UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission File Number 001-15061
ATLANTIC BANCGROUP, INC.
------------------------
(Exact Name of small business issuer as specified in its charter)
Florida 59-3543956
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
710 N. Third Street
Jacksonville Beach, Florida 32250
--------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(904) 247-9494
--------------
(Issuer's telephone number including area code)
Check whether the issuer (1) filed all reports required by Section 13
or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
Class Outstanding as of November 10, 2000
--------------- -----------------------------------
Common Stock Common Stock - 595,350
Par Value $0.10 per share
<PAGE>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
FORM 10-QSB - FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PAGE
NUMBER
REPORT OF INDEPENDENT ACCOUNTANTS 3
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2000 (Unaudited)
and December 31, 1999 4
Consolidated Statements of Operations and
Comprehensive Income
for the Three and Nine Months Ended September 30, 2000
and 1999 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 30, 2000
and 1999 (Unaudited) 6
Consolidated Statement of Changes in Stockholders'
Equity (Unaudited) 7
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION 21
SIGNATURES 22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee
Atlantic BancGroup, Inc. and Subsidiaries
Jacksonville Beach, Florida
We have reviewed the accompanying condensed consolidated balance sheet of
Atlantic BancGroup, Inc., and its wholly-owned subsidiaries ("Atlantic"),
Oceanside Bank ("Oceanside") and Oceanside Mortgage Group, Inc. ("Oceanside
Mortgage") as of September 30, 2000, and the related consolidated statements of
operations and comprehensive income and condensed consolidated statements of
cash flows for the three and nine months ended September 30, 2000 and 1999 and
the related consolidated statement of changes in stockholders' equity for the
nine months ended September 30, 2000. These consolidated financial statements
are the responsibility of Atlantic's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the consolidated financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based upon our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We previously audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1999, and the related
consolidated statements of operations and comprehensive income, cash flows, and
changes in stockholders' equity for the year then ended (not presented herein);
and in our report dated February 3, 2000, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of December
31, 1999, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
STEVENS, SPARKS & COMPANY, P.A.
Jacksonville, Florida
November 10, 2000
-3-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Per Share Data)
September 30, 2000 December 31,
(Unaudited) 1999
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,140 $ 4,569
Federal funds sold 8,272 --
--------- ---------
Total cash and cash equivalents 11,412 4,569
Interest-bearing deposits in other banks 119 100
Investment securities, available-for-sale at fair value 5,553 6,109
Investment securities, held-to-maturity at amortized cost 2,018 --
Loans less allowance for credit losses 47,928 40,197
Facilities 2,619 2,489
Other assets 1,923 697
--------- ---------
TOTAL $ 71,572 $ 54,161
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 13,826 $ 11,084
NOW accounts 8,842 7,138
Money market accounts 13,444 10,787
Savings accounts 1,286 1,159
Time, $100,000 and over 8,852 4,534
Other time deposits 16,249 9,187
--------- ---------
Total deposits 62,499 43,889
Other borrowings 3,044 4,631
Other accrued expenses and liabilities 377 237
--------- ---------
Total liabilities 65,920 48,757
--------- ---------
Commitments and contingencies -- --
--------- ---------
Stockholders' equity:
Common stock 6 6
Additional paid-in capital 4,213 4,213
Retained earnings 1,673 1,382
Accumulated other comprehensive income:
Net unrealized holding losses on securities (240) (197)
--------- ---------
Total stockholders' equity 5,652 5,404
--------- ---------
TOTAL $ 71,572 $ 54,161
========= =========
Book value per common share $ 9.49 $ 9.08
========= =========
Common shares outstanding 595,350 595,350
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in Thousands Except Per Share Data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 1,186 $ 820 $ 3,371 $ 2,240
Investment income on investment securities
and interest-bearing deposits in other banks 104 78 306 315
Federal funds sold 154 74 219 107
------- ------- ------- -------
Total interest income 1,444 972 3,896 2,662
------- ------- ------- -------
Interest on deposits 559 320 1,359 866
Other borrowings and federal funds purchased 63 -- 210 2
------- ------- ------- -------
Total interest expense 622 320 1,569 868
------- ------- ------- -------
Net interest income before provision 822 652 2,327 1,794
for credit losses
Provision for credit losses (20) 66 29 189
------- ------- ------- -------
Net interest income 842 586 2,298 1,605
------- ------- ------- -------
Fees and service charges 124 96 300 253
Other income 44 4 65 15
------- ------- ------- -------
Total other income 168 100 365 268
------- ------- ------- -------
Other expenses:
Salaries and employee benefits 450 235 941 693
Expenses of bank premises and fixed assets 104 57 356 300
Other operating expenses 267 260 931 559
------- ------- ------- -------
Total other expenses 821 552 2,228 1,552
------- ------- ------- -------
Income before provision for income taxes 189 134 435 321
Cumulative effect of a change in accounting principle -- -- -- (95)
Provision for income taxes 53 (72) 144 (72)
------- ------- ------- -------
Net income 136 206 291 298
Other comprehensive income (loss), net of income taxes:
Unrealized holding gains (losses) arising during period 112 9 (43) (204)
------- ------- ------- -------
Comprehensive income $ 248 $ 215 $ 248 $ 94
======= ======= ======= =======
Earnings per common share
Basic $ 0.23 $ 0.35 $ 0.49 $ 0.50
======= ======= ======= =======
Dilutive $ 0.23 $ 0.35 $ 0.49 $ 0.50
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net cash provided (used) by operating activities $ (1,785) $ 173 $ (2,637) $ 567
-------- -------- -------- --------
Cash flows from investing activities:
Net (increase) decrease in:
Investment securities 220 357 507 1,251
Interest-bearing deposits in other banks (3) -- (19) --
Loans (3,073) (4,890) (7,761) (11,672)
Purchases of bank premises and
equipment, net (52) (584) (270) (644)
-------- -------- -------- --------
Net cash used by investing activities (2,908) (5,117) (7,543) (11,065)
-------- -------- -------- --------
Cash flows from financing activities:
Net increase in deposits 4,649 1,055 18,610 4,747
Proceeds from (repayments of)
other borrowings 2 602 (1,587) 652
-------- -------- -------- --------
Net cash provided by
financing activities 4,651 1,657 17,023 5,399
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents (42) (3,287) 6,843 (5,099)
Cash and cash equivalents at beginning of period 11,454 7,965 4,569 9,777
-------- -------- -------- --------
Cash and cash equivalents at end of period $ 11,412 $ 4,678 $ 11,412 $ 4,678
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
Net
Unrealized
Common Stock Additional Holding Total
-------------------- Paid-in Retained Losses on Stockholders'
Shares Amount Capital Earnings Securities Equity
-------------------- ------------ ------------ ------------- ----------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 595,350 $ 6 $ 4,213 $ 1,382 $ (197) $ 5,404
Comprehensive income:
Net income -- -- -- 291 --
Net change in unrealized
holding losses on securities -- -- -- -- (43)
Total comprehensive income -- -- -- -- -- 248
------- ------- ------- ------- ------- -------
Balance, September 30, 2000 595,350 $ 6 $ 4,213 $ 1,673 $ (240) $ 5,652
======= ======= ======= ======= ======= =======
</TABLE>
-7-
<PAGE>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 1 - ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Atlantic
BancGroup, Inc. ("Atlantic") and its wholly-owned subsidiaries, Oceanside Bank
("Oceanside") and Oceanside Mortgage Group, Inc. ("Oceanside Mortgage"). The
consolidated financial statements for the three and nine months ended September
30, 2000 and 1999, have not been audited and do not include information or
footnotes necessary for a complete presentation of consolidated financial
condition, results of operations and cash flows in conformity with generally
accepted accounting principles. However, in the opinion of management, the
accompanying consolidated financial statements contain all adjustments, which
are of a normal recurring nature, necessary for a fair presentation. The results
of operations for the interim periods are not necessarily indicative of the
results that may be expected for an entire year. The accounting policies
followed by Atlantic and Oceanside are set forth in Atlantic's consolidated
financial statements for the year ended December 31, 1999, and are incorporated
herein by reference.
Oceanside opened July 21, 1997, as a state-chartered banking organization.
Oceanside provides a wide range of banking services to individual and corporate
customers primarily in Duval County and St. Johns County, Florida.
On April 3, 1999, the shareholders of Oceanside approved the Agreement and Plan
of Reorganization ("Reorganization") whereby Oceanside became a wholly-owned
subsidiary of Atlantic. Each shareholder of Oceanside owns an equal number of
shares of common stock and warrants of Atlantic. The Reorganization was
completed on May 5, 1999, and was reported under the pooling-of-interests method
of accounting.
On July 20, 1999, Oceanside Mortgage was incorporated as a wholly-owned
subsidiary of Atlantic for the purpose of conducting mortgage banking
operations. The operations of Oceanside Mortgage have been included in the
consolidated financial statements; however, such amounts are immaterial since
inception.
On May 25, 2000, the board of directors of Atlantic voted to merge the mortgage
banking operations of Oceanside Mortgage into Oceanside. This transaction has
been approved by the federal and state regulators and was completed during the
quarter ended September 30, 2000.
Use of 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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans ("Other Real Estate Owned"). In connection with the
determination of the allowance for credit losses on loans and foreclosed real
estate, management obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review
Oceanside's allowances for losses on loans and foreclosed real estate. Such
agencies may require Oceanside to recognize additions to the allowances based on
their judgments about information available to them at the time of their
examination.
Fair Value of Financial Instruments
Financial instruments of Atlantic consist of cash, due from banks, federal funds
sold, investment securities, loans receivable, accrued interest receivable,
deposits, other borrowings, accrued interest payable, and off-balance sheet
commitments such as commitments to extend credit and standby letters of credit.
On an interim basis, management considers the cost of providing estimated fair
values by each class of financial instrument to exceed the benefits derived. In
management's opinion, the carrying amount of financial instruments approximates
fair value.
- 8 -
<PAGE>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of instruments in debt and equity
securities are as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------------ -----------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------ ------ ------ ------
<S> <C> <C> <C> <C>
Securities available-for-sale:
Mortgage-backed securities $5,619 $5,382 $6,255 $5,938
Other 171 171 171 171
------ ------ ------ ------
$5,790 $5,553 $6,426 $6,109
====== ====== ====== ======
Securities held-to-maturity:
State and municipal securities $2,018 $1,985 $ -- $ --
====== ====== ====== ======
</TABLE>
NOTE 3 - COMPUTATION OF PER SHARE EARNINGS
Basic earnings per share ("EPS") amounts are computed by dividing net earnings
by the weighted average number of common shares outstanding of 595,350 and
594,904 for the three months ended September 30, 2000 and 1999, respectively.
The weighted average number of common shares outstanding for the nine months
ended September 30, 2000 and 1999 totaled 595,350 and 594,972, respectively.
Diluted EPS are computed by dividing net earnings by the weighted average number
of shares and all dilutive potential shares outstanding during the period. At
both September 30, 2000 and 1999, the outstanding warrants totaled 593,510.
Based on trading on the Over-the-Counter Bulletin Board, the warrants were not
considered dilutive for 2000 or 1999. The following information was used in the
computation of EPS on both a basic and diluted basis for the three and nine
months ended September 30, 2000 and 1999 (in thousands except per share data):
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Basic EPS computation:
Numerator - Net income $136 $206
---- ----
Denominator - Weighted average shares outstanding 595 595
---- ----
Basic EPS $0.23 $0.35
==== ====
Diluted EPS computation:
Numerator - Net income $136 $206
---- ----
Denominator -
Weighted average shares outstanding 595 595
Warrants -- --
---- ----
595 595
---- ----
Diluted EPS $0.23 $0.35
==== ====
</TABLE>
- 9 -
<PAGE>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 3 - COMPUTATION OF PER SHARE EARNINGS (Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Basic EPS computation:
Numerator - Net income $ 291 $ 298
------ ------
Denominator - Weighted average shares outstanding 595 595
------- -------
Basic EPS $ 0.49 $ 0.50
====== ======
Diluted EPS computation:
Numerator - Net income $ 291 $ 298
------ ------
Denominator -
Weighted average shares outstanding 595 595
Warrants - -
---------- ----------
595 595
------- -------
Diluted EPS $ 0.49 $ 0.50
====== ======
</TABLE>
NOTE 4 - LOANS
Loans consisted of (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Real estate $ 27,656 $ 23,283
Commercial and agricultural 15,372 12,501
Installment and other loans 5,772 5,250
-------- --------
Total loans 48,800 41,034
Unearned income (105) (99)
Allowance for credit losses (767) (738)
-------- --------
Net loans $ 47,928 $ 40,197
======== ========
</TABLE>
NOTE 5 - ALLOWANCE FOR CREDIT LOSSES
Oceanside's Board of Directors monitors the loan portfolio quarterly in order to
enable it to evaluate the adequacy of the allowance for credit losses. Oceanside
maintains the allowance for credit losses at a level sufficient to absorb all
estimated losses inherent in the loan portfolio. Activity in the allowance for
<TABLE>
<CAPTION>
For the Nine For the Twelve
Months Ended Months Ended
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Balance, beginning of period $ 738 $ 520
Recoveries (rounding) 1 5
Charged-off loans (1) (8)
Provision charged to expense 29 221
----- -----
Balance, end of period $ 767 $ 738
===== =====
</TABLE>
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<PAGE>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 6 - OTHER BORROWINGS
A summary follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- ---------
<S> <C> <C>
FHLB of Atlanta advances $ 2,300 $ 2,300
Revolving lines of credit 744 742
Securities sold under agreements to repurchase - 1,589
-------- ---------
$ 3,044 $ 4,631
======== =========
</TABLE>
FHLB of Atlanta Advances:
On December 29, 1999, Oceanside obtained an advance from FHLB of $2,300,000
collateralized by Oceanside's FHLB capital stock and a blanket lien consisting
of wholly-owned residential (1-4 units) first mortgage loans of approximately
$4,200,000. This advance matures on December 29, 2000, and carries a current
interest rate of approximately 6.86%.
Revolving Lines of Credit:
On February 11, 1999, Atlantic obtained a revolving line of credit in the amount
of $50,100 from Columbus Bank and Trust Company ("Columbus"). On August 11,
1999, Atlantic obtained two revolving lines of credit from Columbus totaling
$1.0 million, and repaid existing advances under the line of credit dated
February 11, 1999. On August 11, 2000, these lines of credit were renewed, with
original principal and interest at 0.50% below prime due on August 11, 2001. The
proceeds from the lines of credit are to be used to acquire real estate, fund
start-up costs for the mortgage banking operations, and provide additional
working capital for Atlantic. At September 30, 2000, and December 31, 1999,
$744,000 and $742,000, respectively, had been advanced to Atlantic under the
lines of credit, which are secured by the common stock of Atlantic's
wholly-owned banking subsidiary, Oceanside Bank.
Securities Sold Under Agreements to Repurchase:
At December 31, 1999, Oceanside has sold securities under agreements to
repurchase with a par value of approximately $1,859,000 and a fair value of
approximately $1,757,000 to secure overnight borrowings totaling $1,589,000. The
interest rate on this overnight borrowing was 6.5%. At September 30, 2000, all
amounts were repaid.
NOTE 7 - STOCKHOLDERS' EQUITY
During the first three quarters of 2000, no warrants were exercised.
NOTE 8 - DEFERRED COMPENSATION
In 1999, Oceanside's Board of Directors approved a deferred compensation and
supplemental retirement plan with a split-dollar life insurance policy on the
lives of its directors and executive officers. Under a split-dollar life
insurance arrangement, Oceanside will recover its investment plus earnings in
the life insurance policy at the date of death of the covered director or
executive officer. In the first quarter of 2000, Oceanside funded this plan with
a prepayment of life insurance premiums of $1.1 million.
- 11 -
<PAGE>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Atlantic is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amounts recognized in the balance sheet. Financial instruments at
September 30, 2000, consisted of commitments to extend credit approximating $8.1
million and letters of credit of $1.1 million.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since a number of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
- 12 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Atlantic, through its wholly-owned subsidiary, Oceanside, conducts commercial
banking business consisting of attracting deposits from the general public and
applying those funds to the origination of commercial, consumer, and real estate
loans (including commercial loans collateralized by real estate). Atlantic's
profitability depends primarily on net interest income, which is the difference
between interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected by
the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate earned and paid on these balances. Net
interest income is dependent upon Atlantic's interest-rate spread which is the
difference between the average yield earned on its interest-earning assets and
the average rate paid on its interest-bearing liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income. The interest rate spread is
impacted by interest rates, deposit flows, and loan demand. Additionally, and to
a lesser extent, Atlantic's profitability is affected by such factors as the
level of noninterest income and expenses, the provision for credit losses, and
the effective tax rate. Noninterest income consists primarily of service fees on
deposit accounts. Noninterest expense consists of compensation and employee
benefits, occupancy and equipment expenses, deposit insurance premiums paid to
the FDIC, and other operating expenses.
Oceanside commenced business operations on July 21, 1997, in a permanent
facility located at 1315 South Third Street, Jacksonville Beach, Florida.
Oceanside opened a branch office at 560 Atlantic Boulevard, Neptune Beach,
Florida, which commenced operations on September 1, 1998. On April 3, 1999, the
shareholders of Oceanside approved the Agreement and Plan of Reorganization
("Reorganization") whereby Oceanside became a wholly-owned subsidiary of
Atlantic. The Reorganization was completed on May 5, 1999.
On July 20, 1999, Oceanside Mortgage Group, Inc. (a wholly-owned subsidiary of
Atlantic) began mortgage banking operations. On August 13, 1999, Atlantic
purchased a building at 710 North Third Street, Jacksonville Beach, Florida, for
renovation as its holding company headquarters and operations center. The
mortgage banking operations and certain back-office functions of Oceanside Bank
were relocated to this building in mid-November 1999. Atlantic purchased the
facility for $540,000 and incurred $50,576 on renovations and upgrades. This
property was financed under the existing lines of credit. During the third
quarter of 2000, the mortgage banking operations of Oceanside Mortgage Group,
Inc., were transferred to Oceanside Bank.
Forward-looking Statements
When used in this Form 10-QSB, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in Atlantic's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in Atlantic's market
area and competition, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Atlantic
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as to the date made. Atlantic
wishes to advise readers that the factors listed above, as well as others, could
affect Atlantic's financial performance and could cause Atlantic's actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements. Atlantic
does not undertake, and specifically disclaims any obligation, to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
- 13 -
<PAGE>
Contingencies and Uncertainties - Year 2000 Compliance Matters
During the periods leading up to January 1, 2000, Atlantic addressed the
potential problems associated with the possibility that the computers that
control or operate Atlantic's information technology system and infrastructure
may not have been programmed to read four-digit date codes and, upon arrival of
the year 2000, may have recognized the two-digit code "00" as the year 1900,
causing systems to fail to function or generate erroneous data.
Atlantic expended approximately $40,000 since the inception of its Year 2000
compliance program. Atlantic experienced no significant problems related to its
information technology systems upon arrival of the Year 2000, nor was there any
reported interruption in service to its customers of any kind.
Atlantic could incur losses if Year 2000 issues adversely affect its depositors
or borrowers. Such problems could include delayed loan payments due to Year 2000
problems affecting any significant borrowers or impairing the payroll systems of
large employers in Atlantic's primary market areas. Because Atlantic's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses, Atlantic does not expect, and to date has not realized, any
significant or prolonged difficulties that will affect net earnings or cash
flow.
Future Accounting Requirements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which addresses the accounting for
derivative instruments and provides for matching the timing of gain or loss
recognition on the hedging instrument. Guidance on identifying derivative
instruments is also provided as well as additional disclosures. SFAS 133 has
been deferred to become effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. Earlier application is permitted with certain
exceptions. Management does not anticipate that adoption of SFAS 133 will have a
material impact on the financial condition or results of operations of Atlantic.
Impact of Inflation
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurements of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation. Unlike most industrial companies,
substantially all of the assets and liabilities of Atlantic are monetary in
nature. As a result, interest rates have a more significant impact on Atlantic's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates. As discussed previously, management seeks to
manage the relationships between interest-sensitive assets and liabilities in
order to protect against wide interest rate fluctuations, including those
resulting from inflation.
Results of Operations
General
Net income for the three and nine months ended September 30, 2000, was $136,000
and $291,000, respectively, as compared with the $206,000 and $298,000 recorded
in the same periods of 1999. The first quarter 1999 results included a charge to
earnings of $95,000 to write-off start-up costs offset in part by the
recognition of $72,000 in deferred tax benefits in the third quarter of 1999.
This credit provision for income taxes resulted from Atlantic's utilization of
net operating losses from prior periods. Income before cumulative effect of a
change in accounting principle and provision for income taxes increased $55,000
and $114,000, respectively, for the three and nine months ended September 30,
2000, as compared with the same periods in 1999, or 41.0% and 35.5%,
respectively. Growth in earning assets, a strong net interest margin, and
decreases in the provision for credit losses contributed to improved operating
results.
- 14 -
<PAGE>
Average Balances, Income and Expenses, and Rates. The following table depicts,
for the periods indicated, certain information related to Atlantic's average
balance sheet and its average yields on assets and average costs of liabilities.
Such yields are derived by dividing income or expense by the average balance of
the corresponding assets or liabilities. Average balances have been derived from
daily averages (dollars in thousands).
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
2000 1999
---------------------------------- -----------------------------------
Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $44,968 $ 3,371 10.01% $31,208 $ 2,240 9.60%
Investment and mortgage-
backed securities 5,963 306 6.85% 7,117 315 5.92%
Other interest-earning assets 4,713 219 6.21% 2,170 107 6.59%
-------- -------- --------- --------
Total interest-earning assets 55,644 3,896 9.35% 40,495 2,662 8.79%
------- -------
Noninterest-earning assets 6,400 4,847
--------- ---------
Total assets $62,044 $45,342
======= =======
Interest-bearing liabilities:
Demand, money market
and NOW deposits $19,676 470 3.19% $16,130 336 2.79%
Savings 1,271 24 2.52% 1,087 18 2.21%
Certificates of deposit 19,250 865 6.00% 12,872 512 5.32%
Other 3,280 210 8.55% 58 2 4.61%
--------- -------- ----------- ----------
Total interest-bearing liabilities 43,477 1,569 4.82% 30,147 868 3.85%
------- -------
Noninterest-bearing liabilities 13,151 10,126
Stockholders' equity 5,416 5,069
--------- ---------
Total liabilities and
stockholders' equity $62,044 $45,342
======= =======
Net interest income before provision
for credit losses $ 2,327 $ 1,794
======= =======
Interest-rate spread 4.53% 4.94%
===== =====
Net interest margin 5.59% 5.92%
===== =====
Ratio of average interest-earning assets to
average interest-bearing liabilities 127.98% 134.33%
======= =======
</TABLE>
- 15 -
<PAGE>
Comparison of Three Months Ended September 30, 2000 and 1999
Interest Income and Expense
Interest Income. Interest income was $1,444,000 and $972,000 for the three
months ended September 30, 2000 and 1999, respectively. The increase in interest
income of $472,000, or 48.6%, in the third quarter of 2000 over the same period
of 1999 is due to higher levels of earning assets (an increase of 39.0%) and a
higher yield on earning assets (an increase of 61 basis points). Loans as a
percentage of total earning assets declined slightly to 75.39% in the third
quarter of 2000 as compared with 78.19% in 1999. The change in mix was more than
offset by increases in the average yield on loans of 9.92% in 2000 as compared
with 9.17% in 1999.
Interest Expense. Interest expense was $622,000 and $320,000 for the three
months ended September 30, 2000 and 1999, respectively. The increase in interest
expense of $302,000, or 94.4%, in the third quarter of 2000 over the same period
of 1999 is due to the growth in deposits, increases in the average cost of
funds, and the financing of the building acquired on August 13, 1999, for
renovation as its holding company headquarters and operations center.
Net Interest Income. Net interest income before provision for credit losses was
$822,000 and $652,000 for the three months ended September 30, 2000 and 1999,
respectively. The net interest margin for the third quarter of 2000 was 5.18% as
compared with the net interest margin in 1999 of 5.70%, a decrease of 52 basis
points. The average loan-to-deposit ratio for the three months ended September
30, 2000, decreased to approximately 79% from 84% for the same period in 1999.
Declines in the loan-to-deposit ratio and the shift in the mix from lower
costing deposits to higher cost certificates of deposit more than offset the
increases in yields on earning assets. Certificates of deposit as a percentage
of total interest-bearing liabilities grew from 39.97% in 1999 to 48.00% in 2000
with an increase in the average cost from 5.19% to 6.23%. The increase in costs
can be attributed to rising interest rates and competition for deposits in
Atlantic's market area.
Provision and Allowance for Loan Losses
Oceanside has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem loans. Management's judgment as to the adequacy of the allowance is
based upon a number of assumptions about future events that it believes to be
reasonable, but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for credit
losses or that additional increases in the credit loss allowance will not be
required.
Asset Classification. Commercial banks are required to review and, when
appropriate, classify their assets on a regular basis. The State of Florida and
the FDIC have the authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications for problem
assets: substandard, doubtful and loss. Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, condition, and values
questionable, and there is a high possibility of loss. An asset classified as
loss is considered uncollectible and of such little value that continuance as an
asset of the institution is not warranted. If an asset or portion thereof is
classified as loss, the insured institution establishes a specific reserve for
the full amount of the portion of the asset classified as loss. All or a portion
of general credit loss allowances established to cover possible losses related
to assets classified as substandard or doubtful may be included in determining
an institution's regulatory capital, while specific valuation allowances for
credit losses generally do not qualify as regulatory capital. Assets that do not
warrant classification in the aforementioned categories, but possess weaknesses,
are classified as special mention and are monitored by Atlantic.
At September 30, 2000, Atlantic had five loans totaling approximately $48,324
classified as substandard or doubtful and no loans classified as loss. All of
the substandard loans were performing and there were no impaired loans as of
September 30, 2000.
- 16 -
<PAGE>
Allowance for Credit Losses. The allowance for credit losses is established
through a provision for credit losses charged against income. Loans are charged
against the provision when management believes that the collectibility of the
principal is unlikely. The provision is an estimated amount that management
believes will be adequate to absorb losses inherent in the loan portfolio based
on evaluations of its collectibility. The evaluations take into consideration
such factors as changes in the nature and volume of the portfolio, overall
portfolio quality, specific problem loans and commitments, and current
anticipated economic conditions that may affect the borrower's ability to pay.
While management uses the best information available to recognize losses on
loans, future additions to the provision may be necessary based on changes in
economic conditions.
Activity in the allowance for credit losses follows (dollars in thousands):
<TABLE>
<CAPTION>
For the Nine For the Twelve
Months Ended Months Ended
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Balance, beginning of period $ 738 $ 520
Recoveries (rounding) 1 5
Charged-off loans (1) (8)
Provision charged to expense 29 221
----- -----
Balance, end of period $ 767 $ 738
===== =====
</TABLE>
At September 30, 2000, the allowance for credit losses amounted to $767,000, or
1.57% of total outstanding loans. At December 31, 1999, the allowance for credit
losses amounted to $738,000, or 1.80% of outstanding loans. Atlantic's provision
for credit losses was $(20,000) and $66,000 for the three months ended September
30, 2000 and 1999, respectively. During the third quarter of 2000, management
determined that amounts previously expensed for the first six months of 2000,
were overstated based on the loan portfolio's performance and overall credit
quality. These adjustments were consistent with informal discussions during
Oceanside's most recent regulatory examination.
Noninterest Income and Expense
Noninterest Income. Total other income increased to $168,000, or 68.0%, for the
three months ended September 30, 2000, compared to $100,000 for the three months
ended September 30, 1999. The growth in the number of deposit accounts subject
to service fees has contributed to this favorable trend.
Noninterest Expense. Total other expenses increased to $821,000 for the three
months ended September 30, 2000, compared to $552,000 for the three months ended
September 30, 1999. This increase of $269,000, or 48.7%, reflects the growth in
holding company and mortgage banking operations as well as the overall growth of
Oceanside. The third quarter of 2000 includes salary continuation payments for
the former CEO of Atlantic under the terms of his resignation. Such payments
were scheduled through early-October 2000.
Provision for Income Taxes
During 1999, Atlantic began generating taxable income in excess of net operating
losses that had not been recognized for book purposes until then. All net
operating losses were recognized in 1999 and Atlantic began recording a
provision for income taxes in 2000. For the quarter ended September 30, 2000,
income taxes of $53,000 were recorded, an effective rate of 28%.
Comparison of Nine Months Ended September 30, 2000 and 1999
Interest Income and Expense
Interest Income. Interest income was $3,896,000 and $2,662,000 for the nine
months ended September 30, 2000 and 1999, respectively. The increase in interest
income of $1,234,000, or 46.4%, in 2000 over the same period of 1999 is due to
higher levels of earning assets and the change in mix of assets resulting from
the growth in loans. Loans as a percentage of total earning assets improved to
80.81% during 2000 as compared with 77.07% for 1999.
- 17 -
<PAGE>
Interest Expense. Interest expense was $1,569,000 and $868,000 for the nine
months ended September 30, 2000 and 1999, respectively. The increase in interest
expense of $701,000, or 80.8%, in 2000 over the same period of 1999 is due to
the growth in deposits, increases in the average cost of funds, and the
financing of real estate acquired by Atlantic in 1999.
Net Interest Income. Net interest income before provision for credit losses was
$2,327,000 and $1,794,000 for the nine months ended September 30, 2000 and 1999,
respectively. The average loan-to-deposit ratio for the nine months ended
September 30, 2000, increased to approximately 85% from 78% for the same period
in 1999. Improvements in the loan-to-deposit ratio and the shift in the mix from
lower yielding assets to higher yielding loans were offset by the increase in
average cost of funds of 97 basis points leaving the net interest margin at
5.59% for 2000 versus 5.92% for 1999.
Allowance for Credit Losses. Atlantic's provision for credit losses was $29,000
and $189,000 for the nine months ended September 30, 2000 and 1999,
respectively, which in management's opinion reflects the overall quality of the
loan portfolio.
Noninterest Income and Expense
Noninterest Income. Total other income increased to $365,000, or 36.2%, for the
nine months ended September 30, 2000, compared to $268,000 for the nine months
ended September 30, 1999. The growth in the number of deposit accounts subject
to service fees has contributed to this favorable trend.
Noninterest Expense. Total other expenses increased to $2,228,000 for the nine
months ended September 30, 2000, compared to $1,552,000 for the nine months
ended September 30, 1999. This increase of $676,000, or 43.6%, reflects the
growth in holding company and mortgage banking operations as well as the overall
growth of Oceanside. Personnel costs have grown $248,000, or 35.8%. Expenses of
bank premises and fixed assets were $56,000 higher in 2000 over 1999 due to the
acquisition of the holding company and mortgage banking operations center. Other
operating expenses have increased from $559,000 in 1999 to $931,000 in 2000 due
to higher administrative costs such as audit and legal, networking
communications for the three locations, relocation costs, supplies, and the
overall growth of Atlantic.
Financial Condition
The following table shows selected ratios for the periods ended or at the dates
indicated (annualized for the nine months ended September 30, 2000):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
2000 1999
------------------ ------------
<S> <C> <C>
Return on average assets 0.63% 1.06%
Return on average equity 7.16% 9.83%
Interest-rate spread during the period 4.53% 5.03%
Net interest margin 5.59% 5.96%
Allowance for credit losses to period end loans 1.57% 1.80%
Net charge-offs to average loans - % 0.01%
Nonperforming assets to period end loans and foreclosed property - % - %
Nonperforming assets to period end total assets - % - %
</TABLE>
- 18 -
<PAGE>
Liquidity and Capital Resources
Liquidity Management. Liquidity management involves monitoring Atlantic's
sources and uses of funds in order to meet its day-to-day cash flow requirements
while maximizing profits. Liquidity represents the ability of a company to
convert assets into cash or cash equivalents without significant loss and to
raise additional funds by increasing liabilities. Liquidity management is made
more complicated because different balance sheet components are subject to
varying degrees of management control. For example, the timing of maturities of
the investment portfolio is very predictable and subject to a high degree of
control at the time investment decisions are made. However, net deposit inflows
and outflows are far less predictable and are not subject to the same degree of
control. Asset liquidity is provided by cash and assets which are readily
marketable, which can be pledged, or which will mature in the near future.
Liability liquidity is provided by access to core funding sources, principally
the ability to generate customer deposits in Atlantic's market area. In
addition, liability liquidity is provided through the ability to borrow against
approved lines of credit (federal funds purchased) from correspondent banks and
to borrow on a secured basis through securities sold under agreements to
repurchase.
Management expects to meet its liquidity needs with:
o available cash and federal funds sold, including both interest and
noninterest-bearing balances, which totaled $11.5 million at September
30, 2000;
o maturities of investment securities totaling $1.3 million in the 12
months following September 30, 2000;
o the repayment of loans;
o growth in deposits; and,
o if necessary, borrowing against approved lines of credit.
Short-Term Investments. Short-term investments, which consist of federal funds
sold and interest-bearing deposits, were $8.4 million at September 30, 2000, as
compared to $100,000 at December 31, 1999. These funds are a primary source of
Atlantic's liquidity and are generally invested in an earning capacity on an
overnight basis.
Management regularly reviews the liquidity position of Atlantic and has
implemented internal policies that establish guidelines for sources of
asset-based liquidity and limit the total amount of purchased funds used to
support the balance sheet and funding from non-core sources.
Deposits and Other Sources of Funds. In addition to deposits, the sources of
funds available for lending and other business purposes include loan repayments,
loan sales, and securities sold under agreements to repurchase. Loan repayments
are a relatively stable source of funds, while deposit inflows and outflows are
influenced significantly by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in
other sources, such as deposits at less than projected levels and are also used
to fund the origination of mortgage loans designated to be sold in the secondary
markets.
Core Deposits. Core deposits, which exclude certificates of deposit of $100,000
or more, provide a relatively stable funding source for Atlantic's loan
portfolio and other earning assets. Atlantic's core deposits were $53.6 million
at September 30, 2000, and $39.4 million at December 31, 1999. Management
anticipates that a stable base of deposits will be Atlantic's primary source of
funding to meet both its short-term and long-term liquidity needs in the future.
Since December 31, 1999, Atlantic has experienced double-digit growth in each
category of core deposits.
Customers with large certificates of deposit tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. Some financial institutions fund
their balance sheets in part through large certificates of deposit obtained
through brokers. These brokered deposits are generally expensive and are
unreliable as long-term funding sources. Accordingly, Atlantic generally does
not accept brokered deposits.
- 19 -
<PAGE>
Atlantic uses its resources principally to fund existing and continuing loan
commitments and to purchase investment securities. At September 30, 2000,
Atlantic had commitments to originate loans totaling $8.1 million, and had
issued, but unused, letters of credit of $1.1 million for the same period. In
addition, scheduled maturities of certificates of deposit during the 12 months
following September 30, 2000, total $24.5 million. Management believes that
Atlantic has adequate resources to fund all its anticipated commitments, and, if
so desired, that Atlantic can adjust the rates and terms on certificates of
deposit and other deposit accounts to retain deposits in a changing interest
rate environment.
Capital. The bank regulatory agencies require financial institutions to maintain
capital at adequate levels based on a percentage of assets and off-balance sheet
exposures, adjusted for risk weights ranging from 0% to 100%. Under the
risk-based standard, capital is classified into two tiers. Tier 1 capital
consists of common stockholders' equity, excluding the unrealized gain (loss) on
available-for-sale securities, minus certain intangible assets. Tier 2 capital
consists of the general allowance for credit losses subject to certain
limitations. An institution's qualifying capital base for purposes of its
risk-based capital ratio consists of the sum of its Tier 1 and Tier 2 capital.
The regulatory minimum requirements are 4% for Tier 1 and 8% for total
risk-based capital.
Banks are also required to maintain capital at a minimum level based on total
assets, which is known as the leverage ratio. The minimum requirement for the
leverage ratio is 3%, but all but the highest rated institutions are required to
maintain ratios 100 to 200 basis points above the minimum. Oceanside exceeded
its minimum regulatory capital ratios as of September 30, 2000, as reflected in
the following table, which sets forth Oceanside's regulatory capital position
(dollars in thousands):
<TABLE>
<CAPTION>
Actual Minimum(1) Well-Capitalized(2)
Amount % Amount % Amount %
------ --------- ------ ------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-Weighted Assets) $ 6,736 11.88% $ 4,537 8.00% $ 5,671 10.00%
Tier I Capital (to Risk-Weighted Assets) $ 6,026 10.63% $ 2,268 4.00% $ 3,402 6.00%
Tier I Capital (to Average Assets) $ 6,026 8.75% $ 2,754 4.00% $ 3,442 5.00%
</TABLE>
(1) The minimum required for adequately capitalized purposes.
(2) To be "well-capitalized" under the FDIC's Prompt Corrective Action
regulations.
- 20 -
<PAGE>
ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
---------
Exhibit 27 - Financial Data Schedule.
b) Reports on Form 8-K.
-------------------
None.
- 21 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
issuer has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Atlantic BancGroup, Inc.
Date: November 10, 2000 /s/ Barry L. Chandler
------------------------- ---------------------
Barry L. Chandler
President and Chief Executive Officer
Date: November 10, 2000 /s/ David L. Young
------------------------- ------------------
David L. Young
Executive Vice President,
Chief Financial Officer, and
Corporate Secretary
- 22 -
