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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 0-27474
AMERICAN BANCSHARES, INC.
(Name of Small Business Issuer in its Charter)
FLORIDA 65-0624640
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
4702 CORTEZ ROAD WEST 34210-2801
BRADENTON, FLORIDA (Zip Code)
(Address of Principal Executive Offices)
(941) 795-3050
(Issuer's Telephone Number, Including Area Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
Name of Each Exchange
Title of each class on Which Registered
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Common Shares, par value $1.175 per share
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendments to this Form 10-KSB. [ X ]
The issuer's revenues for its most recent fiscal year was $16,382,410.
The aggregate market value of the Common Shares of the issuer held by
non-affiliates as of February 28, 1997, was approximately $29,933,779 as
computed by reference to the closing price of the Common Shares as quoted by
the NASDAQ National Market on such date. As of February 28, 1997, there were
4,070,458 issued and outstanding shares of issuer's Common Shares.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the American Bancshares, Inc. Annual Report to Shareholders for the
fiscal year ended December 31, 1996 ("Annual Report to Shareholders") are
incorporated herein by reference into Parts I and II of the Form 10-KSB.
Portions of the issuer's definitive Proxy Statement of American Bancshares,
Inc. for the 1997 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission no later than 120 days after the end of the
issuer's 1996 fiscal year are incorporated by reference into Part III of this
Form 10-KSB.
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AMERICAN BANCSHARES, INC.
FORM 10-KSB
Fiscal Year Ended December 31, 1996
<TABLE>
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ITEM NUMBER IN
FORM 10-KSB PAGE
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PART I
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1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4. Submission of Matters to a Vote of Security-Holders . . . . . . . . . . . . . . . . . . . . . . . . 18
PART II
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5. Market for Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 18
6. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . 19
7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8. Changes in and Disagreements with Accountants on Accounting . . . . . . . . . . . . . . . . . . . . 19
PART III
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9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . 19
10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13. Exhibits, Lists and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
American Bancshares, Inc. (the "Company"), a Florida Corporation organized
on June 30, 1995, is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and, on December 1, 1995, became
the bank holding company for the American Bank of Bradenton, Bradenton, Florida
(the "Bank"). The Bank, whose capital stock is wholly owned by the Company, is
the Company's sole subsidiary and principal asset. Through its ownership of
the Bank, the Company engages in a general commercial banking business and its
primary source of earnings is derived from income generated by the Bank. The
Company currently engages in no substantial business activities other than
activities related to its ownership of the Bank. As of December 31, 1996, the
Company, on a consolidated basis, had total assets of $211,965,328, net
portfolio loans of $135,108,438, total deposits of $177,202,633, and
shareholders' equity of $18,813,907. Unless the context otherwise requires,
references herein to the Company include the Company and the Bank on a
consolidated basis.
The Bank, which commenced operations in 1989, is a Florida chartered
commercial bank and is not a member of the Federal Reserve System. The Bank
engages in general commercial and related businesses from its seven banking
offices, all of which are operating in Manatee County, Florida. Five of these
offices, the main office, two full service branches, a drive-thru branch, and
separate Mortgage Banking Division office are located in Bradenton. The
remaining offices include a drive-thru branch in Palmetto, Florida, and a full
service branch in Ellenton, Florida. Two full service branches located in
Bradenton were opened during 1996 following the Company's initial public
offering of its Common Shares; the Manatee Avenue branch opening on March 18,
1996, and the 15th Street East branch opening on September 18, 1996. At
December 31, 1996, the Manatee Avenue branch and the 15th Street East branch
had deposits of approximately $15,625,000 and $4,409,000, respectively.
The Bank is a general commercial bank which provides a variety of
corporate and personal banking services to individuals, businesses, and other
institutions located in Manatee County, Florida. Deposit services include
certificates of deposit, individual retirement accounts ("IRAs") and other time
deposits, checking and other demand deposit accounts, NOW accounts, savings
accounts and money market accounts. All deposit accounts are insured by the
FDIC up to the maximum limits permitted by law. The Bank operates a deposit
gathering service without charge, "Bank on Wheels," for its business customers,
using Bank vans to pick up non-cash deposits. The Bank also offers ATM cards
with access to local, state, national, and international networks, safe deposit
boxes, wire transfers, direct deposit of payroll and social security checks,
and automatic drafts for various accounts. The Bank issues personal and
corporate credit cards, VISA, VISA Gold, or MasterCard credit cards, and the
Bank assumes all liabilities relating to underwriting of the credit applicant.
The Bank presently does not provide fiduciary, trust, or appraisal services.
The business of the Bank consists of attracting deposits from the areas
served by its banking offices and using those deposits, together with funds
derived from other sources, to originate a variety of commercial, consumer, and
residential real estate loans. The Bank offers a broad range of short to
medium-term business and personal loans. Commercial loans include both
collateralized and uncollateralized loans for working capital (including
inventory and receivables), business expansion (including real estate
acquisitions and improvements), and purchase of equipment and machinery. In
this regard, the Bank, among other things, also originates loans to small
businesses in association with the Small Business Association. Consumer loans
include collateralized and uncollateralized loans for financing automobiles,
boats, home improvements, and personal investments. The Bank originates a
variety of residential real estate loans, including conventional mortgages
collateralized by first mortgage liens to enable borrowers to purchase,
refinance, construct upon or improve real property. In addition, the Bank
offers customized accounts receivable financing and billing services that
enable customers to convert their receivables into cash on a daily basis and
eliminate the expenses of billing. The Bank also offers credit card merchant
services which are competitive with credit card agencies
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but provide the merchant with the local attention of Bank representatives. The
Bank primarily enters into lending arrangements for its portfolio loans with
individuals who are familiar to the Bank and are residents of the Bank's
primary market area.
The Bank also maintains a separate Mortgage Banking Division which
generates, closes, and services single family residential home mortgages. Its
primary function is to originate fixed and adjustable rate
construction-to-permanent residential real estate mortgage loans which fit the
needs of borrowers for the purchase and construction of homes. These loans are
originated, approved, and serviced from the Bank's Mortgage Banking Division
offices located in Bradenton, Florida. Since the establishment of the Mortgage
Banking Division in 1994, the Bank has substantially expanded its mortgage
banking operations by emphasizing the origination of construction-to-permanent
residential real estate mortgage loan for sale in the secondary mortgage market
while retaining or packaging for sale the fee generating mortgage servicing
rights associated with such loans. A majority of the mortgage loans made by
the Bank since 1994 have been sold on the secondary market to the Federal
National Mortgage Association ("FNMA") and other institutional investors.
Consideration may be given to making such sales to other governmental agencies
in the future.
During the fiscal year ended December 31, 1996, the Mortgage Banking
Division originated approximately $41,883,688 in mortgage loans and sold in the
secondary market approximately $38,158,995 of such loans, including those held
in inventory from the previous year. Servicing fee income was $50,008. During
1996, the Bank also packaged and sold mortgage servicing rights with respect to
approximately $4.3 million in unpaid principal amount FNMA loans originated by
the Bank for approximately $68,595, or a 1.60% premium on the unpaid balance of
the loan portfolio servicing rights sold.
On January 22, 1997, the Bank acquired a Bradenton based mortgage
brokerage company, DesChamps & Gregory Mortgage Company, Inc. ("DesChamps").
DesChamps is a retail residential mortgage broker which originates residential
mortgage loans with business operations concentrated in Manatee and Sarasota
Counties. The Bank believes that the acquisition of DesChamps will allow it to
compete with several larger financial institutions in its market area for
residential lending business and to expand the Bank's presence in the local
market generally.
The revenues of the Bank are primarily derived from interest on, and fees
received in connection with, real estate and other loans, and from interest and
dividends from investment securities and short-term investments. The principal
sources of funds for the Bank's lending activities are its deposits,
amortization and prepayment of loans, sales of loans, and the sale of
investment securities. The principal expenses of the Bank are the interest
paid on deposits and operating and general administrative expenses.
As is the case with banking institutions generally, the Bank's operations
are materially and significantly influenced by general economic conditions and
by related monetary and fiscal policies of financial institution regulatory
agencies, including the Board of Governors of the Federal Reserve System (the
"Federal Reserve") and the Federal Deposit Insurance Corporation (the "FDIC").
Deposit flows and cost of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds.
The Bank faces strong competition in the attraction of deposits (its primary
source of lendable funds) and in the origination of real estate loans.
MARKET AREA
The Bank's seven banking offices are located in or near the Bradenton area
of Manatee County, which is the Bank's primary market area. According to
published reports, the Bradenton-Sarasota, Florida area has grown faster during
the past fifty years than any other major urban area in the United States
except Las Vegas, Nevada. The area has had a population growth of 1060% over
the past half-century. Bradenton, with its population of approximately 47,679,
is the most populous city in Manatee County. Its average household is 2.3
persons with 21,340 housing units, representing a 33% increase from 1980 to
1990. This population
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growth has resulted in the continued construction of residential housing and
related commercial support facilities.
While changing conditions involving the infrastructural requirements
of various geographic locations around the country have limited economic growth
and population expansion, management believes that the Bank's primary market
area has continued to grow because of the area's ability to attract new
residents to its favorable year round climate and its relatively stable
economic environment. Although the major economic base in the primary market
area is service, retail, and manufacturing business, there also has been a
growth of tourism. The Company believes that it is situated to take advantage
of the expected economic and demographic growth in the Bank's primary market
area.
In order to expand its geographic market area and to diversify its sources
for and uses of funds, the Company established five banking offices in
Bradenton, a drive-thru branch in Palmetto, and a full service branch in
Ellenton. In this regard, the Company has continued to identify areas into
which it can expand its operations and improve market share. As previously
indicated, during 1996 the Company opened two new full service branches in
Bradenton. The Company believes that it can continue to improve its market
shares and long term profitability by identifying strategic locations for
opening or acquiring additional branch offices.
In the future, the Company may consider strategic expansion through
branching and/or acquisitions of banks or banking assets in those geographic
areas that management believes would complement the existing business and would
most effectively achieve market penetration within its primary market area and
possibly allow it to expand into the Sarasota, Florida area. Although the
Company has considered, in the past, the acquisition of certain banking
institutions, the Company has not entered in to any such transactions. The
Company will consider and evaluate potential strategic market expansion and
acquisitions which are brought to its attention to determine whether such
opportunities are in the best interests of the Company and should be pursued.
In this regard, the Company has determined to begin a more aggressive search
for acquisition candidates. Although the Company has identified certain
financial institutions that it believes would be suitable acquisition
candidates, it does not have any understandings, arrangements, or agreements,
whether written or oral, with respect to any specific acquisitions prospect,
and is not presently negotiating with any party with respect thereto.
Accordingly, there is no assurance that any acquisition candidate will be
interested in such a transaction, and if not, that the Company will be able to
identify any additional acquisition candidates, or to the extent that suitable
acquisition candidates have been or are identified, that an acquisition will
receive regulatory approval or be consummated.
MARKET FOR SERVICES
Management believes that the Bank's principal markets are: (i) the
established and expanding commercial and small business market within the
primary market areas; (ii) the real estate mortgage market within the primary
market areas for retail lending and throughout Florida and parts of Georgia for
wholesale lending; and (iii) the growing consumer loan market. Management also
believes that the most profitable banking relationships are characterized by
high deposit balances, low frequency of transactions, and low distribution
requirements. Moreover, management believes that a community bank with local
management is well positioned to establish these relationships with the small
commercial customers and households.
The Bank is the largest independent bank in Manatee County based on asset
size. Although not the only independent bank in its market, the Bank believes
that it is the only bank in its market offering no minimum balance, no fee
checking for all its customers. The Bank believes that it also is the only
bank in its market to provide deposit collection services throughout Manatee
County through the use of five Bank owned and operated vehicles which travel
primarily to business customers to pick up non-cash deposits. Specifically,
the Bank has targeted businesses with annual gross revenues up to $10 million,
and all households within the primary market areas. Given the projected growth
of these segments and their respective profiles, the Company believes the
targeting of these segments as the foundation of the Bank's customer base will
increase opportunities to establish profitable banking operations in the
primary market area.
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Businesses are solicited through the personal efforts of the Bank's
directors and officers. Management believes a locally-based bank is often
perceived by the local business community as possessing a clearer understanding
of local commerce and its needs. Consequently, the Company expects that the
Bank will be able to make prudent lending decisions quickly and more equitably
than its competitors without compromising asset quality or the Bank's
profitability.
The Bank focuses on the smaller commercial customer because management
believes that this segment offers the greatest concentration of potential
business. Also, the small to mid-size commercial market segment has
historically shown a willingness to borrow and carry larger balances. Finally,
the Company perceives that this market segment tends to be more loyal in its
banking relationships.
LENDING ACTIVITIES
General
The primary source of income generated by the Bank is from the interest
earned from both the loan and investment portfolios. The Bank maintains
diversification when considering investments and the granting of loan requests.
Emphasis is placed on the borrower's ability to generate cash flow to support
its debt obligations and other cash related expenses. Lending activities
include commercial and consumer loans, and loans for residential purposes.
Commercial loans are originated for commercial construction, acquisition, or
remodeling. Consumer loans include those for the purchase of automobiles,
boats, home improvements and investments. Residential loans include the
origination of conventional mortgages, residential lot loans, and residential
acquisition, development, and construction loans for the purchase or
construction of single-family housing or lots. Loans made by the Bank include
a variety of mortgage loan products, with an emphasis on
construction-to-permanent residential real estate loans, most of which are sold
in the secondary market with servicing retained by the Bank.
At December 31, 1996, the Bank's net loan portfolio was approximately
$135.1 million, representing approximately 64% of its total assets. As of such
date, the loan portfolio consisted of 55% commercial and financial loans, 14%
real- estate mortgage loans, and 31% installment loans. In addition, at
December 31, 1996, approximately $20.4 million of residential real estate
mortgage loans are being held for sale.
Commercial Lending
The Bank offers a variety of commercial loan services including term
loans, lines of credit, and equipment receivables financing. A broad range of
short-to-medium term commercial loans, both collateralized and uncollateralized
are made available to businesses for working capital (including inventory and
receivables), business expansion (including acquisitions of real estate and
improvements), and the purchase of equipment and machinery. The purpose of a
particular loan generally determines its structure.
The Bank's commercial loans primarily are underwritten in the Bank's
primary market area on the basis of the borrowers' ability to service such debt
from income. As a general practice, the Bank takes as collateral a security
interest in any available real estate, equipment, or other chattel, although
such loans may be made on an uncollateralized basis. Collateralized working
capital loans are primarily collateralized by short term assets whereas term
loans are primarily collateralized by long term assets.
Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment from his employment and other
income and which are collateralized by real property whose value tends to be
easily ascertainable, commercial loans typically are made on the basis of the
borrower's ability to make repayment from the cash flow of his business and
generally are collateralized by business assets, such as accounts receivable,
equipment, and inventory. As a result, the availability of funds for the
repayment of commercial loans may be substantially dependent on the success of
the business itself. Further, the collateral underlying the loans may
depreciate over time, occasionally cannot be appraised with as much precision
as residential real estate, and may fluctuate in value based on the success of
the business.
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Residential Lending
A large portion of the Bank's lending activities consist of the
origination of single-family residential mortgage loans collateralized by
owner-occupied property located in the Bank's primary service area. The Bank
also offers adjustable rate mortgages ("ARMs") and either retain these ARMs in
its portfolio or sells them in the secondary market. The ability to retain the
ARMs in the Bank's portfolio allows the Bank the opportunity to originate loans
to borrowers who may not meet the underwriting criteria of strict secondary
market standards (but are still quality credits).
The Bank offers one-year ARMs with rate adjustments tied to the weekly
average rate of U.S. Treasury securities adjusted to a constant one-year
maturity with specified minimum and maximum interest rate adjustments. The
interest rates on a majority of these mortgages are adjusted yearly with
limitations on upward adjustments of 2% per adjustment period and 6% over the
life of the loan. The Bank also originates 15-year and 30-year fixed-rate
mortgage loans on single family residential real estate. The Bank generally
charges a higher interest rate if the property is not owner- occupied.
Fixed-rate mortgage loans are generally underwritten according to FNMA or
Federal Home Loan Mortgage Corporation ("FHLMC") guidelines so that the loans
qualify for sale in the secondary market to FNMA or FHLMC. It has been the
Bank's experience that the proportion of fixed-rate and adjustable-rate loan
originations depend in large part on the level of interest rates. As interest
rates fall, there is generally a reduced demand for ARMs and, as interest rates
rise, there is generally an increased demand for ARMs.
Fixed rate and adjustable rate mortgage loans collateralized by single
family residential real estate generally have been originated in amounts of no
more than 80% of appraised value. The Bank may, however, lend up to 95% of the
value of the property collateralizing the loan, but if such loans are required
to be made in excess of 80% of the value of the property, they must be insured
by private or federally guaranteed mortgage insurance. In the case of mortgage
loans, the Bank will procure mortgagees title insurance to protect against
defects in its lien on the property which may collateralize the loan. The Bank
in most cases requires title, fire, and extended casualty insurance to be
obtained by the borrower, and, where required by applicable regulations, flood
insurance. The Bank maintains its own errors and omissions insurance policy to
protect against loss in the event of failure of a mortgagor to pay premiums on
fire and other hazard insurance policies. Although the contractual loan
payment period for single family residential real estate loans is generally for
a 15 to 30 year period, such loans often remain outstanding for significantly
shorter periods than their contractual terms. Although the original
contractual loan payment terms for residential loans originated by the Bank
presently range up to 30 years, the Bank charges no penalty for prepayment of
mortgage loans. Mortgage loans originated by the Bank customarily include a
"due on sale" clause giving the Bank the right to declare a loan immediately
due and payable in the event, among other matters, that the borrower sells or
otherwise disposes of the real property subject to a mortgage. In general, the
Bank enforces due on sale clauses. Borrowers are typically permitted to
refinance or prepay loans at their option without penalty.
Consumer Loans
Consumer loans made by the Bank have included automobiles, recreation
vehicles, boats, second mortgages, home improvements, home equity lines of
credit, personal (collateralized and uncollateralized), and deposit account
collateralized loans. The Bank's consumer loan portfolio consists primarily of
loans to individuals for various consumer purposes, but includes some business
purpose loans which are payable on an installment basis. A majority of these
loans are for terms of less than 60 months and although generally
collateralized by liens on various personal assets of the borrower may be made
uncollateralized. Consumer loans are made at fixed and variable interest rates
and may be made based on up to a 10 year amortization schedule but which become
payable in full are generally refinanced in 36 to 60 months.
Consumer loans are attractive to the Bank because they typically have a
shorter term and carry higher interest rates than that charged on other types
of loans. Consumer loans, however, do pose additional risks of collectability
when compared to traditional types of loans granted by commercial banks such as
residential mortgage loans. In many instances, the Bank is required to rely on
the borrower's ability to repay since the
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collateral may be of reduced value at the time of collection. Accordingly, the
initial determination of the borrower's ability to repay is of primary
importance in the underwriting of consumer loans.
Construction Loans
The Bank originates residential construction contractor loans to finance
the construction of single-family dwellings. Most of the residential
construction loans are made to individuals who intend to erect owner-occupied
housing on a purchased parcel of real estate. The Bank's construction loans to
individuals typically range in size from $100,000 to $200,000. Construction
loans also are made to contractors to erect single-family dwellings for resale.
At December 31, 1996, approximately 5% of the Bank's construction loans have
been made to contractors. Construction loans are generally offered on the same
basis as other residential real estate loans except that a larger percentage
down payment is typically required.
The Bank may also make residential construction loans to real estate
developers for the acquisition, development, and construction of residential
subdivisions. The Bank has limited involvement with this type of loan. Such
loans may involve additional risk attributable to the fact that funds will be
advanced to fund the project under construction, which is of uncertain value
prior to completion and because it is relatively difficult to evaluate
accurately the total amount of funds required to complete a project.
The Bank finances the construction of individual, owner-occupied houses on
the basis of written underwriting and construction loan management guidelines.
Construction loans are structured either to be converted to permanent loans
with the Bank at the end of the construction phase or to be paid off upon
receiving financing from another financial institution. Construction loans on
residential properties are generally made in amounts up to 80% of appraised
value. Construction loans to developers generally have terms of up to 12
months. Loan proceeds on builders' projects are disbursed in increments as
construction progresses and as inspections warrant. The maximum loan amounts
for construction loans are based on the lesser of the current appraisal value
or the purchase price for the property.
Construction loans are generally considered to involve a higher degree of
risk than long-term financing collateralized by improved, occupied real estate.
A lender's risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at the completion of
construction and estimated cost (including interest) of construction. If the
estimate of construction cost proves to be inaccurate, the lender could be
required to advance funds beyond the amount originally committed in order to
permit completion of the project. If the estimate of anticipated value proves
to be inaccurate, the lender may have collateral which has value insufficient
to assure full repayment.
Loans collateralized by subdivisions and multi-family residential real
estate generally are larger than loans collateralized by single family,
owner-occupied housing and also generally involve a greater degree of risk.
Payments on these loans depend to a large degree on the results of operations
and management of the properties, and repayment of such loans may be more
subject to adverse conditions in the real estate market or the economy.
LOAN SOLICITATION AND PROCESSING
Loan originations are derived from a number of sources. Residential loan
originations can be attributed to real estate broker referrals, mortgage loan
brokers, direct solicitation by the Bank's loan officers, present savers and
borrowers, builders, attorneys, walk-in customers and, in some instances, other
lenders. Loan applications, whether originated through the Bank or through
mortgage brokers, are underwritten and closed based on the same standards,
which generally meet FNMA underwriting guidelines. Consumer and commercial
real estate loan originations emanate from many of the same sources. The legal
lending limit of the Bank, as of December 31, 1996, was $3,683,275.
The loan underwriting procedures followed by the Bank conform to
regulatory specifications and are designed to assess with the borrower's
ability to make principal and interest payments and the value of any assets or
property serving as collateral for the loan. Generally, as part of the
process, a bank loan officer
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meets with each applicant to obtain the appropriate employment and financial
information as well as any other required loan information. Upon receipt of
the borrower's completed loan application, the Bank then obtains reports with
respect to the borrowers credit record, and orders and reviews an appraisal of
any collateral for the loan (prepared for the Bank through an independent
appraiser). The loan information supplied by the borrower is independently
verified. Loan officers or other loan production personnel in a position to
directly benefit monetarily through loan solicitation fees from individual loan
transactions do not have approval authority. Once a loan application has been
completed and all information has been obtained and verified, the loan request
is submitted to a final review process. As part of the loan approval process,
all uncollateralized loans of $100,000 or more and all collateralized loans of
$500,000 or more require preapproval by the Bank's loan committee which is
currently comprised of five directors of the Bank and meets on such basis as is
deemed necessary to promptly service loan demand. All loans of $1,000,000 or
more require preapproval by the Bank's Board of Directors, and borrowers
requesting amounts which will result in a loan relationship of $1,000,000 or
more also must be approved by the Board of Directors of the Bank.
Loan applicants are notified promptly of the decision of the Bank by
telephone and a letter. If the loan is approved, the commitment letter
specifies the terms and conditions of the proposed loan including the amount of
the loan, interest rate, amortization term, a brief description of the required
collateral, and required insurance coverage. Prior to closing any long-term
loan, the borrower must provide proof of fire and casualty insurance on the
property serving as collateral which insurance must be maintained during the
full term of the loan. Title insurance is required on loans collateralized by
real property. Interest rates on committed loans are normally locked in at the
time of application for a 30 to 45 day period. The commitment issued at the
time of approval will be for the time remaining, based on the application date.
MORTGAGE BANKING AND RESIDENTIAL LENDING OPERATIONS
The Company provides mortgage banking services through the Bank's Mortgage
Banking Division which opened in May 1994 and residential lending services from
its Retail Residential Lending Division. Both the Mortgage Banking Division
and the Retail Residential Lending Division were established for the purpose of
increasing the Bank's residential loan portfolio and resulting interest income,
and to increase non-interest income through sales of loans in the secondary
market and the retention or sale of the fee generating mortgage servicing
rights. The Bank also established the Mortgage Banking Division in an effort
to pursue the strong residential mortgage loan demand that management believes
exists outside of its primary market area in Florida and established the Retail
Residential Lending Division to pursue the residential mortgage loan demand
that the Bank believes exists in its primary market area.
The Mortgage Banking Division's lending efforts are widely disbursed
throughout Florida and parts of Georgia and are not reliant on a specific
region. Management considers this to be a prudent business practice by
reducing risks inherent in localized economic down turns or adverse weather
conditions. Such loans are originated through a variety of contacts that the
staff has in the mortgage banking industry throughout Florida and parts of
Georgia. Furthermore, the Mortgage Banking Division is not dependent on any
single source for a significant portion of its volume of loan originations.
This Division originates, underwrites, closes, and services a broad line of
residential mortgage loan products, including construction-to-permanent
mortgages, both for the Bank's loan portfolio and for resale in the secondary
mortgage market. The division's primary function is to originate fixed and
adjustable rate construction-to-permanent residential real estate mortgage
loans which fit the needs of borrowers for the purchase and construction of
homes. These loans are originated, approved, and serviced from the Mortgage
Banking Division's offices in Bradenton.
The Mortgage Banking Division has expanded significantly during the past
three years by emphasizing the origination of loans for sale in the secondary
market while retaining or packaging for sale the fee generating mortgage
servicing rights associated with such loans. A majority of the mortgage loans
made by the Bank since 1994 have been sold in the secondary market to FNMA and
other institutional investors. The Bank is an approved lender and seller
servicer for FNMA. Consideration may be given to making sales of such loans to
other governmental agencies in the future.
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The construction phase of loans made by the Mortgage Banking Division have
certain risks, including the viability of the contractor, the contractor's
ability to complete the project and changes in interest rates. The goal of the
Mortgage Banking Division is to take a residential mortgage loan from the
construction stage to permanent financing with a fixed interest rate, then to
sell the permanent financing in the secondary market. The sale of the loans in
the secondary market allows the Bank to hedge against the interest rate risks
related to such lending operations. Since the Bank intends to sell these loans
in the secondary market upon conversion to permanent financing, these
construction loans have been included in the classification "loans held for
sale" on the Company's balance sheet.
In addition to the fees collected at closing of a loan, the Bank attempts
to sell the loan for a gain at completion of construction. Such a brokerage
arrangement permits the Bank to accommodate its client's demands while
eliminating the interest rate risk for the fixed 15-to-30 year term of the
loan. By selling the mortgage while retaining the servicing rights, the Bank
will receive servicing fees and ancillary fees associated with the servicing
rights. The Bank has elected to group the servicing rights of a selection of
loans together and sell those rights for a lump sum periodically throughout the
year.
In addition to interest earned on loans and fees generated from mortgage
servicing activities, the Bank receives loan origination fees or "points" for
originating loans. Origination fees are calculated as a percentage of the
principal amount of the mortgage loan and are charged to the borrower for
creation of the loan. Loan origination fees are volatile sources of income,
and are affected by the volume and types of loans and commitments made,
competitive conditions in the mortgage markets, and the demand for and
availability of money.
All Mortgage Banking Division loans of $250,000 to $500,000 must be
approved by the President or Senior Vice President of Lending for the Bank.
Such loans of $500,000 to $1,000,000 must be approved by the Bank's loan
committee, and such loans over $1,000,000 must be approved by the Bank's Board
of Directors. The Bank does not intend to significantly increase the size of
its Mortgage Banking Division operations, but intends to continue to originate
a significant volume of loans for sale in the secondary market.
SUPERVISION AND REGULATION
The banking industry is extensively regulated under both federal and state
law, and is undergoing significant change. These laws and regulations are
intended to protect depositors, not shareholders. The following discussion
summarizes certain aspects of the banking laws and regulations that affect the
Company or the Bank. Proposals to change the laws and regulations governing
the banking industry are frequently raised in Congress, in state legislatures,
and before the various banking agencies. The likelihood and timing of any
changes, and the impact that such changes might have on the Company, are
impossible to predict with any certainty. A change in the applicable laws or
regulations, or a change in the way such laws or regulations are interpreted by
regulatory agencies or the courts, may have a material impact on the business
or prospects of the Company and the Bank.
To the extent that the following information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions.
Bank Holding Company Regulation
General. As a bank holding company registered under the BHCA, the Company
is subject to the regulation and supervision of, and inspection by, the FRB.
The Company is required to file with the FRB annual reports and other
information regarding its business operations and those of its subsidiaries.
Under the BHCA, the Company's activities and those of its subsidiaries are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries or engaging in any other activity
which the FRB determines to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In this regard, the BHCA
prohibits a bank holding company, with certain limited exceptions, from (i)
acquiring or retaining direct or indirect ownership or control of more than 5%
of the outstanding voting stock of any company which is not a bank or bank
holding company, or (ii) engaging
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directly or indirectly in activities other than those of banking, managing or
controlling banks, or performing services for its subsidiaries; unless such
nonbanking business is determined by the FRB to be so closely related to
banking or managing or controlling banks as to be properly incident thereto.
In making such determinations, the FRB is required to weigh the expected
benefit to the public, such as greater convenience, increased competition or
gains in efficiency, against the possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. Generally, bank holding companies,
such as the Company, are required to obtain prior approval of the FRB to engage
in any new activity not previously approved by the FRB.
The recent enactment of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 ("EGRPRA") streamlines the nonbanking activities
application process for well capitalized and well managed bank holding
companies. Under EGRPRA, qualified bank holding companies may commence a
regulatory approved nonbanking activity without prior notice to the FRB;
written notice is merely required within ten business days after commencing the
activity. Also under EGRPRA, the prior notice period is reduced to twelve
business days in the event of any nonbanking acquisition or share purchase,
assuming the size of the acquisition does not exceed 10% of risk-weighted
assets of the acquiring bank holding company and the consideration does not
exceed 15% in Tier I capital. This prior notice requirement also applies to
commencing a nonbanking activity de novo which has been previously approved by
order of the FRB, but not yet implemented by regulations.
The BHCA also requires, among other things, the prior approval of the FRB
in any case where a bank holding company proposes to (i) acquire all or
substantially all of the assets of any bank, (ii) acquire direct or indirect
ownership or control of more than 5% of the outstanding voting stock of any
bank (unless it owns a majority of such bank's voting shares) or (iii) merge or
consolidate with any other bank holding company. The FRB will not approve any
acquisition, merger, or consolidation that would result in a monopoly, or which
would be in the furtherance of any attempt to monopolize the business of
banking in any part of the United States, or which would have a substantially
anti- competitive effect, unless the anti-competitive impact of the proposed
transaction are clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial factors when reviewing
acquisitions or mergers. As described in greater detail below, pursuant to the
Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994 (the
"Interstate Banking and Branching Act") passed by Congress in 1994, a bank
holding company is permitted to acquire banks in states other than its home
state. See "Item 1. Business - Supervision and Regulation-Bank Holding Company
Regulation--Interstate Banking" below for additional information.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the
depository institution becomes in danger of default or in default. For
example, under the Federal Deposit Insurance Company Improvement Act of 1991
("FDICIA"), to avoid receivership of an insured depository institution
subsidiary, a bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become
"undercapitalized" with the terms of any capital restoration plan filed by such
subsidiary with its appropriate federal banking agency up to the lesser of (i)
an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized or (ii) the amount that is necessary (or
would have been necessary) to bring the institution into compliance with all
applicable capital standards as of the time the institution fails to comply
with such capital restoration plan. See "Item 1. Business - Supervision and
Regulation - - Capital Adequacy Guidelines."
Under a policy of the FRB with respect to bank holding company operations,
a bank holding company is required to serve as a source of financial strength
to its subsidiary depository institutions and to commit all available resources
to support such institutions in circumstances where it might not do so absent
such policy. Although this "source of strength" policy has been challenged in
litigation, the FRB continues to take the position that it has authority to
enforce it. The FRB under the BHCA also has cease and desist authority
pursuant to which it may require a bank holding company to terminate any
activity or to relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the FRB's determination that such
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activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act ("FDI Act") require insured depository institutions which are
under common control to reimburse the FDIC for any loss suffered by the Bank
Insurance Fund ("BIF") of the FDIC as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. Accordingly, the cross-guarantee provisions enable the FDIC to access
a bank holding company's healthy BIF members. The FDIC may decline to enforce
the cross-guarantee provisions if it determines that a waiver is in the best
interest of the BIF. The FDIC's claims are superior to claims of stockholders
of the insured depository institution or its holding company but are
subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institutions.
The FRB and the FDIC collectively have extensive enforcement authority
over commercial banks. This authority has been enhanced substantially by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
and the FDICIA. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease and desist or removal
orders, to initiate injunctive actions, and, in extreme cases, to terminate
deposit insurance. In general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions or inactions may provide the basis for enforcement action, including
misleading or untimely reports filed with the federal banking agencies. FIRREA
significantly increased the amount of and the grounds for civil money penalties
and generally requires public disclosure of final enforcement actions.
Community Reinvestment Act. Bank holding companies and their subsidiary
banks are subject to the provisions of the Community Reinvestment Act of 1977
("CRA") and the regulations promulgated thereunder by the appropriate bank
regulatory agency. Under the terms of the CRA, a national bank has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does no establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OCC, in connection with its examination of a national
bank, to assess the association's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications by such association. The CRA also requires all institutions to
make public disclosure of their CRA ratings. Further, such assessment also is
required of any national bank that, among other things, has applied to merge or
consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution, or to open or relocate a branch
office. In the case of a bank holding company applying for approval to acquire
a bank or a bank holding company, the FRB will assess the record of each
subsidiary bank of the applicant bank holding company in considering the
application.
Pursuant to current CRA regulations, an institution's CRA rating is based
on its actual performance in meeting community needs. In particular, the
rating system focuses on three tests: (i) a lending test, which evaluate the
institution's record of making loans in its service areas; (ii) an investment
test, which evaluates the institution's record of investing in community
development projects, affordable housing, and programs benefitting low or
moderate income individuals and business; and (iii) a service test, which
evaluates the institution's delivery of services through its branches, ATMs,
and other offices. The current CRA regulations also clarify how an
institution's CRA performance will be considered in the application process.
Interstate Banking. Prior to the Interstate Banking and Branching Act,
the BHCA prohibited the FRB from approving a bank holding company's application
to acquire a bank or a bank holding company located outside the state in which
the operations of its banking subsidiaries are principally conducted, unless
such acquisition is specifically authorized by statute of the state in which
the bank or bank holding company to be acquired is located. The Interstate
Banking and Branching Act significantly altered interstate banking rules.
Under the Interstate Banking and Branching Act, regardless of any previously
applicable state law, bank
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holding companies which meet specified capital and management adequacy
standards are eligible to acquire banks in states other than their home states,
but will need to retain a separate bank charter in each state where
subsidiaries conduct banking business. Various restrictions on interstate
acquisitions will continue to apply, including: (1) federal and state antitrust
laws, as currently in effect; (2) prohibitions on a single holding company
system accounting for more than 10% of all deposits nationwide or, subject to
various opt-in and opt-out provisions for various states on a nondiscriminatory
basis, accounting for more than 30% or more of deposits in any state; (3)
state-imposed prohibitions on acquiring banks within up to five years after
they commence operations; and (4) compliance by the acquirer with the CRA and
fair lending laws.
Furthermore, beginning June 1, 1997, the Interstate Banking and Branching
Act also authorizes adequately capitalized and managed banks to cross state
lines to merge with other banks, thereby creating interstate branches, subject
to individual state's adoption of various nondiscriminatory opt-in and opt-out
provisions. Under such legislation, each state has the opportunity to "opt-in"
at an earlier time thereby allowing interstate banking in that state prior to
1997, or to "opt-out". Furthermore a state may opt-in with respect to de novo
branching thereby permitting a bank to open new branches in a state in which
the bank does not already have a branch. Without de novo branching, an
out-of-state bank can enter the state only by acquiring an existing bank.
Antitrust and anti- concentration restrictions will apply as described above.
It will not be necessary to keep multiple state charters in effect or to have a
holding company system. Generally, all banks that are parties to a proposed
post-1997 merger must satisfy applicable CRA, management quality, and capital
adequacy standards.
Florida Interstate Banking Laws. In this context, the Florida legislature
enacted legislation in 1996, the Florida Interstate Banking Act ("FIBA"), which
specifically authorizes out-of-state bank holding companies located in any
state or the District of Columbia that meet certain prescribed criteria to
acquire Florida bank holding companies or banks which have been in existence
and continuously operated as a bank for more than three years, subject to the
prior approval of the Florida Department of Banking and Finance. To the extent
pre-empted by federal law, prior Department approval is not required when such
Florida bank or all bank subsidiaries of such Florida bank holding company are
national banks. Entry into the State of Florida by interstate branching or by
means other than such an acquisition is expressly prohibited by the FIBA.
Furthermore, except for initial entry into the State of Florida by an
out-of-state bank or bank holding company, no acquisition of a Florida bank or
Florida bank holding company is permitted if the resulting bank holding company
and its affiliates would control 30% or more of total deposits in the state.
In addition, the Florida legislature also enacted the Florida Interstate
Branching Act ("Florida Branching Act") which permits interstate branching in
Florida by a merger transaction and grants Florida state-chartered banks the
same interstate branching opportunities as will be afforded to national banks
under the newly enacted federal law.
An out-of-state bank that does not operate a branch in the State of
Florida is prohibited from establishing a de novo branch in Florida.
Accordingly an out-of-state bank or bank holding company can only enter Florida
by acquiring an existing Florida bank which has been operating continuously for
at least three years. The same deposit concentration limits referred to above
apply. Any out-of-state bank or bank holding company that has acquired a
Florida bank under either the FIBA or the Florida Branching Act, may establish
additional branches in Florida to the same extent as any Florida bank may do
so.
Proposals to change the laws and regulations governing the banking
industry are frequently introduced in Congress, in state legislatures, and
before the various bank regulatory agencies. The likelihood and timing of any
such changes and the potential impact of such changes on the Company or the
Bank cannot be determined at this time.
Bank Regulation
General. The Bank is a Florida state-chartered bank and, as such, is
subject to the primary supervision, examination, and regulation by the Florida
Department of Banking and Finance (the "Department") and the FDIC. It is not a
member of the Federal Reserve System.
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As a state-chartered commercial bank, the Bank is subject to the
applicable provisions of Florida law and the regulations adopted by the
Department. The Bank must file various reports with, and is subject to
periodic examinations by the Department. Florida law and the Department
regulate (in conjunction with applicable federal laws and regulations), among
other things, the Bank's capital, permissible activities, reserves,
investments, lending authority, branching, the issuance of securities, payment
of dividends, transactions with affiliated parties, and borrowing.
The FDIC insures the deposits of the Bank to the current maximum allowed
by law. Applicable statutes and regulations administered by the FDIC also
relate to required reserves against deposits, investments, loans, mergers and
consolidations, issuance of securities, payment of dividends, establishment of
branches, and other aspects of the Bank's operations. Various consumer laws
and regulations also affect the operations of the Bank, including state usury
laws, laws relating to fiduciaries, consumer credit and equal credit, and fair
credit reporting.
Transactions with Affiliates. There are various legal restrictions on the
event to which the Company and any future nonbank subsidiaries can borrow or
otherwise obtain credit from the Bank. There also are legal restrictions on
the Bank's purchase of or investments in the securities of and purchases of
assets from the Company and any of its future nonbank subsidiaries, a bank's
loans or extensions of credit to third parties collateralized by the securities
or obligations of the Company and any of its future nonbank subsidiaries, the
issuance of guaranties, acceptances and letters of credit on behalf of the
Company and any of its future nonbank subsidiaries, or with respect to which
the Company and nonbank subsidiaries, act as agent, participate or have a
financial interest. Subject to certain limited exception, the Bank may not
extend credit to the Company or to any other affiliate in an amount which
exceeds 10% of the Bank's capital stock and surplus and may not extend credit
in the aggregate to such affiliates in an amount which exceeds 20% of its
capital stock and surplus. Further, there are legal requirement as to the
type, amount and quality of collateral which must secure such extensions of
credit transactions between the Bank and the Company or such affiliates, and
such transactions must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the Bank
as those prevailing at the time for comparable transactions with non-affiliated
companies. These regulations and restrictions may limit the Company's ability
to obtain funds from the Bank for its cash needs, including funds for
acquisitions, and the payment of dividends, interest and operating expenses.
Further, the Bank and the Company are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale
of property, or furnishing of services. For example, the Bank may not
generally require a customer to obtain other services from the Bank or the
Company, and may not require the customer to promise not to obtain other
services from a competitor, as a condition to an extension of credit.
The Bank also is subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors, principal
shareholders or any related interest of such persons. Extensions of credit (i)
must be made on substantially the same terms, including interest rates and
collateral as, and following credit underwriting procedures that are not less
stringent than those prevailing at the time for comparable transactions with
persons not covered above and who are not employees and (ii) must not involve
more than the normal risk of repayment or present other unfavorable features.
The Bank also is subject to certain lending limits and restrictions on
overdrafts to such persons. A violation of these restrictions may result in
the assessment of substantial civil monetary penalties on the Bank or any
officer, director, employee, agent or other person participating in the conduct
of the affairs of the Bank or the imposition of a cease and desist order.
Dividends. Under various banking laws, the declaration and payment of
dividends by a national banking institution is subject to certain restrictions,
including those relating to the amount and frequency of such dividends. Under
the FDICIA, an insured depository institution is prohibited from making any
capital distribution to its owner, including any dividend, if, after making
such distribution, the depository institution fails to meet the required
minimum level for any relevant capital measure, including the risk-based
capital adequacy and leverage standards described below.
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If, in the opinion of the applicable federal bank regulatory authority, a
depository institution or holding company is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition
of the depository institution or holding company, could include the payment of
dividends), such authority may require, after notice and hearing (except in the
case of an emergency proceeding where there is no notice or hearing), that such
institution or holding company cease and desist from such practice. The
federal banking agencies have indicated that paying dividends that deplete a
depository institution's or holding company's capital base to an inadequate
level would be such an unsafe and unsound banking practice. Moreover, the FRB
and the FDIC have issued policy statements which provide that bank holding
companies and insured depository institutions generally should only pay
dividends out of current operating earnings.
In addition, Florida law places certain restrictions on the declaration of
dividends form state chartered banks to their holding companies. Pursuant to
the Florida Banking Code, the Board of Directors of state-chartered banks,
after charging off bad debts, depreciation, and other worthless assets, if any,
and making provisions for reasonably anticipated future losses on loans and
other assets, may quarterly, semiannually or annually declare a dividend of up
to the aggregate net profits of that period combined with bank's retained net
profits for the preceding two years and, with the approval of the Department,
declare a dividend from retained net profits which accrued prior to the
preceding two years. Before declaring such dividends, 20% of the net profits
for the preceding period as is covered by the dividend must be transferred to
the surplus fund of the bank until the fund becomes equal to the amount of the
bank's common stock then issued and outstanding. A state-chartered bank may
not declare any dividend if (i) its net income from the current year combined
with the retained net income from the preceding two years is a loss, or (ii)
the payment of such dividend would cause the capital account of the bank to
fall below the minimum amount required by law, regulation, order, or any
written agreement with the Department or a federal regulatory agency.
Capital Adequacy Guidelines
Minimum Capital Requirements. The federal banking agencies, including the
FDIC, have adopted substantially similar risk-based capital guidelines for bank
holding companies and banks under their supervision. The risk-based capital
guidelines 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. Under these guidelines, 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. In addition, these
regulatory agencies may from time to time require that a banking organization
maintain capital above the minimum limits, whether because of its financial
condition or actual or anticipated growth.
The FRB risk-based capital guidelines define a two-tier capital framework.
Under these regulations, the minimum ratio of total capital to risk-weighted
assets (including certain off-balance sheet activities, such as stand-by
letters of credit) is 8%. At least half of the total capital must be "Tier I
Capital," consisting of common shareholders' equity, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less certain goodwill items and other intangible assets (i.e., at least 4% of
the risk weighted assets). The remainder ("Tier II Capital") may consist of
(a) the allowance for loan losses of up to 1.25% of risk-weighted risk assets,
(b) excess of qualifying perpetual preferred stock, (c) hybrid capital
instruments, (d) perpetual debt, (e) mandatory convertible securities, and (f)
subordinated debt and intermediate term-preferred stock up to 50% of Tier I
capital. Total capital is the sum of Tier I and Tier II capital less
reciprocal holdings of other banking organizations' capital instruments and
investments in unconsolidated subsidiaries and any other deductions as
determined by the FDIC (determined on a case by case basis or as a matter of
policy after formal rule making).
In computing total risk-weighted assets, bank holding company assets are
given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance
sheet items are given similar credit conversion factors to convert them to
asset equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans will be
assigned to the 100% risk category, except for first mortgage loans fully
collateralized by residential property which carry a 50% risk rating. Most
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investment securities (including, primarily, general obligation claims on
states or other political subdivisions of the United States) will be assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% risk- weight, and direct obligations of the U.S. treasury or obligations
backed by the full faith and credit of the U.S. Government, which have a 0%
risk-weight. In converting off-balance sheet items, direct credit substitutes
including general guarantees and standby letters of credit backing financial
obligations, are given a 100% conversion factor. Transaction related
contingencies such as bid bonds, standby letters of credit backing
non-financial obligations, and undrawn commitments (including commercial credit
lines with an initial maturity or more than one year) have a 50% conversion
factor. Short term or trade letters of credit are converted at 20% and certain
short-term unconditionally cancelable commitments have a 0% factor.
As of December 31, 1996, the total risk-based capital ratio of the Company
and the Bank were 10.60% and 10.65%, respectively. In addition to the
risk-based capital guidelines, the FDIC also has adopted a leverage standard to
supplement the risk-based ratios. This leverage standard focuses on the
banking institution's ratio of Tier I capital to average total assets, adjusted
for goodwill and certain other items. Under these guidelines, banking
institutions which have received the highest regulatory rating and exhibit
certain other high standards, must maintain a minimum level of Tier I capital
to average consolidated assets of at least 3%. All other banking institutions
are expected to maintain a ratio of at least 1% or 2% above the stated minimum.
As of December 31, 1996, the leverage capital ratio of the Company and the Bank
were 9.93% and 9.97%, respectively.
Federal banking agencies also have adopted regulations which require
regulators to take into consideration concentrations of audit risk and risks
from non-traditional activities, as well as an institution's ability to manage
those risks. This evaluation will be made as part of the institution's regular
safety and soundness examination. In addition, pursuant to the requirements of
the FDICIA, federal banking agencies all have adopted regulations requiring
regulators to consider interest rate risk (when interest rate sensitivity of an
institution's assets does not match its liabilities or its off-balance sheet
position) in the evaluation of a bank's capital adequacy. Concurrently, the
federal banking agencies have prepared a new methodology for evaluating
interest rate risk.
Classification of Banking Institutions. FDICIA substantially revised the
bank regulatory and funding provisions of the FDI Act and made revisions to
several other federal banking statutes. Among other things, the FDICIA
provided federal banking agencies broad powers to take "prompt corrective
action" in respect of depository institutions that do not meet minimum capital
requirements. The extent of those powers depend upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." A depository institution's capital tier will depend upon
where its capital levels are in relation to various relevant capital measures,
which include a risk-based capital measure and a leverage ratio capital
measure, and certain other factors.
Under implementing regulations adopted by the federal banking agencies, a
bank would be considered "well capitalized" if it has (i) a total risk-based
capital ratio of 10% or greater, (ii) a Tier I risk-based capital ratio of 6%
or greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to
any order or written directive to meet and maintain a specific capital level
for any capital measure. An "adequately capitalized" bank would be defined as
one that has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier
I risk-based capital ratio of 4% of greater, and (iii) a leverage ratio of 4%
or greater (or 3% or greater in the case of a bank with a composite CAMEL
rating of 1). A bank would be considered (A) "undercapitalized" if it has (i)
a total risk-based capital ratio of less than 8%, (ii) a Tier I risk-based
capital ratio of less than 4%, or (iii) a leverage ratio of less than 4% (or 3%
in the case of a bank with a composite CAMEL rating of 1); (B) "significantly
undercapitalized" if the bank has (i) a total risk-based capital ratio of less
than 6%, or (ii) a Tier I risk-based capital ratio of less than 3%, or (iii) a
leverage ratio of less than 3%; and (C) "critically undercapitalized" if the
bank has a ratio of tangible equity to total assets equal to or less than 2%.
The FRB may reclassify a "well classified" bank as "adequately capitalized" or
subject an "adequately capitalized" or "undercapitalized" institution to
supervisory actions applicable to the next lower capital category if it
determines that the bank is in an unsafe or unsound condition or deems the bank
to be engaged in an unsafe or unsound practice and not have corrected the
deficiency. The Bank currently meets the definition of a "well capitalized"
institution.
-14-
<PAGE> 17
FDICIA
FDICIA was enacted on December 19, 1991. Some of the more significant
provisions of FDICIA are outlined below:
Real Estate Lending Policies. Pursuant to FDICIA, the FDIC and the other
federal banking agencies adopted real estate lending guidelines pursuant to
which each insured depository institution is required to adopt and maintain
written real estate lending policies in conformity with the prescribed
guidelines. Under these guidelines, each institution is expected to set loan
to value ratios not exceeding the supervisory limits set forth in the
guidelines. A loan to value ratio is generally defined as the total loan
amount divided by the appraised value of the property at the time the loan is
originated. The guidelines also require that the institution's real estate
policy require proper loan documentation and that it establishes prudent
under-writing standards. These guidelines became effective on March 19, 1993.
Brokered Deposits. The FDICIA also amended the prior law with respect to
the acceptance of brokered deposits by insured depository institutions to
permit only a "well capitalized" depository institution to accept brokered
deposits without prior regulatory approval. Under implementing regulations,
"well capitalized" banks may accept brokered deposits without restriction,
"adequately capitalized" banks may accept brokered deposits with a waiver from
the FDIC (subject to certain restrictions on payments of rates), while
"undercapitalized" banks may not accept brokered deposits. The regulations
contemplate that the definitions of "well capitalized," "adequately
capitalized" and "undercapitalized" will be the same as the definitions adopted
by the agencies to implement the prompt corrective action provisions of the
FDICIA (as described above).
Other FDICIA Provisions. FDICIA contains numerous other provisions,
including new accounting, audit, and reporting requirements, termination of the
"too big to fail" doctrine except in special cases, limitations on the FDIC's
payment of deposits at foreign branches, new regulatory standards in such areas
as asset quality, earnings and compensation and revised regulatory standards
for, among other things, powers of state banks, real estate lending and capital
adequacy. FDICIA also requires that a depository institution provide 90 days
prior notice of the closing of any branches. Complete regulations have yet
been issued under FDICIA.
FDIC Insurance Premiums
The Bank is required to pay semiannual FDIC deposit insurance assessments.
However, the FDIC has recently lowered assessment rates in recognition of the
fact that the Bank Insurance Fund ("BIF") has achieved its legally mandated
reserve ratio. Under the FDIC's risk-based insurance system, BIF-insured
institutions are currently assessed premiums of between zero and $0.27 per $100
of insured deposits, depending on the institution's capital position and other
supervisory factors. Each financial institution is assigned to one of three
capital groups - well capitalized, adequately capitalized or undercapitalized -
and further assigned to one of three subgroups - with a capital group, on the
basis of supervisory evaluations by the institution's primary federal and, if
applicable, state supervisors and other information relevant to the
institution's financial condition and the risk posed to the applicable FDIC
deposit insurance fund. The actual assessment rate applicable to a particular
institution (and any applicable refund) will, therefore, depend in part upon
the risk assessment classification so assigned to the institution by the FDIC.
Under the recently enacted EGRPRA, BIF-insured institutions will be
assessed for certain payments to be used to pay certain Financing Corporation
("FICO") obligations. In addition to any BIF Insurance assessments,
BIF-insured banks are expected to make payments from the FICO obligations equal
to an estimated $0.0129 per $100 of eligible deposits each year during 1997
through 1999, and an estimated $0.024 per $100 of eligible deposits thereafter.
-15-
<PAGE> 18
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, including federal funds and
letters of credit, in the "liquidation or other resolution" of such an
institution by any receiver.
Monetary Policy And Economic Control
The commercial banking business in which the Bank engages is affected not
only by general economic conditions, but also by the monetary policies of the
FRB. Changes in the discount rate on member bank borrowing, availability of
borrowing at the "discount window," open market operations, the imposition of
changes in reserve requirements against members banks' deposits and assets of
foreign branches and the imposition of and changes in reserve requirements
against certain borrowings by banks and their affiliates are some of the
instruments of monetary policy available to the FRB. These monetary policies
are used in varying combinations to influence overall growth and distributions
of bank loans, investments and deposits, and this use may affect interest rates
charged on loans or paid on deposits. The monetary policies of the FRB have
had a significant effect on the operating results of commercial banks and are
expected to do so in the future. The monetary policies of these agencies are
influenced by various factors, including inflation, unemployment, short-term
and long-term changes in the international trade balance and in the fiscal
policies of the United States Government. Future monetary policies and the
effect of such policies on the future business and earnings of the Company
cannot be predicted.
COMPETITION
The Bank encounters strong competition both in making loans and attracting
deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as
the availability of nationwide interstate banking has created a highly
competitive environment for financial services providers in the Bank's primary
service area. In one or more aspects of its business, the Bank competes with
other commercial banks, savings and loan associations, credit unions, finance
companies, mutual funds, insurance companies, brokerage and investment banking
companies, and other financial intermediaries operating in the Bradenton area
and elsewhere. Most of the Bank's primary competitors, some of which are
affiliated with large bank holding companies, have substantially greater
resources and lending limits, and may offer certain services, such as trust
services, that the Bank does not currently provide. In addition, many of the
Company's non-bank competitors are not subject to the same extensive federal
regulations that govern bank holding companies and state chartered and
federally insured banks.
The Bank's primary market area of Manatee County, Florida, is served by
ten commercial banks with 55 offices, two savings and loan associations with
four offices, and seven savings banks with 17 offices, for a total of 76
offices. As of December 1995, the total reported deposits in the Manatee
County area were approximately $2.7 billion. Based on asset size, as of that
date the largest bank in the Bradenton area was Barnett Bank of Manatee County,
N.A., and the Bank was the largest independent bank in Manatee County.
Management believes that the Company and the Bank are well positioned to
compete successfully in its primary service area, although no assurances can be
given. Competition among financial institutions generally is based upon
interest rates offered on deposit accounts, interest rates charged on loans and
other credit and service charges, the quality of the services rendered, the
convenience of banking facilities, and, in the case of loans to commercial
borrowers, relative lending limits. Management believes that the Bank's
commitment to personal service, innovation, and involvement in the community
and its primary service area, as well as its commitment to quality, are factors
that contribute to the Bank's competitiveness.
-16-
<PAGE> 19
EMPLOYEES
At December 31, 1996, the Company and the Bank together employed 118
full-time and 13 part-time employees. None of these employees are covered by a
collective bargaining agreement and the Company believes that its employee
relations are good.
STATISTICAL DISCLOSURES REQUIRED BY INDUSTRY GUIDE 3
The statistical information contained on pages 16 through 25 of the Annual
Report to Shareholders is incorporated herein by reference.
ITEM 2. DESCRIPTION OF PROPERTY
The executive and administrative offices of both the Company and the Bank
are located at 4702 Cortez Road West, Bradenton, Florida 34210 and consist of
approximately 7,700 square feet on two floors, containing a lobby, executive
and customer service offices, teller stations, safe deposit booths and related
non vault area and vault operations. A drive through facility and adequate
paved parking also is on the premises. Both the land and all improvements are
owned by the Bank.
The Bank has seven banking office locations. Five of these offices, the
main office, two full service branches, a drive-thru branch, and a separate
Mortgage Banking Division office are in Bradenton. The remaining offices
include a drive-thru branch in Palmetto and a full service branch in Ellenton.
On March 18, 1996, the Bank opened its full service branch office on Manatee
Avenue West in Bradenton, Florida, and on September 18, 1996, opened another
full service branch at 15th Street East and Whitfield Avenue. The land and
improvements dedicated to the main banking office, the five branch offices and
the Mortgage Banking Division offices are owned in fee simple by the Bank. The
offices housing the accounting and operations departments are on a six month
lease which commenced in October 1995, with one month renewals, at a rate of
$3,200 per month. These leased offices are expected to be a temporary location
until such time as the Company obtains facilities for the administrative
offices of the Company and the Bank. The Company has purchased a site on which
administrative offices are expected to be built and is currently seeking the
necessary licenses and permits to commence the construction of the facilities.
Management believes that each of its banking locations provide sufficient
parking for its customers as well as visibility from highly travelled
thoroughfares.
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are periodically parties to or otherwise involved
in legal proceedings arising in the normal course of business, such as claims
to enforce liens, foreclose on loan defaults, claims involving the making and
servicing of real property loans, and other issues incident to the Bank's
business. Except as described below, Management does not believe that there is
any proceeding threatened or pending against the Company or the Bank which, if
determined adversely, would have a material effect on the business or financial
position of the Company or the Bank.
On January 15, 1997, Theresa Moss, an employee of the Bank, filed a claim
with the Equal Employment Opportunity Commission ("EEOC") alleging that such
employee was demoted by the Bank in retaliation for complaining against a
co-employee for offensive comments which caused a hostile work environment
leading to her resignation from the Bank. It is alleged that this conduct
violated her rights under Title VII of the Civil Rights Act of 1964. The EEOC
claim does not request any specific relief or remedies sought in connection
therewith. The Company believes that the Bank acted appropriately and that
this action is without merit and it intends to defend this action vigorously.
-17-
<PAGE> 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of the Company's securities
holders during the fourth quarter of its fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON SHARES
The Company's Common Shares are quoted by the NASDAQ National Market
("NASDAQ-NMS") under the symbol ABAN. At the close of business on February 28,
1997, there were outstanding 4,070,458 Common Shares which were held by
approximately 1,023 shareholders of record.
The following table sets forth the high and low closing sales prices for
the Common Shares as quoted by NASDAQ-NMS for the periods indicated, and the
cash dividends paid per share by the Company.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1996
First Quarter . . . . . . . . . . . . . . . . . . . . . $ 2.75 $ 6.125
Second Quarter . . . . . . . . . . . . . . . . . . . . . $ 8.375 $ 6.266
Third Quarter . . . . . . . . . . . . . . . . . . . . . $ 8.50 $ 7.625
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . $ 8.50 $ 7.438
1997
First Quarter (through February 28, 1997) . . . . . . . $ 8.625 $ 7.50
</TABLE>
On February 28, 1997, the last reported sale price of the Common Shares as
quoted by NASDAQ-NMS was $8.438 per share.
Since completion of its initial public offering in February 1996, the
Company has sold approximately 163,695 Common Shares pursuant to exercise of
its Series B Warrants which were outstanding prior to the Company's initial
public offering. The exercise prices of the Series B Warrants were $6.00 per
share, generating aggregate proceeds to the Company in the amount of $982,170.
No commissions or fees were paid in connection with the issuance of Common
Shares upon exercise of the Series B Warrants. As of February 28, 1997, no
warrants remain outstanding. In addition, the Company issued 7,119 Common
Shares having a total aggregate fair market value of $55,000, in connection
with its acquisition of DesChamps. The shares were issued pursuant to the
exemption from registration afforded under Sections 3(b) and 4(2) of the
Securities Act of 1933.
Holders of the Company's Common Shares are entitled to receive dividends
when and if declared by its Board of Directors out of funds legally available
therefor. The Company however, has never declared any cash dividends on its
Common Shares and does not anticipate the payment of cash dividends in the
foreseeable future.
The Company is a legal entity separate and distinct from the Bank and its
revenues are derived principally from the Bank. Accordingly, the ability of
the Company to pay cash dividends on its Common Shares in the future generally
will be largely dependent upon the earnings of the Bank and the ability of the
Bank to pay dividends to the Company. The Bank, as a Florida state chartered
bank, is subject to certain legal restrictions on the amount of dividends it is
permitted to pay. The amount of cash dividends that may be paid is based on
the Bank's net profits during the current year combined with the Bank's
retained net
-18-
<PAGE> 21
profits of the proceeding two years, as defined by applicable Florida
Department of Banking regulations. At December 31, 1996, the Bank had
approximately $2,455,000 available for the payment of cash dividends to the
Company as determined by applicable regulations.
The payment of dividends by the Bank is subject to a determination by the
Bank's Board of Directors and will depend upon a number of factors, including
capital requirements, regulatory limitations, the Bank's results of operations
and financial condition, tax considerations, and general economic conditions.
National banking laws regulate and restrict the ability of the Bank to pay
dividends to the Company. The Florida Department of Banking, which regulates
the Bank, not only has established certain financial and capital requirements
that affect the ability of the Bank to pay dividends, but it also has the
general authority to prohibit the Bank from engaging in an unsafe or unsound
practice in conducting its business. Depending upon the financial condition
of the Bank, the payment of cash dividends could be deemed to constitute such
an unsafe or unsound practice. See "Item 1. Business - Supervision and
Regulation -- Bank Regulation."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
"Management's Discussion and Analysis of Financial Condition" on pages 14
through 26 of the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS
The "Consolidated Financial Statements" and the "Report of Independent
Accountants" on pages 27 through 30 and page 44, respectively, of the Annual
Report to Shareholders are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information required by Item 9 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 10. EXECUTIVE COMPENSATION
Information required by Item 10 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
-19-
<PAGE> 22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by Item 11 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 11 of Form 10-KSB is incorporated herein by
reference to the Registrant's definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the Registrant's fiscal
year.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(A) EXHIBITS
2.1 -- Agreement and Plan of Merger between American Bank of Bradenton,
American Bancshares, Inc. and American Successor Bank, dated July
18, 1995, incorporated herein by reference to Exhibit 2 to the
Company's Registration Statement on Form SB-2 (Registration No.
33-99972) previously filed with the Commission.
3.1 -- Articles of Incorporation of the Company, incorporated herein by
reference to Exhibit 3.1 to the Company's Registration Statement
on Form SB-2 (Registration No. 33-99972) previously filed with the
Commission.
3.2 -- By-Laws of the Company, incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on Form SB-2
(Registration No. 33-99972) previously filed with the Commission.
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation, as amended and the By-Laws of the Company defining
the rights of holders of the Company's Common Shares.
10.1 -- Employment Agreement, dated December 1, 1995, by and between the
Bank and Gerald L. Anthony, incorporated herein by reference to
Exhibit 10.1 to the Company's Registration Statement on Form SB-2
(Registration No. 33-99972) previously filed with the Commission.
10.2 -- Employment Agreement, dated June 30, 1996, by and between the Bank
and Philip W. Coon, incorporated by reference to Exhibit 10.2 to
the Company's Registration Statement on Form SB-2 (Registration
No. 33-99972) previously filed with the Commission.
10.4 -- Employment Agreement, dated June 30, 1996, by and between the Bank
and David R. Mady, incorporated by reference to Exhibit 10.3 to
the Company's Registration Statement on Form SB-2 (Registration
No. 33-99972) previously filed with the Commission.
10.5 -- Employment Agreement, dated January 1, 1996, by and between the
Bank and John S. Nash, incorporated by reference to Exhibit 10.5
to the Company's Registration Statement on Form SB-2 (Registration
No. 33-99972) previously filed with the Commission.
10.6 -- Employment Agreement, dated January 1, 1996, by and between the
Bank and Michael Lewis, incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on Form SB-2 (Registration
No. 33-99972) previously filed with the Commission.
</TABLE>
-20-
<PAGE> 23
<TABLE>
<S> <C>
10.7 -- Data Processing Agreement, dated April 1, 1995, by and between the
Bank and M & I Data Services, Inc.
10.8 -- Mortgage Loan Subservice Agreement between Dovenmuehle Mortgage,
Inc. and American Bank of Bradenton, dated May 17, 1994,
incorporated herein by reference to Exhibit 10.8 to the Company's
Registration Statement on Form SB-2 (Registration No. 33.99972)
previously filed with the Commission.
*10.9 -- American Bancshares, Inc. and American Bank of Bradenton Incentive
Stock Option Plan of 1996, date May 28, 1996, and Form of
Incentive Stock Option Agreement.
*13.1 -- Annual Report to Shareholders for the year ended December 31, 1996
("Annual Report") filed herewith. Such Annual Report, except for
those portions thereof that are expressly incorporated by
reference herein, is furnished for the information of the
Securities and Exchange Commission only and is not deemed to be
"filed" as part of this Annual Report on Form 10-KSB.
21.1 -- Subsidiaries of the Company, incorporated herein by reference to
Exhibit 21 to the Company's Form 10-KSB for the fiscal year ended
December 31, 1995 previously filed with the Commission.
*27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
-------------------------
* Exhibit filed herewith.
(B) REPORTS ON FORM 8-K
None.
-21-
<PAGE> 24
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN BANCSHARES, INC.
Date: March 18, 1997 By: /s/ Gerald L. Anthony
------------------------------------
Gerald L. Anthony
President and Chief Executive
Officer
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J. Gary Russ Chairman of the Board March 18, 1997
- -------------------------------------
J. Gary Russ
/s/ Gerald L. Anthony President, Chief Executive Officer and March 18, 1997
- -------------------------------------
Gerald L. Anthony Director (Principal Executive Officer)
/s/ Samuel S. Aidlin Director March 18, 1997
- -------------------------------------
Samuel S. Aidlin
/s/ Ronald L. Larson Director March 18, 1997
- -------------------------------------
Ronald L. Larson
/s/ Timothy I. Miller Director March 18, 1997
- -------------------------------------
Timothy I. Miller
/s/ Dan E. Moulter Director March 18, 1997
- -------------------------------------
Dan E. Moulter
/s/ Kirk D. Moudy Director March 18, 1997
- -------------------------------------
Kirk D. Moudy
/s/ Lindell Orr Director March 18, 1997
- -------------------------------------
Lindell Orr
/s/ Lynn B. Powell, III Director March 18, 1997
- -------------------------------------
Lynn B. Powell, III
/s/ Walter L. Presha Director March 18, 1997
- -------------------------------------
Walter L. Presha
/s/ R. Jay Taylor Director March 18, 1997
- -------------------------------------
R. Jay Taylor
</TABLE>
<PAGE> 25
<TABLE>
<S> <C> <C>
/s/ Edward D. Wyke Director March 18, 1997
- -------------------------------------
Edward D. Wyke
/s/ Brian M. Watterson Chief Financial Officer March 18, 1997
- -------------------------------------
Brian M. Watterson (Principal Financial Officer)
</TABLE>
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Pages
- ------- ----------------------- --------------
<S> <C> <C> <C>
2.1 -- Agreement and Plan of Merger between American Bank of
Bradenton, American Bancshares, Inc. and American
Successor Bank, dated July 18, 1995, incorporated herein
by reference to Exhibit 2 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-99972)
previously filed with the Commission.
3.1 -- Articles of Incorporation of the Company, incorporated
herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form SB-2 (Registration No.
33-99972) previously filed with the Commission.
3.2 -- By-Laws of the Company, incorporated herein by reference
to Exhibit 3.2 to the Company's Registration Statement on
Form SB-2 (Registration No. 33-99972) previously filed
with the Commission.
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation, as amended and the By-Laws of the Company
defining the rights of holders of the Company's Common
Shares.
10.1 -- Employment Agreement, dated December 1, 1995, by and
between the Bank and Gerald L. Anthony, incorporated
herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form SB-2 (Registration No.
33-99972) previously filed with the Commission.
10.2 -- Employment Agreement, dated June 30, 1996, by and between
the Bank and Philip W. Coon, incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on
Form SB-2 (Registration No. 33- 99972) previously filed
with the Commission.
10.4 -- Employment Agreement, dated June 30, 1996, by and between
the Bank and David R. Mady, incorporated by reference to
Exhibit 10.3 to the Company's Registration Statement on
Form SB-2 (Registration No. 33- 99972) previously filed
with the Commission.
10.5 -- Employment Agreement, dated January 1, 1996, by and
between the Bank and John S. Nash, incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form SB-2 (Registration No. 33- 99972)
previously filed with the Commission.
10.6 -- Employment Agreement, dated January 1, 1996, by and
between the Bank and Michael Lewis, incorporated by
reference to Exhibit 10.6 to the Company's Registration
Statement on Form SB-2 (Registration No. 33- 99972)
previously filed with the Commission.
10.7 -- Data Processing Agreement, dated April 1, 1995, by and
between the Bank and M & I Data Services, Inc.
10.8 -- Mortgage Loan Subservice Agreement between Dovenmuehle
Mortgage, Inc. and American Bank of Bradenton, dated May
17, 1994, incorporated herein by reference to Exhibit 10.8
to the Company's Registration Statement on Form SB-2
(Registration No. 33.99972) previously filed with the
Commission.
*10.9 -- American Bancshares, Inc. and American Bank of Bradenton
Incentive Stock Option Plan of 1996, date May 28, 1996,
and Form of Incentive Stock Option Agreement.
</TABLE>
<PAGE> 27
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Pages
- ------- ----------------------- --------------
<S> <C> <C> <C>
*13.1 -- Annual Report to Shareholders for the year ended December
31, 1996 ("Annual Report") filed herewith. Such Annual
Report, except for those portions thereof that are
expressly incorporated by reference herein, is furnished
for the information of the Securities and Exchange
Commission only and is not deemed to be "filed" as part of
this Annual Report on Form 10-KSB.
21.1 -- Subsidiaries of the Company, incorporated herein by
reference to Exhibit 21 to the Company's Form 10-KSB for
the fiscal year ended December 31, 1995 previously filed
with the Commission.
*27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- -------------------------------
* an Exhibit filed herewith
<PAGE> 1
EXHIBIT 10.9
AMERICAN BANCSHARES, INC. AND AMERICAN BANK OF BRADENTON
INCENTIVE STOCK OPTION PLAN OF 1996
1. Purpose of Plan
The purpose of this Stock Option Plan ("Plan") is to aid American
Bancshares, Inc. (the "Corporation") and American Bank of Bradenton (the
"Bank") in securing and retaining top management key employees of outstanding
ability by making it possible to offer them an increased incentive, in the form
of a proprietary interest in the Corporation, to join or continue in the
service of the Corporation and/or the Bank and to increase their efforts for
its welfare and success.
2. Definitions
As used in this Plan, the following words shall have the following
meanings:
(a) "Board" shall mean the Board of Directors of the
Corporation;
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended;
(c) "Common Shares" shall mean the $1.175 par value common
shares of American Bancshares, Inc.;
(d) "Bank" shall mean American Bank of Bradenton, a Florida
banking corporation, which is a wholly-owned subsidiary of American Bancshares,
Inc.;
(e) "Corporation" shall mean American Bancshares, Inc., a
Florida corporation with its principal office located in Bradenton, Florida;
(f) "Disability" shall mean the Participant's inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months;
(g) "Incentive Stock Option" shall have the meaning of a
stock option to purchase Common Shares, which is intended to qualify as an
incentive stock option defined in Code Section 422;
(h) "Key Employee" shall have the meaning of any person in
the regular full-time common law employment of the Corporation or any
Subsidiary, as an executive or non-executive officer thereof, who in the
opinion of the Board, is or is expected to be primarily responsible for the
management, growth or protection of some part or all of the business of the
Corporation;
<PAGE> 2
(i) "Option" shall mean an Incentive Stock Option;
(j) "Parent" shall have the meaning of the any corporation
in an unbroken chain of corporations if each of the corporations own stock
possessing fifty (50%) percent or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain;
(k) "Participant" shall have the meaning of a person to
whom an Option is granted that has not expired and ceased to be exercisable
under the Plan; and
(l) "Subsidiary" shall have the meaning of any corporation
other than the Corporation in an unbroken chain of corporations beginning with
the Corporation of each of the corporations other than the last corporation in
the unbroken chain owns fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
3. Administration of Plan
The Plan shall be administered by the Board. In the event that a
director of the Board is eligible to be selected for the grant of an Option
during such membership as a director, such director shall recuse himself and
not participate in the discussion or vote on the award of the Option to him.
The Board shall have the power and authority to administer, construe, and
interpret the Plan, to make rules for carrying it out and to make changes in
such rules.
4. Granting of Options and $100,000 Limitation
The Board may from time to time grant Options under the Plan to such
Key Employees and subject to the limitations of paragraph (a) of Section 7, for
such number of shares as the board may determine after receiving
recommendations from the compensation committee or the executive officers of
the Corporation and/or Bank that employs the Participant. Subject to the
provisions of the Plan, the Board may impose such terms and conditions as it
deems advisable on the grant of an Option. Any of the foregoing to the
contrary notwithstanding, the following limitations shall apply to the grant of
any Incentive Stock Option:
(a) The aggregate fair market value, determined at the time
the Incentive Stock Option is granted, of the stock received from the exercise
of options granted hereunder by a Participant for the first time during any
calendar year shall not exceed $100,000.
(b) Any Option granted to a Participant, who immediately
before such grant owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock either of the Corporation
or any Subsidiary shall not be an Incentive Stock Option, unless (i) at the
time such Option is granted the Option price per share is not less than one
hundred ten percent (110%) of the optioned stock's then fair market value; and
(ii) the Option shall not be exercisable after the expiration of five (5) years
from the date of the grant of the Option.
-2-
<PAGE> 3
5. Terms of Options
The terms of each Option granted under the Plan shall be as determined
from time to time by the Board and shall be set forth in an Incentive Stock
Option Agreement in a form attached hereto as Exhibit "A" and approved by the
Board; provided, however, the terms of such agreement shall not exceed the
following limitations:
(a) Subject to paragraph (b) of Section 4 with regard to
ten percent (10%) owners, the Option price per share shall not be less than one
hundred percent (100%) of the fair market value of the optioned stock at the
time the Option is granted.
(b) Subject to paragraph (e) of this Section, the Option
shall be exercisable in whole or in part from time to time during the period
beginning to date of grant of the Option, and ending no later than the
expiration of ten (10) years from the date of grant of the Option, unless an
earlier expiration date shall be stated in the Option or the Option shall cease
to be exercisable pursuant to paragraph (d) of this Section 5.
(c) Payment in full of the Option price for shares
purchased pursuant to an Option shall be made upon exercise of the Option (in
whole or in part) and shall be made in cash.
(d) If a Participant's employment with the Corporation or
the Bank terminates, the following rules shall apply:
(i) If a Participant's employment with the
Corporation or the Bank terminates other than by reason of the Participant's
death, disability or retirement after reaching age 65, the Participant's Option
shall thereupon expire and cease to be exercisable upon the expiration of the
earlier of ten (10) years from the date of grant of the Option, or three (3)
months from the date of such termination.
(ii) If the Participant's employment with the
Corporation or the Bank terminates by reason of his death, the Participant's
Option shall terminate and cease to be exercisable upon the expiration of the
earlier of ten (10) years from the date of grant of the Option, or one (1) year
from the date of death. Such Option may be exercised by the duly appointed
personal representative of the deceased Participant's estate.
(iii) If a Participant's employment with the
Corporation or the Bank terminates by reason of Disability, the Participant's
Option shall terminate and cease to be exercisable upon the expiration of the
earlier of ten (10) years from the date of grant of the Option, or one (1) year
from the date of such termination in the case of Disability.
(iv) If a Participant's employment with the
Corporation or the Bank terminates by reason of retirement after reaching age
65 (other than for Disability), the Participant's Option shall expire and
cease to be exercisable upon the expiration of the earlier of ten (10) years
from the date of grant of the Option, or three (3) months from the date of such
termination.
-3-
<PAGE> 4
(v) Notwithstanding anything contained herein to
the contrary, if a Participant's employment with the Corporation or the Bank is
terminated for cause (fraud, embezzlement, failure to perform job
responsibilities, etc.) as determined by the Board, in the Board's sole
discretion, or if a Participant competes with the Corporation or the Bank, any
Option granted to that Participant shall be immediately revoked and terminated
and the Participant shall have no further rights under this Plan. For purposes
of this Plan, competition with the Corporation or the Bank shall include
director or indirect ownership of or employment with a financial services
business within a 100 mile radius of any office operated by the Corporation or
any of its subsidiaries.
(e) Notwithstanding any other provision herein, the options
granted hereunder shall vest and be exercisable on a cumulative basis for
one-third of the shares covered thereby on each of the first three
anniversaries of the grant thereof.
In the event that the Corporation has a change of control in
which fifty-one percent (51%) or more of the stock of the Corporation is
acquired or the Corporation is merged or consolidated with another corporation
in an acquisition transaction or the Corporation sells substantially all of the
assets of the Corporation, or the Bank is merged or consolidated with another
Bank not owned at least 50% by the Corporation or its Subsidiary or the Bank
has a change of control in which 51% or more of the stock of the Bank is
acquired or the Bank sells substantially all of its assets, then immediately
prior to any such transaction, the vesting schedule set forth above shall not
be applicable and the holder of any options granted hereunder shall be 100%
vested in such options, subject to the other terms and conditions herein.
6. Exercise of Options
The holder of an Option who decides to exercise the Option in whole or
in part shall give notice to the Secretary of the Corporation of such exercise
in writing on a form approved by the Board. Any exercise shall be effective as
of the date specified in the notice of exercise, but not earlier than the date
the notice of exercise and payment in full of the Option price is actually
received and in the hands of the Secretary of the Corporation.
7. Limitations and Conditions
(a) The total number of Common Shares that may be optioned
as Incentive Stock Options under the Plan is One Hundred and Fifty Thousand
(150,000) shares of American Bancshares, Inc.'s $1.175 par value common shares.
Such total number of shares may consist, in whole or in part, of unissued shares
or reacquired shares. The foregoing number of shares may be increased or
decreased by the events set forth in Section 9.
(b) There shall be no limitations on the amount of Common
Shares that may be optioned as Incentive Stock Options under the Plan as set
forth in Section 7(a) above, on an annual basis. The amount of shares to be
optioned, within the total limitation set forth in Section 7(a) above, shall be
determined solely at the discretion of the Board as set forth herein. If there
is a proposed acquisition, merger, change of control or other takeover of the
Corporation or the Bank that employs the Participant as defined in Section 5(e)
of this Plan, the Board, at its sole discretion, may issue any options
authorized under the Plan but unissued prior to such time.
-4-
<PAGE> 5
(c) Any shares that have been optioned that cease to be
subject to an Option (other than by reason of exercise of the Option) shall
again be available for option and shall not be considered as having been
theretofore optioned.
(d) No Option shall be granted under the Plan after May 28,
2006 (10 years after the effective date) and the Plan shall terminate on such
date, but Options theretofore granted may extend beyond that date in accordance
with the Plan. At the time an Option is granted or amended or the terms or
conditions of an Option are changed, the Board may provide for limitations or
conditions on the exercisability of the Option.
(e) An Option shall not be transferable by the Participant
otherwise than by Will or by the laws of descent and distribution. During the
lifetime of the Participant, an Option shall only be exercisable by the
Participant.
(f) No person shall have any rights of a stockholder as to
shares under option until, after proper exercise of the Option, such shares
shall have been recorded on the Corporation's official stockholder records as
having been issued or transferred.
(g) The Corporation shall not be obligated to deliver any
shares until there has been compliance with such laws or regulations as the
Corporation may deem applicable. The Corporation shall use its best efforts to
effect such compliance. In addition to the foregoing and not by way of
limitation, the Corporation may require that the person exercising the Option
represent and warrant at the time of such exercise that any shares acquired by
exercise are being acquired only for investment and without any present
intention to sell or distribute such shares, if, in the opinion of counsel for
the Corporation, such a representation is required under the Securities Act of
1933, as amended, or any other applicable law, regulation or rule of any
governmental agency.
8. Transfers and Leaves of Absence
For the purpose of the Plan: (a) a transfer of a Participant's
employment without an intervening period from the Corporation to a Subsidiary
or vice versa, or from one Subsidiary to another or from Parent to Subsidiary
or vice versa, shall not be deemed a termination of employment, and (b) a Key
Employee who is granted in writing a leave of absence of no more than ninety
(90) days, or if more than ninety (90) days, which guarantees his employment
with the Corporation or the Bank at the end of such leave, shall be deemed to
have remained in the employ of the Corporation or the Bank during such leave of
absence.
9. Stock Adjustments
In the event of any merger, consolidation, stock dividend, split-up,
combination or exchange of shares or recapitalization or change in
capitalization, the total number of shares set forth in paragraph (a) of
Section 7 shall be proportionately and appropriately adjusted. In any such
case, the number and kind of shares that are subject to any Option (including
any Option outstanding after termination of employment) and the Option price
per share shall be proportionately and appropriately adjusted without any
change in the aggregate Option price to be paid therefor upon the exercise of
-5-
<PAGE> 6
the Option. The determination by the Board as to the terms of any of the
foregoing adjustments shall be conclusive and binding.
10. Amendment and Termination
(a) The Board shall have the power to amend the Plan,
including the power to change the amount of the aggregate fair market value of
the shares for which any Key Employee may be granted Incentive Stock Options
under Section 4 to the extent provided in Code Section 422. It shall not,
however, except as otherwise provided in the Plan, increase the maximum number
of shares authorized for the Plan, nor change the class of eligible employees
to other than Key Employees, nor reduce the basis upon which the minimum Option
price is determined, nor extend the period within which Options under the Plan
may be granted, nor provide for an Option that is exercisable during a period
of more than ten (10) years from the date it is granted. It shall have no
power (without the consent of the person or persons at the time entitled to
exercise the Option) to change the terms and conditions of any Option after the
Option is granted in a manner that would adversely affect the rights of such
persons except to the extent, if any, provided in the Option.
(b) The Board may suspend or terminate the Plan at any
time. No such suspension or termination shall affect any Option then in effect.
11. No Employment Right
The grant of an Option hereunder shall not constitute an agreement or
understanding, expressed or implied, on the part of the Corporation, any Parent
or any Subsidiary, to employ the Participant for any specified period and shall
not confer upon any employee the right to continue in the employment of the
Corporation, any Parent or any Subsidiary, nor affect any right which the
Corporation, a Parent or Subsidiary may have to terminate the employment of
such employee.
12. Effective Date
The Plan is adopted on and shall be effective as of May 28, 1996.
/s/ Brian M. Watterson
---------------------------------------
Secretary of American Bancshares, Inc.
/s/ Brian M. Watterson
---------------------------------------
Secretary of American Bank of Bradenton
-6-
<PAGE> 7
Exhibit A
AMERICAN BANCSHARES, INC. AND AMERICAN BANK OF BRADENTON
INCENTIVE STOCK OPTION AGREEMENT UNDER
INCENTIVE STOCK OPTION PLAN OF 1996
THIS AGREEMENT, made this _____ day of __________, 19__, by and between
AMERICAN BANCSHARES, INC. ("Corporation") with its principal office located at
4702 Cortez Road West, Bradenton, Florida, and AMERICAN BANK OF BRADENTON
("Bank").
WITNESSETH:
WHEREAS, the Corporation on May 28, 1996, adopted, by action of its
Shareholders, the "AMERICAN BANCSHARES, INC. AND AMERICAN BANK OF BRADENTON
INCENTIVE STOCK OPTION PLAN OF 1996" ("Plan"), effective May 28, 1996; and
WHEREAS, under such Plan, certain shares of the Corporation are made
available for purchase by Key Employees of the Corporation or the Bank which is
a subsidiary of the Corporation through the grant of options; and
WHEREAS, the Participant is an employee of the Bank and is a Key
Employee under the Plan, and therefore, eligible for the grant of stock options
thereunder, and
WHEREAS, the Board of Directors of the Bank under the Plan has
determined that the Participant shall be granted certain options under the Plan
as an incentive to his continued superior performance as an employee of the
Bank.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Grant of Option. The Bank and the Corporation hereby grant to
the Participant an option ("Option") to purchase _______________ (________)
shares of the $1.175 par value common shares of the Corporation, upon the terms
and conditions set forth below and in the Plan document. The date of such
grant is the date of this Agreement. The number of Options specified above in
this paragraph shall be adjusted as provided in Section 9 of the Plan.
2. Option Price. The Option shall be exercisable at the price of
_________ ($_______) per share, which price has been determined by the Board to
be at least one hundred percent (100%) (or one hundred ten percent (110%) for a
10% shareholder) of the fair market value of such shares as of the date of this
Agreement.
3. Terms of Purchase. The purchase of any shares pursuant to the
Participant's exercise of the Option shall be for cash, payable in full upon
such exercise.
-7-
<PAGE> 8
4. Period of Options. The Option shall be exercisable over the
period described below.
(a) Earliest Date of Exercise. The Option granted hereby
shall become first exercisable as the Option is vested as provided in Section 5
hereof, provided, however, in no event shall any shares be available for
purchase hereunder prior to the date on which the Plan is approved by the
stockholders of the Corporation; provided, further, however, in no event shall
the number of shares available for purchase hereunder increase beyond that
available on the date of the Participant's termination of employment with the
Corporation (as defined under the Plan), irrespective of the date on which the
Option shall expire under paragraph (b) of this Section 4.
(b) Latest Date of Exercise. In no event shall any shares
be available for purchase hereunder and the Option shall expire upon the
earlier of (i) ten (10) years from the date of grant of the Option or five (5)
years from the date of grant of the Option in case the Participant is already a
ten percent (10%) shareholder of the Corporation, and (ii)(A) in the event of
the Participant's termination of employment with the Corporation or Bank for
any reason other than death or Disability (as defined under the Plan), upon the
expiration of three (3) months from the date of such termination; (B) in the
event of the Participant's termination of employment as aforesaid by reason of
his disability, upon the expiration of one (1) year from the date of such
termination; or (C) in the event of the Participant's termination of employment
as aforesaid by reason of his death, upon the expiration of one (1) year from
his date of death. Notwithstanding anything to the contrary herein, if the
employment of Participant is terminated for cause of if the Participant
competes with the Corporation or the Bank as provided in the Plan, this Option
is immediately revoked and terminated.
(c) Prior Outstanding Options. This Option is exercisable
despite the existence of any other incentive option (defined under Code Section
422) which was granted to the Participant, before the granting of this Option,
and which earlier incentive stock option is for the purchase of shares in the
Corporation or in a corporation which at the date of grant hereunder is a
Parent (as defined under the Plan) or a Subsidiary (as defined under the Plan)
or a predecessor of any such corporations.
5. Vesting. The Options granted hereunder may be exercised by the
Participant on a cumulative basis for one-third (1/3) of the shares covered
thereby on each of the first three anniversaries of the grant thereof.
In the event that the Corporation has a change of control in
which fifty-one (51%) percent or more of the stock of the Corporation is
acquired or the Corporation is merged or consolidated with another corporation
in an acquisition transaction of the Corporation sells substantially all of the
assets of the Corporation, or the Bank which employs the Participant is merged
or consolidated with another Bank not owned at least fifty percent (50%) by the
Corporation or its Subsidiary or such Bank has a change of control in which
fifty-one percent (51%) or more of the stock of the Bank is acquired or such
Bank sells substantially all of its assets, then immediately prior to any such
transaction, the vesting schedule set forth above shall not be applicable and
the holder of any Options granted hereunder shall be one hundred percent (100%)
vested in such Options, subject to the other terms and conditions herein.
-8-
<PAGE> 9
6. Nontransferability. The Option is not transferable by the
Participant, in whole or in part, to any person, except by Will or by any
applicable law of descent and distributions. The Option shall not be
exercisable, in whole or in part, during the lifetime of the Participant by any
person other than the Participant.
7. Construction. The Options is intended to qualify for treatment
as an "incentive stock option" under Section 422 of the Internal Revenue Code
of 1986, as amended, and any questions arising hereunder shall be resolved,
where possible, consistent with such intention. This Agreement shall be
construed in accordance with the laws of the State of Florida.
8. No Contract of Employment. Neither this Agreement nor the Plan
shall be construed to constitute and agreement or understanding, expressed or
implied, on the part of the Corporation or the Bank, or Parent or any
Subsidiary, to employ the Participant for any specified period and shall not
confer upon any employee the right to continue in the employment of the
Corporation, the Bank, any Parent or any Subsidiary nor affect any right which
the Corporation, the Bank, a parent or Subsidiary may have to terminate the
employment of such employee.
9. Withholding. As a condition to the issuance of shares pursuant
to any exercise of this Option, the Participant authorized the Corporation or
the Bank to withholder in accordance with applicable law from any cash
compensation payable to him any taxes required to be withheld by the
Corporation or the Bank under federal, state or local law as a result of such
exercise; provided, however, if at the time of such exercise no such
compensation remains payable, the Participant agrees to remit the amount of any
such required withholding, if any, to the Corporation or the Bank.
10. Legal Restrictions. This Option may not be exercised if the
issuance of shares pursuant to such exercise would constitute a violation of
any applicable federal or state securities or other law or regulation. The
person exercising the Option, as a condition to such exercise, shall represent
to the Corporation that the shares acquired thereby are being acquired for
investment and not with a present view to distribution or resale, unless
counsel for the Corporation is then of the opinion that such representation is
not required under the Securities Act of 1933, as amended, or any other
applicable law, regulation or rule of any governmental agency.
11. Binding Effect. This Agreement shall be binding upon and
insure to the benefit of the Participant and his heirs, and shall be binding
upon the Corporation and the Bank and their successors and assigns.
12. Incorporation of Plan. This Agreement is made pursuant to and
is subject to the terms and conditions of the Plan, which terms and conditions
are hereby incorporated by reference herein.
13. Amendment. This Agreement may be amended by the Corporation at
any time (i) if the Corporation determines, in its sole discretion, that
amendment is necessary or advisable in light of any addition to or change in
the Internal Revenue Code of 1986 or in the regulations issued thereunder, or
any federal or state securities law or other law or regulation, which change
occurs after the date of this Agreement and by its terms applies to the
Agreement; or (ii) other than in the circumstances described in clause (i),
with the consent of the Participant.
-9-
<PAGE> 10
14. Governing Law. This Agreement shall be governed by Florida
law, except to the extent preempted by federal law, which shall to that extent
govern.
IN WITNESS WHEREOF, by its authorized representative, and the
Participant do hereby affix their signatures on the date first written above.
ATTEST: AMERICAN BANCSHARES, INC.
- -------------------------------- By:
----------------------------
Printed Name:
------------------
Title:
-------------------------
AMERICAN BANK OF BRADENTON
By:
----------------------------
Printed Name:
------------------
Title:
-------------------------
EXECUTIVE:
-------------------------------
Printed Name:
------------------
-10-
<PAGE> 1
EXHIBIT 13.1
American Bancshares, Inc.
SELECTED FINANCIAL DATA
(In thousands except per share data)
<TABLE>
<CAPTION>
At and for the years ended December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets...................................... $ 211,965 $ 154,948 $ 127,962 $ 77,483 $ 54,997
Cash (including interest-
bearing accounts) ............................. 21,045 6,768 7,223 5,187 3,209
Loans receivable, net ............................ 135,109 97,480 74,256 51,329 38,051
Mortgage loans held for sale, net ................ 20,351 21,011 21,640 0 0
Investment securities and other interest-
earning assets ................................ 26,111 24,073 20,009 17,819 11,871
Deposits ......................................... 177,200 129,861 115,342 66,784 48,128
Borrowed funds ................................... 15,113 14,567 5,377 5,264 2,540
Retained earnings (deficits) ..................... 2,456 1,572 554 260 (303)
SELECTED OPERATIONS:
Interest income................................... $ 14,548 11,409 $ 7,274 $ 4,864 $ 3,446
Interest expense ................................. 7,411 6,011 3,627 2,247 1,777
Net interest income .............................. 7,137 5,398 3,647 2,617 1,669
Provision for loan losses ........................ 287 483 221 296 160
Net interest income after provision for
loan losses ................................... 6,851 4,915 3,426 2,321 1,509
Other income ..................................... 1,835 1,473 631 431 275
Other expenses ................................... 7,279 4,797 3,276 2,035 1,342
Provision for income taxes ....................... 522 573 279 155 0
Net income ....................................... 884 1,018 502 562 442
Net income per share ............................. 24 0.46 0.26 0.33 0.31
<CAPTION>
At December 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED RATIOS:
Return on average assets (net income
to average total assets) ...................... .48% 0.71% 0.50% 0.82% 1.01%
Return on average equity (net income
to average total equity) ...................... 5.24 12.54 8.80 12.47 15.24
Average interest-earning assets to average
interest-bearing liabilities .................. 1.18 1.13 1.11 1.10 1.10
Net yield on average earning assets .............. 4.22 4.07 3.97 4.19 4.15
Asset quality ratio (non-performing loans
and other real estate owned to average
total assets) ................................. .59 0.01 0.01 0.13 0.00
Average equity to average total assets ........... 9.23 5.69 5.70 7.15 7.90
Other expenses to average total assets ........... 3.98 3.36 3.27 2.98 3.07
Net interest income to other expenses ............ 98.05 112.53 111.32 128.63 124.40
</TABLE>
11
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company's principal asset is its ownership of the Bank. Accordingly, the
Company's results of operations are primarily dependent upon the results of
operations of the Bank. The Bank conducts a commercial banking business which
consists of attracting deposits from the general public and applying those funds
to the origination of commercial, consumer and real estate loans (including
commercial loans collateralized by real estate). The Bank's profitability
depends primarily on net interest income, which is the difference between
interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rates earned and paid on these balances. Net
interest income is dependent upon the Bank's interest rate spread, which is the
difference between the average yield earned on its interest-bearing assets and
the average rate paid on its interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income. The interest rate spread is
impacted by interest rates, deposit flows, and loan demand. Additionally, and to
a lesser extent, the Bank's profitability is affected by such factors as the
level of non-interest income and expenses, the provision for loan losses, and
the effective tax rate. Non-interest income consists primarily of loan fees and
other fees and income from the sale of loans, servicing rights, and investment
securities. Non-interest expense consists of compensation and benefits,
occupancy related expenses, deposit insurance premiums paid to the FDIC,
expenses of opening of branch offices, and other operating expenses.
The Bank enjoys an excellent reputation in its market and strives for quality
customer service. The Bank is the largest independent bank, based on asset size,
in Manatee County and operates seven banking office locations. Five of these
offices, the main office, two full service branches opened during 1996, a
drive-thru branch and a mortgage banking office are located in Bradenton. The
remaining offices include a full service branch in Ellenton, and a drive-thru
branch in Palmetto. The Bank has purchased an additional location in Palmetto
for the purpose of constructing a full service branch. This new location is
scheduled to open during the second quarter of 1997 and will replace the
drive-thru branch in Palmetto.
However, there can be no assurance that regulatory approval will be obtained in
a timely fashion, if at all, or that this branch will open in the anticipated
quarter.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses material changes in the financial condition of the Company
from December 31, 1995 to December 31, 1996, and material changes in the results
of operations with respect to the year ended December 31, 1996 compared to the
year ended December 31, 1995. This discussion and analysis is intended to assist
the reader in understanding the financial condition and results of operations of
the Bank. This commentary should be read in conjunction with the financial
statements and the related notes and the other statistical information contained
herein.
12
<PAGE> 3
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED
DECEMBER 31, 1996 AND 1995
For the year ended December 31, 1996 the Company reported net income of $884,000
or $.24 per share, as compared to net income of $1,018,000 or $.46 per share for
1995. Per share results reflect the effect of the 67% increase in the weighted
average number of shares outstanding resulting from the public offering
completed in February 1996. From 1995 to 1996, net interest income increased by
$1,740,000 and non-interest income increased by $361,000. The increase in
non-interest income from 1995 to 1996 is primarily attributable to increases in
collection of service charges on deposits of $177,000, credit card merchant fee
income of $165,000, and gains on sale of securities of $70,000. In addition,
loan loss provision expense decreased by $196,000 from 1995 to 1996. These
changes contributing to income were offset by increases in start-up costs in the
form of general and administrative expenses associated with two new full service
branches which were opened by the Bank in March and September of 1996.
Management believes the long term benefits associated with these two branches
will provide additional income which will contribute to the growth and
profitability of the Bank.
The Company's total assets at December 31, 1996 were $211,965,000, an increase
of $57,017,000 or approximately 37% from December 31, 1995. This increase was
due primarily to the increase in loans originated by the Bank.
The Bank's loans at December 31, 1996 totaled $155,460,000, net, or
approximately 73% of total assets. Of this total, portfolio loans consisted of
$41,382,000 in commercial loans, $33,156,000 in commercial real estate,
$18,695,000 in residential real estate, and $42,271,000 in consumer loans, net
of deferred costs and allowance for loan losses of $395,000. Loans held for sale
were $4,335,000 in residential real estate loans and $16,016,000 in real estate
construction loans, net of deferred costs and allowance for loan losses of
$112,000. The allowance for loan losses increased from $946,000 at December 31,
1995 to $1,000,000 at December 31, 1996. The allowance for loan losses
represented approximately .64% of total loans, down from .79% at December 31,
1995.
NET INTEREST INCOME
Net interest income, which constitutes the principal source of income for the
Bank, represents the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities. The principal
interest-earning assets are loans made to businesses and individuals.
Interest-bearing liabilities primarily consist of time deposits, interest-paying
checking accounts ("NOW accounts"), retail savings deposits, and money market
accounts. Funds deposited to these interest-bearing liabilities are invested in
interest-earning assets. Accordingly, net interest income depends on the volume
of average interest-earning assets and average interest-bearing liabilities and
the interest rates earned or paid on them.
The growth in loans resulted in a steady increase in net interest income during
1996. Net interest income for the period ended December 31, 1996 amounted to
$7,137,000 on a $169,259,000 average outstanding balance of interest-earning
assets, an increase of $1,739,000 over the $5,398,000 recorded in 1995 on
average interest-earning assets of $132,468,000. Interest income from loans
during the same period comprised 86.5% and 86.9%, respectively, of the total
interest income and earned an average yield of 9.18% and 9.19%, respectively,
while interest income from investments and federal funds sold earned an average
yield of 6.10% and 6.07%, respectively. Total interest expense for 1996 was
$7,411,000 on average outstanding balances of interest-bearing liabilities of
143,001,000, compared to interest expense of $6,011,000 on average
interest-bearing liabilities of $117,657,000 for the same period in 1995. The
average cost of interest-bearing liabilities for 1996 and 1995 was 5.18% and
5.11%, respectively. The Bank experienced an increase in the net yield on
average earning assets to 4.22% in 1996, from 4.07% in 1995, due in part to an
increase in non-interest-bearing liabilities used to fund interest-earning
assets.
The following table shows for each category of interest-earning assets and
interest-bearing liabilities, the average amount outstanding, the net interest
earned or paid on such amount, and the average rate earned or paid for the years
ended December 31, 1996 and 1995 for the Bank. The table also shows the average
rate earned on all interest-earning assets, the average rate paid on all
interest-bearing liabilities, and the net yield on average interest-earning
assets for the same periods.
13
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
COMPARATIVE AVERAGE BALANCES, YIELDS AND RATES
December 31,
1996 1995 1994
----------------------------- ----------------------------- ------------------------------
Average Average Average
Interest Rate Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance (4) Expense Paid Balance (4) Expense Paid Balance (4) Expense Paid
---------- ---------- ----- ---------- -------- ---- --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks ............$ 5,699 $ 5,258 $ 4,554
Bank premises and equipment, net.... 5,670 3,619 2,866
Other assets ....................... 2,155 1,332 790
---------- ---------- ---------
Total non-interest earning assets 14,244 10,209 8,210
---------- ---------- -------- ---- --------- --------- ------
INTEREST EARNING ASSETS:
Federal funds sold .................$ 4,382 $ 237 5.41% $ 3,236 $ 196 6.06% $ 2,651 $ 115 4.33%
Investment securities (1) .......... 27,689 1,720 6.21 21,372 1,298 6.07 17,516 992 5.66
Loans, net (2) (5) ................. 137,188 12,591 9.18 107,860 9,915 9.19 71,833 6,168 8.59
---------- ---------- ----- ---------- -------- ---- --------- --------- ------
Total interest-earning assets/
interest/income average
rates paid ......................$ 168,539 $ 14,548 8.60% $ 132,468 $ 11,409 8.61% $ 92,000 $ 7,275 7.91%
========== ========== ===== ========== ======== ==== ========= ========= ======
Total assets .......................$ 182,783 $ 142,677 $ 100,210
========== ========== =========
Other liabilities ..................$ 22,914 $ 16,906 $ 11,586
---------- ---------- ---------
Total non-interest bearing
liabilities ..................... 22,914 16,906 $ 11,586
---------- ---------- ---------
INTEREST-BEARING LIABILITIES:
NOW ................................$ 12,271 $ 185 1.51% $ 9,311 $ 152 1.63% $ 8,201 $ 146 1.78%
Money market ....................... 32,756 1,550 4.73 29,911 1,377 4.60 21,239 967 4.55
Savings ............................ 6,963 154 2.21 6,252 139 2.22 5,225 116 2.22
Time ............................... 80,344 5,038 6.27 63,868 3,988 6.24 43,004 2,257 5.25
---------- ---------- ----- ---------- -------- ---- --------- --------- ------
Total interest-bearing deposits . 132,334 6,927 5.23 109,342 5,656 5.17 77,669 3,486 4.49
Securities sold under agreement
to repurchase ................... 8,628 352 4.08 7,123 293 4.11 5,242 141 2.69
Federal funds purchased ............ 47 3 6.38 630 37 5.87 0 0 0.00
FHLB advances ...................... 1,992 130 6.53 562 25 4.45 0 0 0.00
---------- ---------- ----- ---------- -------- ---- --------- --------- ------
Total interest-bearing liabilities/
interest expense/average rate paid$ 143,001 $ 7,412 5.18% $ 117,657 $ 6,011 5.11% $ 82,911 $ 3,627 4.37%
========== ========== ===== ========== ======== ==== ========= ========= ======
Total liabilities .................. 165,915 134,563 94,497
Shareholders' equity ............... 16,868 8,114 5,713
---------- ---------- ---------
Total liabilities and
shareholders' equity ............$ 182,783 $ 142,677 $ 100,210
========== ========== =========
Net interest income ................ $ 7,136 $ 5,398 $ 3,648
========== ======== =========
Net yield on average earning assets(3) 4.22% 4.07% 3.97%
===== ==== ======
</TABLE>
(1) Principally taxable.
(2) Non-accruing loans included in computation of average balance.
(3) The net yield on average earning assets is the net interest income divided
by average interest earning assets.
(4) Average balances represent the average
daily balance year to date.
(5) Interest income on loans includes loan fees of
$525,000 in 1996, $131,000 for 1995 and $39,000 in 1994.
The effect on interest income, interest expense, and net interest income for the
periods indicated, of changes in average balance and rate, is shown below for
the Bank. The effect of a change in average balance has been determined by
applying the average rate at the year-end for the earlier period to the change
in average balance at the year-end for the later period. Changes resulting from
average balance/rate variances are included in changes resulting from volume.
14
<PAGE> 5
<TABLE>
<CAPTION>
RATE/VOLUME INTEREST ANALYSIS
Year ended
-------------------------------------------------------------------
1996 compared to 1995 1995 compared to 1994
Increase (decrease) due to change in: Increase (decrease) due to change in:
---------------------------------------- ---------------------------------------
Average Average Total Average Average Total
Volume(1) Rate Change Volume Rate Change
---------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold ....................... $ 69 $ (28) $ 41 $ 35 $ 46 $ 81
Investment securities .................... 384 38 422 234 72 306
Loans, net (2) ........................... 2,697 (20) 2,677 3,312 435 3,747
-------- -------- -------- -------- -------- --------
Total interest income ................. 3,150 (10) 3,140 3,581 553 4,134
-------- -------- -------- -------- -------- --------
INTEREST BEARING LIABILITIES:
NOW ...................................... $ 48 $ (15) $ 33 $ 18 $ (12) $ 6
Money market ............................. 131 42 173 399 11 410
Savings .................................. 16 (1) 15 23 0 23
Time ..................................... 1,029 22 1,051 1,303 428 1,731
-------- -------- -------- -------- -------- --------
Interest on deposits .................. 1,224 48 1,272 1,743 427 2,170
-------- -------- -------- -------- -------- --------
Securities sold under agreement to
repurchase and borrow funds ........... 108 22 130 139 75 214
-------- -------- -------- -------- -------- --------
Total interest expense ................ $ 1,332 $ 70 $ 1,402 $ 1,882 $ 502 $ 2,384
-------- -------- -------- -------- -------- --------
Change in net interest income ......... $ 1,818 $ (80) $ 1,738 $ 1,699 $ 51 $ 1,750
======== ======== ======== ======== ======== ========
</TABLE>
(1) Nonaccruing loans are excluded from the average volumes used in calculating
this table.
(2) Includes loan fees of $524,677 in 1996 and $131,479 in 1995.
PROVISION FOR LOAN LOSSES
For the year ended December 31, 1996, $287,000 was recorded to the loan loss
provision, compared to the $483,000 recorded to the provision during the year
ended 1995.
The targeted level of loan loss allowance is based on management's continual
review of the loan portfolio. Management reviews the loans by type and nature of
collateral and establishes an appropriate provision for loan losses based upon
industry standards, management's experience, historical charge-off experience,
the present and prospective financial condition of specific borrowers, industry
concentrations within the loan portfolio, size of the credit, existence and
quality of any collateral, profitability, and general economic conditions. The
Bank has experienced relatively low delinquency and default rates in its
portfolio due in part to adherence to established underwriting guidelines.
Management believes the allowance for loan losses is adequate based on its
assessment of the risks of loan defaults. However, the Bank intends to review
its allowance for loan losses on a monthly basis and to provide increases in the
allowance, if necessary, based on the results of this review.
The total allowance for loan losses increased from $946,000 in 1995 to
$1,000,000 in 1996. During 1996, the Bank experienced $279,000 in charge-offs
and $46,000 in recoveries on previously charged-off loans. As of December 31,
1996, the Bank had $905,000 of loans in nonaccrual status. The year end 1996 and
1995 loan loss provisions reflect the growth in the Bank's loan portfolio and
management's philosophy of maintaining adequate loan loss reserves.
Although management uses the best information available to make determinations
with respect to the allowance for loan losses, future adjustments may be
necessary if economic conditions differ substantially from the assumptions used
or adverse developments arise with respect to the Bank's nonperforming or
performing loans.
NON-INTEREST INCOME
For the years ended December 31, 1996 and 1995, non-interest income totalled
$1,834,000 and $1,473,000, respectively, an increase of approximately 25%.
During 1996, service fees on customer deposits contributed $733,000, mortgage
banking operations contributed $598,000, fees on credit card merchant services
contributed $262,000, gains from sales of securities contributed $106,000, and
other income increased to $136,000. For the year ended 1995, mortgage banking
operations contributed $587,000, service fees on customer deposits $556,000,
fees on credit card merchant services $97,000, and miscellaneous other income
$233,000.
15
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The following table details the non-interest income for the respective periods:
<TABLE>
<CAPTION>
Years Ended Dec. 31,
--------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Service charges on deposit
accounts .........................................$ 733 $ 556
Broker loan fees .................................... 33 38
Mortgage servicing fees ............................. 50 56
Credit card merchant service fees ................... 262 97
Net gains on sales of investment
securities ....................................... 106 36
Net gains on sale of loans .......................... 191 321
Net gains on sales of servicing ..................... 69 210
Net gain on sale of assets .......................... 0 64
Originated mortgage servicing rights ................ 255 0
Other ............................................... 136 95
-------- --------
Total non-interest income ........................$ 1,835 $ 1,473
======== ========
</TABLE>
NON-INTEREST EXPENSE
Non-interest expense for the years ended December 31, 1996 and 1995, totaled
$7,279,000 and $4,797,000, respectively, substantially all of which was general
and administrative expenses. The increase in non-interest expense is due
primarily to the opening of the Palma Sola and Whitfield branches, additional
lending staff, and additional support staff for backroom operations and the
related costs associated with these areas. For the years ended December 31, 1996
and 1995, general and administrative expenses were 3.98% and 3.36%,
respectively, of average assets. The largest component, salaries and employee
benefits, amounted to $3,469,000 or 48% and $2,276,000 or 47%, respectively, of
total expense for the years ended 1996 and 1995. Management continuously
monitors general and administrative expenses and the efficiency ratio to
maintain non-interest expenses at a level within industry standards.
The following table details the various categories of non-interest expense for
the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DEC. 31,
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Compensation and related benefits ...................$ 3,470 $ 2,276
Occupancy and equipment ............................. 850 706
FDIC insurance ...................................... 35 164
Data processing ..................................... 629 406
Advertising and promotion ........................... 320 135
Printing supplies and postage ....................... 322 224
Director fees and expenses .......................... 124 97
Professional fees ................................... 244 187
ATM fees ............................................ 100 86
Intangible taxes .................................... 126 76
Other ............................................... 1,059 440
-------- --------
$ 7,279 $ 4,797
======== ========
</TABLE>
INCOME TAX EXPENSE
For the year ended December 31, 1996, an income tax provision totaling $478,000
was recorded, compared to a $573,000 provision for the year ended 1995 as a
result of decreased earnings during the 1996 period.
ASSET/LIABILITY MANAGEMENT
One of the Bank's primary objectives is to control fluctuations in net interest
income caused by changes in interest rates. To manage interest rate risk, the
Bank's Board of Directors has established interest rate risk policies and
procedures which delegate to the Asset/Liability Management Committee ("ALCO")
the responsibility to monitor and report on interest rate risk, devise
strategies to manage interest rate risk, monitor loan originations and deposit
activity, and approve all pricing strategies.
The management of interest rate risk is one of the most significant factors
affecting the Bank's ability to achieve future earnings. The measure of the
mismatch of assets maturing or repricing within certain periods with liabilities
maturing or repricing within the same period, is commonly referred to as the
"gap" for such period. Controlling the maturity or repricing of an institution's
liabilities and assets in order to minimize interest rate risk is commonly
referred to as gap management. "Negative gap" occurs when an institution's
liabilities reprice more rapidly than its assets, so that, barring other factors
affecting interest income and expense, in periods of rising interest rates the
institution's interest expense increases more rapidly than its interest income,
and in periods of falling interest rates the institution's interest expense
decreases more rapidly than its interest income. "Positive gap" occurs when an
institution's assets reprice more rapidly than its liabilities, so that, barring
other factors affecting interest income and expense, in periods of falling
interest rates the institution's interest income decreases more rapidly than its
interest expense and in periods of rising rates the institution's interest
income increases more rapidly than its interest expense. It is common to focus
on the one year gap, which is the difference between the dollar amount of assets
and the dollar amount of liabilities maturing or repricing within the next
twelve months.
ALCO uses an external asset/liability modeling service to analyze the Bank's
current financial position and develop strategies prior to implementation. The
16
<PAGE> 7
systems attempt to simulate the Bank's asset and liability base and project
future operating results under several interest rate and spread assumptions.
Under asset/liability management guidelines, the Bank's policy is to maintain a
cumulative one-year gap of no more than 15% of total assets, primarily by
managing the maturity distribution of its investment portfolio and emphasizing
loan originations tied to interest sensitive indices. Additionally, the Bank has
joined the FHLB to enhance its liquidity position and provide the ability to
utilize fixed rate advances to improve the match between interest-earning assets
and interest-bearing liabilities in certain periods.
The Bank's cumulative one year gap at December 31, 1996, was a positive
$17,235,000 or a 8.13% (expressed as a percentage of total assets).
The following tables present the anticipated maturities or repricing of the
Bank's interest-earning assets and interest-bearing liabilities at December 31,
1996. The tables may not be indicative of the Bank's rate sensitivity position
at other points in time. The balances shown have been derived based on the
financial characteristics of the various assets and liabilities. Adjustable and
floating rate assets are included in the period in which interest rates are next
scheduled to adjust rather than their scheduled maturity dates. Fixed rate loans
are shown in the period in which they are scheduled to be repaid. Repricing of
time deposits is based on their scheduled maturities. Deposits without a stated
maturity are repriced based on known characteristics of the deposit product.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
Term to Repricing
(Dollars in thousands)
----------------------------------------------------------------------------------------
90-180 181 Days 1-2 2-3 3-4 4-5+
90 Days Days to 365 Days Years Years Years Years Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold.................. 6,000 0 0 0 0 0 0 6,000
Interest-bearing due from banks..... 7,528 0 0 0 0 0 0 7,528
Fixed rate loans.................... 16,254 6,932 10,956 15,516 15,517 7,337 11,896 84,408
Variable rate loans................. 49,606 7,491 11,481 705 706 575 576 71,140
Treasuries.......................... 499 500 2,401 1,274 1,274 508 508 6,964
Agencies............................ 0 0 0 500 500 1,147 11,080 13,227
Municipals.......................... 0 0 0 500 0 0 0 500
Federal Home Loan Bank Stock........ 499 0 0 0 0 0 0 499
Mortgage-backed securities.......... 1,122 122 234 403 403 317 2,449 5,050
------ ------ ------ ------ ------ ----- ------ -------
Total interest-earning assets....... 81,508 15,045 25,072 18,898 18,400 9,884 26,509 195,316
NOW................................. 13,081 0 0 0 0 0 0 13,081
Money market........................ 42,040 0 0 0 0 0 0 42,040
Savings............................. 6,339 0 0 0 0 0 0 6,339
Certificates/IRA's<$100,000......... 7,814 4,836 8,323 12,545 12,546 10,215 10,215 66,494
Certificates/IRA's>$100,000......... 3,515 2,112 6,217 2,492 3,770 940 3,921 22,967
Securities sold under agreements
to repurchase.................... 10,113 0 0 0 0 0 0 10,113
Federal Home Loan Bank advances..... 0 0 0 5,000 0 0 0 5,000
------ ------ ------ ------ ------ ----- ------ -------
Total interest-bearing liabilities.. 82,902 6,948 14,540 20,037 16,316 11,155 14,136 166,034
------ ------ ------ ------ ------ ----- ------ -------
Interest sensitivity gap............ (1,394) 8,097 10,532 (1,139) 2,084 (1,271) 12,373 29,282
====== ====== ====== ====== ====== ===== ====== =======
Cumulative gap...................... (1,394) 6,703 17,235 16,096 18,180 16,909 29,282
====== ====== ====== ====== ====== ===== ======
Cumulative gap ratio................ 0.98 1.07 1.17 1.13 1.13 1.11 1.18
====== ====== ====== ====== ====== ===== ======
Cumulative gap as a percentage
of total assets.................. -0.66% 3.16% 8.13% 7.59% 8.58% 7.98% 13.81%
====== ====== ====== ====== ====== ===== ======
</TABLE>
17
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
FINANCIAL CONDITION
LENDING ACTIVITIES
The Bank offers a broad range of personal and business loans and mortgage loan
products. The Bank aggressively pursues quality indirect lending through local
automobile dealerships, small to medium sized commercial business loans and
direct retail residential loans. Also, through its Mortgage Banking Division,
the Bank has focused efforts on residential loan originations that can be sold
in the secondary market while it retains or packages for sale the servicing
rights. The Mortgage Banking Division of the Bank maintains relationships with
correspondent lenders throughout the state of Florida, ensuring continued
lending efforts without a concentration in any one area. Management believes
this to be a prudent practice in the mortgage banking area as it minimizes risks
associated with localized economic downturns. The Mortgage Banking Division
originates primarily construction-to-permanent financing loans, which are
considered to have less risk of nonpayment than construction only financing
arrangements.
Total loans, including portfolio and held for sale loans, were $156,460,000 at
December 31, 1996, compared to $119,491,000, at December 31, 1995, an increase
of $36,969,000. Management's objective is to maintain the loan portfolio with
one-to-four family residential and construction loans at 30% of total loans. At
December 31, 1996, residential mortgage loans and real estate construction loans
amounted to $39,047,000 or approximately 25% of total loans. In addition,
management is committed to serving the local small to medium size independent
commercial business. Commercial and commercial real estate loans totaled
$74,538,000 or approximately 48% of total loans at December 31, 1996. Consumer
lending is provided through direct and indirect lending and comprised 27% or
$42,270,000 of total loans at the end of the year. During 1996, commercial and
commercial real estate loans increased by $21,938,000, consumer loans increased
by $11,620,000, and residential real estate loans increased by $3,971,984.
The primary source of income for the Bank is the interest earned on loans. At
December 31, 1996, the Bank's total assets were $211,965,000, as compared to
$154,948,000 at December 31, 1995. Net loans represented $155,460,000 or 73% of
total assets at December 31, 1996, compared to $118,491,000 or 76% of total
assets at December 31, 1995. The significant increase in loans is the result of
actions taken by management in 1995 and 1996, including increasing indirect
lending programs and adding additional commercial and commercial real estate
loan officers to service strong loan demand.
The following table summarizes the composition of the Bank's loan portfolio by
type of loan on the dates indicated:
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Residential mortgage loans, substantially
all single family .......................$ 18,695,342 $ 14,723,358 $ 11,370,088 $ 9,485,915 $ 8,657,412
Commercial and commercial real estate loans 74,538,560 52,600,026 39,504,542 28,901,928 22,667,632
Consumer loans ............................. 42,269,999 30,649,820 23,578,918 13,463,677 7,058,880
Total loans ............................. 135,503,901 97,973,204 74,453,548 51,851,520 38,093,414
------------- ------------- ------------- ------------- -------------
Less:
Allowance for loan losses .................. (1,000,000) (946,000) (625,000) (505,000) (285,000)
Net deferred costs ......................... 604,537 452,434 427,355 (17,061) (47,804)
------------- ------------- ------------- ------------- -------------
Net loans ..................................$ 135,108,438 $ 97,479,638 $ 74,255,903 $ 51,329,459 $ 38,051,120
============= ============= ============= ============= =============
</TABLE>
18
<PAGE> 9
The following table sets forth the maturities of portfolio loans outstanding at
December 31, 1996, and an analysis of sensitivities of loans due to changes in
interest rates.
<TABLE>
<CAPTION>
Loan Interest Rate Change Sensitivity Analysis
(In thousands)
Due in Due After
1 Year 1 Year But Due After
or Less Before 5 Years Five Years Total
---------- -------------- ----------- ----------
<C> <C> <C> <C> <C>
1-4 Family Residential .................................................. $ 21,421 $ 8,893 $ 11,692 $ 42,006
Other loans collateralized by real estate ............................... 4,644 23,711 8,159 36,514
Commercial and consumer ................................................. 37,117 33,567 2,147 72,831
---------- ----------- ---------- ----------
Total loans (1) ...................................................... $ 63,182 $ 66,171 $ 21,998 $ 151,351
========== =========== ========== ==========
</TABLE>
(1) Excluding deferred fees, allowance for loan losses and loans held for sale.
The following table sets forth as of December 31, 1996, the dollar amounts of
loans due after one year which had predetermined interest rates, and loans due
after one year which had floating or adjustable interest rates.
<TABLE>
<CAPTION>
Dollar Amount of Loans
December 31, 1996
(in thousands)
<S> <C>
Predetermined rate, maturing greater than one year .......................................................$ 52,792
Floating or adjustable rate due after one year ........................................................... 35,377
------------
$ 88,169
============
</TABLE>
ASSET QUALITY
Management seeks to maintain a high quality of assets through conservative
underwriting and sound lending practices. Management intends to follow this
policy even though it may result in foregoing the funding of higher yielding
loans. Approximately 30% of the Bank's loan portfolio is collateralized by first
liens on primarily owner-occupied residential homes which have historically
carried a relatively low credit risk. The Bank also maintains a commercial real
estate portfolio comprised primarily of owner-occupied commercial businesses.
The Bank has experienced low delinquency and default rates since opening in
1989. It is management's policy to discontinue the accrual of interest income
and classify a loan as nonaccrual when principal or interest is past due 90 days
or more and the loan is not adequately collateralized, or when in the opinion of
management, principal or interest is not likely to be paid in accordance with
the terms of the obligation. As of December 31, 1996, nonaccrual loans amounted
to $905,000 or .58% of total loans. Of this amount, approximately $641,000
represents one loan collateralized by a single family residence. The Bank has
not acquired any real estate owned by means of foreclosure.
While there is no assurance that the Bank will not suffer losses on its
construction loans or its commercial real estate loans, management believes that
it has reduced the risks associated therewith because, among other things,
primarily all such loans relate to owner-occupied projects where the borrower
has demonstrated to the Bank's management that its business will generate
sufficient income to repay the loan. The Bank primarily enters into agreements
with individuals who are familiar to Bank personnel, are residents of the
Bank's primary market area and are believed by management to be good credit
risks.
In an effort to maintain the quality of the loan portfolio, management seeks to
minimize higher risk types of lending. To the extent risks are identified,
additional precautions are taken in order to reduce the Bank's risk of loss.
Commercial and financial loans entail certain additional risks since they
usually involve large loan balances to single borrowers or a related group of
borrowers, resulting in a more concentrated loan portfolio. Further, since their
payment is usually dependent upon the successful operation of the commercial
enterprise, they also are subject to adverse conditions in the economy.
Commercial loans are generally riskier than residential because they are
typically underwritten on the basis of the ability to repay from the cash flow
of a business rather than on the ability of the borrower or guarantor to repay.
Further, the collateral underlying commercial loans may decline in value over
time, occasionally cannot be appraised with as much precision as residential
real estate, and may fluctuate in value based on the success of the business.
19
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The Board of Directors of the Bank concentrates its efforts and resources, and
that of its senior management and lending officials, on loan review and
underwriting procedures. The Bank utilizes the services of an independent
consultant to perform periodic loan documentation and compliance reviews as well
as deposit and operations compliance reviews. Internal controls include a loan
review specialist employed by the Bank, who performs ongoing reviews of new and
existing loans to monitor documentation and ensure the existence and valuations
of collateral. Senior loan officers have established a review process with the
objective of quickly identifying, evaluating, and initiating necessary
corrective action for substandard loans. The goal of the loan review process is
to address the watch list, substandard, and non-performing loans as early as
possible. Combined, these components are integral elements of the Bank's loan
program which has resulted in its loan portfolio performance to date.
Nonetheless, management maintains a cautious outlook in anticipating the
potential effects of uncertain economic conditions (both locally and nationally)
and the possibility of more stringent regulatory standards. As of December 31,
1996, the Bank had approximately 50 loans to 37 borrowers being monitored on its
watch list and substandard list of loans, representing aggregate borrowings of
approximately $2,196,000. Of this aggregate amount, management has assessed the
maximum risk of loss to be $158,000 based on management's assessment of the
ability of such borrowers to comply with their present loan repayment terms and
assuming that the collateral for such loans must be liquidated. These loans have
been considered by management in its assessment of the allowance for loan losses
and none of these borrowers have failed to comply with their present loan
repayment terms. The following is a summary of non-accrual loans, restructured
loans, and loans 90 days or more past due at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non accrual loans $ 905 $ 18 $ 65 $ 23 $ 0
Accruing loans
contractually
past due 90
days or more 0 0 0 0 0
Restructured loans 24 0 0 0 0
Uncollateralized
loans in the
above listing 0 0 0 0 0
</TABLE>
The Bank continues to experience relatively low default rates and low
delinquency as a percent of total loans. As of December 31, 1996, the total
amount of loans over 30 days past due totalled $1,561,000 or 1.00% of total
loans. The approximate amount of interest on nonaccrual loans which would have
been recorded as income under the original terms was $60,720 for the fiscal year
ended December 31, 1996. The amount of interest income not recorded related to
nonaccrual loans for the year ended December 31, 1995 was immaterial. The amount
of interest income collected on nonaccrual loans, prior to the point of becoming
nonaccrual loans, that was included in net income for the years ended December
31, 1996 and 1995 was approximately $39,000 and $2,000, respectively. There was
no interest income included in net income on accruing loans contractually past
due 90 days or more at December 31, 1996 and 1995.
Asset quality continues to remain strong due to adherence to underwriting and
credit standards. Management remains focused on this area and, as a result,
non-performing loans as of December 31, 1996 remain low at $905,000 and there
were $179,000 in repossessions as of the same date. Management actively monitors
collection activities, which include ten day delinquency letters, customer
contact by telephone, and referral to the collection supervisor for review. The
collection supervisor determines the collectibility of the debt, the potential
for an extension or workout, and a review of the Bank's collateral position. If
the loan becomes ninety days past due, actions are taken to take possession of
the collateral, charge off any deficiency balance, and pursue legal action as
necessary. Real property loan defaults are referred to legal counsel for
foreclosure action.
ALLOWANCE FOR LOAN LOSSES
In originating loans, the Bank recognizes that credit losses will be experienced
and that the risk of loss will vary with. among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan and,
in the case of a collateralized loan, the quality of the collateral for the loan
as well as general economic conditions. It is management's policy to attempt to
maintain an adequate allowance for loan losses based on, among other things,
industry standards, management's experience, the Bank's historical loan loss
experience, evaluation of economic con-
20
<PAGE> 11
ditions and regular reviews of delinquencies and loan portfolio quality.
The Bank adopted Statement of Financial Accounting Standards No. 114 "Accounting
by Creditors for Impairment of Loan," (SFASNo. 114) on January 1, 1995. Under
the new standard, a loan is considered impaired, based on current information
and events, if it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. The Bank evaluates individual loans for
impairment from internally generated watch lists and other sources. Loans
meeting the criteria for impairment may or may not be placed on non-accrual
status, based on the loans' current status. The measurement of impaired loans is
generally based on the present value of expected future cash flows discounted at
the historical effective interest rate, except that all collateral-dependent
loans are measured for impairment based on the fair value of the collateral. The
adoption of SFASNo. 114 resulted in no additional provision for credit losses.
Loans, including impaired loans, are generally classified by the Bank as
nonaccrual if they are past due as to maturity or payment of principal or
interest for a period of more than ninety (90) days, unless such loans are well
collateralized and in the process of collection. If a loan or a portion of a
loan is classified as doubtful or is partially charged off, the loan is
classified as nonaccrual. Loans that are on a current payment status or past due
less than ninety (90) days may also be classified as nonaccrual if repayment in
full of principal and/or interest is in doubt.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for credit losses until prior
charge-offs have been fully recovered.
Management continues to actively monitor the Bank's asset quality and to charge
off loans against the allowance for loan losses when appropriate or to provide
specific loan allowances when necessary. Although management believes it uses
the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in making
the final determinations.
The Bank's allowance for loan losses amounted to $1,000,000 at December 31, 1996
(.64% of total loans), an increase of $54,000 over the Bank's $946,000 allowance
for loan losses at December 31, 1995. Excluding loans held for sale of
$20,351,000 and $21,011,000 for the periods ended December 31, 1996 and December
31, 1995, respectively, the allowance for loan losses represented .73% of
portfolio loans as of December 31, 1996, and .97% as of December 31, 1995. Total
loan charge-offs for the year ended December 31, 1996 were $279,140, with
recoveries on previously charged-off loans totaling $46,487.
The Bank increased its allowance to $1,000,000 during the year ended December
31, 1996, and to $946,000 during the year ended December 31, 1995, reflecting
the growth in the loan portfolio and management's assessment of the risks
inherent in the loan portfolio.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance at beginning of year ..................... $ 946,000 $ 625,000 $ 505,000 $ 285,000 $ 175,000
------------- ------------- ------------- ------------- -------------
Additions:
Provision charged to income ........................ 286,653 482,604 221,126 295,592 160,225
Recoveries on loans previously charged off ......... 46,487 23,253 16,295 3,343 5,896
------------- ------------- ------------- ------------- -------------
Total additions .................................... 333,140 505,859 237,421 298,935 166,151
Loans charged off .................................. (279,140) (184,859) (117,421) (78,935) (56,151)
------------- ------------- ------------- ------------- -------------
Allowance at end of year ........................... $ 1,000,000 $ 946,000 $ 625,000 $ 505,000 $ 285,000
============= ============= ============= ============= =============
</TABLE>
21
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The following table sets forth the breakdown of the allowance for loan losses by
loan category for the periods indicated. Management believes that the allowance
can be allocated by category only on an approximate basis. The allocation of an
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
% of % of % of % of % of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
(IN THOUSANDS) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- -------------- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage loans............. $ 185 14% $ 44 15% $ 14 15% $ 11 18% $ 10 15%
Commercial and commercial real estate.. 494 55 458 54 306 53 280 56 160 54
Consumer loans......................... 290 32 166 31 157 32 149 26 85 31
Unallocated............................ 31 0 278 0 148 -- 65 -- 30 --
------- --- ------ --- ------- --- ------- --- ------- ---
Total allowance for loan losses........ $ 1,000 100% $ 946 100% $ 625 100% $ 505 100% $ 285 100%
======= === ====== === ======= === ======= === ======= ===
</TABLE>
Impaired loans by type of loan as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Residential mortgage loans ..........................$ 914,000 $423,000
Commercial and commercial
real estate ....................................... 533,000 344,000
Consumer loans ...................................... 31,000 32,000
---------- --------
$1,478,000 $799,000
========== ========
</TABLE>
The measurement of impaired loans is based on the fair value of the loan's
collateral. The measurement of non-collateral dependent loans is based on the
present value of expected future cash flows discounted at the historical
effective interest rate. The components for the allowance for credit losses are
as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
---------- --------
<S> <C> <C>
Impaired loans ................................ $ 331,400 $233,000
Other ......................................... 668,600 713,000
---------- --------
$1,000,000 $946,000
========== ========
</TABLE>
INVESTMENT ACTIVITIES
At December 31, 1996, the Bank's investment portfolio totalled $26,111,000,
compared to $24,073,000 at the prior year-end. The portfolio consists of U.S.
Treasury and federal agency securities, municipal bond and FHLB stock.
Maturities range from three months to thirty years with a portfolio average
maturity of approximately five years.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
(IN THOUSANDS) At December 31,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Held to Maturity (1)
U.S. Treasury securities ................$ 0 $ 0 $ 8,521
--------- --------- ---------
Available for Sale (2)
U.S. Treasury Securities ................$ 6,924 $ 12,110 $ 9,722
U.S. Government
Agencies .............................. 13,105 4,986 0
State and municipals .................... 498 498 452
--------- --------- ---------
Total debt securities ................. 20,527 17,594 10,165
FHLB stock .............................. 499 490 352
Mortgage-backed
securities ............................ 5,085 5,989 934
Other investments ....................... 0 0 37
--------- --------- ---------
Total available for sale ..............$ 26,111 $ 24,073 $ 11,488
========= ========= =========
</TABLE>
(1)carried at amortized cost
(2)carried at estimated market value
The following table summarizes the Bank's securities by maturities and weighted
average yields at December 31, 1996. Yields on tax exempt securities are stated
at their nominal rates and have not been adjusted for tax rate differences.
<TABLE>
<CAPTION>
One Year Within Five Years Within Ten Years Over Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
---------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries......................... 3,408 5.65 3,515 5.32 0 0.00 0 0.00
U.S. Agencies........................... 0 0.00 3,253 5.99 9,852 6.97 0 0.00
State and municipals.................... 0 0.00 498 5.76 0 0.00 0 0.00
</TABLE>
22
<PAGE> 13
DEPOSIT ACTIVITIES
Deposits are the major source of the Bank's funds for lending and other
investment purposes. In addition to deposits, the Bank derives funds from
interest payments, loan principal payments, loan and security sales, and funds
from operations. Scheduled loan repayments are a relatively stable source of
funds, while deposit inflows are significantly influenced by general interest
rates and money market conditions. The Bank may use borrowings on a short-term
basis if necessary to compensate for reductions in the availability of other
sources of funds, or borrowings may be used on a longer term basis for general
business purposes.
Total deposits were $177,200,000 at December 31, 1996, compared to $129,861,000
at the prior year-end, an increase of $47,339,000. The introduction of new
products and the continued focus on quality customer service contributed to
strong deposit growth. The Bank continues to develop consumer and commercial
deposit relationships through referrals and additional contacts within its
market area.
Deposits are attracted principally from within the Bank's primary market area
through the offering of a broad variety of deposit instruments, including
checking accounts, money market accounts, savings accounts, certificates of
deposit (including jumbo certificates in denominations of $100,000 or more),
and retirement savings plans. As of December 31, 1996, jumbo certificates
accounted for $22,970,000 of the Bank's deposits. The Bank has not aggressively
attempted to obtain large denomination, high interest-bearing certificates
except to address a particular funding need. In an effort to fund the rapid
growth of the loan volume originated by the Mortgage Banking Division during the
fourth quarter of 1994, the Bank offered a five year certificate of deposit and
money market product at above market rates at that time. In addition, in an
effort to find strong loan demand during 1996, the Bank offered a five year
certificate and money market product at above market rates at that time.
Although all of such deposits were originated within the Bank's market area and
substantially all were not jumbo products, the regulators required the Bank to
classify these deposits as brokered deposits because the rate exceeded 75 basis
points over the then existing market rate.
Maturity terms, service fees and withdrawal penalties are established by the
Bank on a periodic basis. The determination of rates and terms is predicated on
funds acquisition and liquidity requirements, rates paid by competitors, growth
goals and federal regulations.
The following table sets forth the average balances and weighted average rates
for the Company's categories of deposits for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- ---------------------------- ---------------------------
Average Average % of Total Average Average % of Total Average Average % of Total
Balance Rate Deposits Balance Rate Deposits Balance Rate Deposits
------- ---- -------- ------- ---- -------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest checking...............$ 21,540 0.00% 14 $ 16,010 0.00% 13 $ 11,228 0.00% 13
Interest checking and money market.. 45,027 3.85% 29 39,222 3.90% 31 29,440 3.78% 33
Savings............................. 6,963 2.21% 5 6,252 2.22% 5 5,225 2.22% 6
Certificates of deposit............. 80,344 6.27% 52 63,868 6.24% 51 43,004 5.25% 48
--------- ---- --- --------- ---- --- --------- ---- ---
Total............................$ 153,874 100 $ 125,352 100 $ 88,897 100
========= ==== === ========= ==== === ========= ==== ===
</TABLE>
At December 31, 1996, certificates of deposit represented 50.5% of the Company's
total deposits, down from 53.1% at December 31, 1995.
The Bank does not have a concentration of deposits from any one source, the loss
of which would have a material adverse effect on the business of the Bank.
Management believes that substantially all the Bank's depositors are residents
in its primary market area.
The following table summarizes at December 31, 1996 the amount of the Bank's
certificates of deposit of $100,000 or more by time remaining until maturity:
<TABLE>
<CAPTION>
Certificates of Deposit
$100,000 or greater
-------------------
<S> <C>
Maturity Period: (In thousands)
Less than three months ........................$ 3,515
Over three months through six months .......... 2,112
Over six months through twelve months ......... 6,217
Over twelve months ............................ 8,317
------------
Total .......................................$ 20,161
============
</TABLE>
23
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINED)
RETURN ON EQUITY ASSETS
The following table sets forth the Company's performance ratios for the periods
indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Return on average assets 48% 71% 50%
Return on average equity 5.24% 12.53% 8.80%
not not not
Dividend payout ratio applicable.applicable.applicable
Year-end equity to year-end
total assets 8.88% 6.26% 5.32%
</TABLE>
CAPITAL AND LIQUIDITY
Shareholders' equity was $18,814,000 at December 31, 1996 or 8.88% of total
assets, compared to $9,698,000 or 6.26% of total assets at December 31, 1995. At
December 31, 1996, the Tier I leverage ratio was 9.00%, the Tier I risk-based
capital ratio was 12.29% and the total risk-based capital ratio was 12.95%, all
in excess of FDIC guidelines for a "well-capitalized" bank.
The ALCO reviews the Bank's liquidity, which is the ability to generate
sufficient cash to meet the funding needs of current loan demand, deposit
withdrawals, and other cash demands. The primary source of funds consists of
deposits, amortization and prepayments of loans and sales of investments. The
Bank also has the ability to borrow from the FHLB and correspondent banks to
supplement its liquidity needs.
At December 31, 1996 and 1995, the liquidity ratio of the Company was 32%, well
in excess of regulatory requirements.
RECENT EVENTS
ADMINISTRATIVE OFFICES - The Company has purchased approximately 2 acres of land
located adjacent to the Bank's main office for the purpose of constructing
administrative offices. Management expects to lease space to the Bank and
possible other subsidiaries and nonrelated businesses. This new facility will
total approximately 30,000 square feet with a construction cost of approximately
$2.4 million.
ACQUISITION OF DESCHAMPS & GREGORY MORTGAGE COMPANY - On January 22, 1997, the
Bank acquired a Bradenton based mortgage company, DesChamps &Gregory Mortgage
Company, Inc. ("DesChamps"). DesChamps is a retail residential mortgage broker
which originates residential mortgage loans with business operations
concentrated in Manatee and Sarasota Counties. The Bank believes that the
acquisition of DesChamps will allow it to compete with several larger financial
institutions in its market area for residential lending business and to expand
the Bank's presence in the local market generally.
ACCOUNTING MATTERS
Derivative Financial Instruments and Fair Value of Financial Instruments: In
October 1994, FASB issued Statement of Financial Accounting Standards (SFAS) No.
119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments." The Statement requires disclosures about derivative
financial instruments-futures, forward, swap, and option contracts, and other
financial instruments with similar characteristics. It also amends existing
requirements of SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," and SFAS 107, "Disclosures about Fair Value of
Financial Instruments." This Statement requires disclosures about amounts,
nature, and terms of derivative financial instruments that are not subject to
SFAS No. 105 because they do not result in off-balance-sheet risk of accounting
loss. It requires that a distinction be made between financial instruments held
or issued for trading purposes (including dealing and other trading activities
measured at fair value with gains and losses recognized in earnings) and
financial instruments held or issued for purposes other than trading. SFAS No.
119 is effective for financial statements for fiscal years beginning after
December 15, 1995 for all entities. As SFAS No. 119 relates only to disclosure
issues, there was no impact on the financial position of the Bank upon adoption.
Impairment of Long-Lived Assets: SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of," issued by the
Financial Accounting Standards Board (FASB) in March 1995, was effective for the
Bank January 1, 1996. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows
24
<PAGE> 15
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of an impairment loss for long-lived assets and
identifiable intangibles that an entity expects to hold and use should be based
on the fair value of the asset. The adoption of SFAS No. 121 had no impact on
the Bank's financial statements.
Mortgage Banking Activities: In May 1995, the FASB issued Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Right" (SFAS
No, 122). SFAS No. 122 amends SFAS 65, "Accounting for Certain Mortgage Banking
Activities," to require that a mortgage banking enterprise recognize an asset
for rights to service mortgage loans for other regardless of the manner in which
those servicing rights are acquired. It also requires an enterprise to assess
its capitalized mortgage servicing rights for impairment based on the fair value
of those rights. In assessing impairment, mortgage servicing rights that are
capitalized after the adoption of this Statement are stratified based on one or
more of the predominant risk characteristics of the underlying loans. Impairment
is then recognized through a valuation allowance for each impaired stratum. The
Bank no longer retains the servicing rights for mortgage loans sold. The
adoption of SFAS No. 122, therefore, had no impact on the Bank's financial
statements.
Transfers and Servicing of financial Assets and Extinguishments of Liabilities:
In June 1996, Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," (SFAS No. 125) was issued. SFAS No. 125 provides accounting and
reporting standards based on a control-oriented "financial-components" approach.
Under that approach, after a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS No. 125 is effective on a
prospective basis January 1, 1997. The Bank does not anticipate that the
adoption of the Statement will have a material impact on the Bank's financial
statements.
Earnings Per Share: In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," (SFAS No. 129). SFAS No. 129 specifies the computation, presentation and
disclosure requirements for earnings per share and is effective for financial
statements issued for periods ending after December 15, 1997. Management has not
determined the impact that the adoption of this will have on the financial
statements.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data concerning the Company have
been prepared in accordance with generally accepted accounting principles, with
the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operations of the Company is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, changes in interest rates have
a more significant impact on the performance of a financial institution than do
the effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.
25
<PAGE> 16
American Bancshares, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Cash and due from banks ................................................... $ 15,044,908 $ 5,767,649
Federal funds sold ........................................................ 6,000,000 1,000,000
Loans held for sale ....................................................... 20,351,204 21,011,114
Investment securities available for sale (at aggregate fair value) ........ 26,110,712 24,073,233
Loans receivable (net of allowance for loan losses and deferred
loan fees/costs of $395,463 in 1996 and $493,566 in 1995) ............. 135,108,438 97,479,638
Premises and equipment, net ............................................... 6,878,589 4,071,595
Other assets .............................................................. 2,471,477 1,545,191
------------ ------------
Total assets ........................................................ $211,965,328 $154,948,420
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposit accounts ...................................................... $177,202,633 $129,860,904
Securities sold under agreements to repurchase ........................ 10,112,986 9,566,668
Federal home loan bank advances ....................................... 5,000,000 5,000,000
Other liabilities ..................................................... 835,802 822,379
------------ ------------
Total liabilities ................................................. 193,151,421 145,249,951
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 13)
SHAREHOLDERS' EQUITY
Common stock - $1.175 par value; authorized 10,000,000 shares at December
31, 1996 and 10,000,000 at December 31, 1995; issued 4,001,744 and
2,401,070 shares at December 31, 1996 and 1995,
respectively ........................................................... 4,702,049 2,821,257
Additional paid-in capital................................................ 11,736,471 5,257,877
Unrealized gain (loss) on investment securities available for sale, net of
tax of $(49,145) and $25,000 at December 31, 1996 and
1995, respectively ..................................................... (79,951) 47,486
Retained earnings......................................................... 2,455,338 1,571,849
------------ ------------
Total shareholders' equity ............................................. 18,813,907 9,698,469
------------ ------------
Total liabilities and shareholders' equity ............................. $211,965,328 $154,948,420
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 17
American Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Interest income:
Interest and fees on loans ............................................ $ 12,590,883 $ 9,914,496
Interest on federal funds sold ........................................ 237,408 195,857
Interest on investment securities ..................................... 1,720,060 1,298,366
------------ ------------
Total interest income .............................................. 14,548,351 11,408,719
------------ ------------
Interest expense:
Deposits .............................................................. 6,926,587 5,655,161
Borrowings ............................................................ 484,591 355,887
------------ ------------
Total interest expense ............................................. 7,411,178 6,011,048
------------ ------------
Net interest income before provision for loan losses ............... 7,137,173 5,397,671
Provision for loan losses ................................................. 286,654 482,604
------------ ------------
Net interest income after provision for loan losses ................ 6,850,519 4,915,067
------------ ------------
Other income .............................................................. 1,834,059 1,472,774
------------ ------------
Other expenses ............................................................ 7,279,136 4,796,957
------------ ------------
Income before income tax provision ................................. 1,405,442 1,590,884
Income tax provision ...................................................... 521,953 572,975
------------ ------------
Net income ......................................................... $ 883,489 $ 1,017,909
============ ============
Net income per common share:
Primary earnings ...................................................... $ 0.24 $ 0.46
============ ============
Weighted average shares outstanding ....................................... 3,718,502 2,234,070
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 18
American Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gains/
(Losses) on
Investment
Common Stock Additional Securities
---------------------------------------
Authorized Outstanding Paid-In Retained Available
Shares Shares Par Value Capital Earnings for Sale, Net Total
----------- --------- ------------ ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 ..... 4,000,000 2,100,920 $ 2,468,581 $ 4,270,251 $ 553,940 $ (485,923) $ 6,806,849
Sale of stock ................ 0 300,150 352,676 987,626 0 0 1,340,302
Change in net unrealized
gain on investment
securities available for
sale ...................... 0 0 0 0 0 533,409 533,409
Net income ................... 0 0 0 0 1,017,909 0 1,017,909
Increase in authorized shares
resulting from formation
of holding company
(see Note 19) ............. 6,000,000 0 0 0 0 0 0
----------- --------- ------------ ------------- ------------- ---------- -------------
Balance, December 31,
1995 ...................... 10,000,000 2,401,070 $ 2,821,257 $ 5,257,877 $ 1,571,849 $ 47,486 $ 9,698,469
Sale of stock 0 1,600,674 1,880,792 6,478,594 0 0 8,359,386
Change in net unrealized
gain on investment
securities available for
sale ...................... 0 0 0 0 0 (127,437) (127,437)
Net income ................... 0 0 0 0 883,489 0 883,489
----------- --------- ------------ ------------- ------------- ---------- -------------
Balance, December 31,
1996 ...................... 10,000,000 4,001,744 $ 4,702,049 $ 11,736,471 $ 2,455,338 $ (79,951) $ 18,813,907
=========== ========= ============ ============= ============= ========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 19
American Bancshares, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................................................ $ 883,489 $ 1,017,909
------------ ------------
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax credit ................................................................ (359,411) (261,300)
Depreciation ....................................................................... 402,976 276,051
Amortization of investment securities .............................................. 120,064 29,118
Provision for loan losses .......................................................... 286,654 482,604
Gain on sale of investment securities available for sale ........................... (105,826) (36,310)
Gain on sale of loans .............................................................. (190,624) (321,499)
Gain on sale of mortgage servicing rights .......................................... (323,378) (210,327)
Gain on sale of assets ............................................................. 0 (42,976)
Origination of loans held for sale ................................................. (38,628,254) (42,845,175)
Proceeds from sales of loans held for sale ......................................... 38,158,995 42,480,846
Increase in deferred loan costs .................................................... 150,103 25,079
Increase in other liabilities ...................................................... 371,011 361,635
Increase in other assets ........................................................... (699,012) (263,737)
------------ ------------
Total adjustments ............................................................... (816,702) (325,991)
------------ ------------
Net cash provided by operating activities ....................................... 66,787 691,918
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net loans to customers ................................................................ (36,522,219) (22,229,401)
Purchases of bank premises and equipment .............................................. (3,202,104) (1,348,094)
Proceeds on sales of assets ........................................................... 0 96,000
Proceeds from maturities of held to maturity investment securities .................... 0 500,000
Proceeds from sales and maturities of available for sale investment securities ........ 39,096,758 6,070,642
Purchases of held to maturity investment securities ................................... 0 (4,000,000)
Purchases of available for sale investment securities ................................. (41,455,883) (5,808,348)
Recoveries on loans charged off ....................................................... 46,487 23,255
------------ ------------
Net cash used in investing activities .............................................. (42,036,961) (26,695,946)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW money market and savings accounts ..... 26,871,180 (1,127,910)
Net increase in time deposits ......................................................... 20,470,549 15,646,788
Net increase in securities sold under agreements to repurchase ........................ 546,318 4,189,176
Proceeds from advances from Federal Home Loan Bank .................................... 0 5,000,000
Proceeds from stock sale .............................................................. 8,359,386 1,340,302
------------ ------------
Net cash provided by financing activities .......................................... 56,247,433 25,048,356
------------ ------------
Net increase (decrease) in cash and cash equivalents ..................................... 14,277,259 (955,672)
Cash and cash equivalents at beginning of year ........................................... 6,767,649 7,723,321
------------ ------------
Cash and cash equivalents at end of year ................................................. $ 21,044,908 $ 6,767,649
============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid ......................................................................... $ 7,224,428 $ 5,863,000
============ ============
Income taxes paid ..................................................................... $ 536,500 $ 434,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION:
American Bancshares, Inc. (Holding Company) is a one-bank holding company,
operated under the laws of the State of Florida. Its wholly owned banking
subsidiary is American Bank of Bradenton (Bank), a state-chartered bank. The
Holding Company, a Florida corporation organized June 30, 1995, is a registered
bank holding company under the Bank Holding Company Act of 1956, as amended and
on December 1, 1995 became the bank holding company for the Bank. The Bank was
incorporated on December 6, 1988 and opened for business on May 8, 1989. The
Bank is a general commercial bank with all the rights, powers, and privileges
granted and conferred by the Florida Banking Code. Although the Holding Company
was not formed until June 30, 1995 and did not acquire the Bank until December
1, 1995, the financial statements have been presented as if the Holding Company
had been in existence since the Bank was formed in 1988 and as if the Bank was
its wholly owned subsidiary since that time.
2 SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
The accounting and reporting policies of the Holding Company and Bank conform to
generally accepted accounting principles and general practice within the banking
industry. Following is a description of the more significant of those policies:
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Holding Company and its wholly-owned subsidiary, American Bank
of Bradenton, collectively referred to herein as the Company. All significant
intercompany accounts and transactions have been eliminated.
INVESTMENT SECURITIES: Investment securities are classified in the following
categories:
HELD TO MATURITY--Securities that management has the intent and the Company
has the ability at the time of purchase to hold until maturity are classified
as securities held to maturity. Securities in this category are carried at
amortized cost. Sales of securities classified as held to maturity are
prohibited except under rare circumstances. If a security has a decline in
fair value below its amortized cost that is other than temporary, then the
security will be written down to its new cost basis by recording a loss in
the statements of operations. The Company currently has no securities
classified as held to maturity securities.
AVAILABLE FOR SALE--Securities to be held for indefinite periods of time and
not intended to be held to maturity are classified as available for sale.
Assets included in this category are those assets that management intends to
use as part of its asset/liability management strategy and that may be sold
in response to changes in interest rates, resultant prepayment risk and other
factors related to interest rate and resultant prepayment risk changes.
Securities available for sale are recorded at fair value. Both unrealized
gains and losses on securities available for sale, net of taxes, are included
as a separate component of shareholders' equity in the consolidated balance
sheets until these gains or losses are realized. If a security has a decline
in fair value that is other than temporary, then the security will be written
down to its fair value by recording a loss in the consolidated statements of
operations.
TRADING SECURITIES--Securities that are held principally for the purpose of
selling in the near future are classified as trading securities. These
securities are recorded at fair value. Both unrealized gains and losses are
included in the statement of operations. The Company currently has no
securities classified as trading securities.
Gains or losses on the disposition of investment securities are recognized using
the specific identification method.
LOANS: Loans are carried at the principal amount outstanding, net of deferred
loan fees and/or origination costs. Interest is accrued on a simple-interest
basis. Loans are charged to the allowance for loan losses at such time as
management considers them uncollectible in the normal course of business.
Accrual of interest is discontinued on a loan, including impaired loans, when
management believes, after considering economic and business conditions and
collection efforts, the borrowers' financial condition is such that collection
of interest is doubtful. Classification of a loan as nonaccrual is not
necessarily indicative of a potential loss of principal. Collections of interest
and principal on nonaccrual loans are generally applied as a reduction to
principal outstanding.
ALLOWANCE FOR LOAN LOSSES: The Company adheres to an internal asset review
system and allowance for loan losses
30
<PAGE> 21
methodology designed to provide for the detection of problem assets and to
provide an adequate general valuation allowance to cover loan losses. A
provision for loan losses is charged to operations based on management's
evaluation of potential losses in the loan portfolio. The provision is based on
an analysis of the loan portfolio, economic conditions, historical loan loss
experience, changes in the nature and volume of the loan portfolios and
management's assessment of the inherent risk in the portfolio in relation to the
level of the allowance for loan losses. While management uses the best
information available to make these evaluations, future adjustments to the
allowance may be necessary if economic conditions differ from the assumptions
used in preparing the evaluation. The Company also establishes provisions on a
specific loan basis when an identified problem becomes known. Ultimate losses
may vary from the current estimates and any adjustments, as they become
necessary, are reported in earnings in the periods in which they become known.
When a loan or portion of a loan, including an impaired loan, is determined to
be uncollectible, the portion deemed uncollectible is charged against the
allowance, and subsequent recoveries, if any, are credited to the allowance.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS: Loans, including impaired
loans, are generally classified as nonaccrual if they are past due as to
maturity or payment of principal or interest for a period of more than 90 days,
unless such loans are well-collateralized and in the process of collection. If a
loan or a portion of a loan is classified as doubtful or is partially charged
off, the loan is classified as nonaccrual. Loans that are on a current payment
status or past due less than 90 days may also be classified as nonaccrual if
repayment in full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable period of time, and there is a sustained period of
repayment performance (generally a minimum of six months) by the borrower, in
accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior charge-offs
have been fully recovered.
LOANS HELD FOR SALE: Mortgage loans originated or purchased and intended for
sale in the secondary market are carried at the lower of cost or market as
determined by outstanding commitments from investors or current investor yield
requirements, calculated on the aggregate loan basis. Net unrealized losses, if
any, are recognized in a valuation allowance by charges to earnings. All loans
sold are subject to recourse. The recourse provisions relate to documentation
deficiencies only, which the Company may correct. Gains and losses resulting
from the sales of these loans are recognized in the period the sale occurs, as
the recourse provisions are not considered to significantly affect the earnings
process. Mortgage loan servicing fees are earned concurrently with the receipt
of the related mortgage payments.
The Company adopted Statement of Financial Accounting Standards No. 122,
"Acounting for Mortgage Servicing Rights," (SFAS No. 122) effective January 1,
1996, which requires the Company to recognize an asset for rights to service
mortgage loans for others regardless of the manner in which those servicing
rights are acquired. It also requires the Company to assess its capitalized
mortgage servicing rights for impairment based on the fair value of those
rights. The value of mortgage servicing rights related to loans sold during 1966
was $226,000. The Company had no valuation allowance for capitalized mortgage
servicing rights as of December 31, 1996.
LOAN FEES: Loan origination fees and certain direct loan origination costs are
deferred and amortized as a yield adjustment, using a method which approximates
the interest method, over the contractual lives of the loans. The net of
deferred origination fees and deferred origination costs is presented as an
adjustment of loans receivable in the accompanying balance sheets.
During 1994, the Company implemented a program of purchasing consumer loans
collateralized by automobiles from local auto dealers. In conjunction with this
program, the Company pays a premium represented by the present value
differential of the yield required by the Company and the underlying loan
interest rate. The premium paid is amortized as a yield adjustment, using the
interest method, over the contractual lives of the loans. If the loan prepays,
the Company has recourse against the auto dealer for any unamortized premiums.
At December 31, 1996 and 1995, the unamortized premiums totaled $459,541 and
$410,450, respectively.
31
<PAGE> 22
NOTES CONTINUED
OTHER REAL ESTATE OWNED: Other real estate owned includes properties acquired
through foreclosure or acceptance of deeds in lieu of foreclosure. These
properties are recorded on the date acquired at the lower of fair value minus
estimated costs to sell or the recorded investment in the related loan. If the
fair value minus estimated costs to sell the property acquired is less than the
recorded investment in the related loan, the resulting loss is charged to the
allowance for loan losses. The resulting carrying value established at the date
of foreclosure becomes the new cost basis for subsequent accounting. After
foreclosure, if the fair value minus estimated costs to sell the property
becomes less than its cost, the deficiency is charged to the provision for
losses on other real estate owned or charged directly to the asset. Costs
relating to the development and improvement of the property are capitalized,
whereas those relating to holding the property for sale are charged to expense.
Gains and losses on the disposition of other real estate owned are charged to
operations as incurred. The Company had no other real estate owned at December
31, 1996 and 1995.
PREMISES AND EQUIPMENT: Premises and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives of the
related assets. Maintenance, repairs and minor improvements are charged to
operating expenses as incurred. Major improvements and betterments are
capitalized. Upon retirement or other disposition of the assets, the applicable
cost and accumulated depreciation are removed from the accounts and any gains or
losses are included in operations.
INCOME TAXES: The Holding Company and its banking subsidiary file consolidated
income tax returns. Deferred tax assets or liabilities are computed based on
the difference between the financial statement and income tax bases of assets
and liabilities using the enacted marginal tax rate. Deferred income tax
expenses or credits are based on the changes in the asset or liability from
period to period. The effect on deferred income taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.
STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold.
EARNINGS PER SHARE: Earnings per share are based on the weighted average number
of common shares outstanding plus common equivalent shares from the dilutive
stock warrants using the treasury stock method. The weighted average number of
common shares outstanding was 3,718,502 and 2,234,070 for 1996 and 1995,
respectively. All references in the consolidated financial statements to
weighted average shares have been restated to reflect stock dividends declared.
RECLASSIFICATION: Certain amounts in the 1995 financial statements have been
reclassified to conform with the current year presentation. Such
reclassification had no impact on total assets, equity, net income or total cash
flow balances previously reported.
32
<PAGE> 23
3 INVESTMENT
SECURITIES:
The amortized costs and approximate fair value of investment securities
available for sale at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury securities .................................$ 6,963,521 $ 8,193 $ (48,264) $ 6,923,450
U.S. Government agencies ................................. 13,227,152 0 (122,400) 13,104,752
State and municipals ..................................... 499,639 0 (1,258) 498,381
--------------- --------------- ------------- ---------------
Total debt securities ................................. 20,690,312 8,193 (171,922) 20,526,583
--------------- --------------- ------------- ---------------
FHLB stock ............................................... 499,100 0 0 499,100
Mortgage-backed securities ............................... 5,050,396 47,951 (13,318) 5,085,029
--------------- --------------- ------------- ---------------
Total available for sale ..............................$ 26,239,808 $ 56,144 $ (185,240) $ 26,110,712
=============== =============== ============= ===============
<CAPTION>
1995
--------------------------------------------------------------------
AVAILABLE FOR SALE:
U.S. Treasury securities .................................$ 12,010,641 $ 128,483 $ (29,584) $ 12,109,540
U.S. Government agencies ................................. 4,997,615 7,005 (18,787) 4,985,833
State and municipals ..................................... 499,409 0 (934) 498,475
--------------- --------------- ------------- ---------------
Total debt securities ................................. 17,507,665 135,488 (49,305) 17,593,848
--------------- --------------- ------------- ---------------
FHLB stock ............................................... 490,200 0 0 490,200
Mortgage-backed securities ............................... 6,002,882 9,390 (23,087) 5,989,185
--------------- --------------- ------------- ---------------
Total available for sale ..............................$ 24,000,747 $ 144,878 $ (72,392) $ 24,073,233
=============== =============== ============= ===============
</TABLE>
The amortized cost and approximate fair value of investments at December 31,
1996, by scheduled maturity, are shown below. Scheduled maturities may differ
from actual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED APPROXIMATE
COST FAIR VALUE
------------ ------------
<S> <C> <C>
Due in one year or less.......... $ 3,400,399 $ 3,408,139
Due after one year through
five years..................... 7,357,471 7,266,236
Due after five years through
ten years...................... 9,932,442 9,852,207
------------ ------------
Total debt securities........ 20,690,312 20,526,582
FHLB stock....................... 499,100 499,100
Mortgage-backed securities....... 5,050,396 5,085,030
------------ ------------
$ 26,239,808 $ 26,110,712
============ ============
</TABLE>
Proceeds from the sale of investment securities available for sale during the
years ended December 31, 1996 and 1995 were $27,563,000 and $5,764,632,
respectively. Gross gains of $157,500 and $37,000 were realized on these sales
for the years ended December 31, 1996 and 1995, respectively. Gross losses of
$51,700 and $1,000 were realized on these sales for the years ended December 31,
1996 and 1995, respectively.
At December 31, 1996, the Company had pledged securities with a carrying value
of approximately $505,000 and market value of approximately $493,000 to the
State of Florida for public fund deposits. The current value of pledged
securities is adequate to meet the pledging requirements.
33
<PAGE> 24
NOTES CONTINUED
4 LOANS
RECEIVABLE, NET:
The Company's loan portfolio consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Residential mortgage loans,
substantially all single-family$ ................... 18,695,342 $ 14,723,358
Commercial and commercial
real estate loans .................................. 74,538,560 52,600,026
Consumer loans ....................................... 42,269,999 30,649,820
------------- -------------
135,503,901 97,973,204
Less allowance for loan losses ....................... (1,000,000) (946,000)
Net deferred costs (unearned fees) ................... 604,537 452,434
------------- -------------
Loans, net ......................................... $ 135,108,438 $ 97,479,638
============= =============
</TABLE>
The Company grants and purchases real estate, commercial and consumer loans
throughout Florida, with a majority in the Sarasota and Manatee County area.
Although the Company has a diversified loan portfolio, a significant portion of
its debtors' ability to honor their contracts is dependent primarily upon the
economy of Sarasota and Manatee counties, Florida and general economic
conditions.
A summary of activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Balance at beginning of year ......................... $ 946,000 $ 625,000
Provision charged to income .......................... 286,653 482,604
Recoveries on loans previously
charged off ........................................ 46,487 23,255
Loans charged off .................................... (279,140) (184,859)
------------- -------------
Balance at end of year ............................... $ 1,000,000 $ 946,000
============= =============
</TABLE>
In management's opinion, the allowance is adequate to reflect the risk in the
loan portfolio.
LOANS TO OFFICERS AND DIRECTORS--In the course of its business, the Company has
granted loans to executive officers, directors and principal stockholders of the
Company and to entities to which they are related. As of December 31, 1996 and
1995, loans to such parties were as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Balance at beginning of year ......................... $ 6,138,000 $ 3,963,000
New loans ............................................ 2,071,838 3,214,521
Repayments on loans .................................. (1,688,432) (1,039,521)
------------- -------------
Balance at end of year ............................... $ 6,521,406 $ 6,138,000
============= =============
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans for which
impairent has been recognized totaled approximately $1,478,000 and $799,000,
respectively. The total allowance for loan losses related to these loans was
approximately $331,400 and $233,000 at December 31, 1996 and 1995, respectively.
Interest income on impaired loans of approximately $87,000 and $80,000 was
recognized for cash payments received in 1996 and 1995, respectively. For the
years ended December 31, 1996 and 1995, the average recorded investment in
impaired loans was $1,139,000 and $477,000, respectively.
At December 31, 1996 and 1995, the Company had approximately $905,000 and
$18,000 in nonaccrual loans, respectively. For the year ended December 31, 1996,
the amount of interest income not recorded related to nonaccrual loans was
approxmately $60,720. Interest income that would have been earned on the
nonaccrual loans for the year ended December 31, 1995 was immaterial. At
December 31, 1996 and 1995, there were no accruing loans that were 90 days or
more past due.
5 PREMISES
AND EQUIPMENT
A summary of premises and equipment at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Land ................................................. $ 2,792,263 $ 1,795,151
Building and improvements ............................ 2,844,277 1,593,141
Furniture, fixtures, and equipment ................... 2,446,909 1,485,757
------------- -------------
8,083,449 4,874,049
Less accumulated depreciation ........................ (1,204,860) (802,454)
------------- -------------
$ 6,878,589 $ 4,071,595
============= =============
</TABLE>
Depreciation expense totaled $402,976 and $276,051 for the years ended December
31, 1996 and 1995, respectively.
34
<PAGE> 25
6 LOAN
SERVICING:
Mortgage loan serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $19,781,866 and $9,462,179 at December 31, 1996 and
1995, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were approximately $34,675 and
$25,955 at December 31, 1996 and 1995, respectively.
Mortgage servicing rights of $254,783 were capitalized in 1996. Amortization of
mortgage servicing rights during 1996 was $28,901.
7 DEPOSITS
ACCOUNTS
Deposits consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Demand ..........................$ 26,281,696 $ 19,617,269
NOW ............................. 13,081,210 10,138,011
Money market .................... 42,040,356 24,864,048
Savings ......................... 6,338,853 6,251,607
------------- --------------
87,742,115 60,870,935
------------- --------------
Certificate accounts:
Under $100,000 ................ 58,037,837 46,550,442
Over $100,000 ................. 20,161,471 13,833,085
IRAs .......................... 11,261,210 8,606,442
------------- --------------
89,460,518 68,989,969
------------- --------------
$ 177,202,633 $ 129,860,904
============= ==============
</TABLE>
The aggregate amount of certificates of deposit of $100,000 or more at December
31, 1996 and 1995 was approximately $21,482,000 and $14,638,000, respectively.
A summary of certificate accounts at December 31, 1996 and 1995 by year of
scheduled maturity follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Due within one year .................................. $ 32,807,388 $ 26,349,243
Due after one year through
two years .......................................... 12,455,878 9,344,845
Due after two years through
three years ........................................ 18,905,335 8,091,144
Due after three years through
four years ......................................... 7,680,533 17,458,306
Due after four years ................................. 17,611,384 7,746,431
------------- -------------
$ 89,460,518 $ 68,989,969
============= =============
</TABLE>
Interest expense on deposit accounts is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Interest on NOW accounts and
money market deposit accounts ...................... $ 1,735,056 $ 1,529,321
Interest on savings accounts ......................... 153,948 139,955
Interest on certificate accounts ..................... 5,037,583 3,986,885
------------- -------------
$ 6,926,587 $ 5,656,161
============= =============
</TABLE>
8 SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE:
The Company enters into sales of securities under agreements to repurchase.
Repurchase agreements are treated as financings, and the obligations to
repurchase securities sold are reflected as a liability in the consolidated
balance sheets. The dollar amount of securities underlying the agreements
remains in the asset accounts. The securities sold under repurchase agreements
remain in the custody of a third-party trustee. The Company may have sold,
loaned, or otherwise disposed of such securities in the normal course of its
operations and has agreed to maintain substantially identical securities during
the agreements. The agreements mature within 30 days.
Information related to the Company's securities sold under repurchase agreements
(including accrued interest) at December 31, 1996 and 1995, segregated by the
type of
35
<PAGE> 26
NOTES CONTINUED
securities sold and by due date of the agreement, is presented below:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Average balance during the year ...................... $ 9,660,214 $ 9,539,165
Average interest rate during the year ................ 4.08% 3.60%
Maximum month-end balance
during the year .................................... $ 10,557,098 $ .12,302,837
U.S. Treasury securities underlying
the agreements at year-end:
Carrying value ................................... $ 11,242,138 $ .12,109,540
Fair value ....................................... 11,153,493 12,109,540
</TABLE>
9 FEDERAL HOME LOAN
BANK ADVANCES:
Each Federal Home Loan Bank (FHLB) is authorized to make advances to its member
associations, subject to such regulations and limitations as the FHLB may
prescribe. The Bank's borrowings from the FHLB of Atlanta are as follows at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
MATURITY RATE 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
June 1996 5.73% $ 0 $ 5,000,000
October 1998 6.31% 5,000,000 0
------------ ------------
$ 5,000,000 $ 5,000,000
============ ============
</TABLE>
The FHLB requires that the Bank maintain qualifying mortgages and all of the
Company's FHLB stock as collateral for its advances. In addition, all of the
Bank's FHLB stock is pledged as collateral for such advances. As of December 31,
1996, the Bank has a credit availability of $11,500,000.
10 INCOME
TAXES:
The Company's provision for income taxes consisted of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current:
Federal ......................... $ 491,300 $ 763,835
State ........................... 29,200 70,440
------------ ------------
520,500 834,275
------------ ------------
Deferred:
Federal ......................... (38,500) (251,900)
State ........................... (3,700) (9,400)
------------ ------------
(42,200) (261,300)
------------ ------------
$ 478,300 $ 572,975
============ ============
</TABLE>
Deferred income taxes consisted of the following for the years ended December
31:
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Provision for loan losses ......... $ (7,700) $ (102,000)
Deferred loan fees ................ (39,700) (26,300)
Depreciation ...................... (15,200) 30,200
Cash to accrual adjustment ........ 57,900 (72,200)
Loans held for sale ............... 3,700 (90,300)
Other ............................. (41,200) (700)
----------- ------------
$ (42,200) $ (261,300)
=========== ============
</TABLE>
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities recorded for financial reporting purposes and
such amounts as measured in accordance with tax laws. In general, these
temporary differences are more inclusive than timing differences recognized
under previously applicable accounting principles. The items which comprise a
significant portion of deferred tax assets and liabilities at December 31, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Deferred tax assets:
Book over tax bad debts ......... $ 283,400 $ 291,200
Market value of loans
held for sale ................. 94,000 90,300
Other ........................... 0 10,100
------------ ------------
Deferred tax assets ........... 377,400 391,600
Deferred tax liabilities:
Loan origination fees ........... (54,700) (15,000)
Cash to accrual adjustment ...... (116,800) (165,300)
Tax over book depreciation ...... (86,800) (71,500)
Other ........................... (30,900) (9,400)
------------ ------------
Deferred tax liabilities ...... (289,200) (261,200)
------------ ------------
Net deferred tax asset ........ $ 88,200 $ 130,400
============ ============
</TABLE>
The Company's effective income tax rates of 37% and 36% for the years ended
December 31, 1996 and 1995, respectively, vary from the statutory federal income
tax rate of 34% due primarily to state income taxes of 5.5% net of federal tax
benefits.
36
<PAGE> 27
11 OTHER
INCOME:
Other income consisted of the following for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Service charges
on deposit accounts ................................ $ 733,258 $ 555,697
Broker loan fees ..................................... 32,807 38,350
Net gains on sales
of investment securities ........................... 105,825 36,310
Net gains on sales of loans
held for sale ...................................... 190,624 321,499
Merchant fees on credit cards ........................ 262,061 97,114
Mortgage servicing fees .............................. 50,007 55,503
Net gain on sales of servicing rights ................ 323,377 210,327
Net gain on sales of assets .......................... 0 63,515
Other ................................................ 136,100 94,459
------------- -------------
$ 1,834,059 $ 1,472,774
============= =============
</TABLE>
12 OTHER
EXPENSES:
Other expenses consisted of the following for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Compensation and related benefits .................... $ 3,470,130 $ 2,276,104
Occupancy and equipment .............................. 849,960 705,853
FDIC insurance ....................................... 35,181 164,478
Data processing ...................................... 740,140 405,708
Advertising and promotion ............................ 319,507 135,284
Printing supplies and postage ........................ 322,445 224,191
Directors fees and expenses .......................... 123,952 97,063
Professional fees .................................... 243,934 187,367
ATM fees ............................................. 100,327 86,375
Intangible taxes ..................................... 126,235 75,873
Other ................................................ 947,325 438,661
------------- -------------
$ 7,279,136 $ 4,796,957
============= =============
</TABLE>
Loan origination costs of approximately $380,000 and $342,000 in 1996 and 1995,
respectively, have been offset against compensation and related benefits.
13 FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK:
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby
letters of credit, and credit cards. They involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized on the
balance sheet. The contract or notional amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments. The Company has no financial instruments with off-balance sheet
risk that are held for trading purposes.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of the instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. As of December 31, 1996 and 1995 financial instruments with
off-balance sheet risk were as follows:
<TABLE>
<CAPTION>
CONTRACTUAL OR NOTIONAL AMOUNTS 1996 1995
------------- -------------
<S> <C> <C>
Commitments to extend credit ......................... $ 27,601,000 $ 21,738,000
Standby letters of credit ............................ $ 373,000 $ 388,000
Credit cards ......................................... $ 4,258,000 $ 450,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
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 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 counter-party. Collateral held varies but
may include accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.
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
37
<PAGE> 28
NOTE CONTINUED
issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The guarantees are
short-term, expiring in 1996.
14 EMPLOYEE BENEFIT AND
STOCK OPTION PLAN:
The Company has a qualified plan under Section 401(k) of the Internal Revenue
Code (Plan) for all employees meeting certain eligibility requirements. The Plan
allows participants to make annual contributions equal to 15% or less of the
participant's compensation up to a maximum allowed by Internal Revenue Service
regulation. The Company may match a percentage of the participant's
contributions. Plan contributions by the Company for the year ended December 31,
1996 and 1995 were approximately $12,000 and $10,000, respectively. During 1996,
the Company also adopted an Incentive Stock Option Plan (Incentive Plan) whereby
up to 150,000 shares of the Company's common stock may be granted to employees
at not less than 100% of the fair market value of the stock at the date of
grant. No options have been granted under the Incentive Plan.
15 SHAREHOLDERS'
EQUITY:
The Company's current policy is to retain all earnings to fund operations.
Future dividend payments will be at the discretion of the Board of Directors of
the Company and will be dependent upon several factors, including State and
Federal banking regulations that impose limitations on such payments.
The following table summarizes the activity of the Company's issued and
outstanding warrants and their corresponding exercise prices:
<TABLE>
<CAPTION>
ORIGINAL
DIRECTOR WARRANTS 1992 WARRANTS 1994 WARRANTS
--------------------- --------------------- --------------------
WARRANTS EXERCISE WARRANTS EXERCISE WARRANTS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE OUTSTANDING PRICE
--------------------- --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995............................. -- $2.71 227,126 $4.00 144,606 $6.00
Warrants exercised................................... -- -- (208,532) 4.00 (4,400) 6.00
Warrants issued...................................... -- -- -- -- 87,018 6.00
--------------------- --------------------- --------------------
Balance, December 31, 1995........................... -- $2.71 18,594 $4.00 227,224 $6.00
Warrants exercised................................... -- -- -- -- (163,695) 6.00
--------------------- --------------------- --------------------
Balance, December 31, 1996........................... -- $2.71 18,594 $4.00 63,529 $6.00
===================== ===================== ====================
</TABLE>
16 DIVIDEND
RESTRICTIONS:
State banking regulations limit the amount of dividends that may be paid by the
Bank to its Parent without prior approval of regulatory agencies. The amount of
dividends that may be paid is based on the net profits of the current year
combined with retained net profits of the preceding two years as defined by
state banking regulations. At December 31, 1996, approximately $2,445,000 are
available for payment of dividends without prior regulatory approval.
17 FAIR VALUES OF
FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires that the Company disclose estimated
fair values for its financial instruments. Fair value is defined as the price at
38
<PAGE> 29
which a financial instrument could be liquidated in an orderly manner over a
reasonable time period under present market conditions. Fair values estimates,
methods and assumptions are set forth below for the Company's financial
instruments.
CASH AND DUE FROM BANK--For cash and due from banks, the carrying amount is a
reasonable estimate of fair value.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES--The fair value of investments and
mortgage-backed securities is estimated based on bid prices published in
financial newspapers or bid quotations received from securities dealers.
LOANS RECEIVABLE--The estimated fair value of the Com-pany's fixed rate loans
was calculated by discounting contractual cash flows adjusted for current
prepayment estimates. The discount rates were based on the interest rate charged
to current customers for comparable loans. The Company's adjustable rate loans
reprice frequently at current market rates. Therefore, the fair value of these
loans has been estimated to be approximately equal to their carrying amount.
The impact of delinquent loans on the estimation of the fair values described
above is not considered to have a material effect and, accordingly, delinquent
loans have been disregarded in the valuation methodologies used.
DEPOSIT LIABILITIES--The fair value of deposits with no stated maturity, such as
demand, NOW, money market and savings is equal to the amount payable on demand
as of December 31, 1996. The fair value of time deposits is estimated using the
rates currently offered for deposits of similar remaining maturities.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS--At December 31, 1996, the Company
had approximately $10,113,000 of securities sold under repurchase agreements.
The repurchase agreements outstanding at December 31, 1996 mature within 30
days. The estimated fair value of these agreements approximates the carrying
value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT--The fair value of
commitments to extend credit is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For fixed
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of standby
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations with
the counterparties.
FHLB ADVANCES--Cash flow from fixed rate borowings are discounted at a spread to
the zero Treasury curve which equates to the LIBOR yield. Maturing borrowings
are rolled into 12-month FHLB advances.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------
1996 1995
--------------------------------- --------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from bank ...................................$ 15,045 $ 15,045 $ 5,768 $ 5,768
Federal funds sold ....................................... 6,000 6,000 0 0
Loans held for sale ...................................... 20,351 20,414 21,011 21,253
Investment securities available for sale ................. 26,111 26,111 24,073 24,073
Loans receivable, net of allowance for loan losses
and deferred costs .................................... 135,108 135,285 97,480 99,259
Financial liabilities:
Deposits with no stated maturity ......................... 87,742 87,742 60,871 60,871
Time deposits ............................................ 89,461 91,319 68,990 70,881
Securities sold under agreements to repurchase ........... 10,113 10,113 9,567 9,567
FHLB advances ............................................ 5,000 5,000 0 0
<CAPTION>
CONTRACT FAIR CONTRACT FAIR
AMOUNT VALUE AMOUNT VALUE
--------------- --------------- -------------- ---------------
Unrecognized financial instruments:
Loan commitments (loan fees) .............................$ 27,601 $ 41 $ 21,738 $ 32
Standby letters of credit ................................ 373 0 388 0
Credit cards ............................................. 4,258 0 450 0
</TABLE>
39
<PAGE> 30
NOTES CONTINUED
LIMITATIONS--The fair value estimates are made at a discrete point in time based
on relevant market information and information about the financial instrument.
Quoted market prices, when available, are used as the measure of fair value.
When quoted market prices are not available, fair value estimates have been
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are inherently subjective, involving uncertainties and
matters of significant judgment, and, therefore, may not be indicative of the
value that could be realized in a current market exchange. Changes in
assumptions could significantly affect the estimates. The value estimates are
based on existing on- and off-balance sheet financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments. Other
significant assets and liabilities that are not considered financial assets or
liabilities include deferred tax assets and property and equipment. In addition,
the tax ramifications related to the realization of the unrealized gains and
losses for investments and mortgage-backed securities can have a significant
effect on fair value estimates and have not been considered in many of the
estimates.
18 RISKS AND
UNCERTAINTIES:
The earnings of the Company depend on the earnings of the Bank. The Bank is
dependent primarily upon the level of net interest income, which is the
difference between interest earned on its interest earning assets, such as loans
and investments, and the interest paid on its interest-bearing liabilities, such
as deposits and borrowings. Accordingly, the operations of the Bank are subject
to risks and uncertainties surrounding its exposure to changes in the interest
rate environment.
Most of the Bank's lending activity is with customers located within Sarasota
and Manatee Counties. Generally, the loans are collateralized by real estate
consisting of single family residential and commercial properties. While this
represents a concentration of credit risk, the credit losses arising from this
type of lending compares favorably with the Bank's credit loss experience on its
portfolio as a whole. The ultimate repayment of these loans is dependent to a
certain degree on the local economy and real estate market.
The financial statements of the Company are prepared in conformity with
generally accepted accounting principles that require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these estimates.
Significant estimates are made by management in determining the allowance for
possible loan losses. Consideration is given to a variety of factors in
establishing these estimates including current economic conditions,
diversification of the loan portfolio, delinquency statistics, results of
internal loan reviews, borrowers' perceived financial and managerial strengths,
the adequacy of underlying collateral, if collateral dependent, or present value
of future cash flows and other relevant factors. Since the allowance for
possible loan losses is dependent, to a great extent, on general and other
conditions that may be beyond the Bank's control, it is at least reasonably
possible that the estimates of the allowance for possible loan losses and the
carrying values of the real estate assets could differ materially in the near
term.
19 PUBLIC OFFERING
OF COMMON STOCK:
In February 1996, American Bancshares, Inc. completed a public offering of
1,250,000 shares of common stock at $6.00 per share (the Offering). Prior to the
Offering, there was no public market for the Company's common stock. The common
stock is traded on the Nasdaq National Market System under the symbol "ABAN."
The net proceeds of the Offering, after deducting applicable issuance costs and
expenses, were $8,359,000 and are to be used for general corporate purposes,
including the financing of working capital needs, capital expenditures and
possible future acquisitions. In conjunction with this Offering, the Board of
Directors approved increasing the number of authorized shares of common stock to
10,000,000 shares. Subsequent to the Offering, an additional 187,500 shares of
common stock were issued as part of the over-allotment amount.
40
<PAGE> 31
20 REGULATORY
CAPITAL:
The Bank is 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
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's 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 Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also presented in the table.
There were no deductions for interest-rate risk in 1996 or 1995.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
------------ -------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk-Weighted Assets) ........... $ 15,790,512 10.65% $ 11,864,054 8.0% $ 14,830,067 10.0%
Tier I Capital (to Risk-Weighted Assets) .......... $ 14,790,512 9.97% $ 5,932,027 4.0% $ 8,898,040 6.0%
Tier I Capital (to Averaged Assets) ............... $ 14,790,512 7.22% $ 6,143,606 3.0% $ 10,239,343 5.0%
As of December 31, 1995:
Total Capital (to Risk-Weighted Assets) ........... $ 10,642,808 9.50% $ 8,957,744 8.0% $ 11,197,179 10.0%
Tier I Capital (to Risk-Weighted Assets) .......... $ 9,696,808 8.66% $ 4,478,872 4.0% $ 6,718,308 6.0%
Tier I Capital (to Averaged Assets) ............... $ 9,696,808 6.33% $ 4,597,590 3.0% $ 7,662,650 5.0%
</TABLE>
21 FUTURE ACCOUNTING
PRONOUNCEMENTS:
In June 1996, Statement of Financial Accounting Standards No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," (SFAS No. 125) was issued. SFAS No. 125 provides accounting and
reporting standards based on a control-oriented "financial-components" approach.
Under that approach, after a transfer of financial assets, an entity recognizes
the financial and servicing assets it controls and liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS No. 125 is effective on a
prospective basis January 1, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS No, 128).
SFAS No, 128 specifies the computation, presentation and disclosure requirements
for earnings per share and is effective for financial statements issued for
periods ending after December 15, 1997. Management has not determined the impact
that the adoption of this statement will have on the financial statements.
41
<PAGE> 32
22 CONDENSED PARENT COMPANY
FINANCIAL STATEMENTS:
The financial statements of American Bancshares, Inc., as the parent
organization, are presented as follows:
<TABLE>
<CAPTION>
BALANCE SHEET
DECEMBER 31, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
Assets:
Cash ............................................... $ 3,392,968 $ 0
Premises and equipment ............................. 682,118 0
Prepaid expense .................................... 5,781 0
Investment in banking subsidiary ................... 14,733,040 9,698,469
------------- -------------
Total assets ..................................... $ 18,813,907 $ 9,698,469
============= =============
Liabilities:
Total liabilities ................................ $ 0 $ 0
------------- -------------
Shareholders' equity:
Common stock ....................................... 4,702,049 2,821,257
Additional paid-in capital ......................... 11,736,471 5,257,877
Unrealized gain (loss)
on investment securities
available for sale, net .......................... (79,951) 47,486
Retained earnings .................................. 2,455,338 1,571,849
------------- -------------
Total shareholders' equity ....................... 18,813,907 9,698,469
------------- -------------
Total liabilities and
shareholders' equity ........................... $ 18,813,907 $ 9,698,469
============= =============
</TABLE>
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
Equity in undistributed earnings
of banking subsidiary .............................. $ 953,567 $ 1,017,909
Operating expense .................................... (70,078) 0
------------- -------------
Net income ....................................... $ 883,489 $ 1,017,909
============= =============
</TABLE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows used
in operating activities: ........................... $ (75,859) $ 0
------------- -------------
Cash flows used in investing activities:
Acquisition of premises and
equipment ...................................... (4,890,559) 0
------------- -------------
Cash flows provided by financing activities:
Proceeds from sale of common
stock (net of stock offering
costs) ......................................... 8,359,386 0
------------- -------------
Net increase in cash ........................... 3,392,968 0
Cash at beginning of year ...................... 0 0
------------- -------------
Cash at end of year ............................ $ 3,392,968 $ 0
============= =============
</TABLE>
42
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
American Bancshares, Inc. and Subsidiary
Bradenton, Florida
We have audited the accompanying consolidated balance sheets of American
Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the years then ended. 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 consolidated financial position of
American Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Fort Myers, Florida
February 14, 1997
43
<PAGE> 34
[AMERICAN BANCSHARES, INC. LOGO]
COMMON STOCK
The Company's common stock was first quoted on the Nasdaq National Market System
under the symbol ABAN on February 6, 1996. As of March 20, 1997, there were
4,070,458 outstanding shares of common stock held by 1,023 holders of record
plus approximately 1,000 holders of beneficial interest. The closing stock price
on March 20, 1997 was $9.125.
The Company and the Bank have not paid cash dividends on the common stock. The
Company currently anticipates that its earnings will be retained for business
development and expansion and does not anticipate paying cash dividends in the
forseeable future.
FORM 10KSB
The American Bancshares Annual Report filed on Form 10KSB is available without
charge to shareholders of the Company. Please submit your request in writing or
by telephone to:
Brian M. Watterson
Vice President and Chief Operating Officer
American Bancshares, Inc.
4702 Cortez Road W.
Bradenton, Florida 34210
Phone 941/727-3535
Fax 941/751-5615
INVESTOR INFORMATION
Investors seeking further information may contact:
Brian M. Watterson
Vice President and Chief Operating Officer
NASDAQ MARKET MAKERS
Advest, Inc.
Robert W. Baird & Co.
Herzog, Heine, Geduld
William R. Hough & Co.
Mayer & Schweitzer, Inc.
Ryan, Beck & Co.
Sterne, Agee & Leach, Inc.
STOCK TRANSFER AGENT
Sun Trust Bank-Atlanta
P.O. Box 4418
Atlanta, Georgia 30302
Phone 404/588-7831
CORPORATE COUNSEL
Carlton, Fields, Ward, Emmanuel,
Smith & Cutler, P.A.
One Harbour Place
Tampa, FL 33601
Phone 813/223-7000
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
One University Park, Suite 400
Ft. Myers, Florida 33907
Phone 941/433-0888
ANNUAL MEETING
The Annual Meeting of Shareholders of American Bancshares, Inc. will be held at
10 a.m. on Wednesday, April 30, 1997 at the Oakmont 8 Theatre, 4801 Cortez Road
W., Bradenton, Florida 34210.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIN EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS AND BOARD OF DIRECTORS PACKAGE DATED 12/3/196.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,517
<INT-BEARING-DEPOSITS> 7,528
<FED-FUNDS-SOLD> 6,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 26,111
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 156,460
<ALLOWANCE> 1,000
<TOTAL-ASSETS> 211,965
<DEPOSITS> 177,203
<SHORT-TERM> 0
<LIABILITIES-OTHER> 10,948
<LONG-TERM> 5,000
0
0
<COMMON> 4,702
<OTHER-SE> 14,112
<TOTAL-LIABILITIES-AND-EQUITY> 211,965
<INTEREST-LOAN> 12,591
<INTEREST-INVEST> 1,720
<INTEREST-OTHER> 237
<INTEREST-TOTAL> 14,548
<INTEREST-DEPOSIT> 6,927
<INTEREST-EXPENSE> 7,411
<INTEREST-INCOME-NET> 7,137
<LOAN-LOSSES> 287
<SECURITIES-GAINS> 106
<EXPENSE-OTHER> 7,279
<INCOME-PRETAX> 1,405
<INCOME-PRE-EXTRAORDINARY> 883
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 883
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
<YIELD-ACTUAL> 8.55
<LOANS-NON> 905
<LOANS-PAST> 0
<LOANS-TROUBLED> 24
<LOANS-PROBLEM> 2,195
<ALLOWANCE-OPEN> 946
<CHARGE-OFFS> 279
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 1,000
<ALLOWANCE-DOMESTIC> 1,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
