<PAGE> 1
Filed with Securities and Exchange Commission on March 9, 2000
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20219
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
FIRST NATIONAL BANCSHARES, INC.
------------------------------------------------
(Exact name of bank as specified in its charter)
STATE OF FLORIDA 06-1522028
- ------------------------------- ------------------------------------
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
5817 MANATEE AVENUE WEST, BRADENTON, FLORIDA 34209
--------------------------------------------------
(Address of principal office including Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (941) 794-6969
-----------------------------------------------------------------
Securities registered under Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
------------------- ---------------------
COMMON NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK, $.10 PAR VALUE
----------------------------
(Title of Class)
As of January 1, 1999, all stock of First National Bank of Manatee was converted
to stock of First National Bancshares, Inc., a Bank Holding Company. Each share
of Bank stock was converted to two shares of Bank Holding Company stock. The
number of shares of Common Stock in the Holding Company outstanding on February
29, 2000 was 1,577,869.
Indicate by check mark whether the Bank (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Bank was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Bank at February 29, 2000, was $26,348,839.
DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K into
in this Form 10-K which incorporated
- -------------------------------------- ----------------------
Portions of the Bank Holding Company's
definitive Proxy Statement for its
Annual Meeting of Shareholders to be
held May 18, 2000 Part III
<PAGE> 2
PART I
ITEM 1. BUSINESS
A. GENERAL DEVELOPMENT OF BUSINESS
First National Bancshares, Inc. (the "Company) is a Bank Holding
Company formed in 1998 and incorporated in the State of Florida. Effective
January 1, 1999, the Company merged First National Bank of Manatee (the "Bank)
into the Company as a wholly owned subsidiary. In April 1999, the bank changed
its name to 1st National Bank & Trust. The Company has no other subsidiaries. At
year-end, the Bank had one subsidiary, which was organized in 1998. Bradenton
Investment Company is a Bank subsidiary that engages in the sale of annuities
and mutual funds on a commission basis.
The Bank is a national banking association opened for business on July
18, 1986. The Bank engages primarily in the business of attracting deposits from
the general public, and originating real estate, commercial, and consumer loans
and managing trust assets. The Bank's principal market area is Manatee County,
Florida, located on the western coast of Florida.
As a national bank, the Bank is subject to the rules and regulations of
the Office of the Comptroller of the Currency (the "Comptroller") and is a
member of the Federal Reserve System, with the primary supervisory authority
therein being the Board of Governors. The Bank's deposits are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to applicable limits, and thus
it is subject to the rules and regulations of the FDIC.
The Bank's principal office is located at 5817 Manatee Avenue West,
Bradenton, Florida 34209, and its telephone number is (941) 794-6969.
B. NARRATIVE DESCRIPTION OF BUSINESS
(1) BANKING SERVICES
The Bank offers a wide range of consumer and commercial banking
services traditionally offered by commercial banks, such as personal and
commercial checking accounts, negotiable order of withdrawal ("NOW") accounts,
certificates of deposit, money market accounts, savings accounts, IRA accounts,
and automatic transfers. These depository services are further complemented by
direct deposit capabilities, night depository services, and bank by mail. The
Bank participates in three national automatic teller machine systems.
The Bank also originates a variety of loans, including, but not limited
to, commercial and consumer loans, as well as loans secured by deposit accounts
and other marketable collateral. Loans are also made to enable borrowers to
purchase, refinance, construct or improve residential or other real estate and
usually are secured by mortgages on such real estate. All loans are made in
compliance with applicable Federal and State regulations.
In December 1994, the Bank received permission from the Office of the
Comptroller of the Currency to open a Trust Department. The bank hired an
experienced trust officer and after a period of organization began operations
and opened the department for solicitation of trust business in March of 1995.
At year-end 1999, the trust department had over $62,000,000 in assets under
management. The department showed a profit in 1996, its first full year of
operation, and profits have improved in each subsequent year.
The Bank opened its first branch office October 1994 at 5324 Gulf
Drive, Holmes Beach. The bank opened its second branch at the corner of State
Road 64 and 48th St. Ct. E. in May 1996. The branch was also large enough to
accommodate the bank's accounting, deposit and loan operations departments. The
Bank also purchased a branch location on State Road 70 at the entrance to Braden
Woods Subdivision, which it opened in January 1997.
In December 1997, the bank acquired a future branch location at the
corner of University Blvd. and
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Lakewood Ranch Road. In 1999, the bank purchased a branch location in Ellenton
at the corner of Highway 301 and Old Tampa Road. The bank expects to begin
construction on the Ellenton site in April of 2000 and open for business before
year-end. The growth of the Bank has been such that in January of 2000, the Bank
moved its operations department to a rented facility adjacent to the current
office.
(2) OPERATING STRATEGY
The principal business of the Bank is to attract deposits from the
general public and to invest those funds in various types of loans and other
interest-earning assets. Other funds are provided for the operations of the Bank
by proceeds from the sale of investments and loans, from amortization and
repayment of outstanding loans, from borrowings, and from working capital.
Earnings of the Bank depend primarily upon the difference between (1) the
interest received by the Bank from loans, the securities held in its investment
portfolio, and other investments and (2) expenses incurred by the Bank in
connection with obtaining funds for lending (including interest paid on deposits
and other borrowings) and expenses relating to day-to-day operations.
The primary sources of the Bank's funds for lending and for other
general business purposes are the Bank's capital, deposits, loan repayments,
borrowings and funds provided from operations. The Bank expects that loan
repayments and funds provided from operations will be a relatively stable
sources of funds, while deposit inflows and outflows will be significantly
influenced by prevailing interest rates, money market and general economic
conditions. Generally, short-term borrowings are used to compensate for
reductions in normal sources of funds while long-term borrowings are used to
support expanded lending activities.
The Bank's customers are primarily individuals, professionals, and
small and medium size businesses located in Manatee County. The Bank's business
is not dominated by any large customer. The Bank attempts to tailor its services
to the needs of its customers. The Bank's main office is at a major intersection
in the center of one of Manatee County's more established residential areas. Its
branch offices are located on Anna Maria Island, a close knit island community,
and east of the downtown commercial area in the center of major new residential
development.
The Bank continually seeks to develop new business through an ongoing
program of personal calls on both current and potential customers; and utilizes
traditional local advertising media as well as direct mailings, telephone
contacts, and brochures to promote the Bank and develop loans and deposits. In
addition, the Bank's directors have worked and/or lived in Manatee County for
many years and are involved in various local community activities which further
promote the Bank's image as a locally-oriented independent institution.
In 1994, the bank decided to add trust services to its list of
products. The Bank's focus is on "personal" trusts and investments although it
provides a full range of trust products.
In 1998, the bank added a new service through a newly established
subsidiary. The bank began selling annuities and mutual funds through an
investment marketing subsidiary. This service is provided to customers seeking
investments not available through traditional bank deposits or Trust Department
services. This subsidiary began operating in November 1998.
(3) MARKET AREA
Manatee County, located on the western coast of Florida, is 41 miles
south of Tampa, 26 miles south of St. Petersburg and 10 miles north of Sarasota.
According to the Manatee County Chamber of Commerce, Manatee County had a
residential population of approximately 250,000 in 1999 and, additionally, many
more seasonal residents. The Bank draws most of its business from within Manatee
County and estimates that more than 90% of its business comes from customers
whose businesses or residences are located within the county. However, the Bank
solicits and accepts business from outside of Manatee County.
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For purposes of the Community Reinvestment Act, the Bank's Primary
Market Area comprises all of Manatee County. Sarasota County and southern
Hillsborough County represent a secondary lending area. Both the primary and the
secondary lending areas meet the purposes of the Comptroller's Community
Reinvestment Act Regulations and do not exclude low and moderate income
neighborhoods. The Bank plans to prudently offer the full range of its services
to all residents within its market area.
(4) COMPETITION
The banking business in Florida in general, and in Manatee County in
particular, is highly competitive. The Bank competes with other commercial banks
in Manatee County and the surrounding area for all services customarily provided
by commercial banks. In addition, the Bank faces significant competition from
non-bank institutions, including savings and loan associations, finance
companies, insurance companies, mortgage companies, mutual funds, credit unions,
and other types of financial institutions. As of June 30, 1999, there were 19
commercial banks and savings institutions with 69 offices in Manatee County.
The Bank's main office is located adjacent to the Palma Sola Shopping
Center at the southeast corner of 59th Street and Manatee Avenue West. Republic
Bank (a Pinellas County community bank) and American Bank have branches within
one block of the Bank's principal office. The Bank's island office is located on
a highly visible corner on Anna Maria Island. There are two commercial banks
located on the island. The Braden River Branch on highway 64 is 1/2 mile east of
a NationsBank branch. The Highway 70 branch is about 1/2 mile east of
NationsBank.
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(5) LOAN COMMITMENTS
At December 31, 1999 and 1998, the Bank had commitments to originate
and disperse on loans of approximately $14,532,000 and $14,173,000 respectively.
Substantially all of both years' figures include commitments to originate
construction real estate loans and pre-approved commercial lines of credit. The
Bank expects that all of the commitments at December 31, 1999 will be exercised
within the current year. In addition, at December 31, 1999 and 1998, the Bank
had in place letters of credit of approximately $747,000 and $836,000,
respectively. The Bank does not expect that any of the standby letters of credit
in place at December 31, 1999 will be exercised within the current year. The
Bank had no commitments to purchase loans at December 31, 1999 and 1998.
(6) FINANCIAL HISTORY
The Bank first opened to the public on July 18, 1986. As of December
31, 1999, the Company had total assets of $175,802,000 compared with total Bank
assets of $158,218,000 at December 31, 1998 and $140,938,000 of total assets at
December 31, 1997. At year-end 1999, the Company had total deposits
$152,184,000, compared with Bank deposits of $136,887,000 at year end 1998 and
$121,188,000 of total deposits at year end 1997. In addition, the Company had
loans of $122,007,000 at the end of 1999, compared with $100,360,000 of loans in
the Bank at the end of 1998 and $83,770,000 of loans at the end of 1997. For
more detailed financial information see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
related notes thereto appearing elsewhere in this Annual Report.
(7) EMPLOYEES
At December 31, 1999, the Company employed 67 employees, of which seven
were executive officers, and seven were part-time employees. The Company's
employees are not represented by a collective bargaining group, and the Company
considers its relations with its employees to be excellent. The Company provides
employee benefits customary in the banking industry, which include major medical
insurance, group term life insurance, a defined benefit pension plan, a 401-K
plan, and vacation and sick leave.
ITEM 2. PROPERTIES
First National Bancshares, Inc.'s corporate office is located in the
main office of the Bank at 5817 Manatee Avenue West.
The Bank's principal office is located at 5817 Manatee Avenue West in
Bradenton, Florida in a two story building of approximately 6,000 square feet,
which is adjacent to the Palma Sola Shopping Center. The Bank moved into the
building on August 17, 1987.
The Bank is party to a lease agreement (the "Lease") with an unrelated
Florida general partnership (the "Lessor"), for the lease of the Building and
land on which the Building is situated. The Bank's annual lease payments for the
Building and the land for the first two years was an amount equal to 12% of all
actual costs of land acquisition and construction (including certain permanent
equipment), brokerage commissions, engineering, architectural and other
professional costs, financing, and other associated costs incurred by the Lessor
necessary to effectuate completion of the project. The annual lease payments
beginning in the third year were adjusted according to a formula tied to the
Consumer Price Index. At the end of fiscal 1999, the Bank's monthly lease
payments were $17,278 plus applicable sales tax. Lease payments for the Building
and land during 1999 totaled $219,141 including sales tax. The Lease has an
initial term of 20 years, which began in August 1987, and has four
4
<PAGE> 6
5-year renewal options. In the event the Lessor wishes to sell the property, the
Bank has a first right of refusal to purchase the property. For accounting
purposes, a portion of the lease on the building is treated as a capital asset
and is depreciated, and the lease liability is also capitalized and amortized.
As part of this lease, the Bank subleases nine parking spaces adjacent
to the Building in the Palma Sola Shopping Center, along with certain other
easements for landscaping, ingress and egress. These rights are leased to the
Bank and included under the terms of the lease for the Building.
Lease payments under the above lease agreements are adjusted annually
for increases in the Consumer Price Index. In no event, however, will the lease
payments for any lease year be less than the lease payments for the first year
of the Lease.
On October 31, 1994, the Bank opened its first branch in the business
district of the City of Holmes Beach on Anna Maria Island in Manatee County. The
property was acquired for cash from Crossland Savings & Loan Association of New
York and remodeled. As expected, this adversely impacted the earnings of the
bank until deposits sufficient to support overhead were achieved in the fourth
quarter of 1995.
The Bank made a cash purchase of another branch on east State Road 64
and opened it in May of 1996. The branch is located in one of the fastest
growing residential areas of the county. The building is approximately 10,000
square feet and not only houses the bank's branch but also accounting, deposit
operations, and loan operations.
The bank acquired another branch site for cash on State Road 70 at the
entrance to Braden Woods Subdivision in February of 1996. This site is also
located in the fast growing residential region of the county. That branch opened
for business in January of 1997.
In December 1997, the bank acquired land for cash for a future branch
in the Lakewood Ranch development. In 1999, the Bank purchased a site in
Ellenton. The Bank expects to open the Ellenton branch by year-end 2000.
The growth of the Bank has been such that in January of 2000, the Bank
moved its operations department to a rented facility adjacent to the current
office. This provided additional room for the Bank's growing operations needs as
well as freeing up space for expansion of the branch.
All of the Bank's branches are growing in their respective markets. The
branches have proven to be suitable, adequate and effective as banking
facilities and the Bank expects to continue to utilize them fully.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this Annual Report, the Company was involved in one
pending legal proceeding. A former employee has claimed that he was unjustly
dismissed from his position and separately has claimed that another employee
sexually harassed him. The Company asserts that both claims are unfounded. The
Company carries liability insurance and the Company's legal counsel with the
approval of its insurance company is defending the claims. Although no dollar
amount has been claimed in the suit, the Bank's insurance policy carries a
$35,000 deductible which is the limit of liability including legal fees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted for approval by the Bank's shareholders during
the fourth quarter of the fiscal year ended December 31, 1999.
5
<PAGE> 7
PART II
ITEM 5. MARKET FOR THE COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
As a result of the merger of the bank into the holding company on
January 1, 1999 the shareholders of the bank now own 2 shares of holding company
stock for each share of Bank stock previously held. Upon the merger, all Bank
Common Stock was held by the Holding Company and all previous shareholders of
the Bank became shareholders in the Company. Accordingly, there is no active
trading market for the Common Stock of the Bank nor is it expected that one will
develop. The Company is aware of 22 sale transactions in Company stock that
occurred during fiscal 1999 at prices ranging from $11.50 to $16.50 per share.
It is also aware of 22 sale transactions in Bank stock that occurred during
fiscal 1998 at prices ranging from $21.00 to $28.00 per share (or $10.00 to
$13.33 per share when adjusted for the 2 for 1 exchange and the subsequent 5%
stock dividend).
There is no active trading market at the current time for the Common
Stock of the Holding Company, and it is not expected that an active trading
market will develop in the near future. As of February 20, 2000, there were 557
holders of record of the Common Stock of the Holding Company.
The Bank paid its first and only cash dividend of $.15 per share in
1991. In 1994 through 1998, the Bank paid annual stock dividends equal to 5% of
the shares outstanding each time. On January 1, 1999, the Bank's stock was
exchanged two for one for Company stock. The Company also paid a 5% stock
dividend in 1999. Future Bank dividends, if any, will be paid to the Holding
Company. Future dividend payments to the holders of Common Stock of the Holding
Company will be at the discretion of the Board of Directors of the Holding
Company and will depend upon factors such as results of operations, capital
requirements, regulatory restrictions, tax considerations and general economic
conditions. The Bank's capital requirements to open branches or acquire other
institutions may also impact the Bank's ability to make dividend distributions
to the Holding Company thus affecting the Holding Company's ability to pay
dividends. Additionally, under certain circumstances, approval of the
Comptroller may be required prior to the payment of any dividends by the Bank,
which would in turn affect the Holding Company's ability to pay dividends to its
shareholders. Future payment of dividends by the Bank to the Holding Company and
the Holding Company to its shareholders cannot be guaranteed.
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Item 6. SELECTED FINANCIAL DATA
SELECTED INCOME DATA
Years Ended December 31,
(000's except per share & dividend data)
<TABLE>
<CAPTION>
1999 1998** 1997 1996 1995
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Interest income ................ $11,743 $10,737 $9,277 $7,139 $6,254
Interest expense ............... 5,687 5,659 4,904 3,686 3,091
Net interest income ............ 6,056 5,078 4,373 3,452 3,163
Provision for loan losses ...... 227 154 255 83 167
Net interest income after
provision for loan losses ..... 5,829 4,924 4,118 3,369 2,996
Other non-interest income ...... 1,293 976 711 541 450
Other non-interest expenses .... 5,084 4,572 3,986 3,249 2,826
Income before income taxes ..... 2,036 1,328 843 661 619
Provision for income taxes ..... 635 459 269 188 141
Net income (loss) .............. 1,402 869 574 473 478
Earnings per share * ........... .89 .57 .37 .31 .33
Cash dividends declared ........ N/A N/A N/A N/A N/A
</TABLE>
SELECTED BALANCE SHEET DATA
YEAR ENDED DECEMBER 31
(000's except per share & outstanding share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets ................... $ 175,802 $ 158,218 $ 140,938 $ 111,974 $ 94,650
Average total assets ........... 167,575 149,129 127,722 101,253 87,890
Net investment securities ...... 40,849 41,397 45,182 41,458 34,089
Net loans ...................... 120,708 99,279 82,814 58,912 50,372
Total deposits ................. 152,184 136,887 121,188 96,978 79,800
Repurchase agreements &
other borrowed money ....... 9,032 7,083 6,461 2,893 3,400
Capital lease obligation ....... 505 543 577 607 633
Total stockholders' equity ..... 12,575 12,011 11,117 10,321 9,694
Book value per share * ......... 7.97 7.65 7.09 6.74 6.56
Average total equity ........... 12,180 11,540 10,606 9,890 9,152
Average common shares
Outstanding * ................ 1,577,869 1,565,187 1,557,917 1,504,192 1,467,789
</TABLE>
*Retroactively adjusted for 5% stock dividends paid in 1995 thru 1999 and a two
for one stock split in 1999.
**Restated to reflect the consolidation of the Bank and the Company subsequent
to the 1998 year-end.
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DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIal:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998 1997
-------------------------------- ------------------------------- ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- -------- ------ -------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans* $108,557 $ 9,020 8.31% $ 91,808 $ 7,857 8.56% $ 73,458 $6,432 8.76%
Taxable investment
securities $ 38,193 $ 2,074 5.43% $ 42,042 $ 2,516 5.98% $ 43,594 $2,645 6.07%
Tax-exempt investment
securities $ 7,281 $ 433 5.95% $ 1,736 $ 97 5.59% $ 1,537 $ 108 7.03%
Federal funds sold &
interest bearing
bank balances $ 4,498 $ 215 4.78% $ 5,015 $ 266 5.30% $ 1,713 $ 92 5.37%
-------- ------- ---- -------- ------- ---- -------- ------ ----
Total interest-earning
assets $158,529 $11,743 7.41% $140,601 $10,736 7.64% $120,302 $9,277 7.71%
Non-interest-earning
assets:
Cash and due from banks $ 4,231 $ 3,178 $2,754
Premises and equipment
(net) $ 4,545 $ 4,550 $3,881
Other assets $ 2,048 $ 1,773 $1,778
Less allowance for loan
losses, deferred
fees & securities
market valuation $ (1,778) $ (973) $ (993)
-------- -------- --------
TOTAL $167,575 $149,129 $127,722
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31
1999 1998 1997
-------------------------------- ------------------------------- ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
--------- -------- ------ -------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Demand deposits $ 18,602 $ 225 1.21% $ 14,626 $ 206 1.41% $ 11,646 $ 168 1.44%
Savings deposits $ 16,746 $ 553 3.30% $ 16,661 $ 644 3.87% $ 10,042 $ 336 3.35%
Time deposits $ 89,621 $ 4,330 4.83% $ 82,550 $4,348 5.27% $ 76,263 $4,025 5.28%
Federal funds purchased
& other borrowed
money $ 5,988 $ 358 5.98% $ 5,420 $ 325 6.00% $ 3,481 $ 208 5.98%
Repurchase agreements $ 3,073 $ 158 5.14% $ 1,443 $ 69 4.78% $ 1,947 $ 96 4.93%
Other $ 523 $ 63 12.05% $ 689 $ 74 10.78% $ 721 $ 79 10.96%
-------- ------- ----- -------- ------ ----- -------- ------ -----
Total interest-bearing
Liabilities $134,553 $ 5,687 4.23% $121,389 $5,666 4.67% $104,100 $4,912 4.72%
Non-interest-bearing
liabilities:
Demand deposits $ 19,183 $ 14,520 $ 11,569
Other 1,659 $ 1,680 $ 1,447
-------- -------- --------
Total Liabilities $155,395 $137,589 $117,116
Shareholders' equity $ 12,180 $ 11,540 $ 10,606
-------- --------
Total $167,575 $149,129 $127,722
Net interest on earnings $ 6,055 $5,070 $4,365
Net yield on interest
earning assets 3.82% 3.40% 3.63%
</TABLE>
* For the purpose of these computations, non-accruing loans are included in the
daily average loan amounts outstanding
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<PAGE> 11
The following table sets forth a summary of the changes in interest and fees
earned and interest paid resulting from changes in volume and changes in rates.
<TABLE>
<CAPTION>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due to * Increase (Decrease) Due to *
----------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------- ------ ------- ------- ------ -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans (domestic) $ 1,440 $(280) $ 1,160 $ 1,614 $(191) $ 1,423
Taxable investment securities $ (344) $ 33 $ (311) $ (82) $ (46) $ (128)
Tax-exempt investment securities $ 447 $(157) $ 290 $ 23 $ (37) $ (14)
Federal funds sold &
interest bearing balances $ (28) $ (24) $ (52) $ 179 $ (5) $ 174
------- ----- ------- ------- ----- -------
Total interest earning assets $ 1,515 $(428) $ 1,087 $ 1,734 $(279) $ 1,455
Interest paid on:
Demand deposits $ 56 $ (37) $ 19 $ 43 $ (5) $ 38
Savings deposits $ 4 $ (94) $ (90) $ 221 $ 87 $ 308
Time deposits $ 334 $(352) $ (18) $ 362 $ (39) $ 323
Federal funds purchased $ 34 $ (1) $ 33 $ 116 $ 1 $ 117
Repurchase Agreements $ 78 $ 11 $ 89 $ (25) $ (2) $ (27)
Other $ (13) $ 0 $ (13) $ (4) $ 0 $ (4)
------- ----- ------- ------- ----- -------
Total interest bearing liabilities $ 493 $(473) $ 20 $ 713 $ 42 $ 755
</TABLE>
* The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each
INVESTMENT PORTFOLIO
The following table sets forth the carrying amount (book value) of investment
securities at the dates indicated:
<TABLE>
<CAPTION>
December 31
1999 1998 1997
------- ------- -------
(thousands of dollars)
<S> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies $31,581 $36,235 $42,972
States and political subdivisions $ 8,441 $ 4,299 $ 1,376
Other $ 827 $ 863 $ 834
------- ------- -------
TOTAL $40,849 $41,397 $45,182
</TABLE>
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<PAGE> 12
The following table sets forth the maturities of investment securities at par
value on December 31, 1999 and the weighted average yields of such securities
calculated on the basis of the cost and effective yields weighted for the
scheduled maturity of each security. Tax equivalent adjustments have not been
made in calculating yields on obligations of state and political subdivisions.
Mortgage backed securities are categorized by average life. Callable bonds are
categorized by their projected call date under current market conditions.
-----------------Maturing------------------
(thousands of dollars)
<TABLE>
<CAPTION>
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years Total
--------------- ----------------- ------------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 00 N/A $ 00 N/A $ 00 N/A $ 00 N/A $ 00 N/A
U.S. government agencies
Fixed rate $ 00 N/A $ 6,100 5.72% $ 1,000 6.17% $ 00 N/A $ 7,100 5.78%
Floating Rate $ 00 N/A $ 00 N/A $ 00 N/A $ 00 N/A $ 00 N/A
U.S. government agencies,
MBS's and CMO's
Fixed rate $445 5.80% $16,563 5.96% $ 3,000 6.12% $ 00 N/A $20,008 5.98%
Floating rate $ 00 N/A $ 990 5.56% $ 523 5.55% $1,000 6.07% $ 2,513 5.76%
States and political
subdivisions $ 00 N/A $ 260 3.60% $ 4,915 4.13% $3,285 4.39% $ 8,460 4.21%
Other $500 3.46% $ 325 5.90% $ 2,000 4.01% $ 00 N/A $ 2,825 4.13%
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL $945 4.56% $24,238 5.86% $11,438 4.87% $4,285 4.78% $40,906 5.44%
</TABLE>
11
<PAGE> 13
LOAN PORTFOLIO
The following table shows the maturity of fixed rate loans outstanding as of
December 31, 1999. Also provided are the amounts with maturities beyond one year
classified according to the sensitivity changes in interest rates. These numbers
exclude loans on non-accrual.
Maturing or Repricing Opportunities
<TABLE>
<CAPTION>
Within After One But After
One Year Within Five Years Five Years Total
-------- ----------------- ---------- --------
<S> <C> <C> <C> <C>
Loans with:
1-4 Family 1st Mortgages $31,779 $ 9,719 $ 937 $ 42,435
All Other Loans $38,349 $33,968 $7,255 $ 79,572
------- ------- ------ --------
Total $70,128 $43,687 $8,192 $122,007
</TABLE>
NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes the Bank's non-accrual, past due and
restructured loans:
<TABLE>
<CAPTION>
December 31
(Thousands of Dollars)
1999 1998
---- ----
<S> <C> <C>
Non-accrual loans: $0 $180
Accruing loans past
due 90 days or more: $0 $ 0
Restructured loans: $0 $ 0
-- ----
Total $0 $180
Interest Income not collected that would
have been collected under original terms: $0 $ 8
Commitments to lend additional funds: $0 $ 0
</TABLE>
POTENTIAL PROBLEM LOANS
At December 31, 1999 the Bank had no loans for which payments presently
are current but the borrowers are experiencing or have recently
experienced financial difficulties.
FOREIGN OUTSTANDINGS - None.
CERTAIN INTERNATIONAL DEVELOPMENTS - None.
LOAN CONCENTRATIONS - None. (Loan concentrations are considered to
exist when there are amounts lent to a multiple number of borrowers
engaged in similar activities that exceed 10% of total loans and would
cause them to be similarly impacted by economic or other conditions).
12
<PAGE> 14
SUMMARY OF LOAN LOSS EXPERIENCE
This table summarizes the Bank's loan loss experience for the years ended
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
------ -------
(thousands of dollars)
<S> <C> <C>
Loan Loss Reserve
Balance at January 1 $1,070 $ 915
Charge-offs:
Commercial and other loans 0 8
Real estate 25 0
Installment/consumer 42 4
------ -------
Total Charge-offs $ 67 $ 12
Recoveries:
Commercial and other loans $ 3 $ 13
Real estate 18 0
Installment/consumer 0 0
------ -------
Total Recoveries $ 24 $ 13
Net charge-offs (recoveries) 43 (1)
Additions charged to operations * 227 154
------ -------
Loan Loss Reserve
Balance at December 31 $1,254 $ 1,070
Ratio of net charge-offs
to average loans outstanding: .04% N/A
</TABLE>
*The amount charged to operations and the related balance in the allowance for
loan losses is based upon periodic evaluations of the loan portfolio by
management. These evaluations consider several factors including, but not
limited to, general economic conditions, loan portfolio composition, prior loan
loss experience, amounts and timing of future cash flows, and management's
estimate of future potential losses.
13
<PAGE> 15
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
------------------- -------------------
Amount Rate Amount Rate
-------- ---- -------- ----
(thousands of dollars)
<S> <C> <C> <C> <C>
Domestic bank offices:
Non-interest-bearing
demand deposits $ 19,183 0% $ 14,520 0%
Interest-bearing demand
deposits 18,602 1.21% 14,626 1.41%
Savings deposits 16,746 3.30% 16,661 3.87%
Time deposits 99,205 4.95% 82,550 5.27%
-------- ---- -------- ----
Total $153,736 3.70% $128,357 4.05%
</TABLE>
RETURN ON AVERAGE EQUITY AND AVERAGE ASSETS
The following table shows operating and capital ratios of the Bank for each of
the last three years.
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Return on average assets 0.84% 0.62% 0.45%
Return on average equity 11.51% 8.01% 5.41%
Dividend pay out ratio 0.00% 0.00% 0.00%
Average equity to average assets ratio 7.27% 7.74% 8.30%
</TABLE>
14
<PAGE> 16
SHORT-TERM BORROWINGS
The following table shows the distribution of the Bank's short-term borrowings
and the weighted average interest rates thereon at the end of each of the last
three years. Also provided are the maximum amount of borrowings and the average
amounts outstanding as well as weighted average interest rates for the last
three years.
<TABLE>
<CAPTION>
Over Night Funds
Purchased &
Securities Sold Under Other
Agreements to Commercial Short-Term
Repurchase* Paper Borrowings
--------------------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C>
Balance at December 31:
1999 $4,032 $0 $0
1998 2,083 0 0
1997 1,461 0 0
Weighted average interest
rate at year-end:
1999 5.19% 0.00% 0.00%
1998 4.01% 0.00% 0.00%
1997 4.74% 0.00% 0.00%
Maximum amount outstanding
at any month's end:
1999 $7,654 $0 $0
1998 3,316 0 0
1997 5,298 0 0
Average amount outstanding
during the year:
1999 $4,061 $0 $0
1998 1,863 0 0
1997 2,718 0 0
Weighted average interest
rate during the year:
1999 5.26% 0.00% 0.00%
1998 4.97% 0.00% 0.00%
1997 5.15% 0.00% 0.00%
</TABLE>
*Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days of the transaction date.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this discussion is to focus on information about the
Company and its Bank subsidiary's financial condition and results of operations
which is not otherwise apparent from the financial statements included in this
annual report. Reference should be made to those statements and the selected
financial data presented elsewhere in this report for an understanding of the
following discussion and analysis.
Financial Condition
The Bank (the Company's only subsidiary) functions as a financial
intermediary, and as such, its financial condition should be examined in terms
of trends in its sources and uses of funds. The following comparison of average
balances indicates how the Bank has managed its sources and uses of funds.
Comments in this section relate to annual average amounts, not year-end amounts.
Average balances are the average of the monthly averages:
Sources and Uses of Funds Trends
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------- --------------------------------- -------
Average Amount % Average Amount % Average
Balance Change Change Balance Change Change Balance
--------- -------- ------ ------- -------- ------ -------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Loans $108,557 $ 16,749 18.2% $ 91,808 $ 18,350 25.0% $ 73,458
Taxable investment
securities 38,193 (3,822) (9.1%) 42,015 (1,579) (3.6%) 43,594
Tax-exempt investment
securities 7,281 5,518 313.0% 1,763 226 14.7% 1,537
Federal funds sold & Interest
bearing bank balances 4,049 (966) (19.3%) 5,015 3,302 192.8% 1,713
-------- -------- ----- -------- -------- ----- --------
Total uses $158,080 17,479 12.4% $140,601 $ 20,299 16.9% $120,302
Funding sources:
Demand deposits:
Non-interest-bearing $ 19,183 $ 4,663 32.1% $ 14,520 2,951 25.5% $ 11,569
Interest-bearing 18,602 3,976 27.2% 14,626 2,980 25.6% 11,646
Savings deposits 16,746 85 0.5% 16,661 6,619 65.9% 10,042
Time deposits 89,621 7,071 8.6% 82,550 6,287 8.2% 76,263
Federal funds purchased 5,988 568 10.5% 5,420 1,939 55.7% 3,481
Repurchase agreements 3,073 1,630 113.0% 1,443 (504) (25.9) 1,947
Other 4,867 (514) 9.6% 5,381 27 .5% 5,354
-------- -------- ----- -------- -------- ----- --------
Total sources $158,080 17,479 12.4% $140,601 $ 20,299 16.9% $120,302
</TABLE>
The Bank uses its funds primarily to support its lending activities.
Average loans increased
16
<PAGE> 18
by $16,749,000 or 18% in 1999 after increasing by $18,350,000 or 25% in 1998.
The increase was largely the result of continued emphasis on lending by bank
management and continued economic conditions in the local market.
Average bond investments, another use of funds, decreased by $3,822,000
or 9% in 1999 to provide funds for loans.
The bank's increase in earning assets from 1998 to 1999 was funded
mainly by increased deposits. The bank sought to grow its loan portfolio in
1999, and to fund this growth, it sought deposits in the local market place.
Although deposit growth was from all types of deposits, the bank showed the
greatest absolute growth in demand accounts and money market accounts.
Certificates of deposit, the Bank's highest cost deposit, grew only modestly in
1999.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary function of asset/liability management is to assure
adequate liquidity and maintain an appropriate balance between
interest-sensitive earning assets and interest-bearing liabilities. Liquidity
management involves the ability to meet the cash flow requirements of customers
who may be either depositors wanting to withdraw funds or borrowers needing
assurance that sufficient funds will be available to meet their credit needs.
Interest rate sensitivity management seeks to avoid fluctuating net interest
margins and to enhance consistent growth of net interest income through periods
of changing interest rates.
Marketable investment securities, particularly those of shorter
maturities, are a principal source of asset liquidity. Securities maturing or
expected to be called within one year or less amounted to $1,000,000 at December
31, 1999 representing 3% of the investment securities portfolio, a decrease from
the 1998 amount of $17,000,000. This is due to the fact that 1998 had an unusual
number of expected maturities and call dates move up as a result of declining
rates and the Bank sought to reduce its high liquidity.
The Bank moderates its liquidity needs by maintaining short term
borrowing lines with several regional banks. At year-end, the bank had lines of
credit established with other banking institutions totaling $21,000,000.
Brokered deposits are deposit instruments, such as certificates of
deposit, bank investment contracts and certain municipal investment contracts
that are issued through brokers who then offer and/or sell these deposit
instruments to one or more investors. The Bank does not currently purchase or
sell brokered deposits.
Maturities of time certificates of deposit and other time deposits of
$100,000 or more, outstanding at December 31, 1999, are summarized as follows:
<TABLE>
<CAPTION>
Time Deposits
-------------
(thousands of dollars)
<S> <C>
3 months or less $ 5,560
Over 3 through 12 months 11,374
Over 12 through 36 months 6,143
Over 36 months 2,759
-------
Total $25,836
</TABLE>
17
<PAGE> 19
Interest rate sensitivity varies with different types of interest
earning assets and interest-bearing liabilities. Overnight federal funds, on
which rates change daily, and loans, which are tied to the prime rate, differ
considerably from long-term investment securities and fixed-rate loans.
Similarly, time deposits over $100,000 and money market accounts are much more
interest rate sensitive than passbook savings accounts. The shorter term
interest rate sensitivities are key to measuring the interest sensitivity gap,
or excess interest-sensitive earning assets over interest-bearing liabilities.
The following table shows the interest sensitivity gaps for four
different time intervals as of December 31, 1999. For the first year,
interest-sensitive assets exceed liabilities by $8,284,000. Over the following
two years, liabilities re-price faster than assets. The excess of
interest-bearing liabilities over interest-earning assets for the one-to-three
year period is primarily related to the longer maturities of CD's and NOW and
MMA accounts that are regarded as much less rate sensitive.
<TABLE>
<CAPTION>
As of December 31
(thousands of dollars)
<S> <C> <C> <C> <C>
0-90 91-365 1-3 Over 3
Days Days Years Years
------ ------ ----- ------
Interest-sensitive assets $47,522 $52,127 $ 27,184 $33,863
Interest-sensitive liabilities 43,402 45,228 40,008 3,574
------- ------- -------- -------
Interest sensitivity gap 4,120 6,899 (12,824) 30,289
Cumulative gap $ 4,120 $11,019 $ (1,805) $28,484
</TABLE>
The primary interest sensitive assets and liabilities in the one-year
maturity range are loans and time deposits. Trying to minimize this gap while
maintaining earnings is a continual challenge in a changing interest rate
environment and one of the objectives of the Bank's asset/liability management
strategy.
CAPITAL RESOURCES
The Bank maintains a strong capital base to take advantage of business
opportunities while ensuring that it has resources to absorb the risks inherent
in the business.
In January 1989, the Federal Reserve Board released new standards for
measuring capital adequacy for U.S. banking organizations. In general, the
standards require banks and bank holding companies to maintain capital based on
"risk-adjusted" assets so that categories of assets with potentially higher
credit risk will require more capital backing than assets with lower risk. In
addition, banks are required to maintain capital to support, on a
"risk-adjusted" basis, certain off-balance-sheet activities such as loan
commitments.
The Federal Reserve Board standards classify capital into two tiers,
referred to as Tier 1 and Tier 2. For the Bank, Tier 1 capital consists of
common shareholders' equity. Tier 2 capital consists of allowance for loan and
lease losses. All banks must maintain a minimum leverage ratio of Tier 1 capital
to total assets of 3%. To be considered adequately capitalized, banks are
required to meet
18
<PAGE> 20
a minimum ratio of 8% of qualifying total Tier 1 and Tier 2 capital to
risk-adjusted total assets and at least 4% ratio of Tier 1 capital to total
assets. The Bank had corresponding ratios of 12.3% and 7.6% at year-end or
almost 2 times the regulatory minimums to be adequately capitalized. Capital
that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital.
The table below illustrates the Bank's regulatory capital ratios at December 31
<TABLE>
<CAPTION>
1999 1998
-------- -------
(thousands of dollars)
<S> <C> <C>
Tier 1 Capital $ 13,361 $12,025
Tier 2 Capital $ 1,254 $ 1,070
-------- -------
Total Qualifying Capital $ 14,615 $13,095
Risk Adjusted Total Assets
(including off-balance exposures) $118,776 $96,638
Tier 1 Risk-Based Capital Ratio 11.25% 12.44%
Total Risk-Based Capital Ratio 12.30% 13.55%
Leverage Ratio 7.60% 7.56%
</TABLE>
RELATIONSHIP BETWEEN SIGNIFICANT FINANCIAL RATIOS
The following table illustrates this relationship where the percent return on
equity times the percent of earnings retained equals the internal capital growth
percentage:
<TABLE>
<CAPTION>
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
Return on average equity 11.5% 8.0% 5.4%
Earnings retained 100% 100% 100%
Internal capital growth 11.7% 8.5% 7.7%
</TABLE>
From a level of 7.7% in 1997, the rate of internal capital growth has
increased to 8.5% in 1998 and 11.7% in 1999. This increasing growth rate is
directly related to the increasing profitability of the bank.
To maintain adequate capital, the Bank and the Company will continue
their efforts to maintain its level of earnings and will give appropriate
consideration to capital needs for expansion and growth before determining
annual dividend pay out to the Holding Company or to shareholders.
RESULTS OF OPERATIONS
The Company's net income for 1999 was $1,402,000, an increase of 62%
over 1998 earnings of $869,000 and also up from 1997 earnings of $574,000. On a
per share basis, net income for the similar periods were $.89, $.57 and $.37
after retroactively adjusting for annual 5% stock dividends and the two for one
split in 1999.
19
<PAGE> 21
Income improved significantly from 1998 to 1999, despite the growth in
overhead due to opening of and investment sales subsidiary of the Bank and
expansion of the Trust Department. Net interest income was up by $978,000 for
1999 over 1998, and other income was up by $317,000. This $1,295,000 of
increased revenues was offset by two factors. First, operating expenses had an
increase of $512,000 or 12% due almost exclusively to the 11% growth in the
asset size of the Company and the new investment sales division and expansion of
our Trust area. The Bank's expense for contribution to its Loan Loss Reserve
increased by $73,000 higher than 1998 due to continued growth of the loan
portfolio and continued low loan losses.
Net interest income is the major component of the Bank's earning
capacity. It represents the difference or spread between interest income on
earning assets (primarily loans, investment securities and Federal funds sold)
and interest expense on interest-bearing liabilities (primarily deposits). The
spread is considered positive when interest-earning assets exceed
interest-paying liabilities. Net interest income is also affected by changes in
interest rates earned and interest rates paid, and by changes in the volume of
interest-earning assets and interest-bearing liabilities.
To the extent possible, the Bank follows a strategy intended to
insulate the Bank's interest rate spread from adverse changes in interest rates
by maintaining spreads through the adjustability of its earning assets and
interest-bearing liabilities. At December 31, 1999, approximately 75% of the
loan portfolio was repriceable or expected to repay within one year.
Results of operations can be measured by various ratio analyses. Two
widely recognized performance indicators are return on equity and return on
assets. The Bank's return on average equity was 11.5% in 1999, up from 8.0% in
1998, and up from 5.4% in 1997. This is the result of the bank's earnings
growth. The bank's earnings grew at a faster than its assets in 1999 and 1998
resulting in the bank's return on assets (ROA) increasing from .45 in 1997 to
.62 in 1998 and to .84 in 1999. In 1995, the Board of Directors adopted a
strategy of growth for the bank knowing that the increased overhead would impact
the bank's earnings for several years. The strategy anticipated that increased
revenues would eventually offset the substantial increase in overhead resulting
from branch openings. This has in fact happened and with the slower growth in
overhead expenses, earnings have begun to improve.
LOANS
Loan Portfolio
The following table shows the Bank's loans distribution at the end of each of
the last two years.
<TABLE>
<CAPTION>
December 31
1999 1998
-------- --------
(Thousand of dollars)
<S> <C> <C>
Domestic Loans:
Commercial and Other $ 13,205 $ 10,536
Real estate-construction 14,302 3,711
Real estate - Residential 44,854 43,944
Real estate - Other 43,718 40,221
Installment/Consumer 5,883 1,948
-------- --------
Total domestic loans $121,962 $100,360
</TABLE>
20
<PAGE> 22
Real estate mortgage loans at year-end 1999 and 1998 comprised the
greatest percentage of total loans. Commercial non-real estate and consumer
loans were approximately 11% and 5% respectively at the year-end 1999. The
growth in loans outstanding at year-end 1999 was the result of an initiative by
management to grow the loan portfolio. Given the current economic conditions,
the growth of gross loans outstanding should continue in 2000.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed
adequate by management to absorb potential losses in the loan portfolio.
Management's methodology to determine the adequacy of the allowance considers
specific credit reviews, past loan loss experience, current economic conditions
and trends, and the volume, growth and composition of the loan portfolio.
Each credit on the Bank's internal loan "watch list" is evaluated
periodically to estimate potential losses. In addition, minimum estimates for
each category of watch list credits also are provided based on management's
judgment of past loan loss experience and other factors. The total of reserves
resulting from this analysis is "allocated" reserves. The amounts specifically
provided for individual loans and pools of loans are supplemented by an
unallocated amount for loan losses. This unallocated amount is determined based
on judgments regarding risk of error in the specific allocation, other potential
exposure in the loan portfolio, economic conditions and trends, amounts and
timing of future cash flows, and other factors.
COMPOSITION OF ALLOWANCE FOR LOAN LOSSES
This table shows an allocation of the allowance for loan losses as of the last
two-year ends:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------- ---------------------------
Percent of Percent of
Loans in each Loans in each
category to category to
Amount Total Loans Amount Total Loans
------- ------------- ------ -------------
(thousands of dollars)
<S> <C> <C> <C> <C>
Commercial, Commercial RE,
Construction & Agricultural $ 257 59% $ 192 53%
Real estate-residential 143 37% 139 44%
Consumer 75 5% 3 3%
Special allocations 0 0% 27 0%
Unallocated $ 779 0% $ 709 0%
------ --- ------ ---
Total 1,254 100% $1,070 100%
</TABLE>
The above allocation is based on estimates and subjective judgments and
is not necessarily
21
<PAGE> 23
indicative of the specific amounts or loan categories in which losses may
ultimately occur.
In 1999 the allowance for loan losses approximates 1.03% of loans, down
slightly from 1.07% in 1998. The allowance for loan losses is changed when
management determines that the prospects of recovery of the principal or
interest of a loan or lease are doubtful. Subsequent recoveries, if any, are
credited to the allowance. Real estate mortgage loans are written down to fair
value upon the earlier receipt of a deed in lieu of foreclosure, upon completion
of foreclosure proceedings, or upon in-substance foreclosure. Commercial and
other loan charge-offs are made based on management's on-going evaluation of
non-performing loans. At year-end, the Bank had no "impaired" loans under SFAS
114, which became effective on January 1, 1995.
NON-PERFORMING ASSETS
Non-performing assets include non-accrual, accruing loans past due 90
days or more, and other real estate, which includes foreclosures, deeds in lieu
of foreclosure and in-substance foreclosures. A loan is classified as an
in-substance foreclosure when the borrower has little or no equity in the
collateral and the Bank can reasonably expect proceeds for repayment only from
the operation or sale of the collateral.
A loan generally is classified as non-accrual when full collection of
principal or interest is doubtful or a loan becomes 90 day past due as to
principal or interest. Unless management determines that the estimated net
realizable value of the collateral is greater than the unpaid principal and
interest, interest accrual is discontinued. Unpaid interest previously credited
to income in the current year is reserved; and unpaid interest accrued in prior
years is charged to the allowance for loan losses. A non-performing loan is
returned to performing status when the loan is brought current and has performed
in accordance with contract terms for a period of time.
<TABLE>
<CAPTION>
Distribution of
Non-performing Assets
December 31
1999 1998
------ -------
(thousands of Dollars)
<S> <C> <C>
Commercial, Commercial RE,
& Construction $ 0 $ 0
Residential RE 0 180
Installment/Consumer 0 0
--- ----
Total non-performing loans $ 0 $180
Other real estate owned 0 0
Other Assets 29 0
Debt Security 0 0
--- ----
Total non-performing assets $29 $180
Non-performing loans to
year-end loans .02% 0.18%
Non-performing assets to year-end
loans and other real estate owned .02% 0.18%
</TABLE>
22
<PAGE> 24
Management continually reviews any non-performing assets and any
uncollectible portions of the asset have been charged off. When the Bank has
non-performing assets, management strives to assure that the amounts reflected
on the books fairly represent the net realizable value of that asset. However,
the time required to liquidate the asset is undeterminable due to the time
required to proceed through the court systems and the time required to market
the collateral.
At year-end 1999 there were no non-accrual loans and consequently there
was no additional interest income that would have been recorded. In 1998, there
was $8,000 of additional interest income that would have been recorded, if all
non-accrual loans had been current in accordance with their original terms.
At December 31, 1999, the Bank had $52,000 of criticized "watch" loans
which were not included in the 90 day past due or non-accrual categories where
the borrowers are currently experiencing or have recently experienced financial
difficulties but are current on their payments. This is up slightly from $38,000
at December 31, 1998.
At December 31, 1999, the Bank had no commitments to lend additional
funds with respect to non-performing loans.
In evaluating loan portfolio risk, management believes that any
significant future increases in non-performing loans are dependent to a large
extent on the economic environment. In a deteriorating or uncertain economy,
management applies more conservative assumptions when assessing the future
prospects of borrowers and when estimating collateral values. This may result in
a higher number of loans being classified as non-performing.
INCOME TAXES
The Bank's effective tax rate was 31% in 1999 compared to 33% for 1998.
The effective rate is lower than the statutory rate primarily due to certain
tax-exempt interest income. The effective tax rate was lower in 1999 due
primarily to increased tax-exempt income.
REGULATORY MATTERS
The Bank is not currently under any special agreements with the Office of the
Comptroller of the Currency nor is bank management aware of any violations of
any banking regulation.
IMPACT OF INFLATION AND CHANGING PRICES
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth of
total assets in the banking industry and the resulting need to increase equity
capital at higher than normal rates in order to maintain an appropriate
equity-to-assets ratio. Another significant effect of inflation is on other
expenses, which tend to rise during periods of general inflation.
Management believes the most significant impact on financial results is
the Bank's ability to react to changes in interest rates. As discussed
previously, management is attempting to maintain
23
<PAGE> 25
an essentially balanced position between interest sensitive assets and
liabilities in order to protect against wide interest rate fluctuations.
24
<PAGE> 26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is incorporated herein by reference to the
information set forth under the following captions contained in this Form 10-K:
(i) "Management's Discussion and Analysis of Financial Condition
and Results of Operations"--Liquidity and Interest Rate
Sensitivity Management.
(ii) PART II - Item 6. -- "Selected Financial Data" - Investment
Portfolio
(iii) PART II - Item 6. -- "Selected Financial Data" - Loan
Portfolio
(iv) PART II - Item 14. -- "Financial Statements of First National
Bancshares, Inc.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and the related notes thereto
required by Subpart I have been included immediately following Item 14 in Part
IV of this Annual Report.
The supplementary financial information requested by Section 11.832 is
not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Since July 18, 1986 (the date of inception of the Bank, the Company's
subsidiary), the Bank nor the Company have had no disagreements with its
independent certified public accountants regarding accounting and financial
disclosure and there has been no change in accounting firms since 1994. The
accounting firm of Christopher, Smith, Leonard, Bristow, Stanell, and Wells,
P.A. is currently employed by the Company to perform its annual audit and its
financial report is included in this annual report.
25
<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
A. DIRECTORS
The information required by Item 10 pertaining to directors of the
Company is incorporated herein by reference to the sections entitled "Election
of Directors" and "Committees of the Board of Directors and Certain Meetings" in
the definitive proxy statement of the Holding Company of the Bank for its 2000
Annual Meeting of Shareholders, pages one through four. The Proxy Statement will
be filed with the Securities and Exchange Commission within 120 days of the end
of the Bank's fiscal year ended December 31, 1999 at the time it is mailed to
the shareholders.
B. EXECUTIVE OFFICERS
With respect to Francis I. duPont, III, the Chairman of the Board and
Chief Executive Officer of the Company, and Glen W. Fausset, President of the
Company, who are also directors of the Company, the information required by Item
10 pertaining to the Company's executive officers is incorporated herein by
reference to the section entitled "Election of Directors" in the definitive
proxy statement of the Holding Company of the Bank for its 2000 Annual Meeting
of Shareholders, pages 1 through 3, which will be filed with the Securities and
Exchange Commission within 120 days of the end of the Bank's fiscal year ended
December 31, 1999 at the time it is mailed to the shareholders..
There are no other executive officers of the Company. The executive
officers of the Company are elected by the Board of Directors and serve at the
pleasure of the Board.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 pertaining to executive
compensation is incorporated herein by reference to the sections entitled
"Executive Compensation," and "Compensation Pursuant to Plans" in the definitive
proxy statement of the Holding Company of the Bank for its 2000 Annual Meeting
of Shareholders, pages 6 through 8, which will be filed with the Securities and
Exchange Commission 120 days of the end of the Bank's fiscal year ended December
31, 1999 at the time it is mailed to the shareholders.
Change of Control Agreements
In 1997, the Board of Directors of the Bank entered into "Agreements"
with Messrs. duPont and Fausset providing for compensation to them in the event
of a change of the controlling interest of the Bank or dismissal without cause.
This Company joined in these agreements in 1999. The
26
<PAGE> 28
agreements provide for the payment of three times base compensation upon a
change of control of the Bank or the Company or a dismissal without cause.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 pertaining to the security
ownership of certain beneficial owners and management is incorporated herein by
reference to the sections entitled "Election of Directors" and "Security
Ownership of Certain Beneficial Owners" in the definitive proxy statement of the
Holding Company of the Bank for its 2000 Annual Meeting of Shareholders, pages 2
and 9, which will be filed with the Securities and Exchange Commission within
120 days of the end of the Company's fiscal year ended December 31, 1999 at the
time it is mailed to the shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 pertaining to certain relationships
and related transactions is incorporated herein by reference to the section
entitled "Certain Relationships and Related Transactions" in the definitive
proxy statement of the Holding Company of the Bank for its 2000 Annual Meeting
of Shareholders, page 5 and 6, which will be filed with the Securities and
Exchange Commission within 120 days of the end of the Company's fiscal year
ended December 31, 1999 at the time it is mailed to the shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) Documents filed as part of this Annual Report on Form
10-K:
(1) Financial Statements and Schedules
(i) Report of Independent Auditors' Report.... F-1
(ii) Balance Sheets............................ F-2
(iii) Statements of Income ..................... F-3
(iv) Statements of Stockholders' Equity........ F-4
(v) Statements of Cash Flows ................. F-5
(vi) Notes to Financial Statements ............ F-6
(2) All Schedules have been included as an exhibit to this
Annual Report on Form 10-K or the information is included
elsewhere in the financial statements or notes thereto.
27
<PAGE> 29
(3) The exhibits required to be filed herewith are listed
on the "Exhibits Index" on the following page
(b) Reports on form 8-K
There were no reports on Form 8-K filed by the Company during
the last quarter of the fiscal year ended December 31, 1999.
EXHIBIT INDEX
Exhibit Number Description of Document
- -------------- -----------------------
2* Consolidation Agreement dated as of September 17, 1998, by and
between First National Bank of Manatee and Manatee Interim
Bank, National Association, joined in by First National
Bancshares, Inc.
3.1** Amended and Restated Articles of Incorporation of First
National Bancshares, Inc.
3.2** Bylaws of First National Bancshares, Inc.
11*** Statement regarding computation of per share earnings.
23 Consent of Christopher, Smith, Leonard, Bristow, Stanell, and
Wells, P. A.
27 Financial Data Schedule (for SEC use only)
* incorporated by reference as Appendix I included in the Company's
S-4 Registration Statement, as filed with the Securities and Exchange Commission
on July 31, 1998 (Registration No. 333-60283).
** incorporated by reference to the exhibits included in the Company's
S-4 Registration Statement, as filed with the Securities and Exchange Commission
on July 31, 1998 (Registration No. 333-60283).
*** incorporated by reference to the Income Statement on page F-3 of
the Consolidated Financial Statements of First National Bancshares, Inc., as
contained in this Annual Report on Form 10-K.
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FIRST NATIONAL BANCSHARE, INC.
March 8, 2000 By: /s/ Glen W. Fausset
- ------------- ------------------------------
(Date) Glen W. Fausset, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Francis I. duPont, III Chairman of the Board and Chief March 8, 2000
- --------------------------------- Executive Officer
Francis I. duPont, III
/s/ Glen W. Fausset President and Director March 8, 2000
- ---------------------------------
Glen W. Fausset
/s/ Robert C. Matejcek Treasurer March 8, 2000
- ---------------------------------
Robert C. Matejcek
/s/ Beverly Beall Director March 8, 2000
- ---------------------------------
Beverly Beall
/s/ Robert G. Blalock Director March 8, 2000
- ---------------------------------
Robert G. Blalock
/s/ Allen J. Butler Director March 8, 2000
- ---------------------------------
Allen J. Butler
/s/ Rosemary R. Carlson Director March 8, 2000
- ---------------------------------
Rosemary R. Carlson
/s/ Stephen J. Korcheck, Ph. D. Director March 8, 2000
- ---------------------------------
Stephen J. Korcheck, Ph. D.
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Wm. J. Thompson Director March 8, 2000
- ---------------------------------
Wm. J. Thompson, D.D.S
/s/ Raymond A. Weigel, III Director March 8, 2000
- ---------------------------------
Raymond A. Weigel, III
/s/ Dan C. Zoller Director March 8, 2000
- ---------------------------------
Dan C. Zoller
</TABLE>
<PAGE> 32
===============================================================================
FIRST NATIONAL BANCSHARES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-2
CONSOLIDATED STATEMENTS OF INCOME F-3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-6 - F-21
</TABLE>
<PAGE> 33
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
FIRST NATIONAL BANCSHARES, INC.
BRADENTON, FLORIDA
We have audited the accompanying consolidated balance sheets of First National
Bancshares, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 31, 1999, 1998 and 1997. These consolidated
financial statements are the responsibility of the Corporation'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 consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First National
Bancshares, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and cash flows for the years ended December 31,
1999, 1998 and 1997, in conformity with generally accepted accounting
principles.
CHRISTOPHER, SMITH, LEONARD,
BRISTOW, STANELL & WELLS, P.A.
January 25, 2000
- F-1 -
<PAGE> 34
===============================================================================
FIRST NATIONAL BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
===============================================================================
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Cash and due from banks $ 6,972,750 $ 10,404,305
Federal funds sold -0- 950,000
------------- -------------
Cash and cash equivalents 6,972,750 11,354,305
------------- -------------
Investment securities:
Available-for-sale 37,349,586 30,491,396
Held-to-maturity 3,499,838 10,905,615
------------- -------------
(Market value of $40,440,827
and $41,297,297, respectively) 40,849,424 41,397,011
------------- -------------
Loans 122,007,444 100,360,269
Less allowance for loan losses (1,253,945) (1,070,164)
Less deferred loan fees (45,997) (11,177)
------------- -------------
120,707,502 99,278,928
------------- -------------
Bank premises and equipment, net 4,856,157 4,696,529
Accrued interest receivable 963,616 871,399
Deferred income taxes 838,371 195,279
Other assets 614,175 424,928
------------- -------------
7,272,319 6,188,135
------------- -------------
TOTAL ASSETS $ 175,801,995 $ 158,218,379
============= =============
</TABLE>
<PAGE> 35
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Liabilities:
Deposits:
Non-interest bearing deposits $ 20,528,051 $ 16,672,918
Interest bearing demand
and NOW deposits 19,088,016 17,517,732
Money market deposits 21,247,277 15,554,842
Savings deposits 16,333,431 16,917,018
Time deposits 74,987,292 70,224,171
------------- -------------
152,184,067 136,886,681
Accrued interest payable 1,050,692 1,066,728
Accrued expenses and other
liabilities 454,939 452,240
Capital lease obligation 505,145 543,102
Securities sold under agreements
to repurchase and over night funds 4,032,393 2,083,482
Other borrowed funds 5,000,000 5,182,500
------------- -------------
11,043,169 9,328,052
------------- -------------
Total liabilities 163,227,236 146,214,733
------------- -------------
Commitments (NOTES 6 and 12) -0- -0-
Minority interest (deficit) -0- (7,035)
Stockholders' equity:
Common stock, .10 par value,
2,500,000 shares authorized:
1,577,869 and 751,478 shares
issued and outstanding 157,787 75,148
Capital in excess of par value 9,670,361 8,591,848
Retained earnings 3,540,006 3,303,005
Accumulated other comprehensive income (793,395) 40,680
------------- -------------
Total stockholders' equity 12,574,759 12,010,681
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 175,801,995 $ 158,218,379
============= =============
</TABLE>
===============================================================================
The accompanying notes are an integral part of these financial statements.
- F-2 -
<PAGE> 36
===============================================================================
FIRST NATIONAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
===============================================================================
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 9,020,590 $ 7,857,716 $6,431,672
----------- ----------- ----------
Interest on investment
securities:
U.S. Treasury and Govern-
ment agencies 2,133,434 2,456,180 2,600,834
State and political sub-
divisions - tax-exempt 315,390 97,131 108,003
Other 252,542 249,771 106,443
----------- ----------- ----------
2,701,366 2,803,082 2,815,280
----------- ----------- ----------
Interest on federal funds sold 21,006 76,120 29,993
----------- ----------- ----------
Total interest income 11,742,962 10,736,918 9,276,945
----------- ----------- ----------
Interest expense:
Deposits 4,033,943 4,121,385 3,591,974
Time deposits of $100,000
or more 1,074,401 1,076,308 936,788
Short-term borrowings 515,601 384,478 261,014
Capital lease obligation 63,130 67,402 71,193
Federal funds purchased 139 9,154 42,857
----------- ----------- ----------
Total interest expense 5,687,214 5,658,727 4,903,826
----------- ----------- ----------
Net interest income 6,055,748 5,078,191 4,373,119
----------- ----------- ----------
Provision for loan and debit
card losses 227,050 154,170 254,821
----------- ----------- ----------
Net interest income after
provision for loan losses 5,828,698 4,924,021 4,118,298
Other income:
Service charges on deposit
accounts 429,647 349,365 277,468
Investment securities gains, net 35,496 11,528 2,777
Other real estate owned income -0- 5,030 -0-
Trust fee income 426,801 317,019 191,774
Bradenton Securities income 174,464 -0- -0-
Other 226,123 235,502 239,008
Loan fees -0- 57,174 -0-
----------- ----------- ----------
Total other income 1,292,531 975,618 711,027
----------- ----------- ----------
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Other expenses:
Salaries and employee benefits $2,696,762 $ 2,205,987 $1,920,626
Occupancy 498,275 467,594 438,780
Legal, accounting and
examination fees 186,803 159,689 172,558
FDIC assessment 16,036 14,471 12,174
Equipment 456,226 382,815 320,034
Stationery, printing and
postage 209,156 170,527 155,622
Data processing 278,818 294,865 296,626
Directors' fees 124,325 111,051 97,182
Advertising 59,116 30,184 38,938
Other 554,792 666,719 533,947
Mortgage company expense 4,228 74,961 -0-
Minority interests in net loss
of consolidated subsidiary -0- (7,115) -0-
---------- ----------- ----------
Total other expenses 5,084,537 4,571,748 3,986,487
---------- ----------- ----------
Income before income taxes 2,036,692 1,327,891 842,838
Provision for income taxes 634,900 458,800 269,100
---------- ----------- ----------
Net income $1,401,792 $ 869,091 $ 573,738
========== =========== ==========
Per share data:
Basic EPS $ .89 $ .57 $ .37
========== =========== ==========
Weighted average shares
outstanding $1,577,869 $ 1,565,187 $1,557,910
========== =========== ==========
Diluted EPS $ .85 $ .55 $ .35
========== =========== ==========
Adjusted weighted average
shares outstanding $1,645,952 $ 1,623,752 $1,628,070
========== =========== ==========
====================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
- F-3 -
<PAGE> 38
===============================================================================
FIRST NATIONAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
===============================================================================
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
---------------------------- EXCESS OF
SHARES AMOUNT PAR VALUE
---------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1996 661,207 $ 3,306,035 $ 3,628,419
---------- ----------- -----------
Net income -0- -0- -0-
Change in valuation
allowance, net of income
taxes of $81,072 -0- -0- -0-
---------- ----------- -----------
Total comprehensive income -0- -0- -0-
5% stock dividend 33,512 167,560 502,680
Exercise of stock options 22,363 111,815 104,354
Repurchase of stock (5,882) (29,410) (70,584)
---------- ----------- -----------
BALANCE AT
DECEMBER 31, 1997 711,200 3,556,000 4,164,869
---------- ----------- -----------
Net income -0- -0- -0-
Change in valuation
allowance, net of
income taxes of $5,330 -0- -0- -0-
---------- ----------- -----------
Total comprehensive income -0- -0- -0-
5% stock dividend 35,630 178,150 748,272
Exercise of stock options 7,624 38,120 44,081
Repurchase of stock (2,976) (14,880) (47,616)
Change in par value due to merger -0- (3,682,242) 3,682,242
---------- ----------- -----------
BALANCE AT
DECEMBER 31, 1998 751,478 75,148 8,591,848
---------- ----------- -----------
Net income -0- -0- -0-
Change in valuation
allowance, net of income
taxes of $502,583 -0- -0- -0-
---------- ----------- -----------
Total comprehensive income -0- -0- -0-
2 for 1 exchange 751,478 75,148 (75,148)
5% stock dividend 74,913 7,491 1,153,661
---------- ----------- -----------
BALANCE AT
DECEMBER 31, 1999 1,577,869 $ 157,787 $ 9,670,361
========== =========== ===========
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE
EARNINGS INCOME TOTAL
----------- -------------- ------------
<S> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1996 $ 3,488,903 $ (102,702) $ 10,320,655
----------- -------------- ------------
573,738 -0- 573,738
Net income
Change in valuation
allowance, net of income
taxes of $81,072 -0- 134,537 134,537
----------- -------------- ------------
Total comprehensive income 573,738 134,537 708,275
5% stock dividend (676,549) -0- (6,309)
Exercise of stock options (21,585) -0- 194,584
Repurchase of stock -0- -0- (99,994)
----------- -------------- ------------
BALANCE AT 3,364,507 31,835 11,117,211
DECEMBER 31, 1997 ----------- -------------- ------------
Net income 869,091 -0- 869,091
Change in valuation
allowance, net of
income taxes of $5,330 -0- 8,845 8,845
----------- -------------- ------------
Total comprehensive income 869,091 8,845 877,936
5% stock dividend (930,593) -0- (4,171)
Exercise of stock options -0- -0- 82,201
Repurchase of stock -0- -0- (62,496)
Change in par value due to merger -0- -0- -0-
----------- -------------- ------------
BALANCE AT
DECEMBER 31, 1998 3,303,005 40,680 12,010,681
----------- -------------- ------------
Net income 1,401,792 -0- 1,401,792
Change in valuation
allowance, net of income
taxes of $502,583 -0- (834,075) (834,075)
----------- -------------- ------------
Total comprehensive income 1,401,792 (834,075) 567,717
2 for 1 exchange -0- -0- -0-
5% stock dividend (1,164,791) -0- (3,639)
----------- -------------- ------------
BALANCE AT
DECEMBER 31, 1999 $ 3,540,006 $ (793,395) $ 12,574,759
=========== ============== ============
================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
- F-4 -
<PAGE> 40
===============================================================================
FIRST NATIONAL BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
===============================================================================
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,401,792 $ 869,091 $ 573,738
Adjustments to reconcile net income
to net cash from operating
activities:
Minority interests in net loss of
consolidated subsidiaries -0- 7,115 -0-
Depreciation and leasehold
amortization 430,589 400,807 353,002
Net amortization of premiums and
accretion of discounts on
investment securities 71,232 42,923 11,183
Amortization of deferred loan fees 34,820 (30,250) 45,225
Allowance for loan losses 159,902 142,542 261,599
Deferred income taxes 140,800 (22,766) (43,200)
Investment securities gains realized (35,496) (11,528) (2,777)
Loss (gain) on disposition of equipment 175 (6,113) (7,135)
(Increase) decrease in accrued
interest receivable (92,217) 48,002 (45,299)
(Increase) decrease in other assets (189,247) (22,184) 4,286
Increase (decrease) in accrued interest
payable (16,036) 90,333 140,209
Increase (decrease) in accrued
expenses and other liabilities 2,702 (166,013) 278,826
------------ ------------ ------------
Net cash provided by operating
activities 1,909,016 1,341,959 1,569,657
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of
investment securities 15,747,404 13,850,584 6,024,540
Purchase of investment securities, net (16,849,235) (10,096,866) (9,533,350)
Loans originated, net of principal
collections (21,647,175) (16,590,125) (24,242,069)
Purchase of bank premises and
equipment (587,644) (434,438) (1,245,745)
Proceeds from sale of equipment -0- 8,000 8,190
Recoveries on loans charged off 23,879 12,736 25,679
------------ ------------ ------------
Net cash provided by (used in)
investing activities (23,312,771) (13,250,109) (28,962,755)
------------ ------------ ------------
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand
deposits and savings deposits 10,534,265 $ 13,500,814 $ 12,935,456
Net increase in time deposits 4,763,121 2,197,823 11,274,269
Increase (decrease) in securities sold
under agreements to repurchase 1,448,911 622,419 (182,160)
Increase (decrease) in federal funds
purchased and other borrowed funds 317,500 182,500 3,750,000
Proceeds from issuance of common stock -0- 19,705 94,590
Cash in lieu of fractional shares for
stock dividend (3,640) (4,171) (6,309)
Principal payments under capital lease
obligations (37,957) (33,686) (29,894)
------------ ------------ ------------
Net cash provided by
financing activities 17,022,200 16,485,404 27,835,952
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (4,381,555) 4,577,254 442,854
Cash and cash equivalents at
beginning of year 11,354,305 6,777,051 6,334,197
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 6,972,750 $ 11,354,305 $ 6,777,051
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash payments for interest $ 5,703,250 $ 5,568,394 $ 4,763,617
============ ============ ============
Cash payments for income taxes $ 799,570 $ 488,361 $ 74,362
============ ============ ============
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
- F-5 -
<PAGE> 42
===============================================================================
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First National Bancshares,
Inc. and its subsidiaries conform to generally accepted accounting
principles and to general practice within the banking industry. Assets
held in a fiduciary capacity by the trust and securities departments
are not included in the financial statements. The following summarizes
the more significant of these policies.
Nature of Operations - First National Bancshares, Inc. (Bancshares) is
a bank holding company whose principal activity is the ownership and
management of its wholly owned subsidiary First National Bank and
Trust (the Bank). The Bank operates under a national bank charter and
provides full banking services, including trust services. As a
national bank, the Bank is subject to regulation of the office of the
Comptroller of the Currency, and the Federal Deposit Insurance
Corporation. The principal area served by First National Bank and
Trust in Manatee County, Florida and services are provided at four
offices.
Consolidation with Holding Company
The shareholders of First National Bank of Manatee approved a
Consolidation Agreement pursuant to which Manatee Interim Bank a
wholly owned subsidiary of First National Bancshares, Inc. was
consolidated with and into the Bank under the charter of the Bank on
January 1, 1999. The Interim Bank was organized solely for the purpose
of this transaction. Effective January 1, 1999, as a result of the
consolidation, the Holding Company acquired all of the outstanding
shares of capital stock of the Bank, thereby becoming a one bank
holding company. Under the terms of the Agreement, each one of the
outstanding shares of the Bank's common stock was exchanged for two
shares of the Holding Company's common stock so that each shareholder
of the Bank became a shareholder of the company. Accordingly, all
historical financial information of the Corporation has been restated
as if the combining companies had been consolidated for all periods
herein.
Principles of Consolidation
The consolidated financial statements include the accounts of First
National Bancshares, Inc. and its wholly owned subsidiary, First
National Bank and Trust, and the Bank's wholly owned subsidiary
Bradenton Securities, Inc. All material intercompany transactions have
been eliminated in consolidation.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
- F-6 -
<PAGE> 43
===============================================================================
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
===============================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Securities Held-To-Maturity and Available-For-Sale - The Bank follows
Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities",
which requires the Bank to segregate its investment portfolio into
trading, available-for-sale and held-to-maturity classifications. The
Bank does not hold any equity securities. Management determines the
appropriate classification of debt securities at the time of purchase
and reevaluates such designation as of each balance sheet date. Debt
securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at quoted
market value, with the unrealized gains and losses, net of tax,
reported in a separate component of stockholders' equity. The Bank
does not have a trading portfolio.
The amortized cost of debt securities classified as held-to-maturity
or available-for-sale is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-backed
securities, over the estimated life of the security. Such amortization
is included in interest income from investments. Realized gains and
losses and declines in value judged to be other than temporary are
included in net investment securities gains. The cost of securities
sold is based on the specific identification method.
Loans and Allowance for Loan Losses - Loans are stated at the amount
of unpaid principal, reduced by deferred loan fees and an allowance
for loan losses. Interest income is recognized using the simple
interest method on daily balances of principal amounts outstanding.
Accrual of interest is discontinued on a loan (including a loan
impaired under Statement of Financial Accounting Standards (SFAS) No.
114) when management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful.
Classification of a loan as non-accrual is not necessarily indicative
of a potential loss of principal.
The allowance for loan losses is established through a provision for
loan losses charged to operations. Loans are charged against the
allowance for loan losses when management believes that collectibility
is unlikely. The allowance is an amount that management believes will
be adequate to absorb possible losses on existing loans that may
become uncollectible, based on evaluations of the collectibility of
loans and prior loan loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific problem
loans, the amounts and timing of future cash flows from impaired
loans, and current economic conditions that may affect the borrowers'
ability to pay.
- F-7 -
<PAGE> 44
===============================================================================
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
===============================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
The Bank follows Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan". Under the
standard, allowance for loan losses related to loans that are
identified for evaluation under SFAS No. 114 is based on discounted
cash flows using the loan's initial effective interest rate on the
fair value of the collateral for certain collateral dependent loans.
At December 31, 1998 there was one impaired loan with a recorded value
of $135,876. $27,100 was reserved against this loan and included in
the reserve for loan losses. At December 31, 1999, there were no
impaired loans under SFAS No. 114.
Loan Origination Fee Income - Non-refundable fees and costs associated
with originating or acquiring loans are recognized over the lives of
the related loans as adjustments to interest income.
Bank Premises and Equipment - Bank premises and equipment owned,
leasehold improvements, and assets held under capital lease are stated
at cost less accumulated depreciation and amortization. Depreciation
and amortization are determined primarily on the straight-line method
over the estimated useful lives of the assets, which range from three
to twelve years for office furniture and equipment and twenty to
twenty-five years for the Bank's building and leasehold improvements.
Maintenance and repairs are charged to expense as incurred. Renewals
and betterments, which materially increase the value of the property,
are capitalized. When bank premises and equipment are sold, or
otherwise disposed of, the cost and related depreciation or
amortization are removed from the respective accounts and the
respective gains and losses are included in earnings.
Other Real Estate Held for Resale - Other real estate includes
foreclosed assets held for resale. After foreclosure, foreclosed
assets are carried at the lower of fair value minus estimated costs to
sell or cost. Cost at the time of foreclosure is the fair value of the
asset foreclosed. If the fair value of the asset minus the estimated
costs to sell the asset is less than the cost of the asset, the
deficiency is recognized as a valuation allowance. Other real estate
owned income (expense) consists of net carrying cost, legal fees, loss
provisions and gains (losses) on sales of real estate. The bank owned
no other real estate at December 31, 1999 or 1998.
Income Taxes - The liability method is used in accounting for income
taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that are expected to be in effect when the differences
are expected to reverse.
Fair Value of Financial Instruments - The following methods and
assumptions were used by the Bank in estimating the fair value
disclosure for financial instruments:
Cash and Federal Funds: Carrying amounts in the financial statements
approximate fair values.
- F-8 -
<PAGE> 45
===============================================================================
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
===============================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Fair Value of Financial Instruments - Continued
Investment securities: Fair values are based on quoted market
prices, except in certain limited instances where pricing models
are used.
Loans: For variable rate loans that reprice frequently with no
significant change in credit risk, fair values are based on
carrying values. Fair values for fixed rate and all other loans
are estimated using discounted cash flow analyses using interest
rates currently being offered for loans. The carrying value of
accrued interest approximates its fair value.
Commitments: Fair values of commitments are based on quoted market
prices.
Deposits: Fair value for non-interest bearing demand, NOW, money
market and savings deposits are based on carrying value. Fair
value for time certificate deposits are based on a discounted cash
flow calculation using current interest rates for similar
deposits.
Statements of Cash Flows - For the purpose of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from
banks, and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods. The Bank maintains its due from banks
and federal funds purchased or sold with correspondent banking
relationships as determined by the Bank's board of directors. At
December 31, 1999, the primary correspondent banks were Federal Home
Loan Bank of Atlanta, Independent Bankers Bank, NationsBank Bank, and
SunTrust Bank of Georgia.
Earnings Per Share - Earnings per share amounts are based upon the
weighted average number of common and common equivalent shares
outstanding during the year. Common equivalent shares are excluded
from the computation in periods in which they have an anti-dilutive
effect. Basic EPS excludes all dilution. It is based upon the weighted
average number of common shares outstanding during the period. Diluted
EPS reflects the potential dilution that would occur if securities or
options to issue common stock were exercised or converted into common
stock. All differences between basic and diluted EPS were due to stock
options.
Stock Options - Bancshares adopted SFAS 123 and under the provisions
of the standard has elected to continue using the intrinsic-value
method of accounting for stock-based awards granted to employees in
accordance with APB 25. Accordingly, Bancshares has not recognized
compensation expense for its stock-based awards to employees. The
amount of compensation expense that would have been recorded if
Bancshares had elected to adopt the fair value approach of SFAS 123 is
not material.
- F-9 -
<PAGE> 46
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES
Investment securities at December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
-------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
U.S. Government
agencies $ 7,094,212 $ -0- $ (213,167) $ 6,881,045
U.S. Government
agencies -
mortgage-backed
securities 21,932,119 -0- (489,341) 21,442,778
State and political
subdivisions 8,767,289 14,283 (583,239) 8,198,333
------------ ----------- ----------- ------------
Total Debt Securities 37,793,620 14,283 (1,285,747) 36,522,156
Other 827,430 -0- -0- 827,430
------------ ----------- ----------- ------------
$ 38,621,050 $ 14,283 $(1,285,747) $ 37,349,586
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY
-------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
U.S. Government
agencies $ 2,499,838 $ -0- $ (317,338) $ 2,182,500
U.S. Government
agencies -
mortgage-backed
securities 1,000,000 -0- (91,259) 908,741
------------ ----------- ----------- ------------
$ 3,499,838 $ -0- $ (408,597) $ 3,091,241
============ =========== ========== ============
</TABLE>
- F-10 -
<PAGE> 47
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES - CONTINUED
Investment securities at December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
-------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasury $ 999,071 $ 1,361 $ -0- $ 1,000,432
U.S. Government
agencies 5,965,397 79,720 -0- 6,045,117
U.S. Government
agencies -
mortgage-backed
securities 19,362,685 107,920 (146,368) 19,324,237
State and political
subdivisions 4,099,051 22,559 -0- 4,121,610
------------ ----------- ---------- ------------
$ 30,426,204 $ 211,560 $ (146,368) $ 30,491,396
============ =========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY
-------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasury $ 142,506 $ 14,389 $ -0- $ 156,895
U.S. Government
agencies 7,102,337 25,874 (160,364) 6,967,847
U.S. Government
agencies -
mortgage-backed
securities 2,597,741 19,059 -0- 2,616,800
State and political
subdivisions 199,981 1,328 -0- 201,309
------------ ----------- ---------- ------------
Total Debt
Securities 10,042,565 60,650 (160,364) 9,942,851
Other 863,050 -0- -0- 863,050
------------ ----------- ---------- ------------
$ 10,905,615 $ 60,650 $ (160,364) $ 10,805,901
============ =========== ========== ============
</TABLE>
- F-11 -
<PAGE> 48
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES - CONTINUED
The components of gains and losses on sales, calls and maturities of
securities for the years ended December 1999, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
COST PROCEEDS GAIN (LOSS)
------------ ------------ -----------
<S> <C> <C> <C>
1999
Available-for-sale:
Gross gains on sales $ 3,317,339 $ 3,347,404 $ 30,065
No gain or loss 9,200,000 9,200,000 -0-
------------ ------------ -----------
12,517,339 12,547,404 30,065
Held-to-maturity:
Gross gains
(securities called) 2,994,569 3,000,000 5,431
No gain or loss 200,000 200,000 -0-
------------ ------------ -----------
3,194,569 3,200,000 5,431
------------ ------------ -----------
$ 15,711,908 $ 15,747,404 $ 35,496
============ ============ ===========
1998
Available-for-sale:
Gross gains on sale $ 1,489,309 $ 1,494,293 $ 4,984
No gain or loss 3,439,400 3,439,400 -0-
------------ ------------ -----------
4,928,709 4,933,693 4,984
Held-to-maturity:
Gross gain
(securities called) 1,993,456 2,000,000 6,544
No gain or loss
(securities matured) 2,654,891 2,654,891 -0-
(Securities called) 4,262,000 4,262,000 -0-
------------ ------------ -----------
8,910,347 8,916,891 6,544
------------ ------------ -----------
$ 13,839,056 $ 13,850,584 $ 11,528
============ ============ ===========
1997
Available-for-sale:
Gross gains on sale $ 3,421,763 $ 3,424,540 $ 2,777
No gain or loss 2,500,000 2,500,000 -0-
------------ ------------ -----------
5,921,763 5,924,540 2,777
Held-to-maturity:
No gain or loss
(securities matured) 100,000 100,000 -0-
------------ ------------ -----------
$ 6,021,763 $ 6,024,540 $ 2,777
============ ============ ===========
</TABLE>
- F-12 -
<PAGE> 49
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES - CONTINUED
The amortized cost and approximate market value of debt securities at
December 31, 1999, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities due to borrowers
having the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
APPROXIMATE
AMORTIZED MARKET
COST VALUE
------------ ------------
<S> <C> <C>
DECEMBER 31, 1999
AVAILABLE-FOR-SALE
Due in one year or less $ -0- $ -0-
Due after one year through five years 6,688,537 6,535,630
Due after five years through ten years 5,723,241 5,347,771
Due after ten years 3,449,722 3,195,976
Mortgaged-backed securities 21,932,120 21,442,779
Other 827,430 827,430
------------ ------------
$ 38,621,050 $ 37,349,586
============ ============
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE
AMORTIZED MARKET
COST VALUE
------------ ------------
<S> <C> <C>
DECEMBER 31, 1999
HELD-TO-MATURITY
Due in one year or less $ 499,838 $ 492,500
Due after one year through five years -0- -0-
Due after five years through ten years -0- -0-
Due after ten years 2,000,000 1,690,000
Mortgaged-backed securities 1,000,000 908,741
------------ ------------
$ 3,499,838 $ 3,091,241
============ ============
</TABLE>
In accordance with the provisions Statement of Financial
Accounting Standards (SFAS) No. 115 "Accounting for Derivative
Instruments and Hedging Activities," the Bank has transferred
certain held-to-maturity securities into the available for sale
category as of January 1, 1999. Investment securities with
aggregate book values of $11,127,484 and market values of
approximately $10,592,210 at December 31, 1999, were pledged to
secure public deposits and repurchase agreements and for other
purposes as required by law or borrowing terms.
- F-13 -
<PAGE> 50
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 3 - LOANS
A summary of loans at December 31, is as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING VALUE CARRYING VALUE
-------------- --------------
<S> <C> <C>
Commercial $ 9,214,138 $ 7,809,105
Real estate - construction 2,678,532 1,487,137
Real estate - mortgage:
Residential 46,472,394 45,154,325
Commercial 53,682,461 41,650,727
Consumer/installment 7,165,531 2,627,464
Other 2,794,388 1,631,511
-------------- --------------
122,007,444 100,360,269
Allowance for loan losses (1,253,945) (1,070,164)
Deferred loan fees (45,997) (11,177)
-------------- --------------
Net loans $ 120,707,502 $ 99,278,928
============== ==============
</TABLE>
The fair value of loans at December 1999 and 1998 is approximately
$509,000 and $49,000, respectively, in excess of carrying value.
A summary of activity in loans owed to the Bank by its executive
officers and directors during 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Balance, beginning of year $ 936,012 $ 1,070,013
New loans 102,575 11,737
Payments (101,965) (145,738)
-------------- --------------
Balance, end of year $ 936,622 $ 936,012
============== ==============
</TABLE>
A summary of activity in the allowance for loan losses account is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, beginning
of year $ 1,070,164 $ 914,886 $ 653,287
-------------- -------------- --------------
Provision charged
to income 227,050 154,170 250,321
Recoveries on
loans previously
charged-off 23,879 12,736 25,679
-------------- -------------- --------------
Total additions 250,929 166,906 276,000
Charge-offs (67,148) (11,628) (14,401)
-------------- -------------- --------------
Balance, end of year $ 1,253,945 $ 1,070,164 $ 914,886
============== ============== ==============
</TABLE>
In management's opinion, the allowance is adequate to reflect the risk
in the loan portfolio.
- F-14 -
<PAGE> 51
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 3 - LOANS - CONTINUED
The Bank's lending is concentrated in the west central Florida market.
Although the Bank has a diversified loan portfolio, its debtors'
ability to honor their contracts is substantially dependent upon the
general economic conditions of the region.
Non-accrual loans (principally collateralized by real estate) amounted
to approximately $-0-, $179,500 and $-0-, at December 31, 1999, 1998,
and 1997, respectively. If interest on those loans had been accrued,
such income would have approximated $3,000 in 1998.
NOTE 4 - BANK PREMISES AND EQUIPMENT
A summary of Bank premises and equipment at December 31, follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Land $ 1,747,475 $ 1,287,897
Buildings 2,938,807 2,924,447
Leasehold improvements 122,480 120,496
Furniture, fixtures and equipment 2,224,062 2,227,145
------------ ------------
7,032,824 6,559,985
Less accumulated depreciation and
amortization (2,176,667) (1,863,456)
------------ ------------
$ 4,856,157 $ 4,696,529
============ ============
</TABLE>
The capitalized value of a building held under capital lease is
included in Bank building and equipment. The capitalized value is
$772,706 and the accumulated amortization was $476,502 and $437,867, at
December 1999 and 1998, respectively.
NOTE 5 - DEPOSITS
A summary of time certificate deposits and their remaining maturities
at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Three months or less $ 18,562,399 $ 20,547,276
Over three through six months 11,573,894 17,947,206
Over six through twelve months 28,565,039 22,960,923
Over twelve months 16,285,960 8,768,766
------------ ------------
$ 74,987,292 $ 70,224,171
============ ============
</TABLE>
The aggregate amount of time certificate deposits of $100,000 or more
at December 1999 and 1998 was approximately $22,711,039 and
$23,685,385, respectively.
The fair value of time certificate deposits at December 1999 and 1998
approximated their carrying value.
The total amount of demand deposit overdrafts classified as loan
balances at December 31, 1999, and 1998 was approximately $18,500 and
$29,500, respectively.
- F-15 -
<PAGE> 52
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 6 - LEASES
The Bank's main building is leased with monthly payments of
approximately $17,800. The lease has an initial term of twenty (20)
years with four five-year renewal options. The lease payments
applicable to the building element (approximately $8,400) have been
accounted for as a capital lease, while the lease payments applicable
to the land element (approximately $9,400) have been accounted for as
an operating lease. In the event the lessor wishes to sell the
property, the Bank has the first option to purchase the property.
Rental expense related to operating leases (primarily land) was
approximately $120,000, $113,000, and $110,000, for the years ended
December 31, 1999, 1998, and 1997, respectively.
Future minimum lease payments under non-cancelable operating leases and
the present value of future minimum lease payments under the capital
lease as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
----------- ------------
<S> <C> <C>
2000 $ 101,088 $ 116,456
2001 101,088 116,456
2002 101,088 116,456
2003 101,088 116,456
2004 101,088 116,456
Thereafter 269,568 277,356
----------- ------------
Net minimum lease payments 775,008 $ 859,636
============
Less amount representing
interest 269,863
-----------
$ 505,145
===========
</TABLE>
The annual lease payments increase based on the Consumer Price Index,
limited to 7% per year. Any increase over 7% shall be carried forward
to subsequent years to the extent future year increases are below 7%.
The monthly payment for 2000 increased to approximately $18,300.
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS
The Bank 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 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 Bank 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.
- F-16 -
<PAGE> 53
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS
- CONTINUED
Information related to the Bank's securities sold under agreements to
repurchase (including accrued interest) at December 1999 and 1998 is
presented below, segregated by the type of securities sold (all
agreements are due in less than 30 days):
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
GOVERNMENT AGENCIES:
Carrying Value of Securities $ 5,747,916 $ 4,496,719
Market Value of Securities 5,316,389 4,343,701
Repurchase Agreements with bank
customers 3,532,393 2,083,482
Interest Rate to customer 5.063% 4.063%
</TABLE>
At December 1999 and 1998, the Bank had borrowings of $5,000,000 at
5.93% from the Federal Home Loan Bank Board. Borrowings at December 31,
1999 are secured by a percentage of the one to four family loan
portfolio. The borrowings may not exceed 75% of the one to four family
loan portfolio. The Bank has been approved to borrow up to 11% of the
Banks assets. Payments are due February, May, August and November
beginning November 18, 1997 and continuing to August 19,2002. Daily
borrowings from the Federal Home Loan Bank were $500,000 at December
31, 1999. Daily borrowings are secured by approximately $2,900,000 in
U.S. Government Agencies and Mortgage Backed Securities.
NOTE 8 - INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Bank's deferred tax assets and
liabilities as of December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Book over tax depreciation $ 19,800 $ 14,100
Book over tax bad debts 406,100 320,991
Book over tax amortization 16,600 -0-
Deferred loan fees 37,600 24,300
Book over tax pension expense -
nonqualified plan 8,600 11,400
Valuation allowance for securities
available for sale 478,071 -0-
------------ ------------
966,771 370,791
------------ ------------
</TABLE>
- F-17 -
<PAGE> 54
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES - CONTINUED
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Valuation allowance for securities
vailable-for-sale -0- (24,512)
Securities accretion (4,100) (51,400)
Tax over book amortized expenses (1,600) -0-
Tax over book pension expense -
qualified plan (122,700) (99,200)
Prepaid expenses -0- (400)
------------ ------------
(128,400) (175,512)
------------ ------------
Net deferred tax assets $ 838,371 $ 195,279
============ ============
</TABLE>
Significant components of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Current:
Federal $ 687,700 $ 402,900 $ 292,900
State 88,000 33,100 19,400
------------ ------------ ------------
Total current 775,700 436,000 312,300
------------ ------------ ------------
Deferred:
Federal (17,600) 19,400 (36,800)
State (123,200) 3,400 (6,400)
------------ ------------ ------------
Total deferred (140,800) 22,800 (43,200)
------------ ------------ ------------
$ 634,900 $ 458,800 $ 269,100
============ ============ ============
</TABLE>
The effective tax rate for 1999, 1998 and 1997 differs from the
statutory tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
% OF % OF % OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
---------- ------- ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal
tax rate $ 692,500 34.0% $ 470,100 34.0% $ 286,550 34.0%
State income taxes,
net of federal
income tax benefit 46,500 2.3 17,500 1.3 7,100 .8
Tax-exempt interest (95,500) (4.7) (31,800) (2.3) (40,500) (4.8)
Other (8,600) (.4) 3,000 .22 15,950 1.9
---------- ------ ---------- ------ ---------- ------
$ 634,900 31.2% $ 458,800 33.22% $ 269,100 31.9%
========== ======= ========== ====== ========== ======
</TABLE>
Income taxes related to securities gains amounted to approximately
$14,000, $4,300, and $1,045 in 1999, 1998, and 1997, respectively.
- F-18 -
<PAGE> 55
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 9 - PENSION PLANS
Employees, age twenty-one and over, are eligible to participate in a
qualified defined benefit pension plan (the Plan) on January 1 of the
year after they have completed six months of service and 1,000 hours of
service. Contributions are made by the Bank annually, in amounts
determined by the Plan's actuary, as necessary to fund retirement
benefits under the Plan. Vesting of Bank contributions is 100% after
seven years of participation. Activity for the years ended December 31
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
BENEFIT OBLIGATION AT BEGINNING
OF YEAR $ 612,102 $ 442,382 $ 381,123
Service cost 106,161 72,387 51,133
Interest cost 45,806 33,077 23,117
Actuarial gain (loss) -0- 79,910 (10,275)
Benefits paid (2,716) (15,654) (2,716)
------------ ------------- ------------
Benefit obligation at end of year $ 761,353 $ 612,102 $ 442,382
============ ============ ============
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year $ 696,326 $ 528,515 $ 418,344
Actual return on plan assets 61,865 75,599 31,637
Employer contribution 156,697 107,866 81,250
Benefits paid (2,716) (15,654) (2,716)
------------ ------------ ------------
Fair value of plan assets at
end of year $ 912,172 $ 696,326 $ 528,515
============ ============ ============
Unrecognized prior service cost $ 4,636 $ 4,372 $ 4,108
Funded status 150,819 84,224 86,133
Unrecognized actuarial loss 170,531 174,968 127,040
------------ ------------ ------------
$ 325,986 $ 263,564 $ 217,281
============ ============ ============
Amounts recognized in statement
of financial position consist of:
Prepaid benefit cost $ 325,986 $ 263,564 $ 217,281
============ ============ ============
WEIGHTED AVERAGE ASSUMPTIONS AS
OF DECEMBER 31,
Discount rate 7.5% 7.5% 7.5%
Expected return on plan assets 8.0% 8.0% 8.0%
Rate of compensation increase 6.0% 6.0% 6.0%
COMPONENT OF NET PERIODIC BENEFIT
COST:
Service cost $ 106,161 $ 72,387 $ 51,133
Interest cost 45,806 33,077 23,117
Expected return on plan assets (61,865) (46,487) (36,609)
Amortization of prior service cost 368 368 368
Recognized net actuarial gain or
loss 3,805 2,238 101
------------ ----------- ------------
$ 94,275 $ 61,583 $ 38,110
============ =========== ============
</TABLE>
- F-19 -
<PAGE> 56
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 9 - PENSION PLANS - CONTINUED
The Bank provides a 401(k) profit sharing plan for employees who have
reached the age of 21 and have at least 1,000 hours of service in the
year. The Bank's contribution, which is determined annually, was
approximately $52,400, $41,000, and $31,000 in 1999, 1998, and 1997,
respectively.
NOTE 10 - INTEREST EXPENSE
Interest on deposits is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Interest bearing demand
Deposits - interest
expense $ 1,030,559 $ 797,725 $ 861,561
Savings deposits -
Interest expense 553,317 643,676 335,743
Time deposits less than
$100,000 - interest
expense 2,450,067 2,679,984 2,394,670
------------ ------------ ------------
$ 4,033,943 $ 4,121,385 $ 3,591,974
============ ============ ============
</TABLE>
NOTE 11 - STOCK OPTION PLAN
The Bank had two incentive option plans (the Option Plans) one of
which authorized 27,563 additional shares in 1995. The Option Plan
authorizes the Board of Directors to grant to full-time officers and
other key employees options to purchase shares of common stock for 10
years. The Option Plan provides that the exercise price of the stock
options will be determined by the Board of Directors at the date of
grant, but in no event will the purchase price be less than 100% of
the fair market value of the Bank's common stock on such date.
Transactions during 1999 and 1998 under the Option Plans were as
follows:
<TABLE>
<CAPTION>
1999 1998 OPTION PRICES
-------- -------- ------------------
<S> <C> <C> <C>
Shares under option at
beginning of year 32,424 34,830 $ 9.79 - $ 28.00
2 for 1 exchange 32,424 -0-
Options granted 17,706 3,740 $ 9.79 - $ 28.00
Forfeitures (2,760) -0-
Options exercised -0- (7,624) $ 13.81 - $ 16.50
--------- --------
Shares under option at end
of year 79,794 30,946 $ 11.75 - $ 26.67
========= ========
Shares available for future
grants at end of year 22,791 18,114
========= ========
</TABLE>
- F-20 -
<PAGE> 57
- --------------------------------------------------------------------------------
FIRST NATIONAL BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- --------------------------------------------------------------------------------
NOTE 12 - COMMITMENTS
The Bank 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. At December 31, 1999, the Bank had commitments to fund
loans of approximately $747,000 and approximately $722,000 under
standby letters of credit. The Bank'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 notional amount of those instruments.
The Bank uses the same credit policies and documentation in making
commitments and conditional obligations as it does for
on-balance-sheet instruments. The Bank generally requires collateral
or other security to support financial instruments with credit risk.
The Bank does not enter into other financial instruments with
off-balance-sheet risk.
NOTE 13 - REGULATORY CAPITAL
The Federal Reserve Board has issued standards for measuring capital
adequacy for U.S. banking organizations. In general, the standards
require banks to maintain capital based on "risk-adjusted" assets so
that categories of assets with potentially higher credit risk will
require more capital backing than assets with lower risk. In addition,
banks are required to maintain capital to support, on a risk-adjusted
basis, certain off-balance-sheet activities such as loan commitments.
As of December 31, 1999, the Bank's Risk-Based Capital Ratio is 12.3%
compared to a requirement of 8%. The Bank also meets all other
regulatory capital requirements. No dividends may be paid if the
result would cause the Bank to be under capitalized.
- F-21 -
<PAGE> 1
Exhibit 23
ACCOUNTANTS' CONSENT
The Board of Directors
First National Bancshares, Inc.
Bradenton, Florida
We consent to the use of our report dated January 25, 2000 relating to the
consolidated balance sheets as of December 31, 1999 and 1998 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1999 of First
National Bancshares, Inc., in the Annual Report for 1999 on Form 10-K of First
National Bancshares, Inc.
CHRISTOPHER, SMITH, LEONARD,
BRISTOW, STANELL & WELLS, P.A.
FEBRUARY 28, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,550
<INT-BEARING-DEPOSITS> 395
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,350
<INVESTMENTS-CARRYING> 3,500
<INVESTMENTS-MARKET> 0
<LOANS> 122,007
<ALLOWANCE> 1,254
<TOTAL-ASSETS> 175,802
<DEPOSITS> 152,184
<SHORT-TERM> 4,032
<LIABILITIES-OTHER> 1,506
<LONG-TERM> 5,505
0
0
<COMMON> 13,368
<OTHER-SE> (793)
<TOTAL-LIABILITIES-AND-EQUITY> 175,802
<INTEREST-LOAN> 9,021
<INTEREST-INVEST> 2,449
<INTEREST-OTHER> 253
<INTEREST-TOTAL> 11,743
<INTEREST-DEPOSIT> 5,108
<INTEREST-EXPENSE> 5,687
<INTEREST-INCOME-NET> 6,056
<LOAN-LOSSES> 67
<SECURITIES-GAINS> 35
<EXPENSE-OTHER> 5,085
<INCOME-PRETAX> 2,037
<INCOME-PRE-EXTRAORDINARY> 1,402
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,402
<EPS-BASIC> .89
<EPS-DILUTED> .85
<YIELD-ACTUAL> 11.17
<LOANS-NON> 0
<LOANS-PAST> 53
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,070
<CHARGE-OFFS> 67
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 1,254
<ALLOWANCE-DOMESTIC> 1,254
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,254
</TABLE>
