-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ui+2TQ8Yyd00o6CsM/CvRjuAwc7sDmx1FAhVuSJa5G2Zw6Q/95wyTMRxS6NAQ2OW owgV05KAIC6mBd4QJPpUdw== 0000921768-96-000005.txt : 19961029 0000921768-96-000005.hdr.sgml : 19961029 ACCESSION NUMBER: 0000921768-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961028 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BANKATLANTIC BANCORP INC CENTRAL INDEX KEY: 0000921768 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 650507804 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27228 FILM NUMBER: 96648711 BUSINESS ADDRESS: STREET 1: 1750 E SUNRISE BLVD CITY: FORT LAUDERDALE STATE: FL ZIP: 33304 BUSINESS PHONE: 9547605000 10-Q 1 QUARTERLY REPORT FOR BANKATLANTIC BANCORP, INC. 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 $0.01 per share 10,582,980 BankAtlantic Bancorp, Inc. TABLE OF CONTENTS FINANCIAL INFORMATION Page Reference Financial Statements......................................................1 - 10 Consolidated Statements of Financial Condition - September 30, 1996 (unaudited)and December 31, 1995..............................................1 Consolidated Statements of Operations - Unaudited for the Three and Nine Months Ended September 30, 1996 and 1995.................................2 , Consolidated Statements of Cash Flows - Unaudited for the Nine Months Ended September 30, 1996 and 1995..........................................3 - 4 Notes to Consolidated Financial Statements - Unaudited....................5 - 10 Management's Discussion and Analysis of Results of Operations and Financial Condition.................................................... 11 - 18 OTHER INFORMATION Legal Proceedings............................................................ 19 Exhibits .................................................................... 19 Signatures................................................................... 20 [THIS PAGE INTENTIONALLY LEFT BLANK] BankAtlantic Bancorp, Inc. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED
SEPTEMBER 30, DECEMBER 31, 1996 1995 ---- ---- ASSETS (In thousands, except share data) Cash and due from depository institutions .............................................................$ 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
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 ---- ---- ---- ---- 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
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------- OPERATING ACTIVITIES: 1996 1995 ---- ---- 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) ------- -------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED (CONTINUED) CONSOLIDATED STATEMENTS FOR CASH FLOWS - UNAUDITED (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1996 1995 ---- ---- FINANCING ACTIVITIES: 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
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:
Additional Common Paid in Retained (in thousands) Stock Capital Earnings ----- ------- -------- 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 ========== ======== ========
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. 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 $2.2 million for the year ended December 31, 1995. The pro forma information shown below is presented for comparative purposes only and is not necessarily indicative of the combined financial position or results of operations in the future. The pro forma information is also not necessarily indicative of the combined financial position or results of operations which would have been realized had the acquisition been consummated during the periods or as of the dates for which the pro forma financial information is presented.
SEPTEMBER 30, 1996 ------------------ (In thousands, except per Adjust- COMBINED share data) BBC BNAB ments PROFORMA --- ---- ----- -------- ASSETS Cash ..........................$ 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 ============ ========= ======== ============
SEPTEMBER 30, 1996 ------------------ LIABILITIES AND Adjust- Combined STOCKHOLDERS' EQUITY BBC BNAB ments Proforma --- ---- ----- -------- 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 $2,716,481 ============= ============ =========== ==========
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------ ----------------- ADJUST- COMBINED ADJUST- COMBINED BBC BNAB MENTS PROFORMA BBC BNAB MENTS PROFORMA (In Thousands) --- ---- ----- -------- --- ---- ----- -------- Interest income ........$ 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 ========== ======= ========== ========== ======= ========== (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. (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.
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.
YEARS ENDING NET DECREASE OF DECEMBER 31, NET EARNINGS ------------ ------------ 1996...................... $ (360) 1997...................... $ (1,588) 1998...................... $ (1,795) 1999...................... $ (1,683) 2000...................... $ (1,399) 2001...................... $ (1,374) Thereafter................ $(11,803)
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
The components of loans receivable - net: SEPTEMBER 30, DECEMBER 31, (IN THOUSANDS) 1996 1995 ---- ---- Real estate loans: ................................. 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 ============== ===========
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. 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 $900,000 due to a reduction in the deferred tax asset valuation allowance.
Net Interest Income FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED September 30, September 30, ------------- ------------- (In thousands) 1996 1995 CHANGE 1996 1995 CHANGE ---- ---- ------ ---- ---- ------ Interest and fees on loans ............................$ 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 ========== ======== ======== ======== ======== =========
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):
SEPTEMBER 30, DECEMBER 31, 1996 1995 ---- ---- Nonaccrual 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.
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.
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 ---- ---- ------ ---- ---- ------ 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 ====== ======= ======= ======== ======== =======
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
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- (IN THOUSANDS) 1996 1995 CHANGE 1996 1995 CHANGE - -------------- ---- ---- ------ ---- ---- ------ 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 ======== ========= ======= ========= ======== ========
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 $9.1 million of fixed assets during the nine months ended September 30, 1996. The amortization of cost over fair value of net assets acquired for the three and nine months ended September 30, 1996 related to the acquisition of MegaBank in 1995. The components of "Foreclosed asset activity, net" were (in thousands):
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- Real estate acquired in settlement of loans: 1996 1995 1996 1995 ---- ---- ---- ---- Operating income, net ...................$ 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) ========== ======= ======= =======
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:
TANGIBLE CORE TOTAL RISK-BASED CAPITAL CAPITAL CAPITAL ------- ------- ------- (DOLLARS IN THOUSANDS) BALANCE % BALANCE % BALANCE % ------- - ------- - ------- - 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% ========= ==== ========= ==== ========= ====
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. 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). 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 EX-23 2 CONSENT OF KPMG PEAT MARWICK L.L.P. 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 EX-27 3 FINANCIAL DATA SCHEDULE
9 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. 921768 BankAtlantic Bancorp, Inc. 1,000 U.S. Dollars 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 78901 1247897 0 0 615726 65818 65818 1264616 19525 2170480 1352169 365431 92676 220477 0 0 147 139580 2170480 69487 33884 0 103371 37356 50326 53045 4264 3946 50572 19064 19064 0 0 11350 0.76 0.72 8.21 6585 812 3672 0 19000 5518 1779 19525 19525 0 3991
EX-99.B12 4 OTHER FINANCIAL STATEMENTS 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 BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, --------------------------- 1995 1994 ------------ ------------ 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 =========== ===========
See accompanying notes to consolidated financial statements. BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1995 1994 1993 ----------- ----------- ----------- 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) ========== ========== ==========
See accompanying notes to consolidated financial statements. BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------- 1995 1994 1993 ------------- ------------ ------------- 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 $ -- ============ =========== ============
See accompanying notes to consolidated financial statements. BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
UNREALIZED GAIN (LOSS) ON ADDITIONAL SECURITIES COMMON PAID-IN RETAINED AVAILABLE STOCK CAPITAL EARNINGS FOR SALE, NET TOTAL -------- ----------- ----------- -------------- ----------- 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 ======== ========== ========== =========== ==========
See accompanying notes to consolidated financial statements. 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 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 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 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. BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SECURITIES Securities available for sale consist of the following:
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 - ------------------------------ -------------- ------------ ------------- -------------- ------------ 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 ============ =========== =========== ========== ============ CARRYING GROSS UNREALIZED VALUE --------------------- (ESTIMATED AT DECEMBER 31, 1995 GAINS LOSSES FAIR VALUE) - ------------------------------ ---------- --------- ------------ 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 ======== ======== ============
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 - ------------------------------ -------------- ------------ ------------- -------------- ---------- ------------ 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 =========== =========== =========== ========== ========== ============ CARRYING GROSS UNREALIZED VALUE ---------------------- (ESTIMATED AT DECEMBER 31, 1994 GAINS LOSSES FAIR VALUE) - ------------------------------ ---------- ----------- ------------ 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 ======== ============ ============
Securities held to maturity at December 31, 1994 are presented below. All securities were classified as available for sale at December 31, 1995.
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) - ------------------------------ -------------- ------------ ------------- -------------- ---------------- 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 =========== =========== =========== ============ ============ GROSS UNREALIZED ---------------------------- ESTIMATED AT DECEMBER 31, 1994 GAINS LOSSES FAIR VALUE - ------------------------------ -------------- ------------ ------------ 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 ============ ============ ============
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 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:
DECEMBER 31, --------------------------- 1995 1994 ------------ ------------ 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 =========== ===========
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:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1995 1994 1993 ----------- ----------- ----------- 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 ========== ========== ==========
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:
DECEMBER 31, ------------------------- 1995 1994 ----------- ----------- 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 ========== ==========
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:
YEAR ENDING DECEMBER 31, - ------------------------ 1996....................................................... $1,406,000 1997....................................................... 622,000 1998....................................................... 292,000 1999....................................................... 209,000 ---------- $2,529,000 =========
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:
YEAR ENDING DECEMBER 31, - ------------------------ 1996........................................................ $235,000 1997........................................................ 130,000 1998........................................................ 76,000 1999........................................................ 54,000 -------- $495,000 ========
BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6. DEPOSITS Deposits are summarized as follows:
DECEMBER 31, --------------------------- 1995 1994 ------------ ------------ 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 =========== ===========
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:
AMOUNT AMOUNT DUE DURING DUE AFTER YEARS ENDING DECEMBER 31, DECEMBER --------------------------------------- 31, 1996 1997 1998 1998 TOTAL ------------ ----------- ---------- ----------- ------------ 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 =========== ========== ========= ========== ===========
NOTE 7. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Securities sold under agreements to repurchase are summarized as follows:
1995 1994 1993 ---------- ----------- ----------- 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 --
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 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:
1995 1994 1993 ----------- ----------- ----------- 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
FHLB advances with original maturities in excess of one year are summarized as follows:
DECEMBER 31, ------------------------- 1995 1994 ----------- ----------- 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 ========== ==========
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. 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:
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1995 1994 1993 ---------- --------- ----------- 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) ========= ========= ==========
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:
FOR THE YEARS ENDED DECEMBER 31, ----------------------- 1995 1994 1993 ---- ---- ----- 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)% ==== ==== =====
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:
DECEMBER 31, ----------------------- 1995 1994 ---------- ---------- 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 ========= =========
An analysis of the changes in the net deferred tax asset is presented below:
FOR THE YEAR ENDED DECEMBER 31, ----------------------- 1995 1994 ---------- ---------- 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 ========= =========
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. 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.
COMMERCIAL RESIDENTIAL REAL REAL ESTATE ESTATE COMMERCIAL CONSUMER TOTAL ----------- ---------- ---------- -------- -------- (IN THOUSANDS) 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 ========= ======== ======== ======= ========
COMMERCIAL RESIDENTIAL REAL REAL ESTATE ESTATE COMMERCIAL CONSUMER TOTAL ----------- ---------- ---------- -------- -------- (IN THOUSANDS) 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 ========= ======== ======== ======= ========
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 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. 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, 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 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):
DECEMBER 31, 1995 DECEMBER 31, 1994 ---------------------- ---------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE --------- ---------- --------- ---------- 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................. -- -- -- --
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. 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. EX-99.B12 5 OTHER FINANCIAL STATEMENTS BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
Consolidated Statement of Financial Condition September 30, 1996 ASSETS 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 ===========
LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: 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 ===========
See accompanying notes to consolidated financial statements. BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES
Consolidated Statement of Operations For the Nine-Month Period Ended September 30, 1996 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 ===========
See accompanying notes to consolidated financial statements. BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES Consolidated Statement of Cash Flows Increase (Decrease) in Cash and Cash Equivalents For the Nine-Month Period Ended September 30, 1996
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 ============
See accompanying notes to consolidated financial statements. BANK OF NORTH AMERICA BANCORP, INC., AND SUBSIDIARIES Consolidated Statement of Stockholder's Equity For the Nine-Month Period Ended September 30, 1996
Unrealized Gain (Loss) on Additional Securities Common Paid-in Retained Available Stock Capital Earnings For Sale, Net Total ------- ---------- ---------- -------------- ---------- 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 ======= ========== ========== ======== ==========
See accompanying notes to consolidated financial statements. 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. 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. (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. (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.
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 -------------- ------------ ---------------- ------- ------- ---------- U.S. Treasury $10,004,002 $56,341,141 $66,345,143 $25,851 $(12,713) $66,358,281 ========== ========== ========== ====== ======= ==========
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. 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
The composition of loans at September 30, 1996 is summarized as follows: 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 ===========
Note 5. Allowance for Loan Losses
An analysis of the allowance for loan losses for the nine months ended September 30, 1996 is presented below: 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 ==========
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:
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
========= 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:
Year Ending September 30, ------------- 1997 $1,043,000 1998 582,000 1999 402,000 2000 365,000 2001 267,000 thereafter 6,000 --------- $2,665,000 =========
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:
Year Ending September 30, ------------- 1997 $305,000 1998 252,000 1999 160,000 2000 54,000 2001 3,000 ---- ------- $774,000 =======
Note 7. Deposits Deposits at September 30, 1996 are summarized as follows:
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 ===========
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:
Amount Amount Due During Due After Year Ending September 30, September 30, ------------------------------------------ ------------- 1997 1998 1999 1999 Total ---- ---- ---- ---- ------------ 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 =========== ========== ========= ========= ===========
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. 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:
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) ==========
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:
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%) ====
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:
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
========= An analysis of the changes in the net deferred tax asset is presented below:
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 =========
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. 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.
Residential Commercial Real Estate Real Estate Commercial Consumer Total ----------- ----------- ----------- ----------- ----------- 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 =========== ========== ========== ========== ===========
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. 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. 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.
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: 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%
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):
Carrying Amount Fair Value -------- ---------- 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
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. -----END PRIVACY-ENHANCED MESSAGE-----