-----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, Q0C81Kb/be8c+2HfqnBEJwkH8dQunEyVIrlg1s40sYu/iCIvCvpbP4GUWmpa4wzT h8BEKNNrd+QxEqg+aKMZfg== 0000931763-97-000781.txt : 19970514 0000931763-97-000781.hdr.sgml : 19970514 ACCESSION NUMBER: 0000931763-97-000781 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970513 SROS: AMEX 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12625 FILM NUMBER: 97602665 BUSINESS ADDRESS: STREET 1: 2180 ATLANTA PLAZA STREET 2: 950 EAST PACES FERRY ROAD CITY: ATLANTA STATE: GA ZIP: 30326 BUSINESS PHONE: 4044252265 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-K/A 1 FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A-1 FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to COMMISSION FILE NUMBER 0-24528 PREMIER BANCSHARES, INC. (Exact name of Registrant as specified in its Charter) GEORGIA 58-1793778 (State of Incorporation) (I.R.S. Employer Identification No.) 2180 Atlanta Plaza 950 E. Paces Ferry Road Atlanta, Georgia 30326 (Address of principal office, including zip code) (404) 814-3090 Registrant's telephone number, including area code) Securities Registered pursuant to Section 12(b) of the Act: NONE Securities Registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $1.00 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ------ This Report contains a total of 34 pages; the Exhibit Index begins on Page 35. [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by nonaffiliates of the Registrant at March 26, 1997, was approximately $41,678,294 based on $13.875 per share, the closing price of the Common Stock as quoted on the American Stock Exchange. The number of shares of the Registrant's Common Stock outstanding at April 18, 1997, was 4,249,401 shares. DOCUMENT INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the year ended December 31, 1996, are incorporated by reference into Parts I and II of this report. Portions of the Proxy Statement for the 1997 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days of the Registrant's 1996 fiscal year end are incorporated by reference into Part III of this report. Such Proxy Statement is contained in the Registrant's Form S-4 Registration Statement filed with the Securities and Exchange Commission on April 4, 1997. 2 PART I ITEM 1. BUSINESS THE COMPANY ----------- Premier Bancshares, Inc. (the "Company") formerly known as First Alliance/Premier Bancshares, Inc. and also formerly known as First Alliance Bancorp, Inc. was incorporated as a Georgia corporation in 1988 under the laws of the state of Georgia and the regulations of the Bank Holding Company Act of 1956. The Company's largest subsidiary, First Alliance Bank (the "First Alliance Bank"), is a commercial bank that opened for business in 1984. On August 31, 1996, the Company acquired, through a pooling of interests, a thrift holding company named Premier Bancshares, Inc. ("Premier"). Premier owned two subsidiaries: Premier Lending Corporation ("Premier Lending") and Premier Bank, FSB ("Premier Bank") which became wholly-owned subsidiaries of the Company. Premier Lending engages in the business of residential mortgage, construction and commercial finance loan originations. Premier Bank is a savings and loan association that engages in the business of providing savings banking services including personal and business checking accounts and other accounts and residential, commercial and consumer lending activities. The Company also owns a majority interest in a consumer finance company named Alliance Finance Inc. ("Alliance Finance"). For more in-depth background on all of the above companies, the reader is referred to the Registration Statement on Form S- 4 filed with the Securities and Exchange Commission on April 4, 1997. Any additional non-banking activities to be conducted by the Company may include financial and other activities permitted by law, and such activities could be conducted by subsidiary corporations that have not yet been organized. Commencement of non-banking operations by the Company or by its subsidiaries, if they are organized, will be contingent upon approval by the Board of Directors of the Company and by appropriate regulatory authorities. The Company's main office is located at 2180 Atlanta Plaza, 950 E. Paces Ferry Road, Atlanta, Georgia 30326. At the present time, the Company does not have any plans to establish additional offices, but its subsidiaries will establish new branch offices from time to time. RECENT DEVELOPMENTS ------------------- PROPOSED MERGER WITH THE CENTRAL AND SOUTHERN HOLDING COMPANY On February 3, 1997, the Company entered into an Agreement and Plan of Reorganization with The Central and Southern Holding Company ("Central and Southern") of Milledgeville, Georgia (the "Agreement"). Pursuant to the Agreement, Central and Southern will merge with and 3 into the Company and The Central and Southern Bank of Georgia and The Central and Southern Bank of North Georgia, F.S.B., which are wholly-owned subsidiaries of Central and Southern, will become wholly-owned subsidiaries of the Company. Upon consummation of the merger, each share of Central and Southern common stock issued and outstanding will be converted into and exchanged for the right to receive one share of the Company's common stock. Consummation of the merger is subject to certain conditions, including approval of the Agreement by the Company and Central and Southern shareholders and approval of the merger by the various regulatory agencies. In contemplation of the merger, the Board of Directors changed the Company's name to "Premier Bancshares, Inc." and approved a 1.8055-for-one split of the common stock of the Company which had a record date of March 6, 1997 and a distribution date of March 20, 1997. On March 26, 1997, the Agreement was amended to allow for the substitution of Central and Southern's outstanding stock options for options under the Company's proposed 1997 Stock Option Plan upon consummation of the Merger. PROPOSED TRANSACTION AMONG PREMIER BANK, FIRST ALLIANCE BANK AND NET.B@NK Premier Bank has entered into a Purchase and Assumption Agreement with First Alliance Bank dated December 19, 1996, whereby First Alliance Bank has agreed to purchase and assume substantially all of the assets and liabilities, respectively, of Premier Bank (except for Premier Bank's savings bank charter and approximately $5 million of assets and $5 million of deposit liabilities). Immediately following consummation of the Purchase and Assumption Agreement, all of the outstanding common stock of Premier Bank, now owned by Premier, will be purchased by Net.B@nk, Inc., a corporation organized and existing under the laws of the State of Georgia ("Net.B@nk"), pursuant to that certain Amended and Restated Stock Purchase Agreement by and between Premier and Net.B@nk dated December 19, 1996 (the "Stock Purchase Agreement"). On February 25, 1997, Premier and Net.B@nk executed a First Amendment to the Stock Purchase Agreement for the purpose of extending the termination date of the Stock Purchase Agreement to May 31, 1997, increasing the amount of Net.B@nk stock to be paid to Premier, and requiring a $150,000 cash payment from Net.B@nk to Premier for the purpose of reimbursing expenses incurred by Premier in connection with the Stock Purchase Agreement. In addition, the Purchase and Assumption Agreement was amended on March 13, 1997 for the purpose of extending the termination date to April 30, 1997. The Purchase and Assumption Agreement was amended again on March 25, 1997 to further extend the termination date to May 31, 1997. Under the Stock Purchase Agreement, as amended, Net.B@nk will transfer to Premier 1,250 shares of the common stock of Net.B@nk in exchange for the Premier Bank common stock. The Purchase and Assumption Agreement is subject to the approval of the Georgia Department of Banking and Finance (the "Georgia Department") and the Federal Deposit Insurance Corporation. Approval from the Federal Deposit Insurance Corporation was obtained on April 14, 1997. In addition, Net.B@nk's purchase of the Premier Bank common stock is subject to the approval of the Federal Reserve Bank of Richmond and the OTS. In connection with the regulatory application filed with the OTS seeking approval of the transactions contemplated in the Stock Purchase Agreement, the OTS has raised certain policy issues which could delay or effectively prohibit the consummation of such transactions. The transfer of all the Premier Bank common stock from Premier to Net.B@nk is also contingent upon the successful completion of Net.B@nk's $10 million initial public offering. 4 On March 17, 1997, Net.B@nk declared a 33.125 for 1 split of its common stock which will be payable on the effective date of Net.B@nk's initial public offering. As a result, upon consummation of the Stock Purchase Agreement, Premier will receive 41,406 shares or approximately .73% of Net.B@nk's common stock following its initial public offering. The sale of Premier Bank's savings bank charter will not have a material impact upon Premier's future financial position, operating results or liquidity. Management believes that the sale of the charter could enhance Premier's future profitability due to the reductions of duplicative operating expenses. The purpose of the Purchase and Assumption Agreement is to consolidate the operations of Premier Bank and First Alliance Bank. In the event that the transactions described in the Stock Purchase Agreement and the Assumption Agreement, as amended, have not been consummated by May 31, 1997, then the Purchase and Assumption Agreement shall, unless otherwise extended or modified, terminate under its own terms. In the event of the termination of the transactions in connection with Net.B@nk, Purchase and Assumption Agreement, Premier Bank and First Alliance Bank intend to merge pursuant to an Agreement and Plan of Merger by and between Premier Bank and First Alliance Bank whereby Premier Bank would merge with and into First Alliance Bank, with First Alliance Bank being the surviving institution. FIRST ALLIANCE BANK ------------------- GENERAL First Alliance Bank is organized under the laws of the state of Georgia and operates a full-service commercial banking business based in northern Cobb County, Georgia. It provides all customary banking services such as checking and savings accounts, various types of time deposits, money transfers, safe deposit facilities, all types of credit and debit cards, and individual retirement accounts. It also finances short-and medium-term commercial transactions, makes secured and unsecured loans and provides other ancillary financial services to its customers. In addition, the Bank provides a traditional first mortgage product to its customers providing financing for single-family homes on a permanent basis. First Alliance Bank's main office is located at 63 Barrett Parkway, Marietta, Georgia. MARKET AREA AND COMPETITION First Alliance Bank has five locations in Marietta, Georgia, from which it serves its primary market area of northern Metropolitan Atlanta (as defined by Cobb, DeKalb, Fulton and Gwinnett Counties) and Cherokee, Paulding and Bartow Counties. First Alliance Bank competes for both deposits and loan customers with many other financial institutions with equal or greater resources than are available to First Alliance Bank. Currently, there are approximately 20 different commercial banks located in the northern Metropolitan Atlanta banking market. The banking business in this market is highly competitive. DEPOSITS First Alliance Bank offers a wide range of commercial and consumer deposit accounts, including non-interest bearing checking accounts, money market checking accounts (consumer and commercial), negotiable order of withdrawal ("NOW") accounts, individual retirement accounts, time certificates of deposit, and regular savings accounts. The sources of deposits typically are residents and businesses and their employees within First Alliance Bank's market area and are obtained through personal solicitation by First Alliance Bank's officers and directors, direct mail solicitation, and advertisements published in the local media. First Alliance Bank pays competitive interest rates on time and savings deposits and has implemented a service charge fee schedule 5 competitive with other financial institutions in First Alliance Bank's market area, covering such matters as maintenance fees on checking accounts, per item processing fees on checking accounts, returned check charges, and the like. For additional information regarding First Alliance Bank, see the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's 1996 Annual Report to Shareholders, which is included as Exhibit 13.1 to this Annual Report on Form 10-K and is incorporated herein by reference. LENDING ACTIVITIES As is typical of community banks in First Alliance Bank's primary market area, First Alliance Bank makes loans primarily secured by real estate for single family home construction, owner-occupied commercial buildings, and other loans to small businesses and individuals who secure these loans by mortgages on their homes (76% of total loans). In addition, loans are made to small- and medium-sized commercial business (15% of total loans), as well as to consumers for a variety of purposes (9% of total loans). With the exception of single family home construction loans, repayment of the Bank's loans does not depend on the sale or cash flow from the collateral securing the loan. For information concerning the dollar amount of each of the following loan types and loan loss experience associated with the loan types, see the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's 1996 Annual Report to Stockholders, which is included as Exhibit 13.1 to this Annual Report on Form 10-K and is incorporated herein by reference. Real Estate Loans. First Alliance Bank makes single-family residential construction loans, generally for one-to-four unit structures. First Alliance Bank requires a first lien position on the land associated with the construction projects and offers these loans only to bona fide professional building contractors. Loan disbursements require independent, on-site inspections to assure the project is on budget and that the loan proceeds are being used in accordance with the plans, specifications and survey for the construction project and not being diverted to other uses. The loan-to-value ratio for such loans is predominately 75% of the as-built appraised value. Loans for construction can present a high degree of risk to the lender, depending on, among other things, whether the builder can sell the home to a buyer, whether the buyer can obtain permanent financing, whether the transaction produces income in the interim, and the nature of changing economic conditions. The Bank seeks to reduce this risk by limiting the number of loans to any one builder and the number of loans made in any one subdivision. Additionally, First Alliance Bank makes acquisition and development loans to approved developers for the purpose of developing acreage into single-family lots on which houses will be built. These loans are carefully scrutinized by outside members of the Board of Directors as well as the senior officers of First Alliance Bank and require independent inspection of the project by 6 professional inspectors to ensure adherence to the loan agreement as well as to the construction budget. The loan-to-value ratio for such loans does not exceed 80%, or 100% of the discounted value, whichever is less, as defined by an independent appraisal. Loans for acquisition and development can present a high degree of risk to the lender, depending upon, among other things, whether the developer can find builders to buy the lots, whether the builder can obtain financing, whether the transaction produces income in the interim, and the nature of changing economic conditions. First Alliance Bank seeks to reduce this risk by limiting the number of loans to any one developer and the size of the development. Consumer Loans. First Alliance Bank makes consumer loans, consisting primarily of installment loans to individuals for personal, family and household purposes including loans for automobiles, home improvements and investments. Consumer lending decisions are based on a determination of the borrower's ability and willingness to repay the loan, which in turn are impacted by such factors as the borrower's income, job stability, length of time as a resident in the community, previous credit history and collateral for the loan. Risks associated with these loans include, but are not limited to, fraud, deteriorated or non-existing collateral, general economic downturn, and customer financial problems. Commercial Loans. Commercial lending is directed principally toward businesses (a) whose annual sales are in the $1 to $5 million category within the defined trade area of First Alliance Bank or whose demand for funds falls within First Alliance Banks's legal lending limits and (b) which are existing or potential deposit customers of First Alliance Bank. Commercial lending decisions are based upon a determination of the borrower's ability and willingness to repay the loan, which in turn are impacted by such factors as the borrower's cash flow, sales trends and inventory levels, as well as relevant economic conditions. This category includes loans made to individual, partnership or corporate borrowers and obtained for a variety of purposes. Risks associated with these loans can be significant. Risks include, but are not limited to, fraud, bankruptcy, economic downturn, deteriorated or non- existing collateral, and changes in interest rates. INVESTMENT ACTIVITIES After establishing necessary cash reserves and funding loans, First Alliance Bank invests its remaining liquid assets in investments allowed under banking laws and regulations. First Alliance Bank invests primarily in obligations of the United States or obligations guaranteed as to principal and interest by the United States, and other taxable securities and in certain obligations of states and municipalities. First Alliance Bank also engages in Federal Funds transactions with its principal correspondent banks and primarily acts as a net seller of such funds. The sale of Federal Funds amounts to a short-term loan from First Alliance Bank to another bank. Risks associated with these investments include, but are not limited to, mismanagement in terms of interest rate, maturity and concentration. Historically, losses associated with the investment portfolio have been minimal. For additional information concerning Investment Activities, see the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's 1996 Annual Report to Shareholders, which is included as Exhibit 13.1 to this Annual Report on Form 10-K and is incorporated herein by reference. 7 ASSET/LIABILITY MANAGEMENT It is the objective of First Alliance Bank to manage its assets and liabilities to provided a satisfactory, consistent level of profitability within the framework of established cash, loan, investment, borrowing and capital policies. Certain officers of First Alliance Bank are charged with the responsibility for developing and monitoring policies and procedures that are designed to insure acceptable composition of the asset/liability mix. It is the overall philosophy of management to support asset growth primarily through growth of core deposits, which include deposits of all categories made by individuals, partnerships and corporations. Management of First Alliance Bank seeks to invest the largest portion of First Alliance Bank's assets in loans to local builders, small businesses and individuals. First Alliance Bank's asset/liability mix is monitored on a timely basis with a report reflecting interest-sensitive assets and interest-sensitive liabilities being prepared and presented to the asset/liability committee of First Alliance Bank's Board of Directors on a quarterly basis. In addition, First Alliance Bank's liquidity is monitored on a monthly basis by its Board of Directors. The objective of this policy is to manage interest-sensitive assets and liabilities so as to minimize the impact of substantial movements in interest rates on First Alliance Bank's earnings. See the information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's 1996 Annual Report to Shareholders, which is included as Exhibit 13.1 to this Annual Report on Form 10-K and is incorporated herein by reference. EMPLOYEES As of April 30, 1997, First Alliance Bank employed approximately 88 full- time equivalent employees. First Alliance Bank is not a party to any collective bargaining agreement, and, in the opinion of management, enjoys excellent relations with its employees. PREMIER BANK ------------ GENERAL Premier Bank received its charter as a federal stock savings bank from the Federal Home Loan Bank Board, the predecessor of the Office of Thrift Supervision ("OTS"), on November 21, 1986. Premier Bank commenced operations on March 29, 1988. The primary business of Premier Bank is to attract deposits from the general public and invest those funds in residential real estate loans, commercial real estate loans, commercial loans and consumer loans. Customer deposits with Premier Bank are insured to the maximum extent provided by law through the Savings Association Insurance Fund, a unit of the Federal Deposit Insurance Corporation. Premier Bank is also a member of the Federal Home Loan Bank System. 8 MARKET AREA AND COMPETITION Premier Bank's primary service area is currently Cobb County, Cherokee County, Bartow County, Gwinnett County and Paulding County, and the northern part of Fulton and DeKalb Counties, Georgia. Premier Bank's main office is located at 4900 Ross Road in Acworth, Cobb County, Georgia. Premier Bank experiences competition in attracting and retaining business and personal checking and savings accounts and in making residential real estate, commercial real estate and consumer loans in its primary service area. The principal factors in competing for such accounts are interest rates, the range of financial services offered, convenience of office and branch locations and flexible office hours. Direct competition for such accounts comes from other savings institutions, commercial banks, credit unions, brokerage firms and money market funds. The primary factors in competing for loans are interest rates, loan origination fees and the range of lending services offered. The competition for origination of loans normally comes from other savings institutions, commercial banks, credit unions and mortgage banking firms. Such entities may have competitive advantages as a result of greater resources and higher lending limits (by virtue of greater capitalization) and may offer their customers certain services which Premier Bank may not presently provide. OPERATIONS Premier Bank's income is primarily derived from interest and fees collected on loans and interest on investment securities and gains received on sales of loans. The principal expenses of Premier Bank are interest paid on deposits, interest paid on other borrowings by Premier Bank, employee compensation, office expenses and other overhead expenses. Premier Bank offers a full range of banking services to individuals, professional and business customers in its primary service area. These services include personal and business checking accounts and savings and other time certificates of deposit. Premier Bank acts as a merchant depository for cardholder drafts under both VISA and Mastercard. Premier Bank offers night depository and bank-by-mail services and sells official checks and travelers checks (issued by an independent entity). In addition, Premier Bank originates loans to small businesses secured by real estate and other collateral, which loans are in part (up to 75% of each loan) guaranteed by the U.S. Small Business Administration ("SBA") and are generally in amounts less than $500,000; and Premier Bank has been designated by the SBA as a certified lender. LENDING ACTIVITIES Premier Bank's residential real estate lending activities are directed primarily toward individuals requiring a 15- to 30-year mortgage loan. Commercial real estate lending activities are directed primarily toward builders and developers and are generally short- and medium-term loans. Commercial lending activities are primarily directed toward current customers for such purposes as business equipment, working capital, lines of credit and letters of credit secured by certificates of deposit. In addition, Premier Bank originates loans to small businesses secured by real estate and other collateral, which loans are in part (up to 75% of each loan) guaranteed by the U.S. Small Business Administration ("SBA") and are generally in amounts less than $500,000; and Premier Bank has been designated by the SBA as a Certified Lender. Consumer lending is oriented primarily to the needs of Premier Bank's customers for such purposes as automobiles and personal needs. Premier Bank also originates a limited number of variable rate and fixed rate mortgage loans for its own account and both variable and fixed rate mortgage loans for resale. 9 EMPLOYEES As of April 30, 1997, Premier Bank employed approximately 27 full-time equivalent employees. Premier Bank is not a party to any collective bargaining agreement and management believes that Premier Bank enjoys satisfactory relations with its employees. PREMIER LENDING CORPORATION --------------------------- GENERAL Premier Lending Corporation ("Premier Lending") is primarily a mortgage banker and acts as an intermediary between purchasers of residential real estate or homeowners refinancing their residences and correspondent or institutional investors seeking to purchase mortgage loan investments. Premier Lending is a retail originator of residential mortgage loans, which loans are then sold to correspondent mortgage investors. Premier Lending is an approved Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") seller- servicer of mortgage loans. Premier Lending is also an approved Department of Housing and Urban Development ("HUD") and Veterans Administration ("VA") mortgage originator. The approval process under these federal programs requires, among other matters, evidence of industry experience, character references and credit reports of principals, financial statements, corporate net worth or bonding capacity, and a business plan. Premier Lending's administrative offices are located at 2759 Delk Road, Suite 20, Marietta, Georgia 30067, and its telephone number is (770) 952-0606. MARKET AREA AND COMPETITION Premier Lending's primary service area for its residential loan originations and its mortgage banking operations is the greater Atlanta, Georgia metropolitan area. Premier Lending operates from its administrative offices in Marietta (Cobb County), and has loan production offices in Gwinnett County, Fulton County, Henry County, DeKalb County and Cobb County. The mortgage banking business is highly competitive and fragmented. Premier Lending competes with other mortgage bankers, state and national banks, thrift institutions and insurance companies for loan originations. Many of its competitors have substantially greater resources than Premier Lending. OPERATIONS Premier Lending's loan officers originate residential mortgage loans through referrals from real estate agents and brokers, builders, developers, and 10 other relationships developed over the past years by management, as well as through direct solicitation of borrowers. The level of Premier Lending's loan originations is subject to seasonal variations with the heaviest demand occurring in the spring, summer and fall and with the lightest demand occurring in the winter. Premier Lending originates the mortgages and sells the loans to Premier Bank which independently underwrites the credit. Premier Bank holds these mortgage loans for a period ranging from one to 20 days after closing. During the holding period the loans are serviced by Premier Lending. The results of operations of Premier Lending depend primarily upon its ability to originate, fund and sell residential mortgage loans. This ability, in turn, depends substantially upon current interest rate levels and national economic conditions, which affect the degree to which prospective purchasers of residential real estate and homeowners considering refinancing their existing mortgage loans seek such mortgage financing. For example, mortgage loan origination activity is generally greater in a period of declining interest rates and favorable economic conditions. Economic conditions in Premier Lending's service area will also have a significant effect on the residential housing market and, therefore, on Premier Lending's mortgage loan origination activities. Loan Servicing. Premier Lending does not generally retain servicing of the permanent mortgage loans which it originates. However, Premier does service commercial finance loans for other investors. The servicing rights on all of Premier Lending's permanent mortgage loans are sold for a fee along with the loans to correspondent or institutional mortgage investors. Permanent Loan Market. Premier Lending's operations depend on the ability of its prospective borrowers to qualify for and obtain permanent loans through Premier Lending from correspondent or institutional mortgage investors. Accordingly, any significant change in the permanent loan market which reduces the ability of Premier Lending's borrowers to obtain permanent financing on a timely and acceptable basis, including a change in the operations, level of activity, or underwriting criteria of such correspondent or institutional investors or other permanent lenders, could have a material adverse effect on Premier Lending's business and the results of operations. Sale of Residential Loans. Premier Lending sells the mortgage loans which it originates or purchases indirectly through Premier Bank to correspondent or institutional mortgage investors. These loans are sold on a loan-by-loan basis, and the sales are made without recourse. LENDING ACTIVITIES Residential Loan Originations. Premier Lending principally originates conventional residential first and second mortgage loans primarily secured by one-to-four family residential properties. Premier Lending also originates both FNMA and FHLMC loans. Premier Lending concentrates on compliance with the spirit of the Community Reinvestment Act through originating government insured or guaranteed mortgages such as FHA, VA and state bond issues. Although Premier Lending's emphasis is on loan amounts which are considered "conforming" (less than $214,000), Premier Lending also originates a number of "non-conforming" loans (more than $214,000). Premier Lending has a subsidiary, Premier 11 Acceptance Corporation, which originates sub prime loans which assist borrowers with credit impairments. Management believes that the loans originated through Premier Acceptance pose only a minimal increased credit risk over the residential mortgage loans originated by Premier Lending because such loans are held by Premier Acceptance for a short period of time and they sold without recourse. The level of revenues per loan from Premier Lending's loan originations are primarily a function of the sale of the loans and servicing to correspondent or institutional investors and the fees Premier Lending can charge. Premier Lending seeks to originate commercial finance loans which focus on revolving lines of credit secured primarily by receivables and, to a lesser extent, inventory. These loans are funded through loan participation from other financial institutions (including First Alliance Bank and Premier Bank) and lines of credit. Management will consider term loans secured by machinery, equipment or real estate based on traditional underwriting criteria, as well as prior experience of management with the borrower. Management focuses its commercial finance lending toward small and medium sized businesses that generally are not being served by banks or finance companies in the market area, especially as a result of the bank consolidation in Premier Lending's market area. In addition, Premier Lending originates commercial real estate loans which typically range from $500,000 to $5,000,000. These loans provide construction and permanent financing for both owner-occupied and income-producing properties; and, like the commercial finance loans, are funded through loan participations with other financial institutions (including First Alliance Bank and Premier Bank) and lines of credit. EMPLOYEES At April 30, 1997, Premier Lending employed approximately 125 full time equivalent persons. Premier Lending is not a party to any collective bargaining agreement and management believes that Premier Lending enjoys satisfactory relations with its employees. ALLIANCE FINANCE, INC. ---------------------- Alliance Finance is a traditional consumer finance company that makes small loans to individuals secured by varied collateral. Alliance Finance had assets of approximately $3,300,000, net loans of approximately $2,900,000 and shareholders' equity of approximately $68,000, with net income for the year ended December 31, 1996 of approximately $59,000. At February 28, 1997, Alliance Finance employed approximately 6 full time equivalent persons. 12 SUPERVISION AND REGULATION - -------------------------- GENERAL Bank holding companies, thrift holding companies, banks, and thrifts are extensively regulated under both Federal and state law. The following is a brief summary of certain statutes and rules and regulations affecting the Company, the bank and the thrift. This summary is qualified in its entirety by reference to the particular statutes and regulatory provisions referred to below and is not intended to be an exhaustive description of the statutes or regulations applicable to the business of the Company and its subsidiaries. Supervision, regulation and examination of the Company and its subsidiaries by the bank and thrift regulatory agencies are intended primarily for the protection of depositors rather than shareholders of the Company. The Company is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and the Georgia Bank Holding Company Act (the "Georgia Bank Holding Company Act") and is regulated under such acts by the Board of Governors of the Federal Reserve System (the "Federal Reserve") and the Georgia Department, respectively. As a savings and loan holding company, the Company is also registered with the OTS and is subject to regulation, supervision, and examination by and the reporting requirements of the OTS. The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: (i) it may acquire direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, the bank holding company will directly or indirectly own or control more than 5% of the voting shares of the bank; (ii) it or any of its subsidiaries, other than a bank, may acquire all or substantially all of the assets of any bank; or (iii) it may merge or consolidate with any other bank holding company. Similar federal statutes require savings and loan holding companies and other companies to obtain the prior approval of the OTS before acquiring direct or indirect ownership or control of a savings bank or savings association. The BHC Act further provides that the Federal Reserve may not approve any transaction that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any section of the United States, or the effect of which may be substantially to lessen competition or to tend to create a monopoly in any section of the country, or that in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the communities to be served. Consideration of financial resources generally focuses on capital adequacy, which is discussed below. The BHC Act, as amended by the interstate banking provisions of the Riegle- Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act"), which became effective on September 29, 1995, repealed the prior 13 statutory restrictions on interstate acquisitions of banks by bank holding companies, such that Premier, and any other bank holding company located in Georgia, may now acquire a bank located in any other state, and any bank holding company located outside Georgia may lawfully acquire any Georgia-based bank, regardless of state law to the contrary, in either case subject to certain deposit-percentage, aging requirements, and other restrictions. The Interstate Banking Act also generally provides that, after June 1, 1997, national and state-chartered banks may branch interstate through acquisitions of banks in other states. By adopting legislation prior to that date, a state has the ability either to "opt in" and accelerate the date after which interstate branching is permissible or "opt out" and prohibit interstate branching altogether. In response to the Interstate Banking Act, the Georgia General Assembly adopted the Georgia Interstate Banking Act, effective July 1, 1995. The Georgia Interstate Banking Act provides that (i) interstate acquisitions by institutions located in Georgia will be permitted in states which also allow national interstate acquisitions, and (ii) interstate acquisitions of institutions located in Georgia will be permitted by institutions located in states which allow national interstate acquisitions. Additionally, in February 1996, the Georgia Legislature adopted the Georgia Interstate Branching Act which permits Georgia-based banks and bank holding companies owning or acquiring banks outside of Georgia and all non-Georgia banks and bank holding companies owning or acquiring banks in Georgia the right to merge any lawfully acquired bank into an interstate branch network. Finally, the Georgia Intrastate Branching Act also allows banks to establish de novo branches on a limited basis beginning July 1, 1996. Beginning July 1, 1998, the number of de novo branches which may be established will no longer be limited. The BHC Act generally prohibits a bank holding company from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those activities determined by the Federal Reserve to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices. For example, factoring accounts receivable, acquiring or servicing loans, leasing personal property, conducting discount securities brokerage activities, performing certain data processing services, acting as agent or broker in selling credit life insurance and certain other types of insurance in connection with credit transactions, and performing certain insurance underwriting activities all have been determined by the Federal Reserve to be permissible activities of bank holding companies. The BHC Act does not place territorial limitations on permissible non-banking activities of bank holding companies. Despite prior approval, the Federal Reserve has the power to order a holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that bank holding company. 14 Each of the bank and thrift subsidiaries of Premier and Central and Southern is a member of the Federal Deposit Insurance Corporation (the "FDIC"), and as such, its deposits are insured by the FDIC to the maximum extent provided by law. Each such subsidiary is also subject to numerous state and federal statutes and regulations that affect its business, activities, and operations, and each is supervised and examined by one or more state or federal bank regulatory agencies. First Alliance Bank is subject to regulation, supervision, and examination by the FDIC and the Georgia Department. Premier Bank is subject to regulation, supervision, and examination by the OTS and the FDIC. The federal banking regulators for the bank and thrift subsidiaries of Premier as well as the Georgia Department in the case of First Alliance Bank, regularly examine the operations of First Alliance Bank and Premier Bank and are given authority to approve or disapprove mergers, consolidations, the establishment of branches, and similar corporate actions. The federal banking regulators and the Georgia Department also have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. PAYMENT OF DIVIDENDS Premier is a legal entity separate and distinct from its banking and other subsidiaries. The principal sources of cash flow of Premier, including cash flow to pay dividends to its shareholders, are dividends from Premier Bank, Premier Lending Corporation, First Alliance Bank and Alliance Finance. There are statutory and regulatory limitations on the payment of dividends by Premier Bank and First Alliance Bank to Premier as well as by Premier to its shareholders. If, in the opinion of the federal banking regulators, a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the depository institution, could include the payment of dividends), such authority may require, after notice and hearing, that such institution cease and desist from such practice. The federal banking regulators have indicated that paying dividends that deplete a depository institution's capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. See "--Prompt Corrective Action." Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. At December 31, 1996, under dividend restrictions imposed under federal and state laws, Premier Bank and First Alliance Bank, without obtaining governmental approvals, could declare aggregate dividends to Premier of approximately $1,345,000. The payment of dividends by Premier and its subsidiaries may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. 15 CAPITAL ADEQUACY Premier and its bank and thrift subsidiaries are required to comply with the capital adequacy standards established by the Federal Reserve and the OTS, and the appropriate federal banking regulator in the case of their banking and thrift subsidiaries. There are two basic measures of capital adequacy for bank holding companies that have been promulgated by the Federal Reserve: a risk- based measure and a leverage measure. All applicable capital standards must be satisfied for a bank holding company to be considered in compliance. The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items. The minimum guideline for the ratio (the "Total Risk-Based Capital Ratio") of total capital ("Total Capital") to risk-weighted assets (including certain off-balance-sheet items, such as standby letters of credit) is 8%. At least half of Total Capital must be comprised of common stock, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder may consist of subordinated debt, other preferred stock, and a limited amount of loan loss reserves ("Tier 2 Capital"). At December 31, 1996, Premier's consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were 10.79% and 9.69%, respectively. In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill and certain other intangible assets, of 3% for bank holding companies that meet certain specified criteria, including those having the highest regulatory rating. All other bank holding companies generally are required to maintain a Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis points. Premier's Leverage Ratio at December 31, 1996, was 7.27%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a "tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other indicia of capital strength in evaluating proposals for expansion or new activities. Premier Bank and First Alliance Bank are subject to risk-based and leverage capital requirements adopted by their respective federal banking regulators, which are substantially similar to those adopted by the Federal Reserve for bank holding companies. 16 Similarly, the OTS' regulatory capital regulations specify capital standards for thrifts and thrift holding companies consisting of three components: a "core capital" requirement, a "tangible capital" requirement, and a "risk-based capital" requirement. These regulations require thrifts to maintain core capital in an amount not less than 3% of adjusted total assets and to maintain tangible capital in an amount not less than 1.5% of adjusted total assets. Under the OTS' regulatory capital regulations, thrifts are required to maintain capital equal to 8% of risk-weighted assets. The OTS requires assets to be weighed on the basis of risk and assigns a weighing factor of between 0% and 100%. Approximately one-half of risk-based capital must consist of core capital and one-half may consist of other preferred stock, a portion of general loan loss reserves and other hybrid capital instruments such as convertible and subordinated debentures. In determining compliance with the capital standards, all of a thrift's investments in and extensions of credit to any subsidiary engaged in activity not permissible for a national bank are deducted from the savings association capital. Each of the subsidiary depository institutions was in compliance with applicable minimum capital requirements as of December 31, 1996. Premier has not been advised by any federal banking regulator of any specific minimum capital ratio requirement applicable to it or its subsidiary depository institutions. Failure to meet capital guidelines could subject a bank or thrift to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on the taking of brokered deposits, and certain other restrictions on its business. As described below, substantial additional restrictions can be imposed upon FDIC-insured depository institutions that fail to meet applicable capital requirements. See "Prompt Corrective Action." The federal bank regulators continue to indicate their desire to raise capital requirements applicable to banking organizations beyond their current levels. In this regard, the Federal Reserve and the FDIC have, pursuant to FDICIA, proposed an amendment to the risk-based capital standards that would calculate the change in an institution's net economic value attributable to increases and decreases in market interest rates and would require banks with excessive interest rate risk exposure to hold additional amounts of capital against such exposures. The OTS has already included an interest-rate risk component in its risk-based capital guidelines for savings associations that it regulates. SUPPORT OF SUBSIDIARY INSTITUTIONS Under Federal Reserve policy, Premier is expected to act as a source of financial strength for, and to commit resources to support, each of its banking subsidiaries. This support may be required at times when, absent such Federal Reserve policy, Premier may not be inclined to provide it. In addition, any capital loans by a bank holding company to any of its banking subsidiaries are subordinate in right of payment to deposits and to certain other indebtedness of such banks. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the 17 capital of a banking subsidiary will be assumed by the bankruptcy trustee and entitled to a priority of payment. Under the Federal Deposit Insurance Act ("FDIA"), a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC after August 9, 1989, in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution "in danger of default." "Default" is defined generally as the appointment of a conservator or receiver, and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. The FDIC's claim for damages is superior to claims of shareholders of the insured depository institution or its holding company, but is subordinate to claims of depositors, secured creditors, and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution. PROMPT CORRECTIVE ACTION FDICIA establishes a system of prompt corrective action to resolve the problems of undercapitalized institutions. Under this system, which became effective in December 1992, the federal banking regulators are required to establish five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized) and to take certain mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to institutions in the three undercapitalized categories, the severity of which will depend upon the capital category in which the institution is placed. Generally, subject to a narrow exception, FDICIA requires the banking regulator to appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category. Under the final agency rules implementing the prompt corrective action provisions, an institution that (i) has a Total Risk-Based Capital Ratio of 10% or greater, a Tier 1 Risk-Based Capital Ratio of 6.0% or greater, and a Leverage Ratio of 5.0% or greater and (ii) is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the appropriate federal banking agency is deemed to be well capitalized. An institution with a Total Risk-Based Capital Ratio of 8.0% or greater, a Tier 1 Risk-Based Capital Ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater is considered to be adequately capitalized. A depository institution that has a Total Risk-Based Capital Ratio of less than 8.0%, a Tier 1 Risk-Based Capital Ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is considered to be undercapitalized. A depository institution that has a Total Risk-Based Capital Ratio of less than 6.0%, a Tier 1 Risk-Based Capital Ratio of less than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be significantly undercapitalized, and an institution that has a tangible equity capital to assets ratio equal to or less than 2.0% is deemed to be critically undercapitalized. For purposes of the regulation, the term "tangible equity" includes core capital elements counted as Tier 1 Capital for purposes of the risk-based capital standards, plus the amount of outstanding cumulative perpetual preferred stock (including related surplus), minus all intangible 18 assets with certain exceptions. A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. An institution that is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. Under FDICIA, a bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to certain limitations. The obligation of a controlling holding company under FDICIA to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized subsidiary's assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches, or engaging in any new line of business, except in accordance with an accepted capital restoration plan or with the approval of the FDIC. In addition, the appropriate federal banking agency is given authority with respect to any undercapitalized depository institution to take any of the actions it is required to or may take with respect to a significantly undercapitalized institution as described below if it determines "that those actions are necessary to carry out the purpose" of FDICIA. For those institutions that are significantly undercapitalized or undercapitalized and either fail to submit an acceptable capital restoration plan or fail to implement an approved capital restoration plan, the appropriate federal banking agency must require the institution to take one or more of the following actions: (i) sell enough shares, including voting shares, to become adequately capitalized; (ii) merge with (or be sold to) another institution (or holding company), but only if grounds exist for appointing a conservator or receiver; (iii) restrict certain transactions with banking affiliates as if the "sister bank" exception to the requirements of Section 23A of the Federal Reserve Act did not exist; (iv) otherwise restrict transactions with bank or non-bank affiliates; (v) restrict interest rates that the institution pays on deposits to "prevailing rates" in the institution's "region"; (vi) restrict asset growth or reduce total assets; (vii) alter, reduce, or terminate activities; (viii) hold a new election of directors; (ix) dismiss any director or senior executive officer who held office for more than 180 days immediately before the institution became undercapitalized, provided that in requiring dismissal of a director or senior executive officer, the regulator must comply with certain procedural requirements, including the opportunity for an appeal in which the director or officer will have the burden of proving his or her value to the institution; (x) employ "qualified" senior executive officers; (xi) cease accepting deposits from correspondent depository institutions; (xii) divest certain nondepository affiliates which pose a danger to the institution; or (xiii) be divested by a parent holding company. In addition, without the prior approval of the appropriate federal banking agency, a significantly undercapitalized institution may not pay any bonus to any senior executive officer or increase the rate of compensation for such an officer. At December 31, 1996, First Alliance and Premier had the requisite capital levels to qualify as well capitalized. 19 FDIC INSURANCE ASSESSMENTS Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The new system, which went into effect on January 1, 1994, and replaced a transitional system that the FDIC had utilized for the 1993 calendar year, assigns an institution to one of three capital categories: (i) well capitalized; (ii) adequately capitalized; and (iii) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the "undercapitalized" category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. An institution is also assigned by the FDIC to one of three supervisory subgroups within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation provided to the FDIC by the institution's primary federal regulator and information which the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds (which may include, if applicable, information provided by the institution's state supervisor). An institution's insurance assessment rate is then determined based on the capital category and supervisory category to which it is assigned. Under the final risk-based assessment system, as well as the prior transitional system, there are nine assessment risk classifications (i.e., combinations of capital groups and supervisory subgroups) to which different assessment rates are applied. Assessment rates for members of both the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund (SAIF) for the first half of 1995, as they had during 1994, ranged from 23 basis points (0.23% of deposits) for an institution in the highest category (i.e., "well capitalized" and "healthy") to 31 basis points (0.31% of deposits) for an institution in the lowest category (i.e., "undercapitalized" and "substantial supervisory concern"). These rates were established for both funds to achieve a designated ratio of reserves to insured deposits (i.e., 1.25%) within a specified period of time. Once the designated ratio for the BIF was reached in May 1995, the FDIC was authorized to reduce the minimum assessment rate below the 23 basis points and to set future assessment rates at such levels that would maintain the fund's reserve ratio at the designated level. In August 1995, the FDIC adopted regulations reducing the assessment rates for BIF-member banks. Under the revised schedule, BIF-member banks, starting with the second half of 1995, were to pay assessments ranging from 4 basis points to 31 basis points, with an average assessment rate of 4.5 basis points. Refunds with interest were paid for assessments for the month(s) after the month in which the designated reserve ratio for the BIF was reached. Subsequently, on November 14, 1995, the FDIC announced that, beginning in 1997, it would further reduce the deposit insurance premiums for 92% of all BIF members that are in the highest capital and supervisory categories to $2,000 per year, regardless of deposit size. At the same time, the FDIC elected to retain the existing assessment rate range of 23 to 31 basis points for SAIF members for the foreseeable future given the undercapitalized nature of that insurance fund. Thrift industry representatives argued that this significant premium disparity resulted in savings associations having to operate at a competitive disadvantage to their BIF insured bank counterparts. 20 On September 30, 1996, the President signed the Deposit Insurance Fund Act of 1996 ("DIFA") which was part of the omnibus spending bill enacted by Congress at the end of its 1996 session. DIFA mandated that the FDIC impose a one-time special assessment on the SAIF-assessable deposits of each insured depository institution at a rate applicable to all such institutions that the FDIC determined would cause the SAIF to achieve its designated reserve ratio of 1.25% as of October 1, 1996. The assessment was based on the amount of SAIF-insured deposits owned by each institution as of March 31, 1995, the record date established in the original drafts of the legislation. DIFA allowed the FDIC to exempt any insured institution that it determined to be weak from paying the special assessment if the FDIC determined that the exemption would reduce the risk to the SAIF. DIFA provides that the FDIC may not set semi-annual assessments with respect to SAIF or BIF in excess of the amount needed to maintain the 1.25% designated reserve ratio or, if the reserve ratio is less than the designated reserve ratio, to increase the reserve ratio to the designated reserve ratio. On October 10, 1996, the FDIC adopted a Final Rule governing the payment of the SAIF special assessment. The FDIC imposed a special assessment in the amount of 65.7 basis points. The SAIF special assessment was due by November 27, 1996. Premier Bank's portion of this special assessment amounted to $202,000. Premier Bank accrued this amount in the quarter ended September 30, 1996, as mandated by the Financial Accounting Standards Board that ruled that the SAIF special assessment should be recorded as an ordinary non-interest expense for the quarter ended September 30, 1996. In addition, DIFA mandates the merger of the SAIF and BIF, effective January 1, 1999, but only if no insured depository institution is a savings association on that date. The combined deposit insurance fund would be called the "deposit insurance fund" or "DIF." Prior to DIFA, federal regulators and thrift industry trade groups were predicting that a default would occur on the bonds issued by the Financing Corporation ("FICO") as early as 1998, as SAIF-assessable deposits continued to decline. DIFA amends the Federal Home Loan Bank Act to impose the FICO assessment against both SAIF and BIF deposits beginning after December 31, 1996. But the assessment imposed on insured depository institutions with respect to any BIF-assessable deposit will be assessed at a range equal to one-fifth (1/5) of the rate (approximately 1.3 basis points) of the assessments imposed on insured depository institutions with respect to any SAIF-assessable deposit (approximately 6.7 basis points). The FICO assessment for 1996 was paid entirely by SAIF-insured institutions. BIF-insured banks will pay the same FICO assessment as SAIF-insured institutions beginning as of the earlier of December 31, 1999, or the date as of which the last savings association ceases to exist. Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC. 21 SAFETY AND SOUNDNESS STANDARDS The FDIA, as amended by the FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994, requires the federal bank regulatory agencies to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate. The federal bank regulatory agencies have adopted, effective August 9, 1995, a set of guidelines prescribing safety and soundness standards pursuant to FDICIA, as amended. The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation and fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholders. The federal banking agencies determined that stock valuation standards were not appropriate. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the "prompt corrective action" provisions of FDICIA. See "Prompt Corrective Action." If an institution fails to comply with such an order, the agency may seek to enforce such order in judicial proceedings and to impose civil money penalties. The federal bank regulatory agencies also proposed guidelines for asset quality and earnings standards. DEPOSITOR PREFERENCE The Omnibus Budget Reconciliation Act of 1993 provides that deposits and certain claims for administrative expenses and employee compensation against an insured depository institution would be afforded a priority over other general unsecured claims against such an institution in the "liquidation or other resolution" of such an institution by any receiver. CERTAIN APPLICABLE THRIFT REGULATIONS Premier Bank, as a thrift institution, is subject to extensive regulation by the OTS. The lending activities and other investments of thrift institutions must comply with various regulatory requirements. 22 Qualified Thrift Lender Test. One such set of requirements relates to an institution's status as a "Qualified Thrift Lender." Unless an institution so qualifies, its borrowing privileges from a Federal Home Loan Bank may be restricted, and it may be subject to other operating limitations. To meet the Qualified Thrift Lender Test ("QTL Test"), an institution must maintain at least 65% of its assets in "Qualified Thrift Investments," which under the regulations consist of (i) loans made to purchase, refinance, construct, improve or repair domestic residential or manufactured housing, (ii) home equity loans, (iii) securities backed by or representing an interest in mortgages on domestic, residential, or manufactured housing, and (iv) obligations issued by federal deposit insurance agencies. Subject to a 15%-of-assets limitation, "Qualified Thrift Investments" may also include consumer loans, investments in certain subsidiaries, loans for construction of schools, churches, nursing homes and hospitals, and 200% of investments in loans for low-to-moderate-income housing and certain other community oriented investments. In September, 1996, the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the "Economic Growth Act of 1996") was signed into law and contained provisions which significantly affected the QTL Test. The Economic Growth Act of 1996 liberalized the QTL Test for savings associations by permitting them to satisfy a similar, but different, 60% asset test under the Internal Revenue Code. Alternatively, savings associations may meet the QTL Test by satisfying a more liberal 65% asset test that allows an institution to include small business, credit card and education loans as qualified investments for purposes of the test. Furthermore, consumer loans now count as qualified thrift investments up to 20% of portfolio assets. On November 27, 1996, the OTS issued an Interim Final Rule that implements provisions of the Economic Growth Act of 1996, including the amended QTL Test. At December 31, 1996, approximately 75.6% of Premier Bank's assets were invested in Qualified Thrift Investments as currently defined. Liquidity Requirements. Thrift institutions, including Premier Bank, are required to maintain average daily balances of liquid assets sufficient to meet the institution's foreseeable cash needs. Specifically, Premier Bank must maintain liquid assets (consisting of cash, certain time deposits, bankers acceptance, highly rated corporate debt and commercial paper, securities of certain mutual funds, and specific U.S. government, state or federal agency obligations) of not less than 5% of the total amount of the institution's net withdrawable savings deposits plus short-term borrowings, and to maintain average daily balances of short-term liquid assets of not less than 1% of such total amount. The liquidity ratio of Premier Bank at December 31, 1996 was 8.83%. FUTURE REQUIREMENTS Statutes and regulations are regularly introduced which contain wide- ranging proposals for altering the structures, regulations and competitive relationships of the nation's financial institutions. It cannot be predicted whether or what form any proposed statute or regulation will be adopted or the extent to which the business of the Company and its subsidiaries may be affected by such statutes or regulations. 23 MONETARY POLICY The earnings of the Company are affected by domestic and foreign economic conditions, particularly by the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve has had, and will continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to mitigate recessionary and inflationary pressures by regulating the national money supply. The techniques used by the Federal Reserve include setting the reserve requirements of member banks and establishing the discount rate on member bank borrowings. The Federal Reserve also conducts open market transactions in United States government securities. ITEM 2. PROPERTIES The Company has 16 offices, five are offices of First Alliance Bank, three are offices of Premier Bank, seven are offices of Premier Lending, and two are Alliance Finance offices. First Alliance Bank's five offices are located in Marietta, Georgia at 63 Barrett Parkway; 2760 Cobb Parkway; 4210 Wade Green Road; 833 South Cobb Drive; and 1269 Barclay Circle. Premier Bank's offices are located at 4900 Ross Road, Acworth, Georgia; 2390 Mt. Vernon Road, Suite 100, Dunwoody, Georgia; and 875 Oak Road, Suite 101, Lawrenceville, Georgia; Premier Lending offices are located at 17 Executive Park Drive, Suite 290, Atlanta, Georgia; 2019 Scenic Highway, Snellville, Georgia; 205 Market Place, Suite 102, Roswell, Georgia; 1235 Eagle's Landing Parkway, Suite A, Stockbridge, Georgia; 3075 Breckenridge Boulevard, Suite 425, Duluth, Georgia; and 2759 Delk Road, Suite 201, Marietta, Georgia. Alliance Finance's two offices are located at 3451 South Cobb Drive, Smyrna, Georgia and 680 Hiram/Acworth Road, Hiram, Georgia. First Alliance Bank leases the land on which its main office is located pursuant to an agreement dated August 28, 1985, as amended. The lease provides for an initial term of 5 years following capitalization of First Peoples Bank of Cobb (a predecessor to the Company) with 9 renewal periods of 5 years each. Rent escalation features include a 5% increase every 5 years plus an additional amount equal to the average yearly amount for the Consumer Price Index (CPI) for metropolitan Atlanta for the previous five years, not to exceed 8% per year. At any time after the first 5 years, the Bank may exercise an option to purchase the property for $1,000,000. The Bank also leases its branch office at Barclay Circle pursuant to an agreement dated December 6, 1990. The lease provides for an initial term of 5 years following regulatory approval of the branch with 2 renewal periods of 4 years each. By letter agreement dated December 15, 1995, the parties agreed to renew the lease for 3 years at the then current annual rental amount. The Bank owns the remaining branches without encumbrance. Premier Bank owns its main office location in Acworth which contains approximately 4,880 square feet of space. Premier Bank leases its branch office in Dunwoody (which lease expires in July 2000) and leases its branch office in Lawrenceville (which lease expires in March 2001). 24 Premier Lending leases its administrative and loan production offices and does not own any real estate. Premier Lending leases the following seven locations in Fulton County, Gwinnett County, Henry County, DeKalb County and Cobb County.
LOCATION PRIMARY USE LEASE EXPIRATION DATE - ----------------------------- ------------------- --------------------- 17 Executive Park Drive Loan production May 2001 Suite 290 -- DeKalb County Atlanta, Georgia 30329 2019 Scenic Highway Loan production May 2001 Snellville, Georgia 30278 -- Gwinnett County 205 Market Place, Suite 102 Loan production September 1999 Roswell, Georgia 30075 -- Fulton County 1235 Eagle's Landing Loan production May 1998 Parkway, Suite A -- Henry County Stockbridge, Georgia 30281 3075 Breckenridge Blvd. Loan production January 1999 Suite 425 -- Gwinnett County Duluth, Georgia 30136 2759 Delk Road, Suite 201 Mortgage Division December 1999 Marietta, Georgia 30067 and Loan production -- Cobb County
Alliance Finance leases its main office pursuant to an agreement dated March 23, 1996. The lease, as amended, provides for an initial term of one year (from May 1, 1993 through April 30, 1994) with four renewal periods of one year each. Alliance Finance owns its other office without encumbrance. Other than normal real estate and commercial lending activities of the Bank, the Company generally does not invest in real estate, interests in real estate, real estate mortgages, or securities of or interests in persons primarily engaged in real estate activities. ITEM 3. LEGAL PROCEEDINGS 25 There are no material pending proceedings to which the Company is a party or of which any of its properties are subject; nor are there material proceedings known to the Company to be contemplated by any governmental authority; nor are there material proceedings known to the Company, pending or contemplated, in which any director, officer or affiliate or any principal security holder of the Company, or any associate of any of the foregoing, is a party or has an interest adverse to the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 26 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock has been listed for quotation on the American Stock Exchange under the symbol "PMB" since January 10, 1997. Prior to that date, the Company's common stock was on the NASDAQ Small Cap Market under the symbol "FABC." On May 1, 1997 there were 601 record holders of the Company's Common Stock and approximately 1,600 beneficial holders. The following table sets forth, for the indicated periods, the high and low closing sales prices for the Company's common stock as reported by American Stock Exchange and on NASDAQ Small Cap Market for prior periods since January 25, 1995 and the high and low sales prices for the Company's common stock for each of the quarters in which trading occurred in 1995. Historical stock prices have been adjusted to reflect the 1.8055-for-one split of the common stock of the Company effective on March 6, 1997.
SALES PRICE ------------------ CALENDAR PERIOD HIGH LOW - ---------------------------------------- ------- -------- 1995 First Quarter........................... $ 7.66 $ 6.86 Second Quarter.......................... 8.31 6.98 Third Quarter........................... 8.72 7.75 Fourth Quarter.......................... 9.28 8.72 1996 First Quarter........................... $ 9.83 $ 8.86 Second Quarter.......................... 10.80 7.28 Third Quarter........................... 11.63 10.37 Fourth Quarter.......................... 11.77 10.39 1997 First Quarter (through March 25, 1997).. $14.19 $11.77
The holders of the Company's Common Stock are entitled to receive dividends when and if declared by the Board of Directors out of funds legally available therefor. Premier paid a $.56 per share cash dividend on January 27, 1997 to its shareholders. The decision to declare this dividend was based on Premier's performance in 1996. The Company plans to pay quarterly dividends on an ongoing basis. The future declaration and payment of dividends will depend upon the earnings of its bank subsidiaries, business conditions, operating results, capital and reserve requirements, and the Board of Directors' consideration of other relevant factors. 27 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data is derived from the consolidated financial statements of the Company. The financial highlights have been restated to reflect the business combination of First Alliance Bancorp, Inc. and Premier Bancshares, Inc. which was consummated on August 31, 1996. The financial statements for the years ended December 31, 1992 through 1996, and the operating data for the years ended December 31, 1992 through 1996 are derived from financial statements which reflect, in the opinion of the Company's management, all normal recurring adjustments necessary to present fairly such information for such periods. The following data should be read in conjunction with the Company's consolidated financial statements and the related notes contained elsewhere in this report.
Years Ended December 31, ---------------------------------------------------- (Dollars in Thousands, Except Per Share Amounts) 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- BALANCE SHEET: Total assets $294,158 $237,525 $151,526 $140,313 $130,383 Loans held for sale 24,408 25,912 26,047 4,446 - Loans, net 184,452 131,072 81,097 83,838 82,221 Securities available-for-sale 35,154 45,795 11,584 26,427 25,444 Federal funds sold 21,680 2,530 19,110 10,880 9,027 Interest-bearing deposits 1,447 9,948 - 703 794 Deposits 236,733 178,453 118,166 117,323 113,751 Borrowings 30,221 30,692 14,429 4,399 Stockholders' equity 23,275 23,430 17,554 17,860 14,205 OPERATING DATA: Interest income 23,016 17,301 10,954 10,296 10,359 Interest expense 11,282 8,281 4,111 3,897 4,928 Net interest income 11,734 9,020 6,843 6,399 5,431 Provisions for losses on loans 598 338 285 1,007 441 Net interest income after provision for losses on loans 11,136 8,682 6,558 5,392 4,990 Other income 11,855 8,153 2,962 2,915 1,446 Other expenses 19,371 13,696 8,660 7,900 6,277 Income tax expense 1,068 1,137 569 98 5 Net income 2,552 2,002 291 309 154 Net income per share .59 .48 .08 .11 .06 Cash Dividends Declared .58 .01 .09 - -
28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operation" in the Company's 1996 Annual Report to Shareholders, which is included as Exhibit 13.1 to this Annual Report on Form 10-K, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The financial statements contained in the Company's 1996 Annual Report to Shareholders, which is included as Exhibit 13.1 to this Annual Report on Form 10-K, is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth under the caption "Election of Directors" in the Form S-4 Registration Statement filed by the Company which contains the Proxy Statement used in connection with the Company's 1997 Annual Shareholders Meeting, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under the caption "Executive Compensation" in the Form S-4 Registration Statement filed by the Company which contains the Proxy Statement used in connection with the Company's 1997 Annual Shareholders Meeting, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Form S-4 Registration Statement filed by the Company which 29 contains the Proxy Statement used in connection with the Company's 1997 Annual Shareholders Meeting, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption "Certain Relationships and Related Transactions" in the Form S-4 Registration Statement filed by the Company which contains the Proxy Statement used in connection with the Company's 1997 Annual Shareholders Meeting, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements, Financial Statement Schedules and Exhibits ---------------------------------------------------------------- Exhibits Exhibit Number Exhibit ------- ------- 2 Agreement and Plan of Reorganization dated February 3, 1997 between First Alliance/Premier Bancshares, Inc. and The Central and Southern Holding Company. (incorporated by reference as Exhibit 2 from the Registrant's Form 10-K for the year ended December 31, 1996) 2.1 First Amendment to Agreement and Plan of Reorganization dated March 26, 1997 between Premier Bancshares, Inc. and The Central and Southern Holding Company. (incorporated by reference as 2.1 from the Registrant's Form 10-K for the year ended December 31, 1996) 3.1 Articles of Incorporation (incorporated by reference as Exhibit 3.1 to the Registrant's Form 10-QSB for the quarter ended September 30, 1996). 3.2 Articles of Amendment dated February 4, 1997 (incorporated by reference as Exhibit 3.2 from the Registrant's Form 10-k for the year ended December 31, 1996). 3.3 Bylaws of Registrant, as amended (incorporated by reference as Exhibit 3.2 from the Registrant's Form 10-QSB for the quarter ended September 30, 1996). 4.1 Form of Common Stock Certificate (incorporated by reference as Exhibit 4.1 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.1 First Alliance Bancorp, Inc. 1995 Stock Option Plan, dated as of August 8, 1995, and amended as of March 12, 1996 and related form of Employee Incentive Stock Option Agreement (incorporated by reference as Exhibit 10.6 to the Registrant's Form 10-KSB for the year ended December 31, 1995)./1/ 30 10.2 Guaranty, dated March 25, 1996, by First Alliance Bancorp, Inc. relating to a $2,000,000 loan made by The Bankers Bank to Interim Alliance Corporation d/b/a Alliance Finance (incorporated by reference as Exhibit 10.7 to the Registrant's Form 10-KSB for the year ended December 31, 1995). 10.3 Employment Agreement dated July 1, 1995 by and between Premier, First Alliance Bank and J. Edward Mulkey, Jr. (incorporated by reference as Exhibit 10.5 to the Registrant's Form 10-KSB for the year ended December 31, 1995)./1/ 10.4 Employment Agreement dated January 1, 1997, by and between Premier Lending Corporation and George S. Phelps (incorporated by reference as Exhibit 10.4 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 10.5 Employment Agreement dated January 1, 1997, by and between Premier Lending Corporation and Michael W. Lane (incorporated by reference as Exhibit 10.5 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 10.6 Employment Agreement dated January 1, 1997, by and between Premier Lending Corporation and Brian D. Schmitt (incorporated by reference as Exhibit 10.6 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 10.7 Amendment to Employment Agreement dated January 1, 1997, by and between First Alliance/Premier Bancshares, Inc. and Darrell D. Pittard (incorporated by reference as Exhibit 10.7 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 10.8 Form of Employment Agreement by and between Premier Bancshares, Inc, Premier Lending Corporation and Darrell D. Pittard (incorporated by reference as Exhibit 10.8 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 10.9 Amended and Restated Stock Purchase Agreement by and between Premier Bancshares, Inc. (formerly known as First Alliance/Premier Bancshares, Inc.) and Net.B@nk, Inc. dated December 19, 1996 (incorporated by reference as Exhibit 10.9 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.10 First Amendment to the Amended and Restated Stock Purchase Agreement by and between Premier Bancshares, Inc. and Net.B@nk, Inc. dated December 19, 1996 (incorporated by reference as Exhibit 10.10 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.11 Purchase and Assumption Agreement by and between Premier Bank, FSB and First Alliance Bank dated December 19, 1996 (incorporated by reference as Exhibit 10.11 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.12 First Amendment to Purchase and Assumption Agreement by and between Premier Bank, FSB and First Alliance Bank dated March 13, 1997 (incorporated by reference as Exhibit 10.12 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.13 Second Amendment to Purchase and Assumption Agreement by and between Premier Bank, FSB and First Alliance Bank dated March 25, 1997 (incorporated by reference as Exhibit 10.13 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.14 Premier Bancshares, Inc. 1997 Stock Option Plan./1/ 10.15 Premier Bancshares, Inc. Directors' Stock Option Plan./1/ 11.1 Statement of Per Share Earnings. 31 13.1 Registrant's 1996 Annual Report to Shareholders. Only those portions of the Annual Report to Shareholders that are specifically incorporated by reference into this report on Form 10-K shall be deemed filed with the Commission. 21 Subsidiaries of Premier Bancshares, Inc. (incorporated by reference as Exhibit 21 from the Registrant's Form 10-K for the year ended December 31, 1996) 23 Consent of Mauldin & Jenkins, LLC 24 Power of Attorney (appears on the signature pages to this Form 10-K). 27 Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K filed in the fourth quarter of 1996: None. - -------- /1/ Registrant's plans, management contract and compensatory arrangements. 32 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PREMIER BANCSHARES, INC. Date: May 9, 1997 By: /s/ Darrell D. Pittard ---------------------- Darrell D. Pittard, Chairman and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears on the signature page to this report constitutes and appoints Darrell D. Pittard and Frank H. Roach, and each of them, his or her true and lawful attorneys-in- fact and agents, with full power of substitution and resubstitution, for the undersigned and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits hereto, and other documents in connection herewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ N. Michael Anderson* Director May 9, 1997 - --------------------------- N. Michael Anderson /s/ James L. Coxwell, Sr.* Director May 9, 1997 - --------------------------- James L. Coxwell, Sr. /s/ William M. Evans, Jr.* Director May 9, 1997 - --------------------------- William M. Evans, Jr. /s/ James E. Freeman* Director May 9, 1997 - --------------------------- James E. Freeman 33 Signature Title Date --------- ----- ---- /s/ Robin R. Howell* Director May 9, 1997 - --------------------------- Robin R. Howell /s/ Billy H. Martin* Director May 9, 1997 - --------------------------- Billy H. Martin /s/ J. Edward Mulkey, Jr.* Director, President and May 9, 1997 - --------------------------- Chief J. Edward Mulkey, Jr. Operating Officer /s/ Darrell D. Pittard Chairman and Chief Executive May 9, 1997 - --------------------------- Officer (Principal Executive Darrell D. Pittard Officer) /s/ Frank H. Roach Chief Financial Officer May 9, 1997 - --------------------------- (Principal Financial and Frank H. Roach Accounting Officer) * - --------------------------- By: Darrell D. Pittard, Attorney in Fact 34 EXHIBIT INDEX Exhibit No. Description of Exhibit - ------- ---------------------------------------------------------------------- 2 Agreement and Plan of Reorganization dated February 3, 1997 between First Alliance/Premier Bancshares, Inc. and The Central and Southern Holding Company. (incorporated by reference as Exhibit 2 from the Registrant's Form 10-K for the year ended December 31, 1996) 2.1 First Amendment to Agreement and Plan of Reorganization dated March 26, 1997 between Premier Bancshares, Inc. and The Central and Southern Holding Company. (incorporated by reference as 2.1 from the Registrant's Form 10-K for the year ended December 31, 1996) 3.1 Articles of Incorporation (incorporated by reference as Exhibit 3.1 to the Registrant's Form 10-QSB for the quarter ended September 30, 1996). 3.2 Articles of Amendment dated February 4, 1997 (incorporated by reference as Exhibit 3.2 from the Registrant's Form 10-k for the year ended December 31, 1996). 3.3 Bylaws of Registrant, as amended (incorporated by reference as Exhibit 3.2 from the Registrant's Form 10-QSB for the quarter ended September 30, 1996). 4.1 Form of Common Stock Certificate (incorporated by reference as Exhibit 4.1 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.1 First Alliance Bancorp, Inc. 1995 Stock Option Plan, dated as of August 8, 1995, and amended as of March 12, 1996 and related form of Employee Incentive Stock Option Agreement (incorporated by reference as Exhibit 10.6 to the Registrant's Form 10-KSB for the year ended December 31, 1995)./1/ 10.2 Guaranty, dated March 25, 1996, by First Alliance Bancorp, Inc. relating to a $2,000,000 loan made by The Bankers Bank to Interim Alliance Corporation d/b/a Alliance Finance (incorporated by reference as Exhibit 10.7 to the Registrant's Form 10-KSB for the year ended December 31, 1995). 10.3 Employment Agreement dated July 1, 1995 by and between Premier, First Alliance Bank and J. Edward Mulkey, Jr. (incorporated by reference as Exhibit 10.5 to the Registrant's Form 10-KSB for the year ended December 31, 1995)./1/ 10.4 Employment Agreement dated January 1, 1997, by and between Premier Lending Corporation and George S. Phelps (incorporated by reference as Exhibit 10.4 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 10.5 Employment Agreement dated January 1, 1997, by and between Premier Lending Corporation and Michael W. Lane (incorporated by reference as Exhibit 10.5 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 35 10.6 Employment Agreement dated January 1, 1997, by and between Premier Lending Corporation and Brian D. Schmitt (incorporated by reference as Exhibit 10.6 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 10.7 Amendment to Employment Agreement dated January 1, 1997, by and between First Alliance/Premier Bancshares, Inc. and Darrell D. Pittard (incorporated by reference as Exhibit 10.7 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 10.8 Form of Employment Agreement by and between Premier Bancshares, Inc, Premier Lending Corporation and Darrell D. Pittard (incorporated by reference as Exhibit 10.8 from the Registrant's Form 10-K for the year ended December 31, 1996)./1/ 10.9 Amended and Restated Stock Purchase Agreement by and between Premier Bancshares, Inc. (formerly known as First Alliance/Premier Bancshares, Inc.) and Net.B@nk, Inc. dated December 19, 1996 (incorporated by reference as Exhibit 10.9 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.10 First Amendment to the Amended and Restated Stock Purchase Agreement by and between Premier Bancshares, Inc. and Net.B@nk, Inc. dated December 19, 1996 (incorporated by reference as Exhibit 10.10 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.11 Purchase and Assumption Agreement by and between Premier Bank, FSB and First Alliance Bank dated December 19, 1996 (incorporated by reference as Exhibit 10.11 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.12 First Amendment to Purchase and Assumption Agreement by and between Premier Bank, FSB and First Alliance Bank dated March 13, 1997 (incorporated by reference as Exhibit 10.12 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.13 Second Amendment to Purchase and Assumption Agreement by and between Premier Bank, FSB and First Alliance Bank dated March 25, 1997 (incorporated by reference as Exhibit 10.13 from the Registrant's Form 10-K for the year ended December 31, 1996). 10.14 Premier Bancshares, Inc. 1997 Stock Option Plan. (Incorporated by reference from Appendix D to the Registrant's Amendment No. 1 to Form S-4 filed on May 8, 1997)./1/ 10.15 Premier Bancshares, Inc. Directors' Stock Option Plan (Incorporated by reference from Appendix E to the Registrant's Amendment No. 1 to Form S-4 filed with on May 8, 1997)./1/ 11.1 Statement of Per Share Earnings. 13.1 Registrant's 1996 Annual Report to Shareholders. Only those portions of the Annual Report to Shareholders that are specifically incorporated by reference into this report on Form 10-K shall be deemed filed with the Commission. 21 Subsidiaries of Premier Bancshares, Inc. (incorporated by reference as Exhibit 21 from the Registrant's Form 10-K for the year ended December 31, 1996) 23 Consent of Mauldin & Jenkins, LLC 24 Power of Attorney (appears on the signature pages to this Form 10-K). 27 Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K filed in the fourth quarter of 1996: None. - -------- /1/ Registrant's plans, management contract and compensatory arrangements. 36 EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Year Ended December 31, 1996 1995 1994 ---------- ---------- ---------- Primary Weighted average Premier common shares outstanding during the year 4,245,697 4,084,980 3,550,168 Common shares issuable in connection with assumed exercise of options under the treasury stock method 61,138 51,280 20,282 ---------- ---------- ---------- Total 4,306,835 4,136,260 3,570,450 ========== ========== ========== Net income $2,539,716 $1,988,949 $ 291,148 ========== ========== ========== Per share earnings $ 0.59 $ 0.48 $ 0.08 ========== ========== ========== EX-13.1 3 1996 ANNUAL REPORT EXHIBIT 13.1 PREMIER MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION BACKGROUND Premier was incorporated in 1988 under the laws of Georgia and is a bank holding company registered under the regulations of the Federal Reserve, and a registered thrift holding company under the regulations of the OTS. Premier's bank subsidiary, First Alliance Bank is a commercial bank which opened for business in 1984. On August 31, 1996, Premier acquired, through a pooling of interests, Premier Bancshares, Inc., a thrift holding company. Premier Bancshares, Inc. operated two 100% owned subsidiaries, Premier Lending and Premier Bank. Premier also owns 80% of Alliance Finance. LIQUIDITY AND CAPITAL RESOURCES Liquidity management involves the matching of the cash flow requirements of customers who may be either depositors desiring to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs and the ability of Premier to meet those needs. Premier seeks to meet liquidity requirements primarily through management of short-term investments (principally Federal Funds sold and overnight funds), monthly amortizing loans, repayment of single payment loans, periodic repayments of mortgage-backed securities, and draws on lines of credit. In addition, at December 31, 1996, First Alliance Bank and Premier Bank had $11,000,000 in approved Federal Funds lines with correspondent banks which could provide funds on an immediate basis if the need arose. Also, First Alliance Bank has access to various Certificate of Deposit ("CD") networks which would allow it to raise deposits from credit unions and other small banks for varying time periods at rates comparable to the short-term U.S. Government Bond rate. These deposits are not brokered and no fee outside of the market rate is paid. First Alliance Bank and Premier Bank are members of the Federal Home Loan Bank system. At December 31, 1996, First Alliance Bank and Premier Bank had the ability to borrow approximately $20 million by pledging qualifying loans and securities as collateral. The liquidity and capital resources of, First Alliance Bank and Premier Bank are monitored on a periodic basis by federal regulatory authorities. In addition, management performs liquidity analyses in the same manner as the federal regulatory agencies. As of December 31, 1996, the various liquidity ratios were considered adequate by regulatory definitions. In management's opinion, First Alliance Bank, and Premier Bank maintained liquidity that was adequate to meet their respective needs. First Alliance Bank, and Premier Bank continue to be well-capitalized by both industry and regulatory definitions. At December 31, 1996, Premier's consolidated capital ratios were as follows:
MINIMUM REGULATORY REQUIREMENT --------------------- Leverage Capital Ratio............................ 7.27% 5.00% Risk Based Capital Ratios: Tier 1 Capital.................................. 9.69% 6.00% Total Capital................................... 10.79% 10.00%
A more detailed chart of regulatory capital ratios is included in Note 13 of the Notes to Consolidated Financial Statements. Management is not aware of any current recommendations of the regulatory authorities which, if they were implemented, would have a material effect on Premier's liquidity, capital resources, or operations. Premier regularly evaluates business combination opportunities and conducts due diligence activities in connection with possible business combinations. As a result, business combination discussions and, in some cases, negotiations take place, and future business combinations involving cash, debt, or equity securities may 1 be expected. Any future business combination or series of business combinations that Premier might undertake may be material, in terms of assets acquired or liabilities assumed, to Premier's financial condition. ASSET/LIABILITY MANAGEMENT At December 31, 1996, Premier, utilizing a "static gap" view of interest rate sensitivity, was positioned in an asset-sensitive position (1.44%) at three months and a slightly asset-sensitive position (1.01%) at one year. This "static gap" view of interest rate sensitivity at a point in time looks at the volume of assets and liabilities that will mature or reprice within varying time periods. Such a view does not necessarily indicate the impact of general interest rate movements on the net interest margin since the repricing of various categories of assets and liabilities is subject to competitive pressures and the needs of Premier's customers. It is also probable that actual repricing may happen at different times than estimated and at different rates than anticipated. Management also utilizes a forecasting model for First Alliance Bank and Premier Bank which attempts to project the net interest margin in various rising, flat, and falling interest rate scenarios. The model assumes that First Alliance Bank and Premier Bank make no material changes in the composition, maturity, or interest rate sensitivity of their earning assets and interest-bearing liabilities as a result of a change in interest rate cycles. The model projects that in the next 12 months, First Alliance Bank and Premier Bank combined would earn approximately 4.93% more net interest income in a 200 basis point rising rate environment and approximately 5.12% less in a 200 basis point falling rate environment. However, management will act to change Premier's asset or liability composition and interest rate sensitivity in response to a definitive change in the direction of interest rates. Specifically, Premier actively manages the mix of asset and liability maturities to control the effects of changes in the general level of interest rates on net interest income. Except for its effect on the general level of interest rates, inflation does not have a material impact on Premier due to the rate variability and short-term maturities of its earning assets. Interest Rate Sensitivity
AFTER AFTER THREE ONE YEAR MONTHS BUT WITHIN BUT WITHIN THREE WITHIN FIVE AFTER MONTHS ONE YEAR YEARS FIVE YEARS TOTAL -------- -------- -------- ---------- -------- (DOLLARS IN THOUSANDS) Earning assets: Interest bearing deposits... $ 1,447 $ -- $ -- $ -- $ 1,447 Federal funds sold.......... 21,680 -- -- -- 21,680 Securities.................. 6,814 6,107 19,770 2,463 3,515 Loans....................... 146,216 16,029 42,782 6,237 211,264 -------- -------- ------- ------- -------- Total interest earning assets................... 176,157 22,136 62,552 8,700 269,545 -------- -------- ------- ------- -------- Interest bearing liabilities: Interest bearing demand deposits................... 57,562 -- -- -- 57,562 Savings..................... 8,302 -- -- -- 8,302 Time deposits, less than $100,000................... 23,273 52,842 29,465 -- 105,580 Time deposits, $100,000 and over....................... 10,476 17,712 6,916 -- 35,104 Other borrowings............ 22,824 2,755 1,980 2,661 30,220 -------- -------- ------- ------- -------- Total interest bearing liabilities.............. 122,437 73,309 38,361 2,661 236,768 -------- -------- ------- ------- -------- Interest rate sensitivity gap.......................... $ 53,720 $(51,173) 24,191 $ 6,039 $ 32,777 ======== ======== ======= ======= ======== Cumulative interest rate sen- sitivity gap................. 53,720 $ 2,547 26,738 $32,777 ======== ======== ======= ======= Interest rate sensitivity gap ratio........................ 1.44 0.30 1.63 3.27 ======== ======== ======= ======= Cumulative interest rate sen- sitivity gap ratio........... 1.44 1.01 1.11 1.14 ======== ======== ======= =======
2 CHANGES IN FINANCIAL CONDITION Cash and Short-term Assets Total assets as of December 31, 1996 increased $56,633,000 since December 31, 1995. Non-earning cash and due from banks increased $2,088,000 as of December 31, 1996, from December 31, 1995. This change is representative of normal daily fluctuations in cash and check clearings and an increase in transaction account balances of $17,513,000. Interest-bearing deposits of First Alliance Bank and Premier Bank decreased $8,501,000 to $1,447,000 at December 31, 1996. This balance is primarily excess funds that are held at the Federal Home Loan Bank and accrue interest at a rate approximately equal to the Federal Funds rate. Federal Funds sold increased $19,150,000 from December 31, 1995 to $21,680,000 at December 31, 1996. The increase in Federal Funds is the result of seasonal deposits placed in First Alliance Bank by a local municipality and the movement of Premier Bank's excess cash from the Federal Home Loan Bank to the Federal Funds market. Securities Portfolio
DECEMBER 31, ----------------------- 1996 1995 1994 ------- ------- ------- (DOLLARS IN THOUSANDS) Types of Securities: U.S. Government and agency securities................ $19,577 $22,313 $12,092 Municipal securities................................. 105 304 292 Mortgage-backed securities........................... 13,693 21,767 19,033 Equity securities.................................... 1,779 1,412 1,089 ------- ------- ------- $35,154 $45,796 $32,506 ======= ======= =======
- -------- All securities are held as available-for-sale and are reported at their fair values. Maturities The amounts of securities in each category as of December 31, 1996 are shown in the following table according to contractual maturity classifications (i) one year or less, (ii) after one year through five years, (iii) after five years through ten years, and (iv) after ten years.
U.S. GOVERNMENT AND AGENCY SECURITIES AND MORTGAGE-BACKED MUNICIPAL OTHER SECURITIES(1) SECURITIES(2) SECURITIES ----------------------- ----------------- ------------------- AMOUNT YIELD(3) AMOUNT YIELD(3) AMOUNT YIELD(3) ----------- -------- -------- -------- ---------- -------- One year or less........ $ -- -- $ -- -- $ 380,600 7.86% After one year through five years............. 19,327,933 6.12% 104,691 8.60% -- -- After five years through ten years.............. 5,408,410 6.08% -- -- -- -- After ten years......... 8,533,131 6.01% -- -- 1,398,876 6.40% ----------- -------- ---------- Total................. $33,269,474(1) $104,691 $1,779,476 =========== ======== ==========
- -------- (1) Includes mortgage-backed securities based on their contractual maturity date. (2) Yields on municipal securities have not been computed on a tax equivalent basis. (3) Yields were computed using coupon interest, adding discount accretion, or subtracting premium amortization, as appropriate, on a ratable basis over the life of each security. The weighted average yield for each maturity range was computed using the carrying value of each security in that range. Premier's investment portfolio consists of U.S. Government and agency securities, municipal securities, various equity securities and Government agency sponsored mortgage-backed securities. A mortgage-backed security relies on the underlying mortgage pools of loans to provide a cash flow of principal and interest. The actual maturities of these securities will differ from the contractual maturities because these borrowers may have the right to prepay obligations with or without prepayment penalties. Decreases in interest rates will generally 3 cause prepayments to accelerate. In a declining interest rate environment, Premier may not be able to reinvest the proceeds from these prepayments in assets which have comparable yields. However, because the majority of the mortgage-backed securities have adjustable rates, the negative effects of changes in interest rates on earnings and the carrying values of these securities are mitigated. At December 31, 1996 Premier had $10,068,000 in collateralized mortgage obligations ("CMOs") and $3,625,000 in mortgage-backed pass-through securities, the majority of which are issued by or backed by Federal agencies. At December 31, 1996, Premier did not have with any one issuer, securities in aggregate in excess of ten percent of equity. Changes in Securities Portfolio Securities available-for-sale on December 31, 1996 decreased $10,643,000 from December 31, 1995. In the first quarter of 1996, Premier sold approximately $10,000,000 in securities from the available-for-sale portfolio. These sales represented the termination of an arbitrage transaction made up of these assets and various floating rate deposits and borrowings. These securities were primarily floating rate collateralized mortgage obligations and mortgage-backed passthroughs. The proceeds from the sale of securities provided funding for the increase in loans. LOAN PORTFOLIO Types of Loans Management realizes that Premier's loan portfolio is concentrated in loans secured by real estate. Real estate loans include real estate mortgages, real estate construction projects, and consumer home equity lines. The amount of loans outstanding at the indicated dates are shown in the following table according to the type of loan. The other concentration is in commercial and financial loans which are made primarily to businesses in the Atlanta, Georgia metropolitan area. The following table presents this major category of net loans for each period, excluding the allowance for loan losses.
DECEMBER 31, ----------------------------------------- 1996 1995 1994 1993 1992 -------- -------- ------- ------- ------- (DOLLARS IN THOUSANDS) Real Estate: Secured by Mortgages............... $ 73,272 $ 58,463 $46,602 $46,278 $46,895 Construction....................... 67,432 36,987 19,518 15,326 9,131 Consumer and other loans............. 17,553 15,242 10,656 15,983 17,825 Commercial and financial............. 28,599 22,182 6,275 7,833 9,773 -------- -------- ------- ------- ------- $186,856 $132,874 $83,051 $85,420 $83,624 ======== ======== ======= ======= =======
Maturities and Sensitivity to Changes in Interest Rates Total loans as of December 31, 1996 are shown in the following table according to maturity classifications (i) one year or less, (ii) after one year through five years, and (iii) after five years.
(DOLLARS IN THOUSANDS) Maturity: One year or less................................. $ 74,368 After one year through five years................ 104,399 After five years................................. 8,089 -------- $186,856 ========
The following table summarizes loans at December 31, 1996 with due dates after one year which have predetermined and floating or adjustable interest rates.
(DOLLARS IN THOUSANDS) Predetermined interest rates....................... $ 42,032 Floating or adjustable interest rates.............. 70,456 -------- $112,488 ========
4 Changes in Loan Portfolio Loans held for sale decreased $1,504,000 from December 31, 1995 to December 31, 1996. These loans represent first mortgage loans which have been originated by Premier Lending and have been sold to third party investors and are waiting for funding from the investor. This balance fluctuates based on time of month, new loan volumes, and length of investor closing periods. These loans are sold servicing released and the investor commitment price is obtained simultaneously with the closing of most loans; therefore, minimizing the effect of interest rate fluctuation. Loans grew by $53,982,000 at December 31, 1996 from December 31, 1995. In addition, at December 31, 1996, construction loans increased $30,445,000, other loans secured by real estate increased $14,809,000, commercial loans increased $6,417,000, and consumer loans increased $2,311,000 from December 31, 1995. The primary reason for these increases was the addition of five experienced real estate and commercial loan officers. Loan officers at Premier Lending generate loans that are specifically underwritten by First Alliance Bank. In prior periods, the majority of these loans were sold to third party financial institutions due to the former Premier Bancshares, Inc. group's not having the capital to fund these loans. DEPOSITS Deposits and the yield on those deposits classified as to noninterest- bearing demand, interest-bearing demand, savings, and time deposits, for the years indicated are presented below.
YEARS ENDED DECEMBER 31 -------------------------------------------------- 1996 1995 1994 ---------------- ---------------- ---------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT -------- ------- -------- ------- -------- ------- (DOLLARS IN THOUSANDS) Noninterest-bearing demand................... $ 29,472 -- % $ 24,936 -- % $ 21,652 -- % Interest-bearing demand... 50,993 3.09 37,833 3.39 36,407 2.97 Savings................... 8,515 2.96 10,438 2.66 11,048 2.96 Time...................... 114,961 5.95 78,736 5.72 53,551 4.41 -------- -------- -------- Total deposits.......... $203,941 $151,943 $122,658 ======== ======== ========
The amount of time deposits issued in amounts of $100,000 or more as of December 31, 1996 are shown below by category, which is based on time remaining until maturity of (i) three months or less, (ii) over three through 12 months, and (iii) over 12 months.
(DOLLARS IN THOUSANDS) Three months or less............................... $10,477 Over three through six months...................... 10,996 Over six through twelve months..................... 6,811 Over twelve months................................. 6,820 ------- Total............................................ $35,104 =======
Changes in Deposits Total deposits grew $58,280,000 at December 31, 1996 from December 31, 1995. Non-interest bearing demand deposits increased $889,000 at December 31, 1996 from December 31, 1995. Interest-bearing demand deposits were up $16,624,000 primarily due to a seasonal increase in the balances of a local municipal depositor and growth in commercial money market accounts. Other time deposits increased by $40,767,000 at December 31, 1996 from December 31, 1995 as both First Alliance Bank and Premier Bank aggressively marketed for deposits in several key submarkets in Premier's market area. 5 OTHER BORROWINGS The following table sets forth certain information regarding securities sold under repurchase agreements, FHLB borrowings, and other borrowings.
1996 1995 1994 ------- ------- ------- (DOLLARS IN THOUSANDS) Balance at December 31.............................. $30,221 $31,862 $14,429 Weighted average interest rate at December 31....... 6.72 8.09 7.54 Maximum month end balance during year............... 30,221 60,731 14,429 Average amount outstanding during the year.......... 38,600 32,715 5,371 Weighted average interest rate during the year...... 6.77 6.77 6.31
Federal Home Loan Bank advances were down $6,500,000 at December 31, 1996 compared to December 31, 1995 due to the sale of securities involved in an arbitrage funded primarily by FHLB advances. Retail repurchase agreements increased by $7,135,000 as First Alliance Bank received a $6,000,000 repurchase agreement from a corporate customer in the first quarter of 1996. It is anticipated that this balance will remain in First Alliance Bank for the foreseeable future. Other borrowings decreased by $2,276,000 at December 31, 1996 compared to December 31, 1995 due primarily to First Alliance Bank's and Premier Bank's increasing their purchases of the mortgage loans from Premier Lending by funding those purchases with increases in other time deposits. In addition to the above, Premier Lending and Alliance Finance also utilize a combination of subordinated debentures and revolving lines of credit to fund their mortgage, commercial, and consumer finance lending activities. Note 5 in the Notes to Consolidated Financial Statements details the maturities, rates, and terms of these instruments. Additionally, Premier owed $4 million at December 31, 1996 in term debt which is an increase of $1 million from December 31, 1995. This increase was used by Premier to inject additional capital into Premier Bank for asset growth. The original $3 million was also used as capital in the acquisition of Premier Bank in 1995. CREDIT ANALYSIS Non-performing Loans Information with respect to impaired, past due, and restructured loans at December 31, 1996 is as follows:
DECEMBER 31, ---------------------------- 1996 1995 1994 1993 1992 ------ ---- ---- ---- ------ (DOLLARS IN THOUSANDS) Impaired loans................................... $1,224 $268 $604 $309 $2,892 Loans contractually past due ninety days or more as to interest or principal payments and still accruing........................................ -- 1 -- 127 10 Loans, the terms of which have been renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower.............. 60 -- -- -- 700 Loans, now current, about which there are serious doubts as to the ability of the borrower to comply with present loan repayment terms........ -- -- -- -- -- Interest income that would have been recorded on impaired loans under original terms............. 92 Interest income that was recorded on impaired and restructured loans.............................. 15
The increase in impaired loans from December 31, 1995 to December 31, 1996, resulted from (i) loan growth, (ii) construction loans of $393,708 which matured, and (iii) $470,199 of individual residential loans in bankruptcy which were insured by either private mortgage insurance or FHA. At December 31, 1996, three first mortgage loans totaling $464,000, made to individuals who subsequently declared bankruptcy are included in impaired loans. In addition, $641,000 related to one residential builder was also in impaired loans. Of the $641,000, all but $70,000 has been paid out subsequent to year end. As discussed above the increase in impaired loans is primarily attributable to the four borrowers mentioned above. 6 Management evaluates all problem loans and determines the collectibility of the related interest and principal. In the event that full collection is doubtful the loans are classified as impaired loans, although collection may be probable through liquidation of the collateral. In the event that a builder has demonstrated questionable performance or other financial concerns have arisen, the entire line is subject to being classified as impaired based on management's evaluation. The instances discussed above are isolated instances and do not represent a current trend. Management expects no material losses on the remaining balances. In February 1992 and November 1993, Premier acquired separate financial institutions; and, at the time of the acquisitions, significant problem loans were identified. These problem loans and other unidentified problem loans which were later identified in the two acquired institutions account for the majority of the net charge-offs incurred for the years ended December 31, 1992, 1993 and 1994. The realization of these charge-offs, more conservative underwriting, and an improving economy resulted in the decrease in the level of charge-offs of outstanding loans over the last two years. Accrual of interest income is discontinued on all loans when they become 90 days past due or, in the opinion of management, collection of interest becomes doubtful. When a loan is determined to be impaired, all interest previously accrued but not collected is reversed against current interest income. Accrual of interest on such loans is resumed when, in management's judgment, the collection of interest and principal becomes probable. In the opinion of management, any loans classified by regulatory authorities as doubtful, substandard, or special mention that have not been included in the table above do not represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or capital resources. These classified loans do not represent (i) material credits about which management is aware or (ii) any information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms. Any loans classified by regulatory authorities as loss are charged off at the time such loans are identified. Commitments and Lines of Credit Premier enters into residential construction and commercial loan commitments in advance of closing to fund loans to its customers at locked-in interest rates in the normal course of business. These instruments, to the extent they are not covered by investor purchase commitments, involve credit and interest rate risk in excess of the amount recognized in the financial statements. In the normal course of business, Premier has entered into off-balance-sheet financial instruments which are not reflected in the financial statements. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are included in the financial statements when funds are disbursed or the instruments become payable. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. Premier's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unfunded mortgage loan commitments, residential construction, and commercial loan commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. A summary of Premier's commitments is as follows:
DECEMBER 31, ----------------------- 1996 1995 ----------- ----------- Unfunded mortgage loan commitments................. $20,000,000 $31,968,000 Residential construction and commercial loan com- mitments.......................................... 27,277,198 18,526,425 Commitments to extend credit....................... 49,987,828 20,387,000 Standby letters of credit.......................... 695,742 1,249,532 ----------- ----------- $97,960,768 $72,130,957 =========== ===========
SUMMARY OF LOAN EXPERIENCE The provision for possible loan losses is created by direct charges to operations. Losses on loans are charged against the allowance in the period in which such loans, in management's opinion, become uncollectible. Recoveries during the period are credited to the allowance. The factors that influence management's judgment in determining the amount charged to operating expense are past loan loss experience, composition of the loan 7 portfolio, evaluation of possible future losses, current economic conditions, and other relevant facts. Premier's allowance for loan losses was approximately $2,404,000 at December 31, 1996 compared with $1,802,000 at December 31, 1995. The allowance for loan losses is reviewed regularly based on management's evaluation of current risk characteristics of the loan portfolio, as well as the impact of prevailing and expected economic business conditions. Management considers the allowance for loan loss adequate to cover possible loan losses on the loans outstanding. Premier is a bank holding company that is the result of the acquisition of five financial institutions acquired over the last five years. Each institution utilized various methodologies to determine loan loss allowance adequacy. The methodologies utilized by current management are, in the opinion of that management group, appropriate for the allowance adequacy determination at December 31, 1996. Considering the primary factor that the economy in general and the Atlanta metropolitan market in specific is performing in an outstanding manner, management realizes and provides for any deterioration of the economy in the future. At this time, management expects charge-offs in 1997 to be consistent with 1996. At December 31, 1996, the allowance for loan losses could be allocated in the following manner:
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES DECEMBER 31, ------------------------------------ 1996 1995 1994 1993 1992 ------------ ---- ---- ---- ---- (DOLLARS IN THOUSANDS) RESERVE %(1) %(1) %(1) %(1) %(1) ------- ---- ---- ---- ---- ---- Commercial................................ $ 326 15% 17% 7% 9% 12% Real estate............................... 539 40 44 56 54 56 Real estate--construction................. 521 36 28 24 18 11 Consumer.................................. 174 9 11 13 19 21 Unallocated............................... 844 -- -- -- -- -- ------ --- --- --- --- --- $2,404 100% 100% 100% 100% 100% ====== === === === === ===
- -------- (1) Percent of loans in each category of total loans. The following table summarizes average loan balances for each year, changes in the allowance for loan losses arising from loans charged off, recoveries on loans previously charged off, additions to the reserve which have been charged to operating expense, and the rate of net charge-offs during the period to average loans.
1996 1995 1994 1993 1992 -------- -------- ------- ------- ------- (DOLLARS IN THOUSANDS) Average amount of loans out- standing $183,367 $134,712 $90,640 $86,765 $83,905 Balance of allowance for loan losses at beginning of year... 1,802 1,301 1,581 1,403 1,478 Charge offs: Commercial and financial..... (51) (149) (204) (736) (349) Real estate.................. (13) (181) (398) (125) (292) Consumer..................... (88) (59) (132) (176) (421) -------- -------- ------- ------- ------- (152) (389) (734) (1,037) (1,062) -------- -------- ------- ------- ------- Recoveries: Commercial and financial..... 78 132 80 67 21 Real estate.................. 34 83 32 28 20 Consumer..................... 44 43 57 113 45 -------- -------- ------- ------- ------- 156 258 169 208 86 -------- -------- ------- ------- ------- Net (charge-offs), recoveries.. 4 (131) (565) (829) (976) -------- -------- ------- ------- ------- Allowance acquired in business combinations.................. -- 294 -- -- 460 -------- -------- ------- ------- ------- Additions to allowance charged to operating expense during year.......................... 598 338 285 1,007 441 -------- -------- ------- ------- ------- Balance of allowance for loan losses at end of year......... $ 2,404 $ 1,802 $ 1,301 $ 1,581 $ 1,403 ======== ======== ======= ======= ======= Ratio of net loans charged off during the year to average loans outstanding............. -- % 0.10% 0.62% 0.96% 1.16% ======== ======== ======= ======= =======
8 Provision for Loan Loss The provision for loan losses was $598,000 in 1996 as compared to $338,000 in 1995. Premier had net recoveries of $4,000 in 1996. The ratio of net charge-offs to average loans in 1996 was at its lowest level in the last five years. The provision expense is primarily related to the growth in loans of $53,982,000. RESULTS OF OPERATIONS Premier reported record earnings of $2,540,000 for the year ended December 31, 1996. This amount was an increase of $551,000 or 28% from the previous year's net income of $1,989,000. Year to date earnings include unusual expenses of $1,036,000. This figure includes merger expenses, data processing conversion expenses, severance expenses, as well as the special SAIF fund recapitalization assessment. On an after tax basis, these unusual items totaled $854,000. Fourth quarter 1996 net income was $1,002,000, exclusive of any unusual expense or income items. Interest Income and Interest Expense The following table sets forth the amount of Premier's average balances, interest income, and interest expense for each category of interest-earning assets and interest-bearing liabilities, average interest rates for interest- earning assets and interest yields for interest-bearing liabilities, net interest spread, and net yield on average interest-earning assets. Distribution of Assets, Liabilities, and Stockholders' Equity Interest Rates and Interest Differentials
1996 1995 1994 --------------------------- --------------------------- --------------------------- AVERAGE AVERAGE AVERAGE YIELDS/ INCOME OR YIELDS/ INCOME OR YIELDS/ INCOME OR BALANCES(1) EXPENSES RATES BALANCES(1) EXPENSES RATES BALANCES(1) EXPENSES RATES ----------- --------- ----- ----------- --------- ----- ----------- --------- ----- (DOLLARS IN THOUSANDS) Interest-bearing depos- its in banks........... $ 7,716 $ 381 4.94% $ 2,521 $ 119 4.72% $ 523 $ 18 3.44% Taxable securities(4)... 37,185 2,284 6.14 41,683 2,735 6.56 34,020 1,743 5.12 Federal funds sold...... 10,902 592 5.43 9,481 560 5.91 9,977 451 4.52 Loans(2)................ 183,367 19,759 10.78 134,712 13,887 10.31 90,640 8,743 9.65 Allowance for loan losses................. (2,122) (1,683) (1,509) Cash and due from banks.................. 7,982 10,978 5,689 Other assets............ 13,477 11,721 7,955 --------- --------- -------- Total.................. $ 258,507 $ 23,016 $ 209,413 $17,301 $147,295 $10,955 ========= ======== ========= ======= ======== ======= ==== Total interest-earning assets................. $ 239,170 9.62% $ 188,397 9.18% $135,160 8.11% ========= ===== ========= ===== ======== ==== Noninterest-bearing demand................. $ 29,472 $ $ 24,936 $ $ 21,652 Interest-bearing demand................. 50,993 1,577 3.09 37,833 1,283 3.39 36,407 1,082 2.97 Savings................. 8,515 252 2.96 10,438 278 2.66 11,048 327 2.96 Time.................... 114,961 6,838 5.95 78,736 4,504 5.72 53,551 2,364 4.41 --------- -------- ----- --------- ------- ----- -------- ------- ---- Total deposits......... 203,941 8,667 151,943 6,065 122,648 3,773 Borrowings.............. 28,096 2,615 9.31 32,714 2,216 6.77 5,371 339 6.31 Other liabilities....... 3,220 2,738 1,195 Stockholders' equi- ty(3).................. 23,250 22,018 18,071 --------- -------- --------- ------- -------- ------- Total.................. $ 258,507 $ 11,282 $ 209,413 $ 8,281 $147,295 $ 4,112 ========= ======== ========= ======= ======== ======= Total interest-bearing liabilities............ $ 202,565 5.57% $ 159,721 5.18% $106,377 3.87% ========= ===== ========= ===== ======== ==== Net interest spread..... 4.05% 4.00% 4.24% ===== ===== ==== Net yield on average interest- earning assets................. $ 11,734 4.91% $ 9,020 4.79% $ 6,843 5.06% ======== ===== ======= ===== ======= ====
- ------- (1)Average balances were determined using the daily average balances. (2)Average loans include impaired loans and are stated net of unearned income. Income on impaired loans is recognized on the cash basis. (3)Average shareholders' equity is net of unrealized losses on securities available-for-sale, net of taxes (4)Average taxable securities represent securities available-for-sale and are based on their fair values. (5) Interest and fees on loans include $1,285,892, $902,787, and $685,034 of loan fee income for the years ended December 31, 1996, 1995, and 1994. Net interest income increased by $2,714,000 during fiscal 1996. The following table reflects the changes in net interest income resulting from changes in interest rates and from asset and liability volume. The change in interest 9 attributable to rate has been determined by applying the change in rate between years to average balances outstanding in the earlier year. The change in interest due to volume has been determined by applying the rate from the earlier year to change in average balances outstanding between years. Thus, changes that are not solely due to rate or volume have been consistently allocated between rate and volume.
1995 TO 1996 1994 TO 1995 INCREASE (DECREASE) INCREASE (DECREASE) DUE TO CHANGE IN DUE TO CHANGE IN ------------------------ ------------------------- RATE VOLUME TOTAL RATE VOLUME TOTAL ------ ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Income from interest- earning assets: Interest and fees on loans................. $ 654 $ 5,218 $ 5,872 $ 637 $ 4,507 $ 5,144 Interest on taxable securities............ (168) (283) (451) 551 441 992 Interest on Federal funds sold............ (50) 82 32 135 (26) 109 Interest on deposits in banks................. 6 256 262 9 92 101 ------ ------- ------- ------- ------- ------- Total interest income.............. $ 442 $ 5,273 $ 5,715 $ 1,332 $ 5,014 $ 6,346 ====== ======= ======= ======= ======= ======= Expense from interest- bearing liabilities: Interest on interest- bearing deposits...... $ (116) $ 410 $ 294 $ 158 $ 43 $ 201 Interest on savings deposits.............. 28 (54) (26) (32) (17) (49) Interest on time deposits.............. 186 2,148 2,334 827 1,313 2,140 Interest on other borrowings............ 732 (333) 399 27 1,850 1,877 ------ ------- ------- ------- ------- ------- Total interest expense............. $ 830 $ 2,171 $ 3,001 $ 980 $ 3,189 $ 4,169 ------ ------- ------- ------- ------- ------- Net interest income.. $ (388) $ 3,102 $ 2,714 $ 352 $ 1,825 $ 2,177 ====== ======= ======= ======= ======= =======
Non-Interest Income Total non-interest income increased $3,702,000 in fiscal 1996 over fiscal 1995. This was primarily due to the increase in mortgage loan activity resulting in an increase in related income of $2,934,000. Commercial finance maintenance fees were up $515,000 in fiscal 1996 from fiscal 1995. The increase in income of these business lines is a continuation of a trend which began in 1994. In 1995, mortgage origination fees were up $4,683,000 and commercial finance fees were up $432,000 over fiscal 1994. Management expects these income streams to continue to grow in 1997. Non-Interest Expense Total non-interest expense increased $5,675,000 in fiscal 1996 over fiscal 1995. As discussed above, unusual expenses related to merger, conversion, and special SAIF fees totaled $1,036,000. In addition, Premier acquired Premier Bank in a purchase accounting transaction in April of 1995. An estimate of the increase in expense of twelve months in 1996 versus eight months since acquisition in 1995 is $870,000. Salary and commission expense was up $2,591,000 in Premier Lending due to increased volume and the addition of a new origination office and staff. Expenses in Premier Bank were up an estimated $400,000 due to a full year of one new branch and six months of an additional branch. Non-interest expenses were up $5,036,000 in fiscal 1995 over fiscal 1994. Salary and commission expense in Premier Lending was up $2,413,000 due primarily to increases in volume. Premier Bank opened a new branch and Premier Lending opened two additional offices in 1995. Income Taxes Consolidated income taxes decreased in 1996 by $69,000 as compared to 1995. Premier was able to utilize net operating loss ("NOL") carryforwards of $237,000 in Premier Bank and Premier Lending which had been incurred and not utilized in 1994 and 1995. The effective tax rate is higher in 1996 versus 1995 due to the non- 10 deductibility of merger related expenses. A more complete discussion and detailed schedule are contained in Note 10 of the Notes to Consolidated Financial Statements. RETURN ON EQUITY AND ASSETS The following rate of return information for the years indicated is presented below.
YEAR ENDED DECEMBER 31, -------------------------- 1996 1995 1994 ------- ------- -------- Return on assets(1)........................... .98% .95% .20% Return on equity(2)........................... 10.92 9.03 1.61 Cash dividend payout ratio(3)................. 96.15 2.76 105.00 Equity to assets ratio(4)..................... 8.99 10.51 12.27
- -------- (1) Net income divided by average total assets (2) Net income divided by average equity (3) Cash dividends declared divided by net income (4) Average equity divided by average total assets In 1996, a dividend related to 1995 earnings was declared and paid in January 1996. An additional dividend related to 1996 earnings was declared in December 1996 and paid in January 1997. In addition, Premier Bancshares, Inc., which was acquired by Premier in 1996, incurred net losses in 1994 and 1995, and had never paid a common stock dividend. QUARTERLY FINANCIAL DATA
1996 --------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ----------- ----------- ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Interest income........... $5,693 $5,787 $5,386 $6,150 Interest expense.......... 2,706 2,668 2,766 3,141 ----------- ----------- ----------- ------------ Net interest income....... 2,987 3,119 2,620 3,009 Provision for loan losses................... 129 202 132 135 ----------- ----------- ----------- ------------ Net interest income after provision for loan losses................... 2,858 2,917 2,488 2,874 Noninterest income........ 2,557 2,763 2,917 3,618 Noninterest expense....... 4,324 4,776 5,201 5,070 ----------- ----------- ----------- ------------ Income before income taxes.................... 1,091 904 204 1,422 Income tax expense........ 325 229 97 418 Minority interest in net income................... 3 3 4 2 ----------- ----------- ----------- ------------ Net income................ $ 763 $ 672 $ 103 $ 1,002 =========== =========== =========== ============ Net income per share...... $ 0.32 $ 0.28 $ 0.04 $ 0.42 =========== =========== =========== ============
The quarterly information reported on Forms 10-QSB by Premier for the quarters ended March 30, 1996 and June 30, 1996 have been restated above to reflect the business combination of First Alliance Bancorp, Inc. (predecessor to Premier) with Premier Bancshares, Inc. which was consummated on August 31, 1996. The business combination was accounted for as a pooling of interests. There were no other changes from previously reported amounts. 11 - -------------------------------------------------------------------------------- PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL REPORT DECEMBER 31, 1996 - -------------------------------------------------------------------------------- INDEX TO FINANCIAL STATEMENTS PREMIER BANCSHARES, INC. Independent Auditor's Report............................................. F-1 Consolidated Balance Sheets.............................................. F-2 Consolidated Statements of Income........................................ F-3 Consolidated Statement of Stockholders' equity........................... F-4 Consolidated Statements of Cash Flows.................................... F-5 Notes to Consolidated Financial Statements............................... F-7 THE CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES Report of Independent Certified Public Accountants....................... Consolidated Balance Sheets--December 31, 1996 and 1995.................. Consolidated Statements of Earnings--Years ended December 31, 1996, 1995 and 1994................................................................ Consolidated Statements of Changes in Stockholders' Equity--Years ended December 31, 1996, 1995 and 1994........................................ Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994........................................................... Notes to Consolidated Financial Statements...............................
PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL REPORT DECEMBER 31, 1996 TABLE OF CONTENTS
PAGE -------------- INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS...... F-1 FINANCIAL STATEMENTS Consolidated balance sheets................................... F-2 Consolidated statements of income............................. F-3 Consolidated statements of stockholders' equity............... F-4 Consolidated statements of cash flows......................... F-5 and F-6 Notes to consolidated financial statements.................... F-7 and F-27 INDEPENDENT AUDITOR'S REPORT ON THE SUPPLEMENTARY FORMATION... F-28
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS To the Board of Directors Premier Bancshares, Inc. and Subsidiaries Atlanta, Georgia We have audited the accompanying consolidated balance sheets of Premier Bancshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Premier Bancshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Maudlin & Jenkins, L.L.P. Atlanta, Georgia January 31, 1997, except for Note 16 as to which the date is February 24, 1997 PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ------------ ------------ ASSETS Cash and due from banks............................. $ 11,633,707 $ 9,545,638 Interest-bearing deposits in banks.................. 1,447,173 9,947,819 Federal funds sold.................................. 21,680,000 2,530,000 Securities available-for-sale....................... 35,153,641 45,796,237 Loans held for sale................................. 24,408,287 25,912,226 Loans............................................... 186,856,184 132,873,733 Less allowance for loan losses...................... 2,404,189 1,801,917 ------------ ------------ Loans, net...................................... 184,451,995 131,071,816 Premises and equipment.............................. 6,634,633 5,644,655 Other real estate owned............................. 603,489 313,117 Goodwill and other intangibles...................... 2,276,728 2,686,233 Other assets........................................ 5,868,826 4,077,242 ------------ ------------ Total assets.................................... $294,158,479 $237,524,983 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Noninterest-bearing demand........................ $ 30,184,254 $ 29,295,271 Interest-bearing demand........................... 57,562,280 40,938,564 Savings........................................... 8,302,341 9,049,907 Time, $100,000 and over........................... 35,103,940 31,003,923 Other time........................................ 105,580,365 68,165,694 ------------ ------------ Total deposits.................................. 236,733,180 178,453,359 Securities sold under repurchase agreements......... 8,443,316 1,308,634 Federal Home Loan Bank advances..................... 4,625,000 11,125,000 Other borrowings.................................... 17,152,230 19,428,642 Other liabilities................................... 3,916,085 3,762,705 ------------ ------------ Total liabilities............................... 270,869,811 214,078,340 ------------ ------------ Minority interest in subsidiary..................... 13,618 16,754 ------------ ------------ Commitments and contingent liabilities Stockholders' equity Common stock, par value $1 at December 31, 1996; and $5 at December 31, 1995; 20,000,000 shares authorized; 4,249,748 and 2,351,529 issued and outstanding, respectively........................ 4,249,748 11,757,645 Capital surplus................................... 18,553,533 11,023,136 Retained earnings................................. 640,485 542,730 Unrealized gains (losses) on securities available- for-sale, net of tax............................. (168,716) 106,378 ------------ ------------ Total stockholders' equity...................... 23,275,050 23,429,889 ------------ ------------ Total liabilities and stockholders' equity...... $294,158,479 $237,524,983 ============ ============
See Notes to Consolidated Financial Statements. F-2 PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ------------ ------------ ----------- INTEREST INCOME Loans................................ $ 19,759,157 $ 13,886,775 $ 8,742,677 Taxable securities................... 2,264,378 2,723,768 1,731,311 Nontaxable securities................ 20,237 11,261 11,265 Deposits in banks.................... 380,551 119,049 17,616 Other short-term investments......... 591,458 559,739 450,891 ------------ ------------ ----------- Total interest income.............. 23,015,781 17,300,592 10,953,760 ------------ ------------ ----------- INTEREST EXPENSE Deposits............................. 8,666,641 6,064,829 3,772,280 Other borrowings..................... 2,614,820 2,216,141 338,991 ------------ ------------ ----------- Total interest expense............. 11,281,461 8,280,970 4,111,271 ------------ ------------ ----------- Net interest income................ 11,734,320 9,019,622 6,842,489 PROVISION FOR LOAN LOSSES.............. 598,398 337,659 285,000 ------------ ------------ ----------- Net interest income after provision for loan losses................... 11,135,922 8,681,963 6,557,489 ------------ ------------ ----------- OTHER INCOME Service charges on deposit accounts.. 960,395 877,318 909,660 Other service charges and fees....... 1,375,896 892,834 450,957 Gain on mortgage loans held for sale................................ 4,720,267 2,327,916 99,969 Gain on sale of SBA loans............ 279,061 -- -- Mortgage loan fees................... 4,180,748 3,638,835 1,183,601 Net realized gains (losses) on securities available-for-sale....... 135,295 52,841 (28,568) Net realized losses on securities held-to-maturity.................... -- (30,778) -- Other operating income............... 203,573 393,964 346,496 ------------ ------------ ----------- Total other income................. 11,855,235 8,152,930 2,962,115 ------------ ------------ ----------- OTHER EXPENSES Salaries and employee benefits....... $ 11,870,099 $ 8,183,327 $ 4,985,065 Equipment expenses................... 1,110,368 681,966 568,654 Occupancy expenses................... 1,297,448 958,622 607,859 Advertising expenses................. 249,054 166,186 191,132 Telephone expenses................... 353,892 190,316 159,672 Merger related expenses.............. 498,556 21,511 -- Stationery and supplies.............. 433,049 293,040 268,934 Legal expenses....................... 202,243 254,915 168,802 Director expenses.................... 307,584 249,247 150,349 Deposit insurance.................... 327,708 212,447 247,874 Collection expenses.................. 91,886 144,763 146,073 Goodwill amortization expense........ 190,813 149,197 -- Other operating expenses............. 2,438,357 2,190,127 1,165,461 ------------ ------------ ----------- Total other expenses............... 19,371,057 13,695,664 8,659,875 ------------ ------------ ----------- Income before income taxes and minority interest in net income of subsidiary........................ 3,620,100 3,139,229 859,729 Income tax expense..................... 1,068,534 1,137,571 568,581 ------------ ------------ ----------- Net income before minority interest in net income of subsidiary....... 2,551,566 2,001,658 291,148 Minority interest in net income of subsidiary............................ 11,850 12,709 -- ------------ ------------ ----------- Net income......................... $ 2,539,716 $ 1,988,949 $ 291,148 ============ ============ =========== Net income per share of common stock... $ .59 $ .48 $ .08 ============ ============ =========== Weighted average shares outstanding.... 4,306,835 4,136,260 3,570,450 ============ ============ ===========
See Notes to Consolidated Financial Statements. F-3 PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
UNREALIZED GAINS COMMON STOCK RETAINED (LOSSES) ON TOTAL --------------------- CAPITAL EARNINGS SECURITIES AVAILABLE- STOCKHOLDERS' SHARES PAR VALUE SURPLUS (DEFICIT) FOR-SALE, NET OF TAX EQUITY --------- ----------- ----------- ----------- --------------------- ------------- BALANCE, DECEMBER 31, 1993................... 1,956,962 $ 9,784,810 $ 8,489,317 $ (414,329) $ -- $ 17,859,798 Net income............ -- -- -- 291,148 -- 291,148 Cash dividends declared............. -- -- -- (305,758) -- (305,758) Stock issued.......... 33,588 167,940 207,072 -- -- 375,012 Net change in unrealized gains (losses) on securities available- for-sale, net of tax.................. -- -- -- 50,483 (716,247) (665,764) --------- ----------- ----------- ----------- ----------- ------------ BALANCE, DECEMBER 31, 1994................... 1,990,550 9,952,750 8,696,389 (378,456) (716,247) 17,554,436 Net income............ -- -- -- 1,988,949 -- 1,988,949 5% stock dividend..... 76,206 381,030 628,699 (1,012,822) -- (3,093) Stock issued.......... 284,773 1,423,865 1,698,048 -- -- 3,121,913 Cash dividends declared............. -- -- -- (54,941) -- (54,941) Net change in unrealized gains (losses) on securities available- for-sale, net of tax.................. -- -- -- -- 822,625 822,625 --------- ----------- ----------- ----------- ----------- ------------ BALANCE, DECEMBER 31, 1995................... 2,351,529 11,757,645 11,023,136 542,730 106,378 23,429,889 Net income............ -- -- -- 2,539,716 -- 2,539,716 Stock options exercised............ 2,250 2,250 20,250 -- -- 22,500 Cash dividends declared............. -- -- -- (2,441,961) -- (2,441,961) Recapitalization...... -- (9,406,116) 9,406,116 -- -- -- 1.8055 stock split.... 1,895,969 1,895,969 (1,895,969) Net change in unrealized gains (losses) on securities available- for-sale, net of tax.................. -- -- -- -- (275,094) (275,094) --------- ----------- ----------- ----------- ----------- ------------ BALANCE, DECEMBER 31, 1996................... 4,249,748 $ 4,249,748 $18,553,533 $ 640,485 $ (168,716) $23,275,050 ========= =========== =========== =========== =========== ============
See Notes to Consolidated Financial Statements. F-4 PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ------------ ------------ ------------ OPERATING ACTIVITIES Net income before minority interest in net income of subsidiary....... $ 2,551,566 $ 2,001,658 $ 291,148 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation..................... 798,761 522,115 484,319 Amortization of intangibles...... 190,813 149,197 -- Provision for loan losses........ 598,398 337,659 285,000 Deferred income taxes............ 11,752 107,200 (241,862) Net (increase) decrease in loans held for sale................... 1,672,026 (12,958,178) (679,265) Net realized (gains) losses on securities available-for-sale... (135,295) (52,841) 28,568 Net realized losses on securities held-to-maturity................ -- 30,778 -- (Increase) decrease in interest receivable...................... (111,054) (552,809) 23,742 Increase (decrease) in interest payable......................... 180,059 231,394 (4,658) Other operating activities....... (2,891,833) 1,738,549 1,280,934 ------------ ------------ ------------ Net cash provided by (used in) operating activities.......... 2,865,193 (8,445,278) 1,467,926 ------------ ------------ ------------ INVESTING ACTIVITIES Purchases of securities available- for-sale.......................... (10,985,469) (22,918,884) (5,794,542) Proceeds from sales of securities available-for-sale................ 11,534,120 8,831,030 2,702,013 Proceeds from maturities of securi- ties available-for-sale........... 9,798,510 3,578,536 429,038 Purchases of securities held-to-ma- turity............................ -- (6,590,781) (9,302,235) Proceeds from sales of securities held-to-maturity.................. -- 4,560,718 -- Proceeds from maturities of securi- ties held-to-maturity............. -- 2,817,235 4,823,195 Net (increase) decrease in Federal funds sold........................ (19,150,000) 16,580,000 (8,230,000) Net (increase) decrease in inter- est-bearing deposits in banks..... 8,500,646 (9,931,730) (16,089) Net (increase) decrease in loans... (54,207,952) (13,452,625) 2,146,808 Purchase of premises and equip- ment.............................. (1,788,739) (788,429) (349,537) Net cash acquired in business com- binations......................... -- 678,430 -- Investment in subsidiary........... -- (5,894,871) -- ------------ ------------ ------------ Net cash used in investing ac- tivities...................... (56,298,884) (22,531,371) (13,591,349) ------------ ------------ ------------
See Notes to Consolidated Financial Statements. F-5 PREMIER BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ------------ ----------- FINANCING ACTIVITIES Net increase in deposits............. $58,279,821 $ 29,256,260 $ 843,283 Net increase in repurchase agree- ments............................... 7,134,682 1,308,634 0 Net increase (decrease) in other borrowings.......................... (2,276,412) 3,025,506 10,029,263 Net decrease in Federal Home Loan Bank advances....................... (6,500,000) (2,059,990) 0 Dividends paid....................... (1,123,845) (58,034) (305,758) Dividends paid to minority sharehold- er.................................. (14,986) -- -- Proceeds from exercise of stock op- tions............................... 22,500 -- -- Proceeds from common stock issued.... -- 3,121,913 375,012 ----------- ------------ ----------- Net cash provided by financing ac- tivities.......................... 55,521,760 34,594,289 10,941,800 ----------- ------------ ----------- Net increase (decrease) in cash and due from banks...................... 2,088,069 3,617,640 (1,181,623) Cash and due from banks at beginning of year............................. 9,545,638 5,927,998 7,109,621 ----------- ------------ ----------- Cash and due from banks at end of year................................ $11,633,707 $ 9,545,638 $ 5,927,998 =========== ============ =========== SUPPLEMENTAL DISCLOSURES Cash paid for: Interest........................... $11,101,402 $ 8,049,576 $ 4,115,929 Income taxes....................... $ 1,257,556 $ 1,272,504 $ 98,322 BUSINESS COMBINATION Net cash acquired.................... $ 678,430 ============ Securities available-for-sale........ $ 1,563,926 Loans held for sale.................. 7,829,133 Loan................................. 37,517,520 Premises and equipment............... 1,401,710 Other assets......................... 1,240,845 Goodwill............................. 2,547,828 Deposits............................. (31,031,023) Advances from Federal Home Loan Bank................................ (13,184,990) Subordinated debentures.............. (1,974,394) Other liabilities.................... (694,114) ------------ Net assets acquired, net of cash and due from banks of $678,430.......... $ 5,216,441 ============ NONCASH TRANSACTIONS Unrealized (gains) losses on securi- ties available-for-sale............. $ 430,730 $ (1,263,607) $ 1,085,220 Principal balances of loans trans- ferred to other real estate......... $ 435,816 $ 657,190 $ 309,572
See Notes to Consolidated Financial Statements. F-6 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Premier Bancshares, Inc., (the "Company" and formerly First Alliance/Premier Bancshares, Inc.) is a bank and thrift holding company whose business is conducted by its wholly-owned subsidiaries, First Alliance Bank (the "Bank") located in Marietta, Georgia, Premier Bank (the "Thrift") located in Acworth, Georgia, Premier Lending Corporation ("Lending") located in Atlanta, Georgia and Interim Alliance Corporation d/b/a Alliance Finance located in Smyrna, Georgia, an 80% owned subsidiary. The Company is not engaged in any substantial business other than the normal financial services provided by its subsidiaries. However, the Company incurs operating expenses in connection with evaluating and pursuing potential business acquisitions. First Alliance Bank is a commercial bank with operations in Marietta and Kennesaw, Georgia. The Bank provides a full range of banking services to individual and corporate customers in its primary market area of Cobb County and surrounding counties. Premier Bank was acquired by the Company during 1995 in a business combination accounted for as a purchase. The Thrift provides a full range of banking services to individual and corporate customers in its primary market area of Cobb County and surrounding counties. Premier Lending Corporation, Inc. originates, processes, funds and sells residential mortgage loans, construction loans and commercial finance loans primarily in the metropolitan Atlanta area. The majority of the mortgage loans are sold to independent third party investors with servicing released and a significant portion of the construction and commercial finance loans are participated to affiliated and non-affiliated financial institutions. Alliance Finance provides lending and financing services to consumer and business enterprises. The Finance Company's primary activities consist of origination of consumer loans including mortgage loans, retail sales financing and related insurance products. NAME CHANGE In January 1997, the Company changed its name from First Alliance/Premier Bancshares, Inc. to Premier Bancshares, Inc. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany transactions and accounts are eliminated in consolidation. The accounting and reporting policies of the Company conform to generally accepted accounting principles and general practices within the financial services industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. CASH AND DUE FROM BANKS Cash on hand, cash items in process of collection and amounts due from banks are included in cash and due from banks. F-7 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company and its subsidiaries maintain amounts due from banks which, at times, may exceed Federally insured limits. The Company has not experienced any losses in such accounts. SECURITIES Securities are classified based on management's intention on the date of purchase. Securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. All other debt securities are classified as available-for-sale and carried at fair value with net unrealized gains and losses included in stockholders' equity, net of tax. Marketable equity securities are carried at fair value with net unrealized gains and losses included in stockholders' equity. Other equity securities without a readily determinable fair value are carried at cost. Interest and dividends on securities, including amortization of premiums and accretion of discounts, are included in interest income. Realized gains and losses from the sales of securities are determined using the specific identification method. LOANS HELD FOR SALE Loans held for sale include primarily mortgage loans which are carried at the lower of aggregate cost or fair value. The determination of fair value includes consideration of outstanding commitments from investors, related origination fees and costs, and commitment fees paid. Gains and losses are recognized at settlement dates and are determined by the difference between the selling price and the carrying value of the loans sold. The Company sells all mortgage loans on a servicing released basis. The Company's practice is to originate mortgage loans subject to existing purchase commitments from third party investors. LOANS Loans are carried at their principal amounts outstanding less unearned income, net deferred loan fees and costs and the allowance for loan losses. Interest income on most loans is credited to income based on the principal amount outstanding. Interest on other loans is recognized on the sum-of-the- months method, the results of which are not materially different from generally accepted accounting principles. Loan origination fees and certain direct costs incurred in originating most loans are deferred and recognized as income over the life of the loan. Fees and costs incurred in origination of other loans are recognized at the time the loan is recorded. The results of operations are not materially different than the results which would be obtained by accounting for all loan fees and costs in accordance with generally accepted accounting principles. The allowance for loan losses is maintained at a level that management believes to be adequate to absorb potential losses in the loan portfolio. Management's determination of the adequacy of the allowance is based on an evaluation of the portfolio, past loan loss experience, current economic conditions, volume, growth, composition of the loan portfolio, and other risks inherent in the portfolio. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses, and may require the Company to record additions to the allowance based on their judgment about information available to them at the time of their examinations. The accrual of interest on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. The Company adopted the provisions of Statement of Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by Statement of Financial Accounting Standard No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures," on January 1, 1995. A loan is impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the terms of the loan agreement. Individually identified impaired loans are F-8 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) measured based on the present value of payments expected to be received, using the contractual loan rate as the discount rate. Alternatively, measurement may be based on observable market prices or, for loans that are solely dependent on the collateral for repayment, measurement may be based on the fair value of the collateral. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is established as a component of the allowance for loan losses. Changes to the valuation allowance are recorded as a component of the provision for loan losses. The Company considers the following type loans to be impaired: (1) all nonaccrual loans, (2) loans that have been restructured in a troubled debt restructuring provided that the restructured loan agreement specifies an interest rate that is less than the Company would be willing to accept at the time of the restructuring for a new loan with comparable risk or the loan becomes impaired based on the terms specified by the restructured loan agreement, and (3) any other loan in which management does not expect to collect all contractual principal and interest payments in accordance with the terms of the loan agreement. The Company has not identified large groups of smaller-balance homogeneous loans which are collectively evaluated for impairment. Any loan that meets the characteristics as described above are considered to be impaired regardless of loan type or balance. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. OTHER REAL ESTATE OWNED Other real estate owned represents properties acquired through foreclosure. Other real estate owned is held for sale and is carried at the lower of the recorded amount of the loan or fair value of the properties less estimated selling costs. Any write-down to fair value at the time of transfer to other real estate owned is charged to the allowance for loan losses. Subsequent gains or losses on sale and any subsequent adjustment to the value are recorded as other expenses. INCOME TAXES Income tax expense consists of current and deferred taxes. Current income tax provisions approximate taxes to be paid or refunded for the applicable year. Deferred tax assets and liabilities are recognized for the temporary differences between the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. Deferred tax expense or benefit is then recognized for the change in deferred tax assets or liabilities between periods. Recognition of deferred tax balance sheet amounts is based on management's belief that it is more likely than not that the tax benefit associated with certain temporary differences, tax operating loss carryforwards and tax credits will be realized. A valuation allowance is recorded for those deferred tax items for which it is more likely than not that realization will not occur. The Company and the subsidiaries file a consolidated income tax return. Each entity provides for income taxes based on its contribution to income taxes (benefits) of the consolidated group. NET INCOME PER COMMON SHARE Net income per common share is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents consist of stock options and warrants. F-9 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 2. SECURITIES The amortized cost and fair value of securities are summarized as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------ ---------- ---------- ------------ SECURITIES AVAILABLE FOR SALE December 31, 1996: U. S. Government and agency securities........ $ 19,592,588 $ 38,756 $ (53,968) $ 19,577,376 State and municipal secu- rities................... 101,145 3,546 -- 104,691 Mortgage backed securi- ties..................... 13,909,362 39,378 (256,642) 13,692,098 Equity securities......... 1,834,545 -- (55,069) 1,779,476 ------------ --------- ---------- ------------ $ 35,437,640 $ 81,680 $ (365,679) $ 35,153,641 ============ ========= ========== ============ December 31, 1995: U. S. Government and agency securities........ $ 22,226,156 $ 238,490 $ (151,542) $ 22,313,104 State and municipal secu- rities................... 291,803 12,038 -- 303,841 Mortgage backed securi- ties..................... 21,691,002 260,327 (184,535) 21,766,794 Equity securities......... 1,440,545 -- (28,047) 1,412,498 ------------ --------- ---------- ------------ $ 45,649,506 $ 510,855 $ (364,124) $ 45,796,237 ============ ========= ========== ============
The amortized cost and fair value of securities as of December 31, 1996 by contractual maturity are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities and equity securities are not included in the maturity categories in the following summary.
SECURITIES ------------------------- AMORTIZED FAIR COST VALUE ------------ ------------ Due from one year to five years................... $ 17,288,569 $ 17,280,585 Due from five to ten years........................ 2,026,196 2,018,440 Due after ten years............................... 378,968 383,042 Mortgage backed securities........................ 13,909,362 13,692,098 Equity securities................................. 1,834,545 1,779,476 ------------ ------------ $ 35,437,640 $ 35,153,641 ============ ============
Securities with a carrying value of approximately $31,452,000 and $38,224,000 at December 31, 1996 and 1995, respectively, were pledged to secure public deposits and for other purposes. Gains and losses on sales of securities consist of the following:
HELD TO MATURITY AVAILABLE FOR SALE ---------------- ------------------------------- 1995 1996 1995 1994 ---------------- --------- --------- --------- Gross gains.............. $ 725 $ 148,325 $ 130,926 $ 1,431 Gross losses............. (31,503) (13,030) (78,085) (29,999) --------- --------- --------- --------- Net realized gains (loss- es)..................... $ (30,778) $ 135,295 $ 52,841 $ (28,568) ========= ========= ========= =========
The Company sold during the third quarter of 1995 securities classified as held-to-maturity, with a carrying amount of $4,560,718, recognizing a net loss of $30,778, in response to changes in the bond market and F-10 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) management's evaluation of the securities portfolio. The circumstances leading to the sale of these securities were identified as an isolated instance based on prudent business decisions. On December 15, 1995, the Company transferred its remaining held-to-maturity portfolio totaling $20,103,806 to available- for-sale, resulting in a net unrealized loss of $23,815 which was included in stockholders' equity at $15,718 net of related taxes of $8,097. NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES The composition of loans is summarized as follows:
DECEMBER 31, -------------------------- 1996 1995 ------------ ------------ Commercial and financial............................ $ 28,599,233 $ 22,182,076 Real estate--construction........................... 67,410,541 37,157,871 Real estate--mortgage 73,272,062 58,463,177 Consumer............................................ 17,991,335 14,776,676 Other............................................... 81,094 912,432 ------------ ------------ 187,354,265 133,492,232 Unearned income..................................... (520,446) (447,306) Net deferred loan (fees) costs...................... 22,365 (171,193) Allowance for loan losses........................... (2,404,189) (1,801,917) ------------ ------------ Loans, net.......................................... $184,451,995 $131,071,816 ============ ============
Changes in the allowance for loan losses for the years ended December 31, 1996, 1995 and 1994 were as follows:
1996 1995 1994 ---------- ---------- ---------- BALANCE, BEGINNING OF YEAR.................. $1,801,917 $1,301,582 $1,581,532 Allowance acquired in acquisitions........ -- 294,309 -- Provision for loan losses................. 598,398 337,659 285,000 Loans charged off......................... (152,326) (389,570) (735,324) Recoveries................................ 156,200 257,937 170,374 ---------- ---------- ---------- BALANCE, END OF YEAR........................ $2,404,189 $1,801,917 $1,301,582 ========== ========== ==========
The total recorded investment in impaired loans was $1,223,510 and $268,463 at December 31, 1996 and 1995, respectively. None of these loans had a specific allowance for loan losses at December 31, 1996 and 1995 determined in accordance with generally accepted accounting principles. The average recorded investment in impaired loans for 1996 and 1995 was $1,038,284 and $692,500, respectively. Interest income on impaired loans of $14,085 and $10,155 was recognized for cash payments received for the years ended 1996 and 1995, respectively. The Company has granted loans to certain related parties including directors, executive officers, and their related entities. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan involved. Changes in related party loans for the year ended December 31, 1996 are as follows: BALANCE, BEGINNING OF YEAR....................................... $1,410,900 Advances....................................................... 223,601 Repayments..................................................... (407,081) ---------- BALANCE, END OF YEAR............................................. $1,227,420 ==========
F-11 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4. PREMISES AND EQUIPMENT Premises and equipment are summarized as follows:
DECEMBER 31, ------------------------ 1996 1995 ----------- ----------- Land............................................... $ 1,132,414 $ 1,132,414 Buildings.......................................... 3,607,228 3,469,036 Equipment.......................................... 5,835,742 4,471,926 ----------- ----------- 10,575,384 9,073,376 Accumulated depreciation........................... (3,940,751) (3,428,721) ----------- ----------- $ 6,634,633 $ 5,644,655 =========== ===========
NOTE 5. OTHER BORROWINGS SECURITIES SOLD UNDER REPURCHASE AGREEMENTS The balance of securities sold under repurchase agreements was $8,443,316 and $1,308,634 at December 31, 1996 and 1995, respectively. SUBORDINATED DEBENTURES Subordinated debt of Alliance Finance and Premier Lending consists of fixed rate debentures which are payable on demand or mature at twelve, twenty-four or thirty-six months after date of issue. The debentures have various principal amounts and interest is payable monthly. The Company may repay the debentures for a price equal to 100% of the principal plus any unpaid interest to date of redemption without penalty. A summary of the outstanding debentures by interest rate and maturity are as follows:
DECEMBER 31, --------------------- 1996 1995 ---------- ---------- 7.50% due on demand................................... $4,236,971 $ -- 7.50% due in 1997..................................... 70,000 -- 7.50% due February 20, 1999........................... 70,000 -- 8.00% due on demand................................... 1,327,000 1,194,000 8.00% due in 1998..................................... 35,000 35,000 8.50% due on demand................................... 90,000 -- 10.0% due on demand................................... 25,000 25,000 ---------- ---------- $5,853,971 $1,254,000 ========== ==========
F-12 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Lines of credit at December 31, 1996 and 1995 consisted of:
1996 1995 ---------- ----------- Revolving line of credit of $4,000,000 with a nonaffiliated institution, bearing interest at prime less .50% (7.75% at December 31, 1996) due on October 31, 1997. Line is secured by all commercial finance notes receivable, all stock of the Company's subsidi- aries and guaranteed by the Company................... $2,320,000 $ -- Revolving line of credit of $4,000,000 with a nonaffiliated institution, bearing interest at prime less .50% (7.75% at December 31, 1996), due October 31, 1997. Line is secured by all stock of the Company's subsidiaries and guaranteed by the Company.. 3,675,000 -- Revolving line of credit of $3,000,000 with a nonaffiliated institution, bearing interest at prime less .50% (7.75% at December 31, 1996), due October 31, 1997. Line is secured by accounts receivable of Alliance Finance, all stock of the Company's subsidi- aries and guaranteed by the Company................... 475,000 -- Treasury, tax and loan note option account with the Federal Reserve Bank of Atlanta, due on demand, bear- ing interest at 5.148% at December 31, 1996, collater- alized by securities.................................. 828,259 -- Line of credit of $505,000 with a nonaffiliated insti- tution, bearing interest at prime plus 1% (9.25% at December 31, 1995), matured on August 14, 1996........ -- 505,000 Revolving warehouse line of credit of $30,000,000 with a nonaffiliated institution, bearing interest at an annual rate varying from published rates on high- graded unsecured commercial paper plus 1.75% to plus 3%, matured October 21, 1995.......................... $ -- $13,584,642 Revolving line of credit of $3,000,000 with a nonaffiliated institution, bearing interest at prime (8.50% at December 31, 1995) matured February 15, 1996.................................................. -- 1,085,000 ---------- ----------- $7,298,259 $15,174,642 ========== =========== Long-term debt at December 31, 1996 and 1995 consisted of: 1996 1995 ---------- ----------- Note payable in the amount of $4,000,000, due in eight annual instalments of $500,000 beginning April 1, 1999 with interest due quarterly at prime less .50% (7.75% at December 31, 1996), due April 1, 2006. Note payable is secured by all stock of the Company's subsidiaries and guaranteed by the Company......................... $4,000,000 $ -- Note payable in the amount of $3,000,000, due in annual instalments of $300,000 with interest due quarterly at prime plus 1% (9.25% at December 31, 1995) to October 28, 2006 collateralized by 320,000 shares of common stock of Premier Bank................................. -- 3,000,000 ---------- ----------- $4,000,000 $ 3,000,000 ========== ===========
In connection with the long-term debt, the Company has agreed, among other covenants, to during the term of the loan: (1) maintain earnings at a level equal to or above .60 percent of average assets; (2) maintain reserves for possible loan losses at a level of not less than 1% of total gross loans, excluding residential first mortgage loans on owner-occupied single family dwellings, of the Banks; (3) maintain in aggregate a total risk based capital ratio of no less than 10.0% and Tier 1 capital to average total assets of no less than 6.0%; and (4) not permit its capital to be less than $20,000,000. F-13 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Aggregate maturities required on long-term debt at December 31, 1996 were as follows: 1999................................................................ $ 500,000 2000................................................................ 500,000 2001................................................................ 500,000 Thereafter.......................................................... 2,500,000 ----------- $ 4,000,000 ===========
NOTE 6. FEDERAL HOME LOAN BANK ADVANCES Federal Home Loan Bank advances consisted of the following at December 31, 1996 and 1995:
1996 1995 ----------- ------------ Advance from the Federal Home Loan Bank with interest at 6.79%, due on August 1, 2001. Interest is payable monthly.............................................. $ 1,000,000 $ -- Advance from the Federal Home Loan Bank with interest at 6.99%, due on September 15, 1997. Interest is pay- able monthly......................................... 1,000,000 1,000,000 Advance from the Federal Home Loan Bank with interest at 8.27%, due on December 8, 1997. Interest is pay- able monthly......................................... 1,750,000 1,750,000 Advance from the Federal Home Loan Bank with interest at 8.41%, due on December 8, 1999. Interest is pay- able monthly......................................... 875,000 875,000 Advance from the Federal Home Loan Bank with interest at the one month LIBOR rate plus 20 basis points (6.17% at December 31, 1995), due on May 31, 2005......................................... -- 5,000,000 Advance from the Federal Home Loan Bank with interest based on the Federal Home Loan Bank's cost of funds plus .25% (5.85% at December 31, 1995), matured on January 2, 1996...................................... -- 1,000,000 Variable rate advances from the Federal Home Loan Bank with interest based on the Federal Home Loan Bank's cost of funds plus .25% (6.10% December 31, 1995), matured on October 12, 1996.......................... $ -- $ 1,000,000 Variable rate advances from the Federal Home Loan Bank with interest based on the Federal Home Loan Bank's cost of funds plus .25% (6.10% at December 31, 1995), matured on November 3, 1996.......................... -- 500,000 ----------- ------------ $ 4,625,000 $ 11,125,000 =========== ============
The advances from the Federal Home Loan Bank are collateralized by a blanket floating lien on qualifying first mortgages and pledges of certain securities and the Company's Federal Home Loan Bank stock. NOTE 7. DEFERRED COMPENSATION PLANS First Alliance Bank has three deferred compensation plans providing for the deferral of director fees and certain retirement benefits for the directors. The first retirement benefit plan was put in place in January, 1994. The Bank accrues an amount equal to the present value of the estimated benefit to be paid under the plan. The accrual recorded for the years ended December 31, 1996, 1995 and 1994 was $103,994, $89,303 and $50,601, respectively. The plan was terminated effective December 31, 1996 and no additional benefits will be accrued under this plan. F-14 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Bank's other plans allow the directors to defer up to $500 per month of their monthly director's fees. The first plan covers one current and one former director. Under that plan, the monthly amount deferred is utilized to purchase life insurance on those directors. The Bank's liability under that plan is equal to the cash value of those policies. The second plan is similar to the first except deferred fees are recorded in a liability account monthly plus an interest amount based on the current market rate accrued annually. During 1996, 1995 and 1994, an amount of $38,260, $31,322 and $21,200, respectively, was deferred by the directors and recorded as a liability of the Bank. In conjunction with these plans, several universal life insurance policies were purchased by the Bank. The Bank is the owner of the policies which insure the lives of certain directors. These policies may be used by the Bank as funding vehicles for plan obligations. The directors are general creditors of the Bank and have no specific claims on these assets. NOTE 8. EMPLOYEE BENEFIT PLANS PROFIT SHARING PLAN The Company has a 401(k) retirement plan covering all employees, subject to certain minimum age requirements. Contributions to the plan charged to expense were $73,252, $38,933 and $39,975 for the years ended December 31, 1996, 1995 and 1994, respectively. Premier Bank had a defined contribution 401(k) plan covering all full-time employees, subject to certain minimum service requirements. This 401(k) plan was terminated on January 30, 1996 with the individual participants' funds being disbursed on that date. There were no contributions to the plan for the year ended December 31, 1996 and the period from acquisition to December 31, 1995. INCENTIVE STOCK OPTION PLANS The Company has an Employee Incentive Stock Option Plan. Under the Plan, the Company can grant to key personnel options to purchase an aggregate of 270,825 shares of the Company's common stock at a price not less than the fair market value of such shares on the date the option is granted. The option period will not exceed ten years from date of grant. The Company also has an employee and a director stock option plan whereby 72,220 and 58,679 shares, respectively, of common stock have been reserved for stock options. Under the employee plan, the Company can grant to key personnel options to purchase common stock at a price not less than the fair market value of such shares on the date the option is granted. The option period will not exceed ten years from date of grant. F-15 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Under the director plan, each eligible director who attends at least 75% of the meetings of the Company's Board and related committee meetings shall receive an option to purchase 903 shares annually of common stock. The options expire ten years from the date of grant. All options granted were exercisable at December 31, 1996. Other pertinent information related to the options is as follows:
DECEMBER 31, ------------------------------------------------------ 1996 1995 1994 ------------------ ------------------ ---------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE NUMBER PRICE NUMBER PRICE NUMBER PRICE ------- --------- ------- --------- ------ --------- Under option, beginning of year................ 124,580 $ 5.72 58,679 $ 5.54 46,040 $ 5.54 Granted............... 18,055 8.86 74,026 5.84 12,639 5.54 Exercised............. (4,062) 5.54 -- -- -- -- Expired............... (903) 5.54 (8,125) 5.54 -- -- ------- ------- ------ Under option and exer- cisable, end of year... 137,670 6.14 124,580 5.72 58,679 5.54 ======= ======= ======
WEIGHTED- AVERAGE WEIGHTED- REMAINING AVERAGE CONTRACTUAL EXERCISE LIFE IN NUMBER PRICE PRICE YEARS ------- ------ --------- ----------- Options Outstanding and Exercisable, End of Year................................. 110,587 $ 5.54 $ 5.54 7.0 9,028 8.03 8.03 8.0 18,055 8.86 8.86 10.0 ------- 137,670 =======
As permitted by Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), the Company recognizes compensation cost for stock-based employee compensation awards in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees". The Company recognized no compensation cost for stock-based employee compensation awards for the years ended December 31, 1996 and 1995. If the Company had recognized compensation cost in accordance with SFAS No. 123, net income and net income per share would have been reduced as follows:
DECEMBER 31, --------------------------------------------- 1996 1995 ---------------------- ---------------------- NET INCOME NET INCOME NET INCOME PER SHARE NET INCOME PER SHARE ---------- ---------- ---------- ---------- As reported..................... $2,539,716 $ .59 $1,988,949 $0.48 Stock based compensation, net of related tax effect............. (25,782) (0.01) (69,691) (0.02) ---------- ----- ---------- ----- As adjusted..................... $2,513,934 $ .58 $1,919,258 $ .46 ========== ===== ========== =====
The per share weighted-average fair value of stock options granted during 1996 and 1995 was $2.17 and $1.42, respectively, using the Black Scholes option-pricing model. The fair value of the options granted during the year was based upon the discounted value of future cash flows of the options using the following assumptions: Risk free interest rate............................................ 6.45% Expected life of the options....................................... 7-10 Years Expected dividends (as a percent of the fair value of the stock)... 2.68% Volatility......................................................... 9.80%
F-16 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 9. SEGMENT REPORTING The Company's operations include two primary business segments: banking and mortgage banking activities. The Company, primarily through its subsidiary banks, offers banking services including a full range of commercial and corporate banking services. Mortgage banking activities are provided by Lending and include the origination of residential mortgage loans for sale to various investors and origination of construction and commercial finance loans for participation with other financial institutions.
INDUSTRY SEGMENTS ---------------------------------------------------------------- FOR THE YEAR ENDED HOLDING BANKING MORTGAGE DECEMBER 31, 1996 COMPANY SUBSIDIARIES BANKING ELIMINATIONS CONSOLIDATED ------------------ ----------- ------------ ----------- ------------ ------------ Revenues from unaffili- ated customers......... $ -- $ 23,201,562 $11,669,454 $ -- $ 34,871,016 Revenues from affili- ates................... 3,164,034 236,953 -- (3,400,987) -- ----------- ------------ ----------- ------------ ------------ Total revenue......... $ 3,164,034 $ 23,438,515 $11,669,454 $ (3,400,987) $ 34,871,016 =========== ============ =========== ============ ============ Income from continuing operations before in- come taxes............. $ 2,101,909 $ 4,060,370 $ 598,302 $ (3,140,481) $ 3,620,100 =========== ============ =========== ============ ============ Identifiable assets at December 31, 1996...... $28,690,340 $286,781,318 $13,052,684 $(34,365,863) $294,158,479 =========== ============ =========== ============ ============ Depreciation expense.... $ -- $ 606,405 $ 192,356 $ 798,761 =========== ============ =========== ============ Premises and equipment acquisitions........... $ -- $ 1,006,195 $ 782,544 $ 1,788,739 =========== ============ =========== ============ INDUSTRY SEGMENTS ---------------------------------------------------------------- FOR THE YEAR ENDED HOLDING BANKING MORTGAGE DECEMBER 31, 1995 COMPANY SUBSIDIARIES BANKING ELIMINATIONS CONSOLIDATED ------------------ ----------- ------------ ----------- ------------ ------------ Revenues from unaffili- ated customers......... $ 848,513 $ 17,823,464 $ 6,781,545 $ -- $ 25,453,522 Revenues from affili- ates................... 823,052 197,878 -- (1,020,930) -- ----------- ------------ ----------- ------------ ------------ Total revenue......... $ 1,671,565 $ 18,021,342 $ 6,781,545 $ (1,020,930) $ 25,453,522 =========== ============ =========== ============ ============ Income (loss) from con- tinuing operations be- fore income taxes...... $ (92,001) $ 3,412,496 $ 629,454 $ (810,720) $ 3,139,229 =========== ============ =========== ============ ============ Identifiable assets at December 31, 1995...... $26,648,602 $219,065,627 $21,690,588 $(29,879,834) $237,524,983 =========== ============ =========== ============ ============ Depreciation expense.... $ 7,030 $ 424,898 $ 90,187 $ 522,115 =========== ============ =========== ============ Premises and equipment acquisitions........... $ -- $ 669,462 $ 118,967 $ 788,429 =========== ============ =========== ============
F-17 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INDUSTRY SEGMENTS ---------------------------------------------------------------- FOR THE YEAR ENDED HOLDING BANKING MORTGAGE DECEMBER 31, 1994 COMPANY SUBSIDIARIES BANKING ELIMINATIONS CONSOLIDATED ------------------ ----------- ------------ ----------- ------------ ------------ Revenues from unaffili- ated customers......... $ -- $ 11,989,288 $ 1,914,958 $ -- $ 13,915,875 Revenues from affili- ates................... 1,461,295 -- -- (1,461,295) -- ----------- ------------ ----------- ------------ ------------ Total revenue......... $ 1,461,295 $ 11,989,288 $ 1,914,958 $ (1,461,295) $ 13,915,875 =========== ============ =========== ============ ============ Income (loss) from con- tinuing operations be- fore income taxes...... $ 1,272,260 $ 2,088,861 $(1,040,097) $ (1,461,295) $ 859,729 =========== ============ =========== ============ ============ Identifiable assets at December 31, 1994...... $15,173,401 $143,555,410 $ 7,920,414 $(15,123,652) $151,525,573 =========== ============ =========== ============ ============ Depreciation expense.... $ 68,506 $ 415,813 $ -- $ 484,319 =========== ============ =========== ============ Premises and equipment acquisitions........... $ 192,121 $ 157,416 $ -- $ 349,537 =========== ============ =========== ============
NOTE 10. INCOME TAXES Income tax expense consists of the following:
DECEMBER 31, -------------------------------- 1996 1995 1994 ---------- ---------- --------- Current.................................. $1,561,724 $1,030,371 $ 456,810 Benefit of net operating loss carryforward............................ (236,575) -- -- Valuation allowance adjustment........... (268,367) -- 353,633 Deferred................................. 11,752 107,200 (241,862) ---------- ---------- --------- Income tax expense..................... $1,068,534 $1,137,571 $ 568,581 ========== ========== =========
The Company's income tax expense differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:
DECEMBER 31, -------------------------------------------------------- 1996 1995 1994 ------------------- ------------------ ----------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT ---------- ------- ---------- ------- -------- ------- Income taxes at statu- tory rate.............. $1,230,834 34% $1,067,337 34% $292,308 34% Disallowed merger ex- penses............... 142,021 4 36,462 1 6,257 1 Valuation allowance adjustment........... (268,367) (7) -- -- 353,633 41 Alternative minimum tax credit........... -- -- -- -- (37,135) (4) Other items, net...... (35,954) (1) 33,772 1 (46,482) (6) ---------- --- ---------- --- -------- --- Income tax expense...... $1,068,534 30% $1,137,571 36% $568,581 66% ========== === ========== === ======== ===
The above reconciliation reflects the inability to utilize the net operating losses generated by the Premier Bancshares, Inc. group prior to the business combination with First Alliance Bancorp, Inc., as discussed in Note 15. F-18 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The components of deferred income taxes are as follows:
DECEMBER 31, --------------------- 1996 1995 ---------- --------- Deferred tax assets: Loan loss reserves..................................... $ 425,865 $ 209,729 Deferred compensation.................................. 150,896 97,215 Other real estate...................................... 16,038 10,377 Securities available-for-sale.......................... 115,283 -- Write-down of mutual funds............................. 18,885 18,885 Net operating loss carryforward........................ 585,067 821,642 Georgia tax credits.................................... 72,423 72,423 Other.................................................. 44,824 -- Valuation allowance.................................... (374,294) (642,661) ---------- --------- 1,054,987 587,610 ---------- --------- Deferred tax liabilities: Depreciation and amortization.......................... 273,439 273,568 Deferred loan fees, net of cost........................ 141,507 59,119 Securities available-for-sale.......................... -- 49,889 Cash method accounting on certain receivables.......... 144,250 131,030 ---------- --------- 559,196 513,606 ---------- --------- Net deferred tax assets.................................. $ 495,791 $ 74,004 ========== =========
At December 31, 1996, the Company has available net operating loss carryforwards of approximately $1,379,000 for Federal income tax purposes. If unused, the carryforwards will expire beginning in 2009. Utilization of the net operating loss carryforwards is subject to the separate return limitations and change of ownership rules of the Internal Revenue Code of 1996. NOTE 11. COMMITMENTS AND CONTINGENT LIABILITIES The Company enters into firm commitments to sell mortgage loans which it has originated at agreed upon prices. The sales price for the loans is set based on market rates at the time the commitment is entered into. The Company generally has ten days after a mortgage loan closes in which to provide the investor with the loan documentation, at which time the investor will fund the loan. The investor bears the interest rate risk on the loan from the time of the commitment. The Company's risk is limited to specific recourse provisions within the agreement with the investor and its ability to provide the required loan documentation to the investor within the commitment period. The Company sells mortgage loans to investors under various blanket agreements. Under the agreements, investors generally have a limited right of recourse to the Company for normal representations and warranties and, in some cases, for delinquencies within the first three to six months which lead to loan default and foreclosure. Management believes that the risk of loss to the Company as a result of these provisions is insignificant. The Company enters into residential construction and commercial loan commitments in advance of closing to fund loans to its customers at locked-in interest rates in the normal course of business. These instruments, to the extent they are not covered by investor purchase commitments, involve credit and interest rate risk in excess of the amount recognized in the financial statements. F-19 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In the normal course of business, the Company has entered into off-balance- sheet financial instruments which are not reflected in the financial statements. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are included in the financial statements when funds are disbursed or the instruments become payable. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unfunded mortgage loan commitments, residential construction and commercial loan commitments, commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. A summary of the Company's commitments is as follows:
DECEMBER 31, ----------------------- 1996 1995 ----------- ----------- Unfunded mortgage loan commitments.................... $20,000,000 $31,968,000 Residential construction and commercial loan commit- ments................................................ 27,277,198 18,526,425 Commitments to extend credit.......................... 49,987,828 20,387,000 Standby letters of credit............................. 695,742 1,249,532 ----------- ----------- $97,960,768 $72,130,957 =========== ===========
At December 31, 1996, the Company had agreements with unaffiliated institutions allowing it to sell participations in loans at the Company's option. The unused participation amount was $36,082,936 at December 31, 1996. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The credit risk involved in issuing these financial instruments is essentially the same as that involved in extending loans to customers. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the customer. Collateral held varies but may include real estate and improvements, marketable securities, accounts receivable, inventory, equipment and personal property. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary. In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management of the Company, any liability resulting from such proceedings would not have a material effect on the Company's consolidated financial statements. LEASE OBLIGATIONS: The Company leases ten office facilities and certain equipment under noncancelable lease agreements. F-20 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The future minimum lease commitments at December 31, 1996 are summarized as follows: Years Ending December 31, 1997......................................................... $ 588,336 1998......................................................... 580,444 1999......................................................... 411,395 2000......................................................... 253,157 2001......................................................... 115,991 ---------- $1,949,323 ==========
Rental expense for the years ended December 31, 1996, 1995 and 1994 was $723,717, $116,583 and $58,777, respectively. The Bank leases the land on which its main office is located for $5,717 per month for five years with renewal options up to forty years. Escalation features include a 5% increase every five years plus an additional amount added which shall be the average yearly amount for the Consumer Price Index (CPI) for metropolitan Atlanta for the previous five years, not to exceed 8% per year. At any time after the first five years, the Bank may exercise an option to purchase the property for $1,000,000. The Company also leases various other equipment under short-term leases. NOTE 12. CONCENTRATIONS OF CREDIT The Company originates primarily commercial, residential, and consumer loans to customers in the metro Atlanta area, and surrounding counties. The ability of the majority of the Company's customers to honor their contractual loan obligations is dependent on the economy in the metro Atlanta area. Seventy-five percent (75%) of the Company's loan portfolio is concentrated in loans secured by real estate of which 36% consists of construction loans. A substantial portion of these loans are secured by real estate in the Company's primary market area. In addition, a substantial portion of the other real estate owned is located in those same markets. Accordingly, the ultimate collectibility of the loan portfolio and the recovery of the carrying amount of other real estate owned are susceptible to changes in market conditions in the Company's primary market area. The other significant concentrations of credit by type of loan are set forth in Note 3. The Bank and Thrift, as a matter of policy, do not generally extend credit to any single borrower or group of related borrowers in excess of $3,305,000 and $930,000, respectively. NOTE 13. REGULATORY MATTERS The Bank and Thrift are subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 1996, approximately $1,300,000 and $45,000, respectively, of retained earnings were available for dividend declaration without supervisory approval. The Company and the Banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Banks must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance- sheet items as calculated under regulatory accounting F-21 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) practices. The Company and Banks' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Premier Bank must also have core capital equal to 3% of adjusted total assets and tangible capital equal to 1.5% of adjusted total assets. These additional requirements are in accordance with the Office of Thrift Supervision, their primary regulator. Management believes, as of December 31, 1996, the Company and Banks meet all capital adequacy requirements to which they are subject. As of December 31, 1996 and 1995, notification from the FDIC categorized First Alliance Bank and Premier Bank as well capitalized and adequately capitalized, respectively, under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized, the Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Banks' category. The Company and Banks' actual capital amounts and ratios are presented in the following table.
TO BE WELL FOR CAPITAL CAPITALIZED UNDER ADEQUACY PROMPT CORRECTIVE ACTUAL PURPOSES ACTION PROVISIONS ------------- ------------- ------------------ AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO ------- ----- ------- ----- ------------------ (DOLLARS IN THOUSANDS) As of December 31, 1996 Total Capital (to Risk Weighted Assets): Consolidated............... $23,526 10.79% $17,443 8% $ 21,804 10% First Alliance Bank........ $18,716 14.02% $10,680 8% $ 13,350 10% Premier Bank............... $ 6,221 8.57% $ 5,807 8% $ 7,259 10% Tier I Capital (to Risk Weighted Assets): Consolidated............... $21,122 9.69% $ 8,719 4% $ 13,079 6% First Alliance Bank........ $17,044 12.74% $ 5,351 4% $ 8,027 6% Premier Bank............... $ 5,819 8.02% $ 2,902 4% $ 4,353 6% Tier I Capital (to Average Assets): Consolidated............... $21,122 7.27% $11,621 4% $ 14,527 5% First Alliance Bank........ $17,044 8.89% $ 7,669 4% $ 9,586 5% Premier Bank............... $ 5,819 6.86% $ 3,393 4% $ 4,241 5% Core Capital Premier Bank............... $ 5,819 5.85% $ 2,984 3% Tangible Capital Premier Bank............... $ 5,819 5.85% $ 1,492 1.5%
NOTE 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using discounted cash flow methods. Those methods are significantly affected by the assumptions used, including the discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The use of different methodologies may have a material effect on the estimated fair value amounts. Also, the fair value estimates presented herein are based on pertinent information available to management as of December 31, 1996 and 1995. Such amounts have not been revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein. F-22 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein: CASH, DUE FROM BANKS, AND FEDERAL FUNDS SOLD: The carrying amounts of cash, due from banks, and Federal funds sold approximate their fair value. SECURITIES AVAILABLE-FOR-SALE: Fair values for securities are based on quoted market prices. The carrying values of equity securities with no readily determinable fair value approximate fair values. LOANS: For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For other loans, the fair values are estimated using discounted cash flow methods, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow methods or underlying collateral values. The carrying amount of loans held for sale approximates fair value. DEPOSITS: The carrying amounts of demand deposits, savings deposits, and variable-rate certificates of deposit approximate their fair values. Fair values for fixed- rate certificates of deposit are estimated using discounted cash flow methods, using interest rates currently being offered on certificates. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS, FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS: The fair values of Federal Home Loan Bank advances and other borrowings are estimated using discounted cash flow methods based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The fair value of variable-rate other borrowings and securities sold under repurchase agreements approximate the carrying value. ACCRUED INTEREST: The carrying amounts of accrued interest approximate their fair values. OFF-BALANCE-SHEET INSTRUMENTS: Fair values of the Company's off-balance sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value to the Company until such commitments are funded or closed. The Company has determined that these instruments do not have a distinguishable fair value and no fair value has been assigned. F-23 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The estimated fair values of the Company's financial instruments were as follows:
DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------------- ------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ------------ ------------ ------------ ------------ Financial assets: Cash, due from banks, in- terest-bearing deposits in banks and Federal funds sold.............. $ 34,760,880 $ 34,760,880 $ 22,023,457 $ 22,023,457 Securities available-for- sale.................... 35,153,641 35,153,641 45,796,237 45,796,237 Loans.................... 208,860,282 211,261,541 156,984,042 158,862,597 Accrued interest receiv- able.................... 1,742,269 1,742,269 1,631,215 1,631,215 Financial liabilities: Deposits................. $236,733,180 $237,523,181 $178,453,359 $178,152,367 Securities sold under re- purchase agreements..... 8,443,316 8,443,316 1,308,634 1,308,634 Federal Home Loan Bank advances................ 4,625,000 4,722,254 11,125,000 11,292,000 Other borrowings......... 17,152,230 17,154,380 19,428,642 20,595,808 Accrued interest pay- able.................... 1,062,978 1,062,978 882,918 882,918
NOTE 15. BUSINESS COMBINATIONS On February 3, 1997, the Company entered into an Agreement and Plan of Reorganization with Central and Southern Holding Company ("Central and Southern") of Milledgeville, Georgia. Under this agreement, Central and Southern will merge with and into the Company. Upon consummation of the merger, each share of Central and Southern's common stock issued and outstanding will be converted into and exchanged for the right to receive one share of the Company's common stock. Consummation of the merger is subject to certain conditions, including approval of the agreement by the Boards of Directors and the shareholders of both the Company and Central and Southern and approval of the merger by various regulatory agencies. On August 31, 1996, First Alliance Bancorp, Inc. effected a business combination with Premier Bancshares, Inc. by exchanging 746,530 shares of its common stock for all the outstanding common and preferred stock of Premier Bancshares, Inc. Premier Bancshares, Inc. is a thrift holding company whose business is conducted by its wholly-owned subsidiaries, Premier Bank and Premier Lending, as discussed in Note 1. Subsequent to the business combination, the combined holding company changed its name to Premier Bancshares, Inc. The combination was accounted for as a pooling of interest and, accordingly, all prior financial statements have been restated to include Premier Bancshares, Inc. The results of operations of the separate companies for the periods prior to the combination are summarized as follows:
REVENUES NET INCOME ----------- ---------- Eight months ended August 31, 1996 First Alliance Bancorp, Inc........................... $10,800,000 $1,501,000 Premier Bancshares, Inc. ............................. 11,707,000 115,000 ----------- ---------- $22,507,000 $1,616,000 =========== ========== Year ended December 31, 1995 First Alliance Bancorp, Inc........................... $14,244,000 $1,850,000 Premier Bancshares, Inc. ............................. 11,209,000 139,000 ----------- ---------- $25,453,000 $1,989,000 =========== ==========
F-24 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On May 1, 1995, Premier Bancshares, Inc. acquired all of the stock of Allatoona Federal Savings Bank for $5,496,458, including expenses related to the merger totaling $339,973. The purchase price was funded through the sale of preferred stock and a loan obtained from a third party financial institution in the amount of $3 million. The excess of the total acquisition cost over the fair value of the net assets acquired of $2,779,772 is being amortized over a period of fifteen years. The acquisition was accounted for as a purchase and the results of operations of Allatoona Federal Savings Banks since the date of acquisition are included in the consolidated financial statements. The consolidated statement of income for the year ended December 31, 1995 includes the combined operations of the Company and Allatoona since acquisition. Allatoona's results of operations included are for the period from April 28, 1995 through December 31, 1995. The net loss for the month ended April 28, 1995 was $123,395, as summarized below: Interest income.................................................. $ 330,556 Interest expense................................................. 193,925 --------- Net interest income............................................ 136,631 Plus noninterest income.......................................... 215,090 Less noninterest expense......................................... 475,116 --------- Net loss....................................................... $(123,395) =========
Upon the acquisition of Allatoona, the mortgage operations of Allatoona were combined with the mortgage operations of Premier Lending Corporation. The commercial banking operations continued to operate as Premier Bank. On January 31, 1995, First Alliance Bancorp, Inc. acquired Interim Alliance Corporation (d/b/a Alliance Finance) in exchange for 80% of the outstanding common stock owned personally by the President of First Alliance Bancorp, Inc. The price paid for the stock was $28,000, which represents $25,000 for the initial capitalization of the Company plus $3,000 of incidental expenses. The acquisition was accounted for as a purchase. NOTE 16. COMMON STOCK SPLIT On February 24, 1997, the Company declared a 1.8055 stock split for shares of record as of March 6, 1997. All share and per share data reflect the split. The effect of the split is presented retroactively within stockholders' equity at December 31, 1996 by transferring from capital surplus to common stock the additional shares times the par value. F-25 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 17. PARENT COMPANY FINANCIAL INFORMATION The following information presents the condensed balance sheets of Premier Bancshares, Inc. at December 31, 1996 and 1995 and the statements of income and cash flows for the years ended December 31, 1996, 1995 and 1994: CONDENSED BALANCE SHEETS
1996 1995 ----------- ----------- ASSETS Cash................................................. $ 1,196,494 $ 323,428 Investment in subsidiaries........................... 27,074,523 24,915,754 Other assets......................................... 419,323 1,409,420 ----------- ----------- Total assets....................................... $28,690,340 $26,648,602 =========== =========== LIABILITIES Other borrowings..................................... $ 4,000,000 $ 3,000,000 Other liabilities.................................... 97,174 218,713 ----------- ----------- 4,097,174 3,218,713 ----------- ----------- STOCKHOLDERS' EQUITY................................... 24,593,166 23,429,889 ----------- ----------- Total liabilities and stockholders' equity......... $28,690,340 $26,648,602 =========== ===========
CONDENSED STATEMENTS OF INCOME
1996 1995 1994 ---------- ---------- ---------- INCOME Interest on deposits..................... $ 23,553 $ 50,713 $ -- Interest and fees on loans............... -- 424,137 652,652 Dividends from subsidiaries.............. 2,390,263 780,648 409,694 Other income............................. -- 385,995 1,262,306 ---------- ---------- ---------- 2,413,816 1,641,493 2,324,652 ---------- ---------- ---------- EXPENSES Salaries and employee benefits........... 55,742 910,896 1,939,227 Interest................................. 293,673 331,514 333,511 Merger related expenses.................. 468,449 -- -- Legal and professional................... 42,212 79,672 159,467 Other expenses........................... 202,049 441,484 711,885 ---------- ---------- ---------- Total expenses......................... 1,062,125 1,763,566 3,144,090 ---------- ---------- ---------- Income (loss) before income tax benefits and equity in undistributed income of subsidiary and minority interest in net income of subsidiary.. 1,351,691 (122,073) (819,438) INCOME TAX BENEFITS........................ (449,657) (286,992) (58,985) ---------- ---------- ---------- Income (loss) before equity in undistributed income of subsidiary and minority interest in net income of subsidiary............................ 1,801,348 164,919 (760,453) EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY................................ 750,218 1,836,739 1,051,601 ---------- ---------- ---------- Income before minority interest in net income of subsidiary.................. 2,551,566 2,001,658 291,148 MINORITY INTEREST IN NET INCOME OF SUBSIDIARY................................ 11,850 12,709 -- ---------- ---------- ---------- Net income............................. $2,539,716 $1,988,949 $ 291,148 ========== ========== ==========
F-26 PREMIER BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) CONDENSED STATEMENTS OF CASH FLOWS
1996 1995 1994 ----------- ----------- ----------- OPERATING ACTIVITIES Net income before minority interest in net income of subsidiary............. $ 2,551,566 $ 2,001,658 $ 291,148 Adjustments to reconcile net income to net cash provided by (used in) oper- ating activities: Depreciation........................ -- 7,030 68,506 Amortization........................ 23,148 22,557 20,585 Undistributed income of subsidiar- ies................................ (750,218) (1,836,739) (1,051,601) Net increase in loans held for sale............................... -- (456,640) (679,265) Other operating activities.......... 833,561 468,816 (220,417) ----------- ----------- ----------- Net cash provided by (used in) op- erating activities............... 2,658,057 206,682 (1,571,044) ----------- ----------- ----------- INVESTING ACTIVITIES Net increase in loans................. -- (1,646,888) (810,759) Purchase of premises and equipment.... -- -- (192,121) Investment in subsidiaries............ (1,683,646) (7,739,452) -- Proceeds from sale of premises and equipment............................ -- 19,893 -- ----------- ----------- ----------- Net cash used in investing activi- ties............................. (1,683,646) (9,366,447) (1,002,880) ----------- ----------- ----------- FINANCING ACTIVITIES Net increase in borrowings............ 1,000,000 5,438,566 879,263 Dividends paid........................ (1,123,845) (58,034) (305,758) Proceeds from exercise of stock op- tions................................ 22,500 -- -- Proceeds from common stock issued..... -- 3,121,913 375,012 Proceeds from redemption of subsidiary common stock......................... -- -- 2,000,000 ----------- ----------- ----------- Net cash provided by (used in) fi- nancing activities............... (101,345) 8,502,445 2,948,517 ----------- ----------- ----------- Net increase (decrease) in cash......... 873,066 (657,320) 374,593 Cash at beginning of year............... 323,428 980,748 606,155 ----------- ----------- ----------- Cash at end of year..................... $ 1,196,494 $ 323,428 $ 980,748 =========== =========== ===========
F-27 EX-23.2 4 CONSENT OF MAULDIN & JENKINS, LLC EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement of our report, dated January 31, 1997, relating to the consolidated financial statements of Premier Bancshares, Inc. and subsidiaries, and to the reference to our Firm under the caption "Experts" in the Prospectus. MAULDIN & JENKINS, LLC Atlanta, Georgia May 13, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 11,634 1,447 21,680 0 35,154 0 0 211,264 2,404 294,158 236,733 26,221 3,916 4,000 0 0 4,250 19,025 294,158 19,759 2,285 972 23,016 8,667 11,282 11,734 598 135 19,371 3,620 2,540 0 0 2,540 .59 .59 4.91 1,224 0 60 0 1,802 152 156 2,404 0 0 2,404
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