FORM 10Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 34-027228
BankAtlantic Bancorp, Inc.
(Exact name of registrant as specified in its Charter)
Florida 65-0507804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 East Sunrise Boulevard
Ft. Lauderdale, Florida 33304
(Address of principal executive offices) (Zip Code)
(954) 760-5000
(Registrant's telephone number, including area code)
Not Applicable
Former name, former address and former fiscal year,if changed since last report)
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, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
preferred and common stock as of the latest practicable date.
Outstanding at
Title of Each Class September 30 , 1996
- ------------------- --------------------
Class A Common Stock, par value $0.01 per share 4,137,353
Class B Common Stock, par value $0.01 per share 10,582,980
BankAtlantic Bancorp, Inc.
TABLE OF CONTENTS
FINANCIAL INFORMATION Page Reference
Financial Statements......................................................1 - 10
Consolidated Statements of Financial Condition - September 30, 1996
(unaudited)and December 31, 1995..............................................1
Consolidated Statements of Operations - Unaudited for the Three and
Nine Months Ended September 30, 1996 and 1995.................................2
,
Consolidated Statements of Cash Flows - Unaudited for the Nine Months
Ended September 30, 1996 and 1995..........................................3 - 4
Notes to Consolidated Financial Statements - Unaudited....................5 - 10
Management's Discussion and Analysis of Results of Operations and
Financial Condition.................................................... 11 - 18
OTHER INFORMATION
Legal Proceedings............................................................ 19
Exhibits .................................................................... 19
Signatures................................................................... 20
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
BankAtlantic Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
ASSETS
(In thousands, except share data)
<S> <C> <C>
Cash and due from depository institutions .............................................................$ 78,901 $ 69,867
Investment securities-net, held to maturity, at cost which approximates market value .................. 65,818 49,856
Loans receivable, net ................................................................................. 1,264,616 828,630
Debt securities available for sale, at market value ................................................... 615,726 691,803
Accrued interest receivable ........................................................................... 16,897 14,553
Real estate owned, net ................................................................................ 5,451 6,279
Office properties and equipment, net .................................................................. 47,132 40,954
Federal Home Loan Bank stock, at cost which approximates market value ................................. 10,849 10,089
Mortgage servicing rights ............................................................................. 23,421 20,738
Deferred tax asset, net ............................................................................... 2,537 0
Cost over fair value of net assets acquired ........................................................... 9,905 10,823
Other assets .......................................................................................... 29,227 7,097
----------- ---------
TOTAL ASSETS ..........................................................................................$ 2,170,480 $1,750,689
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits ..............................................................................................$ 1,352,169 $ 1,300,377
Advances from FHLB .................................................................................... 216,985 201,785
Federal funds purchased ............................................................................... 0 1,200
Securities sold under agreements to repurchase ........................................................ 290,423 66,237
Subordinated debentures and note payable .............................................................. 78,500 21,001
Drafts payable ........................................................................................ 537 796
Deferred tax liabilities, net ......................................................................... 0 744
Advances by borrowers for taxes and insurance ......................................................... 56,647 15,684
Other liabilities ..................................................................................... 35,492 22,304
--------- ---------
TOTAL LIABILITIES ..................................................................................... 2,030,753 1,630,128
--------- ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 10,000,000 shares authorized: none issued and outstanding .......... 0 0
Class A Common Stock, $0.01 par value, authorized 30,000,000 shares; issued and outstanding,
4,137,353 and zero shares ........................................................................... 41 0
Class B Common Stock, $0.01 par value, authorized 15,000,000 shares; issued and outstanding,
10,582,980 and 10,592,999 shares .................................................................... 106 106
Additional paid-in capital ............................................................................ 64,031 48,905
Retained earnings ..................................................................................... 75,559 65,817
------ ------
Total stockholders' equity before net unrealized appreciation (depreciation) on debt securities
available for sale - net of deferred income taxes ................................................. 139,737 114,828
Net unrealized appreciation (depreciation) on debt securities available for sale - net of
deferred income taxes ............................................................................. (10) 5,733
------- -------
TOTAL STOCKHOLDERS' EQUITY ............................................................................ 139,727 120,561
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................................$ 2,170,480 $1,750,689
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
For the Three Months For the Nine Months
(In thousands, except share data) Ended September 30, Ended September 30,
--------------------- ---------------------
INTEREST INCOME: 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and fees on loans ................................. $ 27,277 $ 19,127 $ 69,487 $ 52,631
Interest on debt securities available for sale ............. 9,313 1,342 29,039 4,126
Interest and dividends on investment securities ............ 1,931 3,387 4,845 9,811
Interest on mortgage-backed securities held to maturity .... 0 9,827 0 30,155
------ ------ ------- ------
Total interest income ...................................... 38,521 33,683 103,371 96,723
------ ------ ------- ------
INTEREST EXPENSE:
Interest on deposits ....................................... 12,644 12,243 37,356 34,349
Interest on advances from FHLB ............................. 2,625 2,203 5,448 5,589
Interest on securities sold under agreements to repurchase . 2,846 2,101 5,033 8,886
Interest on subordinated debentures and other borrowings ... 1,495 157 2,489 278
------ ------ ------- ------
Total interest expense ..................................... 19,610 16,704 50,326 49,102
------ ------ ------ ------
NET INTEREST INCOME ........................................ 18,911 16,979 53,045 47,621
Provision for loan losses .................................. 1,869 1,436 4,264 2,817
------ ------ ------- ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ........ 17,042 15,543 48,781 44,804
------ ------ ------ ------
NON-INTEREST INCOME:
Loan servicing and other loan fees ......................... 956 885 2,900 2,728
Gains on sales of loans originated for resale .............. 1 49 287 202
Realized gains on trading account securities ............... 0 16 0 589
Gains on sales of mortgage servicing rights ................ 2,554 1,721 2,554 2,744
Gains on sales of debt securities available for sale ....... 0 0 3,946 0
Other ...................................................... 3,796 2,892 11,168 8,643
------ ------ ------- ------
Total non-interest income .................................. 7,307 5,563 20,855 14,906
----- ----- ------ ------
NON-INTEREST EXPENSE:
Employee compensation and benefits ......................... 7,422 6,572 21,841 19,390
Occupancy and equipment .................................... 2,980 2,772 8,671 7,964
Federal insurance premium .................................. 689 705 1,949 2,097
Advertising and promotion .................................. 394 528 1,631 1,722
Foreclosed asset activity, net ............................. (36) (495) (545) (3,319)
SAIF special assessment ................................... 7,160 0 7,160 0
Amortization of cost over fair value of net assets acquired 306 306 918 816
Other ...................................................... 3,457 2,997 8,947 8,886
------ ------ ------- ------
Total non-interest expense ................................. 22,372 13,385 50,572 37,556
------ ------ ------ ------
INCOME BEFORE INCOME TAXES ................................. 1,977 7,721 19,064 22,154
Provision for income taxes ................................. 886 2,683 7,714 7,799
------ ------ ------- ------
NET INCOME ................................................. 1,091 5,038 11,350 14,355
Dividends on non-cumulative preferred stock ................ 0 220 0 660
------ ------ ------- ------
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS ............... $ 1,091 $ 4,818 $ 11,350 $ 13,695
============ ========== =========== ============
Net income per common and common equivalent share .......... $ 0.07 $ 0.35 $ 0.76 $ 1.02
============ ========== =========== ============
Net income per common and common equivalent share,
assuming full dilution ................................... $ 0.09 $ 0.35 $ 0.72 $ 1.00
============ ========== =========== ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ............................ 15,409,888 13,779,544 15,010,504 13,420,330
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING , ASSUMING FULL DILUTION .. 20,014,559 13,779,544 16,577,100 13,644,486
========== ========== ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
OPERATING ACTIVITIES: 1996 1995
---- ----
<S> <C> <C>
Net income ...........................................................................$ 11,350 $ 14,355
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ............................................................ 4,264 2,817
Reversal of allowance for losses on real estate owned ................................ (200) (1,400)
Depreciation ......................................................................... 2,608 2,366
Amortization of mortgage servicing rights ........................................... 5,041 3,149
Increase in deferred income taxes .................................................... 171 744
Net accretion (amortization) of securities ........................................... 35 (421)
Realized gains on trading account securities ......................................... 0 (589)
Proceeds from sales of trading account securities .................................... 0 9,524
Net amortization of deferred loan origination fees ................................... (1,013) (764)
Gains on sales of real estate owned .................................................. (346) (1,985)
Net (gains) losses on sales of property and equipment ................................ 66 (18)
Gains on sales of mortgage servicing rights .......................................... (2,554) (2,744)
Gains on sales of debt securities available for sale ................................. (3,946) 0
Proceeds from loans originated for resale ............................................ 45,085 20,718
Fundings of loans for resale ......................................................... (46,609) (28,399)
Gains on sales of loans originated for resale ........................................ (287) (202)
Recovery from tax certificate losses ................................................. (259) (65)
Amortization of dealer reserve ....................................................... 1,579 1,456
Amortization of cost over fair value of net assets acquired .......................... 918 816
Net accretion of purchase accounting adjustments ..................................... (244) (277)
Amortization of borrowings deferred costs ........................................... 137 72
Decrease (increase) in accrued interest receivable ................................... (2,344) 877
Decrease (increase) in other assets .................................................. (3,675) 2,480
Write-off of property and equipment .................................................. 263 0
Increase in other liabilities ........................................................ 13,184 3,085
Increase (decrease) in drafts payable ................................................ (259) 64
------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................ 22,965 25,659
------ ------
INVESTING ACTIVITIES:
Proceeds from redemption and maturities of investment securities ..................... 40,307 112,488
Purchase of investment securities .................................................... (56,010) (68,021)
Proceeds from sale of debt securities available for sale ............................. 166,985 852
Principal collected on debt securities available for sale ............................ 135,642 9,130
Purchase of debt securities available for sale ....................................... (231,765) 0
Mortgage-backed securities purchased ................................................. 0 (75,262)
Principal collected on mortgage-backed securities .................................... 0 74,852
Proceeds from sale of FHLB stock ..................................................... 1,249 0
FHLB stock acquired .................................................................. (2,009) 0
Principal reduction on loans ......................................................... 432,526 314,066
Loan fundings for portfolio ......................................................... (555,573) (431,343)
Loans purchased ...................................................................... (315,247) (9,930)
Additions to dealer reserve .......................................................... (2,196) (2,653)
Proceeds from sales of real estate owned ............................................. 2,611 5,488
Mortgage servicing rights acquired ................................................... (19,042) (5,117)
Proceeds from sales of mortgage servicing rights ..................................... 3,051 8,340
Repayment of advances to joint ventures .............................................. 0 1,239
Additions to office property and equipment ........................................... (9,115) (3,601)
Proceeds from sales of property and equipment ........................................ 0 18
Purchase of MegaBank, net of cash acquired ........................................... 0 (14,914)
Escrow deposit for the purchase of Bank of North America Bancorp...................... (5,000) 0
-------- -------
NET CASH USED BY INVESTING ACTIVITIES ............................................... (413,586) (84,368)
------- -------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (CONTINUED)
<PAGE>
CONSOLIDATED STATEMENTS FOR CASH FLOWS - UNAUDITED
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
1996 1995
---- ----
FINANCING ACTIVITIES:
<S> <C> <C>
Net increase in deposits ......................................................$ 19,119 $ 10,573
Interest credited to deposits ................................................. 32,688 31,588
Repayments of FHLB advances ................................................... (438,755) (432,050)
Proceeds from FHLB advances ................................................... 453,955 390,000
Net increase in securities sold under agreements to repurchase ................ 224,186 (857)
Net increase (decrease) in federal funds purchased ............................ (1,200) 3,000
Net proceeds from issuance of subordinated debentures ......................... 55,137 18,983
Proceeds from note payable ................................................... 0 3,931
Repayment of note payable ..................................................... (1) (3,999)
Issuance of common stock, net ................................................. 18,337 1,398
Payments to acquire and retire treasury stock ................................. (3,259) 0
Receipts of advances by borrowers for taxes and insurance ..................... 40,963 33,003
Preferred stock dividends paid ................................................ 0 (660)
Common stock dividends paid ................................................... (1,515) (1,205)
------- ------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................................... 399,655 53,705
------- ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. 9,034 (5,004)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................. 69,867 55,980
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................................$ 78,901 $ 50,976
=========== =========
SUPPLEMENTARY DISCLOSURE AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Interest paid on borrowings ...................................................$ 47,372 $ 48,870
Income taxes paid ............................................................. 8,000 7,070
Income taxes refunded ......................................................... 0 88
Loans transferred to real estate owned ........................................ 1,237 792
Proceeds receivable from sales of mortgage servicing rights ................... 10,821 0
Loan charge-offs .............................................................. 5,518 3,803
Tax certificate charge-offs, net of recoveries ................................ 142 1,533
Common stock dividend declared and not paid until October ..................... 550 464
Increase in equity for the tax effect related to the exercise of employee stock
options ..................................................................... 89 86
Change in net unrealized appreciation (depreciation)on debt securities
available for sale .......................................................... (9,349) 2,321
Change in deferred taxes on net unrealized appreciation (depreciation)on debt
securities available for sale ............................................... (3,606) 902
Change in stockholders' equity from net unrealized appreciation (depreciation)
on debt securities available for sale, less related deferred income taxes ... (5,743) 1,419
====== =====
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
</TABLE>
<PAGE>
BankAtlantic Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. PRESENTATION OF INTERIM FINANCIAL STATEMENTS
BankAtlantic Bancorp, Inc. ("BBC") is a unitary savings bank holding
company. BBC's primary asset is the capital stock of BankAtlantic, a Federal
Savings Bank ("BankAtlantic"), its wholly owned subsidiary, and BBC's principal
activities relate to the operations of BankAtlantic and BankAtlantic's
subsidiaries. BankAtlantic's subsidiaries are primarily utilized to dispose of
real estate acquired through foreclosure. All significant inter-company balances
and transactions have been eliminated in consolidation.
In management's opinion, the accompanying consolidated financial statements
contain such adjustments necessary to present fairly BBC's consolidated
financial condition at September 30, 1996, the consolidated results of
operations for the three and nine months ended September 30, 1996 and 1995 and
the consolidated cash flows for the nine months ended September 30, 1996 and
1995. Such adjustments, exclusive of the SAIF special assessment, consisted only
of normal recurring items. The consolidated financial statements and related
notes are presented as permitted by Form 10Q and should be read in conjunction
with the notes to consolidated financial statements appearing in BBC's Annual
Report on Form 10K for the year ended December 31, 1995 and the Form 10Q for
each of the periods ended March 31, 1996 and June 30, 1996.
2. EQUITY CAPITAL
The follow table sets forth the changes in common stockholders' equity for
the nine months ended September 30, 1996 before net unrealized appreciation
(depreciation) of debt securities available for sale:
<TABLE>
<CAPTION>
Additional
Common Paid in Retained
(in thousands) Stock Capital Earnings
----- ------- --------
<S> <C> <C> <C>
Balance at December 31, 1995 ......................$ 106 $ 48,905 $ 65,817
Proceeds from issuance of Class A Common Stock, net 12 17,992 0
Exercise of 1984 stock options .................... 1 421 0
Net income ........................................ 0 0 11,350
Dividends on common stock ......................... 0 0 (1,608)
25% stock split................................... 30 (30) 0
Purchase and retirement of treasury stock ......... (2) (3,257) 0
---------- -------- --------
Balance at September 30, 1996 .....................$ 147 $ 64,031 $ 75,559
========== ======== ========
</TABLE>
On July 9, 1996, the Board of Directors declared a common stock split
effected in the form of a 25% stock dividend, payable in Class A common stock to
BBC's Class A and Class B common shareholders of record on July 19, 1996. The
stock dividend was payable in Class A common stock regardless of the class of
shares held. Where appropriate, amounts throughout this report have been
adjusted to reflect the stock dividend.
In August 1996, BBC announced a plan to purchase up to one million shares
of BBC's common stock. As of September 30, 1996, BBC repurchased in the
secondary market 160,000 and 112,500 of Class A and Class B common shares,
respectively. These shares were retired at the time of repurchase.
<PAGE>
On May 21, 1996 the shareholders approved the BankAtlantic Bancorp 1996 Stock
Option Plan (the "1996 Plan") which authorized the issuance of options to
acquire up to 1.0 million shares of Class A Common Stock. The 1996 Plan expires
on April 2, 2006. On July 9, 1996, 274,868 of incentive stock options and
219,195 of non-qualifying stock options were granted pursuant to the
BankAtlantic Bancorp 1996 Stock Option Plan to all officers of BankAtlantic. All
of the incentive and non-qualifying stock options are exercisable for BBC's
Class A Common Stock, with an exercise price equal to the fair market value at
the date of grant ($11.20), expire ten years from the date of grant and are
exercisable any time after five years from the date of grant.
During August 1996 the Compensation Committee adjusted the stock options
issued pursuant to the BankAtlantic 1984, 1994 and 1996 Stock Option Plans to
reflect the 25% stock split. The following table sets forth all outstanding
options adjusted for the July 1996 common stock split effected in the form of a
25% stock dividend:
Outstanding Outstanding
Options Options
Class B Class A
------- -------
Options Outstanding at December 31, 1995 1,254,658 0
Options Issued .......................... 0 395,250
25% stock split ......................... 314,226 123,852
Options Exercised ....................... (56,857) 0
Options Canceled ........................ (13,196) (2,188)
------- ------
Options Outstanding at September 30, 1996 1,498,831 516,914
========= =======
Price per share ......................... $4.45 - $7.81 $11.20-$12.20
3. SALES OF MORTGAGE SERVICING RIGHTS
During the nine months ended September 30, 1996 and 1995, BankAtlantic sold
$11.3 million and $5.6 million, respectively of mortgage servicing rights
realizing gains of $2.6 million and $2.7 million, respectively. These mortgage
servicing rights related to approximately $736.9 million and $492.1 million,
respectively of loans. During the three months ended September 30, 1995,
BankAtlantic sold $3.2 million of mortgage servicing rights realizing a $1.7
million gain. These mortgage servicing rights related to approximately $292.7
million of mortgage loans. Included in other assets at September 30, 1996 was a
$10.8 million receivable from the sales of mortgage servicing rights. The
receivable was collected in October 1996.
4. SAIF SPECIAL ASSESSMENT
On September 30, 1996, President Clinton signed in law H.R. 3610, which is
intended to recapitalize the SAIF and substantially bridge the assessment rate
disparity existing between SAIF and BIF insured institutions. The new law
subjects institutions with SAIF assessable deposits, including BankAtlantic, to
a one-time assessment of 0.657% of covered deposits at March 31, 1995.
BankAtlantic's one-time assessment resulted in a pre-tax charge of approximately
$7.2 million for the three and nine months ended September 30, 1996, which is
payable not later than November 29, 1996, and, under provisions of the new law,
may be treated for tax purposes as a fully deductible "ordinary and necessary
business expense" when paid.
5. ACQUISITION OF BANK OF NORTH AMERICA BANCORP, INC.
On October 11, 1996, BankAtlantic consummated its acquisition of Bank of
North America Bancorp ("BNAB") for $53.8 million in cash. The acquisition was
accounted for as a purchase for financial reporting purposes. BNAB's primary
asset was its wholly owned subsidiary, Bank of North America ("BNA"), a Florida
chartered commercial bank. BNA had assets of $524.7 million and a net loss of
$2.5 for the nine months ended September 30, 1996, and net income of $2.2
million for the year ended December 31, 1995.
The pro forma information shown below is presented for comparative purposes
only and is not necessarily indicative of the combined financial position or
results of operations in the future. The pro forma information is also not
necessarily indicative of the combined financial position or results of
operations which would have been realized had the acquisition been consummated
during the periods or as of the dates for which the pro forma financial
information is presented.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
(In thousands, except per Adjust- COMBINED
share data) BBC BNAB ments PROFORMA
--- ---- ----- --------
ASSETS
<S> <C> <C> <C> <C>
Cash ..........................$ 78,901 $ 29,779 $ $ 108,680
Investment securities, net .... 65,818 73,175 13 (1) 139,006
Loans receivable, net ......... 1,264,616 393,246 1,604 (1) 1,659,466
Debt securities available for
sale ....................... 615,726 0 615,726
Real estate owned ............. 5,451 1,017 6,468
Office properties and equipment 47,132 8,277 (1,738)(1) 53,671
Federal Home Loan Bank stock .. 10,849 2,775 13,624
Mortgage servicing rights ..... 23,421 2,020 2,046 (1) 27,487
Deferred tax asset ............ 2,537 2,757 403 (6) 5,697
Cost over fair value of net
assets acquired ............. 9,905 129 18,951 (3) 28,985
Other assets .................. 46,124 11,547 57,671
-------- -------- -------- --------
TOTAL ASSETS ..................$ 2,170,480 $ 524,722 $ 21,279 $ 2,716,481
============ ========= ======== ============
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
LIABILITIES AND Adjust- Combined
STOCKHOLDERS' EQUITY BBC BNAB ments Proforma
--- ---- ----- --------
<S> <C> <C> <C> <C>
Deposits ......................$ 1,352,169 $ 468,982 $ 110(1) $1,821,261
FHLB advances ................. 216,985 5,000 27(1) 222,012
Subordinated debentures ....... 78,500 0 78,500
Other borrowings .............. 290,423 2,022 53,813(2) 346,258
Advances by borrowers for taxes
and insurance ................ 56,647 8,740 65,387
Other liabilities ............. 36,029 4,096 3,211(4) 43,336
--------- ------- ------ ---------
Total Liabilities ............. 2,030,753 488,840 57,161 2,576,754
--------- ------- ------ ---------
Stockholders' Equity
Class A Common Stock .......... 41 0 0 41
Class B Common Stock .......... 106 100 (100) 106
Additional paid-in capital .... 64,031 30,000 (30,000) 64,031
Net unrealized depreciation ... (10) 0 0 (10)
Retained earnings ............. 75,559 5,782 (5,782) 75,559
------- ------ ------- -------
Total Stockholders' Equity .... 139,727 35,882 (35,882) 139,727
------- ------ ------- -------
Total Liabilities and
Stockholders'
Equity ......................$ 2,170,480 $ 524,722 $ 21,279 $2,716,481
============= ============ =========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
ADJUST- COMBINED ADJUST- COMBINED
BBC BNAB MENTS PROFORMA BBC BNAB MENTS PROFORMA
(In Thousands) --- ---- ----- -------- --- ---- ----- --------
<S> <C> <C> <C> <C><C><C> <C> <C> <C> <C><C><C>
Interest income ........$ 103,371 $ 30,708 $ (418) (1)$ 133,661 $ 130,077 $ 40,552 $ (558) (1) $170,071
Interest expense ....... 50,326 16,339 2,605 (1)(2) 69,270 65,686 23,016 3,054 (1)(2) 91,756
Provision for loan
losses................ 4,264 3,243 0 7,507 4,182 1,150 0 5,332
Noninterest income ..... 20,855 966 (422) (1) 21,399 19,388 5,204 (563) (1) 24,029
Noninterest expense (8). 50,572 16,111 294 (1)(3) 66,977 51,160 18,299 615 (1)(3) 70,074
Provision (benefit) for
income taxes.......... 7,714 (1,500) (1,054) (6) 5,160 10,018 1,113 (1,336) (6) 9,795
------------ -------- -------- --------- --------- --------- --------- --------
Net Income (loss) ......$ 11,350 $ (2,519) $ (2,685) $ 6,146 $ 18,419 $ 2,178 $ (3,454) $ 17,143
============ ======== ======== ========= ========= ========= ========= ========
Per common share
Primary(8)............$ 0.76 $ (25.19) $ 0.41 $ 1.21 $ 21.78 $ 1.11(7)
============ ======== ========= ========= ========= ==========
Fully diluted (8) ......$ 0.72 $ (25.19) $ 0.41 $ 1.20 $ 21.78 $ 1.10(7)
============ ======== ========= ========= ========= ==========
Average shares
outstanding:
Primary ................ 15,010,504 100,000 15,010,504 15,010,504 100,000 13,538,254
========== ======= ========== ========== ======= ==========
Fully diluted .......... 16,577,100 100,000 16,577,100 16,577,100 100,000 13,667,650
========== ======= ========== ========== ======= ==========
<FN>
(1) Adjustments to fair value of BNAB's loans receivable, mortgage servicing
rights, office properties and equipment, certificates of deposit,
investments and FHLB advances at September 30, 1996 were approximately $1.6
million, $2.0 million, ($1.7) million, $110,000, $13,000 and $27,000,
respectively. Adjustments to fair values are estimated to be amortized as
follows:
Loans receivable 3 years straight line method.
Mortgage servicing rights Based on projected portfolio
cash flows of 28% in year one
and 22% for the nine months
ended September 30, 1996.
Certificates of deposit Based on estimated deposit
maturities of 85% in year one
and 64% for the nine months
ended September 30, 1996.
FHLB Advances 1 year straight line.
Investments 1 year straight line.
Office properties and Equipment Straight line over remaining
life of property.
(2) The purchase price of $53.8 million was funded through securities sold
under agreements to repurchase. The weighted average interest rate of the
borrowings was 4.91% and 5.80% for the nine months ended September 30, 1996
and for the year ended December 31, 1995, respectively.
(3) Cost over fair value of net assets acquired (goodwill) will not qualify
for amortization for tax purposes based on the structure of the
acquisition. The useful life is estimated at fifteen years and is assumed
to be amortized on a straight line basis.
<PAGE>
(4) The total purchase price will include other direct acquisition costs, such
as legal, accounting and other professional fees and expenses. For purposes
of the pro forma financial information such other acquisition costs are
estimated at $500,000. Also included in other liabilities were BNA employee
retention bonuses, lease termination costs, contract buy-out fees, and
branch closure expenditures. BankAtlantic closed five of the thirteen BNAB
branches on October 11, 1996.
(5) The pro forma does not include the effect of any potential expense
reductions or revenue increases, except for a $140,000 BNA merger
expense reduction.
(6) The effective income tax rate is assumed to be 38%.
(7) Includes a reduction of $0.10 for primary and fully diluted earnings per
share, respectively, related to the October 1995 Preferred Stock
redemption.
(8) Includes BankAtlantic's and BNA's one-time SAIF special assessment of
$7.2 million and $2.3 million , respectively, for the nine months ended
September 30, 1996. The SAIF assessment reduced combined proforma
primary and fully diluted earnings per share by $0.40 and $0.36,
respectively.
</FN>
</TABLE>
The following table indicates the estimated net decrease in earnings
resulting from the net amortization/accretion of the adjustments, including the
excess of cost over fair value of net assets acquired, resulting from the use of
the purchase method of accounting during each of the next five years. The
amounts (in thousands) assume no sales or dispositions of the related assets or
liabilities.
<TABLE>
<CAPTION>
YEARS ENDING NET DECREASE OF
DECEMBER 31, NET EARNINGS
------------ ------------
<S> <C>
1996...................... $ (360)
1997...................... $ (1,588)
1998...................... $ (1,795)
1999...................... $ (1,683)
2000...................... $ (1,399)
2001...................... $ (1,374)
Thereafter................ $(11,803)
</TABLE>
6. CONVERTIBLE SUBORDINATED DEBENTURES
On July 3, 1996, BBC closed the public offering of $57.5 million of its 6
3/4% convertible debentures ("6 3/4% Debentures") due July 1, 2006. The 6 3/4%
Debentures are convertible into Class A Common Stock at an exercise price of
$12.80 per share; representing an aggregate of 4,492,188 shares of Class A
Common Stock. Net proceeds to BBC were $55.1 million net of underwriting
discount and offering expenses. BBC contributed $35.0 million of the proceeds to
BankAtlantic, and on October 11, 1996 BankAtlantic used the contribution to
acquire BNA. The remaining net proceeds will be utilized by BBC for general
corporate purposes including the repurchase of up to one million shares of BBC
common stock. As of September 30, 1996, BBC repurchased in the secondary market
160,000 and 112,500 of Class A and Class B common shares, respectively. Any
subsequent common stock repurchases are dependent upon market conditions and are
subject to compliance with all applicable securities laws. BBC cannot declare or
pay dividends on, or purchase, redeem or acquire for value its capital stock,
return any capital to holders of capital stock as such, or make any distribution
of assets to holders of capital stock as such, unless, from and after the date
of any such dividend declaration (a "Declaration Date") or the date of any such
purchase, redemption, payment of distribution specified above (a "Redemption
Date"), BBC retains cash, cash equivalents (as determined in accordance with
generally accepted accounting principles) or marketable securities (with a
market value as measured on the applicable Declaration Date or Redemption Date)
in an amount sufficient to cover the two consecutive semi-annual interest
payments that will be due and payable on the 6 3/4% Debentures and on BBC's 9%
Subordinated Debentures (the "9% Debentures") following such Declaration Date or
Redemption Date, as the case may be. Any interest payment made by BBC with
respect to the 6 3/4% Debentures or the 9% Debentures after any applicable
Declaration Date or Redemption Date shall be deducted from the aggregate amount
of cash or cash equivalents which BBC shall be required to retain pursuant to
the foregoing provision.
7. EARNINGS PER SHARE
The 6 3/4% Debentures are not common stock equivalents and therefore, will
not affect primary net income per common and common equivalent share. However,
convertible securities, if dilutive, are included in net income per common and
common equivalent share calculations assuming full dilution. Fully diluted
income per common share assumes the hypothetical conversion of the 6 3/4%
Debentures by excluding the interest charges of the 6 3/4% Debentures from fully
diluted net income and by increasing the weighted average number of common and
common equivalent shares outstanding assuming full dilution.
8. LOANS RECEIVABLE -- NET
<TABLE>
<CAPTION>
The components of loans receivable - net:
SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 1996 1995
---- ----
Real estate loans: .................................
<S> <C> <C>
Residential ......................................$ 514,890 $ 157,361
Residential held for sale ........................ 21,492 17,122
Construction and development ..................... 217,292 122,371
FHA and VA insured ............................... 4,255 5,183
Commercial ....................................... 346,789 350,256
Other loans: .......................................
Second mortgages - direct ........................ 74,178 63,052
Second mortgages - indirect ...................... 19,412 25,621
Commercial business .............................. 57,141 64,194
Deposit overdrafts ............................... 1,120 832
Consumer loans - other direct .................... 38,709 36,670
Consumer loans - other indirect .................. 109,628 96,042
------- ------
Total gross loans............................. 1,404,906 938,704
--------- -------
Deduct: ............................................
Undisbursed portion of loans in process .......... 119,841 89,896
Unearned discounts on commercial real estate loans 730 793
Unearned discounts on consumer loans ............ 194 385
Allowance for loan losses ........................ 19,525 19,000
------ ------
Loan receivable -- net........................$ 1,264,616 $ 828,630
============== ===========
</TABLE>
During the nine months ended September 30, 1996, BankAtlantic purchased
$315.2 million of residential first mortgage loans from various mortgage bankers
and financial institutions located in various states.
9. RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the 1996
financial statement presentation.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Results of Operations
BBC's net income available for common stockholders for the quarter ended
September 30, 1996 was $1.1 million or $.07 primary earnings per common and
common equivalent share and $.09 fully diluted earnings per common and common
equivalent share compared to net income available for common stockholders of
$4.8 million or $.35 primary and fully diluted earnings per common and common
equivalent share for the quarter ended September 30, 1995. BBC's net income
available for common stockholders for the nine months ended September 30, 1996
was $11.4 million or $.76 primary earnings per common and common equivalent
share and $.72 fully diluted earnings per common and common equivalent share
compared to net income available for common stockholders of $13.7 million or
$1.02 primary earnings per common and common equivalent share and $1.00 fully
diluted earnings per common and common equivalent share for the nine months
ended September 30, 1995. Included in BBC's net income for the three and nine
months ended September 30, 1996 was a one-time SAIF special assessment which
reduced net income by $4.4 million or $.29 and $.22 primary and fully diluted
earnings per common and common equivalent share for the three months ended
September 30, 1996, respectively, and $.29 and $.27 primary and fully diluted
earnings per common and common equivalent share for the nine months ended
September 30, 1996, respectively.
Net interest income after provision for loan losses was $17.0 million for
the September 30, 1996 quarter compared to $15.5 million for the quarter ended
September 30, 1995. During the 1996 quarter, total interest income increased by
$4.8 million primarily due to higher interest income earned on loans, partially
offset by lower interest income on securities and investments. This increase in
loan interest income reflects higher average balances resulting from the
purchase of $315.2 million of residential first mortgage loans as well as loan
originations. The decline in interest income on securities and investments
resulted from lower average balances primarily due to $175.9 million of
principal repayments and the sale of $163.0 million of mortgage-backed
securities available for sale during the nine months ended September 30, 1996.
During the three months ended September 30, 1996 total interest expense was
$19.6 million compared to $16.7 million during the comparable 1995 period. The
higher interest expense primarily resulted from deposit growth and increased
borrowings, partially offset by lower average rates paid on borrowings. The
increased borrowings reflect the issuance of $57.5 million of 6 3/4% convertible
subordinated debentures in July 1996 and higher average borrowings due to
increased loan balances. The decline in average rates paid on short term
borrowings reflects a lower rate environment during 1996 compared to 1995. The
provision for loan losses was $1.9 million for the three months ended September
30, 1996 compared to $1.4 million during the comparable 1995 period. The
increased 1996 provision resulted from a $325,000 increase in the allowance for
loan losses during the 1996 quarter compared to a $100,000 increase during the
comparable 1995 quarter and higher consumer and commercial net loan charge-offs
in the 1996 period compared to the same period during 1995. The increased
allowance for loan losses reflects higher loan balances during the 1996 quarter
compared to the same quarter during 1995. Non-interest income was $7.3 million
for the three months ended September 30, 1996 compared to $5.6 million for the
comparable 1995 period. The $1.7 million increase primarily related to $819,000
of higher ATM and transaction account fee income, and a $833,000 increase in
gains on sales of mortgage servicing rights. Non-interest expense for the
quarter ended September 30, 1996 was $22.4 million compared to $13.4 million for
the same period in 1995. The net increase of $9.0 million primarily resulted
from the $7.2 million one-time SAIF special assessment, $850,000 of additional
compensation expenses and $531,000 of decreased gains on the sale of foreclosed
assets. The increased employee compensation primarily related to the opening of
eight additional branches since June 30 1995. The 1995 provision for income
taxes was reduced by $319,000 due to a reduction in the deferred tax asset
valuation allowance.
Net interest income after provision for loan losses was $48.8 million for the
nine months ended September 30, 1996 compared to $44.8 million for the
comparable 1995 period. Total interest income increased due to greater interest
income earned on loans partially offset by reduced interest income from
securities. The increased loan interest income was the result of higher loan
average balances primarily related to wholesale residential loan purchases and
loan fundings. The lower securities interest income was caused by lower average
balances resulting from sales of mortgage-backed securities and principal
paydowns. The increased interest expense resulted from higher deposit average
balances and the issuance of the $57.5 million of convertible debentures
discussed above and $21.0 million of subordinated debentures issued during the
latter part of 1995. Non-interest income was $20.9 million for the 1996 nine
month period compared to $14.9 million during the comparable 1995 period.
Increased gains on the sales of assets and increased ATM and transaction fee
income were the primary reasons for the increase. Non-interest expense was $50.6
million for the nine months ended September 30, 1996 compared to $37.6 million
during the comparable 1995 period. The increase was associated with items
discussed above for the current quarter including the $7.2 million one-time SAIF
assessment. The 1995 provision for income taxes was reduced by $900,000 due to a
reduction in the deferred tax asset valuation allowance.
<PAGE>
<TABLE>
<CAPTION>
Net Interest Income
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
September 30, September 30,
------------- -------------
(In thousands) 1996 1995 CHANGE 1996 1995 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans ............................$ 27,277 $ 19,127 $ 8,150 $ 69,487 $ 52,631 $ 16,856
Interest on debt securities available for sale ........ 9,313 1,342 7,971 29,039 4,126 24,913
Interest and dividends on investment securities ....... 1,931 3,387 (1,456) 4,845 9,811 (4,966)
Interest on mortgage-backed securities held to maturity 0 9,827 (9,827) 0 30,155 (30,155)
Interest on deposits .................................. (12,644) (12,243) (401) (37,356) (34,349) (3,007)
Interest on advances from FHLB ........................ (2,625) (2,203) (422) (5,448) (5,589) 141
Interest on securities sold under agreements to
repurchase ......................................... (2,846) (2,101) (745) (5,033) (8,886) 3,853
Interest on subordinated debentures and note payable .. (1,495) (157) (1,338) (2,489) (278) (2,211)
------ ---- ------ ------ ---- ------
Net interest income ..............................$ 18,911 $ 16,979 $ 1,932 $ 53,045 $ 47,621 $ 5,424
========== ======== ======== ======== ======== =========
</TABLE>
The increase in interest and fees on loans during the three months ended
September 30, 1996 compared to the same period in 1995 reflected higher average
balances resulting from wholesale residential loan purchases and loan fundings
partially offset by lower rates earned on residential and consumer loans.
Residential loan average balances were $355.0 million during the three months
ended September 30, 1996 compared to $139.3 million during the comparable period
during 1995. Loan fundings for portfolio were $198.6 million for the three
months ended September 30, 1996 compared to $168.3 million for the comparable
1995 period. During the three months ended September 30, 1996 BankAtlantic
purchased for portfolio $115.43 million of residential first mortgage loans from
various mortgage bankers and financial institutions located in various states.
As a result, total loans receivable, net increased from $1.1 billion at June 30,
1996 to $1.3 billion at September 30, 1996. The decrease in yields earned on
residential loans resulted from an increase in adjustable rate loan balances and
the purchased loans discussed above. Adjustable rate residential loans increased
from $87.8 million at September 30, 1995 to $204.2 million at September 30,
1996. Yields on consumer loans were lower due to the origination of lower
yielding loans during the latter part of 1995 and 1996 as well as payoffs of
higher yielding loans. In December 1995, all mortgage-backed and investment
securities, excluding tax certificates, then classified as held-to-maturity were
reclassified as available for sale and all securities purchased during 1996 were
also classified as available for sale; therefore, during 1996 there were no
mortgage-backed securities held for investment. The decline in interest on
securities and investments resulted from lower average balances. Average
balances on investment securities declined from $793.0 million for the three
months ended September 30, 1995 to 677.5 million for the comparable 1996 period.
The decline in investment securities average balances reflected principal
repayments and the sale of $163.0 million of mortgage-backed securities
available for sale during the nine months ended September 30, 1996. The decline
in average balances of securities and investments associated with such sales was
partially offset by the $231.8 million purchase of treasury notes during the
nine months ended September 30, 1996.
The increase in interest on deposits for the quarter ended September 30,
1996 compared to the 1995 quarter resulted from higher average deposit balances
and rates during 1996. Average deposit balances increased from $1.19 billion for
the three months ended September 30, 1995 to $1.23 billion for the comparable
period ended September 30, 1996, and average rates paid on deposits increased
from 4.08% during the 1995 quarter to 4.11% during the 1996 quarter. The
increase in the rates paid on deposits reflected higher rates paid on money
market funds partially offset by lower certificate of deposit rates. The
increase in interest expense on advances from FHLB was primarily due to higher
average balances partially offset by lower average rates. Advances from FHLB
average balances during the quarter increased from $132.6 million during 1995 to
$170.3 million during 1996, and average rates paid on advances from FHLB
declined from 6.59% during the 1995 three month period to 6.16% during the same
period in 1996. The additional interest expense on securities sold under
agreements to repurchase resulted from higher average balances. Securities sold
under agreements to repurchase average balances increased from $180.9 million
during the three months ended September 30, 1995 to $216.0 million during the
comparable 1996 three month period. The higher average balance of advances from
FHLB and securities sold under agreements to repurchase resulted from increased
average loan balances discussed above. The interest on subordinated debentures
and note payable relates to the issuance of $57.5 million of convertible
subordinated debentures in July 1996, the $21.0 million of debentures issued in
September and October 1995 and a $4.0 million note issued in March 1995 which
was subsequently paid in March 1996.
During the nine months ended September 30, 1996, net interest income
increased by $5.4 million. The increase in total interest income was impacted by
higher average loan balances partially offset by lower average balances on
securities and investment. Average loan balances increased from $719.4 million
during the nine months ended September 30, 1995 to $992.3 million during the
comparable 1996 period. Securities and investments average balances declined
from $869.0 million during the nine months ended September 30, 1995 to $686.6
million during the comparable 1996 period. The yields on interest earning assets
increased from 8.12% for the 1995 nine month period to 8.21% during the same
period in 1996. The higher yields reflected a change in the mix of interest
earning assets from lower yielding securities and investments to higher yielding
loans. The average yield on loans was 9.34% for the nine months ended September
30, 1996 compared to 9.75% during the comparable 1995 period, while the average
yield on securities was 6.76% during the 1995 nine month period compared to
6.58% for the comparable 1996 period. The increase in total interest expense was
primarily related to higher deposit average balances and the issuance of the
subordinated debentures discussed above, partially offset by a decline in
average balances and rates of securities sold under agreements to repurchase.
PROVISION FOR LOAN LOSSES
The provision for loan losses for third quarter 1996 was $1.9 million
compared to $1.4 million during the comparable 1995 period. The provision for
the 1996 quarter resulted in a $325,000 increase in the allowance for loan
losses related to loan growth and $420,000 of commercial loan net charge-offs
compared to a $100,000 increase in the allowance for loan losses and $238,000 of
non-mortgage commercial loan net charge-offs during the third quarter of 1995.
In addition, residential loan net charge-offs were $27,000 during the 1996
quarter compared to net charge-offs of $14,000 during the 1995 quarter. Consumer
loan net charge-offs were $1.1 million for the three months ended September 30,
1996 and 1995. Consumer loan indirect net charge-offs increased by $292,000 and
Subject Portfolio net charge-offs declined by $164,000. The increased 1996
commercial non-mortgage loan net charge-offs resulted primarily from a $450,000
charge-off of one non-mortgage commercial loan.
The provision for loan losses for the nine months ended September 30, 1996
increased $1.4 million from the comparable 1995 period. The increase primarily
related to $1.0 million of additional consumer loan net charge-offs during 1996
compared to 1995, and $262,000 of commercial loan net charge-offs compared to
$337,000 of recoveries during 1995. Net charge-offs from indirect automobile
loans were $2.3 million during the 1996 nine month period compared to $1.0
during the comparable 1995 period. Subject Portfolio net charge-offs during the
1996 nine month period were $592,000 compared to $828,000 during the comparable
1995 period.
The following table presents the amounts of BBC's risk elements and
non-performing assets (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
Nonaccrual
<S> <C> <C>
Tax certificates .................... $ 2,698 $ 2,044
Loans ............................... 6,585 11,174
------- -------
9,283 13,218
------- -------
Repossessed Assets:
Real estate owned .................... 5,451 6,279
Repossessed assets ................... 359 461
------- -------
5,810 6,740
Contractually past due 90 days or more (1) 812 1,536
------- -------
Total non-performing assets ..... 15,905 21,494
Restructured loans ....................... 3,672 2,533
------- -------
Total risk elements ............ $19,577 $24,027
======= =======
(1) The majority of these loans have matured and the borrower
continues to make payments under the matured loan agreement. BankAtlantic
is in the process of renewing or extending these matured loans.
</TABLE>
BankAtlantic's "risk elements" consist of restructured loans and
"non-performing" assets. The classification of loans as "non-performing" is
generally based upon non-compliance with loan performance and collateral
coverage standards, as well as management's assessment of problems relating to
the borrower's or guarantor's financial condition. BankAtlantic generally
designates any loan that is 90 days or more delinquent as non-performing.
BankAtlantic may designate loans as non-performing prior to the loan becoming 90
days delinquent, if the borrower's ability to repay is questionable. A
"non-performing" classification alone does not indicate an inherent principal
loss; however, it generally indicates that management does not expect the asset
to earn a market rate of return in the current period. Restructured loans are
loans for which BankAtlantic has modified the loan terms due to the financial
difficulties of the borrower.
The decrease in total risk elements at September 30, 1996 as compared to
December 31, 1995 primarily relates to decreases in non-accrual loans, loans
contractually past due 90 days or more, and real estate owned. The above
decreases were partially offset by increases in restructured loans and
non-accrual tax certificates. The $4.6 million decrease in nonaccrual loans
primarily resulted from the restructuring of a $1.4 million commercial real
estate loan, the pay-off of a $1.6 million commercial non-residential loan, the
foreclosure of a $680,000 office building loan, and the reinstatement of a
$391,000 commercial real estate loan to accruing status. Furthermore,
residential non-accrual loans decreased from $2.2 million at December 31, 1995
to $1.7 million at September 30, 1996. The increase in restructured loans
reflects the nonaccrual loan restructured above less cash repayments. The
decline in real estate owned balances reflects the sale of $2.3 million of
properties during the nine month period ending September 30, 1996 partially
offset by the office building foreclosure discussed above and residential loan
foreclosures. Furthermore, tax certificate nonaccrual balances increased by
$654,000 due to the aging of tax certificates in the portfolio, while loans
contractually past due 90 days or more declined by $724,000 resulting from loan
renewals and loan repayments.
<TABLE>
<CAPTION>
Non-Interest Income
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
(In thousands) 1996 1995 CHANGE 1996 1995 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Loan servicing and other loan fees ................. $ 956 $ 885 $ 71 $ 2,900 $ 2,728 $ 172
Gains on sale of loans originated for resale ....... 1 49 (48) 287 202 85
Realized gains on trading account
securities ...................................... 0 16 (16) 0 589 (589)
Gains on sale of mortgage servicing rights ......... 2,554 1,721 833 2,554 2,744 (190)
Gains on sales of debt securities available for sale 0 0 0 3,946 0 3,946
Other .............................................. 3,796 2,892 904 11,168 8,643 2,525
----- ----- --- ------ ----- -----
Total non-interest income ....................... $7,307 $ 5,563 $ 1,744 $ 20,855 $ 14,906 $ 5,949
====== ======= ======= ======== ======== =======
</TABLE>
The increase in loan servicing and other loan fees during the three month
period in 1996 compared to the corresponding 1995 period resulted from higher
mortgage and consumer loan late fee income. Mortgage and consumer loan late fee
income increased from $145,000 during the three months ended September 30, 1995
to $262,000 during the comparable 1996 period. The increased late fee income was
partially offset by a $58,000 decline in commercial loan commitment fees during
the comparable three month period. The increase in loan servicing and other loan
fees during the nine months ended September 30, 1996 resulted from higher
commercial loan commitment fees, and increased late fee income, partially offset
by lower loan servicing income. Commitment and late fee income increased from
$390,000 and $420,000, respectively, during the nine months ended September 30,
1996 to $492,000 and $698,000, respectively during the comparable 1996 period.
The increased commitment and late fee income was partially offset by lower loan
servicing income due to increased amortization of mortgage servicing rights
based on increased residential loan prepayments.
During the three and nine months ended September 30, 1996 and 1995,
BankAtlantic sold $11.4 million and $8.5 million and $44.8 million and $20.5
million, respectively, of recently originated residential loans for gains as
reported in the above table.
During the three and nine months ended September 30, 1996, BankAtlantic sold
$11.3 million of mortgage servicing rights for gains as reported in the above
table. These rights related to approximately $736.9 million of loans serviced
for others. During the three and nine months ended September 30, 1995,
BankAtlantic sold $3.2 million and $5.6 million of mortgage servicing rights for
gains as reported in the above table. These rights related to approximately
$292.7 million and $492.1 million of loans serviced for others
During the nine months ended September 30, 1996, BankAtlantic sold from its
available for sale portfolio $136.6 million of adjustable rate mortgage-backed
securities, $20.5 million of 15 year mortgage-backed securities and $5.9 million
of seven year balloon mortgage-backed securities for gains, as reported in the
above table.
The realized gains on trading account securities during 1995 related to two
$5.0 million U.S. treasury notes acquired upon the exercise of European put
options in 1993. The treasury notes were subsequently sold during August 1995.
The increase in other non-interest income during the three months ended
September 30, 1996 compared to the 1995 period was due to higher fees earned on
checking accounts and ATM services. Checking account income and ATM fees were
$2.0 million and $1.1 million for the third quarter 1996, respectively, compared
to $1.8 million and $513,000, respectively, during the comparable 1995 period.
Furthermore, lease income increased by $89,000 due to additional rents received
on a leased property. In April 1996 BankAtlantic's ATM network initiated
surcharge fees for non-customers. The significant increase in ATM fee income was
primarily the result of this surcharge fee. The additional checking account
income reflects higher fees earned on overdrafts and demand deposit accounts
based on higher balances of transaction accounts.
The increase in other non-interest income during the nine months ended
September 30, 1996 compared to the 1995 period was due to the items discussed
above. Checking account income and ATM fees were $6.0 million and $2.8 million
for nine months ended September 30, 1996, respectively, compared to $5.1 million
and $1.5 during the comparable 1995 period, respectively. Lease income increased
from $427,000 during the 1995 nine month period to $724,000 during the
comparable 1996 period.
NON-INTEREST EXPENSES
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
(IN THOUSANDS) 1996 1995 CHANGE 1996 1995 CHANGE
- -------------- ---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Employee compensation and benefits .... $ 7,422 $ 6,572 $ 850 $ 21,841 $ 19,390 $ 2,451
Occupancy and equipment ............... 2,980 2,772 208 8,671 7,964 707
Federal insurance premium ............. 689 705 (16) 1,949 2,097 (148)
Advertising and promotion ............. 394 528 (134) 1,631 1,722 (91)
Foreclosed asset activity, net ........ (36) (495) 459 (545) (3,319) 2,774
SAIF special assessment ............... 7,160 0 7,160 7,160 0 7,160
Amortization of cost over fair value of
net assets acquired ................ 306 306 0 918 816 102
Other ................................. 3,457 2,997 460 8,947 8,886 61
-------- --------- ------- --------- -------- --------
Total non-interest expenses ....... $ 22,372 $ 13,385 $ 8,987 $ 50,572 $ 37,556 $ 13,016
======== ========= ======= ========= ======== ========
</TABLE>
The increase in employee compensation and benefits during the three and nine
months ended September 30, 1996 reflected an increase in the number of full time
equivalent employees from 746 at December 31, 1995 to 775 at September 30, 1996
as well as annual salary increases and additional temporary employees. The
increase in the number of employees primarily related to the opening of five
branches since December 31, 1995. Occupancy and equipment expenses increased due
to the new branches mentioned above, higher data equipment maintenance costs and
increased depreciation expenses. Depreciation expense increased during the three
and nine month period by $105,000, and $242,000, respectively. The additional
depreciation expense resulted from the purchase of $9.1 million of fixed assets
during the nine months ended September 30, 1996.
The amortization of cost over fair value of net assets acquired for the three
and nine months ended September 30, 1996 related to the acquisition of MegaBank
in 1995.
The components of "Foreclosed asset activity, net" were (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
Real estate acquired in settlement of loans: 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income, net ...................$ 151 $ 152 $ 1 $ 66
Provision for (reversal of) losses on REO (200) (400) (200) (1,400)
Net loss (gains) on sales ............... 13 (247) (346) (1,985)
---------- ------- ------- -------
Foreclosed asset activity, net ..........$ (36) $ (495) $ (545) $(3,319)
========== ======= ======= =======
</TABLE>
The lower earnings in foreclosed asset activity, net during the three
months ended September 30, 1996 were primarily due to decreases in gains on sale
of real estate owned and lower REO loss reversals. During the three months ended
September 30, 1995, BankAtlantic sold a non-residential real estate property
with a book value of $900,000 for a $26,000 loss and recognized gains of $13,000
on sales of various residential REO properties. The reversal of the REO
allowances related to the sales mentioned above. During the three months end
September 30, 1995, BankAtlantic sold various residential properties for gains
as shown on the above table and reversed REO reserves based on sales of several
parcels of vacant land. The lower foreclosed asset activity, net for the nine
months ended September 30, 1996 resulted from a $1.3 million gain on the sale of
nonresidential real estate owned, acquired through tax certificate operations
during the 1995 period and a reversal of the allowance for losses on real estate
owned during the nine months ended September 30, 1995 due to the sale of the
vacant land referred to above.
The increase in other non-interest expenses during the three months ended
September 30, 1996 was caused by a $263,000 write-off of data equipment due to
the conversion of BankAtlantic's data processing functions to a third party
vendor in October 1996. Installment loan and telephone expenses increased by
$108,000 and $89,000, respectively. The higher installment loan expenses
reflected an increase in repossession and loan origination expenses during the
1996 quarter compared to the same 1995 period. The higher telephone expenses
were primarily caused by additional branch locations. Other non-interest
expenses were $8.9 million for the nine months ended September 30, 1996 and
1995. Expense increases associated with the opening of branches such as
stationery, printing , supplies, telephone and ATM operations were offset by
recoveries in the tax certificate provision and lower general corporate
expenses.
FINANCIAL CONDITION
BankAtlantic's total assets at September 30, 1996 were $2.2 billion compared
to $1.75 billion at December 31, 1995. Loans receivable, net and tax
certificates increased by $436.0 million and $16.0 million, respectively. The
increase in loans receivable, net reflects $315.2 million of residential loan
purchases and $555.6 million of loan fundings for portfolio. The loan fundings
were partially offset by $432.5 million of loan principal repayments. The higher
tax certificate balances reflected $56.0 million of tax certificate purchases
($49.8 million at auction) partially offset by $40.3 million of tax certificate
redemptions. Debt securities available for sale decreased by $76.1 million. The
decline in debt securities available for sale reflected the sale of $163.0
million of mortgage-backed securities and $135.6 million of principal
reductions, partially offset by the purchase of $231.8 million of treasury
notes.
At September 30, 1996 total deposits, FHLB advances and securities sold
under agreements to repurchase increased by $51.8 million, $15.2 million and
$224.2 million, respectively. The increase in deposits resulted from money fund
deposit and interest free checking growth. Money fund deposits and interest free
checking increased from $249.3 million and $99.0 million at December 31, 1995 to
$312.1 million and $104.3 million at September 30, 1996, respectively, The
deposit inflows, additional securities sold under agreements to repurchase,
proceeds from mortgage-backed securities sales, principal repayments, and the
$49.0 million contributed to BankAtlantic's capital by BBC from the issuance of
Class A common stock and the 6 3/4% convertible subordinated debentures which
were used to fund loan growth, tax certificate purchases, and treasury note
purchases. On October 11, 1996, BankAtlantic used capital contributions from BBC
to acquire Bank of North America Bancorp, Inc. for $53.8 million.
LIQUIDITY AND CAPITAL RESOURCES
On July 3, 1996, BBC closed the public offering of $57.5 million of its 6
3/4% Debentures due July 1, 2006. The 6 3/4% Debentures are convertible into
Class A Common Stock at an exercise price of $12.80 per share; representing an
aggregate of 4,492,188 shares of Class A Common Stock. Net proceeds to BBC were
$55.1 million net of underwriting discount and offering expenses. BBC
contributed $35.0 million of the proceeds to BankAtlantic, and on October 11,
1996 BankAtlantic used the contribution to acquire BNA. The remaining net
proceeds will be utilized by BBC for general corporate purposes including the
repurchase of up to one million shares of BBC common stock. As of September 30,
1996, BBC repurchased in the secondary market 160,000 and 112,500 of Class A and
Class B common shares, respectively. Any subsequent common stock repurchases are
dependent upon market conditions and are subject to compliance with all
applicable securities laws. BBC cannot declare or pay dividends on, or purchase,
redeem or acquire for value its capital stock, return any capital to holders of
capital stock as such, or make any distribution of assets to holders of capital
stock as such, unless, from and after the date of any such dividend declaration
(a "Declaration Date") or the date of any such purchase, redemption, payment of
distribution specified above (a "Redemption Date"), BBC retains cash, cash
equivalents (as determined in accordance with generally accepted accounting
principles) or marketable securities (with a market value as measured on the
applicable Declaration Date or Redemption Date) in an amount sufficient to cover
the two consecutive semi-annual interest payments that will be due and payable
on the 6 3/4% Debentures and on BBC's 9% Subordinated Debentures (the "9%
Debentures") following such Declaration Date or Redemption Date, as the case may
be. Any interest payment made by BBC with respect to the 6 3/4% Debentures or
the 9% Debentures after any applicable Declaration Date or Redemption Date shall
be deducted from the aggregate amount of cash or cash equivalents which BBC
shall be required to retain pursuant to the foregoing provision. Payment of
interest and ultimate repayment of the 6 3/4% and 9% Debentures is significantly
dependent upon the operations and distributions from BankAtlantic. BBC's primary
sources of funds during the nine months of 1996 were from its public offerings
of its Class A Common Stock, 6 3/4 % Debentures and dividends from BankAtlantic.
The primary use of funds during the nine month period was to contribute $49
million of capital to BankAtlantic, payment of cash dividends to common
stockholders and interest expense on its outstanding 9% Debentures. It is
anticipated that funds for interest and dividend payments will continue to be
obtained from BankAtlantic. Additionally, the ultimate repayment by BBC of its
outstanding 6 3/4% Convertible Debentures and 9% Debentures may be dependent
upon dividends from BankAtlantic, refinancing of the debt or raising additional
equity capital by BBC. BBC currently anticipates that it will pay regular
quarterly cash dividends on its common stock. Payment of interest and ultimate
repayment of the 6 3/4% and 9% Debentures is significantly dependent upon the
operations and distributions from BankAtlantic.
BankAtlantic's primary sources of funds during the nine months of 1996 were
from operations, principal collected on loans, mortgage-backed securities,
investment securities, sales of debt securities available for sale and mortgage
servicing rights, deposit inflows, proceeds from the capital contribution from
BBC, securities sold under agreements to repurchase, and advances from borrowers
for taxes and insurance. These funds were primarily utilized for loan purchases
and fundings, and the purchase of tax certificates, treasury notes and
subsequently on October 11, 1996 the acquisition of BNA. At September 30, 1996,
BankAtlantic met all applicable liquidity and regulatory capital requirements.
Commitments to originate loans at September 30, 1996 were $101.1 million
compared to $73.9 million at September 30, 1995. Commitments to purchase
residential loans were $62.5 million and $0 at September 30, 1996 and 1995,
respectively. BankAtlantic expects to fund the 1996 loan commitments from loan
and debt securities available for sale repayments. At September 30, 1996, loan
commitments were 12.9% of loans receivable, net.
At September 30, 1996, BankAtlantic's regulatory capital position was:
<TABLE>
<CAPTION>
TANGIBLE CORE TOTAL RISK-BASED
CAPITAL CAPITAL CAPITAL
------- ------- -------
(DOLLARS IN THOUSANDS) BALANCE % BALANCE % BALANCE %
------- - ------- - ------- -
<S> <C> <C> <C> <C> <C> <C>
Capital calculated under GAAP .......... $ 189,072 $ 189,072 $ 189,072
Adjustments:
Non-includable subsidiaries ........ (110) (110) (110)
Unrealized holding losses .......... 10 10 10
Non-qualifying intangible assets .. (10,392) (10,392) (10,392)
Allowable allowance for loan and tax
certificate losses ............... 17,000
------- ---- ------- ---- ------- -----
Regulatory capital ..................... 178,580 8.29% 178,580 8.29% 195,580 14.41%
Required minimum capital ............... 32,293 1.50% 64,587 3.00% 108,581 8.00%
------- ---- ------- ---- ------- -----
Excess regulatory capital .............. $ 146,287 6.79% $ 113,993 5.29% $ 86,999 6.41%
========= ==== ========= ==== ========= ====
</TABLE>
Savings institutions are also subject to the provisions of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). Regulations
implementing the prompt corrective action provisions of FDICIA define specific
capital categories based on FDICIA's defined capital ratios, as discussed more
fully in BBC's Annual Report on Form 10K for the year ended December 31, 1995.
At September 30, 1996, BankAtlantic's core, Tier 1 risk-based and total
risk-based capital ratios were 8.29%, 13.16% and 14.41%, respectively. Based on
these capital ratios, BankAtlantic meets the definition of a well capitalized
institution.
On September 30, 1996, President Clinton signed in law H.R. 3610, which is
intended to recapitalize the SAIF and substantially bridge the assessment rate
disparity existing between SAIF and BIF insured institutions. The new law
subjects institutions with SAIF assessable deposits, including BankAtlantic, to
a one-time assessment of approximately 0.657% of covered deposits at March 31,
1995. BankAtlantic's one-time assessment resulted in a pre-tax charge of
approximately $7.2 million for the three and nine months ended September 30,
1996, which is payable not later than November 29, 1996, and, under provisions
of the new law, may be treated for tax purposes as a fully deductible "ordinary
and necessary business expense" when paid.
On August 9, 1996, Congress passed the Small Business Job Protection Act of
1996 (the "Act"). Included in the Act was the repeal of the thrift bad debt
deduction for income tax purposes, and a change in the bad debt reserve
recapture rules. As a result of the change, BankAtlantic must change from the
reserve method of accounting to the specific charge-off method. Furthermore,
BankAtlantic is required to recapture into taxable income over a six year period
the portion of its bad debt reserves that exceeds its base year reserves which
is estimated at $3.9 million. The change in the method of accounting for bad
debt deductions should have no effect on BankAtlantic's net income.
Except for the residential loan servicing operation, all data processing
functions were previously performed by BankAtlantic. On April 24, 1996,
BankAtlantic signed a contract with M&I Data Services, a division of the
Marshall & Ilsley Corporation, ("M&I") to provide data processing services for
seven years. The conversion to the M&I service bureau was completed on October
11, 1996. The purpose of the conversion is to increase capacity as well as
improve customer service. The estimated annual expense for the service bureau is
approximately $2.4 million. The additional costs associated with the conversion
are anticipated to be $2.1 million in technology upgrades, primarily associated
with the cost of new computer equipment.
<PAGE>
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
JOSE DANIEL RUIZ CORONADO VS. BANKATLANTIC BANCORP, INC. IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA. CASE NO.
96-7115-CIV-GONZALEZ. This action was filed as a purported class action on
September 27, 1996 on behalf of certain account holders of BankAtlantic whose
bank accounts were seized by Federal Authorities. The complaint alleges that the
financial privacy rights of the account holders under various Federal and State
laws were violated. Management believes that the allegations are without merit.
EXHIBITS
Exhibit Description
------- -----------
23 Consent of KPMG Peat Marwick L.L.P.
27 Financial Data Schedule.
99.1 Bank of North America Bancorp, Inc. December 31, 1995 Financial
Statements (Audited).
99.2 Bank of North America Bancorp, Inc. September 30, 1996 Financial
Statements (Unaudited).
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BANKATLANTIC BANCORP, INC.
October 28, 1996 By: /s/Alan B. Levan
-------------------- ------------------
Date Alan B. Levan
Chief Executive Officer/
Chairman
October 28, 1996 By: /s/Jasper R. Eanes
---------------- ------------------
Jasper R. Eanes
Executive Vice President/
Chief Financial Officer
The Board of Directors
BankAtlantic, a Federal Savings Bank
As Successor in Interest to Bank of
North America Bancorp, Inc.:
We consent to the use of our report included herein in the Form 10-Q. Our report
refers to a change in the method of accounting for investments to adopt the
provisions of the Financial Accounting Standards Board's SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," at December
31, 1993.
KPMG PEAT MARWICK LLP
Miami, Florida
October 23, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at September 30, 1996
(Unaudited) and the Consolidated Statement of Operations for the nine
months ended September 30, 1996 (Unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 921768
<NAME> BankAtlantic Bancorp, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 78901
<INT-BEARING-DEPOSITS> 1247897
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 615726
<INVESTMENTS-CARRYING> 65818
<INVESTMENTS-MARKET> 65818
<LOANS> 1264616
<ALLOWANCE> 19525
<TOTAL-ASSETS> 2170480
<DEPOSITS> 1352169
<SHORT-TERM> 365431
<LIABILITIES-OTHER> 92676
<LONG-TERM> 220477
0
0
<COMMON> 147
<OTHER-SE> 139580
<TOTAL-LIABILITIES-AND-EQUITY> 2170480
<INTEREST-LOAN> 69487
<INTEREST-INVEST> 33884
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 103371
<INTEREST-DEPOSIT> 37356
<INTEREST-EXPENSE> 50326
<INTEREST-INCOME-NET> 53045
<LOAN-LOSSES> 4264
<SECURITIES-GAINS> 3946
<EXPENSE-OTHER> 50572
<INCOME-PRETAX> 19064
<INCOME-PRE-EXTRAORDINARY> 19064
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11350
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.72
<YIELD-ACTUAL> 8.21
<LOANS-NON> 6585
<LOANS-PAST> 812
<LOANS-TROUBLED> 3672
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19000
<CHARGE-OFFS> 5518
<RECOVERIES> 1779
<ALLOWANCE-CLOSE> 19525
<ALLOWANCE-DOMESTIC> 19525
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3991
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bank of North America Bancorp, Inc.
and subsidiaries:
We have audited the accompanying consolidated statements of financial
condition of Bank of North America Bancorp, Inc. and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1995, 1994
and 1993. These consolidated financial statements are the responsibility of the
Bank'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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bank of
North America Bancorp, Inc. and subsidiaries 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 1(d), the Bank changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, at December 31, 1993.
KPMG PEAT MARWICK LLP
Miami, Florida
January 11, 1996
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks........................................... $ 14,605,787 $ 11,859,729
Interest bearing deposits with banks.............................. 36,423,055 7,719,762
Federal funds sold and securities purchased under agreements to
resell.......................................................... 431,000 1,127,000
Securities available for sale..................................... 100,786,529 30,629,965
Securities held to maturity....................................... -- 116,593,447
Federal Home Loan Bank of Atlanta stock........................... 2,775,000 3,225,000
Loans held for sale (approximate market value: $2,732,000 and
$26,403,000).................................................... 2,709,924 26,274,544
Loans receivable, net............................................. 376,781,652 326,222,418
Accrued interest receivable....................................... 4,026,657 3,939,323
Premises and equipment............................................ 8,210,789 8,356,578
Cost of mortgage loan servicing rights acquired................... 2,277,000 2,619,566
Other intangible assets........................................... 204,051 304,251
Foreclosed real estate............................................ 1,025,805 1,345,366
Deferred income taxes............................................. 1,502,866 2,087,828
Other assets...................................................... 2,741,408 2,567,266
------------ ------------
Total assets............................................ $554,501,523 $544,872,043
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deposits:
Non-interest bearing......................................... $ 53,749,576 $ 47,876,926
Interest bearing............................................. 439,962,733 390,808,368
------------ ------------
Total deposits.......................................... 493,712,309 438,685,294
Securities sold under agreements to repurchase.................. 820,473 5,372,769
Other borrowings................................................ 20,000,000 64,500,000
Accrued interest payable........................................ 662,203 744,901
Other liabilities............................................... 1,365,474 854,135
------------ ------------
Total liabilities....................................... 516,560,459 510,157,099
------------ ------------
Commitments and contingencies
Stockholder's equity:
Common stock, $1.00 par value. Authorized, 5,000,000 shares;
issued and outstanding 100,000 shares........................ 100,000 100,000
Additional paid-in capital...................................... 30,000,000 30,000,000
Retained earnings............................................... 8,300,443 6,122,015
Unrealized loss on securities available for sale, net........... (459,379) (1,507,071)
------------ ------------
Total stockholder's equity.............................. 37,941,064 34,714,944
------------ ------------
Total liabilities and stockholder's equity.............. $554,501,523 $544,872,043
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Interest income and fees
Loans................................................. $30,491,963 $27,035,132 $28,533,636
Short-term investments................................ 1,546,380 514,066 986,796
Securities............................................ 8,514,080 8,093,732 3,188,138
----------- ----------- -----------
Total interest income......................... 40,552,423 35,642,930 32,708,570
----------- ----------- -----------
Interest expense
Transaction accounts.................................. 3,923,685 2,549,174 2,677,321
Time deposits......................................... 16,755,725 14,297,037 14,010,768
Borrowings............................................ 2,336,889 2,245,418 383,535
----------- ----------- -----------
Total interest expense........................ 23,016,299 19,091,629 17,071,624
----------- ----------- -----------
Net interest income........................... 17,536,124 16,551,301 15,636,946
Provision for loan losses............................... 1,150,000 1,105,000 2,050,000
----------- ----------- -----------
Net interest income after provision for loan
losses...................................... 16,386,124 15,446,301 13,586,946
----------- ----------- -----------
Non-interest income
Service charges on deposits........................... 2,234,489 1,409,455 1,074,566
Mortgage servicing income (expense), net.............. 1,368,939 813,682 (5,099,847)
Gains on sales of loans, net.......................... 957,077 142,036 629,360
Securities transactions, net.......................... 136,931 25,006 1,196,882
Other................................................. 506,320 385,191 499,219
----------- ----------- -----------
Total non-interest income (expense)........... 5,203,756 2,775,370 (1,699,820)
----------- ----------- -----------
Operating expenses
Compensation and benefits............................. 8,674,567 8,029,031 7,884,864
Occupancy and equipment............................... 3,274,140 3,042,683 2,799,367
Data processing....................................... 1,022,109 866,850 934,529
Regulatory insurance and assessments.................. 1,128,452 1,084,152 1,119,894
Office expenses....................................... 994,215 812,496 745,173
Professional fees..................................... 781,507 588,150 743,432
Marketing............................................. 524,813 471,515 312,131
Other intangible amortization......................... 100,200 100,200 580,200
Other................................................. 1,798,066 1,377,485 1,272,149
----------- ----------- -----------
Total operating expenses...................... 18,298,069 16,372,562 16,391,739
----------- ----------- -----------
Income (loss) before income taxes....................... 3,291,811 1,849,109 (4,504,613)
Income tax expense (credit)............................. 1,113,383 492,588 (1,697,012)
----------- ----------- -----------
Net income (loss)....................................... $ 2,178,428 $ 1,356,521 $(2,807,601)
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $ 2,178,428 $ 1,356,521 $ (2,807,601)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Amortization of mortgage loan servicing rights acquired....... 342,566 1,087,758 7,372,024
Other amortization and depreciation........................... 1,562,129 1,142,154 691,007
Provision for loan losses..................................... 1,150,000 1,105,000 2,050,000
Deferred tax benefit.......................................... (47,147) (68,172) (509,369)
Proceeds from loan sales of loans held for sale............... 46,422,568 7,497,081 17,566,914
Origination and purchase of loans held for sale............... (22,623,506) (12,230,459) (22,373,224)
Net realized gains on available for sale securities........... (136,931) (25,006) (1,196,882)
Net realized gains on sales of loans.......................... (957,077) (142,036) (629,360)
Changes in other assets and other liabilities:
Accrued interest receivable, current income taxes and other
assets...................................................... (261,476) 322,948 (682,535)
Accrued interest payable and other liabilities................ 428,641 67,798 (35,809)
------------ ----------- ------------
Net cash provided (used) by operating activities................ 28,058,195 113,587 (554,835)
------------ ----------- ------------
Cash flow from investing activities:
Purchase of available for sale securities....................... -- (12,192,547) (130,267,067)
Proceeds from sales of available for sale securities............ 36,744,498 6,684,402 95,745,533
Proceeds from maturities of available for sale securities....... 3,160,569 3,181,930 9,482,093
Purchases of held to maturity securities........................ -- (55,326,011) (50,350,418)
Proceeds from maturities of held to maturity securities......... 8,118,723 9,249,653 13,712,885
Net (increase) decrease in Federal Home Loan Bank of Atlanta
stock......................................................... 450,000 75,000 (179,200)
Originations of loans........................................... (124,309,814) (75,372,844) (49,830,223)
Purchase of loans............................................... (238,301) (2,071,600) (71,863,864)
Proceeds from maturities of loans............................... 71,944,569 73,910,084 91,674,222
Proceeds from sales of loans.................................... -- -- 28,034,679
Net purchases of premises and equipment......................... (870,854) (1,443,122) (2,197,221)
Proceeds from sale of foreclosed properties..................... 1,721,047 1,978,422 2,665,961
Purchases of mortgage loan servicing rights..................... -- -- (2,935,746)
------------ ----------- ------------
Net cash used by investing activities........................... (3,279,563) (51,326,633) (66,308,366)
------------ ----------- ------------
Cash flows from financing activities:
Net increase (decrease) in deposits............................. 55,027,015 17,662,165 (45,225,652)
Net increase (decrease) in securities sold under agreements to
repurchase and short term other borrowings.................... (19,052,296) 9,872,769 --
Proceeds from long term other borrowings........................ -- 30,000,000 30,000,000
Repayments of long term other borrowings........................ (30,000,000) -- --
------------ ----------- ------------
Net cash provided (used) by financing activities................ 5,974,719 57,534,934 (15,225,652)
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents............ 30,753,351 6,321,888 (82,088,853)
Cash and cash equivalents at beginning of year.................... 20,706,491 14,384,603 96,473,456
------------ ----------- ------------
Cash and cash equivalents at end of year.......................... $ 51,459,842 $ 20,706,491 $ 14,384,603
============ =========== ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest...................................................... $ 23,098,997 $ 18,713,682 $ 17,018,377
============ =========== ============
Income taxes.................................................. $ 1,144,000 $ 550,000 $ --
============ =========== ============
Supplemental non-cash investing and financing information:
Transfers to foreclosed real estate............................. $ 2,420,335 $ 3,100,660 $ 2,126,810
============ =========== ============
Transfers to loans held for sale................................ $ (246,635) $ 21,399,130 $ (10,407,627)
============ =========== ============
Transfers to securities available for sale...................... $ 108,248,811 $ -- $ 4,848,166
============ =========== ============
Reclassification of allowance for purchased loans to discount
and premium (See Note 1(e))................................... $ -- $ 2,400,000 $ --
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
ADDITIONAL SECURITIES
COMMON PAID-IN RETAINED AVAILABLE
STOCK CAPITAL EARNINGS FOR SALE, NET TOTAL
-------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992..... $100,000 $30,000,000 $ 7,573,095 -- $37,673,095
Unrealized gain on securities
available for sale, net..... -- -- -- 65,598 65,598
Net loss for the year ended
December 31, 1993........... -- -- (2,807,601) -- (2,807,601)
-------- ----------- ----------- -------------- -----------
Balance at December 31, 1993..... 100,000 30,000,000 4,765,494 65,598 34,931,092
Change in unrealized loss on
securities available for
sale, net................... -- -- -- (1,572,669) (1,572,669)
Net income for the year ended
December 31, 1994........... -- -- 1,356,521 -- 1,356,521
-------- ----------- ----------- -------------- -----------
Balance at December 31, 1994..... 100,000 30,000,000 6,122,015 (1,507,071) 34,714,944
Change in unrealized loss on
securities available for
sale, net................... -- -- -- 1,047,692 1,047,692
Net income for the year ended
December 31, 1995........... -- -- 2,178,428 -- 2,178,428
-------- ----------- ----------- -------------- -----------
Balance at December 31, 1995..... $100,000 $30,000,000 $ 8,300,443 $ (459,379) $37,941,064
======== ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Bank of North
America Bancorp, Inc. ("Company"), its wholly owned subsidiary Bank of North
America ("the Bank"), and two non-bank subsidiaries. Bank of North America is a
state-chartered commercial bank with offices in Dade, Broward and Palm Beach
Counties, Florida. The two non-bank subsidiaries are inactive. All significant
intercompany transactions and balances have been eliminated in consolidation.
(b) Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and with general practices within the
banking industry. In preparing the consolidated financial statements, management
is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the consolidated statement of
financial condition and revenues and expenses for the year. Actual results could
differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the next year relate to the
determination of the allowance for loan losses, the carrying value of foreclosed
real estate, and the carrying value of mortgage servicing rights.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash, due from banks, interest-bearing
balances with banks, federal funds sold and securities purchased under
agreements to resell. Cash and cash equivalents have maturities, at acquisition
date, of three months or less.
(d) Securities
The Bank adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity (SFAS
No. 115) at December 31, 1993. Upon adoption of SFAS No. 115, all securities
previously classified as held for sale were designated as available for sale.
The adoption of SFAS No. 115 resulted in an increase in the carrying value of
investment securities available for sale of $105,175 and a corresponding
increase in stockholder's equity of $65,598 and in deferred tax liability of
$39,577.
Under SFAS No. 115 the Bank classifies its debt and equity securities in
one of three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of selling
them in the near term. Held-to-maturity securities are those securities in which
the Bank has the ability and intent to hold the security until maturity. All
other securities not included in trading or held-to-maturity are classified as
available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in earnings. Unrealized holding gains
and losses, net of the related tax effect, on available-for-sale securities are
excluded from earnings and are reported as a separate component of stockholder's
equity until realized. Realized gains and losses from the sale of available-
for-sale securities are determined on a specific identification basis.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a reduction
in carrying amount to fair value. The impairment is charged to earnings and a
new cost basis for the security is established. Premiums and discounts are
amortized
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or accreted over the life of the related security as an adjustment to yield
using the effective interest method. Dividend and interest income are recognized
when earned.
On November 15, 1995, the Financial Accounting Standards Board ("FASB")
issued Special Report No. 155-B, A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities (the "Special
Report"). Pursuant to the Special Report, the Bank was permitted to conduct a
one-time reassessment of the classifications of all securities held at that
time. Any reclassifications from the held-to-maturity category made in
conjunction with that reassessment would not call into question an enterprises'
intent to hold other debt securities to maturity in the future.
The Bank undertook such a reassessment and, effective November 30, 1995,
all securities then classified as held-to-maturity were reclassified as
available for sale. On the effective date of the reclassification, the
securities transferred had a carrying value of $108,249,000 and an estimated
fair value of $107,211,000, resulting in a net reduction to stockholder's equity
for the net unrealized loss of $647,000, after deducting applicable income taxes
of $391,000.
(e) Loan Purchases, Securitization and Sales
Loans are stated at the unpaid principal balance net of unearned income and
discounts and allowance for loan losses plus prepaid dealer reserves. Loan
packages of primarily one to four family residential loans have been acquired
through Federal Deposit Insurance Corporation ("FDIC") and Resolution Trust
Corporation ("RTC") loan offerings and in private transactions. The purchase
price of these loans is determined based upon factors such as credit quality,
the type of loan product being offered and inherent market conditions at the
time of purchase. Upon the purchase of these loan packages, an allocation of the
purchase price is made among the allowance for loan losses and purchased
discount or premium.
The amount allocated to the allowance for loan losses is based on an
evaluation of the estimated discounted credit losses to be incurred for the
loans purchased. When loans are sold, gains or losses resulting from such sales
are measured by using the cost basis allocated to such loans at the time of
purchase, adjusted for amortization of premiums and accretion of discounts.
Specific allowances for loan losses, which are identified as part of loans being
sold, are included as part of the cost basis of such loans at time of sale. This
cost allocation methodology is also utilized for purchased loans which are
securitized.
Effective December 31, 1994, a comprehensive evaluation was made of the
allowance for loan losses originally established during 1993, 1992 and 1991
related to purchased one to four family residential loans. As a result of this
evaluation, which included a review of historical losses on the purchased loans,
the original estimates were revised. The effect of this change in estimate was
to reduce the allowance for loan losses on purchased loans and to increase net
unearned purchased discounts and premiums by $2,400,000. Beginning in 1995, the
increased net unearned purchased discount was amortized as an adjustment to the
related loans' yield over the estimated remaining lives of those loans.
The Bank classifies loans which it intends to sell or securitize and sell
as loans held for sale. These loans are carried at the aggregate of lower of
cost or market. At December 31, 1995, loans held for sale consisted of
originated residential loans. At December 31, 1994 loans held for sale consisted
of purchased consumer loans with a carrying value of approximately $25.8
million, and originated residential loans.
(f) Allowance for Loan Losses
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions. Management believes that
the allowance for loan losses is adequate; however, regulatory agencies, as an
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
integral part of their examination process, periodically review the allowance
for losses on loans. Such agencies may require the recognition of additions or
reductions to the allowance based on their judgement of information available at
the time of their examination.
The Bank adopted the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of a Loan, as amended
by SFAS No. 118, Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosure, ("SFAS No. 114") on January 1, 1995. The provisions
of SFAS No. 114 did not have a significant impact on financial condition or
results of operations upon adoption. Management, considering current information
and events regarding the borrowers ability to repay their obligations, considers
a loan to be impaired when it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or at the fair value of
collateral, if the loan is collateral dependent. Impairment losses and changes
in estimates to the impairment losses are included in the allowance for loan
losses through a provision for loan losses. The Bank recognizes interest income
on impaired loans on a cash basis. Prior periods have not been restated.
(g) Loan Interest Income Recognition
Interest income on commercial and real estate mortgage loans is recognized
as earned based upon the principal amounts outstanding. Interest income on
installment loans is recognized using a method which approximates the interest
method. Loans are placed on non-accrual status when management believes that
interest on such loans may not be collected in the normal course of business or
when the loans become ninety days delinquent, whichever is earlier. Premiums and
discounts on purchased loans are amortized or accreted using the level yield
method.
(h) Loan Fees
Loan origination, prepaid dealer reserves, certain other fees and certain
direct loan origination costs are being deferred and the net amount is being
amortized as an adjustment to the related loan's yield, generally over the
contractual life of the related loans, or if the related loan is held for sale,
until the loan is sold. Fees received in connection with loan commitments are
deferred until the loan is advanced and are then recognized over the term of the
loan as an adjustment of the yield. Fees on commitments that expire unused are
recognized in other non-interest income at expiration.
(i) Mortgage Loan Servicing Rights
The Bank services mortgage loans for investors. These mortgage loans
serviced are not included in the accompanying consolidated statements of
financial condition. Loan servicing fees are based on a stipulated percentage of
the outstanding loan principal balances being serviced and are recognized as
income when related loan payments from mortgagors are collected. Loan servicing
costs are charged to expense using the level yield method over the estimated
life of the loan, and continually adjusted for prepayments. Management evaluates
the carrying value of purchased mortgage servicing rights by estimating the
future net servicing income of the portfolio on a discounted basis, based on
estimates of the remaining loan lives.
In May 1995 the FASB issued Statement of Financial Accounting Standards No.
122, Accounting for Mortgage Servicing Rights, ("SFAS No. 122") which would
eliminate the accounting distinction between rights to service mortgage loans
for others that are acquired through loan origination activities and those
acquired through purchase transactions. SFAS No. 122 requires an entity to
recognize rights to service mortgage loans for others or rights to service
mortgage loans originated as separate assets, however acquired, for transactions
in which the Bank has sold the loan and retained the servicing rights. This
statement is to be
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
applied prospectively effective on January 1, 1996. Retroactive application is
prohibited. Upon adoption, SFAS No. 122 is not expected to have a material
effect on results of operations or financial condition.
(j) Premises and Equipment
Land is carried at cost. Bank premises, furniture and equipment, and
leasehold improvements are carried at cost, less accumulated depreciation and
amortization, computed principally by the straight-line method.
(k) Income Taxes
The operating results of the Company and its subsidiaries are included in
consolidated federal and state income tax returns. Each subsidiary pays its
allocation of income taxes to the Company, or receives payment from the Company
to the extent that tax benefits are realized based on amounts computed as if
each subsidiary was an individual company.
Effective January 1, 1993, Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, ("SFAS No. 109") was adopted prospectively.
The adoption of SFAS No. 109 changes the method of accounting for income taxes
from the deferred method to an asset and liability approach. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Deferred tax assets are
required to be reduced by a valuation allowance to the extent that, based on the
weight of available evidence, it is more likely than not that the deferred tax
assets will not be realized.
The adoption of SFAS No. 109 on January 1, 1993 did not have a significant
impact on financial condition or results of operations.
(l) Other Intangible Assets
Excess cost over fair value of assets acquired of $82,283 and $123,983 at
December 31, 1995 and 1994, respectively, is amortized on a straight-line basis
over a seven year period . Remaining core deposit premium of $121,768 and
$180,268 at December 31, 1995 and 1994, respectively, is being amortized over
its estimated remaining economic life of approximately 2 years at December 31,
1995.
(m) Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, foreclosure are
initially recorded at fair value at the date of foreclosure establishing a new
cost basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of (1) cost or (2) fair
value minus estimated costs to sell. Revenue and expenses from operations and
adjustments of the fair value are included in earnings. Foreclosed real estate
is not depreciated.
(n) Reclassifications
Certain amounts for prior years have been reclassified to conform with
financial statement presentations for 1995.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SECURITIES
Securities available for sale consist of the following:
<TABLE>
<CAPTION>
DEBT SECURITY MATURITIES
--------------------------------------------------------------
AFTER 1 YEAR AFTER 5 YEARS TOTAL
THROUGH THROUGH AMORTIZED
AT DECEMBER 31, 1995 1 YEAR OR LESS 5 YEARS 10 YEARS AFTER 10 YEARS COST
- ------------------------------ -------------- ------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Debt securities
U.S. Treasury................ $ 4,999,638 $ -- $ -- $ -- $ 4,999,638
U.S. Government agencies..... -- 2,999,585 -- -- 2,999,585
Municipal bonds.............. 414,810 1,677,890 3,602,944 -- 5,695,644
Corporate bonds.............. -- 17,792,560 3,508,520 -- 21,301,080
Mortgage-backed securities... 9,503,118 25,727,096 27,127,861 4,169,046 66,527,121
------------ ----------- ----------- ---------- ------------
Total.................. $ 14,917,566 $48,197,131 $34,239,325 $4,169,046 $101,523,068
============ =========== =========== ========== ============
<CAPTION>
CARRYING
GROSS UNREALIZED VALUE
--------------------- (ESTIMATED
AT DECEMBER 31, 1995 GAINS LOSSES FAIR VALUE)
- ------------------------------ ---------- --------- ------------
<S> <C> <C> <C>
Debt securities
U.S. Treasury................ $ -- $ (19,169) $ 4,980,469
U.S. Government agencies..... 27,134 -- 3,026,719
Municipal bonds.............. 13,910 (30,919) 5,678,635
Corporate bonds.............. 14,922 (97,505) 21,218,497
Mortgage-backed securities... 92,536 (737,448) 65,882,209
-------- -------- ------------
Total.................. $ 148,502 $(885,041) $100,786,529
======== ======== ============
</TABLE>
<TABLE>
<CAPTION>
DEBT SECURITY MATURITIES
-----------------------------------------------------------
AFTER 1 YEAR AFTER 5 YEARS TOTAL
THROUGH THROUGH EQUITY AMORTIZED
AT DECEMBER 31, 1994 1 YEAR OR LESS 5 YEARS 10 YEARS AFTER 10 YEARS SECURITIES COST
- ------------------------------ -------------- ------------ ------------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Debt securities...............
U.S. Government agencies..... $ 2,000,000 $ -- $ 2,000,000 $ -- $ -- $ 4,000,000
Corporate bonds.............. -- -- 2,191,460 -- -- 2,191,460
Mortgage-backed securities... 1,158,302 11,049,631 3,744,088 2,307,433 -- 18,259,454
U.S. Government agency equity
securities................... -- -- -- -- 8,595,391 8,595,391
----------- ----------- ----------- ---------- ---------- ------------
Total.................. $ 3,158,302 $11,049,631 $ 7,935,548 $2,307,433 $8,595,391 $ 33,046,305
=========== =========== =========== ========== ========== ============
<CAPTION>
CARRYING
GROSS UNREALIZED VALUE
---------------------- (ESTIMATED
AT DECEMBER 31, 1994 GAINS LOSSES FAIR VALUE)
- ------------------------------ ---------- ----------- ------------
<S> <C> <C> <C>
Debt securities...............
U.S. Government agencies..... $ -- $ (127,153) $ 3,872,847
Corporate bonds.............. -- (223,332) 1,968,128
Mortgage-backed securities... -- (1,206,713) 17,052,741
U.S. Government agency equity
securities................... -- (859,142) 7,736,249
-------- ------------ ------------
Total.................. $ -- $(2,416,340) $ 30,629,965
======== ============ ============
</TABLE>
Securities held to maturity at December 31, 1994 are presented below. All
securities were classified as available for sale at December 31, 1995.
<TABLE>
<CAPTION>
DEBT SECURITY MATURITIES
--------------------------------------------------------------
AFTER 1 YEAR AFTER 5 YEARS TOTAL
THROUGH THROUGH CARRYING VALUE
AT DECEMBER 31, 1994 1 YEAR OR LESS 5 YEARS 10 YEARS AFTER 10 YEARS (AMORTIZED COST)
- ------------------------------ -------------- ------------ ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
U.S.Treasury.................. $7,001,796 $ 4,998,701 $ -- $ -- $ 12,000,497
U.S. Government agencies...... -- 2,999,398 -- -- 2,999,398
Municipal bonds............... 259,966 1,737,758 2,904,160 1,145,628 6,047,512
Corporate bonds............... -- 9,721,550 9,635,815 -- 19,357,365
Mortgage-backed securities.... 1,041,743 20,152,544 25,642,776 29,351,612 76,188,675
----------- ----------- ----------- ------------ ------------
Total.................. $8,303,505 $39,609,951 $38,182,751 $ 30,497,240 $116,593,447
=========== =========== =========== ============ ============
<CAPTION>
GROSS UNREALIZED
---------------------------- ESTIMATED
AT DECEMBER 31, 1994 GAINS LOSSES FAIR VALUE
- ------------------------------ -------------- ------------ ------------
<S> <C> <C> <C>
U.S.Treasury.................. $ -- $ (278,778) $ 11,721,719
U.S. Government agencies...... -- (186,273) 2,813,125
Municipal bonds............... -- (441,501) 5,606,011
Corporate bonds............... -- (2,018,003) 17,339,362
Mortgage-backed securities.... -- (7,802,067) 68,386,608
------------ ------------ ------------
Total.................. $ -- $(10,726,622) $105,866,825
============ ============ ============
</TABLE>
Expected maturities of mortgage-backed securities will differ from
contractual maturities since borrowers generally have the right to prepay
obligations without penalty. The maturity distribution of mortgage-backed
securities is based on their expected maturities based on information available
at December 31, 1995 and 1994.
Gross gains resulting from the disposition of securities available for sale
amounted to $211,036, $25,006, and $1,196,882 during 1995, 1994 and 1993,
respectively. Gross losses amounted to $74,105 during 1995. There were no losses
on securities available for sale during 1994 or 1993.
Investment securities with carrying values of $607,617 and $610,172 were
pledged as required by government regulation as of December 31, 1995 and 1994,
respectively. In addition, at December 31, 1995 and
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994, investment securities with carrying values of $830,021 and $30,977,697,
respectively, were pledged to secure securities sold under agreements to
repurchase and other short-term borrowings.
3. LOANS
The composition of loans is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Real estate -- residential................................ $229,005,786 238,150,292
Real estate -- commercial................................. 47,216,816 37,346,130
Commercial................................................ 30,174,139 16,177,208
Consumer.................................................. 74,859,096 42,400,631
Overdrafts................................................ 598,985 102,421
------------ ------------
Subtotal........................................ 381,854,822 334,176,682
Add: prepaid dealer reserve............................... 3,746,096 1,731,182
Less: net deferred loan fees.............................. (452,078) (484,788)
Less: net purchased discounts and premiums (See Note
1(e))................................................... (2,866,041) (3,354,662)
Less: allowance for loan losses........................... (5,501,147) (5,845,996)
------------ ------------
Loans, net...................................... $376,781,652 326,222,418
=========== ===========
</TABLE>
At December 31, 1995 and 1994, approximately $3,914,000 and $3,989,000,
respectively, of loans were on non-accrual status. Interest related to
non-accrual loans, determined in accordance with the original contractual terms
for the years ended December 31, 1995, 1994 and 1993, amounted to approximately
$307,000, $343,000 and $531,000, respectively. Interest collected on such loans
and included in the results of operations during 1995, 1994 and 1993 amounted to
approximately $211,000, $133,000 and $314,000, respectively.
The Bank adopted SFAS No. 114 effective January 1, 1995. All loans on
non-accrual status are considered to be impaired loans for purposes of SFAS No.
114. At December 31, 1995, the Bank's recorded investment in impaired loans was
approximately $3.9 million. Of the total impaired loans, approximately $2.0
million in principal balance had related specific allowance for loan losses of
approximately $753,000. Average impaired loans for 1995 were approximately $3.4
million.
4. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses is presented below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year...................... $ 5,845,996 $ 8,434,497 $ 6,214,414
Provision for loan losses....................... 1,150,000 1,105,000 2,050,000
Allowance for loan losses for purchased loans... -- -- 1,252,335
Reclassification of allowance for purchased
loans to discount and premium (See Note
1(e))......................................... -- (2,400,000) --
Loan sales...................................... (476,000) -- (17,358)
Charge-offs..................................... (1,331,811) (1,498,237) (1,465,438)
Recoveries...................................... 312,962 204,736 400,544
----------- ----------- -----------
Balance, end of year.................. $ 5,501,147 $ 5,845,996 $ 8,434,497
========== ========== ==========
</TABLE>
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Land, building and improvements............................. $ 6,603,827 $ 6,408,645
Leasehold improvements...................................... 1,010,319 1,021,195
Furniture, fixtures and equipment........................... 3,805,526 3,336,839
----------- -----------
Subtotal.................................................. 11,419,672 10,766,679
Accumulated depreciation and amortization................... 3,208,883 2,410,101
----------- -----------
Premises and equipment, net................................. $ 8,210,789 $ 8,356,578
========== ==========
</TABLE>
The Bank is obligated under operating leases for office premises and
equipment. At December 31, 1995, the total remaining minimum lease commitments
were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1996....................................................... $1,406,000
1997....................................................... 622,000
1998....................................................... 292,000
1999....................................................... 209,000
----------
$2,529,000
=========
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
approximately $1,433,000, $1,422,000, and $1,287,000, respectively, and is
included in occupancy and equipment expense.
In connection with a lease for the Bank's corporate offices, a letter of
credit with a redemption value of $97,500 at December 31, 1995 was issued by the
Bank in favor of the owner of such premises.
The Bank is lessor under operating leases for office premises. The building
being leased had cost and carrying a value of approximately $5.5 million and
$5.2 million at December 31, 1995, respectively. Minimum future rentals on
leases as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1996........................................................ $235,000
1997........................................................ 130,000
1998........................................................ 76,000
1999........................................................ 54,000
--------
$495,000
========
</TABLE>
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Non-interest bearing:
Customers............................................... $ 49,786,586 $ 46,764,273
Official checks......................................... 3,962,990 1,112,653
Savings................................................... 66,271,833 28,735,724
NOW....................................................... 41,836,493 32,369,618
Money market.............................................. 40,893,238 53,780,385
Certificates of deposit................................... 290,961,169 275,922,641
------------ ------------
Total deposits.................................. $493,712,309 $438,685,294
=========== ===========
</TABLE>
As of December 31, 1995 and 1994, the Bank held certificates of deposit of
$100,000 or more of approximately $48.5 million and $43.4 million, respectively.
The interest expense on certificates of deposit of $100,000 or more amounted to
approximately $2,654,000, $2,230,000 and $1,969,000, during the years ended
December 31, 1995, 1994 and 1993, respectively.
The following table sets forth the amount and maturities of certificates of
deposits as of December 31, 1995:
<TABLE>
<CAPTION>
AMOUNT
AMOUNT DUE DURING DUE AFTER
YEARS ENDING DECEMBER 31, DECEMBER
--------------------------------------- 31,
1996 1997 1998 1998 TOTAL
------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
2.00% to 3.00.......... $ 285,848 $ -- $ -- $ -- $ 285,848
3.01% to 4.00.......... 7,801,947 869,932 292,158 -- 8,964,037
4.01% to 5.00.......... 35,352,395 1,538,263 859,708 652,254 38,402,620
5.01% to 6.00.......... 66,954,442 12,674,703 4,455,642 890,217 84,975,004
6.01% to 7.00.......... 57,102,695 48,000,993 403,398 9,334,155 114,841,241
7.01% to 8.00.......... 23,761,812 15,310,625 -- 4,419,982 43,492,419
------------ ----------- ---------- ----------- ------------
Total........ $191,259,139 $78,394,516 $6,010,906 $15,296,608 $290,961,169
=========== ========== ========= ========== ===========
</TABLE>
NOTE 7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31........................... $ 820,473 $ 5,372,769 $ --
Average balance for the year..................... 2,109,748 3,409,404 --
Maximum amount outstanding at any month end
during the year................................ 2,588,114 15,007,773 --
Average interest rate:
During the year................................ 5.71% 4.35% --
At December 31................................. 5.17 5.70 --
</TABLE>
At December 31, 1995 and 1994, the Bank had sold mortgage-backed securities
and United States treasury securities under agreements to repurchase those same
securities, with maturities ranging from one to thirty days. The Bank sells
securities under agreements to repurchase to its customers and to major
securities dealers. Securities sold to customers are maintained under the Bank's
control. Securities sold to dealers are
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maintained in safekeeping by those dealers for the Bank's benefit. At December
31, 1994, securities sold under agreements to repurchase with the investment
firm of Goldman, Sachs & Co. were $4.0 million.
8. OTHER BORROWINGS
Other borrowings consist of Federal Home Loan Bank of Atlanta ("FHLB")
advances of a short-term nature and advances with original maturities in excess
of one year. Short-term FHLB advances are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31........................ $ -- $14,500,000 $10,000,000
Average balance for the year.................. 6,121,636 10,471,557 3,748,219
Maximum amount outstanding at any month end
during the year............................. 20,000,000 18,000,000 22,500,000
Average interest rate:
During the year............................. 6.30% 4.14% 3.21%
At December 31.............................. -- 6.42 3.50
</TABLE>
FHLB advances with original maturities in excess of one year are summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Floating rate advance, based on 3-month LIBOR, due 1995..... $ -- $10,000,000
Floating rate advance, based on 3-month LIBOR, due 1996..... 10,000,000 10,000,000
3.78% advance, due 1995..................................... -- 10,000,000
3.97% advance, due 1995..................................... -- 10,000,000
7.51% advance, due 1996..................................... 5,000,000 5,000,000
7.73% advance, due 1997..................................... 5,000,000 5,000,000
----------- -----------
Total............................................. $20,000,000 $50,000,000
========== ==========
</TABLE>
The Bank has been advised by the FHLB that it has a total credit
availability of $100 million with maturities of up to 10 years. The FHLB credit
availability does not represent a firm commitment by the FHLB. Rather, it is the
FHLB's assessment of what the Bank could borrow given the Bank's current
financial condition. The credit availability is subject to change at any time
based upon the Bank's financial condition and that of the FHLB, as well as
changes in FHLB policies or Congressional mandates. At December 31, 1995, the
Bank's available credit from the FHLB was $80 million.
In connection with its borrowings from the FHLB, the Bank is required to
own FHLB stock with a par value equal to at least five percent of total advances
outstanding. At December 31, 1995, the Bank's investment in FHLB stock had a par
and carrying value of $2,775,000, and was automatically pledged against FHLB
advances. Advances from the FHLB are secured by eligible investment securities
or first mortgage loans. Generally, short-term FHLB advances are secured by
pledging and delivering specific investment security collateral under terms and
at rates comparable to those available in the repurchase agreement market. All
other FHLB advances are secured by a blanket floating lien on the Bank's
residential, one-to-four family first mortgage loans. For advances secured by
the blanket floating lien, the Bank is not required to specifically identify,
deliver, or otherwise segregate first mortgage loans pledged as collateral for
advances, but must maintain eligible first mortgage loan collateral equal to
approximately 133% of outstanding advances, or approximately $27 million at
December 31, 1995.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. INCOME TAXES
Income tax expense (credit) reflected in the consolidated statements of
operations for 1995, 1994 and 1993 is detailed below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- --------- -----------
<S> <C> <C> <C>
Current tax expense (credit):
Federal................................................. $1,053,600 $ 560,760 ($1,187,643)
State................................................... 106,930 -- --
---------- --------- -----------
Total current................................... 1,160,530 560,760 (1,187,643)
---------- --------- -----------
Deferred tax expense (benefit):
Federal................................................. (103,991) (154,531) (274,861)
State................................................... 56,844 86,359 (234,508)
---------- --------- -----------
Total deferred.................................. (47,147) (68,172) (509,369)
---------- --------- -----------
Total income tax expense (credit)............... $1,113,383 $ 492,588 ($1,697,012)
========= ========= ==========
</TABLE>
The actual income tax rate differs from the "expected" income tax rate (the
U.S. Federal corporate tax rate of 34%) for 1995, 1994 and 1993 as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Tax at federal statutory rate......................................... 34.0% 34.0% (34.0)%
State income tax, net of federal benefit.............................. 3.3 1.7 (3.6)
Amortization of intangibles........................................... 0.7 1.3 2.3
Corporate dividend exclusion.......................................... (2.5) (6.9) (2.3)
Tax-exempt interest................................................... (2.1) (3.6) (0.3)
Other, net............................................................ 0.4 0.1 0.2
---- ---- -----
Total income tax expense (credit)................................... 33.8% 26.6% (37.7)%
==== ==== =====
</TABLE>
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Approximate temporary differences between financial statement carrying
amounts and tax basis of assets and liabilities that give rise to significant
portions of the net deferred tax asset at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Provision for loan losses................................... $1,427,558 $1,262,251
Unrealized loss on securities available for sale............ 277,160 909,269
Intangible asset amortization............................... 223,568 266,052
Depreciation................................................ 117,858 63,075
Loan fees................................................... 108,035 121,573
Delinquent interest reserve................................. 80,351 188,950
State tax net operating loss carry forward.................. -- 74,645
Other....................................................... 68,685 35,255
---------- ----------
Gross deferred tax assets..................................... 2,303,215 2,921,070
Valuation allowance...................................... -- --
---------- ----------
Net deferred tax assets.................................. 2,303,215 2,921,070
---------- ----------
Deferred tax liabilities:
Intangible asset amortization............................... 362,352 351,345
Purchased loans............................................. 291,683 363,002
Stock dividends............................................. 91,223 107,659
Other....................................................... 55,091 11,236
---------- ----------
Total deferred tax liabilities...................... 800,349 833,242
---------- ----------
Deferred tax assets, net............................ $1,502,866 $2,087,828
========= =========
</TABLE>
An analysis of the changes in the net deferred tax asset is presented
below:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Balance, beginning of year.................................... $2,087,828 $1,070,810
Deferred tax benefit.......................................... 47,147 68,172
Change in unrealized loss on securities available for sale.... (632,109) 948,846
---------- ----------
Balance, end of year................................ $1,502,866 $2,087,828
========= =========
</TABLE>
10. CREDIT COMMITMENTS
The Bank has outstanding at any time a significant number of commitments to
extend credit. Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the loan
commitment contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements. Each
customer's credit worthiness is evaluated on an individual basis and the amount
of collateral required, if deemed necessary, is based on management's credit
evaluation. As of December 31, 1995 and 1994, there were approximately $39.6
million and $34.4 million, respectively of commitments to extend credit,
generally with terms of up to 90 days. Commitments at December 31, 1995 and 1994
include approximately $5.8 million and $12.4 million in fixed rate commitments,
respectively.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Loan commitments have off-balance-sheet credit risk because only
origination fees and accruals for probable losses are recognized in the
statement of financial position until the commitments are fulfilled. Credit risk
represents the accounting loss that would be recognized at the reporting date if
counterparties failed completely to perform as contracted. The credit risk
amounts are equal to the contractual amounts, assuming that the amounts are
fully advanced and that the collateral or other security is of no value.
The Bank's policy with regard to collateral-dependent loans is to require
customers to provide collateral prior to the disbursement of approved loans. For
consumer loans, the Bank usually retains a security interest in the property or
products financed, which provides repossession rights in the event of default by
the customer. For commercial loans and financial guarantees, collateral is
usually in the form of inventory or marketable securities (held in trust) or
real estate (notations on title).
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. At December 31, 1995
and 1994, there were approximately $2.2 million and $574,000, respectively, of
standby letters of credit outstanding with maturities of up to one year. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Bank holds
certificates of deposit as collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held for those
commitments at December 31, 1995 and 1994 varies from unsecured to 100 percent.
The Bank has not incurred any losses on its commitments in either 1995 or
1994.
11. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk (whether on or off balance sheet) arising
from financial instruments exist in relation to certain groups of customers. A
group concentration arises when a number of customers have similar economic
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions. The Bank
does not have a significant exposure to any individual customer. The major
concentrations of credit risk for the Bank arise by customer type in relation to
loans and credit commitments, as shown in the following table. A geographic
concentration arises because the Bank operates primarily in Florida, where a
majority of loan customers and related collateral are located.
<TABLE>
<CAPTION>
COMMERCIAL
RESIDENTIAL REAL
REAL ESTATE ESTATE COMMERCIAL CONSUMER TOTAL
----------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CREDIT RISK:
December 31, 1995
Loans...................................... $ 245,646 $ 38,167 $ 30,174 $70,578 $384,565
Credit commitments......................... 20,327 1,870 19,612 17 41,826
--------- -------- -------- ------- --------
$ 265,973 $ 40,037 $ 49,786 $70,595 $426,391
========= ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
COMMERCIAL
RESIDENTIAL REAL
REAL ESTATE ESTATE COMMERCIAL CONSUMER TOTAL
----------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CREDIT RISK:
December 31, 1994
Loans...................................... $ 244,966 $ 34,908 $ 16,177 $64,400 $360,451
Credit commitments......................... 18,849 8,412 7,577 105 34,943
--------- -------- -------- ------- --------
$ 263,815 $ 43,320 $ 23,754 $64,505 $395,394
========= ======== ======== ======= ========
</TABLE>
The credit risk amounts represent the maximum accounting loss that would be
recognized at the reporting date if customers failed completely to perform as
contracted and any collateral or security proved to
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be of no value. The Bank has experienced little difficulty in accessing
collateral when required. The amounts of credit risk shown, therefore, greatly
exceed expected losses, which are included in the allowance for loan losses.
12. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Bank is
involved in various claims and legal actions arising in the ordinary course of
business. The outcome of these claims and actions are not presently
determinable, however, in the opinion of the Bank's management, after consulting
with their legal counsel, the ultimate disposition of these matters will not
have a material adverse effect on the consolidated financial statements.
Because of the legal structure of its acquisitions, the Bank pays deposit
insurance premiums to the FDIC's Savings Association Insurance Fund ("SAIF").
The majority of commercial banks pay such premiums to the FDIC's Bank Insurance
Fund ("BIF"). The SAIF and the BIF previously assessed deposit insurance
premiums at the same rate. However, effective September 30, 1995, the FDIC
reduced the minimum assessment rate applicable to BIF deposits, but not SAIF
deposits, from 23 basis points of covered deposits to four basis points of
covered deposits and will further reduce the BIF rate to zero effective January
1, 1996. This disparity in assessment rates may place the Bank at a competitive
disadvantage to institutions whose deposits are exclusively or primarily
BIF-insured (such as most commercial banks). Congress has proposed legislation
intended to recapitalize the SAIF and substantially bridge the assessment rate
disparity. As currently drafted, the Bank believes that it would be subject to a
one-time assessment estimated to be 80 basis points of covered deposits as of
March 31, 1995 and would subsequently pay a substantially reduced assessment
rate. Further, the Bank believes that the assessment would be reduced by 20%
based on the Bank's status as a "de novo sasser bank", as defined by the
proposed legislation. Should this legislation be enacted in its current form,
the Bank believes that its one-time assessment would result in a pre-tax charge
of $2.8 million and would be payable within 60 days after enactment of the
legislation. There is no assurance, however, that the proposed legislation, or
any other related legislation, will be enacted. Further, the legislation could
be materially modified prior to enactment. Accordingly, no provision has been
made in these financial statements for the proposed one-time assessment.
13. EMPLOYEE BENEFIT PLAN
The Bank sponsors a defined contribution 401(k) retirement savings plan
("Plan"). The Plan provides for certain contributions made by employees to be
matched by the Bank. Substantially all full-time employees with one year of
service can participate in the Plan. During 1995, 1994 and 1993, Bank
contributions to the Plan and Plan administrative expenses paid by the Bank
amounted to approximately $122,000, $109,000, and $123,000 respectively.
14. RELATED PARTY TRANSACTIONS
The Bank is a party to a loan subservicing agreement with a mortgage
servicing company owned by the Company's stockholder ("Loan Servicer"). The
agreement is under market terms and conditions and covers subservicing of one to
four family residential loans which the Bank owns or for which the Bank has
purchased servicing rights. The agreement can be cancelled by either party after
ninety days written notification. During 1995, 1994 and 1993, the Bank paid
approximately $619,000, $741,000 and $907,000, respectively, in servicing fees
to the Loan Servicer. At December 31, 1995 and 1994, approximately $487.9
million and $526.3 million, respectively, in loans were being serviced pursuant
to the loan subservicing agreement.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Loan Servicer has advised the Bank that, in the first quarter of 1996,
the Loan Servicer will cease operations. Accordingly, the Bank has entered into
a new subservicing agreement with an unaffiliated mortgage servicer. Conversion
to the new subservicer is scheduled for January 31, 1996.
During 1993 and 1992, the Bank acquired mortgage servicing rights to
approximately $242.2 million and $569.8 million of loans, respectively. These
loans, with an unpaid principal balance of $312.0 million and $359.4 million at
December 31, 1995 and 1994, respectively, are part of the loans being serviced
by the Loan Servicer under the subservicing agreement.
In conjunction with servicing performed by the Loan Servicer for the Bank
and for its own account, escrow funds and other servicing-related non-interest
bearing deposits are maintained at the Bank. Such funds averaged $17.6 million,
$30.2 million and $50.0 million for 1995, 1994 and 1993, respectively. At
December 31, 1995 and 1994, such servicing deposits amounted to $4.8 million and
$13.0 million, respectively.
Through September 30, 1995, the Bank was a party to an interest rate
exchange agreement ("interest rate swap") with the Loan Servicer. The
differential between the rate paid or received was recognized as a yield
adjustment to the Bank's cost of funds. The interest rate swap rates were
generally negotiated every sixty days under normal market terms and conditions.
The nature of the swap was such that the Loan Servicer earns a rate equal to
that available on short-term certificates of deposit on the notional amount.
Accordingly, the interest rate swap agreement did not have the characteristics
of a traditional interest swap in hedging interest rate risk. The notional
amount of the swap was established periodically by reference to the balance of
certain discretionary funds maintained by the Loan Servicer on deposit at the
Bank in non-interest bearing accounts. During 1995, 1994 and 1993, the average
notional amounts outstanding under the interest rate swap were $6.2 million,
$12.1 million, and $20.3 million, respectively. The net interest cost associated
with the interest rate swap during 1995, 1994 and 1993 amounted to approximately
$327,000, $456,000, and $513,000, respectively. At December 31, 1994, the
outstanding notional amount of the interest swap was $4.9 million.
From time to time, the Bank has securitized groups of mortgage loans it has
purchased or originated under programs established by government agencies,
primarily the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"), or sells individual loans to those
agencies, while maintaining the right to service the loans. During 1994 and
1993, the Bank sold to the Loan Servicer rights to $3.0 million and $18.3
million of such loans and recognized gains of $28,000 and $172,000,
respectively. There were no such sales during 1995.
During 1995, 1994 and 1993, the Bank purchased single family first mortgage
loans from the Loan Servicer for a total purchase price of approximately
$582,000, $3.4 million and $4.8 million, respectively. The Loan Servicer makes
available to the Bank information on loan applications being processed. The Bank
reviews those loans and, based upon an independent underwriting review, selects
loans for acquisition. Loans are purchased at prices customarily available in
the first mortgage market.
During 1994, the Bank invested in residential first mortgage loans
originated by the Loan Servicer from the date such loans were originated until
their delivery to permanent, non-affiliated investors or to the Bank. Purchases
made by the Bank were made pursuant to an agreement that the Loan Servicer would
repurchase the loans at no gain or loss to the Bank. A total of $88.8 million in
loans were purchased by the Bank under this arrangement and subsequently sold to
the Loan Servicer. No such loans were held by the Bank at December 31, 1995, or
1994, as the Loan Servicer terminated its loan origination capability during
1994.
In conjunction with the above purchases of loans, the Bank provided
underwriting services to the Loan Servicer and charged the Loan Servicer
approximately $104,000 during 1994.
During 1995, 1994 and 1993, the Loan Servicer paid the Bank rent of
approximately $183,000, $195,000 and $78,000 for use of office space in a
building owned by the Bank under the terms of a lease expiring July 1,
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996. Because of the Loan Servicer's winding-down of operations, it is
anticipated that this lease agreement will not be renewed.
The Bank provides certain human resource services to the Loan Servicer
primarily with regard to payroll, health insurance processing, and policies and
procedures. During 1995, 1994, and 1993, the Bank charged the Loan Servicer
approximately $21,000, $38,000, and $43,000, respectively for those services.
In the ordinary course of business, the Bank enters into transactions with
Directors of the Bank, with the Company's stockholder and with firms with which
the Directors or stockholder are affiliated. During 1995, 1994 and 1993,
respectively, the Bank paid marketing, advertising, and public relations fees of
approximately $179,000, $181,000, and $138,000 to a company owned by one of the
Bank's Directors. Another of the Bank's Directors is an employee of a law firm
which performs routine legal services for the Bank. During 1995, 1994, and
1993, the Bank paid legal fees of approximately $24,000, $11,000 and $19,000,
respectively, to that law firm. In addition, the Bank rents office space to a
firm managed by one of the Bank's Directors under a three year lease agreement
expiring on June 30, 1997. Rental income earned by the Bank from that lease was
approximately $14,000 and $6,000 in 1995 and 1994, respectively. The aggregate
unpaid principal balance of loans outstanding to the Bank's Directors or their
business interests was approximately $414,000 and $396,000 at December 31, 1995
and 1994, respectively.
The Company's stockholder has an ownership interest in a building which
houses one of the Bank's offices. Rent expense on that office was approximately
$7,000 for each of the years, 1995, 1994, and 1993, respectively. The Bank has
loans outstanding to a firm in which the Company's stockholder has ownership
interests. The principal balance of those loans was approximately $36,000 and
$315,000 as of December 31, 1995 and 1994 respectively. The Company's
stockholder or firms controlled by the stockholder had approximately $4.4
million and $4.6 million, on deposit at the Bank on December 31, 1995 and 1994
respectively, excluding servicing deposits held by the Loan Servicer.
15. RESTRICTIONS ON RETAINED EARNINGS
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1995,
approximately $727,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
16. REGULATORY CAPITAL REQUIREMENTS
During January 1989, the Federal Reserve Board ("FRB") issued final
guidelines for a risk-based approach in determining the capital requirements of
banking organizations. The guidelines consist of Tier I and total capital, the
difference primarily being that the allowance for loan losses is included in
total capital subject to certain specific limitations. The new guidelines became
fully phased in at December 31, 1992, at which time the total capital ratio
requirement was 8.00%, of which Tier I capital must be at least 4.00%. At
December 31, 1995, the Company's unaudited Tier I and total capital ratios were
11.5% and 12.7%, respectively.
The FRB and the FDIC have adopted minimum Tier I leverage ratio standards.
Tier I capital for purposes of the leverage ratio requirement is the same as
year end 1992 Tier I capital for purposes of the risk-based approach. The
leverage ratio establishes a minimum of Tier I capital to total assets of 3% for
strong banking organizations, generally with a composite CAMEL rating of one,
and 100 to 200 basis points above this minimum level for other institutions. The
Company's unaudited leverage ratio was 6.9% at December 31, 1995.
The Company and the Bank believe that the aforementioned capital amounts
exceed the minimum of risk-based and leverage ratio capital required by the FRB
and the FDIC. There can be no assurance that
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interpretation of applicable regulations would not result in different capital
requirements for the Company and the Bank.
FDICIA also requires the FDIC to place financial institutions into
risk-based categories for purposes of determining the amount of risk, if any, to
the deposit insurance funds. Institutions are assigned to one of three groups:
well capitalized, adequately capitalized, or undercapitalized, based on their
capital ratios and other available relevant information. As of December 31,
1995, the Bank was included in the well capitalized category pursuant to a
notification received from the FDIC, as its total capital ratio exceeded 10% and
its Tier I capital ratio exceeded 6%. The Bank is also considered by management
to be well capitalized pursuant to the prompt corrective action provisions of
FDICIA.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, defines the fair value of a financial instrument
as the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The following table presents the carrying amounts and fair values of the Bank's
financial instruments at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks and
interest-bearing deposits with banks.... $ 51,029 $ 51,029 $ 19,579 $ 19,579
Federal funds sold and securities
purchased under agreements to resell.... 431 431 1,127 1,127
Securities available for sale............. 100,787 100,787 30,630 30,630
Securities held to maturity............... -- -- 116,593 105,867
FHLB stock................................ 2,775 2,775 3,225 3,225
Loans held for sale....................... 2,710 2,732 26,275 26,403
Loans receivable, net..................... 376,782 383,515 326,222 318,560
FINANCIAL LIABILITIES:
Deposit liabilities....................... $(493,712) (495,749) (438,685) (437,851)
Securities sold under agreements to
repurchase.............................. (820) (820) (5,373) (5,373)
Other borrowings.......................... (20,000) (20,127) (64,500) (64,266)
OFF-BALANCE-SHEET ASSETS (LIABILITIES):
Commitments to extend credit.............. $ -- -- -- --
Standby letters of credit................. -- -- -- --
</TABLE>
The fair value estimates do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market. If that value were considered at December 31,
1995 and 1994, excluding escrow deposits held at the Bank related to mortgage
loan servicing rights purchased independently and relating to owned residential
loans, the fair value of the Bank's net assets would increase by approximately
$17.4 million and $31.9 million, respectively.
The fair value estimates also do not include the value of mortgage loan
servicing rights owned by the Bank. The value of those rights is composed of (1)
the value of low cost deposits maintained at the Bank relating to servicing
escrow and investor custodial funds, and (2) expected net servicing revenue from
purchased mortgage servicing rights. At December 31, 1995 and 1994, the fair
value of servicing rights owned by the Bank was approximately $5.1 million and
$8.1 million and the carrying value was $2.3 million and $2.6 million,
respectively.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ESTIMATION OF FAIR VALUES
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments.
Short-term financial instruments are valued at their carrying amounts
included in the consolidated statement of financial condition, which are
reasonable estimates of fair value due to the relative short period to maturity
of the instruments. This approach applies to cash and cash equivalents.
Loans held for sale are valued at quoted market prices or investor
commitments.
Loans are valued on the basis of estimated future receipts of principal and
interest, discounted at various rates. Loan prepayments are assumed to occur at
the same rate as in previous periods when interest rates were at levels similar
to current levels. Future cash flows for homogeneous categories of consumer
loans, such as motor vehicle loans, are estimated on a portfolio basis and
discounted at current rates offered for similar loan terms to new borrowers. The
fair value of nonaccrual loans is estimated based on the fair value of related
collateral for collateral-dependent loans or on a present value basis, using
higher discount rates appropriate to the higher risk involved.
Securities are valued at quoted market prices.
FHLB stock is valued at the redemption value.
Fair value of demand deposits and deposits with no defined maturity is
taken to be the amount payable on demand at the reporting date. The fair value
of fixed-maturity deposits is estimated using rates currently offered for
deposits of similar remaining maturities. The intangible value of long-term
relationships with depositors is not taken into account in estimating the fair
values shown in the previous table.
Rates currently available to the Bank for term borrowings with similar
terms and remaining maturities are used to estimate the fair value of existing
borrowings as the present value of expected cash flows.
Commitments to extend credit and standby letters of credit are valued on
the basis of fees currently charged for commitments for similar loan terms to
new borrowers with similar credit profiles.
BANK OF NORTH AMERICA BANCORP, INC.,
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statement of Financial Condition
September 30, 1996
ASSETS
<S> <C>
Cash and due from banks .................................. $ 16,814,384
Interest bearing deposits with banks ..................... 19,795,279
Securities held to maturity .............................. 66,345,143
Federal Home Loan Bank of Atlanta stock .................. 2,775,000
Loans held for sale (approximate market
value:$856,000)...................................... 841,150
Loans receivable, net .................................... 397,037,593
Accrued interest receivable .............................. 4,180,593
Premises and equipment ................................... 8,276,716
Cost of mortgage loan servicing rights acquired .......... 2,020,000
Other intangible assets .................................. 128,901
Foreclosed real estate ................................... 1,016,527
Deferred income taxes .................................... 2,756,779
Other assets ............................................. 2,734,500
-----------
Total assets ........................................ $524,722,565
===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
<S> <C>
Deposits:
Non-interest bearing ................................ $ 57,599,832
Interest bearing .................................... 420,121,876
-----------
Total deposits .................................. 477,721,708
Securities sold under agreements to repurchase ...... 2,022,000
Other borrowings .................................... 5,000,000
Accrued interest payable ............................ 507,613
Other liabilities ................................... 3,589,448
-----------
Total liabilities ............................... 488,840,769
-----------
Commitments and contingencies
Stockholder's equity:
Common stock, $1.00 par value. Authorized, 5,000,000
shares; issued and outstanding 100,000 shares ..... 100,000
Additional paid-in capital .......................... 30,000,000
Retained earnings ................................... 5,781,796
-----------
Total stockholder's equity ...................... 35,881,796
-----------
Total liabilities and stockholder's equity .......... $524,722,565
===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC.,
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statement of Operations
For the Nine-Month Period Ended September 30, 1996
<S> <C>
Interest income and fees
Loans ................................................. $ 25,687,515
Short-term investments ................................ 1,252,130
Securities ............................................ 3,767,961
-----------
Total interest income ............................. 30,707,606
-----------
Interest expense
Transaction accounts .................................. 3,379,324
Time deposits ......................................... 12,243,963
Borrowings ............................................ 715,987
-----------
Total interest expense ............................ 16,339,274
-----------
Net interest income ............................... 14,368,332
Provision for loan losses .................................. 3,242,798
-----------
Net interest income after provision for loan losses 11,125,534
-----------
Non-interest income
Service charges on deposits ........................... 2,272,773
Mortgage servicing income, net ........................ 884,169
Gains on sales of loans, net .......................... 263,483
Securities transactions, net .......................... (2,953,044)
Other ................................................. 498,554
-----------
Total non-interest income ......................... 965,935
-----------
Operating expenses
Compensation and benefits ............................. 6,572,011
Occupancy and equipment ............................... 2,291,739
Data processing ....................................... 863,142
Regulatory insurance and assessments .................. 905,370
Savings Association Insurance Fund one-time assessment 2,317,549
Office expenses ....................................... 823,451
Professional fees ..................................... 402,733
Marketing ............................................. 267,172
Other intangible amortization ......................... 75,150
Other ................................................. 1,591,739
-----------
Total operating expenses .......................... 16,110,056
-----------
Loss before income taxes ................................... (4,018,587)
Income tax credit .......................................... (1,499,940)
-----------
Net loss ................................................... $ (2,518,647)
===========
Net loss per share.......................................... (25.19)
===========
Weighted average number of shares outstanding................ 100,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC.,
AND SUBSIDIARIES
<TABLE>
Consolidated Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
For the Nine-Month Period Ended September 30, 1996
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss .................................................. $ (2,518,647)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Amortization of mortgage loan servicing rights acquired 257,000
Other amortization and depreciation ................... 2,113,673
Provision for loan losses ............................. 3,242,798
Deferred tax benefit .................................. (1,531,073)
Proceeds from loan sales of loans held for sale ....... 18,957,992
Origination and purchase of loans held for sale ....... (17,007,335)
Net realized losses on available for sale securities .. 2,953,044
Net realized gains on sales of loans .................. (263,483)
Changes in other assets and other liabilities:
Accrued interest receivable, current income taxes
and other assets .................................... (147,028)
Accrued interest payable and other liabilities ........ 2,069,384
-----------
Net cash provided by operating activities ................. 8,126,325
-----------
Cash flow from investing activities:
Purchase of available for sale securities ................. (10,081,094)
Proceeds from sales of available for sale securities ...... 102,998,495
Proceeds from maturities of available for sale securities . 5,597,925
Purchases of held to maturity securities .................. (66,462,187)
Originations of loans ..................................... (102,995,679)
Proceeds from maturities of loans ......................... 78,222,839
Net purchases of premises and equipment ................... (861,601)
Proceeds from sale of foreclosed properties ............... 393,872
-----------
Net cash provided by investing activities ................. 6,812,570
-----------
Cash flows from financing activities:
Net decrease in deposits .................................. (15,990,601)
Net increase in securities sold under agreements
to repurchase and short term other borrowings .......... 1,201,527
Repayments of long term other borrowings .................. (15,000,000)
-----------
Net cash used by financing activities ..................... (29,789,074)
-----------
Net decrease in cash and cash equivalents ................. (14,850,179)
Cash and cash equivalents at beginning of period ............... 51,459,842
-----------
Cash and cash equivalents at end of period ..................... $ 36,609,663
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .............................................. $ 16,493,864
===========
Income taxes .......................................... $ --
===========
Supplemental non-cash investing and financing information:
Transfers to foreclosed real estate ....................... $ 384,594
============
Transfers to loans held for sale .......................... $ 296,600
============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC.,
AND SUBSIDIARIES
Consolidated Statement of Stockholder's Equity
For the Nine-Month Period Ended September 30, 1996
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on
Additional Securities
Common Paid-in Retained Available
Stock Capital Earnings For Sale, Net Total
------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995....................... $100,000 $30,000,000 $ 8,300,443 $(459,379) $37,941,064
Change in unrealized loss on securities available
for sale, net.................................. - - - 459,379 459,379
Net loss for the nine month period ended
September 30, 1996............................. - - (2,518,647) - (2,518,647)
------- ---------- ---------- -------- ----------
Balance at September 30, 1996...................... $100,000 $30,000,000 $ 6,786,500 $ - $35,881,796
======= ========== ========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK OF NORTH AMERICA BANCORP, INC.,
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Nine-Month Period Ended September 30, 1996
Note 1. Potential Sale to BankAtlantic, A Federal Savings Bank ("BankAtlantic")
On April 9, 1996, BankAtlantic entered into an agreement to acquire Bank of
North America Bancorp, Inc. (the "Company") for approximately $54 million in
cash, subject to adjustment, as specified in the Stock Purchase Agreement.
BankAtlantic is a wholly owned subsidiary of BankAtlantic Bancorp, Inc., a
unitary savings bank holding company. The Company's primary asset is its wholly
owned subsidiary, Bank of North America (the "Bank"), a Florida chartered
commercial bank. The Bank has 13 branches, with 11 located in Broward County,
and one each in Dade and Palm Beach counties.
Closing of the acquisition is subject to certain conditions and is expected
to occur in the fourth quarter of 1996.
Note 2. Business and Summary of Significant Accounting and Reporting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiary, Bank of North America, and two
non-bank subsidiaries. The two non-bank subsidiaries are inactive. All
significant intercompany transactions and balances have been eliminated in
consolidation.
(b) Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and with general
practices within the banking industry. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the consolidated statement of financial condition
and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are
particularly susceptible to significant change relate to the
determination of the allowance for loan losses, the carrying value of
foreclosed real estate, and the carrying value of mortgage servicing
rights.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash, due from banks,
interest-bearing balances with banks, federal funds sold and securities
purchased under agreements to resell. Cash and cash equivalents have
maturities, at acquisition date, of three months or less.
(d) Securities
The Bank classifies its debt and equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them
in the near term. Held-to-maturity securities are those securities in which
the Bank has the ability and intent to hold the security until maturity.
All other securities not included in trading or held-to-maturity are
classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized holding
gains and losses on trading securities are included in earnings. Unrealized
holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported
as a separate component of stockholder's equity until realized. Realized
gains and losses from the sale of available-for-sale securities are
determined on a specific identification basis.
<PAGE>
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than temporary
results in a reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is established.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned.
(e) Loan Purchases, Securitization and Sales
Loans are stated at the unpaid principal balance, net of unearned
income and discounts and allowance for loan losses, plus prepaid dealer
reserves. Loan packages of primarily one to four family residential loans
have been acquired through Federal Deposit Insurance Corporation ("FDIC")
and Resolution Trust Corporation ("RTC") loan offerings and in private
transactions. The purchase price of these loans is determined based upon
factors such as credit quality, the type of loan product being offered and
inherent market conditions at the time of purchase. Upon the purchase of
these loan packages, an allocation of the purchase price is made among the
allowance for loan losses and purchased discount or premium.
The amount allocated to the allowance for loan losses is based on an
evaluation of the estimated discounted credit losses to be incurred for the
loans purchased. When loans are sold, gains or losses resulting from such
sales are measured by using the cost basis allocated to such loans at the
time of purchase, adjusted for amortization of premiums and accretion of
discounts. Specific allowances for loan losses, which are identified as
part of loans being sold, are included as part of the cost basis of such
loans at time of sale. This cost allocation methodology is also utilized
for purchased loans which are securitized.
The Bank classifies loans which it intends to sell or securitize and
sell as loans held for sale These loans are carried at the aggregate of
lower of cost or market.
(f) Allowance for Loan Losses
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
Management believes that the allowance for loan losses is adequate;
however, regulatory agencies, as an integral part of their examination
process, periodically review the allowance for losses on loans. Such
agencies may require the recognition of additions or reductions to the
allowance based on their judgement of information available at the time of
their examination. Management, considering current information and events
regarding the borrowers' ability to repay their obligations, considers a
loan to be impaired when it is probable that the Bank will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or at the fair value
of collateral, if the loan is collateral dependent Impairment losses and
changes in estimates to the impairment losses are included in the allowance
for loan losses through a provision for loan losses. The Bank recognizes
interest income on impaired loans on a cash basis.
(g) Loan Interest Income Recognition
Interest income on commercial and real estate mortgage loans is
recognized as earned based upon the principal amounts outstanding. Interest
income on installment loans is recognized using a method which approximates
the interest method. Loans are placed on non-accrual status when management
believes that interest on such loans may not be collected in the normal
course of business or when the loans become ninety days delinquent,
whichever is earlier. Premiums and discounts on purchased loans are
amortized or accreted using the level yield method.
<PAGE>
(h) Loan Fees
Loan origination, prepaid dealer reserves, certain other fees and
certain direct loan origination costs are deferred and the net amount is
amortized as an adjustment to the related loan's yield, generally over the
contractual life of the related loans, or if the related loan is held for
sale, until the loan is sold. Fees received in connection with loan
commitments are deferred until the loan is advanced and are then recognized
over the term of the loan as an adjustment of the yield. Fees on
commitments that expire unused are recognized in other non-interest income
at expiration.
(i) Mortgage Loan Servicing Rights
The Bank services mortgage loans for investors. These mortgage loans
serviced are not included in the accompanying consolidated statement of
financial condition. Loan servicing fees are based on a stipulated
percentage of the outstanding loan principal balances being serviced and
are recognized as income when related loan payments from mortgagors are
collected. Loan servicing costs are charged to expense using the level
yield method over the estimated life of the loan, and continually adjusted
for prepayments. Management evaluates the carrying value of purchased
mortgage servicing rights by estimating the future net servicing income of
the portfolio on a discounted basis, based on estimates of the remaining
loan lives. The unpaid principal balances of mortgage loans serviced for
others was approximately $275 million at September 30, 1996.
In May 1995 the FASB issued Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS No.
122") which eliminated the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions. SFAS No. 122
requires an entity to recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are acquired.
SFAS No. 122 requires the periodic evaluation of capitalized mortgage
servicing rights for impairment based on fair value. On January 1, 1996,
this statement was implemented prospectively. The impact of SFAS No 122
upon implementation was not significant to the Bank's financial condition
or results of operations. No additional valuation allowance was required.
The initial valuation of mortgage servicing rights ("MSR") was on an
individual loan basis. During the nine-month period ended September 30,
1996, the Bank did not capitalize any MSR's. Amortization of MSR's amounted
to approximately $257,000 for the nine-month period ended September 30,
1996. MSR's are amortized to expense using the level yield method over the
estimated life of the loan and continually adjusted for prepayments. The
fair value of capitalized mortgage servicing rights at September 30, 1996
was estimated at $4.2 million. For the purpose of evaluating and measuring
impairment of MSR's, the Bank stratifies those rights based on the
predominant risk characteristics of the underlying loans. Such predominent
risk characteristics include the servicing type, maturity, and whether the
loan is fixed or adjustable. The amount of any impairment recognized is the
amount by which the MSR's exceed their fair value. Future adjustments to
the valuation allowance will be reflected in results of operations.
(j) Premises and Equipment
Land is carried at cost. Bank premises, furniture and equipment, and
leasehold improvements are carried at cost, less accumulated depreciation
and amortization, computed principally by the straight-line method.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of",
("SFAS No. 121") which requires that long-lived assets and certain
identifiable intangibles to be held by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
SFAS No. 121 was effective as of January 1, 1996. The adoption of this
pronouncement did not have a significant impact on the Company's results of
operations or financial condition.
<PAGE>
(k) Income Taxes
The operating results of the Company and its subsidiaries are included
in consolidated federal and state income tax returns. Each subsidiary pays
its allocation of income taxes to the Company, or receives payment from the
Company to the extent that tax benefits are realized based on amounts
computed as if each subsidiary was an individual company.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred tax assets are required
to be reduced by a valuation allowance to the extent that, based on the
weight of available evidence, it is more likely than not that the deferred
tax assets will not be realized.
(l) Other Intangible Assets
Excess cost over fair value of assets acquired of $51,008 at September
30, 1996 is being amortized on a straight-line basis over a seven year
period. The remaining core deposit premium of $77,893 is being amortized
over its estimated remaining economic life of approximately one year at
September 30, 1996.
(m) Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, foreclosure
are initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the
lower of (1) cost or (2) fair value minus estimated costs to sell. Revenue
and expenses from operations and adjustments of the fair value are included
in earnings. Foreclosed real estate is not depreciated.
(n) Interest-Rate Exchange Agreements ("swaps")
The swap held by the Bank is held for purposes other than trading.
Swaps used in asset/liability management activities are accounted for
using the accrual method. Net interest income (expense) resulting from the
differential between exchanging floating and fixed-rate interest payments
is recorded on a current basis. Gains or losses on the sales of swaps used
in asset/liability management activities are deferred and amortized into
interest income or expense over the maturity period of the swap. There were
no sales of swaps during the nine-month period ended September 30, 1996.
Note 3. Securities
Securities held to maturity at September 30, 1996 are presented below.
<TABLE>
<CAPTION>
Debt Security Maturity
----------------------
After 1 Year Total
Through Carrying Value Gross Unrealized Estimated
1 Year or Less 5 Years (Amortized Cost) Gains Losses Fair Value
-------------- ------------ ---------------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $10,004,002 $56,341,141 $66,345,143 $25,851 $(12,713) $66,358,281
========== ========== ========== ====== ======= ==========
</TABLE>
There were no securities available for sale at September 30, 1996.
Gross gains resulting from the disposition of securities available for
sales amounted to $64,962 during the nine month period ended September 30, 1996.
Gross losses amounted to $3,018,006 during the nine month period ended September
30, 1996.
<PAGE>
Investment securities with a carrying value of approximately $611,000 were
pledged as required by government regulation as of September 30, 1996. In
addition, at September 30, 1996, investment securities with carrying values of
approximately $2,027,000 and $500,000 were pledged to secure securities sold
under agreements to repurchase and an interest rate swap agreement,
respectively.
Note 4. Loans
<TABLE>
<CAPTION>
The composition of loans at September 30, 1996 is summarized as follows:
<S> <C>
Real estate - residential...................... $222,937,283
Real estate - commercial....................... 56,199,855
Commercial..................................... 31,778,614
Consumer....................................... 90,216,604
Overdrafts..................................... 754,534
-----------
Subtotal.................................. 401,886,890
Add: prepaid dealer reserve.................. 4,631,764
Less: net deferred loan fees.................. (491,960)
Less: net purchased discounts and premiums.... (2,589,250)
Less: allowance for loan losses............... (6,399,851)
-----------
Loans, net..................................... $397,037,593
===========
</TABLE>
Note 5. Allowance for Loan Losses
<TABLE>
<CAPTION>
An analysis of the allowance for loan losses for the nine months ended
September 30, 1996 is presented below:
<S> <C>
Balance, beginning of period................... $ 5,501,147
Provision for loan losses...................... 3,242,798
Charge-offs.................................... (2,549,330)
Recoveries..................................... 205,236
----------
Balance, end of period......................... $ 6,399,851
==========
</TABLE>
All loans on non-accrual status are considered to be impaired loans for
purposes of SFAS No. 114. Impairment of loans having recorded investments of
approximately $5.1 million at September 30, 1996 have been recognized in
conformity with SFAS No. 114, as amended by SFAS No. 118. The average recorded
investment in impaired loans during the nine- month period ended September 30,
1996 was approximately $4.8 million. The total allowance for loan losses related
to these loans was approximately $848,000 on September 30, 1996 Interest Income
on impaired loans of approximately $119,000 was recognized for cash payments
received in the nine-month period ended September 30, 1996.
The Bank is not committed to lend additional funds to debtors whose loans
have been modified.
The provision for loan losses for the nine-month period ended September 30,
1996 included approximately $1.6 million for charge-offs and increased
allowances related to forced placed collateral protection insurance.
Note 6. Premises and Equipment
Premises and equipment at September 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Land, building and improvements................ $6,751,209
Leasehold improvements......................... 1,112,853
Furniture, fixtures and equipment.............. 4,404,325
---------
Subtotal.................................... 12,268,387
Accumulated depreciation and amortization...... 3,991,671
---------
Premises and equipment, net.................... $8,276,716
</TABLE>
=========
<PAGE>
The Bank is obligated under operating leases for office premises and
equipment. At September 30, 1996, the total remaining minimum lease commitments
were as follows:
<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S> <C>
1997 $1,043,000
1998 582,000
1999 402,000
2000 365,000
2001 267,000
thereafter 6,000
---------
$2,665,000
=========
</TABLE>
Rent expense for the nine-month period ended September 30, 1996, was
approximately $1,042,000 and is included in occupancy and equipment expense.
In connection with a lease for the Bank's corporate offices, a letter of
credit with a redemption value of $48,750 at September 30, 1996, was issued by
the Bank in favor of the owner of such premises.
The Bank is lessor under operating leases for office premises. The building
being leased had cost and carrying value of approximately $5.6 million and $5.1
million at September 30, 1996, respectively. Minimum future rentals on leases as
of September 30, 1996 were as follows:
<TABLE>
<CAPTION>
Year Ending
September 30,
-------------
<S> <C>
1997 $305,000
1998 252,000
1999 160,000
2000 54,000
2001 3,000
---- -------
$774,000
=======
</TABLE>
Note 7. Deposits
Deposits at September 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Non-interest bearing:
Customers.................... $ 55,466,886
Official checks.............. 2,132,946
Savings......................... 72,208,184
NOW............................. 41,502,203
Money market.................... 37,833,618
Certificates of deposit......... 268,577,871
-----------
Total deposits................ $477,721,708
===========
</TABLE>
As of September 30, 1996, the Bank held certificates of deposit of $100,000
or more of approximately $42.6 million. The interest expense on certificates of
deposit of $100,000 or more amounted to approximately $1,963,000, during the
nine-month period ended September 30, 1996.
The following table sets forth the amount and maturities of certificates of
deposits as of September 30, 1996:
<TABLE>
<CAPTION>
Amount
Amount Due During Due After
Year Ending September 30, September 30,
------------------------------------------ -------------
1997 1998 1999 1999 Total
---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
2.00% to 3.00% $ 105,630 - - - $ 105,630
3.01% to 4.00% 6,177,109 887,408 121,966 - 7,186,483
4.01% to 5.00% 43,821,842 1,838,531 853,862 12,939 46,527,174
5.01% to 6.00% 101,740,464 21,218,198 1,415,932 55,651 124,430,245
6.01% to 7.00% 51,948,532 3,616,224 7,398,187 1,017,848 63,980,791
7.01% to 8.00% 26,183,305 2,783 161,460 - 26,347,548
----------- ---------- --------- --------- -----------
Total $229,976,882 $27,563,144 $9,951,407 $1,086,438 $268,577,871
=========== ========== ========= ========= ===========
</TABLE>
<PAGE>
Note 8. Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are summarized as follows:
Balance at September 30, 1996...................................... $2,022,000
Average balance for the nine-month period ended September 30, 1996. 1,937,606
Maximum amount outstanding at any
month end during the nine-month period ended September 30, 1996.. 3,880,570
Average interest rate:
During the nine-month period ended September 30, 1996............ 5.00%
At September 30, 1996............................................ 5.40%
At September 30, 1996, the Bank had sold United States treasury securities
under agreements to repurchase those same securities, with a one business day
maturity. The Bank sells securities under agreements to repurchase to its
customers. Securities sold are maintained under the Bank's control.
Note 9. Other Borrowings
Other borrowings consist of Federal Home Loan Bank of Atlanta ("FHLB")
advances of a short-term nature and advances with original maturities in excess
of one year. Short-term FHLB advances are summarized as follows:
Balance at September 30, 1996...................................... -
Average balance for the nine-month period ended September 30, 1996. $ 1,094,891
Maximum amount outstanding at any
month end during the nine-month period ended September 30, 1996.. 10,000,000
Average interest rate:
During the nine-month period ended September 30, 1996............ 5.50%
At September 30, 1996............................................ -
At September 30, 1996, one FHLB advance with an original maturity in excess
of one year was outstanding:
7.73% advance, due 1997....................................... $ 5,000,000
=========
The Bank has been advised by the FHLB that it has a total credit
availability of $100 million with maturities of up to 10 years. The FHLB credit
availability does not represent a firm commitment by the FHLB. Rather, it is the
FHLB's assessment of what the Bank could borrow given the Bank's current
financial condition. The credit availability is subject to change at any time
based upon the Bank's financial condition and that of the FHLB, as well as
changes in FHLB policies or Congressional mandates. At September 30, 1996, the
Bank's available credit from the FHLB was $95 million.
In connection with its borrowings from the FHLB, the Bank is required to
own FHLB stock with a par value equal to at least five percent of total advances
outstanding. At September 30, 1996, the Bank's investment in FHLB stock had a
par and carrying value of $2,775,000, and was automatically pledged against FHLB
advances. Advances from the FHLB are secured by eligible investment securities
or first mortgage loans. Generally, short-term FHLB advances are secured by
pledging and delivering specific investment security collateral under terms and
at rates comparable to those available in the repurchase agreement market. All
other FHLB advances are secured by a blanket floating lien on the Bank's
residential, one-to-four family first mortgage loans. For advances secured by
the blanket floating lien, the Bank is not required to specifically identify,
deliver, or otherwise segregate first mortgage loans pledged as collateral for
advances, but must maintain eligible first mortgage loan collateral equal to
approximately 133% of outstanding advances, or approximately $6.7 million at
September 30, 1996.
<PAGE>
Note 10. Income Taxes
The income tax credit reflected in the consolidated statement of operations
for the nine months ended September 30, 1996 is detailed below:
<TABLE>
<CAPTION>
<S> <C>
Current tax payable:
Federal............................ $ 31,133
State.............................. -
----------
Total current..................... 31,133
----------
Deferred tax benefit:
Federal............................ (1,194,285)
State.............................. (336,788)
----------
Total deferred.................... (1,531,073)
----------
Total income tax credit........... $(1,499,940)
==========
</TABLE>
The actual income tax rate differs from the "expected" income tax rate (the
U.S. Federal corporate tax rate of 34%) for the nine-month period ended
September 30, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Tax at federal statutory rate................. (34.0%)
State income tax, net of federal benefit...... (3.6%)
Amortization of intangibles................... 0.3%
Tax-exempt interest........................... (0.3%)
Other, net.................................... 0.2%
----
Total income tax credit..................... (37.4%)
====
</TABLE>
Approximate temporary differences between financial statement carrying
amounts and tax basis of assets and liabilities that give rise to significant
portions of the net deferred tax asset at September 30, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Provision for loan losses................................. $1,875,885
Savings Association Insurance Fund one-time assessment.... 872,094
Intangible asset amortization............................. 193,394
Depreciation.............................................. 153,872
Loan fees................................................. 137,494
State tax net operating loss carry forward................ 132,351
Delinquent interest reserve............................... 117,046
Other..................................................... 22,621
---------
Gross deferred tax assets.................................. 3,504,757
Valuation allowance....................................... -
---------
Net deferred tax assets................................... 3,504,757
---------
Deferred tax liabilities:
Intangible asset amortization............................. 371,391
Purchased loans........................................... 281,320
Stock dividends........................................... 91,223
Other..................................................... 4,044
---------
Total deferred tax liabilities............................. 747,978
---------
Deferred tax assets, net................................... $2,756,779
</TABLE>
=========
<PAGE>
An analysis of the changes in the net deferred tax asset is presented
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Balance, December 31, 1995............................ $1,502,866
Deferred tax benefit.................................. 1,531,073
Change in unrealized loss on
securities available for sale........................ (277,160)
---------
Balance, September 30, 1996........................... $2,756,779
=========
</TABLE>
The deferred tax asset is considered realizable as it is more likely than
not that the results of future operations will generate sufficient taxable
income to realize such deferred tax assets.
Note 11. Financial Instruments
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit and
financial guarantees, and one interest-rate swap. Those instruments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the consolidated statements of financial condition The
contract or notional amounts of those instruments reflect the extent of the
Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit, and financial guarantees written is represented by
the contractual notional amount of those instruments The Bank uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments. For its interest-rate swap transaction, the
contract or notional amount does not represent exposure to credit loss. The Bank
controls the credit risk of its interest-rate swap agreement through credit
approvals, limits, and monitoring procedures.
Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk.
INTEREST-RATE EXCHANGE AGREEMENTS. The Bank has entered into one
interest-rate swap transaction in managing its interest-rate exposure.
Interest-rate swap transactions generally involve the exchange of fixed and
floating-rate interest-payment obligations without the exchange of the
underlying principal amounts.
Entering into interest-rate swap agreements involves not only the risk of
dealing with counterparties and their ability to meet the terms of the contracts
but also the interest-rate risk associated with unmatched positions. Notional
principal amounts often are used to express the volume of these transactions,
but the amounts potentially subject to credit risk are much smaller.
During the nine-month period ended September 30, 1996, the Bank entered
into an agreement to make fixed-rate interest payments in exchange for receiving
variable market-indexed interest payments (interest-rate swap). The notional
principal amount of the interest-rate swap outstanding was $4.0 million at
September 30, 1996. The original term was for five years. The fixed-payment rate
was 6.27% at September 30, 1996 Variable-interest payments received are based on
6-month LIBOR. At September 30, 1996, the rate of the variable market-indexed
interest payment obligation to the Bank was 5.75%. The net cost of this
agreement was approximately $17,000 for the nine-month period ended September
30, 1996, which was amortized to income.
CREDIT COMMITMENTS. The Bank has outstanding at any time a significant
number of commitments to extend credit. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the loan commitment contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since some of the commitments are expected to expire without being
drawn upon, the total commitment amount does not necessarily represent future
cash requirements. Each customer's credit worthiness is evaluated on an
individual basis and the amount of collateral required, if deemed necessary, is
based on management's credit evaluation. As of September 30, 1996, there were
approximately $49.1 million of commitments to extend credit, generally with
terms of up to 90 days. Commitments at September 30, 1996, include approximately
$165,000 in fixed rate commitments.
<PAGE>
Loan commitments have off-balance-sheet credit risk because only
origination fees and accruals for probable losses are recognized in the
statement of financial condition until the commitments are fulfilled. Credit
risk represents the accounting loss that would be recognized at the reporting
date if counterparties failed completely to perform as contracted The credit
risk amounts are equal to the contractual amounts, assuming that the amounts are
fully advanced and that the collateral or other security is of no value.
The Bank's policy with regard to collateral-dependent loans is to require
customers to provide collateral prior to the disbursement of approved loans. For
consumer loans, the Bank usually retains a security interest in the property or
products financed, which provides repossession rights in the event of default by
the customer. For commercial loans and financial guarantees, collateral is
usually in the form of inventory or marketable securities (held in trust) or
real estate (notations on title).
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. At September 30, 1996,
there were approximately $2.8 million of standby letters of credit outstanding
with maturities of up to one year. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan facilities
to customers. The Bank holds certificates of deposit as collateral supporting
those commitments for which collateral is deemed necessary. The extent of
collateral held for those commitments at September 30, 1996, varies from
unsecured to 100 percent.
The Bank has not incurred any losses on its commitments in the nine-month
period ended September 30, 1996.
Note 12. Concentrations of Credit Risk
Concentrations of credit risk (whether on or off balance sheet) arising
from financial instruments exist in relation to certain groups of customers. A
group concentration arises when a number of customers have similar economic
characteristics that would cause their ability to meet contractual obligations
to be similarly affected by changes in economic or other conditions. The Bank
does not have a significant exposure to any individual customer The major
concentrations of credit risk for the Bank arise by customer type in relation to
loans and credit commitments, as shown in the following table. A geographic
concentration arises because the Bank operates primarily in Florida, where a
majority of loan customers and related collateral are located.
<TABLE>
<CAPTION>
Residential Commercial
Real Estate Real Estate Commercial Consumer Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Credit Risk: (in thousands)
September 30, 1996
Loans..................... $234,824,942 $49,636,785 $31,778,614 $86,487,699 $402,728,040
Credit commitments........ 27,025,000 4,891,000 17,126,000 15,000 49,057,000
----------- ---------- ---------- ---------- ----------
$261,849,942 $54,527,785 $48,904,614 $86,502,699 $451,785,040
=========== ========== ========== ========== ===========
</TABLE>
The credit risk amounts represent the maximum accounting loss that would be
recognized at the reporting date if customers failed completely to perform as
contracted and any collateral or security proved to be of no value. The amounts
of credit risk shown, therefore, greatly exceed expected losses, which are
included in the allowance for loan losses.
Note 13. Commitments and Contingencies
In the ordinary course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Bank is
involved in various claims and legal actions arising in the ordinary course of
business. The outcome of these claims and actions are not presently
determinable, however, in the opinion of the Bank's management, after consulting
with their legal counsel, the ultimate disposition of these matters will not
have a material adverse effect on the consolidated financial statements.
<PAGE>
The Internal Revenue Service is in the process of conducting an examination
of the Company's Federal Income Tax Returns for the years ended December 31,
1993 and 1992 In the opinion of management, the ultimate disposition will not
have a material adverse effect on the consolidated financial statements.
Because of the legal structure of its acquisitions, the Bank pays deposit
insurance premiums to the FDIC's Savings Association Insurance Fund ("SAIF").
The majority of commercial banks pay such premiums to the FDIC's Bank Insurance
Fund ("BIF"). The SAIF and the BIF previously assessed deposit insurance
premiums at the same rate. However, effective September 30, 1995, the FDIC
reduced the minimum assessment rate applicable to BIF deposits, but not SAIF
deposits, from 23 basis points of covered deposits to four basis points of
covered deposits and, effective January 1, 1996, further reduced the BIF rate to
zero This disparity in assessment rates may place the Bank at a competitive
disadvantage to institutions whose deposits are exclusively or primarily
BIF-insured (such as most commercial banks).
On September 30, 1996, President Clinton signed into law H.R. 3610, which
is intended to recapitalize the SAIF and substantially bridge the assessment
rate disparity existing between SAIF and BIF-insured institutions. The new law
subjects institutions with SAIF-assessable deposits, including the Bank, to a
one-time assessment estimated to be approximately 0.657% of covered deposits as
of March 31, 1995 and provides for a 20% reduction of this assessment for
certain institutions, including the Bank. The new law remains to be implemented
by the FDIC, and the FDIC's interpretation of the new law may affect actual
amounts paid by depository institutions, including the Bank. At this time, the
Bank believes that its one-time assessment would result in a pre-tax charge of
approximately $2,317,549, which will be payable not later than November 29, 1996
and, under provisions of the new law, may be treated for tax purposes as a fully
deductible "ordinary and necessary business expense" when paid. Results of
operations for the nine-month period ended September 30, 1996 include a charge
for this estimated one-time assessment.
Note 14. Employee Benefit Plan
The Bank sponsors a defined contribution 401(k) retirement savings plan
("Plan"). The Plan provides for certain contributions made by employees to be
matched by the Bank Substantially all full-time employees with one year of
service can participate in the Plan During the nine-month period ended September
30, 1996, Bank contributions to the Plan and Plan administrative expenses paid
by the Bank amounted to approximately $104,000.
Note 15. Related Party Transactions
Through January 31, 1996, the Bank was a party to a loan subservicing
agreement with a mortgage servicing company owned by the Company's stockholder
("Loan Servicer"). The agreement was under market terms and conditions and
covered subservicing of one to four family residential loans which the Bank owns
or for which the Bank has purchased servicing rights. During the nine-month
period ended September 30, 1996, the Bank paid approximately $93,000 in
servicing fees to the Loan Servicer.
The agreement was terminated effective January 31, 1996 and the servicing
was transferred to a subsidiary of BankAtlantic under a new servicing agreement.
The BankAtlantic servicing agreement was negotiated and servicing transferred to
BankAtlantic prior to any negotiations relating to the sale of the Company to
BankAtlantic.
In conjunction with servicing performed by the Loan Servicer for the Bank
and for its own account, escrow funds and other servicing-related non-interest
bearing deposits are maintained at the Bank. Such funds averaged $637,000 for
the nine-month period ended September 30, 1996.
During the nine-month period ended September 30, 1996, the Loan Servicer
paid the Bank rent of approximately $97,000, for use of office space in a
building owned by the Bank.
Through January of 1996, the Bank provided certain human resource services
to the Loan Servicer primarily with regard to payroll, health insurance
processing, and policies and procedures. During the nine-month period ended
September 30, 1996, the Bank charged the Loan Servicer approximately $750 for
those services.
<PAGE>
In the ordinary course of business, the Bank enters into transactions with
Directors of the Bank, with the Company's stockholder and with firms with which
the Directors or stockholder are affiliated. During the nine-month period ended
September 30, 1996 the Bank paid marketing, advertising, and public relations
fees of approximately $119,000 to a company owned by one of the Bank's
Directors. Another of the Bank's Directors is an employee of a law firm which
performs routine legal services for the Bank. During the nine-month period ended
September 30, 1996, the Bank paid legal fees of approximately $7,000, to that
law firm. In addition, the Bank rents office space to a firm managed by one of
the Bank's Directors under a three year lease agreement expiring on June 30,
1997. Rental income earned by the Bank from that lease for the nine-month period
ended September 30, 1996 was approximately $10,000. The aggregate unpaid
principal balance of loans outstanding to the Bank's Directors or their business
interests was approximately $405,000 at September 30, 1996.
The Company's stockholder has an ownership interest in a building which
houses one of the Bank's offices. Rent expense on that office was approximately
$5,000 for the nine-month period ended September 30, 1996. The Bank has loans
outstanding to a firm in which the Company's stockholder has ownership
interests. The principal balance of those loans was approximately $36,000 as of
September 30, 1996. The Company's stockholder or firms controlled by the
stockholder had approximately $4.0 million on deposit at the Bank on September
30, 1996.
Note 16. Restrictions on Retained Earnings
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At September 30, 1996, the
Bank could not declare any dividends without such regulatory approval.
Note 17. Regulatory Matters
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of September 30, 1996, that the
Company meets all capital adequacy requirements to which it is subject.
As of September 30, 1996 the most recent notification from the Federal
Deposit Insurance Corporation categorized the Company as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized the Company must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Company's actual capital amounts and ratios are also presented in the
table. No amount was deducted from capital for interest-rate risk at September
30, 1996.
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ----------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----- ---------- ----- ----------- -----
As of September 30, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk Weighted Assets)..... $39,780,000 12.4% $25,584,000 8.0% $31,980,000 10.0%
Tier I Capital (to risk Weighted Assets).... 35,712,000 11.2% 12,792,000 4.0% 19,188,000 6.0%
Tier I Capital (to Average Assets).......... 35,712,000 6.7% 21,444,000 4.0% 26,805,000 5.0%
</TABLE>
<PAGE>
Note 18. Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The following table presents the carrying amounts and fair values of the Bank's
financial instruments at September 30, 1996 (in thousands):
<TABLE>
<CAPTION>
Carrying
Amount Fair Value
-------- ----------
<S> <C> <C>
Financial assets:
Cash and due from banks and interest-bearing
deposits with banks........................... $36,609 $36,609
Securities held to maturity.................... 66,345 66,358
FHLB stock..................................... 2,775 2,775
Loans held for sale............................ 841 856
Loans receivable, net.......................... 397,038 398,627
Financial liabilities:
Deposit liabilities............................ 477,722 477,832
Securities sold under agreements to repurchase. 2,022 2,022
Other borrowings............................... 5,000 5,027
Off-balance- sheet assets (liabilities):
Commitments to extend credit................... - 30
Standby letters of credit...................... - -
Interest rate swap in a net payable position... - 52
</TABLE>
ESTIMATION OF FAIR VALUES
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments.
Short-term financial instruments are valued at their carrying amounts
included in the consolidated statement of financial condition, which are
reasonable estimates of fair value due to the relative short period to maturity
of the instruments. This approach applies to cash and cash equivalents.
Loans held for sale are valued at quoted market prices or investor
commitments.
Loans are valued on the basis of estimated future receipts of principal and
interest, discounted at various rates. Loan prepayments are assumed to occur at
the same rate as in previous periods when interest rates were at levels similar
to current levels. Future cash flows for homogeneous categories of consumer
loans, such as motor vehicle loans, are estimated on a portfolio basis and
discounted at current rates offered for similar loan terms to new borrowers. The
fair value of nonaccrual loans is estimated based on the fair value of related
collateral for collateral-dependent loans or on a present value basis, using
higher discount rates appropriate to the higher risk involved.
Securities are valued at quoted market prices.
FHLB stock is valued at the redemption value.
Fair value of demand deposits and deposits with no defined maturity is
taken to be the amount payable on demand at the reporting date. The fair value
of fixed-maturity deposits is estimated using rates currently offered for
deposits of similar remaining maturities. The intangible value of long-term
relationships with depositors is not taken into account in estimating the fair
values shown in the previous table.
Rates currently available to the Bank for term borrowings with similar
terms and remaining maturities are used to estimate the fair value of existing
borrowings as the present value of expected cash flows.
Commitments to extend credit and standby letters of credit are valued on
the basis of fees currently charged for commitments for similar loan terms to
new borrowers with similar credit profiles.
