of credit to fund
their mortgage, commercial, and consumer finance lending activities. Note 5 in
the Notes to Consolidated Financial Statements details the maturities, rates,
and terms of these instruments. Additionally, Premier owed $4 million at
December 31, 1996 in term debt which is an increase of $1 million from
December 31, 1995. This increase was used by Premier to inject additional
capital into Premier Bank for asset growth. The original $3 million was also
used as capital in the acquisition of Premier Bank in 1995.
CREDIT ANALYSIS
Non-performing Loans
Information with respect to impaired, past due, and restructured loans at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995 1994 1993 1992
------ ---- ---- ---- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Impaired loans................................... $1,224 $268 $604 $309 $2,892
Loans contractually past due ninety days or more
as to interest or principal payments and still
accruing........................................ -- 1 -- 127 10
Loans, the terms of which have been renegotiated
to provide a reduction or deferral of interest
or principal because of deterioration in the
financial position of the borrower.............. 60 -- -- -- 700
Loans, now current, about which there are serious
doubts as to the ability of the borrower to
comply with present loan repayment terms........ -- -- -- -- --
Interest income that would have been recorded on
impaired loans under original terms............. 92
Interest income that was recorded on impaired and
restructured loans.............................. 15
</TABLE>
The increase in impaired loans from December 31, 1995 to December 31, 1996,
resulted from (i) loan growth, (ii) construction loans of $393,708 which
matured, and (iii) $470,199 of individual residential loans in bankruptcy
which were insured by either private mortgage insurance or FHA.
At December 31, 1996, three first mortgage loans totaling $464,000, made to
individuals who subsequently declared bankruptcy are included in impaired
loans. In addition, $641,000 related to one residential builder was also in
impaired loans. Of the $641,000, all but $70,000 has been paid out subsequent
to year end. As discussed above the increase in impaired loans is primarily
attributable to the four borrowers mentioned above.
6
<PAGE>
Management evaluates all problem loans and determines the collectibility of
the related interest and principal. In the event that full collection is
doubtful the loans are classified as impaired loans, although collection may
be probable through liquidation of the collateral. In the event that a builder
has demonstrated questionable performance or other financial concerns have
arisen, the entire line is subject to being classified as impaired based on
management's evaluation. The instances discussed above are isolated instances
and do not represent a current trend. Management expects no material losses on
the remaining balances.
In February 1992 and November 1993, Premier acquired separate financial
institutions; and, at the time of the acquisitions, significant problem loans
were identified. These problem loans and other unidentified problem loans
which were later identified in the two acquired institutions account for the
majority of the net charge-offs incurred for the years ended December 31,
1992, 1993 and 1994. The realization of these charge-offs, more conservative
underwriting, and an improving economy resulted in the decrease in the level
of charge-offs of outstanding loans over the last two years.
Accrual of interest income is discontinued on all loans when they become 90
days past due or, in the opinion of management, collection of interest becomes
doubtful. When a loan is determined to be impaired, all interest previously
accrued but not collected is reversed against current interest income. Accrual
of interest on such loans is resumed when, in management's judgment, the
collection of interest and principal becomes probable.
In the opinion of management, any loans classified by regulatory authorities
as doubtful, substandard, or special mention that have not been included in
the table above do not represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources. These classified loans do not represent (i)
material credits about which management is aware or (ii) any information which
causes management to have serious doubts as to the ability of such borrowers
to comply with the loan repayment terms. Any loans classified by regulatory
authorities as loss are charged off at the time such loans are identified.
Commitments and Lines of Credit
Premier enters into residential construction and commercial loan commitments
in advance of closing to fund loans to its customers at locked-in interest
rates in the normal course of business. These instruments, to the extent they
are not covered by investor purchase commitments, involve credit and interest
rate risk in excess of the amount recognized in the financial statements.
In the normal course of business, Premier has entered into off-balance-sheet
financial instruments which are not reflected in the financial statements.
These financial instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are included in the financial
statements when funds are disbursed or the instruments become payable. These
instruments involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the balance sheet.
Premier's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for unfunded mortgage loan
commitments, residential construction, and commercial loan commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. A summary of Premier's commitments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Unfunded mortgage loan commitments................. $20,000,000 $31,968,000
Residential construction and commercial loan com-
mitments.......................................... 27,277,198 18,526,425
Commitments to extend credit....................... 49,987,828 20,387,000
Standby letters of credit.......................... 695,742 1,249,532
----------- -----------
$97,960,768 $72,130,957
=========== ===========
</TABLE>
SUMMARY OF LOAN EXPERIENCE
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to the allowance. The factors that influence
management's judgment in determining the amount charged to operating expense
are past loan loss experience, composition of the loan
7
<PAGE>
portfolio, evaluation of possible future losses, current economic conditions,
and other relevant facts. Premier's allowance for loan losses was
approximately $2,404,000 at December 31, 1996 compared with $1,802,000 at
December 31, 1995. The allowance for loan losses is reviewed regularly based
on management's evaluation of current risk characteristics of the loan
portfolio, as well as the impact of prevailing and expected economic business
conditions. Management considers the allowance for loan loss adequate to cover
possible loan losses on the loans outstanding.
Premier is a bank holding company that is the result of the acquisition of
five financial institutions acquired over the last five years. Each
institution utilized various methodologies to determine loan loss allowance
adequacy. The methodologies utilized by current management are, in the opinion
of that management group, appropriate for the allowance adequacy determination
at December 31, 1996. Considering the primary factor that the economy in
general and the Atlanta metropolitan market in specific is performing in an
outstanding manner, management realizes and provides for any deterioration of
the economy in the future. At this time, management expects charge-offs in
1997 to be consistent with 1996.
At December 31, 1996, the allowance for loan losses could be allocated in
the following manner:
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN
LOSSES
DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
------------ ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
RESERVE %(1) %(1) %(1) %(1) %(1)
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Commercial................................ $ 326 15% 17% 7% 9% 12%
Real estate............................... 539 40 44 56 54 56
Real estate--construction................. 521 36 28 24 18 11
Consumer.................................. 174 9 11 13 19 21
Unallocated............................... 844 -- -- -- -- --
------ --- --- --- --- ---
$2,404 100% 100% 100% 100% 100%
====== === === === === ===
</TABLE>
- --------
(1) Percent of loans in each category of total loans.
The following table summarizes average loan balances for each year, changes
in the allowance for loan losses arising from loans charged off, recoveries on
loans previously charged off, additions to the reserve which have been charged
to operating expense, and the rate of net charge-offs during the period to
average loans.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average amount of loans out-
standing $183,367 $134,712 $90,640 $86,765 $83,905
Balance of allowance for loan
losses at beginning of year... 1,802 1,301 1,581 1,403 1,478
Charge offs:
Commercial and financial..... (51) (149) (204) (736) (349)
Real estate.................. (13) (181) (398) (125) (292)
Consumer..................... (88) (59) (132) (176) (421)
-------- -------- ------- ------- -------
(152) (389) (734) (1,037) (1,062)
-------- -------- ------- ------- -------
Recoveries:
Commercial and financial..... 78 132 80 67 21
Real estate.................. 34 83 32 28 20
Consumer..................... 44 43 57 113 45
-------- -------- ------- ------- -------
156 258 169 208 86
-------- -------- ------- ------- -------
Net (charge-offs), recoveries.. 4 (131) (565) (829) (976)
-------- -------- ------- ------- -------
Allowance acquired in business
combinations.................. -- 294 -- -- 460
-------- -------- ------- ------- -------
Additions to allowance charged
to operating expense during
year.......................... 598 338 285 1,007 441
-------- -------- ------- ------- -------
Balance of allowance for loan
losses at end of year......... $ 2,404 $ 1,802 $ 1,301 $ 1,581 $ 1,403
======== ======== ======= ======= =======
Ratio of net loans charged off
during the year to average
loans outstanding............. -- % 0.10% 0.62% 0.96% 1.16%
======== ======== ======= ======= =======
</TABLE>
8
<PAGE>
<PAGE>
Provision for Loan Loss
The provision for loan losses was $598,000 in 1996 as compared to $338,000
in 1995. Premier had net recoveries of $4,000 in 1996. The ratio of net
charge-offs to average loans in 1996 was at its lowest level in the last five
years. The provision expense is primarily related to the growth in loans of
$53,982,000.
RESULTS OF OPERATIONS
Premier reported record earnings of $2,540,000 for the year ended December
31, 1996. This amount was an increase of $551,000 or 28% from the previous
year's net income of $1,989,000. Year to date earnings include unusual
expenses of $1,036,000. This figure includes merger expenses, data processing
conversion expenses, severance expenses, as well as the special SAIF fund
recapitalization assessment. On an after tax basis, these unusual items
totaled $854,000. Fourth quarter 1996 net income was $1,002,000, exclusive of
any unusual expense or income items.
Interest Income and Interest Expense
The following table sets forth the amount of Premier's average balances,
interest income, and interest expense for each category of interest-earning
assets and interest-bearing liabilities, average interest rates for interest-
earning assets and interest yields for interest-bearing liabilities, net
interest spread, and net yield on average interest-earning assets.
Distribution of Assets, Liabilities, and Stockholders' Equity Interest Rates
and Interest Differentials
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- --------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE
YIELDS/ INCOME OR YIELDS/ INCOME OR YIELDS/ INCOME OR
BALANCES(1) EXPENSES RATES BALANCES(1) EXPENSES RATES BALANCES(1) EXPENSES RATES
----------- --------- ----- ----------- --------- ----- ----------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing depos-
its in banks........... $ 7,716 $ 381 4.94% $ 2,521 $ 119 4.72% $ 523 $ 18 3.44%
Taxable securities(4)... 37,185 2,284 6.14 41,683 2,735 6.56 34,020 1,743 5.12
Federal funds sold...... 10,902 592 5.43 9,481 560 5.91 9,977 451 4.52
Loans(2)................ 183,367 19,759 10.78 134,712 13,887 10.31 90,640 8,743 9.65
Allowance for loan
losses................. (2,122) (1,683) (1,509)
Cash and due from
banks.................. 7,982 10,978 5,689
Other assets............ 13,477 11,721 7,955
--------- --------- --------
Total.................. $ 258,507 $ 23,016 $ 209,413 $17,301 $147,295 $10,955
========= ======== ========= ======= ======== ======= ====
Total interest-earning
assets................. $ 239,170 9.62% $ 188,397 9.18% $135,160 8.11%
========= ===== ========= ===== ======== ====
Noninterest-bearing
demand................. $ 29,472 $ $ 24,936 $ $ 21,652
Interest-bearing
demand................. 50,993 1,577 3.09 37,833 1,283 3.39 36,407 1,082 2.97
Savings................. 8,515 252 2.96 10,438 278 2.66 11,048 327 2.96
Time.................... 114,961 6,838 5.95 78,736 4,504 5.72 53,551 2,364 4.41
--------- -------- ----- --------- ------- ----- -------- ------- ----
Total deposits......... 203,941 8,667 151,943 6,065 122,648 3,773
Borrowings.............. 28,096 2,615 9.31 32,714 2,216 6.77 5,371 339 6.31
Other liabilities....... 3,220 2,738 1,195
Stockholders' equi-
ty(3).................. 23,250 22,018 18,071
--------- -------- --------- ------- -------- -------
Total.................. $ 258,507 $ 11,282 $ 209,413 $ 8,281 $147,295 $ 4,112
========= ======== ========= ======= ======== =======
Total interest-bearing
liabilities............ $ 202,565 5.57% $ 159,721 5.18% $106,377 3.87%
========= ===== ========= ===== ======== ====
Net interest spread..... 4.05% 4.00% 4.24%
===== ===== ====
Net yield on average
interest- earning
assets................. $ 11,734 4.91% $ 9,020 4.79% $ 6,843 5.06%
======== ===== ======= ===== ======= ====
</TABLE>
- -------
(1)Average balances were determined using the daily average balances.
(2)Average loans include impaired loans and are stated net of unearned income.
Income on impaired loans is recognized on the cash basis.
(3)Average shareholders' equity is net of unrealized losses on securities
available-for-sale, net of taxes
(4)Average taxable securities represent securities available-for-sale and are
based on their fair values.
(5) Interest and fees on loans include $1,285,892, $902,787, and $685,034 of
loan fee income for the years ended December 31, 1996, 1995, and 1994.
Net interest income increased by $2,714,000 during fiscal 1996. The
following table reflects the changes in net interest income resulting from
changes in interest rates and from asset and liability volume. The change in
interest
9
<PAGE>
attributable to rate has been determined by applying the change in rate
between years to average balances outstanding in the earlier year. The change
in interest due to volume has been determined by applying the rate from the
earlier year to change in average balances outstanding between years. Thus,
changes that are not solely due to rate or volume have been consistently
allocated between rate and volume.
<TABLE>
<CAPTION>
1995 TO 1996 1994 TO 1995
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN DUE TO CHANGE IN
------------------------ -------------------------
RATE VOLUME TOTAL RATE VOLUME TOTAL
------ ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income from interest-
earning assets:
Interest and fees on
loans................. $ 654 $ 5,218 $ 5,872 $ 637 $ 4,507 $ 5,144
Interest on taxable
securities............ (168) (283) (451) 551 441 992
Interest on Federal
funds sold............ (50) 82 32 135 (26) 109
Interest on deposits in
banks................. 6 256 262 9 92 101
------ ------- ------- ------- ------- -------
Total interest
income.............. $ 442 $ 5,273 $ 5,715 $ 1,332 $ 5,014 $ 6,346
====== ======= ======= ======= ======= =======
Expense from interest-
bearing liabilities:
Interest on interest-
bearing deposits...... $ (116) $ 410 $ 294 $ 158 $ 43 $ 201
Interest on savings
deposits.............. 28 (54) (26) (32) (17) (49)
Interest on time
deposits.............. 186 2,148 2,334 827 1,313 2,140
Interest on other
borrowings............ 732 (333) 399 27 1,850 1,877
------ ------- ------- ------- ------- -------
Total interest
expense............. $ 830 $ 2,171 $ 3,001 $ 980 $ 3,189 $ 4,169
------ ------- ------- ------- ------- -------
Net interest income.. $ (388) $ 3,102 $ 2,714 $ 352 $ 1,825 $ 2,177
====== ======= ======= ======= ======= =======
</TABLE>
Non-Interest Income
Total non-interest income increased $3,702,000 in fiscal 1996 over fiscal
1995. This was primarily due to the increase in mortgage loan activity
resulting in an increase in related income of $2,934,000. Commercial finance
maintenance fees were up $515,000 in fiscal 1996 from fiscal 1995. The
increase in income of these business lines is a continuation of a trend which
began in 1994. In 1995, mortgage origination fees were up $4,683,000 and
commercial finance fees were up $432,000 over fiscal 1994. Management expects
these income streams to continue to grow in 1997.
Non-Interest Expense
Total non-interest expense increased $5,675,000 in fiscal 1996 over fiscal
1995. As discussed above, unusual expenses related to merger, conversion, and
special SAIF fees totaled $1,036,000. In addition, Premier acquired Premier
Bank in a purchase accounting transaction in April of 1995. An estimate of the
increase in expense of twelve months in 1996 versus eight months since
acquisition in 1995 is $870,000. Salary and commission expense was up
$2,591,000 in Premier Lending due to increased volume and the addition of a
new origination office and staff. Expenses in Premier Bank were up an
estimated $400,000 due to a full year of one new branch and six months of an
additional branch.
Non-interest expenses were up $5,036,000 in fiscal 1995 over fiscal 1994.
Salary and commission expense in Premier Lending was up $2,413,000 due
primarily to increases in volume. Premier Bank opened a new branch and Premier
Lending opened two additional offices in 1995.
Income Taxes
Consolidated income taxes decreased in 1996 by $69,000 as compared to 1995.
Premier was able to utilize net operating loss ("NOL") carryforwards of
$237,000 in Premier Bank and Premier Lending which had been incurred and not
utilized in 1994 and 1995. The effective tax rate is higher in 1996 versus
1995 due to the non-
10
<PAGE>
deductibility of merger related expenses. A more complete discussion and
detailed schedule are contained in Note 10 of the Notes to Consolidated
Financial Statements.
RETURN ON EQUITY AND ASSETS
The following rate of return information for the years indicated is
presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Return on assets(1)........................... .98% .95% .20%
Return on equity(2)........................... 10.92 9.03 1.61
Cash dividend payout ratio(3)................. 96.15 2.76 105.00
Equity to assets ratio(4)..................... 8.99 10.51 12.27
</TABLE>
- --------
(1) Net income divided by average total assets
(2) Net income divided by average equity
(3) Cash dividends declared divided by net income
(4) Average equity divided by average total assets
In 1996, a dividend related to 1995 earnings was declared and paid in
January 1996. An additional dividend related to 1996 earnings was declared in
December 1996 and paid in January 1997. In addition, Premier Bancshares, Inc.,
which was acquired by Premier in 1996, incurred net losses in 1994 and 1995,
and had never paid a common stock dividend.
QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1996
---------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income........... $5,693 $5,787 $5,386 $6,150
Interest expense.......... 2,706 2,668 2,766 3,141
----------- ----------- ----------- ------------
Net interest income....... 2,987 3,119 2,620 3,009
Provision for loan
losses................... 129 202 132 135
----------- ----------- ----------- ------------
Net interest income after
provision for loan
losses................... 2,858 2,917 2,488 2,874
Noninterest income........ 2,557 2,763 2,917 3,618
Noninterest expense....... 4,324 4,776 5,201 5,070
----------- ----------- ----------- ------------
Income before income
taxes.................... 1,091 904 204 1,422
Income tax expense........ 325 229 97 418
Minority interest in net
income................... 3 3 4 2
----------- ----------- ----------- ------------
Net income................ $ 763 $ 672 $ 103 $ 1,002
=========== =========== =========== ============
Net income per share...... $ 0.32 $ 0.28 $ 0.04 $ 0.42
=========== =========== =========== ============
</TABLE>
The quarterly information reported on Forms 10-QSB by Premier for the
quarters ended March 30, 1996 and June 30, 1996 have been restated above to
reflect the business combination of First Alliance Bancorp, Inc. (predecessor
to Premier) with Premier Bancshares, Inc. which was consummated on August 31,
1996. The business combination was accounted for as a pooling of interests.
There were no other changes from previously reported amounts.
11
<PAGE>
- --------------------------------------------------------------------------------
PREMIER BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PREMIER BANCSHARES, INC.
Independent Auditor's Report............................................. F-1
Consolidated Balance Sheets.............................................. F-2
Consolidated Statements of Income........................................ F-3
Consolidated Statement of Stockholders' equity........................... F-4
Consolidated Statements of Cash Flows.................................... F-5
Notes to Consolidated Financial Statements............................... F-7
THE CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Report of Independent Certified Public Accountants.......................
Consolidated Balance Sheets--December 31, 1996 and 1995..................
Consolidated Statements of Earnings--Years ended December 31, 1996, 1995
and 1994................................................................
Consolidated Statements of Changes in Stockholders' Equity--Years ended
December 31, 1996, 1995 and 1994........................................
Consolidated Statements of Cash Flows--Years ended December 31, 1996,
1995 and 1994...........................................................
Notes to Consolidated Financial Statements...............................
</TABLE>
<PAGE>
PREMIER BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------------
<S> <C>
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS...... F-1
FINANCIAL STATEMENTS
Consolidated balance sheets................................... F-2
Consolidated statements of income............................. F-3
Consolidated statements of stockholders' equity............... F-4
Consolidated statements of cash flows......................... F-5 and F-6
Notes to consolidated financial statements.................... F-7 and F-27
INDEPENDENT AUDITOR'S REPORT ON THE SUPPLEMENTARY FORMATION... F-28
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS
To the Board of Directors
Premier Bancshares, Inc. and Subsidiaries
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Premier
Bancshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related statements of income, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Premier
Bancshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Maudlin & Jenkins, L.L.P.
Atlanta, Georgia
January 31, 1997, except for Note 16
as to which the date is February 24, 1997
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks............................. $ 11,633,707 $ 9,545,638
Interest-bearing deposits in banks.................. 1,447,173 9,947,819
Federal funds sold.................................. 21,680,000 2,530,000
Securities available-for-sale....................... 35,153,641 45,796,237
Loans held for sale................................. 24,408,287 25,912,226
Loans............................................... 186,856,184 132,873,733
Less allowance for loan losses...................... 2,404,189 1,801,917
------------ ------------
Loans, net...................................... 184,451,995 131,071,816
Premises and equipment.............................. 6,634,633 5,644,655
Other real estate owned............................. 603,489 313,117
Goodwill and other intangibles...................... 2,276,728 2,686,233
Other assets........................................ 5,868,826 4,077,242
------------ ------------
Total assets.................................... $294,158,479 $237,524,983
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing demand........................ $ 30,184,254 $ 29,295,271
Interest-bearing demand........................... 57,562,280 40,938,564
Savings........................................... 8,302,341 9,049,907
Time, $100,000 and over........................... 35,103,940 31,003,923
Other time........................................ 105,580,365 68,165,694
------------ ------------
Total deposits.................................. 236,733,180 178,453,359
Securities sold under repurchase agreements......... 8,443,316 1,308,634
Federal Home Loan Bank advances..................... 4,625,000 11,125,000
Other borrowings.................................... 17,152,230 19,428,642
Other liabilities................................... 3,916,085 3,762,705
------------ ------------
Total liabilities............................... 270,869,811 214,078,340
------------ ------------
Minority interest in subsidiary..................... 13,618 16,754
------------ ------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $1 at December 31, 1996;
and $5 at December 31, 1995; 20,000,000 shares
authorized; 4,249,748 and 2,351,529 issued and
outstanding, respectively........................ 4,249,748 11,757,645
Capital surplus................................... 18,553,533 11,023,136
Retained earnings................................. 640,485 542,730
Unrealized gains (losses) on securities available-
for-sale, net of tax............................. (168,716) 106,378
------------ ------------
Total stockholders' equity...................... 23,275,050 23,429,889
------------ ------------
Total liabilities and stockholders' equity...... $294,158,479 $237,524,983
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans................................ $ 19,759,157 $ 13,886,775 $ 8,742,677
Taxable securities................... 2,264,378 2,723,768 1,731,311
Nontaxable securities................ 20,237 11,261 11,265
Deposits in banks.................... 380,551 119,049 17,616
Other short-term investments......... 591,458 559,739 450,891
------------ ------------ -----------
Total interest income.............. 23,015,781 17,300,592 10,953,760
------------ ------------ -----------
INTEREST EXPENSE
Deposits............................. 8,666,641 6,064,829 3,772,280
Other borrowings..................... 2,614,820 2,216,141 338,991
------------ ------------ -----------
Total interest expense............. 11,281,461 8,280,970 4,111,271
------------ ------------ -----------
Net interest income................ 11,734,320 9,019,622 6,842,489
PROVISION FOR LOAN LOSSES.............. 598,398 337,659 285,000
------------ ------------ -----------
Net interest income after provision
for loan losses................... 11,135,922 8,681,963 6,557,489
------------ ------------ -----------
OTHER INCOME
Service charges on deposit accounts.. 960,395 877,318 909,660
Other service charges and fees....... 1,375,896 892,834 450,957
Gain on mortgage loans held for
sale................................ 4,720,267 2,327,916 99,969
Gain on sale of SBA loans............ 279,061 -- --
Mortgage loan fees................... 4,180,748 3,638,835 1,183,601
Net realized gains (losses) on
securities available-for-sale....... 135,295 52,841 (28,568)
Net realized losses on securities
held-to-maturity.................... -- (30,778) --
Other operating income............... 203,573 393,964 346,496
------------ ------------ -----------
Total other income................. 11,855,235 8,152,930 2,962,115
------------ ------------ -----------
OTHER EXPENSES
Salaries and employee benefits....... $ 11,870,099 $ 8,183,327 $ 4,985,065
Equipment expenses................... 1,110,368 681,966 568,654
Occupancy expenses................... 1,297,448 958,622 607,859
Advertising expenses................. 249,054 166,186 191,132
Telephone expenses................... 353,892 190,316 159,672
Merger related expenses.............. 498,556 21,511 --
Stationery and supplies.............. 433,049 293,040 268,934
Legal expenses....................... 202,243 254,915 168,802
Director expenses.................... 307,584 249,247 150,349
Deposit insurance.................... 327,708 212,447 247,874
Collection expenses.................. 91,886 144,763 146,073
Goodwill amortization expense........ 190,813 149,197 --
Other operating expenses............. 2,438,357 2,190,127 1,165,461
------------ ------------ -----------
Total other expenses............... 19,371,057 13,695,664 8,659,875
------------ ------------ -----------
Income before income taxes and
minority interest in net income of
subsidiary........................ 3,620,100 3,139,229 859,729
Income tax expense..................... 1,068,534 1,137,571 568,581
------------ ------------ -----------
Net income before minority interest
in net income of subsidiary....... 2,551,566 2,001,658 291,148
Minority interest in net income of
subsidiary............................ 11,850 12,709 --
------------ ------------ -----------
Net income......................... $ 2,539,716 $ 1,988,949 $ 291,148
============ ============ ===========
Net income per share of common stock... $ .59 $ .48 $ .08
============ ============ ===========
Weighted average shares outstanding.... 4,306,835 4,136,260 3,570,450
============ ============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED GAINS
COMMON STOCK RETAINED (LOSSES) ON TOTAL
--------------------- CAPITAL EARNINGS SECURITIES AVAILABLE- STOCKHOLDERS'
SHARES PAR VALUE SURPLUS (DEFICIT) FOR-SALE, NET OF TAX EQUITY
--------- ----------- ----------- ----------- --------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1993................... 1,956,962 $ 9,784,810 $ 8,489,317 $ (414,329) $ -- $ 17,859,798
Net income............ -- -- -- 291,148 -- 291,148
Cash dividends
declared............. -- -- -- (305,758) -- (305,758)
Stock issued.......... 33,588 167,940 207,072 -- -- 375,012
Net change in
unrealized gains
(losses) on
securities available-
for-sale, net of
tax.................. -- -- -- 50,483 (716,247) (665,764)
--------- ----------- ----------- ----------- ----------- ------------
BALANCE, DECEMBER 31,
1994................... 1,990,550 9,952,750 8,696,389 (378,456) (716,247) 17,554,436
Net income............ -- -- -- 1,988,949 -- 1,988,949
5% stock dividend..... 76,206 381,030 628,699 (1,012,822) -- (3,093)
Stock issued.......... 284,773 1,423,865 1,698,048 -- -- 3,121,913
Cash dividends
declared............. -- -- -- (54,941) -- (54,941)
Net change in
unrealized gains
(losses) on
securities available-
for-sale, net of
tax.................. -- -- -- -- 822,625 822,625
--------- ----------- ----------- ----------- ----------- ------------
BALANCE, DECEMBER 31,
1995................... 2,351,529 11,757,645 11,023,136 542,730 106,378 23,429,889
Net income............ -- -- -- 2,539,716 -- 2,539,716
Stock options
exercised............ 2,250 2,250 20,250 -- -- 22,500
Cash dividends
declared............. -- -- -- (2,441,961) -- (2,441,961)
Recapitalization...... -- (9,406,116) 9,406,116 -- -- --
1.8055 stock split.... 1,895,969 1,895,969 (1,895,969)
Net change in
unrealized gains
(losses) on
securities available-
for-sale, net of
tax.................. -- -- -- -- (275,094) (275,094)
--------- ----------- ----------- ----------- ----------- ------------
BALANCE, DECEMBER 31,
1996................... 4,249,748 $ 4,249,748 $18,553,533 $ 640,485 $ (168,716) $23,275,050
========= =========== =========== =========== =========== ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income before minority interest
in net income of subsidiary....... $ 2,551,566 $ 2,001,658 $ 291,148
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation..................... 798,761 522,115 484,319
Amortization of intangibles...... 190,813 149,197 --
Provision for loan losses........ 598,398 337,659 285,000
Deferred income taxes............ 11,752 107,200 (241,862)
Net (increase) decrease in loans
held for sale................... 1,672,026 (12,958,178) (679,265)
Net realized (gains) losses on
securities available-for-sale... (135,295) (52,841) 28,568
Net realized losses on securities
held-to-maturity................ -- 30,778 --
(Increase) decrease in interest
receivable...................... (111,054) (552,809) 23,742
Increase (decrease) in interest
payable......................... 180,059 231,394 (4,658)
Other operating activities....... (2,891,833) 1,738,549 1,280,934
------------ ------------ ------------
Net cash provided by (used in)
operating activities.......... 2,865,193 (8,445,278) 1,467,926
------------ ------------ ------------
INVESTING ACTIVITIES
Purchases of securities available-
for-sale.......................... (10,985,469) (22,918,884) (5,794,542)
Proceeds from sales of securities
available-for-sale................ 11,534,120 8,831,030 2,702,013
Proceeds from maturities of securi-
ties available-for-sale........... 9,798,510 3,578,536 429,038
Purchases of securities held-to-ma-
turity............................ -- (6,590,781) (9,302,235)
Proceeds from sales of securities
held-to-maturity.................. -- 4,560,718 --
Proceeds from maturities of securi-
ties held-to-maturity............. -- 2,817,235 4,823,195
Net (increase) decrease in Federal
funds sold........................ (19,150,000) 16,580,000 (8,230,000)
Net (increase) decrease in inter-
est-bearing deposits in banks..... 8,500,646 (9,931,730) (16,089)
Net (increase) decrease in loans... (54,207,952) (13,452,625) 2,146,808
Purchase of premises and equip-
ment.............................. (1,788,739) (788,429) (349,537)
Net cash acquired in business com-
binations......................... -- 678,430 --
Investment in subsidiary........... -- (5,894,871) --
------------ ------------ ------------
Net cash used in investing ac-
tivities...................... (56,298,884) (22,531,371) (13,591,349)
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits............. $58,279,821 $ 29,256,260 $ 843,283
Net increase in repurchase agree-
ments............................... 7,134,682 1,308,634 0
Net increase (decrease) in other
borrowings.......................... (2,276,412) 3,025,506 10,029,263
Net decrease in Federal Home Loan
Bank advances....................... (6,500,000) (2,059,990) 0
Dividends paid....................... (1,123,845) (58,034) (305,758)
Dividends paid to minority sharehold-
er.................................. (14,986) -- --
Proceeds from exercise of stock op-
tions............................... 22,500 -- --
Proceeds from common stock issued.... -- 3,121,913 375,012
----------- ------------ -----------
Net cash provided by financing ac-
tivities.......................... 55,521,760 34,594,289 10,941,800
----------- ------------ -----------
Net increase (decrease) in cash and
due from banks...................... 2,088,069 3,617,640 (1,181,623)
Cash and due from banks at beginning
of year............................. 9,545,638 5,927,998 7,109,621
----------- ------------ -----------
Cash and due from banks at end of
year................................ $11,633,707 $ 9,545,638 $ 5,927,998
=========== ============ ===========
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest........................... $11,101,402 $ 8,049,576 $ 4,115,929
Income taxes....................... $ 1,257,556 $ 1,272,504 $ 98,322
BUSINESS COMBINATION
Net cash acquired.................... $ 678,430
============
Securities available-for-sale........ $ 1,563,926
Loans held for sale.................. 7,829,133
Loan................................. 37,517,520
Premises and equipment............... 1,401,710
Other assets......................... 1,240,845
Goodwill............................. 2,547,828
Deposits............................. (31,031,023)
Advances from Federal Home Loan
Bank................................ (13,184,990)
Subordinated debentures.............. (1,974,394)
Other liabilities.................... (694,114)
------------
Net assets acquired, net of cash and
due from banks of $678,430.......... $ 5,216,441
============
NONCASH TRANSACTIONS
Unrealized (gains) losses on securi-
ties available-for-sale............. $ 430,730 $ (1,263,607) $ 1,085,220
Principal balances of loans trans-
ferred to other real estate......... $ 435,816 $ 657,190 $ 309,572
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Premier Bancshares, Inc., (the "Company" and formerly First Alliance/Premier
Bancshares, Inc.) is a bank and thrift holding company whose business is
conducted by its wholly-owned subsidiaries, First Alliance Bank (the "Bank")
located in Marietta, Georgia, Premier Bank (the "Thrift") located in Acworth,
Georgia, Premier Lending Corporation ("Lending") located in Atlanta, Georgia
and Interim Alliance Corporation d/b/a Alliance Finance located in Smyrna,
Georgia, an 80% owned subsidiary.
The Company is not engaged in any substantial business other than the normal
financial services provided by its subsidiaries. However, the Company incurs
operating expenses in connection with evaluating and pursuing potential
business acquisitions.
First Alliance Bank is a commercial bank with operations in Marietta and
Kennesaw, Georgia. The Bank provides a full range of banking services to
individual and corporate customers in its primary market area of Cobb County
and surrounding counties.
Premier Bank was acquired by the Company during 1995 in a business
combination accounted for as a purchase. The Thrift provides a full range of
banking services to individual and corporate customers in its primary market
area of Cobb County and surrounding counties.
Premier Lending Corporation, Inc. originates, processes, funds and sells
residential mortgage loans, construction loans and commercial finance loans
primarily in the metropolitan Atlanta area. The majority of the mortgage loans
are sold to independent third party investors with servicing released and a
significant portion of the construction and commercial finance loans are
participated to affiliated and non-affiliated financial institutions.
Alliance Finance provides lending and financing services to consumer and
business enterprises. The Finance Company's primary activities consist of
origination of consumer loans including mortgage loans, retail sales financing
and related insurance products.
NAME CHANGE
In January 1997, the Company changed its name from First Alliance/Premier
Bancshares, Inc. to Premier Bancshares, Inc.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany transactions and accounts are
eliminated in consolidation.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and general practices 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 from those estimates.
CASH AND DUE FROM BANKS
Cash on hand, cash items in process of collection and amounts due from banks
are included in cash and due from banks.
F-7
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company and its subsidiaries maintain amounts due from banks which, at
times, may exceed Federally insured limits. The Company has not experienced
any losses in such accounts.
SECURITIES
Securities are classified based on management's intention on the date of
purchase. Securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost.
All other debt securities are classified as available-for-sale and carried at
fair value with net unrealized gains and losses included in stockholders'
equity, net of tax. Marketable equity securities are carried at fair value
with net unrealized gains and losses included in stockholders' equity. Other
equity securities without a readily determinable fair value are carried at
cost.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific
identification method.
LOANS HELD FOR SALE
Loans held for sale include primarily mortgage loans which are carried at
the lower of aggregate cost or fair value. The determination of fair value
includes consideration of outstanding commitments from investors, related
origination fees and costs, and commitment fees paid. Gains and losses are
recognized at settlement dates and are determined by the difference between
the selling price and the carrying value of the loans sold. The Company sells
all mortgage loans on a servicing released basis. The Company's practice is to
originate mortgage loans subject to existing purchase commitments from third
party investors.
LOANS
Loans are carried at their principal amounts outstanding less unearned
income, net deferred loan fees and costs and the allowance for loan losses.
Interest income on most loans is credited to income based on the principal
amount outstanding. Interest on other loans is recognized on the sum-of-the-
months method, the results of which are not materially different from
generally accepted accounting principles.
Loan origination fees and certain direct costs incurred in originating most
loans are deferred and recognized as income over the life of the loan. Fees
and costs incurred in origination of other loans are recognized at the time
the loan is recorded. The results of operations are not materially different
than the results which would be obtained by accounting for all loan fees and
costs in accordance with generally accepted accounting principles.
The allowance for loan losses is maintained at a level that management
believes to be adequate to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic
conditions, volume, growth, composition of the loan portfolio, and other risks
inherent in the portfolio. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for loan losses, and may require the Company to record additions to the
allowance based on their judgment about information available to them at the
time of their examinations.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When accrual of interest is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received.
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 114, "Accounting by Creditors for Impairment of a Loan" as
amended by Statement of Financial Accounting Standard No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures," on
January 1, 1995. A loan is impaired when it is probable the Company will be
unable to collect all principal and interest payments due in accordance with
the terms of the loan agreement. Individually identified impaired loans are
F-8
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
measured based on the present value of payments expected to be received, using
the contractual loan rate as the discount rate. Alternatively, measurement may
be based on observable market prices or, for loans that are solely dependent
on the collateral for repayment, measurement may be based on the fair value of
the collateral. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance is established as a component of
the allowance for loan losses. Changes to the valuation allowance are recorded
as a component of the provision for loan losses.
The Company considers the following type loans to be impaired:
(1) all nonaccrual loans, (2) loans that have been restructured in a
troubled debt restructuring provided that the restructured loan agreement
specifies an interest rate that is less than the Company would be willing
to accept at the time of the restructuring for a new loan with comparable
risk or the loan becomes impaired based on the terms specified by the
restructured loan agreement, and (3) any other loan in which management
does not expect to collect all contractual principal and interest payments
in accordance with the terms of the loan agreement.
The Company has not identified large groups of smaller-balance homogeneous
loans which are collectively evaluated for impairment. Any loan that meets the
characteristics as described above are considered to be impaired regardless of
loan type or balance.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through foreclosure.
Other real estate owned is held for sale and is carried at the lower of the
recorded amount of the loan or fair value of the properties less estimated
selling costs. Any write-down to fair value at the time of transfer to other
real estate owned is charged to the allowance for loan losses. Subsequent
gains or losses on sale and any subsequent adjustment to the value are
recorded as other expenses.
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current income
tax provisions approximate taxes to be paid or refunded for the applicable
year. Deferred tax assets and liabilities are recognized for the temporary
differences between the bases of assets and liabilities as measured by tax
laws and their bases as reported in the financial statements. Deferred tax
expense or benefit is then recognized for the change in deferred tax assets or
liabilities between periods.
Recognition of deferred tax balance sheet amounts is based on management's
belief that it is more likely than not that the tax benefit associated with
certain temporary differences, tax operating loss carryforwards and tax
credits will be realized. A valuation allowance is recorded for those deferred
tax items for which it is more likely than not that realization will not
occur.
The Company and the subsidiaries file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income taxes
(benefits) of the consolidated group.
NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of shares of common stock and common stock equivalents
outstanding. Common stock equivalents consist of stock options and warrants.
F-9
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2. SECURITIES
The amortized cost and fair value of securities 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
December 31, 1996:
U. S. Government and
agency securities........ $ 19,592,588 $ 38,756 $ (53,968) $ 19,577,376
State and municipal secu-
rities................... 101,145 3,546 -- 104,691
Mortgage backed securi-
ties..................... 13,909,362 39,378 (256,642) 13,692,098
Equity securities......... 1,834,545 -- (55,069) 1,779,476
------------ --------- ---------- ------------
$ 35,437,640 $ 81,680 $ (365,679) $ 35,153,641
============ ========= ========== ============
December 31, 1995:
U. S. Government and
agency securities........ $ 22,226,156 $ 238,490 $ (151,542) $ 22,313,104
State and municipal secu-
rities................... 291,803 12,038 -- 303,841
Mortgage backed securi-
ties..................... 21,691,002 260,327 (184,535) 21,766,794
Equity securities......... 1,440,545 -- (28,047) 1,412,498
------------ --------- ---------- ------------
$ 45,649,506 $ 510,855 $ (364,124) $ 45,796,237
============ ========= ========== ============
</TABLE>
The amortized cost and fair value of securities as of December 31, 1996 by
contractual maturity are shown below. Maturities may differ from contractual
maturities in mortgage-backed securities because the mortgages underlying the
securities may be called or prepaid with or without penalty. Therefore, these
securities and equity securities are not included in the maturity categories
in the following summary.
<TABLE>
<CAPTION>
SECURITIES
-------------------------
AMORTIZED FAIR
COST VALUE
------------ ------------
<S> <C> <C>
Due from one year to five years................... $ 17,288,569 $ 17,280,585
Due from five to ten years........................ 2,026,196 2,018,440
Due after ten years............................... 378,968 383,042
Mortgage backed securities........................ 13,909,362 13,692,098
Equity securities................................. 1,834,545 1,779,476
------------ ------------
$ 35,437,640 $ 35,153,641
============ ============
</TABLE>
Securities with a carrying value of approximately $31,452,000 and
$38,224,000 at December 31, 1996 and 1995, respectively, were pledged to
secure public deposits and for other purposes.
Gains and losses on sales of securities consist of the following:
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
---------------- -------------------------------
1995 1996 1995 1994
---------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross gains.............. $ 725 $ 148,325 $ 130,926 $ 1,431
Gross losses............. (31,503) (13,030) (78,085) (29,999)
--------- --------- --------- ---------
Net realized gains (loss-
es)..................... $ (30,778) $ 135,295 $ 52,841 $ (28,568)
========= ========= ========= =========
</TABLE>
The Company sold during the third quarter of 1995 securities classified as
held-to-maturity, with a carrying amount of $4,560,718, recognizing a net loss
of $30,778, in response to changes in the bond market and
F-10
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
management's evaluation of the securities portfolio. The circumstances leading
to the sale of these securities were identified as an isolated instance based
on prudent business decisions. On December 15, 1995, the Company transferred
its remaining held-to-maturity portfolio totaling $20,103,806 to available-
for-sale, resulting in a net unrealized loss of $23,815 which was included in
stockholders' equity at $15,718 net of related taxes of $8,097.
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Commercial and financial............................ $ 28,599,233 $ 22,182,076
Real estate--construction........................... 67,410,541 37,157,871
Real estate--mortgage 73,272,062 58,463,177
Consumer............................................ 17,991,335 14,776,676
Other............................................... 81,094 912,432
------------ ------------
187,354,265 133,492,232
Unearned income..................................... (520,446) (447,306)
Net deferred loan (fees) costs...................... 22,365 (171,193)
Allowance for loan losses........................... (2,404,189) (1,801,917)
------------ ------------
Loans, net.......................................... $184,451,995 $131,071,816
============ ============
</TABLE>
Changes in the allowance for loan losses for the years ended December 31,
1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR.................. $1,801,917 $1,301,582 $1,581,532
Allowance acquired in acquisitions........ -- 294,309 --
Provision for loan losses................. 598,398 337,659 285,000
Loans charged off......................... (152,326) (389,570) (735,324)
Recoveries................................ 156,200 257,937 170,374
---------- ---------- ----------
BALANCE, END OF YEAR........................ $2,404,189 $1,801,917 $1,301,582
========== ========== ==========
</TABLE>
The total recorded investment in impaired loans was $1,223,510 and $268,463
at December 31, 1996 and 1995, respectively. None of these loans had a
specific allowance for loan losses at December 31, 1996 and 1995 determined in
accordance with generally accepted accounting principles. The average recorded
investment in impaired loans for 1996 and 1995 was $1,038,284 and $692,500,
respectively. Interest income on impaired loans of $14,085 and $10,155 was
recognized for cash payments received for the years ended 1996 and 1995,
respectively.
The Company has granted loans to certain related parties including
directors, executive officers, and their related entities. The interest rates
on these loans were substantially the same as rates prevailing at the time of
the transaction and repayment terms are customary for the type of loan
involved. Changes in related party loans for the year ended December 31, 1996
are as follows:
<TABLE>
<S> <C>
BALANCE, BEGINNING OF YEAR....................................... $1,410,900
Advances....................................................... 223,601
Repayments..................................................... (407,081)
----------
BALANCE, END OF YEAR............................................. $1,227,420
==========
</TABLE>
F-11
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Land............................................... $ 1,132,414 $ 1,132,414
Buildings.......................................... 3,607,228 3,469,036
Equipment.......................................... 5,835,742 4,471,926
----------- -----------
10,575,384 9,073,376
Accumulated depreciation........................... (3,940,751) (3,428,721)
----------- -----------
$ 6,634,633 $ 5,644,655
=========== ===========
</TABLE>
NOTE 5. OTHER BORROWINGS
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
The balance of securities sold under repurchase agreements was $8,443,316
and $1,308,634 at December 31, 1996 and 1995, respectively.
SUBORDINATED DEBENTURES
Subordinated debt of Alliance Finance and Premier Lending consists of fixed
rate debentures which are payable on demand or mature at twelve, twenty-four
or thirty-six months after date of issue. The debentures have various
principal amounts and interest is payable monthly. The Company may repay the
debentures for a price equal to 100% of the principal plus any unpaid interest
to date of redemption without penalty. A summary of the outstanding debentures
by interest rate and maturity are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
7.50% due on demand................................... $4,236,971 $ --
7.50% due in 1997..................................... 70,000 --
7.50% due February 20, 1999........................... 70,000 --
8.00% due on demand................................... 1,327,000 1,194,000
8.00% due in 1998..................................... 35,000 35,000
8.50% due on demand................................... 90,000 --
10.0% due on demand................................... 25,000 25,000
---------- ----------
$5,853,971 $1,254,000
========== ==========
</TABLE>
F-12
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lines of credit at December 31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Revolving line of credit of $4,000,000 with a
nonaffiliated institution, bearing interest at prime
less .50% (7.75% at December 31, 1996) due on October
31, 1997. Line is secured by all commercial finance
notes receivable, all stock of the Company's subsidi-
aries and guaranteed by the Company................... $2,320,000 $ --
Revolving line of credit of $4,000,000 with a
nonaffiliated institution, bearing interest at prime
less .50% (7.75% at December 31, 1996), due October
31, 1997. Line is secured by all stock of the
Company's subsidiaries and guaranteed by the Company.. 3,675,000 --
Revolving line of credit of $3,000,000 with a
nonaffiliated institution, bearing interest at prime
less .50% (7.75% at December 31, 1996), due October
31, 1997. Line is secured by accounts receivable of
Alliance Finance, all stock of the Company's subsidi-
aries and guaranteed by the Company................... 475,000 --
Treasury, tax and loan note option account with the
Federal Reserve Bank of Atlanta, due on demand, bear-
ing interest at 5.148% at December 31, 1996, collater-
alized by securities.................................. 828,259 --
Line of credit of $505,000 with a nonaffiliated insti-
tution, bearing interest at prime plus 1% (9.25% at
December 31, 1995), matured on August 14, 1996........ -- 505,000
Revolving warehouse line of credit of $30,000,000 with
a nonaffiliated institution, bearing interest at an
annual rate varying from published rates on high-
graded unsecured commercial paper plus 1.75% to plus
3%, matured October 21, 1995.......................... $ -- $13,584,642
Revolving line of credit of $3,000,000 with a
nonaffiliated institution, bearing interest at prime
(8.50% at December 31, 1995) matured February 15,
1996.................................................. -- 1,085,000
---------- -----------
$7,298,259 $15,174,642
========== ===========
Long-term debt at December 31, 1996 and 1995 consisted of:
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Note payable in the amount of $4,000,000, due in eight
annual instalments of $500,000 beginning April 1, 1999
with interest due quarterly at prime less .50% (7.75%
at December 31, 1996), due April 1, 2006. Note payable
is secured by all stock of the Company's subsidiaries
and guaranteed by the Company......................... $4,000,000 $ --
Note payable in the amount of $3,000,000, due in annual
instalments of $300,000 with interest due quarterly at
prime plus 1% (9.25% at December 31, 1995) to October
28, 2006 collateralized by 320,000 shares of common
stock of Premier Bank................................. -- 3,000,000
---------- -----------
$4,000,000 $ 3,000,000
========== ===========
</TABLE>
In connection with the long-term debt, the Company has agreed, among other
covenants, to during the term of the loan: (1) maintain earnings at a level
equal to or above .60 percent of average assets; (2) maintain reserves for
possible loan losses at a level of not less than 1% of total gross loans,
excluding residential first mortgage loans on owner-occupied single family
dwellings, of the Banks; (3) maintain in aggregate a total risk based capital
ratio of no less than 10.0% and Tier 1 capital to average total assets of no
less than 6.0%; and (4) not permit its capital to be less than $20,000,000.
F-13
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate maturities required on long-term debt at December 31, 1996 were as
follows:
<TABLE>
<S> <C>
1999................................................................ $ 500,000
2000................................................................ 500,000
2001................................................................ 500,000
Thereafter.......................................................... 2,500,000
-----------
$ 4,000,000
===========
</TABLE>
NOTE 6. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances consisted of the following at December 31,
1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Advance from the Federal Home Loan Bank with interest
at 6.79%, due on August 1, 2001. Interest is payable
monthly.............................................. $ 1,000,000 $ --
Advance from the Federal Home Loan Bank with interest
at 6.99%, due on September 15, 1997. Interest is pay-
able monthly......................................... 1,000,000 1,000,000
Advance from the Federal Home Loan Bank with interest
at 8.27%, due on December 8, 1997. Interest is pay-
able monthly......................................... 1,750,000 1,750,000
Advance from the Federal Home Loan Bank with interest
at 8.41%, due on December 8, 1999. Interest is pay-
able monthly......................................... 875,000 875,000
Advance from the Federal Home Loan Bank with interest
at the one month LIBOR rate plus 20 basis points
(6.17% at December 31, 1995), due on
May 31, 2005......................................... -- 5,000,000
Advance from the Federal Home Loan Bank with interest
based on the Federal Home Loan Bank's cost of funds
plus .25% (5.85% at December 31, 1995), matured on
January 2, 1996...................................... -- 1,000,000
Variable rate advances from the Federal Home Loan Bank
with interest based on the Federal Home Loan Bank's
cost of funds plus .25% (6.10% December 31, 1995),
matured on October 12, 1996.......................... $ -- $ 1,000,000
Variable rate advances from the Federal Home Loan Bank
with interest based on the Federal Home Loan Bank's
cost of funds plus .25% (6.10% at December 31, 1995),
matured on November 3, 1996.......................... -- 500,000
----------- ------------
$ 4,625,000 $ 11,125,000
=========== ============
</TABLE>
The advances from the Federal Home Loan Bank are collateralized by a blanket
floating lien on qualifying first mortgages and pledges of certain securities
and the Company's Federal Home Loan Bank stock.
NOTE 7. DEFERRED COMPENSATION PLANS
First Alliance Bank has three deferred compensation plans providing for the
deferral of director fees and certain retirement benefits for the directors.
The first retirement benefit plan was put in place in January, 1994. The
Bank accrues an amount equal to the present value of the estimated benefit to
be paid under the plan. The accrual recorded for the years ended December 31,
1996, 1995 and 1994 was $103,994, $89,303 and $50,601, respectively. The plan
was terminated effective December 31, 1996 and no additional benefits will be
accrued under this plan.
F-14
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Bank's other plans allow the directors to defer up to $500 per month of
their monthly director's fees. The first plan covers one current and one
former director. Under that plan, the monthly amount deferred is utilized to
purchase life insurance on those directors. The Bank's liability under that
plan is equal to the cash value of those policies. The second plan is similar
to the first except deferred fees are recorded in a liability account monthly
plus an interest amount based on the current market rate accrued annually.
During 1996, 1995 and 1994, an amount of $38,260, $31,322 and $21,200,
respectively, was deferred by the directors and recorded as a liability of the
Bank.
In conjunction with these plans, several universal life insurance policies
were purchased by the Bank. The Bank is the owner of the policies which insure
the lives of certain directors. These policies may be used by the Bank as
funding vehicles for plan obligations. The directors are general creditors of
the Bank and have no specific claims on these assets.
NOTE 8. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN
The Company has a 401(k) retirement plan covering all employees, subject to
certain minimum age requirements. Contributions to the plan charged to expense
were $73,252, $38,933 and $39,975 for the years ended December 31, 1996, 1995
and 1994, respectively.
Premier Bank had a defined contribution 401(k) plan covering all full-time
employees, subject to certain minimum service requirements. This 401(k) plan
was terminated on January 30, 1996 with the individual participants' funds
being disbursed on that date. There were no contributions to the plan for the
year ended December 31, 1996 and the period from acquisition to December 31,
1995.
INCENTIVE STOCK OPTION PLANS
The Company has an Employee Incentive Stock Option Plan. Under the Plan, the
Company can grant to key personnel options to purchase an aggregate of 270,825
shares of the Company's common stock at a price not less than the fair market
value of such shares on the date the option is granted. The option period will
not exceed ten years from date of grant.
The Company also has an employee and a director stock option plan whereby
72,220 and 58,679 shares, respectively, of common stock have been reserved for
stock options. Under the employee plan, the Company can grant to key personnel
options to purchase common stock at a price not less than the fair market
value of such shares on the date the option is granted. The option period will
not exceed ten years from date of grant.
F-15
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the director plan, each eligible director who attends at least 75% of
the meetings of the Company's Board and related committee meetings shall
receive an option to purchase 903 shares annually of common stock. The options
expire ten years from the date of grant. All options granted were exercisable
at December 31, 1996. Other pertinent information related to the options is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1996 1995 1994
------------------ ------------------ ----------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
------- --------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Under option, beginning
of year................ 124,580 $ 5.72 58,679 $ 5.54 46,040 $ 5.54
Granted............... 18,055 8.86 74,026 5.84 12,639 5.54
Exercised............. (4,062) 5.54 -- -- -- --
Expired............... (903) 5.54 (8,125) 5.54 -- --
------- ------- ------
Under option and exer-
cisable, end of year... 137,670 6.14 124,580 5.72 58,679 5.54
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
WEIGHTED- REMAINING
AVERAGE CONTRACTUAL
EXERCISE LIFE IN
NUMBER PRICE PRICE YEARS
------- ------ --------- -----------
<S> <C> <C> <C> <C>
Options Outstanding and Exercisable, End
of Year................................. 110,587 $ 5.54 $ 5.54 7.0
9,028 8.03 8.03 8.0
18,055 8.86 8.86 10.0
-------
137,670
=======
</TABLE>
As permitted by Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123), the Company
recognizes compensation cost for stock-based employee compensation awards in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company recognized no compensation cost for stock-based
employee compensation awards for the years ended December 31, 1996 and 1995.
If the Company had recognized compensation cost in accordance with SFAS No.
123, net income and net income per share would have been reduced as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995
---------------------- ----------------------
NET INCOME NET INCOME
NET INCOME PER SHARE NET INCOME PER SHARE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
As reported..................... $2,539,716 $ .59 $1,988,949 $0.48
Stock based compensation, net of
related tax effect............. (25,782) (0.01) (69,691) (0.02)
---------- ----- ---------- -----
As adjusted..................... $2,513,934 $ .58 $1,919,258 $ .46
========== ===== ========== =====
</TABLE>
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $2.17 and $1.42, respectively, 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 the options using
the following assumptions:
<TABLE>
<S> <C>
Risk free interest rate............................................ 6.45%
Expected life of the options....................................... 7-10 Years
Expected dividends (as a percent of the fair value of the stock)... 2.68%
Volatility......................................................... 9.80%
</TABLE>
F-16
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. SEGMENT REPORTING
The Company's operations include two primary business segments: banking and
mortgage banking activities. The Company, primarily through its subsidiary
banks, offers banking services including a full range of commercial and
corporate banking services. Mortgage banking activities are provided by
Lending and include the origination of residential mortgage loans for sale to
various investors and origination of construction and commercial finance loans
for participation with other financial institutions.
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS
----------------------------------------------------------------
FOR THE YEAR ENDED HOLDING BANKING MORTGAGE
DECEMBER 31, 1996 COMPANY SUBSIDIARIES BANKING ELIMINATIONS CONSOLIDATED
------------------ ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffili-
ated customers......... $ -- $ 23,201,562 $11,669,454 $ -- $ 34,871,016
Revenues from affili-
ates................... 3,164,034 236,953 -- (3,400,987) --
----------- ------------ ----------- ------------ ------------
Total revenue......... $ 3,164,034 $ 23,438,515 $11,669,454 $ (3,400,987) $ 34,871,016
=========== ============ =========== ============ ============
Income from continuing
operations before in-
come taxes............. $ 2,101,909 $ 4,060,370 $ 598,302 $ (3,140,481) $ 3,620,100
=========== ============ =========== ============ ============
Identifiable assets at
December 31, 1996...... $28,690,340 $286,781,318 $13,052,684 $(34,365,863) $294,158,479
=========== ============ =========== ============ ============
Depreciation expense.... $ -- $ 606,405 $ 192,356 $ 798,761
=========== ============ =========== ============
Premises and equipment
acquisitions........... $ -- $ 1,006,195 $ 782,544 $ 1,788,739
=========== ============ =========== ============
<CAPTION>
INDUSTRY SEGMENTS
----------------------------------------------------------------
FOR THE YEAR ENDED HOLDING BANKING MORTGAGE
DECEMBER 31, 1995 COMPANY SUBSIDIARIES BANKING ELIMINATIONS CONSOLIDATED
------------------ ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffili-
ated customers......... $ 848,513 $ 17,823,464 $ 6,781,545 $ -- $ 25,453,522
Revenues from affili-
ates................... 823,052 197,878 -- (1,020,930) --
----------- ------------ ----------- ------------ ------------
Total revenue......... $ 1,671,565 $ 18,021,342 $ 6,781,545 $ (1,020,930) $ 25,453,522
=========== ============ =========== ============ ============
Income (loss) from con-
tinuing operations be-
fore income taxes...... $ (92,001) $ 3,412,496 $ 629,454 $ (810,720) $ 3,139,229
=========== ============ =========== ============ ============
Identifiable assets at
December 31, 1995...... $26,648,602 $219,065,627 $21,690,588 $(29,879,834) $237,524,983
=========== ============ =========== ============ ============
Depreciation expense.... $ 7,030 $ 424,898 $ 90,187 $ 522,115
=========== ============ =========== ============
Premises and equipment
acquisitions........... $ -- $ 669,462 $ 118,967 $ 788,429
=========== ============ =========== ============
</TABLE>
F-17
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS
----------------------------------------------------------------
FOR THE YEAR ENDED HOLDING BANKING MORTGAGE
DECEMBER 31, 1994 COMPANY SUBSIDIARIES BANKING ELIMINATIONS CONSOLIDATED
------------------ ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from unaffili-
ated customers......... $ -- $ 11,989,288 $ 1,914,958 $ -- $ 13,915,875
Revenues from affili-
ates................... 1,461,295 -- -- (1,461,295) --
----------- ------------ ----------- ------------ ------------
Total revenue......... $ 1,461,295 $ 11,989,288 $ 1,914,958 $ (1,461,295) $ 13,915,875
=========== ============ =========== ============ ============
Income (loss) from con-
tinuing operations be-
fore income taxes...... $ 1,272,260 $ 2,088,861 $(1,040,097) $ (1,461,295) $ 859,729
=========== ============ =========== ============ ============
Identifiable assets at
December 31, 1994...... $15,173,401 $143,555,410 $ 7,920,414 $(15,123,652) $151,525,573
=========== ============ =========== ============ ============
Depreciation expense.... $ 68,506 $ 415,813 $ -- $ 484,319
=========== ============ =========== ============
Premises and equipment
acquisitions........... $ 192,121 $ 157,416 $ -- $ 349,537
=========== ============ =========== ============
</TABLE>
NOTE 10. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Current.................................. $1,561,724 $1,030,371 $ 456,810
Benefit of net operating loss
carryforward............................ (236,575) -- --
Valuation allowance adjustment........... (268,367) -- 353,633
Deferred................................. 11,752 107,200 (241,862)
---------- ---------- ---------
Income tax expense..................... $1,068,534 $1,137,571 $ 568,581
========== ========== =========
</TABLE>
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before income taxes.
A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994
------------------- ------------------ -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Income taxes at statu-
tory rate.............. $1,230,834 34% $1,067,337 34% $292,308 34%
Disallowed merger ex-
penses............... 142,021 4 36,462 1 6,257 1
Valuation allowance
adjustment........... (268,367) (7) -- -- 353,633 41
Alternative minimum
tax credit........... -- -- -- -- (37,135) (4)
Other items, net...... (35,954) (1) 33,772 1 (46,482) (6)
---------- --- ---------- --- -------- ---
Income tax expense...... $1,068,534 30% $1,137,571 36% $568,581 66%
========== === ========== === ======== ===
</TABLE>
The above reconciliation reflects the inability to utilize the net operating
losses generated by the Premier Bancshares, Inc. group prior to the business
combination with First Alliance Bancorp, Inc., as discussed in Note 15.
F-18
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ---------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves..................................... $ 425,865 $ 209,729
Deferred compensation.................................. 150,896 97,215
Other real estate...................................... 16,038 10,377
Securities available-for-sale.......................... 115,283 --
Write-down of mutual funds............................. 18,885 18,885
Net operating loss carryforward........................ 585,067 821,642
Georgia tax credits.................................... 72,423 72,423
Other.................................................. 44,824 --
Valuation allowance.................................... (374,294) (642,661)
---------- ---------
1,054,987 587,610
---------- ---------
Deferred tax liabilities:
Depreciation and amortization.......................... 273,439 273,568
Deferred loan fees, net of cost........................ 141,507 59,119
Securities available-for-sale.......................... -- 49,889
Cash method accounting on certain receivables.......... 144,250 131,030
---------- ---------
559,196 513,606
---------- ---------
Net deferred tax assets.................................. $ 495,791 $ 74,004
========== =========
</TABLE>
At December 31, 1996, the Company has available net operating loss
carryforwards of approximately $1,379,000 for Federal income tax purposes. If
unused, the carryforwards will expire beginning in 2009. Utilization of the
net operating loss carryforwards is subject to the separate return limitations
and change of ownership rules of the Internal Revenue Code of 1996.
NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES
The Company enters into firm commitments to sell mortgage loans which it has
originated at agreed upon prices. The sales price for the loans is set based
on market rates at the time the commitment is entered into. The Company
generally has ten days after a mortgage loan closes in which to provide the
investor with the loan documentation, at which time the investor will fund the
loan. The investor bears the interest rate risk on the loan from the time of
the commitment. The Company's risk is limited to specific recourse provisions
within the agreement with the investor and its ability to provide the required
loan documentation to the investor within the commitment period.
The Company sells mortgage loans to investors under various blanket
agreements. Under the agreements, investors generally have a limited right of
recourse to the Company for normal representations and warranties and, in some
cases, for delinquencies within the first three to six months which lead to
loan default and foreclosure. Management believes that the risk of loss to the
Company as a result of these provisions is insignificant.
The Company enters into residential construction and commercial loan
commitments in advance of closing to fund loans to its customers at locked-in
interest rates in the normal course of business. These instruments, to the
extent they are not covered by investor purchase commitments, involve credit
and interest rate risk in excess of the amount recognized in the financial
statements.
F-19
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the normal course of business, the Company has entered into off-balance-
sheet financial instruments which are not reflected in the financial
statements. These financial instruments include commitments to extend credit
and standby letters of credit. Such financial instruments are included in the
financial statements when funds are disbursed or the instruments become
payable. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for unfunded mortgage loan
commitments, residential construction and commercial loan commitments,
commitments to extend credit and standby letters of credit is represented by
the contractual amount of those instruments. A summary of the Company's
commitments is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
Unfunded mortgage loan commitments.................... $20,000,000 $31,968,000
Residential construction and commercial loan commit-
ments................................................ 27,277,198 18,526,425
Commitments to extend credit.......................... 49,987,828 20,387,000
Standby letters of credit............................. 695,742 1,249,532
----------- -----------
$97,960,768 $72,130,957
=========== ===========
</TABLE>
At December 31, 1996, the Company had agreements with unaffiliated
institutions allowing it to sell participations in loans at the Company's
option. The unused participation amount was $36,082,936 at December 31, 1996.
Commitments to extend credit 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
credit risk involved in issuing these financial instruments is essentially the
same as that involved in extending loans to customers. 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 customer. Collateral
held varies but may include real estate and improvements, marketable
securities, accounts receivable, inventory, equipment and personal property.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held
varies as specified above and is required in instances which the Company deems
necessary.
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management of the Company, any liability
resulting from such proceedings would not have a material effect on the
Company's consolidated financial statements.
LEASE OBLIGATIONS:
The Company leases ten office facilities and certain equipment under
noncancelable lease agreements.
F-20
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The future minimum lease commitments at December 31, 1996 are summarized as
follows:
<TABLE>
<S> <C>
Years Ending December 31,
1997......................................................... $ 588,336
1998......................................................... 580,444
1999......................................................... 411,395
2000......................................................... 253,157
2001......................................................... 115,991
----------
$1,949,323
==========
</TABLE>
Rental expense for the years ended December 31, 1996, 1995 and 1994 was
$723,717, $116,583 and $58,777, respectively.
The Bank leases the land on which its main office is located for $5,717 per
month for five years with renewal options up to forty years. Escalation
features include a 5% increase every five years plus an additional amount
added which shall be the average yearly amount for the Consumer Price Index
(CPI) for metropolitan Atlanta for the previous five years, not to exceed 8%
per year. At any time after the first five years, the Bank may exercise an
option to purchase the property for $1,000,000.
The Company also leases various other equipment under short-term leases.
NOTE 12. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer loans
to customers in the metro Atlanta area, and surrounding counties. The ability
of the majority of the Company's customers to honor their contractual loan
obligations is dependent on the economy in the metro Atlanta area.
Seventy-five percent (75%) of the Company's loan portfolio is concentrated
in loans secured by real estate of which 36% consists of construction loans. A
substantial portion of these loans are secured by real estate in the Company's
primary market area. In addition, a substantial portion of the other real
estate owned is located in those same markets. Accordingly, the ultimate
collectibility of the loan portfolio and the recovery of the carrying amount
of other real estate owned are susceptible to changes in market conditions in
the Company's primary market area. The other significant concentrations of
credit by type of loan are set forth in Note 3.
The Bank and Thrift, as a matter of policy, do not generally extend credit
to any single borrower or group of related borrowers in excess of $3,305,000
and $930,000, respectively.
NOTE 13. REGULATORY MATTERS
The Bank and Thrift are subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory approval. At December
31, 1996, approximately $1,300,000 and $45,000, respectively, of retained
earnings were available for dividend declaration without supervisory approval.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on the financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and Banks must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-
sheet items as calculated under regulatory accounting
F-21
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
practices. The Company and Banks' capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets. Premier Bank must also have core capital equal to 3% of
adjusted total assets and tangible capital equal to 1.5% of adjusted total
assets. These additional requirements are in accordance with the Office of
Thrift Supervision, their primary regulator. Management believes, as of
December 31, 1996, the Company and Banks meet all capital adequacy
requirements to which they are subject.
As of December 31, 1996 and 1995, notification from the FDIC categorized
First Alliance Bank and Premier Bank as well capitalized and adequately
capitalized, respectively, under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized, the Banks must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table. There are no conditions or events
since that notification that management believes have changed the Banks'
category.
The Company and Banks' actual capital amounts and ratios are presented in
the following table.
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------- ------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to Risk
Weighted Assets):
Consolidated............... $23,526 10.79% $17,443 8% $ 21,804 10%
First Alliance Bank........ $18,716 14.02% $10,680 8% $ 13,350 10%
Premier Bank............... $ 6,221 8.57% $ 5,807 8% $ 7,259 10%
Tier I Capital (to Risk
Weighted Assets):
Consolidated............... $21,122 9.69% $ 8,719 4% $ 13,079 6%
First Alliance Bank........ $17,044 12.74% $ 5,351 4% $ 8,027 6%
Premier Bank............... $ 5,819 8.02% $ 2,902 4% $ 4,353 6%
Tier I Capital (to Average
Assets):
Consolidated............... $21,122 7.27% $11,621 4% $ 14,527 5%
First Alliance Bank........ $17,044 8.89% $ 7,669 4% $ 9,586 5%
Premier Bank............... $ 5,819 6.86% $ 3,393 4% $ 4,241 5%
Core Capital
Premier Bank............... $ 5,819 5.85% $ 2,984 3%
Tangible Capital
Premier Bank............... $ 5,819 5.85% $ 1,492 1.5%
</TABLE>
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments. In cases where quoted
market prices are not available, fair values are based on estimates using
discounted cash flow methods. Those methods are significantly affected by the
assumptions used, including the discount rates 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. The use of
different methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1996 and
1995. Such amounts have not been revalued for purposes of these financial
statements since those dates and, therefore, current estimates of fair value
may differ significantly from the amounts presented herein.
F-22
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
CASH, DUE FROM BANKS, AND FEDERAL FUNDS SOLD:
The carrying amounts of cash, due from banks, and Federal funds sold
approximate their fair value.
SECURITIES AVAILABLE-FOR-SALE:
Fair values for securities are based on quoted market prices. The carrying
values of equity securities with no readily determinable fair value
approximate fair values.
LOANS:
For variable-rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For other
loans, the fair values are estimated using discounted cash flow methods, using
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired loans are
estimated using discounted cash flow methods or underlying collateral values.
The carrying amount of loans held for sale approximates fair value.
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and variable-rate
certificates of deposit approximate their fair values. Fair values for fixed-
rate certificates of deposit are estimated using discounted cash flow methods,
using interest rates currently being offered on certificates.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS, FEDERAL HOME LOAN BANK ADVANCES
AND OTHER BORROWINGS:
The fair values of Federal Home Loan Bank advances and other borrowings are
estimated using discounted cash flow methods based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of variable-rate other borrowings and securities sold under
repurchase agreements approximate the carrying value.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair values.
OFF-BALANCE-SHEET INSTRUMENTS:
Fair values of the Company's off-balance sheet financial instruments are
based on fees charged to enter into similar agreements. However, commitments
to extend credit do not represent a significant value to the Company until
such commitments are funded or closed. The Company has determined that these
instruments do not have a distinguishable fair value and no fair value has
been assigned.
F-23
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks, in-
terest-bearing deposits
in banks and Federal
funds sold.............. $ 34,760,880 $ 34,760,880 $ 22,023,457 $ 22,023,457
Securities available-for-
sale.................... 35,153,641 35,153,641 45,796,237 45,796,237
Loans.................... 208,860,282 211,261,541 156,984,042 158,862,597
Accrued interest receiv-
able.................... 1,742,269 1,742,269 1,631,215 1,631,215
Financial liabilities:
Deposits................. $236,733,180 $237,523,181 $178,453,359 $178,152,367
Securities sold under re-
purchase agreements..... 8,443,316 8,443,316 1,308,634 1,308,634
Federal Home Loan Bank
advances................ 4,625,000 4,722,254 11,125,000 11,292,000
Other borrowings......... 17,152,230 17,154,380 19,428,642 20,595,808
Accrued interest pay-
able.................... 1,062,978 1,062,978 882,918 882,918
</TABLE>
NOTE 15. BUSINESS COMBINATIONS
On February 3, 1997, the Company entered into an Agreement and Plan of
Reorganization with Central and Southern Holding Company ("Central and
Southern") of Milledgeville, Georgia. Under this agreement, Central and
Southern will merge with and into the Company. Upon consummation of the
merger, each share of Central and Southern's common stock issued and
outstanding will be converted into and exchanged for the right to receive one
share of the Company's common stock. Consummation of the merger is subject to
certain conditions, including approval of the agreement by the Boards of
Directors and the shareholders of both the Company and Central and Southern
and approval of the merger by various regulatory agencies.
On August 31, 1996, First Alliance Bancorp, Inc. effected a business
combination with Premier Bancshares, Inc. by exchanging 746,530 shares of its
common stock for all the outstanding common and preferred stock of Premier
Bancshares, Inc. Premier Bancshares, Inc. is a thrift holding company whose
business is conducted by its wholly-owned subsidiaries, Premier Bank and
Premier Lending, as discussed in Note 1. Subsequent to the business
combination, the combined holding company changed its name to Premier
Bancshares, Inc. The combination was accounted for as a pooling of interest
and, accordingly, all prior financial statements have been restated to include
Premier Bancshares, Inc. The results of operations of the separate companies
for the periods prior to the combination are summarized as follows:
<TABLE>
<CAPTION>
REVENUES NET INCOME
----------- ----------
<S> <C> <C>
Eight months ended August 31, 1996
First Alliance Bancorp, Inc........................... $10,800,000 $1,501,000
Premier Bancshares, Inc. ............................. 11,707,000 115,000
----------- ----------
$22,507,000 $1,616,000
=========== ==========
Year ended December 31, 1995
First Alliance Bancorp, Inc........................... $14,244,000 $1,850,000
Premier Bancshares, Inc. ............................. 11,209,000 139,000
----------- ----------
$25,453,000 $1,989,000
=========== ==========
</TABLE>
F-24
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On May 1, 1995, Premier Bancshares, Inc. acquired all of the stock of
Allatoona Federal Savings Bank for $5,496,458, including expenses related to
the merger totaling $339,973. The purchase price was funded through the sale
of preferred stock and a loan obtained from a third party financial
institution in the amount of $3 million. The excess of the total acquisition
cost over the fair value of the net assets acquired of $2,779,772 is being
amortized over a period of fifteen years. The acquisition was accounted for as
a purchase and the results of operations of Allatoona Federal Savings Banks
since the date of acquisition are included in the consolidated financial
statements.
The consolidated statement of income for the year ended December 31, 1995
includes the combined operations of the Company and Allatoona since
acquisition. Allatoona's results of operations included are for the period
from April 28, 1995 through December 31, 1995. The net loss for the month
ended April 28, 1995 was $123,395, as summarized below:
<TABLE>
<S> <C>
Interest income.................................................. $ 330,556
Interest expense................................................. 193,925
---------
Net interest income............................................ 136,631
Plus noninterest income.......................................... 215,090
Less noninterest expense......................................... 475,116
---------
Net loss....................................................... $(123,395)
=========
</TABLE>
Upon the acquisition of Allatoona, the mortgage operations of Allatoona were
combined with the mortgage operations of Premier Lending Corporation. The
commercial banking operations continued to operate as Premier Bank.
On January 31, 1995, First Alliance Bancorp, Inc. acquired Interim Alliance
Corporation (d/b/a Alliance Finance) in exchange for 80% of the outstanding
common stock owned personally by the President of First Alliance Bancorp, Inc.
The price paid for the stock was $28,000, which represents $25,000 for the
initial capitalization of the Company plus $3,000 of incidental expenses. The
acquisition was accounted for as a purchase.
NOTE 16. COMMON STOCK SPLIT
On February 24, 1997, the Company declared a 1.8055 stock split for shares
of record as of March 6, 1997. All share and per share data reflect the split.
The effect of the split is presented retroactively within stockholders' equity
at December 31, 1996 by transferring from capital surplus to common stock the
additional shares times the par value.
F-25
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets of Premier
Bancshares, Inc. at December 31, 1996 and 1995 and the statements of income
and cash flows for the years ended December 31, 1996, 1995 and 1994:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash................................................. $ 1,196,494 $ 323,428
Investment in subsidiaries........................... 27,074,523 24,915,754
Other assets......................................... 419,323 1,409,420
----------- -----------
Total assets....................................... $28,690,340 $26,648,602
=========== ===========
LIABILITIES
Other borrowings..................................... $ 4,000,000 $ 3,000,000
Other liabilities.................................... 97,174 218,713
----------- -----------
4,097,174 3,218,713
----------- -----------
STOCKHOLDERS' EQUITY................................... 24,593,166 23,429,889
----------- -----------
Total liabilities and stockholders' equity......... $28,690,340 $26,648,602
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
INCOME
Interest on deposits..................... $ 23,553 $ 50,713 $ --
Interest and fees on loans............... -- 424,137 652,652
Dividends from subsidiaries.............. 2,390,263 780,648 409,694
Other income............................. -- 385,995 1,262,306
---------- ---------- ----------
2,413,816 1,641,493 2,324,652
---------- ---------- ----------
EXPENSES
Salaries and employee benefits........... 55,742 910,896 1,939,227
Interest................................. 293,673 331,514 333,511
Merger related expenses.................. 468,449 -- --
Legal and professional................... 42,212 79,672 159,467
Other expenses........................... 202,049 441,484 711,885
---------- ---------- ----------
Total expenses......................... 1,062,125 1,763,566 3,144,090
---------- ---------- ----------
Income (loss) before income tax
benefits and equity in undistributed
income of subsidiary and minority
interest in net income of subsidiary.. 1,351,691 (122,073) (819,438)
INCOME TAX BENEFITS........................ (449,657) (286,992) (58,985)
---------- ---------- ----------
Income (loss) before equity in
undistributed income of subsidiary and
minority interest in net income of
subsidiary............................ 1,801,348 164,919 (760,453)
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARY................................ 750,218 1,836,739 1,051,601
---------- ---------- ----------
Income before minority interest in net
income of subsidiary.................. 2,551,566 2,001,658 291,148
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARY................................ 11,850 12,709 --
---------- ---------- ----------
Net income............................. $2,539,716 $1,988,949 $ 291,148
========== ========== ==========
</TABLE>
F-26
<PAGE>
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income before minority interest in
net income of subsidiary............. $ 2,551,566 $ 2,001,658 $ 291,148
Adjustments to reconcile net income to
net cash provided by (used in) oper-
ating activities:
Depreciation........................ -- 7,030 68,506
Amortization........................ 23,148 22,557 20,585
Undistributed income of subsidiar-
ies................................ (750,218) (1,836,739) (1,051,601)
Net increase in loans held for
sale............................... -- (456,640) (679,265)
Other operating activities.......... 833,561 468,816 (220,417)
----------- ----------- -----------
Net cash provided by (used in) op-
erating activities............... 2,658,057 206,682 (1,571,044)
----------- ----------- -----------
INVESTING ACTIVITIES
Net increase in loans................. -- (1,646,888) (810,759)
Purchase of premises and equipment.... -- -- (192,121)
Investment in subsidiaries............ (1,683,646) (7,739,452) --
Proceeds from sale of premises and
equipment............................ -- 19,893 --
----------- ----------- -----------
Net cash used in investing activi-
ties............................. (1,683,646) (9,366,447) (1,002,880)
----------- ----------- -----------
FINANCING ACTIVITIES
Net increase in borrowings............ 1,000,000 5,438,566 879,263
Dividends paid........................ (1,123,845) (58,034) (305,758)
Proceeds from exercise of stock op-
tions................................ 22,500 -- --
Proceeds from common stock issued..... -- 3,121,913 375,012
Proceeds from redemption of subsidiary
common stock......................... -- -- 2,000,000
----------- ----------- -----------
Net cash provided by (used in) fi-
nancing activities............... (101,345) 8,502,445 2,948,517
----------- ----------- -----------
Net increase (decrease) in cash......... 873,066 (657,320) 374,593
Cash at beginning of year............... 323,428 980,748 606,155
----------- ----------- -----------
Cash at end of year..................... $ 1,196,494 $ 323,428 $ 980,748
=========== =========== ===========
</TABLE>
F-27
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our report,
dated January 31, 1997, relating to the consolidated financial statements of
Premier Bancshares, Inc. and subsidiaries, and to the reference to our Firm
under the caption "Experts" in the Prospectus.
MAULDIN & JENKINS, LLC
Atlanta, Georgia
May 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,634
<INT-BEARING-DEPOSITS> 1,447
<FED-FUNDS-SOLD> 21,680
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35,154
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 211,264
<ALLOWANCE> 2,404
<TOTAL-ASSETS> 294,158
<DEPOSITS> 236,733
<SHORT-TERM> 26,221
<LIABILITIES-OTHER> 3,916
<LONG-TERM> 4,000
0
0
<COMMON> 4,250
<OTHER-SE> 19,025
<TOTAL-LIABILITIES-AND-EQUITY> 294,158
<INTEREST-LOAN> 19,759
<INTEREST-INVEST> 2,285
<INTEREST-OTHER> 972
<INTEREST-TOTAL> 23,016
<INTEREST-DEPOSIT> 8,667
<INTEREST-EXPENSE> 11,282
<INTEREST-INCOME-NET> 11,734
<LOAN-LOSSES> 598
<SECURITIES-GAINS> 135
<EXPENSE-OTHER> 19,371
<INCOME-PRETAX> 3,620
<INCOME-PRE-EXTRAORDINARY> 2,540
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,540
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
<YIELD-ACTUAL> 4.91
<LOANS-NON> 1,224
<LOANS-PAST> 0
<LOANS-TROUBLED> 60
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,802
<CHARGE-OFFS> 152
<RECOVERIES> 156
<ALLOWANCE-CLOSE> 2,404
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,404
</TABLE>
