U.S. Securities and Exchange Commission
Washington, D.C.
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period to
Commission file number 0-27474
American Bancshares, Inc.
(Exact Name of Registrants Specified in its Charter)
Florida 65-0624640
(State or other Jurisdiction (IRS Emloyer Id. No.)
Incorporation or Organization)
4502 Cortez Road West, Bradenton, Florida 34210
(Address of Principal Executive Offices)
(941) 795-3050
(Registrants telephone number including area code)
4702 Cortez Road West, Bradenton, Florida 34210
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer has(1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No .
--- ---
Number of shares outstanding of the issuer's Common Stock, par value $1.175 as
of September 30,1998: 4,994,984 shares.
TABLE OF CONTENTS
Page
Part I FINANCIAL INFORMATION
Item 1
-Financial Statements 1-4
-Notes to Consolidated Condensed Financial Statements 5-8
Item 2
-Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-11
Item 3
-Management's Discussion and Analysis
of Year 2000 issues. 11
Item 4
-Quantitative and Qualitative Disclosure 11
About Market Risk
Part II OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults Upon Senior Securities
(Not applicable) n/a
Item 4 Submission of Matters to a Vote
of Security Holders
(Not applicable) n/a
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 13
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
American Bancshares, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(unaudited, $ in thousands)
September 30, December 31, % $
Assets 1998 1997 Change Change
------------- ------------ -------- ----------
Cash and due from banks 17,670 9,549 85.05 8,121
Federal funds sold 0 5,120 (100.00) (5,120)
Interest bearing deposits in banks 519 3,727 (86.07) (3,208)
Mortgage loans held for sale 82,596 39,588 108.64 43,008
Investment securities, available for sale 75,990 62,898 20.81 13,092
Mortgage-backed securities, available for sale 5,381 5,766 (6.68) (385)
Loans (net of allowance for credit losses and
deferred loan fees of $1,494,812 as of
September 30, 1998 and $1,704,529 as of
December 31, 1997) 234,432 213,404 9.85 21,028
Premises and equipment, net 12,455 9,161 35.96 3,294
Other real estate owned, net 190 363 (47.66) (173)
Goodwill 76 80 (5.00) (4)
Other assets 7,423 4,245 74.86 3,178
--------- --------- --------- --------
Total assets 436,732 353,901 23.41 82,831
========= ========== ========= ========
Liabilities and shareholders' equity
Liabilities
Deposits 326,857 302,746 7.96 24,111
Securities sold under agreements to repurchase 30,378 17,528 73.31 12,850
Federal funds purchased and FHLB borrowings 32,500 5,000 550.00 27,500
Other Borrowed Money 0 500 (100.00) (500)
Guaranteed Preferred Beneficial Interests in
the Company's Junior Subordinated Debentures
(trust preferred securities) 16,249 n/a 100.00 16,249
Other liabilities 3,097 2,048 51.22 1,049
--------- --------- --------- --------
Total liabilities 409,081 327,822 24.79 81,259
Shareholders' equity
Preferred shares, 5,000,000 shares authorized,
0 shares issued and outstanding as of
September 30,1998 0 n/a 0.00 0
Common shares, $1.175 par value, 20,000,000
shares authorized, 4,994,984 shares issued
and outstanding as of September 30, 1998
and 4,994,484 as of December 31, 1997 5,870 5,869 0.02 1
Additional paid in capital 15,551 15,548 0.02 3
Accumulated other comprehensive income, net 476 140 240.00 336
Retained earnings 5,754 4,522 27.24 1,232
--------- --------- --------- --------
Total shareholders' equity 27,651 26,079 6.03 1,572
--------- --------- --------- --------
Total liabilities and shareholders' equity 436,732 353,901 23.41 82,831
========= ========= ========= ========
The accompanying notes are an integral part of these financial statements.
Page 1
American Bancshares, Inc. and Subsidiaries
Consolidated Condensed Statements of Income
(unaudited, $ in thousands)
Three Month's Ended September 30, % $
1998 1997 Change Change
----------- ----------- ---------- -----------
Interest income
Interest and fees on loans 6,851 5,206 31.60 1,645
Interest on mortgage backed securities, taxable 86 194 (55.67) (108)
Interest on investment securities, taxable 1,260 765 64.71 495
Interest on investment securities, nontaxable 30 17 76.47 13
Other interest income 14 114 (87.72) (100)
-------- -------- --------- ---------
Total interest income 8,241 6,296 30.89 1,945
Interest expense
Deposits 3,335 3,094 7.79 241
Securities sold under agreements to repurchase 332 177 87.57 155
Federal funds purchased and FHLB advances 531 81 555.56 450
Trust preferred securities 331 0 100.00 331
Other borrowed money (2) 0 (100.00) (2)
-------- -------- --------- ---------
Total interest expense 4,527 3,352 35.05 1,175
Net interest income 3,714 2,944 26.15 770
Provision for loan losses 154 160 (3.75) (6)
-------- -------- --------- ---------
Net interest income after loan loss 3,560 2,784 27.87 776
Noninterest income
Service charges & fees 476 562 (15.30) (86)
Gain on sale of mortgage loans 341 60 468.33 281
Gain on sale of securities 58 66 (12.12) (8)
Gain on sale of servicing 15 75 (80.00) (60)
Broker loan fees 27 108 (75.00) (81)
Originated mortgage servicing rights 169 55 207.27 114
Merchant fees 172 105 63.81 67
Other income 219 120 82.50 99
-------- -------- --------- ---------
Total noninterest income 1,477 1,151 28.32 326
Noninterest expense
Salaries & employee benefits 1,863 1,331 39.97 532
Net occupancy expense 232 172 34.88 60
Furniture and equipment expenses 274 261 4.98 13
Data processing fees 220 158 39.24 62
Legal fees 114 70 62.86 44
Other expense 1,357 1,000 35.70 357
-------- -------- --------- ---------
Total noninterest expense 4,060 2,992 35.70 1,068
Income before income taxes 977 943 3.61 34
Provision for income taxes 342 401 (14.71) (59)
-------- -------- --------- ---------
Net income 635 542 17.16 93
======== ======== ========= =========
Earnings per share (actual $'s)
Basic 0.13 0.11
Diluted 0.13 0.11
Average number of shares outstanding
Basic 4,994,984 4,994,484
Diluted 5,015,921 5,017,965
The accompanying notes are an integral part of these financial statements.
Page 2
American Bancshares, Inc. and Subsidiaries
Consolidated Condensed Statements of Income
(unaudited, $ in thousands)
Nine Months ended September 30, % $
1998 1997 Change Change
----------- ----------- ---------- -----------
Interest income
Interest and fees on loans 19,136 14,567 31.37 4,569
Interest on mortgage backed securities, taxable 208 604 (65.56) (396)
Interest on investment securities, taxable 3,202 2,301 39.16 901
Interest on investment securities, nontaxable 78 50 56.00 28
Other interest income 200 327 (38.84) (127)
--------- --------- -------- -------
Total interest income 22,824 17,849 27.87 4,975
Interest expense
Deposits 9,823 8,613 14.05 1,210
Securities sold under agreements to repurchase 880 438 100.91 442
Federal funds purchased and FHLB advances 726 278 161.15 448
Trust preferred securities 331 0 100.00 331
Other borrowed money 25 0 100.00 25
--------- --------- -------- -------
Total interest expense 11,785 9,329 26.33 2,456
Net interest income 11,039 8,520 29.57 2,519
Provision for loan losses 429 686 (37.46) (257)
--------- --------- -------- -------
Net interest income after loan loss 10,610 7,834 35.44 2,776
Noninterest income
Service charges & fees 1,352 1,300 4.00 52
Gain on sale of loans 448 90 397.78 358
Gain on sale of securities 186 70 165.71 116
Gain on sale of servicing 87 346 (74.86) (259)
Broker loan fees 115 242 (52.48) (127)
Originated mortgage servicing rights 501 92 444.57 409
Merchant fees 564 362 55.80 202
Other income 500 388 28.87 112
--------- --------- -------- -------
Total noninterest income 3,753 2,890 29.86 863
Noninterest expense
Salaries & employee benefits 5,131 3,785 35.56 1,346
Net occupancy expense 650 480 35.42 170
Furniture and equipment expenses 726 706 2.83 20
Data processing fees 707 438 61.42 269
Legal fees 604 168 259.52 436
Litigation settlement 525 0 100.00 525
Other expense 4,124 2,805 47.02 1,319
--------- --------- -------- -------
Total noninterest expense 12,467 8,382 48.74 4,085
Income before income taxes 1,896 2,342 (19.04) (446)
Provision for income taxes 664 902 (26.39) (238)
--------- --------- --------- -------
Net income 1,232 1,440 (14.44) (208)
========== ========= ========= =======
Earnings per share (actual $'s)
Basic 0.25 0.29
Diluted 0.25 0.29
Average number of shares outstanding
Basic 4,994,691 4,986,422
Diluted 5,022,425 5,005,987
The accompanying notes are an integral part of these financial statements.
Page 3
American Bancshares, Inc. and Subsidiaries
Consolidated Condensed Statement of Cashflows
(unaudited, $ in thousands)
Nine Months ended September 30,
1998 1997
---------- ---------
Cash flows from operating activities:
Net income 1,232 1,440
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 429 686
Net gain on sale of investment securities (170) (73)
Net gain on sale of loans (448) (87)
Net gain on sale of mortgage servicing rights (87) (396)
Net gain on originated mortgage servicing rights (501) (92)
Net (gain)/loss on sale of foreclosed real estate 0 7
Deferred income taxes 0 73
Depreciation 689 550
Proceeds from sales of loans held for sale 52,191 28,823
Net amortization of premiums and accretion of
discounts on investment securities 3 13
Increase in other liabilities 1,049 416
(Increase) decrease in other assets (2,413) 147
-------- --------
Total adjustments 50,742 30,067
-------- --------
Net cash provided by operating activities 51,974 31,507
-------- --------
Cash flows from investing activities:
Loan originations, net of repayments (116,287) (70,169)
Purchases of bank premises and equipment (3,983) (1,881)
Proceeds from sales and maturities of available for
sale investment securities 54,201 16,916
Purchases of available for sale investment
securities, net of repayments (66,405) (32,545)
Recoveries on loans charged off 83 58
--------- --------
Net cash used in investing activities (132,391) (87,621)
--------- --------
Cash flows from financing activities:
Net increase in demand deposits, NOW
and savings accounts 25,644 29,020
Net increase (decrease) in time deposits (1,533) 21,623
Net increase in securities sold under agreements to
repurchase 12,850 7,571
Proceeds from issuance of trust preferred securities 16,249 0
Net proceeds from advances (repayments)from the
FHLB and Federal Funds purchased 27,000 (1,300)
Proceeds from sale of stock 0 425
--------- ---------
Net cash provided by financing activities 80,210 57,339
--------- ---------
Net increase (decrease) in cash and cash equivalents (207) 1,225
Cash and cash equivalents at beginning of period 18,396 22,976
Cash and cash equivalents at end of period 18,189 24,201
========== =========
Supplemental disclosures:
Interest paid 11,422 9,304
========== =========
Income taxes paid 915 944
========== =========
The accompanying notes are an integral part of these financial statements.
Page 4
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Holding Company and Subsidiaries Background Information
American Bancshares, Inc. (Company), is a one bank holding company, operated
under the laws of the state of Florida. Its wholly owned banking subsidiary is
American Bank (Bank), a state chartered bank. The Holding Company, a Florida
corporation organized June 30, 1995, is a registered holding company under the
Bank Holding Company Act of 1956, as amended, and on December 1, 1995 became the
bank holding company for the Bank. The Bank was incorporated on December 6, 1988
and opened for business on May 8, 1989. The Bank is a general commercial bank
with all the rights, powers, privileges granted and conferred by the Florida
Banking Code. Although the Holding Company was not formed until June 30,1995 and
did not acquire the Bank until December 1, 1995, the financial statements have
been presented as if the Company had been in existence since the Bank was formed
in 1988 and as if the Bank was it's wholly owned subsidiary since that time.
The Company has organized a wholly-owned Florida subsidiary corporation, Freedom
Finance Corporation, ("Finance Company"), pursuant to which it engages in full
service consumer financing. The Finance Company offers consumer-driven products
and services ranging from mortgages to automobile loans, home equity loans and
education financing. The Finance Company has the ability to extend financing to
individuals and entities which may not be able to satisfy the Bank's
underwriting requirements or loan standards. During April 1998 the Bank extended
a $2.4 million line of credit to the Finance Company to support operations. The
Finance Company commenced preliminary operations in late March 1998.
ABI Capital Trust ("ABICT"), a Delaware statutory trust, was created on May
21,1998. The ABICT exists for the exclusive purpose of (i) issuing and selling
Common Securities and Preferred Securities of ABICT (together the "Trust
Securities"), (ii) using the proceeds of the sale of Trust Securities to acquire
Deferrable Interest Debentures ("Junior Subordinated Debentures") issued by the
Company, and (iii) engaging only in those other activities necessary,
convenient, or incidental thereto (such as registering the transfer of Trust
Securities). Accordingly the Junior Subordinated Debentures will be the sole
assets of the ABICT. On July 7,1998 the ABICT issued $15 million of 8.5% Trust
Securities, the Company invested $463,920, in the form of a common stock
purchase, and the ABICT purchased $15,463,920 of 8.5% Junior Subordinated
Debentures from the Company. In connection with the over-allotment option
granted to the underwriter on August 6,1998 the ABICT issued $1,249,420 of 8.5%
Trust Securities, the Company invested an additional $38,650 in the form of a
common stock purchase, and the ABICT purchased $1,288,070 of 8.5% Junior
Subordinated Debentures from the Company. The Company owns all of the Common
Securities of ABICT, the only voting security, and as a result it is a
subsidiary of the Company.
Note 2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the results for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC rules and
regulations, although the Company believes that the disclosures included herein
are adequate to make the information presented not misleading. The results of
operations for the three and nine month periods ended September 30, 1998 are not
necessarily indicative of the results expected for the full year.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the Company's December 31,
1997 Form 10-KSB. This quarterly report should be read in conjunction with such
annual report.
Merger - On March 23,1998, the Company completed its merger with Murdock Florida
Bank (Murdock). In connection with the merger the Company issued 924,026 shares
of its common stock in exchange for all of the outstanding Murdock shares. The
transaction was accounted for as a pooling of interests. Accordingly the
Consolidated Balance Sheet, Income Statement and Statement of Cash Flow include
the results of Murdock on a historical basis.
Page 5
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 3. Investments
The Company's investments and mortgage-backed securities are classified as
available for sale and recorded at fair value as required by the provisions of
Statement of Financial Accounting Standards No. 115. Unrealized gains and losses
are reflected as a separate component of shareholders' equity on the
consolidated statement of condition. At September 30, 1998, an unrealized gain,
net of tax, of $476,000 was reflected as an increase of shareholders' equity.
Note 4. Earnings Per Share
Basic earnings per common share is calculated by dividing net income by the
sum of the weighted average number of shares of common stock outstanding.
Diluted earnings per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding, assuming the
exercise of stock options and warrants using the treasury stock method. Such
adjustments to the weighted average number of shares of common stock outstanding
are made only when such adjustments dilute earnings per common share. The
diluted earnings per share is summarized as follows:
Nine Months Three Months
ended September 30, ended September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
Weighted average common shares outstanding............ 4,994,691 4,986,422 4,994,984 4,994,484
Weighted average common shares equivalents............ 27,734 19,565 20,937 23,481
--------- --------- --------- ---------
Shares used in diluted earnings per share
calculation......................................... 5,022,245 5,005,987 5,015,921 5,017,965
========= ========= ========= =========
Note 5. Capital
On July 7,1998, ABI Capital Trust ("ABICT"), a Delaware Business trust created
by the Company on May 21, 1998, issued $15,000,000 in the aggregate liquidation
amount of its 8.50% preferred securities, liquidation amount $10 per preferred
security ("Capital Securities") in a registered public offering. On August 6,
1998, the underwriter exercised its over-allotment option, in part, and an
additional $1,249,420 in aggregate liquidation amount of Capital Securities were
issued. On these respective dates, the Company purchased $463,920 and $38,650 in
aggregate liquidation amount of the common securities of ABICT ("Common
Securities").
The Common Securities are wholly owned by the Company, and such securities are
the only class of ABICT's securities possessing general voting powers. The
Capital Securities represent preferred undivided beneficial interests in the
assets of ABICT, and are classified on the Company's balance sheet as
"Guaranteed Preferred Beneficial Interests in the Company's Junior Subordinated
Debentures", with distributions on such securities included in interest expense.
Under the Federal Reserve Board's current risk-based capital guidelines, the
Capital Securities are includable in the Company's capital.
The proceeds from the issuance of the Capital Securities and Common Securities
were used by ABICT to purchase $16,249,000 aggregate liquidation amount of 8.50%
junior subordinated deferrable interest debentures ("Junior Subordinated
Debentures") issued by the Company. The Junior Subordinated Debentures represent
the sole assets of ABICT and payments under the Junior Subordinated Debentures
are the sole source of cash flow for ABICT. The Junior Subordinated Debentures
accrue and pay cash distributions quarterly in arrears at the rate of 8.50% per
annum of the stated liquidated amount of $10 per Junior Subordinated Debenture,
and are scheduled to mature on July 7, 2028.
Holders of the Capital Securities receive preferential cumulative cash
distributions quarterly on each distribution date at the stated distribution
rate unless the Company exercises its right to extend the payment of interest on
the Junior Subordinated Debentures for up to 20 quarterly interest periods, in
which case payment of distributions on the Capital Securities will be deferred
for a comparable period. During an extended interest period, the Company may not
pay dividends or distributions on, or repurchase, redeem or acquire any shares
if its capital stock. In connection with issuance of Capital Securities the
Page 6
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 5. Capital (continued)
Company issued a guarantee with respect to certain payments to be made by ABICT
under the terms thereof. The agreements governing the Capital Securities
(including such guarantee), in the aggregate, provide a full. Irrevocable and
unconditional guarantee by the Company of the payment of distributions on, the
redemption of, and any liquidation distribution with respect to the Capital
Securities. The obligations of the Company under such guarantee and the Capital
Securities are subordinate and junior in right of payment to all senior
indebtedness of the Company.
The Capital Securities are mandatorily redeemable in whole, but not in part,
upon repayment at the stated maturity dates of the Junior Subordinated
Debentures or the earlier redemption of the Junior Subordinated Debentures in
whole upon the occurrence of one or more events ("Events") set forth in the
indenture relating to the Capital Securities and in whole or in part at any time
after the stated optional redemption dates (June 30, 2003) contemporaneously
with the Company's optional redemption of the related Junior Subordinated
Debentures in whole or in part. The Junior Subordinated Debentures are
redeemable prior to their maturity dates at the Company's option (i) on or after
the stated optional redemption dates, in whole at any time or in part from time
to time, or (ii) in whole, but not in part, at any time within 90 days following
the occurrence and during the continuation of one or more of the Events, in each
case subject to possible regulatory approval. The redemption price of the
Capital Securities upon their early redemption will be 100% of the liquidated
amount plus accumulated but unpaid distributions.
In July 1998 and August 1998, the Company issued Junior Subordinated Debentures
totaling approximately $16.8 million. Of the net proceeds of approximately $15.8
million the Company has invested $8.0 million in the Bank, as an additional
capital contribution, and repaid other outstanding indebtedness totaling
approximately $3.0 million. The balance of the funds will be used for general
corporate purposes, including but not limited to (i) making additional capital
contributions to the Bank, (ii) making additional capital contributions to the
Finance Company, (iii) investing in other business opportunities as may present
themselves from time to time, and (iv) working capital.
Note 6. Comprehensive Income
Effective January 1, 1998 the Company has adopted Financial Accounting Standards
("FAS") No. 130 "Reporting Comprehensive Income," which requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in the financial statements. Prior periods will
be reclassified as required. The Company's total comprehensive earnings are as
follows:
Comprehensive Earnings (unaudited, actual $)
Nine months ended September 30,
1998 1997
---- ----
Net income (loss) 1,232,031 1,440,376
Other comprehensive earnings (losses): 0 0
Unrealized gains (losses) on securities 336,109 217,527
--------- ---------
Comprehensive income 1,568,140 1,657,903
Note 7. Impact of Recently Issued Accounting Standards
FAS No. 131, Disclosures about Segments of an Enterprise and Related
information, is effective for fiscal years beginning after December 15, 1997.
This statement establishes standards for reporting information about operating
segments in annual financial statements and interim information is required to
be reported on the basis that it is used internally for evaluating performance
of and allocation of resources to operating segments. The Company has not yet
determined to what extent the standard will impact the disclosures in the
financial statements.
FAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" which is effective for periods beginning after December 15, 1997. This
statement revises employers' disclosures about pension and other postretirement
benefit plans. Because this statement addresses disclosures only, the adoption
will have no material impact on the financial statements.
Page 7
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 7. Impact of Recently Issued Accounting Standards (continued)
On June 15, 1998 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133). FAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (January 1,
2000 for the Company). FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction, if it is, the type of hedge transaction. Management of the Company
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on the Company's results of
operations or its financial position.
On October 12, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 134 Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise (FAS 134) an amendment of FASB
Statement No. 65. This Statement shall be effective for the first fiscal quarter
beginning after December 15, 1998. This Statement further amends Statement 65 to
require that after the securitization of mortgage loans held for sale, an entity
engaged in mortgage banking activities classify the resulting mortgage-backed
securities or other retained interests based on its ability and intent to sell
or hold those investments. This Statement conforms the subsequent accounting for
securities retained after the securitization of mortgage loans by a mortgage
banking enterprise with the subsequent accounting for securities retained after
the securitization of other types of assets by a nonmortgage banking enterprise.
Management is currently assessing the future period impact of FAS 134 on the
Company's consolidated balance sheet, statements of income, shareholders'
equity, and cash flows.
Note 8. Litigation
On March 27,1997, James J. Bazata, a former employee of the Bank, filed a claim
in the United States District Court, Tampa Division, alleging that such employee
was discriminated against. It is alleged that this conduct violated his rights
under the Americans with Disabilities Act of 1990. The company believes that the
Bank acted appropriately and that this action was without merit. Pursuant to
negotiations with Mr. Bazata, the Company agreed to settle this lawsuit on July
1,1998, exhibit 10.3 of the Company's form 10-Q dated August 10,1998 is
incorporated herein by reference, by entering into a consulting agreement,
exhibit 10.2 of the Company's form 10-Q dated August 10,1998 is incorporated
herein by reference, with Mr. Bazata's corporation for services through December
31, 2000, and has further agreed to pay Mr. Bazata's legal fees and costs
incurred in connection with the lawsuit. The total payments due through the end
of 2000 under the consulting agreement, and Mr. Bazata's legal fees and costs,
aggregate $525,000. The Company expensed the entire settlement in the period
ending June 30,1998, accruing all amounts due pursuant to the consulting
agreement, legal fees and costs.
Page 8
PART 1
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
American Bancshares, Inc. and Subsidiaries
General
This discussion contains certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to the financial condition and prospects, results of
operations, plans for future business development activities, capital spending
and financing sources, capital structure, the effects of regulation and
competition, and the business of the Company. Where used in this filing, the
words "anticipate", "believe", "estimate", "expect", "intend", and similar words
and expressions, as they relate to the Company, or the management of the
Company, identify forward-looking statements. Such forward-looking statements
reflect the current views of the Company and are based on information currently
available to the management of the Company and upon current expectations,
estimates, and projections about the Company and its industry, management's
beliefs with respect thereto, and certain assumptions made by management. These
forward-looking statements are not guarantees of future performance and are
subject to risks, uncertainties, and other factors which could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements as a result of various factors. Potential risks and
uncertainties include, but are not limited to: (i) competitive pressure in the
banking and financial services industries increasing significantly; (ii) changes
in the interest rate environment which reduce margins; (iii) changes in
political conditions or changes occurring in the legislative or regulatory
environment; (iv) general economic conditions, either nationally or regionally,
becoming less favorable than expected resulting in, among other things, a
deterioration in credit quality; (v) changes occurring in business conditions
and inflation; (vi) acquisitions and integration of acquired businesses or
assets; (vii) changes in technology; (viii) changes in monetary and tax
policies; (ix) changes occurring in the securities markets; (x) year 2000
related issues and (xi) other risks and uncertainties detailed from time to time
in the filings of the Company with the Commission.
Liquidity and Capital Resources
Total assets of the Company increased by 23.41% to $436,732,000 as of September
30, 1998, from $353,901,000 as of December 31, 1997 and 31.1% from $333,076,000
as of September 30, 1997. The increase in assets from December 31, 1997, was
primarily the result of increases in Cash and Due From Banks of $8,121,000 to
$17,670,000, increases in Net Loans of $64,036,000 to $317,028,000 and premises
and equipment of $3,294,000 to $12,455,000. The increases in assets were funded
through increases in deposits of $24,111,000 to $326,857,000, increases in
Securities Sold Under Agreements to Repurchase of $12,850,000 to $30,378,000 and
increases in borrowings of $27,000,000 to $32,500,000.
As of September 30, 1998, the Bank's Tier 1 leverage ratio was 8.50%, Tier 1 to
risk weighted assets was 12.12% and total risk based capital was 12.88%,
resulting in a classification of "Well Capitalized" under FDIC guidelines. The
Bank, through its Asset/Liability Committee, monitors, among other things, the
Bank's capital and liquidity position, making adjustments to deposit, loan, and
investment strategies as necessary. The Bank continues to maintain adequate
liquidity levels with a liquidity ratio at September 30, 1998 of 48.10%. The
Bank is a member of the Federal Home Loan Bank of Atlanta (FHLB). FHLB has
approved a line of credit totaling $50,000,000 collateralized by qualifying
mortgages and all of the Bank's FHLB stock. As of September 30, 1998, advances
totaling $32,500,000 were outstanding. The Bank also maintains Federal Funds
Purchased agreements with several correspondent banks to provide sources of
overnight funds. As of September 30, 1998, the Bank had no federal funds
purchased. During April 1998, the new administrative office building was
completed and is now occupied. The cost of construction was approximately $2.5
million. In June, 1998 the administrative offices were sold to the Bank, at
cost, to allow the Company to better leverage its capital position.
In July 1998 and August 1998, the Company issued Junior Subordinated Debentures
("Debenture") totaling approximately $16.8 million, at an interest rate of 8.5%.
Of the net proceeds of approximately $15.8 million the Company has invested $8.0
million in the Bank, as an additional capital contribution, and repaid and
cancelled the Commercial Revolving Line of Credit from Barnett Banks, N.A.,
South Florida (now Nationsbank, N.A.). totaling approximately $3.0 million.
Page 9
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources (continued)
In July and August, 1998 the Bank also drew down $26 million of it FHLB line of
credit at an interest rate ranging from 5.04% - 5.09%. The average interest rate
on the subordinate debentures and the FHLB advances was 6.64%. The Bank has
invested these funds primarily in FNMA and FHLMC securities, with an average
yield of 6.65.
On July 15,1998 the Bank acquired a former SouthTrust Bank, N.A. branch located
at 1201 Beneva Rd. South, Sarasota, Florida 34236. The purchase price was
$725,000. No deposits or loans were acquired in the transaction. State and
Federal regulatory approval has been received to operate this location as a
branch of the Bank. The Bank expects to commence operation of this facility in
the fourth quarter of 1998.
The Bank has negotiated a lease for a branch location at 6311 Atrium Drive,
Suite 101 Bradenton, Florida 34202 (in the Lakewood Ranch Subdivision). State
and Federal regulatory approval has been received to operate this location as a
branch of the Bank. The Bank expects to commence operation of this facility in
the first quarter of 1999.
Management believes that there are adequate funding sources to meet its future
liquidity needs for the foreseeable future. Primary among these funding sources
are the repayment of principal and interest on loans, the renewal of time
deposits, and the growth in the deposit base. Management does not believe that
the terms and conditions that will be present at the renewal of these funding
sources will significantly impact the Company's operations, due to its
management of the maturities of its assets and liabilities.
Results of Operations
The Company's net income for the quarter ended September 30,1998 was $635,000 or
$.13 per share, compared to net income of $542,000 or $.11 per share for the
same period for 1997. Net interest income increased $770,000 to $3,714,000 for
the quarter ended September 30,1998, over the same quarter in 1997, as a result
of the increase in interest earning assets. Non-interest income increased from
$1,151,000 for the quarter ended September 30, 1997 to $1,477,000 for the same
period in 1998. The increase in non-interest income is primarily attributable to
increases in gain on the sale of mortgage loans of $281,000; an increase in
originated mortgage servicing rights ("OMSR's") of $114,000, an increase of
$99,000 in other income and an increase in credit card merchant services fee
income of $67,000 and partially offset by decreases in service charges on
deposits and fees of $86,000; a decrease in broker loan fees of $81,000; a
decrease in gain on sale of servicing of $60,000 and a decrease of $8,000 in
gain on sale of securities.
Total general and administrative expense for the quarter ended September 30,
1998, increased $1,068,000 over the same period of 1997. This increase resulted
primarily from increases in other operating expenses related to the growth in
the Company's assets, the number of Bank branches, and the start up of the
Finance Company. Specifically, salary expense increased by $532,000, data
processing increased by $62,000. Other expenses increased by $357,000 due to
increased telephone expenses of $51,000; increased interchange fees of $48,000;
increased item processing fees of $30,000; and various other items partially
attributable continued asset growth and the start up costs of the Finance
Company. In an effort to curtail certain costs related to item processing the
Bank will begin its own item processing operation in the first quarter of 1999.
Management believes cost savings will begin to be realized in the second quarter
of 1999. Management anticipates, beginning in April 1999, cost savings, both
direct and indirect, attributable to this change will approximate $10,000 per
month, however there can be no assurance that these results will be achieved.
For the three months ended September 30,1998, net interest income increased
$770,000 to $3,714,000, compared to $2,944,000 for the same period in 1997, as a
result of the 23% asset growth. Loan loss expense decreased from $160,000 for
the three month period ended September 30, 1997 to $154,000 for the same period
in 1998. Management uses a procedure on a monthly basis for evaluating the
adequacy of the allowance for loan loss. Based on that review management
considers the allowance sufficient to cover expected loan losses. During the
third quarter of 1998, the bank identified a commercial loan relationship that
was experiencing problems meeting its debt service requirements. The customer
has since filed for bankrupcy protection. Total loans outstanding to this
customer were approximately $1,000,000. Management believes that its current
exposure is approximately $550,000. This exposure was considered in evaluating
the sufficiency of the Bank's allowance for loan losses. However, the bank
intends to pursue all legal remedies to minimize any potential loss.
Page 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations (continued)
For the nine months ended September 30, 1998, net income was $1,232,000 or $.25
per share, compared to net income of $1,440,000 or $.29 per share for the same
period for 1997. Earnings per share were affected by the Bazata litigation
settlement of $525,000 and associated legal fees of $235,000, costs associated
with the acquisition of Murdock Florida Bank of $541,000 and costs associated
with the opening of the Ruskin branch of $67,000 net of the associated income
tax benefit of $479,000. Net interest income increased $2,519,000 to $11,039,000
compared to $8,520,000 for the same period in 1997 as a result of the 23% asset
growth. The provision for loan loss expense decreased from $686,000 for the nine
month period ended September 30, 1997 to $429,000 for the same period in 1998.
Noninterest income increased to $3.8 million for the nine months ended September
30,1998 from $2.9 million for the same period for 1997. Significant items
include gain on originated mortgage servicing rights of $409,000; gain on sale
of mortgage loans of $358,000 and merchant fees of $202,000.
Noninterest expenses increased $4.1 million to $12.5 million for the nine months
ended September 30,1998 from $8.4 million for the same period for 1997. Salaries
and employee benefits increased $1.3 million to $5.1 million from $3.8 million
due to increased staff size. Additionally, the Bazata litigation settlement of
$525,000 and associated legal fees of $235,000, costs associated with the
acquisition of Murdock Florida Bank of $541,000 and costs associated with the
opening of the Ruskin branch of $67,000 contributed to the increased
non-interest expenses. Other significant expense increases were incidental to
the growth of the Bank.
PART 1.
ITEM 3. Management's Discussion and Analysis of Year 2000 Issues
The Company, via its subsidiaries, utilizes and is dependent upon data
processing systems and software to conduct its business. The data processing
systems and software include those developed and maintained by the Bank's
third-party data processing vendor and purchased software that is run on
in-house computer networks. In 1997, the Bank formed a year 2000 ("Y2K")
Steering Committee, consisting of the Bank's senior management as well as
employees from all affected areas to address the Year 2000 Project. The Bank
then began the task of identifying the many software applications and hardware
devices expected to be impacted by this issue. To date, those vendor's contacted
have indicated that their hardware or software is or will be Year 2000 compliant
in time frames that meet regulatory requirements. If this is not the case, our
contingency plans call for new hardware or software to be implemented by certain
crucial dates.
Non-compliant vendors have been and continue to be contacted for project
progress reports. Communications with compliant vendors to develop testing plans
is also ongoing. The Bank's Year 2000 Test Plan has been completed and submitted
to the FDIC as of September 15, 1998. We expect to be Year 2000 compliant by
December 31, 1998 with a final drop-dead date for compliance set at June 30,
1999.
The Bank's Board of Director's is updated on Year 2000 progress on a monthly
basis. The Bank has budgeted a total of $181,000 to the Y2K Compliance Project,
however, the costs associated with the compliance efforts are not expected to
have a significant impact on the Bank or the Company's ongoing results of
operations.
PART 1.
ITEM 4. Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Page 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 27,1997, James J. Bazata, a former employee of the Bank, filed a claim
in the United States District Court, Tampa Division, alleging that such employee
was discriminated against. It is alleged that this conduct violated his rights
under the Americans with Disabilities Act of 1990. The company believes that the
Bank acted appropriately and that this action was without merit. Pursuant to
negotiations with Mr. Bazata, the Company agreed to settle this lawsuit on July
1,1998, exhibit 10.3 of the Company's form 10-Q dated August 10,1998 is
incorporated herein by reference, by entering into a consulting agreement,
exhibit 10.2 of the Company's form 10-Q dated August 10,1998 is incorporated
herein by reference, with Mr. Bazata's corporation for services through December
31, 2000, and has further agreed to pay Mr. Bazata's legal fees and costs
incurred in connection with the lawsuit. The total payments due through the end
of 2000 under the consulting agreement, and Mr. Bazata's legal fees and costs,
aggregate $525,000. The Company expensed the entire settlement in the period
ending June 30,1998, accruing all amounts due pursuant to the consulting
agreement, legal fees and costs.
Item 2. Changes in Securities
ABI Capital Trust ("ABICT"), a Delaware statutory trust, was created on May
21,1998. On June 4,1998 the Company filed a registration statement on Form S-1
(file nos. 333-56095 and 333-56095-01) to register Preferred Securities to be
offered and sold by ABICT as well as the Junior Subordinated Debenture and
guarantee of the Company underlying such Preferred Securities. The registration
statement was amended on June 19,1998 by filing Amendment No. 1 to the Form S-1.
The S-1 and Amendment No. 1 are incorporated herein by reference. The
registration statement was declared effective on June 30,1998. The Preferred
Securities were sold pursuant to a firm commitment underwritten offer managed by
Advest, Inc. Approximately $15 million in aggregate principal amount of the
Preferred Securities were sold to Advest, Inc. on July 7,1998, and upon partial
exercise of the over-allotment option, an additional $1,249,620 in principal
amount were sold to Advest, Inc. on August 6, 1998. As of the filing date the
ABICT has issued approximately $16.25 million of 8.5% Trust Securities. The
Company has incurred approximately $971,000 in costs associated with the
formation of the ABICT and issue of the securities. These costs are being
amortized over the contractual life of the securities. The proceeds received
from the sale of the Preferred Securities were invested in the purchase of the
Company's Junior Subordinated Debentures. The net proceeds received by the
Company was approximately $15.8 million, $8.0 million of such proceeds were
invested in the Bank, $3.0 million was used to repay existing debt and the
remainder is being held for future use for general corporate purposes.
On July 21,1998 the Board of Directors of the Company voted to issue 47,400
stock options pursuant to the "American Bancshares, Inc. and American Bank of
Bradenton Incentive Stock Option Plan of 1996." Of these stock options 5,000
were issued to Gerald L. Anthony, President and CEO, 20,000 stock options were
issued to senior officers. The remaining 22,400 stock options were issued to
other Bank staff members.
On July 21,1998 the Board of Directors of the Company voted to issue 74,998
stock options pursuant to the "American Bancshares, Inc. Directors'
Non-qualified Stock Option Plan of 1997."
Item 3. Defaults Upon Senior Securities
Not applicable this filing.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable this filing.
Item 5. Other Information
The Company recently has organized a wholly-owned Florida subsidiary
corporation, Freedom Finance Corporation, (referred to herein as the Finance
Company), pursuant to which it has begun to engage in full service consumer
financing. The Finance Company commenced preliminary operations at the end of
March 1998. In order to provide the Finance Company with the funds necessary to
commence operations, the Company made a small capital contribution and the Bank
extended a $2.4 million loan to the Finance Company in April 1998. This loan was
made on substantially the same terms and conditions, including interest rates
and collateral on loans, as those prevailing for comparable transactions with
unrelated third parties. It is anticipated that the Finance Company will offer
consumer-driven products and services ranging from mortgages to automobile
loans, home equity loans and education financing. The Finance Company will have
the ability to extend financing to individuals and entities which may not be
able to satisfy the Bank's underwriting requirements or loan standards. However,
the Finance Company is expected to provide such loans on a selective basis to
customers that the Finance Company believes are quality credits. Such customers
will likely consist of individuals or entities which have another banking or
credit relationship with the Company or the Bank.
Page 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits:
none this period
(b) Reports on Form 8-K
none this period
Page 13
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.
/s/ Gerald L. Anthony
-----------------------------------
Gerald L. Anthony, President and
Chief Executive Officer
Date: November 13, 1998
-------------------
/s/ Brian M. Watterson
-----------------------------------
Brian M. Watterson
Senior Vice President and
Chief Financial Officer
Date: November 13, 1998
-------------------