-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HvKvSREk+fMc6mqf7vFG/Fk+c47QP5olH61xU7GRVAfeHq1ew80NZNywdvKfYrMO 7BYTVH8iSLcT/+hax9W81w== 0000931763-99-003166.txt : 19991115 0000931763-99-003166.hdr.sgml : 19991115 ACCESSION NUMBER: 0000931763-99-003166 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIER BANCSHARES INC /GA CENTRAL INDEX KEY: 0000836616 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 581793778 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12625 FILM NUMBER: 99749149 BUSINESS ADDRESS: STREET 1: 2180 ATLANTA PLAZA STREET 2: 950 EAST PACES FERRY ROAD CITY: ATLANTA STATE: GA ZIP: 30326 BUSINESS PHONE: 4048143090 MAIL ADDRESS: STREET 1: 2180 ATLANTA PLAZA STREET 2: 950 EAST PACES FERRY ROAD CITY: ATLANTA STATE: GA ZIP: 30326 FORMER COMPANY: FORMER CONFORMED NAME: FIRST ALLIANCE/PREMIER BANCSHARES INC DATE OF NAME CHANGE: 19970108 FORMER COMPANY: FORMER CONFORMED NAME: FIRST ALLIANCE BANCORP DATE OF NAME CHANGE: 19960711 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 1999 ------------------ Commission file number 1-12625 PREMIER BANCSHARES, INC. (Exact name of registrant as specified in its charter) Georgia 58-1793778 (State or other jurisdiction of (IRS employer identification no.) incorporation or organization) 2180 Atlanta Plaza 950 East Paces Ferry Road Atlanta, Georgia 30326 (address of principal (zip code) executive offices) Registrants telephone number, including area code 404-814-3090 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 3, 1999 Common stock, $1.00 par value 29,390,967 PREMIER BANCSHARES, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS Part I. Financial Information Item 1. Consolidated Condensed Financial Statements....................... 3 Consolidated Condensed Statements of Condition (Unaudited) as of September 30, 1999 and December 31, 1998 Consolidated Condensed Statements of Income (Unaudited) for the Three Months Ended September 30, 1999 and 1998 Consolidated Condensed Statements of Income (Unaudited) for the Nine Months Ended September 30, 1999 and 1998 Consolidated Condensed Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 1999 and 1998 Notes to Unaudited Consolidated Condensed Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 16 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K.................................. 16 Signatures.................................................................. 17 2 Part I. Financial Information Item 1. Consolidated Condensed Financial Statements PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CONDITION (Unaudited)
September 30, December 31, 1999 1998 ------------ ------------ (dollar amounts in thousands) Assets Cash and due from banks....................................................................... $ 52,311 $ 62,300 Interest-bearing deposits with other banks.................................................... --- 8,262 Federal funds sold............................................................................ 41,030 131,675 Securities available-for-sale................................................................. 198,742 152,636 Securities held-to-maturity .................................................................. --- 8,484 Loans held for sale........................................................................... 70,161 124,900 Loans......................................................................................... 1,284,945 1,162,392 Allowance for credit losses................................................................... (16,957) (15,681) ---------- ---------- Net loans..................................................................................... 1,267,988 1,146,711 Premises and equipment, net................................................................... 32,718 33,574 Goodwill and other intangibles................................................................ 4,387 4,500 Other real estate owned....................................................................... 1,494 1,889 Other assets.................................................................................. 24,487 19,237 ---------- ---------- Total assets............................................................................... $1,693,318 $1,694,168 ========== ========== Liabilities, redeemable preferred stock and common stockholders' equity Deposits: Noninterest-bearing......................................................................... $ 210,715 $ 208,560 Interest-bearing............................................................................ 1,098,976 1,114,553 ---------- ---------- Total deposits.............................................................................. 1,309,691 1,323,113 Federal funds purchased and securities sold under repurchase agreements....................... 28,227 21,782 Federal Home Loan Bank advances............................................................... 92,000 14,000 Guaranteed preferred beneficial interests in the Company's subordinated debentures.................................................................................. 28,750 28,750 Other borrowings.............................................................................. 70,673 144,289 Other liabilities............................................................................. 11,203 14,085 ---------- ---------- Total liabilities.......................................................................... 1,540,544 1,546,019 Redeemable preferred stock, par value $60, 2,000,000 shares authorized, 40,770 shares issued and outstanding......................................................................... 2,446 2,446 Common stockholders' equity: Common stock, $1 par value; 60,000,000 shares authorized; 28,274,582 and 27,829,873 shares issued at September 30, 1999 and December 31, 1998, respectively................................................................................. 28,274 27,830 Capital surplus............................................................................... 62,630 59,758 Treasury stock, at cost (61,775 shares at September 30, 1999)................................. (1,222) --- Retained earnings............................................................................. 63,193 57,692 Accumulated other comprehensive (loss) income................................................. (2,547) 423 ---------- ---------- Total stockholders' equity................................................................. 150,328 145,703 ---------- ---------- Total liabilities and stockholders' equity................................................. $1,693,318 $1,694,168 ========== ==========
See notes to consolidated condensed financial statements. 3 PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended September 30, 1999 1998 ----------- ----------- (dollar amounts in thousands, except per share data) Interest Income: Loans, including fees.................................. $ 30,528 $ 28,175 Investment securities: Taxable........................................ 3,016 3,262 Tax-exempt..................................... 130 392 Federal funds sold..................................... 694 1,682 ----------- ----------- Total interest income.......................... 34,368 33,511 Interest Expense: Deposits............................................... 12,877 13,691 Other borrowings....................................... 2,904 2,316 ----------- ----------- Total interest expense......................... 15,781 16,007 Net interest income.................................... 18,587 17,504 Provision for credit losses............................ 687 255 ----------- ----------- Net interest income after provision for credit losses.. 17,900 17,249 Other Income: Service charges on deposit accounts.................... 1,144 1,017 Securities transactions, net........................... --- 1,151 Mortgage banking activities............................ 4,564 5,983 Other noninterest income............................... 1,497 2,871 ----------- ----------- Total other income.................. 7,205 11,022 ----------- ----------- Other Expenses: Salaries and employee benefits......................... 10,804 11,147 Net occupancy and equipment expense.................... 2,250 2,317 Merger related expenses................................ 1,446 2,248 Other noninterest expense.............................. 5,401 3,669 ----------- ----------- Total other expenses........................... 19,901 19,381 ----------- ----------- Income before income taxes.................................. 5,204 8,890 Income taxes................................................ 2,033 3,538 ----------- ----------- Net income.................................................. $ 3,171 $ 5,352 =========== =========== Per Share Information: Earnings per share - Basic............................. $0.11 $0.19 Weighted average common shares outstanding - Basic..... 28,024,345 27,718,598 Earnings per share - Diluted........................... $0.11 $0.19 Weighted average common shares outstanding - Diluted... 28,056,070 28,201,598 Dividends declared per share........................... $0.09 $0.08
See notes to consolidated condensed financial statements. 4 PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Nine Months Ended September 30, 1999 1998 ----------- ----------- (dollar amounts in thousands, except per share data) Interest Income: Loans, including fees................................... $ 89,850 $ 80,913 Investment securities: Taxable......................................... 7,898 9,474 Tax-exempt...................................... 407 909 Federal funds sold...................................... 3,134 4,084 ----------- ----------- Total interest income........................... 101,289 95,380 Interest Expense: Deposits................................................ 38,507 39,825 Other borrowings........................................ 9,108 5,393 ----------- ----------- Total interest expense.......................... 47,615 45,218 Net interest income..................................... 53,674 50,162 Provision for credit losses............................. 1,854 691 ----------- ----------- Net interest income after provision for credit losses... 51,820 49,471 Other Income: Service charges on deposit accounts..................... 3,469 3,190 Securities transactions, net............................ 29 1,166 Mortgage banking activities............................. 19,568 18,715 Other noninterest income................................ 3,946 7,412 ----------- ----------- Total other income.............................. 27,012 30,483 Other Expenses: Salaries and employee benefits.......................... 32,330 31,150 Net occupancy and equipment expense..................... 6,604 6,611 Merger related expenses................................. 2,382 2,625 Other noninterest expense............................... 15,263 11,960 ----------- ----------- Total other expenses............................ 56,579 52,346 ----------- ----------- Income before income taxes................................... 22,253 27,608 Income taxes................................................. 8,687 9,550 ----------- ----------- Net income................................................... $ 13,566 $ 18,058 =========== =========== Per Share Information: Earnings per share - Basic.............................. $0.48 $0.65 Weighted average common shares outstanding - Basic...... 27,717,973 27,718,598 Earnings per share - Diluted............................ $0.48 $0.64 Weighted average common shares outstanding - Diluted.... 28,222,343 27,911,598 Dividends declared per share............................ $0.27 $0.24
See notes to consolidated condensed financial statements. 5 PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine months ended September 30, 1999 1998 ---------- ---------- (dollar amounts in thousands, except per share data) Cash flows from operating activities Net income........................................................................... $ 13,566 $ 18,058 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses.................................................... 1,854 691 Depreciation expense........................................................... 2,520 2,579 Amortization and accretion, net................................................ 292 458 Gain on sale of premises and equipment......................................... (672) (1,195) Gain on sale of securities..................................................... (29) (1,166) Gain on sale of other real estate owned........................................ (187) (235) Net decrease in loans held for sale............................................ 54,739 15,261 Increase in other assets....................................................... (2,877) (3,563) Decrease in other liabilities.................................................. (2,882) (1,188) --------- --------- Net cash provided by operating activities....................................... 66,324 29,700 Cash flows from investing activities Decrease in interest bearing deposits............................................... 8,262 3,425 Proceeds from maturities and paydowns of investment securities available-for-sale... 62,355 69,927 Proceeds from maturities and paydowns of investment securities held-to-maturity..... 3,153 26,025 Proceeds from sales of investment securities available-for-sale..................... 527 32,365 Purchases of investment securities available-for-sale............................... (108,397) (52,812) Purchases of investment securities held-to-maturity................................. --- (16,178) Net increase in loans............................................................... (124,389) (132,057) Decrease (increase) in federal funds sold, net...................................... 90,645 (72,053) Purchases of premises and equipment................................................. (3,752) (3,975) Proceeds from sales of premises and equipment....................................... 2,911 1,105 Sale of bank branch................................................................. --- (7,122) Proceeds from sales of other real estate owned...................................... 1,689 1,348 --------- --------- Net cash used in investing activities........................................... (66,996) (150,002) --------- --------- Cash flows from financing activities Net (decrease) increase in deposits................................................. (13,422) 90,449 Net increase (decrease) in repurchase agreements.................................... 6,445 (10,686) Net increase in FHLB advances....................................................... 78,000 10,000 Net (decrease) increase in other borrowings......................................... (73,616) 60,383 Dividends paid...................................................................... (7,382) (5,442) Purchase of treasury stock.......................................................... (1,671) --- Sale of treasury stock.............................................................. 452 --- Proceeds from exercise of stock options............................................. 1,877 1,628 --------- --------- Net cash (used in) provided by financing activities................................ (9,317) 146,332 Net (decrease) increase in cash and cash equivalents.............................. (9,989) 26,030 Cash and due from banks, beginning of period.......................................... 62,300 59,562 --------- --------- Cash and due from banks, end of period................................................ $ 52,311 $ 85,592 ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest......................................................................... $ 49,130 $ 45,032 ========= ========= Income taxes..................................................................... $ 12,317 $ 8,894 ========= =========
See notes to consolidated condensed financial statements. 6 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS September 30, 1999 (Unaudited) Note 1. BASIS OF PRESENTATION The accompanying consolidated condensed financial information of Premier Bancshares, Inc. and Subsidiaries (the "Company") is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations. As more fully discussed in Note 2, the Company completed four mergers in 1998 and one merger through September 30, 1999 accounted for as poolings of interests. The accompanying consolidated condensed financial information has been restated for all periods presented to reflect the effect of these mergers as if they had taken place on January 1, 1998. The results of operations for the three- and nine-month periods ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Note 2. BUSINESS COMBINATIONS Completed Combinations On August 31, 1999, the Company completed a business combination with North Fulton Bancshares, Inc. ("North Fulton") by exchanging 1,829,464 shares of the Company's common stock for all of the common stock of North Fulton. The combination was accounted for as a pooling of interests and, accordingly, the financial statements reflect the combination as if it took place on January 1, 1998. All prior period consolidated financial statements have been restated to include the results of North Fulton. The following table illustrates the Company's net interest income and net income on a consolidated basis for periods prior to the business combination discussed above:
Nine Months Ended September 30, 1999 1998 ------- ------- (in thousands) Net interest income: Premier Bancshares, Inc., exclusive of pre-acquisition amounts $48,353 $45,026 North Fulton 5,321 5,136 ------- ------- Total $53,674 $50,162 ======= ======= Net income: Premier Bancshares, Inc., exclusive of pre-acquisition amounts $12,643 $17,078 North Fulton 923 980 ------- ------- Total $13,566 $18,058 ======= =======
Results of operations for North Fulton subsequent to the acquisition date of August 31, 1999 are included in the Company's amounts. On December 17, 1998 the Company completed a business combination with Frederica Bank & Trust ("Frederica") by exchanging 1,013,500 shares of the Company's common stock for all of the common stock of Frederica. The combination was accounted for as a pooling of interests and, accordingly, the financial statements reflect the combination as if it took place on January 1, 1998. All prior period consolidated financial statements have been restated to include the results of Frederica. On July 2, 1998, the Company completed a business combination with The Bank Holding Company ("BHC") by exchanging 2,170,447 shares of the Company's common stock and 40,770 shares of the Company's redeemable preferred stock for all of the outstanding common and redeemable preferred stock of BHC. The combination was accounted for as a pooling of interests and, accordingly, the financial statements reflect the combination as if it took place on January 1, 1998. All prior period consolidated financial statements have been restated to include the results of BHC. 7 On July 1, 1998, the Company completed a business combination with Button Gwinnett Financial Corporation ("Button Gwinnett") by exchanging 5,571,778 shares of the Company's common stock for all of the outstanding common stock of Button Gwinnett. The combination was accounted for as a pooling of interests and, accordingly, the financial statements reflect the combination as if it took place on January 1, 1998. All prior period consolidated financial statements have been restated to include the results of Button Gwinnett. On June 9, 1998, the Company completed a business combination with Lanier Bank & Trust Company ("Lanier") by exchanging 1,625,990 shares of the Company's common stock for all of the outstanding common stock of Lanier. The combination was accounted for as a pooling of interests and, accordingly, the financial statements reflect the combination as if it took place on January 1, 1998. All prior period consolidated financial statements have been restated to include the results of Lanier. Pending Combinations On May 20, 1999, the Company announced that a definitive merger agreement had been entered into with Bank Atlanta ("Bank Atlanta"). As of December 31, 1998, Bank Atlanta had total assets of $79,447,000, and for the year ended December 31, 1998, had revenue and net income of $7,346,000 and $1,405,000, respectively. On October 26, 1999, the Bank Atlanta shareholders approved the pending acquisition which closed on October 27, 1999, with each common share of Bank Atlanta stock outstanding converted into 1.4375 shares of the Company's common stock, for a total of 1,021,920 shares. This transaction was accounted for under the pooling of interests method of accounting. On April 20, 1999, the Company announced that a definitive merger agreement had been entered into with Farmers & Merchants Bank ("Farmers"). As of December 31, 1998, Farmers had total assets of $165,981,000, and for the year ended December 31, 1998, had revenue and net income of $13,048,000 and $2,600,000, respectively. On November 5, 1999, the Farmers shareholders approved the pending acquisition which closed, with each common share of Farmers stock outstanding converted into 4.028 shares of the Company's common stock, for a total of 2,900,160 shares. This transaction was accounted for under the purchase method of accounting. Note 3. STOCKHOLDERS' EQUITY On April 13, 1999, the Company declared a quarterly cash dividend of $0.09 per share payable to shareholders of record as of April 27, 1999. The dividend was paid on May 10, 1999. On July 22, 1999, the Company declared a quarterly cash dividend of $0.09 per share payable to shareholders of record as of August 5, 1999. The dividend was paid on August 19, 1999. On October 21, 1999, the Company declared a quarterly cash dividend of $0.09 per share payable to shareholders of record as of November 4, 1999. The dividend is to be paid on November 18, 1999. Note 4. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"). Statement 133 establishes new accounting and reporting activities for derivatives. The standard requires all derivatives to be measured at fair value and recognized as either assets or liabilities in the statement of condition. Under certain conditions, a derivative may be specifically designated as a hedge. Accounting for the changes in fair value of a derivative depends on the intended use of the derivative and the resulting designation. In July 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133" ("Statement 137"), which deferred the effective date of Statement 133 to fiscal years beginning after June 15, 2000. The adoption of Statement 133 is not expected to result in a material financial impact on the Company's financial position or results of operations. 8 Note 5. EARNINGS PER SHARE Earnings per share for periods prior to 1999 have been restated to reflect the business combinations accounted for as poolings of interests. The following tables set forth the computation of basic and diluted earnings per share:
Quarter ended September 30, 1999 1998 ------- ------- (in thousands, except per share data) Numerator: Net income..................................................................... $ 3,171 $ 5,352 Preferred stock dividends...................................................... (49) (49) ------- ------- Net income available to common shareholders.................................... $ 3,122 $ 5,303 ======= ======= Denominator: Denominator for basic earnings per share - weighted average shares............. 28,024 27,719 Effect of dilutive securities - stock options.................................. 32 483 ------- ------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions....................................................... 28,056 28,202 ======= ======= Net income per share of common stock........................................... $ 0.11 $ 0.19 ======= ======= Net income per share of common stock-diluted................................... $ 0.11 $ 0.19 ======= ======= Nine Months ended September 30, 1999 1998 ------- ------- (in thousands, except per share data) Numerator: Net income..................................................................... $13,566 $18,058 Preferred stock dividends...................................................... (147) (147) ------- ------- Net income available to common shareholders.................................... $13,419 $17,911 ======= ======= Denominator: Denominator for basic earnings per share - weighted average shares............. 27,718 27,719 Effect of dilutive securities - stock options.................................. 504 193 ------- ------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions............................... 28,222 27,912 ======= ======= Net income per share of common stock........................................... $ 0.48 $ 0.65 ======= ======= Net income per share of common stock-diluted................................... $ 0.48 $ 0.64 ======= =======
Note 6. OTHER COMPREHENSIVE INCOME Total comprehensive income was $2,233,000 and $4,777,000 for the quarters ended September 30, 1999 and 1998, respectively, and $10,596,000 and $18,162,000 for the nine months ended September 30, 1999 and 1998, respectively. The Company's components of other comprehensive income consist solely of unrealized gains and losses on securities classified as available for sale and reclassification adjustments for securities gains and losses included in net income. Note 7. BUSINESS SEGMENT INFORMATION The Company's two major lines of business are Community Banking and Mortgage Lending. Community Banking encompasses all of the Company's traditional banking services, including: loans to small and medium-size businesses; residential, construction and development loans; commercial real estate loans; consumer loans and a variety of commercial and consumer deposit accounts. Included in Community Banking are certain corporate overhead expenses which have not been separately allocated. Mortgage Lending encompasses the retail origination of residential mortgage loans which are sold to correspondent mortgage investors. 9
Community Mortgage Banking Lending Eliminations Total ------------ --------- ------------- ----------- (dollars in thousands) Three months ended September 30, 1999: - -------------------------------------- Net interest income..................... $ 16,807 $ 1,093 $ 17,900 Other income............................ 2,397 4,917 (109) 7,205 Other expenses.......................... (14,416) (5,594) 109 (19,901) ---------- -------- ---- ---------- Income before income taxes.............. $ 4,788 $ 416 $ 5,204 ========== ======== ========== Average total assets.................... $1,578,022 $110,139 $1,688,161 ========== ======== ========== Three months ended September 30, 1998: - -------------------------------------- Net interest income..................... $ 17,031 $ 218 $ 17,249 Other income............................ 4,173 6,849 11,022 Other expenses.......................... (14,334) (5,047) (19,381) ---------- -------- ---------- Income before income taxes.............. $ 6,870 $ 2,020 $ 8,890 ========== ======== ========== Average total assets.................... $1,494,728 $ 75,604 $1,570,332 ========== ======== ========== Nine months ended September 30, 1999: - ------------------------------------- Net interest income..................... $ 49,281 $ 2,539 $ 51,820 Other income............................ 7,970 19,249 (207) 27,012 Other expenses.......................... (39,337) (17,449) 207 (56,579) ---------- -------- ---- ---------- Income before income taxes.............. $ 17,914 $ 4,339 $ 22,253 ========== ======== ========== Average total assets.................... $1,568,467 $113,749 $1,682,216 ========== ======== ========== Nine months ended September 30, 1998: - ------------------------------------- Net interest income..................... $ 48,894 $ 577 $ 49,471 Other income............................ 10,423 20,060 30,483 Other expenses.......................... (38,067) (14,279) (52,346) ---------- -------- ---------- Income before income taxes.............. $ 21,250 $ 6,358 $ 27,608 ========== ======== ========== Average total assets.................... $1,456,724 $ 49,992 $1,506,716 ========== ======== ==========
Note 8. PENDING MERGER On July 28, 1999, the Company and BB&T Corporation ("BB&T") entered into an Agreement and Plan of Reorganization (the "Agreement"), pursuant to which BB&T will acquire all of the issued and outstanding shares of Premier common stock and preferred stock through the merger of Premier with and into BB&T. The transaction is subject to approval by the shareholders of Premier, appropriate regulatory approvals and the satisfaction of certain other conditions set forth in the Agreement. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Premier Bancshares, Inc. (the "Company") is a bank holding company organized and existing under the laws of the State of Georgia and headquartered in Atlanta, Georgia. At September 30, 1999, the Company consisted of Premier Bank ("Premier Bank"), Milton National Bank ("Milton") and Premier Lending Corporation ("Premier Lending"). The Company merged Central and Southern Bank of Georgia into Premier Bank during the first quarter of 1999, and merged First Community Bank of Henry County, The Bank of Spalding County, and Frederica Bank & Trust into Premier Bank in the second quarter of 1999. The Company was incorporated in 1988 under the laws of the State of Georgia. 10 The Company is a locally-focused, community-oriented financial services holding company with several financial services industry products and services such as commercial finance (including asset-based loans), Small Business Administration ("SBA") lending, residential construction lending, residential mortgage loan origination and commercial real estate mortgage loan origination. The Company's knowledge of both its product lines and local markets allows it to compete effectively with larger institutions by offering a wide range of products while maintaining strong community relationships and name recognition within its markets. In addition, management believes that there continue to be increased opportunities in the retail and small to middle market commercial loan products as larger competitors focus on the higher dollar and volume loan product markets. Through its financial institution subsidiaries, the Company operates 27 banking offices located in the Atlanta metropolitan area and in northern, central and coastal Georgia. In these markets, Premier Bank and Milton provide a broad array of community banking services, including: loans to small and medium-sized businesses; residential, construction and development loans; commercial real estate loans; consumer loans and a variety of commercial and consumer deposit accounts. In addition, through its wholly-owned mortgage banking subsidiary, Premier Lending, the Company operates 12 mortgage loan production offices in the Atlanta metropolitan area; Augusta, Georgia; Warner Robins, Georgia; St. Simons Island, Georgia; Charlotte, North Carolina; Chattanooga, Tennessee; Jacksonville, Florida; Charleston, South Carolina; and Mobile, Alabama. Premier Lending is a retail originator of residential mortgage loans which are sold to correspondent mortgage investors and is an approved Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") seller-servicer of mortgage loans and an approved Department of Housing and Urban Development ("HUD") and Veterans Administration ("VA") mortgage originator. Acquisitions of unaffiliated financial institutions during the past three years have been a principal source of the Company's growth. On August 31, 1996, the Company acquired a thrift holding company then named Premier Bancshares, Inc.; on June 23, 1997, the Company acquired Central and Southern Holding Company, a bank and thrift holding company; on December 12, 1997, the Company acquired Citizens Gwinnett Bankshares, Inc., a bank holding company; on June 9, 1998, the Company acquired Lanier Bank & Trust Company, a Georgia bank; on July 1, 1998, the Company acquired Button Gwinnett Financial Corporation, a bank holding company; on July 2, 1998, the Company acquired The Bank Holding Company, a bank holding company; on December 17, 1998, the Company acquired Frederica Bank & Trust, a Georgia bank; and on August 31, 1999, the Company acquired North Fulton Bancshares, Inc., a Georgia bank holding company. The historical financial statements of the Company have been restated to give effect to these acquisitions which were accounted for as poolings of interests. On April 20, the Company announced that a definitive merger agreement had been entered into with Farmers & Merchants Bank ("Farmers"). On May 20, the Company announced that a definitive merger agreement had been entered into with Bank Atlanta ("Bank Atlanta"). The Bank Atlanta merger closed on October 27, 1999, and was accounted for as a pooling of interests. The Farmers merger closed on November 5, 1999 and was accounted for as a purchase. On July 28, 1999, the Company entered into an Agreement and Plan of Reorganization with BB&T Corporation, pursuant to which the Company will be merged with and into BB&T and BB&T will be the surviving corporation. As a result of this merger, each share of the Company's common stock then outstanding will be converted into the right to receive 0.5155 shares of BB&T common stock, plus cash in lieu of any fractional share interest. BB&T is a multi-bank holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its operations in North Carolina, South Carolina, Georgia, Virginia, Maryland and Washington, D.C., primarily through its commercial banking subsidiaries, and to a lesser extent through its other subsidiaries. The merger of the Company with and into BB&T is subject to the approval of the Company's shareholders and banking regulators. The merger is expected to be completed in the first quarter of 2000. The following discussion should be read in conjunction with the Consolidated Condensed Financial Statements, including the footnotes, and is qualified in its entirety by the foregoing and other more detailed financial information appearing elsewhere herein. Historical results of operations and the percentage relationships among any amounts included in the Consolidated Condensed Statements of Income, and any trends which may appear to be inferable therefrom, should not be taken as being necessarily indicative of trends in operations or results of operations for any future periods. 11 Financial Condition - ------------------- At the end of the third quarter of 1999, total assets decreased $850,000 or 0.05% from December 31, 1998. Total loans (excluding mortgage loans held for sale) increased $122,553,000 or 10.5% from December 31, 1998. The increase in loans is primarily attributable to increased demand for loans in the markets that the Company serves. Mortgage loans held for sale decreased $54,739,000 or 43.8% during the same period, as the volume of loans sold to correspondent mortgage investors increased during 1999. Federal funds sold decreased $90,645,000 or 68.8% from December 31, 1998 to September 30, 1999. Investment securities increased $37,622,000 or 23.4% during the same period. Total deposits decreased $13,422,000 or 1.0% for the year-to-date due, in part, to a program to reduce the cost of deposits. Federal Home Loan Bank advances increased $78,000,000 as the Company initiated a plan to supplement deposits with lower cost funding. Other borrowings decreased by $73,616,000 or 51.0% as the result of decreases in the warehouse line of credit resulting from lower outstanding mortgage loans held for sale at period end. Results of Operations - --------------------- For the three-month period ended September 30, 1999, the Company recorded net income of $3,171,000 as compared to $5,352,000 for the same period in 1998. This $2,181,000 or 40.8% decrease is due primarily to the following: Net interest income increased $1,083,000. Provision for credit losses increased $432,000. Total other income decreased $3,817,000. Total other expense increased $520,000. Income tax expense decreased $1,505,000. The reasons for these changes are discussed more fully below. For the nine-month period ended September 30, 1999 the Company recorded net income of $13,566,000 as compared to $18,058,000 for the same period in 1998. This $4,492,000 or 24.9% decrease is due primarily to the following: Net interest income increased $3,512,000. Provision for credit losses increased $1,163,000. Total other income decreased $3,471,000. Total other expense increased $4,233,000. Income tax expense decreased $863,000. The reasons for these changes are discussed more fully below. Net Interest Income Net interest income increased $1,083,000 or 6.2% for the three-month period ended September 30, 1999 compared to the same period in 1998, due to an increase in average earning assets. Average earning assets increased by approximately $135,000,000 while average interest-bearing liabilities increased by approximately $112,000,000. Yields on earning assets decreased by 56 basis points and costs of interest-bearing liabilities decreased by 52 basis points. The net interest margin declined to 4.62% in the third quarter of 1999 from 4.76% in the same period of 1998. Net interest income increased $3,512,000 or 7.0% for the nine-month period ended September 30, 1999 compared to the same period in 1998, due to an increase in average earning assets. Average earning assets increased by approximately $143,000,000 while average interest-bearing liabilities increased by approximately $172,000,000. Yields on earning assets decreased by 32 basis points and costs of interest-bearing liabilities decreased by 48 basis points. The net interest margin declined to 4.54% for the nine-month period of 1999 from 4.66% in the same period of 1998. 12 Provision for Credit Losses - --------------------------- The Company recorded a provision for credit losses of $687,000 for the third quarter of 1999 and $1,854,000 year-to-date. The Company had net charge-offs of $371,000 during the third quarter and $578,000 year-to-date. Management will continue to monitor and adjust the level of the allowance for credit losses in relation to net charge-offs, as well as the overall level of the allowance for credit losses to loans outstanding and management's assessment of credit losses inherent in the loan portfolio.
ASSET QUALITY Sept. 30, December 31, 1999 1998 Change Percentage ---------- ----------- ----------- ----------- (dollars in thousands) Loans past due 90 days or more..... $ 29 $ 695 $ (666) (95.8)% Nonaccrual loans................... 3,298 4,016 (718) (17.9)% ------ ------ ------- ------ Total nonperforming loans..... 3,327 4,711 (1,384) (29.4)% Other real estate owned............ 1,494 1,889 (395) (20.9)% ------ ------ ------- ------ Total nonperforming assets.... $4,821 $6,600 $(1,779) (27.0)% ====== ====== ======= ====== Nonperforming loans/Total loans.... 0.26% 0.41% Nonperforming assets/Total assets.. 0.28% 0.39%
The table above illustrates the changes in the level of nonperforming assets from December 31, 1998 to September 30, 1999. The level of nonperforming assets at September 30, 1999 decreased by $1,779,000 from December 31, 1998. Management presently anticipates the levels of nonperforming loans and assets will remain at approximately current levels. Management is not aware of any potential problem loans other than those included in the table above. Other Income - ------------ The Company's main sources of other income are from mortgage banking activities and service charges on deposit accounts. Other income decreased $3,817,000 in the third quarter of 1999 compared to the same period in 1998. Service charges on deposit accounts increased by $127,000 due to the growth in outstanding deposits. Income from mortgage banking activities decreased $1,419,000 for the third quarter of 1999 compared to 1998 due to an increase in interest rates, as rates on 30-year residential first mortgages increased almost 100 basis points compared to 1998. As a result of increases in interest rates generally, the volume of the Company's mortgage business and income continues to decline, and the mix of business has shifted to less profitable purchases of loans from correspondents. Income from mortgage production and gains on sales of mortgages have also declined. During the third quarter of 1998 the Company recognized $1,151,000 in gains on sales of investment securities compared to zero for the third quarter of 1999. Other noninterest income decreased $1,374,000 for the third quarter of 1999 compared to 1998 primarily due to decreases in gains on sales of SBA loans and various asset sales in 1998 as a result of the subsidiary bank acquisitions. For the year-to-date, other income decreased $3,471,000. Service charges on deposits increased by $279,000 as outstanding deposits continued to increase in 1999 over the 1998 levels. Income from mortgage banking activities increased by $853,000 in 1999 compared to 1998 due to the strong growth in originations during late 1998 and early 1999. As discussed above, this growth has slowed dramatically during the second and third quarters of 1999. As a result of general increases in interest rates during the summer of 1999 and the expectation of additional upward pressure on interest rates from a strong economy, the Company presently expects that mortgage loan production, and income from the origination and sale of mortgage loans, will continue to decline from the abnormally high levels of 1998 and early 1999. Other noninterest income declined by $3,466,000 for the year-to-date primarily due to non-recurring asset sales in 1998. Other Expense - ------------- Other expense increased $520,000 for the three-month period ended September 30, 1999 compared to the same period in 1998. Salaries and employee benefits expense decreased $343,000 primarily due to decreased commissions on mortgage loan originations. Occupancy expense decreased $67,000 due to improvements in efficiencies as a result of the subsidiary bank consolidations during 1999. Merger expenses decreased by $802,000 as several acquisitions were completed during the third quarter of 1998. Other operating expense increased $1,732,000 over 1998 as Premier Lending opened six new mortgage origination offices in late 1998. 13 For the year-to-date, other expense increased $4,233,000. Salaries and employee benefits increased by $1,180,000 due to increased mortgage loan commissions during the first six months of 1999 compared to 1998. Occupancy expense remained relatively constant for the nine-month periods, decreasing slightly by $7,000. Merger expenses decreased by $243,000 due to fewer completed acquisitions during the first nine months of 1999. Other operating expense increased by $3,303,000 due to the additional mortgage origination offices opened in late 1998 as well as increases in various expenses incurred in the consolidation of the acquired bank subsidiaries. Income Tax Expense Income tax expense decreased $1,505,000 for the three months ended September 30, 1999 compared to the same period in 1998 primarily due to the decrease in pretax income. The effective tax rate for the third quarter of 1999 was 39.1% versus 39.8% for the same period in 1998. For the year, income tax expense decreased $863,000. The effective tax rate was 39.0% in 1999 versus 34.6% for 1998. The Company's effective tax rate increased due to the nondeductibility of certain merger expenses and a decrease in tax- exempt interest income. Interest Rate Sensitivity Management Interest rates play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as "interest rate risk." The repricing of interest-earning assets and interest-bearing liabilities can influence the changes in net interest income. As part of the Company's asset/liability management program, the timing of repricing assets and liabilities is referred to as Gap management. It is the policy of the Company to maintain a Gap ratio in the one-year time horizon of .80 to 1.20. The current Gap analysis indicates that the Company is somewhat asset sensitive in relation to changes in market interest rates. The Company uses simulation analysis to monitor changes in net interest income due to changes in market interest rates. The simulation of rising, declining, and a most likely interest rate scenario allows management to monitor and adjust interest rate sensitivity to minimize the impact of market interest rate swings. Each month management updates all available data concerning cash flows of assets and liabilities, changes in market interest rates, and expectations as to new volumes of loans. During periods of rising interest rates, as has been experienced during 1999, mortgage originations, especially refinancings, tend to decrease. This has been somewhat offset by the strong economies in which the Company operates and continued strong housing sales. As the Company has sold loans in the secondary market, the reduction in origination volume, especially refinancings, has reduced the amounts of mortgage loans held for sale, and the interest income earned by the Company and the potential for future gains on sale of mortgage loans. The margins on this business have also declined as costs have remained steady or increased compared to reduced income. With continued expectations in the market for increased rates, management does not believe that the mortgage origination business will improve in the near future although it is taking steps to reduce the costs. Personnel disruptions from the announced merger of the Company and BB&T may also adversely affect this business. Liquidity and Capital Resources Liquidity is an important factor in the financial condition of the Company and affects the Company's ability to meet the borrowing needs and deposit withdrawal requirements of its customers. Assets, consisting principally of loans and investment securities, are funded by customer deposits, purchased funds, and borrowed funds. The investment portfolio is one of the Company's primary sources of liquidity. Maturities of securities provide a constant flow of funds which are available for liquidity needs. Investment securities that contractually mature within one year total approximately $24 million. However, mortgage-backed securities and securities with call provisions create cash flows earlier than the contractual maturities. Mortgage loans held for sale and other short-term investments also increase forecasted cash flows. Total short-term investments, which include Federal funds sold, interest-earning deposits with other banks, loans held for sale and investment securities maturing within one year, totaled $136 million at September 30, 1999. Maturities in the loan portfolio also provide a steady flow of funds. At September 30, 1999 and 1998, the loan-to-deposit ratio (excluding loans held for sale) was 98.1% and 83.6%, respectively. 14 The Company's warehouse line of credit with the Federal Home Loan bank bears interest at the Fed Funds rate plus fifty basis points. This rate is adjusted daily and is payable monthly. This line matures on May 31, 2000 and is secured by an assignment of first security interests in certain mortgage loans. The Company has a total of $92,000,000 in Federal Home Loan Bank advances as of September 30, 1999. The advances mature at various dates from 2000 to 2009 and bear interest payable quarterly at fixed rates ranging from 4.84% to 5.40%. The advances are collateralized by a blanket floating lien on qualifying first mortgage loans. Stockholders' Equity - -------------------- The Company maintains a ratio of stockholders' equity to total assets that is adequate relative to industry standards. The Company's ratio of stockholders' equity to total assets was 8.9% at September 30, 1999, compared to 8.6% at December 31, 1998. The Company and its subsidiary banks are required to comply with capital adequacy standards established by the Federal Reserve and the FDIC. Currently, there are two basic measures of capital adequacy: risk-based measure and leverage measure. The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, to account for off-balance sheet exposure and to enhance the value of holding liquid assets. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The minimum standard for the ratio of total capital to risk-weighted assets is 8.0%. At least 50% of that capital level must consist of common equity, undivided profits and noncumulative perpetual preferred stock, less goodwill and certain other intangibles ("Tier I capital"). The remainder ("Tier II capital") may consist of a limited amount of other preferred stock, mandatory convertible securities, subordinated debt and a limited amount of the allowance for credit losses. The sum of Tier I capital and Tier II capital is "total risk-based capital." The Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. The Federal Reserve has adopted a final rule which provides that the minimum ratio of Tier I capital to total assets less goodwill (the "leverage ratio") for the most highly-rated bank holding companies is 3.0%. The minimum leverage ratio for all other bank holding companies is 4.0-5.0%. Banking organizations with supervisory, financial, operational, or managerial weaknesses, as well as organizations that are anticipating or experiencing significant growth, are expected to maintain capital ratios well above the minimum levels. Capital Levels Sept. 30, Minimum 1999 Requirement ---------- --------------- Tier I Capital Leverage Ratio..... 11.14% 3.0% Tier I Risk-based Capital Ratio... 13.47% 4.0% Tier II Risk-based Capital Ratio.. 1.22% ----- Total Risk-based Capital Ratio.... 14.69% 8.0% ===== === A subsidiary of the Company issued $28.7 million of cumulative preferred securities in November 1997. The proceeds of the sale of cumulative preferred securities qualifies as Tier 1 capital with respect to the risk-based capital guidelines established by the Federal Reserve. Federal Reserve guidelines for calculation of Tier 1 capital limit the amount of cumulative preferred securities which can be included in Tier 1 capital to 25% of total Tier 1 capital. Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act This quarterly report on Form 10-Q contains "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this report, the words "believes," "expects," "anticipates," "estimates," and similar words and expressions are generally intended to identify forward-looking statements. Statements that describe the Company's future strategic plans, goals or objectives are also forward-looking statements, including those regarding the intent, belief or current expectations of the Company or management, are not guarantees of future performance, results or events and involve risks and uncertainties, and that actual results and events may differ materially from those in the forward-looking statements as a result of various factors including, but not limited to, (i) interest rates and general economic conditions in the markets in which the 15 Company operates, (ii) competitive pressures in the markets in which the Company operates, (iii) the effect of future legislation or regulatory changes on the Company's operations and (iv) other factors described from time to time in the Company's filings with the Securities and Exchange Commission. The forward- looking statements included in this report are made only as of the date hereof. The Company undertakes no obligation to update such forward-looking statements to reflect subsequent events or circumstances. Year 2000 With respect to its internal systems, the Company is taking steps to prepare both its information technology systems and its other equipment and machinery for the Year 2000 date change. The data processing service provider for the banking subsidiaries has given the Company guarantees of Year 2000 compliance on core loan, deposit and accounting related programming. Testing of the service provider was completed during the third quarter of 1998 with test results proving that accurate calculations will continue through the year 2000 and beyond. With these test results, the Company's Year 2000 efforts are considered to be substantially complete for core banking applications. Year 2000 upgrades to the ATM machines are under contract and were completed in the first quarter of 1999 as further versions of compliant software were released. Testing of file servers and personal computers and networks is in process for recent acquisitions with replacement and upgrades of mission critical components complete and non-mission critical computers scheduled to be upgraded during the remainder of 1999. Customer mailings promoting awareness of the potential Year 2000 problem have been provided on a periodic basis during 1998 and 1999. Larger credit relationships have been reviewed and surveyed for Year 2000 issues assessing their readiness and preparations related to the coming of the new millenium and findings indicate minimal additional risks because of the Year 2000. Costs associated with Year 2000 have been minimized due to the necessary upgrades of our acquired banking offices prior to the merging of data processing systems. Estimated costs for Year 2000 preparation including personnel costs are $150,000. Management believes that all systems will be Year 2000 ready. Failure of mission critical systems is not likely because of Year 2000 preparations. Contingency plans continue to be developed and focus on manual processes and backup procedures needed for temporary operations should there be temporary malfunctions of utility providers. Contingency plans will be modified on an ongoing basis as information dictates. The Company determined during the first quarter of 1999 that it was necessary for the Company to reassess and validate the Year 2000 readiness of its non-bank subsidiary, Premier Lending, and to improve the documentation relating to such readiness. The Company is in the process of revising and updating the Year 2000 plan for Premier Lending and has engaged an outside consultant to assist in documenting the level of readiness. The testing of internal systems, the review of third parties with whom a material relationship may exist, and the development of Year 2000 business resumption contingency plans at Premier Lending were completed during the second quarter of 1999. However, further testing, assessment of third party risks, and modification of contingency plans will continue to be undertaken during 1999 with respect to Premier Lending to the extent deemed necessary by the Company. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk exposure is interest rate risk and, to a lesser extent, credit risk and liquidity risk. The Company has little or no risk related to trading accounts, commodities or foreign exchange. Interest rate risk is the exposure of a banking organization's financial condition and earnings ability to adverse movements in interest rates. The Company has analyzed the assumed market value risk and earnings risk inherent in its interest rate sensitive instruments related to interest-rate swings of 300 basis points over a 24 month horizon, both above and below current levels (rate shock analysis). Earnings and fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. There have been no significant changes in the Company's market risk exposure since December 31, 1998. Part II. Other Information Item 6. Exhibits and Reports on Form 8-K a. Exhibits 27.1 Financial Data Schedule 16 b. Reports on Form 8-K The Company filed a report on Form 8-K on August 3, 1999, reporting the execution of an Agreement and Plan of Reorganization with BB&T Corporation. 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. PREMIER BANCSHARES, INC. - ------------------------ Registrant Date November 12, 1999 Darrell D. Pittard ----------------- ------------------ Darrell D. Pittard Chief Executive Officer Date November 12, 1999 Michael E. Ricketson ----------------- -------------------- Michael E. Ricketson Chief Accounting Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 52,311 0 41,030 0 198,742 202,592 198,742 1,355,106 16,957 1,693,318 1,309,691 98,900 11,203 120,750 0 2,446 28,274 122,054 1,693,318 89,850 8,305 3,134 101,289 38,507 9,108 53,674 1,854 29 56,579 22,253 22,253 0 0 13,566 0.48 0.48 4.54 3,298 29 0 0 15,681 1,055 477 16,957 0 0 0
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