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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 EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 $23,334,463
The aggregate market value of the Common Shares of the issuer held by
non-affiliates as of February 27, 1998, was approximately $43,924,690, as
computed by reference to the closing price of the Common Shares as quoted on
the Nasdaq National Market System on such date. As of February 27, 1998, there
were 4,070,458 issued and outstanding Common Shares of the issuer.
Transitional Small Business Disclosure Format (check one): Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement of American Bancshares, Inc. for the
1998 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 1997
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, 1997
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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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
PART III
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9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . . . . . . . . . . . . . . . 41
10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
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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 American Bank, Bradenton, Florida (the
"Bank"). The Bank is the largest independent bank in Manatee County, Florida,
based on 1997 year-end asset size. The Bank, whose capital stock is
wholly-owned by the Company, is the Company's primary subsidiary and principal
asset. Through its ownership of the Bank, the Company is engaged 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.
However, the Company does intend to commence the operation of a finance company
early in the second quarter of 1998. As of December 31, 1997, the Company, on
a consolidated basis, had total assets of approximately $289,940,000, net
portfolio loans of approximately $172,618,000, total deposits of approximately
$244,559,000, and shareholders' equity of approximately $20,998,000. 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
state-chartered commercial bank and is not a member of the Federal Reserve
System. The Bank is a general commercial bank which provides a variety of
corporate and personal banking services to consumers and small to mid-sized
businesses in its primary market areas from seven banking offices located in
Manatee and Charlotte counties, Florida. In 1997, the Bank's operations were
conducted only through the banking offices located in Manatee County, Florida.
During the first quarter of 1998, the Company expanded its operations in the
State of Florida to Charlotte County through the acquisition of Murdock Florida
Bank ("Murdock"). On March 23, 1998, the Company acquired Murdock in a
transaction pursuant to which Murdock was merged into the Bank and its sole
office was converted into a branch of the Bank. As part of the merger
transaction, the Bank changed its name from the "American Bank of Bradenton" to
"American Bank". The Bank plans further Florida expansion to Hillsborough
County through the anticipated opening of an additional full service branch in
Ruskin, Florida during the second quarter of 1998.
The business of the Bank consists of attracting deposits from the
general public in 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. In addition, the Bank
offers customized accounts receivable financing and billing services, and
credit card merchant services. The Bank presently does not provide fiduciary,
trust, or appraisal services. The Bank, however, has entered into an
arrangement with Advest, Inc. whereby its customers may obtain trust services.
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 loans 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 in 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. Similarly, most of the associated mortgage servicing rights
also have been sold to third parties.
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During the fiscal year ended December 31, 1997, the Mortgage Banking
Division originated approximately $58,452,000 in mortgage loans and sold in the
secondary market approximately $44,113,000 of such loans, including those held
in inventory from the previous year. Servicing fee income was $63,000. During
1997, the Bank also packaged and sold mortgage servicing rights with respect to
approximately $20.6 million in unpaid principal amount FNMA loans originated by
the Bank for approximately $411,000, or a 2.0% premium on the unpaid balance of
the loan portfolio servicing rights sold.
In 1997, the Bank acquired a Bradenton based mortgage brokerage
company, DesChamps & Gregory Mortgage Company, Inc. ("DesChamps"), which
originates residential mortgage loans with business operations concentrated in
Manatee and Sarasota Counties.
The revenues of the Bank are primarily derived from interest on, and
fees received in connection with, real estate and other loans, from the sales
of 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 "FRB") 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.
MARKET AREA
The Company's primary market areas now consists of the Florida counties
of Manatee and Charlotte and, with the anticipated opening of the Ruskin branch,
Hillsborough. Six of the seven banking offices of the Bank currently are
located in Manatee County, and its Murdock branch is located in Charlotte
County. These market areas have all experienced substantial growth during
recent decades. This population growth has resulted in 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 areas have
continued to grow because of the ability of Florida, and these areas in
particular, to attract new residents to its favorable year round climate and its
relatively stable economic environment. Although the major economic bases in
the primary market areas are service, retail, and manufacturing, 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 areas.
The Company will continue to evaluate and identify areas into which it
can further expand its operations and improve market share and, in the future,
may consider further strategic expansion through branching and/or acquisitions
of banks or banking assets in those geographic areas that management believes
will complement its existing business and would most effectively achieve market
penetration within its primary market areas or expand its existing markets.
The Company believes that it can continue to improve its market share and
long-term profitability by identifying locations for opening or acquiring
additional branch offices. Further, 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. 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
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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 its
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.
Businesses are solicited through the personal efforts of the Bank's
directors and officers. Management believes a locally-based independent 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 believes 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.
Lending activities include commercial and consumer loans, and loans
for residential purposes. Commercial loans are originated for commercial
construction, acquisition, remodeling, and general business purposes. In this
regard, the Bank, among other things, also originates loans to small businesses
in association with the Small Business Administration. 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 expense of billing. Consumer loans include those for the
purchase of automobiles, boats, home improvements and personal investments.
The Bank also offers credit card merchant services which are competitive with
credit card agencies but provide the merchant with the local attention of the
Bank's representatives. Residential loans include the origination of
conventional mortgages and residential acquisition, development, and
construction loans for the purchase or construction of single-family homes.
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 areas. Emphasis is placed on the borrower's ability to
generate cash flow to supports its debt obligations and other cash related
expenses. The Bank aggressively pursues quality indirect lending through local
automobile dealerships, small to medium sized commercial business loans, and
direct 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 the localized economic downturns. The Mortgage Banking
Division originates primary construction-to-permanent financing loans, which
are considered to have less risk of nonpayment than construction only
financings.
At December 31, 1997, the Bank's total loans included portfolio loans
of approximately $212,206,000, representing approximately 73% of its total
assets. As of such date, the loan portfolio consisted of
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59.5% commercial and financial loans, 14.2% real-estate mortgage loans, and
26.3% installment loans. In addition, at December 31, 1997, approximately
$39.6 million of residential real estate mortgage loans were 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 their 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 which 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.
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 areas. The Bank
also offers adjustable rate mortgages ("ARMs") and either retains 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 mortgagee's 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
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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. In
addition, 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.
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 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, 1997, approximately 3.2% 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
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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, 1997, was $4,739,727.
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 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 borrower's 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 $2,000,000 or more require
preapproval by the Bank's Board of Directors, and borrowers requesting amounts
which will result in a loan relationship of $2,000,000 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 and residential lending services from its Retail
Residential Lending Division. The Retail Residential Lending Division was
formed in connection with the acquisition of DesChamps in 1997. Both the
Mortgage Banking Division and the Retail Residential Lending Division were
established for the purpose of increasing the Bank's
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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 areas 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 areas.
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.
The construction phase of loans made by the Mortgage Banking Division
has 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 the 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 $2,000,000 must be approved by the Bank's loan
committee, and such loans over $2,000,000 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.
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FINANCE COMPANY OPERATIONS
The Company has organized a wholly-owned Florida subsidiary
corporation, Freedom Finance Company (the "Finance Company"), pursuant to which
it intends to engage in full service consumer financing. It is anticipated that
the Finance Company will offer consumer-driven products and services ranging
from mortgages to automobile loans, home equity loans, and education financing.
The Finance Company will have the ability to extend financing to individuals and
entities which may not be able to satisfy the Bank's underwriting requirements
or loan standards. The Bank anticipates extending a loan to the Finance Company
in order to provide the funds necessary to commence operations in the second
quarter of 1998. The Company believes that all necessary Florida licensing
requirements for the Finance Company have been satisfied.
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 primarily to protect depositors and the federal deposit insurance
funds, and not for the protection of 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 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 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% of Tier I capital. This prior notice requirement also applies to
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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 is 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"), 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 policies 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 is in default.
For example, under the Federal Deposit Insurance Company Improvement Act of 1991
("FDICIA"), in order 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
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, which authority was 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
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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 state 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 not 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 FDIC, in connection with its examination of a state 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 state 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 evaluates 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 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 authorized 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 had 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
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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
(the "Department"). 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
Department and the FDIC. It is not a member of the Federal Reserve System.
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
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<PAGE> 14
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.
Dividend Restrictions and Transfers of Funds. Under various banking
laws, the declaration and payment of dividends by a state 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.
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
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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 FRB and 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.
These 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 on a case by case basis or as a matter of policy after
formal rule making.
In computing total risk-weighted assets, an institution's 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
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, 1997, the total risk-based capital ratio of the
Company and the Bank were 10.9% and 10.0%, respectively. In addition to the
risk-based capital guidelines, the FRB and the FDIC also have adopted a
leverage standard to supplement the risk-based ratios. This leverage standard
focuses on the institution's ratio of Tier I capital to average total assets,
adjusted for goodwill and certain other items. Under these guidelines,
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 institutions are
expected to maintain a ratio of at least 1% or 2% above the stated minimum. As
of
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December 31, 1997, the leverage capital ratio of the Company and the Bank were
7.2% and 6.7%, 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.
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.
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
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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 not yet
been issued under FDICIA.
FDIC INSURANCE PREMIUMS
The Bank is required to pay semiannual FDIC deposit insurance
assessments. 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 - within 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 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.
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
-15-
<PAGE> 18
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 areas. 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.
Management believes that the Company and the Bank are well positioned
to compete successfully in their primary market areas, 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 market areas, as well as its commitment to quality, are factors
that contribute to the Bank's competitiveness.
EMPLOYEES
At December 31, 1997, the Company and the Bank together employed 137
full-time and 16 part-time employees. None of these employees are covered by a
collective bargaining agreement and the Company believes that its employee
relations are good.
RECENT MERGER AND ACQUISITION
In accordance with the terms of an Agreement and Plan of Merger, dated
September 23, 1997, as amended on October 8, 1997 (the "Merger Agreement"), the
Company acquired Murdock and merged it with and into the Bank. Pursuant to the
merger, stockholders of Murdock are entitled to receive 2.4 Common Shares of
the Company for each share of Murdock common stock held by them. In lieu of
the issuance of fractional Common Shares, cash will be paid for each such
fraction. In addition, the 14,000 outstanding options to acquire Murdock
common stock existing prior to the merger have been converted at the same
exchange ratio into options to acquire the Company's Common Shares, with the
exercise prices adjusted accordingly.
See "Subsequent Events" footnote in the Notes to Consolidated
Financial Statements on page F-28 of the financial statements provided pursuant
to Item 7 of this Form 10-KSB, "Financial Statements", which is incorporated
herein by reference.
STATISTICAL DISCLOSURES REQUIRED BY INDUSTRY GUIDE 3
The statistical information contained in Item 6 of this Form 10-KSB,
"Management's Discussion and Analysis or Plan of Operations" is incorporated
herein by reference.
-16-
<PAGE> 19
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 Company.
The Bank has seven banking office locations. Four of these offices,
the main office, two full service branches and a drive-thru branch, are in
Bradenton. The Bank also maintains a separate office for its Mortgage Banking
Division in Bradenton. The remaining offices include a full service branch in
Palmetto and in Ellenton, both in Manatee County, and the recently acquired
branch in Murdock, Florida which is located in Charlotte County. All of the
branch offices and the Mortgage Banking Division offices are owned in fee
simple by the Bank, with the exception of the Murdock branch. In connection
with the acquisition of Murdock, the Bank assumed Murdock's lease. The Murdock
facility, consisting of approximately 10,300 square feet, is subject to a lease
which expires on July 31, 2000, with an option to renew the lease for two
additional five-year terms. The Murdock lease requires rental payments of
$145,000 per year.
In addition, the offices which house the accounting and operations
departments of the Bank 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
completes the construction of facilities for the administrative offices of the
Company and the Bank. The Company has acquired the site on which
administrative offices are being built and the building is expected to be
available for occupation prior to the end of April 1998. In addition, it is
anticipated that the Mortgage Banking Division will be moved to the new
administrative offices. Upon completion of the construction of the
administrative building, both the land and the improvements, including the
administrative building, will be transferred by the Company to the Bank.
Upon relocation of the Mortgage Banking Division to the new
administrative offices, the Bank intends to seek approval to convert the
vacated facility into a new full service branch location.
The Finance Company has recently assumed a lease for a 1,700 square
foot facility located in Bradenton from which it will conduct its operations.
The Finance Company lease, which was assumed as of February 10, 1998, expires
on April 1, 2002, with an option to renew the lease for two additional
three-year terms, and requires an annual rent of $16,662 payable in monthly
installments.
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. On March 19, 1998, the EEOC issued a Dismissal and Notice of Rights
-17-
<PAGE> 20
stating that the EEOC was unable to conclude that the Bank violated applicable
statutes. Under the terms of the Dismissal and Notice of Rights, Ms. Moss has
the right to file a lawsuit against the Bank but must do so within ninety days
of such notice. The Company believes that the Bank acted appropriately and
that this action is without merit and it intends to defend this action
vigorously.
On March 27, 1997, James J. Bazata, a former employee of the Bank,
filed a suit in the United States District Court, Tampa Division, alleging that
he was illegally discriminated against in connection with the termination of
his employment with the Bank. The suit alleges that Mr. Bazata was terminated
from his employment in violation of his rights under the Americans with
Disabilities Act of 1990. The suit makes a claim for unspecified monetary
damages and seeks the reinstatement of Mr. Bazata's employment with the Bank.
Discovery is near completion and a trial date has been scheduled for June 1998.
The Company believes that the Bank acted appropriately in connection with its
termination of Mr. Bazata and that this action is without merit. The Company
intends to defend this action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of the Company's
security-holders during the fourth quarter of its fiscal year ended December 31,
1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON SHARES
The Company's Common Shares are quoted on the Nasdaq National Market
System ("Nasdaq-NMS") under the symbol ABAN. At the close of business on
February 27, 1998, there were outstanding 4,070,458 Common Shares which were
held by approximately 960 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:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
First Quarter . . . . . . . . . . . . . . . . . . . . . $ 9.25 $ 7.50
Second Quarter . . . . . . . . . . . . . . . . . . . . . $ 9.625 $ 8.00
Third Quarter . . . . . . . . . . . . . . . . . . . . . $ 12.75 $ 9.00
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . $ 13.25 $ 11.625
YEAR ENDED DECEMBER 31, 1998:
First Quarter (through March 25, 1998) . . . . . . . . . $ 13.125 $11.625
</TABLE>
On March 25, 1998, the last reported sale price of the Common Shares
as quoted by Nasdaq-NMS was $12.25 per share.
Since completion of its initial public offering in February 1996
through February 1997, the Company has sold approximately 225,290 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 $1,351,740. No commissions or fees were paid in connection with
the issuance of Common Shares upon exercise of the
-18-
<PAGE> 21
Series B Warrants. As of February 28, 1997, no warrants remained outstanding.
In addition, in early 1997 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.
In connection with the merger with Murdock, the Company will issue up
to 924,025 Common Shares. These shares have been registered with the
Commission under the Securities Act and qualified for listing on Nasdaq-NMS.
In addition, options to acquire Murdock common stock have been converted into
options to acquire up to 33,600 of the Company's Common Shares upon the terms
and conditions of the Merger Agreement.
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 profits of the preceding two years, as defined by
applicable Florida Department of Banking regulations. At December 31, 1997,
the Bank had approximately $3,704,000 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
GENERAL
The Company's principal asset is its ownership of the Bank.
Accordingly, the Company's results of operations is primarily dependent on the
results of the 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 loans for 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 rate paid on these balances.
-19-
<PAGE> 22
Net interest income is dependent upon the Bank's interest rate spread,
which is the difference between the average yield earned on its
interest-earning 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 demands. 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 and other fees and income from
the sale of loans, servicing rights, and investment securities. Non-interest
expenses consist of compensation and benefits, occupancy related expenses,
deposit insurance premiums paid to the FDIC, expenses of opening branch
offices, and other operating expenses.
The Bank enjoys an excellent reputation in its market areas and strives
for quality customer service. During 1997, the Bank opened a new full service
branch in Palmetto, Florida and, in the first quarter of 1998, completed its
merger with Charlotte County-based Murdock Florida Bank located in Murdock,
Florida. The former Murdock Florida Bank has been converted into a full service
branch of the Bank. As part of its continued growth, the Bank has obtained
approval to open a new full service banking office in Ruskin, Florida located in
Hillsborough County. All necesssary regulatory approvals have been obtained and
this new office is scheduled to open in the second quarter of 1998. There can
be no assurance, however, that the branch will open in the anticipated quarter.
This Management's Discussion and Analysis or Plan of Operations
discusses material changes in the financial condition of the Company from
December 31, 1996 to December 31, 1997, and material changes in the results of
operations with respect to the year ended December 31, 1997 compared to the
year ended December 31, 1996. This discussion and analysis is intended to
assist in understanding the financial condition and results of operation of the
Company and the Bank. This section should be read in conjunction with the
consolidated financial statements and the related notes and the other
statistical information contained herein.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED DECEMBER 1997 AND 1996
For the year ended December 31, 1997, the Company reported net income
of $1,631,000, or $0.40 per share, as compared to net income of $883,000 or
$.24 per share for 1996. From 1996 to 1997, net interest income increased by
$2,134,000 and non-interest income increased by $1,810,000. The increase in
non-interest income from 1996 to 1997 is primarily attributable to increases in
collection of service charges on deposits of $568,000 credit card merchant fee
income of $217,000, and gains on sale of loan servicing of $250,000. These
changes contributing to income were offset by increases in start-up costs in
the form of general and administrative expenses associated with the opening of
a new full service branch in early 1997 and an increase of $463,000 in the
provision for loan losses. Management believes the long term benefits
associated with the new branch will provide additional income which will
contribute to the growth and profitability of the Bank.
The Company's total assets at December 31, 1997 were $289,940,000, an
increase of $77,975,000 or approximately 37% from December 31, 1996. The
majority of the increase was invested in loans receivable and in U.S.
government agency securities. Asset growth was funded by an increase in
deposits from the opening of new branches as well as continued growth at
existing branches.
The Bank's loans at December 31, 1997 totalled $212,206,000, net, or
approximately 73% of total assets. Of this total, portfolio loans consisted of
$49,632,000 in commercial loans, $53,531,000 in commercial real estate,
$24,591,000 in residential real estate, and $45,664,000 in consumer loans, net
of deferred costs and allowance for loan losses of $457,000. Loans held for
sale were $21,127,000 in residential real estate loans and $18,118,000 in real
estate construction loans, net of deferred costs and allowance for loan
-20-
<PAGE> 23
losses of $343,000. The allowance for loan losses increased from $1,000,000 at
December 31, 1996 to $1,381,000 at December 31, 1997. The allowance for loan
losses represented approximately 0.60% of total loans, down from 0.64% at
December 31, 1996. However, the allowance for loan losses represents 0.80% of
portfolio loans at December 31, 1997, as compared to 0.74% at December 31, 1996.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 1996 AND 1995
For the year ended December 31, 1996, the Company reported net income
of $883,000 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 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 totalled $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 check 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 1997. Net interest income for the year ended December 31, 1997
amounted to $9,271,000 on a $234,343,000 average outstanding balance of
interest-earning assets, an increase of $2,134,000 over the $7,137,000 recorded
in 1996 on average interest-earning assets of $169,259,000. Interest income
from loans during the same period comprised 84.3% and 86.5%, respectively, of
the total interest income and earned an average yield of 8.89% and 9.18%,
respectively, while interest income from investments and federal funds sold
earned an average yields of 6.53% and 6.10%, respectively. Total interest
expense for 1997 was $10,419,000 on average outstanding balances of
interest-bearing liabilities of $199,976,000 compared to interest expense of
$7,411,000 on average interest-bearing liabilities of $143,001,000 for the same
period in 1996. The average cost of interest-bearing liabilities for 1997 and
1996 was 5.21% and 5.18%, respectively. The Bank experienced a decrease in the
net yield on average earning assets to 3.96% in 1997, from 4.22% in 1996, due
in part to a decrease in the average yield on interest-earning assets due to
changes in the marketplace.
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<PAGE> 24
The following tables show for each category of interest-earning assets
and interest-bearing liabilities, the average amount outstanding, the interest
earned or paid on such amount, and the average rate earned or paid for the
years ended December 31, 1997, 1996, and 1995. These tables also show 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.
COMPARATIVE AVERAGE BALANCES, INTEREST, AND AVERAGE YIELDS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- ------------------------------- ---------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE(1) EXPENSE RATE BALANCE(1) EXPENSE RATE BALANCE(1) EXPENSE RATE
---------- ------- ------ ---------- ------- ------ --------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks . . . . . . $ 7,716 $ 5,699 $ 5,258
Bank premises and equipment, net . 6,618 5,670 3,619
Other assets. . . . . . . . . . . . 3,294 2,155 1,332
-------- --------- ---------
Total non-interest earning
assets . . . . . . . . . . . 17,628 13,524 10,209
-------- --------- ---------
INTEREST-EARNING ASSETS:
Federal funds sold . . . . . . . . $ 7,225 $ 399 5.52% $ 4,382 $ 237 5.41% $ 3,236 $ 196 6.06%
Investment securities (2) . . . . . 40,027 2,686 6.71 27,689 1,720 6.21 21,372 1,298 6.07
Loans, net (3)(4) . . . . . . . . . 187,091 16,606 8.89 137,188 12,591 9.18 107,860 9,915 9.19
-------- -------- ------ --------- -------- ---- --------- ------- ----
Total interest-earning assets/
interest/income average rates
paid . . . . . . . . . . . . . $234,343 $ 19,691 8.40% $ 169,259 $ 14,548 8.60% $ 132,468 $11,409 8.61%
======== ======== ====== ========= ======== ==== ========= ======= ====
Total assets . . . . . . . . . . . $251,971 $ 182,783 $ 142,677
======== ========= =========
Other liabilities . . . . . . . . . $ 35,712 $ 22,914 $ 16,906
-------- --------- ---------
Total non-interest bearing
liabilities . . . . . . . . . $ 35,712 $ 22,914 $ 16,906
-------- -------- ---------
INTEREST-BEARING LIABILITIES:
NOW . . . . . . . . . . . . . . . $ 14,537 $ 209 1.41% $ 12,271 $ 185 1.51% $ 9,311 $ 152 1.63%
Money market . . . . . . . . . . . 55,737 2,621 4.70 32,756 1,550 4.73 29,911 1,377 4.60
Savings . . . . . . . . . . . . . . 7,657 164 2.14 6,963 154 2.21 6,252 139 2.22
Time. . . . . . . . . . . . . . . . 102,088 6,422 6.29 80,344 5,038 6.27 63,868 3,988 6.24
-------- -------- ------ -------- -------- ---- --------- ------- ----
Total interest-bearing deposits 180,019 9,416 5.23 132,334 6,927 5.23 109,342 5,656 5.17
Securities sold under agreement
to repurchase . . . . . . . . 14,375 654 4.55 8,628 352 4.08 7,123 293 4.11
Federal funds purchased . . . . . . 77 4 5.19 47 3 6.38 630 37 5.87
FHLB advances . . . . . . . . . . . 5,505 345 6.27 1,992 130 6.53 562 25 4.45
-------- -------- ------ -------- -------- ---- --------- ------- ----
Total interest-bearing liabilities/
interest/expense/average
rate paid . . . . . . . . . . $199,976 10,419 5.21% $ 143,001 $ 7,412 5.18% $ 117,657 $ 6,011 5.11%
======== ======== ====== ========= ======== ==== ========= ======= ====
Total liabilities . . . . . . . . . $235,688 $ 165,915 $ 134,563
Shareholders' equity . . . . . . . 16,283 16,868 8,114
-------- --------- ---------
Total liabilities and
shareholders' equity . . . . $251,971 $ 182,783 $ 142,677
======== ========= =========
Net interest income . . . . . . . . $ 9,272 $ 7,136 $ 5,398
======== ======== =======
Net yield on average earning
assets (5) . . . . . . . . . . 3.96% 4.22% 4.07%
- ------------------------------ ======== ==== ====
</TABLE>
(1) Average balances represent the average daily balance year to date.
(2) Principally taxable
(3) Non-accruing loans included in computation of average balance.
(4) Interest income on loans includes fees of $340,000 in 1997, $525,000 in
1996, and $131,000 for 1995.
(5) The net yield on average earning assets is the net interest income
divided by average interest-earning assets.
-22-
<PAGE> 25
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.
RATE/VOLUME INTEREST ANALYSIS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------------------
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO CHANGE IN: INCREASE (DECREASED DUE TO CHANGE IN:
------------------------------------ -------------------------------------
AVERAGE AVERAGE TOTAL AVERAGE AVERAGE TOTAL
VOLUME (1) RATE CHANGE VOLUME (1) RATE CHANGE
---------- ------- -------- ---------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Federal funds sold . . . . . . $ 155 $ 7 $ 162 $ 68 $ (28) $ 40
Investment securities . . . . . 766 200 966 384 38 422
Loans, net (2) . . . . . . . . 4,570 (555) 4,015 2,697 (20) 2,677
------- ------- -------- ------- ------ -------
Total interest income . . . . $ 5,491 $ (348) $ 5,143 $ 3,149 $ (10) $ 3,139
======= ======= ======== ======= ====== =======
INTEREST BEARING LIABILITIES:
NOW . . . . . . . . . . . . . . $ 35 $ (11) $ 24 $ 48 (15) 33
Money market . . . . . . . . . 1,087 (16) 1,071 131 42 173
Savings . . . . . . . . . . . . 16 (6) 10 16 (1) 15
Time . . . . . . . . . . . . . 1,363 21 1,384 1,028 22 1,050
------- ------- -------- ------- ------ -------
Total interest on deposits . 2,501 (12) 2,489 1,223 48 1,271
Securities sold under agreement to
repurchase and borrow funds . . 466 52 518 108 22 130
------- ------- -------- ------- ------ -------
Total interest expense . . . 2,967 $ 40 $ 3,007 $ 1,331 $ 70 $ 1,401
======= ======= ======== ======= ====== =======
Change in net interest income 2,524 $ (388) $ 2,136 $ 1,818 $ (80) $ 1,738
======= ======= ======== ======= ====== =======
</TABLE>
- -------------
(1) Non-accruing loans are excluded form the average volumes used in
calculating this table.
(2) Includes loan fees of $340,000 in 1997 and $525,000 in 1996.
PROVISION FOR LOAN LOSSES
For the year ended December 31, 1997, $750,000 was recorded to the
loan loss provision, compared to the $286,654 recorded to the provision during
the year ended 1996.
The targeted level of loan loss allowance is based on management's
continual review of the loan portfolio. Management reviews the loan 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 relative low delinquency and
default rates in its portfolio due in part to adherence to established
underwriting guidelines. Management believes the allowance for loan
-23-
<PAGE> 26
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 $1,000,000 in 1996
to $1,381,000 in 1997. During 1997, the Bank experienced $439,000 in
charge-offs and $70,000 in recoveries on previously charged-off loans. As of
December 31, 1997, the Bank had $437,000 of loans in non-accrual status. The
year end 1997 and 1996 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, 1997 and 1996, non-interest income
totalled $3,644,000 and $1,834,000, respectively, an increase of approximately
99%. During 1997, service fees on customer deposits contributed $1,301,000,
mortgage banking operations contributed $901,000, fees on credit card merchant
services contributed $479,000 gains from sales of securities contributed
$148,000, and other income increased to $336,000. For the year ended 1996,
mortgage banking operations contributed $598,000, service fees on customer
deposits $773,000, fees on credit card merchant services $262,000, and
miscellaneous other income $136,000. This increase reflects the Company's
increase in its mortgage banking operations through its acquisition of
DesChamps in early 1997, a full year of credit card merchant service fees in
1997 versus a partial year in 1996 and continued sales of both its mortgage
loans held for sale and the mortgage servicing rights.
NON-INTEREST EXPENSE
Non-interest expense for the years ended December 31, 1997 and 1996,
totaled $9,594,000 and $7,279,000, respectively, substantially all of which was
general and administrative expenses. The increase in non-interest expense is
due primarily to the opening of the new full service banking office in Palmetto
replacing the prior drive-thru facility located there, additional lending
staff, and additional support staff for backroom operations and the related
costs associated with these areas. For the years ended December 31, 1997 and
1996, general and administrative expenses were 3.79% and 3.98%, respectively,
of average assets. The largest component, salaries and employee benefit,
amounted to $4,370,000, or 46%, and $3,470,000, or 48%, respectively, of total
general and administrative expense for the years ended 1997 and 1996.
Management continuously monitors general and administrative expenses and the
efficiency ratio to maintain non-interest expenses at a level within industry
standards.
INCOME TAX EXPENSE
For the year ended December 31, 1997, an income tax provision totaling
$940,000 was recorded, compared to a $522,000 provision for the year ended 1996
as a result of increased earnings during the 1997 period. The effective tax
rate was 37% for the years ended 1996 and 1997.
-24-
<PAGE> 27
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 origination 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 principal
measure of the Bank's exposure to interest rate risk is the difference between
interest rate sensitive assets and liabilities for the periods being measured,
commonly referred to as the "gap" for such period. An asset or liability is
considered interest rate sensitive if it will reprice or mature within the time
period being analyzed. 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. A gap is considered positive when the
amount of interest rate assets exceed the amount of interest rate sensitive
liabilities. When the opposite occurs, the gap is considered to be negative.
During periods of increasing interest rates, negative gap would tend to
adversely affect income while a positive gap would tend to result in net
interest income. During periods of decreasing interest rates, the inverse
would tend to occur. If the maturities of interest rate sensitive assets and
liabilities were equally flexible and moved concurrently, the impact of any
material or prolonged increase or decrease in interest rates or net interest
income on existing assets or liabilities would be minimal. 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 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, 1997 was a negative
$35,821,000 (or -12.41%, expressed as a percentage of total assets). This
represents a significant shift from the positive cumulative one year gap at
December 31, 1996 of $17,235,000. This $53,000,000 shift is reflected
primarily in the $30,000,000 increase in certificates of deposits which mature
in 1 year or less and the increase in NOW and money market accounts of
$17,000,000. Management believes its negative gap position is mitigated by its
$61,000,000 in NOW, money market, and savings deposits, the majority of which
it considers to be core deposits.
The following table presents the interest rate-sensitive assets and
liabilities of the Bank at December 31, 1997, which are expected to mature or
are subject to repricing in each of the time periods indicated. The tables may
not be indicative of the Bank's rate sensitive position at other points in
time. The balances 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
periods in which they are
-25-
<PAGE> 28
scheduled to be repaid. Repricing of time deposits is based on their scheduled
maturities. Deposits without a stated maturity are shown as repricing within
ninety (90) days.
INTEREST RATE SENSITIVITY ANALYSIS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
TERM TO REPRICING
--------------------------------------------------------------------------
90-180 181 DAYS 1-2 2-3 3-4 4+
90 DAYS DAYS TO 365 DAYS YEARS YEARS YEARS YEARS TOTAL
------- ------- ----------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold . . . . . . . . . . . . . . . 5,120 0 0 0 0 0 0 5,120
Interest-bearing due from banks . . . . . . . . . 1,857 0 0 0 0 0 0 1,857
Fixed rate loans . . . . . . . . . . . . . . . . 35,179 10,383 5,944 7,525 17,002 20,257 35,772 132,062
Variable rate loans . . . . . . . . . . . . . . . 49,458 9,253 10,049 2,735 3,407 795 4,904 80,601
Treasuries . . . . . . . . . . . . . . . . . . . 0 0 1,002 1,512 1,005 0 0 3,519
Governmental agencies . . . . . . . . . . . . . . 0 500 496 3,998 5,000 4,332 30,507 44,833
State and municipal . . . . . . . . . . . . . . . 0 0 501 0 0 0 0 501
Federal Home Loan Bank Stock . . . . . . . . . . 1,333 0 0 0 0 0 0 1,133
------- ------- ------- ------- ------- ------- ------- --------
Total interest-earning assets . . . . . . . . 92,747 20,136 17,992 15,770 26,414 25,384 71,183 269,626
NOW . . . . . . . . . . . . . . . . . . . . . . . 15,041 0 0 0 0 0 0 15,041
Money market . . . . . . . . . . . . . . . . . . 57,420 0 0 0 0 0 0 57,420
Savings . . . . . . . . . . . . . . . . . . . . . 8,295 0 0 0 0 0 0 8,295
Certificates/IRS's<$100,000 . . . . . . . . . . . 13,974 12,067 26,531 28,164 8,216 16,773 3,463 109,188
Certificates/IRS's>$100,000 . . . . . . . . . . . 3,916 2,216 4,708 2,646 254 930 0 14,670
Securities sold under agreements to repurchase . 17,528 0 0 0 0 0 0 17,528
Federal Home Loan Bank advances . . . . . . . . . 0 0 5,000 0 0 0 0 5,000
------- ------- ------- ------- ------- ------- ------- --------
Total interest-bearing liabilities . . . . . . . 116,174 14,283 36,239 30,810 8,470 17,703 3,463 227,142
------- ------- ------- ------- ------- ------- ------- --------
Interest sensitivity gap . . . . . . . . . . . . (23,427) 5,853 (18,247) (15,040) 17,944 7,681 67,720 42,484
======= ======= ======= ======= ======= ======= ======= ========
Cumulative gap . . . . . . . . . . . . . . . . . (23,427) (17,574) (35,821) (50,861) (32,917) (25,236) 42,484
======= ======= ======= ======= ======= ======= =======
Cumulative gap ratio . . . . . . . . . . . . . . 0.80 0.87 0.79 0.74 0.84 0.89 1.19
======= ======= ======= ======= ======= ======= =======
Cumulative gap as a percentage of total assets . -8.12% -6.09% -12.41% -17.62% -11.40% -8.74% 14.72%
======= ======= ======= ======= ======= ======= =======
</TABLE>
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 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 the localized economic downturns. The
Mortgage Banking Division originates primary construction-to-permanent
financing loans, which are considered to have less risk of nonpayment than
construction only financings. In addition, with its acquisition of DesChamps &
Gregory Mortgage Company, Inc., a Bradenton based residential mortgage
brokerage company, in early 1997, the Bank also increased its origination of
residential mortgage loans in Manatee and Sarasota counties.
-26-
<PAGE> 29
LOAN PORTFOLIO COMPOSITION. At December 31, 1997, total loans
included portfolio loans of approximately $173.4 million and loans held for
sale of approximately $39.6 million. Total loans represent approximately 73.9%
of the Bank's total assets. Management's objective is to maintain its
one-to-four family residential and construction loans at 30% of total loans.
At December 31, 1997, approximately 30.1%, or $64.2 million, of its total loans
were in one-to-four family residential and construction loans, including
approximately $21 million in mortgage loans held for sale and $18.6 million of
construction loans held for sale. The remainder of the Bank's loans included
in its loan portfolio was commercial and commercial real estate loans of $103
million and consumer and other loans of $45.7 million.
The following table summarizes the composition of Bank's loan
portfolio (excluding loans held for sale) by type of loan on the dates
indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- --------------- -------------- ------------- --------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
--------- ------ -------- ----- ------- ----- ------- ---- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN:
Residential mortgage (1) . . . . . . $ 24,591 14.2% $18,695 13.8% $14,723 15.0% $11,370 15.3% $ 9,486 18.3%
Commercial (2) . . . . . . . . . . . 103,163 59.5 74,539 55.0 52,600 53.7 39,505 53.1 28,902 55.7
Consumer and other loans (3) . . . . 45,664 26.3 42,270 31.2 30,650 31.3 23,579 31.6 13,463 26.0
--------- ------ -------- ----- ------- ----- ------- ----- ------- -----
Total loans . . . . . . . . . . . $ 173,418 100.0% $135,504 100.0% $97,973 100.0% $74,454 100.0% $51,851 100.0%
====== ===== ===== ===== =====
LESS:
Allowance for loan losses . . . . . . (1,381) (1,000) (946) (625) (505)
Net deferred costs (losses) . . . . . 581 604 453 427 (17)
--------- -------- ------- ------- -------
Total loans, net . . . . . . . . . $ 172,618 $135,108 $97,480 $74,256 $51,329
========= ======== ======= ======= =======
</TABLE>
- ---------------
(1) Substantially all single family loans. Real estate construction loans are
included in loans held for sale.
(2) Commercial consists of commercial real estate and other commercial loans.
(3) Includes consumer installment loans.
LOAN MATURITY SCHEDULE. The following table sets forth the maturities
of loans outstanding as of December 31, 1997.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------------------------------------
DUE AFTER 1
DUE IN 1 YEAR BUT DUE AFTER
YEAR OR LESS BEFORE 5 YEARS 5 YEARS TOTAL
------------ -------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1-4 Family Residential . . . . . . . . . . . . . . . $ 3,922 $ 6,857 $ 13,812 $ 24,591
Other loans collateralized by real estate . . . . . . 9,193 23,665 20,673 53,531
Commercial and consumer loans . . . . . . . . . . . . 30,972 54,186 10,138 95,296
--------- --------- --------- ---------
Total loans (1) . . . . . . . . . . . . . . . . . $ 44,087 $ 84,708 $ 44,623 $ 173,418
========= ========= ========= =========
</TABLE>
- ---------------
(1) Excluding deferred fees, allowance for loan losses, and loans held for
sale.
-27-
<PAGE> 30
SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES. The following
table sets forth as of December 31, 1997, 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, 1997
----------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Type of Interest Rate:
Predetermined rate, maturity greater than one year . . . . . . . . . . . . $ 80,445
Floating or adjustable rate due after one year . . . . . . . . . . . . . . 48,886
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 129,331
==========
</TABLE>
LOAN CLASSIFICATION
Management seeks to maintain a level of high quality 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 28% of the Bank's loan portfolio, including
loans held for sale, 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.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending and additional precautions have
been taken when such loans are made in order to reduce the Bank's risk of loss.
Generally, construction loans present a higher degree of risk to a lender
depending upon, among other things, whether the borrower has permanent
financing at the end of the loan period, whether the project is an income
producing transaction in the interim, and the nature of changing economic
conditions including changing interest rates. 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.
Commercial and financial loans also entail certain 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 repayment 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 mortgages
because they are typically made 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 depreciate
over time, and occasionally cannot be appraised with as much precision as
residential real estate, and may fluctuate in value based on the success of the
business.
While there is no assurance that the Bank will not suffer any 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, substantially all of such loans relate to owner-occupied
projects, projects where the
-28-
<PAGE> 31
borrower has received permanent financing commitments from which the Bank will
be repaid, and projects where the borrower has demonstrated to management that
its business will generate sufficient income to repay the loan.
In addition to maintaining high quality assets, management attempts to
limit the Banks' risk exposure to any one borrower or borrowers with similar or
related entities. As of December 31, 1997, the Bank has extended credit in
excess of $1.3 million to 20 borrowers.
Loan concentrations are defined as amounts loaned to a number of
borrowers engaged in similar activities which would cause them to be similarly
impacted by economic or other conditions. The Company, on a routine basis,
evaluates these concentrations for purposes of policing its concentrations and
to make necessary adjustments in its lending practices that most clearly
reflect the economic times, loan to deposit ratios, and industry trends. As of
December 31, 1997, total loans to any particular group of customers engaged in
similar activities or having similar economic characteristics did not exceed
10% of total loans.
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
on-going reviews of new and existing loans to monitor documentation and ensure
the existence and valuations of collateral. Senior loan officers of the Bank
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, and
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.
Loans, including impaired loans, are generally classified by the Bank
as non-accrual loans if they are past due as to maturity or payment of
principal or interest for a period of more than ninety 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 a non-accrual loan. Loans that are on a current payment
status or past due less than ninety days may also be classified as non-accrual
if repayment in full of principal and/or interest is in doubt.
While a loan is classified as non-accrual and the future
collectability of the recorded loan balance is doubtful, collections of
interest and principal are generally applied as a reduction to principal
outstanding. When the future collectability of the recorded loan balance is
expected, interest income may be recognized on a cash basis. In the case where
a non-accrual 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.
As of December 31, 1997, the Bank had 17 loans on non-accrual status
totaling $437,000, or 0.20% of total loans. As of December 31, 1997, the Bank
had other real estate owned ("OREO") of approximately $314,000 represented by
three loans collateralized by a single family residences. The Bank has not
acquired any other real estate owned by means of foreclosure.
-29-
<PAGE> 32
In addition, the Bank performs ongoing reviews of its new and existing
loans to identify, evaluate, and initiate corrective action for substandard
loans. As of December 31, 1997, the Bank has identified approximately 104
loans to 58 borrowers to be monitored on its watch list and substandard list of
loans, representing aggregate borrowings of approximately $5,722,000. Of this
aggregate amount, management has assessed the maximum risk of loss to be
$785,000 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 table sets forth certain information, as of the date
indicated, regarding non-accrual loans, restructured loans and loans 90 days or
more past due.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS:
Residential mortgage . . . . . . . . $ 283 $ 720 $ 0 $ 18 $ 9
Commercial and commercial
real estate . . . . . . . . . 83 118 0 3 14
Consumer . . . . . . . . . . . . . . 71 67 19 71 4
Total non-accrual loans . . . . . 437 905 19 92 27
Total non-performing loans (1) . . . 140 0 0 0 0
Restructured loans . . . . . . . . . 22 24 0 0 0
</TABLE>
- ---------
(1) Accruing loans which are contractually past due 90 days or more as to
principal or interest.
The Bank has experienced relatively low default rates and low
delinquency as a percent of total loans. As of December 31, 1997, the total
amount of loans over 30 days past due totalled $2,050,000, or 0.96% of total
loans. The approximate amount of interest on non-accrual loans which would
have been recorded as income under the original terms was $42,000 and $60,000
for the fiscal years ended December 31, 1997 and 1996, respectively. The
amount of interest income collected on non-accrual loans, that was included in
net income for the year ended December 31, 1997 was approximately $25,600. At
December 31, 1997 the amount of interest income accrued on loans contractually
past due 90 days or more was approximately $4,500.
ALLOWANCE FOR CREDIT 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 maintain an adequate allowance for loan losses based on,
among other things, the Bank's historical loan loss experience, evaluation of
economic conditions and regular reviews of delinquencies and loan portfolio
quality.
Management continues to actively monitor the Bank's asset quality and
to charge-off loans against the allowance for credit losses when appropriate or
to provide specific loss allowances when necessary. Although management
believes it uses the best information available to make determinations with
respect to the allowance for credit losses, future adjustments may be necessary
if economic conditions differ from the
-30-
<PAGE> 33
economic conditions in the assumptions used in making the initial
determinations. The Bank increased its allowance to $1,381,000 as of December
31, 1997, reflecting management's intent to maintain the level of the Bank's
allowance for credit losses at a level management believes to be adequate to
cushion it against the reasonably expected economic conditions. Excluding
loans held for sale of $39,588,000 for the period ended December 31, 1997, the
allowance for loan losses represented 0.80% of portfolio loans held as of such
date. Total loan charge-offs for the fiscal year ended December 31, 1997 were
approximately $439,000 with recoveries on previously charged-off loans of
approximately $70,000.
The Bank's allowance for loan losses at December 31, 1996 amounted to
$1,000,000 (or 0.64% of total loans). Excluding loans held for sale of
$20,351,000 for the period ended December 31, 1996, the allowance for loan
losses represented 0.74% of portfolio loans as of December 31, 1996. Total
loan charge-offs for the year ended December 31, 1996 were $279,000, with
recoveries on previously charged-off loans totalling $46,000.
The Bank increased the allowance to $1,000,000 during the year ended
December 31, 1996, reflecting the growth in the loan portfolio and management's
assessment of 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>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
--------- ---------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total loans at end of period (1) . . . . . . . . $ 173,418 $ 135,504 $ 97,973 $ 74,454 $ 51,851
========= ========== ========= ========== ==========
Allowance at beginning of period . . . . . . . . $ 1,000 $ 946 $ 625 $ 505 $ 285
--------- ---------- --------- ---------- ---------
Loans charged-off during the period . . . . . . . (439) (279) (185) (117) (79)
Recoveries of loans previously charged-off . . . 70 46 23 16 3
--------- ---------- --------- ---------- ----------
Net loans charged-off during the period . . . . . (369) (233) (162) (101) (76)
--------- ---------- --------- ---------- ----------
Provisions charged to income . . . . . . . . . . 750 287 483 221 296
--------- ---------- --------- ---------- ----------
Allowance at end of period . . . . . . . . . . . $ 1,381 $ 1,000 $ 946 $ 625 $ 505
========= ========== ========= ========== ==========
Ratio of net charge-offs to
average loans outstanding . . . . . . . . . . 0.23% 0.17% 0.15% 0.14% 0.17%
========= ========== ========= ========== ==========
Allowance as a percentage of total loans . . . . 0.80% 0.74% 0.97% 0.84% 0.97%
========= ========== ========= ========== ==========
</TABLE>
- --------------
(1) Excludes loans held for sale.
-31-
<PAGE> 34
The following table sets forth a breakdown of the allowance for credit
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.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- --------------- --------------- -------------- ---------------
% OF % OF % OF % OF % OF
LOANS TO LOANS TO LOANS TO LOANS TO LOANS TO
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage (1) . . . $ 220 14.2% $ 185 13.8% $ 44 15.0% $ 14 15.3% $ 11 18.3%
Commercial and commercial
real estate . . . . . . . . 675 59.5 494 55.0 458 53.7 306 53.1 280 55.7
Consumer loans . . . . . . . . 450 26.3 290 31.2 166 31.3 157 31.6 149 26.0
Unallocated . . . . . . . . . . 36 0.0 31 0.0 278 0.0 148 0.0 65 0.0
-------- ----- ------ ------ ------ ------ ------ ----- ------ -----
Total allowance for
loan losses . . . . . . $ 1,381 100.0% $1,000 100.0% $ 946 100.0% $ 625 100.0% $ 505 100.0%
======== ===== ====== ====== ====== ====== ====== ===== ====== =====
</TABLE>
- -------
(1) No allowance has been allocated to real estate construction since the
amount such loans held in the Bank's loan portfolio at the periods
indicated was not material.
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,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Impaired loans . . . . . . . . . . . . . $ 246,000 $ 331,400
Other . . . . . . . . . . . . . . . . . .
1,135,000 668,600
----------- -----------
$ 1,381,000 $ 1,000,000
=========== ===========
</TABLE>
INVESTMENT ACTIVITIES
At December 31, 1997 and 1996, the Bank's investment portfolio
totalled $49,986,000 and $26,111,000, respectively. The investment portfolio
consists of U.S. Treasury and federal agency securities, municipal bonds, and
FHLB stock. Maturities range from three months to seven years with a portfolio
average maturity of approximately 5 years.
-32-
<PAGE> 35
The following table summarizes the Bank's investment portfolio as of
the dates indicated.
INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994
--------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
HELD TO MATURITY (1):
U.S. Treasury securities . . . . . . . . $ 0 $ 0 $ 0 $ 8,521
--------- -------- -------- --------
AVAILABLE FOR SALE (2):
U.S. Treasury securities . . . . . . . . $ 3,519 $ 6,924 $ 12,110 $ 9,712
U.S. Government Agencies . . . . . . . . 44,833 13,105 4,986 0
State and municipal . . . . . . . . . . 501 498 498 453
--------- -------- -------- --------
Total debt securities . . . . . . . . 48,853 20,527 17,594 10,165
FHLB stock (restricted) . . . . . . . . 1,133 499 490 352
Mortgage-backed securities . . . . . . . 0 5,085 5,989 934
Other investments . . . . . . . . . . . 0 0 0 37
--------- -------- -------- --------
Total available for sale . . . . . . . $ 49,986 $ 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 (excluding the
restricted FHLB Stock) by maturity and weighted average yields at December 31,
1997. Yields on tax exempt securities are stated at their nominal rates and
have not been adjusted for tax rate differences.
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
BUT WITHIN BUT WITHIN
WITHIN ONE YEAR 5 YEARS 10 YEARS AFTER 10 YEARS TOTAL
--------------- --------------- ---------------- --------------- ----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ------ -------- ------ -------- ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1997:
U.S. Treasury securities . . .$ 1,003 5.19% $ 2,516 5.31% $ 0 0.00% $ 0 0.00% $ 3,519 5.27%
U.S. Government agencies . . . 996 5.16 13,329 6.24 28,510 6.99 1,998 7.39 44,833 6.75
State and municipals . . . . . 501 5.75 0 0.00 0 0.00 0 0.00 501 5.75
-------- ------ -------- ------ -------- ------ ------- ------ -------- ------
$ 2,500 5.29% $ 15,845 6.10% $ 28,510 6.99% $ 1,998 7.39% $ 48,853 6.63%
======== ====== ======== ====== ======== ====== ======= ====== ======== ======
</TABLE>
DEPOSIT ACTIVITIES AND OTHER SOURCE OF FUNDS
GENERAL. Deposit accounts are the primary source of funds of the Bank
for use in lending and other investment purposes. In addition to deposits, the
Bank draws funds from interest payments, loan principal payments, loan and
security sales, and funds from operations (including various types of loan
fees). Scheduled loan payments of principal and interest are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. The Bank and
the Company 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.
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<PAGE> 36
DEPOSIT ACTIVITIES. 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. Total
deposits were $244,559,000 at December 31, 1997, compared to $177,200,000 at
December 31, 1996. The introduction of new products and the continued focus on
quality customer service have contributed to strong deposit growth. The Bank
continues to develop consumer and commercial deposit relationships through
referrals and additional contacts within its market area. As of December 31,
1997 and December 31, 1996, jumbo certificates accounted for $32,570,000 and
$21,482,000, respectively, 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 fund 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.
DEPOSIT FLOWS AND AVERAGE BALANCE AND RATES. The following table sets
forth the average balance and weighted average rates for the Bank's categories
of deposits for the period indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------- ---------------------------- ---------------------------
AVERAGE AVERAGE % OF AVERAGE AVERAGE % OF AVERAGE AVERAGE % OF
BALANCE RATE DEPOSITS BALANCE RATE DEPOSITS BALANCE RATE DEPOSITS
------- ------- ---------- ---------- ------- -------- --------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest checking . $ 34,404 0.00% 16 $ 21,540 0.00% 14 $ 16,010 0.00% 13
Interest checking and
money market . . . . 70,274 4.03% 33 45,027 3.85% 29 39,222 3.90% 31
Savings . . . . . . . . 7,657 2.14% 4 6,963 2.21% 5 6,252 2.22% 5
Certificates of deposit 102,088 6.29% 47 80,344 6.27% 52 63,868 6.24% 51
--------- ---- -------- --- -------- ---
Total . . . . . . $ 214,423 100 $153,874 100 $125,352 100
========= ==== ======== === ======== ===
</TABLE>
CERTIFICATES OF DEPOSIT. At December 31, 1997, certificates of
deposit represented approximately 50.6% of the Bank's total deposits, as
compared to 50.5% of total deposits at December 31, 1996. 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 Company. Management
believes that substantially all of the Bank's depositors are residents, either
full or part time, in its primary market area.
-34-
<PAGE> 37
The following table summarizes the amount of the Bank's certificates
of deposit of $100,000 or more by time remaining until maturity at December 31,
1997 and December 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
--------------- ---------------
1997 1996
--------- ---------
MATURITY PERIOD (DOLLARS IN THOUSANDS)
- ---------------
<S> <C> <C>
Less than three months . . . . . . . . . . . . . . . . . . . . . . . . $ 5,916 $ 3,515
Over three months through six months . . . . . . . . . . . . . . . . . 3,516 2,012
Over six months through twelve months . . . . . . . . . . . . . . . . . 10,208 4,930
Over twelve months . . . . . . . . . . . . . . . . . . . . . . . . . . 12,930 11,025
-------- --------
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,570 $ 21,482
======== ========
</TABLE>
The following table indicates the scheduled maturities of time
deposits of the Bank as of December 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
--------------- ---------------
1997 1996
--------- ---------
MATURITY PERIOD (DOLLARS IN THOUSANDS)
- ---------------
<S> <C> <C>
Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,413 $ 32,807
Due after one through two years . . . . . . . . . . . . . . . . . . . . 30,810 12,456
Due after two through three years . . . . . . . . . . . . . . . . . . . 8,470 18,905
Due after three through four years . . . . . . . . . . . . . . . . . . 17,702 7,681
Due after four years . . . . . . . . . . . . . . . . . . . . . . . . . 3,463 17,611
-------- --------
$123,858 $ 89,460
======== ========
</TABLE>
DEPOSIT ACTIVITY. The following table sets forth the deposit flows of
the Bank during the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
--------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net increase before interest credited . . . . . $ 58,145 $ 40,445 $ 9,010
Net credited . . . . . . . . . . . . . . . . . 9,211 6,897 5,509
--------- -------- ---------
Net deposit increase . . . . . . . . . . . $ 67,356 $ 47,342 $ 14,519
========= ======== =========
</TABLE>
BORROWINGS. The Bank has borrowed funds during the past to fund
short-term cash requirements. None of such funds were used to fund loan
activity. In the future, if there are periods when the supply of funds from
deposits cannot meet the demand for loans, the Bank has the ability to seek a
portion of the needed funds through loans (advances) from the FHLB of Atlanta
where the Bank currently has a $25 million line of credit. As of December 31,
1997, $5 million has been borrowed on the line and $20 million remained
available for future use.
In addition, the Company has obtained a $5 million Commercial
Revolving Line of Credit (the "Credit Line") from Barnett Banks, N.A. South
Florida (now Nationsbank, N.A.). Although this credit facility will
-35-
<PAGE> 38
be used in part to fund the construction of the Company's new administrative
offices, the Company may utilize the credit facility for other general
corporate purposes as its Board of Directors or management shall determine from
time to time. This Credit Line is collateralized with the all of the capital
stock of the Bank. Interest is calculated quarterly on either a one or three
month LIBOR plus 175 basis points. After two years the loan is converted into
a ten-year term note with a five-year balloon payment. See "Item 6.
Management's Discussion and Analysis or Plan of Operation - Recent Developments
- -- Administrative Offices".
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is defined as the ability of the Company and the Bank to
generate sufficient cash to fund current loan demand, deposit withdrawals,
other cash demands and disbursement needs, and otherwise to operate on an
ongoing basis. The Bank's principal sources of funds are deposits, principal
and interest payments on loans, sale of loans, interest on investments, the
sale of investments, and capital contributions from the Company. During 1997,
the Company received $64.3 million from deposit growth, $17 million for the
sale of investments, and $8.9 million from maturing investments. In addition,
the Bank also has the ability to borrow from the FHLB to supplement its
liquidity needs. At December 31, 1997, the Bank had outstanding borrowings of
approximately $5 million under its line of credit with the FHLB. The Company's
liquidity needs and funding are provided through the sale of its equity
securities and through borrowings from a nonaffiliated correspondent bank. As
of December 31, 1997, the Company had drawn approximately $500,000 under the $5
million Credit Line.
At December 31, 1997, shareholders' equity was approximately
$20,998,000, or 7.24% of total assets, as compared to $18,814,000 at December
31, 1996, or 8.88% of total assets. At December 31, 1997 and December 31,
1996, respectively, the Company's Tier I leverage ratio was 7.20% and 9.00%,
the Tier I risk-based capital ratio was 10.24% and 12.29% and the total
risk-based capital ratio was 10.91% and 12.95%, all in excess of FDIC
guidelines for a "well capitalized" bank.
At December 31, 1997 and December 31, 1996, the liquidity ratio of the
Company was 36.16%, 32.44% and 32.14%, respectively, well in excess of
regulatory requirements.
Management believes that there are adequate funding sources to meet
its future liquidity needs for the foreseeable future. Primary among these
funding sources are the repayment of principal and interest on loans, the
renewal of time deposits, and the growth in the deposit base. Management does
not believe that the terms and conditions that will be present at the renewal
of these funding sources will significantly impact the Company's operations,
due to its management of the maturities of its assets and liabilities.
However, in order to finance the continued growth of the Bank at current
levels, additional funds may be necessary in order to provide sufficient
capital to fund loan growth. In this regard, the Company is considering and
evaluating a variety of additional sources of funds, including other debt
financing vehicles, sales of equity securities, and other financing
alternatives. In particular, the Company is considering the possible issuance
of junior subordinated debentures to a trust to be formed by it for the sole
purpose of issuing trust preferred securities to investors, the proceeds of
which will be invested in such junior subordinated debentures. There can be no
assurance that the Company will be able to obtain such additional financing, if
needed, or, if available, that it can be obtained on terms favorable to the
Company.
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<PAGE> 39
RETURN ON EQUITY AND ASSETS
The following table sets forth certain selected performance ratios of
the Bank for the periods indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1997 1996 1995
--------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Return on average assets . . . . . . . . . . . . . . . . 0.64% 0.48% 0.71%
Return on average equity . . . . . . . . . . . . . . . . 10.02% 5.24% 12.53%
Dividend payout ratios not not not
applicable applicable applicable
Average equity to average assets . . . . . . . . . . . . 6.46% 9.22% 5.69%
</TABLE>
RECENT DEVELOPMENTS
MERGER WITH MURDOCK FLORIDA BANK. On March 23, 1998, the Company
completed its merger with Murdock Florida Bank, headquartered in Charlotte
County, Florida. Under the terms of the Merger Agreement, each outstanding
share of Murdock Florida Bank's common stock was converted into 2.4 of the
Company's Common Shares. A total of approximately 924,025 shares of the
Company's Common Shares are issuable in connection with the Merger. At
December 31, 1997, Murdock Florida Bank had total assets and deposits of $64
million and $58.2 million (unaudited), respectively. The transaction was
accounted for as a pooling-of-interests.
ADMINISTRATIVE OFFICES. On March 25, 1997, the Company purchased
approximately 2 acres of land located adjacent to the Bank's main office for
the purpose of constructing administrative offices. To the extent not utilized
by the Company, management expects to lease space to the Bank and possible
other subsidiaries and other unrelated businesses. This new facility will
total approximately 30,000 square feet with a construction cost of
approximately $2.5 million. On October 30, 1997, the Company obtained the $5
million Credit Line from Barnett Banks, N.A. South Florida. The proceeds from
this facility will be applied, in part, to fund the construction the Company's
new administrative offices, as well as other general corporate purposes as
shall be determined from time to time by the Board of Directors of the Company
or its management.
FINANCE COMPANY. The Company has completed the organization and
formation of the Finance Company, hired employees to work at the Finance
Company upon commencement of operations, and has filed all necessary license
applications with the relevant regulatory authorities. The Company believes
that it has all necessary licenses to commence the operations of the Finance
Company. During the second quarter of 1998, it is anticipated that the Bank
will extend a $2.5 million loan to the Finance Company in order to provide the
Finance Company with the funds necessary to commence its operations. Any such
loan will be made on substantially the same terms, including interest rates and
collateral on loans, as those prevailing at the time for comparable
transactions with unrelated parties. Upon the closing of the loan transaction,
the Finance Company will commence operations.
-37-
<PAGE> 40
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein
concerning the Company have been prepared in accordance with generally accepted
accounting principles, which require 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 the Company 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.
FEDERAL AND STATE TAXATION
Federal Income Taxation. Although a bank's income tax liability is
determined under provisions of the Code, which is applicable to all taxpayers
or corporations, Sections 581 through 597 of the Code apply specifically to
financial institutions.
The two primary areas in which the treatment of financial institutions
differ from the treatment of other corporations under the Code are in the areas
of bond gains and losses and bad debt deductions. Bond gains and losses
generated from the sale or exchange of portfolio instruments are generally
treated for financial institutions as ordinary gains and losses as opposed to
capital gains and losses for other corporations, as the Code considers bond
portfolios held by banks to be inventory in a trade or business rather than
capital assets. Banks are allowed a statutory method for calculating a reserve
for bad debt deductions.
State Taxation. The Company files state income tax returns in
Florida. Florida taxes banks under primarily the same provisions as other
corporations. Generally, state taxable income is calculated under applicable
Code sections with some modifications required by state law.
FUTURE ACCOUNTING REQUIREMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). This statement establishes new standards for reporting and
disclosure of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is defined as the change in
equity during a period from transactions and other events and circumstances
from non-shareholder sources, such as changes in net unrealized securities
gain. It includes all changes in equity during a period except those resulting
from investments by shareholders and distributions to shareholders. This
statement is effective for the Company's fiscal year ending December 31, 1998.
Application of this statement will not impact amounts previously reported for
net income or affect the comparability of previously issued financial
statements.
The FASB also has issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement establishes standards for the reporting of
financial information from operating segments in annual and interim financial
statements. It requires that financial information be reported on the same
basis that it is reported internally for evaluating segment performance and
deciding how to allocate resources to segments. Because this statement
addresses how supplemental financial information is disclosed in annual and
interim reports, the adoption will have no
-38-
<PAGE> 41
material impact on the financial statements. This statement is effective for
the Company's fiscal year ending December 31, 1998.
YEAR 2000 COMPLIANCE
The Bank utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Bank's third-party data
processing vendor and purchased software which is run on in-house computer
networks. In 1997, the Bank initiated a review and assessment of all hardware
and software to confirm that it will function properly in the year 2000. To
date, those vendors which have been contacted have indicated that their
hardware or software is or will be Year 2000 compliant in time frames that meet
regulatory requirements. The costs associated with the compliance efforts are
not expected to have significant impact on the Bank's ongoing results of
operations.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are contained on pages F-1 through F-28 of
this Report:
Report of Independent Accountants;
Consolidated Balance Sheets - December 31, 1997 and 1996;
Consolidated Statements of Income - Years ended December 31, 1997 and
1996;
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1997 and 1996;
Consolidated Statements of Cash Flows - Years ended December 31, 1997 and
1996
Notes to Consolidated Financial Statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable.
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<PAGE> 42
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 1998 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 1998 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 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 1998 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 1998 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 AND REPORTS ON FORM 8-K
(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.
2.2 -- Agreement and Plan of Merger, dated as of September 23, 1997,
by and among American Bancshares, Inc., American Bank of
Bradenton, and Murdock Florida Bank, incorporated herein by
reference to Exhibit 2.1 to the Company's Registration
Statement on Form S-4 (Registration No. 333-45401) previously
filed with the Commission.
2.3 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of
October 8, 1997, incorporated herein by reference to Exhibit
2.2 to the Company's Registration Statement on Form S-4
(Registration No. 333-45401) previously filed with the
Commission.
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<PAGE> 43
*3.1 -- Amended and Restated Articles of Incorporation of the Company.
3.2 -- Amended and Restated Bylaws, incorporated herein by reference
to Exhibit 3.2 to the Company's Registration Statement on Form
S-4 (Registration No. 333-45401) previously filed with the
Commission.
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and the Amended and
Restated Bylaws 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 -- Employment Agreement, dated January 22, 1997, by and between
the Bank and Stuart M. Gregory.
10.8 -- Data Processing Agreement, dated April 1, 1995, by and between
the Bank and M & I Data Services, Inc.
10.9 -- 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.
10.10 -- American Bancshares, Inc. and American Bank of Bradenton
Incentive Stock Option Plan of 1996, dated May 28, 1996, and
Form of Incentive Stock Option Agreement, incorporated herein
by reference to Exhibit 10.9 to the Company's Form 10-KSB for
the fiscal year ended December 31, 1996 previously filed with
the Commission.
-41-
<PAGE> 44
*10.11 -- American Bancshares, Inc. 1997 Nonqualified Share Option Plan
for Non-Employee Directors, dated March 18, 1997, and Form of
Nonqualified Share Option Agreement.
10.12 -- Loan Agreement, dated as of October 30, 1997, by and between
American Bancshares, Inc. and Barnett Bank, N.A., incorporated
herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-4 (Registration No.
333-45401) previously filed with the Commission.
*10.13 -- Assignment of Lease and Consent to Assignment, dated February
15, 1998, by and between the Finance Company, G.J.M.
Properties, Inc., and First Enterprise Acceptance Corporation,
and Lease Agreement assumed thereby.
21.1 -- Subsidiaries of the Company, incorporated herein by reference
to Exhibit 21.1 to the Company's Registration Statement on
Form S-4 (Registration No. 333-45401) previously filed with
the Commission.
*27.1 -- Financial Data Schedule (for SEC use only)
-------------------------
* Exhibit filed herewith.
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K was filed on October 8, 1997,
pursuant to Item 5 thereof to report the execution of a definitive Agreement
and Plan of Merger, dated September 23, 1997, as amended on October 8, 1997, by
and among American Bancshares, Inc., American Bank of Bradenton, and Murdock
Florida Bank whereby American Bancshares, Inc. agreed to acquire Murdock
Florida Bank in a transaction pursuant to which Murdock would be merged with
and into American Bank of Bradenton.
-42-
<PAGE> 45
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 27, 1998 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 27, 1998
- -------------------------------------------
J. Gary Russ
/s/ Gerald L. Anthony President, Chief Executive Officer and March 27, 1998
- ------------------------------------------- Director (Principal Executive Officer)
Gerald L. Anthony
/s/ Samuel S. Aidlin Director March 27, 1998
- -------------------------------------------
Samuel S. Aidlin
/s/ Ronald L. Larson Director March 27, 1998
- -------------------------------------------
Ronald L. Larson
/s/ Timothy I. Miller Director March 27, 1998
- -------------------------------------------
Timothy I. Miller
/s/ Dan E. Molter Director March 27, 1998
- -------------------------------------------
Dan E. Molter
Director
- -------------------------------------------
Kirk D. Moudy
/s/ Lindell Orr Director March 27, 1998
- -------------------------------------------
Lindell Orr
/s/ Lynn B. Powell, III Director March 27, 1998
- -------------------------------------------
Lynn B. Powell, III
</TABLE>
<PAGE> 46
<TABLE>
<S> <C> <C>
/s/ Walter L. Presha Director March 27, 1998
- -------------------------------------------
Walter L. Presha
/s/ R. Jay Taylor Director March 27, 1998
- -------------------------------------------
R. Jay Taylor
/s/ Edward D. Wyke Director March 27, 1998
- -------------------------------------------
Edward D. Wyke
/s/ Brian M. Watterson Chief Financial Officer March 27, 1998
- ------------------------------------------- (Principal Financial Officer)
Brian M. Watterson
</TABLE>
<PAGE> 47
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: By:
-------------------------------------
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>
Chairman of the Board
- -------------------------------------------
J. Gary Russ
President, Chief Executive Officer and
- ------------------------------------------- Director (Principal Executive Officer)
Gerald L. Anthony
Director
- -------------------------------------------
Samuel S. Aidlin
Director
- -------------------------------------------
Ronald L. Larson
Director
- -------------------------------------------
Timothy I. Miller
Director
- -------------------------------------------
Dan E. Molter
/s/ Kirk D. Moudy Director March 27, 1998
- -------------------------------------------
Kirk D. Moudy
Director
- -------------------------------------------
Lindell Orr
Director
- -------------------------------------------
Lynn B. Powell, III
</TABLE>
<PAGE> 48
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS,
TOGETHER WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 49
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
<S> <C>
Report of Independent Accountants F-1
Consolidated Financial Statements:
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Shareholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-28
</TABLE>
<PAGE> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
American Bancshares, Inc. and Subsidiaries
Bradenton, Florida
We have audited the accompanying consolidated balance sheets of American
Bancshares, Inc. and Subsidiaries as of December 31, 1997 and 1996, 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 Subsidiaries as of December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Tampa, Florida
February 13, 1998
F-1
<PAGE> 51
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks $ 10,067,161 $ 15,044,908
Federal funds sold 5,120,000 6,000,000
Loans held for sale 39,587,522 20,351,204
Investment securities available for sale (at aggregate fair value) 49,985,748 26,110,712
Loans receivable (net of allowance for loan losses and deferred loan
fees/costs of $800,238 in 1997 and $395,463 in 1996) 172,618,033 135,108,438
Premises and equipment, net 8,953,971 6,878,589
Other assets 3,607,892 2,471,477
------------- -------------
$ 289,940,327 $ 211,965,328
Total assets ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 244,558,776 $ 177,202,633
Securities sold under agreements to repurchase 17,528,493 10,112,986
Federal Home Loan Bank advances 5,000,000 5,000,000
Note payable 500,000 0
Other liabilities 1,354,748 835,802
------------- -------------
Total liabilities 268,942,017 193,151,421
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY
Common stock - $1.175 par value; 10,000,000 shares authorized;
4,070,458 and 4,001,744 shares issued at December 31, 1997
and 1996, respectively 4,782,788 4,702,049
Additional paid-in capital 12,080,296 11,736,471
Unrealized gain (loss) on investment securities available for sale, net of
tax of $29,914 and $(49,145) at December 31, 1997 and 1996,
respectively 48,808 (79,951)
Retained earnings 4,086,418 2,455,338
------------- -------------
Total shareholders' equity 20,998,310 18,813,907
------------- -------------
Total liabilities and shareholders' equity $ 289,940,327 $ 211,965,328
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 52
AMERICAN BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Interest income:
Interest and fees on loans $ 16,606,030 $ 12,590,883
Interest on federal funds sold 398,642 237,408
Interest on investment securities 2,686,145 1,720,060
------------- -------------
Total interest income 19,690,817 14,548,351
Interest expense:
Deposits 9,416,370 6,926,587
Borrowings 1,003,036 484,591
------------- -------------
Total interest expense 10,419,406 7,411,178
------------- -------------
Net interest income 9,271,411 7,137,173
Provision for loan losses 750,000 286,654
------------- -------------
Net interest income after provision for loan losses 8,521,411 6,850,519
------------- -------------
Other income 3,643,646 1,834,059
------------- -------------
Other expenses 9,593,765 7,279,136
------------- -------------
Income before income tax provision 2,571,292 1,405,442
Income tax provision 940,212 521,953
------------- -------------
Net income $ 1,631,080 $ 883,489
============= =============
Weighted average basic shares outstanding 4,071,596 3,713,541
============= =============
Weighted average diluted shares outstanding 4,080,893 3,760,204
============= =============
Earnings per share:
Basic $ 0.40 $ 0.24
============= =============
Diluted 0.40 0.23
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 53
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
UNREALIZED
GAINS/
LOSSES ON
COMMON STOCK INVESTMENT
------------------------------------- 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, 1996 10,000,000 2,401,070 $2,821,257 $ 5,257,877 $1,571,849 $ 47,486 $ 9,698,469
Exercise of warrants 0 163,695 192,342 789,828 982,170
Issuance of stock 0 1,436,979 1,688,450 5,688,766 0 0 7,377,216
Change in net unrealized
gain on investment
securities available
for sale 0 0 0 0 0 (127,437) (17,437)
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
Exercise of warrants 0 61,595 72,374 297,196 0 0 369,570
Issuance of stock 0 7,119 8,365 46,629 0 0 54,994
Change in net unrealized
loss on investment
securities available
for sale 0 0 0 0 0 128,759 128,759
Net income 0 0 0 0 1,631,080 0 1,631,080
---------- ---------- ---------- ----------- ---------- ------------ -----------
Balance, December 31,
1997 10,000,000 4,070,458 $4,782,788 $12,080,296 $4,086,418 $ 48,808 $20,998,310
========== ========== ========== =========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 54
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,631,080 $ 883,489
------------ ------------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Deferred tax credit (248,194) (359,411)
Depreciation 581,916 402,976
Amortization of investment securities 18,479 120,064
Provision for loan losses 750,000 286,654
Gain on sale of investment securities available for sale (142,820) (105,826)
Gain on sale of loans (296,991) (190,624)
Gain on sale of mortgage servicing rights (381,151) (323,378)
Gain on sale of other real estate owned (10,990) 0
Origination of loans held for sale (58,451,859) (38,628,254)
Proceeds from sales of loans held for sale 44,112,636 38,158,995
Increase in deferred loan costs 23,359 150,103
Increase in other liabilities 518,946 371,011
Increase in other assets (1,190,732) (699,012)
------------ ------------
Total adjustments (14,717,401) (816,702)
------------ ------------
Net cash (used in) provided by operating activities (13,086,321) 66,787
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net loans to customers (42,258,941) (36,522,219)
Purchases of bank premises and equipment (2,657,298) (3,202,104)
Proceeds from sales of available for sale investment securities 17,000,969 27,463,321
Proceeds from maturities of available for sale investment securities 8,900,000 11,633,437
Purchases of available for sale investment securities (49,522,905) (41,455,883)
Recoveries on loans charged off 70,535 46,487
------------ ------------
Net cash used in investing activities (68,467,640) (42,036,961)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW, money market
and savings accounts 32,958,555 26,871,180
Net increase in time deposits 34,397,588 20,470,549
Net increase in securities sold under agreements to repurchase 7,415,507 546,318
Proceeds from advances from borrowings 500,000 0
Proceeds from stock sale 424,564 8,359,386
------------ ------------
Net cash provided by financing activities 75,696,214 56,247,433
------------ ------------
Net increase (decrease) in cash and cash equivalents (5,857,747) 14,277,259
Cash and cash equivalents at beginning of year 21,044,908 6,767,649
------------ ------------
Cash and cash equivalents at end of year $ 15,187,161 $ 21,044,908
============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid $ 10,213,683 $ 7,224,428
============ ============
Income taxes paid $ 1,041,233 $ 536,500
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 55
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
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. It has two wholly owned subsidiaries, which include
a banking subsidiary, American Bank of Bradenton (Bank), a
state-chartered bank; and Freedom Finance Company (Finance), a
Florida Corporation. The Bank is a general commercial bank
with all the rights, powers, and privileges granted and
conferred by the Florida Banking Code. Finance was
incorporated on March 26, 1997 and had no activity during 1997
other than a $100 capital contribution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accounting and reporting policies of the Holding Company
and Subsidiaries 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 subsidiaries, American Bank of Bradenton and
Freedom Finance Company, collectively referred to herein as
the Company. All significant intercompany accounts and
transactions have been eliminated.
INVESTMENT 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.
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
borrower's 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.
F-6
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
ALLOWANCE FOR LOAN LOSSES - The Company adheres to an internal
asset review system and allowance for loan losses methodology
designated 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.
F-7
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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. Gains and losses resulting
from the sales of these loans are recognized in the period the
sale occurs. Mortgage loan servicing fees are earned
concurrently with the receipt of the related mortgage
payments.
MORTGAGE SERVICING RIGHTS - The Company recognizes an asset
for rights to service mortgage loans for others by management
periodically. The value of mortgage servicing rights related
to loans sold was $145,000 and $226,000 at December 31, 1997
and 1996, respectively. The Company had no valuation
allowance for capitalized mortgage servicing rights at
December 31, 1997 and 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.
The Company purchases consumer loans from local auto dealers
which are collateralized by automobiles. 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, 1997 and 1996, the
unamortized premiums totaled $448,934 and $459,541,
respectively.
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 valuation allowance 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
reflected in operations as incurred. The Company had other
real estate owned of $313,501 at December 31, 1997.
F-8
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 Company files 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 - In 1997, the Financial Accounting
Standards Board issued Statement No. 128 (FAS No. 128),
"Earnings Per Share." FAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and
diluted earnings per share. All earnings per share amounts
have been restated to conform to the FAS No. 128 requirements.
Basic earnings per common share is calculated by dividing net
income by the sum of the weighted average number of shares of
common stock outstanding.
Diluted earnings per common share is calculated by dividing
net income by the weighted average number of shares of common
stock outstanding, assuming the exercise of stock options and
warrants using the treasury stock method. Such adjustments to
the weighted average number of shares of common stock
outstanding are made only when such adjustments dilute
earnings per common share. The diluted earnings per share is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Weighted average common shares outstanding 4,071,596 3,713,541
Weighted average common shares equivalents 9,297 46,663
--------- ---------
Shares used in diluted earnings per share calculation 4,080,893 3,760,204
========= =========
</TABLE>
RECLASSIFICATIONS - Certain amounts in the 1996 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.
F-9
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT SECURITIES AVAILABLE FOR SALE:
The amortized costs and approximate fair value of investment
securities available for sale at December 31, 1997 and 1996
are summarized as follows:
<TABLE>
<CAPTION>
1997
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury Securities $ 3,537,278 $ 358 $(19,046) $ 3,518,590
U.S. Government agencies 44,736,471 104,844 (8,127) 44,833,188
State and municipals 499,877 693 0 500,570
----------- -------- -------- -----------
Total debt securities 48,773,626 105,895 (27,173) 48,852,348
----------- -------- -------- -----------
FHLB stock 1,133,400 0 0 1,133,400
----------- -------- -------- -----------
Total available for sale $49,907,026 $105,895 $(27,173) $49,985,748
=========== ======== ======== ===========
</TABLE>
<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
=========== ======== ========= ===========
</TABLE>
The FHLB stock is a restricted investment that is required by
the FHLB to be maintained by the Company.
F-10
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVESTMENT SECURITIES AVAILABLE FOR SALE, CONTINUED:
The amortized cost and approximate fair value of investments
at December 31, 1997, 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 $ 2,505,528 $ 2,499,170
Due after one year through five years 15,840,650 15,845,685
Due after five years through ten years 28,427,448 28,509,639
Due after ten years 2,000,000 1,997,854
----------- -----------
Total debt securities 48,773,626 48,852,348
FHLB stock 1,133,400 1,133,400
----------- -----------
$49,907,026 $49,985,748
=========== ===========
</TABLE>
Proceeds from the sale of investment securities available for
sale during the years ended December 31, 1997 and 1996 were
$17,000,969 and $27,563,000, respectively. Gross gains of
$148,259 and $157,500 were realized on these sales for the
years ended December 31, 1997 and 1996, respectively. Gross
losses of $5,439 and $51,700 were realized on these sales for
the years ended December 31, 1997 and 1996, respectively.
At December 31, 1997, the Company had pledged securities with
a carrying value of approximately $504,000 and market value of
approximately $498,000 to the State of Florida for public fund
deposits. The current value of pledged securities is adequate
to meet the pledging requirements.
4. LOANS RECEIVABLE, NET:
The Company's loan portfolio consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Residential mortgage loans, substantially all single-family $ 24,593,596 $ 18,695,342
Commercial and commercial real estate loans 103,160,918 74,538,560
Consumer loans 45,663,756 42,269,999
------------ ------------
173,418,270 135,503,901
Less allowance for loan losses (1,381,415) (1,000,000)
Net deferred costs 581,178 604,537
------------ ------------
Loans, net $172,618,033 $135,108,438
============ ============
</TABLE>
F-11
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LOANS RECEIVABLE, NET, CONTINUED:
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>
1997 1996
<S> <C> <C>
Balance at beginning of year $1,000,000 $ 946,000
Provision charged to income 750,000 286,654
Recoveries on loans previously charged off 70,535 46,486
Loans charged off (439,120) (279,140)
---------- ----------
Balance at end of year $1,381,415 $1,000,000
========== ==========
</TABLE>
In management's opinion, the allowance is adequate to reflect
the risk in the loan portfolio.
At December 31, 1997 and 1996, the recorded investment in
loans for which impairment has been recognized totaled
approximately $662,000 and $1,478,000, respectively. The
total allowance for loan losses related to these loans was
approximately $246,000 and $331,400 at December 31, 1997 and
1996, respectively. Interest income on impaired loans of
approximately $48,500 and $87,000 was recognized for cash
payments received in 1997 and 1996, respectively. For the
years ended December 31, 1997 and 1996, the average recorded
investment in impaired loans was $312,000 and $1,139,000,
respectively.
At December 31, 1997 and 1996, the Company had approximately
$437,000 and $905,000 in nonaccrual loans, respectively. For
the years ended December 31, 1997 and 1996, the amount of
interest income not recorded related to nonaccrual loans was
approximately $42,000 and $60,000, respectively. At December
31, 1997, there were two accruing loans totaling $140,000 that
were 90 days or more past due. At December 31, 1996, there
were no accruing loans that were 90 days or more past due.
LOANS TO OFFICERS AND DIRECTORS - In the course of its
business, the Company has granted loans to executive officers,
directors and principal shareholders of the Company and to
entities to which they are related. Following is a summary of
the amount of loans in which the aggregate of the loans
exceeded $60,000 during the year:
<TABLE>
<CAPTION>
1997
<S> <C>
Balance at beginning of year $ 6,521,406
New loans 2,164,334
Repayments on loans (2,521,223)
-----------
Balance at end of year $ 6,164,517
===========
</TABLE>
F-12
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. PREMISES AND EQUIPMENT:
A summary of premises and equipment at December 31, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 2,802,264 $ 2,792,263
Building and improvements 4,968,441 2,844,277
Furniture, fixtures, and equipment 2,898,019 2,446,909
----------- -----------
10,668,724 8,083,449
Less accumulated depreciation (1,714,753) (1,204,860)
----------- -----------
$ 8,953,971 $ 6,878,589
=========== ===========
</TABLE>
Depreciation expense totaled $581,916 and $402,976 for the
years ended December 31, 1997 and 1996, respectively.
6. LOAN SERVICING:
Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid
principal balances of mortgage loans serviced for others was
$10,998,279 and $19,781,866 at December 31, 1997 and 1996,
respectively.
Custodial escrow balances maintained in connection with the
foregoing loan servicing, and included in demand deposits,
were $40,653 and $34,675 at December 31, 1997 and 1996,
respectively.
Mortgage servicing rights of $187,889 and $254,783 were
capitalized in 1997 and 1996, respectively. Amortization of
mortgage servicing rights was $25,927 and $28,901 during 1997
and 1996, respectively. The value of mortgage servicing
rights sold was $243,100 and $0 for 1997 and 1996,
respectively. At December 31, 1997 and 1996, the capitalized
mortgage servicing rights totaled $144,744 and $225,882,
respectively, which approximated fair value.
F-13
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. DEPOSITS:
Deposits consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Demand $ 39,944,577 $ 26,281,696
NOW 15,041,090 13,081,210
Money market 57,419,868 42,040,356
Savings 8,295,135 6,338,853
------------ ------------
120,700,670 87,742,115
------------ ------------
Certificate accounts:
Under $100,000 79,817,006 58,037,837
Over $100,000 31,238,121 20,161,471
IRAs 12,802,979 11,261,210
------------ ------------
123,858,106 89,460,518
------------ ------------
$244,558,776 $177,202,633
============ ============
</TABLE>
The aggregate amount of certificates of deposit of $100,000 or
more at December 31, 1997 and 1996 was approximately
$32,570,000 and $21,482,000, respectively.
A summary of certificate accounts at December 31, 1997 and
1996 by year of scheduled maturity follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Due within one year $ 63,413,105 $32,807,388
Due after one year through two years 30,810,004 12,455,878
Due after two years through three years 8,469,909 18,905,335
Due after three years through four years 17,702,187 7,680,533
Due after four years 3,462,901 17,611,384
------------ -----------
$123,858,106 $89,460,518
============ ===========
</TABLE>
Interest expense on deposit accounts is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Interest on NOW accounts and money market deposit accounts $2,830,315 $1,735,056
Interest on savings accounts 163,718 153,948
Interest on certificate accounts 6,422,337 5,037,583
---------- ----------
$9,416,370 $6,926,587
========== ==========
</TABLE>
F-14
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, 1997 and 1996 is presented below, segregated by the type
of securities sold and by due date of the agreement:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Average balance during the year $14,375,332 $ 9,660,214
Average interest rate during the year 4.54% 4.08%
Maximum month-end balance during the year $21,589,255 $10,557,098
U.S. Treasury securities underlying the agreements at year-end:
Carrying value $19,284,514 $11,242,138
Fair value 19,332,128 11,153,493
</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 at December 31,
1997 and 1996 were $5,000,000 at 6.31%, maturing in October
1998.
The FHLB requires that the Bank maintain qualifying mortgages
as collateral and all of its FHLB stock as collateral for its
advances. As of December 31, 1997, the Bank has a credit
availability of $20,000,000.
Uncollateralized Federal Fund lines amounting to $3.4 million
at December 31, 1997 were maintained with various banks with
rates which are at or below prime rate. The lines and their
terms are periodically reviewed and are generally subject to
withdrawal at the discretion of the banks. No borrowings on
these agreements were outstanding at December 31, 1997 and
1996, respectively.
F-15
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. NOTE PAYABLE:
In 1997, the Company entered into a Loan Agreement with a
national banking association for a $5 million revolving line
of credit facility. The agreement requires the proceeds of
the new credit facility to be used for the acquisition of real
estate to be used for the development of the Company's
corporate headquarters, an operations center, and bank
branches. The credit facility is collateralized by the shares
of the Bank. The agreement requires the Company to meet
certain covenants and restricts the payment of dividends,
which have been met. Interest on the revolving credit
facility is calculated quarterly on either one- or three-month
LIBOR plus 175 basis points (7.74% at December 31, 1997).
After two years, the loan converts into a ten-year term note
with a five-year balloon payment. The total amount of unused
revolving credit available to the Company at December 31, 1997
was $4.5 million.
11. INCOME TAXES:
The Company's provision for income taxes consisted of the
following for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current:
Federal $1,125,812 $534,953
State 62,600 29,200
---------- --------
1,188,412 564,153
---------- --------
Deferred:
Federal (226,000) (38,500)
State (22,200) (3,700)
---------- --------
(248,200) (42,200)
---------- --------
$ 940,212 $521,953
========== ========
</TABLE>
Deferred income taxes consisted of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Provision for loan losses $ (112,000) $ (7,700)
Deferred loan fees 19,600 (39,700)
Depreciation (18,100) (15,200)
Cash to accrual adjustment (58,000) 57,900
Loans held for sale (67,800) 3,700
Other (11,900) (41,200)
---------- --------
$ (248,200) $(42,200)
========== ========
</TABLE>
F-16
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
11. INCOME TAXES, CONTINUED:
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 are as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Book over tax bad debts $ 395,400 $ 283,400
Market value of loans held for sale 161,800 94,000
Other 38,100 0
--------- ---------
Deferred tax assets 595,300 377,400
--------- ---------
Deferred tax liabilities:
Loan origination fees (74,200) (54,700)
Cash to accrual adjustment (57,900) (116,800)
Tax over book depreciation (68,700) (86,800)
Other 0 (30,900)
--------- ---------
Deferred tax liabilities (200,800) (289,200)
--------- ---------
Net deferred tax asset $ 394,500 $ 88,200
========= =========
</TABLE>
The Company's effective income tax rates of 37% for the years
ended December 31, 1997 and 1996 vary from the statutory
federal income tax rate of 34% due primarily to state income
taxes of 5.5% net of federal tax benefits.
12. OTHER INCOME:
Other income consisted of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Service charges on deposit accounts $1,301,104 $ 733,258
Broker loan fees 327,512 32,807
Net gains on sales of investment securities 148,259 105,825
Net gains on sales of loans held for sale 296,991 190,624
Net gain on sale of other real estate owned 10,990 0
Merchant fees on credit cards 479,048 262,061
Late fees 171,301 127,486
Net gain on sales of servicing rights 573,289 323,377
Other 335,152 58,621
---------- ----------
$3,643,646 $1,834,059
========== ==========
</TABLE>
F-17
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. OTHER EXPENSES:
Other expenses consisted of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Compensation and related benefits $4,370,275 $3,470,130
Occupancy and equipment 1,268,498 849,960
FDIC insurance 29,831 35,181
Data processing 663,891 740,140
Advertising and promotion 282,154 319,507
Printing supplies and postage 433,705 322,445
Directors fees and expenses 156,680 123,952
Professional fees 533,606 243,934
ATM and credit card fees 631,077 205,681
Intangible taxes 156,767 126,235
Other 1,067,281 841,971
---------- ----------
$9,593,765 $7,279,136
========== ==========
</TABLE>
Loan origination costs of approximately $686,000 and $380,000
in 1997 and 1996, respectively, have been offset against
compensation and related benefits.
14. 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, 1997 and
1996 financial instruments with off-balance-sheet risk were as
follows:
<TABLE>
<CAPTION>
CONTRACTUAL OR NOTIONAL AMOUNTS 1997 1996
------------------------------- ----------- -----------
<S> <C> <C>
Commitments to extend credit $53,406,000 $27,601,000
Standby letters of credit $ 458,000 $ 373,000
Credit cards $ 4,742,000 $ 4,258,000
</TABLE>
F-18
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, CONTINUED:
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 credit worthiness 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 issued to support
public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions.
The guarantees are short-term, expiring in 1997.
15. EMPLOYEE BENEFIT AND STOCK OPTION PLANS:
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,
1997 and 1996 was approximately $20,500 and $12,000,
respectively.
The Company has a qualified Incentive Stock Option plan
(Incentive Plan) and a Non-qualified Share Option Plan for
non-employee directors (Non-qualified Plan) under which the
Company may grant options for up to 150,000 and 75,000 shares
of common stock, respectively. Under the Plans, the exercise
price of each option equals the market price of the Company's
stock on the date of grant. Options are granted upon approval
of the Board of Directors and vest 33% per year for three
years and are exercisable over 10 years from the date of the
grant.
The Company applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) and related Interpretations in
accounting for its Plans. Accordingly, no compensation cost
has been recognized for options granted under the Plan. Had
compensation cost for the Company's Plan been determined based
on the fair value at the grant dates for awards under the Plan
consistent with the method of SFAS 123, the Company's net
income and net income per share would have been reduced to the
pro forma amounts of $1,612,680 net income and earnings per
share of .40 for the year ended December 31, 1997. The
Company did not award any options during the year ended
December 31, 1996, therefore, there is no pro forma amount for
that period.
F-19
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
15. EMPLOYEE BENEFIT AND STOCK OPTION PLANS, CONTINUED:
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in
1997; dividend yield of 0% in each period, as there has been
no regular dividend payment history, expected stock price
volatility of 23.6%, risk-free interest rates of 6.39%; and
expected lives of 5 years.
During 1997, options for 30,000 shares of common stock were
granted under the Incentive Plan at an exercise price of
$8.375. None of these options have been exercised. No
options were granted in 1996. No options have been granted
under the Non-Qualified Plan.
16. 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.
In February 1996, the Company completed a public offering of
1,250,000 shares of common stock at $6.00 per share (the
Offering). The net proceeds of the Offering, after deducting
applicable issuance costs and expenses, were approximately
$7,377,000.
In January 1997, the Company acquired the net assets of
Deschamps & Gregory Mortgage Company, Inc., a mortgage
brokerage company, for approximately $55,000. The Company
issued 7,119 shares of common stock in connection with the
acquisition. The Company accounted for the acquisition using
the purchase method of accounting.
The following table summarizes the activity of the Company's
issued and outstanding warrants and their corresponding
exercise prices:
<TABLE>
<CAPTION>
1992 WARRANTS 1994 WARRANTS
------------------------------- --------------------------
WARRANTS EXERCISE WARRANTS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE
------------------------------- --------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 18,594 $4.00 227,224 $6.00
Warrants exercised - 0.00 (163,695) 6.00
-------- ---------
Balance, December 31, 1996 18,594 4.00 63,529 6.00
Warrants expired (18,594) 0.00 (1,934) 6.00
Warrants exercised - 0.00 (61,595) 6.00
----------------------------- ------------------------
Balance, December 31, 1997 0 $4.00 0 $6.00
======== =========
</TABLE>
F-20
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
17. 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, 1997,
approximately $3,700,000 are available for payment of
dividends without prior regulatory approval.
18. 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 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 Company'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 - The repurchase
agreements outstanding at December 31, 1997 mature within 30
days. The estimated fair value of these agreements
approximates the carrying value.
FHLB ADVANCES AND NOTE PAYABLE - Cash flow from fixed-rate
borrowings are discounted at a spread to the zero Treasury
curve which equates to the LIBOR yield. The note payable's
interest rate reprices quarterly. The estimated fair value
approximates the carrying value.
F-21
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:
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.
The estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------------------------------------------------
1997 1996
------------------------------- --------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from bank $ 10,067 $ 10,067 $ 15,045 $ 15,045
Federal funds sold 5,120 5,120 6,000 6,000
Loans held for sale 39,588 39,747 20,351 20,414
Investment securities available for sale 49,986 49,986 26,111 26,111
Loans receivable, net 172,618 178,140 135,108 135,285
Financial liabilities:
Deposits 244,559 245,399 177,203 179,061
Securities sold under agreements to
repurchase 17,528 17,528 10,113 10,113
FHLB advances 5,000 5,000 5,000 5,000
Note payable 500 500 0 0
</TABLE>
<TABLE>
<CAPTION>
CONTRACT CONTRACT
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Unrecognized financial instruments:
Loan commitments $ 53,406 $ 80 $27,601 $ 41
Standby letters of credit 458 0 373 0
Credit cards 4,742 0 4,258 0
</TABLE>
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.
F-22
<PAGE> 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
18. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:
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, plant
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.
19. 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 properties 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.
F-23
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, 1997, that the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, 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 1997 or 1996.
<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, 1997:
Total Capital (to Risk Weighted
Assets) $20,211,738 10.00% >$ 16,190,178 >8.0% >$ 20,237,723 >10.0%
Tier I Capital (to Risk Weighted
Assets) $18,830,322 9.30% >$ 8,095,089 >4.0% >$ 12,142,634 > 6.0%
Tier I Capital (to Averaged
Assets) $18,830,322 6.70% >$ 8,475,697 >3.0% >$ 14,126,161 > 5.0%
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%
</TABLE>
F-24
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
21. FUTURE ACCOUNTING PRONOUNCEMENTS:
FAS No. 130, "Reporting Comprehensive Income," establishes new
standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from
non-shareholder sources, such as changes in net unrealized securities
gains. It includes all changes in equity during a period except those
resulting from investments by shareholders and distributions to
shareholders. This statement is effective for the Company's fiscal
year ending December 31, 1998. Application of this statement will not
impact amounts previously reported for net income or affect the
comparability of previously issued financial statements.
FAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the reporting of financial
information from operating segments in annual and interim financial
statements. It requires that financial information be reported on the
same basis that it is reported internally for evaluating segment
performance and deciding how to allocate resources to segments.
Because this statement addresses how supplemental financial
information is disclosed in annual and interim reports, the adoption
will have no material impact on the financial statements. This
statement is effective for the Company's fiscal year ending December
31, 1998.
F-25
<PAGE> 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
22. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS:
The condensed financial statements of American Bancshares, Inc., as
the parent organization, are presented as follows:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets:
Cash $ 373,665 $ 3,392,968
Premises and equipment 2,159,542 682,118
Prepaid expense 156,874 5,781
Investment in banking subsidiary 18,958,907 14,733,040
Investment in finance subsidiary 100 0
Other assets 3,000 0
----------- -----------
Total assets $21,652,088 $18,813,907
=========== ===========
Liabilities:
Total liabilities $ 653,778 $ 0
----------- -----------
Shareholders' equity:
Common stock 4,782,788 4,702,049
Additional paid-in capital 12,080,296 11,736,471
Unrealized gain (loss) on investment securities
available for sale, net 48,808 (79,951)
Retained earnings 4,086,418 2,455,338
----------- -----------
Total shareholders' equity 20,998,310 18,813,907
----------- -----------
Total liabilities and shareholders' equity $21,652,088 $18,813,907
=========== ===========
</TABLE>
F-26
<PAGE> 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
22. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS, CONTINUED:
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ -----------
<S> <C> <C>
Equity in undistributed earnings of banking subsidiary $1,732,108 $953,567
Operating expense (101,028) (70,078)
---------- --------
Net income $1,631,080 $883,489
========== ========
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows used in operating activities $ 398,657 $ (75,859)
----------- -----------
Cash flows used in investing activities:
Acquisition of premises and equipment (3,842,524) (4,890,559)
----------- -----------
Cash flows provided by financing activities:
Proceeds from sale of common stock (net of stock
offering costs) 424,564 8,359,386
----------- -----------
Net increase in cash (3,019,303) 3,392,968
Cash at beginning of year 3,392,968 0
----------- -----------
Cash at end of year $ 373,665 $ 3,392,968
=========== ===========
</TABLE>
F-27
<PAGE> 77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
23. SUBSEQUENT EVENTS (UNAUDITED):
MERGER - On March 23, 1998, the Company completed its merger
with Murdock Florida Bank, headquartered in Charlotte County,
Florida. Under the terms of the merger agreement, each
outstanding share of Murdock Florida Bank's common stock was
converted into 2.4 shares of the Company's common stock. A
total of approximately $924,000 of the Company's common stock
are issuable. At December 31, 1997, Murdock Florida Bank had
total assets and deposits of $64 million and $58.2 million
(unaudited), respectively. The transaction was accounted for
as a pooling-of-interests. Following is an unaudited summary
of pro forma information, which represents a combination of
the results of operations of the Company and Murdock Florida
Bank (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
-------- -------
<S> <C> <C>
Net interest income $11,714 $9,466
Net income 1,920 782
Earnings per share (basic) 0.43 0.19
</TABLE>
F-28
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Pages
-------- ----------------------- --------------
<S> <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.
2.2 -- Agreement and Plan of Merger, dated as of September 23, 1997, by and among
American Bancshares, Inc., American Bank of Bradenton, and Murdock Florida
Bank, incorporated herein by reference to Exhibit 2.1 to the Company's
Registration Statement on Form S-4 (Registration No. 333-45401) previously
filed with the Commission.
2.3 -- Amendment No. 1 to Agreement and Plan of Merger, dated as of October 8,
1997, incorporated herein by reference to Exhibit 2.2 to the Company's
Registration Statement on Form S-4 (Registration No. 333-45401) previously
filed with the Commission.
*3.1 -- Amended and Restated Articles of Incorporation of the Company.
3.2 -- Amended and Restated Bylaws, incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-4
(Registration No. 333-45401) previously filed with the Commission.
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and the Amended and Restated Bylaws 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 -- Employment Agreement, dated January 22, 1997, by and between the Bank and
Stuart M. Gregory.
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description of Exhibits Numbered Pages
-------- ----------------------- --------------
<S> <C> <C>
10.8 -- Data Processing Agreement, dated April 1, 1995, by and between the Bank and
M & I Data Services, Inc.
10.9 -- 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.
10.10 -- American Bancshares, Inc. and American Bank of Bradenton Incentive Stock
Option Plan of 1996, dated May 28, 1996, and Form of Incentive Stock Option
Agreement, incorporated herein by reference to Exhibit 10.9 to the
Company's Form 10-KSB for the fiscal year ended December 31, 1996
previously filed with the Commission.
*10.11 -- American Bancshares, Inc. 1997 Nonqualified Share Option Plan for
Non-Employee Directors, dated March 18, 1997, and Form of Nonqualified
Share Option Agreement.
10.12 -- Loan Agreement, dated as of October 30, 1997, by and between American
Bancshares, Inc. and Barnett Bank, N.A., incorporated herein by reference
to Exhibit 10.1 to the Company's Registration Statement on Form S-4
(Registration No. 333-45401) previously filed with the Commission.
*10.13 -- Assignment of Lease and Consent to Assignment, dated February 15, 1998, by
and between the Finance Company, G.J.M. Properties, Inc., and First
Enterprise Acceptance Corporation, and Lease Agreement assumed thereby.
21.1 -- Subsidiaries of the Company, incorporated herein by reference to
Exhibit 21.1 to the Company's Registration Statement of Form S-4
(Registration No. 333-45401) previously filed with the Commission.
*27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
-------------------------
* Exhibit filed herewith.
<PAGE> 1
EXHIBIT 3.1
STATE OF FLORIDA
[SEAL]
DEPARTMENT OF STATE
I certify the attached is a true and correct copy of the Amended and Restated
Articles of Incorporation, filed on March 27, 1998, for AMERICAN BANCSHARES,
INC., a Florida corporation, as shown by the records of this office.
The document number of this corporation is P95000051203.
Given under my hand and the
Great Seal of the State of Florida
at Tallahassee, the Capitol, this the
Twenty-seventh day of March, 1998
[SEAL] /s/ Sandra B. Mortham
---------------------
Sandra B. Mortham
Secretary of State
<PAGE> 2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
AMERICAN BANCSHARES, INC.
The undersigned, American Bancshares, Inc. (the "Corporation"), a Florida
corporation, pursuant to Sections 607.1002, 607.1003, and 607.1007 of the
Florida Business Corporation Act, hereby adopts the following Amended and
Restated Articles of Incorporation:
ARTICLE I
The name of the Corporation shall be American Bancshares, Inc. and its
initial place of business shall be 4702 Cortez Road West in the City of
Bradenton, in the County of Manatee, in the State of Florida.
ARTICLE II
The Corporation shall be organized for the purpose of operating as a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended, and to engage in any lawful act or activity for which corporations may
be organized under Florida law.
ARTICLE III
The total number of shares of capital stock of all classes which the
Corporation shall have the authority to issue is Twenty Five Million
(25,000,000), consisting of Twenty Million (20,000,000) common shares having a
par value of $1.175 per share and Five Million (5,000,000) preferred shares
having a par value of $1.175 per share (the "Preferred Shares").
The Board of Directors of the Corporation (the "Board of Directors") is
authorized, subject to limitations prescribed by law and this Article III, to
provide for the issuance of Preferred Shares in classes or series, and by
filing Articles of Amendment to the Articles of Incorporation pursuant to the
applicable law of the State of Florida, to establish from time to time the
number of shares to be included in each such class or series, and to fix the
designations, powers, preferences, and rights of the shares of such class or
series and any qualifications, limitations, or restrictions thereof, all as
shall hereafter be stated and expressed in the Articles of Amendment or
Amendments to these Articles of Incorporation adopted by the Board of Directors
providing for the issuance of Preferred Shares from time to time.
ARTICLE IV
The Corporation is for profit.
ARTICLE V
The number of directors constituting the Board of Directors of the
Corporation shall be such number as from time to time fixed by, or in the
manner prescribed by, the bylaws of the Corporation.
<PAGE> 3
Subject to the rights of the holders of any series of Preferred Shares
then outstanding, any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 66 2/3% of the voting power of all capital
stock of the Corporation entitled to vote generally in the election of the
Corporation's directors, voting together as a single class.
ARTICLE VI
Special Meetings of the shareholders of the Corporation may be called only
by the Chairman of the Board of Directors, the President, by the Board of
Directors pursuant to a resolution adopted by a majority of the entire Board of
Directors, or by the holders of not less than 50% of all votes entitled to be
cast on any issue proposed to be considered at such special meeting.
ARTICLE VII
The Corporation shall indemnify its directors and officers, or any former
director or officer, to the fullest extent permitted under law. A director of
the Corporation shall not be personally liable to the Corporation or its
shareholders for monetary damages to the Corporation or any other person for any
statement, vote, decision, or failure to act, regarding corporate management or
policy, as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, or (iii) for any transaction from which the
director derived any improper personal benefit. If the Florida Business
Corporation Act is amended after the filing of the Articles of Incorporation
which this Article is a part to authorize corporate action increasing the
ability of the Corporation to indemnify its directors or officers, or further
eliminating or limiting the personal liability of directors or officers, then
such indemnification shall be increased, or the liability of a director or an
officer of the Corporation shall be eliminated or limited, as the case may be,
to the fullest extent permitted by the Florida Business Corporation Act as so
amended.
Any repeal or modification of the foregoing paragraph by the shareholders
of the Corporation shall not adversely affect any right or protection of a
director or an officer of the Corporation existing at the time of such repeal or
modification.
IN WITNESS WHEREOF, the undersigned Corporation through its President has
executed these Amended and Restated Articles of Incorporation this 26th day of
March, 1998.
AMERICAN BANCSHARES, INC.
By: /s/ Gerald L. Anthony
-------------------------------------
Gerald L. Anthony
President and Chief Executive Officer
-2-
<PAGE> 4
OFFICER'S CERTIFICATE
OF
AMERICAN BANCSHARES
Pursuant to Section 607.1007(4) of the Florida Business Corporation Act,
the undersigned, American Bancshares, Inc. (the "Corporation"), a Florida
corporation, certifies as follows:
Pursuant to an action by written consent, dated effective January 29,
1998, the Board of Directors of the Corporation authorized the deletion of
Article IV and Article V (collectively, the "Historical Amendments") of the
Corporation's Articles of Incorporation regarding the initial registered agent
and the Corporation's incorporator, as provided in Section 607.1002 of the
Florida Business Corporation Act, and approved and adopted a new Article III,
Article V, Article VI and Article VII (collectively, the "New Amendments") to
the Corporation's Articles of Incorporation.
At a duly called special meeting of the shareholders (the "Shareholders")
of the Corporation, held on March 12, 1998, the votes cast by the Shareholders
in favor of the new Amendments were sufficient for approval. Accordingly, the
New Amendments were approved and adopted by the Shareholders on March 12, 1998.
Therefore, the Historical Amendments and the New Amendments have been
authorized by all appropriate action under the Florida Business Corporation Act.
AMERICAN BANCSHARES, INC.
a Florida Corporation
Date: 3-26-98 By: /s/ Gerald L. Anthony
-------- ------------------------------------
Gerald L. Anthony
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
22nd day of January 1997, by and among AMERICAN BANK OF BRADENTON (the "Bank")
and STUART M. GREGORY, an individual (the "Employee").
WHEREAS, the Bank is a state bank, regulated by the Florida Comptroller's
Office, Division of Banking, and is insured by the Federal Deposit Insurance
Corporation, located in Bradenton, Florida; and
WHEREAS, the Bank desires to increase its volume and market share of
retail residential origination loans and related activities arising out of such
lending services, and the Bank desires to employ the Employee in connection
therewith; and
WHEREAS, the Employee has experience in the origination and sale of such
loans and related lending activities and the Employee is willing to be employed
by the Bank as a loan officer on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the employment of the Employee by the
Bank, and the other mutual covenants contained herein, the parties agree as
follows:
1. EMPLOYMENT AND DUTIES. The Bank hereby employs the Employee as a
Residential Loan Production Manager and the Employee hereby accepts employment
upon the terms and conditions hereinafter set forth. As Residential Loan
Production Manager, the duties of the Employer shall include the solicitation,
organization and closing of residential loans on behalf of the Employer and the
supervision of each Loan Officer (as that term is defined herein) in such
activities and the performance of such other duties that the Employer may
designate from time to time.
2. TERM OF AGREEMENT. The effective date of this Agreement shall be
January 22, 1997 and it shall remain effective and continue in force and effect
for a period of three (3) years (the "Initial Term") unless earlier terminated
in accordance with the provisions contained herein. Unless otherwise terminated
in accordance herewith, this Agreement will be automatically extended after the
Initial Term for successive one (1) year periods thereafter unless either party
gives written notice of non-renewal to the other party (30) days prior to the
expiration of the term of this Agreement then in effect.
3. COMPENSATION. For all services rendered by the Employee under this
Agreement, the Bank shall pay the Employee the compensation set forth below. All
compensation payable to the Employee is stated in gross amount and shall be
subject to all applicable withholding taxes, other normal payroll and any other
amounts required by law to be withheld.
<PAGE> 2
(a) Base Salary. The Bank shall pay the Employee an annual salary of
Seventy-Five Thousand Dollars ($75,000) payable in weekly
installments the ("Base Salary").
(b) Quarterly Bonus. Then Bank shall pay to the Employee, on or
before the thirtieth (30th) following the end of each fiscal
quarter that this Agreement is in effect, a Quarterly Bonus,
which shall be equivalent to .08% of the Quarterly Residential
Loan Productivity (as that term is hereinafter defined) for each
Loan Officer (as that term is defined hereinafter). "Quarterly
Residential Loan Productivity", as calculated for each Loan
Officer, shall be equal to the total principal amount of all
residential loans which that Loan Officer has been credited with
originating and closing, which shall include loans sold by the
Bank and those loans held in the Bank's portfolio, in the
immediately preceding fiscal quarter. "Loan Officer" refers to
each loan officer who is an employee of the Bank and who reports
directly to the Employee in accordance with the Bank's
organizational chart, as revised from time to time by the Bank.
(c) Monthly Commission. The Bank shall pay to the Employee, on or
before the third pay period of each month that this Agreement is
in effect, a monthly commission on all residential loans
originated and closed, which shall include loans sold by the Bank
and those loans held in the Bank's portfolio, by the Employee and
all Loan Officers in the Bank's portfolio, by the Employee and
all Loan Officers in the immediately preceding calender month
(the "Monthly Commission"). The Monthly Commission shall be due
and payable if, and only if, fee income generated by the Bank
from those residential loans originated and closed by the
Employee and the Loan Officers for the immediately preceding
calender month exceeds 1.25% of the Monthly Residential Loan
Productivity (as defined below) for that month. If the fee income
exceeds this threshold, the Bank shall pay the Employee a Monthly
Commission as set forth above equivalent to 50% of the fee income
in excess of 1.25% of the Monthly Residential Loan Productivity.
For purposes of this Agreement, the "Monthly Residential Loan
Productivity" shall equal the principal amount of all residential
loans for which the Employee and the Loan Officers are credited
with originating and closing in the immediately preceding
calender month.
(d) One-Time Bonus. In consideration for the Employee entering into
this Agreement and the mutual covenants provided for herein, the
Bank shall provide to the Employee a one-time only bonus worth
Twenty-five Thousand Dollars ($25,000.00) ("Bonus"), which is
due and payable by certified check made payable to the Employee
on the effective date of this Agreement.
2
<PAGE> 3
4. BENEFITS. The Employee shall be entitled to participate in any plan
of the Bank relating to stock options, stock purchases, profit sharing, group
life insurance, medical coverage, education, or other retirement or employee
benefits that the Bank may adopt for the benefit of its employees. In addition,
during the first year of this Agreement and for each twelve (12) month period
thereafter, the Employee shall be entitled to that period of days for vacation
as is set from time to time by the Bank's corporate policy. The Employee shall
also be entitled to all paid holidays given by the Bank to its other employees.
The Employee shall also be entitled to all paid holidays given by the Bank to
its other employees. The Employee shall not be entitled to receive any
additional compensation from the Bank on account of his failure to take a
vacation; nor shall he be entitled to accumulate unused vacation time from one
(1) of the term of this Agreement to the next.
5. TIME DEVOTED TO EMPLOYMENT. The Employee shall devote his entire
time, attention and energies to the business of the Bank, and shall not, while
employed by the Bank, be engaged in any other business activity, whether or not
such business activity is pursued for gain, profit or other pecuniary
advantage; provided, however, this provision shall not be construed as
preventing the Employee from investing his assets in such form or manner as
will not require any services on the part of the Employee.
6. TERMINATION OF AGREEMENT. This Agreement shall terminate and the
Employee's rights with respect to compensation, and any and all other rights of
the Employee under this Agreement shall terminate (except as to compensation
deemed earned under Section 3(a) prior to such termination):
(i) immediately upon the death of the Employee;
(ii) immediately upon the Disability (as defined in this Section
below) of the Employee;
(iii) immediately for Cause (as defined in this Section below),
upon the giving of notice thereof by the Corporation or the
Employee as the case may be, or on such later date as such
notice may specify;
(iv) without Cause, upon thirty (30) days prior written notice
from the Bank to the Employee in the case of termination of
the Employee by the Bank; or
(v) immediately, in the event that certain Asset Purchase
Agreement by and among DesChamps and Gregory Mortgage
Company, Inc., the Employee, W. Stuart Gregory, E. S.
DesChamps, and T. R. Hayes and American Bancshares, Inc.,
is voided pursuant to Section 4.4 of such agreement.
For purposes of this Section, the Employee shall be deemed to have or be
subject to a "Disability" if: (1) for medical or psychological reasons, the
Employee has been unable to
3
<PAGE> 4
perform his duties under this Agreement for thirty (30) consecutive days, or
for a total period of sixty (60) days during the term of this Agreement,
excluding vacation, as determined by the Bank's board of directors in its sole
discretion; and (2) the Bank gives the Employee notice of such determination.
For purposes of this Section, the term "Cause" shall mean any of the
following with respect to the Employee, as determined by the Bank's board of
directors in its sole discretion: (1) being charged with or convicted of any
felony or any crime; (2) the commission or attempted commission of any act of
willful misconduct or dishonesty; (3) malfeasance in the performance of his
duties hereunder; or (4) negligence or incompetence in the performance of his
duties hereunder. With respect to the Bank, the term "Cause" shall mean the
material breach of the terms and conditions of this Agreement, for which no
cure is provided by the Bank within thirty (30) days after receiving notice of
such breach by the Employee to the Bank.
7. PROTECTIVE COVENANTS.
(a) Reason for Protective Covenants. As part of its business,
the Bank is engaged in various lending services. The parties
recognize and acknowledge that the Bank has developed
substantial good will, valuable relationships with
customers, trade secrets and particular means or methods of
conducting its business, all of which are worthy of
protection. Under such circumstances, the parties further
recognize and acknowledge that it is reasonable and
necessary for the Employee, who is employed in a responsible
position with the Bank, to enter into the protective
covenants set forth in subparagraphs 7(b) and 7(c) of this
Agreement.
(b) Covenant Not to Disclose Trade Secrets and Confidential
Information. It is expressly acknowledged by the Employee
that customer lists, loans in progress, current and closed
out loans, prospect lists, or lists of potential or actual
customers of the Bank, documents reflecting the names and
addresses of existing and potential customers, and
information regarding profits, the methods by which the Bank
serves its customers, as well as other business procedures,
are the property of the Bank and constitute confidential
trade secrets, or valuable confidential business or
professional information, of the Bank. The Employee promises
to maintain the confidentiality of such documents and
information while employed by the Bank and agrees that he
will not, directly or indirectly, disclose such information
or documents to any natural or legal person, other than
authorized employees or agents of the Bank, during the
course of his employment or thereafter. The Employee also
agrees to turn over all documents in his possession
containing trade secrets of the Bank to authorized
representatives of the Bank, together with any and all
copies thereof, at the time he leaves the employ of the
Bank, regardless of the reason for his termination.
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<PAGE> 5
(c) Covenant Not to Solicit Customers. The Employee agrees that while
employed by the Bank in any capacity, and for two (2) years
following termination of his employment, whether voluntary or
involuntary, with or without cause, he will not, directly or
indirectly, for his own account or for the account of any other
natural or legal person solicit any customer of the Bank to cease
doing business with the Bank. Both parties agree that the
two-year period provided in this paragraph shall be extended by
any length of time during which the Employee is in breach of such
covenant.
8. EACH COVENANT IS AN INDEPENDENT AGREEMENT. It is agreed that each of
the covenants set forth in Section 7 of this Agreement are agreements
independent of any other provision of this Agreement. The existence of any claim
or cause of action of the Employee against the Bank, whether based on this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Bank of such covenants. Notwithstanding the foregoing, the Bank agrees that the
covenants contained in Section 7 of this Agreement shall terminate and the
Employee shall be released from any obligations thereunder if this Agreement is
properly terminated by the Employee under Section 6(iii) of this Agreement or
the Bank terminates this Agreement in accordance with Section 6(iv).
9. INJUNCTION AND ATTORNEYS' FEES. The Employee agrees that if the
Employee violates any of the covenants contained in Section 7 of this Agreement,
the Bank shall be entitled to injunctive relief to enforce such covenants. The
Bank shall also be entitled to a reasonable attorneys' fee if it prevails in any
lawsuit brought under this Agreement.
10. NOTICES. In the case of any notice required or permitted to be given
to either party under this Agreement, such notice shall be in writing and shall
be deemed to have been duly given when delivered in person or three (3) days
after being mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Bank: American Bank of Bradenton
3647 44th Avenue West
Bradenton, Florida 34210
Attn: Gerald L. Anthony, President
If to the Employee: Stuart M. Gregory
117 25th St. W.
Bradenton, FL 34205
11. WAIVER. The waiver by the Bank of a breach of any provision of this
Agreement by the Employee shall not operate to be construed as a waiver of any
subsequent breach by the Employee.
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<PAGE> 6
12. BINDING EFFECT. The rights and obligations of the Bank under this
Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Bank.
13. CHANGES TO AGREEMENT. This Agreement may be changed only by an
agreement in writing.
14. GOVERNING LAW. This Agreement shall be construed in accordance with
the law of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date of the aforesaid.
AMERICAN BANK OF BRADENTON EMPLOYEE
By: /s/ Gerald L. Anthony /s/ Stuart M. Gregory
------------------------------ ------------------------------
Gerald L. Anthony Stuart M. Gregory
President
6
<PAGE> 1
EXHIBIT 10.11
AMERICAN BANCSHARES, INC.
1997 NONQUALIFIED SHARE OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1. THE PLAN
1.1 ESTABLISHMENT OF THE PLAN. To attract qualified persons to serve
as Directors and to encourage valued Directors to continue with the Company, the
Company hereby establishes this Plan. The Plan permits the grant of
Nonqualified Share Options in accordance with the terms and conditions set
forth below. Unless otherwise defined, all capitalized terms have the meaning
ascribed to them in Section 2.
1.2 PURPOSE. The purpose of this Plan is to advance the interests
of the Company and its shareholders by affording independent Directors with
incentives that will promote the identification of their personal interests
with the long term financial success of the Company and with growth in
shareholder value. The Plan is intended to aid in attracting and retaining the
services of qualified and knowledgeable independent Directors capable of
furthering the future success of the Company by encouraging the ownership of
Shares by such Directors and to provide an incentive for such independent
Directors to continue to work for the best interest of the Company and its
shareholders through its continuing ownership of Shares.
SECTION 2. DEFINITIONS.
As used in this Plan, unless the context otherwise requires, the
following capitalized terms are defined as follows:
2.1 "Board" or "Board of Directors" means the Board of Directors of
the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder. Reference to any provision of the Code
or rule or regulation thereunder shall be deemed to include any amended or
successor provision, rule, or regulation.
2.3 "Company" means American Bancshares, Inc., a Florida corporation.
2.4 "Date of Exercise" means the date on which the Company receives
notice of the exercise of an Option in accordance with the terms of Section 7.2.
2.5 "Date of Grant" means the date on which an Option is granted by
the Board of Directors.
2.6 "Director" means any person who is a member of the Board of
Directors.
2.7 "Employee" means any person who is an officer or full-time staff
employee of the Company or any Subsidiary and who receives from its regular
compensation, other than pension, retirement allowance, retainer, or fee under
contract. An Employee does not include independent contractors or temporary
employees.
<PAGE> 2
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
2.9 "Exercise Period" means the period during which an Option may be
exercised.
2.10 "Exercise Price" means the purchase price for Shares under a
Nonqualified Share Option, as determined in Section 6.3.
2.11 "Fair Market Value" means the closing price of a Share as quoted
on the National Association of Securities Dealers Automated Quotation System
National Market, or such other national securities exchange or other
inter-dealer quotation system on which the Shares are listed on the Date of
Grant (as reported by the Wall Street Journal, or if not reported thereby, any
other authoritative source selected by the Company). If the Shares are not
listed on any national securities exchange or quoted on any inter-dealer
quotation system, the Fair Market Value of a Share shall be determined by the
Board pursuant to any reasonable method adopted by it in good faith for such
purpose.
2.12 "Non-Employee Director" shall have the meaning set forth in
Section 5 of this Plan.
2.13 "Nonqualified Share Option" means the right to purchase Shares
granted pursuant to this Plan, which right does not qualify under Section 422
of the Code.
2.14 "Option" means a Nonqualified Share Option to purchase Shares
granted under this Plan in accordance with the terms of Section 6.
2.15 "Plan" means this American Bancshares, Inc., 1997 Nonqualified
Share Option Plan for Non-Employee Directors adopted by the Board of Directors
effective as of March 18, 1997.
2.16 "SEC" means the Securities and Exchange Commission.
2.17 "Securities Act" means the Securities Act of 1933, as amended
from time to time.
2.18 "Shares" means the Company's common shares, par value $1.175 per
share, and such other securities as may be substituted for a Share or such
other securities pursuant to the adjustment provisions of Section 9.
2.19 "Share Option Agreement" means the written agreement between the
Company and a Director implementing the grant of an Option.
2.20 "Subsidiary" means any corporation other than the Company
organized under the laws of the United States, Canada, or any other
jurisdiction that the Board designates, in an unbroken chain of corporations
beginning with the Company if each corporation other than the last corporation
in the unbroken chain owns more than 50% of the total combined voting power of
all classes of stock in one of the other corporation in such chain.
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<PAGE> 3
SECTION 3. ADMINISTRATION OF THE PLAN.
This Plan shall be administered by the Board of Directors. Subject to the
express provisions of this Plan, the Board of Directors shall make all
determinations and take all other actions necessary or deemed advisable for the
administration of the Plan. In addition to any other powers, subject to the
provisions of the Plan, the Board shall; (i) grant Options under the Plan; (ii)
determine all questions as to eligibility; (iii) determine all provisions of
each Share Option Agreement, which need not be identical; (iv) construe and
interpret the provisions of the Plan and the Share Option Agreements; (v)
establish, amend, or waive rules or regulations for the Plan's administration;
(vi) have the authority to accelerate the exercise of any Option; (vii) have
the authority to amend the terms of previously granted Options so long as the
terms as amended are consistent with the terms of the Plan and provided that
the consent of the Non-Employee Director is obtained with respect to any
amendment that would be detrimental to the Non-Employee Director; (viii)
required, whether or not provided for in the pertinent Share Option Agreement,
of any person exercising an Option, at the time of such exercise, the making of
any representations or agreements that the Board of Directors may deem
necessary or advisable in order to comply with the securities laws of the
United States or of any applicable jurisdiction; and, (ix) have the authority
to make all other determinations and take all other actions necessary or
advisable for the administration of the Plan. Any determinations or actions
taken by the Board pursuant to this Section 3 and the interpretation and
construction of any provision of the Plan by the Board is binding and final.
SECTION 4. SHARES SUBJECT TO THE PLAN.
4.1 NUMBER OF SHARES. Subject to adjustment as provided in
Section 9, the maximum aggregate number of Shares that may be issued and sold
pursuant to Options granted under this Plan shall not exceed 75,000 Shares. The
Shares to be issued in connection with the exercise of any Option shall be made
available, at the discretion of the Board of Directors, from either authorized
but unissued Shares or Shares issued and the thereafter reacquired by the
Company.
4.2 EXPIRATION OF OPTIONS. Shares issued upon the exercise of an
Option granted pursuant to the Plan shall not again be available for the grant
of an Option hereunder. If any Option granted under this Plan terminates,
expires, or lapses for any reason without having been fully exercised, any
unissued Shares that had been subject to the Share Option Agreement relating
thereto again shall become available for the grant of other Options.
4.3 DELIVERY OF SHARES AS PAYMENT. In the event a Non-Employee
Director pays the Exercise Price for Shares pursuant to the exercise of an
Option with previously acquired Shares, the number of Shares available for
future grants of Options under the Plan shall be reduced only by the net number
of new Shares issued upon the exercise of the Option.
SECTION 5. ELIGIBILITY
The Board may grant Options only to Directors of the Company who are not
otherwise Employees of the Company or any Subsidiary ("Non-Employee
Directors"). Options granted at different times need not contain similar
provisions.
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<PAGE> 4
SECTION 6. SHARE OPTIONS.
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of this
Plan, the Board of Directors may grant Nonqualified Share Options to
Non-Employee Directors. Subject to Section 4.1, the Board has complete
discretion in determining the number of Shares subject to Options granted to
each Non-Employee Director. Each Option granted shall be evidenced by minutes
of a meeting or the written consent of the Board and by a Share Option
Agreement.
6.2 SHARE OPTION AGREEMENT. Each Option granted under this Plan
shall be evidenced by a Share Option Agreement between the Company and the
Option holder in accordance with Section 6.1 that specifies the Exercise Price,
the Exercise Period, the number of Shares to which the Option pertains, any
conditions imposed upon the exercise of the Options in the event of retirement,
death, disability, or other termination of employment, and such other
provisions and conditions as the Board may determine. Each Share Option
Agreement shall clearly indicate that the Option is a Nonqualified Share Option.
6.3 EXERCISE PRICE. The Exercise Price for the Shares to be issued
pursuant to any Option shall be the Fair Market Value of the Shares on the Date
of Grant, but in no event shall the price be less than the par value of the
Shares.
6.4 EXERCISE PERIOD. The Exercise Period of each Option granted
shall commence on the Date of Grant and the expiration date shall be determined
by the Board of Directors at the time of grant and shall be specified in the
Share Option Agreement; provided, however, that no Option shall be exercisable
after the tenth anniversary from the Date of Grant.
6.5 TERMINATION OF OPTIONS. An Option granted under this Plan shall
terminate as provided in the Share Option Agreement.
6.6 NO RIGHTS AS SHAREHOLDER. No Non-Employee Director or
transferee of an Option shall have any rights as a shareholder of the Company
with respect to any Shares subject to an Option (including without limitation,
rights to receive dividends, vote, or receive notice of meetings) prior to the
purchase of such Shares by the exercise of such Option as provided in this
Plan. No adjustment will be made for a cash dividend or other rights for which
the record date precedes the Date of Exercise.
SECTION 7. EXERCISE OF OPTIONS.
7.1 EXERCISABILITY. Options exercised under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Board shall determine, which need not be the same for all Non-Employee
Directors.
7.2 METHOD OF EXERCISE. Subject to the provisions of the Share
Option Agreement, Options may be exercised in whole at any time, or in part
from time to time with respect to whole Shares only, during the Exercise Period
by the delivery to the Company of a written notice of intent to exercise the
Option, in such form as the Board of Directors may prescribe, setting forth the
number of Shares with respect to which the Option is to be exercised. The
Exercise Price, which shall accompany the written notice of exercise, shall be
payable to the Company in full (along with the taxes described in the last
sentence of this Section 7.2) by the Non-Employee Director who, if
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<PAGE> 5
so provided in the Share Option Agreement, may: (i) deliver cash in
satisfaction of all or any part of the Exercise Price; (ii) deliver, or cause
to be withheld from the Option, Shares valued at Fair Market Value on the Date
of Exercise in satisfaction of all or any part of the Exercise Price, or (iii)
any combination as cash and Shares, as the Board may determine. In addition to
and at the time of payment of the Exercise Price, the Non-Employee Director
shall pay to the Company in cash the full amount of all federal and state
withholding or other employment taxes applicable to the taxable income of the
Non-Employee Director resulting from such exercise.
SECTION 8. NONTRANSFERABILITY OF THE OPTIONS.
Except in the case of the death of a Non-Employee Director, neither the
Option granted under the Plan nor any rights or interest in such Options may be
sold, pledged, hypothecated, assigned, or otherwise disposed of or transferred
by such Non-Employee Director. Except as permitted by the Board of Directors
during the lifetime of the Non-Employee Director, the Options granted to a
Non-Employee Director shall be exercisable only by him or her or, in the event
of the Non-Employee Director's permanent and total disability as determined
by the Board of Directors in accordance with applicable Company policies, by
his or her legal representative.
SECTION 9. CAPITAL ADJUSTMENTS.
9.1 ADJUSTMENTS UPON MERGER, CONSOLIDATION, OR LIQUIDATION. If the
Company is a party to any merger, consolidation, any purchase or acquisition of
property or stock, or any separation, reorganization, liquidation, or the sale
of all or substantially all of the assets of the Company, the Board of
Directors (or, if the Company is not the surviving corporation, the board of
directors of the surviving corporation) shall have the power to make
arrangements, which shall be binding upon the holders of unexpired Options, for
the substitution of new options for, or the assumption by another corporation
of, any unexpired Options, for the substitution of new options for, or the
assumption by another corporation of, any unexpired Options then outstanding
hereunder.
9.2 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If, while any
Options are outstanding, by reason of a recapitalization, reclassification,
combination of Shares, reverse stock split, share dividend, separation
(including a spin-off), stock split, or other distribution in respect of such
Shares, the number of outstanding Shares of the Company are increased,
decreased, changed into, or been exchanged for a different number or kind of
shares, or if additional shares or new and different shares are distributed in
respect of such Shares, the Board of Directors in its sole discretion may make
an appropriate and proportionate adjustment in the exercise prices of the
outstanding Options and in the number and class of shares subject to each
outstanding Option.
9.3 ADJUSTMENT TO NUMBER OF SHARES. In the event of a transaction
of the type described in Section 9.1 and 9.2 of this Plan, the total number of
Shares pursuant to which Options may be granted under this Plan shall be
appropriately adjusted by the Board of Directors.
9.4 FRACTION SHARES DUE TO ADJUSTMENTS. If any adjustment made
pursuant to Section 9.1 or 9.2 of this Plan would result in the possible
issuance of fractional Shares under any then outstanding Options, the Board of
Directors may adjust the outstanding Options so as to eliminate the fractional
Shares.
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<PAGE> 6
SECTION 10. AMENDMENT, MODIFICATION, OR TERMINATION OF PLAN.
The Board, by resolution, shall have the power at any time to amend,
modify, suspend, or terminate the Plan with respect to any Shares as to which
Options have not been granted; provided, however, that no such action of the
Board without approval of the shareholders of the Company shall increase the
number of Shares subject to the Plan except as contemplated by Section 9 of the
Plan. Notwithstanding the foregoing, without the consent of the affected
Non-Employee Director, no such termination, amendment, or revision to the Plan
shall adversely alter, impair, or affect any rights or obligations of such
Non-Employee Director under any Option previously issued or granted.
SECTION 11. MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS.
Subject to the terms and conditions, and within the limitations, of the
Plan, the Board may modify, extend, or renew outstanding Options, or accept the
surrender of outstanding Options (to the extent not theretofore exercised)
granted under the Plan or any other plan of the Company, a Subsidiary, or any
corporation or entity acquired by the Company or a Subsidiary, and authorize
the granting of new Options pursuant to the Plan in substitution therefor (to
the extent not theretofore exercised), and the substituted Options may specify
a lower exercise price or a longer term than the surrendered Options or have
any other provisions that are authorized by the Plan. Notwithstanding the
foregoing provisions of this Section 11, no modification of an Option granted
under the Plan shall, without the consent of the affected Non-Employee
Director, alter or impair the Non-Employee Director's rights or obligations.
SECTION 12. CONDITIONS FOR ISSUANCE OF SHARES.
(a) No Shares shall be issued or transferred upon exercise of
any Option under this Plan unless and until all legal requirements applicable
to the issuance or transfer of such Shares and such other requirements as are
consistent with the Plan and the Share Option Agreement have been complied with
to the satisfaction of the Board, including without limitation those
requirements described in this Section 12 hereof.
(b) The Company shall not be required to issue or deliver any
certificate for Shares purchased upon the exercise of any Option granted
hereunder or any portion thereof prior to receipt from the Non-Employee Director
of the following representations, warranties, and covenants:
(i) That the Shares subject to the Options are being
acquired in good faith solely for his or her own personal account, for
investment purposes only, and not with an intent or a view to resale or
distribution within the meaning of Section 2(11) of the Securities Act;
(ii) That the Non-Employee Director understands and
acknowledges that the Shares to be issued upon exercise of such Option will not
have been registered under the Securities Act or the securities laws of any
other jurisdiction, and are being offered and sold to the Non-Employee Director
in reliance on an exemption from registration under such securities laws and
the rules and regulations promulgated thereunder;
(iii)That the Non-Employee Director agrees that each
certificate representing Shares to be issued upon exercise of such Option shall
bear the following legend:
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"The shares of American Bancshares, Inc., represented by this Certificate
may not be offered, sold, assigned, pledged, hypothecated, or otherwise
disposed of or transferred except pursuant to a registration statement
declared effective under the Securities Act of 1933 (the "Securities Act")
or pursuant to any exemption from registration under the Securities Act,
the availability of which shall be established to the satisfaction of the
Company."
(iv) That the Non-Employee Director will not sell, assign, pledge,
hypothecate, or otherwise dispose of or transfer the Shares to be issued upon
exercise of such Option except as permitted by this Plan and except pursuant to
an effective registration statement filed under the Securities Act and the
securities laws of all other applicable jurisdictions, for pursuant to an
opinion of counsel in a form satisfactory to the Company that the proposed
transaction is exempt from such registration under the Securities Act and all
other applicable jurisdictions; and
(v) Any other representation, warranty, or covenant that, in the
opinion of counsel for the Company, is required, necessary or advisable to be
made by such Non-Employee Director under the Securities Act and the securities
laws of any other applicable jurisdictions, and the rules and regulations
promulgated thereunder.
(c) The Company will not be obligated to issue and deliver Shares
pursuant to the Plan if counsel for the Company determines that such issuance
and delivery of the Shares would violate any rule or regulation of any
securities exchange or inter-dealer quotation system on which the Shares are
then traded or quoted, or violates any law, including, without limitation, the
Securities Act, the Exchange Act, applicable state securities and blue sky
laws, and the rules and regulations promulgated thereunder. In connection with
any Share issuance or transfer, the person acquiring the Shares should, if
requested by the Company, give assurances satisfactory to counsel to the Company
with regard to such matters as the Company may deem desirable to assure
compliance with all legal requirements. The Company shall in no event be
obligated to take any action in order to permit exercise of any Option under
the Plan or the transfer of the underlying Shares.
(d) The Company, in its discretion, may postpone the issuance and
delivery of Shares upon the exercise of any Option until completion of any
registration or qualification of such Shares under any federal or state laws,
or any applicable securities exchange or inter-dealer quotation system rules
and regulations, as the Company may consider appropriate. The Company is not
obligated to register or qualify the Shares under federal or state securities
laws. The Board may require that prior to the issuance or transfer of any
Shares upon exercise of an Option, the restriction on subsequent disposition
that the Board or the Company deems necessary or advisable under any applicable
federal or state securities laws.
SECTION 13. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective immediately for all purposes on the date
that it has received approval and adoption by both the Board of Directors and
the shareholders of the Company.
SECTION 14. TERM OF THE PLAN.
Unless sooner terminated by the Board pursuant to Section 10 hereof, this
Plan shall terminate then (10) years from its effective date and no Options may
be granted after termination.
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<PAGE> 8
The Board of Directors may terminate this Plan at any time. The termination
shall not affect the validity of any Option outstanding on the date of
termination.
SECTION 15. INDEMNIFICATION OF THE BOARD OF DIRECTORS.
In addition to such other rights of indemnification as they may have as
Directors, the members of the Board of Directors shall not be liable for any
act, omission, interpretation, construction, or determination made in good faith
in connection with their administration of and responsibilities with respect to
the Plan, and the Company hereby agrees to indemnify the members of the Board of
Directors against any claim, loss, damage, or reasonable expense, including
attorneys' fees, actually and reasonably incurred in connection with the defense
of any action, suit, or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Option granted or
issued hereunder, and against all amounts reasonably paid by them in settlement
thereof or paid by them in satisfaction of a judgement in any such action, suit,
or proceeding, if such members acted in good faith and in a manner which they
believed to be in, and not opposed to, the best interests of the Company.
SECTION 16. GENERAL PROVISIONS.
16.1 LIMITATION ON LEGAL RIGHTS. The establishment of the Plan shall
not confer upon any Non-Employee Director any legal or equitable right against
the Company, except as expressly provided in the Plan.
16.2 NOT A CONTRACT OF EMPLOYMENT. Neither this Plan nor any Share
Option Agreement constitute an inducement or consideration for the service of
any Director, nor are there contracts between the Company and any Director.
Participation in the Plan shall not give a Director, nor are there contracts
between the Company and any Director. Participation in the Plan shall not give
a Director any right to be retained in the service of the Company or any of its
Subsidiaries, nor shall anything in this Plan affect the right of the Company
or any of its subsidiaries to terminate the Director with or without cause.
16.3 OTHER COMPENSATION PLANS. The adoption of the Plan shall not
affect any other share option or incentive or other compensation plans in
effect for the Company or any of its Subsidiaries, nor shall the Plan preclude
the Company or any Subsidiary from establishing any other forms of incentive or
other compensation for Directors of the Company or any of its Subsidiaries.
16.4 ASSUMPTION BY THE COMPANY. The Company or its Subsidiaries may
assume options, warrants, or rights to purchase shares issued or granted by
other companies whose shares or assets shall be acquired by the Company or its
Subsidiaries or which shall be merged into or consolidated with the Company or
its Subsidiaries. The adoption of this Plan shall not be taken to impose any
limitations on the powers of the Company or its Subsidiaries or affiliates to
issue, grant, or assume options, warrants, rights, or restricted shares,
otherwise than under this Plan, or to adopt other share option or restricted
share plans or to impose any requirements of shareholder approval upon the same.
16.5 CREDITORS. The interests of any Director under this Plan is not
subject to the claims of creditors and may not, in any way, be assigned,
alienated, or encumbered.
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16.6 PLAN BINDING ON SUCCESSORS. The Plan shall be binding upon the
successors and assigns of the Company.
16.7 SINGULAR, PLURAL; GENDER. Whenever used in this Plan, nouns in the
singular shall include the plural, and vice versa, and the masculine pronoun
shall include the feminine gender.
16.8. HEADINGS. Headings to the Sections and subsections are included for
convenience and reference and do not constitute part of the Plan.
16.9. GOVERNING LAW. The Plan shall be governed, construed, and
administered in accordance with the laws of the State of Florida.
Date Approved by Board of Directors: March 18, 1997
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AMERICAN BANCSHARES, INC.
NONQUALIFIED SHARE OPTION AGREEMENT
FOR 1997 NON-EMPLOYEE DIRECTORS PLAN
NONQUALIFIED SHARE OPTION AGREEMENT (this "Agreement"), made on the __ day
of ____________, 19___, by and between AMERICAN BANCSHARES, INC., a Florida
corporation (the "Company") and ___________________ (the "Grantee").
1. GRANT OF OPTION. Subject to terms and conditions of this Agreement
and those set forth in the American Bancshares, Inc. 1997 Nonqualified Share
Option Plan for Non-Employee Directors (the "Plan"), the Company, with approval
and at the direction of its Board of Directors, hereby grants to Grantee an
option (the "Option") to purchase a total of ______ (________________) common
shares, $1.175 par value per share, of the Company (the "Shares"), at the price
set forth in this Agreement. The Shares that may be purchased upon the exercise
of the Option are sometimes referred to in this Agreement as the "Option
Shares". Capitalized terms not otherwise defined in this Agreement shall have
the meaning ascribed to them in the Plan. The Option is intended to be a
nonstatutory option and not an incentive share option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.
2. EXERCISE PRICE. The Exercise Price of the Option is $__________ per
Option Share.
3. EXERCISE PERIOD; TERMINATION OF OPTION.
(a) EXERCISE PERIOD. The Option and all rights hereunder with
respect to the extent such rights shall not have been exercised, shall
terminate and become null and void after the expiration of ten (10) years from
the Date of Grant ("Exercise Period").
(b) TERMINATION. Except as provided in Section 3(c) of this
Agreement, a Grantee's Option shall not expire or terminate by virtue of his or
her termination of service as a member of the Board of Directors. If a Grantee
should die while serving on the Board of Directors of the Company, a
Subsidiary, or any successor, the person to whom the Grantee's rights hereunder
pass by will or the laws descent and distribution may exercise the Option at
anytime during the Exercise Period of this Agreement for any of the Option
Shares not previously exercised during the Grantee's lifetime.
(c) TERMINATION OF DIRECTORSHIP FOR CAUSE. If the Grantee is
removed from the Board of Directors for cause (as that term is used under the
Florida Business Corporation Act) and ceases to be a Director, the right of the
Grantee to exercise such Option or part thereof under this Agreement shall
immediately terminate upon such removal and all rights thereunder shall cease.
4. METHOD OF EXERCISE.
(a) NOTICE OF EXERCISE. In order to exercise any portion of this
Option, the Grantee shall notify the Company in writing of the election to
exercise the Option and the number of Shares in respect of which the Option is
being exercised. Such notice shall be delivered to the
<PAGE> 11
Secretary of the Company and shall be accompanied with the Exercise Price
payable in the manner set fourth in Section 4(b) below. The date specified in
Grantee's notice as the date of exercise of the Option shall be deemed to be
the Date of Exercise; provided, that, such date is at least five (5) days after
the giving of such notice and that payment in full for the Option Shares to be
purchased upon such exercise shall have been received by such date. Otherwise,
the Date of Exercise shall be the date on which all conditions for issuance of
Option Shares have been satisfied and such Option Shares have been issued by the
Company. The certificate or certificates for Shares as to which the Option
has been exercised shall be registered in the name of the Grantee.
(b) PAYMENT OF EXERCISE PRICE. The Exercise Price of the Option
Shares to be purchased upon exercise of an Option, in whole or in part, shall
be paid to the Company in full on or before the Date of Exercise. The Exercise
Price may be paid: (i) in cash (U.S. dollars) by the Grantee, (ii) through the
surrender of previously acquired Shares, or causing Option Shares to be
withheld from the Option, valued at the Fair Market Value on the Date of
Exercise, in satisfaction of all or any part of the Exercise Price, (iii) with
the prior written consent of the Board, any combination of the foregoing.
(c) FAILURE TO PAY OR ACCEPT DELIVERY. If the Grantee fails to pay
for any of the Option Shares specified in its notice to exercise or fails to
accept delivery thereof, the Grantee's right to purchase such Option Shares may
be terminated by the Board.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of the Option Shares upon such exercise or the method of payment of
consideration for such Option Shares would constitute a violation of any
applicable federal or state securities law or any other law or regulation. As
a condition to the exercise of this Option, the Company may require the Grantee
to make any representation or warranty to the Company at the time of exercise
of the Option as in the opinion of legal counsel for the Company may be
required by any applicable law or regulation, including those representations
and warranties set forth in Section 12(b) of the Plan. Accordingly, the share
certificates for the Shares issued upon exercise of this Option may bear
appropriate legends restricting transfer.
6. NON-TRANSFERABILITY OF OPTION. Except as otherwise provided by the
Plan, this Option may be exercised during the lifetime of the Grantee only by
the Grantee and may not be transferred in any manner other than by will or by
the laws of descent and distribution. The terms of this Option shall be binding
upon the executors, administrators, heirs, and successors of the Grantee.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. In the event of
changes in the capitalization or organization of the Company, or the Company is
a party to a merger or other corporate reorganization, the number of Shares
covered by this Option shall be adjusted in accordance with the provisions of
Section 9 of the Plan.
8. TERM OF OPTION. Unless modified, extended, or renewed in accordance
with Section 11 of the Plan, this Option may not be exercised after the
expiration of the Exercise Period and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
-2-
<PAGE> 12
9. AMENDMENT OF OPTION. The Board of Directors may amend the
Option and Plan at anytime, subject only to the limitations set forth in
Sections 10 and 11 of the Plan and by applicable law.
10. NOT EMPLOYMENT OR CONSULTING CONTRACT. Nothing in this
Agreement or in the Plan shall confer upon the Grantee any right to continue in
the employ or service of the Company (or continue as a consultant of the
Company). This is not an employment or consulting contract.
11. INCOME TAX WITHHOLDING. The Grantee authorizes the Company to
withhold in accordance with applicable law from any compensation payable to him
or her any taxes required to be withheld by Federal, state or local laws as a
result of the exercise of this Option. Furthermore, in the event of any
determination that the Company has failed to withhold a sum sufficient to pay
all withholding taxes due in connection with the exercise of this Option, the
Grantee agrees to pay the Company the amount of any such deficiency in cash
within five (5) days after receiving a written demand from the Company to do
so, whether or not Grantee is an employee of the Company at the time.
12. NOTICE. Any notice to the Company provided for in this
Agreement shall be delivered to the Secretary of the Company at the executive
offices located at 4702 Cortez Road West, Bradenton, Florida 34210, and any
notice to the Grantee shall be delivered to the Grantee at the current address
shown on the records of the Company. Any notice shall be deemed to be duly
given (i) three business days after deposit into the U.S. Mails by registered
or certified mail if and when properly addressed, postage prepaid, or (ii) on
the date delivered if and when hand delivered to the appropriate address as
determined above.
13. INCORPORATION BY REFERENCE. The Option is granted, and the
Option Shares will be issued, pursuant to the Plan, the terms and conditions of
which are incorporated herein by reference, and the Options and this Agreement
shall in all respects be interpreted in accordance with the Plan. The
Committee shall interpret and construe the Plan and this Agreement, and its
interpretations and determinations shall be conclusive and binding on the
parties hereto and any other person claiming an interest hereunder, with
respect to any issue arising hereunder or thereunder.
14. GOVERNING LAWS. The validity, construction, interpretation,
and effect of this Agreement shall be governed by and determined in accordance
with the laws of the State of Florida.
DATE OF GRANT: ___________________, 19__
AMERICAN BANCSHARES, INC.
a Florida corporation
By: __________________________________
Gerald L. Anthony, President
The Grantee acknowledges receipt of a copy of the Plan and represents
that he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the
-3-
<PAGE> 13
terms and provision thereof. The Grantee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board of Directors
upon any questions arising under the Plan.
Dated: ___________________________ GRANTEE
_________________________________
-4-
<PAGE> 1
EXHIBIT 10.13
ASSIGNMENT OF LEASE
AND
CONSENT TO ASSIGNMENT
THIS AGREEMENT is made and entered into by and between G.J.M.
PROPERTIES, INC., a Florida Corporation (referred to as "Lessor") and FIRST
ENTERPRISE ACCEPTANCE CORPORATION, (referred to as "Assignor") and FREEDOM
FINANCE, INC., (referred to as ("Assignee") and shall be effective February 15,
1998.
NOW IN consideration of the premises, the sum of One Dollar ($1.00)
paid by Assignee to Assignor and the rental to be paid hereunder by Assignee to
Lessor, the parties do hereby covenant and agree as follows:
1. Background. Lessor and Assignor entered into a Lease Agreement
dated April 1, 1997, pertaining to premises located at 6650 Cortez Road West,
Bradenton, Florida 34210, a copy of which is attached hereto and made a part
hereof.
2. Assignment. Assignor does hereby transfer, assign and set over
unto Assignee all of its right, title and interest in the Lease. Assignee does
hereby accept such assignment and agrees to be bound by the terms and provisions
of the Lease as if Assignee were the original Lessee thereunder.
3. Lessor's Consent. Lessor does hereby consent to such
assignment without, however, waiving its right to control future assignments or
subletting under the provision of the Lease. Except as hereinabove modified
and amended, the remaining terms and provisions of the Lease will continue in
full force and effect during the term thereof.
IN WITNESS WHEREOF, the parties have fully executed this agreement as
of the date below their signatures.
WITNESSES: G.J.M. PROPERTIES, INC.
/s/ Kathleen O'Reilly By: /s/
- ------------------------------ -----------------------------
/s/ Rob Pash Dated: 2/10/98
- ------------------------------ ---------------------------
"Lessor"
FIRST ENTERPRISE ACCEPTANCE
CORPORATION
/s/ Linda C. Bowdein By: /s/
- ------------------------------ -----------------------------
/s/ Denise B. Thomas Dated: 2/10/98
- ------------------------------ --------------------------
"Assignor"
FREEDOM FINANCE, INC.
/s/ Mary King By: /s/ Brian M. Watterson
- ------------------------------ -----------------------------
/s/ Diana Bennett Dated: 2/10/98
- ------------------------------ --------------------------
"Assignee"
GUARANTOR: AMERICAN BANCSHARES, INC.
/s/ Mary King By: /s/ Brian M. Watterson,SVP
- ------------------------------ -----------------------------
/s/ Diana Bennett Dated: 2/10/98
- ------------------------------ --------------------------
"Guarantor"
<PAGE> 2
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into by and between G.J.M.
PROPERTIES, INC., a Florida Corporation, owners of CORTEZ VILLAGE SQUARE, of
Bradenton, Manatee County, Florida, hereinafter referred to as "Lessor", and
First Enterprise Acceptance Corporation, hereinafter referred to as "Lessee".
WITNESSETH:
1. PROPERTY DESCRIPTION. Lessor does hereby lease to Lessee the following
described commercial real property, together with improvements thereon:
Street Address: 6650 Cortez Road West, Bradenton, Florida 34210. For
purposes of this lease, the rentable square footage area of the premises shall
be deemed to be 1,700 square feet.
2. TERM. The term of this Lease shall be for a period of five (5) years
commencing upon the issuance of a certificate of occupancy by local building
department and ending at the end of 60 months. Upon execution of the lease, a
security deposit in the amount of $1,297.66 shall be due, AND PAYABLE BY
LESSEE, together with rent, common area maintenance and sales tax for the first
(1st) month and last month.
The Lessee shall have the option to extend the lease for two (2)
additional three year terms.
3. RENT. The Lessee covenants and agrees to pay to the Lessor without
demand the rental installments plus Maintenance, Real Estate Taxes and
Insurance (C.A.M.) as per the following schedule.
Rent Year 1: $7.00 per sq. ft. plus pro rata portion of C.A.M.
Rent Year 2: $7.00 per sq. ft. plus pro rata portion of C.A.M.
Rent Year 3: $7.00 per sq. ft. plus pro rata portion of C.A.M.
Rent Year 4: $7.00 per sq. ft. plus pro rata portion of C.A.M.
Rent Year 5: $7.00 per sq. ft. plus pro rata portion of C.A.M
The monthly rent shall increase each year upon the anniversary of the lease by
percentage increase each year in the consumer price index as published by the
Bureau of Labor Statistics but not to exceed three percent (3%) per annum.
Monthly rent and CAM shall be subject to sales tax and shall be paid in advance
on the first day of every month. Lessor hereby acknowledges receipt of
$1,297.66, representing a Security Deposit. Monthly rent shall commence upon
issuance of a certificate of occupancy by the City of Bradenton.
4. USE. Lessee shall use the demised premises solely for the purpose of
conducting the business of a "Consumer Finance Officer" related use. Lessee
shall not use or permit or suffer the use of
<PAGE> 3
the demised premises for any other business or purpose without the Lessor's
written consent.
5. INSURANCE. Lessee shall, throughout the term of this Lease, provide at
its own expense and keep in force for the benefit of Lessor, Lessor's Mortgagee
and Lessee, as their interest may appear, the following insurance coverage.
A. Public Liability and property insurance including personal injury
liability, contractual liability, owner's and contractors' protective
insurance coverage with respect to the demised premises and Lessee's use of the
common areas in forms satisfactory to Lessors with minimum limits of One
Million Dollars ($1,000,000) on account of bodily injury to, or death, as a
result of any accident or disaster. Tenant will carry insurance covering
their own personal property and fixtures. Such policies shall not be
invalidated as respects the interest of the Landlord and such mortgagee by
reason of any breach or violation of any warranties, representations,
declarations or conditions contained in the policies. All such policies must
contain a severability of interest clause, a cross liability clause, shall be
primary, and shall not call into contribution any other insurance available to
Landlord or Landlord's mortgagee.
B. Insurance upon property of every description and kind owned by
Lessee, or for which Lessee is liable or installed by or on behalf of Lessee,
and which is located within the property, including, without limitation, stock
in trade furniture, fittings, installations, alterations, additions, partitions,
fixtures, and anything in the nature of a leasehold improvement, in an amount of
the full replacement case thereof, with coverage against the perils of fire,
flood and standard coverage including sprinkler leakage. If there is a dispute
as to the amount which comprises full replacement cost, the decision of Lessor
shall be conclusive.
C. Policies for plate glass insurance shall be in a form and with an
insurer reasonably acceptable to Lessor and shall require at lease fifteen (15)
days written notice to Lessor of termination or material alteration during the
term of this Lease and shall waiver to the extent available, any right of
subrogation against Lessor. If requested by Lessor, Lessee shall from time to
time promptly deliver to Lessor certified copies or other evidence of such
policies, and evidence satisfactory to Lessor that all premiums thereon have
been paid and the policies are in full force and effect.
6. COMMON AREA MAINTENANCE. All common areas and other facilities in or
about the property provided by Lessor shall be subject to the exclusive control
and management of Lessor. Lessor shall have the right to construct, maintain
and operate lighting and other facilities on all said areas and improvements,
to police the same, to change the area, level, location and arrangement of
2
<PAGE> 4
parking areas and other facilities, to close all or any portion of said areas
or facilities to such extent as may be legally sufficient to prevent a
dedication thereof or the accrual of any right to any person of the public
therein, and to close temporarily all or any portion of the parking areas or
facilities to discourage non-customer parking. Lessor shall operate and
maintain the common facilities in such manner as Lessor in its reasonable
discretion shall determine, and Lessor shall have full right and authority to
employ and discharge all personnel with respect thereto.
A. The Lessee agrees to pay to the Lessor, as additional rent,
commencing the second year and thereafter (see paragraph 3) (the first year
shall be $2.16 per sq. ft. per year), its proportionate share of the total cost
incurred by the Lessor in operating and maintaining the common areas of the
property. Lessee's share of such costs shall be payable monthly in advance with
Lessee's payment of rent. The Lessor shall calculate the CAM on an annual
basis.
B. For purposes of the preceding Section, the cost incurred by the
Lessor in the operation and maintenance of the common areas shall include with
out limitations, ad valorem real estate taxes, the cost of maintenance, and
renewal of gardening and landscaping, the cost of all Lessor's insurance
including but not limited to bodily injury, public liability, property damage
liability, sign areas in limits determined by Lessor, assessments, repairs, and
maintenance of loading and receiving areas and truck docks, lighting and other
utilities, and utility charges outlines in paragraph 7 below, storm water
control, sanitary control, removal of trash, rubbish, garbage, and other refuse
machinery and equipment, repair and/or replacement, the cost of personnel to
implement such services, to direct parking and to police the common areas and
facilities and to include Lessor's administrative and management costs.
Charges for garbage waste collection and disposal may be charged on a usage
basis as determined by the Lessor in Lessor's sole discretion. "Common
Facilities" and "common area" whether such terms areas, grounds, space,
equipment, signs and special services provided by Lessor' for the common or
joint use and benefit of the Lessee and occupants of the property and their
employees, agents, servants, customers, and other invitees, including with out
limitation, parking area, access roads, driveways, retaining wall, landscaping
areas, truck service ways, loading docks, pedestrian malls (enclosed or open),
courts, stairs, ramps, and sidewalks, comfort and first aid stations, washrooms
and parcel pickup stations.
7. UTILITIES. The Lessor shall furnish common water, common sewer
services and common trash removal as may be required on the
3
<PAGE> 5
premises. Lessee shall indemnify and hold Lessor harmless from any liability
in connection with said utility expense.
8. BAD CHECK CHARGE. Bad check charges suffered by Lessor on account of
Lessee shall be due and payable immediately to Lessor along with handling
charge to Lessor of five percent (5%) in addition to any other charges suffered
by Lessor.
9. IMPROVEMENTS AND ALTERATIONS. The Lessor, at its expense, will make
improvements and alterations to the premises in accordance with the plans and
specification attached as Exhibit "A". Lessor's obligations to share in the
cost of improvements shall be limited to the amount so stipulated in Exhibit
"A".
A. Lessee shall make no other alterations, additions, improvements or
change in the premises without the prior written consent of the Lessor.
B. Any such alterations, improvements, or change in the premises which
are approved by the Lessor shall, in any event, be made in accordance with
applicable building codes and otherwise in accordance with all government and
insurance regulations including those applicable to the elevation of flood
zone, if any, in which the premises may be located, and shall be performed in
such a way as not to disturb the existing tenants.
10. SIGNS, AWNINGS AND CANOPIES. Lessee shall not place or suffer to be place
or maintain any sign in, upon or outside the demised premises, nor shall Lessee
place in windows any sign, decoration, lettering or advertising material of any
kind without first obtaining Lessor's approval and consent in each instance.
Lessee shall maintain any such sign or other installation, as maybe approved,
in good condition and repair.
11. NO LIABILITY. The Lessor and Lessor's agent shall not be liable to the
Lessee or any other person or entity for any injury to person or damage to
property caused at or by the demised premises for lack of repair or by any
defection condition, defect in or failure of equipment, pipes or wiring unless
the Lessee shall first give the Lessor written notice setting forth the defect
and/or the matter to be repaired and the Lessor shall thereafter fail, within a
reasonable time, to remedy the defect, make the necessary repair or to pay that
portion of the cost of such repair due and payable by the Lessor as therein
after provided, whichever is applicable. Lessee further agrees that all of the
Lessee's materials, equipment, furnishings, improvements and property of every
kind, make and description which may be in, on or upon the demised premises
during the term of the Lease or any renewal thereof shall be at the sole risk
and hazard of the Lessee.
12. ASSIGNMENT-SUBLETTING. The Lessee shall NOT assign this Lease to sublet
any part of the premises without the previous written
4
<PAGE> 6
consent of the Lessor. Lessee shall not lease space to another entity for use
as a consumer finance office during the term of this lease and any extension
thereof.
13. REPAIRS. Lessor shall not be required to make any repairs or improvements
of any kind upon the demises except for necessary structural repairs. Lessee
shall, at its own cost and expense, take good care of and make necessary
repairs to the interior of the demised premises, and the fixtures and equipment
therein and appurtenance hereto, including without limitations signs, floor
coverings, non-structural interior walls, partitions, lighting, electrical
equipment, plumbing, and any heat and or air conditioning equipment installed
for Lessee.
If Lessee:
A. Refuses or neglects to make repairs;
B. If Lessor is required to make exterior or structural repairs by
reason of Lessee's negligent acts or omissions;
C. Lessor shall have the right, but shall not be obligated to make such
repairs on behalf of and for the account of Lessee. In such event, such work
shall be paid for in full by Lessee as additional rent promptly upon receipt of
a bill thereof.
14. LIENS. Lessee has no power to incur any indebtedness giving a right to
a lien of any kind or character upon the right, title and interest of the
Lessor in and to the demised premises and no person shall ever be entitled to
any lien directly or indirectly derived through to under Lessee or its agency
or servants on account of any act or omission of the Lessee.
If any lien shall be filed against the demised premises, the Lessee shall
cause the same to be discharged or transferred to a bond or at least twice the
amount of the lien and in the manner as provided by law within the (10) days
after the filing of the lien by the lienor in the public records. Lessee's
failure to do so shall entitle the Lessor to recover from Lessee any and all
expenses, expenditures or otherwise, including but not limited to attorney's
fees through and including appellate proceedings, bond premiums and clerk's
filing fee for breach of the Section.
15. LESSOR'S REPRESENTATIONS. Lessor represents to Lessee that Cortez
Village Square, its owners or agents have full right and authority to lease and
that the Lessee shall enjoy quiet enjoyment of the premises and shall not be
evicted or disturbed in the possession of the premises as long as Lessee
complies with the terms of the Lease. Lessor also represents that any and all
mortgages encumbering the premises are in good standing.
16. REDELIVERY. Lessee shall quit and deliver up the premises to the Lessor
at the end of the lease term in as good condition as
5
<PAGE> 7
they are at the execution of this Lease, ordinary wear, decay and damage by the
elements only excepted.
17. DAMAGE BY CASUALTY. Lessee shall give immediately written notice to the
Lessor of any damage caused to the premises by fire or other casualty.
A. In the event the premises shall be damaged or destroyed by fire or
other casualty insurable under standard fire and extended coverage insurance
and Lessor does not elect to terminate this lease as hereinafter provided,
Lessor shall proceed with reasonable diligence and at its sole cost and expense
to rebuild and repair the premises. If improvements are destroyed or
substantially damaged by a casualty not covered by Lessor's insurance, the
Lessor may elect to terminate this lease or proceed to rebuild and repair the
demised premises. Should Lessor elect to terminate this lease, Lessor shall
give written notice of such election of the Lessee, and all obligations of the
Lessor and Lessee under the Lease Agreement shall terminate.
B. Lessor's obligation to rebuild and repair under this paragraph shall,
in any event, be limited to restoring the premises to substantially the same
condition in which the same existed prior to the casualty and shall be limited
to the extend of the insurance proceeds available to the Lessor for such
restoration.
C. During any period of reconstruction or repair the rental otherwise
payable by the Lessee to the Lessor shall be reduced to such extent as may be
fair and reasonable under the circumstances.
18. CONDEMNATION. If the premises or a substantial part thereof are taken by
eminent domain either party may terminate this lease without liability for the
remainder of the term. Any condemnation award shall belong exclusively to the
Lessor.
19. RIGHT OF ENTRY. Lessor or its agent, with prior notice to Lessee,
shall have the right to enter the premises at reasonable times to inspect and
make ordinary and necessary repairs, or alterations, and for the purpose of
showing the property to prospective purchasers or tenants.
20. CERTAIN ACTS PROHIBITED. Lessee agrees not to do or permit any act or
practice injurious to the property, or which is otherwise prohibited by law.
The Lessee shall not permit the accumulation of waste or refuse matter on the
premises and will not abandon the premises or allow the premises to become
vacant or deserted.
21. DEFAULT BY LESSEE. The occurrence of one or more of the following is a
default under this lease by Lessee.
6
<PAGE> 8
A. Failure to pay rent when due.
B. Failure to make any payment other than rent required under this Lease
when due if the failure continues for a period of ten days after notice from
Lessor to Lessee.
C. Failure to comply with any provision of this Lease except under sub
paragraphs A and B above if the failure continues for ten days after the notice
from Lessor to Lessee. If the default is one that requires more than ten days
to correct, Lessee shall have a reasonable time to correct it if Lessee begins
correction within ten days and diligently prosecutes correction.
D. Making a general assessment or arrangement for the benefit of
creditors, being adjudicated a bankrupt receiving the benefit of any
insolvency, adjustment of debts, reorganization or bankruptcy law, entering
into an agreement of composition with creditors, having a receiver or trustee
appointed to take possession of Lessee's assets on the leased premises or his
interest under this Lease or the seizing under legal process of Lessee's assets
on the leased premises or Lessee's interest in this Lease when the action under
this subparagraph is not canceled, discontinued, dissolved or discharged within
30 days.
E. Vacating or Abandoning Lease Premises.
F. Committing any act or permitting any use to occur which act is a
breach of the terms of any mortgage on the leased premises.
G. If Lessee is a corporation, partnership or other artificial entity,
and any part or all of its shares of stock, partnership interest, or other
beneficial interest shall be transferred by sale, assignment, bequest,
inheritance, operation of law or other dispositions so as to result in a change
in the present effective voting control of Lessee by the person owning a
majority of the shares of stock, partnership interest, or other beneficial
interest on the date of this Lease.
H. Violating any rule or regulation promulgated by Lessor and applicable
to Cortez Village Square after a previous violation has occurred and within a
reasonable time following Lessor's notification that such violation will be
treated as a default under this paragraph.
I. Any and all sums due under this Agreement from Lessee to Lessor and
not paid on the date due shall bear interest from the date due at the maximum
rate permitted by law until fully paid; and if any payment of rent is not
received within thirty (30) days after the date due, Lessee shall be assessed
an amount of not more than $100.00 per month for each month of delinquency, in
addition to other sums owning hereunder.
7
<PAGE> 9
22. REMEDIES ON DEFAULT.
A. If a default by Lessee occurs, to the extent permitted by Law, Lessor
may avail itself of any or all of the following remedies:
1. Immediately re-enter and remove all personal, equipment, fixtures,
furniture and personal property from the leased premises, storing the removed
property in a public warehouse or elsewhere at Lessee's expense without
liability. The Lessee's right to possession is conditioned upon Lessee's
performance of its obligations under the Lease. If Lessor takes possession
following default by Lessee, the taking of possession by itself shall not be
deemed an election by Lessor to terminate the Lease or to avail itself of any
other remedy than available to Lessor on account of Lessee default.
2. Re-let the leased premises or any part of them, for the account of
Lessee or any portion or all of the remainder of the terms to any Lessee at the
rent and on the conditions that the Lessor deems advisable. Lessor shall credit
the rent received on the balance due from Lessee, first to any expenses incurred
because of the repossession and re-renting, including brokers' commissions, next
to interest, and the balance to the principal amount of the rent. Lessor may
repair or restore the leased premises if required for re-letting, the cost of
same to be charged to Lessee. Repossession shall not terminate this Lease
unless Lessor gives notice of termination to Lessee.
3. Collect each installment of rent or other sum due under this Lease as
it becomes due or otherwise enforces any of its provisions that are not being
complied with by Lessee.
4. Await the end of the term of this Lease and then collect all rent or
other sums due under its.
5. Terminate this Lease by notice to Lessee in which event Lessee shall
immediately surrender possession of the leased premises and pay Lessor all loss
or damages incurred because of Lessee's default including all rent and other
charges due to the time of termination, all of which shall become due forthwith.
B. Upon default by Lessee, Lessor shall have the right to terminate
Tenant Lease and receive all sums due under the Lease as of the termination date
plus liquidated damages for loss of rent equal to the annual rent then
applicable under subparagraph 3 of this Lease, all of which sums shall be
immediately due and payable. If termination under this paragraph occurs during
the last year of the Lease or any extension, the liquidated damages amount will
be the net rent and taxes under paragraph 3 for the balance of the lease term.
Landlord and Tenant have agreed to the stated amount of liquidated damages,
because they recognize that in the event of default the Landlord's loss of rent
damages will be difficult or impossible to ascertain because the damages would
be dependent upon
8
<PAGE> 10
Landlord's ability to relet the premises. The ability to relet and the terms
of any new lease cannot be accurately predicted. Accordingly, the parties
agree that the liquidated damages amount here specified represent a bona fide
effort by the parties to estimate damages reasonably anticipated following a
default by Tenant. Tenant acknowledges that the agreed upon liquidated damages
amount is not intended to constitute a penalty. The liquidated damages amount
shall be due and payable in addition to all other sums due and payable under the
Lease. The items referred to in paragraph (d) below shall also be due and
payable in addition to the liquidated damages amount.
C. Notice or demand is not a prerequisite to any remedy unless another
part of this Lease provides for notice or demand in which event that provision
shall prevail.
D. In addition to any other loss or damages that Landlord sustains
because of Tenant's default, Tenant shall pay all expenses of repairs or
renovations to the leased premises required as a result of his tenancy,
transfer and storage charges for Tenants personal property removed from the
Leased Premises, and costs, expenses and attorney's fees for enforcing or
construing this Lease, whether for trial, appeal or otherwise.
E. Tenant grants Landlord a lien on Tenant's personal property located
on the Leased Premises to secure all sums due or to become due under this Lease
in addition to any statutory lien or right to disdain. Tenant shall not remove
Tenant's personal property from the Leased Premises until all money due
Landlord is paid. If Tenant's personal property is removed, the lien continues
for a period of six months during which Landlord may seize Tenant's personal
property wherever found and sell it or so much of it as will satisfy all money
due Landlord without process. This lien may be enforced by distress regardless
of the nature of the money due.
F. Any payment required under this Lease that Tenant does not make bears
interest at the greater of 12% per annum computed monthly in advance as of the
first business day of each month. Notwithstanding any provisions of this Lease
to the contrary, no interest, charges or other payments in excess of those
permitted by law shall accrue or become payable hereunder and any excessive
payments which may be made shall be applied to future rental payments or, at
the option of Landlord, shall be refunded to Tenant.
G. Unless otherwise provided herein, all remedies of Landlord are
cumulative to each other and to any other remedies given by law. All rights of
Landlord on Tenant's default apply to an extension of this Lease. By making a
payment for Tenant or from any security deposit, Landlord does not waive
Tenant's default or any right Landlord has because of the default.
9
<PAGE> 11
H. In any action by the Landlord for possession of the Leased Premises,
if the Tenant interposes any defense other than payment, the Tenant shall pay
into the registry of the court the accrued rent as alleged in the complaint or
as determined by the court and the rent which accrues during the tenancy of the
proceedings, when due. Failure of the Tenant to pay the rent into the registry
of the court as provided herein shall constitute an absolute waiver of the
Tenant's defenses other than payment, and the Landlord is entitled to an
immediate default without further notice or hearing thereon.
23. PARKING FACILITIES. Lessor will permit Lessee to use the parking
facilities in common with other tenants in the property during the term of the
Lease, provided however, that Lessor reserves the right to relocate or alter
the parking facilities in such a manner as would not unreasonably interfere
with or adversely affect Lessee's use of the demises premises. Lessor
reserves the right to designate specific areas for employee parking and
employees shall restrict their parking to such areas.
A. Lessee hereby covenants and agrees to indemnify and hold Lessor
harmless from and against any and all liability claim, demand, loss or damages
for injury to or death of any person or persons or damage to property in any
way arising from or in connection with the occupancy or use by Lessee of the
parking facilities or any part hereof or occasioned wholly or in part by any
act or omission of Lessee, its agents, employees or all fines, connection
with the occupancy or use by Lessee of the parking facilities or any part
thereof of occasioned wholly or in part by any act or omission of Lessee, its
agents, employees or invitees. Lessee further agrees to indemnify and hold
Lessor harmless from all said fines, suits, claims, demands, and actions.
B. Lessee, as a material part of the consideration to be rendered to
Lessor under this Lease, hereby waives all claims against Lessor for damages to
property or injuries to persons arising from or occasioned by use of the parking
facilities. Lessor shall not be liable to Lessee for any damages by or from any
act or negligence of any co-tenant or other occupant of the property or by any
owner or occupant of adjoining or contiguous property or any act or negligence
of any person (other than Lessor) upon or in such parking facilities.
24. ATTORNEY FEES AND COSTS. In the event either party shall seek legal
redress for any default hereunder, the prevailing party shall be entitled to
reasonable attorney fee and court costs including appellate and bankruptcy
proceedings.
25. NOTICES. Any and all notices required to be given under the terms of this
Lease or by virtue of the provisions of the Florida
10
<PAGE> 12
Landlord and Tenant Act or otherwise shall be mailed or delivered to:
Lessor: G.J.M. PROPERTIES INC.
----------------------------------------------------------------------
1717 2ND STREET, SUITE A, SARASOTA, FLORIDA 34236
----------------------------------------------------------------------
Lessee:
----------------------------------------------------------------------
----------------------------------------------------------------------
Guarantor:
-----------------------------------------------------------------
-----------------------------------------------------------------
26. GENERAL PROVISIONS. The following provisions are applicable:
A. This agreement shall be binding upon the parties, their heirs,
administrators and assigns.
B. No other representations or promises shall be binding upon the
parties hereto except those representations and promises contained herein or in
some future writing signed by the party making such representations or promises.
C. This lease shall be governed by the law of the State of Florida and
any legal or equitable action or actions shall be submitted to the courts of
Florida for resolution.
D. Any additional terms of this Lease may be set forth in a attachment
hereto labeled "Addendum" and in the event of any conflict or inconsistency
between the terms of the test of this Lease and the provisions set forth in the
Addendum, the provisions of the Addendum shall govern.
E. This Lease shall be subject and subordinate to any and all mortgages
that may now or hereafter be granted by Lessee on the real property and to all
renewals, modifications, consolidations and replacements of such mortgages.
F. Lessee shall have no right or authority, express or implied, to
subject the Lessor's interest in the real property to any construction lien or
liens and the Lessee agrees to hold harmless and indemnify the Lessor from any
such claims, damages, fees and/or costs that might arise on account of any
construction lien or liens filed against the premises on account of
improvements made at the express or implied order or insistence of the Lessee.
G. RADON GAS. RADON IS A NATURALLY OCCURRING RADIOACTIVE GAS THAT, WHEN
IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT QUANTITIES, MAY PRESENT HEALTH
RISKS TO PERSONS WHO ARE EXPOSED TO IT OVER TIME. LEVELS OF RADON THAT EXCEED
FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND IN BUILDING IN FLORIDA. ADDITIONAL
INFORMATION REGARDING RADON TESTING MAY BE OBTAINED FROM YOUR COUNTY PUBLIC
HEALTH UNIT. THIS DISCLOSURE IS MADE PURSUANT TO SECTION 404.056(8), FLORIDA
STATUTES.
11
<PAGE> 13
H. One or more waivers of any covenants, term or condition of this Lease
by either party shall not be construed as a waiver of a subsequent breach of
the above covenant, term or condition.
I. The captions of headings used herein are for convenience only and do
not limit or amplify the provisions hereof.
J. If any provisions of this Lease or a portion of any provisions of
this Lease is for any reason held invalid or unenforceable the balance of this
Lease or the remainder or such provision and the application thereof to other
persons or circumstances shall not be affected thereby.
K. Time is of the essence of this Agreement.
L. Lessor shall "build out" the leased space in accord with the addendum
and sketch attached hereto.
IN WITNESS WHEREOF, the parties to the Lease Agreement have set their hands and
seals on the day and year indicated beneath their respective signatures.
Signed, sealed and delivered LESSOR: G.J.M. PROPERTIES, INC.
in the presence of:
/s/ Kathleen O'Reilly By /s/
- ------------------------------------ -----------------------------------
Witness as to Lessor Its
------------------------------------
Date 4/1/97
-----------------------------------
LESSEE:
--------------------------------
/s/ Linda C. Bowdein
- ------------------------------------
Witness as to Lessee By /s/
-------------------------------------
Its President
------------------------------------
Date 4/1/97
-----------------------------------
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA FROM THE COMPANY'S GENERAL LEDGER
AND BOARD OF DIRECTORS FINANCIAL REPORT PACKAGE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,210
<INT-BEARING-DEPOSITS> 1,857
<FED-FUNDS-SOLD> 5,120
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,986
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 213,587
<ALLOWANCE> (1,381)
<TOTAL-ASSETS> 289,940
<DEPOSITS> 244,559
<SHORT-TERM> 5,500
<LIABILITIES-OTHER> 18,883
<LONG-TERM> 0
0
0
<COMMON> 4,783
<OTHER-SE> 16,215
<TOTAL-LIABILITIES-AND-EQUITY> 289,940
<INTEREST-LOAN> 16,606
<INTEREST-INVEST> 2,686
<INTEREST-OTHER> 399
<INTEREST-TOTAL> 19,691
<INTEREST-DEPOSIT> 9,416
<INTEREST-EXPENSE> 10,420
<INTEREST-INCOME-NET> 9,271
<LOAN-LOSSES> 750
<SECURITIES-GAINS> 148
<EXPENSE-OTHER> 9,594
<INCOME-PRETAX> 2,571
<INCOME-PRE-EXTRAORDINARY> 1,631
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,631
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 8.40
<LOANS-NON> 437
<LOANS-PAST> 140
<LOANS-TROUBLED> 22
<LOANS-PROBLEM> 2,050
<ALLOWANCE-OPEN> 1,000
<CHARGE-OFFS> 439
<RECOVERIES> 70
<ALLOWANCE-CLOSE> 1,381
<ALLOWANCE-DOMESTIC> 1,381
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
