<PAGE>
Form 8-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13, or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
AMSOUTH BANCORPORATION
(Exact name of registrant specified in charter)
AMENDMENT NO. ONE
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Report on Form 8-K filed
December 21, 1993 as set forth in the pages attached hereto:
On December 21, 1993, AmSouth Bancorporation ("AmSouth") filed a report
on Form 8-K regarding the consummation of its acquisition of Mid-State Federal
Savings Bank ("Mid-State Federal") on December 9, 1993. Pursuant to Items 7(A)
and 7(B) of Form 8-K certain financial statements and pro forma financial
statements were required to be filed. However, as allowed by the applicable
rules, AmSouth reported that it was impracticable to provide the required
financial statements and pro forma financial statements at that time, but
committed to file the financial statements no later than 60 days after the
date of filing of the Form 8-K. In fulfillment of that commitment, AmSouth is
filing herewith the following financial statements and pro forma financial
statements:
Item 7. Financial Statements and Exhibits
- ------ ---------------------------------
Listed below are the financial statements, pro forma financial
information and exhibits filed as a part of this report.
(A) Financial Statements of Business Acquired:
-----------------------------------------
Independent Auditors' Report
Statements of Consolidated Financial Condition for Mid-State
Federal as of September 30, 1993 and 1992
Statements of Consolidated Operations for Mid-State Federal for
the years ended September 30, 1993, 1992 and 1991
Statement of Consolidated Stockholders' Equity for the years
ended September 30, 1993, 1992 and 1991
Statements of Consolidated Cash Flows for the years ended
September 30, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
(B) Pro Forma Financial Statements:
------------------------------
Information included in AmSouth's Current Report on Form 8-K
filed November 24, 1993, including but not limited to the
required pro forma financial statements, is incorporated in
this Form 8-K/A by reference.
(C) Exhibits:
--------
Consent of Deloitte & Touche (Exhibit No. 23)
<PAGE>
Independent Auditors' Report
Mid-State Federal Savings Bank and Subsidiaries
- -------------------------------------------------------------------------------
The Stockholders and the Board of Directors of Mid-State Federal Savings Bank:
We have audited the accompanying consolidated statements of financial condition
of Mid-State Federal Savings Bank ("Mid-State Federal" or the "Bank") and
subsidiaries as of September 30, 1993 and 1992, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1993. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Bank and its subsidiaries at
September 30, 1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Bank
prospectively changed its method of accounting for income taxes in the year
ended September 30, 1992, to conform with Statement of Financial Accounting
Standards No. 109.
/s/ Deloitte & Touche
Certified Public Accountants
Orlando, Florida
November 19, 1993
(December 9, 1993 as to Note 18)
<PAGE>
Statements of Consolidated Financial Condition
Mid-State Federal Savings Bank and Subsidiaries
September 30, 1993 and 1992
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents (includes interest-bearing deposits of
$34,283 and $24,253, respectively) ........................................... $ 47,169 37,892
Investment securities at amortized cost (approximate market value of $84,425 and
$37,420, respectively) .......................................................... 81,216 36,716
Federal Home Loan Bank stock - at cost ........................................... 6,820 6,820
Mortgage-backed securities at amortized cost (approximate market value of $73,816
and $113,393, respectively) .................................................. 70,565 108,690
Loans receivable - net ........................................................... 492,178 516,297
Loans available for sale ......................................................... 2,953 3,857
Accrued interest receivable:
Loans and mortgage-backed securities ........................................... 3,127 4,006
Investments .................................................................... 1,267 881
Office properties and equipment - net ............................................ 12,188 13,135
Real estate owned ................................................................ 6,745 11,674
Refundable income taxes .......................................................... 592
Deferred income taxes ............................................................ 374
Goodwill ......................................................................... 7,467 8,003
Other assets ..................................................................... 1,707 1,933
------- -------
Total ..................................................................... $ 733,776 750,496
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ......................................................................... $ 644,785 650,327
Advances from Federal Home Loan Bank ............................................. 13,000 29,500
Securities sold under agreements to repurchase ...................................
Advances by borrowers for taxes and insurance .................................... 5,244 5,262
Income taxes:
Current ........................................................................ 120
Deferred ....................................................................... 323
Other liabilities ................................................................ 5,076 8,372
------- -------
Total liabilities .......................................................... 668,225 693,784
------- -------
Commitments and contingencies (Note 12)
STOCKHOLDERS' EQUITY
Serial preferred stock authorized, 1,000 shares, none outstanding ................
Common stock, $1.00 par value; authorized 10,000,000 shares; issued and
outstanding, 2,136,281 and 2,084,348 shares, respectively .................... 2,136 2,084
Additional paid-in capital ....................................................... 31,107 30,410
Unallocated ESOP contributions ................................................... (186)
Retained earnings - substantially restricted ..................................... 32,308 24,404
------- -------
Total stockholders' equity .................................................. 65,551 56,712
------- -------
Total ....................................................................... $ 733,776 750,496
------- -------
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
Statements of Consolidated Operations
Mid-State Federal Savings Bank and Subsidiaries
For the years ended September 30, 1993, 1992, and 1991
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans ................................................... $ 42,906 51,607 64,997
Mortgage-backed securities .............................. 6,842 9,353 10,320
Investment securities and time deposits ................. 5,326 4,542 6,527
------ ------ ------
Total interest income .................................. 55,074 65,502 81,844
------ ------ ------
INTEREST EXPENSE
NOW deposits ............................................ 989 1,482 2,242
MMDA deposits............................................ 2,011 2,753 3,420
Passbook and statement deposits ......................... 2,215 2,527 3,018
Certificates of deposit ................................. 21,207 30,329 48,070
Less early withdrawal penalities ........................ (117) (168) (261)
------ ------ ------
Total .................................................. 26,305 36,923 56,489
------ ------ ------
Advances from Federal Home Loan Bank .................... 2,019 2,714 3,528
Securities sold under agreements to
repurchase and other borrowings ........................ 311
------ ------ ------
Total .................................................. 2,019 2,714 3,839
------ ------ ------
Total interest expense ................................. 28,324 39,637 60,328
------ ------ ------
Net interest income .................................... 26,750 25,865 21,516
Provision for loan losses .............................. 2,937 3,446 2,827
------ ------ ------
Net interest income after provision for loan losses .... 23,813 22,419 18,689
------ ------ ------
OTHER INCOME
Other loan fees ......................................... 538 533 586
Income (loss) from real estate operations ............... (1,367) (1,288) (580)
Gain on sale of investments, mortgage-backed
securities, and loans .................................. 254 282 1,348
Service charges on deposit accounts ..................... 2,317 2,195 1,980
Other ................................................... 1,037 887 532
Litigation settlement ................................... 4,900
------ ------ ------
Total other income ..................................... 7,679 2,609 3,866
------ ------ ------
OTHER EXPENSES
Employee compensation and benefits ...................... 8,081 8,139 7,905
Occupancy and equipment ................................. 2,601 2,831 2,882
Federal deposit insurance premiums ...................... 1,558 1,678 1,839
Data processing expense ................................. 2,043 1,883 1,931
Advertising and promotion ............................... 200 222 131
Amortization of goodwill ................................ 535 535 535
Other ................................................... 2,690 2,952 3,012
------ ------ ------
Total other expenses ................................... 17,708 18,240 18,235
------ ------ ------
INCOME BEFORE INCOME TAXES .............................. 13,784 6,788 4,320
PROVISION FOR INCOME TAXES .............................. 5,880 3,071 2,792
------ ------ ------
NET INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE ....................... 7,904 3,717 1,528
CUMULATIVE EFFECT ON PRIOR YEARS OF ADOPTING FAS 109 .... 1,872
------ ------ ------
NET INCOME .............................................. $ 7,904 5,589 1,528
------ ------ ------
NET INCOME PER SHARE BEFORE CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE ............. $ 3.63 1.79 .75
CUMULATIVE EFFECT ON PRIOR YEARS OF ADOPTING FAS 109 .... .90
------ ------ ------
NET INCOME PER SHARE OF COMMON STOCK .................... $ 3.63 2.69 .75
------ ------ ------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
Statements of Consolidated Stockholders' Equity
Mid-State Federal Savings Bank and Subsidiaries
For the years ended September 30, 1993, 1992, and 1991
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Additional Unallocated
Common Paid-In ESOP Retained Stockholders'
(dollars in thousands) Stock Capital Contributions Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1990 ..................... $ 2,067 30,313 (743) 17,287 48,924
Exercise of stock options ......................... 2 10 12
Employee stock purchases .......................... 1 7 8
Allocated ESOP shares ............................. 372 372
Net income for the year ended September 30, 1991 .. 1,528 1,528
------ ------ ---- ------- -------
Balance at September 30, 1991 ..................... 2,070 30,330 (371) 18,815 50,844
Exercise of stock options ......................... 11 59 70
Employee stock purchases .......................... 3 21 24
Allocated ESOP shares ............................. 185 185
Net income for the year ended September 30, 1992 .. 5,589 5,589
------ ------ ---- ------- -------
Balance at September 30, 1992 ..................... 2,084 30,410 (186) 24,404 56,712
Exercise of stock options ......................... 51 682 733
Employee stock purchases .......................... 1 15 16
Allocated ESOP shares ............................. 186 186
Net income for the year ended September 30, 1993 .. 7,904 7,904
------ ------ ---- ------- -------
Balance at September 30, 1993 ..................... $ 2,136 31,107 0 32,308 65,551
====== ====== ==== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
Statements of Consolidated Cash Flows
Mid-State Federal Savings Bank and Subsidiaries
For the years ended September 30, 1993, 1992, and 1991
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................................................ $ 7,904 5,589 1,528
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loss on loans ............................................................ 2,937 3,446 2,827
Provision for loss on real estate owned ................................................ 857 667 851
Net amortization of premiums and accretion of discounts ................................ (201) (21) (673)
Net amortization of purchase accounting adjustments and goodwill ....................... 518 510 390
Net amortization of deferred loan fees ................................................. (655) (584) (736)
Depreciation ........................................................................... 1,191 1,106 1,024
ESOP allocation ........................................................................ 186 185 372
(Gains) losses on sale of investment, mortgage-backed securities and loans ............. (254) (282) (1,348)
(Gains) losses on real estate activities ............................................... 361 482 (354)
Provision (benefit) for deferred income taxes .......................................... (697) (2,832) (376)
(Increase) decrease in accrued interest receivable ..................................... 493 1,302 1,710
(Increase) decrease in other assets .................................................... 226 391 (581)
(Increase) decrease in refundable income taxes ......................................... 592 (592) 694
Increase (decrease) in current income taxes payable .................................... 120 (702) 702
Increase (decrease) in other liabilities ............................................... (3,314) (862) (2,259)
Other .................................................................................. (185) (990) 33
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACITIVITES ................................................. 10,079 6,813 3,804
-------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sales of investment securities ........................................... 2,982
Proceeds from maturities of investment securities ....................................... 14,155 18,024 14,510
Purchase of investment securities ....................................................... (58,669) (16,130) (5,023)
Proceeds from sales of mortgage-backed securities ....................................... 84,225
Purchases of mortgage-backed securities ................................................. (13,153) (23,127) (36,669)
Mortgage-backed securities principal repayments ......................................... 51,516 22,904 12,086
Purchases of certificates of deposit in other banks ..................................... (5,000)
Proceeds from maturities of certificates of deposit in other banks ...................... 5,000
Originations and refinancings of loans .................................................. (124,320) (102,754) (70,905)
Loan principal repayments ............................................................... 127,256 133,343 104,240
Proceeds from sales of loans ............................................................ 16,411 20,707 54,696
Purchases of office properties and equipment - net ...................................... (337) (2,575) (140)
Proceeds from sale of real estate owned ................................................. 7,690 6,873 6,845
Purchase of Federal Home Loan Bank Stock ................................................ (91)
Proceeds from sale of Federal Home Loan Bank Stock ...................................... 91 215
Other ................................................................................... 362 1,390 875
-------- -------- -------
NET CASH PROVIDED BY INVESTING ACTIVITIES ................................................. 20,911 63,655 162,937
-------- -------- -------
FINANCING ACTIVITIES:
Net increase (decrease) in deposit accounts ............................................. (5,542) (108,050) (100,253)
Repayment of Federal Home Loan Bank advances ........................................... (16,500) (22,000)
Proceeds from exercise of stock options and employee stock purchases .................... 329 94 20
-------- -------- --------
NET CASH PROVIDED (REQUIRED) BY FINANCING ACTIVITIES ...................................... (21,713) (107,956) (122,233)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................................... 9,277 (37,488) 44,508
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ............................................ 37,892 75,380 30,872
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR .................................................. $ 47,169 37,892 75,380
-------- -------- --------
Cash paid for:
Interest expense ........................................................................ $ 28,446 39,634 60,491
Income taxes ............................................................................ 5,865 5,325 2,371
</TABLE>
See Notes to Consolidated Financial Statements 5
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
1. Summary Of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Bank
and its wholly-owned subsidiaries, MSF Management Corp. ("MSFM"), MSF Marketing,
Inc. ("MSFMI), MSF Properties, Inc. ("MSFP") and Trivest Enterprises, Inc.
("Trivest"). Significant intercompany balances and transactions have been
eliminated.
Cash Equivalents
Cash equivalents include demand deposits due from banks and federal
funds sold. Generally, federal funds sold mature within 90 days of purchase.
Loans, Investments, and Mortgage-Backed Securities
The Bank's policies on classification of loans, investments, and
mortgage-backed securities as held to maturity, for trading or available for
sale are consistent with those generally followed in the thrift industry.
Loans, investments, and mortgage-backed securities that are being held to
maturity are carried at cost, less allowance for possible losses, adjusted for
amortization of premiums and accretion of discounts. Loans, investments, and
mortgage-backed securities identified as being available for sale are carried at
the lower of cost, adjusted for amortization of premiums and accretion of
discounts, or market value. Adjustments to market value, below or up to
amortized or accreted cost, are reflected in the statements of consolidated
operations as gains and losses on sale of investments, mortgage-backed
securities, and loans. Gain or loss on sale of loans, investments, and
mortgage-backed securities is based on the specific identification method.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 115 ("FAS 115"), "Accounting for
Certain Investments in Debt and Equity Securities." The Statement generally
will require that debt and equity securities that have readily determinable fair
values be carried at fair value unless they are intended to be held to maturity.
Securities will be classified as held for investment and carried at amortized
cost only if the reporting entity has a positive intent and ability to hold
those securities to maturity. If not classified as held for investment, such
securities would be classified as trading securities or securities available for
sale. Net unrealized holding gains or losses for securities available for sale
would be excluded from earnings and reported as a separate component of
stockholder's equity. FAS 115 is effective for fiscal years beginning after
December 15, 1993. Management is currently evaluating FAS 115 to determine what
impact, if any, it will have on the classification of the Bank's securities.
The impact on the Bank's future financial position or results of operations will
be based on the future fair values of its securities.
Allowance For Possible Loan Losses
A provision for loan losses is charged to operations based on
management's evaluation of the potential loss in the Bank's loan portfolio. The
evaluation includes a methodology for establishing general loan loss allowances
and the establishment of appropriate specific loan loss allowances once
individual specific problem loans are identified. The Bank estimates the level
of general loss allowances based upon historical loss percents applied to
nonclassified loans for each of the loan portfolios and management determined
percents applied to classified loans within each of the loan portfolios.
Specific loss reserves are established for identified problem loans based on
reviews of current operating information and fair value appraisals. Such
provisions consider the current and currently anticipated future operating
conditions, thereby causing these estimates to be susceptible to changes that
could result in an adjustment to results of operations in the near term.
Recovery of the carrying value of such loans is dependent to a great extent on
economic, operating, and other conditions that may be beyond the Bank's control.
6
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
Pursuant to applicable regulations, the Federal Deposit Insurance
Corporation ("FDIC") and OTS have the authority to require Mid-State Federal to
increase its loss allowances if either agency determines that the allowances are
inadequate. The estimation of appropriate levels of loss allowances is a
process that involves a high degree of subjectivity, and the regulatory
authorities may arrive at conclusions that differ from management's regarding
allowance levels.
Real Estate Owned
Real estate owned includes real estate in judgment ("REJ"), real estate
acquired by foreclosure or deed in lieu of foreclosure ("REO"), and real estate
acquired for development and sale.
REJ represents the value of collateral underlying loans which, in
substance, is considered repossessed even though formal foreclosure proceedings
(and classification to REO) have not been completed. These assets are carried
at the lower of cost or fair value less estimated costs to sell ("net fair
value") at the time the loan is deemed foreclosed in-substance less accumulated
depreciation and any subsequently determined allowance necessary based upon the
fair value of the underlying collateral. Although the collateral underlying
these loans has not been repossessed, the borrower has no equity in the
collateral at its current estimated net fair value, proceeds for repayment are
expected to come only from the operation or sale of the collateral, and either
the borrower has abandoned control of the project or it is doubtful the borrower
will rebuild equity in the collateral or repay the loan by other means in the
foreseeable future. The amounts the Bank could ultimately recover from REJ
could differ from the amounts used in arriving at the net carrying value of the
assets because of future market factors beyond the Bank's control or changes in
the Bank's strategy for recovering its investment.
REO is carried at the lower of its net fair value or the balance of the
related loan at the date the real estate is acquired. Costs relating to the
development and improvement of the real estate are capitalized, whereas those
costs relating to holding the real estate are charged to expense. Additional
specific allowances are recorded, if necessary, as provisions for losses on REO
and are based upon the estimated fair value of the real estate.
Real estate acquired for development and sale is carried at the lower of
cost or net fair value. Costs relating to the development and improvement of
the real estate are capitalized.
Sales of REO and real estate acquired for development and sale are
recorded under the full accrual method of accounting. Under this method, a sale
is not recognized until payments received aggregate a specific required
percentage of the contract sales price. Losses are charged to operations as
incurred or when it is determined that the investment in such real estate is
greater than the net fair value. Land and improvement costs are allocated to
individual lots and charged to cost of sales based on the relative sales value
method.
Recovery of the carrying value of real estate owned is dependent to a
great extent on economic, operating, and other conditions that may be beyond the
Bank's control.
Office Properties and Equipment
Office properties and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets which range up to fifty years for buildings
and eight years for equipment.
7
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
Uncollected Interest
The Bank provides an allowance for the loss of uncollected interest on
any loan which is contractually delinquent more than 90 days and on other
delinquent loans when management believes the collection of interest is
doubtful. Any such interest ultimately collected is credited to income in the
period of recovery.
Loan Origination Fees and Premiums and Discounts on Loans
Loan fees, net of direct loan origination costs, are recognized into
income over the life of each loan as a yield adjustment.
Unearned discounts on home improvement and other installment loans are
amortized to income using a method that approximates the interest method over
the term of the related loans. Premiums and discounts on loans purchased are
amortized to income using the interest method.
Loan-Servicing Rights
When participating interests in loans sold have an average contractual
interest rate, adjusted for normal servicing fees, that differs from the net
yield to the purchaser, gains or losses are recognized equal to the present
value of such differential over the estimated remaining life of such loans. The
resulting "excess servicing fees retained" is amortized over the estimated life
using a method approximating the level-yield method.
The excess servicing fees retained and the amortization thereon is
periodically evaluated in relation to estimated future net servicing revenues.
The Bank estimates the future net servicing revenues of the underlying portfolio
based upon management's best estimate of remaining loan lives.
Goodwill
Goodwill, resulting from the acquisition of First Federal Savings and
Loan Association of Brooksville ("Brooksville") in 1987, represents the excess
of cost over the fair value of net assets acquired and is amortized on a
straight-line basis over 20 years.
Income Taxes
The Bank and its subsidiaries follow the practice of filing consolidated
federal and state income tax returns. Income taxes are allocated to the Bank
and its subsidiaries as though separate tax returns were being filed.
Deferred income taxes result from temporary differences between pre-tax
income reported in the financial statements and taxable income.
In February, 1992, the FASB issued Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes " ("FAS 109"). Under the asset
and liability method of FAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributed to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under FAS 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Previously, the Bank used the FAS 96 asset and liability method that gave no
recognition to future events other than the recovery of assets and settlement of
liabilities at their carrying amounts.
Effective October 1, 1991, the Bank adopted FAS 109. Under FAS 109, the
Bank recognizes, to a greater degree, the future tax benefits of expenses which
have been recognized in the financial statements.
8
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
The cumulative effect on years ending prior to October 1, 1991, of adopting FAS
109 is reflected in the 1992 fiscal year net income as the effect of a change in
accounting principle and amounted to $1.9 million or $.90 per share. The
current effect on net income for the year ended September 30, 1992, was $0.4
million or $.20 per share. Prior years' financial statements have not been
restated to apply the provisions of FAS 109. The cumulative and current effect
primarily represent the impact of recognizing a deferred tax asset for the
benefit of loss allowances that could not be recorded under FAS 96.
The Bank is permitted under the Internal Revenue Code to deduct an
annual addition to a reserve for bad debts in determining taxable income,
subject to certain limitations. The tax deductible annual addition may be
computed using the more favorable of either: (i) a method based generally on the
Bank's average loan loss experience over the six-year period ending with the
taxable year (the "Experience Method"); or (ii) a method based on a specified
percentage of the Bank's taxable income (the "Percentage Method"). The
applicable percentage was 8.0% for each of the fiscal years ended September 30,
1993, 1992, and 1991. The Bank used the Experience Method for the tax years
ended September 30, 1993, 1992, and 1991, in calculating the addition to the
reserve for bad debts. This addition differs significantly from the bad debt
experience used for financial accounting purposes. Pursuant ot the Bank's
adoption of FAS 109, no deferred taxes have been provided on income tax reserves
prior to 1988 of $9.1 million. The amount of the unrecognized deferred tax
liability on such bad debt reserves at September 30, 1993, was approximately
$3.4 million. This tax reserve for bad debts is included in taxable income of
later years only if the bad debt reserve is used subsequently for purposes other
than to absorb bad debt losses. Because the Bank does not intend to use the
reserve for purposes other than to absorb losses, no deferred income taxes have
been provided. FAS 109 requires the recognition of deferred tax consequences of
differences between financial statement and income tax treatment of allowances
for loan losses arising after September 30, 1988.
Current Accounting Pronouncements
In December, 1990, the FASB issued Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("FAS 106"). FAS 106 becomes effective for fiscal years beginning
after December 15, 1992. FAS 106 establishes accounting standards for all
employers' postretirement benefits other than pensions; however, it focuses on
postretirement health care benefits. FAS 106 basically changes the current
practice of accounting for postretirement benefits on a cash basis to accruing
the cost of these benefits during the years the employee renders the necessary
service. The Bank does not anticipate that the implementation of FAS 106 will
have a material effect on the consolidated financial statements. Actuarial
studies and numerous assumptions are required for the implementation of FAS 106.
In May 1993, the FASB issued Statement of Financial Accounting Standard No. 114
("FAS 114"), "Accounting by Creditors for Impairment of a Loan." The Statement
generally will require all creditors to account for impaired loans, except those
loans that are accounted for at fair value or at the lower of cost or fair
value, at the present value of the expected future cash flow discounted at the
loan's effective interest rate or if collateral dependent, at the fair value of
the underlying collateral. FAS 114 is effective for fiscal years beginning
after December 15, 1994, and earlier application is encouraged. FAS 114, when
adopted, is not expected to have a material impact in the Bank's consolidated
financial statements.
The FASB issued a proposed Statement of Financial Accounting Standards,
"Accounting for Stock-Based Compensation, " in June 1993. The proposed standard
would establish financial accounting and reporting standards for compensation
plans under which (1) employees receive shares of stock or other equity
instruments or (2) the employer incurs liabilities to employees in amounts based
on the price of its stock.
9
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
It would also apply to equity instruments that are issued to suppliers of goods
or services (for example, outside directors, independent contractors, and
vendors).
If adopted, the proposed standard would supersede Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations.
The proposed standard would require recognition of compensation cost for the
fair value of stock-based compensation paid to employees for their services and
disclosure of the method and significant assumptions used to estimate the fair
value of stock-based awards and the weighted averages of both the fair values
and the exercise prices of options granted during the year. The proposed
standard would provide for a three-year period of footnote disclosures beginning
in 1994, after which an expense would be recognized in the income statement.
Additional disclosures during the three-year transition period before expense
recognition is required would include the pro forma effect on net income and
earnings per share of compensation expense that would have been recognized for
options granted in those years.
Management is presently unable to determine what impact the proposed standard
may have on its future financial position or results of operations.
Net Income Per Share
Net income per share is computed based on the weighted-average number of
shares of common stock outstanding for the years ended September 30, 1993, 1992,
and 1991, amounting to 2,179,318, 2,078,717, and 2,036,008, respectively. The
weighted average number of shares outstanding includes common stock equivalents
(stock options) computed using the treasury stock method. The dilutive effect
of common stock equivalents is not material.
Reclassifications
Certain reclassifications have been made to the financial statements for
the years ended September 30, 1992 and 1991 to conform to the presentations used
in the financial statements for the year ended September 30, 1993.
- --------------------------------------------------------------------------------
10
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
2. Investment Securities
A comparison of the carrying value, gross unrealized gains and losses,
and approximate market value of the Bank's investment securities is as follows:
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------------------------------------------
1993 1992
--------------------------------------------- --------------------------------------------
Gross Gross Approximate Gross Gross Approximate
Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market
(dollars in thousands) Value Gains Losses Value Value Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
Agency Obligations ...... $ 78,766 3,160 81,926 34,111 960 (270) 34,801
Municipal
Obligations .............. 1,600 17 1,617 1,605 4 1,609
Corporate Securities ....... 850 32 882 1,000 10 1,010
------- ----- ------- ------ ------ --- ---- ------
Total ...................... $ 81,216 3,209 84,425 36,716 974 (270) 37,420
======= ===== ======= ====== ====== === ==== ======
</TABLE>
At September 30, 1993, the full carrying value of $81.2 million in
investment securities was unencumbered.
The carrying value and approximate market value of investment
securities, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
11
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
---------------------------------------------
1993 1992
---------------------- ---------------------
Approximate Approximate
Carrying Market Carrying Market
(dollars in thousands) Value Value Value Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less................. $ 5,007 5,114
Due after one year through five years... 53,310 54,845 19,351 20,208
Due after five years through ten years.. 15,701 16,260
Due after ten years..................... 12,205 13,320 12,358 12,098
------ ------ ------ ------
Total................................... $ 81,216 84,425 36,716 37,420
------ ------ ------ ------
</TABLE>
There were no investment securities sales during fiscal years 1993 and
1992. Proceeds from investment securities that were called (in accordance with
their terms and conditions) during 1993 and 1992 were $9.0 million and $2.0
million, respectively. Gross gains of $11,000 during 1992 and no gross losses
were recognized on these calls. The call of debt securities is the issuer's
right to redeem the securities at a predetermined price prior to their scheduled
maturity.
Proceeds from sales of investment securities during fiscal year 1991 were
$3.0 million. There were no gains and gross losses of $4,000 were recognized on
those sales. The sales during fiscal year 1991 were executed as a part of an
overall balance sheet restructuring strategy designed to decrease the Bank's
interest rate risk exposure and to increase its capital levels as a result of
impending regulatory changes which called for higher overall levels of capital
and increased capital requirements for interest rate risk.
- --------------------------------------------------------------------------------
12
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
3. Mortgage-Backed Securities
A comparison of the carrying value and approximate market value of the
Bank's mortgage-backed securities is as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------------------------
1993 1992
--------------------------------------------- --------------------------------------------
Gross Gross Approximate Gross Gross Approximate
Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market
(dollars in thousands) Value Gains Losses Value Value Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Passthrough Certificates:
Government agency.... $ 41,794 2,710 (25) 44,479 51,558 4,231 (54) 55,735
Private issuers...... 25,671 465 26,136 31,683 436 32,119
Collateralized mortgage
obligation securities... 3,100 101 3,201 25,449 90 25,539
------ ------ ------ ------ ------- ------ ------ -------
Total..................... $ 70,565 3,276 (25) 73,816 108,690 4,757 (54) 113,393
------ ------ ------ ------ ------- ------ ------ -------
</TABLE>
The Bank has held investments in principal-only and interest-only
derivative securities, which were sold during January, 1991. These securities
were accounted for in accordance with Statement of Financial Accounting
Standards No. 91, "Accounting for Non-Refundable Fees and Costs Associated with
Acquiring Loans and Initial Direct Costs of Leases" and Emerging Issues Task
Force ("EITF") consensus on issue number 89-4, and as such, their carrying value
and corresponding yields were significantly influenced by actual prepayments of
the underlying mortgages that collateralized the securities.
As of September 30, 1993, mortgage-backed securities with a carrying value
of $11.2 million were pledged as collateral for public deposits. The carrying
value of unencumbered mortgage-backed securities at September 30, 1993, amounted
to $59.3 million.
There were no sales of mortgage-backed securities during fiscal years 1993
or 1992.
Proceeds from sales of mortgage-backed securities during fiscal year 1991
were $84.2 million. Gross gains of $2.0 million and gross losses of $1.5
million were recognized on those sales. The sales were executed as a part of an
overall balance sheet restructuring strategy designed to decrease the Bank's
interest rate risk exposure and to increase its capital levels as a result of
impending regulatory changes which called for higher overall levels of capital
and increased capital requirements for interest rate risk.
- --------------------------------------------------------------------------------
13
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
4. Loans Receivable
Loans receivable consist of the following:
<TABLE>
<CAPTION>
September 30,
-------------------
(dollars in thousands) 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Real estate mortgage loans:
Conventional first mortgage.......................... $ 361,413 390,591
FHA-VA............................................... 574 938
Commercial and non-residential....................... 73,702 73,719
------- -------
Total real estate mortgage loans.................. 435,689 465,248
Real estate construction loans........................... 6,898 10,557
Home improvement and other installment loans............. 60,747 52,044
Commercial and other loans............................... 1,815 1,163
------- -------
Total............................................. 505,149 529,012
------- -------
Deduct:
Deferred net origination fees........................ 291 777
Deferred discounts on loans.......................... 23 46
Unearned insurance commissions....................... 339 210
Undisbursed portion of loans in progress............. 6,255 6,817
Allowance for possible loan losses................... 6,063 4,865
------- -------
Total............................................. 12,971 12,715
------- -------
Total loans receivable - net...................... $ 492,178 516,297
------- -------
</TABLE>
The Bank also had $3.0 million of fixed rate conventional first mortgage
loans that were available for sale at September 30, 1993, and were carried at
the lower of amortized cost or market. During the fiscal year ended September
30, 1993, the Bank sold $14.1 million of fixed rate loans which were originated
during the year and $2.2 million of adjustable loans that converted to fixed
rates during the year.
At September 30, 1993, the Bank's commercial and non-residential real
estate loan portfolio was $73.7 million. These loans were considered by
management to be of somewhat greater risk of uncollectibility due to the
dependency on income production or future development of the real estate. Of
the commercial and non-residential real estate loans, approximately $24.3
million were collateralized by office buildings, $9.1 million by
industrial/warehouse units, $10.8 million by multi-family residential property,
$26.5 million by retail shopping centers, and $3.0 million by undeveloped land
and other collateral. The majority of the Bank's lending activity is to
customers located within the Bank's primary market area, four counties located
in west central Florida; therefore, the ability of the Bank's debtors to repay
their loans is partially dependent upon the central Florida economy.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a Federally-chartered savings bank's aggregate commercial real
estate loans may not exceed 400.0% of its tangible capital as determined under
the capital standards provisions of FIRREA. The Bank is Federally-chartered and
subject to this limitation. FIRREA does not require divestiture of any loan
that was lawful when it was originated. At September 30, 1993, the Bank
estimated that, while complying with this limitation, it could have held an
additional $157.3 million of commercial real estate loans.
The OTS's minimum regulatory capital regulations (also see Note 13), issued
November 6, 1989, require that the portion of non-residential construction and
land loans in excess of 80.0% loan-to-value be deducted from total capital for
purposes of the risk-based capital standard over a 5-year phase-in period
commencing July 1, 1990. At September 30, 1993, the Bank had no investment in
loans subject to this deduction.
14
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
Mortgage loans serviced for others are not included in the statements of
consolidated financial condition.
The unpaid principal balances of these loans are as follows:
<TABLE>
<CAPTION>
September 30,
--------------------------
(dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage loans underlying passthrough securities sold:
FNMA............................................. $ 673 858 1,114
FHLMC............................................ 9,475 13,077 17,495
------ ------ ------
Total.......................................... 10,148 13,935 18,609
Mortgage loans sold to:
FNMA............................................. 26,228 44,230 53,532
Other investors.................................. 491 572 862
------ ------ ------
Total loans serviced for others................ $36,867 58,737 73,003
------ ------ ------
</TABLE>
Custodial balances for advances by borrowers for taxes and insurance
maintained in connection with the foregoing loans serviced for others were
approximately $482,000 and $771,000 at September 30, 1993 and 1992,
respectively.
Changes in excess servicing fees retained are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
(dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year.......................... $ 286 598 66
Additions........................................... 562
Amortizations....................................... (87) (140) (30)
Valuation adjustments due to changes in prepayment
assumptions...................................... (62) (172)
---- ----- -----
Balance, end of year........................ $ 137 286 598
---- ----- -----
</TABLE>
Changes in the allowance for possible loan losses are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
(dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year.......................... $ 4,865 3,970 3,595
Provision charged to income......................... 2,937 3,446 2,827
Charge-offs......................................... (1,856) (2,649) (2,513)
Recoveries.......................................... 117 98 61
Balance, end of year........................ $ 6,063 4,865 3,970
</TABLE>
The aggregate amount of loans outstanding to executive officers and
directors and any associates of such persons (exclusive of loans to any such
person which in the aggregate did not exceed $60,000 during the year) as of
September 30, 1993 and 1992 was approximately $1.3 million and $1.5 million,
respectively.
15
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
Approximately $90,000 of new loans were made in 1993, while reductions of
approximately $582,000 occurred as a result of loan repayments and
reclassifications due to resignations.
Loans with a net carrying value of $3.2 million, $2.8 million, and $7.0
million, during the years ended September 30, 1993, 1992, and 1991,
respectively, were transferred to REO.
- --------------------------------------------------------------------------------
5. Office Properties and Equipment
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-------------------
(dollars in thousands) 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Land....................................................... $ 3,340 3,349
Buildings and improvements................................. 11,677 11,791
Furniture and equipment.................................... 7,128 9,294
------- --------
Total................................................ 22,145 24,434
Less accumulated depreciation.............................. (9,957) (11,299)
------- --------
Office properties and equipment - net...................... $ 12,188 13,135
------- --------
</TABLE>
16
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
6. Real Estate Owned
Real estate owned is summarized as follows:
<TABLE>
<CAPTION>
September 30,
------------------
(dollars in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate in judgment (less allowance for losses of $98 and $472
at September 30, 1993 and 1992, respectively)............................. $ 1,872 5,276
Real estate acquired by foreclosure or deed in lieu of foreclosure (less
allowance for losses of $1,130 and $1,263 at September 30, 1993 and 1992,
respectively)............................................................. 3,238 4,513
Real estate acquired for development and sale (less allowance for losses of
$896 and $660 at September 30, 1993 and 1992, respectively)............... 1,635 1,885
----- ------
Total real estate owned................................................. $ 6,745 11,674
----- ------
</TABLE>
Income (loss) from real estate operations consisted of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
(dollars in thousands) 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate in judgment and real estate acquired by foreclosure
or deed in lieu of foreclosure:
Income (loss) on activities................................... $ (401) (482) 354
Provision for loss............................................ (622) (667) (851)
----- ----- -----
Income (loss).............................................. (1,023) (1,149) (497)
------- ------- -----
Real estate acquired for development and sale:
Sales......................................................... 37 131
Cost of sales................................................. (36) (95)
Operating expenses............................................ (44) (63) (42)
Provision for loss............................................ (235)
----- ----- -----
Income (loss).............................................. (279) (62) (6)
----- ----- -----
Equity in income (loss) from real estate venture.................. (65) (77) (77)
----- ----- -----
Income (loss) from real estate operations.................. $(1,367) (1,288) (580)
------- ------- -----
</TABLE>
The provisions for loss on REJ and REO in fiscal years 1993 and 1992 were
related to a decline in the estimated net fair value of REO subsequent to the
acquisition date. The provision for loss on REJ and REO in fiscal year 1991 was
primarily related to the establishment of general loss allowances for REO and
REJ for the first time.
17
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
Changes in the allowance for possible real estate losses are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
(dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year.......................... $ 2,395 1,927 1,547
Provision charged to income......................... 857 667 851
Charge-offs......................................... (1,210) (393) (471)
Recoveries.......................................... 82 194
----- ----- -----
Balance, end of year......................... $ 2,124 2,395 1,927
----- ----- -----
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
7. Deposits
Deposits, summarized by interest rates, are as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------------------
1993 1992
------------------- ------------------
Weighted Weighted
Average Average
(dollars in thousands) Rate Amount Rate Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NOW and MMDA.......................... 2.10% $ 130,000 2.46% $ 131,840
------- -------
Commercial checking................... .00 5,796 .00 5,970
------- -------
Passbook and statement deposits....... 2.51 85,737 3.00 73,895
------- -------
Certificates of deposit:
Below 3.01%...................... 8,646 233,337
3.01% - 5.00%.................... 279,776
5.01% - 7.00%................... 85,798 111,443
7.01% - 9.00%................... 26,464 63,242
9.01% - 11.00%................... 12,384 18,773
11.01% - 13.00%................... 10,184 11,330
over 13.00%....................... 497
------- -------
Total certificates of deposit. 4.72 423,252 5.44 438,622
------- -------
Total......................... 3.86% $ 644,785 4.50% $ 650,327
------- -------
</TABLE>
Interest on deposits and other borrowings for the years ended September 30,
1993, 1992, and 1991 was paid in the year it was expensed.
At September 30, 1993, the amounts of scheduled maturities of certificates
of deposit are as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
- --------------------------------------------------------------------------------
Year Ending September 30,
<S> <C>
1994................................................... $ 288,398
1995................................................... 72,008
1996................................................... 15,233
1997................................................... 23,263
Thereafter............................................. 24,350
-------
Total.............................................. $ 423,252
-------
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
8. Advances From the Federal Home Loan Bank
Advances from the Federal Home Loan Bank are repayable as follows:
<TABLE>
<CAPTION>
September 30,
-------------------
(dollars in thousands) 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
1993....................................................... $ 0 16,500
1996....................................................... 13,000 13,000
------ ------
Total................................................ $ 13,000 29,500
------ ------
</TABLE>
The Bank is required by its specific collateral pledge and security
agreement with the Federal Home Loan Bank to pledge as collateral for its
advances, specific first mortgage loans having a current market value equal to
at least 125.0% of the amount of advances outstanding. At September 30, 1993,
the Bank had pledged approximately $28.9 million of first mortgage loans as
collateral for these advances. The Bank had also pledged its Federal Home Loan
Bank stock as collateral for such advances. The total weighted average interest
rate on such advances at September 30, 1993 and 1992 was 9.18%.
The Bank also has a $20.0 million line of credit available from the Federal
Home Loan under the same collateral conditions discussed above. The Bank did
not draw funds on this line of credit at any time during the fiscal years ended
September 30, 1993 and 1992.
- --------------------------------------------------------------------------------
9. Securities Sold Under Agreements to Repurchase and Other Borrowings
The Bank in the normal course of business enters into sales of securities
under agreements to repurchase ("reverse repurchase agreements" or
"agreements"). Fixed coupon reverse repurchase agreements are treated as
financings, and the obligations to repurchase securities sold are reflected as a
liability in the statements of consolidated financial condition. The dollar
amount of securities underlying the agreements remain in the asset accounts.
All transactions are conducted with primary government securities dealers and
large money center banks. There were no reverse repurchase agreement balances
outstanding at September 30, 1993 or 1992.
There were no reverse repurchase agreement transactions during the years
ended September 30, 1993 and 1992. For the year ended September 30, 1991, the
average balance outstanding of reverse repurchase agreements was $3.8 million.
The highest month-end balance during the year ended September 30, 1991, was
$9.7 million.
20
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
10. Income Taxes
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
(dollars in thousands) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current - Federal................................... $ 5,549 3,475 2,691
Current - state..................................... 891 556 477
----- ----- -----
Total current.................................... 6,440 4,031 3,168
Deferred - Federal and state........................ (560) (960) (376)
----- ----- -----
Total............................................ $ 5,880 3,071 2,792
----- ----- -----
</TABLE>
The Bank's effective tax rate differs from the statutory Federal income tax
rate for the following reasons:
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1993 1992 1991
----------- ----------- -----------
(dollars in thousands) Amount % Amount % Amount %
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at Federal income tax rate $ 4,824 35.0 $ 2,308 34.0% $ 1,469 34.0%
Increase (decrease) resulting from:
Reduction of statutory tax
bad debt reserve................. 364 2.6
Statutory tax bad debt deduction
(also see Note 1)................ (247) (5.7)
Provision for loan losses.......... 961 22.2
Tax-exempt income.................. (54) (.4) (61) (0.9) (77) (1.8)
Realized losses (gains) on sale
of real estate acquired by
foreclosure or deed in lieu of
foreclosure...................... 62 0.9 299 6.9
State income tax................... 550 4.0 324 4.8 365 8.5
Amortization of goodwill........... 187 1.4 182 2.7 182 4.2
Utilization of tax net operating
loss carry forward............... (39) (.9)
Other - net........................ 9 0.1 256 3.7 (121) (2.8)
----- ---- ----- ---- ----- ----
Total...........................$ 5,880 42.7% $ 3,071 45.2% $ 2,792 64.6%
----- ----- ----- ----- ----- ----
</TABLE>
21
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
Significant temporary differences used in the computation of the deferred
tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------
(dollars in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from loan fees deferred (recognized) for income
tax purposes....................................................... $ (310) (335) (574)
Accelerated depreciation............................................. (107) (93) (44)
Provision for loss on loans (deferred) recognized for
tax purposes....................................................... (152) (282)
Provision for loss on real estate owned (deferred) recognized
for tax purposes................................................... (85) (66) 21
Amortization of security premiums and discounts
deferred (recognized) for tax purposes............................. 55 22 (228)
Change in accounting method for conversion to the accrual method
Provision for loss on litigation..................................... 379
Compensation expense (deferred) recognized for tax purposes.......... (244) 56
Other - net.......................................................... 39 38 14
---- ---- ----
Total............................................................. $ (560) (960) (376)
---- ---- ----
</TABLE>
The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below (dollars in thousands):
<TABLE>
<CAPTION>
September 30,
------------------
1993 1992
----- -----
<S> <C> <C>
Deferred tax liabilities:
Loan fees................................................. $2,201 2,511
Depreciation.............................................. 108 229
Purchase business combination............................. 625 650
Capitalized interest...................................... 99 101
Other..................................................... 166 308
----- -----
Gross deferred tax liabilities.............................. 3,199 3,799
----- -----
Deferred tax assets:
Allowance for losses on loans............................. 2,645 2,101
Allowance for losses on real estate owned................. 408 631
Stock appreciation rights................................. 216 244
Purchase business combination............................. 110 142
Other..................................................... 194 358
----- -----
Gross deferred tax assets................................... 3,573 3,476
Valuation allowance for deferred tax assets.................
----- -----
Net deferred tax assets..................................... 3,573 3,476
----- -----
Net deferred tax asset...................................... $ 374
-----
Net deferred tax liability.................................. $ 323
-----
</TABLE>
The Bank had no valuation allowance for deferred tax assets as of October 1,
1992; therefore, there was no change in the valuation allowance for deferred tax
assets for the year ended September 30, 1993.
22
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
11. Employee Benefit Plans
Effective September 30, 1988, the Bank terminated its non-contributory
defined benefit pension plan which covered substantially all employees. All
participants became fully vested in their accumulated plan benefits as of that
date. Such benefits were actuarially determined in accordance with plan
provisions and were funded during fiscal year 1990, after necessary regulatory
approvals were received, from existing plan assets by purchase of guaranteed
annuity contracts or, in the case of distributions of less than $3,500, lump sum
payments directly to participants.
Concurrently, the Bank established an Employee Stock Ownership Plan
("ESOP") effective October 1, 1988. All participants in the pension plan and
certain other employees who become eligible will be participants in the ESOP.
The excess assets of the pension plan after all termination obligations of the
pension plan were funded in fiscal year 1990 were contributed to the ESOP and
used to acquire Bank stock. Stock purchased with such contribution will be
allocated to participant accounts at the discretion of the Board of Directors,
but in any event no less rapidly than one-eighth (1/8) of the stock purchased in
the ESOP plan year in which the amounts were transferred to the ESOP with the
remainder to be allocated no less rapidly than ratably over a period of seven
years. In accordance with Statement of Financial Accounting Standards No. 88,
"Employers Accounting for Settlements of Defined Benefit Pension Plans" and a
consensus opinion of the EITF, the Bank recognized during the 1990 fiscal year a
$1,115,000 gain in other income as a result of the receipt and contribution to
the Bank's ESOP of the excess assets from the termination of the pension plan.
During the quarter ended March 31, 1990, the ESOP purchased 50,196 shares
of the Bank's common stock in the open market at a cost of $1,115,000 or $22.21
per share. The cost of these shares is shown as a deduction to stockholders'
equity until the shares are allocated to eligible employees. At September 30,
1990, the Board of Directors approved an allocation of one-third (1/3) of the
ESOP shares to the participant accounts which resulted in a contribution expense
of $372,000 for the fiscal year ended September 30, 1990. At September 30,
1991, the Board of Directors approved an allocation of one-half (1/2) of the
remaining ESOP shares (16,732 of 33,464) to the participant accounts which
resulted in a contribution expense for the fiscal year ended September 30, 1991,
of $372,000. At September 30, 1992, the Board of Directors approved an
allocation of one-half (1/2) of the remaining ESOP shares (8,177 of
approximately 16,355 unallocated shares, the shares originally held in the plan
having been reduced by certain sales of shares in order to pay plan expenses) to
the participant accounts which resulted in a contribution expense for the fiscal
year ended September 30, 1992, of $185,000. At September 30, 1993, the Board of
Directors approved an allocation of all of the remaining ESOP shares
(approximately 7,758 unallocated shares, less certain sales of shares to pay
plan expenses) to the participant accounts which resulted in a contribution
expense for the fiscal year ended September 30, 1993 of $185,783.
Effective October 1, 1991, the Bank adopted a qualified profit sharing
401(k) plan covering all employees who elect to participate and who meet the
eligibility requirement of one year of service during which the employee worked
at least 1,000 hours. The Bank has agreed to contribute an amount equal to
50.0% of 401(k) current year contributions for each participant to the extent
each participant's 401(k) contribution does not exceed 6.0% of their
compensation for the year. A participant's contribution may not exceed 15.0% of
annual compensation or the maximum amount allowed as determined by the Internal
Revenue Code, if such maximum is less than 15.0% of compensation. The 401(k)
plan expense for the employer matching contribution for the fiscal years ended
September 30, 1993 and September 30, 1992 was $83,000 and $60,000, respectively.
23
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
Effective with the quarter ending March 31, 1993, the Board of Directors
authorized the Bank to absorb the 401(k) plan administrative expenses which had
been charged against plan earnings until such time as the fund balance grew to
the point where the fees would bear a more reasonable relationship to the
earnings and asset base of the plan, resulting in a 401(k) plan administrative
expense as of the fiscal year ended September 30, 1993 of $12,430.
- --------------------------------------------------------------------------------
12. Commitments and Contingencies
At September 30, 1993, the Bank had commitments to originate fixed rate
loans with rates ranging from 6.875% to 8.00% of approximately $484,000 and
adjustable rate loans of approximately $2.7 million, excluding in each case
undisbursed portions of loans in process. Commitments, which are disbursed
subject to certain limitations, extend over periods of time with the majority
disbursed within a six month period. At September 30, 1993, the Bank had
outstanding standby letters of credit of approximately $30,000, and unfunded
portions of line of credit loans of approximately $11.1 million.
At September 30, 1993, the Bank was obligated under various operating lease
agreements for office properties and equipment extending to the year 2002 with
approximate rental expense as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
- --------------------------------------------------------------------------------
Year Ending September 30,
<S> <C>
1994.................................................. $ 755
1995.................................................. 306
1996.................................................. 194
1997.................................................. 184
1998.................................................. 96
Thereafter............................................ 248
-----
Total......................................... $ 1,783
-----
</TABLE>
Rent expense for the three years ended September 30, 1993, 1992, and 1991
was approximately $697,000, $748,000, and $747,000, respectively.
In April, 1989, a jury awarded $617,000 in damages against the Bank for an
alleged breach of contract resulting from negotiations during 1986 for sale by
the Bank of a partially developed Ocala subdivision. The trial court entered a
judgment against the Bank in the amount of the verdict and, on October 12, 1989,
a supplemental final judgment awarding the plaintiff attorney's fees and costs
in the amount of $320,000 was entered. Included in fiscal year's 1989 loss from
real estate operations was a charge of $1,001,000 needed to establish a reserve
for payment of judgments and interest in the lawsuit against the Bank. On
October 25, 1990, Florida's Fifth District Court of Appeal reversed both
judgments against the Bank, and ordered that judgment in the case be entered in
favor of the Bank. The plaintiff filed motions for rehearing with the Court of
Appeal on November 6, 1990. The motions were denied on December 12, 1990.
During fiscal year 1991, the reserve was reversed into income and included in
the results from real estate operations.
On January 24, 1991, the Bank terminated the Agreement and Plan of
Reorganization, dated as of July 1, 1990, (the "Agreement") by and among First
Florida Banks, Inc. ("First Florida"), First Florida Bank, N.A., and Mid-State
Federal, which provided for the acquisition of Mid-State Federal by First
Florida.
24
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
Termination of the Agreement was made on the basis of material and intentional
breaches of the Agreement by First Florida.
Also, on January 24, 1991, the Bank filed a Complaint against First Florida
in the Circuit Court of Marion County, Florida seeking damages in excess of $35
million (the "Complaint"). The Complaint claims that First Florida breached
material provisions of the Agreement, violated state securities laws, and
fraudulently induced the Bank to enter into the Agreement. On February 12,
1993, the Bank settled and dismissed its lawsuit against First Florida in
exchange for a cash payment to the Bank of $4.9 million. The settlement
proceeds received by the Bank were subject to federal and state income taxes.
13. Stockholders' Equity
At the time of conversion of the Bank from mutual to stock form on January
27, 1983, eligible savings accountholders were granted a priority in the
unlikely event of a future liquidation of the Bank, by establishing a special
reserve account in an amount equal to the total retained earnings of the Bank at
September 30, 1982. The total amount of the special reserve is decreased to the
extent that the balances of eligible accountholders are reduced at annual
determination dates. As part of the acquisition of Brooksville, the Bank also
assumed the special reserve account established by Brooksville at the time of
its conversion from mutual to stock form on June 30, 1984. The amount of this
special reserve, including the amount assumed in the acquisition of Brooksville,
was approximately $941,000 at September 30, 1993. In addition to various other
limitations on the payment of dividends promulgated by the OTS, no dividends may
be paid to stockholders if such dividends reduce the net worth of the Bank below
the amount required for the special reserve account.
Under FIRREA and the implementing regulations of the OTS which became
effective on December 7, 1989, savings institutions must maintain specific
capital standards that are no less stringent than the capital standards
applicable to national banks. The OTS regulations currently have three capital
requirements including (i) a core capital requirement, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement.
The core capital requirement mandates a savings institution to maintain
core capital of not less than 3.0% of adjusted total assets. Core capital
includes common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of fully consolidated subsidiaries, certain
non-withdrawable accounts, pledged deposits of mutual savings associations, and
(subject to a phase-out period ending December 31, 1994) qualifying supervisory
goodwill resulting from prior regulatory accounting practices. At September 30,
1993, the Bank had $7.5 million in goodwill which does not qualify as
supervisory goodwill and must be deducted in computing core capital.
Certain intangible assets must be deducted in computing core capital
because they are excluded from assets under FIRREA's capital rules. However,
there are exceptions to this rule of deduction. First, certain intangible
assets that meet specific requirements as to market value determination and
salability may be included in core capital but are limited to 25.0% of core
capital. In addition, the following intangible assets are not deducted from
assets for purposes of determining core capital: (i) purchased mortgage
servicing rights, provided that such rights must be valued at the lower of 90.0%
of fair market value to the extent determinable, 90.0% of original cost, or
current amortized book value, and that any amount written off must be deducted
from core capital; and (ii) qualifying supervisory goodwill subject to a
phase-out period ending December 31, 1994, as described above.
On April 22, 1991, the OTS published a notice of proposed rulemaking,
"Regulatory Capital; Leverage Ratio Requirement". The proposed rule would
establish a 3.0% leverage ratio (core capital ratio) only for savings
institutions in the strongest financial and managerial condition as determined
by the OTS.
25
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
All other savings institutions would be required to maintain leverage ratios of
at least 4.0% to 5.0%. The proposed rule is compelled by FIRREA which mandates
that the OTS' capital requirement be no less stringent than the capital
standards applicable to national banks. Under the Office of the Comptroller of
the Currency's ("OCC") capital standards, the highest rated national banks would
be required to maintain Tier 1 (or core) capital in an amount at least equal to
3.0% of adjusted total assets. All other national banks would be required to
maintain leverage ratios of at least 1.0% to 2.0% higher than the 3.0% minimum.
This leverage ratio will be reduced to 3.0% for all thrift institutions
effective July 1, 1994 in conjunction with a new rule regarding an interest rate
risk component of the risk-based capital regulation as discussed below.
The tangible capital requirement mandates a savings institution to maintain
tangible capital in an amount not less than 1.5% of adjusted total assets.
Tangible capital is defined as core capital minus intangible assets included in
core capital. However, up to 90.0% of purchased mortgage servicing rights may
be included in calculating tangible capital, but OTS regulations prohibit the
inclusion of supervisory goodwill.
The risk-based capital requirement mandates a savings institution to
maintain risk-based capital in an amount not less than 8.0% of risk adjusted
assets. Risk-based capital includes core capital and supplementary capital,
provided that the amount of supplementary capital counting toward the
requirement may not exceed core capital; i.e. only up to 50.0% of the risk-based
capital of a savings institution can be supplementary capital. In calculating
an institution's risk-based capital ratio, the institution's assets, as well as
off-balance sheet items that are converted to an on-balance sheet credit
equivalent amount, are risk weighted by multiplying each item by a percentage
ranging from 0.0% for the lowest risk assets, such as certain United States
government securities, to 100.0% for the highest risk assets, such as certain
repossessed assets.
On August 31, 1993, the OTS adopted a final rule that adds an interest
rate risk component to the risk-based capital requirement for thrift
institutions, "Regulatory Capital: Interest Rate Risk Component." The final
rule includes provisions for measuring "above normal" interest rate risk and the
amount of additional capital requirement for such risk. An institution would
have "above normal" risk if it sustains a decline in its net portfolio value
("NPV") of more than 2.0% of the institution's assets as a result of a
hypothetical 200 basis point increase or decrease in interest rates. NPV is
defined as the market value of assets, less the market value of liabilities,
plus the net market value of off-balance sheet items. Measured interest rate
risk ("MIRR") is defined as the decline in an institution's NPV resulting from a
200 basis point interest rate change, expressed as a percent of the market value
of assets. If an institution's MIRR exceeds 2.0%, it will be required to
maintain additional capital equal to 50.0% of that difference. The amount of
additional capital required would be added to the existing risk-based capital
requirement. Institutions whose MIRR is less than or equal to 2.0% will not be
required to maintain additional capital for interest rate risk. The OTS will
calculate changes in an institution's NPV based on financial data the
institution submits on a quarterly basis to the OTS. The final rule is
effective January 1, 1994, but the required interest rate risk calculations and
resulting adjustments to capital, if any, begins on July 1, 1994. The final
rule also will lower the leverage ratio applicable to all thrift institutions to
3.0%, from the current level of 4.0%, on July 1, 1994. Based upon recent
information regarding the Bank's MIRR received from the OTS, the Bank would not
have been required to maintain additional capital for interest rate risk as of
September 30, 1993, had the final rule been in effect at that time.
26
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
For purposes of determining the various capital components, FIRREA requires
that investments in certain "non-includable subsidiaries" be deducted from
capital and assets. Non-includable subsidiaries are generally those engaged in
activities not permissible for national banks. However, certain exemptions
generally apply where the subsidiary: (i) is engaged in the activities solely as
an agent for its customers; (ii) is engaged solely in mortgage-banking
activities; (iii) (a) is an insured depository institution or a company the sole
investment of which is an insured depository institution and (b) was acquired by
the association prior to April 12, 1989; or (iv) is a federal savings
association that existed as such on August 9, 1989, and was, or acquired its
principal assets from, an association that was chartered before October 15,
1982, as a state savings or cooperative bank. A declining percentage of
investment in and loans to non-includable subsidiaries may be included in
capital through June 30, 1994. This phase out period may be extended into 1996
based upon a case by case review and approval by the OTS; however, the Bank did
not apply for such an extension. At September 30, 1993, the Bank's investments
in and advances to non-includable subsidiaries totalled $1.5 million of which
$635,000 was not includable in the capital computation. The continued phase-in
of these capital provisions will reduce the Bank's capital levels but is not
expected to have a significantly adverse effect on the Bank's ability to meet
its future capital requirements.
The following table presents the Bank's capital levels at September 30,
1993, relative to the requirements applicable under FIRREA and the implementing
regulations of the OTS at that date:
<TABLE>
<CAPTION>
Amount Percent Actual Actual Excess
(dollars in thousands) Required Required Amount Percent Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Core Capital......... $ 21,778 3.0% $ 57,449 7.8% $ 35,671
Tangible Capital..... 10,889 1.5 57,449 7.8 46,560
Risk-Based Capital... 30,816 8.0 62,269 16.2 31,453
</TABLE>
Although the Bank's actual capital ratios exceed the minimum capital
requirements imposed by the implementing OTS regulations at September 30, 1993,
future events, such as increased interest rates, or a downturn in the economy in
areas where the Bank has most of its loans, could adversely affect future
earnings and, consequently, the ability of the Bank to meet its future minimum
capital requirements.
The following table presents a reconciliation of capital under generally
accepted accounting principles ("GAAP") to regulatory capital as of September
30, 1993:
<TABLE>
<CAPTION>
Core Tangible Risk-Based
(dollars in thousands) Capital Capital Capital
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
GAAP capital............................... $ 65,551 65,551 65,551
Nonallowable assets:
Goodwill................................ (7,467) (7,467) (7,467)
Nonincludable subsidiaries.............. (635) (635) (635)
Other assets............................ (14)
Supplementary capital items:
Allowable general valuation allowances.. 4,834
------ ------ ------
Regulatory capital......................... $ 57,449 57,449 62,269
====== ====== ======
</TABLE>
27
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
If an institution fails to meet its minimum required capital standards, the OTS
may take such actions as it deems appropriate to protect the deposit insurance
funds, the institution, and its depositors. Such actions may include various
operating restrictions, limitations on liability growth, limitations on deposit
account interest rates, and investment restrictions.
As a means of limiting regulatory discretion to allow undercapitalized
depository institutions to remain in operation and thereby minimizing insurance
fund losses, the "Federal Deposit Insurance Corporation Improvement Act of
1991" ("FDICIA") requires the OTS and the other federal banking agencies to
establish a prompt regulatory action system pursuant to which banks and thrifts
will be classified, according to their capital levels, into five categories:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. The OTS's regulations
implementing the prompt corrective action provisions of FDICIA provide that a
savings institution is: (i) well-capitalized if it has total risk-based
capital of 10.0% or more, has Tier 1 risk-based capital of 6.0% or more, and
has core capital of 5.0% or more; (ii) adequately capitalized if it has total
risk-based capital of 8.0% or more, Tier 1 risk-based capital of 4.0% or more,
and core capital of 4.0% or more; (iii) undercapitalized if it has total
risk-based capital of less than 8.0%, Tier 1 risk-based capital of less than
4.0%, or core capital of less than 4.0%; (iv) significantly undercapitalized if
it has total risk-based capital of less than 6.0%, Tier 1 risk-based capital of
less than 3.0%, or core capital of less than 3.0%; and (v) critically
undercapitalized if it has tangible equity of less than 2.0%. Tier 1
risk-based capital does not include supplementary capital and is therefore
basically equal to core capital. An institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating. Based on its
capital levels as of September 30, 1993, the Bank would be placed in the "well
capitalized" category prescribed by the statute. Under the framework mandated
by the statute, an institution that is in one of the lowest three capital
categories must submit and comply with an acceptable capital restoration plan
and becomes subject to a set of operational and rehabilitative limitations that
become increasingly restrictive as the institution's capital levels decline
further. In the case of an institution that has tangible capital of less than
2.0% of total assets and thus is categorized as critically undercapitalized,
the prompt corrective action provisions of FDICIA generally require the
appropriate regulatory agency to place such institution into conservatorship or
receivership within 90 days unless it is determined that some other lower
resolution cost alternative exists. While these provisions on their face would
not appear to implicate Mid-State Federal given its present capital position,
they do signal the increasing emphasis on capital adequacy for all depository
institutions and may result in future adjustments and modifications to the
current capital requirements imposed on thrift institutions.
- --------------------------------------------------------------------------------
28
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
14. Stock Option Plans
As of September 30, 1993, the Bank had three stock option plans. Each of
the three plans, when adopted by the Bank's shareholders, initially reserved
shares of the Bank's common stock for issuance pursuant to options granted
thereunder to full-time employees, officers, and directors. The 1983 Stock
Option Plan, adopted on January 19, 1984, initially reserved 134,912 shares,
the 1984 Stock Option Plan, adopted on January 24, 1985, initially reserved
67,542 shares, and the 1988 Stock Option Plan, adopted on April 27, 1989,
initially reserved 200,000 shares of the Bank's common stock for issuance
pursuant to options granted hereunder. With the adoption of the 1988 Stock
Option Plan, no further grants could be made under the 1983 and 1984 Stock
Option Plans.
In connection with the acquisition of Brooksville, on September 30, 1987,
the Bank assumed the outstanding options previously granted by Brooksville
under Brooksville's stock option plan. Such options are exercisable in
accordance with their terms for the number of shares of the Bank's common stock
and at an exercise price adjusted to reflect the ratio pursuant to which shares
of Brooksville's common stock were converted into the Bank's common stock.
The exercise price for options issued under the Bank's stock option plans
may not be less than the fair market value of common stock on the date that the
option is granted. Options have a maximum term of ten years, are
non-transferable, and expire upon or shortly after termination of employment
with the Bank.
The following is a summary of option transactions:
<TABLE>
<CAPTION>
Option Prices
Shares Per Share
- -----------------------------------------------------------------------------
<S> <C> <C>
Outstanding, September 30, 1990........ 279,867
Granted................................
Cancelled or expired................... (57,501) $13.750 - $23.250
Exercised.............................. (2,102) $ 5.710
-------
Outstanding, September 30, 1991........ 220,264
Granted................................ 178,000 $ 7.875 - $17.500
Cancelled or expired................... (179,250) $14.500 - $26.750
Exercised.............................. (16,161) $ 5.710 - $ 7.875
-------
Outstanding, September 30, 1992........ 202,853
Granted................................ 38,500 $25.000 - $27.125
Cancelled or expired................... (10,173) $ 7.875 - $27.000
Exercised.............................. (55,780) $ 5.710 - $17.500
-------
Outstanding, September 30, 1993........ 175,400
=======
</TABLE>
At September 30, 1993, options covering 143,123 shares were exercisable
under the stock option plans and no options from the 1988 Stock Option Plan,
were available to be granted.
The stock option plans described above include stock appreciation rights
issued in 1988 and 1989 to certain employees. The exercise of the stock
appreciation rights is subject to the approval of the Bank's Stock Option
Committee of the Board of Directors. The stock appreciation rights entitle the
holder to receive payment equal to the appreciation in value of the shares
since the option was granted.
29
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
To the extent that the stock appreciation rights are exercised, the
accompanying stock options are canceled. In February, 1993, the Stock Option
Committee of the Board of Directors adopted a resolution to deny any request
for the exercise of the Stock Appreciation Rights (SAR's) during the period of
pending acquisition discussions and, if a definitive agreement was reached,
through the consumation of the acquisition transaction. Total compensation
expense relating to the stock appreciation rights, measured as the difference
between the option exercise price and the market price of the Bank's common
stock less any previous accrual, was $386,000 for the year ended September 30,
1993, and $675,000 for the year ended September 30, 1992. In the year ended
September 30, 1993, additional paid-in capital was credited $420,000 for
compensation accrued relating to stock appreciation rights cancelled upon the
exercise of the related stock options.
In November, 1991, the Board of Directors granted options and related stock
appreciation rights covering 92,500 shares of Mid-State Federal common stock
from the 1988 Stock Option Plan to certain officers and key employees of the
Bank at an exercise price of $7.875 per share, conditioned upon the requirement
that the recipients surrender for cancellation any outstanding options
previously held. Options covering a total of 157,076 shares, at an average
exercise price of $17.987 per share, were surrendered in connection with these
grants. Also, in September, 1992, the Board of Directors granted an additional
85,500 shares of Mid-State Federal common stock from the 1988 Stock Option Plan
to certain officers and key employees of the Bank at an exercise price of
$17.50. In January, 1993, the Board of Directors confirmed and approved the
automatic grant of stock options to Directors as authorized and mandated by the
amendment to the Amended and Restated 1988 Stock Option Plan approved by the
stockholders at the 1993 Annual Meeting of Stockholders, for a total of 32,277
shares of Mid-State Federal common stock at an exercise price of $25.00 per
share. Also in February and March, 1993, the Stock Option Committee of the
Board of Directors granted an additional 1,800 shares and 4,423 shares,
respectively of Mid-State Federal common stock from the 1988 Stock Option Plan
to certain officers and key employees of the Bank at an exercise price of
$19.125 and $27.00 per shares, respectively. As a result of the 1993 grants,
and the exercise and/or forfeiture of 65,953 shares under the 1988 Stock Option
Plan by certain officers and key employees, shares subject to option under the
1983, 1984 and 1988 Stock Option Plans (exclusive of the Brooksville options
included in total shares outstanding at September 30, 1993) decreased from
202,853 shares at September 20, 1992 at an average exercise price of $12.740
per share to 175,400 shares at September 30, 1993 at an average exercise price
of $16.697 per share.
On January 23, 1986, the Bank adopted an employee stock purchase plan for
qualifying employees. The price at which shares of common stock may be
purchased is equal to 85.0% of the market price on the purchase date. The
employee stock purchase plan was temporarily discontinued until the acquisition
transaction with First Florida was terminated early in 1991. For the years
ended September 30, 1993, 1992, and 1991, 848, 2,863, and 1,193 shares,
respectively, were purchased pursuant to the plan.
- --------------------------------------------------------------------------------
30
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
15. Interest Rate Risk
The Bank is engaged primarily in the business of investing funds, obtained
from deposits and borrowings, in mortgage loans and other interest-earning
loans and investments. These assets and liabilities are subject to interest
rate repricing at their scheduled maturity or prior to maturity in the case of
adjustable rate products and prepayments on loans.
A common measure of the degree of an institution's interest rate risk is
its gap position. The following table reflects the Bank's gap position at
September 30, 1993 (unaudited), based upon certain estimates and assumptions as
to the loan prepayment rates and certain deposit erosion rates, which
management believes are reasonable based on the Bank's experience:
<TABLE>
<CAPTION>
Amount Maturing or Repricing In
------------------------------------------------------------------------------------------
More than More than More than More than
six months one year three years five years
Six months thru thru thru thru
(dollars in thousands) or less one year three years five years ten years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans and
securities.............................
Adjustable rate...................... $ 138,094 176,075 13,133 5,931
Fixed rate........................... 26,762 23,533 64,976 40,250 40,651
-------- ------- ------- ------- -------
Total real estate mortgage loans and
securities............................. 164,856 199,608 78,109 46,181 40,651
Consumer loans......................... 8,728 7,460 20,318 10,442 6,627
Commercial loans....................... 369 225 296 36 5
Investment securities.................. 35,708 15,022 15,322 15,057 5,658
FHLB stock............................. 6,911
-------- ------- ------- ------- -------
Total interest-earning assets........ 216,572 222,315 114,045 71,716 52,941
-------- ------- ------- ------- -------
MMDA deposits.......................... 69,809
Passbooks & transaction deposits....... 20,357 17,654 21,903 17,742 30,973
Certificate deposits................... 198,417 107,231 84,968 32,554 6,403
-------- ------- ------- ------- -------
Total deposits....................... 288,583 124,885 106,871 50,296 37,376
FHLB advances.......................... 11,498 12,997
Other borrowings.......................
-------- ------- ------- ------- -------
Total interest-bearing liabilities... 300,081 124,885 106,871 63,293 37,376
-------- ------- ------- ------- -------
Gap.................................... $ (83,509) 97,430 7,174 8,423 15,565
======== ======= ======= ======= =======
Gap to total assets.................... (11.01%) 12.95 0.95 1.12 2.07
Cumulative gap to total assets......... (11.01%) 1.85 2.80 3.92 5.99
</TABLE>
<TABLE>
<CAPTION>
Amount Maturing or Repricing In
- ---------------------------------------------------------------------------------------------------
More than
ten years
thru More than
(dollars in thousands) twenty years twenty years Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate mortgage loans and
securities.............................
Adjustable rate and balloon payment.. 333,233
Fixed rate........................... 13,789 1,495 211,456
------- ------ --------
Total real estate mortgage loans and
securities............................. 13,789 1,495 544,689
Consumer loans......................... 53,575
Commercial loans....................... 931
Investment securities.................. 1,001 11,287 99,055
FHLB stock............................. 6,911
------- ------ --------
Total interest-earning assets........ 14,790 12,782 705,161
------- ------ --------
MMDA deposits.......................... 69,809
Passbooks & transaction deposits....... 29,089 15,573 153,291
Certificate deposits................... 429,573
------- ------ --------
Total deposits....................... 29,089 15,573 652,673
FHLB advances.......................... 24,495
Other borrowings.......................
------- ------ --------
Total interest-bearing liabilities... 29,089 15,573 677,168
------- ------ --------
Gap.................................... (14,299) (2,791) 27,993
======= ====== ========
Gap to total assets.................... (1.90) (0.37) 3.72
Cumulative gap to total assets......... 4.90 3.72
</TABLE>
The preceding table does not reflect the degree to which the ability of the
Bank's interest rate sensitive assets to adjust to changes in interest rates
may be restricted by contractual or other limitations (such as rate ceilings on
loans) on applicable asset repricing mechanisms. Included in interest rate
sensitive assets are adjustable rate loans and securities with interest rates
tied to one or more indexes that may lag movements in general interest rates.
At September, 30, 1993, the Bank had approximately $106.8 million of loans and
securities tied to the National Contract Rate for Previously Occupied Homes
Index which is considered to be such a lagging index.
31
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
16. Quarterly Financial Data (Unaudited)
The following tables present summarized quarterly data:
<TABLE>
<CAPTION>
Year Ended September 30, 1993
----------------------------------------
First Second Third Fourth
(dollars in thousands, except per share data) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income......................... $ 14,395 14,005 13,590 13,084
Interest expense........................ 7,654 7,188 6,938 6,544
------ ------ ------ ------
Net interest income..................... 6,741 6,817 6,652 6,540
Provision for loan losses............... 600 500 500 1,337
------ ------ ------ ------
Net interest income after provision for
loan losses............................ 6,141 6,317 6,152 5,203
Gain on sale of loans................... 73 52 71 58
Litigation settlement................... 4,900
Other income............................ 565 541 638 781
Other expense........................... (4,527) (4,587) (4,429) (4,165)
------ ------ ------ ------
Income before income taxes.............. 2,252 7,223 2,432 1,877
Provision for income taxes.............. 891 2,867 1,106 1,016
------ ------ ------ ------
Net income.............................. $ 1,361 4,356 1,326 861
------ ------ ------ ------
Net income per share (2).............. $ .63 2.00 .60 .39
------ ------ ------ ------
Dividends paid per share.............. $
------ ------ ------ ------
</TABLE>
32
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30, 1992
-------------------------------------------------
(1) First (1) Second (1) Third Fourth
(dollars in thousands, except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income............................. $ 17,810 16,994 15,729 14,969
Interest expense............................ 12,071 10,394 8,915 8,257
------ ------ ------ ------
Net interest income......................... 5,739 6,600 6,814 6,712
Provision for loan losses................... 658 811 781 1,196
------ ------ ------ ------
Net interest income after provision for
loan losses................................ 5,081 5,789 6,033 5,516
Gain on sale of investments and loans....... 35 83 119 45
Other income................................ 666 689 640 332
Other expense............................... (4,416) (4,539) (4,697) (4,588)
------ ------ ------ ------
Income before income taxes.................. 1,366 2,022 2,095 1,305
Provision for income taxes.................. 711 1,026 1,054 280
------ ------ ------ ------
Net income before cumulative effect of a
change
in accounting principle................... 655 996 1,041 1,025
Cumulative effect on prior years of adopting
FAS 109.................................. 1,872
------ ------ ------ ------
Net income.................................. $ 2,527 996 1,041 1,025
------ ------ ------ ------
Net income per share before cumulative
effect of a change in accounting
principle............................ $ .33 .48 .49 .48
Cumulative effect on prior years of
adopting
FAS 109............................... .90
------ ------ ------ ------
Net income per share (2).................. $ 1.23 .48 49 .48
------ ------ ------ ------
Dividends paid per share.................. $
------ ------ ------ ------
Effect of accounting change for each of the
quarters:
Decrease in provision for income
taxes and increase in net income....... $ 79 92 91 147
------ ------ ------ ------
Increase in net income per share.......... $ 05 .04 .04 .07
------ ------ ------ ------
</TABLE>
(1) Amounts have been restated for the adoption of FAS 109 as described in
Note 1 and as shown.
(2) Because of the use of the treasury stock method in calculating the
earnings per common share and common share equivalents, the total of the
quarterly income (loss) per share does not equal the income (loss) per share
for the year.
- --------------------------------------------------------------------------------
33
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
17. Disclosures about Value of Financial Instruments
The following methods and assumptions were used in estimating the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
General Comment
The following estimated fair value information as of September 30, 1993, is
required by Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" ("FAS 107"). Such information is
based on the requirements set forth in FAS 107 does not purport to represent
the aggregate net fair value of the Bank. Further, the fair value estimates
are based on various assumptions, methodologies and subjective considerations,
which vary widely among different financial institutions and which are subject
to change.
Cash and cash equivalents: The balance sheet carrying amounts for cash and
short-term instruments approximate the estimate fair values.
Investment and mortgage-backed securities: Fair values for investment and
mortgage-backed and related securities are based on quoted market prices, if
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans receivable: For variable rate loans that reprice frequently and
which entail no significant change in credit risk, fair values are based on the
carrying values. The estimated fair values of fixed rates mortgage loans
(e.g., one-to-four family residential), and consumer loans are estimated by
discounting the estimated future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings for the
same remaining maturities.
Accrual Interest Receivable: The balance sheet carrying amount for accrual
interest receivable approximates the estimated fair value.
Federal Home Loan Bank stock: Fair value of the Bank's investment in FHLB
stock is based on its redemption value, which is its cost of $100 per share.
Deposit liabilities: The fair values estimated for demand deposits (e.g.,
interest and non-interest-bearing NOW accounts, passbook savings, and certain
types of money market accounts) are, by definition, equal to the amount payable
on demand at the reporting date (i.e., their carrying amounts). The carrying
amounts of variable rate, fixed-term money market accounts and certificates of
deposit approximate their fair values at the reporting date. Fair values of
fixed rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered to a schedule
of aggregated expected monthly time deposit maturities.
Advances from Federal Home Loan Bank: The fair value of the Bank's
advances from FHLB is estimated using discounted cash flow analyses, based on
the Bank's borrowing rate for a similar advance.
Commitments to Originate Loans: The fair value of commitments is estimated
using a discounted cash flow calculation that applies interest rates currently
being offered against the committed rates.
34
<PAGE>
Notes to Consolidated Financial Statements
Mid-State Federal Savings Bank and Subsidiaries
- --------------------------------------------------------------------------------
The estimated fair values of the Bank's financial instruments at September
30, 1993 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
(dollars in thousands) Amount Value
- ----------------------------------------------------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents.. $ 47,200 47,200
------- -------
Investment Securities...... 81,200 84,400
------- -------
Mortgage-backed
securities................ 70,600 73,800
------- -------
Loans receivable and
held for sale............. 501,200
Less - allowance for
loan losses............... (6,100)
------- -------
495,100 513,900
------- -------
Accrual Interest
Receivable................ 4,400 4,400
------- -------
Federal Home Loan Bank
Stock..................... 6,800 6,800
------- -------
Financial Liabilities:
Deposits................... 644,800 651,200
------- -------
Advances from the FHLB..... 13,000 14,600
------- -------
Off balance sheet
instruments (unrealized
gains (losses) from
commitments to extend
credit.................... --- ---
</TABLE>
- --------------------------------------------------------------------------------
18. Subsequent Event
Effective with the close of business on December 9, 1993, Mid-State Federal
was acquired by AmSouth Bancorporation ("AmSouth") and merged into AmSouth Bank
of Florida, a wholly owned subsidiary of AmSouth. AmSouth acquired Mid-State
Federal by exchanging 0.8965 of a share of AmSouth common stock plus $13.90 in
cash for each share of Mid-State Federal common stock. Based upon AmSouth's
stock price of 30-1/8 per share at the close of business on December 9, 1993,
the transaction was valued at approximately $93.7 million, or $40.91 per share
of Mid-State Federal common stock. No adjustments have been made to the
accompanying consolidated financial statements as a result of this transaction.
35
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMSOUTH BANCORPORATION
By: /s/ Ricky W. Thomas
------------------------------------
Ricky W. Thomas
Senior Vice President and Controller
Date: February 16, 1994
----------------------------
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Form 8-K/A of AmSouth Bancorporation of our
report dated November 19, 1993 (December 9, 1993 as to Note 18) on the
consolidated financial statements of Mid-State Federal Savings Bank as of
September 30, 1993 and 1992 and for each of the three years in the period
ended September 30, 1993.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
Orlando, Florida
February 14, 1993
