U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission file number
2-94245-LA
BILTMORE BANK CORP.
(Exact name of registrant as specified in its charter)
ARIZONA 86-0490147 012112
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2425 East Camelback, Suite 100, Phoenix, Arizona 85016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 381-6800
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
16,522,530 shares of common stock are outstanding at March 22, 1996. Currently
there is no established public trading market for the Company's common shares.
<PAGE>
PART I
ITEM 1. BUSINESS
Business of the Biltmore Bank Corp. and Biltmore Investors Bank
Biltmore Bank Corp. ("The Company") was incorporated under the laws of
the State of Arizona on March 19, 1984 to operate as the holding company for
Biltmore National Bank, predecessor to Biltmore Investors Bank ("Bank"). The
Bank, organized as a nationally chartered bank, opened August 22, 1985. The Bank
engages in the commercial banking business. The Bank accepts checking and
savings deposits, makes a full range of commercial, installment and real estate
loans, and provides other customary banking services, including consumer loans,
brokerage and trust services. The Bank has two banking offices, and one
administrative office. The main office is at 2425 E. Camelback Road in Phoenix,
Arizona. The second branch is at 8700 E. Pinnacle Peak Road in Scottsdale,
Arizona. Both offices provide banking, trust and investment services for its
primary service area. The Company has no definite plans to engage in any other
business at this time. Federal law prohibits bank holding companies from
engaging in activities other than banking or bank-related services.
Marketing and Business Plans
The Bank's business plan emphasizes personalized service combined with
a full range of banking services for executives, professionals and
entrepreneurs. The Bank markets its services to professional firms, including
law firms, accounting firms, physicians and dentists, manufacturing and
distribution businesses, service firms, and individuals living or working in the
Bank's primary service area. The Board of Directors and Advisory Directors of
the Bank assist in business development efforts through referrals obtained by
the Directors' personal contacts and participation in activities in the
community in which the Bank is located. The Board of Directors of the Bank also
attempts, on a constant basis, to develop methods that will better serve the
financial needs of the Bank's primary service area. The Bank seeks to
differentiate itself from other large commercial banks and savings and loan
associations by a marketing plan that emphasizes personalized, friendly service
from professional staff members, access to Bank management, prompt loan
decisions, and customized products.
The Bank's real estate lending philosophy and direction now emphasizes
owner-occupied permanent real estate lending and residential real estate
construction loans, with permanent take-out commitments from either the Bank or
other financial institutions.
In conjunction with the Bank's business plan to provide a full range of
banking services, the Bank introduced a securities brokerage office in 1990 and
trust services in 1991. The securities brokerage office, which is located at the
Bank, is operated under an agreement between the Bank and LINK Investment
Services, a national non-affiliated securities brokerage firm. The trust office,
which is also located at the Bank, offers a full range of employee benefit,
personal trust, custody, and asset management services.
On February 1, 1994 Biltmore Investors Bank consummated a purchase and
assumption agreement with Sears, Roebuck and Co. to acquire substantially all of
the assets and liabilities of American National Bank, which operated at the
Pinnacle Peak site.
The acquisition of ANB assets allowed Biltmore Investors Bank to
establish an operation in a strategically desirable market area without
incurring significant start-up costs and to provide a high quality of banking
service to the North Scottsdale area. This acquisition allows the Bank to
provide additional services to the former clients of American National Bank such
as trust, financial planning and a higher lending limit. These additional
services more effectively meet the needs of the market area.
Competition
The banking business in Arizona generally, and in the Bank's primary
service area in particular, is highly competitive with respect to both loans and
deposits and is dominated by a relatively small number of major banks which have
many offices throughout the State of Arizona. As of December 31, 1995, according
to the Arizona State Banking Department, there were twenty (20) state chartered
banks and nine (9) national banks for a total of twenty- nine (29) banks.
The Bank competes for deposits and loans principally with these banks,
as well as with other financial intermediaries including credit unions, mortgage
companies, insurance companies, stock brokerage firms, and other lending
institutions. These larger institutions are able to undertake large advertising
campaigns and to allocate their investment assets in areas of highest yield and
demand. In competing for deposits, the Bank also is subject to certain
limitations not applicable to non-bank financial institutions.
In order to compete with the other financial institutions within the
Bank's primary service area, the Bank relies on personal contacts by its
officers, Directors, members of the Advisory Board, employees and the
shareholders of the Company. The Bank's promotional activities emphasize the
advantages of dealing with a locally-managed institution that is sensitive to
the special needs of the community. The Bank provides a courier service to
clients in order to compete with other institutions who have multiple locations.
Employees
As of December 31, 1995, the Bank employed forty-five (45) full-time
employees and three (3) part time employees. Of these, fourteen (14) were
management personnel.
Profitability
The Company and the Bank have been operating since 1985. Because the
Company's principal activity for the foreseeable future will be to act as the
holding company of the Bank, its profitability depends on the Bank's
profitability. For the year ended December 31, 1995, the Company recorded
consolidated net income of $715,281 compared with a consolidated net income of
$1,357,375 in 1994.
SUPERVISION AND REGULATION
The Company
The Common Stock is subject to the registration requirements of the
Securities Act of 1933, as amended. The Company is subject to the periodic
reporting requirements of the Securities Exchange Act of 1934, as amended, which
includes, but is not limited to, the filing of annual, quarterly and other
reports with the Securities and Exchange Commission.
The Company is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"), and is subject to
supervision by the Federal Reserve Board. As a bank holding company, the Company
is required to file with the Federal Reserve Board an annual report and such
other additional information as the Federal Reserve Board requires pursuant to
the Holding Company Act. The Federal Reserve Board also makes examinations of
the Company and its subsidiary.
The Holding Company Act requires prior approval of the Federal Reserve
Board for, among other things, the acquisition by a bank holding company of
direct or indirect ownership or control of more than five percent (5%) of the
voting shares, or substantially all the assets of any bank, or for a merger or
consolidation by a bank holding company with any other bank holding company. The
Holding Company Act also prohibits the acquisition by a bank holding company or
any of its subsidiaries of joint shares or substantially all the assets of any
bank located in a state other than the state in which the operations of the bank
holding company's banking subsidiaries are principally conducted, unless the
statutes of the state in which the bank to be acquired is located expressly
authorize such an acquisition. Beginning October 1, 1986, out-of-state banks and
bank holding companies were allowed to acquire banks, bank holding companies, or
both, in Arizona.
With certain limited exceptions, a bank holding company is prohibited
from acquiring direct or indirect ownership or control of more than five percent
(5%) of the voting shares of any company which is not a bank or bank holding
company and from engaging directly or indirectly in any activity other than
banking, managing or controlling banks or performing services for its authorized
subsidiaries. A bank holding company, however, may engage in activities which
the Federal Reserve Board has determined to be closely related to banking. In
making that determination, the Federal Reserve Board is required to consider
whether the performance of these activities can reasonably be expected to
produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency, that outweigh possible adverse effects,
such as undue concentration of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices. The Federal Reserve Board
is also empowered to differentiate between activities commenced de novo and
activities commenced by the acquisition, in whole or in part, of a going
concern. The Federal Reserve Board has determined that mortgage banking is an
activity which, in general, can be engaged in by a subsidiary of a banking
holding company. However, should the Company decide to establish or acquire a
mortgage banking subsidiary, it would be required to obtain the prior approval
of the Federal Reserve Board.
Additional statutory provisions prohibit a bank holding company and any
subsidiary banks from engaging in certain tie-in arrangements in connection with
the extension of credit. Thus, a subsidiary bank may not extend credit, lease or
sell property, furnish any services, or fix or vary the consideration for any of
the foregoing on the condition that: (i) the customer must obtain or provide
some additional credit, property or service from or to, such bank other than a
loan, discount, deposit or trust service; or (ii) the customer may not obtain
some other credit, property or service from competitors, except reasonable
requirements to assure soundness of credit extended.
The federal banking agencies have also adopted leverage capital
guidelines which banking organizations must meet. Under these guidelines, the
most highly rated banking organizations must meet a leverage ratio of at least
3% Tier 1 capital to adjusted total assets, while lower rated banking
organizations must maintain a ratio of at least 4% to 5%. In all cases, banking
institutions are expected to hold capital commensurate with the level and nature
of risks. The Company's leverage ratios for the years ended December 31, 1995
and 1994 were 8.88% and 7.12%, respectively.
The Bank
The Bank is a national banking association whose depositors are insured
by the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum
legal limits of the FDIC ($100,000) and is subject to regulation, supervision,
and regular examination by the Comptroller of the Currency. The Bank is a member
of the Federal Reserve System and is subject to certain provisions of the
Federal Reserve Act and to regulations promulgated from time to time by the
Federal Reserve Board. The Bank also is subject to applicable provisions of
Arizona state law, insofar as those laws do not conflict with, or are not
preempted by, federal law. The regulations of these various agencies govern most
aspects of the Bank's business, including reserve against deposits, loans,
investments, mergers and acquisitions, borrowings, dividends and locations of
branch offices.
The Bank is required to maintain adequate capital ratios. The Federal
Reserve Board has adopted a risk-based capital measurement to assist in the
determination of capital adequacy. The guidelines divide holding companies into
two categories: (1) above 150 million dollars in consolidated assets, in which
case the guidelines are applied on a consolidated basis for all banks under the
holding company, and (2) holding companies below 150 million dollars in
consolidated assets level, in which case the guidelines are applied on a
bank-by-bank basis. The Bank falls in the second category as of December 31,
1995.
The Federal Reserve Board has adopted capital regulations which require
the Bank to maintain two separate minimum capital ratios: the Tier 1 Capital
Ratio and the Total Risk-Weighted Capital Ratio. The Bank's capital ratios are
shown, along with the minimum required ratios as of December 31, 1995, and 1994
respectively, in the following table:
<PAGE>
Total Risk-
Tier 1 Weighted
Capital Capital
------- -------
Capital Ratio at December 31, 1995 13.57% 16.16%
Capital Ratio at December 31, 1994 12.96% 14.23%
Regulatory Capital Requirement 4.00% 8.00%
The Depository Institutions Deregulation and Monetary Control Act of 1980
specifies that any reserve requirement to maintain non-interest bearing reserves
with the Federal Reserve Bank will be uniformly applied to all depository
institutions that maintain transaction accounts (demand deposit accounts, NOW
accounts and savings accounts subject to automatic transfers) or non-personal
time deposits.
In August 1989, the Financial Institution Reform, Recovery and Enforcement
Act ("FIRREA") was enacted into law. FIRREA provides, in part, for the
recapitalization of the savings association and bank insurance funds, the
restructuring of the federal agencies that insure and supervise savings
institutions, and the implementation of a number of changes to federal statutes
governing not only savings institutions, but also banking organizations.
Provisions of FIRREA which affect the Company and the Bank include, without
limitation, the enhancement of the FDIC's enforcement powers, an increase in
banks' deposit insurance premiums and the basing of a bank's deposit insurance
premium on the type of investments held by the Bank.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"Act") modified FIRREA in several material respects and set forth certain
changes in the legal environment for insured banks. The Act, among other
provisions, reduced insurance coverage for certain kinds of deposits, increased
consumer-oriented requirements, and revised the process of supervision and
examination of depository institutions.
Specifically (but not exclusively) the Act provided for recapitalization
of the Bank Insurance Fund, created additional controls on brokered deposits,
tightened controls on extensions of credits to directors and executive officers
and accelerated regulatory action for underperforming or under capitalized
institutions.
Legislative and regulatory proposals which could affect the Bank
specifically and the banking business in general may be introduced before the
United States Congress and other governmental bodies. These proposals may
further alter the structure, regulation and competitive relationship of
financial institutions if they become law, and may subject the Bank to increased
regulation, disclosure and reporting requirements. In addition, various banking
regulatory agencies frequently propose rules and regulations to implement and
enforce already existing legislation. It cannot be predicted whether or in what
form any such legislation or regulations will be enacted or the extent to which
the business of the Bank would be affected thereby.
Banking is a business which depends on interest rate margins. In general,
the difference between the interest paid by a bank on its deposits and its other
borrowings, and the interest received by a bank on loans extended to its
customers and on securities held in its investment portfolio, comprise the major
portion of a Bank's earnings. Thus, the earnings and growth of the Bank are
subject to the influences of economic conditions generally, both domestic and
foreign, and also to the monetary and fiscal policies of the United States and
its agencies, particularly the Federal Reserve Board, which regulates the supply
of money through various means including open market dealings in United States
government securities. The nature and timing of future changes in the policies
and their impact on the Bank cannot be predicted.
INDUSTRY SEGMENTS AND FOREIGN OPERATIONS
Industry segment information and foreign operations disclosures are not
applicable to the Company since the Company's only activity is ownership of the
Bank which has no foreign operations.
SELECTED BANKING INFORMATION
Set forth below is information relating to the Bank's financial position as
of December 31, 1995 and 1994, and relating to the Bank's operations for the
years ended December 31, 1995, 1994 and 1993.
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential
A. Schedule of Assets, Liabilities and Shareholders' Equity and
Interest Income
The following schedule shows the average balances of the Bank's assets,
liabilities and shareholders' equity accounts and the percentage distribution of
the items using the average month-end balances for the periods indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1995 1994
----------------------- -----------------------
<S> <C> <C> <C> <C>
AVERAGE ASSETS
Taxable investment
securities $ 36,372,000 26.92% $ 37,905,000 28.43%
Other investments 391,000 .29 319,000 .24
Federal funds sold 6,000 -- 3,565,000 2.67
Loans (net of allowance) 88,166,000 65.27 81,116,000 60.84
Other assets 10,154,000 7.52 10,424,000 7.82
------------- ------ ------------- ------
Total Average Assets $ 135,089,000 100.00% $ 133,329,000 100.00%
============= ====== ============= ======
December 31,
---------------------------------------------------
1995 1994
----------------------- -----------------------
AVERAGE LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing demand $ 22,575,000 16.71% $ 22,055,000 16.54%
Interest-bearing demand 28,913,000 21.40 37,008,000 27.76
Other time certificates 44,005,000 32.57 40,981,000 30.74
Savings deposits 21,164,000 15.67 20,587,000 15.44
------------- ------ ------------- ------
Total Average Deposits 116,657,000 86.35 120,631,000 90.48
Repurchase agreements 3,960,000 2.93 205,000 .15
Other liabilities 1,536,000 1.14 1,041,000 .78
------------- ------ ------------- ------
Total Average Liabilities 122,153,000 90.42 121,877,000 91.41
Shareholders' Equity
Common stock 1,782,000 1.32 1,782,000 1.34
Capital surplus 13,093,000 9.69 13,093,000 9.82
Retained earnings (deficit)
and unrealized (loss) gain
on securities (1,939,000) (1.43) (3,423,000) (2.57)
------------- ------ ------------- ------
Average Shareholders' Equity 12,936,000 9.58 11,452,000 8.59
Total Average Liabilities
& Average Shareholders'
Equity $ 135,089,000 100.00% $ 133,329,000 100.00%
============= ====== ============= ======
</TABLE>
<PAGE>
B. Interest Income
The following table shows the average balances, the average month-end
yields and the dollar amounts of interest earned or paid for each of the Bank's
major categories of interest-earning assets and interest-bearing liabilities for
the period indicated.
Year ended December 31, 1995
----------------------------------
Average
Average Interest Rate
Balance(1) Earned/Paid Earned/Paid
------------ ------------ -----------
Loans (net of allowance) $ 88,166,000 $ 7,888,928 8.95%
Taxable investment securities 36,372,000 2,042,226 5.61
Other investments 391,000 22,143 5.66
Federal funds sold 6,000 216,886
------------ ------------ ----
Total Average Interest-
Earning Assets $124,935,000 $ 10,170,183 8.14%
============ ============ ====
Deposits, interest-bearing:
Interest-bearing demand $ 28,913,000 $ 911,151 3.15
Other time certificates 44,005,000 2,539,071 5.77
Savings deposits 21,164,000 867,790 4.10
Repurchase agreements 3,960,000 81,018 2.05
------------ ------------ ----
Total Average Interest-
Bearing Liabilities $ 98,042,000 $ 4,399,030 4.49%
============ ============ ====
Net Net
Interest Interest
Earnings Earnings
-------- --------
Net yield on interest-earning
assets $5,771,153 4.62%
- ------------------------------
(1) Includes non-accrual loans.
<PAGE>
The following table shows the average balances, the average month-end
yields and the dollar amounts of interest earned or paid for each of the Bank's
major categories of interest-earning assets and interest-bearing liabilities for
the period indicated.
Year ended December 31, 1994
----------------------------------
Average
Average Interest Rate
Balance(1) Earned/Paid Earned/Paid
------------ ------------ -----------
Loans (net of allowance) $ 81,116,000 $ 6,229,328 7.68%
Taxable investment securities 37,905,000 2,093,653 5.52
Other investments 319,000 19,161 6.01
Federal funds sold 3,565,000 141,807 3.98
------------ ------------ ----
Total Average Interest-
Earning Assets $122,905,000 $ 8,483,94 6.90%
============ ============ ====
Deposits, interest-bearing:
Interest-bearing demand $ 37,008,000 $ 822,909 2.22
Other time certificates 40,981,000 1,993,637 4.86
Savings deposits 20,587,000 548,490 2.66
Repurchase agreements 205,000 4,832 2.36
------------ ------------ ----
Total Average Interest-
Bearing Liabilities $ 98,781,000 $ 3,369,868 3.41%
============ ============ ====
Net Net
Interest Interest
Earnings Earnings
-------- --------
Net yield on interest-earning
assets $5,114,081 4.16%
- -------------------------------
(1) Includes non-accrual loans.
<PAGE>
C. Net Interest Volume and Rate Variances
The following tables set forth the dollar amounts of the changes in net
interest income (before provision for credit losses) and the extent to which
such changes were attributable to changes in volume, changes in rates and
changes in rate/volume for each of the Bank's major categories of
interest-earning assets and interest-bearing liabilities for the year ended
December 31, 1995 as compared with the year ended December 31, 1994, and for the
year ended December 31, 1994 as compared with the year ended December 31, 1993.
Changes allocable to volume and rate have been allocated in proportion to the
relationship of the absolute dollar amounts of the change in each category.
Year ended December 31, 1995
---------------------------------------
(000's omitted)
Change Change Change Total
in Volume in Rate Rate/Volume Change
------- ------- ------- -------
Interest Income:
Loans (Less Allowance) $ 164 $ 1,457 $ 38 $ 1,659
Taxable Invest Sec (83) 34 (2) (51)
Other Investments (168) 1,631 (1,385) 78
------- ------- ------- -------
Total Interest Income ($ 87) $ 3,122 ($1,349) $ 1,686
------- ------- ------- -------
Interest Expense:
Interest Bearing Demand ($ 236) $ 780 ($ 140) $ 404
Other Time Certificates 37 500 9 546
Savings Deposits (7) 11 (1) 3
Repurchase Agreements 46 3 27 76
------- ------- ------- -------
Total Interest Expense (160) 1,294 (105) 1,029
------- ------- ------- -------
Change in Net Interest
Income $ 73 $ 1,828 ($1,244) $ 657
======= ======= ======= =======
<PAGE>
Year ended December 31, 1994
---------------------------------------
(000's omitted)
Change Change Change Total
in Volume in Rate Rate/Volume Change
------- ------- ------- -------
Interest Income:
Loans (Less Allowance) $ 1,047 $ 723 $ 177 $ 1,947
Taxable Invest Sec 491 (202) (53) 236
Other Investments (4) 44 (3) 37
------- ------- ------- -------
Total Interest Income $ 1,534 $ 565 $ 121 $ 2,220
------- ------- ------- -------
Interest Expense:
Interest Bearing Demand $ 336 $ 26 $ 20 $ 382
Other Time Certificates 13 (359) (2) (348)
Savings Deposits 47 3 -- 50
Repurchase Agreements 3 (1) (1) 1
------- ------- ------- -------
Total Interest Expense 399 (331) 17 85
------- ------- ------- -------
Change in Net Interest
Income $ 1,135 $ 896 $ 104 $ 2,135
======= ======= ======= =======
<PAGE>
D. Investment Securities
All of the Bank's investment securities consist of securities of the
U.S. Treasury and other governmental agencies, Certificates of Deposit,
Corporate Bonds, and Federal Reserve Bank stock. The following schedule
summarizes the book value and the distribution of the Bank's investment
securities held as of the dates indicated below. Investment securities are
carried at market as of December 31, 1995 and 1994.
December 31,
-------------------------
1995 1994
----------- -----------
U.S. Treasury Notes $20,054,063 $19,199,000
U.S. Agencies 15,762,224 16,297,000
Federal Reserve Bank Stock 390,850 354,000
Certificates of Deposit 98,866 100,000
Corporate Bonds 502,350 493,000
----------- -----------
Total $36,808,353 $36,443,000
=========== ===========
E. Maturity of Investment Securities
The following tables summarize the maturity of the Bank's investment
securities distribution and their weighted-average yields for the periods
listed.
<TABLE>
<CAPTION>
December 31, 1995
Investment Maturity Distribution
Amortized Amortized Amortized
Cost Cost Cost
Less than Market One to Market Over Market
1 Year Value Five Years Value Five Years Value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S.
Treasury $ 2,014,602 $ 2,017,814 $17,843,646 $18,036,249 $ -- $ --
U.S.
Agencies 2,985,311 2,990,000 11,045,357 11,105,274 1,683,055 1,666,950
Federal
Reserve
Bank Stock -- -- -- -- 390,850 390,850
Certificate
of
Deposit 100,000 98,866 -- -- -- --
Corporate
Bonds 500,000 502,350 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total $ 5,599,913 $ 5,609,030 $28,889,003 $29,141,523 $ 2,073,905 $ 2,057,800
=========== =========== =========== =========== =========== ===========
</TABLE>
December 31, 1995
Investment Yields
---------------------------------------
Less than One to Over
1 Year Five Years Five Years
----- ----- -----
U.S. Treasuries 4.90% 5.79% --
U.S. Agencies 5.30% 6.18% 4.80%
Federal Reserve
Bank Stock -- -- 6.00%
Certificates of
Deposit 2.75% -- --
Corporate Bonds 6.95% -- --
----- ----- -----
Total 5.26% 5.94% 5.03%
===== ===== =====
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
Investment Maturity Distributio
---------------------------------------------------------------------------------
Amortized Cost Amortized Cost Amortized Cost
Less than Market One to Market Over Market
1 Year Value Five Years Value Five Years Value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S.
Treasury $ 5,025,000 $ 4,980,000 $15,047,000 $14,219,000 $ -- $ --
U.S.
Agencies -- -- 14,985,000 14,384,000 2,016,000 1,913,000
Federal
Reserve
Bank Stock -- -- -- -- 354,000 354,000
Certificate
of
Deposit 100,000 100,000 -- -- -- --
Corporate
Bonds -- -- 500,000 493,000 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total $ 5,125,000 $ 5,080,000 $30,532,000 $29,096,000 $ 2,370,000 $ 2,267,000
=========== =========== =========== =========== =========== ===========
</TABLE>
December 31, 1994
Investment Yields
Less than One to Over
1 Year Five Years Five Years
----- ----- -----
U.S. Treasuries 5.43% 5.97% --
U.S. Agencies -- 5.76% 4.63%
Federal Reserve
Bank Stock -- -- 6.00%
Certificates of
Deposit 2.75% -- --
Corporate Bonds -- 6.95% --
----- ----- -----
Total 5.38% 5.88% 4.84%
===== ===== =====
<PAGE>
F. Distribution of Loans
The following table shows the distribution of the Bank's total loans as
of the dates indicated below. All loans arise from domestic operations.
December 31, 1995 December 31, 1994
-------------------- --------------------
Amount Percentage Amount Percentage
-------------------- --------------------
Commercial and
Industrial $45,379,732 49.46% $42,243,000 47.20%
Real Estate
Construction 2,158,172 2.35 1,135,000 1.27
Consumer Installment 3,313,321 3.61 4,049,000 4.52
Residential Mortgage 40,896,989 44.58 42,083,000 47.01
----------- ------ ----------- ------
Total $91,748,214 100.00% $89,510,000 100.00%
=========== ====== =========== ======
As of December 31, 1995, $2,265,571 of total loans were unsecured. Of
those unsecured loans, $9,264 were classified as non-performing.
G. Loan Maturities and Sensitivity of Changes in Interest Rates
The following tables set forth the maturity distribution of the Bank's
total loans by category as of December 31, 1995 and 1994. In addition, the
tables show the distribution between those loans with predetermined (fixed)
interest rates and those with variable (floating) interest rates. Floating rates
generally fluctuate with changes in the Bank's interest cost.
Loan maturities and rate sensitivity of the loan portfolio are as
follows:
December 31, 1995
Loan Maturities
-----------------------------------------------------
Over
One Year One to Over
or Less Five Years Five Years Total
----------- ----------- ----------- -----------
Commercial and
Industrial $24,030,515 $15,269,285 $ 6,079,932 $45,379,732
Real Estate
Construction 2,158,172 -- -- 2,158,172
Consumer Loans 2,521,639 780,917 10,765 3,313,321
Residential
Mortgages 1,279,656 2,315,781 37,301,552 40,896,989
----------- ----------- ----------- -----------
Total $29,989,982 $18,365,983 $43,392,249 $91,748,214
=========== =========== =========== ===========
Loans with Variable Rates $76,014,590
Loans with Fixed Rates 15,733,624
-----------
Total $91,748,214
===========
<PAGE>
December 31, 1994
Loan Maturities
-----------------------------------------------------
Over
One Year One to Over
or Less Five Years Five Years Total
----------- ----------- ----------- -----------
Commercial and
Industrial $20,751,000 $15,493,000 $ 5,999,000 $42,243,000
Real Estate
Construction 1,135,000 -- -- 1,135,000
Consumer Loans 2,898,000 1,095,000 56,000 4,049,000
Residential
Mortgages 147,000 1,940,000 39,996,000 42,083,000
----------- ----------- ----------- -----------
Total $24,931,000 $18,528,000 $46,051,000 $89,510,000
=========== =========== =========== ===========
Loans with Variable Rates $75,782,000
Loans with Fixed Rates 13,728,000
-----------
Total $89,510,000
===========
H. Credit Risk Management
The Bank charges off that portion of any loan which management or bank
examiners consider to represent a loss. A loan is generally considered by
management to represent a loss in whole or in part when an exposure beyond any
collateral value is apparent, servicing of the unsecured portion has been
discontinued or collection is not anticipated based on the borrower's financial
condition and general economic conditions in the borrower's industry. The
principal amount of any loan which is declared a loss is charged against the
Bank's allowance for credit losses.
The following details loans that were nonaccrual or were accrual loans
which were contractually past due 90 days or more as to principal or interest
payments at December 31, 1995 and 1994:
December 31,
------------------------------
1995 1994
-------- --------
Non-Accrual Loans $109,988 $507,000
90 days past due but
accruing -- 100,000
-------- --------
Total $109,988 $607,000
======== ========
The Bank's policy of placing a loan on non-accrual requires that all
loans 90 days or more past due are to be placed on "non-accrual" status unless
the loan is well secured and in the process of active collection. This is in
conformance with the guidelines for non-accrual loans of the Office of the
Comptroller of the Currency. A loan is considered well secured if the verified
value of the collateral meets normal loanable margin requirements for those
collateral assets, considering principal and interest over the period it can
reasonably be expected to liquidate the asset.
For the case of real estate collateral, independent "fair value"
appraisals, including professional estimates of marketing time, are used to
judge whether a loan meets this criteria.
Additionally, the following schedule details the Bank's potential future
problem loans:
<PAGE>
December 31, 1995
------------------------------
Watch Alert
List List Total
---------- ---- ----------
Commercial Loans $3,473,452 $ -- $3,473,452
Real Estate Construction -- -- --
Consumer Installment 14,286 -- 14,286
Residential Mortgage 616,874 -- 616,874
---------- ---- ----------
Total $4,104,612 $ -- $4,104,612
========== ==== ==========
As of December 31, 1995, there was no concentration of loans exceeding
ten percent (10%) of total loans which were not otherwise disclosed as a
category in the loan portfolio table. As of December 31, 1995, there were no
other interest-bearing assets that would be required to be in the Credit Risk
Management section above if such assets were classified as loans.
The Watch List includes loans which may or may not be performing
according to original terms, or are to clients operating in a weak industry or
in an industry currently negatively impacted by the economy. These loans have a
well-defined weakness which jeopardizes the orderly liquidation of the debt.
Such loans are inadequately protected by the current sound net worth and paying
capacity of the obligor, or there are questions as to the value of pledged
collateral, if any. They are characterized by a degree of risk which poses a
distinct possibility that the Bank could maintain some loss if the deficiencies
are not corrected in a timely manner. These loans are reported to the Board of
Directors.
Other loans which may be included in the Watch List are those
collateralized within policy guidelines or as exceptions to policy, with
historical and/or current trends of only adequate earnings. Net worth is likely
not to possess strong liquidity. These loans do not presently expose the Bank to
a sufficient degree of risk to warrant adverse classification; however, they
possess credit deficiencies deserving of management's close attention. Failure
to correct such deficiencies could result in a loan of greater risk in the
future.
Loans included in the Alert List have a weakness found in Watch List
loans, with the added aspect that the weakness is pronounced to a point where,
on the basis of current facts, conditions and values, there is a clearly
identifiable element of potential loss exposure contained therein. These loans
are also reported to the Board of Directors.
I. Summary of Loan Loss Experience
The Bank has established an allowance for credit losses to provide for
losses which can be reasonably anticipated. The allowance for credit losses is
periodically provided for through charges to operating expenses in the form of
provisions for credit losses. Actual credit losses or recoveries are charged or
credited, respectively, directly to the allowance for credit losses. The amount
of the allowance is determined by management of the Bank. Among the factors
considered in determining the allowance for credit losses are the current
financial conditions of the Bank's borrowers and the value of the security, if
any, for their loans. Estimates of the effect of current economic conditions and
their impact on various industries and individual borrowers are also taken into
consideration, as are the Bank's historical credit loss experience and reports
rendered by governmental regulators.
Because these estimates and evaluations are primarily judgmental
factors, no assurance can be given that the Bank may not sustain credit losses
substantially higher than the allowance for credit losses or that subsequent
evaluation of the loan portfolio may not require substantial changes in such
allowance. As of December 31, 1995, the credit loss allowance of $2,362,310 was
believed to be sufficient to cover all potential loan problems.
Management reviews the provisions for credit losses on a quarterly
basis. This review process includes the grading or regrading for each commercial
credit. Those determined to have a strong possibility of loss for the subsequent
quarter or year are segregated and a provision is made for potential loss in
addition to the normal credit loss provision.
The Bank's loan portfolio is divided into ten categories: Construction
and related, Medical and Dental, Personal Households, Manufacturing, Business
Services, other Industries, Installment/VIP, VIP-Plus Home Equity, First
Residential Permanent, and Business/Personal Credit Cards. Based upon historical
information and banking experience, each category is given a certain credit loss
allowance. A higher provision is used for installment and consumer loans.
All commercial loans are reviewed and regraded quarterly. Installment
and consumer loans are not. Any commercial loan graded in a lower category is
reviewed for potential dollar loss and provided for in the credit loss
provision. Additionally, all loan commitments (unfunded) and standby letters of
credit are reviewed monthly. Also, the concentration of loans by category and
general economic trends are reviewed quarterly to determine if any other
adjustments to the credit loss provision need be made.
The Bank also reviews collateral values pursuant to a written appraisal
policy and procedure. The Bank's appraisal policy and procedure ("Policy")
includes policies and procedures governing appraisals of residential single
family detached dwellings, one-to-four family dwellings, multi-family dwellings,
commercial real estate consisting of retail centers, office buildings,
industrial buildings, land acquisition and development loans for both
residential and commercial purposes, developed residential building lots and
residential and commercial construction loans. In practice, lending now is
limited to owner-occupied residential property and owner-occupied office
facilities or industrial buildings. The policy requires an appraisal on any real
property securing loans above $250,000.
The Policy sets forth the required content and form of the appraisal
report, including definitions of "market value" and "fair value" as specified in
12 CFR Sec. 7.3025(d), time adjustments (if applicable) and obvious
environmental considerations.
The appraiser is required to utilize three approaches to value. The
policy also sets forth definitive requirements as to age, distance and
adjustment percentages of comparable properties. Residential real estate
appraisals are designed to conform to the policies of the Federal Home Loan
Mortgage Corporation. All appraisers used must be approved by the Bank's Board
of Directors after completing a detailed application and screening process.
Approved appraiser lists are reviewed annually.
Bank Policy dictates that a "fair value" appraisal from a Bank-approved
appraiser be obtained on all real property within 60 days of acquisition as
OREO. In addition, a new "fair value" appraisal will be obtained no less often
than annually until the OREO property has been disposed of. Appraisals may be
ordered more frequently depending on economic conditions and projected property
value declines.
The following provides an analysis of the Bank's loan loss experience
for the years ended December 31, 1995 and 1994.
Years ended December 31,
---------------------------
1995 1994
----------- -----------
Balance Beginning of Period $ 2,422,513 $ 1,776,129
Acquired as result of purchase
of American National Bank -- 806,141
Charge Offs:
Commercial and Industrial -- (126,534)
Real Estate Construction -- --
Consumer Installment (46,996) (15,288)
Mortgage Loans (19,517) --
Recoveries:
Commercial and Industrial 96,462 51,760
Consumer Installment 1,841 5,937
Mortgage Loans 6,875 --
----------- -----------
Net (charge offs) recoveries 38,665 (84,125)
Amounts credited to operations (98,868) (75,632)
----------- -----------
Balance End of Period $ 2,362,310 $ 2,422,513
=========== ===========
Ratio of net (charge offs) recoveries
to loans outstanding .04% (.09%)
Year ended December 31, 1995
-----------------------------
Allowance for Loan Loss As a % of Total
Specific and General Reserve: Total Loan Category
- ----------------------------- ---------- --------------
Commercial & Industrial $ 835,856 1.8%
Real Estate
Construction 74,484 3.5
Consumer Loans 69,971 2.1
Residential mortgage 789,225 1.9
Reserve for unfunded commitments 41,143
Reserve for general economic
conditions 551,631
----------
Total $2,362,310
==========
Year ended December 31, 1994
------------------------------
Allowance for Loan Loss As a % of Total
Specific and General Reserve: Total Loan Category
Commercial & Industrial $ 396,913 2.1%
Real Estate
Construction 93,445 2.3
Consumer Loans 349,449 1.8
Residential mortgage 748,178 1.5
Reserve for unfunded commitments 65,117 .3
Reserve for general economic
conditions 769,411
----------
Total $2,422,513
==========
J. Deposits
The following table sets forth information for the periods indicated
regarding the average month-end balances of the Bank's deposits by category and
as a percentage of total average daily deposits.
Noninterest Interest
Bearing Bearing
Demand Demand Savings Time
Deposits Deposits Deposits Deposits
-------- -------- -------- --------
December 1995
- -------------
Average Balance $22,575,000 $28,913,000 $21,164,000 $44,005,000
Percent of Total 19.35% 24.79% 18.14% 37.72%
Average Rate Paid -- 3.15% 4.10% 5.77%
December 1994
- -------------
Average Balance $22,055,000 $37,008,000 $20,587,000 $40,981,000
Percent of Total 18.28% 30.68% 17.07% 33.97%
Average Rate Paid -- 2.22% 2.66% 4.86%
The following table indicates the maturity of the Bank's time certificates of
deposit.
<TABLE>
<CAPTION>
December 31, 1995
Deposit Maturity
-------------------------------------------------------------------
Less than Three to 1 Year to Over
Three Months 12 Months Five Years Five Years Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Time
Certificates
of Deposit
$100,000
and over $ 3,497,647 $ 7,326,066 $ 2,866,197 $ -- $13,689,910
Other Time
Deposits 6,770,782 16,664,297 6,785,187 46,633 30,266,899
----------- ----------- ----------- ----------- -----------
Total $10,268,429 $23,990,363 $ 9,651,384 $ 46,633 $43,956,809
=========== =========== =========== =========== ===========
</TABLE>
K. Short-Term Borrowings
The Bank had Fed Funds Purchased of $1,200,000 and Repurchase Agreements
of $5,140,500 at December 31, 1995. There were no Fed Funds Purchased at
December 31, 1994, and Repurchase Agreements were $603,000.
L. Certain Ratios
The following table sets forth annualized information with regard to the
Company's consolidated return on average assets, consolidated return on
average equity, and ending equity to assets ratio for the periods
indicated.
Years ended December 31,
--------------------------
1995 1994
-------- ----------
Return on Average Assets .53% 1.02%
Return on Average Equity 5.53% 11.85%
Ending Equity to Assets Ratio 10.01% 8.29%
Net Income $715,281 $1,357,375
M. Rate Sensitivity Report
The following Rate Sensitivity Report sets forth the listing of
investments, loans and deposits as of December 31, 1995.
<TABLE>
Rate Sensitivity Report
As of December 31, 1995
(000's omitted)
<CAPTION>
Six
months to
30 days or 31 days to Less than One to Over
Less 6 months 1 Year Five Years Five years Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Investments
and Loans:
Federal Funds
Sold $ -- $ -- $ -- $ -- $ -- $ --
Investment
Securities -- 3,606 2,983 28,889 2,058 37,536
Loans 46,709 21,047 11,097 9,806 3,089 91,748
-------- -------- -------- -------- -------- --------
Total Investments
and Loans $ 46,709 $ 24,653 $ 14,080 $ 38,695 $ 5,147 $129,284
Deposits:
Demand:
Interest Bearing $ 8,075 $ -- $ -- $ -- $ -- $ 8,075
Time Deposits
Over $100,000 1,628 4,981 4,215 2,866 -- 13,690
Time Deposits
Under $100,000 2,284 10,723 10,454 6,806 -- 30,267
Savings 40,366 -- -- -- -- 40,366
-------- -------- -------- -------- -------- --------
Total Deposits 52,353 15,704 14,669 9,672 -- 92,398
-------- -------- -------- -------- -------- --------
Period Gap (5,644) 8,949 (589) 29,023 5,147 36,886
-------- -------- -------- -------- -------- ========
Cumulative Gap ($ 5,644) $ 3,305 $ 2,716 $ 31,739 $ 36,886 $ 36,886
======== ======== ======== ======== ======== ========
</TABLE>
The above Rate Sensitivity Report shows that the Bank's gap position for
30 days or less is negative. This means that if interest rates increase, short
term earnings will be negatively impaired. The Bank's gap position for a one
year time frame is "asset sensitive." If interest rates increase during this
time frame, net income would be favorably impacted. This is due to assets being
repriced at the higher rate faster than the liabilities. If interest rates
decreased during this period, net income would be adversely affected.
The one to five years cumulative gap position is also "asset sensitive."
If interest rates increase, net income would be favorably impacted. If interest
rates decrease during this period, net income would be adversely affected.
The book value and market value of investment securities at December 31,
1995 was $36,808,000.
ITEM 2. PROPERTIES.
The Company and the Bank offices are located at 2425 East Camelback
Road, Phoenix, Arizona 85016. The Bank is obligated under a lease agreement for
its approximate 11,697 square-foot office space until June 30, 1999. The lease
requires the Bank to pay an allotted percentage of the direct expenses of the
building and project in excess of specified levels. The lease agreement grants
the Bank renewal options for two five-year periods at the fair market rent at
the renewal date.
On February 2, 1994, the Bank acquired substantially all the assets and
liabilities of American National Bank. As a result of the acquisition, the Bank
signed a five year lease on the office at 8700 E. Pinnacle Peak Road,
Scottsdale, Arizona. The building is a two-story building with rentable space of
12,217 square feet. The lease agreement provides renewal options for two
five-year periods. The Bank has subleased approximately 3,150 square feet of the
second floor space under similar terms.
Total rental expense under the aforementioned leases for the twelve
months ended December 31, 1995 was approximately $573,000. Future minimum rental
payments required under the lease agreements at December 31, 1996, were
approximately as follows:
Year Ending
December 31,
1996 616,116
1997 616,116
1998 618,223
1999 210,636
Thereafter --
----------
$2,061,091
==========
The Bank acquired one acre of real estate and a building located at
13648 N. Tatum in Phoenix, Arizona as part of the American National Bank
purchase. During 1995, the building housed the Accounting department. Management
intends to use the building as an operations center in 1996. Approximately,
2,000 square feet of the building is leased to an insurance agency.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against the Company or
its subsidiary, the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters have been submitted to a vote of security holders during the
fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Currently, there is no established public trading market for the
Company's Common Shares.
The Company's book value per share as of December 31, 1995 is $.83.
The number of shareholders of record as of December 31, 1995 is 337.
The Company's ability to pay dividends is dependent upon the receipt of
dividends from the Bank. Currently, the Company has no other sources of revenue.
No common stock dividends have been declared or paid by the Bank or the Company
since inception, and management of the Bank and the Company intends to follow a
policy of retaining earnings for the purpose of increasing shareholders' equity
in the Bank. Approval of the Comptroller of Currency may be required prior to
payment of dividends under certain circumstances.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data for the Company for
the five years ended December 31, 1995, 1994, 1993, 1992, and 1991 has been
derived from the audited consolidated financial statements for those periods and
should be read in connection with the consolidated financial statements and the
related notes thereto.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total Interest
Income $ 10,170,183 $ 8,483,949 $ 6,263,871 $ 7,038,091 $ 8,317,342
Net Interest
Income 5,771,153 5,114,081 2,979,376 3,160,845 2,813,554
Provision for
Credit Losses (98,868) (75,632) (218,573) -- 90,000
Net Interest Income
after Provision
for Credit
Losses 5,870,021 5,189,713 3,197,949 3,160,845 2,723,554
Other Operating
Income 838,551 709,465 509,523 598,672 486,944
Other Operating
Expenses 5,738,202 4,761,236 2,958,218 2,965,702 2,923,778
Net Income (Loss) 715,281 1,357,375 1,449,254 613,815 286,720
Per Share Data:
Income (Loss) per
share .04 .08 .09 .04 .03
Dividends declared
per share -- -- -- -- --
Loans 91,515,000 89,285,000 68,426,000 67,860,000 62,623,000
Allowances for
Credit Losses 2,362,000 2,423,000 1,776,000 1,914,000 1,648,000
Total Assets 137,516,000 142,845,000 108,295,000 100,455,000 99,274,000
Total Deposits 116,357,000 129,228,000 95,986,000 89,200,000 88,848,000
Total Liabilities 123,745,000 130,999,000 96,764,000 90,373,000 90,456,000
Shareholders'
Equity 13,771,000 11,846,000 11,531,000 10,082,000 8,817,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
In 1995, Biltmore Bank Corp. reported consolidated net income of
$715,000, after provision for taxes of $255,000 versus net income in 1994 of
$1,357,000, after a tax credit of $219,000 and consolidated net income of
$1,449,000 in 1993. Pre-tax income from operations was $970,000 in 1995 compared
with $1,138,000 in 1994 and $749,254 in 1993. The tax credit in 1994 arose from
application of FAS 109, "Accounting for Income Taxes" which requires the current
recognition of tax-loss carry forward benefits as more completely explained in
footnote 16 to the financial statements.
Net Interest Income
Net interest income increased $657,000, or 12.8%, in 1995 as compared to
1994. This increase primarily resulted from the company's ability to shift
assets deployed from lower yielding investments to higher yielding loans in 1995
and the inclusion of the purchased loans from American National Bank for the
full year 1995. Average loans increased $7,050,000, or 8.7% in 1995.
Net interest margin increased to 4.62% in 1995, from 4.16% in 1994 as
the interest rate environment (rising rates) boosted yields on the loan
portfolio, especially residential mortgage loans, to a greater degree than
deposit costs.
Provision for Loan Losses
The loan portfolio of the Company's subsidiary, Biltmore Investors Bank,
is subject to twice a year review by an internal loan review group of Johnson
International, Inc., the majority shareholder. A large sample of all loans over
a minimum size are reviewed in a manner similar to bank regulatory examiners,
including an estimate of possible loss. This group prepares a report to
management on the results of their loan evaluation and that report, along with
management's quarterly internal review and annual reviews by the Office of the
Comptroller of the Currency, are used to determine the adequacy of the allowance
for loan losses. Based on this information and analysis, management believes the
reserve at year end, $2,362,000 is adequate to provide for potential loan
losses.
Additionally, as the Allowance for Loan Loss Reserve stood at 2.71% at
12/31/94 and 2.57% at 12/31/95, and recoveries exceeded charge-offs by $38,665,
no provision for loan losses was made in 1995.
Total non-accrual loans were $110,000 at year end 1995, an improvement
of $497,000, over 1994. Total potential future problem loans totaled $4.1
million at 12/31/95, or 4.4% of loans and 29.7% capital, versus $3.5 million, or
3.9% and 29.7% of total loans and capital, respectively, at 12/31/94.
Non-Interest Income
Other income increased $130,000 or 18%, on a year to year basis
primarily as a result of greater service fees and increased trust revenues.
Non-Interest Expenses
These expenses increased $977,000 in the year 1995, or 20.5%. Of this
increase, $614,000 was in salaries and benefits as the Company's subsidiary
added staff to build a proper infrastructure for future growth, meet new bank
regulatory challenges and prepare for the expected growth in the Maricopa County
economy. Management fee expense increased $152,000 under an arrangement whereby
the Bank makes payment for allocable services provided by our majority owner,
Johnson International (See footnote 20 of financial statements for detailed
explanation). Finally, other expenses were up $167,000 primarily as a result of
accrual for costs to restructure and move certain operations and recognize a
check fraud loss early in the year on which we are recovering in installments
from a former depositor.
Loans
The loan portfolio increased from $89,510,000 at December 31, 1994 to
$91,748,000 at December 31, 1995. All of the increase is attributable to a
$3,136,000 year to year rise in commercial and industrial loans.
Unsecured loans, which are primarily classified in the commercial and
industrial category, stood at $2,266,000 at year end 1995 and $2,513,000 at year
end 1994.
The Bank's asset/liability and liquidity policies set a guideline
whereby the Bank will maintain a loan portfolio not to exceed 80% of total
deposits. The actual percentage of outstanding loans is based on total deposit
duration and foreseen liquidity needs. The loan to deposit ratio at year end
1995 and 1994 stood are 79% and 69%, respectively.
Deposits
The Bank's deposits decreased $12.8 million from year end 1994 to 1995.
Average deposits year to year decreased $4.0 million, or 3.3%. The drop was
attributable entirely to an $8.0 million drop in interest sensitive, interest
bearing demand accounts, as all of the other categories of deposits increased on
average $4.1 million in 1995 compared to 1994. Management believes the decrease
was primarily driven by our clients managing their cash assets more closely,
using liquidity to finance a portion of their growth in 1995, as well as the
attractiveness in 1995 of alternative investments, primarily the domestic
equities markets.
Liquidity
Liquid assets, which include Federal Funds sold, investment securities,
and cash and due from banks equalled 37% of total deposits as of December 31,
1995 and 39% as of December 31, 1994.
The Bank also makes use of securities under agreement to repurchase as a
short term borrowing tool as the need arises.
Asset/Liability Management
This involves funding and investment strategies necessary to maintain an
appropriate balance between interest-sensitive assets and liabilities to produce
adequate earnings, as well as reasonable liquidity. The Bank maintains active
management of the balance sheet position to confine the risk of interest rate
swings on earnings. Adequate funding sources are maintained through a full line
of competitively priced deposit products and short-term borrowing facilities and
asset diversification is assured through using both variable and fixed rate loan
products and investments.
The Bank maintains $6,000,000 in Federal Fund borrowing lines of credit
with local correspondent banks for short term liquidity needs. The Bank also has
a Letter of Credit line of $750,000 available from a local correspondent bank.
At December 31, 1995, the Bank's short term gap (30 days or less) is a
negative $5.6 million, 4.0% of total assets, which means if interest rates
increase, short term earnings will be negatively impacted. The cumulative gap
for a one year period is "asset sensitive" - $1.8 million or 1.3% of total
assets which would reflect in net income being favorably impacted over the next
year should interest rates rise. This is due to the fact assets would be
repriced at a somewhat faster pace than deposits. Management believes this is a
reasonable position to be in given the current interest rate and economic
environment.
Capital Resources
Shareholders equity at 12/31/95 was $13.7 million compared to $11.8
million at 12/31/94. During 1995, 37% of the increase resulted from full
retention of earnings, while the remainder reflected an increase in the market
value of our investment portfolio resulting from the general rise of interest
rates in the U.S. government securities market.
Capital ratios of the Company and the Bank remain well in excess of
regulatory requirements. The Bank's Tier one capital ratio at December 31, 1995
was 13.57% (Regulatory requirement - 4%), while the Risk-Weighted capital ratio
was 16.16% (Regulatory requirement - 8%).
Due to Office of the Comptroller of the Currency regulation, the Bank
had no retained earnings available for distribution to the Company at December
31, 1995 and 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and schedules are set forth following Part IV.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There were no changes in accountants during the last three fiscal years
of the Company and its Subsidiary. Arthur Andersen, L.L.P. has performed the
1993, 1994, and 1995 audits and management has had no disagreements with the
accountant regarding accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the Directors and
executive officers of the Company and the Bank.
Position With Term
Name Company (1) Position With Bank (2) Expires
---- ----------- ---------------------- -------
DIRECTORS OF THE COMPANY AND OF THE BANK:
LeRoy C. Gust Director, President Chairman of the Board of 1998
Chief Executive Directors, President and
Officer Chief Executive Officer
William G. Ridenour Director Director 1997
Lawrence L. Stuckey Director Director 1996
Philip B. Bell Director Director 1998
and Treasurer
Kimberley A. Gill-Rimsza Director Director 1996
John L. Heath Director Director 1996
Carrie Louis-Hulburd Director Director 1997
L. Robert Peterson Director Director 1998
<PAGE>
KEY EMPLOYEES/EXECUTIVE OFFICERS:
James E. Chappell Secretary Secretary and --
Vice President
Richard Dunseath Vice President President, Phoenix --
Division
Scott R. Essex Vice President Vice President and --
Manager Trust Department
George P. Tyson -- President, Scottsdale --
Division
- --------------------------------
(1) All officer positions with the Company and the Bank are held for
one-year terms.
(2) The term of each Director of the Bank extends from the Annual Meeting of
the Company for a period of one year.
No Director or executive officer of the Company is a party to any
litigation or legal proceedings whereby such Director or executive
officer is a party adverse to the Company or has a material interest
adverse to the Corporation.
On January 23, 1996, Richard A. Hansen was elected Chairman of the Board
of Directors of the Company.
On February 15, 1996, George P. Tyson assumed the position of Real
Estate Executive. The position of President, Scottsdale Division was
eliminated.
Non-employee directors of the Company and the Bank are paid $250 per
board meeting attended. Members of the CRA, Audit, Investment and
Personnel Committees are paid $100 for each committee meeting they
attend. Loan Committee members are paid $150 for each committee meeting
they attend.
BUSINESS BACKGROUND AND EXPERIENCE OF
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth brief summaries of the backgrounds and business
experiences, including the principal occupations, of the Directors and executive
officers of the Company and the Directors and executive officers of the Bank.
LEROY C. GUST, age 54, served as a management consultant and interim
Chief Operating Officer for the Bank from June 1989 until January 1990. On
January 16, 1990, Mr. Gust was named President and Chief Executive Officer of
the Bank. Effective the same date he was also elected to serve as President and
Director of both the Company and Bank. He also is a Senior Vice President of
Johnson International, Inc. and has over twenty-five years of banking
experience. His prior experience includes four years (1985-1989) as an Executive
Vice President - Retail Banking at Marshall & Ilsley Bank, Milwaukee, Wisconsin;
eight years as President of Heritage Banks in Beloit and Milwaukee, Wisconsin
and a Director and member of the Management Committee of Heritage Wisconsin
Corp., Milwaukee, Wisconsin, and thirteen years of commercial lending, primarily
at The Northern Trust Company, Chicago, Illinois. Mr. Gust obtained a B.A.
degree in Economics, and a Master of Science Degree in Finance, from the
University of Illinois in 1965 and 1966, respectively.
WILLIAM G. RIDENOUR, age 51, is a practicing attorney in Phoenix,
Arizona, and a senior partner in the law firm of Ridenour, Swenson, Cleere &
Evans, P.C. Mr. Ridenour received a Bachelor of Arts degree from the University
of Arizona in 1966. In 1967, Mr. Ridenour received a Master of Arts in Political
Science from Rutgers University, New Brunswick, New Jersey. Mr. Ridenour
received his law degree from the University of Arizona in 1970. From 1980 to
1982, Mr. Ridenour was Secretary and General Counsel for Greater Arizona Savings
and Loan Association, a savings and loan association located in Phoenix,
Arizona. Since 1980, he has acted as pro tem judge for the Maricopa County
Superior Court. Mr. Ridenour has been Director of the Company since 1985.
LAWRENCE L. STUCKEY, age 49, is the president and owner of Stuckey
Insurance Agency, a general insurance agency specializing in property and
casualty insurance in Phoenix, Arizona. Mr. Stuckey became president and owner
of Stuckey Insurance Agency in 1979 after working for the company since 1967.
Mr. Stuckey also is a partner in Financial Innovations, a partnership
established in 1975 to develop and broker commercial real estate in Phoenix,
Arizona. Mr. Stuckey graduated in 1967 from the University of Arizona with a
Bachelor of Science Degree in Business. Mr. Stuckey has been Director of the
Company since 1985.
PHILIP B. BELL, age 59, is chairman, president and owner of P.B. Bell &
Associates, Inc., a real estate management and development firm. Before forming
his own company in 1975, Mr. Bell served in executive capacities with Ramada
Inns, L.B. Nelson Corp., and Kaufman & Broad, Inc. Mr. Bell is a CPA and was a
supervisor with the accounting firm of Coopers & Lybrand. Mr. Bell is a graduate
of Dartmouth College, and has an MBA from Amos Tuck School of Business
Administration. Mr. Bell has been Director and Treasurer of the Company since
March 1986.
JOHN L. HEATH, age 60, is the retired Chairman of the Board of L.S.
Heath & Sons, Inc. in Robinson, Illinois. He served as Senior Vice President of
L.S. Heath & Sons, Inc. from 1969 to 1971 and as Chairman, President and Chief
Executive Officer from 1971 to 1982. In 1958, he received his Bachelor of
Science Degree in Social Science from Eastern Illinois University, Charleston,
Illinois. Mr. Heath has been Director of the Company since March 1988.
L. ROBERT PETERSON, age 72, is a retired Executive Vice President and
Member of the Office of the Chairman of S. C. Johnson Wax Co., Inc., where he
was employed for 39 years. He is also a former Director of Racine Environment
Committee and Heritage Bank and Trust, and has served as President of the Racine
Area United Way. Mr. Peterson attended Utah State Agricultural College and the
University of Wisconsin. He was appointed Director of the Company in January
1993.
KIMBERLEY A. GILL-RIMSZA, age 33, is President and C.E.O. of Gill Group,
Inc., a food service equipment company located in Phoenix, Arizona. Mrs.
Gill-Rimsza graduated in 1984 from Rollins College with a Bachelor of Arts
Degree in Business Administration and Economics. She is a Certified Food Service
Professional (CFSP). Mrs. Gill-Rimsza has been a Director of the Company since
1995.
CARRIE LOUIS-HULBURD, age 36, formerly served as a Law Intern with the
Arizona Attorney General's Office, Child Support Collection Division in Phoenix,
Arizona. Mrs. Hulburd is a graduate of Colorado College and the American
Graduate School of International Management. She has a J.D. from Arizona State
University Law School. Mrs. Hulburd has been a Director of the Company since
1995.
JAMES E. CHAPPELL, age 36, is Secretary of Biltmore Bank Corp, and
Secretary and Trust Officer of Biltmore Investors Bank. Mr. Chappell is a
graduate of Iowa State University.
RICHARD D. DUNSEATH, age 49, is President of the Phoenix Division. He
joined the bank in September of 1994. Mr. Dunseath's previous career included
entrepreneurial pursuits in equipment leasing and homebuilding, Senior Vice
President and Manager of Citibank's Community Banking Division and as a Manager
of the Phoenix Region and the Scottsdale Region of United Bank of Arizona. Mr.
Dunseath has an MBA degree from Arizona State University and is a graduate of
the Pacific Coast Banking School.
SCOTT R. ESSEX, age 43, is Vice President and Manager of the Trust
Department of the Bank. He joined the Bank in June of 1991. He previously was
Business Development Officer, Trust Officer of Northern Trust Bank of Arizona.
He has a masters degree in Business Administration from University of Michigan.
GEORGE P. TYSON, age 58, is President of the Scottsdale Division. He
joined the Bank in February of 1994. He previously served as Senior Vice
President, Financial Institutions Division for Citibank, Senior Vice President,
Branch Administration with United Bank of Arizona and founding President of The
Bank of Northern Arizona in Flagstaff, Arizona.
ADVISORY BOARD
In addition to the Board of Directors, the Bank has established an
Advisory Board consisting of up to fifty (50) persons who represent the various
markets which the Bank expects to serve. The Advisory Board is composed of
individuals from the local business and professional community of Phoenix,
Arizona, who can and are expected to contribute to the Bank's development and to
its success through their expertise and experience.
ITEM 11. SUMMARY COMPENSATION TABLE.
---------------------------
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary(1) Bonus Compensation(2) Compensations(3)
-------- ---- --------- ----- --------------- -----------------
<S> <C> <C> <C> <C> <C>
LeRoy C. Gust
President and Chief
Executive Officer 1995 $161,200 $29,127 -- $6,500
1994 $158,004 $51,699 -- $9,150
1993 $153,221 $32,480 -- $8,992
Richard D. Dunseath 1995 $105,000 -- -- $6,300
President of the
Phoenix Division
</TABLE>
- ----------------------
(1) The salary of Mr. Gust is based on a recommendation by the Compensation
Committee of Johnson International. The committee considers the overall
performance of the Bank and Mr. Gust's activities within the Bank in
making their recommendation, which is then presented to the Board of
Directors for approval.
(2) While the President and Chief Executive Officer enjoys certain
perquisites, such perquisites do not exceed the lessor of $50,000 or 10%
of his salary and bonus.
(3) These amounts represent the Company's contribution to defined benefit
retirement plan and 401k plan for the benefit of the President and Chief
Executive Officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of December 31, 1994,
concerning shares of the Company's Common Stock beneficially owned by each
Director of the Company and the Bank, by all Executive Officers and Directors as
a group, and by each stockholder known by the Company to be the beneficial owner
of more than five percent (5%) of any class of the Corporation's voting
securities, as required by 17 CFR 229.403.
Amount and
Title of Name of Nature of Beneficial Percent
Class Beneficial Owner Ownership of class
----- ---------------- --------- --------
Common William G. Ridenour 10,400 (1) *
Common Lawrence L. Stuckey 12,100 (1) *
Common Philip B. Bell 5,000 *
Common John L. Heath 10,500 *
Common LeRoy C. Gust 4,650 (2) *
Common Carrie Louis-Hulburd 2,000 *
Common L. Robert Peterson 2,000 *
Common Kimberley A. Gill-Rimsza 2,000 *
------- ----
Executive Officer and Directors as a
group 48,650 *
======= ====
Common Johnson International, Inc. 16,010,045 96.9%
4041 North Main Street ========== ====
Racine, WI 53402
- -------------------------------------
* The percentage of shares beneficially owned by each Director
individually, and all Directors and Executive Officers as a group, does
not exceed one percent of the issued and outstanding shares of the
Company.
(1) This figure does not include 10,000 shares that may be
purchased under the 1984 Founding Directors' Nonstatutory
Stock Option Plan. All of these options are currently
unexercisable.
(2) This figure does not include 58,366 shares which Mr. Gust may be granted
under the terms of the Stock Purchase and Investment Agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are no existing or proposed material transactions between the
Company or the Bank and any of their Executive Officers or Directors, except as
indicated herein. All transactions with affiliates, Company Executive Officers
or Directors and/or Shareholders must be approved by a majority of disinterested
Directors.
The law firm of Ridenour, Swenson, Cleere & Evans, P.C., of which
William G. Ridenour, a Director of the Company and the Bank is a partner, has
provided legal and organizational services to the Company and the Bank. Also,
Mr. Ridenour's law firm has, in the past, acted as general counsel for the
Company and the Bank and will continue to do so in the future and paid for those
general counsel services as and when rendered.
The Company currently pays management fees to JI for services provided
to the company. Services provided include: management consulting, internal
audit, compliance and loan review, payroll and personnel, group purchasing, and
risk management. The cost of JI services is allocated using acceptable and
recognized cost accounting techniques. In 1995, the Company paid approximately
$428,111 to JI for such services, which represented 88% of the costs allocable
to the Company. Amounts charged in the future will be 100% of costs allocable to
the Company in 1996. The estimated expense for management fees in 1996 will be
approximately $456,000.
Many of the Directors and Executive Officers of the Company, and the
business and professional organizations with which they are associated, have
banking transactions with the Bank in the ordinary course of business. The ratio
of the total amount of loans made to Directors to the total amount of Bank
equity as of December 31, 1995 is $624,704 to $13,714,000, or 4.6% of Bank
equity. It is the Bank's policy that any loans and commitments to loan funds
included in such transactions will be made in accordance with applicable laws
and on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons of
similar creditworthiness. Although the Bank does not have any limits on the
aggregate amount it would be willing to lend to its and the Company's Directors
and Executive Officers as a group, loans to individual Directors and officers
must comply with the Bank's lending policies and statutory lending limits, as
provided by federal statutes and regulations. Directors with a personal interest
in any loan application are excluded from the consideration of that loan
application and only a majority of disinterested Directors can approve such a
loan. Also, loans to such persons are not made and cannot be made, pursuant to
federal regulations, on terms more favorable than those afforded to other
borrowers.
Many of these loan transactions have been renewed or extended from time
to time. All renewals and extension requests by Directors or Executive Officers
are treated no more favorably than any such request by other borrowers.
All renewals and extension requests are reported to the Board of
Directors along with all other loans made. All renewals and extension requests
must be, pursuant to the Bank's lending policy, reviewed and approved by way of
the same process and procedures utilized in making a determination to make the
loan initially.
The following, in summary format, are the transactions with or involving
management of the Company and the Bank in excess of $60,000. "Management" in
this context, is defined as directors, executive officers, greater than 5%
stockholders, or any member of their immediate family (which includes in-laws)
as per Item 404 of Regulation S-K. In the following summary of transactions, the
current status discussed is as of December 31, 1995.
William G. Ridenour, Director of the Company and of the
Bank:
(1) A $100,000 revolving line of credit secured by a time certificate of
deposit with a current maturity date of February 5, 1997. The loan, originally
established in December 1985, is at the rate of two percent (2%) over the
certificate of deposit rate. As of December 31, 1995, the certificate of deposit
rate was 6.44% and the loan was current with a principal balance of $98,974.
(2) A $173,000 mortgage loan secured by Mr. Ridenour's principal
residence was made on December 13, 1993. The interest rate is a fixed rate at
6.25%. Maturity is January 1, 2004, and the principal balance outstanding as of
December 31, 1995 is $115,075.
Lawrence L. Stuckey, Director of the Company and of the Bank:
(1) A $50,000 revolving line of credit for Stuckey Insurance Agency, of
which Mr. Stuckey is the owner, was established April 29, 1994; maturing March
31, 1996, at 7.68% fixed. The loan is collateralized by a certificate of
deposit. The principal balance outstanding as of December 31, 1995 is zero.
(2) A $22,000 automobile loan for Stuckey Insurance Agency was made
January 10, 1992. The loan matures on January 10, 1997, and is collateralized by
a 1991 Chevrolet Suburban. The interest rate is 12% and the principal balance
outstanding as of December 31, 1995 was $5,734.
Carrie Louis-Hulburd, Director of the Company and the Bank:
(1) A $393,750 mortgage loan secured by a second residence was made on
December 14, 1993. The interest rate is fixed at 6.625%. The loan matures
January 1, 2009, and the outstanding principal balance at December 31, 1995 was
$362,371.
Kimberley A. Gill-Rimsza, Director of the Company and the
Bank:
(1) A $90,000 commercial loan secured by the first deed of trust on
investment property was made on June 16, 1994. The interest rate is 1% over the
prime rate, which was 9.5% at December 31, 1995. The outstanding balance at
December 31, 1995 was $29,720.
(2) A $500,000 unsecured line of credit for Gill Group, of which Mrs.
Gill-Rimsza is President and C.E.O., was opened May 2, 1994. The interest rate
is at the prime rate plus 1%. The commitment matures June 1, 1996. The
outstanding balance at December 31, 1995 was zero.
(3) An $80,000 unsecured line of credit for Gill Group was opened June
14, 1994. The interest rate is at the prime rate plus 1%. The commitment matures
June 1, 1996. The outstanding balance at December 31, 1995 was zero.
(4) The Gill Group has a business VISA with a line of credit of $57,500.
The outstanding balance at December 31, 1995 was $7,759. The interest rate is
12%.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
(a) FINANCIAL STATEMENTS
Biltmore Bank Corp.
Reports of Independent Public Accountants Page F-2
Financial Statements-
Consolidated Balance Sheets -
December 31, 1995 and 1994 Page F-3
Consolidated Statements of Income - For the
Years Ended December 31, 1995, 1994 and 1993 Page F-4
Consolidated Statements of Shareholders' Equity -
For the Years ended December 31, 1995,
1994 and 1993 Page F-5
Consolidated Statements of Cash Flows - For the
Years Ended December 31, 1995, 1994 and 1993 Page F-6
Notes to Consolidated Financial Statements -
December 31, 1995, 1994 and 1993 Page F-7
(b) REPORTS ON FORM 8-K
None.
(d) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because of the absence of
conditions under which they are required or because the required
material information is included in the Financial Statements or
Notes to the Financial Statements included in Item 14(a).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on March 22, 1996.
BILTMORE BANK CORP.
By /s/ LeRoy C. Gust
------------------
LeRoy C. Gust
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated.
Signature
/s/ LeRoy C. Gust Director, President and Date March 22, 1996
- ---------------------- --------------
LeRoy C. Gust Chief Executive Officer
/s/ Philip B. Bell Director and Treasurer Date March 22, 1996
- ---------------------- --------------
Philip B. Bell
/s/ William G. Ridenour Director Date March 22, 1996
- ---------------------- --------------
William G. Ridenour
/s/ L. Robert Peterson Director Date March 22, 1996
- ---------------------- --------------
L. Robert Peterson
/s/ Lawrence L. Stuckey Director Date March 22, 1996
- ---------------------- --------------
Lawrence L. Stuckey
Supplemental Information to be Furnished with Prospectus Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered
Securities Pursuant to Section 12 of the Act.
No annual report or proxy materials have been sent to shareholders as of
the date hereof. The annual report and proxy information will be mailed
subsequent to this filing.
<PAGE>
[ARTHUR ANDERSEN LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of Biltmore Bank Corp.:
We have audited the accompanying consolidated balance sheets of Biltmore Bank
Corp. and subsidiary (the "Company") as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for the years ended December 31, 1995, 1994 and 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Biltmore Bank Corp.
and subsidiary as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years ended December 31, 1995, 1994, and
1993, in conformity with generally accepted accounting principles.
As discussed in Note 16 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for certain
investments in debt and equity securities.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 23, 1996
F-2
<PAGE>
<TABLE>
BILTMORE BANK CORP.
-------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1995 AND 1994
--------------------------
<CAPTION>
ASSETS
------
1995 1994
------------- -------------
<S> <C> <C>
CASH AND DUE FROM BANKS (Note 3) $ 6,336,967 $ 7,932,020
FEDERAL FUNDS SOLD -- 5,628,000
------------- -------------
Total cash and cash equivalents 6,336,967 13,560,020
INVESTMENT SECURITIES AVAILABLE FOR SALE (Notes 2 and 4) 36,808,353 36,442,647
LOANS, less allowance for credit losses of $2,362,310 and
$2,422,513 in 1995 and 1994, respectively (Note 5) 89,152,249 86,862,577
ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS 1,936,204 2,697,702
PREMISES AND EQUIPMENT, net (Notes 6 and 9) 1,616,411 1,605,453
OTHER REAL ESTATE OWNED (Note 2) 103,015 --
INTANGIBLE ASSETS (Notes 1 and 12) 1,562,662 1,676,594
------------- -------------
$ 137,515,861 $ 142,844,993
============= =============
LIABILITIES AND SHAREHOLDERS'
-----------------------------
EQUITY
DEPOSITS:
Demand-
Noninterest-bearing $ 23,984,474 $ 27,261,963
Interest-bearing 28,098,433 39,968,012
Time certificates of deposit, $100,000 and over (Note 7) 13,689,910 14,089,586
Other time certificates and individual retirement accounts 30,266,899 29,076,926
Savings 20,317,051 18,831,535
------------- -------------
116,356,767 129,228,022
ACCRUED INTEREST PAYABLE 199,316 218,540
SHORT TERM BORROWINGS (Note 8) 6,340,500 603,000
OTHER LIABILITIES 848,600 949,103
------------- -------------
123,745,183 130,998,665
COMMITMENTS AND CONTINGENCIES (Notes 9 and 13) -- --
SHAREHOLDERS' EQUITY (Notes 1, 10 and 11): Preferred stock, no par value:
Authorized and unissued, 10,000,000 shares -- --
Common stock, no par value (stated value $.50)
Authorized, 25,000,000 shares; issued and outstanding,
16,522,530 shares in 1995 and 1994 8,261,265 8,261,265
Additional paid-in capital 4,417,304 4,415,407
Retained earnings 930,377 215,096
Net unrealized gain (loss) on securities, net of tax 161,732 (1,045,440)
------------- -------------
Total shareholders' equity 13,770,678 11,846,328
------------- -------------
$ 137,515,861 $ 142,844,993
============= =============
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
F-3
<PAGE>
<TABLE>
<CAPTION>
BILTMORE BANK CORP.
-------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,888,928 $ 6,229,328 $ 4,282,422
Other interest income (Note 14) 2,281,255 2,254,621 1,981,449
------------ ------------ ------------
Total interest income 10,170,183 8,483,949 6,263,871
INTEREST EXPENSE (Note 15) 4,399,030 3,369,868 3,284,495
------------ ------------ ------------
Net interest income 5,771,153 5,114,081 2,979,376
PROVISION FOR CREDIT LOSSES (Note 5) (98,868) (75,632) (218,573)
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 5,870,021 5,189,713 3,197,949
------------ ------------ ------------
CUSTOMER SERVICE FEES 506,796 458,651 338,738
NET GAIN ON SALE OF SECURITIES 28,261 10,715 6,607
INCOME FROM "LINK" BROKERAGE OFFICE 113,748 126,207 56,824
TRUST REVENUES 189,746 113,892 51,204
NET GAIN ON SALE OF OTHER REAL ESTATE OWNED -- -- 56,150
------------ ------------ ------------
838,551 709,465 509,523
------------ ------------ ------------
OPERATING EXPENSES:
Salaries and wages, net of deferred loan
origination costs of $137,630, $143,409 and
$89,869 at December 31, 1995, 1994 and 1993 2,229,621 1,681,001 1,105,838
Employee benefits 423,424 357,766 342,885
Occupancy expense 649,738 585,077 359,500
Equipment expense 354,970 299,044 181,433
Business development expense 130,302 102,275 38,450
FDIC deposit insurance 143,115 284,866 218,005
Management fee expense (Note 20) 428,111 275,520 175,783
Amortization of intangibles 172,566 128,957 27,609
Data processing 314,371 317,516 168,431
Supplies and printing 180,160 185,055 96,817
Other expenses 711,824 544,159 243,467
------------ ------------ ------------
5,738,202 4,761,236 2,958,218
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE,
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 970,370 1,137,942 749,254
(PROVISION FOR) BENEFIT FROM INCOME TAXES (255,089) 219,433 --
------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 715,281 1,357,375 749,254
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note 16) -- -- 700,000
------------ ------------ ------------
NET INCOME $ 715,281 $ 1,357,375 $ 1,449,254
============ ============ ============
NET INCOME PER COMMON SHARE:
INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $ .04 $ .08 $ .05
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- .04
------------ ------------ ------------
NET INCOME PER COMMON SHARE $ .04 $ .08 $ .09
============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING 16,522,530 16,522,530 16,522,530
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
F-4
<PAGE>
<TABLE>
BILTMORE BANK CORP.
-------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
(NOTES 11 and 12)
<CAPTION>
Net Unrealized
Common Stock Additional Retained Gains (Losses)
------------------------- Paid-in Earnings on Securities
Shares Amount Capital (Deficit) Net of Tax
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 16,522,530 $ 8,261,265 $ 4,412,078 ($2,591,533) $ --
Net Income -- -- -- 1,449,254 --
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1993 16,522,530 $ 8,261,265 $ 4,412,078 ($1,142,279) --
Adoption of SFAS 115,
"Accounting for Certain
Investments in Debt and
Equity Securities" -- -- -- -- 272,212
Net Income -- -- -- 1,357,375 --
Net Change in Unrealized
Gains (Losses) on
Securities, net
of Tax -- -- -- -- (1,317,652)
Other -- -- 3,329 -- --
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1994 16,522,530 $ 8,261,265 $ 4,415,407 $ 215,096 ($1,045,440)
Net Income -- -- -- 715,281 --
Net Change in Unrealized
Gains (Losses) on
Securities, net
of Tax -- -- -- -- 1,207,172
Other -- -- 1,897 -- --
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 16,522,530 $ 8,261,265 $ 4,417,304 $ 930,377 $ 161,732
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
F-5
<PAGE>
<TABLE>
BILTMORE BANK CORP.
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 715,281 $ 1,357,375 $ 1,449,254
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses (98,868) (75,632) (218,573)
Depreciation and amortization 361,600 274,336 98,472
Net amortization and accretion of investment
securities premiums and discounts 54,040 154,621 163,991
Net gain on sale of other real estate owned -- -- (56,150)
Net gains on sale of securities (28,261) (10,715) (6,607)
Net loss (gain) on sale of fixed assets 489 6,112 (8,452)
Recognition of preacquisition net operating
loss carryforward -- 257,173 95,000
Decrease (increase) in accrued interest
receivable and other assets 123,012 (498,570) (209,987)
(Decrease) increase in accrued interest payable
and other liabilities (125,709) (123,717) (95,225)
Cumulative effect of change in accounting
principle -- -- (700,000)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,001,584 1,340,983 511,723
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities 9,448,103 2,980,313 1,005,625
Proceeds from maturities of investment securities 7,000,000 15,300,000 12,050,000
Purchase of investment securities (15,040,700) (17,045,301) (19,456,854)
Net increase in loans (2,190,804) (4,876,134) (485,356)
Purchase of bank premises and equipment (321,810) (378,501) (127,566)
Proceeds from sale of bank premises and equipment 8,329 -- 12,624
Proceeds from sales of other real estate owned -- -- 509,500
Cash and cash equivalents of banks acquired,
net of payment for purchase -- 6,462,168 --
------------ ------------ ------------
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (1,096,882) 2,442,545 (6,492,027)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits
and savings (13,661,552) 2,553,678 12,334,463
Net increase (decrease) in time certificates
of deposit 790,297 (133,669) (5,548,283)
Net increase (decrease) in securities sold under
agreement to repurchase 5,743,500 603,000 (300,000)
------------ ------------ ------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (7,127,755) 3,023,009 6,486,180
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,223,053) 6,806,537 505,876
CASH AND CASH EQUIVALENTS, beginning of year 13,560,020 6,753,483 6,247,607
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 6,336,967 $ 13,560,020 $ 6,753,483
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,399,030 $ 3,379,954 $ 3,373,013
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
BILTMORE BANK CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1995, 1994 AND 1993
--------------------------------
(1) ORGANIZATION:
Biltmore Bank Corp. (the Company), the holding company for Biltmore Investors
Bank (the Bank) (formerly Biltmore National Bank), was incorporated in Arizona
on March 19, 1984. On August 22, 1985, the Company acquired all of the issued
stock of the Bank and the Bank commenced banking operations. In 1989, Johnson
International Inc. (JI), a Wisconsin-based company owned primarily by Samuel C.
Johnson and family members, acquired approximately 76% of the Company's
outstanding common stock. As a result, the Company became a subsidiary of JI. In
a November 26, 1990 stock offering, JI acquired shares which increased its
ownership percentage to approximately 93%.
As per the 1989 Stock Purchase and Investment Agreement, based primarily upon
the level of loan losses from the time of its acquisition in 1989 through
December 31, 1991, JI was entitled to and did receive 7,570,896 additional
shares of stock in 1993. This transaction, combined with purchases of shares of
stock from other shareholders, increased JI's ownership to approximately 97%.
Since JI's effective ownership exceeded 95%, the goodwill recorded by JI at the
time of its acquisition of the Company was required to be "pushed down" to the
Company. Therefore, goodwill was recorded on the Company's Balance Sheet as of
January 1, 1992. Additional disclosure of this transaction is included in
footnotes (11) and (12).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, the Bank. All material intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
The consolidated financial statements of the Company are prepared in accordance
with generally accepted accounting principles. The following is a description of
the Company's significant accounting policies.
Estimates -
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure or
contingent assets and
F-7
<PAGE>
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents-
Cash and cash equivalents, for purposes of reporting cash flows, include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
Investment Securities-
In May 1993, the FASB issued Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," (SFAS 115).
SFAS 115 requires, among other things, that securities classified as available
for sale be carried at market value, however, market value adjustments and the
related income tax effects, are excluded from earnings and reported separately
as a component of stockholders' equity. This new standard was adopted by the
Company on January 1, 1994. Prior to this, investment securities available for
sale were carried at the lower of cost or market value.
Securities, when purchased, are designated as investment securities held to
maturity or investment securities available for sale and remain in that category
until they are sold or mature. The specific identification method is used in
determining the cost of securities sold. The Company does not engage in the
trading of securities, and does not hold any securities classified as held to
maturity.
Investment securities available for sale are carried at market value, determined
on an aggregate basis. While the Company has no current intention to sell these
securities, they may not be held to maturity.
Loans-
Loans are reported at the principal amount outstanding, net of deferred loan
origination fees and costs. Interest income on loans is credited to operating
income as earned based on the principal amount outstanding. Accrual of interest
is suspended on a loan when management believes, after considering economic and
business conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful.
Loan Fees-
Loan origination fees and certain related direct loan origination costs are
offset and the resulting net amount is deferred and amortized over the life of
the related loans as an adjustment to the yield of such loans.
F-8
<PAGE>
In addition, commitment fees are offset against related loans and amortized as a
yield adjustment if the commitment is exercised or, if the commitment expires
unexercised, it is recognized upon expiration of the commitment.
Allowance for Credit Losses-
The loan portfolio and other extensions of credit are regularly reviewed to
determine the adequacy of the allowance for credit losses which is established
through a provision for credit losses charged to expense. The impact of economic
conditions on the credit worthiness of borrowers is given major consideration in
determining the adequacy of the reserve.
A charge against the allowance for credit losses is made when management
believes that the collectability of the loan principal is unlikely. Management
believes the allowance is adequate to absorb losses inherent in existing loans
and commitments to extend credit, based on evaluations of the collectability and
prior loss experience of loans and commitments to extend credit. The evaluations
take into consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, loan concentrations, specific problem
loans, commitments and current and anticipated economic conditions that may
affect the borrower's ability to pay. Ultimate losses may vary from current
estimates and the amount of the provision, which is a current expense, may be
either greater or less than actual net charge-offs. Recoveries of loans
previously charged off are added back to the allowance.
Premises and Equipment-
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is charged to expense over the estimated useful life
of the asset computed on the straight-line method. Leasehold improvements are
amortized over the life of the lease, including optional renewal periods, or the
estimated useful life of the asset, whichever is shorter.
Other Real Estate Owned-
Other real estate owned, which represents real estate acquired in settlement of
loans, is initially recorded at the lower of the recorded investment in the loan
or the fair value of the real estate.
Prior to foreclosure, the value of the underlying loan is written down to the
fair value of the real estate to be acquired by a charge to the allowance for
credit losses, if necessary. Any subsequent write downs to reflect declines, if
any, in net realizable value of the property are charged to expense.
F-9
<PAGE>
Net Income Per Common Share-
Net income per common share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding during the year. These
shares give consideration to outstanding stock options when such effect is
dilutive.
Reclassifications-
Certain reclassifications have been made to conform to the classifications used
in the 1995 financial statements.
(3) CASH AND DUE FROM BANKS:
Cash includes deposits with the Federal Reserve Bank of $758,648 and $343,000
maintained to satisfy federal regulatory requirements at December 31, 1995 and
1994, respectively.
F-10
<PAGE>
(4) INVESTMENT SECURITIES:
The amortized cost and market value of investment securities available for sale
as of December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
United States Treasury
securities $19,858,248 $20,054,063 $20,071,091 $19,198,458
Obligations of United States
government agencies 15,713,723 15,762,224 17,001,257 16,297,264
Corporate bonds 500,000 502,350 500,000 492,625
Certificate of deposit 100,000 98,866 100,000 100,000
Federal Reserve Bank stock 390,850 390,850 354,300 354,300
----------- ----------- ----------- -----------
$36,562,821 $36,808,353 $38,026,648 $36,442,647
=========== =========== =========== ===========
</TABLE>
At December 31, 1995, and 1994 the Company's investment portfolio included
unrealized gains of approximately $347,000 and $5,000 respectively, and
unrealized losses of approximately $101,000 and $1,589,000 respectively.
Gross realized gains and losses amounted to $34,527 and $6,266 in 1995, and
$27,249 and $16,534 in 1994, and $6,607 and $0 in 1993, respectively.
The following table presents the amortized cost and carrying amounts by maturity
distribution of the investment portfolio for investments with a stated maturity
date:
<TABLE>
<CAPTION>
Maturity Distribution at December 31, 1995
Amortized Amortized Amortized
Cost Cost Cost
Within Market One to Market Over Market
One Year Value Five Years Value Five Years Value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
United States
Treasury
securities $ 2,014,602 $ 2,017,814 $17,843,646 $18,036,249 $ -- $ --
Obligations of
United States
government
agencies 2,985,311 2,990,000 11,045,357 11,105,274 1,683,055 1,666,950
Corporate bonds 500,000 502,350 -- -- -- --
Certificate of
deposit 100,000 98,866 -- -- -- --
Federal Reserve
Bank Stock -- -- -- -- 390,850 390,850
----------- ----------- ----------- ----------- ----------- -----------
$ 5,599,913 $ 5,609,030 $28,889,003 $29,141,523 $ 2,073,905 $ 2,057,800
=========== =========== =========== =========== =========== ===========
</TABLE>
F-11
<PAGE>
The Company had $6,000,000 available under federal funds lines of credit with
correspondent banks as of both December 31, 1995 and 1994. The Company has
assigned a United States Treasury security with a carrying value of $1,982,500
to secure a portion of one of the federal funds lines of credit. There were no
borrowings under this line at December 31, 1995 or 1994.
The Company has a Letter of Credit Line of $750,000 available with a
correspondent bank as of December 31, 1995 and 1994.
There were no borrowings under this line.
At December 31, 1995, the Company had assigned a United States Treasury security
with a carrying value of $1,013,750 to secure a Treasury, Tax and Loan account
with the Federal Reserve Bank. Also at December 31, 1995, the Company had
assigned a United States Treasury Security with a carrying value of $1,006,562
to secure trust account deposits.
(5) LOANS:
Loans, which all arise from domestic operations, are summarized as of December
31 as follows:
1995 1994
------------ ------------
Commercial and industrial $ 45,379,732 $ 42,243,407
Real estate - construction 2,158,172 1,134,611
Consumer loans 3,313,321 4,049,441
Residential mortgage 40,896,989 42,082,311
------------ ------------
91,748,214 89,509,770
Less - Allowance for credit losses (2,362,310) (2,422,513)
Deferred loan origination fees (233,655) (224,680)
------------ ------------
$ 89,152,249 $ 86,862,577
============ ============
At December 31, 1995 and 1994, the Company had outstanding $624,704 and
$244,090, respectively, of loans made to directors, executive officers and
related parties. All such loans were made in the ordinary course of business.
The activity in related party loans for the years ended December 31 is
summarized as follows:
1995 1994
--------- ---------
Balance, beginning of year $ 244,090 $ 275,577
Loan disbursements 521,639 166,662
Loan payments received (141,025) (198,149)
--------- ---------
Balance, end of year $ 624,704 $ 244,090
========= =========
F-12
<PAGE>
The Company has evaluated its loan portfolio as of December 31, 1995 in
accordance with its normal practices and has given consideration to the factors
creating potential credit losses. While management believes that the allowance
for credit losses provides for all currently anticipated problems, management
recognizes that the Company may incur additional losses which cannot currently
be estimated, but which may be substantial.
Changes in the allowance for credit losses for the years ended December 31 were
as follows:
1995 1994 1993
----------- ----------- -----------
Balance, beginning of year $ 2,422,513 $ 1,776,129 $ 1,913,793
Reserve acquired in acquisition -- 806,141 --
Provision credited to operations (98,868) (75,632) (218,573)
Loans charged off (66,513) (141,822) (21,157)
Recoveries 105,178 57,697 102,066
----------- ----------- -----------
Balance, end of year $ 2,362,310 $ 2,422,513 $ 1,776,129
=========== =========== ===========
In May 1993 and October 1994, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" and SFAS No. 118, an amendment to SFAS No. 114
(collectively "SFAS 114"). These new standards require that a loan's value be
measured, and if appropriate a valuation reserve established, when it has been
determined that the loan is impaired and loss is probable. At December 31, 1995,
the Corporation's recorded investment in impaired loans is approximately
$110,000. Management has determined that the entire amount of impaired loans
will be excluded from evaluation under SFAS 114 as these are smaller-balance
homogeneous loans. This amount is net of previous direct writedowns and
applications of cash interest payments against the loan balance outstanding.
The average recorded investment in total impaired loans and leases for the year
ended December 31, 1995, was not material.
Interest payments received on impaired loans and leases are recorded as interest
income unless collection of the remaining recorded investment is doubtful at
which time payments received are recorded as reductions of principal. During
1995, interest income recognized on total impaired loans was not material. The
gross income that would have been recognized had such loans and leases been
performing in accordance with their original terms would have not been material
for the same period.
At December 31, 1995, there were no commitments to lend additional funds to
borrowers whose loans are classified as nonaccrual or renegotiated.
Substantially all the loans contained in the portfolio are to individuals and
businesses located in the Phoenix metropolitan area.
F-13
<PAGE>
(6) PREMISES AND EQUIPMENT:
Major classifications of premises and equipment as of December 31 were as
follows:
1995 1994
----------- -----------
Land $ 400,000 $ 400,000
Building 193,299 65,000
Equipment and furniture 1,288,483 940,248
Leasehold improvements 762,471 895,950
----------- -----------
2,644,253 2,301,198
Less- Accumulated depreciation and
amortization (1,027,842) (695,745)
----------- -----------
$ 1,616,411 $ 1,605,453
=========== ===========
(7) DEPOSITS:
Time certificates of deposit with balances of $100,000 and over and their
remaining maturities as of December 31 were as follows:
1995 1994
----------- -----------
Less than three months $ 3,497,647 $ 2,086,262
Three to twelve months 7,326,066 4,609,937
One year to five years 2,866,197 7,393,387
Over five years -- --
----------- -----------
$13,689,910 $14,089,586
=========== ===========
(8) SHORT TERM BORROWINGS:
Short term borrowings at December 31, were as follows:
1995 1994
---------- ----------
Federal funds purchased $1,200,000 $ --
Securities sold under agreement to
repurchase 5,140,500 603,000
---------- ----------
$6,340,500 $ 603,000
========== ==========
As of December 31, 1995, securities sold under agreement to repurchase of
$5,000,000 were with Heritage Bank and Trust, Racine, WI, a Johnson
International Company.
F-14
<PAGE>
(9) COMMITMENTS AND CONTINGENCIES:
In 1988, the Company signed a ten-year lease agreement to lease approximately
10,300 square feet for its current banking offices. The lease was subsequently
amended to commence on October 15, 1989 and terminate on June 30, 1999. The
Company assigned the lease to the Bank effective December 29, 1989. The lease
agreement requires rental payments to be escalated in the seventh year of the
lease by a minimum of 20% and a maximum of 30% as determined by a formula based
upon the consumer price index, and then to remain constant through the remaining
term of the lease. Additionally, the lease requires the Bank to pay an allocated
percentage of the direct expenses of the building and project in excess of
specified levels. The lease agreement provides renewal options for two five-year
periods at fair-market rent at the renewal date.
On February 2, 1994, Biltmore Investors Bank acquired substantially all the
assets and liabilities of American National Bank (See note 18). As a result of
the acquisition, Biltmore Investors Bank signed a five year lease for a branch
location in Scottsdale, Arizona. The lease agreement provides renewal options
for two five-year periods.
Total rental expense under the aforementioned leases for the years ended
December 31, 1995, 1994 and 1993 was approximately $573,000, $522,000, and
$314,000, respectively. Future minimum rental payments required under the lease
agreements at December 31, 1995 were as follows:
Year Ending
December 31,
1996 616,116
1997 616,116
1998 618,223
1999 210,636
Thereafter --
----------
$2,061,091
==========
In the normal course of business, the Company makes various commitments and
incurs certain contingent liabilities which are not reflected in the
accompanying consolidated financial statements. These commitments and contingent
liabilities include various guarantees and commitments to extend credit arising
from normal business activities. At December 31, 1995 and 1994, commitments to
extend credit under loan agreements, net of participations sold, aggregated
approximately $28,770,000 and $24,745,000, respectively. Commitments to extend
credit under letter of credit agreements, net of participations sold, aggregated
approximately $567,000 and $495,000 at December 31, 1995 and 1994, respectively.
The Bank does not anticipate any material loss as a result of these
transactions.
F-15
<PAGE>
(10) STOCK OPTIONS:
The Company has adopted four stock option plans, the terms of which are
summarized as follows:
The 1984 Nonstatutory Stock Option Plan (the "Nonstatutory Plan")
provides for the issuance of a maximum of 20,000 options for the
purchase of one share of common stock each. All full-time salaried
officers, key employees and directors are eligible to receive options
under the Nonstatutory Plan. The option price is $10 per share. Options
are exercisable in 25% increments each year subsequent to the first
anniversary of the date of grant and expire six years from the date of
grant.
The Incentive Stock Option Plan (the "Incentive Plan") provides for the
issuance of a maximum of 40,000 options for the purchase of one share of
common stock each. The exercise price of the option may not be less than
the fair market value of the stock at the date of grant. Options may be
granted under the Incentive Plan to any director, officer or employee of
the Company or the Bank. Options granted under the Incentive Plan expire
ten years from date of grant and are exercisable at the option of the
holder. All options under this plan were forfeited in 1994.
The Founding Directors Nonstatutory Stock Option Plan (the "Founding
Directors Plan") provides for the issuance of a maximum of 60,000
options for the purchase of one share of common stock each. The six
founding directors are the only participants in the Founding Directors
Plan. Each founding director has been granted options to purchase 10,000
shares of common stock at a purchase price of $12 per share. All options
under this plan expired in 1994.
On September 26, 1989, the Company executed an amendment to the Stock
Purchase Agreement with JI (see Note 10) which included an agreement to
issue an additional $150,000 in options to a new employee of the Bank,
at the per share investment price of the JI transaction. The option plan
was approved in 1990 as the 1990 Incentive Stock Option Plan. The JI
transaction closed on December 29, 1989 at $2.57 per share which equated
to 58,366 shares under the option agreement. As of December 31, 1995,
390 of the options had been granted and exercised.
F-16
<PAGE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123") was issued in October 1995 by the
Financial Accounting Standards Board and is required to be adopted in
1996. FAS 123 establishes financial accounting and reporting standards
for stock-based employee compensation. Currently the Company does not
recognize compensation cost on options issued under Accounting Principal
Board Opinion No. 25 "Accounting For Stock Issued to Employees" ("APB
25") as the exercise price is the same as or higher than the fair market
value at time of issuance. FAS 123 permits the Company to continue to
follow this treatment as long as pro-forma disclosures of net income and
earnings per share are presented as if the fair value based method of
accounting defined in FAS 123 had been applied. The fair value based
method requires measurement of compensation cost on the grant date based
on the fair value of the award using an option pricing model. Management
has not yet determined whether it will adopt the fair value based method
defined by FAS 123 or continue to use the APB 25 method.
F-17
<PAGE>
The following summarizes the activity in stock options under the four plans for
each of the years in the two-year period ended December 31, 1995 and 1994:
Outstanding Option Exercisable
Options Price Options
------- ----- -------
BALANCE, December 31, 1993 71,400 $10 - $13 11,400
Options expired (60,000) $12 -
Options forfeited (9,400) $13 (9,400)
------- -------
BALANCE, December 31, 1994 2,000 $10 2,000
Options expired (2,000) $10 (2,000)
------- -------
BALANCE, December 31, 1995 0 0
======= =======
(11) STOCK OFFERINGS AND COMMON STOCK:
On March 2, 1989, the Company signed a definitive agreement with JI which
allowed them to acquire a controlling interest in the Company (Note 1). The
agreement was to purchase approximately $3,000,000 of newly-issued stock at the
December 31, 1988, book value per share. In September 1989, an amendment was
signed by the Company and JI to change the price per share to the unaudited book
value per share of the Company's common shares as of the end of November, 1989,
which both parties agreed was $2.57. The purchase, which was consummated on
December 29, 1989 and which required regulatory approval, gave JI ownership of
approximately 76% of the Company's outstanding stock.
The definitive agreement contained a warrant purchase agreement granting to JI
the right to purchase warrants at the price of $.01 per warrant and to purchase
common stock equal in number and option price with respect to other shares
eligible to be purchased under all of the Company's option plans. The warrants
contain anti-dilution provisions providing for the issuance of additional
warrants or changes to the warrant prices, as the case may be, should the
Company take any action in the future to issue options, rights, warrants or
other securities convertible into common stock, or take any other action which
will or may have the effect of diminishing JI's proportionate interest in the
Company's common stock.
During 1990, pursuant to the terms of the agreement, the Company issued a common
stock offering to its stockholders. As a result of this offering, 7,414,345
shares of stock were sold for $8,600,640. JI purchased 7,181,106 shares in the
1990 offering, increasing its ownership of the Company from 76% to 93%. In
addition to the stock offering, 390 stock options were exercised at $2.57 per
share by an employee of the Bank.
Under the terms of the 1989 definitive agreement, JI would pay additional cash
to the Company or receive additional shares of common stock of the Company
depending primarily upon losses in the loan portfolio from the date of the
agreement in 1989 through December 31, 1991. Based upon actual loan losses
incurred, 7,570,896 additional shares were due and payable to JI as of December
31, 1991. The shares were issued to JI on April 30, 1992. A reclassification was
made to Common Stock from Additional Paid-in Capital for the stated value of the
shares.
F-18
<PAGE>
This transaction, combined with purchases of shares of common stock from other
shareholders, increased JI's ownership of the Company to approximately 97%.
(12) INTANGIBLE ASSETS:
Because the stock to be issued under the terms of the 1989 definitive agreement
was due and payable as of December 31, 1991, JI's effective ownership exceeded
95%. Therefore, the remaining unamortized goodwill, which was originally
recorded by JI at the time of JI's acquisition of the Company, was required to
be "pushed down" to the Company.
Accordingly, goodwill in the amount of $640,094 was recorded on the Company's
Balance Sheet as of January 1, 1992 with an offsetting amount recorded to
retained earnings. The goodwill is being amortized using the straight-line
method over 25 years, and had approximately 23 years remaining when it was
"pushed down" to the Company from JI.
As per Accounting Principles Board Opinion No. 16 (APB 16), retained earnings of
the Company was required to be restated on the date of application of pushdown
accounting. The restated retained earnings included the remaining minority
ownership's percentage of the retained earnings (accumulated deficit at the
time), plus JI's recorded equity in the income and losses of the Company from
the time of the original acquisition, less all amortization of the goodwill
recorded by JI relating to the acquisition of the Company. Therefore, a
reclassification of $2,639,069 was made from retained earnings to additional
paid-in capital on January 1, 1992
Additional goodwill in the amount of $10,431 was "pushed down" to the Company
from JI in 1992 relating to additional shares purchased by JI from other
shareholders during the year.
Goodwill was $114,059 and $65,294 at December 31, 1995 and 1994 respectively.
The core deposit intangible resulting from the acquisition of ANB, as described
in note 17, was $1,384,584 and $1,611,300 at December 31, 1995 and 1994
respectively. The core deposit intangible is amortized over 10 years.
Negative goodwill generated from a previous acquisition was $163,449 and
$224,773 at December 31, 1995 and 1994, respectively.
F-19
<PAGE>
(13) REGULATORY MATTERS:
The activities of the Bank are regulated by the Office of the Comptroller of the
Currency (the OCC). Approval by the OCC may be required prior to payment of
dividends by the Bank to the Company under certain circumstances. Additionally,
regulations prevent the Bank from transferring funds to the Company for reasons
other than the payment of dividends or the purchase of services and supplies.
Therefore, included in the balance sheet at December 31, 1995 and 1994, are
$13,714,000 and $11,527,000 respectively, of net assets restricted to use by the
Bank only.
The Federal Reserve Board has adopted capital regulations which require the Bank
to maintain two separate minimum capital ratios. Included are the Tier 1 Capital
Ratio and the Total Risk-Weighted Capital Ratio. The Bank's capital ratios are
shown, along with the minimum required ratios as of December 31, 1995, and 1994
respectively, in the following table:
Total Risk-
Tier 1 Weighted
Capital Capital
------- -------
Capital Ratio at December 31, 1995 13.57% 16.16%
Capital Ratio at December 31, 1994 12.96% 14.23%
Regulatory Capital Requirement 4.00% 8.00%
The federal banking agencies have also adopted leverage capital guidelines which
banking organizations must meet. Under these guidelines, the most highly rated
banking organizations must meet a leverage ratio of at least 3% Tier 1 capital
to total assets, while lower rated banking organizations must maintain a ratio
of at least 4% to 5%. The Bank's leverage ratios for the years ended December
31, 1995 and 1994 were 8.88% and 7.12% respectively.
At December 31, 1995 and 1994, due to OCC Regulations, the Bank had no retained
earnings available for distribution as dividends to the Company.
(14) OTHER INTEREST INCOME:
Other interest income for the years ended December 31 is summarized as follows:
1995 1994 1993
---------- ---------- ----------
Interest on federal funds sold $ 216,886 $ 142,360 $ 106,913
Interest on deposits in other
financial institutions 2,775 2,500 2,329
Interest on investment
securities 2,061,594 2,109,761 1,872,207
---------- ---------- ----------
$2,281,255 $2,254,621 $1,981,449
========== ========== ==========
F-20
<PAGE>
(15) INTEREST EXPENSE:
Interest expense for the years ended December 31 is summarized as follows:
1995 1994 1993
---------- ---------- ----------
Demand deposits and savings $1,778,941 $1,371,399 $ 939,280
Time certificates of deposit,
$100,000 and over 824,972 604,580 521,449
Other time deposits 1,714,099 1,389,057 1,820,239
Securities sold under
agreement to repurchase 59,883 4,832 3,527
Federal funds purchased 21,135 -- --
---------- ---------- ----------
$4,399,030 $3,369,868 $3,284,495
========== ========== ==========
(16) INCOME TAXES:
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which was issued by
the Financial Accounting Standards Board. Under this method, deferred tax assets
and liabilities are recognized for future tax consequences relating to
differences between the book and tax accounting treatment of existing assets and
liabilities as of the balance sheet dates. Deferred tax assets and liabilities
are calculated using enacted tax rates expected to apply to taxable income in
the years in which the book-to-tax accounting differences are expected to be
reversed.
The following is a reconciliation between the amount of the provision for income
taxes and the amount of tax computed by applying the statutory Federal income
tax rate of 34% for each year:
1995 1994
----------- ---------
Tax computed at statutory rate $ 329,926 $ 386,900
Other (74,837) (42,333)
Adjustment of valuation allowance - (564,000)
----------- ---------
Total income tax expense (benefit) $ 255,089 $(219,433)
=========== =========
F-21
<PAGE>
The tax effects of temporary differences that give rise to significant elements
of the deferred tax assets and deferred tax liabilities for each year, are as
follows:
1995 1994
----------- -----------
Deferred tax assets:
Allowance for credit losses $ 803,185 $ 549,576
Mortgage loan premium 13,283 168,960
Net deferred loan fees 79,443 76,392
Net operating loss carryforwards 377,526 847,676
Net unrealized depreciation on
investment securities available for sale -- 538,560
Other 16,229 90,049
----------- -----------
Total deferred tax assets $ 1,289,666 $ 2,271,213
----------- -----------
Deferred tax liabilities:
Fixed assets, primarily due to
depreciation $ (31,516) $ (100,713)
Discount accretion on bonds (71,120) (43,120)
Net unrealized depreciation on
investment securities available for sale (83,800) --
Other (301,162) (42,120)
----------- -----------
Total deferred tax liabilities (487,598) (185,953)
----------- -----------
802,068 2,085,260
Valuation Allowance -- (352,000)
----------- -----------
Net deferred tax assets $ 802,068 $ 1,733,260
=========== ===========
Changes in the valuation allowance were as follows:
1995 1994
----------- -----------
Balance, beginning of year $ 352,000 $ 1,817,000
Expiration of State NOL (352,000) (624,000)
Recognition of previously generated
federal NOLs -- (841,000)
----------- -----------
Balance, end of year $ -- $ 352,000
=========== ===========
F-22
<PAGE>
The Company has a tax NOL carryforwards of approximately $1.1 million for
federal income taxes as of December 31, 1995. The $1.1 million federal NOL
carryforward is comprised of prechange NOLs (before JI purchased a 76% ownership
on December 29, 1989) and postchange NOLs (from December 29, 1989 to November
26, 1990 when JI became a 93% owner of the Company).
The federal prechange NOL approximates $201,000, and must be utilized by the
Company (it cannot be used by JI) no later than the year 2003. The postchange
federal NOL, which approximates $910,000, must be utilized by the Company (but
not by JI) in full by no later than the year 2004. The Company has fully
benefitted all NOL's existing at December 31, 1995.
The cumulative effect of adopting SFAS 109 at January 1, 1993, was $700,000
representing the recognition of the net deferred tax assets at January 1, 1993
plus the Company's estimate of the amount of postchange NOLs it reasonably
expected to realize at the time.
(17) NEW PRONOUNCEMENTS:
In March, 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of."
This standard, which must be adopted in 1996, requires long-lived impaired
assets to be carried at fair value and all long-lived assets to be disposed of
to be reported at the lower of carrying amount or fair value less cost to sell.
SFAS 121 prescribes a cash flow test for recoverability whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. For purposes of SFAS 121, assets include certain identifiable
intangibles and goodwill if the asset tested for recoverability was acquired in
a business combination accounted for using the purchase method.
The Corporation does not anticipate that SFAS 121 will have a material impact on
the consolidated financial statements.
F-23
<PAGE>
(18) BUSINESS COMBINATION:
On February 1, 1994, the Bank acquired substantially all of the assets and
liabilities of American National Bank (ANB), which had one office in Scottsdale,
Arizona and one office in Phoenix, Arizona. The acquisition was funded through
available capital of the Bank at a cost of approximately $1.1 million.
The transaction was accounted for as a purchase and is included in the Company's
results of operations as of February 1, 1994. The following table shows the fair
value of assets acquired, fair value of liabilities assumed, and net cash paid:
Fair Value of Assets Acquired $32,422,667
Fair Value of Liabilities Assumed 31,335,419
------------
Cash Paid for Acquisitions 1,087,248
Cash Received in Acquisition (7,549,416)
-----------
Net Cash and Cash Equivalents Received $6,462,168
===========
The pro-forma impact on the Company's results of operations for the year ended
December 31, 1994, assuming ANB had been acquired as of the beginning of the
year, are not materially different than the Company's actual results. The
unaudited pro-forma impact on the Company's results of operation for the year
ended December 31, 1993 had the ANB transaction described above been consummated
January 1, 1993 is as follows:
For the Year Ended
December 31, 1993
(Unaudited)
Net Interest Income $4,253,000
Provision for Loan Losses $ 219,000
Net Income $1,119,000
Net Income per Share $ .07
F-24
<PAGE>
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following tables present the estimated fair values of financial instruments
as of December 31, 1995 and 1994:
1995
---------------------------
Carrying Fair
Value Value
------------ ------------
Financial Assets:
Cash and Cash Equivalents $ 6,337,000 $ 6,337,000
Investments Securities Available
for Sale 36,808,000 36,808,000
Net Loans 89,152,000 89,199,000
Interest Receivable 1,109,000 1,109,000
Financial Liabilities:
Deposits 116,357,000 116,919,000
Short Term Borrowings 6,341,000 6,201,000
Interest Payable 199,000 199,000
1994
---------------------------
Carrying Fair
Value Value
------------ ------------
Financial Assets:
Cash and Cash Equivalents $ 13,560,000 $ 13,560,000
Investments Securities Available
for Sale 36,443,000 36,443,000
Net Loans 86,863,000 81,382,000
Interest Receivable 1,018,000 1,018,000
Financial Liabilities:
Deposits 129,228,000 121,281,000
Short Term Borrowings 603,000 603,000
Interest Payable 219,000 219,000
Where readily available, quoted market prices were utilized by the Company. If
quoted market prices were not available, fair values were based on estimates
using present value or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. The calculated fair value estimates, therefore,
cannot be substantiated by comparison to independent markets and may not be
realized in immediate settlement of the instrument. Certain financial
instruments and all nonfinancial instruments are excluded from disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
The following methods and assumptions were used in estimating the fair value for
financial instruments.
F-25
<PAGE>
Cash and cash equivalents, interest receivable, securities sold
under agreements to repurchase, and interest payable
The carrying amounts reported for these financial instruments are a reasonable
estimate of fair value.
Investment securities available for sale
Fair value is based on quoted market prices or dealer quotes.
Loans
Loans that reprice or mature within three months of year end were assigned fair
values based on their carrying values. For remaining loans, fair value was
estimated by discounting the expected future cash flows using current interest
rates at which similar loans would be made to borrowers of comparable
creditworthiness.
Deposits
The fair value of fixed-maturity time deposits was estimated based on discounted
cash flows using rates currently offered for deposits of similar remaining
maturities.
Though demand and savings deposits may have duration characteristics which could
justify fair value estimation using methods similar to those used for
fixed-maturity time deposits, their fair value was considered to be carrying
value pursuant to the disclosure requirements.
(20) MANAGEMENT FEE:
The Company pays its allocable portion of expenses to JI in an arrangement
similar to all of JI's subsidiaries. The arrangement calls for partial payment
of allocable expenses in the early years after becoming a subsidiary of JI.
In 1993, the Company paid $175,783 in management fees, equalling 63% of its
allocable portion of expenses. In 1994, the Company paid $275,520 in management
fees, equalling 83% of its allocable portion of expenses. In 1995, the Company
paid $428,111 in management fees, equaling 88% of its allocable portion of
expenses.
Future payments as a percentage of the Company's allocable portion of expenses
are expected to be 100% in 1996.
F-26
<PAGE>
(21) CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
CONDENSED BALANCE SHEETS DECEMBER 31 1995 1994
----------- -----------
ASSETS:
CASH $ 424 $ 120
DEFERRED TAXES -- 257,173
INVESTMENT IN BILTMORE INVESTORS BANK 13,714,165 11,527,411
PREPAID EXPENSES 1,826 2,160
GOODWILL 64,019 65,294
----------- -----------
TOTAL ASSETS $13,780,434 $11,852,158
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
OTHER LIABILITIES $ 9,756 $ 5,830
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 13,770,678 11,846,328
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $13,780,434 $11,852,158
=========== ===========
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME FOR THE YEARS
ENDED DECEMBER 31: 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
EQUITY IN NET INCOME OF BILTMORE
INVESTORS BANK $ 722,418 $ 1,376,788 $ 771,879
EXPENSES:
General and administrative 6,009 10,334 2,926
Amortization of goodwill 3,172 9,079 19,699
----------- ----------- -----------
TOTAL EXPENSES (9,181) (19,413) (22,625)
----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING ACCOUNTING PRINCIPAL 713,237 1,357,375 749,254
BENEFIT FROM INCOME TAXES (2,044) -- --
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 715,281 1,357,375 749,254
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE -- -- 700,000
----------- ----------- -----------
NET INCOME $ 715,281 $ 1,357,375 $ 1,449,254
=========== =========== ===========
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
RECONCILIATION OF NET INCOME TO NET CASH
USED BY OPERATING ACTIVITIES:
Net income $ 715,281 $ 1,357,375 $ 1,449,254
Adjustments to reconcile net income to
net cash provided (used) by operating activities-
Equity in net income of Biltmore
Investors Bank (722,418) (1,376,788) (771,879)
Amortization of goodwill 3,172 9,079 19,699
Recognition of preacquisition net
operating loss carryforward -- 257,173 95,000
Cumulative effect of a change in
accounting principal -- -- (700,000)
Increase in investment in Biltmore
Investors Bank due to utilization of
preacquisition net operating loss
carryforward -- (257,173) (95,000)
(Decrease) increase in other
liabilities 3,934 (621) (12,888)
Decrease in other assets 335 518 278
----------- ----------- -----------
Net cash provided (used) by operating
activities 304 (10,437) (15,536)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES: -- -- --
CASH FLOWS FROM FINANCING ACTIVITIES: -- -- --
DECREASE IN CASH AND CASH EQUIVALENTS 304 (10,437) (15,536)
CASH AND CASH EQUIVALENTS,
beginning of period 120 10,557 26,093
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 424 $ 120 $ 10,557
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 176 $ -- $ --
=========== =========== ===========
NON-CASH TRANSACTION:
Pushdown of goodwill from Parent $ 1,897 $ 3,329 $ --
=========== =========== ===========
</TABLE>
F-28
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 6,337
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,808
<INVESTMENTS-CARRYING> 36,808
<INVESTMENTS-MARKET> 36,808
<LOANS> 91,515
<ALLOWANCE> 2,362
<TOTAL-ASSETS> 137,516
<DEPOSITS> 116,357
<SHORT-TERM> 6,540
<LIABILITIES-OTHER> 849
<LONG-TERM> 0
0
0
<COMMON> 8,261
<OTHER-SE> 5,510
<TOTAL-LIABILITIES-AND-EQUITY> 137,516
<INTEREST-LOAN> 7,889
<INTEREST-INVEST> 2,281
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,170
<INTEREST-DEPOSIT> 4,318
<INTEREST-EXPENSE> 81
<INTEREST-INCOME-NET> 5,771
<LOAN-LOSSES> (99)
<SECURITIES-GAINS> 28
<EXPENSE-OTHER> 5,738
<INCOME-PRETAX> 970
<INCOME-PRE-EXTRAORDINARY> 715
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 715
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<YIELD-ACTUAL> 4.62
<LOANS-NON> 110
<LOANS-PAST> 1,187
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,918
<ALLOWANCE-OPEN> 2,423
<CHARGE-OFFS> 67
<RECOVERIES> 105
<ALLOWANCE-CLOSE> 2,362
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 552
</TABLE>
