UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8
AMENDMENT TO APPLICATION OR REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Southern National Corporation
(Exact name of registrant as specified in its charter)
Commission file number: 0-4641
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K
dated February 11, 1994 as set forth in the pages attached hereto.
Item 7(a). Financial statements of business acquired.
Item 7(b). Proforma financial information.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its
behalf by the undersigned thereunto duly authorized.
SOUTHERN NATIONAL CORPORATION
Date: April 15, 1994 By: /s/ SHERRY A. KELLETT
Sherry A. Kellett
Vice President and Controller
<PAGE>
Pursuant to Items 7(a) and 7(b) of the registrant's Current Report on
Form 8-k dated February 11, 1994, the registrant hereby files the
following financial statements and proforma financial information:
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired:
The First Savings Bank, FSB ("The First")
Consolidated Statements of Financial Condition as of June 30, 1993
and 1992
Consolidated Statements of Operations for the Years Ended June 30,
1993, 1992 and 1991
Consolidated Statements of Cash Flows for the Years Ended June 30,
1993, 1992 and 1991
Notes to Consolidated Financial Statements
Independent Auditors' Report
(b) Proforma combined financial information:
Proforma Condensed Statement of Condition as of December 31, 1993
(Unaudited)
Proforma Condensed Statement of Operations for the Year Ended
December 31, 1993 (Unaudited)
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30,
1993 1992
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................................. $ 79,158,801 52,730,405
Investment securities:
Principal (market value $79,542,484 and $74,789,510, respectively)...................... 79,233,792 74,315,506
Accrued interest receivable............................................................. 626,957 487,332
79,860,749 74,802,838
Mortgage-backed certificates, net:
Held for sale (market value $8,780,368)................................................. -- 8,780,368
Held for investment (market value $372,370,000 and $254,588,589, respectively).......... 357,723,237 241,793,041
Accrued interest receivable............................................................. 2,688,198 2,029,227
Total mortgage-backed certificates, net............................................ 360,411,435 252,602,636
Loans receivable, net:
Held for sale........................................................................... 201,393,958 172,347,918
Held for investment..................................................................... 1,244,659,853 1,300,680,299
Accrued interest receivable, net........................................................ 7,016,657 9,086,144
Total loans receivable, net........................................................ 1,453,070,468 1,482,114,361
Real estate............................................................................... 36,373,235 44,662,544
Premises and equipment.................................................................... 30,758,166 32,721,615
Goodwill.................................................................................. 28,749,404 29,954,334
Other assets.............................................................................. 17,963,655 21,401,802
$2,086,345,913 1,990,990,535
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits................................................................................ 1,520,635,224 1,540,064,155
Advances from Federal Home Loan Bank.................................................... 272,731,995 221,524,788
Subordinated capital notes.............................................................. 7,927,635 7,903,216
Other borrowed money.................................................................... 59,936,491 40,275,040
Escrow deposits by borrowers for insurance and taxes.................................... 24,157,372 20,759,740
Income taxes:
Current.............................................................................. 1,400,792 1,006,131
Deferred............................................................................. 1,739,000 1,536,000
Investor custodial accounts............................................................. 40,069,911 14,702,884
Other liabilities....................................................................... 32,176,610 29,984,955
Total liabilities.................................................................. 1,960,775,030 1,877,756,909
Commitments and contingencies
Stockholders' Equity:
Serial preferred stock, 15,000,000 shares authorized and unissued....................... -- --
Common stock, $1.00 par value, 25,000,000 shares authorized; 9,070,319 and 5,846,709
shares issued and outstanding, respectively.......................................... 9,070,319 5,846,709
Additional paid-in-capital.............................................................. 42,671,324 41,337,100
Retained earnings....................................................................... 73,829,240 66,049,817
Total stockholders' equity......................................................... 125,570,883 113,233,626
$2,086,345,913 1,990,990,535
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
VII-16
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL RETAINED STOCKHOLDERS'
STOCK PAID-IN-CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C>
Balance at June 30, 1990........................................... $4,687,076 35,915,436 54,784,997 95,387,509
Net earnings....................................................... -- -- 8,444,350 8,444,350
Ten percent stock dividend......................................... 473,021 1,596,446 (2,069,467) --
Cash dividend for fractional shares................................ -- -- (5,678) (5,678)
Sale of common stock............................................... 73,277 234,348 -- 307,625
Balance at June 30, 1991........................................... 5,233,374 37,746,230 61,154,202 104,133,806
Net earnings....................................................... -- -- 8,602,798 8,602,798
Ten percent stock dividend......................................... 528,242 3,169,452 (3,697,694) --
Cash dividend for fractional shares................................ -- -- (9,489) (9,489)
Sale of common stock............................................... 85,093 421,418 -- 506,511
Balance at June 30, 1992........................................... 5,846,709 41,337,100 66,049,817 113,233,626
Net earnings....................................................... -- -- 10,744,943 10,744,943
Three-for-two stock split.......................................... 2,958,020 -- (2,958,020) --
Cash dividend for fractional shares................................ -- -- (7,500) (7,500)
Sale of common stock............................................... 265,590 863,257 -- 1,128,847
Tax benefit for non-incentive options exercised.................... -- 470,967 -- 470,967
BALANCE AT JUNE 30, 1993........................................... $9,070,319 42,671,324 73,829,240 125,570,883
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
VII-17
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1993 1992 1991
<S> <C> <C> <C>
Interest and dividend income:
Loans receivable............................................................. $122,827,624 137,914,688 156,175,288
Mortgage-backed certificates................................................. 24,640,633 23,909,634 39,862,713
Investment securities........................................................ 3,099,252 3,731,109 4,473,492
Other interest income........................................................ 1,363,390 2,559,311 1,914,231
Total interest and dividend income........................................ 151,930,899 168,114,742 202,425,724
Interest expense:
Deposits..................................................................... 61,224,994 88,738,542 116,613,889
Short-term borrowings........................................................ 1,444,844 1,032,267 4,460,517
Long-term borrowings......................................................... 20,479,972 21,344,222 28,746,575
Total interest expense.................................................... 83,149,810 111,115,031 149,820,981
Net interest income..................................................... 68,781,089 56,999,711 52,604,743
Provision for loan losses...................................................... 8,699,105 10,468,740 10,480,775
Net interest income after provision for loan losses..................... 60,081,984 46,530,971 42,123,968
Other income (expense):
Loan servicing fees.......................................................... 3,232,402 4,503,515 5,146,214
Gain on sale of loans receivable and MBCs, net............................... 3,930,928 5,550,983 7,348,917
Gain on sale of loan servicing, net.......................................... 2,017,227 4,204,163 5,693,016
Gain on sale of branch offices, net.......................................... -- 632,411 --
Loss on sale of securities, net.............................................. -- (44) (107,174)
Real estate acquired for development and resale operations, net.............. (1,595,042) (2,156,313) (987,965)
Real estate acquired through foreclosure operations, net..................... (3,675,379) (3,125,521) (2,344,127)
Service fees on deposits..................................................... 10,175,941 11,117,807 11,477,665
Other........................................................................ 6,522,078 6,791,520 5,804,208
Total other income........................................................ 20,608,155 27,518,521 32,030,754
General and administrative expenses:
Compensation and fringe benefits............................................. 33,347,974 32,517,111 30,468,294
Equipment.................................................................... 6,221,509 5,423,335 5,345,816
Net occupancy................................................................ 5,698,786 5,704,679 5,703,249
Deposit insurance premium.................................................... 3,671,089 3,657,933 3,620,111
Advertising.................................................................. 2,204,325 2,185,199 2,107,303
Amortization of goodwill..................................................... 1,204,930 1,205,196 1,205,284
Other........................................................................ 10,387,583 9,668,241 10,797,315
Total general and administrative expenses................................. 62,736,196 60,361,694 59,247,372
Earnings before income tax expense............................................. 17,953,943 13,687,798 14,907,350
Income tax expense............................................................. 7,209,000 5,085,000 6,463,000
Net earnings.............................................................. $ 10,744,943 8,602,798 8,444,350
Earnings per share............................................................. $ 1.15 .96 .98
Weighted average shares outstanding............................................ 9,327,861 8,969,407 8,618,545
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
VII-18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................................. $ 10,744,943 8,602,798 8,444,350
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation........................................................... 5,261,210 4,312,328 4,386,379
Provision for losses................................................... 13,059,632 12,652,846 11,851,944
Amortization of fees, discounts, premiums and goodwill, net............ 2,767,058 (522,837) (1,689,347)
Amortization of purchased and capitalized excess servicing rights...... 3,682,602 1,943,644 1,456,175
Gains on sales of investment securities, mortgage-backed certificates,
loans receivable, servicing rights, branch offices and real estate
acquired through foreclosure, net.................................... (5,890,936) (8,999,289) (11,749,862)
Increase (decrease) in current income taxes............................ 865,628 (1,871,233) 2,877,364
Increase (decrease) in deferred income taxes........................... 203,000 (105,000) (787,000)
Change in other assets, net............................................ 67,748 4,868,276 (901,920)
Change in other liabilities............................................ 2,191,655 (5,728,199) 5,318,043
Change in investor custodial accounts.................................. 25,367,027 3,078,910 1,536,596
FHLB stock dividend.................................................... (883,700) (1,011,200) (1,227,962)
Change in accrued interest............................................. 1,361,479 4,012,066 1,657,105
Proceeds from sale of loans held for sale................................. 691,938,009 376,089,721 355,159,579
Proceeds from sale of mortgage-backed certificates held for sale.......... 12,242,253 87,170,005 169,335,138
Principal reduction of loans held for sale................................ 37,727,190 9,927,521 12,942,387
Principal reduction of mortgage-backed certificates held for sale......... 168,089 1,503,837 --
Origination of mortgage loans held for sale............................... (568,096,010) (473,769,478) (387,673,144)
Purchase of loans held for sale........................................... (96,773,358) (75,900,159) (169,696,988)
Net cash provided (used) by operating activities....................... 136,003,519 (53,745,443) 1,238,837
Cash flows from investing activities:
Proceeds from sale of investment securities............................... -- 1,045,656 9,454,996
Proceeds from maturity of investment securities........................... 52,349,019 63,790,610 54,733,387
Proceeds from sale of loans receivable and mortgage loan servicing
rights................................................................. 2,051,416 43,168,823 63,742,221
Proceeds from sale of mortgage-backed certificates, net................... -- 39,781,336 164,600,374
Principal reduction of loans receivable, net.............................. 544,610,830 524,921,068 501,839,261
Principal reduction of mortgage-backed certificates, net.................. 92,960,028 42,085,627 43,459,498
Proceeds from sale of real estate acquired through foreclosure............ 16,591,343 11,033,523 15,476,775
Proceeds from sale of real estate acquired for development and resale,
net.................................................................... 4,346,496 10,361,380 5,242,540
Proceeds from sale of premises and equipment, net......................... 967,750 29,342 30,142
Sale of branch offices:
Deposits............................................................... -- (35,658,797) --
Premises and equipment, net............................................ -- 319,150 --
Installment loans...................................................... -- 10,021,034 --
Purchase of investment securities, net.................................... (56,444,342) (20,789,361) (119,386,784)
Purchase of premises and equipment, net................................... (4,411,913) (3,331,589) (2,131,957)
Purchase of mortgage servicing rights..................................... (55,420) (6,583,769) (1,739,658)
Investment in real estate acquired for development and resale, net........ (1,753,606) (3,239,527) (3,005,781)
Origination and purchase of loans receivable:
Mortgage loans......................................................... (206,471,220) (109,278,234) (26,354,386)
Commercial loans....................................................... (187,516,338) (228,067,690) (251,302,672)
Installment loans...................................................... (208,305,466) (209,753,435) (178,476,118)
Purchase of loans held for investment.................................. (158,650) -- --
Purchase of mortgage-backed certificates held for investment........... (213,645,412) (39,601,434) --
Net cash (used) provided by investing activities....................... (164,885,485) 90,253,713 276,181,838
</TABLE>
VII-19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1993 1992 1991
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from new deposits................................................ 546,347,389 502,416,819 491,694,886
Interest credited to and accrued on deposits.............................. 48,938,931 66,856,188 81,766,910
Proceeds from FHLB advances............................................... 279,000,000 105,000,000 266,100,000
Proceeds from other borrowed money........................................ 20,369,289 23,142,735 1,716,006
Increase (decrease) in escrow deposits.................................... 3,397,632 1,867,080 (1,859,720)
Proceeds from the sale of common stock.................................... 1,128,847 506,511 307,625
Withdrawals of deposits................................................... (615,269,075) (635,479,457) (679,704,964)
Repayment of FHLB advances................................................ (227,874,703) (106,294,667) (345,852,000)
Repayment of other borrowed money......................................... (716,448) (11,303,385) (99,077,588)
Redemption of subordinated capital notes.................................. (4,000) (42,500) (14,000)
Cash dividend for fractional shares....................................... (7,500) (9,489) (5,678)
Net cash provided (used) by financing activities....................... 55,310,362 (53,340,165) (284,928,523)
Net increase (decrease) in cash and cash equivalents........................ 26,428,396 (16,831,895) (7,507,848)
Cash and cash equivalents at beginning of year.............................. 52,730,405 69,562,300 77,070,148
Cash and cash equivalents at end of year.................................... $ 79,158,801 52,730,405 69,562,300
Supplemental disclosure of cash paid during the year for:
Interest expense.......................................................... $ 84,357,933 112,737,301 155,310,103
Income taxes.............................................................. $ 6,150,000 7,050,000 5,811,710
</TABLE>
VII-20
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
The following is a description of the more significant accounting and
reporting policies which the Bank follows in preparing and presenting its
consolidated financial statements.
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Bank and all subsidiaries, and in consolidation all significant intercompany
items are eliminated.
(B) CASH AND CASH EQUIVALENTS
Cash on hand, cash items in transit to depository institutions, cash
balances in depository institutions, federal funds sold, and overnight time
deposits are defined as cash and cash equivalents for financial reporting
purposes.
(C) INVESTMENT SECURITIES
The Bank maintained liquid assets in excess of the amount required by
Office of Thrift Supervision (OTS) regulations during all periods included in
these consolidated financial statements. The required amount is 5% of the
average daily balances of deposits and short-term borrowings. Liquid assets
consist principally of cash, including time deposits, and investment securities.
Investment securities are carried at amortized cost and are not adjusted to
the lower of cost or market because management has the intention and the ability
to hold the securities to maturity. Premiums and discounts on investment
securities are amortized over the life of the security using a method that
approximates level yield. Gains and losses on sales of these securities are
recognized when realized.
The stock of the Federal Home Loan Bank has no quoted market value, and no
ready market exists. The investment in the stock is required by law of every
federally insured thrift.
The cost of investments sold is determined by specific identification.
(D) INTEREST INCOME
Interest earned on loans receivable is recorded in the period earned. An
allowance for uncollected interest is established for all interest accrued on
delinquent loans in accordance with regulatory requirements. Delinquent interest
ultimately collected is credited to income in the period of recovery.
(E) LOAN ORIGINATION AND COMMITMENT FEES AND LOAN COSTS
Loan origination and commitment fees are deferred net of specified costs as
required by Statement of Financial Accounting Standards No. 91, "Accounting for
Non-refundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases" (FAS 91). If no fees are charged, the FAS 91
specified loan cost is deferred. The net deferred fees or costs are accreted or
amortized to interest income over the contractual lives of the loans using the
level yield method.
(F) UNEARNED AND UNAMORTIZED PREMIUMS AND DISCOUNTS
All unearned and unamortized premiums or discounts on loans receivable are
accreted or amortized to income over the remaining lives of the loans adjusted
for prepayments using a method approximating a level yield.
(G) ASSETS HELD FOR SALE
Assets held for sale are carried at the lower of cost, committed purchase
price, or market. A quarterly analysis is done to determine the market value of
the held for sale assets, and an adjustment to the carrying value is made if
necessary.
When loans are sold with servicing rights retained, the Bank realizes
additional gains or losses if the actual servicing fees to be received differ
from the normal servicing fees. Such gains or losses are calculated as the
present value of the
VII-21
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- Continued
differential between the actual servicing fee and the normal servicing fee over
the remaining life of the loans serviced, adjusted for estimated prepayments.
The resulting discount or premium is amortized over the estimated remaining
lives of such loans, adjusted for actual prepayments.
Normal servicing fees are recognized as income in the period earned.
(H) PURCHASED MORTGAGE SERVICING
Loan servicing rights purchased (PMSRs) are recorded at cost and are
amortized over the estimated remaining lives of the loans serviced adjusted for
prepayments. PMSRs are included in other assets.
(I) PROVISION FOR LOAN LOSSES
Valuation allowances for specific loans receivable are charged to income
when declines in value reduce the market value of the collateral below their
carrying value. In addition to specific valuation allowances, management has
established a policy of providing amounts for loan valuation purposes not
identified with any specific loan derived from actual loss experience ratios,
loan types, loan volume, economic conditions, industry standards and other
relevant factors.
(J) REAL ESTATE
For fiscal years prior to and including 1992, real estate acquired through
foreclosure (REO) and in-substance foreclosure was recorded at the lower of cost
or fair value. Subsequent to the transfer from loans to real estate acquired
through foreclosure, the property was carried at the lower of the new cost basis
or net realizable value. Prior to Statement of Position 92-3 "Accounting for
Foreclosed Assets" (SOP 92-3), cost was defined as the principal balance (less
any allowance for uncollected interest and/or valuation allowances) of the
former mortgage loan. In accordance with SOP 92-3, that policy was changed for
fiscal 1993 such that REO, as well as in-substance foreclosure, is carried at
the lower of cost (which is now defined as fair value at the time of
repossession less estimated disposition cost) or fair value less disposition
costs.
Real estate acquired for development and resale (READR) is stated at
initial acquisition cost plus costs of improvements, including interest. READR
investments are reviewed regularly and allowances for valuations are established
when the carrying values exceed estimated net realizable values.
Construction costs incurred in the residential land development operations
are accounted for on a unit-by-unit basis. Land acquisition costs and other
development costs not attributable to specific units are allocated based on the
projected selling prices of the unsold units. Estimated additional costs to be
incurred relating to units sold are accrued and considered in determining gains
or losses on units sold.
Interest charges during the development period of construction of READR
projects are capitalized as a cost of the project. When construction is
complete, interest charges are expended as a period cost. Interest charges on
real estate acquired through foreclosure are expended as a period cost.
Gains on the sale of real estate acquired for development and resale are
recorded at the time of sale provided certain criteria relating to property
type, cash down payment, loan terms, and other factors are met. If these
criteria are not met at the date of sale, the gain is deferred and recognized
using the installment or cost-recovery method until they are satisfied, at which
time the remaining deferred gain is recorded as income.
(K) PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, net of accumulated
depreciation, which is based on the useful lives of the assets. Buildings are
depreciated primarily over forty years using principally the straight-line
method. Leasehold improvements are amortized over the lesser of their respective
lives or the primary lease term using primarily the straight-line method.
Furniture and equipment are depreciated over ten years using principally the
straight-line method. Automobiles are depreciated over four years using the
straight-line method.
VII-22
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- Continued
Certain premises and equipment were sold and leased back. The related gain
on the sale has been deferred and is being amortized on a straight-line basis
over the primary lease term (ten years). The related rental expense is being
charged to earnings based on the average lease payments over the primary lease
term.
(L) INCOME TAXES
Deferred income taxes result from timing differences in the recognition of
income and expenses for financial statement and tax purposes.
(M) PENSION EXPENSE
Accrued pension expense is funded annually and includes a charge for prior
service costs.
(N) GOODWILL
Goodwill, representing the excess of cost over fair value of assets
acquired in transactions accounted for as purchases, is being amortized over
thirty-five years using the straight-line method. The acquisitions giving rise
to the goodwill were consummated prior to the Statement of Financial Accounting
Standards No. 72, which became effective September 30, 1982.
(O) PREMIUM ON DEPOSIT ACQUISITIONS
Premium on deposit acquisitions is being amortized over the estimated lives
of the deposits (primarily nineteen to twenty-two years) using the straight-line
method. The amount amortized is included in interest expense on deposits.
(P) DEBT ISSUANCE COST
The cost of issuing the subordinated capital notes (SCN) was capitalized
and is being amortized over ten years using a method approximating a level
yield. Debt issuance costs are netted against the related debt amount and the
amortization of such costs are included in interest expense on borrowings.
(Q) MORTGAGE-BACKED CERTIFICATES SOLD UNDER AGREEMENTS TO REPURCHASE
The Bank may enter into sales of mortgage-backed certificates (MBCs) under
agreements to repurchase (reverse repurchase agreements and dollar price
repurchase agreements). Reverse repurchase agreements are treated as financing
transactions. The obligations to repurchase MBCs sold are reflected in other
borrowed money and the MBCs underlying the agreements are reflected as assets in
the consolidated statements of financial condition.
Dollar price repurchase agreements are recorded as financing transactions
if specific criteria are met, primarily the requirement to repurchase MBCs that
are substantially the same as those delivered into the transaction. The Bank is
required to record the transaction as a sale if the criteria to qualify as a
financing transaction are not met.
(R) OPTIONS AND FINANCIAL FUTURES
The Bank periodically engages in hedging activities through the options and
financial futures markets in an effort to protect interest-sensitive assets and
liabilities against the effects of adverse changes in interest rates. Gains and
losses on options or futures positions used to hedge the cost of variable-rate
deposits are deferred and amortized as adjustments to interest expense over the
contractual lives of the related deposits. Gains and losses on options or
futures positions used to hedge the value of interest-sensitive assets are
treated as adjustments to the basis of the related asset and are amortized as
adjustments of yield to maturity. There were no open positions at June 30, 1993
and 1992.
(S) EARNINGS PER SHARE
Earnings per share is computed by dividing earnings by the weighted average
number of common shares and common share equivalents outstanding during the
year. Common share equivalents include, if applicable, dilutive stock option
share equivalents determined by using the treasury stock method.
VII-23
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES -- Continued
The earnings per share data for all periods shown in the consolidated
financial statements have been restated to reflect the three-for-two stock split
effected as a 50% stock dividend in February 1993.
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Cash working funds............................................................................... $13,182,027 11,798,718
Non-interest-earning demand deposits............................................................. 52,397,400 36,126,403
Federal funds sold............................................................................... 10,000,000 --
Time deposits.................................................................................... 3,579,374 4,805,284
$79,158,801 52,730,405
</TABLE>
The supplemental disclosure of non-cash investing and financing activities
for the years ended June 30, is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Exchange of loans for mortgage-backed certificates............................... $ 1,000,000 83,748,335 218,606,363
Loans receivable transferred to real estate acquired through foreclosure......... $ 14,473,476 25,931,599 25,131,933
</TABLE>
3. INVESTMENT SECURITIES
The amortized cost and market value of investment securities at June 30,
are summarized as follows:
<TABLE>
<CAPTION>
1993
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. Government corporations
and agencies.......................................................... $ 63,535,068 575,516 (266,824) 63,843,760
Debt securities issued by foreign governments........................... 25,000 -- -- 25,000
Stock in FHLB & FNMA.................................................... 15,673,724 -- -- 15,673,724
Accrued interest........................................................ 626,957 -- -- 626,957
$ 79,860,749 575,516 (266,824) 80,169,441
</TABLE>
<TABLE>
<CAPTION>
1992
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. Government corporations
and agencies.......................................................... $ 35,028,112 497,239 ( 23,235) 35,502,116
Other debt securities................................................... 24,873,970 -- -- 24,873,970
Stock in FHLB & FNMA.................................................... 14,413,424 -- -- 14,413,424
Accrued interest........................................................ 487,332 -- -- 487,332
$ 74,802,838 497,239 ( 23,235) 75,276,842
</TABLE>
VII-24
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. INVESTMENT SECURITIES -- Continued
Investment securities by maturity date ranges at June 30, 1993 are
summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
<S> <C> <C>
Due in one year or less.......................................................................... $ 6,116,889 6,117,144
Due after one year through five years............................................................ 11,695,156 11,836,180
Due after five years through ten years........................................................... 25,000 25,000
Due after ten years.............................................................................. 62,023,704 62,191,117
$79,860,749 80,169,441
</TABLE>
There were no proceeds from sales of investments in debt securities during
fiscal 1993 and fiscal 1992. The 1992 loss reported in the statement of
operations related to 1991 activity.
The stock in the Federal Home Loan Bank, and FNMA REMICs of $28,719,000 are
pledged to secure advances.
4. MORTGAGE-BACKED CERTIFICATES, NET
Mortgage-backed certificates, net at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Mortgage-backed certificates:
GNMA (market value $223,717,593 and $64,130,897, respectively).............................. $219,903,035 62,125,735
FHLMC fixed-rate (market value $7,644,455 and $11,013,263, respectively).................... 7,249,610 10,623,293
FHLMC adjustable-rate (market value $21,230,017 and $34,495,441, respectively).............. 20,553,741 33,457,159
FNMA (market value $113,131,292 and $145,622,226, respectively)............................. 106,749,584 140,183,892
Other conventional (market value $6,646,643 and $8,107,130, respectively)................... 6,361,269 7,993,731
Accrued interest............................................................................ 2,688,198 2,029,227
363,505,437 256,413,037
Less unearned discounts..................................................................... 3,094,002 3,810,401
$360,411,435 252,602,636
</TABLE>
Additional information relating to mortgage-backed certificates follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
AT COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
June 30, 1993..................................................... $357,723,237 14,650,365 (3,602) 372,370,000
June 30, 1992..................................................... $250,573,409 12,838,805 (43,257) 263,368,957
</TABLE>
The contractual maturity dates of the mortgage-backed certificates are
beyond ten years. However, the expected maturities differ from the contractual
maturities because borrowers have the right to prepay obligations without
prepayment penalties. The proceeds from the sales of mortgage-backed
certificates during fiscal 1993 and fiscal 1992 were $12,242,000 and
$126,951,000, respectively. Gross gains of $143,000 and $2,070,000, respectively
were realized on the sales. There were no losses realized on the sales during
fiscal 1993. Gross losses realized during fiscal 1992 were $28,045.
As disclosed in Note 10, mortgage-backed certificates of $170,782,000 and
$33,457,000 at June 30, 1993 and 1992, respectively, were pledged to secure
advances. As disclosed in Note 11, certain GNMA, FNMA, and FHLMC mortgage-backed
certificates are pledged to secure other borrowed money. In addition, GNMA, FNMA
and FHLMC mortgage-backed certificates of approximately $50,074,000 and
$60,958,000 at June 30, 1993 and 1992, respectively, are pledged to secure
deposits.
VII-25
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. LOANS RECEIVABLE, NET
Loans receivable, net at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Real estate loans:
Fixed-rate.............................................................................. $ 450,920,440 432,206,576
Adjustable-rate......................................................................... 373,361,103 397,074,840
824,281,543 829,281,416
Real estate construction loans:
Fixed-rate.............................................................................. 52,164,771 40,675,790
Adjustable-rate......................................................................... 26,127,914 29,142,610
78,292,685 69,818,400
Second mortgage loans................................................................... 3,850,980 4,937,329
Commercial loans........................................................................ 177,724,029 195,364,736
Installment loans....................................................................... 421,353,892 423,076,886
Accrued interest........................................................................ 11,110,107 12,589,308
1,516,613,236 1,535,068,075
Less:
Allowance for uncollected interest...................................................... 4,093,450 3,503,164
Unamortized discounts and deferred fees on loans purchased.............................. 4,532,104 5,507,874
Unamortized discount on loans purchased through business combinations................... 1,025,224 1,479,049
Net deferred fees on loans originated................................................... 845,012 204,441
Allowance for loan losses............................................................... 15,483,326 12,557,416
Loans in process........................................................................ 37,563,652 29,701,770
63,542,768 52,953,714
$1,453,070,468 1,482,114,361
</TABLE>
As disclosed in Note 10, certain loans of $170,074,000 and $304,223,000 as
of June 30, 1993 and 1992, respectively were pledged to secure advances.
Loans serviced for the benefit of others amounted to approximately
$1,560,738,000, $1,582,311,000, and $1,383,735,000 at June 30, 1993, 1992, and
1991, respectively.
An analysis of the allowance for loan losses for the years ended June 30,
is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Beginning allowance............................................................... $12,557,416 10,594,213 7,160,811
Provision for loan losses......................................................... 8,699,105 10,468,740 10,480,775
Losses incurred................................................................... (6,576,137) (12,004,714) (7,888,471)
Recoveries........................................................................ 802,942 3,499,177 841,098
Ending allowance................................................................ $15,483,326 12,557,416 10,594,213
</TABLE>
The Bank has restructured loans including interest amounting to
approximately $16.0 million and $23.3 million at June 30, 1993 and 1992,
respectively. These loans are secured by various types of collateral including
shopping centers and a marina. The restructured terms do not change the original
maturities of these loans. The amount of gross interest income that would have
been recorded during 1993 and 1992 if these loans were in accordance with the
original terms would have been approximately $1.7 million and $2.5 million,
respectively. The amount of interest actually included in interest income
amounted to approximately $822,000 and $1.4 million, respectively.
VII-26
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. REAL ESTATE
Real estate at June 30, is summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Loans treated as in-substance foreclosures....................................................... $ 6,879,752 7,695,222
Real estate and repossessed assets acquired through foreclosure.................................. 21,347,093 24,763,754
Real estate acquired for development and resale.................................................. 12,200,774 14,939,431
40,427,619 47,398,407
Less:
Accumulated depreciation....................................................................... 32,255 358,757
Allowance for valuation........................................................................ 4,022,129 2,377,106
4,054,384 2,735,863
$ 36,373,235 44,662,544
</TABLE>
During fiscal 1993, the Bank capitalized no interest into real estate
acquired for development and resale. The Bank capitalized $99,699, and $580,465
for the years ended June 30, 1992 and 1991, respectively.
An analysis of the allowance for valuation for the years ended June 30,
follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Beginning allowance................................................................. $ 2,377,106 1,790,091 1,556,667
Provision for real estate losses.................................................... 4,360,527 2,184,106 1,371,169
Losses incurred..................................................................... (2,715,504) (1,597,091) (1,137,745)
$ 4,022,129 2,377,106 1,790,091
</TABLE>
The Bank adopted SOP 92-3 during the quarter ended March 31, 1993. As
stated in the 1992 Annual Report, real estate acquired through foreclosure was
previously carried at the lower of cost, estimated fair value, or net realizable
value. SOP 92-3 requires that such assets be carried at the lower of cost or
fair value less disposition costs. This change in accounting policy had a
minimal impact on the recorded net real estate balances. See Regulatory Changes
and Accounting and Reporting Changes for more discussion on this issue and its
impact. Also see Note 1 of Notes to Consolidated Financial Statements for a
discussion of the Bank's policy.
7. PREMISES AND EQUIPMENT
Premises and equipment at June 30, are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Land............................................................................................. $ 4,516,867 4,726,658
Office and other buildings....................................................................... 18,327,659 18,078,080
Furniture and equipment.......................................................................... 35,739,914 33,985,620
Leasehold improvements........................................................................... 4,316,008 4,578,713
Automobiles...................................................................................... 437,662 846,179
63,338,110 62,215,250
Less accumulated depreciation.................................................................... 32,579,944 29,493,635
$ 30,758,166 32,721,615
</TABLE>
The balance of the deferred gain from the sale of the home office real
estate, included in other liabilities in the consolidated statements of
financial condition, amounted to $994,166 and $1,472,843 at June 30, 1993 and
1992, respectively.
VII-27
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. PREMISES AND EQUIPMENT -- Continued
The Bank also leases other premises and equipment for its operations. The
minimum future lease payments for all non-cancelable operating leases at June
30, 1993 are summarized as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1994................................................ $ 2,252,783
1995................................................ 2,229,729
1996................................................ 846,380
1997................................................ 805,692
1998................................................ 698,657
Thereafter.......................................... 2,965,472
</TABLE>
Rental expense for premises and equipment aggregated $2,520,690,
$2,610,138, and $2,651,394, for the years ended June 30, 1993, 1992, and 1991,
respectively.
8. OTHER ASSETS
Capitalized excess servicing derived from the sale of loans with retention
of the servicing rights and purchased servicing rights included in other assets
at June 30, follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Capitalized excess servicing rights............................................................... $ 293,478 423,054
Purchased servicing rights........................................................................ 7,712,337 11,244,132
$ 8,005,815 11,667,186
</TABLE>
The Bank paid $55,420 and $6,583,769 for the servicing rights to
approximately $8,161,000 and $306,200,000 of loans during 1993 and 1992,
respectively. Moreover, there were no additions to capitalized excess servicing
rights, net of sales during fiscal 1993 and $108,094 were generated during
fiscal 1992. The amortization of capitalized excess servicing and purchased
servicing rights included in loan servicing fees amounted to $3,682,602,
$1,943,644 and $1,456,175 for the years ended June 30, 1993, 1992 and 1991,
respectively. The purchase price for PMSRs purchased in the year ended June 30,
1992 was adjusted $34,189 in fiscal 1993 based on requirements concerning
subsequent events in the contract.
VII-28
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9. DEPOSITS
Deposits outstanding by type at June 30, are summarized as follows:
<TABLE>
<CAPTION>
DEPOSIT TYPE 1993 1992
<S> <C> <C>
Transactional deposits:
Checking accounts:
Non-interest-bearing................................................................. $ 105,763,477 88,002,762
Interest-bearing with weighted average rates of 2.25% and 3.11%, respectively........ 135,025,649 124,793,722
Money market demand accounts with weighted average rates of 2.90% and 3.71%,
respectively......................................................................... 158,330,630 180,017,307
Total transactional deposits............................................................ 399,119,756 392,813,791
Savings deposits:
Passbook deposits with weighted average rates of 2.78% and 4.01%, respectively.......... 126,469,299 128,830,755
Passbook Plus deposits with weighted average rates of 3.46% and 4.40%, respectively..... 132,601,253 23,695,910
Total savings deposits.................................................................. 259,070,552 152,526,665
Time deposits by rate range:
2.00 - 3.99%........................................................................... 442,362,451 --
4.00 - 5.99............................................................................ 279,585,532 671,425,368
6.00 - 7.99............................................................................ 74,969,638 241,855,693
8.00 - 9.99............................................................................ 54,670,925 70,046,679
10.00 -11.99............................................................................ 14,288,146 15,349,353
12.00 -13.99............................................................................ 2,190,775 2,222,981
Total time deposits..................................................................... 868,067,467 1,000,900,074
Premium on deposit acquisitions........................................................... (5,622,551) (6,176,375)
$1,520,635,224 1,540,064,155
</TABLE>
Time deposits by rate range and maturity date at June 30, 1993, are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNTS MATURING DURING
FIRST SECOND THIRD
SUCCEEDING SUCCEEDING SUCCEEDING YEARS
RATE RANGE YEAR YEAR YEAR THEREAFTER TOTAL
<S> <C> <C> <C> <C> <C>
2.00 - 3.99%..................................... $424,092,829 18,159,465 8,467 101,690 442,362,451
4.00 - 5.99...................................... 187,981,409 59,577,112 23,439,935 8,587,076 279,585,532
6.00 - 7.99...................................... 28,837,850 8,069,201 2,110,843 35,951,744 74,969,638
8.00 - 9.99...................................... 7,875,192 1,810,393 7,805,588 37,179,752 54,670,925
10.00 -11.99...................................... 1,425,442 11,816,615 568,031 478,058 14,288,146
12.00 -13.99...................................... -- 2,154,579 36,196 -- 2,190,775
$650,212,722 101,587,365 33,969,060 82,298,320 868,067,467
</TABLE>
Certain penalties are assessed on depositors exercising early time deposit
withdrawal privileges. These penalties are accounted for as reductions of
interest expense on deposits in the year they are incurred. Interest expense by
deposit types and penalties for the years ended June 30, are summarized as
follows:
<TABLE>
<CAPTION>
DEPOSIT TYPE 1993 1992 1991
<S> <C> <C> <C>
Transactional deposits........................................................... $ 7,929,732 12,393,806 15,434,859
Passbook deposits................................................................ 7,240,102 6,603,670 6,795,167
Time deposits.................................................................... 46,233,475 69,983,353 94,685,882
Penalty income................................................................... (178,315) (242,287) (302,019)
$61,224,994 88,738,542 116,613,889
</TABLE>
VII-29
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)
Advances at June 30, are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INTEREST RATE
MATURITY DATE 1993 1992 1993 1992
<S> <C> <C> <C> <C>
1993................................................................. -- % 6.29 $ -- 53,874,703
1994................................................................. 7.00 10.43 158,436,036 78,436,036
1995................................................................. 7.82 7.87 16,702,703 16,702,703
1996................................................................. 6.16 8.06 23,302,703 8,302,703
1997................................................................. 8.16 8.18 8,302,703 8,302,703
1998................................................................. 8.48 8.49 14,969,369 14,969,369
1999................................................................. 7.87 8.55 28,302,703 18,302,703
2000................................................................. 8.44 8.45 11,636,036 11,636,036
2001................................................................. 8.35 8.37 8,302,703 8,302,703
2002................................................................. 7.87 7.93 675,676 675,676
2006................................................................. 8.50 8.50 500,000 500,000
Accrued interest payable............................................. -- -- 1,601,363 1,519,453
7.29 % 8.56 $ 272,731,995 221,524,788
</TABLE>
The stock of the FHLB, loans receivable, and MBCs approximating
$385,249,000 and $352,094,000 at June 30, 1993 and 1992, respectively, are
pledged as collateral for these advances.
11. SUBORDINATED CAPITAL NOTES AND OTHER BORROWED MONEY
During 1987, the Bank issued $8,188,500 in face amount of unsecured
subordinated capital notes with a weighted average interest rate of 11.13% which
mature during 1997. These notes may be redeemed only upon death of the holder,
and to date $150,000 have been redeemed. OTS regulations provide for the
inclusion of these subordinated capital notes in the calculation of regulatory
capital. At June 30, 1993, 100% can be included in capital.
Other borrowed money at June 30, is summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Parent only:
Reverse repurchase agreements with interest rates of 3.18% and 3.75%, due July 1993 and 1992,
respectively, collateralized by GNMA and other mortgage-backed certificates with a carrying
value of approximately $61,745,000 and $18,710,000 and a market value of approximately
$65,869,000 and $19,589,000, respectively................................................... $ 59,936,491 14,733,551
Dollar price repurchase agreements with an interest rate of 2.80% due July 1992 collateralized
by GNMA and other mortgage-backed certificates with a carrying value of approximately
$23,840,000 and a market value of approximately $25,060,000................................. -- 24,825,040
Notes of subsidiaries not guaranteed by Parent:
Mortgage notes payable, with interest rates varying from 8.00% to 8.50% due in varying
installments through February 1993 and collateralized by real estate with a carrying value
of approximately $2,554,000................................................................. -- 716,449
$ 59,936,491 40,275,040
</TABLE>
The mortgage-backed certificates underlying the reverse repurchase
agreements (RRP) and dollar price repurchase agreements (DPR) were delivered to
the primary government security dealers who arranged the transactions. At the
maturity dates of the RRP transactions, the original securities will be returned
to the Bank. The RRP's outstanding during 1993 and 1992 averaged $33,834,000 and
$16,853,000, respectively. The maximum amounts of RRP's outstanding at any
month-end during 1993 and 1992 were $62,050,000 and $32,494,000, respectively.
The DPR securities may have been loaned, sold or otherwise disposed of by the
dealers to other parties in their normal course of business and the dealers have
agreed to resell to the Bank substantially identical securities upon maturity of
the agreements. The DPRs outstanding during 1993 and 1992
VII-30
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
11. SUBORDINATED CAPITAL NOTES AND OTHER BORROWED MONEY -- Continued
averaged $11,908,000 and $7,951,000, respectively. The maximum amounts of DPRs
outstanding at any month end during 1993 and 1992 were $34,096,000 and
$30,459,000, respectively.
12. INCOME TAXES
The components of income tax expense for the years ended June 30, are
summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Current:
Federal............................................................................. $6,437,000 5,190,000 7,250,000
State............................................................................... 1,144,000 -- --
7,581,000 5,190,000 7,250,000
Deferred:
Federal............................................................................. (313,000) (369,000) (787,000)
State............................................................................... (59,000) 264,000 --
Total................................................................................. $7,209,000 5,085,000 6,463,000
The components of deferred income taxes are as follows:
Uniform capitalization of inventory................................................... $ 13,000 (97,000) (1,000)
Accrual to cash adjustment............................................................ 32,000 345,000 (540,000)
Deferred loss on sale of loans........................................................ (62,000) (142,000) (287,000)
Deferred loan origination fees........................................................ -- (26,000) (324,000)
FHLB stock dividend................................................................... 300,000 237,000 (207,000)
Deferred hedging gains on sales of options............................................ 7,000 3,000 3,000
Deferred gain on sale of building..................................................... 163,000 163,000 163,000
Provision for losses on real estate acquired for development and resale............... (250,000) (114,000) (139,000)
Depreciation.......................................................................... (267,000) 129,000 103,000
FAS 91 net deferred (credits) costs................................................... (232,000) (381,000) 421,000
Other................................................................................. (76,000) (222,000) 21,000
$ (372,000) (105,000) (787,000)
</TABLE>
The differences between actual income taxes and the amount computed by
applying the federal income tax rate of 34% are reconciled as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Computed federal income taxes......................................................... $6,104,000 4,654,000 5,069,000
Increase (decrease) in income taxes resulting from:
Bad debt expense.................................................................... 957,000 (125,000) 878,000
Nontaxable income, primarily gains on sale of real estate acquired through
foreclosure, tax exempt interest, and accretion of discount on
purchased loans.................................................................. (784,000) (227,000) (271,000)
Nondeductible expenses, primarily losses and expenses on real estate
acquired through foreclosure and goodwill amortization........................... 655,000 571,000 814,000
Environment tax..................................................................... 14,000 11,000 21,000
State income tax, net of federal tax benefit........................................ 716,000 174,000 --
Other, net.......................................................................... (453,000) 27,000 (48,000)
Income tax expense.................................................................. $7,209,000 5,085,000 6,463,000
</TABLE>
VII-31
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
12. INCOME TAXES -- Continued
The Internal Revenue Code allows thrifts a special bad debt deduction based
on the greater of actual experience or a percentage of taxable income before
such deduction. The applicable percentage for the years ended June 30, 1993,
1992 and 1991 was approximately 8.0%.
The bad debt deduction determined for tax purposes is not charged to
earnings in the accompanying financial statements, but results in an
appropriation to restricted retained earnings for tax purposes. The accumulated
appropriation of bad debts in restricted retained earnings at June 30, 1993,
1992 and 1991 was approximately $16,851,000, $15,920,000 and $16,105,000,
respectively. Reductions of such amounts for other than bad debt losses create
earnings for tax purposes.
The Bank's tax returns have been examined by the Internal Revenue Service
(IRS) through June 30, 1990. Management settled with the IRS on a claim for
refund due to net operating losses and bad debt deductions. As a result $600,000
was taken as a reduction to income tax expense.
The Bank has not adopted Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes" for the year ending June 30, 1993. But if the
adoption had occurred, net earnings would have increased $5.2 million or $.56
per share.
13. STOCKHOLDERS' EQUITY
On December 15, 1983, the Bank converted from a federal mutual to a federal
stock association. At that date, eligible deposit account holders were granted
priority interest in the unlikely event of future liquidation of the Bank by the
establishment of a liquidation account equal to net worth at June 30, 1983. In
the event of such liquidation, and only in such event, an eligible deposit
account holder who continues to maintain his deposit account shall be entitled
to receive a distribution from the liquidation account, in the proportionate
amount of the then current adjusted balance for deposit accounts, before any
distributions may be made to the Bank's stockholders. Regulations of the OTS do
not permit the Bank to pay dividends on common stock if its stockholders' equity
would thereby be reduced below the amount required for the liquidation account
or the Bank's regulatory capital requirement.
A reconciliation of stockholders' equity to statutory capital requirements
at June 30, 1993 (unaudited) follows:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
<S> <C> <C> <C>
Stockholders' equity........................................................... $125,570,883 125,570,883 125,570,883
Additions:
Qualifying supervisory goodwill.............................................. -- 15,378,382 15,378,382
Qualifying maturing capital instruments...................................... -- -- 8,038,500
General valuation loan allowances............................................ -- -- 12,372,261
Deductions:
Goodwill..................................................................... 28,749,405 28,749,405 28,749,405
Non-includable purchased mortgage servicing rights........................... 3,900,917 3,900,917 3,900,917
Non-includable portion of investments in subsidiaries........................ 3,235,663 3,235,663 3,235,663
Non-includable portion of non-residential construction and land loans........ -- -- 17,011
Statutory capital.............................................................. 89,684,898 105,063,280 125,457,030
Statutory requirement.......................................................... 30,756,765 61,513,529 103,504,999
Excess......................................................................... $ 58,928,133 43,549,751 21,952,031
Statutory capital ratio........................................................ 1.50% 3.00% 8.00%
Actual capital ratio........................................................... 4.37% 5.12% 9.70%
</TABLE>
The Bank is in compliance with all the current statutory capital
requirements. The Bank, as discussed in Management's Discussion and Analysis, is
always looking for ways to augment capital and will continue to restructure its
assets to improve its compliance with the risk-based requirement.
VII-32
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
14. STOCK DIVIDEND
On January 21, 1993, the Board of Directors declared a three-for-two stock
split effected as a 50% stock dividend payable to stockholders of record as of
February 2, 1993. The distribution date was February 23, 1993 with fractional
shares paid in cash based on the adjusted market value of the stock at the
distribution date. The weighted average shares outstanding and earnings per
share amounts for the prior years have been restated to reflect the distribution
of the stock dividend.
15. STOCK OPTION AND INCENTIVE PLANS
The Bank has two plans -- the 1983 Stock Option and Incentive Plan and the
1992 Stock Option and Incentive Plan. The stock options pursuant to the plans
are to be granted primarily to directors, officers and other key employees.
Options granted under the Option Plans may be incentive stock options or
non-incentive stock options. The plans also provide for the granting of stock
appreciation rights as well as restricted stock. The shares of stock reserved
for the 1983 option plan amounted to 940,268, 739,642, and 785,554 shares at
June 30, 1993, 1992, and 1991, respectively. On November 6, 1992, 40,500 options
were issued to participants of the 1983 option plan. Unexercised options to
purchase 273,183 shares were surrendered to the Bank during the year ended June
30, 1991. On November 17, 1992, the shareholders of the Bank approved, by a
majority vote, the adoption of the 1992 Stock Option and Incentive Plan. The
shares of stock reserved for the 1992 Plan amounted to 450,000 shares and grants
made from this plan amounted to 113,700 options. At June 30, 1993, the Bank had
the following options outstanding from both plans:
<TABLE>
<CAPTION>
OPTION
GRANT DATE SHARES PRICE EXPIRATION DATE
<S> <C> <C> <C>
December 15, 1983.......................................... 2,634 $3.30 December 8, 1993
December 18, 1987.......................................... 230,876 3.08 December 18, 1997
December 31, 1987.......................................... 54,450 3.14 December 31, 1997
August 30, 1990............................................ 161,490 2.28 August 30, 2000
November 6, 1992........................................... 154,200 7.58 November 6, 2002
</TABLE>
During the years ended June 30, 1993 and 1992, options for 249,380 and
45,912 shares were exercised, respectively. Some of the options exercised this
year were non-incentive options, which are treated as compensation to the
employee and a tax deduction for the institution. The accounting procedure is to
record a tax benefit to paid in capital equal to the tax rate multiplied by the
total difference between fair market value on the date of exercise and the
exercise price. The resulting impact was an increase to paid in capital of
$471,000 and a corresponding reduction to current income taxes payable.
16. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) AND EMPLOYEE STOCK PURCHASE PLAN (ESPP)
On July 21, 1987, the Board of Directors approved the establishment of an
ESOP to enable eligible employees to acquire stock ownership interest in the
Bank. The stockholders, at their annual meeting on October 27, 1987, approved
the ESOP. The ESOP is a leveraged employee stock ownership plan as described in
Section 497(e)(7) and is a "qualified" retirement plan under Section 401(a) and
501(a) of the Internal Revenue Code. All full-time salaried employees after one
year of service and attaining 21 years of age are eligible to participate. Each
participant will become fully vested after five years of service. The Board of
Directors determines the amount, if any, to be contributed to the ESOP each
year. The contribution will be shares of common stock, cash or other property.
The Bank accrued $210,000 in fiscal 1993, $195,000 in fiscal 1992, and $170,000
in fiscal 1991 for the ESOP. The ESOP purchased unissued shares at the closing
market price as summarized in the following table:
<TABLE>
<CAPTION>
MARKET PRICE
DATE SHARES PER SHARE
<S> <C> <C>
August 17, 1992............................................................... 23,340 $ 8.08
August 20, 1991............................................................... 41,476 4.09
August 30, 1990............................................................... 64,075 2.27
</TABLE>
VII-33
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
16. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) AND EMPLOYEE STOCK PURCHASE PLAN
(ESPP) -- Continued
The Bank also has a plan called the Employee Stock Purchase Plan (ESPP)
that allows employees to invest in the stock of the company and thereby increase
ownership within the bank. On October 29, 1990, the shareholders approved an
amendment to the ESPP that allowed the plan to purchase unissued shares directly
from the bank on a specific day of each month at the market price for that date.
Set forth in the table below are the total shares purchased and their weighted
average purchase price.
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Shares purchased......................................................... 28,345 49,644 65,932
Weighted average price................................................... $8.84 4.40 2.46
</TABLE>
17. EMPLOYEE BENEFITS
The Bank has a non-contributory trustee retirement plan for all salaried
employees who have attained the age of 21 years but not 60 years at the date of
their employment and have one year of service prior to the next anniversary date
of the plan. The normal retirement date is the first of the calendar month in
which the participant reaches the age of 65.
The following table sets forth the net periodic pension cost included in
general and administrative expenses and the pension plan's funded status amounts
recognized in the Bank's consolidated financial statements for the years ended
June 30.
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
NET PERIODIC PENSION COST:
Service cost....................................................................... $ 961,913 851,108 779,698
Interest cost...................................................................... 792,562 737,729 726,715
Actual return on assets............................................................ (1,284,521) (489,899) (781,447)
Other.............................................................................. 521,305 (186,498) 34,146
$ 991,259 912,440 759,112
Fair value of plan assets, primarily government guaranteed obligations or
certificates of deposit............................................................ $10,491,763 8,786,148 8,838,430
Projected benefit obligation......................................................... 9,841,562 9,164,797 9,028,214
Accumulated benefit obligation....................................................... 6,800,873 6,452,607 6,567,699
Vested accumulated benefit obligation................................................ 6,564,765 6,285,772 6,504,794
Unrecognized prior service cost...................................................... 119,561 129,866 140,171
Unrecognized net loss................................................................ 1,945,891 2,739,180 2,394,348
Unrecognized net assets.............................................................. 620,001 676,365 732,729
Unfunded accumulated benefit obligation.............................................. -- -- --
Prepaid pension cost................................................................. 1,856,530 1,554,300 1,331,664
</TABLE>
The weighted average discount rate used in valuing liabilities was 9.5% as
was the expected return on plan assets for the current year. Anticipated salary
increases were 6.5%.
The Bank also has two incentive compensation plans, one for senior
management and one for selected other employees. The plans provide for incentive
bonuses to be paid if specified objectives, to be determined each year, are met.
The senior management plan is tied to a corporate profitability objective
(determined annually by the Board) that must be exceeded for any bonuses to be
paid to senior management. The incentive bonuses, as provided for in the plans,
may range up to 35% and 50% of annual compensation for selected other employees
and senior management, respectively, with targeted bonus levels being
established annually. The targeted bonus levels for the fiscal 1993 year were
10% and 15% for selected other employees and senior management, respectively.
The amount expended for these plans in 1993, 1992 and 1991 was $634,000,
$461,000, and $512,000, respectively.
VII-34
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
18. SALE OF BRANCHES
On December 13, 1991, The First Savings Bank sold four of its branch
offices to Carolina First Savings Bank, (formerly First Federal Savings and Loan
Association of Georgetown), a subsidiary of Carolina First Corporation. The sale
of the Myrtle Beach offices consisted of $10.0 million in installment loans,
$319,000 in premises and equipment, and the assumption of $37.0 million in
deposits by Carolina First. The resulting gain before income taxes, net of
expenses, amounted to $632,000.
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating data for the years ended June 30, is summarized as
follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1993
Total interest and dividend income................................................... $38,496 39,705 36,570 37,160
Net interest income.................................................................. 16,006 18,241 17,002 17,532
Net earnings......................................................................... $ 1,900 3,047 2,300 3,498
Net earnings per share............................................................... $ .20 .33 .25 .37
Weighted average shares outstanding.................................................. 9,243 9,299 9,359 9,411
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1992
Total interest and dividend income................................................... $44,559 42,682 40,439 40,435
Net interest income.................................................................. 12,858 12,966 14,539 16,637
Net earnings......................................................................... $ 1,513 2,804 1,809 2,477
Net earnings per share............................................................... $ .17 .32 .20 .27
Weighted average shares outstanding.................................................. 8,883 8,898 8,975 9,122
</TABLE>
20. LITIGATION
The Bank is a defendant in a lawsuit filed in 1991 in the Court of Common
Pleas, Thirteenth Judicial Circuit, State of South Carolina. On May 21, 1993, a
jury awarded the plaintiffs a $4.1 million judgment against the Bank consisting
of $500,000 in actual damages and $3.6 million in punitive damages for allegedly
acting as a control person and aiding and abetting a state securities law
violation. The plaintiffs, limited partners in a failed venture to construct and
operate a residential health care facility for senior citizens, alleged that the
Bank, as an escrow agent and lender for the project, knew or should have known,
that its loan commitment was insufficient and that the Bank was therefore
responsible for the losses suffered by the limited partners resulting from the
actions of the general partners.
Prior to this case going to the jury, the Bank made a motion for directed
verdict which was not granted. Rule 50(b) of the South Carolina Rules of Civil
Procedure states that when a motion for a directed verdict is not granted, the
Court is deemed to have submitted the action to the jury subject to a later
determination of the legal question raised in the motion. After the jury
verdict, the Bank renewed that motion in the form of a motion for judgment not
withstanding the verdict, as well as an alternative motion for a new trial. This
motion and the Plaintiff's petition for legal fees, costs and interest were
argued before the Circuit Judge on June 22, 1993, and as yet no decision has
been rendered. It is the opinion of the Bank's legal Counsel that it is not
probable that a loss in the amount of the present jury verdict will be incurred
by The First. Furthermore, if a loss ultimately is incurred following post trial
motions and appeals, it is not probable that the loss would exceed $750,000.
Accordingly, the Bank has not established any specific allowances for this
suit. However, the Bank's general reserves are adequate to support the range of
loss estimated by its legal Counsel. Unless the Trial Judge dismisses this
action in its entirety, management will vigorously appeal any judgment.
Therefore, it is management's opinion, based upon Counsel's
VII-35
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
20. LITIGATION -- Continued
analysis of the outcome of the suit, that any future liability arising from this
suit will not have a material adverse effect on the consolidated financial
position of the Bank.
Except for the ultimate outcome of the suit previously discussed, the legal
proceedings against the Bank are generally incidental to its business.
Management believes that liabilities arising from these proceedings, if any,
will not have a material adverse effect on the consolidated financial position
of the Bank.
21. SALE OF BANK
On August 5, 1993, the Bank announced that a definitive agreement had been
reached with Southern National Corporation (SNC), (a national Bank holding
company) headquartered in Lumberton, North Carolina. SNC will acquire The First
in a fixed exchange stock swap transaction (pooling of interest). The terms of
the agreement call for SNC to issue .855 shares of its common stock for each of
the outstanding shares and options of the Bank at closing date. This transaction
is valued at $181 million based on the exchange ratio, the closing price of SNC
stock, and the shares of stock of The First outstanding on August 5, 1993.
If certain conditions are met as specified in the agreement, the exchange
ratio may be increased if SNC stock price falls below $21.625. Furthermore,
under conditions as specified in the agreement, either party may terminate the
agreement prior to closing. This transaction is subject to regulatory authority
and shareholder approval.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table discloses the carrying values and fair values at June
30, 1993 for the financial instruments of the Bank determined under the
requirements of FAS 107.
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
<S> <C> <C>
Financial Assets:
Cash, cash equivalents, and Investment securities....................................... $ 159,019,550 159,328,242
Mortgage-backed certificates, net....................................................... 360,411,435 375,058,198
Loans receivable, net................................................................... 1,453,070,468 1,486,533,382
$1,972,501,453 2,020,919,822
Financial Liabilities:
Deposits................................................................................ $1,520,635,224 1,540,314,840
Advances from FHLB...................................................................... 272,731,995 284,407,259
Subordinated capital notes.............................................................. 7,927,635 8,833,618
Other borrowed money.................................................................... 59,936,491 59,936,491
$1,861,231,345 1,893,492,208
Commitments:
To originate or purchase loans and MBCs................................................. $ 85,284,968 87,316,218
To sell mortgage loans.................................................................. $ 200,052,072 202,312,803
Unused lines and letters of credit...................................................... $ 130,448,386 130,448,386
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it was practicable to estimate
that value.
CASH, CASH EQUIVALENTS, AND INVESTMENT SECURITIES
For short-term instruments, the carrying amount is the best estimate for
the fair value. For investment securities a quoted market bid price supplied by
a primary broker dealer was used for each of the actual instruments.
VII-36
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
22. FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued
MORTGAGE-BACKED CERTIFICATES, NET
The MBCs were grouped into three categories for estimating fair value. MBCs
securitized under FHLMC, FNMA, or GNMA were grouped by even coupons in 50 basis
point increments and were valued using actual market bid prices on those
securities. MBCs with odd coupons were valued by interpolating a price from a
standard coupon security with similar characteristics. Privately issued MBCs
were valued by using a similar FHLMC security price less two (2) percentage
points.
LOANS RECEIVABLE, NET
For certain homogeneous categories of loans, fair value was estimated using
the quoted market prices for securities backed by similar loans. The fair value
of other types of loans was estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
DEPOSITS
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. For
fixed-maturity deposits, the fair value was estimated by using the rates
currently offered by the Bank for deposits of similar remaining maturities.
ADVANCES FROM FHLB
The fair value was determined under the FHLB methodology for calculating
the prepayment penalty on the advances using a discounted present value.
SUBORDINATED CAPITAL NOTES
The fair value was determined by a discounted present value calculation
using the 4 year treasury rate plus 350 basis points. At the time the notes were
issued, they were sold at the 10 year treasury rate plus 250 basis points. The 4
year treasury rate was chosen to match the remaining maturity of the notes and
the increased spread was used because retail sales are presently not allowed, so
a premium was added to the original spread.
OTHER BORROWED MONEY
The fair value of other borrowed money was estimated at its carrying value
due to the short term to maturity.
COMMITMENTS
The fair value of the commitments to originate loans was determined to be
par for the loan originations. The commitment to purchase the MBC was valued at
the current market price for that particular security.
Commitments to sell mortgage loans were valued by using the actual price
for closed loans and pipe-line loans plus an added value for the associated
servicing rights retained.
The fair value of commitments for unused lines and letters of credit was
determined to be the carrying value since these are either variable rate or
premium priced fixed-rate commitments.
VII-37
<PAGE>
THE FIRST SAVINGS BANK, FSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
23. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Bank had outstanding commitments to originate, purchase, or sell loans
receivable at June 30, 1993 as follows:
<TABLE>
<S> <C>
Firm commitments:
To originate or purchase:
Fixed-rate:
Mortgage loans with a weighted average rate of 7.33%........................... $ 49,965,891
Mortgage-backed certificates with a rate of 9%................................. 25,000,000
Variable-rate:
Mortgage loans................................................................. 9,168,214
Commercial loans............................................................... 1,150,863
$ 85,284,968
To sell:
Mortgage loans................................................................... $ 200,052,072
Unused lines of credit:
Overdraft lines at 18%.............................................................. 7,407,651
Home equity lines (variable-rate)................................................... 103,700,688
Commercial lines (variable-rate).................................................... 18,024,302
$ 129,132,641
Letters of credit (variable-rate)................................................... $ 1,315,745
</TABLE>
At June 30, 1993, except for single-family home loans and the fact that the
majority of the loan portfolio is located in the Bank's immediate market area,
there were no concentrations of loans in any type of industry, type of property,
or to one borrower that exceeded 10% of the Bank's total loan portfolio.
In certain instances, the amounts reported in the prior periods'
consolidated financial statements included herein have been reclassified to put
them on a comparable basis to the amounts reported in the June 30, 1993,
consolidated financial statements.
VII-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
THE FIRST SAVINGS BANK, FSB
Greenville, South Carolina
We have audited the accompanying consolidated statements of financial
condition of The First Savings Bank, FSB and subsidiaries as of June 30, 1993
and 1992, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1993. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The First
Savings Bank, FSB and subsidiaries at June 30, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1993, in conformity with generally accepted accounting
principles.
(Signature of KPMG Peat Marwick)
KPMG PEAT MARWICK
Greenville, South Carolina
August 6, 1993
VII-39
<PAGE>
Southern National Corporation
And
The First Savings Bank, FSB
Proforma Combined Statement of Condition
December 31, 1993
(Dollars in thousands)
Assets
Cash and due from depository institutions $ 280,919
Interest-bearing bank balances 39,855
Federal funds sold and securities purchased under
resale agreements or similar arrangements 9,955
Securities held for sale 1,140,087
Investment securities 1,353,206
Loans held for sale 311,591
Loans and leases, net of unearned income 4,576,238
Less - allowance for losses (62,896)
Net loans and leases 4,513,342
Premises and equipment, net 130,187
Other assets 134,320
Total assets $7,913,462
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 741,426
Interest-bearing 5,282,145
Total deposits 6,023,571
Short-term borrowings 756,343
Accounts payable and accrued liabilities 143,334
Long-term debt 451,177
Total liabilities 7,374,425
Shareholders' equity:
Preferred stock, $5 par, 5,000,000 shares authorized,
770,000 issued and outstanding 3,850
Common stock, $5 par, 120,000,000 shares authorized,
39,738,244 proforma issued and outstanding 168,461
Paid-in capital 181,416
Retained earnings 189,671
Unearned compensation (4,361)
Total shareholders' equity 539,037
Total liabilities and shareholders' equity $7,913,462
<PAGE>
Southern National Corporation
And
The First Savings Bank, FSB
Proforma Combined Statement of Income
For the Year Ended December 31, 1993
(Dollars in thousands except per share data)
1993
Interest Income
Interest and fees on loans and leases $380,334
Interest and dividends on securities 136,254
Interest on temporary investments 2,090
Total interest income 518,678
Interest Expense
Interest on deposits 183,413
Interest on short-term borrowings 15,329
Interest on long-term debt 23,118
Total interest expense 221,860
Net Interest Income 296,818
Provision for loan and lease losses 26,423
Net Interest Income After Provision for Loan and Lease Losses 270,395
Noninterest Income
Service charges on deposit accounts 36,005
Nondeposit fees and commissions 23,686
Securities gains, net 12,979
Other income 11,227
Total noninterest income 83,897
Noninterest Expense
Personnel expense 125,479
Occupancy and equipment expense 36,537
Federal deposit insurance expense 13,384
Foreclosed property expense 21,914
Other expense 123,041
Total noninterest expense 320,355
Earnings
Income before income taxes 33,937
Provision for income taxes 19,629
Income before cumulative effect of
changes in accounting principles 14,308
Less: cumulative effect of changes
in accounting principles, net of
income taxes 27,304
Net Income (12,996)
Preferred dividend requirements 5,196
Income applicable to common shares $(18,192)
Per Common Share
Net income:
Primary
Income before cumulative effect $ 0.24
Less: cumulative effect 0.70
Net income $ (0.46)
Fully-diluted
Income before cumulative effect $ 0.33
Less: cumulative effect 0.63
Net income $ (0.30)
Cash dividends paid per common share $ 0.64
<PAGE>
EXHIBIT INDEX
23.1 Consent of KPMG Peat Marwick
******************************************************************************
APPENDIX
On Page VII-39 the signature of KPMG Peat Marwick appears where indicated.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Southern National Corporation
We consent to the use of our report on the consolidated statements of
financial condition of The First Savings Bank, FSB and subsidiaries as of
June 30, 1993 and 1992 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-
year period ended June 30, 1993 included herein in the Form 8 of Southern
National Corporation dated April 15, 1994.
Greenville, South Carolina
April 15, 1994
