<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly period ended Commission File Number:
June 30, 1996 0-20130
FIRST NATIONAL FINANCIAL CORPORATION
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Georgia 58-1853454
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Issuer's telephone number, including area code: (912) 888-5600
--------------------------
Not applicable
- ----------------------------------------------------------------------------
(Former name, Former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the last 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
----- ------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Common Stock, $5.00 Par 495,409
----------------------- -----------------------------
Class Outstanding at August 1, 1996
Transitional Small Business Disclosure format (Check one):
Yes No X
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<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NATIONAL FINANCIAL CORPORATION
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 1,581,327 $ 2,474,112
Federal funds sold 840,000 4,450,000
----------- -----------
Total cash and cash equivalents $ 2,421,327 $ 6,924,112
----------- -----------
Securities
Available for sale at fair value $14,235,348 $11,399,640
Loans, net 37,305,373 32,969,161
Property and equipment 1,431,285 1,479,509
Other assets 1,107,950 878,446
----------- -----------
Total Assets $56,501,283 $53,650,868
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Non-interest bearing deposits $ 6,063,453 $ 7,374,007
Interest bearing deposits 44,312,977 39,384,184
----------- -----------
Total deposits $50,376,430 $46,758,191
Other borrowings - - 1,000,000
Other liabilities 413,680 405,361
----------- -----------
Total Liabilities $50,790,110 $48,163,552
----------- -----------
Shareholders' Equity
Common stock, $5.00 par value, 10,000,000
shares authorized, 495,409 shares issued $ 2,477,045 $ 2,477,045
Additional paid in capital 2,396,134 2,396,134
Retained earnings 940,206 625,865
Unrealized (loss) on securities available
for sale (net of taxes) (102,212) (11,728)
----------- -----------
Total Shareholders' equity $ 5,711,173 $ 5,487,316
----------- -----------
Total liabilities and Shareholders' equity $56,501,283 $53,650,868
=========== ===========
</TABLE>
Refer to notes to financial statements
2
<PAGE> 3
FIRST NATIONAL FINANCIAL CORPORATION
Consolidated Income Statements
As of June 30,
<TABLE>
<CAPTION>
Six months ended Three months ended
---------------------- ----------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $1,782,061 $1,588,628 $ 915,639 $831,984
Interest on investment securities 345,606 332,020 187,236 153,638
Interest on federal funds sold 102,273 15,437 55,777 12,837
---------- ---------- ---------- --------
Total interest income $2,229,940 $1,936,085 $1,158,652 $998,459
Interest expense $1,104,903 $ 836,940 $ 566,354 $443,964
---------- ---------- ---------- --------
Net interest income $1,125,037 $1,099,145 $ 592,298 $554,495
Provision for possible loan losses 80,000 55,000 30,000 30,000
---------- ---------- ---------- --------
Net interest income after provision
for loan losses $1,045,037 $1,044,145 $ 562,298 $524,495
---------- ---------- ---------- --------
Other income:
Service charges on deposit accounts $ 202,124 $ 155,720 $ 101,211 $ 84,434
SBA fees and premiums 24,621 34,603 18,220 28,344
Other income 35,248 29,641 19,544 16,171
(Loss) on sale of securities - - (5,614) - - - -
---------- ---------- ---------- --------
Total other income $ 261,993 $ 214,350 $ 138,975 $128,949
---------- ---------- ---------- --------
Other expenses:
Salaries and employee benefits $ 419,749 $ 418,341 $ 206,700 $216,254
Equipment and occupancy expense 37,838 39,127 19,460 18,753
Depreciation and amortization expense 66,782 70,335 35,527 35,513
Data processing expense 57,813 47,573 35,975 26,895
Advertising and business development 9,900 11,673 4,040 6,146
Supplies and printing 24,731 18,654 12,182 7,018
Other operating expense 188,109 182,357 93,711 86,776
---------- ---------- ---------- --------
Total other expense $ 804,922 $ 788,060 $ 407,595 $397,355
---------- ---------- ---------- --------
Income before taxes $ 502,108 $ 470,435 $ 293,678 $256,089
Income tax expense 187,767 176,049 112,215 94,564
---------- ---------- ---------- --------
Net income $ 314,341 $ 294,386 $ 181,463 $161,525
========== ========== ========== ========
Primary income per share $ 0.57 $ $0.54 $ 0.32 $ 0.29
========== ========== ========== ========
Fully diluted income per share $ 0.57 $ 0.54 $ 0.33 $ 0.29
========== ========== ========== ========
</TABLE>
Refer to notes to financial statements
3
<PAGE> 4
FIRST NATIONAL FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
For the six months ended June 30,
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net Income $ 314,341 $ 294,386
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 66,782 70,335
Deferred income taxes (24,498) - -
Net amortization of premiums on securities 10,399 (8,295)
Provision for possible loan losses 80,000 55,000
(Increase) decrease in other assets (167,035) 153,272
Increase (decrease) in other liabilities 8,318 (114,994)
----------- -----------
Net cash provided by operating activities $ 288,307 $ 449,704
----------- -----------
Cash flows from investing activities:
Proceeds from sale of securities $ - - $ 1,493,438
Proceeds from maturities of securities 500,000 1,500,000
Purchase of securities (3,483,203) (946,375)
(Increase) in loans (4,416,212) (4,619,728)
Purchase of premises and equipment (9,916) (35,851)
----------- -----------
Net cash (used) in investing activities $(7,409,331) $(2,608,516)
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Cash flows from financing activities
Issuance of common stock $ - - $ 75,000
Increase (Decrease) in borrowings (1,000,000) 1,000,000
Increase in deposits 3,618,239 1,363,575
----------- -----------
Net cash provided (used) by financing activities $ 2,618,239 $ 2,438,575
----------- -----------
Net (decrease) in cash and cash equivalents $(4,502,785) $ 279,673
Cash and cash equivalents, beginning of period 6,924,112 2,556,047
----------- -----------
Cash and cash equivalents, end of period $ 2,421,327 $ 2,835,810
=========== ===========
SUPPLEMENTAL INFORMATION
Income taxes paid $ 149,000 $ 152,331
Interest paid $ 1,096,595 $ 919,130
</TABLE>
Refer to notes to financial statements
4
<PAGE> 5
First National Financial Corporation
Notes to financial statements
NOTE 1 - SUMMARY OF ORGANIZATION
First National Financial Corporation, Albany, Georgia (the "Company"), was
incorporated under the laws of the State of Georgia on August 3, 1989, for the
purpose of becoming a bank holding company with respect to a proposed national
bank, First National Bank of South Georgia (the "Bank") located in Albany,
Georgia. Upon commencement of the Bank's principal operations on May 29, 1991,
the Company acquired 100 percent of the Bank's voting stock by injecting
$3,800,000 into the Bank's capital accounts.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Reclassification. The consolidated financial
statements include the accounts of the Company and the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Basis of Accounting. The accounting and reporting policies of the Company
conform to generally accepted accounting principles and to general practices in
the banking industry. The Company uses the accrual basis of accounting by
recognizing revenues when they are earned and recognizing expenses in the
period incurred, without regarding the time of receipt or payment of cash.
Investment Securities. The Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investment in Debt and
Equity Securities" ("SFAS 115") on January 1, 1994. SFAS 115 requires
investments in equity and debt securities to be classified into three
categories:
1. Held-to-maturity securities: These are securities which the
Company has the ability and intent to hold until maturity. These
securities are stated at cost, adjusted for amortization of
premiums and the accretion of discounts.
2. Trading securities: These are securities which are bought and
held principally for the purpose of selling in the near future.
Trading securities are reported at fair market value, and related
unrealized gains and losses are recognized in the income statement.
3. Available-for-sale securities: These are securities which are
not classified as either held-to-maturity or as trading securities.
These securities are reported at fair market value. Unrealized
gains and losses are reported, net of tax, as separate components
of shareholders' equity. Unrealized gains and losses are excluded
from the income statement.
5
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First National Financial Corporation
Notes to financial statements
NOTE 2 - Continued
Loans, Interest and Fee Income on Loans. Loans are stated at
the principal balance outstanding. Unearned discount, unamortized
loan fees and the allowance for possible loan losses are deducted
from total loans in the statement of condition. Interest income is
recognized over the term of the loan based on the principal amount
outstanding. Points on real estate loans are taken into income to
the extent they represent the direct cost of initiating a loan.
The amount in excess of direct costs is deferred and amortized over
the expected life of the loan.
Loans are generally placed on non-accrual status when principal or
interest becomes ninety days past due, or when payment in full is not
anticipated. When a loan is placed on non-accrual status, interest accrued but
not received is generally reversed against interest income. If collectibility
is in doubt, cash receipts on non-accrual loans are not recorded as interest
income, but are used to reduce principal.
Allowance for Possible Loan Losses. The provisions for loan losses
charged to operating expense reflect the amount deemed appropriate by
management to establish an adequate reserve to meet the present and foreseeable
risk characteristics of the current loan portfolio. Management's judgment is
based on periodic and regular evaluation of individual loans, the overall risk
characteristics of the various portfolio segments, past experience with losses
and prevailing and anticipated economic conditions. Loans which are determined
to be uncollectible are charged against the allowance. Provisions for loan
losses and recoveries on loans previously charged-off are added to the
allowance.
Property and Equipment. Building, furniture and equipment are stated at
cost, net of accumulated depreciation. Depreciation is computed using the
straight line method over the estimated useful lives of the related assets.
Maintenance and repairs are charged to operations, while major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts, and gain or loss is included in income from operations.
Income Taxes. The consolidated financial statements have been prepared on
the accrual basis. When income and expenses are recognized in different
periods for financial reporting purposes and for purposes of computing income
taxes currently payable, deferred taxes are provided on such temporary
differences.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
Under SFAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been recognized in the
financial statements or tax return. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be realized or
settled.
Statement of Cash Flows. For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal funds
sold. Generally, federal funds are purchased or sold for one day periods.
6
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First National Financial Corporation
Notes to financial statements
NOTE 2 - Continued
Earnings Per Share. The weighted average number of shares outstanding as
well as of all the common stock equivalents must be considered for purposes of
computing earnings per share. Note that common stock equivalents are
securities that enable their holders to obtain additional shares of common
stock. Options and warrants are common stock equivalents. They are used in
the computation of earnings per share only if, upon exercise, they dilute
earnings per share by 3% or more. To compute earnings per share, adjusted net
income is divided by the sum of weighted average shares of common stock
outstanding and of common stock equivalents.
Whenever the market price of a share of common stock exceeded the exercise
price of any warrant or option during the calendar years 1996 and 1995, an
increase equal to the number of shares which would be issuable on any such
exercise of warrants and stock options was reflected as a common stock
equivalent. However, the rule for the treasury stock method states that common
stock equivalents may not exceed 20% of the outstanding shares. Thus, if upon
exercise, excess funds were available to acquire more than the 20% limit on
common stock equivalents, any excess proceeds were assumed to be invested in
treasury securities and the income from those investments used to adjust net
income accordingly.
Purchases for purposes of the primary earnings per share calculation were
assumed to have been made at the average price of a share of common stock
during the corresponding calendar year, while purchases for purposes of the
fully diluted calculation were assumed to have been made at the quarter end
price of a share of stock.
NOTE 3 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the six
month periods are not necessarily indicative of the results that may be
expected for the complete year. For further information, refer to the
financial statements and footnotes thereto included in Form 10-KSB for the year
ended December 31, 1995.
7
<PAGE> 8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Sources of Capital
The Company was incorporated on August 3, 1989 for the purpose of becoming a
bank holding company with respect to a proposed de novo national bank, First
National Bank of South Georgia (the "Bank") to be located in Albany, Georgia.
The Bank commenced operations on May 29, 1991. During the period from
inception until May 29, 1991, the Company was a development stage enterprise as
it devoted substantially all of its efforts toward organizing, incorporating,
and planning future actions, raising capital, building the headquarters and
recruiting personnel.
On May 29, 1991, the Bank was capitalized with a $3.8 million injection from
the parent holding company. At June 30, 1996, the Company's capital was $5.71
million or 10.11% of total assets. At June 30, 1996, the Company's risk based
capital ratio was 15% and its leverage ratio was 10%. Both of these ratios are
substantially above the minimum requirements established by regulatory
authorities.
Liquidity is the Company's ability to meet the funding needs of its customers.
This involves maintaining the ability to meet its customers' need to withdraw
funds while also providing for the credit needs of its borrowers. The Company
manages its liquidity through its short term investments. Another source of
liquidity is the repayment of installment and single payment loans. Should the
need arise, the Bank maintains relationships with correspondent banks who can
provide funds on short notice.
Total assets increased during the year by $2,850,000 or 5.3%. The major
areas of increase are the loan portfolio which increased $4,336,000 and the
investment portfolio which increased $2,836,000. These increases were offset
in part by a decrease in Federal funds sold which decreased $3,610,000. This
decrease represents a shift to a higher earning asset category and
should increase the company's net interest income. At June 30, 1996, total
cash and cash equivalents were $2,421,000 or nearly 4.3% of total assets. This
represents an adequate level to meet liquidity needs.
The increase in assets was funded by an increase in interest bearing deposits.
This liability category increased $4,929,000 during the six months. The
increase in interest bearing deposits was offset in part by a decline in
non-interest bearing deposits. This source of funds decreased $1,311,000.
Overall, total deposits increased $3,618,000 or 7.74%. A substantial portion
of the deposit growth is in large, short term Certificates of Deposit. This
category of deposit is subject to withdrawal at maturity. The company has
adequate maturities of investments during the coming months to fund the
potential withdrawal of these certificates should they not be renewed. The
increase in funds during the first six months of 1996 allowed the company to
reduce its borrowings by $1,000,000.
Results of Operations
Net income for the six months ended June 30, 1996 was $314,341 as compared to
the 1995 amount of $294,386. This is a $19,955 increase or 6.78%. The major
source of increases are the company's net interest income and service charges
on deposit accounts. Interest income for the six months ended June 30, 1996
was $2,229,940 up from the 1995 amount of $1,936,085. This increase is
primarily the result of the larger loan portfolio during 1996. Interest
expense for the first half of 1996 was $1,104,903 an increase of $267,963 over
the 1995 amount. Again, this is due primarily to the higher level of deposits
in 1996. Net interest income increased in 1996 by $25,892 or 2.35%.
8
<PAGE> 9
The provision for loan losses represents the amount deemed necessary by
management to maintain the Allowance for loan losses at an acceptable level.
The 1996 expense is $80,000 as compared to the 1995 amount of $55,000. The
higher expense is a result of the loan growth during 1996. At June 30, 1996,
the allowance for loan losses was $506,000 or 1.33% of total loans. Management
considers the present allowance for loan losses adequate to absorb possible
future losses; however, there can be no assurance that future charge-offs or
changes in local economic conditions will require additional provisions.
Other income increased $47,643 during the first six months of 1996 over the
1995 level. The primary area of increase is in Service charges on deposit
accounts. This income category increased $46,404 to $202,124. This represents
an increase of nearly 30%. The increase is a result of a larger deposit base
rather than an increase in the fees charged to individual bank customers. SBA
fees and premiums declined from the 1995 amount as a result of fewer loan sales
in 1996.
Non-interest expense for 1996 increased $16,862 to $804,922. This is an
increase of 2.14% during the first half of 1996. The largest area of increase
is in Data processing expense. This category increased $10,240 to $57,813.
This expense category is dependent upon the bank's growth, as there are more
accounts and volume, this category will increase. The other major source of
increase was in Supplies and printing, which increased $6,077 to $24,731.
9
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this report:
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended June 30, 1996.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST NATIONAL FINANCIAL CORPORATION
Dated: August 12, 1996 By: /s/ Raymond B. Phillips
----------------------------------------------
Raymond B. Phillips, President and Chief Executive
Officer (chief executive and financial officer)
11
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
NATIONAL FINANCIAL CORPORATION'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR
THE PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,488,753
<INT-BEARING-DEPOSITS> 92,574
<FED-FUNDS-SOLD> 840,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,235,348
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 37,305,373
<ALLOWANCE> 505,795
<TOTAL-ASSETS> 56,501,283
<DEPOSITS> 50,376,430
<SHORT-TERM> 0
<LIABILITIES-OTHER> 413,680
<LONG-TERM> 0
0
0
<COMMON> 2,477,045
<OTHER-SE> 3,234,128
<TOTAL-LIABILITIES-AND-EQUITY> 56,501,283
<INTEREST-LOAN> 1,782,061
<INTEREST-INVEST> 345,606
<INTEREST-OTHER> 102,273
<INTEREST-TOTAL> 2,229,940
<INTEREST-DEPOSIT> 1,104,903
<INTEREST-EXPENSE> 1,104,903
<INTEREST-INCOME-NET> 1,125,037
<LOAN-LOSSES> 80,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 804,922
<INCOME-PRETAX> 502,108
<INCOME-PRE-EXTRAORDINARY> 502,108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 314,341
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 8.75
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 433,743
<CHARGE-OFFS> 9,062
<RECOVERIES> 1,114
<ALLOWANCE-CLOSE> 505,795
<ALLOWANCE-DOMESTIC> 500,795
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,000
</TABLE>
