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 June 30, 1999
[ ] 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)
----------------------------------------------------
(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 June 30, 1999: 5,028,584 shares.
TABLE OF CONTENTS
Page
Part I FINANCIAL INFORMATION
Item 1
-Financial Statements 1-4
-Notes to Consolidated Condensed Financial Statements 5-7
Item 2
-Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-9
Item 2.A
-Year 2000 Compliance 10
Item 3
-Quantitative and Qualitative Disclosure 11
About Market Risk
Part II OTHER INFORMATION
Item 1 Legal Proceedings
(Not applicable) n/a
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 12
Item 5 Other Information 12-13
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)
June 30, December 31, % $
Assets 1999 1998 Change Change
------------- ------------ -------- ----------
Cash and due from banks 18,125 20,215 (10.34) (2,090)
Interest bearing deposits in banks 18,273 104 17,470.19 18,169
Mortgage loans held for sale 90,987 88,158 3.21 2,829
Investment securities, available for sale 39,112 48,323 (19.06) (9,211)
Mortgage-backed securities, available for sale 35,179 28,755 22.34 6,424
Loans (net of allowance for credit losses and
deferred loan fees of $1,481 as of
June 30, 1999 and $1,620 as of
December 31, 1998) 260,585 248,808 4.73 11,777
Premises and equipment, net 13,076 12,894 1.41 182
Other real estate owned, net 531 1,003 (47.06) (472)
Goodwill 71 74 (4.05) (3)
Other assets 8,889 6,830 30.15 2,059
--------- --------- --------- --------
Total assets 484,828 455,164 6.52 29,664
========= ========== ========= ========
Liabilities and shareholders' equity
Liabilities
Deposits 341,191 344,845 (1.06) (3,654)
Securities sold under agreements to repurchase 32,948 29,592 11.34 3,356
Federal funds purchased and FHLB borrowings 64,700 34,900 85.39 29,800
Guaranteed Preferred Beneficial Interests in
the Company's Junior Subordinated Debentures 16,249 16,249 0.00 0
Other liabilities 2,714 2,151 26.17 563
--------- --------- --------- --------
Total liabilities 457,802 427,737 7.03 30,065
Shareholders' equity
Preferred shares, 5,000,000 shares authorized,
0 shares issued and outstanding as of
June 30,1999 0 0 0.00 0
Common shares, $1.175 par value, 20,000,000
shares authorized, 5,028,584 shares issued
and outstanding as of June 30, 1999
and 4,994,984 as of December 31, 1998 5,910 5,870 0.68 40
Additional paid in capital 15,687 15,551 0.87 136
Accumulated other comprehensive income, net (1,686) (143) 1,079.02 (1,543)
Retained earnings 7,115 6,149 15.71 966
--------- --------- --------- --------
Total shareholders' equity 27,026 27,427 (1.46) (401)
--------- --------- --------- --------
Total liabilities and shareholders' equity 484,828 455,164 6.52 29,664
========= ========= ========= ========
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 June 30, % $
1999 1998 Change Change
----------- ----------- ---------- -----------
Interest income
Interest and fees on loans 7,559 6,474 16.76 1,085
Interest on mortgage backed securities, taxable 577 24 2,304.17 553
Interest on investment securities, taxable 653 909 (28.16) (256)
Interest on investment securities, nontaxable 18 32 (43.75) (14)
Other interest income 9 43 (79.07) (34)
-------- -------- --------- ---------
Total interest income 8,816 7,482 17.83 1,334
Interest expense
Deposits 3,134 3,248 (3.51) (114)
Securities sold under agreements to repurchase 287 316 (9.18) (29)
Federal funds purchased and FHLB advances 719 110 553.64 609
Trust preferred securities 354 0 100.00 354
Other borrowed money 0 1 (100.00) (1)
-------- -------- --------- ---------
Total interest expense 4,494 3,675 22.29 819
Net interest income 4,322 3,807 13.53 515
Provision for loan losses 513 151 239.74 362
-------- -------- --------- ---------
Net interest income after loan loss 3,809 3,656 4.18 153
Noninterest income
Service charges & fees 655 454 44.27 201
Gain on sale of mortgage loans 433 248 74.60 185
Gain on sale of securities 19 6 216.67 13
Gain on sale of servicing 3 50 (94.00) (47)
Broker loan fees 38 34 11.76 4
Merchant fees 299 205 45.85 94
Other income 242 175 38.29 67
-------- -------- --------- ---------
Total noninterest income 1,689 1,172 44.11 517
Noninterest expense
Salaries & employee benefits 2,239 1,759 27.29 480
Net occupancy expense 287 223 28.70 64
Furniture and equipment expenses 364 211 72.51 153
Data processing fees 205 135 51.85 70
Interchange fee expenses 194 133 45.86 61
Legal fees 102 253 (59.68) (151)
Litigation settlement 0 525 (100.00) (525)
Other expense 1,239 1,292 (4.10) (53)
-------- -------- --------- ---------
Total noninterest expense 4,630 4,531 2.18 99
Income before income taxes 868 297 192.26 571
Provision for income taxes 304 104 192.31 200
-------- -------- --------- ---------
Net income 564 193 192.23 371
======== ======== ========= =========
Earnings per share (actual $'s)
Basic 0.11 0.04
Diluted 0.11 0.04
Average number of shares outstanding
Basic 5,028,584 4,994,599
Diluted 5,029,296 5,024,054
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)
Six Months ended June 30, % $
1999 1998 Change Change
----------- ----------- ---------- -----------
Interest income
Interest and fees on loans 14,792 12,285 20.41 2,507
Interest on mortgage backed securities, taxable 1,026 122 740.98 904
Interest on investment securities, taxable 1,387 1,941 (28.54) (554)
Interest on investment securities, nontaxable 41 49 (16.33) (8)
Other interest income 13 186 (93.01) (173)
--------- --------- -------- --------
Total interest income 17,259 14,583 18.35 2,676
Interest expense
Deposits 6,329 6,488 (2.45) (159)
Securities sold under agreements to repurchase 572 549 4.19 23
Federal funds purchased and FHLB advances 1,236 195 533.85 1,041
Trust preferred securities 708 0 100.00 708
Other borrowed money (1) 26 (103.85) (27)
--------- --------- -------- --------
Total interest expense 8,844 7,258 21.43 1,586
Net interest income 8,415 7,325 14.88 1,090
Provision for loan losses 828 275 201.09 553
--------- --------- -------- --------
Net interest income after loan loss 7,587 7,050 7.62 537
Noninterest income
Service charges & fees 1,265 875 44.57 390
Gain on sale of loans 566 406 39.41 160
Gain on sale of securities 28 128 (78.13) (100)
Gain on sale of servicing 10 72 (86.11) (62)
Broker loan fees 60 88 (31.82) (28)
Merchant fees 573 392 46.17 181
Other income 531 315 68.57 216
--------- -------- --------- -------
Total noninterest income 3,033 2,276 33.26 757
Noninterest expense
Salaries & employee benefits 4,204 3,268 28.64 936
Net occupancy expense 570 418 36.36 152
Furniture and equipment expenses 684 451 51.66 233
Data processing fees 470 487 (3.49) (17)
Interchange fee expense 370 249 48.59 121
Legal fees 192 875 (78.06) (683)
Litigation settlement 0 525 (100.00) (525)
Other expense 2,642 2,134 23.81 508
--------- --------- --------- -------
Total noninterest expense 9,132 8,407 8.62 725
Income before income taxes 1,488 919 61.92 569
Provision for income taxes 521 322 61.80 199
--------- --------- --------- -------
Net income 967 597 61.98 370
========== ========= ========= =======
Earnings per share (actual $'s)
Basic 0.19 0.12
Diluted 0.19 0.12
Average Number of shares outstanding
Basic 5,019,488 4,994,542
Diluted 5,024,998 5,023,755
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)
Six Months ended June 30,
1999 1998
---------- ---------
Cash flows from operating activities:
Net income 967 597
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 828 275
Net gain on sale of investment securities (28) (126)
Net gain on sale of loans (566) (406)
Net gain on sale of mortgage servicing rights (10) (72)
Depreciation 635 415
Origination of loans held for sale (net of repayments) (41,388) (33,099)
Proceeds from sales of loans held for sale 38,559 23,850
Net amortization of premiums and accretion of
discounts on investment securities 44 (12)
Increase in other liabilities 563 1,533
(Increase) decrease in other assets (1,572) (2,220)
-------- --------
Total adjustments (2,935) (9,862)
-------- --------
Net cash provided by operating activities (1,968) (9,265)
-------- --------
Cash flows from investing activities:
Loan originations, net of repayments (12,162) (39,236)
Purchases of bank premises and equipment (817) (2,824)
Proceeds from sales and maturities of available for
sale investment securities 13,670 34,561
Purchases of available for sale investment
securities, net of repayments (12,442) (21,932)
Recoveries on loans charged off 121 62
--------- --------
Net cash used in investing activities (11,630) (29,369)
--------- --------
Cash flows from financing activities:
Net increase in demand deposits, NOW
and savings accounts 7,257 19,262
Net increase (decrease) in time deposits (10,911) (4,989)
Net increase in securities sold under agreements to
repurchase 3,356 11,539
Net proceeds from advances (repayments)from the
FHLB and Federal Funds purchased 29,800 8,501
Proceeds from issuance of stock 175 0
--------- ---------
Net cash provided by financing activities 29,677 34,313
--------- ---------
Net increase (decrease) in cash and cash equivalents 16,079 (4,321)
Cash and cash equivalents at beginning of period 20,319 18,396
--------- ---------
Cash and cash equivalents at end of period 36,398 14,075
========= =========
Supplemental disclosures:
Interest paid 8,729 7,103
========= =========
Income taxes paid 315 665
========= =========
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 organized a wholly-owned Florida subsidiary corporation, Freedom
Finance Company, ("Finance Company"), pursuant to which it engages in full
service consumer financing. The Finance Company was incorporated on March 26,
1997 and opened for business on March 31, 1998. 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.
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. 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 six month periods ended June 30, 1999 are not
necessairly 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,
1998 Form 10-K. This quarterly report should be read in conjunction with such
annual report.
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 June 30, 1999, an unrealized loss, net
of tax, of $1,686,000 was reflected as a decrease of shareholders' equity.
Page 5
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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:
Six Months Three Months
ended June 30, ended June 30,
1999 1998 1999 1998
--------- --------- --------- ---------
Weighted average common shares outstanding........... 5,019,488 4,994,542 5,028,584 4,994,599
Weighted average common shares equivalents........... 5,510 29,213 712 29,455
--------- --------- --------- ---------
Shares used in diluted earnings per share calculation 5,024,998 5,023,755 5,029,296 5,024,054
========= ========= ========= =========
Note 5. 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, $ in thousands)
Six months ended June 30,
1999 1998
---- ----
Net income (loss) 967 597
Other comprehensive earnings (losses):
Unrealized gains (losses) on securities (1,543) (73)
------- -------
Comprehensive income (576) 524
Note 6. Impact of Recently Issued Accounting Standards
Financial Accounting Standards Board Statement (FAS) No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133 -- an amendment of FASB Statement No. 133," was
issued in June 1999 and was effective upon issuance. As issued, FAS No. 133 was
to be effective for all fiscal quarters of all fiscal years beginning after June
15, 1999, with earlier application encouraged. This statement amends FAS No.133
by deferring the effective date of FAS No. 133 to all fiscal quarters of all
fiscal years beginning after June 15, 2000. See additional analysis below for
the impact of FAS No. 133.
Page 6
AMERICAN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 6. Impact of Recently Issued Accounting Standards (continued)
FAS No. 134, "Accounting for Mortgage-Backed Securities retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Entity,"
amends FAS No. 65 allowing mortgage-backed securities or other retained
interests arising from the securitization of mortgage loans to be classified
based on the mortgage banking entities' ability and intent to sell of hold those
securities. Previously these securities had to be held within a trading account.
This statement became effective in the first quarter of 1999 and had no impact
on the financial statements.
FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
requires all derivatives to be recorded on the balance sheet at fair value and
establishes standard accounting methodologies for hedging activities. The
standard will result in the recognition of offsetting changes in value or cash
flows of both the hedge and the hedged item in earnings or comprehensive income
in the same period. The statement, as amended by FAS No. 137, is effective for
the Company's fiscal year ending December 31, 2001. Because the Company does not
currently hold any derivative investments, the adoption of this statement is not
expected to have an impact on the financial statements.
Page 7
PART 1
ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
American Bancshares, Inc. and Subsidiaries
Forward Looking Statements
This Quarterly Report on Form 10-Q (including the Exhibits hereto) contains
certain "forward-looking statements" within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, such as
statements relating to, among other things, 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, year 2000 readiness, and the business of
the Company and its subsidiaries. Where used in this filing, the words
"anticipate", "believe", "estimate", "expect", "intend", "plan", 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 including the report on Form
10-K for the year ended December 31, 1998.
Liquidity and Capital Resources
Total assets of the Company increased by 6.52% to $484,828,000 as of June 30,
1999 from $455,164,000 as of December 31, 1998 and 24.2% from $390,276,000 as
of June 30, 1998. The increase in assets from December 31, 1998, was primarily
the result of increases in net loans of $14,606,000 to $351,572,000 and mortgage
backed securities of $6,424,000 to $35,179,000. The increases in assets were
funded through increases in Securities Sold Under Agreements to Repurchase of
$3,356,000 to $32,948,000 and increases in borrowings of $29,800,000 to
$64,700,000.
As of June 30, 1999, the Bank's Tier 1 leverage ratio was 8.06%, Tier 1 to risk
weighted assets was 11.28% and total risk based capital was 11.91%, 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 June 30, 1999 of 43.31%. The Bank is a member
of the Federal Home Loan Bank of Atlanta (FHLB). FHLB has approved a line of
credit totaling $75,000,000 collateralized by qualifying mortgages and all of
the Bank's FHLB stock. As of June 30, 1999, advances totaling $64,700,000 were
outstanding. The Bank also maintains Federal Funds Purchased agreements with
several correspondent banks to provide sources of overnight funds. As of June
30, 1999, the Bank had no federal funds purchased.
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.
Page 8
Management's Discussion and Analysis of Financial Condition and Results of
Operations
PART 1.
ITEM 2. (continued)
Results of Operations
The Company's net income for the quarter ended June 30, 1999 was $564,000 or
$.11 per share, compared to net income of $193,000 or $.04 per share for the
same period for 1998. Net interest income increased $515,000 to $4,322,000 for
the quarter ended June 30, 1999, over the same quarter in 1998, as a result of
the increase in interest earning assets. Non-interest income increased from
$1,172,000 for the quarter ended June 31, 1998 to $1,689,000 for the same period
in 1999. The increase in non-interest income is primarily attributable to
increases in service charges and fees on deposits of $201,000; an increase in
gain on the sale of mortgage loans of $185,000 and credit card merchant services
fee income of $94,000; other income of $67,000; gain on sale of securities of
$13,000 and broker loan fees of $4,000 partially offset by a decrease of $47,000
in gain on sale of servicing.
Total general and administrative expense for the quarter ended June 30, 1999,
increased $99,000 over the same period of 1998. This increase resulted primarily
from increases in salaries expense of $480,000; furniture and fixtures expense
of $153,000 and other operating expenses related to the growth in the Company's
assets, the number of Bank branches, and the operation of the Finance Company.
These increases were partially offset by decreases in legal fees of $151,000 and
litigation settlement of $525,000 due primarily to the settlement of certain
litigation in the year ago period.
For the three months ended June 30,1999, net interest income increased $515,000
to $4,322,000, compared to $3,248,000 for the same period in 1998, as a result
of the 24% asset growth. Loan loss provision increased from $151,000 for the
three month period ended June 30, 1998 to $513,000 for the same period in 1999.
During the quarter ended June 30,1999 the Bank charged-off $593,000 of bad debt
that was part of a loan relationship totaling approximately $1 million.
Management believes the remaining loan balances in this relationship are
adequately collateralized and that additional write-downs should not be
necessary. Management continues to monitor the status of this relationship and
intends to take action as appropriate. 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.
For the six months ended June 30, 1999, net income was $967,000 or $.19 per
share, compared to net income of $597,000 or $.12 per share for the same period
for 1998. In 1998 earnings per share were affected by the settlement of certain
litigation 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. In 1999 earnings per share were were affected by
approximately $124,000, after tax, as a result of a severance payment to former
CEO and President Gerald Anthony.
Net interest income increased $1,090,000 to $8,415,000 compared to $7,325,000
for the same period in 1998 as a result of the 24% asset growth. The provision
for loan loss expense increased from $275,000 for the six month period ended
June 30, 1998 to $828,000 for the same period in 1999. During the six months
ended June 30,1999 the Bank charged-off $593,000 of bad debt that was part of a
loan relationship totaling approximately $1 million. Management believes the
remaining loan balances in this relationship are adequately collateralized and
that additional write-downs should not be necessary. Management continues to
monitor the status of this relationship and intends to take action as
appropriate. 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.
Noninterest income increased to $3.0 million for the six months ended June
30,1999 from $2.3 million for the same period for 1998. Significant increases
include service charges and fees of $390,000, merchant fees of $181,000 and gain
on sale of mortgage loans of $160,000.
Noninterest expenses increased $725,000 to $9.1 million for the six months ended
June 30,1999 from $8.4 million for the same period for 1998. Salaries and
employee benefits increased $936,000 to $4.2 million from $3.3 million due to
increased staff size; other expenses increased $508,000 (including $150,000 of
increased loan servicing related expenses) and furniture and equipment expenses
increased $233,000 (including $145,000 of increased depreciation expenses).
These increases were partially offset by decreases in 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.
Page 9
Management's Discussion and Analysis of Financial Condition and Results of
Operations
PART 1.
ITEM 2.A Year 2000 Compliance
Year 2000 issues and state of readiness: The Company is aware of the issues
associated with existing computer-controlled systems properly recognizing and
processing information relating to dates in and after the Year 2000. Systems
that cannot adequately process dates beyond the year 1999 could generate
erroneous data or cause a system to fail. Because the Year 2000 issue poses an
unprecedented enterprise wide challenge for every organization, the Company
formed a Year 2000 Committee ("Y2K Committee"). The Y2K Committee developed a
Year 2000 Project Plan ("Y2K Plan") which addresses both internal and external
technology. The data processing systems and software include those developed and
maintained by the Company's third-party data processing vendors and purchased
software which is run on in-house computer networks.
In 1997 the Company, through the Y2K Committee, initiated a review and
assessment of all hardware and software to confirm that it will function
properly in the Year 2000. Each system was evaluated for its degree of
significance to the operations of the Company and detailed test plans were
developed for those systems determined to be of a critical nature.
Third-party data processing vendors (primarily M&I Data Services, Inc. for its
general ledger, deposits, and portfolio loans; Essex Home Mortgage Servicing
Corp. for its loans held for sale; Compass Bank for its investment portfolio,
and Contour, Inc. for its mortgage loan processing systems) have been contacted
and the Company has obtained verification from these vendors that these systems
will function properly in the Year 2000.
With respect to purchased software and electronic hardware devices currently in
use, the Company has inventoried these items to determine which of these devices
rely on a valid date in order to function. The Company has contacted those
vendors identified through this inventory, who have indicated that their
hardware and software is or will be Year 2000 compliant in time frames that meet
regulatory requirements.
Non-information technology embedded systems consisting primarily of security
systems, HVAC controls and elevators have also been reviewed. These systems were
found to be generally year 2000 compliant.
The Company also has relationships with suppliers and other companies. The
Company has contacted key suppliers of goods or services regarding their Year
2000 readiness. They are in the process of reviewing their systems. The Company
will continue to monitor these suppliers as to their Year 2000 readiness.
Risks associated with year 2000 and contingency plan: Based on information
currently available to the Company, the Company believes that the most
reasonably likely worst case Year 2000 scenario with respect to the Company
relate to the potential failure of third party data processing vendors to become
Year 2000 compliant. The inability of these third party data processing vendors
to complete their Year 2000 remediation processes in a timely fashion could
result in delays in processing daily transactions and could result in a material
and adverse effect on the Company's results of operations and financial
condition. The Company has developed a contingency plan to address potential
failures in these systems. The Company believes that modifications to existing
systems, conversion to new systems, and vendor compliance upgrades will be
resolved on a timely basis.
Expenses related to year 2000 compliance. The Company's current assessment of
cost associated with the completion of its Y2K Plan is not considered by
management to be material to the Company's future operations. Through June 30,
1999, the Company has expended $51,000 on its Y2K Plan and anticipates
additional costs of approximately $129,000, to be incurred in 1999. The cost of
completing the Company's Y2K Plan and the dates on which all procedures will be
completed are based on management's best estimates. These estimates were derived
utilizing various assumptions about future events, including the continued
availability of resources, external technology, modification plans and other
significant factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those currently
anticipated.
Page 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations
PART 1.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
MARKET RISK
One of the Company's primary objectives is to control fluctuations in the
Economic Value of Equity ("EVE") caused by changes in interest rates. The Bank's
Asset/Liability Committee ("ALCO") is responsible for addressing fluctuations in
the EVE. The ALCO utilizes a model that takes into account and evaluates the
market risk of the Bank's financial position. Market risk represents possible
risk of loss from adverse changes in market prices and interest rates. ALCO
monitors the impact of changes in the interest rates through the use of an EVE
model. EVE is the net present value of the balance sheet cash flows. This
measures a sudden increase or decrease in interest rates in 100 basis point
increments and the effect of such change on the net present value of equity. The
following table sets forth the estimated impact of immediate changes in interest
rates as of June 30, 1999:
RATE CHANGE EVE % CHANGE
----------- --------- --------
- 400 $ 49,497 28.16%
- 300 44,573 15.41
- 200 40,946 6.02
- 100 38,869 0.64
0 38,620 0.00
+ 100 39,074 1.18
+ 200 39,681 2.75
+ 300 40,360 4.51
+ 400 41,081 6.37
The preceding table indicates that at June 30, 1999, in the event of a sudden
and sustained increase or decrease in market rates the EVE would be expected to
increase. These changes are the result of repricing opportunities inherent in
the balance sheet. Computations of forecasted efforts of interest rates are
based on numerous assumptions, such as market interest rates, loan growth and
prepayment, deposit maturities and retention and should not be relied upon as
indicative of future results. Also, the computations do not take into effect any
actions that the ALCO could undertake in response to changes in interest rates.
Page 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable this filing.
Item 2. Changes in Securities
On July 8,1999 the Board of Directors of the Company voted to issue 66,800 stock
options pursuant to the "American Bancshares, Inc. 1999 Stock Option and Equity
Incentive Plan." Of these 7,000 stock options were issued to Jerry L. Neff,
President and CEO, 11,500 stock options were issued to senior officers. The
remaining 48,300 stock options were issued to other Company staff members.
The Company intends to file a Registration Statement on Form S-8 to register the
common shares issuable upon exercise of such options prior to the expiration of
the initial vesting period of such options.
Item 3. Defaults Upon Senior Securities
Not applicable this filing.
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of security holders at the
Company's annual meeting on May 21, 1999.
1. To elect twelve persons as Directors.
The following directors, which consisted of all of the existing directors, were
nominated for re-election:
Percentage
For Against Abstain
Ronald L. Larson 74.30 4.30 0.00
Timothy I. Miller 73.84 4.75 0.00
Dan E. Molter 73.94 4.66 0.00
Kirk D. Moudy 73.85 4.75 0.00
Lindell Orr 74.35 4.24 0.00
Lynn B. Powell 74.28 4.32 0.00
Walter L. Presha 74.26 4.34 0.00
J. Gary Russ 72.53 6.06 0.00
R. Jay Taylor 74.27 4.32 0.00
Edward D. Wyke 72.59 6.01 0.00
Of the total of 5,028,584 shares of common stock eligible to vote, there were
3,968,488 shares present in person or by proxy and the above named directors
were re-elected with the results for each noted above.
2. To consider and vote on the adoption of the proposed "American Bancshares,
Inc 1999 Stock Option and Equity Incentive Plan", to be effective March 23,1999.
Of the total of 5,028,584 shares of common stock eligible to vote, there were
3,968,488 shares present in person or by proxy with 3,361,166 votes for, 567,250
votes against and 40,072 votes abstaining. The above named plan was adopted.
Item 5. Other Information
1. In May, 1999, the Company entered into an employment agreement with Brian M.
Watterson, Executive Vice President, Chief Financial Officer and Chief
Operations Officer. The employment agreement is filed as exhibit 10.1 of this
Form 10-Q is incorporated herein by reference.
2. In May, 1999, the Company entered into an employment agreement with John
Nash, Vice President, Commercial Loan Production Manager. The employment
agreement is filed as exhibit 10.2 of this Form 10-Q is incorporated herein by
reference.
3. In May, 1999, the Company entered into an employment agreement with David R.
Mady, Senior Vice President & Chief Investment Officer. The employment agreement
is filed as exhibit 10.3 of this Form 10-Q is incorporated herein by reference.
4. In May, 1999, the Company entered into an employment agreement with Stuart M.
Gregory, Executive Vice President, Retail Loan Production Manager of the Bank.
The employment agreement is filed as exhibit 10.4 of this Form 10-Q is
incorporated herein by reference.
Page 12
PART II - OTHER INFORMATION
Item 5. Other Information (continued)
5. In May, 1999, the Company entered into an employment agreement with Jerry L.
Neff President of American Bancshares, Inc and Subsidiaries. The employment
agreement is filed as exhibit 10.5 of this Form 10-Q is incorporated herein by
reference.
The employment agreements referenced above were part of an overall management
restructuring undertaken by the Company during the first half of 1999. As part
of this restructuring, in May 1999 the Company exercised its option to terminate
its employment agreements with Messrs. Mady and Coon, and offered them new
employment agreements consistent with those offered to other members of
management. Mr. Mady has accepted this arrangement and has entered into the
employment agreement filed herewith as Exhibit 10.3. Mr. Coon has not accepted
the new employment agreement and he disputes the termination of the prior
contract. However, Mr. Coon continues to be employed by the Company on the basis
set forth in the proposed employment agreement and the Company has offered to
continue his employment on such basis.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1-- Employment Agreement dated May 19, 1999 by and
between Brian M. Watterson and American Bancshares, Inc.
10.2-- Employment Agreement dated May 25, 1999 by and
between John Nash and American Bank.
10.3-- Employment Agreement dated June 23, 1999 by and
between David R. Mady and American Bank.
10.4-- Employment Agreement dated May 19, 1999 by and
between Stuart M. Gregory and American Bank.
10.5-- Employment Agreement dated May 25, 1999 by and
between Jerry L. Neff and American Bancshares, Inc.
(b) Reports on Form 8-K
On May 5, 1999 the Company filed a report on Form 8-K announcing the
resignation of Mr. Gerald L. Anthony as Chief Executive Officer and President of
the Company pursuant to the terms of a Severance Agreement approved by
the Board of Directors of the Company, which agreement modifies and clarifies
the terms of Mr. Anthony's Employment Agreement as it relates to his separation
from the Company and its subsidiaries.
On May 21, 1999 the Company filed a report on Form 8-K announcing the
appointment of Mr. Jerry L. Neff to serve as the President and Chief Executive
Officer of the Company and each of its corporate subsidiaries, including
American Bank, its wholly-owned commercial banking subsidiary.
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/ Jerry L. Neff
-----------------------------------
Jerry L. Neff, President and
Chief Executive Officer
Date: August 12, 1999
-------------------
/s/ Brian M. Watterson
-----------------------------------
Brian M. Watterson
Senior Vice President and
Chief Financial Officer
Date: August 12, 1999
-------------------