1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-6198
FIRST AMERICAN CORPORATION
(Exact name of Registrant as specified in its charter)
TENNESSEE 62-0799975
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
FIRST AMERICAN CENTER, NASHVILLE, TENNESSEE 37237
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 615/748-2000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common shares outstanding: 29,528,400 as of April 30, 1997.
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FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
INDEX
Part I. Financial Information Page
----
Item 1 Financial Statements (unaudited)
Consolidated Income Statements for the Three
Months Ended March 31, 1997 and 1996 3
Consolidated Balance Sheets as of March 31, 1997,
March 31, 1996 and December 31, 1996 4
Consolidated Statements of Changes in Shareholders' Equity for
the Three Months Ended March 31, 1997 and March 31, 1996 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and March 31, 1996 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis 10
Part II. Other Information
Item 1 Legal Proceedings 17
Item 6 Exhibits and Reports on Form 8-K 17
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3
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Quarter Ended
March 31
-------------------------
(dollars in thousands except per share amounts) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $138,702 $132,992
Interest and dividends on securities 40,567 34,079
Interest on federal funds sold and securities purchased under
agreements to resell 888 3,758
Interest on time deposits with other banks and other interest 1,143 501
- -------------------------------------------------------------------------------------------------------------------
Total interest income 181,300 171,330
- -------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
NOW accounts 4,515 3,880
Money market accounts 25,390 25,315
Regular savings 1,771 2,202
Certificates of deposit under $100,000 21,970 21,729
Certificates of deposit $100,000 and over 10,142 9,149
Other time and foreign 6,266 6,580
- -------------------------------------------------------------------------------------------------------------------
Total interest on deposits 70,054 68,855
- -------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 13,356 12,211
Interest on long-term debt 4,956 6,446
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 88,366 87,512
- -------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 92,934 83,818
Provision for loan losses - -
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 92,934 83,818
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 14,721 13,589
Commissions and fees on fiduciary activities 4,700 4,427
Investment services income 29,994 3,200
Trading account revenue 369 273
Merchant discount fees 840 769
Net realized gain on sales of securities 147 1,401
Other income 10,980 8,350
- -------------------------------------------------------------------------------------------------------------------
Total non-interest income 61,751 32,009
- -------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 47,295 38,867
Net occupancy expense 6,828 6,025
Equipment expense 4,814 4,080
Systems and processing expense 3,931 3,096
FDIC insurance expense 289 654
Marketing expense 2,656 3,531
Communication expense 3,374 2,793
Supplies expense 1,606 1,266
Foreclosed properties expense (income), net (627) (186)
Subscribers' commissions 17,802 -
Other expenses 11,569 7,562
- -------------------------------------------------------------------------------------------------------------------
Total non-interest expense 99,537 67,688
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 55,148 48,139
Income tax expense 21,118 18,339
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $34,030 $ 29,800
===================================================================================================================
PER COMMON SHARE (RESTATED FOR 2-FOR-1 STOCK SPLIT ON MAY 9, 1997):
Net income $ .58 $ .50
Dividends declared .155 .14
===================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 59,081 59,035
===================================================================================================================
See notes to consolidated financial statements.
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FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31 December 31
-------------------------- -----------
(dollars in thousands) 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 476,013 $ 448,183 $ 603,456
Time deposits with other banks 17,863 8,689 53,801
Securities:
Held to maturity (market value $799,205 and $947,061, and $835,192,
respectively) 802,547 946,131 834,547
Available for sale (amortized cost $1,759,072 and $1,438,308, and
$1,685,743, respectively) 1,732,223 1,431,853 1,678,232
- -------------------------------------------------------------------------------------------------------------------
Total securities 2,534,770 2,377,984 2,512,779
- -------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under agreements to resell 17,358 167,101 161,677
Trading account securities 59,954 25,361 60,210
Loans:
Commercial 3,099,747 2,843,006 3,010,125
Consumer--amortizing mortgages 1,751,379 1,792,652 1,782,630
Consumer--other 1,362,286 1,319,478 1,334,750
Real estate--construction 175,635 198,543 190,673
Real estate--commercial mortgages and other 364,416 369,465 345,466
- -------------------------------------------------------------------------------------------------------------------
Total loans 6,753,463 6,523,144 6,663,644
Unearned discount and net deferred loan fees 4,618 7,218 5,047
- -------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and net deferred loan fees 6,748,845 6,515,926 6,658,597
Allowance for loan losses 122,551 132,381 123,265
- -------------------------------------------------------------------------------------------------------------------
Total net loans 6,626,294 6,383,545 6,535,332
- -------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 169,219 139,338 162,257
Foreclosed properties 4,530 9,682 7,363
Other assets 302,902 291,490 302,593
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 10,208,903 $ 9,851,373 $10,399,468
===================================================================================================================
LIABILITIES
Deposits:
Demand (noninterest-bearing) $ 1,351,427 $ 1,244,453 $ 1,374,528
NOW accounts 871,799 806,483 830,269
Money market accounts 2,388,446 2,204,996 2,295,112
Regular savings 306,795 367,891 303,691
Certificates of deposit under $100,000 1,672,671 1,724,595 1,665,675
Certificates of deposit $100,000 and over 749,387 610,176 893,794
Other time 363,865 361,306 332,651
Foreign 98,447 122,105 97,257
- -------------------------------------------------------------------------------------------------------------------
Total deposits 7,802,837 7,442,005 7,792,977
- -------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,080,393 1,041,469 1,154,372
Long-term debt 323,262 367,841 331,157
Other liabilities 148,268 174,115 252,255
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 9,354,760 9,025,430 9,530,761
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value; authorized 100,000,000 shares; issued:
58,643,784 shares at March 31, 1997; 60,016,828 shares at
March 31, 1996 and 59,262,998 shares at December 31, 1996 146,610 150,042 148,158
Capital surplus 134,047 177,849 157,792
Retained earnings 594,648 505,623 569,851
Deferred compensation on restricted stock (4,373) (2,800) (2,066)
Employee stock ownership plan obligation (436) (631) (443)
- -------------------------------------------------------------------------------------------------------------------
Realized shareholders' equity 870,496 830,083 873,292
Net unrealized losses on securities available for sale, net of tax (16,353) (4,140) (4,585)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 854,143 825,943 868,707
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,208,903 $ 9,851,373 $10,399,468
===================================================================================================================
See notes to consolidated financial statements.
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FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NET
UNREALIZED
GAINS
THREE MONTHS ENDED MARCH 31, 1996, COMMON DEFERRED EMPLOYEE (LOSSES)
AND MARCH 31, 1997 SHARES COMPENSATION STOCK ON
ISSUED ON OWNERSHIP SECURITIES
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND COMMON CAPITAL RETAINED RESTRICTED PLAN AVAILABLE
AMOUNTS) OUTSTANDING STOCK SURPLUS EARNINGS STOCK OBLIGATION FOR SALE TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1996 59,079,638 $147,699 $162,254 $483,973 $ (1,263) $ (661) $ 3,530 $795,532
Issuance of shares in connection with
Employee Benefit Plan, net of
discount on Dividend Reinvestment
Plan 199,966 500 3,139 - - - - 3,639
Issuance of restricted stock 77,400 194 1,644 - (1,838) - - -
Repurchase of shares (1,462,344) (3,656) (29,668) - - - - (33,324)
Issuance of shares for First City
Bancorp, Inc. 2,123,362 5,308 40,477 - - - - 45,785
Amortization of deferred
compensation on restricted stock - - - - 301 - - 301
Reduction in employee stock
ownership plan obligation - - - - - 30 - 30
Net income - - - 29,800 - - - 29,800
Cash dividends declared ($.14 per
common share) - - - (8,150) - - - (8,150)
Change in net unrealized gains and
losses on securities available for
sale, net of tax - - - - - - (7,670) (7,670)
Other (1,194) (3) 3 - - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1996 60,016,828 $150,042 $177,849 $505,623 $ (2,800) $ (631) $ (4,140) $825,943
===============================================================================================================================
Balance, January 1, 1997 59,262,998 $148,158 $157,792 $569,851 $ (2,066) $ (443) $ (4,585) $868,707
Issuance of shares in connection with
Employee Benefit Plan, net of
discount on Dividend Reinvestment
Plan 366,812 917 6,445 - - - - 7,362
Issuance of restricted stock 93,672 234 2,595 - (2,829) - - -
Repurchase of shares (1,430,220) (3,575) (42,721) - - - - (46,296)
Issuance of shares for Hartsville
Bancshares, Inc. 350,522 876 9,223 - - - - 10,099
Amortization of deferred
compensation on restricted stock - - - - 522 - - 522
Reduction in employee stock
ownership plan obligation - - - - - 7 - 7
Net income - - - 34,030 - - - 34,030
Cash dividends declared ($.155 per
common share) - - - (9,233) - - - (9,233)
Change in net unrealized gains and
losses on securities available for
sale, net of tax - - - - - - (11,768) (11,768)
Tax benefit from stock option and
award plans - - 712 - - - - 712
Other - - 1 - - - - 1
- -------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 58,643,784 $146,610 $134,047 $594,648 $ (4,373) $ (436) $(16,353) $854,143
===============================================================================================================================
See notes to consolidated financial statements.
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FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended
March 31
----------------------
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 34,030 $ 29,800
Adjustments to reconcile net income to net cash provided by operating
activities:
Writedown on foreclosed property 656 -
Depreciation and amortization of premises and equipment 4,437 3,558
Amortization of intangible assets 2,775 1,971
Other amortization, net 551 160
Deferred income tax expense 2,923 4,263
Net realized gain on sales of securities (147) (1,401)
Net loss on sales and writedowns of premises and equipment 5 9
Change in assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accrued interest receivable (2,358) 1,535
Increase (decrease) in accrued interest payable 2,954 (7,925)
(Increase) decrease in trading account securities 256 (2,942)
Increase in other assets 14,569 26,561
Increase (decrease) in other liabilities (107,755) 34,812
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities (47,104) 90,401
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net decrease in time deposits with other banks 35,944 18,582
Proceeds from sales of securities available for sale 121,136 189,886
Proceeds from maturities of securities available for sale 85,883 81,172
Purchases of securities available for sale (257,285) (381,070)
Proceeds from maturities of securities held to maturity 51,293 47,491
Purchases of securities held to maturity (19,106) (59,799)
Net decrease in federal funds sold and securities purchased under
agreements to resell 144,319 159,130
Net (increase) decrease in loans, net of repayments and sales (33,699) 74,555
Acquisition, net of cash acquired 2,763 12,376
Proceeds from sales of premises and equipment 156 3,011
Purchases of premises and equipment (10,027) (9,973)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 121,377 135,361
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (71,733) (267,524)
Net increase (decrease) in short-term borrowings (82,979) 88,739
Advances from (repayment to) Federal Home Loan Bank 528 (55,485)
Net repayment of other long-term debt (78) -
Issuance of common shares under Employee Benefit and Dividend
Reinvestment Plans 7,362 3,639
Cash dividends paid (9,233) (8,150)
Repurchase of common stock (46,296) (33,324)
Tax benefit related to stock options 712 -
Other 1 30
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (201,716) (272,075)
- -------------------------------------------------------------------------------------------------------------------
Decrease in cash and due from banks (127,443) (46,313)
Cash and due from banks, January 1 603,456 494,496
- -------------------------------------------------------------------------------------------------------------------
Cash and due from banks, March 31 $476,013 $448,183
===================================================================================================================
Cash paid during the year for:
Interest expense $ 84,920 $ 93,998
Income taxes 1,416 1,606
Non-cash investing activities:
Foreclosures 496 652
Stock issued for acquisition 10,099 45,785
===================================================================================================================
See notes to consolidated financial statements.
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FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and general practices within the
banking industry.
The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
presented in First American Corporation's (the "Corporation" or "First
American") 1996 Annual Report to Shareholders. The quarterly consolidated
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. All such adjustments are of a normal recurring nature. Certain prior
year amounts have been reclassified to conform with the current year
presentation. The results for interim periods are not necessarily indicative
of results to be expected for the complete fiscal year.
On April 7, 1997, the Board of Directors authorized a 2-for-1 stock split
of First American's common stock payable on May 9, 1997. Accordingly, the
consolidated financial statements for all periods presented have been restated
to reflect the impact of the stock split.
(2) NONPERFORMING ASSETS
Nonperforming assets were as follows:
MARCH 31 December 31
- ---------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------
Non-accrual loans $ 11,248 $ 17,161 $ 16,331
Foreclosed properties 4,530 9,682 7,363
- ---------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 15,778 $ 26,843 $ 23,694
===============================================================================================================
90 days or more past due on accrual $ 19,038 $ 9,173 $ 11,711
===============================================================================================================
Nonperforming assets as a percent of loans
and foreclosed properties (excluding
90 days or more past due on accrual) .23 % .41 % .36 %
===============================================================================================================
(3) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
THREE MONTHS ENDED
MARCH 31
- -------------------------------------------------------------------------------------------------------------
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------
Balance, January 1 $123,265 $132,415
Provision (credited) charged to operating expenses - -
Allowance of subsidiary purchased 711 2,088
- -------------------------------------------------------------------------------------------------------------
123,976 134,503
- -------------------------------------------------------------------------------------------------------------
Loans charged off 5,894 5,699
Recoveries of loans previously charged off 4,469 3,577
- -------------------------------------------------------------------------------------------------------------
Net charge-offs 1,425 2,122
- -------------------------------------------------------------------------------------------------------------
Balance, March 31 $122,551 $132,381
=============================================================================================================
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Allowance ratios were as follows:
THREE MONTHS ENDED
MARCH 31
- ---------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------
Allowance end of period to net loans outstanding 1.82 % 2.03 %
Net charge-offs to average loans (annualized) .09 .13
===============================================================================================================
(4) ACQUISITIONS
On January 1, 1997, the Corporation completed its acquisition of
Hartsville Bancshares, Inc. ("Hartsville"), an $89.5 million bank holding
company, by exchanging approximately 350,000 shares of the Corporation's common
stock (adjusted for the 2-for-1 split) for all of the outstanding shares of
Hartsville. The acquisition was accounted for as a purchase. The purchase
price in excess of the fair value of net assets acquired was $6 million and was
recorded as goodwill. Hartsville was the parent of CommunityFirst Bank, which
operated five branches in Middle Tennessee. CommunityFirst was simultaneously
merged with and into First American National Bank ("FANB"), a wholly-owned
subsidiary of the Corporation.
On July 1, 1996, FANB purchased 96.2% of the stock of INVEST Financial
Corporation ("INVEST") for $26.0 million in cash. Simultaneously, INVEST
completed its acquisition of Investment Center Group, Inc., the parent of
Investment Centers of America, in a transaction valued at approximately $5.0
million. INVEST is a national marketer of mutual funds, annuities and other
investment products sold through financial institutions. Both transactions
were accounted for as purchases. During the third quarter of 1996, FANB
purchased an additional 2.1% of the stock of INVEST. The purchase price in
excess of the fair value of net assets acquired was an aggregate of $17.7
million which is recorded as goodwill. Effective February 1, 1997, AmeriStar
Capital Markets, Inc., formerly a wholly-owned subsidiary of FANB and a
broker-dealer registered with the National Association of Securities Dealers,
was merged with and into INVEST. As a result of this merger, FANB's equity
ownership in INVEST increased to 98.5%.
Effective April 1, 1996, FANB purchased 49% of the stock of The SSI
Group, Inc., a healthcare payments processing company, for $8.6 million. The
transaction was accounted for under the equity method of accounting.
Effective March 11, 1996, the Corporation acquired First City Bancorp,
Inc. ("First City") by exchanging approximately 2.2 million shares of First
American Corporation common stock (adjusted for the 2-for-1 stock split) for
all of the outstanding shares of First City. First City was a bank holding
company headquartered in Murfreesboro, Tennessee, and operated two Tennessee
state chartered banks and a consumer finance company. First City had $366
million in assets, 11 banking offices, and nine consumer finance locations in
the middle Tennessee area. The transaction was accounted for as a purchase.
The purchase price in excess of the fair value of net assets acquired
(goodwill) was $32.2 million.
(5) ACCOUNTING MATTERS
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was adopted prospectively by the Corporation on January 1, 1997
with the exception of certain transactions that are deferred by the provisions
of SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 125 provides accounting and reporting standards
for sales, securitizations, and servicing of receivables and other financial
assets, secured borrowing and collateral transactions, and extinguishments of
liabilities. The adoption of this statement had no material impact on the
consolidated financial statements.
(6) EARNINGS PER COMMON SHARE
Earnings per common share amounts are computed by dividing net income by
the weighted average number of common shares outstanding during each respective
period.
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(7) COMMON STOCK
The Corporation purchased 1.43 million shares of First American
Corporation common stock (adjusted for the 2-for-1 stock split) in the open
market during the first quarter of 1997 at a total cost of $46.3 million.
Under Tennessee law, such shares have been recognized as authorized but
unissued. Accordingly, the Corporation reduced the par value and reflected the
excess of the purchase price over par of such repurchased shares as a reduction
from capital surplus.
All of the First American shares exchanged in the Hartsville transaction
were repurchased during January 1997 in the open market.
On April 17, 1997, the Board of Directors authorized a 2-for-1 stock
split payable on May 9, 1997, to shareholders of record on April 28, 1997, and
reduced the par value of its common stock from $5.00 to $2.50 per share.
(8) LEGAL AND REGULATORY MATTERS
Following the adoption of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), Charter Federal Savings Bank ("Charter" or
now "FAFSB"), brought an action against the Office of Thrift Supervision and
the Federal Deposit Insurance Corporation seeking injunctive and other relief,
contending that Congress' elimination of supervisory goodwill required
rescission of certain supervisory transactions. The Federal District Court
found in Charter's favor, but in 1992 the Fourth Circuit Court of Appeals
reversed, and the U.S. Supreme Court denied Charter's petition for certiorari.
In 1995, the Federal Circuit Court found in favor of another thrift institution
in a similar case (Winstar Corp. v. United States) in which the association
sought damages for breach of contract. Charter also filed suit against the
United States Government ("Government") in the Court of Federal Claims based on
breach of contract. Pending the Supreme Court's review of the Winstar
decision, FAFSB's action was stayed. In July 1996, the Supreme Court affirmed
the lower court's decision in Winstar. The stay was automatically lifted and
FAFSB's suit is now proceeding. The Government, however, has filed a motion to
dismiss the suit based on the prior Fourth Circuit decision. This motion has
not yet been decided by the Federal Claims Court.
The value of FAFSB's claims against the Government, as well as their
ultimate outcome, are contingent upon a number of factors, some of which are
outside of FAFSB's control, and are highly uncertain as to substance, timing
and the dollar amount of any damages which might be awarded should FAFSB
finally prevail. Under the Agreement and Plan of Reorganization as amended by
and between FAFSB and the Corporation, in the event that FAFSB is successful in
this litigation, the FAFSB shareholders as of December 1, 1995 will be entitled
to receive additional consideration equal in value to 50% of any recovery, net
of all taxes and certain other expenses, including the costs and expenses of
such litigation, received on or before December 1, 2000 subject to certain
limitations in the case of certain business combinations. Such additional
consideration, if any, is payable in the common stock of the Corporation, based
on the average per share closing price on the date of receipt by FAFSB of the
last payment constituting a recovery from the Government.
Also, there are from time to time other legal proceedings pending against
the Corporation and its subsidiaries. In the opinion of Management and
counsel, liabilities, if any, arising from such proceedings presently pending
would not have a material adverse effect on the consolidated financial
statements of the Corporation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the
consolidated financial statements appearing within this report and by reference
to First American Corporation's 1996 Annual Report.
OVERVIEW
On April 17, 1997, the Board of Directors authorized a 2-for-1 stock
split of First American Corporation common stock and a 29% increase in the
quarterly cash dividend. On a post-split basis, the quarterly dividend in
respect to the first quarter 1997 will be $.20 per share. The par value of
the common stock was reduced from $5.00 to $2.50 per share. All financial data
included has been restated to reflect the impact of the stock split.
Net income for the first quarter of 1997 was $34.0 million, a $4.2
million, or 14.2% increase from the $29.8 million earned in the first quarter
of 1996. Earnings per share also increased during the first quarter of 1997 to
$.58, up 16% over the $.50 for the first quarter of 1996. Return on average
assets ("ROA") was 1.37% versus 1.26% in the previous year's first quarter and
return on average equity ("ROE") was 15.78% compared to 15.08% in the first
quarter 1996.
Effective January 1, 1997, First American acquired Hartsville, an $89.5
million bank holding company, by exchanging approximately 350,000 shares of the
Corporation's common stock for all of the outstanding shares of Hartsville.
All of the First American shares exchanged in the transaction were repurchased
in the open market during January 1997. Hartsville had five branches in Middle
Tennessee and operated under the name CommunityFirst. Immediately following
the merger of Hartsville with and into First American, CommunityFirst was
merged with and into FANB. The acquisition was accounted for as a purchase.
Effective July 1, 1996, FANB, a wholly-owned subsidiary of First
American, purchased 96.2% of the stock of INVEST for $26.0 million in cash.
Simultaneously, INVEST completed its acquisition of Investment Center Group,
Inc., the parent of Investment Centers of America, in a transaction valued at
$5.0 million, which makes INVEST the nation's largest marketer of mutual funds,
annuities, and other investment products sold through financial institutions.
Both transactions were accounted for as purchases. During the third quarter of
1996, FANB purchased an additional 2.1% of the stock of INVEST. Effective
February 1, 1997, AmeriStar Capital Markets, Inc., formerly a wholly-owned
subsidiary of FANB and a broker-dealer registered with the National Association
of Securities Dealers, was merged with and into INVEST. As a result of the
merger, FANB's equity ownership in INVEST increased to 98.5%.
Effective April 1, 1996, FANB purchased 49% of the stock of The SSI
Group, Inc., a health care payments processing company, for $8.6 million. The
transaction is being accounted for under the equity method of accounting.
Effective March 11, 1996, First American acquired First City by
exchanging approximately 2.2 million shares of First American Corporation
common stock for all of the outstanding shares of First City. First City was a
bank holding company headquartered in Murfreesboro, Tennessee, and operated two
Tennessee state chartered banks and a consumer finance company. First City had
$366 million in assets, 11 banking offices, and nine consumer finance locations
in the middle Tennessee area. The transaction was accounted for as a purchase.
INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Net interest income on a taxable equivalent basis represented 60% of
total revenues in the first quarter of 1997 and 73% in the first quarter of
1996. For purposes of this discussion, total revenues consist of the sum of
net interest income and noninterest income. Net interest income on a taxable
equivalent basis in the first quarter of 1997 was $93.9 million, up $9.2
million, or 10.9%, from $84.7 million in the first quarter of 1996. Net
interest income is the difference between total interest income earned on
earning assets such as loans and securities and total interest expense incurred
on interest-bearing liabilities such as deposits. Net interest income is
affected by the volume and mix of earning assets and interest-bearing
liabilities and the corresponding interest yields and costs.
Total interest income on a taxable equivalent basis amounted to $182.3
million for the first quarter of 1997, compared to $172.2 million for the first
quarter of 1996, an increase of $10.1 million, or 5.8%. Of the $10.1 million
increase in total interest income, $8.3 million resulted from an increase in
the volume
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of earning assets (primarily loans and securities) and $1.8 million resulted
from an increase in average yields. Average earning assets rose $428.0
million, or 4.8%, to $9.27 billion. Average loans increased $265.3 million, or
4.1%, to $6.68 billion, average securities increased $341.3 million, or 16.2%,
to $2.45 billion, and average money market investments decreased $178.6 million
to $138.7 million. Excluding the effects of the Hartsville and First City
acquisitions, average loans for the quarter ended March 31, 1997, increased
1.2% over the same period last year. The average yield on earning assets
increased 14 basis points to 7.97% from 7.83%, reflecting a generally higher
interest rate environment in the first quarter of 1997 compared to the first
quarter of 1996 for financial instruments with maturities of one year or
longer. For example, the 1-year and 5-year treasury security yields averaged
5.65% and 6.36%, respectively, in the first quarter of 1997 compared to 5.12%
and 5.57%, respectively, in the first quarter of 1996. Shorter-term external
interest rates were generally lower than the first quarter of 1996. Because
some of First American's earning assets (and interest-bearing liabilities) do
not reprice immediately upon a change in external rates and because of other
factors, such as competitive pressures, a change in external rates will not
result in a change in the Company's average yields on earning assets (and rates
paid on interest-bearing liabilities) of the same magnitude or timing as the
change in external rates.
Total interest expense in the first quarter of 1997 increased $854.0
thousand, or 1%, to $88.4 million from the first quarter of 1996. Of the
increase, $4.5 million resulted from an increase in the volume of
interest-bearing liabilities which was partially offset by a $3.7 million
decrease which was due to lower average interest rates paid on interest-bearing
funds. In the first quarter of 1997, average interest-bearing liabilities grew
$384.0 million, or 5.2%, to $7.82 billion from $7.44 billion in the first
quarter of 1996. Average interest-bearing deposits increased $348.0 million,
or 5.7%, to $6.4 billion, average short-term borrowings rose $97.2 million, or
9.8%, to $1.09 billion, and average long-term debt decreased $61.1 million, or
15.9%, to $322.6 million. Excluding the effects of the Hartsville and First
City acquisitions, total average interest-bearing deposits increased 1%. The
average rate paid on interest-bearing liabilities decreased 15 basis points to
4.58% from 4.73% due to lower short-term external interest rates in 1997 as
compared to the first quarter of 1996.
Net interest income in the first quarter of 1997 increased primarily as a
result of the increase in the volume of earning assets and an improved net
interest spread. Net interest spread is the difference between the yield on
earning assets and the rate paid on interest-bearing liabilities. First
American's net interest spread improved 29 basis points to 3.39% during the
first quarter of 1997 from 3.10% for the first quarter of 1996. This increase
was due to a 14 basis point increase in yields on earning assets and a 15 basis
point decrease in the rates paid on interest-bearing liabilities.
As the net interest spread improved, the net interest margin, which is
net interest income expressed as a percentage of average earning assets,
increased to 4.11% for the first quarter of 1997 as compared with 3.85% for the
same quarter a year earlier. The primary factors leading to the improvement in
the net interest margin were the increase in the volume of earning assets and
the improvement in net interest spread.
PROVISION FOR LOAN LOSSES
This topic is addressed under the caption "Allowance and Provision for
Loan Losses."
NONINTEREST INCOME
Total noninterest income was $61.7 million for the first quarter of 1997
compared with $32.0 million for the first quarter of 1996, an increase of $29.7
million, or 92.9%. Noninterest income represented 40% of total revenues in the
first quarter of 1997 and 27% during the same time last year. The increase in
noninterest income from the first quarter of 1996 included a $26.8 million
increase in investment services income, a $1.1 million, or 8.3%, increase in
service charges on deposit accounts, and a $2.6 million, or 31.5%, increase in
other income. Of the total $26.8 million improvement in investment services
income over the first quarter of 1996, $26.0 million resulted from the
acquisition of INVEST and the remainder resulted principally from growth in
retail brokerage commissions related to mutual funds and annuities sales and
institutional brokerage commissions on various types of securities
transactions. The $1.1 million increase in service charges on deposit accounts
resulted primarily from a greater number of deposit accounts and related
activities for commercial and retail deposits. The average number of retail
deposit accounts increased 2.5% and the average number of commercial deposit
accounts increased 2.8% from first
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quarter 1996 to the current quarter. Other income in the first quarter of 1997
included a $1.0 million increase in ATM surcharge and network transaction fee
items, which resulted principally from fees generated by the introduction of
new ATM services such as stamps, mini-statements, and ATM use by non-First
American customers, and a $1.2 million gain on the sale of mortgage loans.
Excluding INVEST, noninterest income increased $3.1 million, or 9.6%.
NONINTEREST EXPENSE
Total noninterest expense increased $31.8 million, or 47%, to $99.5
million for the first quarter of 1997 compared with $67.7 million for the same
period in 1996. The increase in noninterest expense included a $17.8 million
increase in subscribers' commissions related to INVEST's brokerage activities,
an $8.4 million increase in salaries and employee benefits, a $4.0 million
increase in other expenses, an $.8 million increase in net occupancy expense,
and an $.8 million increase in systems and processing expense. The above
increases were partially offset by a $.9 million decrease in marketing expense.
Salaries and employee benefits increased $8.4 million, or 21.7%, from the
same period in 1996 principally due to merit increases and additional employees
resulting primarily from acquisitions. From March 31, 1996, to March 31, 1997,
the number of full-time equivalent employees increased 11.4% related primarily
to the Hartsville and INVEST acquisitions. Other expenses increased $4.0
million from the previous year's first quarter primarily due to an $.8 million
increase in amortization of intangibles related to the Hartsville, First City,
and INVEST acquisitions, a $.7 million increase in security clearing fees
related to INVEST, a $.4 million increase in travel expenses, and a $.3 million
increase in convention and group meeting expense. Net occupancy expense grew
$.8 million primarily due to higher rent and other occupancy-related expenses
due to the Hartsville, First City, and INVEST acquisitions. Systems and
processing expense increased $.8 million over last year's first quarter
primarily due to higher processing volumes related to the recent acquisitions
and various projects to enhance systems. A decrease in marketing expense of
$.9 million occurred due to statewide advertising projects that have been
deferred. Of the total $31.8 million increase in noninterest expense, $25.7
million was associated with INVEST. Excluding INVEST, noninterest expense
increased $6.1 million, or 9.1%. First American's operating efficiency ratio
from the traditional banking business improved to 56.93% in the first quarter
of 1997 compared to 58.0% the first quarter of 1996.
INCOME TAXES
During the first quarters of 1997 and 1996, income tax expense was $21.1
million and $18.3 million, respectively. The major factor for the 15.3%
increase in income tax expense was the higher income before income taxes.
BALANCE SHEET REVIEW
ASSETS
Total assets of First American rose $357.5 million, or 3.6%, to $10.21
billion at March 31, 1997, compared to $9.85 billion one year earlier. The
growth in total assets was primarily due to the $232.9 million, or 3.6%,
increase in loans, net of unearned discount and net deferred loan fees, to
$6.75 billion at March 31, 1997, from $6.52 billion at March 31, 1996. Leading
the growth in loans were commercial loans, which increased $256.7 million, or
9%, over a broad range of industry categories. The increase in loan volume, in
addition to increases from acquisitions, was primarily a reflection of positive
economic conditions in Tennessee and adjacent states, and the success of First
American's sales efforts and marketing programs. Also contributing to asset
growth were increases in investment securities ($156.8 million), trading
securities ($34.6 million), cash ($27.8 million), time deposits with other
banks ($9.2 million), partially offset by the $149.7 million decrease in
federal funds sold and securities purchased under agreements to resell.
Total assets decreased $190.6 million from $10.4 billion at December 31,
1996, to $10.21 billion at March 31, 1997. The decrease in total assets from
December 31, 1996, to March 31, 1997, was primarily due to the $144.3 million
decrease in Federal funds sold and securities purchased under agreements to
resell, and by the $127.4 million decrease in cash, partially offset by a $90.2
million increase in loans, net of unearned discount and net deferred loan fees.
Leading the growth in loans were commercial loans which increased $89.6
million.
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During the first quarter of 1997, approximately $54.5 million of mortgage
loans were sold with the mortgage servicing rights retained by First American.
The transaction resulted in a gain of approximately $1.2 million.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Management's policy is to maintain the allowance for loan losses at a
level which is adequate to absorb estimated loan losses inherent in the loan
portfolio. The provision for loan losses is a charge (credit) to earnings
necessary, after loan charge-offs and recoveries, to maintain the allowance at
an appropriate level. Determining the appropriate level of the allowance and
the amount of the provision for loan losses involves uncertainties and matters
of judgment and therefore cannot be determined with precision.
In order to maintain the allowance at an appropriate level, First
American's loan loss methodology produced no provision for loan losses during
the first quarter of 1997 nor during the first quarter of 1996. The primary
factors leading to no provision for loan losses in the first quarters of 1997
and 1996, were the continued favorable levels of asset quality as discussed
under the caption "Asset Quality" and relatively low net loan charge-off
experience. In the first quarter of 1997 there were net charge-offs of $1.4
million which compared to net charge-offs of $2.1 million in the first quarter
of 1996. Net charge-offs as a percentage of average loans on an annualized
basis amounted to .09% and .13%, respectively, in the first quarters of 1997
and 1996. Activity in the allowance for loan losses in the first quarter of
1997 also included a $.7 million increase due to the January 1, 1997
acquisition of Hartsville.
The allowance for loan losses was $122.6 million at March 31, 1997,
$132.4 million at March 31, 1996, and $123.3 million at December 31, 1996. The
allowance for loan losses represented 1.82% and 2.03% of net loans at March 31,
1997 and 1996, respectively, and 1.85% at December 31, 1996.
ASSET QUALITY
First American's nonperforming assets (excluding loans 90 days past due
on accrual status) were $15.8 million at March 31, 1997, $26.8 million at March
31, 1996, and $23.7 million at December 31, 1996. Nonperforming assets
(excluding loans 90 days past due on accrual status) at March 31, 1997,
represented .23% of total loans and foreclosed properties, compared to .41% at
March 31, 1996, and .36% at December 31, 1996. At March 31, 1997,
nonperforming assets were comprised of $11.2 million of non-accrual loans and
$4.5 million of foreclosed properties.
Other potential problem loans consist of loans that are currently not
considered nonperforming but on which information about possible credit
problems has caused Management to doubt the ability of the borrowers to comply
fully with present repayment terms. At March 31, 1997, such loans totaled
approximately $57 million compared with approximately $80 million of such loans
at March 31, 1996, and $52 million at December 31, 1996. Depending on the
economy and other factors, these loans and others, which may not be presently
identified, could become nonperforming assets in the future.
LIABILITIES
Total deposits were $7.8 billion at March 31, 1997, an increase of $360.8
million, or 4.8%, from $7.44 billion a year earlier. Core deposits, which are
defined as total deposits excluding certificates of deposit $100,000 and over
and foreign deposits, totaled $6.96 billion at March 31, 1997, and $6.71
billion at March 31, 1996. Short-term borrowings increased $38.9 million, or
3.7%, to $1.08 billion at March 31, 1997, from $1.04 billion at March 31, 1996.
Long-term debt decreased $44.6 million from March 31, 1996, to $323.3 million
at March 31, 1997, primarily due to the reclassification of $45.0 million of
fixed rate Federal Home Loan Bank ("FHLB") borrowing from long- to short-term.
Total deposits increased $9.9 million from $7.79 billion at December 31,
1996, to $7.8 billion at March 31, 1997. Core deposits increased $153.1
million, short-term borrowings decreased $74.0 million, and long-term debt
decreased $7.9 million from December 31, 1996, to March 31, 1997. The decrease
in long-term debt was primarily due to the reclassification of $9.0 million of
fixed rate FHLB borrowings from long- to short-term.
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OFF BALANCE SHEET INSTRUMENTS
First American has utilized off balance sheet derivative products for a
number of years in managing its interest rate sensitivity. Generally, a
derivative transaction is a payments exchange agreement whose value derives
from an underlying asset or underlying reference rate or index. The use of
non-complex, non-leveraged derivative products has reduced the Company's
exposure to changes in the interest rate environment. By using derivative
products such as interest rate swaps and futures contracts to alter the nature
of (hedge) specific assets or liabilities on the balance sheet (for example to
change a variable to a fixed rate obligation), the derivative product offsets
fluctuations in net interest income from the otherwise unhedged position. In
other words, if net interest income from the otherwise unhedged position
changes (increases or decreases) by a given amount, the derivative product
should produce close to the opposite result, making the combined amount
(otherwise unhedged position impact plus the derivative product position
impact) essentially unchanged. Derivative products have enabled First American
to improve its balance between interest-sensitive assets and
interest-sensitive liabilities by managing interest rate sensitivity, while
continuing to meet the lending and deposit needs of its customers.
In conjunction with managing interest rate sensitivity, at March 31,
1997, First American had derivatives with notional values totaling $1.15
billion. These derivatives had a net positive fair value (unrealized net
pre-tax gain) of $2.7 million. Notional amounts are key elements of derivative
financial instrument agreements. However, notional amounts do not represent
the amounts exchanged by the parties to derivatives and do not measure First
American's exposure to credit or market risks. The amounts exchanged are based
on the notional amounts and the other terms of the underlying derivative
agreements. At March 31, 1996, First American had derivatives with notional
values totaling $1.2 billion. These derivatives had a net negative fair value
(unrealized pre-tax loss) of $42.0 thousand at March 31, 1996. The instruments
utilized are noted in the following table along with their notional amounts and
fair values at March 31, 1997 and 1996.
Weighted
Weighted Average Average
Rate Maturity
Related Variable Rate Notional -------------------- -------- Fair
(in thousands) Asset/Liability Amount Paid Received Years Value
- -----------------------------------------------------------------------------------------------------------------------
MARCH 31, 1997
Interest rate swaps Money market deposits $ 200,000 5.67% (1) 5.53% (2) 2.3 $ 3,804
Interest rate swaps Loans 350,000 5.55 (3) 6.65 (1) 4.5 (2,824)
Forward interest rate Available for sale
swaps securities 200,000 7.01 (4) N/A (4) 3.6 (117)
Forward interest rate
swaps Money market deposits 400,000 6.27 (5) N/A (5) 1.5 1,857
---------- ---------
$1,150,000 $ 2,720
=======================================================================================================================
March 31, 1996
Interest rate swaps Money market deposits $ 900,000 5.90% (1) 5.35% (2) 1.6 $ 757
Interest rate swaps Long-term debt 100,000 6.32 (1) 5.28 (3) .4 (436)
Forward interest rate
swaps Money market deposits 200,000 6.64 (6) 5.33 (6) .3 (363)
---------- ---------
$1,200,000 $ (42)
=======================================================================================================================
(1) Fixed rate.
(2) Variable rate which reprices quarterly based on 3-month LIBOR except for
$25 million which reprices every 6 months based on 6-month LIBOR.
(3) Variable rate which reprices quarterly based on 3-month LIBOR.
(4) Forward swap periods to begin in May 1997 for $50 million, June 1997 for
$50 million and April 1998 for $100 million. The rates to be paid are
fixed and were set at the inception of the contracts. Variable rates to
be received are based on 3-month LIBOR but were unknown at March 31,
1997, since the forward swap periods had not yet begun.
(5) Forward swap periods to begin in May 1997 for $100 million, and September
1997 for $100 million, and November 1997 for $200 million. The rates to
be paid are fixed and were set at the inception of the contracts.
Variable rates to be received are based on 3-month LIBOR but were unknown
at March 31, 1997, since the forward swap period had not yet begun.
(6) Forward swap periods began in June 1995. The rates paid are fixed and
were set at the inception of the contracts. Variable rates received are
based on a 3-month LIBOR and reprice quarterly.
As First American's individual derivative contracts approach maturity,
they may be terminated and replaced with derivatives with longer maturities
which offer more interest rate risk protection. At March 31, 1997, there were
$3.5 million of deferred net gains related to terminated derivatives contracts,
and there were $3.3 million of deferred net losses at March 31, 1996. Deferred
gains and losses on off balance
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sheet derivative activities are recognized as interest income or interest
expense over the original covered periods.
Net interest income for the quarter ended March 31, 1997, was increased
by derivative products income of $.6 million. Net interest income for the
quarter ended March 31, 1996, was decreased by $2.7 million derivative products
expense. The change from derivative products net expense in the first quarter
of 1996 to net pretax income in the first quarter of 1997 was primarily due to
the reduced amortization of deferred losses on terminated derivative contracts
and changes in the interest rate environment.
Credit risk exposure due to off-balance-sheet hedging is closely
monitored, and counterparts to these contracts are selected on the basis of
their credit worthiness, as well as their market-making ability. As of March
31, 1997, all outstanding derivative transactions were with counterparts with
credit ratings of A-2 or better. Enforceable bilateral netting contracts
between First American and its counterparts allow for the netting of gains and
losses in determining net credit exposure. First American's net credit
exposure on outstanding derivatives was $4.0 million on March 31, 1997. Given
the credit standing of the counterparts to the derivative contracts, Management
believes that this credit exposure is reasonable in light of its objectives.
CAPITAL POSITION
Total shareholders' equity was $854.1 million, or 8.37% of total assets
at March 31, 1997, $825.9 million, or 8.38% of total assets, at March 31, 1996,
and $868.7 million, or 8.35% of total assets at December 31, 1996. Book value
per share was $14.56 on March 31, 1997, $13.76 per share on March 31, 1996, and
$14.66 per share on December 31, 1996.
Total shareholders' equity decreased $14.6 million from December 31,
1996, principally from the repurchase of $46.3 million of common stock and the
$11.8 million decrease in net unrealized gains and losses on securities
available for sale, net of tax and offset by increases of $24.8 million of
earnings retention ($34.0 million of net income less $9.2 million of
dividends), $7.4 million of common stock issued for employee benefit and
dividend reinvestment plans, and $9.6 million of common stock issued for the
acquisition of Hartsville. All of the First American shares exchanged in the
Hartsville transaction were repurchased during January 1997 in the open market.
On April 17, 1997, the Board of Directors authorized a 2-for-1 stock
split and a 29% increase in the quarterly cash dividend. On a post-split
basis, the quarterly dividend in respect to the first quarter of 1997 will be
$.20 per share. All financial data has been restated to reflect the impact of
the stock split. In the first quarter of 1997, First American declared cash
dividends on its common stock of $.155 per share compared to $.14 per share in
the first quarter of 1996. The dividend payout ratio was 27% in the first
quarter of 1997 compared to 28% in the first quarter of 1996.
The Federal Reserve Board and Office of the Comptroller of the Currency
(OCC) regulations require that bank holding companies and national banks
maintain minimum capital ratios. As of March 31, 1997, the Corporation and its
bank subsidiaries, FANB and First American National Bank of Kentucky
("FANBKY"), had ratios which exceeded the regulatory requirements to be
classified as "well capitalized," the highest regulatory capital rating. At
March 31, 1997, the Corporation, FANB, and FANBKY had total risk-based capital
ratios of 11.98%, 11.50%, and 10.59%, respectively, Tier I risk-based capital
ratios of 9.49%, 10.24%, and 9.97%, respectively, and Tier I leverage capital
ratios of 7.62%, 8.31%, and 6.29%, respectively. In order to be considered
well capitalized, the total risk-based capital ratio must be a minimum of 10%,
the Tier I risk-based capital ratio must equal or exceed 6%, and the Tier I
leverage capital ratio must be 5% or greater.
First American Federal Savings Bank ("FAFSB") is subject to capital
requirements adopted by the Office of Thrift Supervision ("OTS"), which are
similar to those issued by the Federal Reserve Board and the OCC. At March 31,
1997, FAFSB's core (leverage) capital ratio was 6.21%, its Tier I capital ratio
was 12.58% of risk based weighted assets, and its total risk-based capital
ratio was 13.42%, all of which exceeded the minimum ratios established by the
OTS.
LIQUIDITY
Liquidity management consists of maintaining sufficient cash levels to
fund operations and to meet the requirements of borrowers, depositors, and
creditors. Liquid assets, which include cash and cash equivalents (less
Federal Reserve Bank reserve requirements), money market instruments, and
securities
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that will mature within one year, amounted to $927.3 million and $934.2 million
at March 31, 1997 and 1996, respectively. The estimated average maturity of
securities was 4.3 years and 4.2 years at March 31, 1997 and 1996,
respectively. The average repricing life of the total securities portfolio was
2.4 years and 1.7 years at March 31, 1997 and 1996, respectively. The overall
liquidity position of First American is further enhanced by a high proportion
of core deposits, which provide a stable funding base. Core deposits comprised
89% of total deposits at March 31, 1997, versus 90% at March 31, 1996.
An additional source of liquidity is the Corporation's three year $70
million revolving credit agreement which will expire March 31, 1998. First
American had no borrowings under this agreement during 1996 or 1997.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information called for by this item is incorporated by
reference to Item 3 of the Registrant's annual report on Form 10-K
for the year ended December 31, 1996, and Note 8 to the
Corporation's Consolidated Financial Statements for the quarter
ended March 31, 1997 included herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
------ ----------------------------------------------------------------------------------------------
3.1 Restated Charter of the Registrant currently in effect as amended and corrected, included
herein.
3.2 By-laws of the Registrant currently in effect as amended January 16, 1997, are incorporated by
reference to Item 14 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
11 Statement regarding computation of per share earnings is included in Note 6 to the
Consolidated Financial Statements for the quarter ended March 31, 1997. See Part 1, Item 1.
15 Letter regarding unaudited interim financial information from KPMG Peat Marwick LLP, dated
April 17, 1997.
27 Financial Data Schedule for interim year-to-date period ended March 31, 1997. (For SEC use
only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST AMERICAN CORPORATION
---------------------------
(Registrant)
/s/ Martin E. Simmons
--------------------------------------------
Martin E. Simmons
Executive Vice President, General Counsel,
Secretary and Principal Financial Officer
Date: May 13, 1997
-------------------------------------