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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
Commission file number: 0-25160
ALABAMA NATIONAL BANCORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 63-1114426
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
1927 FIRST AVENUE NORTH, BIRMINGHAM, AL 35203-4009
(Address of principal executive offices) (Zip Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $1.00 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant at March 3, 1997 was $60,851,080.
As of March 3, 1997, the registrant had outstanding 6,515,418 shares of its
common stock.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS FORM 10-K:
(i) The Registration Statement on Form S-1 with respect to the common stock
of Alabama National BanCorporation (Commission File No. 33-83800) is
incorporated by reference into Part IV of this report.
(ii) The Registration Statement on Form S-4 with respect to the common
stock of Alabama National BanCorporation (Commission File No. 33-97152) is
incorporated by reference into Part IV of this report.
(iii) Alabama National BanCorporation's Form 10-K for the year ended
December 31, 1994 is incorporated by reference in Part IV of this report.
(iv) Alabama National BanCorporation's Form 10-K for the year ended
December 31, 1995 is incorporated by reference into Part IV of this report.
(v) Alabama National BanCorporation's Form 8-K filed on October 10, 1996 is
incorporated by reference into Part IV of this report.
(vi) The definitive Proxy Statement for the 1997 Annual Meeting of Alabama
National BanCorporation's stockholders is incorporated by reference into Part
III of this report.
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TABLE OF CONTENTS
ITEM NO. PAGE NO.
- -------- --------
FORWARD LOOKING INFORMATION........................................... 3
PART I
1. Business.................................................... 4
Executive Officers.......................................... 14
2. Properties.................................................. 15
3. Legal Proceedings........................................... 15
4. Submission of Matters to a Vote of Security Holders......... 15
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
6. Selected Financial Data..................................... 16
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 18
8. Financial Statements and Supplementary Data................. 40
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 40
PART III
10. Directors and Executive Officers of the Registrant.......... 41*
11. Compensation of Executive Officers and Directors............ 41*
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 41*
13. Certain Relationships and Related Transactions.............. 41*
PART IV
14. Exhibits and Reports on Form 8-K............................ 42
SIGNATURES............................................................ 43
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* Portions of the Proxy Statement for the Registrant's Annual Meeting of
Stockholders to be held on April 24, 1997 are incorporated by reference in
Part III of this Form 10-K.
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FORWARD LOOKING INFORMATION
This Form 10-K contains certain forward looking information with respect to
the financial condition, results of operations and business of ANB including
statements relating to: (A) interest sensitivity; (B) noninterest income; (C)
loan losses; (D) deposits; (E) growth in various categories of loans; and (F)
sources of funding for asset growth. These forward looking statements involve
certain risks, uncertainties, estimates and assumptions by management. Factors
that may cause actual results to differ materially from those contemplated by
such forward looking statements include, among others, the following: (1) the
rate of growth of the economy, especially in the Southeast; (2) the stability of
interest rates; (3) relative strength/weakness in the consumer credit sector;
(4) ANB's ability to improve sales and service quality and to develop profitable
new products; (5) the successful implementation of technological enhancements;
(6) the strength of the real estate markets; (7) whether levels of consumer
confidence remain high; and (8) the performance of the stock and bond markets.
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PART I
ITEM 1. BUSINESS
Alabama National BanCorporation ("ANB") is a Delaware bank holding company
with its principal place of business in Birmingham, Alabama, and its main office
located at 1927 First Avenue North, Birmingham, Alabama 35203 (Telephone Number:
(205) 583-3600). ANB is currently the parent of two national banks, National
Bank of Commerce of Birmingham (Birmingham, Alabama and the Birmingham
metropolitan area) and First National Bank of Ashland (Ashland, Alabama); and
five state member banks, Alabama Exchange Bank (Tuskegee, Alabama), Bank of
Dadeville (Dadeville, Alabama), First Bank of Baldwin County and Gulf Bank
(Baldwin County, Alabama), and Citizens Bank of Talladega (Talladega, Alabama)
(collectively the "Banks"); one securities brokerage firm, NBC Securities, Inc.
(Birmingham, Alabama); one insurance agency, Ashland Insurance, Inc. (Ashland,
Alabama); and two "small loan"/ finance companies, Clay County Finance Company,
Inc. (Ashland, Alabama) and Tuskegee Loan Company, Inc. (Tuskegee, Alabama).
RECENT DEVELOPMENTS
FIRSTBANC Merger
Effective September 30, 1996, FIRSTBANC Holding Company, Inc., an Alabama
bank holding company with approximately $36 million in total assets
("FIRSTBANC"), merged with and into ANB pursuant to that certain Agreement and
Plan of Merger dated as of June 10, 1996 (the "Merger Agreement") resulting in
(i) the stockholders of FIRSTBANC becoming stockholders of ANB and (ii) ANB
becoming the sole stockholder of FIRSTBANC's wholly-owned subsidiary, First Bank
of Baldwin County, a state non-member bank.
The Merger Agreement generally provided, among other things, for the merger
of FIRSTBANC with and into ANB, pursuant to which each of the 42,782 outstanding
shares of FIRSTBANC's common stock were converted into the right to receive
7.12917 shares of ANB Common Stock, for a total of 305,000 shares of ANB Common
Stock.
St. Clair/NBC Merger
Effective October 17, 1996, St. Clair Federal Savings Bank, a federal
savings bank and a wholly-owned subsidiary of ANB ("St. Clair"), was merged with
and into National Bank of Commerce of Birmingham ("NBC"). As a result of the
merger, St. Clair ceased to exist and all of the assets and liabilities of St.
Clair became the assets and liabilities of NBC. Each of the three (3) branch
offices of St. Clair have been renamed as "National Bank of Commerce."
Furthermore, because St. Clair was the only thrift held by ANB, ANB is no longer
a thrift holding company and is thus no longer regulated by the Office of Thrift
Supervision which regulates thrift holding companies.
Resignation and Appointment of Executive Officers
On December 12, 1996, Frank W. Whitehead, C.P.A., resigned as Treasurer and
Chief Financial Officer of ANB. Mr. Whitehead continued to serve as Executive
Vice President of ANB until his death on February 11, 1997. On December 12,
1996, the Board of Directors appointed James S. Parks, Jr., as Senior Vice
President-Finance, Controller and Treasurer to replace Mr. Whitehead as the new
principal financial and accounting officer of ANB. The Board of Directors has
chosen not to bestow the title of Chief Financial Officer at this time.
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SUBSIDIARY BANKS
ANB operates through six community banks ("Community Banks") and NBC, which
is a metropolitan bank, which are set forth in the following table:
BANKING OFFICE POPULATION
BANK CITY/COUNTY CITY/COUNTY(1) OFFICES
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Alabama Exchange Bank Tuskegee/Macon 12,257/24,928 1
Bank of Dadeville Dadeville/Tallapoosa 3,276/38,826 1
Camp Hill/Tallapoosa 1,415/38,826 1
Jackson's Gap/Tallapoosa 789/38,826 1
Citizens Bank of Talladega Talladega/Talladega 18,175/74,107 2
First National Bank of Ashland Ashland/Clay 2,034/13,252 2
Lineville/Clay 2,394/13,252 1
Gulf Bank Orange Beach/Baldwin 2,253/98,280 1
Gulf Shores/Baldwin 3,261/98,280 1
Foley/Baldwin 4,937/98,280 1
National Bank of Commerce Birmingham/Jefferson 265,968/651,525 2
of Birmingham Mountain Brook/Jefferson 19,810/651,525 2
Hoover/Jefferson 12,817/651,525 1
Irondale/Jefferson 9,454/651,525 1
Hueytown/Jefferson 15,280/651,525 1
Bessemer/Jefferson 30,966/651,525 1
Trussville/Jefferson 10,803/651,525 1
Center Point/Jefferson 22,658/651,525 1
Inverness/Shelby 2,518/99,358 1
Meadowbrook/Shelby 4,621/99,358 1
Pelham/Shelby 9,765/99,358 1
Alabaster/Shelby 14,627/99,358 1
Pell City/St. Clair 8,118/50,009 1
Springville/St. Clair 1,910/50,009 1
Moody/St. Clair 4,921/50,009 1
First Bank of Baldwin County Robertsdale/Baldwin 2401/98,280 1
Bay Minette/Baldwin 7,168/98,280 1
Daphne/Baldwin 11,290/98,280 1
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(1) 1990 U.S. Census data.
The Banks focus on traditional consumer, residential mortgage, commercial
and real estate construction lending to customers in their market areas. The
Banks also offer a variety of deposit programs to individuals and small
businesses and other organizations at interest rates generally consistent with
local market conditions. NBC offers trust services and investment services
(including public finance). In addition, the Banks offer individual retirement
and KEOGH accounts, safe deposit and night depository facilities and additional
services such as the sale of traveler's checks, money orders and cashier's
checks.
LENDING ACTIVITIES
General
Through the Banks, ANB offers a range of lending services, including real
estate, consumer and commercial loans, to individuals and small businesses and
other organizations that are located in or conduct a substantial portion of
their business in the Banks' market areas. ANB's total loans, net of unearned
interest, at December 31, 1996, were approximately $611.4 million, or
approximately 75.4% of total earning assets. The interest rates charged on loans
vary with the degree of risk, maturity and amount of the loan and are further
subject to competitive pressures, money market rates, availability of funds and
government regulations. ANB has no foreign loans or loans for "highly leveraged
transactions" as defined by applicable banking regulations.
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Loan Portfolio
Real Estate Loans. Loans secured by real estate are the primary component
of ANB's loan portfolio, constituting approximately $374.6 million, or 61.3% of
total loans, net of unearned interest, at December 31, 1996. The Banks'
predominant real estate loans are residential mortgages. Residential mortgages,
both fixed and variable, are made for terms of up to 30 years and generally
require monthly amortization. The majority of the Banks' commercial mortgages
are at variable rates, which approximate current market rates. Construction
loans are made on a variable rate basis. Origination fees are normally charged
for all loans secured by real estate. The Banks' primary type of residential
mortgage loan is the single-family first mortgage, typically structured with
fixed or adjustable interest rates, based on market conditions. Fixed rate loans
usually have terms of five years, with payments through the date of maturity
generally based on a 15 or 30 year amortization schedule. Adjustable rate loans
generally have a term of 15 years.
The Banks originate residential loans for sale into the secondary market.
Such loans are made in accordance with underwriting standards set by the
purchaser of the loan, normally as to loan-to-value ratio, interest rate and
documentation. The Banks generally collect from the borrower or purchaser a
combination of the origination fee, discount points and/or service release fee.
During 1996, the Banks sold approximately $30.1 million in loans to such
purchasers.
The Banks' nonresidential mortgage loans include commercial, industrial and
unimproved real estate loans. The Banks generally require nonresidential
mortgage loans to have an 80% loan-to-value ratio and usually underwrite their
commercial loans on the basis of the borrower's cash flow and ability to service
the debt from earnings, rather than on the basis of the value of the collateral.
Terms on construction loans are usually less than twelve months, and the Banks
typically require real estate mortgages and personal guarantees supported by
financial statements and a review of the guarantor's personal finances.
Consumer Loans. Consumer lending includes installment lending to
individuals in the Banks' market areas and consists of loans to purchase
automobiles, appliances and other consumer durable goods. Consumer loans
constituted $46.9 million, or 7.7% of ANB's loan portfolio at December 31, 1996.
Consumer loans are underwritten based on the borrower's income, current debt
level, past credit history and collateral. Consumer rates are both variable and
fixed, with terms negotiable. At the Community Banks, terms generally range from
four to five years on automobile loans and one to ten years on loans for other
consumer durable goods, depending on the nature and condition of the collateral.
Periodic amortization, generally monthly, is required.
Two of the Community Banks have subsidiaries that operate as "small loan
companies" under the Alabama banking laws. Small loan companies are authorized
to make loans not exceeding $750. The majority of these loans are unsecured and
have maturities of one year or less. The principal advantage for operating small
loan companies is the ability to charge higher interest rates than those
otherwise allowed under Alabama law. Both of these small loan companies are in
the process of winding down operations.
Commercial, Financial and Agricultural Loans. The Banks make loans for
commercial purposes in various lines of business. These loans are typically made
on terms up to five years at fixed or variable rates. The loans are secured by
accounts receivable, inventory or, in the case of equipment loans, the financed
equipment. The Banks attempt to reduce their credit risk on commercial loans by
limiting the loan to value ratio. Historically, the Community Banks and NBC have
loaned up to 65% and up to 80%, respectively, on loans secured by accounts
receivable, up to 65% and up to 50%, respectively, on loans secured by
inventory, and up to 75% and up to 80%, respectively, on loans secured by
equipment. The Banks also make unsecured commercial loans. Commercial, financial
and agricultural loans constituted $162.5 million, or 26.6% of ANB's loan
portfolio at December 31, 1996. Interest rates are negotiable based upon the
borrower's financial condition, credit history, management stability and
collateral.
Credit Procedures and Review
Loan Approval. Certain credit risks are inherent in making loans. These
include prepayment risks, risks resulting from uncertainties in the future value
of collateral, risks resulting from changes in economic and
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industry conditions and risks inherent in dealing with individual borrowers. In
particular, longer maturities increase the risk that economic conditions will
change and adversely affect collectibility.
ANB attempts to minimize loan losses through various means and uses
standardized underwriting criteria. In particular, on larger credits, ANB
generally relies on the cash flow of a debtor as the source of repayment and
secondarily on the value of the underlying collateral. In addition, ANB attempts
to utilize shorter loan terms in order to reduce the risk of a decline in the
value of such collateral.
ANB addresses repayment risks by adhering to internal credit policies
and procedures of which all of the Banks have adopted. These policies and
procedures include officer and customer lending limits, a multi-layered loan
approval process for larger loans, documentation examination and follow-up
procedures for any exceptions to credit policies. The point in each Bank's loan
approval process at which a loan is approved depends on the size of the
borrower's credit relationship with such Bank. For example, at NBC, each of the
lending department managers has the authority to approve loans up to $350,000.
Upon approval by ANB's Board of Directors, other loan officers may be
authorized to approve loans of lower amounts. Loans in excess of $50,000 are
approved and ratified by the Senior Loan Committee of NBC. Loans in excess of
$300,000 are approved and ratified by the Executive Committee of the NBC Board
of Directors.
Loan Review. ANB maintains a continuous loan review system. Under this
system, each loan officer is directly responsible for monitoring the risk in his
portfolio and is required to maintain risk ratings for each credit assigned. The
risk rating system incorporates the basic regulatory rating system as set forth
in the applicable regulatory asset quality examination procedures.
NBC's Loan Review Department ("LRD"), which is wholly independent of the
lending function, serves as a validation of each loan officer's risk monitoring
and rating system. LRD's primary function is to provide the Board of Directors,
through it Loan Review Committee, with a thorough understanding of the credit
quality of NBC's loan portfolio. LRD is required to review approximately 60% of
the annual average loan portfolio of each of the Banks during any continuous 12
month period. The review process includes coverage of at least 50% of all loan
relationships between $250,000 and $750,000 and coverage of 100% of all loan
relationships over $750,000. Other review requirements are in place to provide
management with early warning systems for problem credits as well as compliance
with stated lending policies. LRD's findings are reported monthly to the Loan
Review Committee of the NBC Board of Directors.
DEPOSITS
The principal sources of funds for the Banks are core deposits, consisting
of demand deposits, interest-bearing transaction accounts, money market
accounts, savings deposits and certificates of deposit. Transaction accounts
include checking and negotiable order of withdrawal (NOW) accounts which
customers use for cash management and which provide the Banks with a source of
fee income and cross-marketing opportunities, as well as a low-cost source of
funds. Time and savings accounts also provide a relatively stable and low-cost
source of funding. The largest source of funds for the Banks are certificates of
deposit. Certificates of deposit in excess of $100,000 are held primarily by
customers in the Banks' market areas. The Banks have not historically funded
their balance sheet with brokered certificates of deposit.
Deposit rates are set weekly by senior management of each of the Banks,
subject to approval by management of ANB. Management believes that the rates the
Banks offer are competitive with those offered by other institutions in the
Banks' market areas. ANB focuses on customer service to attract and retain
deposits.
INVESTMENT SERVICES
NBC has operated an investment department devoted primarily to handling
correspondent banks' investment needs since the mid-1980's. Because the
department has been relatively small in recent years, the contribution to
earnings has been moderate. In May of 1995, NBC expanded this operation
significantly with a staff of investment professionals formerly employed by
another financial institution. It is anticipated that the
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expanded investment department and ancillary business associated with servicing
this market will contribute to bank earnings at a higher rate than has
historically been the case.
NBC also has a wholly-owned subsidiary, NBC Securities, Inc. ("NBC
Securities"), that is licensed as a brokerdealer. In 1995, NBC re-activated NBC
Securities' broker-dealer license to provide investment services to individuals
and institutions. These services include the sale of stocks, corporate bonds,
mutual funds, annuities, other insurance products and financial planning.
COMPETITION
The Banks encounter strong competition in making loans, acquiring deposits
and attracting customers for investment services. Competition among financial
institutions is based upon interest rates offered on deposit accounts, interest
rates charged on loans, other credit and service charges relating to loans, the
quality and scope of the services rendered, the convenience of banking
facilities and, in the case of loans to commercial borrowers, relative lending
limits. The Banks compete with other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking companies, and other financial
intermediaries operating in Alabama and elsewhere. Many of these competitors,
some of which are affiliated with large bank holding companies, have
substantially greater resources and lending limits, and may offer certain
services that the Banks do not currently provide. In addition, many of ANB's
non-bank competitors are not subject to the same extensive federal regulations
that govern bank or thrift holding companies and federally insured banks or
thrifts.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "IBBEA") authorized bank holding companies to acquire banks and other bank
holding companies without geographic limitations beginning September 30, 1995.
The arrival of interstate banking is expected to increase further the
competitiveness of the banking industry.
In addition, beginning on June 1, 1997, the IBBEA will authorize interstate
mergers and consolidations of existing banks, provided that neither bank's home
state has opted out of interstate branching by May 31, 1997. The State of
Alabama has opted in to interstate branching effective on or before June 1,
1997. Once a bank has established branches in a state through an interstate
merger, the bank may establish and acquire additional branches at any location
in the state where any bank involved in the interstate merger could have
established or acquired branches under applicable federal or state law.
Size gives the larger banks certain advantages in competing for business
from large corporations. These advantages include higher lending limits and the
ability to offer services in other areas of Alabama and the southeast region.
Some of ANB's competitors still maintain substantially greater resources and
lending limits than ANB. As a result, ANB has not generally attempted to compete
for the banking relationship of large corporations, and generally concentrates
its efforts on small businesses and individuals to which ANB believes it has
competed effectively by offering quality, personal service. Nonetheless, due to
the merger whereby NBC became a wholly-owned subsidiary, management believes it
may be able to compete more effectively for the business of some large
corporations.
Management believes that NBC's commitment to an involvement in its primary
market areas, as well as its commitment to quality and personalized banking
services, are factors that contribute to NBC's competitiveness. Management
believes that, with regard to the Community Banks, as a result of ANB's
decentralized community banking strategy and its emphasis on non-metropolitan
markets, the Community Banks are well positioned to compete successfully in
their market areas. Management believes that the Community Banks' commitment to
and involvement in their primary market areas, as well as their commitment to
quality and personalized banking services, are factors that contribute to ANB's
competitiveness.
MARKET AREAS AND GROWTH STRATEGY
Through NBC, ANB serves the lower half of Jefferson County, the upper third
of Shelby County, and western St. Clair County, primarily in the Birmingham
metropolitan area. The Community Banks generally operate in less competitive,
non-metropolitan areas with a decentralized approach to banking. The Commu-
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nity Banks are located in central and southern Alabama. Through Gulf Bank and
First Bank of Baldwin County, ANB serves Baldwin County, Alabama. Located
between Mobile, Alabama and Pensacola, Florida, Baldwin County has a broad base
of economic activity in retail and service industries, agriculture, seafood,
aquaculture, tourism and manufacturing. Shelby, Baldwin and St. Clair Counties
have been named in statistical surveys as three of the fastest growing counties
in Alabama.
Due to continuing consolidation within the banking industry, as well as in
the state of Alabama, ANB may in the future seek to combine with other banks or
thrifts (or their holding companies) that may be of equal or greater size than
ANB in order to make ANB more attractive to potential acquisition or business
combination candidates and to provide capital for internal growth so that ANB
will be less dependent on business acquisitions or combinations for its growth.
ANB currently intends to concentrate on acquisitions that will expand NBC's
branch network in the Birmingham metropolitan area and acquisitions of
additional banks or thrifts (or their holding companies) which operate in rural
areas. In addition to price and terms, the factors considered by ANB in
determining the desirability of a business acquisition or combination are
financial condition, earnings potential, quality of management, market area and
competitive environment.
Due to capital limitations associated with the long-term debt incurred by
ANB in its acquisitions, ANB has historically not emphasized internal growth.
However, because ANB now operates in three of the fastest growing counties in
Alabama, management of ANB believes that the Banks could enhance growth by more
aggressively pursuing additional deposits and loans in these counties. Gulf Bank
has recently completed construction of a new branch in Gulf Shores, Alabama and
intends to further expand its presence in the Baldwin County area. NBC intends
to further expand its business in northern Shelby County, Alabama through its
recently completed construction of a new branch in Meadowbrook, Alabama. Also,
ANB intends to expand into lines of business closely related to banking if it
believes these lines could be profitable without undue risk to ANB.
There is no assurance that any further business combinations, internal
growth or establishment of new offices or lines of business will occur.
EMPLOYEES
As of December 31, 1996, ANB and the Banks together had approximately 450
full-time equivalent employees. None of these employees is a party to a
collective bargaining agreement. ANB considers its relations with its employees
to be good.
SUPERVISION AND REGULATION
ANB and the Banks are subject to state and federal banking laws and
regulations which impose specific requirements and restrictions on, and provide
for general regulatory oversight with respect to, virtually all aspects of
operations. These laws and regulations are generally intended to protect
depositors, not stockholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
ANB. Beginning with the enactment of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA") and following in December 1991 with the
Federal Deposit Insurance Corporation Act ("FDICIA"), numerous additional
regulatory requirements have been placed on the banking industry in the past
seven years, and additional changes have been proposed. The operations of ANB
and the Banks may be affected by legislative changes and the policies of various
regulatory authorities. ANB is unable to predict the nature or the extent of the
effect on its business and earnings that fiscal or monetary policies, economic
control, or new federal or state legislation may have in the future.
Federal Bank Holding Company Regulation
ANB is a bank holding company under the Bank Holding Company Act of 1956
(the "BHCA"). Under the BHCA, ANB is subject to periodic examination by the
Federal Reserve and is required to file periodic reports of its operations and
such additional information as the Federal Reserve may require. ANB's and the
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Banks' activities are limited to banking, managing or controlling banks,
furnishing services to or performing services for its subsidiaries, or engaging
in any other activity that the Federal Reserve determines to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
Investments, Control, and Activities. With certain limited exceptions, the
BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any bank,
(ii) acquiring direct or indirect ownership or control of any voting shares of
any bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company. The IBBEA permits bank holding companies to acquire control of banks
throughout the United States in compliance with the BHCA and other applicable
banking laws. See "Competition".
In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act ("CIBCA"), together with regulations thereunder, require
Federal Reserve approval (or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as ANB. Control is conclusively presumed to exist if an
individual or company acquires 25% or more of any class of voting securities of
the bank holding company. Under Federal Reserve regulations applicable to ANB,
control will be rebuttably presumed to exist if a person acquires at least 10%
of the outstanding shares of any class of voting securities once ANB registers
the Common Stock under the Exchange Act. The regulations provide a procedure for
challenge of the rebuttable control presumption.
Under the BHCA, ANB is generally prohibited from engaging in, or acquiring
direct or indirect control of more than 5% of the voting shares of any company
engaged in nonbanking activities unless the Federal Reserve, by order or
regulation, has found those activities to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the
activities that the Federal Reserve has determined by regulation to be proper
incidents to the business of banking include making or servicing loans and
certain types of leases, engaging in certain insurance and discount brokerage
activities, performing certain data processing services, acting in certain
circumstances as a fiduciary or investment or financial advisor, owning savings
associations and making investments in certain corporations or projects designed
primarily to promote community welfare.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
policy, ANB is expected to act as a source of financial strength to the Banks
and to commit resources to support the Banks in circumstances in which ANB might
not otherwise do so. Under the BHCA, the Federal Reserve may require a bank
holding company to terminate any activity or relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness or stability of any subsidiary depository institution
of the bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition. Each of the Banks may be required
to indemnify or cross-guarantee the FDIC against losses it incurs with respect
to any of the other Banks, which in effect makes the Company's equity
investments in healthy bank subsidiaries available to the FDIC to assist any
failing or failed subsidiary of ANB.
The Banks
ANB is the holding company for seven banks, including two national banks
(First National Bank of Ashland and NBC), four Alabama state banks which are
members of the Federal Reserve System (Bank of Dadeville, Alabama Exchange Bank,
Gulf Bank, and Citizens Bank of Talladega) and one Alabama state bank which is
not a member of the Federal Reserve System (First Bank of Baldwin County). The
Office of Comptroller of the Currency (the "OCC") is the primary regulator for
First National Bank of Ashland and NBC, the Alabama Banking Department and the
Federal Reserve are the primary regulators for the Alabama state member banks,
and the Alabama Banking Department and the FDIC are the primary regulators for
First Bank of Baldwin County. These regulatory authorities regulate or monitor
all areas of each Bank's operations, including security devices and procedures,
adequacy of capital loan reserves, loans, investments, borrowings,
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deposits, mergers, issuances of securities, payment of dividends, interest rates
payable on deposits, interest rates or fees chargeable on loans, establishment
of branches, corporate reorganizations, maintenance of books and records and
adequacy of staff training to carry on safe lending and deposit gathering
practices. Each of the Banks must maintain certain capital ratios and is subject
to limitations on aggregate investments in real estate, bank premises and
furniture and fixtures.
FDICIA
Under FDICIA, all insured institutions must undergo regular on-site
examinations by their appropriate banking agency. The cost of examinations of
insured depository institutions and any affiliates may be assessed by the
appropriate agency against each institution or affiliate as it deems necessary
or appropriate. Insured institutions are required to submit annual reports to
the FDIC and the appropriate agency (and state supervisor when applicable).
FDICIA also directs the FDIC to develop with other appropriate agencies a method
for insured depository institutions to provide supplemental disclosure of the
estimated fair market value of assets and liabilities, to the extent feasible
and practicable, in any balance sheet, financial statement, report of condition
or any other report of any insured depository institution. FDICIA also requires
the federal banking regulatory agencies to prescribe, by regulation, standards
for all insured depository institutions and depository institution holding
companies relating, among other things, to (i) internal controls, information
systems and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; and (v) asset quality.
Transactions With Affiliates and Insiders
The Banks are subject to the provisions of Section 23A of the Federal
Reserve Act, which place limits on the amount of loans or extensions of credit
to, investments in or certain other transactions with affiliates, and on the
amount of advances to third parties collateralized by the securities or
obligations of affiliates. In general, the Banks' "affiliates" are ANB and ANB's
non-bank subsidiary. Section 23A limits the aggregate amount of transactions
with any individual affiliate to ten percent (10%) of the capital and surplus of
the bank and also limits the aggregate amount of transactions with all
affiliates to twenty percent (20%) of the bank's capital and surplus. Loans and
certain other extensions of credit to affiliates are required to be secured by
collateral in an amount and of a type described in Section 23A, and the purchase
of low quality assets from affiliates is generally prohibited.
The Banks are also subject to the provisions of Section 23B of the Federal
Reserve Act that, among other things, prohibit an institution from engaging in
certain transactions with certain affiliates unless the transactions are on
terms substantially the same, or at least as favorable to such institution or
its subsidiaries, as those prevailing at the time for comparable transactions
with non-affiliated companies. In the absence of comparable transactions, such
transactions may only occur under terms and circumstances, including credit
standards, that in good faith would be offered to or would apply to
non-affiliated companies.
The Banks are subject to certain restrictions on extensions of credit to
executive officers, directors, certain principal stockholders and their related
interests. Such extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties and (ii) must not involve more
than the normal risk of repayment or present other unfavorable features.
Branching
All of the Banks are permitted to branch freely within the state of
Alabama, provided approval of the appropriate regulatory authority is obtained.
The Alabama Banking Code permits statewide branching for Alabama state banks. As
national banks located in Alabama, these state branch banking laws also apply to
First National Bank of Ashland and NBC. In addition, the IBBEA will permit
interstate branching beginning June 1, 1997. See "Competition".
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Community Reinvestment Act
The Community Reinvestment Act ("CRA") requires that, in connection with
examinations of financial institutions within their respective jurisdictions,
the Federal Reserve, the FDIC, the OCC or the OTS shall evaluate the record of
the financial institutions in meeting the credit needs of their local
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of those institutions. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. These factors are considered in evaluating mergers, acquisitions and
applications to open a branch or facility. The CRA also requires all
institutions to make public disclosure of their CRA ratings. Each of the Banks
received outstanding or satisfactory ratings in its most recent evaluation.
Other Regulations
Interest and certain other charges collected or contracted for by the Banks
are subject to state usury and banking laws and certain federal laws concerning
interest rates. The Banks' loan operations are also subject to certain federal
laws applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Home Mortgage
Disclosure Act of 1975 requiring financial institutions to provide information
to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act of 1978 governing the use and provision of information
to credit reporting agencies, the Fair Debt Collection Practices Act governing
the manner in which consumer debts may be collected by collection agencies, and
the rules and regulations of the various federal agencies charged with the
responsibility of implementing such federal laws. The Banks' loan operations are
also subject to the Alabama Consumer Finance laws which generally govern the
amount and manner in which interest and other charges and expenses may be
charged and collected by lenders in Alabama. The deposit operations of the Banks
are also subject to the Right of Financial Privacy Act which imposes a duty to
maintain confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records and the
Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve
Board to implement that Act which governs automatic deposits to and withdrawals
from deposit accounts and customers' rights and liabilities arising from the use
of automated teller machines and other electronic banking services. The Banks'
small loan subsidiaries are subject to the Alabama Small Loan laws governing the
amount of loans and interest and other charges that may be charged in connection
with a small loan.
Deposit Insurance
The deposits of each of the Banks are currently insured by the FDIC to
a maximum of $100,000 per depositor, subject to certain aggregation rules. The
FDIC establishes rates for the payment of premiums by federally insured banks
and thrifts for deposit insurance. Separate insurance funds (BIF and SAIF)
are maintained for commercial banks and thrifts, with insurance premiums from
the industry used to offset losses from insurance payouts when banks and
thrifts fail. Prior to 1996, due to the high rate of failures in recent years,
the FDIC adopted a risk-based deposit insurance premium system for all
insured depository institutions, including the Banks, which required that a
depository institution pay to the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF") from between $-0- and $.31 per $100 of
insured deposits depending on its capital levels and risk classification, as
determined by its primary federal regulator on a semiannual basis. In September
1996, the FDIC enacted legislation to recapitalize the SAIF and ensure against
default on Financing Corp. ("FICO") bonds. The legislation provided for a
one-time payment into the BIF in an amount approximating $.68 per $100 of SAIF
insured deposits. Thereafter and through December 31, 1999 the former
assessment rate of between $-0- and $.31 per $100 of insured deposits is
reduced to between $.0130 and $.2830 per $100, including a FICO rate of $.0130
per $100, for bank deposits and a rate of between $.0650 and $.3350
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per $100, including a FICO rate of $.0650 per $100, for previously SAIF insured
deposits. After December 31, 1999, the BIF rate will be approximately $.0243
per $100 for all deposits.
Dividends
The principal source of ANB's cash revenues is derived from dividends
received from the Banks. The amount of dividends that may be paid by the Banks
to ANB depends on each Bank's earnings and capital position and is limited by
federal and/or state law, regulations and policies. See Note 3 of the Notes to
Consolidated Financial Statements of ANB and Subsidiaries.
As national banks, NBC and First National Bank of Ashland may not pay
dividends from their paid in surplus. All dividends must be paid out of
undivided profits then on hand, after deducting expenses, including provisions
for loan losses and bad debts. In addition, a national bank is prohibited from
declaring a dividend on its shares of common stock until its surplus equals its
stated capital, unless there has been transferred to surplus no less than
one-tenth of the bank's net profits of the preceding two consecutive half-year
periods (in the case of an annual dividend). The approval of the OCC is required
if the total of all dividends declared by a national bank in any calendar year
exceeds the total of its net profits for that year combined with its retained
net profits for the preceding two years, less any required transfers to surplus.
As Alabama state banks, Bank of Dadeville, Alabama Exchange Bank, Gulf
Bank, First Bank of Baldwin County and Citizens Bank of Talladega are subject to
restrictions on dividends under the Alabama Banking Code, which provides that an
Alabama state bank must transfer to surplus each year at least 10% of its net
earnings (and thus cannot declare or pay a dividend in excess of 90% of net
earnings) until its surplus equals at least 20% of its capital. In addition, a
state bank must obtain regulatory approval to declare dividends in any calendar
year in excess of the total of its net earnings for that year combined with its
retained net earnings in the preceding two years, less any required transfers to
surplus.
Under FDICIA, none of the Banks may pay a dividend if, after paying the
dividend, the bank would be undercapitalized.
Capital Regulations
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to account for
off-balance sheet exposure, minimize disincentives for holding liquid assets and
make regulatory capital requirements more sensitive to differences in risk
profiles among banks and bank holding companies. The resulting capital ratios
represent qualifying capital as a percentage of total risk-weighted assets and
off-balance sheet items. The guidelines are minimums, and the federal regulators
have noted that banks and bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimums. The current
guidelines require all bank holding companies and federally-regulated banks to
maintain a minimum risk-based total capital ratio equal to 8%, of which at least
4% must be Tier 1 capital. Tier 1 capital includes common stockholders' equity,
qualifying perpetual preferred stock and minority interests in equity accounts
of consolidated subsidiaries, but excludes goodwill and most other intangibles
and excludes the allowance for loan and lease losses. Tier 2 capital includes
the excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock and general reserves for loan and lease losses
up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50% or 100%. In addition, certain off-balance sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply. These computations
result in the total risk-weighted assets. Most loans are assigned to the 100%
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstances, residential construction loans, both
of which carry a 50% rating. Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% rating,
and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.
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The federal bank regulatory authorities have also implemented a leverage
ratio, which is Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution for bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank must
have a leverage ratio of no less than 5%, a Tier 1 risk-based ratio of no less
than 6% and a total risk-based capital ratio of no less than 10%, and the bank
must not be under any order or directive from the appropriate regulatory agency
to meet and maintain a specific capital level. As of December 31, 1996, ANB and
each of the Banks qualified as "well-capitalized." See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Capital."
Under FDICIA, the applicable agency can treat an institution as if it were
in the next lower category if the agency determines (after notice and an
opportunity for hearing) that the institution is in an unsafe or unsound
condition or is engaging in an unsafe or unsound practice. The degree of
regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, deposit
interest rates and other activities; (iv) improve their management; (v)
eliminate management fees; or (vi) divest themselves of all or a part of their
operations. Bank holding companies controlling financial institutions can be
called upon to boost the institutions' capital and to partially guarantee the
institutions' performance under their capital restoration plans.
FDICIA requires the federal banking regulators to revise the risk-based
capital standards to provide for explicit consideration of interest-rate risk,
concentration of credit risk and the risks of non-traditional activities. It is
uncertain what effect these regulations, when implemented, will have on ANB and
the Banks.
Recent Legislative Developments
From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Certain of
these proposals, if adopted, could significantly change the regulation of banks
and the financial services industry. ANB cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect ANB.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of ANB serve at the pleasure of the Board of
Directors. Set forth below are the current Executive Officers of ANB and a brief
explanation of their principal employment during the last five (5) years.
JOHN H. HOLCOMB, III -- Age 45 -- Chairman and Chief Executive Officer. Mr.
Holcomb has served as Chairman and Chief Executive Officer of ANB since April
30, 1996. Prior to such date, Mr. Holcomb served as President and Chief
Operating Officer of ANB beginning December 29, 1995. Mr. Holcomb has been the
President and Chief Executive Officer of NBC since July 1990.
VICTOR E. NICHOL, JR. -- Age 50 -- President and Chief Operating Officer.
Mr. Nichol has served as President and Chief Operating Officer of ANB since
April 30, 1996. Prior to such date, Mr. Nichol served as Executive Vice
President of ANB beginning December 29, 1995. Mr. Nichol has been the Executive
Vice President and Chief Financial Officer of NBC since 1994. From 1992 through
1993, Mr. Nichol served as
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President and Chief Executive Officer of Secor Bank. Prior to 1992, Mr. Nichol
served as Senior Executive Vice President and head of Corporate Banking at
AmSouth Bank, N.A.
JAMES S. PARKS, JR. -- Age 42 -- Senior Vice President -- Finance,
Controller and Treasurer. Mr. Parks has served as Senior Vice
President -- Finance, Controller and Treasurer of ANB since December 12, 1996.
Mr. Parks has served as the Senior Vice President and Controller for NBC since
1993 and has served NBC as Controller since 1990.
ITEM 2. PROPERTIES
ANB currently operates 32 banking offices. Of the 32 banking offices, ANB,
through the Banks, owns 23 banking offices without encumbrance and leases an
additional nine banking offices. The principal administrative offices of ANB are
located at 1927 First Avenue North, Birmingham, Alabama. See Notes 7 and 10 to
the Consolidated Financial Statements of ANB and Subsidiaries for additional
information regarding ANB's premises and equipment.
ITEM 3. LEGAL PROCEEDINGS
ANB, in the normal course of business, is subject to various pending and
threatened litigation. Based on legal counsel's opinion, management does not
anticipate that the ultimate liability, if any, resulting from such litigation
will have a material effect on ANB's financial condition and results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE FOR SECURITY-HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 3, 1997, ANB had 299 stockholders of record (including shares
held in "street" names by nominees who are record holders) and 6,515,418 shares
of ANB Common Stock outstanding. ANB Common Stock is traded in the
over-the-counter market and prices are quoted on NASDAQ/NMS under the symbol
"ALAB."
The reported price range for ANB Common Stock and the dividends declared
during each calendar quarter of 1995 and 1996 are shown below:
DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
1995
First Quarter........................................ $12 1/4 $ 8 3/64 $.05
Second Quarter....................................... 14 1/2 11 .05
Third Quarter........................................ 13 11 .05
Fourth Quarter....................................... 14 3/4 11 7/8 .05
1996
First Quarter........................................ 14 1/4 12 3/4 .05
Second Quarter....................................... 13 5/8 12 .05
Third Quarter........................................ 15 1/2 12 5/8 .09
Fourth Quarter....................................... 19 14 7/8 .09
The last reported sales price of Common Stock as reported on The Nasdaq-NMS
on March 3, 1997 was $19 5/8. The prices shown do not reflect retail mark-ups
and mark-downs. All share prices have been rounded to the nearest 1/64 of one
dollar. The market makers for the ANB Common Stock as of December 31, 1996, were
J. C. Bradford & Co.; Raymond James & Associates, Inc.; Herzog Heine Geduld
Inc.; Keefe Bruyette &
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Woods Inc.; Legg Mason Wood Walker Incorporated; The Robinson Humphrey Company
Inc.; Sterne Agee & Leach Inc.; and The Chicago Corporation.
Sale of Unregistered Securities. Effective September 30, 1996, ANB
issued 304,993 shares of its Common Stock to the former stockholders of
FIRSTBANC in connection with the merger of FIRSTBANC into ANB (the
"FIRSTBANC Merger Shares"). ANB relied on the exemption from registration
provided by Sections 3(b) and 4(2) of the Securities Act of 1933 and Regulation
D promulgated thereunder for the issuance of such shares to the FIRSTBANC
stockholders. The FIRSTBANC Merger Shares are currently unregistered for
purposes of the Securities Act of 1933. In accordance with the terms of the
Merger Agreement between ANB and FIRSTBANC, ANB has agreed to register the
FIRSTBANC Merger Shares, and such shares are scheduled to be registered in the
1997 second quarter.
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996(1) 1995(1) 1994(1) 1993(1) 1992(1)
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS AND PER SHARE
DATA)
INCOME STATEMENT DATA:
Interest income............................. $ 65,125 $ 37,967 $ 29,344 $ 25,074 $ 26,574
Interest expense............................ 30,365 19,172 12,093 10,072 12,289
-------- -------- -------- -------- --------
Net interest income......................... 34,760 18,795 17,251 15,002 14,285
Provision for loan losses (benefit of
recoveries)............................... 239 409 1,279 (520) 3,110
-------- -------- -------- -------- --------
Net interest income after provision for loan
losses (benefit of recoveries)............ 34,521 18,386 15,972 15,522 11,175
Net securities gains (losses)............... (33) 3 (17) 85 503
Noninterest income.......................... 15,778 7,739 4,542 5,601 5,185
Noninterest expense......................... 36,386 20,898 14,247 15,845 15,406
-------- -------- -------- -------- --------
Income before income taxes.................. 13,880 5,230 6,250 5,363 1,457
Provision for income taxes.................. 4,141 354 275 260 20
-------- -------- -------- -------- --------
Income before minority interest in earnings
of consolidated subsidiary................ 9,739 4,876 5,975 5,103 1,437
Minority interest in earnings of
consolidated subsidiary................... 14 650 750 236 --
-------- -------- -------- -------- --------
Net income.................................. $ 9,725 $ 4,226 $ 5,225 $ 4,867 $ 1,437
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets................................ $887,712 $839,723 $426,484 $395,985 $401,721
Earnings assets............................. 810,651 760,373 396,541 368,112 371,221
Securities.................................. 152,761 158,266 86,689 82,057 75,858
Loans....................................... 611,441 553,119 301,876 265,965 242,078
Allowance for loan losses................... 9,322 8,909 5,261 6,268 6,214
Deposits.................................... 674,681 676,536 348,419 320,754 333,791
Short-term debt............................. 41,000 21,280 7,150 7,350 7,350
Long-term debt.............................. 300 821 945 1,065 1,183
Stockholders' equity........................ 66,121 58,189 27,474 24,313 20,764
WEIGHTED AVERAGE SHARES OUTSTANDING(2)...... 6,725 2,874 2,834 2,742 2,742
PER COMMON SHARE DATA:
Net income(3)............................... $ 1.45 $ 1.17 $ 1.59 $ 1.51 $ 0.52
Book value (period end)(4).................. 10.15 8.94 6.09 5.00 3.66
Tangible book value (period end)(4)......... 9.03 7.78 5.26 4.16 2.74
Dividends declared.......................... 0.28 -- -- -- --
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YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996(1) 1995(1) 1994(1) 1993(1) 1992(1)
-------- -------- -------- -------- --------
PERFORMANCE RATIOS:
Return on average assets.................... 1.17% 0.89% 1.30% 1.29% 0.38%
Return on average equity.................... 15.58 15.12 20.31 21.26 7.99
Net interest margin(5)...................... 4.54 4.23 4.56 4.28 4.04
ASSET QUALITY RATIOS:
Allowance for loan losses to period end
loans..................................... 1.52% 1.61% 1.74% 2.36% 2.57%
Allowance for loan losses to period end
nonperforming loans(6).................... 543.24 384.01 328.61 207.96 137.11
Net loan losses (recoveries) to average
loans..................................... (0.03) (0.04) 0.90 (0.23) 1.06
Nonperforming assets to period end loans and
foreclosed property(6).................... 0.36 0.53 0.66 1.47 2.43
CAPITAL AND LIQUIDITY RATIOS:
Average equity to average assets............ 7.53% 5.91% 6.39% 6.08% 4.72%
Leverage (4.00% required minimum)(7)........ 7.09 10.47 7.49 6.45 4.83
Risk-based capital
Tier 1 (4.00% required minimum)(7)........ 9.36 9.01 10.43 9.59 7.78
Total (8.00% required minimum)(7)......... 10.61 10.26 11.68 10.84 9.03
Average loans to average deposits......... 86.52 82.62 84.63 78.25 77.52
- ---------------
(1) On December 29, 1995, Alabama National BanCorporation ("ANB") merged, ("the
Merger") with National Commerce Corporation ("NCC") and Commerce Bankshares,
Inc. ("CBS"), (collectively the "Company"). The Merger was accomplished,
among other things, by converting each share of NCC stock into 348.14 shares
of ANB stock and each share of CBS stock into 7.0435 shares of ANB stock for
a total of 3,106,981 shares, (or 50.1%) of the Company stock. The Merger was
accounted for as a "reverse acquisition," whereby NCC is deemed to have
acquired ANB for financial reporting purposes. However, ANB remains the
continuing legal entity and registrant for Securities and Exchange
Commission filing purposes. Consistent with the reverse acquisition
accounting treatment, the historical income statement information included
in the Five-Year Summary of Selected Financial Data of the Company presented
is that of NCC for years prior to 1996. The balance sheet information
included in the historical Five-Year Summary of Selected Financial Data of
the Company presented is that of NCC for years prior to 1995. On September
30, 1996, Firstbanc Holding Company, Inc. ("FIRSTBANC") was merged into the
Company with each common share of FIRSTBANC stock being converted into
7.12917 shares of the Company stock. The FIRSTBANC merger was accounted for
as a pooling of interests. Accordingly, the historical Five-Year Summary of
Selected Financial Data for all periods have been restated to reflect the
results of operations of the combined companies from the earliest period
presented, except for dividends per common share. (See Note 1 to the
Company's consolidated financial statements).
(2) The weighted average common share and common equivalent shares outstanding
are those of NCC and FIRSTBANC converted into ANB common and common
equivalents at the exchange ratio.
(3) Net income per common share is calculated based upon net income as adjusted
for minority interests in earnings of consolidated subsidiaries and cash
dividends on preferred stock.
(4) Book value and tangible book value at December 31, 1996 and 1995 are
calculated on the total common shares of the company outstanding after the
Merger. For other years presented, the calculation is based on the
outstanding common shares of NCC and FIRSTBANC converted at the exchange
ratio.
(5) Net interest income divided by average earning assets.
(6) Nonperforming loans and nonperforming assets includes loans past due 90 days
or more that are still accruing interest.
(7) Based upon fully phased-in requirements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following is a discussion and analysis of the consolidated financial
condition of the Company and results of operations as of the dates and for the
periods indicated. On December 29, 1995, Alabama National BanCorporation ("ANB")
merged ("the Merger") with National Commerce Corporation ("NCC") and Commerce
Bankshares, Inc. ("CBS") (collectively the "Company"), The Merger was
accomplished, among other things, by converting each share of NCC stock into
348.14 shares of ANB stock and each share of CBS stock into 7.0435 shares of ANB
stock for a total of 3,106,981 shares (or 50.1%) of the Company stock. The
Merger was accounted for as a "reverse acquisition," whereby NCC is deemed to
have acquired ANB for financial reporting purposes. However, ANB remains the
continuing legal entity and registrant for Securities and Exchange Commission
purposes. Consistent with the reverse acquisition accounting treatment, the
historical financial statements of the Company presented for 1995 and 1994
are the consolidated financial statements of NCC and differ from the
consolidated financial statements of ANB as previously reported. The operations
of ANB are included in the financial statements from the date of acquisition. On
September 30, 1996, FirstBanc Holding Company ("FIRSTBANC"), a one bank holding
company headquartered in Robertsdale, Alabama, was merged into the Company. The
Company acquired all of the outstanding common stock of FIRSTBANC in exchange
for 305,000 shares of the Company's common stock. The Company recorded the
FIRSTBANC merger as a pooling-of-interests and, accordingly, financial
statements for all periods have been restated to reflect the results of
operations of the companies on a combined basis from the earliest period
presented, except for dividends per share. On April 15, 1994, NCC acquired First
American Bank of Pelham ("FAB"). The acquisition of FAB was accounted for as a
purchase. On August 1, 1995, NCC acquired Talladega Federal Savings and Loan
Association ("TFSLA"). The acquisition of TFSLA was accounted for as a purchase.
The operations of FAB and TFSLA are included in the consolidated financial
statements of the Company from the dates of their acquisitions. Because the
Merger occurred on the last business day of 1995, the results of operations of
ANB are not reflected in the consolidated financial statements of the Company in
1995.
The historical consolidated financial statements of the Company and the
"FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA" derived from the historical
consolidated financial statements of the Company are set forth elsewhere herein.
This discussion should be read in conjunction with those consolidated financial
statements and selected consolidated financial data and the other financial
information included in the annual report.
ANB, as it was constituted before the Merger, constitutes a significant
portion of the consolidated post-Merger Company, with 36.4% of the consolidated
assets of the Company having been acquired in the Merger. The following
summarizes the assets acquired and liabilities assumed in the Merger (in
thousands):
Cash and equivalents........................................ $ 16,823
Federal funds sold.......................................... 10,965
Investment securities:
Held to maturity.......................................... 19,954
Available for sale........................................ 27,821
Loans, net of unearned interest and allowance for loan
losses.................................................... 204,485
Bank premises and equipment................................. 11,734
Intangible assets........................................... 5,423
Other assets................................................ 8,354
Deposit liabilities......................................... (253,611)
Short-term borrowings....................................... (6,000)
Other liabilities........................................... (9,194)
---------
Net assets acquired......................................... $ 36,754
=========
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RESULTS OF OPERATIONS
Year ended December 31, 1996, compared with year ended December 31, 1995
The Company's net income increased by $5.5 million, or 130.0%, to $9.7
million in the year ended December 31, 1996, from $4.2 million in the year ended
December 31, 1995. Return on average assets during 1996 was 1.17%, compared with
0.89% during 1995 and return on average equity was 15.58% during 1996, compared
with 15.12% during 1995.
Net interest income increased $16.0 million, or 84.9%, to $34.8 million in
1996 from $18.8 million in 1995, as interest income increased by $27.2 million
and interest expense increased $11.2 million. The increase in net interest
income is primarily attributable to a $252.1 million increase in average loans
to $570.8 million during 1996, from $318.7 million during 1995 as a result of
the Merger and an increased management emphasis on loan growth. The increase in
interest expense is primarily attributable to an increase in average time
deposits of $116.0 million to $276.9 million in 1996, from $160.9 million in
1995.
The Company's net interest spread and net interest margin were 3.94% and
4.54%, respectively, in 1996, increasing by 43 and 31 basis points from 1995.
These increases reflect the increase in average loans, relative to other earning
assets.
The Company recorded a provision for loan losses of $239,000 during 1996,
compared with a provision for loan losses of $409,000 during 1995, a decline of
$170,000, or 41.6%. Management believes that both loan loss experience and asset
quality indicate that the allowance for loan losses is maintained at an adequate
level. The Company's allowance for loan losses as a percentage of period-end
loans was 1.52% at December 31, 1996, compared to 1.61% at December 31, 1995,
and the allowance for loan losses as a percentage of period-end nonperforming
assets was 426.8% at December 31, 1996, compared with 302.5% at December 31,
1995. The Company experienced net recoveries of $174,000 in 1996 -- a ratio of
net recoveries to average loans of 0.03%. See "-- Provision and Allowance for
Loan Losses."
Noninterest income increased $8.0 million, or 103.4%, to $15.7 million in
1996, compared with $7.7 million in 1995. The increase is attributable to an
increase in investment services income of $4.0 million, or 100.5%, to $7.9
million in 1996, compared with $3.9 million in 1995. Noninterest expense
increased $15.5 million, or 74.1%, to $36.4 million during 1996, compared with
$20.9 million during 1995. Salaries and employee benefits increased by $10.1
million, or 89.3%, due in part to increased investment service compensation and
the Merger. Other expenses, generally resulting from the Merger, increased by
$5.4 million, or 56.1%, during 1996, compared with 1995.
Income before the provision for income taxes increased $8.7 million, or
165.4%, to $13.9 million in 1996, from $5.2 million in 1995. Income before
minority interest in earnings of consolidated subsidiary and net income
increased $4.9 million and $5.5 million, respectively, during 1996.
Year ended December 31, 1995, compared with year ended December 31, 1994
Net income decreased $1.0 million, or 19.1%, to $4.2 million in the year
ended December 31, 1995, from $5.2 million in the year ended December 31, 1994.
Return on average assets during 1995 was 0.89%, compared with 1.30% during 1994,
and return on average equity was 15.12% during 1995, compared with 20.31% during
1994.
Net interest income increased $1.5 million, or 9.0%, to $18.8 million in
1995, from $17.3 million in 1994, as interest income increased by $8.6 million
and interest expense increased by $7.1 million. The increase in net interest
income resulted primarily from a $39.5 million increase during 1995 in average
loans.
The Company's net interest spread and net interest margin were 3.51% and
4.23%, respectively, in 1995, decreasing 45 and 33 basis points from 1994. The
decline is attributable to competition among banks, and other financial
institutions, for resources, primarily time deposits, to fund increases in
earning assets.
19
20
The Company recorded a provision for loan losses of $409,000 during 1995,
compared with $1.3 million in 1994, a decrease of $870,000. Net recoveries were
$115,000, or 0.04% of average loans, during 1995, compared with net charge-offs
of $2.5 million, or 0.90% of average loans, during 1994.
The Company's allowance for loan losses as a percentage of period-end loans
was 1.61% at December 31, 1995, compared with 1.74% at December 31, 1994, and
the allowance for loan losses as a percentage of nonperforming loans was 384.01%
at December 31, 1995, compared with 328.61% at December 31, 1994. See
"-- Provision and Allowance for Loan Losses."
Noninterest income increased by $3.2 million to $7.7 million in 1995.
Investment services income increased by approximately $3.0 million. Noninterest
expense increased by $6.7 million to $20.9 million in 1995. An increase in
salaries and benefits of $3.2 million relating to increased investment services
income and a $1.2 million non-credit loss, principally litigation expenses, were
the primary factors for the increase.
Minority interest in earnings of consolidated subsidiaries decreased by
$100,000 in 1995 to $650,000, from $750,000 in 1994, resulting from a decrease
in net income of $1.0 million.
NET INTEREST INCOME
The largest component of the Company's net income is its net interest
income -- the difference between the income earned on assets and interest paid
on deposits and borrowed funds used to support its assets. Net interest income
is determined by the yield earned on the Company's earning assets and rates paid
on its interest-bearing liabilities, the relative amounts of earning assets and
interest-bearing liabilities and the maturity and repricing characteristics of
its earning assets and interest-bearing liabilities. Net interest income divided
by average earning assets represents the Company's net interest margin.
Average Balances, Income, Expenses and Rates
The following table depicts, on a taxable equivalent basis for the periods
indicated, certain information related to the Company's average balance sheet
and its average yields on assets and average costs of liabilities. Such yields
or costs are derived by dividing income or expense by the average daily balances
of the associated assets or liabilities.
20
21
AVERAGE BALANCES, INCOME AND EXPENSES AND RATES
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- --------------------------- ---------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------ -------- ------- ------ -------- ------- ------
(AMOUNTS IN THOUSANDS, EXCEPT YIELDS AND RATES)
ASSETS
Earning assets:
Loans(1)(3)........................ $570,816 $53,495 9.37% $318,674 $30,126 9.45% $279,180 $23,410 8.39%
Securities:
Taxable.......................... 138,269 8,875 6.42 91,935 6,059 6.59 87,176 5,678 6.51
Tax exempt....................... 18,033 1,456 8.07 2,509 189 7.53 1,834 133 7.25
Cash balances in other banks....... 3,926 233 5.93 3,558 207 5.82 -- -- --
Funds sold......................... 32,005 1,587 4.96 26,037 1,532 5.88 9,758 399 4.09
Trading account securities......... 2,814 183 6.50 1,097 67 6.11 284 15 5.28
-------- ------- -------- ------- -------- -------
Total earning assets(2)...... 765,863 65,829 8.60 443,810 38,180 8.60 378,232 29,635 7.84
-------- ------- -------- ------- -------- -------
Cash and due from banks.............. 29,010 18,041 16,396
Premises and equipment............... 29,620 8,013 6,749
Other assets......................... 15,918 7,956 7,183
Allowance for loan losses............ (9,248) (5,290) (6,043)
-------- -------- --------
Total assets..................... $831,163 $472,530 $402,517
======== ======== ========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction
accounts......................... $ 80,381 2,323 2.89 $ 36,427 1,127 3.09 $ 34,508 949 2.75
Savings deposits................... 197,102 7,087 3.60 129,747 5,483 4.23 133,209 4,723 3.55
Time deposits...................... 276,884 15,498 5.60 160,916 9,604 5.97 104,916 4,724 4.50
Funds purchased.................... 65,380 3,365 5.15 35,921 2,143 5.97 27,893 1,111 3.98
Other short-term borrowings........ 31,610 2,032 6.43 12,994 732 5.63 10,028 503 5.02
Long-term debt..................... 659 60 9.10 882 83 9.41 1,017 83 8.16
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities................ 652,016 30,365 4.66 376,887 19,172 5.09 311,571 12,093 3.88
-------- ------- ---- -------- ------- ---- -------- ------- ----
Demand deposits...................... 105,362 58,614 57,267
Accrued interest and other
liabilities........................ 11,346 9,086 7,956
Stockholders' equity................. 62,439 27,943 25,723
-------- -------- --------
Total liabilities and
stockholders' equity....... $831,163 $472,530 $402,517
-------- -------- --------
Net interest spread.................. 3.94% 3.51% 3.96%
==== ==== ====
Net interest income/margin on a
taxable equivalent basis........... 35,464 4.63% 19,008 4.28% 17,542 4.64%
==== ==== ====
Tax equivalent adjustment(2)......... 704 213 291
------- ------- -------
Net interest income/margin........... $34,760 4.54% $18,795 4.23% $17,251 4.56%
======= ==== ======= ==== ======= ====
- ---------------
(1) Average loans include nonaccrual loans. All loans and deposits are domestic.
(2) Tax equivalent adjustments are based on the assumed rate of 34%, and do not
give effect to the disallowance for Federal income tax purposes of interest
expense related to certain tax-exempt assets.
(3) Fees in the amount of $1,768,000, $760,000 and $674,000 are included in
interest and fees on loans for 1996, 1995 and 1994, respectively.
During 1996, with little change in the overall interest rate levels from
that in 1995, the Company experienced an increase in net interest income of
$16.0 million, or 84.9%, to $34.8 million, compared with $18.8 million in 1995,
as well as increases in the net interest spread of 43 basis points to 3.94% in
1996 from 3.51% in 1995, and the net interest margin of 31 basis points to 4.54%
in 1996, compared with 4.23% in 1995. The primary reason for the increase in net
interest income is the Merger. The primary reason for the increase in the net
interest spread and net interest margin was an increase in the proportion of
loans to other earnings assets. During 1996, net average earning assets
increased by $46.9 million, or 70.1%, to $113.8 million from $66.9 million in
1995, while average loans increased $252.1 million to $570.8 million in 1996
from $318.7 million in 1995.
21
22
Analysis of Changes in Net Interest Income
The following table sets forth, on a taxable equivalent basis, the effect
which varying levels of earning assets and interest-bearing liabilities and the
applicable rates had on changes in net interest income for 1996 and 1995. For
the purposes of this table, changes which are not solely attributable to volume
or rate are allocated to volume and rate on a pro rata basis.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
DECEMBER 31,
-------------------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994
VARIANCE DUE TO VARIANCE DUE TO
------------------------------ ----------------------------
VOLUME YIELD/RATE TOTAL VOLUME YIELD/RATE TOTAL
------- ---------- ------- ------ ---------- ------
(AMOUNTS IN THOUSANDS)
EARNING ASSETS:
Loans.................................................. $23,626 ($ 257) $23,369 $3,548 $3,168 $6,716
Securities:
Taxable.............................................. 2,976 (160) 2,816 311 70 381
Tax exempt........................................... 1,252 15 1,267 51 5 56
Cash balances in other banks........................... 22 4 26 207 -- 207
Funds sold............................................. 318 (263) 55 897 236 1,133
Trading account securities............................. 112 4 116 50 2 52
------- ------- ------- ------ ------ ------
Total interest income......................... 28,306 (657) 27,649 5,064 3,481 8,545
INTEREST-BEARING LIABILITIES:
Interest-bearing transaction accounts.................. 1,274 (78) 1,196 55 123 178
Savings and money market deposits...................... 2,516 (912) 1,604 (126) 886 760
Time deposits.......................................... 6,523 (629) 5,894 3,027 1,853 4,880
Funds purchased........................................ 1,552 (330) 1,222 377 655 1,032
Other short-term borrowings............................ 1,183 117 1,300 162 67 229
Long-term debt......................................... (20) (3) (23) (12) 12 --
------- ------- ------- ------ ------ ------
Total interest expense........................ 13,028 (1,835) 11,193 3,483 3,596 7,079
------- ------- ------- ------ ------ ------
Net interest income on a taxable equivalent
basis....................................... $15,278 $ 1,178 16,456 $1,581 $ (115) 1,466
======= ======= ====== ======
Taxable equivalent adjustment.......................... (491) 78
------- ------
Net interest income.................................... $15,965 $1,544
======= ======
INTEREST SENSITIVITY
The Company monitors and manages the pricing and maturity of its assets and
liabilities in order to diminish the potential adverse impact that changes in
interest rates could have on net interest income. The principal monitoring
technique employed by the Company is the measurement of the interest sensitivity
"gap," which is the positive or negative dollar difference between assets and
liabilities that are subject to interest rate repricing within a given period of
time. Interest rate sensitivity can be managed by repricing assets and
liabilities, selling securities available for sale, replacing an asset or
liability at maturity or by adjusting the interest rate during the life of an
asset or liability.
The Company evaluates interest sensitivity risk and then formulates
guidelines regarding asset generation and repricing, and sources and prices of
off-balance sheet commitments in order to decrease interest sensitivity risk.
The Company uses computer simulations to measure the net income effect of
various interest rate scenarios. The modeling reflects interest rate changes and
the related impact on net income over specified periods of time.
22
23
The following table illustrates the Company's interest rate sensitivity at
December 31, 1996, assuming the relevant assets and liabilities are collected
and paid, respectively, based upon historical experience rather than their
stated maturities.
INTEREST SENSITIVITY ANALYSIS
DECEMBER 31, 1996
-------------------------------------------------------------------------------------
AFTER ONE AFTER THREE
THROUGH THROUGH
WITHIN ONE THREE TWELVE WITHIN ONE GREATER THAN
MONTH MONTHS MONTHS YEAR ONE YEAR TOTAL
---------- --------- ----------- ---------- ------------ --------
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
ASSETS
Earning assets:
Loans(1)............. $ 262,877 $ 54,702 $ 93,894 $ 411,473 $198,857 $610,330
Securities(2)........ 10,992 4,400 5,526 20,918 128,337 149,255
Interest-bearing
deposits in other
banks.............. 200 -- -- 200 -- 200
Funds sold........... 46,249 -- -- 46,249 -- 46,249
--------- --------- --------- --------- -------- --------
Total
interest-
earning
assets...... $ 320,318 $ 59,102 $ 99,420 $ 478,840 $327,194 $806,034
LIABILITIES
Interest-bearing
liabilities:
Interest-bearing
deposits:
Demand deposits.... $ -- $ -- $ 84,714 $ 84,714 $ -- $ 84,714
Savings deposits... 137,918 -- -- 137,918 44,099 182,017
Time deposits(3)... 41,356 54,360 143,853 239,569 57,419 296,988
Funds purchased...... 91,871 -- -- 91,871 -- 91,871
Short-term
borrowings(4)...... 43,968 -- -- 43,968 -- 43,968
Long-term debt....... 2 4 18 24 276 300
--------- --------- --------- --------- -------- --------
Total
interest-
bearing
liabilities... $ 315,115 $ 54,364 $ 228,585 $ 598,064 $101,794 $699,858
--------- --------- --------- --------- -------- --------
Period gap............. $ 5,203 $ 4,738 $(129,165) $ (119,224) $225,400
========= ========= ========= ========= ========
Cumulative gap......... $ 5,203 $ 9,941 $(119,224) $(119,224) $106,176 $106,176
========= ========= ========= ========= ======== ========
Ratio of cumulative gap
to total earning
assets............... 0.65% 1.23% (14.79)% (14.79)% 13.17%
- ---------------
(1) Excludes nonaccrual loans of $1,111,000.
(2) Excludes investment equity securities of $3,506,000.
(3) Excludes matured certificates which have not been redeemed by the customer
and on which no interest is accruing.
(4) Includes treasury, tax and loan account of $2,968,000.
The Company generally benefits from increasing market rates of interest
when it has an asset-sensitive gap and generally benefits from decreasing market
interest rates when it is liability sensitive. The Company is liability
sensitive throughout one year, except for the one to three-month and
three-through twelve-month periods. The analysis presents only a static view of
the timing and repricing opportunities, without taking into consideration that
changes in interest rates do not affect all assets and liabilities equally. For
example, rates paid on a substantial portion of core deposits may change
contractually within a relatively short time frame, but those are viewed by
management as significantly less interest sensitive than market-based rates such
as those paid on non-core deposits. Accordingly, management believes that a
liability-sensitive gap position is not as indicative of the Company's true
interest sensitivity as it would be for an organization which depends to a
greater extent on purchased funds to support earning assets. Net interest income
may be impacted by other
23
24
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The Company has policies and procedures for evaluating the overall credit
quality of its loan portfolio including timely identification of potential
problem credits. On a monthly basis, management, through an independent loan
review function, reviews the appropriate level for the allowance for loan losses
based on the results of the internal monitoring and reporting system, analysis
of economic conditions in its markets and a review of historical statistical
data for both the Company and other financial institutions. Loan review
evaluates the loan portfolio in accordance with regulatory guidelines and
monitors those loans classified as doubtful, substandard and special mention.
Internal classification combined with migration analysis of those
classifications, currently covering 45 months, are tools utilized by loan review
to make specific evaluations as to the level of allowance for loan losses
necessary to reserve for expected loan losses in the portfolio. Also considered
in management's evaluation of the adequacy of the allowance for loan losses are
the level of nonperforming loans and the results of regulatory examinations
conducted for each bank, including their evaluation of the Company's policies
and procedures and classification of loans.
Prior to the Merger, ANB and its banks observed a similar overall approach
to determining the adequacy of the allowance for loan losses, except for an
independent loan review function and its historical migration analysis.
Management believes that required inspections conducted as a result of the
Merger, as well as review of historical information, provide reliable
indications of the adequacy of the allowance for loan losses maintained by ANB
at the time of the acquisition. Complete adoption of the Company's procedures is
expected to continue throughout much of 1997.
Management's judgment as to the adequacy of the allowance for loan losses
is also based upon assumptions about future events which it believes to be
reasonable. These assumptions include consistent application of sound
underwriting standards, continued low turnover among lending staff, general
economic conditions including stable interest rates, and stable levels of
nonperforming loans. Should these assumptions change, there is no assurance that
charge-offs in future periods will not exceed the allowance for loan losses or
that additional loan loss provisions will not be required.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on the Company's income statement, are made
periodically to maintain the allowance for loan losses at an appropriate level
as determined by management. Loan losses and recoveries are charged or credited
directly to the allowance for loan losses. Nonperforming loans as a percentage
of period-end loans were 0.28%, 0.42%, 0.53%, 1.13% and 1.87% at December 31,
1996, 1995, 1994, 1993 and 1992, respectively. Loan loss provisions (recoveries)
were $239,000, $409,000, $1,279,000, $(520,000) and $3,110,000 in 1996, 1995,
1994, 1993 and 1992, respectively.
24
25
ALLOWANCE FOR LOAN LOSSES
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
Total loans outstanding at end of
period, net of unearned
income......................... $611,441 $553,119 $301,876 $265,965 $242,078
======== ======== ======== ======== ========
Average amount of loans
outstanding, net of unearned
income......................... $570,816 $318,674 $279,180 $249,247 $253,072
======== ======== ======== ======== ========
Allowance for loan losses at
beginning of period............ $ 8,909 $ 5,261 $ 6,268 $ 6,214 $ 5,799
Charge-offs:
Commercial, financial and
agricultural................ 691 1,073 2,924 498 3,453
Real estate -- mortgage........ 120 221 225 849 470
Consumer....................... 532 132 104 99 387
-------- -------- -------- -------- --------
Total charge-offs...... 1,343 1,426 3,253 1,446 4,310
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial and
agricultural................ 1,184 1,014 429 1,408 1,202
Real estate -- mortgage........ 145 289 119 446 148
Consumer....................... 188 238 192 166 265
-------- -------- -------- -------- --------
Total recoveries....... 1,517 1,541 740 2,020 1,615
-------- -------- -------- -------- --------
Net charge-offs
(recoveries)......... (174) (115) 2,513 (574) 2,695
Provision for (benefit of) loan
losses......................... 239 409 1,279 (520) 3,110
Changes incidental to
acquisitions................... -- 3,124 227 -- --
-------- -------- -------- -------- --------
Allowance for loan losses at
period-end..................... $ 9,322 $ 8,909 $ 5,261 $ 6,268 $ 6,214
======== ======== ======== ======== ========
Allowance for loan losses to
period-end loans............... 1.52% 1.61% 1.74% 2.36% 2.57%
Net charge-offs (recoveries) to
average loans.................. (0.03) (0.04) 0.90 (0.23) 1.06
Allocation of allowance
There is no formal allocation of the allowance for loan losses by loan
category.
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26
Nonperforming Assets
The following table presents the Company's nonperforming assets for the
dates indicated.
NONPERFORMING ASSETS
AT DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
Nonaccrual loans................................. $ 1,111 $ 1,245 $ 1,304 $ 1,465 $ 2,721
Restructured loans............................... 605 949 297 1,549 1,811
Loans past due 90 days or more and still
accruing....................................... -- 126 -- -- --
------- ------- ------- ------- -------
Total nonperforming loans.............. 1,716 2,320 1,601 3,014 4,532
Other real estate owned.......................... 468 625 402 919 1,388
------- ------- ------- ------- -------
Total nonperforming assets............. $ 2,184 $ 2,945 $ 2,003 $ 3,933 $ 5,920
======= ======= ======= ======= =======
Allowance for loan losses to period-end loans.... 1.52% 1.61% 1.74% 2.36% 2.57%
Allowance for loan losses to period-end
nonperforming loans............................ 543.24 384.01 328.61 207.96 137.11
Allowance for loan losses to period-end
nonperforming assets........................... 426.83 302.51 262.66 158.37 104.97
Net losses (recoveries) to average loans......... (0.03) (0.04) 0.90 (0.23) 1.06
Nonperforming assets to period-end loans and
foreclosed property............................ 0.36 0.53 0.66 1.47 2.43
Nonperforming loans to period-end loans.......... 0.28 0.42 0.53 1.13 1.87
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that collection of interest is
doubtful. A delinquent loan is generally placed on nonaccrual status when it
becomes 90 days or more past due. When a loan is placed on nonaccrual status,
all interest which is accrued on the loan is reversed and deducted from earnings
as a reduction of reported interest. No additional interest is accrued on the
loan balance until collection of both principal and interest becomes reasonably
certain. When a problem loan is finally resolved, there may ultimately be an
actual writedown or charge-off of the principal balance of the loan which would
necessitate additional charges to the allowance for loan losses. During the
years ending December 31, 1996, 1995 and 1994, approximately $118,000, $67,000
and $178,000, respectively, in additional interest income would have been
recognized in earnings if the Company's nonaccrual loans had been current in
accordance with their original terms. In addition, during 1996, 1995 and 1994,
interest income on nonaccrual and restructured loans of $79,000, $111,000 and
$104,000, respectively, was actually included in the Company's net income.
Total nonperforming assets decreased $761,000 to $2.2 million at December
31, 1996, from $2.9 million at December 31, 1995. The allowance for loan losses
to period-end nonperforming assets was 426.8% at December 31, 1996, compared
with 302.5% at December 31, 1995.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan"
as amended by Statement of Financial Accounting Standards No. 118 "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures." The
adoption of these statements did not have a material impact on the Company's
nonperforming assets or comparability of classifications of nonperforming
assets. See "Notes to the Consolidated Financial Statements" of the Company as
of December 31, 1996.
Potential Problem Loans
A potential problem loan is one that management has serious doubts as to
the borrower's future performance under terms of the loan contract. These loans
are current as to principal and interest, and accordingly, they are not included
in the nonperforming asset categories. Management monitors these loans
26
27
closely in order to ensure that the Company's interests are protected. At
December 31, 1996, the Company had 14 loans considered by management to be
potential problem loans totaling $1,805,000. The level of potential problem
loans is factored into the determination of the adequacy of the allowance for
loan losses.
NONINTEREST INCOME AND EXPENSE
Noninterest income
The Company relies on four distinct product lines for the production of
noninterest income: traditional retail and commercial banking, mortgage banking,
trust services and investment services. Service charges on deposit accounts
increased $2.2 million, or 129.2%, to $3.9 million for 1996, as compared to
1995. Gain on disposal of assets and deposits increased $332,000, or 89.5%, to
$703,000 in 1996, compared with $371,000 in 1995, as a one-time gain on disposal
of a branch and its related deposits of $274,000 and recurring gains on sale of
mortgage loans of $509,000 were reduced by a one-time loss of $126,000 resulting
from abandonment of computer equipment due to consolidation of the Company's
data processing center. Trust fees grew 17.4% to $1.6 million for 1996.
Investment services income increased $4.0 million, or 100.5%, to $7.9 million
for 1996, compared with $3.9 million in 1995 as a result of significant
increases in the investment services activity. Management anticipates activity
to continue in the investment service division, but is unable to predict the
impact on the future results of operations.
The following table sets forth, for the periods indicated, the principal
components of noninterest income.
NONINTEREST INCOME
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------ ------
(AMOUNTS IN THOUSANDS)
Service charges on deposit accounts......................... $ 3,853 $1,681 $1,528
Investment services income.................................. 7,889 3,934 975
Trust fees.................................................. 1,550 1,320 1,128
Gain on disposal of assets and deposits(1).................. 703 371 525
Securities gains (losses)................................... (33) 3 (17)
Other....................................................... 1,783 433 386
------- ------ ------
Total noninterest income.......................... $15,745 $7,742 $4,525
======= ====== ======
- ---------------
(1) The year ended December 31, 1996 includes the gain on the sale of a branch
building and the related deposits of approximately $274,000 and the loss on
the abandonment of computer equipment of approximately $126,000.
27
28
Noninterest Expense
The following table sets forth, for the periods indicated, the principal
components of noninterest expense.
NONINTEREST EXPENSE
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
(AMOUNTS IN THOUSANDS)
Salaries and employee benefits.............................. $21,466 $11,337 $ 8,172
Net occupancy expense....................................... 2,573 1,979 1,632
Furniture and equipment expense............................. 1,885 818 942
Amortization of goodwill.................................... 272 56 56
Advertising................................................. 657 594 336
Banking assessments......................................... 1,028 500 876
Data processing expenses.................................... 1,125 703 499
Legal and professional fees................................. 1,424 1,396 422
Non-credit losses (recoveries).............................. (24) 1,219 36
Other....................................................... 5,980 2,296 1,276
------- ------- -------
Total noninterest expense......................... $36,386 $20,898 $14,247
======= ======= =======
Overall salaries and employee benefits increased $10.1 million, or 89.3%,
to $21.5 million in 1996, compared with $11.3 million in 1995. The majority of
this increase is attributable to the Merger and commissions associated with
additional sales volume in the investment services division of the Company. In
addition, the Company recorded a $976,000 one-time charge connected with the
settlement of employment contracts with the former Chairman and CEO of ANB, and
one of the subsidiary bank presidents. Net occupancy expense increased $594,000,
or 30.0%, to $2.6 million during 1996, attributable primarily to the Merger.
Furniture and equipment expense, $1.9 million in 1996; amortization of
goodwill, $272,000; advertising, $657,000 and data processing fees, $1.1 million
in 1996, increased 130.4%, 385.7%, 10.6% and 60.0%, respectively, from 1995 as a
result of the Merger.
Banking assessments increased by $528,000, or 105.6%, to $1.0 million in
1996, from $500,000 in 1995. The increase is due, in part, to the Merger and to
a one-time charge of $677,000 relating to recapitalization of the SAIF fund
through a FDIC assessment.
Other non-credit losses decreased by $1.2 million in 1996. The 1995 amount
is attributable to three adverse judgments against the Company which were
resolved during 1996. Legal and professional fees remained high in 1996, $1.4
million, as a result of continued litigation support and expenses related to the
FIRSTBANC merger. Legal and professional fees totaled $1.5 million in 1995.
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Investment Services
The following table sets forth, for the periods indicated, the summary of
operations for the investment services departments of the Company:
INVESTMENT SERVICES
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -----
(AMOUNTS IN THOUSANDS)
Investment services income.................................. $7,889 $3,934 $975
Other revenue............................................... 1,354 422 21
------ ------ ----
Total revenue..................................... 9,243 4,356 996
Expenses and allocated charges.............................. 8,551 4,267 980
------ ------ ----
Net investment services revenue............................. $ 692 $ 89 $ 16
====== ====== ====
Investment services revenues have increased $4.8 million, or 112.2%, to
$9.2 million in 1996 from $4.4 million in 1995 as a result of additional staff,
new customer relations and favorable economic conditions. Other revenue consists
of interest and dividends on trading assets and fee based services including,
asset and liability reporting, bond accounting and security safekeeping. These
results include certain income and expense items that are allocated by
management to the investment services areas of the Company. These results are
not necessarily the same as would be expected if these activities were conducted
by an unrelated company.
EARNING ASSETS
Loans
Loans are the largest category of earning assets and typically provide
higher yields than the other types of earning assets. Associated with the higher
loan yields are the inherent credit and liquidity risks which management
attempts to control and counterbalance. Loans averaged $570.8 million in 1996
compared to $318.7 million in 1995, an increase of $252.1 million, or 79.1%. At
December 31, 1996, total loans were $611.4 million, compared to $553.1 million
at the end of 1995, an increase of $58.3 million, or 10.5%.
Average growth in the Company's loan portfolio is attributable to an
improvement in general economic conditions that resulted in increased loan
demand from existing customers and the ability to attract new customers, while
at the same time the Company maintained consistent underwriting standards. The
following table shows the composition of the loan portfolio by category at the
dates indicated.
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30
COMPOSITION OF LOAN PORTFOLIO
DECEMBER 31,
-------------------------------------------------------------------------------------
1996 1995 1994 1993
------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
Commercial, financial and
agricultural.............. $162,471 26.51% $144,014 25.94% $ 92,641 30.68% $ 80,155 30.14%
Real estate:
Construction.............. 40,631 6.63 36,050 6.49 23,339 7.73 14,608 5.49
Mortgage -- residential... 194,986 31.81 164,190 29.57 61,611 20.41 53,224 20.01
Mortgage -- commercial.... 136,707 22.31 138,848 25.01 100,005 33.12 92,637 34.83
Mortgage -- other......... 2,263 0.37 3,105 0.56 537 0.18 1,251 0.47
Consumer.................... 46,883 7.65 50,252 9.05 15,368 5.09 15,811 5.94
Other....................... 28,956 4.72 18,793 3.38 8,409 2.79 8,279 3.11
-------- ------ -------- ------ -------- ------ -------- ------
Total gross loans... 612,897 100.00% 555,252 100.00% 301,910 100.00% 265,965 100.00%
====== ====== ====== ======
Unearned income............. (1,456) (2,133) (34) --
-------- -------- -------- --------
Total loans, net of
unearned income... 611,441 553,119 301,876 265,965
Allowance for loan losses... (9,322) (8,909) (5,261) (6,268)
-------- -------- -------- --------
Total net loans..... $602,119 $544,210 $296,615 $259,697
======== ======== ======== ========
DECEMBER 31,
-------------------
1992
-------------------
PERCENT
AMOUNT OF TOTAL
-------- --------
Commercial, financial and
agricultural.............. $ 73,852 30.51%
Real estate:
Construction.............. 17,714 7.32
Mortgage -- residential... 37,872 15.64
Mortgage -- commercial.... 86,112 35.57
Mortgage -- other......... 1,202 0.50
Consumer.................... 14,778 6.10
Other....................... 10,550 4.36
-------- ------
Total gross loans... 242,080 100.00%
======
Unearned income............. (2)
--------
Total loans, net of
unearned income... 242,078
Allowance for loan losses... (6,214)
--------
Total net loans..... $235,864
========
In the context of this discussion, a "real estate mortgage loan" is defined
as any loan, other than loans for construction purposes, secured by real estate,
regardless of the purpose of the loan. It is common practice for financial
institutions in the Company's market areas to obtain a security interest or lien
in real estate whenever possible, in addition to any other available collateral.
This collateral is taken to reinforce the likelihood of the ultimate repayment
of the loan and tends to increase the magnitude of the real estate loan
portfolio component.
The principal component of the Company's loan portfolio is real estate
mortgage loans. At year-end 1996, this category totaled $334.0 million and
represented 54.6% of the total loan portfolio, compared to $306.1 million, or
55.1%, of the total loan portfolio, at year-end 1995.
Commercial mortgage loans decreased $2.1 million, or 1.5%, to $136.7
million at December 31, 1996. Residential mortgage loans increased $30.8
million, or 18.8%, to $195.0 million at December 31, 1996, compared with $164.2
million at December 31, 1995, due primarily to an increased emphasis in
residential lending, especially home equity lines of credit.
Construction loans were $40.6 million at December 31, 1996, an increase of
$4.6 million, or 12.8%, from $36.0 million at December 31, 1995.
Commercial, financial and agricultural loans totaled $162.5 million at
December 31, 1996, compared to $144.0 million at December 31, 1995, resulting in
an increase of $18.5 million, or 12.8%.
Consumer loans were $46.9 million at December 31, 1996, a decrease of $3.4
million or 6.7%.
Other categories of loans comprised less than 10% at December 31, 1996 and
1995.
The Company's loan portfolio represents diversification within its Alabama
markets, and is represented in the higher growth Shelby, Baldwin and St. Clair
counties. The Company engages in no foreign lending operations.
The repayment of loans is a source of additional liquidity for the Company.
The following table sets forth the Company's loans maturing within specific
intervals at December 31, 1996.
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LOAN MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES
DECEMBER 31, 1996
-------------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE
ONE YEAR OR LESS YEARS OVER FIVE YEARS TOTAL
---------------- ------------- --------------- --------
(AMOUNTS IN THOUSANDS)
Commercial, financial and agricultural........ $120,620 $40,718 $ 1,133 $162,471
Real estate -- construction................... 28,378 7,076 5,177 40,631
Real estate -- residential.................... 50,152 53,564 91,270 194,986
Real estate -- commercial..................... 30,434 79,122 27,151 136,707
Consumer...................................... 19,833 25,623 1,427 46,883
PREDETERMINED FLOATING
RATES RATES
------------- --------
Maturing after one year but within five years............... $135,419 $ 70,684
Maturing after five years................................... 46,667 79,491
-------- --------
$182,086 $150,175
======== ========
The information presented in the above table is based upon the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval, as well as modification of terms upon their
maturity. Consequently, management believes this treatment presents fairly the
maturity and repricing structure of the loan portfolio.
Securities
Securities, including securities classified as held to maturity (or
investment securities) and available for sale, represent a significant portion
of the Company's earning assets. Securities averaged $156.3 million during 1996,
compared with $94.4 million during 1995, an increase of $61.9 million, or 65.6%,
as a result of the Merger. At December 31, 1996, the securities portfolio
totaled $150.8 million, including securities held to maturity with an amortized
cost of $74.7 million and securities available for sale with a market value of
$76.1 million.
The following tables set forth the carrying value of securities held by the
Company at the dates indicated.
INVESTMENT SECURITIES
DECEMBER 31,
-----------------------
1996 1995
--------- ---------
(AMOUNTS IN THOUSANDS)
U.S. Treasury............................................... $ 3,446 $ 968
U.S. Government Agencies.................................... 60,513 49,735
State and political subdivisions............................ 10,786 10,791
Other....................................................... -- 100
------- -------
Total............................................. $74,745 $61,594
======= =======
AVAILABLE FOR SALE SECURITIES
DECEMBER 31,
-----------------------
1996 1995
--------- ---------
(AMOUNTS IN THOUSANDS)
U.S. Treasury............................................... $13,339 $26,199
U.S. Government Agencies.................................... 50,343 54,633
State and political subdivisions............................ 8,892 7,262
Other....................................................... 3,506 4,176
------- -------
Total............................................. $76,080 $92,270
======= =======
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32
The following tables show the scheduled maturity and average yields of
securities owned by the Company at December 31, 1996.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
DECEMBER 31, 1996
-------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
----------------- ----------------- ------------------ ------------------
AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1)
------ -------- ------ -------- ------- -------- ------- --------
(AMOUNTS IN THOUSANDS, EXCEPT YIELDS)
U.S. Government Agencies................. $3,446 6.02% $ -- --% $ -- --% $ -- --%
State and political subdivisions......... 300 4.55 3,570 6.17 11,174 6.88 45,469 6.65
Other.................................... 155 6.86 2,308 7.53 6,854 8.62 1,469 8.83
------ ------ ------- -------
Total............................ $3,901 5.94% $5,878 6.70% $18,028 7.54% $46,938 6.72%
====== ==== ====== ==== ======= ==== ======= ====
- ---------------
(1) Computed on a tax-equivalent basis utilizing a 34% tax rate, without giving
effect to the disallowance for federal income tax purposes of interest
related to certain tax-exempt assets.
SECURITIES AVAILABLE FOR SALE MATURITY DISTRIBUTION AND YIELDS
DECEMBER 31, 1996
--------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS
------------------ ------------------ ----------------- ------------------
AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1)
------- -------- ------- -------- ------ -------- ------- --------
(AMOUNTS IN THOUSANDS, EXCEPT YIELDS)
U.S. Treasury............................ $11,529 5.66% $1,810 5.48% $ -- --% $ -- --%
U.S. Government Agencies................. 3,073 6.30 9,772 6.37 2,733 5.84 34,765 7.10
Other.................................... 479 11.18 5,317 8.13 1,065 6.23 2,031 7.61
------- ------- ------ -------
Total(2)......................... $15,081 5.97% $16,899 6.83% $3,798 5.95% $36,796 7.13%
======= ==== ======= ==== ====== ==== ======= ====
- ---------------
(1) Computed on a tax-equivalent basis utilizing a 34% tax rate, without giving
effect to the disallowance for federal income tax purposes of interest
related to certain tax-exempt assets.
(2) Excludes $3,506,000 in investment equity securities.
Mortgage-backed securities consisting of collateralized mortgage
obligations and pass-through mortgage obligations totaling $91.9 million,
classified as investment securities of $55.8 million and securities available
for sale of $36.1 million, are included in the above table based upon the final
scheduled maturity of the underlying mortgages. Management expects the annual
repayment of the underlying mortgages to differ as a result of monthly repayment
of principal and/or interest required under terms of the underlying promissory
notes. Further, the actual rate of repayment is subject to changes depending
upon both terms of the underlying mortgages and the relative level of mortgage
interest rates. When relative interest rates decline to levels below that of the
underlying mortgages, acceleration of principal repayment is expected. When the
underlying rates on mortgage loans are comparable to, or in excess of, market
rates, repayment more closely conforms to scheduled amortization in accordance
with terms of the promissory note. Accordingly, management expects the
collateralized mortgage obligations to mature in three to five years, and the
pass-through mortgage obligations to mature in five to seven years.
Other attributes of securities are discussed in "-- Interest Sensitivity"
and "-- Accounting Rule Changes -- Accounting for Securities".
Short-Term Investments
The Company utilizes overnight investment of funds in Federal funds sold
and securities purchased under agreements to resell to ensure that adequate
liquidity will be maintained, while at the same time minimizing
32
33
the level of uninvested cash reserves. Short-term investments are also utilized
by the Company when the level of funds committed to lending and investment
portfolio programs changes or the level of deposit generation changes. During
1996, Federal funds sold and securities purchased under agreements to resell
averaged $32.0 million, compared to $26.0 million during 1995, representing a
$6.0 million, or 22.9%, increase as the Company experienced growth in both loans
and investment securities.
Trading Account Securities
An important aspect of investment department operations, but less so to the
Company in total, are trading account securities, which represent securities
owned by the Company prior to delivery to the Company's customers. Trading
account securities averaged $2.8 million in 1996 and $1.1 million in 1995; this
small dollar amount reflects management's policy of limiting positions in such
securities to reduce its exposure to market and interest rate changes.
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES
Average interest-bearing liabilities increased $275.1 million, or 73.0%, to
$652.0 million in 1996, from $376.9 million in 1995 as a result of the Merger.
Average interest-bearing deposits increased $227.3 million, or 69.5%, to $554.4
million in 1996, from $327.1 million in 1995 as a result of the Merger. Average
Federal funds purchased and securities sold under agreements to repurchase
increased $29.5 million, or 82.0%, to $65.4 million in 1996, from $35.9 million
in 1995 resulting from reliance on borrowed funds to fund asset growth. Average
short-term borrowings increased by $18.6 million, or 143.1%, to $31.6 million in
1996, compared to $13.0 million is 1995.
Deposits
Average total deposits increased $274.0 million, or 71.0%, to $659.7
million during 1996, from $385.7 million during 1995, as a result of the Merger.
At December 31, 1996, total deposits were $674.7 million, compared with $676.5
million at December 31, 1995, a decrease of $1.8 million, or 0.3%.
The following table sets forth the deposits of the Company by category at
the dates indicated.
DEPOSITS
DECEMBER 31,
-----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------- ------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGES)
Demand................ $110,962 16.45% $112,382 16.61% $ 59,350 17.03% $ 54,538 17.00% $ 63,205 18.93%
NOW................... 84,714 12.56 105,625 15.61 35,149 10.09 39,171 12.21 40,350 12.09
Savings and money
market.............. 182,017 26.98 181,032 26.76 125,081 35.90 134,636 41.98 145,367 43.55
Time less than
$100,000............ 225,625 33.44 217,678 32.18 98,394 28.24 61,898 19.30 57,171 17.13
Time greater than
$100,000............ 71,363 10.57 59,819 8.84 30,445 8.74 30,511 9.51 27,698 8.30
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total
deposits.... $674,681 100.00% $676,536 100.00% $348,419 100.00% $320,754 100.00% $333,791 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Core deposits, which exclude time deposits of $100,000 or more, provide for
a relatively stable funding source that supports earning assets. The Company's
core deposits total $603.3 million, or 89.4%, of total deposits at December 31,
1996 and totaled $616.7 million, or 91.1%, of total deposits at December 31,
1995.
33
34
Deposits, in particular core deposits, have historically been the Company's
primary source of funding and have enabled the Company to meet successfully both
short-term and long-term liquidity needs. Management anticipates that such
deposits will continue to be the Company's primary source of funding in the
future. The Company's loan-to-deposit ratio was 90.6% at December 31, 1996, and
81.8% at the end of 1995, and the ratio averaged 86.5% during 1996. The maturity
distribution of the Company's time deposits in excess of $100,000 at December
31, 1996, is shown in the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT AND OTHER TIME
DEPOSITS OF $100,000 OR MORE
DECEMBER 31, 1996
-----------------------------------------------------------
AFTER ONE AFTER THREE AFTER SIX
THROUGH THROUGH THROUGH AFTER
WITHIN ONE THREE SIX TWELVE TWELVE
MONTH MONTHS MONTHS MONTHS MONTHS
---------- --------- ----------- ---------- -------
(AMOUNTS IN THOUSANDS)
Certificates of deposit of $100,000 or more........ $17,456 $12,306 $13,785 $7,249 $7,873
Other time deposits of $100,000 or more............ 12,694 -- -- -- --
------- ------- ------- ------ ------
Total.................................... $30,150 $12,306 $13,785 $7,249 $7,873
======= ======= ======= ====== ======
Approximately 60% of the Company's time deposits over $100,000 had
scheduled maturities within three months. Large certificate of deposit customers
tend to be extremely sensitive to interest rate levels, making these deposits
less reliable sources of funding for liquidity planning purposes than core
deposits. Some financial institutions partially fund their balance sheets with
large certificates of deposit obtained through brokers. The Company has not
historically used broker deposits.
Borrowed Funds
Borrowed funds include three broad categories; Federal funds purchased and
securities sold under agreements to repurchase, treasury, tax and loan balances
and borrowings from an independent bank. Because of a relatively high
loan-to-deposit ratio, the existence and stability of these funding sources are
critical to the Company's maintenance of short-term and long-term liquidity.
Federal funds purchased and securities sold under agreements to repurchase
represent both an input of excess funds from correspondent bank customers of the
Company, as well as a cash management tool offered to corporate customers. At
December 31, 1996, these funds totaled $91.9 million, compared with $58.9
million at December 31, 1995.
At December 31, 1996 Treasury, tax and loan balances totaled $3.0 million,
compared to $2.4 million at December 31, 1995. The Company collects tax deposits
from customers and is permitted to retain these balances until established
collateral limits are exceeded or until the U.S. Treasury withdraws its
balances.
The Company's average borrowing from an independent bank under a $23
million credit facility was $19.2 million during 1996, compared with $9.9
million during 1995. As of December 31, 1996, the remaining principal balance
under this credit facility was $17.0. This credit facility bears interest at the
rate of LIBOR, plus 125 basis points, and became due on January 27, 1997.
Effective January 27, 1997, the credit facility was renegotiated to provide for
borrowings up to $20.0 million at LIBOR plus 100 basis points, due January 27,
1998, secured by stock in the subsidiary banks.
Two subsidiary banks are members of the Federal Home Loan Bank ("FHLB"). At
December 31, 1996, the total amount outstanding under available FHLB lines of
$60.2 million was $24.0 million, compared to $6.0 million at December 31, 1995.
34
35
The following table sets forth, for the periods indicated, the principal
components of borrowed funds.
BORROWED FUNDS
DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
(AMOUNTS IN THOUSANDS,
EXCEPT PERCENTAGES)
Federal funds purchased and securities sold under agreements
to repurchase:
Balance at end of period.................................. $91,871 $58,921 $30,935
Average balance outstanding............................... 65,380 35,921 27,893
Maximum outstanding at any month's end.................... 91,871 58,921 37,889
Weighted average interest rate at period-end.............. 5.93% 5.65% 5.40%
Weighted average interest rate during the period.......... 5.15 5.97 3.98
Treasury, tax and loan:
Balance at end of period.................................. $ 2,968 $ 2,441 $ 2,895
Average balance outstanding............................... 2,767 3,060 2,853
Maximum outstanding at any month's end.................... 6,242 6,662 5,298
Weighted average interest rate at period-end.............. 5.15% 5.40% 3.40%
Weighted average interest rate during the period.......... 4.01 5.36 3.50
Notes Payable:
Balance at end of period.................................. $17,000 $15,280 $ 7,150
Average balance outstanding............................... 18,867 9,934 7,175
Maximum outstanding at any month's end.................... 21,376 15,280 7,350
Weighted average interest rate at period-end.............. 6.75% 6.94% 7.36%
Weighted average interest rate during the period.......... 7.19 7.18 5.62
Advances from the Federal Home Loan Bank:
Balance at end of period.................................. $24,000 $ 6,000 $ --
Average balance outstanding............................... 9,976 -- --
Maximum outstanding at any month's end.................... 24,000 6,000 --
Weighted average interest rate at period-end.............. 6.01% 5.98% --%
Weighted average interest rate during the period.......... 5.70 -- --
Long-Term Debt
The Company is obligated under capital leases for two branch facilities. At
December 31, 1996 and 1995, obligations under capital leases were $300,000, and
$324,000, respectively. Annual amortization of such capital lease obligations is
approximately $21,000. At December 31, 1995, FIRSTBANC owed $497,000 under a
note payable to an independent bank which was repaid during 1996.
CAPITAL RESOURCES AND LIQUIDITY MANAGEMENT
Capital Resources
The Company's stockholders' equity increased $7.9 million, or 13.6%, to
$66.1 million at December 31, 1996, from $58.2 million December 31, 1995. This
net increase was primarily attributable to net income for 1996 of $9.7 million,
less dividends paid of $1.7 million.
Under the capital guidelines of their regulators, the Company and the Banks
are currently required to maintain a minimum risk-based total capital ratio of
8%, with at least 4% being Tier I capital. Tier I capital consists of common
stockholders' equity, qualifying perpetual preferred stock and minority
interests in equity accounts of consolidated subsidiaries, less goodwill. In
addition, under the guidelines, the Company and the Banks must maintain a
minimum Tier I leverage ratio of Tier I capital to total assets of at least 3%,
but this minimum ratio is typically increased by 100 to 200 basis points for
other than the highest rated institutions.
35
36
The Company exceeded its fully phased-in regulatory capital ratios at
December 31, 1996, 1995 and 1994, as set forth in the following table.
ANALYSIS OF CAPITAL
DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PERCENTAGES)
Tier 1 Capital............................................. $ 59,800 $ 51,460 $ 32,344
Tier 2 Capital............................................. 7,983 7,143 3,878
-------- -------- --------
Total qualifying capital(1)...................... $ 67,783 $ 58,603 $ 36,222
======== ======== ========
Risk-adjusted total assets (including off-balance sheet
exposures)............................................... $638,641 $571,448 $310,206
Tier 1 risk-based capital ratio (4.00% required minimum)... 9.36% 9.01% 10.43%
Total risk-based capital ratio (8.00% required minimum).... 10.61 10.26 11.68
Tier 1 leverage ratio (4.00% required minimum)............. 7.09 10.47 7.49
- ---------------
(1) Does not include $1,339,000, $1,766,000 and $1,383,000 of the Company's
allowance for loan losses at December 31, 1996, 1995 and 1995, respectively,
in excess of 1.25% of risk-adjusted total assets.
Each of the Banks is required to maintain risk-based and leverage ratios
similar to those required for the Company. Each of the Banks exceeded these
regulatory capital ratios at December 31, 1996, as set forth in the following
table.
BANK CAPITAL RATIOS
DECEMBER 31, 1996
-------------------------------------
TIER 1 RISK TOTAL RISK TIER 1
BASED BASED LEVERAGE
----------- ---------- --------
National Bank of Commerce of Birmingham..................... 10.47% 11.72% 8.10%
Alabama Exchange Bank....................................... 13.17 14.42 9.33
Bank of Dadeville........................................... 12.24 13.38 9.28
Citizens Bank of Talladega.................................. 15.95 17.20 9.76
First Bank of Baldwin County................................ 13.87 15.07 9.13
First National Bank of Ashland.............................. 12.60 13.71 8.29
Gulf Bank................................................... 12.32 13.57 9.96
Liquidity Management
Liquidity management involves monitoring the Company's sources and uses of
funds in order to meet its day-to-day cash flow requirements while maximizing
profits. Liquidity represents the ability of an entity to convert assets into
cash or cash equivalents without significant loss and to raise additional funds
by increasing liabilities.
Without proper liquidity management, the Company will not be able to
perform the primary function of a financial intermediary and would, therefore,
not be able to meet the needs of the communities it serves.
Increased liquidity in typical interest rate environments often involves
decreasing profits by investing in earning assets with shorter maturities.
Liquidity management is made more complex because different balance sheet
components are subject to varying degrees of management control. For example,
the timing of maturities of the investment portfolio is very predictable and
subject to a high degree of control at the time investment decisions are made.
However, net deposit inflows and outflows are far less predictable and are not
subject to nearly the same degree of control.
Assets included in the Company's Consolidated Statements of Condition
contribute to liquidity management. Federal funds sold and securities purchased
under agreements to resell position, including interest-bearing deposits in
other banks, its primary source of liquidity, averaged $35.9 million during 1996
and
36
37
was $46.4 million at December 31, 1996, and averaged $29.6 million during 1995
and was $49.0 million at December 31, 1995. If required in short-term liquidity
management, these assets could be converted to cash immediately. Cash received
from the repayment of investment securities and loans provide a constant source
of cash that contributes to liquidity management. Unpledged securities, with a
carrying value of approximately $69 million at December 31, 1996 provide the
Company an opportunity to generate cash by, 1) providing additional collateral
by selling securities under agreements to repurchase, 2) providing collateral to
obtain public funds or 3) providing collateral to borrow directly from the
Federal Reserve Bank or the Federal Home Loan Bank. See "-- Loans" and
"Securities."
Liquidity can also be managed using liabilities included in the Company's
Consolidated Statement of Condition, such as Federal funds purchased and
securities sold under agreements to repurchase and short-term borrowing.
Combined Federal funds purchased and securities sold under agreements to
repurchase and short-term borrowing averaged $97.0 million during 1996 and was
$135.8 million at December 31, 1996, and averaged $48.9 million during 1995 and
was $82.6 million at December 31, 1995. Overnight borrowing lines with upstream
correspondent banks, $75 million at December 31, 1996, of which $30 million was
unused, provide additional sources of liquidity to the Company on an unsecured
basis. The Federal Home Loan Bank provides secured and unsecured credit lines to
two of the Company's banks totaling approximately $60.2 million. At December 31,
1996, advances under these lines totaled $24 million. Long-term liquidity needs
are met through the Company's deposit base (approximately 89% of the Company's
deposits at December 31, 1996, are considered core deposits), and the repayment
of loans and other investments as they mature. The Company is able to manage its
long-term liquidity needs by adjusting the rates it pays on longer-term deposits
and the amount and mix of longer-term investments in its portfolio.
The Company, as a stand alone corporation, has more limited access to
liquidity sources than its banks and depends on dividends from its subsidiaries
as its primary source of liquidity. The Company's liquidity is diminished by
required payments on its outstanding short-term debt. The ability of its
subsidiaries to pay dividends is subject to general regulatory restrictions
which may, but are not expected to, have a material negative impact on the
liquidity available to the Company. (See Note 3 to the Company's Consolidated
Financial Statements.) If circumstances warrant, the Company's short-term
liquidity needs can also be met by additional borrowings of approximately $3
million representing the unused portion of the Company's credit facility with an
unrelated bank. See "--Borrowed Funds."
FOURTH QUARTER REVIEW
The Company recorded net income of $2.8 million in the quarter ending
December 31, 1996 ("the 1996 period"), compared with $522,000 during the quarter
ending December 31, 1995 ("the 1995 period"), an increase of $2.3 million, or
433.1%.
Net interest income increased $3.9 million, or 77.0%, to $9.0 million,
during the 1996 period from $5.1 million during the 1995 period, resulting
primarily from an increase in average earning assets to $783.0 million during
the 1996 period, from $494.6 million during the 1995 period, primarily as a
result of the Merger.
The Company recorded a provision for loan losses of $30,000 during the 1996
period, compared with $199,000 during the 1995 period, a decrease of $169,000,
or 84.9%.
Noninterest income was $3.8 million during the 1996 period, compared with
$3.1 million during the 1995 period, representing an increase of $774,000, or
25.7%, primarily as a result of the Merger.
Noninterest expense increased by $1.7 million, or 23.3%, to $9.1 million
during the 1996 period, compared with $7.4 million during the 1995 period and is
attributable to the Merger. During the 1995 period, the Company provided $1.2
million for three adverse judgments against the Company.
37
38
ACCOUNTING RULE CHANGES
Accounting for Loan Impairments
In May 1993, the FASB issued SFAS 114, and in October 1994, the FASB issued
SFAS 118 which amended SFAS 114. SFAS 114 and 118 provide for the use of present
value accounting to determine the reserve for possible credit losses on certain
loans, including loans that have been modified as part of a troubled debt
restructuring. These statements were adopted by the Company effective January 1,
1995, resulting in no additional provision for loan losses at January 1, 1995,
or during the years ended December 31, 1996 and 1995.
Accounting for Securities
In May 1993, the FASB issued SFAS 115, "Accounting for Certain Investments
in Debt and Equity Securities." SFAS 115 provides for the classification of
investment securities into the following three categories: trading,
available-for-sale and held-to-maturity. Debt securities that an enterprise has
the intent and ability to hold until maturity are classified as held-to-maturity
and reported at amortized cost. Trading securities and available-for-sale
securities are reported at market value with unrealized gains and losses on
trading securities reported in income and unrealized gains and losses on
available-for-sale securities reported as a net amount in a separate component
of stockholders' equity until realized. The Company adopted SFAS 115 on January
1, 1994. At December 31, 1996, the Company held $76.1 million securities
available-for-sale and $74.7 million securities held-to-maturity and reflected
an unrealized loss after tax of $84,000 as a separate component of stockholders'
equity.
Accounting for the Impairment of Long-Lived Assets
In March, 1995, the FASB issued SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 121
establishes standards for the identification of long-lived assets, including
certain identifiable intangibles and goodwill that may need to be written down
because of an entity's inability to recover the assets' carrying value. The
Company adopted SFAS 121 effective January 1, 1996. The adoption of SFAS 121 did
not have a material impact on the Company's consolidated financial statements.
Accounting for Mortgage Servicing Rights
In May, 1995, the FASB issued SFAS 122, "Accounting for Mortgage Servicing
Rights." The Company does not currently retain servicing rights related to a
significant portion of the mortgage loans it originates. The Company adopted
SFAS 122 effective January 1, 1996. The adoption of SFAS 122 did not have a
material impact on the Company's consolidated financial statements.
Accounting for Stock-Based Compensation
In October, 1995 the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation," which calls for a value based method. Beginning in 1996,
compensation cost for stock-based employee compensation arrangements is measured
at the grant date based on the value of the award and is recognized over the
service period. The effects of applying this statement during initial phase-in
period are not necessarily representative of the effects on future years.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
In October, 1996, the FASB issued SFAS 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," as amended by
SFAS 127, "Deferral of the Effective Date of Certain Provisions of SFAS
Statement No, 125," which establishes standards in 1997 for accounting for
certain transfers of assets and extinguishments of liabilities. It requires that
an entity recognize the financial and servicing assets it controls and the
liabilities it has incurred and derecognize financial assets when control has
been surrendered, and derecognize liabilities when extinguished. Certain
guidelines set forth in the statement must be met before an asset can be
considered transferred or a liability extinguished. This statement
38
39
is applied prospectively for transfers of financial assets and extinguishments
of liabilities occurring after December 31, 1996. Management does not believe
the adoption of SFAS 125, as amended by SFAS 127, will have a material effect on
the consolidated financial statements of the Company.
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company and its subsidiaries are primarily monetary in
nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the effects of changes in the general rate of
inflation and change in prices. In addition, interest rates do not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. Management seeks to manage the relationships between
interest-sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation.
INDUSTRY DEVELOPMENTS
Certain recently enacted and proposed legislation could have an effect on
both the costs of doing business and the competitive factors facing the
financial institutions industry. The Company is unable at this time to assess
the impact of this legislation on its financial condition or results of
operations.
TECHNOLOGY CONSIDERATIONS
The Company uses vendor-purchased software to process information relating
to its operations and financial reporting. In addition, the Company relies upon
information processed by third parties using computer software which may be
vendor-purchased or internally developed. Management believes that its purchased
software will not require any programming modifications related to the
software's date-driven functions. Although an in-depth study has not been
performed, management does not believe that modifications to software incurred
by any of their third-party processors will have a material financial impact on
the Company's financial statements.
39
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements and Financial Statement Schedules of
ANB and subsidiaries listed in Item 14(a) have been included in this report
beginning on page F-1. The Supplementary Financial Information required by Item
302 of Regulation S-K is set forth below. The information for the first two
quarters in 1996 and each quarter in 1995 differs from that previously reported
in ANB's Quarterly Reports on Form 10-Q for the first two quarters of 1996 and
1995 and in ANB's Annual Report on Form 10-K for the year ended December 31,
1995, because the merger with FIRSTBANC was accounted for as a pooling of
interests.
SELECTED QUARTERLY FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1996 QUARTERS 1995 QUARTERS
----------------------------------------- -----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
-------- -------- -------- -------- -------- -------- -------- --------
Summary of Operations:
Interest income..................... $ 16,194 $ 16,133 $ 16,146 $ 16,652 $ 8,573 $ 9,117 $ 9,839 $ 10,438
Interest expense.................... 7,847 7,487 7,350 7,681 4,096 4,622 5,085 5,369
Net interest income................. 8,347 8,646 8,796 8,971 4,477 4,495 4,754 5,069
Provision for loan losses........... 152 57 -- 30 6 2 202 199
Securities gains (losses)........... 31 3 7 (44) -- -- -- 3
Noninterest income.................. 4,121 3,964 3,856 3,837 961 1,447 2,268 3,063
Noninterest expense................. 8,603 9,542 9,173 9,068 3,709 4,335 5,498 7,356
Net income.......................... 2,360 1,997 2,585 2,783 1,155 1,530 1,019 522
Dividends on preferred stock........ -- -- 4 -- 79 -- 600 174
Dividends on common stock........... 307 307 554 579 -- -- -- --
Per Common Share Data:
Book Value.......................... $ 9.20 $ 9.43 $ 9.73 $ 10.15 $ 6.77 $ 7.51 $ 7.55 $ 8.94
Tangible book value................. 8.05 8.29 8.60 9.03 5.96 6.71 6.76 7.78
Net income(1)....................... 0.35 0.30 0.39 0.41 0.37 0.53 0.15 0.12
Dividends declared.................. 0.05 0.05 0.09 0.09 -- -- -- --
Balance Sheet Highlights At
Period-End:
Total assets...................... $828,686 $827,024 $841,191 $887,712 $430,652 $468,830 $515,522 $839,723
Securities........................ 162,112 157,602 153,260 152,761 86,808 90,452 96,688 158,266
Loans, net of unearned income..... 558,089 569,379 588,707 611,441 309,864 322,588 331,869 553,119
Allowance for loan losses......... 8,816 9,086 9,245 9,322 4,955 4,978 5,494 8,909
Deposits.......................... 661,340 674,799 668,225 674,681 362,022 377,593 413,339 676,536
Short-term debt................... 21,250 32,150 41,434 41,000 9,700 9,700 10,780 21,280
Long-term debt.................... 795 768 307 300 921 897 872 821
Stockholders' equity.............. 59,918 61,394 63,398 66,121 25,837 28,848 27,888 58,189
- ---------------
(1) Per common share net income is calculated based upon net income as adjusted
for cash dividends on preferred stock.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE
On April 25, 1996, the Board of Directors of ANB, upon the recommendation
of its Audit Committee, approved the engagement of Coopers & Lybrand L.L.P. as
its independent auditors for the year ending December 31, 1996. Coopers &
Lybrand L.L.P. had served as the independent auditors for ANB's predecessor, NCC
and its subsidiaries, for each of the years ended December 31, 1994, 1993, 1992
and 1991, and was serving as the independent auditor of NCC in 1995, when their
engagement ended on the effective date of the Merger.
40
41
ANB engaged Ernst & Young LLP as its independent auditors for the years
ended December 31, 1995, 1994, and 1993. Ernst & Young LLP expressed its
unqualified opinion as the consolidated financial statements of ANB and its
subsidiaries for each of those years in its report dated February 29, 1996.
Because the Merger resulted in a change of control, the consolidated
financial statements of the Registrant for the years prior to 1996 include only
the results of operations of NCC. Accordingly, the report of Ernst & Young LLP,
dated February 29, 1996, with respect to ANB's consolidated financial statements
referenced the unqualified opinion of Coopers & Lybrand L.L.P., dated January
27, 1995, with respect to the consolidated statement of condition of ANB
(formerly reported as NCC) for the year ended December 31, 1994, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the two years ended December 31, 1994.
There were no disagreements during 1995 or 1994 between ANB and Ernst &
Young LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of Ernst & Young LLP, would have caused it to make
reference to the subject manner of the disagreement in its report.
ANB retained Ernst & Young, LLP to audit the separate 1996 financial
statements of ANB's wholly-owned subsidiary, NBC Securities, Inc., a registered
broker-dealer.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding Executive Officers is
included in Part I of this Form 10-K (page 14) in accordance with Instruction 3
of the Instructions to Paragraph (b) of Item 401 of Regulation S-K.
The information required by this Item regarding directors is incorporated
by reference pursuant to General Instruction G(3) of Form 10-K from ANB's
definitive Proxy Statement for the 1997 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A on
or before April 4, 1997.
ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The information required by this Item is incorporated by reference pursuant
to General Instruction G(3) of Form 10-K from ANB's definitive Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A on or before April 4, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item is incorporated by reference pursuant
to General Instruction G(3) of Form 10-K from ANB's definitive Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A on or before April 4, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference pursuant
to General Instruction G(3) of Form 10-K from ANB's definitive Proxy Statement
for the 1997 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A or before April 4, 1997.
41
42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) and (d) -- Financial Statements and Financial Statement
Schedules.
Financial Statements: The Consolidated Financial Statements of ANB and
subsidiaries, included herein (pages F-1 to F-28) are as follows:
Reports of Independent Auditors
Coopers & Lybrand L.L.P.
Ernst & Young, LLP
Consolidated Statements of Condition -- December 31, 1996 and 1995
Consolidated Statements of Income -- Years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity -- Years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Financial Statement Schedules: All schedules to the consolidated financial
statements required by Article 9 of Regulation S-X are inapplicable and
therefore have been omitted.
(b) Reports on Form 8-K.
Report on Form 8-K filed October 8, 1996 to report ANB's merger with
FIRSTBANC effective September 30, 1996.
(c) Exhibits.
The exhibits listed on the exhibit index on page 44 of this Form 10-K are
filed herewith or are incorporated herein by reference.
42
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this the 19th day
of March, 1997.
ALABAMA NATIONAL BANCORPORATION
By: /s/ JOHN H. HOLCOMB, III
------------------------------------
John H. Holcomb, III
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ JOHN H. HOLCOMB, III Chairman and Chief Executive March 19, 1997
- ----------------------------------------------------- Officer (principal
John H. Holcomb, III executive officer)
/s/ VICTOR E. NICHOL, JR. President and Chief March 19, 1997
- ----------------------------------------------------- Operating Officer and
Victor E. Nichol, Jr. Director
/s/ JAMES S. PARKS, JR. Senior Vice President -- March 19, 1997
- ----------------------------------------------------- Finance, Controller and
James S. Parks, Jr. Treasurer (principal
financial and accounting
officer)
Director March , 1997
- -----------------------------------------------------
James R. Andrews, M.D.
/s/ T. MORRIS HACKNEY Director March 19, 1997
- -----------------------------------------------------
T. Morris Hackney
/s/ JOHN D. JOHNS Director March 19, 1997
- -----------------------------------------------------
John D. Johns
Director March , 1997
- -----------------------------------------------------
James Mailon Kent, Jr.
/s/ C. PHILLIP MCWANE Director March 19, 1997
- -----------------------------------------------------
C. Phillip McWane
/s/ DRAYTON NABERS, JR. Director March 19, 1997
- -----------------------------------------------------
Drayton Nabers, Jr.
Director March , 1997
- -----------------------------------------------------
Ronald W. Orso, M.D.
/s/ G. Ruffner Page, Jr. Director March 19, 1997
- -----------------------------------------------------
G. Ruffner Page, Jr.
/s/ W. STANCIL STARNES Director March 19, 1997
- -----------------------------------------------------
W. Stancil Starnes
/s/ WILLIAM D. MONTGOMERY Director March 19, 1997
- -----------------------------------------------------
William D. Montgomery
43
44
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION REFERENCE
- -------- ----------- ----
3.1 -- Certificate of Incorporation................................ (1)
3.1A -- Certificate of Amendment of Certificate of Incorporation.... *
3.2 -- Bylaws...................................................... (1)
4.1 -- Provisions of the Certificate of Incorporation and the
Bylaws of Alabama National BanCorporation which Define the
Rights of Securityholders................................... (1)
4.2 -- Certificate of Merger filed with the Secretary of State of
the State of Delaware on December 29, 1995..................
10.1 -- Deferred Compensation Agreement dated August 18, 1992,
between James A. Taylor and Alabama Exchange Bank........... (1)
10.2 -- Deferred Compensation Agreement dated September 9, 1985, as
amended, between James A. Taylor and Bank of Dadeville...... (1)
10.3 -- Deferred Compensation Agreement dated September 9, 1985, as
amended, between James A. Taylor and Bank of Dadeville as
successor to The Camp Hill Bank............................. (1)
10.4 -- Deferred Compensation Agreement dated September 9, 1985, as
amended, between James A. Taylor and First National Bank of
Ashland..................................................... (1)
10.5 -- Agreement to Allocate Consolidated Federal Income Tax
Liabilities and Benefits, effective December 20, 1986,
between Alabama National BanCorporation and Alabama Exchange
Bank........................................................ (1)
10.6 -- Agreement to Allocate Consolidated Federal Income Tax
Liabilities and Benefits, effective December 20, 1986,
between Alabama National BanCorporation and Bank of
Dadeville................................................... (1)
10.7 -- Agreement to Allocate Consolidated Federal Income Tax
Liabilities and Benefits, effective December 20, 1986,
between Alabama National BanCorporation and First National
Bank of Ashland............................................. (1)
10.8 -- Agreement to Allocate Consolidated Federal Income Tax
Liabilities and Benefits, effective January 4, 1988, between
Alabama National BanCorporation and Gulf Bank............... (1)
10.9 -- Agreement to Allocate Consolidated Federal Income Tax
Liabilities and Benefits, effective July 1, 1994, between
Alabama National BanCorporation and St. Clair Federal
Savings Bank................................................ (3)
10.10 -- Agreement to Allocate Consolidated Federal Income Tax
Liabilities and Benefits, effective July 10, 1992, between
Alabama National BanCorporation and Citizens Bank of
Talladega................................................... (3)
10.11 -- Alabama National BanCorporation 1994 Stock Option Plan...... (1)
10.12 -- Form of Stock Option Agreement utilized in connection with
the 1994 Stock Option Plan.................................. (2)
10.13 -- Engagement letter among J.C. Bradford & Co., Raymond James &
Associates and Alabama National BanCorporation, dated March
30, 1995.................................................... (3)
10.14 -- Agreement dated September 18, 1995, by and among James A.
Taylor and Frank W. Whitehead, Alabama National
BanCorporation, National Commerce Corporation and Commerce
Bankshares, Inc............................................. (3)
10.14A -- Amendment to Agreement dated September 18, 1995 executed by
James A. Taylor, Alabama National BanCorporation, National
Commerce Corporation and Commerce Bankshares, Inc. on
November 17, 1995........................................... (3)
44
45
EXHIBIT
NUMBER DESCRIPTION PAGE
- -------- ----------- ----
10.15 -- Agreements among the following for the deferral of the
exercise of stock options................................... (3)
(a) James A. Taylor
(b) Frank W. Whitehead
(c) Ronald W. Orso, M.D.
(d) William V. Muse, Ph.D.
(e) James R. Andrews, M.D.
(f) Carl F. Bailey
(g) James M. Kent, Jr.
(h) M. W. Milner
(i) William L. Clark
(j) Robert L. Davis
(k) Johnny G. Dutton
(l) Jimmy R. McIntosh
(m) Frank Ray Miller
(n) Wayne Glasscock
(o) Roger Guin
10.16 -- Commerce Bankshares, Inc. Long Term Incentive Compensation
Plan........................................................ (3)
10.16(a) -- Form of Incentive Stock Option Agreement.................... (3)
10.16(b) -- Form of Restricted Stock Agreement.......................... (3)
10.17 -- Lease Agreement between Woodward Properties and NBC......... (3)
10.18 -- NBC Pension Plan............................................ (4)
10.19 -- Deposit Liabilities Assumption Agreement dated December 22,
1995, between Talladega Federal Savings & Loan Association
and The First National Bank in Sylacauga.................... (4)
10.20 -- Credit Agreement between Alabama National BanCorporation and
AmSouth Bank of Alabama dated as of December 29, 1995
relating to a $23,000,000 Revolving Loan.................... (4)
10.20(a) -- Promissory Note between Alabama National BanCorporation and
AmSouth Bank of Alabama dated as of December 29, 1995
relating to a $23,000,000 Revolving Loan.................... (4)
10.20(b) -- Pledge Agreement between Alabama National BanCorporation and
AmSouth Bank of Alabama dated as of December 29, 1995
relating to a $23,000,000 Revolving Loan.................... (4)
10.21 -- Agreement and Plan of Merger dated as of June 10, 1996
between Alabama National BanCorporation and FIRSTBANC....... (6)
10.22 -- Separation Agreement between Alabama National BanCorporation
and James A. Taylor dated April 30, 1996.................... *
10.23 -- Alabama National BanCorporation Performance Share Plan...... *
10.24 -- Alabama National BanCorporation Deferred Compensation Plan
for Directors Who Are Not Employees of the Company.......... *
16.1 -- Letter from Ernst & Young LLP regarding Change in Certifying
Accountant.................................................. (5)
21.1 -- Subsidiaries of Alabama National BanCorporation............. *
23.1 -- Consent of Ernst & Young LLP................................ *
23.2 -- Consent of Coopers & Lybrand L.L.P.......................... *
27 -- Financial Data Schedule (for SEC use only).................. *
- ---------------
(1) Filed as an Exhibit to ANB's Registration Statement on Form S-1 (Commission
File No. 33-83800) and is incorporated herein by reference.
45
46
(2) Filed as an Exhibit to ANB's Form 10-K for the year ended December 31, 1994
and is incorporated herein by reference.
(3) Filed as an Exhibit to ANB's Registration Statement on Form S-4 (Commission
File No. 33-97152) and is incorporated herein by reference.
(4) Filed as an Exhibit to ANB's Form 10-K for the year ended December 31, 1995
and is incorporated herein by reference.
(5) Filed as an Exhibit to ANB's Form 8-K/A filed on July 10, 1996 and is
incorporated herein by reference.
(6) Filed as an Exhibit to ANB's Form 8-K filed on October 10, 1996 and is
incorporated herein by reference.
* Filed herein.
46
47
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(1) AND (2) AND (D)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
ALABAMA NATIONAL BANCORPORATION
BIRMINGHAM, ALABAMA
47
48
ALABAMA NATIONAL BANCORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
CONTENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Accountants........................ F-2
Consolidated Statements of Condition...................... F-4
Consolidated Statements of Income......................... F-5
Consolidated Statements of Changes in Stockholders'
Equity................................................. F-6
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-9
F-1
49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Alabama National BanCorporation
We have audited the consolidated statement of condition of Alabama National
BanCorporation and Subsidiaries as of December 31, 1996 and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years ended December 31, 1996 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The accompanying consolidated statement of condition of Alabama
National BanCorporation for the year ended December 31, 1995 and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year ended December 31, 1995 (prior to restatement) were audited
by other auditors whose report dated February 29, 1996 expressed an unqualified
opinion on those statements.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Alabama
National BanCorporation and Subsidiaries as of December 31, 1996, and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1996 and 1994, in conformity with generally accepted accounting
principles.
We also audited the combination of the accompanying consolidated statement
of condition as of December 31, 1995 and the related statements of income,
changes in stockholders' equity, and cash flows for the year then ended, after
restatement for the 1996 pooling of interests; in our opinion, such consolidated
statements have been properly combined on the basis described in Note 2 of the
notes to the consolidated financial statements. We also audited the
reclassifications described in Note 2 that were applied to the 1995 financial
statements. In our opinion, such adjustments are appropriate and have been
properly applied.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for stock-based compensation in 1996.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for investments in 1994.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Birmingham, Alabama
January 15, 1997
F-2
50
Report of Independent Auditors
The Board of Directors
Alabama National BanCorporation
We have audited the consolidated statement of condition of Alabama National
BanCorporation and subsidiaries (Alabama National BanCorporation) as of
December 31, 1995 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the year then ended (not presented
seperately herein). The financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Alabama National BanCorporation as of December 31, 1995 and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
- ---------------------
Birmingham, Alabama
February 29, 1996
F-3
51
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1996 AND 1995
1996 1995
-------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
ASSETS
Cash and due from banks..................................... $ 36,730 $ 39,202
Interest-bearing deposits in other banks.................... 200 11,168
Investment securities (market value $74,772 and $61,618 for
1996 and 1995, respectively).............................. 74,745 61,594
Securities available for sale............................... 76,080 92,270
Trading securities.......................................... 1,936 4,402
Federal funds sold and securities purchased under agreements
to resell................................................. 46,249 37,820
Loans....................................................... 612,897 555,252
Unearned income............................................. (1,456) (2,133)
-------- --------
Loans, net of unearned income............................... 611,441 553,119
Allowance for loan losses................................... (9,322) (8,909)
-------- --------
Net loans.......................................... 602,119 544,210
-------- --------
Property, equipment, and leasehold improvements, net........ 20,891 20,163
Intangible assets........................................... 7,308 7,595
Other assets................................................ 21,454 21,299
-------- --------
$887,712 $839,723
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing..................................... $110,962 $112,382
Interest bearing........................................ 563,719 564,154
-------- --------
Total deposits..................................... 674,681 676,536
-------- --------
Federal funds purchased and securities sold under agreements
to repurchase............................................. 91,871 58,921
Treasury tax and loan accounts.............................. 2,968 2,441
Short-term borrowings....................................... 41,000 21,280
Accrued expenses and other liabilities...................... 10,771 21,535
Long-term debt.............................................. 300 821
-------- --------
Total liabilities.................................. 821,591 781,534
-------- --------
Commitments and contingencies (see Note 11)
Stockholders' equity:
Senior noncumulative floating rate preferred stock, $1,000
par; authorized 4,000 shares; no shares issued or
outstanding.............................................
Floating rate cumulative preferred stock, $1,000 par;
authorized 4,000 shares; no shares issued or
outstanding.............................................
Noncumulative floating rate preferred stock, $1,000 par;
authorized 6,000 shares; no shares issued or
outstanding.............................................
10% noncallable preferred stock, $1 par; authorized 6,230
shares; no shares issued or outstanding.................
Preferred stock, $1 par; authorized 100,000 shares; no
shares issued or outstanding............................
Common stock, $1 par; authorized 10,000,000 shares; issued
and outstanding 6,515,418 and 6,505,418 shares,
respectively.............................................. 6,515 6,505
Additional paid-in capital.................................. 48,782 48,745
Retained earnings........................................... 11,093 3,119
Unearned restricted stock................................... 185 278
Unrealized (losses) gains on available for sale securities,
net of taxes.............................................. (84) 98
-------- --------
Total stockholders' equity......................... 66,121 58,189
-------- --------
$887,712 $839,723
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
52
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
------- ------- -------
(IN THOUSANDS, EXCEPT SHARE
DATA)
Interest income:
Interest and fees on loans................................ $53,286 $29,976 $23,163
Interest on securities.................................... 9,836 6,184 5,767
Interest on deposits in other banks....................... 233 207
Interest on trading securities............................ 183 67 15
Interest on federal funds sold and securities purchased
under agreements to resell............................. 1,587 1,533 399
------- ------- -------
Total interest income............................. 65,125 37,967 29,344
------- ------- -------
Interest expense:
Interest on deposits...................................... 24,908 16,233 10,410
Interest on federal funds purchased and securities sold
under agreements to repurchase......................... 3,365 2,143 1,111
Interest on short- and long-term borrowings............... 2,092 796 572
------- ------- -------
Total interest expense............................ 30,365 19,172 12,093
------- ------- -------
Net interest income............................... 34,760 18,795 17,251
Provision for loan losses................................... 239 409 1,279
------- ------- -------
Net interest income after provision for loan
losses.......................................... 34,521 18,386 15,972
------- ------- -------
Noninterest income:
Securities (losses) gains................................. (33) 3 (17)
Gain on disposition of assets and deposits................ 308 371 525
Service charges on deposit accounts....................... 3,853 1,681 1,528
Investment services....................................... 7,889 3,934 975
Trust department income................................... 1,550 1,320 1,128
Other..................................................... 2,178 433 386
------- ------- -------
Total noninterest income.......................... 15,745 7,742 4,525
------- ------- -------
Noninterest expense:
Salaries and employee benefits............................ 21,466 11,337 8,172
Occupancy and equipment expense........................... 4,458 2,797 2,574
Other..................................................... 10,462 6,764 3,501
------- ------- -------
Total noninterest expense......................... 36,386 20,898 14,247
------- ------- -------
Income before provision for income taxes and minority
interest in earnings of consolidated subsidiaries......... 13,880 5,230 6,250
Provision for income taxes.................................. 4,141 354 275
------- ------- -------
Income before minority interest in earnings of consolidated
subsidiaries.............................................. 9,739 4,876 5,975
Minority interest in earnings of consolidated
subsidiaries.............................................. 14 650 750
------- ------- -------
Net income........................................ 9,725 4,226 5,225
Less cash dividends on preferred stock...................... 4 854 721
------- ------- -------
Net income available for common shares............ $ 9,721 $ 3,372 $ 4,504
======= ======= =======
Net income per common share................................. $ 1.45 $ 1.17 $ 1.59
======= ======= =======
Weighted average common and common equivalent shares
outstanding............................................... 6,725 2,874 2,834
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
53
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
SENIOR
NONCUMULATIVE FLOATING NONCUMULATIVE
FLOATING RATE FLOATING 10%
RATE CUMULATIVE RATE NONCALLABLE
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
STOCK STOCK STOCK STOCK STOCK
------------- ---------- ------------- ----------- ---------
(IN THOUSANDS)
BALANCE, DECEMBER 31, 1993........................... $ 2,500 $ 2,565 $ 5,416
Net income...........................................
Preferred stock dividends declared...................
Reduction due to sale of minority interest in
consolidated subsidiary.............................
Effect of adoption of SFAS No. 115 (Note 2)..........
Changes in unrealized gain (loss) on available for
sale securities.....................................
------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1994........................... 2,500 2,565 5,416
Net income...........................................
Preferred stock dividends declared...................
Redemption of preferred stock........................ (2,500) (2,565) (5,416)
Merger of Alabama National BanCorporation and
Commerce Bankshares, Inc. into the Company..........
Change in unrealized gain (loss) on available for
sale securities.....................................
------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1995........................... 0 0 0
Net income...........................................
Preferred stock dividends declared by a merged bank
prior to pooling....................................
Common stock dividends declared......................
Redemption of FirstBanc Holding Company, Inc.
preferred stock.....................................
Exercise of stock options............................
Amortization of unearned restricted stock............
Changes in unrealized gain (loss) on available for
sale securities.....................................
------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1996........................... $ 0 $ 0 $ 0 $ 0 $ 0
======= ======= ======= ======= =======
COMMON COMMON RETAINED
STOCK STOCK ADDITIONAL EARNINGS UNEARNED
COMMON CLASS A CLASS B PAID-IN (ACCUMULATED RESTRICTED
STOCK (VOTING) (NONVOTING) CAPITAL DEFICIT) STOCK
------- --------- ----------- ---------- ------------ ----------
BALANCE, DECEMBER 31, 1993........................... $ 305 $ 25 $ 325 $18,135 $(4,757)
Net income........................................... 5,225
Preferred stock dividends declared................... (721)
Reduction due to sale of minority interest in
consolidated subsidiary............................. (342) (721)
Effect of adoption of SFAS No. 115 (Note 2)..........
Changes in unrealized gain (loss) on available for
sale securities.....................................
------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1994........................... 305 25 325 17,793 (253)
Net income........................................... 4,226
Preferred stock dividends declared................... (854)
Redemption of preferred stock........................ (230)
Merger of Alabama National BanCorporation and
Commerce Bankshares, Inc. into the Company.......... 6,200 (25) (325) 31,182 $ (278)
Change in unrealized gain (loss) on available for
sale securities.....................................
------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1995........................... 6,505 0 0 48,745 3,119 (278)
Net income........................................... 9,725
Preferred stock dividends declared by a merged bank
prior to pooling.................................... (4)
Common stock dividends declared...................... (1,747)
Redemption of FirstBanc Holding Company, Inc.
preferred stock..................................... (53)
Exercise of stock options............................ 10 90
Amortization of unearned restricted stock............ 93
Changes in unrealized gain (loss) on available for
sale securities.....................................
------- ------- ------- ------- ------- -------
BALANCE, DECEMBER 31, 1996........................... $6,515 $ 0 $ 0 $48,782 $11,093 $ (185)
======= ======= ======= ======= ======= =======
UNREALIZED
(LOSS)
GAIN
ON AVAILABLE
FOR SALE
SECURITIES
------------
BALANCE, DECEMBER 31, 1993...........................
Net income...........................................
Preferred stock dividends declared...................
Reduction due to sale of minority interest in
consolidated subsidiary............................. $ 740
Effect of adoption of SFAS No. 115 (Note 2)..........
Changes in unrealized gain (loss) on available for
sale securities..................................... (1,942)
-------
BALANCE, DECEMBER 31, 1994........................... (1,202)
Net income...........................................
Preferred stock dividends declared...................
Redemption of preferred stock........................
Merger of Alabama National BanCorporation and
Commerce Bankshares, Inc. into the Company..........
Change in unrealized gain (loss) on available for
sale securities..................................... 1,300
-------
BALANCE, DECEMBER 31, 1995........................... 98
Net income...........................................
Preferred stock dividends declared by a merged bank
prior to pooling....................................
Common stock dividends declared......................
Redemption of FirstBanc Holding Company, Inc.
preferred stock.....................................
Exercise of stock options............................
Amortization of unearned restricted stock............
Changes in unrealized gain (loss) on available for
sale securities..................................... (182)
-------
BALANCE, DECEMBER 31, 1996........................... $ (84)
=======
The accompanying notes are an integral part of these financial statements.
F-6
54
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net income................................................ $ 9,725 $ 4,226 $ 5,225
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................... 239 409 1,279
Deferred tax benefit.................................... (311) (1,317)
Depreciation and amortization........................... 2,231 1,163 1,079
Loss on disposal of property and equipment.............. 521
Provision for loss on other real estate................. 2 252 (126)
Net amortization of securities.......................... (5) 89 271
Net increase (decrease) in trading securities........... 2,466 (4,402) 1,497
Minority interest in earnings of consolidated
subsidiaries........................................... 14 650 750
Decrease (increase) in other assets..................... 97 151 (330)
(Decrease) increase in other liabilities................ (5,704) 4,931 193
Other................................................... 42 (3) 4
-------- -------- --------
Net cash provided by operating activities.......... 9,317 6,149 9,842
-------- -------- --------
Cash flows from investing activities:
Purchases of investment securities........................ (30,896) (8,567) (12,289)
Proceeds from calls and maturities of investment
securities.............................................. 13,009 5,150 4,825
Purchases of securities available for sale................ (37,644) (12,006) (11,951)
Proceeds from sales of securities available for sale...... 5,280 4,640
Proceeds from calls and maturities of securities available
for sale................................................ 53,019 4,176 11,910
Net decrease (increase) in interest bearing deposits in
other banks............................................. 10,968 (8,919)
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell......... (8,429) (18,880) (11,975)
Net increase in loans..................................... (58,824) (28,361) (30,756)
Purchases of property, equipment, and leasehold
improvements............................................ (3,828) (1,558) (912)
Proceeds from sale of property and equipment.............. 437
Proceeds from sale of other real estate owned............. 1,025 1,296 1,439
Purchase acquisitions, net of cash acquired............... 18,047 936
-------- -------- --------
Net cash used in investing activities.............. (55,883) (49,622) (20,183)
-------- -------- --------
Cash flows from financing activities:
Net increase in deposits.................................. 6,645 41,549 11,833
Sale of deposits.......................................... (8,500)
Increase (decrease) in federal funds purchased, securities
sold under agreements to repurchase, and treasury tax
and loan account........................................ 33,477 24,257 (1,413)
Net increase (decrease) in short-term and long-term
borrowings.............................................. 19,199 8,007 (321)
Proceeds from sale of minority interest in consolidated
subsidiary.............................................. 240
Exercise of stock options................................. 100
Dividends on preferred stock.............................. (4) (854) (721)
Dividends on common stock................................. (1,747)
Redemption of preferred stock............................. (53) (10,711)
Change in other liabilities............................... (5023)
-------- -------- --------
Net cash provided by financing activities.......... 44,094 62,248 9,618
-------- -------- --------
(Decrease) increase in cash and cash equivalents... (2,472) 18,775 (723)
Cash and cash equivalents, beginning of year................ 39,202 20,427 21,150
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 36,730 $ 39,202 $ 20,427
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 30,178 $ 19,118 $ 16,238
======== ======== ========
Cash paid for income taxes................................ $ 2,472 $ 793 $ 335
======== ======== ========
Transfer of investment securities to securities available
for sale................................................ $ 4,770 $ 10,467
======== ========
F-7
55
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Supplemental schedule of noncash investing activities:
Foreclosure of other real estate owned.................... $ 676 $ 1,238 $ 354
======== ======== ========
Transfer of property to other real estate owned........... $ 198 $ 50
======== ========
Reduction in proportional interest in consolidated
subsidiary.............................................. $ 342
========
Increase in unrealized holding loss on securities
available for sale...................................... $ 276
========
Unearned restricted stock and performance plan awards..... $ 135 $ (278)
======== ========
Assets acquired and liabilities assumed in merger
transactions (Note 1):
Assets acquired, net of cash of $15,387................. $325,217
========
Liabilities assumed..................................... $307,170
========
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
56
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS COMBINATIONS
On December 29, 1995, Alabama National BanCorporation (ANB) merged (the
Merger) with National Commerce Corporation (NCC) and Commerce Bankshares, Inc.
(CBS) (collectively the Company). The Merger was accomplished by converting each
share of NCC common stock into 348.14 shares of ANB common stock and each share
of CBS common stock into 7.0435 shares of ANB common stock for a total of
3,106,981 shares of ANB common stock and the repurchase of 360,400 shares of
previously outstanding ANB common stock. The Merger was accounted for as a
"reverse acquisition", whereby NCC acquired ANB for financial reporting
purposes. ANB remains the registrant for Securities and Exchange Commission
filing purposes and, consistent with the reverse acquisition accounting
treatment, the historical financial statements of Alabama National
BanCorporation presented for 1995 and 1994 are the consolidated financial
statements of NCC. The operations of ANB have been included in the financial
statements from the date of acquisition. The historical stockholders' equity of
NCC prior to the Merger has been retroactively restated for the equivalent
number of shares received in the Merger after giving effect to any difference in
par value of ANB's and NCC's stock by an offset to paid-in capital.
The purchase price, determined by the ANB common stock average closing
price for the month of March 1995, prior to the announcement of the Merger, plus
direct acquisition costs, was allocated to the ANB assets and liabilities
acquired based on their fair market value at the date of acquisition. The excess
of the purchase price over the fair market value of net assets acquired is being
amortized on a straight-line basis over twenty-five years. The ANB assets
purchased and liabilities assumed (at fair market values) as of December 29,
1995 were as follows (in thousands):
Cash, due from banks, interest bearing deposits with other
banks, and federal funds sold............................. $ 27,788
Securities available for sale............................... 27,821
Investment securities....................................... 19,954
Loans, net of unearned income and allowance for loan
losses.................................................... 204,485
Bank premises and equipment................................. 11,734
Intangible assets........................................... 5,423
Other assets................................................ 8,354
Deposits assumed............................................ (253,611)
Liabilities assumed......................................... (20,217)
---------
Net assets acquired......................................... $ 31,731
=========
The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1995 and 1994, are presented as if the Merger had
occurred on January 1, 1994, and excludes one-time merger expenses in 1995 of
approximately $2 million (In thousands, except per share data):
1995 1994
------- -------
Net interest income......................................... $30,779 $27,276
Provision for loan losses................................... 1,225 1,435
Noninterest income.......................................... 10,492 6,872
Noninterest expense......................................... 30,305 23,652
Provision for income taxes.................................. 1,556 1,000
Net Income.................................................. 8,185 8,061
Earnings per common and common equivalent share............. 1.28 1.51
F-9
57
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Historical financial information of Alabama National BanCorporation and its
subsidiaries prior to the Merger described above is as follows:
DECEMBER 29, DECEMBER 31,
1995 1994
------------ ------------
(IN THOUSANDS)
STATEMENT OF CONDITION DATA
Investment securities....................................... $ 19,877 $ 34,539
Securities available for sale............................... 27,821 18,923
Loans, net.................................................. 202,761 185,699
Total assets................................................ 298,683 271,270
Total deposits.............................................. 253,611 231,032
Stockholders' equity........................................ 26,994 29,905
PERIOD ENDED YEAR ENDED
DECEMBER 29, DECEMBER 31,
1995 1994
------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
STATEMENT OF INCOME DATA
Net interest income......................................... $ 14,322 $ 12,700
Provision for loan losses................................... 833 206
Noninterest income.......................................... 3,089 2,666
Noninterest expense......................................... 12,929 10,566
Net Income.................................................. 2,349 3,223
Net income per common share................................. .75 1.25
On September 30, 1996, FirstBank Holding Company, Inc. (FirstBanc), a one
bank holding company headquartered in Robertsdale, Alabama was merged into the
Company. The Company acquired all of the outstanding common stock of FirstBanc
in exchange for 305,000 shares of the Company's common stock. At the merger
date, FirstBanc had approximately $36 million in total assets, year-to-date net
interest income of approximately $1.2 million and year-to-date net income of
approximately $325,000.
The consolidated financial statements of the Company give effect to the
FirstBanc merger, which was accounted for as a pooling of interests and,
accordingly, financial statements for all periods have been restated to reflect
the results of operations of the companies on a combined basis from the earliest
period presented, except for dividends per share.
The Company's consolidated financial data for the years ended December 31,
1995 and 1994 have been restated as follows (in thousands):
AS AS
PREVIOUSLY EFFECT OF CURRENTLY
REPORTED FIRSTBANC REPORTED
---------- --------- ---------
Year ended December 31, 1995:
Net interest income..................................... $17,278 $1,517 $18,795
Net income.............................................. 3,801 425 4,226
Stockholders' equity.................................... 55,590 2,599 58,189
Net income per share.................................... 1.15 .02 1.17
Year ended December 31, 1994:
Net interest income..................................... $15,707 $1,544 $17,251
Net income.............................................. 4,850 375 5,225
Stockholders' equity.................................... 25,369 2,105 27,474
Net income per share.................................... 1.64 (.05) 1.59
F-10
58
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CBS was formed on April 4, 1995 to succeed as owner of all the interest of
National Bank of Commerce of Birmingham (NBC), a consolidated subsidiary of NCC.
CBS, a bank and thrift holding company, was formed primarily to accomplish the
acquisition of Talladega Federal Savings and Loan Association (TFSLA). On July
20, 1995, CBS issued 600,125 shares of its common stock to NCC and 95,126 shares
of its common stock to the individual stockholders of NBC in exchange for all of
the common stock of NBC and became a consolidated subsidiary of NCC. Also, on
August 1, 1995, CBS acquired all of the stock of TFSLA for $1,703,000 in cash.
This acquisition was accounted for under the purchase method; accordingly, the
purchase price was allocated to the assets and liabilities based on their fair
values. No goodwill was recorded.
At the date of acquisition, TFSLA had assets of $34,982,000 and equity of
$1,813,000. The results of operations of TFSLA are included in NCC's results of
operations beginning August 1, 1995. The results of TFSLA's 1995 operations
prior to acquisition were not material in relation to the results of NCC's
operations.
The TFSLA assets purchased and liabilities assumed as of August 1, 1995
were as follows (in thousands):
Cash, due from banks, interest bearing deposits with other
banks, and federal funds sold............................. $ 4,815
Securities available for sale............................... 334
Investment securities....................................... 5,583
Loans, net of unearned income and allowance for loan
losses.................................................... 16,757
Bank premises and equipment................................. 528
Other assets................................................ 7,028
Deposits assumed............................................ (32,956)
Liabilities assumed......................................... (386)
--------
Net assets acquired......................................... $ 1,703
========
TFSLA was merged with Citizens Bank of Talladega, another subsidiary of the
Company, on December 29, 1995.
On April 15, 1994, NBC completed the acquisition of the net assets of First
American Bank of Pelham (FAB) for $1,500,000 in cash. The acquisition was
accounted for under the purchase method of accounting. The difference between
the purchase price and the net assets acquired has been allocated to the net
assets based on their fair market values. No goodwill resulted from the
acquisition. At the date of acquisition, FAB had assets of $17,296,000 and
equity of $1,207,000. Cash acquired as a result of this acquisition was
$2,436,000. The results of operations of FAB are included in the results of
operations of NBC beginning April 16, 1994.
2. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS SEGMENT -- The accounting and reporting policies of the Company
conform with generally accepted accounting principles and with general financial
service industry practices. The Company provides a full range of banking and
bank-related services to individual and corporate customers through its seven
subsidiary banks located in Alabama.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION -- The consolidated
financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES -- In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the statement of condition dates
F-11
59
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and revenues and expenses for the periods shown. Actual results could differ
from the estimates and assumptions used in the consolidated financial
statements.
CASH AND CASH EQUIVALENTS -- For purposes of reporting cash flows, cash and
cash equivalents include cash on hand and due from banks.
SECURITIES -- Investment securities are stated at amortized cost as a
result of management's ability and intent to hold the securities until maturity.
Related premiums are amortized and discounts are accreted on the straight-line
method.
Securities available for sale are those securities intended to be held for
an indefinite period of time. The Company may sell these securities as part of
its asset/liability strategy in response to changes in interest rates, changes
in prepayment risk, or similar factors. Securities available for sale are
recorded at market value. Unrealized holding gains and losses on securities
classified as available-for-sale are carried as a separate component of
stockholders' equity.
Trading securities, principally obligations of U.S. Government agencies,
are securities held for sale and are stated at market. Bond purchases and sales
are recorded on trade date. Accounts receivable from and accounts payable to
bond customers and dealers are included in other assets and liabilities and
represent security transactions settled for which the securities have not been
delivered. Unrealized holding gains and losses on securities classified as
trading are reported in earnings.
Gains and losses on the sale of securities are computed using the specific
identification method.
LOANS AND ALLOWANCE FOR LOAN LOSSES -- Interest income with respect to
loans is accrued on the principal amount outstanding, except for interest on
certain consumer loans which is recognized over the term of the loan using a
method which approximates level yields.
The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance for loan
losses when management believes the collectibility of principal is unlikely. The
allowance is the amount that management believes will be adequate to absorb
possible losses on existing loans which may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific loan
problems, and current economic conditions which may affect the borrower's
ability to pay. Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and collection
efforts, that the borrower's financial condition is such that the collection of
interest is doubtful. Payments received on such loans are applied first to
principle until the obligation is satisfied. Any remaining payments are then
recorded as interest income.
PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS -- Property, equipment, and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Depreciation is principally computed using the straight-line
method over the estimated useful life of each type of asset. Leasehold
improvements are amortized using the straight-line method over the shorter of
the estimated useful lives of the improvements or the terms of the related
leases. Maintenance and repairs are expensed as incurred; improvements and
betterments are capitalized. When items are retired or otherwise disposed of,
the related costs and accumulated depreciation are removed from the accounts and
any resulting gains or losses are credited or charged to income. Estimated
useful lives generally are as follows:
Buildings................................................... 5 - 45 years
Leasehold improvements...................................... 10 - 30 years
Furniture, equipment, and vault............................. 3 - 30 years
F-12
60
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER REAL ESTATE -- Other real estate, primarily property acquired by
foreclosure, is capitalized at the lower of fair value less estimated selling
costs or cost of the property or loan immediately prior to its classification as
other real estate. Other real estate is not depreciated and is carried at the
lower of cost or fair value less estimated selling costs. Losses, representing
the difference between the sales price and the carrying value of the property,
are recorded immediately, while gains on such sales are deferred until the
initial and continuing investment by the borrower equals or exceeds specified
equity percentages.
INTANGIBLE ASSETS -- Intangible assets consist of the excess of cost over
the fair value of net assets of acquired businesses and core deposit
intangibles. The excess of cost over the fair value of net assets of acquired
businesses, which totaled $6,454,000 and $6,679,000 at December 31, 1996 and
1995, respectively, is being amortized over a period of 25 years, principally
using the straight-line method of amortization. Core deposit intangibles, which
totaled $854,000 and $916,000 at December 31, 1996 and 1995, respectively, are
being amortized over 25 years using the straight-line method of amortization.
The excess of cost over net assets acquired results from purchase acquisitions
that occurred prior to 1993 and from the Merger previously described. The
carrying value of excess of cost over net assets of subsidiaries acquired is
reviewed if facts and circumstances suggest that it may be impaired.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
(Statement 121), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
Statement 121 effective January 1, 1996. The adoption of Statement 121 did not
have a material effect on the Company's consolidated financial statements.
In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, Accounting for Mortgage Servicing Rights, an Amendment of FASB No. 65
(Statement 122). Statement 122 requires companies that originate mortgage loans
to capitalize the cost of mortgage servicing rights separate from the cost of
originating the loan when a definitive plan to sell those loans and retain the
mortgage servicing rights exists. Prior to the adoption of Statement 122, only
mortgage servicing rights that are purchased from other parties are capitalized
and recorded as an asset. Therefore, Statement 122 eliminates the accounting
inconsistencies that existed between mortgage servicing rights that are derived
from loan origination activities and those acquired through purchase
transactions. Statement 122 also requires that capitalized mortgage servicing
rights be assessed for impairment based on the fair value of those rights. The
Company adopted Statement 122 effective January 1, 1996, with no material effect
on the Company's consolidated financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS -- Statement of Financial
Accounting Standard No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, as amended by statement of
Financial Accounting Standards No. 127 (Statement 127), Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125, establishes
standards in 1997 for accounting for certain transfers of assets and
extinguishment of liabilities. It requires that an entity recognize the
financial and servicing assets it controls and the liabilities it has incurred
and derecognize financial assets when control has been surrendered, and
derecognize liabilities when extinguished. Certain guidelines set forth in the
statement must be met before an asset can be considered transferred or a
liability extinguished. This statement is applied prospectively for transfers
of financial assets and extinguishments of liabilities occurring after December
31, 1996. Management does not believe the adoption of Statement 125, as amended
by Statement 127, will have a material effect on the consolidated financial
statements of the Company.
INCOME TAXES -- Deferred income taxes are provided on all temporary
differences between the financial reporting basis and the income tax basis of
assets and liabilities.
F-13
61
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED EMPLOYEE COMPENSATION -- In 1996, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (Statement 123), which calls for a value based
method. Beginning in 1996, compensation cost for stock-based employee
compensation arrangements is measured at the grant date based on the value of
the award and is recognized over the service period. The effects of applying
this statement during the initial phase-in period are not necessarily
representative of the effects on future years.
ADVERTISING COSTS -- The Company expenses the costs of advertising when
those costs are incurred.
EARNINGS PER SHARE DATA -- Net income per share is based on the weighted
average shares of common stock and common stock equivalents outstanding during
the year. Common stock equivalents included in the computations represent the
dilutive effect of shares issuable under stock options (see Note 12). For
purposes of this calculation, net income has been adjusted for preferred stock
dividends declared during the years in which preferred stock was issued and
outstanding.
RECLASSIFICATIONS -- Certain reclassifications have been made to the prior
year financial statements to conform with the 1996 presentation. Payments to
redeem the shares of certain ANB shareholders pursuant to NCC's 1995 reverse
acquisition of ANB have been reclassified within stockholders' equity as a
reduction of additional paid-in capital.
3. REGULATORY RESTRICTIONS
The subsidiary banks are required by law to maintain reserves in cash or
deposits with the Federal Reserve Bank or other banks. At December 31, 1996, the
required reserves totaled $7,051,000.
At December 31, 1996 and 1995, securities with carrying values of
$81,767,000 and $85,960,000 were pledged to secure U.S. Government deposits and
other public funds and for purposes as required or permitted by law.
The Company has a policy of collecting amounts from its subsidiaries
sufficient to cover expenses of the Company and to service Company debt. Such
amounts have been received in the form of dividends declared by the
subsidiaries. Payment of dividends is subject to the financial condition of the
subsidiaries and the Company's judgment as to the desirability of utilizing
alternative sources of funds. The payment of dividends by the subsidiary banks
is also subject to various regulatory requirements. At December 31, 1996,
$13,029,000 of the retained earnings of the subsidiary banks are available for
payment of dividends to the Company under the various regulatory requirements,
without special approval from the applicable regulators.
F-14
62
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SECURITIES
The amortized cost and estimated market values of investment securities
(carried at amortized cost) and securities available for sale (carried at market
value) are as follows:
DECEMBER 31, 1996
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
Investment securities:
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies.................................. $ 3,446 $ 2 $ (6) $ 3,442
Obligations of states and political
subdivisions.............................. 10,786 222 (44) 10,964
Mortgage backed securities issued or
guaranteed by U.S. Government agencies.... 60,513 122 (269) 60,366
------- ---- ----- -------
Totals............................... $74,745 $346 $(319) $74,772
======= ==== ===== =======
Securities available for sale:
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies.................................. $13,349 $ 4 $ (14) $13,339
Obligations of states and political
subdivisions.............................. 8,821 110 (39) 8,892
Mortgage backed securities issued or
guaranteed by U.S. Government agencies.... 50,523 284 (464) 50,343
Equity securities............................ 3,506 3,506
------- ---- ----- -------
Totals............................... $76,199 $398 $(517) $76,080
======= ==== ===== =======
DECEMBER 31, 1995
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
Investment securities:
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies.................................. $ 968 $ $ $ 968
Obligations of states and political
subdivisions.............................. 10,791 31 (23) 10,799
Mortgage backed securities issued or
guaranteed by U.S. Government agencies.... 49,735 153 (138) 49,750
Other........................................ 100 1 101
------- ---- ----- -------
Totals............................... $61,594 $185 $(161) $61,618
======= ==== ===== =======
Securities available for sale:
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies.................................. $26,191 $ 8 $26,199
Obligations of states and political
subdivisions.............................. 7,262 7,262
Mortgage backed securities issued or
guaranteed by U.S. Government agencies.... 54,485 586 $(438) 54,633
Other........................................ 250 1 251
Equity securities............................ 3,925 3,925
------- ---- ----- -------
Totals............................... $92,113 $595 $(438) $92,270
======= ==== ===== =======
F-15
63
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of securities at December 31, 1996 are summarized as follows (in
thousands):
INVESTMENT SECURITIES AVAILABLE FOR SALE
--------------------- ---------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
Due in one year or less......................... $ 3,901 $ 3,898 $14,900 $14,888
Due after one year through five years........... 4,689 4,677 16,067 16,033
Due after five years through ten years.......... 7,907 8,042 3,565 35,48
Due after ten years............................. 2,466 2,497 2,004 2,031
Mortgage backed securities...................... 55,782 55,658 36,157 36,074
Equity securities............................... 3,506 3,506
------- ------- ------- -------
Totals................................ $74,745 $74,772 $76,199 $76,080
======= ======= ======= =======
During 1996, gross gains of $42,000 and gross losses of $75,000 were
realized. In 1995, gross gains of $3,000 were realized. In 1994, gross gains of
$7,000 and gross losses of $24,000 were realized.
During 1996, the Company sold investment securities with an amortized cost
of $3,502,000, resulting in realized losses of $42,000. These securities were
transferred to NBC pursuant to the 1996 merger of a former ANB subsidiary and
NBC. The securities did not meet the criteria of NBC's formal investment policy.
During the fourth quarter of 1995, investment securities with an amortized
cost of $10,467,000 were transferred to securities available for sale, as
permitted by the FASB's November 1995 Special Report. The unrealized loss on
these securities at the date of transfer was $347,000.
5. LOANS AND OTHER REAL ESTATE
Major classification of loans at December 31, 1996 and 1995 are summarized
as follows (in thousands):
1996 1995
-------- --------
Commercial, financial, and agricultural..................... $162,471 $144,014
Real estate................................................. 374,587 342,193
Consumer.................................................... 46,883 50,252
Other....................................................... 28,956 18,793
-------- --------
Gross loans................................................. 612,897 555,252
Less unearned income........................................ (1,456) (2,133)
-------- --------
Loans, net of unearned income............................... 611,441 553,119
Less allowance for loan losses.............................. (9,322) (8,909)
-------- --------
Net loans................................................... $602,119 $544,210
======== ========
In the normal course of business, loans are made to directors, officers,
and their affiliates. Such loans are made on substantially the same terms as to
other customers of the banks. The aggregate of such loans was $20,697,000 and
$20,788,000 at December 31, 1996 and 1995, respectively. During 1996 and 1995,
new loans of $22,850,000 and $10,062,000 were funded and repayments totaled
$22,942,000 and $11,774,000, respectively. As a result of the Merger (see Note
1), loans of directors, officers, and their affiliates received in the Merger
totaled $10,098,000.
Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $1,716,000 and $2,194,000 at December 31, 1996 and
1995, respectively. As a result of the Merger (see Note 1), nonaccrual and
restructured loans received in the Merger totaled $1,066,000. If the loans of
the Company had been current throughout their terms, gross interest income for
the years ended December 31, 1996 and 1995, respectively, would have increased
by approximately $118,000 and $67,000.
F-16
64
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other real estate at December 31, 1996 and 1995 totaled $468,000 and
$625,000, respectively. The December 31, 1995 amount includes $195,000 received
as a result of the Merger (see Note 1).
The Company adopted FASB Statement No. 114, Accounting by Creditors for
Impairment of a Loan (Statement 114), and Statement No. 118, Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures
(Statement 118), effective January 1, 1995. As a result of applying the new
rules, certain impaired loans are reported at the present value of expected
future cash flows using the loan's effective interest rate, or as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. The adoption of FASB Statement
114 and Statement 118 did not have a material effect on the Company's
consolidated financial statements.
At December 31, 1996 and 1995, the recorded investment in loans for which
impairment has been recognized in accordance with Statement 114 totaled
$1,352,000 and 2,134,000, respectively, and these loans had a corresponding
valuation allowance of $161,000. As a result of the previously discussed Merger
(see Note 1), impaired loans received in the merger totaled $1,066,000 and
$1,411,000, respectively. The Company recognized no interest on impaired loans
(during the portion of the year that they were impaired). The impaired loans at
December 31, 1996 were measured for impairment using the fair value of the
collateral as all of these loans were collateral dependent.
The Company grants real estate, commercial, and consumer loans to customers
primarily in Alabama. Although the Company has a diversified loan portfolio,
significant concentrations include loans collateralized by improved and
undeveloped commercial and residential real estate.
6. ALLOWANCE FOR LOAN LOSSES
A summary of the allowance for loan losses for the years ended December 31,
1996, 1995, and 1994 is as follows:
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
Balance, beginning of year.................................. $8,909 $5,261 $6,268
Provision charged to operations............................. 239 409 1,279
Addition due to acquisitions................................ 3,124 227
------ ------ ------
9,148 8,794 7,774
------ ------ ------
Loans charged off........................................... (1,343) (1,426) (3,253)
Less recoveries............................................. 1,517 1,541 740
------ ------ ------
Net recoveries (charge-offs)................................ 174 115 (2,513)
------ ------ ------
Balance, end of year........................................ $9,322 $8,909 $5,261
====== ====== ======
F-17
65
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Major classifications of property, equipment, and leasehold improvements at
December 31, 1996 and 1995 are summarized as follows:
1996 1995
-------- --------
(IN THOUSANDS)
Land........................................................ $ 3,913 $ 3,751
Buildings and improvements.................................. 11,616 10,581
Leasehold improvements...................................... 4,434 4,400
Furniture, equipment, and vault............................. 8,359 8,245
Construction in progress.................................... 1,187 862
-------- --------
29,509 27,839
Less accumulated depreciation and amortization.............. 8,618 7,676
-------- --------
Property, plant, and leasehold improvements, net............ $ 20,891 $ 20,163
======== ========
8. DEPOSITS
Deposits at December 31, 1996 and 1995 are summarized as follows:
1996 1995
-------- --------
(IN THOUSANDS)
Demand deposit accounts..................................... $110,962 $112,382
NOW accounts................................................ 84,714 105,625
Savings and money market accounts........................... 182,017 181,032
Time deposits less than $100,000............................ 225,625 217,678
Time deposits of $100,000 or more........................... 71,363 59,819
-------- --------
Total deposits.................................... $674,681 $676,536
======== ========
Certificates of deposit in denominations of $100,000 or more of
approximately $17,245,000 and other time deposits in denominations of $100,000
or more of approximately $8,380,000 were assumed in the Merger (see Note 1).
Certain directors and a principal stockholder of the Company, including
their families and affiliated companies, are deposit customers. Total deposits
of these persons at December 31, 1996 and 1995 were approximately $24,960,000
and $26,064,000, respectively.
9. SHORT- AND LONG-TERM BORROWINGS
Short-term borrowings at December 31, 1996 and 1995 consist of the
following:
1996 1995
------- -------
(IN THOUSANDS)
Note payable................................................ $17,000 $15,280
Advances from Federal Home Loan Bank........................ 24,000 6,000
------- -------
$41,000 $21,280
======= =======
Long-term borrowings at December 31, 1996 and 1995 consist of the
following:
1996 1995
---- ----
(IN
THOUSANDS)
Note payable................................................ $497
Capital lease obligations................................... $300 324
---- ----
$300 $821
==== ====
F-18
66
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The note payable at December 31, 1996 is payable in full on January 20,
1997 and represents the amount due to an independent bank under a secured master
note agreement dated December 29, 1995 which provides for borrowings up to
$23,000,000. Collateral for the note is the Company's stock in its subsidiary
banks. Interest on the outstanding balance is payable quarterly based on LIBOR
plus 125 basis points. Interest expense related to the note was $1,343,000 in
1996. No interest expense was paid on this note in 1995. On January 20, 1997,
this master note agreement was renewed for $20,000,000 for one year. The
Company's stock in its subsidiary banks continues to be collateral for the note
and interest continues to be payable quarterly at LIBOR plus 100 basis points.
Two of the subsidiary banks have lines of credit with the Federal Home Loan Bank
totaling $70 million, collateralized by their home mortgage portfolios. At
December 31, 1996, $24,000,000 of these lines have been used. The weighted
average interest rates on the outstanding balance of total short-term borrowings
was 6.32% and 6.67% at December 31, 1996 and 1995, respectively.
10. LEASES
One of the Company's subsidiary banks leases its main office building from
a partnership, which includes certain directors of that bank and a principal
stockholder of the Company, under a noncancelable operating lease expiring in
2013. Leases classified as capital leases include branch offices with a net book
value of approximately $256,000 at December 31, 1996. Additionally, this
subsidiary bank leases other branch offices and equipment under operating
leases. Minimum future rental payments for the capital and operating leases are
as follows (in thousands):
CAPITAL OPERATING
LEASES LEASES
------- ---------
1997........................................................ $ 54 $ 955
1998........................................................ 54 884
1999........................................................ 54 894
2000........................................................ 54 886
2001........................................................ 54 843
Thereafter.................................................. 160 9,209
---- -------
Total minimum payments...................................... 430 $13,671
=======
Less amount representing interest........................... 130
----
Net capital lease obligation................................ $300
====
Rents charged to operations under operating lease agreements for the years
ended December 31, 1996, 1995, and 1994 were approximately $1,135,000,
$1,052,000, and $970,000, respectively, of which $870,000, $803,000, and
$742,000, respectively, during 1996, 1995, and 1994 relate to leases with
related parties.
11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company makes commitments to meet the
financing needs of its customers. These commitments include commitments to
extend credit and standby letters of credit. These instruments include, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated statements of condition. The Company's exposure to credit risk
is the extent of nonperformance by the counterparty to the financial instrument
for commitments to extend credit and standby letters of credit and is
represented by the contractual amount of those instruments. The Company uses
the same credit policies and procedures in making commitments and conditional
obligations as it does for loans.
At December 31, 1996 and 1995, unused commitments under lines of credit
aggregated approximately $48,214,000 and $37,757,000, of which $9,499,000 and
$6,897,000 pertained to related parties, respectively. The Company evaluates
each customer's credit worthiness on a one-by-one basis. The amount of
collateral
F-19
67
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obtained, if deemed necessary by the Company upon expansion of credit, is based
on management's credit evaluation of the counterparty. Collateral held varies
but may include accounts receivable, inventory, property, plant, and equipment,
residential real estate and income-producing commercial properties.
The Company had approximately $959,000 and $1,496,000 in irrevocable
standby letters of credit outstanding at December 31, 1996 and 1995, of which
$21,000 and $29,000, respectively, pertained to related parties. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The collateral varies but may include
accounts receivable, inventory, property, plant, and equipment, and residential
real estate for those commitments for which collateral is deemed necessary.
The Company, in the normal course of business, is subject to various
pending and threatened litigation. Based on legal counsel's opinion, management
does not anticipate that the ultimate liability, if any, resulting from such
litigation will have a material adverse effect on the Company's financial
condition or results of operations.
12. EMPLOYEE BENEFIT PLANS
One of the subsidiary banks, NBC, has a defined benefit pension plan
covering substantially all employees. Benefits are based on years of service and
the average monthly earnings for the last sixty months of employment. The
Company's policy is to use the "projected unit credit" actuarial method for
financial reporting purposes and the "frozen entry age" actuarial method for
funding purposes. The components of net pension expense for the years ended
December 31, 1996, 1995, and 1994 are as follows (in thousands):
1996 1995 1994
----- ----- -----
Service cost................................................ $ 342 $ 183 $ 130
Interest cost............................................... 167 126 99
Return on assets............................................ (186) (358) (117)
Net amortization and deferral............................... 43 234 (14)
----- ----- -----
Net pension cost............................................ $ 366 $ 185 $ 98
===== ===== =====
The reconciliation of the funding status of the plan for the years ended
December 31, 1996, 1995, and 1994 is as follows (in thousands):
1996 1995 1994
------ ------ ------
Vested benefits............................................. $1,652 $1,504 $ 909
Nonvested benefits.......................................... 239 180 85
------ ------ ------
Accumulated benefit obligation.............................. 1,891 1,684 994
Effects of salary progression............................... 688 610 298
------ ------ ------
Projected benefit obligation................................ 2,579 2,294 1,292
Fair value of plan assets, consisting primarily of debt
securities................................................ 2,398 1,979 1,482
------ ------ ------
Plan assets less than (greater than) projected benefit
obligation................................................ 181 315 (190)
Unrecognized net (loss) gain................................ (228) (432) 106
Unrecognized prior service cost............................. (19) (22) (24)
Unrecognized net asset at date of initial application....... 16 18 20
------ ------ ------
Accrued pension cost........................................ $ (50) $ (121) $ (88)
====== ====== ======
Primary assumptions used to actuarially determine net pension expense are
as follows:
1996 1995 1994
---- ---- ----
Settlement (discount rate).................................. 7.00% 8.25% 9.00%
Expected long-term rate of return on plan assets............ 9.00 9.00 9.00
Salary increase rate........................................ 4.25 4.25 4.25
F-20
68
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a qualified employee benefit plan under Section 401(k) of
the Internal Revenue Code covering substantially all employees. Employees can
contribute up to 10% of their salary to the plan on a pre-tax basis and the
Company matches up to 100% of the first 2% of each participants' contribution.
The Company's matching contribution charged to operations was $146,000, $82,000,
and $70,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Several of the subsidiary banks acquired in the Merger (see Note 1) have
deferred compensation plans for the benefit of the Company's former chief
executive officer. Payments under the plans are scheduled to begin March 15,
1997 and March 15, 2002, or at his death, if earlier, and continue for a period
of 15 years. In connection with the plans, the banks purchased single premium
life insurance policies on the life of the officer. The insurance company has
left the premium, together with the interest earned thereon, on deposit with one
of the banks at interest rates 2% higher than the guaranteed increase in cash
value of the policies. At December 31, 1996, the cash surrender value of the
policies was $1,927,000 and the premiums, together with interest thereon, on
deposit with the bank was $950,000.
Additionally, ANB and six of its subsidiary banks have deferred
compensation plans that cover certain directors of ANB and the president of each
subsidiary bank. In connection with the plans, ANB and each subsidiary have
purchased single premium life insurance policies on all participants, except
one. At December 31, 1996, the cash surrender value of these policies was
$1,800,000.
The Company has fixed stock options outstanding which were granted under
separate stock option plans of the different parties to the Merger. No future
stock option awards are anticipated. A summary of the status of the Company's
fixed stock options as of December 31, 1994, 1995, and 1996 and changes during
each of the three years then ended is presented below:
1994 1995 1996
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
Outstanding, beginning of year... 225,392 $ 5.68 430,723 $ 7.74 481,291 $ 8.29
Granted.......................... 205,331 10.00 50,568 13.00
Exercised........................ (10,000) (10.00)
Forfeited........................ (52,562) (8.50)
------- ------ ------- ------ ------- -------
Outstanding, end of year......... 430,723 $ 7.74 481,291 $ 8.29 418,729 $ 8.23
======= ====== ======= ====== ======= =======
Options exercisable, end of
year........................... 136,666 214,466
======= =======
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
OPTIONS OUTSTANDING
------------------------------
WEIGHTED AVERAGE OPTIONS
EXERCISE NUMBER REMAINING -----------
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
-------- ----------- ---------------- -----------
$5.68............................................ 204,263 8/31/2003
$10.00........................................... 167,998 11/20/2004 167,998
$13.00........................................... 46,468 11/18/2005 46,468
------- -------
418,729 214,466
======= =======
The Company has 64,979 restricted shares outstanding pursuant to a
Restricted Stock Agreement (RSA) originated in 1994. The RSA provides for
employees covered by the plan to elect a cash award equal to an amount of
personal income tax liability resulting from the award. RSA participants are
entitled to vote their respective shares. No dividends are permitted, and the
sale or transfer of shares is restricted for five years.
F-21
69
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shares awarded to participants that leave NBC prior to the completion of five
years of service following the award are required to be surrendered and are
ratably awarded to remaining participants. During the years ending December 31,
1996, 1995, and 1994, total expense for the RSA was $93,000, $93,000, and
$132,000, respectively.
During 1996, the Company adopted a Performance Share Plan to offer
long-term incentives in addition to current compensation to key executives. The
criteria for payment of performance share awards is based upon a comparison of
the Company's average return on average equity over an award period to that of a
comparison group of bank holding companies. If the Company's results are below
the median of the comparison group, no portion of the award is earned. If the
Company's results are at or above the 90th percentile, the award maximum is
earned. The vesting period for the awards is four years. Under the plan, 400,000
shares have been reserved for issuances. The number of shares granted in 1996
was 16,750 shares having an approximate market value at the date of grant of
$222,000. At December 31, 1996, outstanding awards measured at expected and
maximum payouts were 13,400 and 22,780 shares, respectively. Expense recorded in
1996 for the Performance Share Plan was $55,500.
During 1996, the Company adopted a Deferred Compensation Plan for directors
who are not employees of the Company. Under the plan, a non-employee director
may choose to have all or part of the cash and/or stock equivalents he would
normally receive as compensation deferred for future payment at such time and in
such manner as the director specifies at the time of the election, so long as
any annuity payment period does not exceed ten years. The cash portion of the
deferred compensation account earns interest at a rate which approximates the
Company's short-term borrowing rate. Dividends earned on the stock equivalent
portion are credited to the deferred compensation account in the form of
additional stock equivalents.
13. MINORITY INTEREST
Minority interest in 1996 consists of ownership, by unrelated parties, in
two banks acquired by the Company in the Merger. During 1994 and 1995, certain
directors, officers of NBC, and others owned a minority interest in NBC. Common
stock transactions in 1994 reduced NCC's ownership in NBC to 86.318% and reduced
NCC's proportional share of NBC's equity by $342,000. Earnings attributable to
minority shareholders of NBC were $650,000 and $750,000, respectively, for the
years ended December 31, 1995 and 1994. The minority stockholders included
certain officers and directors of NBC. As a result of the Merger, the minority
interest of NBC was acquired by the Company (see Note 1).
14. INCOME TAXES
The components of the provision for income taxes consist of the following
for the years ended December 31, 1996, 1995, and 1994 (in thousands):
1996 1995 1994
------ ------- -------
Current:
Federal.................................................. $3,801 $ 1,372 $ 262
State.................................................... 651 299 13
------ ------- -------
Total current expense............................ 4,452 1,671 275
Deferred:
Federal.................................................. (273) (1,307) 945
State.................................................... (38) (10) 121
------ ------- -------
Total deferred expense (benefit)................. (311) (1,317) 1,066
Benefit of net operating loss carryforwards................ (1,066)
------ ------- -------
Total provision for income taxes................. $4,141 $ 354 $ 275
====== ======= =======
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70
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for the years ended December 31,
1996 and 1995 are as follows (in thousands):
1996 1995
------- -------
Deferred tax assets:
Loan loss reserve......................................... $ 1,756 $ 1,172
Other real estate owned basis difference.................. 98 123
Unrealized loss on securities............................. 41
Other nondeductible reserves.............................. 1,220 803
General business credits.................................. 180
Minimum tax credits....................................... 890
Other..................................................... 73
------- -------
Total deferred tax asset.......................... 3,188 3,168
Deferred tax liabilities:
Depreciation and basis difference......................... (2,557) (1,843)
Unrealized gains on securities............................ (78)
Other..................................................... (99) (1,150)
Core deposits............................................. (241) (236)
------- -------
Total deferred tax liabilities.................... (2,897) (3,307)
------- -------
Net deferred tax asset (liability).......................... $ 291 $ (139)
======= =======
Total provision for income taxes differs from the amount which would be
provided by applying the statutory federal income tax rate to pretax earnings as
illustrated below for the years ended December 31, 1996, 1995, and 1994 (in
thousands):
1996 1995 1994
------ ------- -------
Provision for income taxes at statutory federal income tax
rate..................................................... $4,758 $ 1,778 $ 2,125
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit.... 430 173 102
Change in valuation allowance............................ (2,111) (1,851)
Tax free interest income................................. (456) (142) (173)
Nondeductible meals and entertainment.................... 78 484 25
Disallowed interest expense deduction.................... 56 20 18
Goodwill and core deposit amortization................... 98 25 25
Bad debt recapture....................................... (113) 136
Other, net............................................... (710) (9) 4
------ ------- -------
Total provision for income taxes........................... $4,141 $ 354 $ 275
====== ======= =======
F-23
71
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. NONINTEREST EXPENSE
The following table sets forth, for the years ended December 31, 1996,
1995, and 1994, the principal components of noninterest expense (in thousands):
1996 1995 1994
------- ------- -------
Salaries and employee benefits............................ $21,466 $11,337 $ 8,172
Net occupancy expense..................................... 2,573 1,979 1,632
Furniture and equipment expense........................... 1,885 818 942
Amortization of goodwill.................................. 272 56 56
Advertising............................................... 657 594 336
Banking assessments....................................... 1,028 500 876
Data processing expense................................... 1,125 703 499
Legal and professional fees............................... 1,424 1,396 422
Other noncredit losses (recoveries)....................... (24) 1,219 36
Other..................................................... 5,980 2,296 1,276
------- ------- -------
Total noninterest expense....................... $36,386 $20,898 $14,247
======= ======= =======
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
CASH, DUE FROM BANKS, INTEREST-BEARING CASH BALANCES, AND FEDERAL FUNDS
SOLD -- The carrying amount is a reasonable estimate of fair value.
INVESTMENT, AVAILABLE FOR SALE, AND TRADING SECURITIES -- Debt and other
securities are based on quoted market prices or dealer quotes.
LOANS -- The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities.
DEPOSITS -- The fair value of demand deposits, savings accounts, and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining maturities.
FEDERAL FUNDS PURCHASED, SHORT-TERM BORROWINGS, AND LONG-TERM DEBT -- The
carrying amount is a reasonable estimate of fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT -- All
commitments to extend credit and standby letters of credit have original terms,
at their issuance, of one year or less; therefore, the fair value of these
instruments does not materially differ from their stated value.
F-24
72
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of financial instruments at December 31, 1996 and
1995 are as follows (in thousands):
1996 1995
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Financial assets:
Cash and due from banks..................... $ 36,730 $ 36,730 $ 39,202 $ 39,202
Interest bearing deposits in other banks.... 200 200 11,168 11,168
Federal funds sold and securities purchased
under agreements to resell............... 46,249 46,249 37,820 37,820
Investment and available for sale
securities............................... 150,825 150,852 153,864 153,888
Trading securities.......................... 1,936 1,936 4,402 4,402
Loans....................................... 602,119 612,416 544,210 544,711
Financial liabilities:
Deposits.................................... 674,681 674,721 676,536 677,717
Federal funds purchased; securities sold
under repurchase agreement; and treasury,
tax, and loan account.................... 94,839 94,839 61,362 61,362
Short-term borrowings....................... 41,000 41,000 21,280 21,280
Long-term debt.............................. 300 300 821 821
17. PARENT COMPANY
The condensed financial information of the parent company only for the
years ended December 31, 1996, 1995, and 1994 is presented as follows (in
thousands):
1996 1995
------- -------
BALANCE SHEETS
Assets:
Cash...................................................... $ 574 $ 697
Investments in subsidiaries............................... 74,713 70,588
Intangibles............................................... 7,308 7,595
Other assets.............................................. 1,409 1,487
------- -------
Total assets...................................... $84,004 $80,367
======= =======
Liabilities and stockholders' equity:
Accounts payable.......................................... $ 628 $ 6,401
Accrued interest payable.................................. 255
Short- and long-term debt................................. 17,000 15,777
------- -------
Total liabilities................................. 17,883 22,178
------- -------
F-25
73
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 1995
------- -------
Stockholders' equity:
Preferred stock...........................................
Common stock.............................................. 6,515 6,505
Additional paid-in capital................................ 48,782 48,745
Retained earnings......................................... 11,093 3,119
Unearned restricted stock................................. (185) (278)
Unrealized (loss) gain on available-for-sale securities,
net of taxes........................................... (84) 98
------- -------
Total stockholders' equity........................ 66,121 58,189
------- -------
Total liabilities and stockholders' equity........ $84,004 $80,367
======= =======
1996 1995 1994
------- ------- -------
STATEMENTS OF INCOME
Income:
Dividends from subsidiaries............................... $ 8,266 $ 2,641 $ 1,365
Expenses:
Interest expense.......................................... 1,382 764 462
Other expenses............................................ 3,359 87 79
------- ------- -------
Total expenses.................................... 4,741 851 541
------- ------- -------
Income before equity in undistributed earnings of
subsidiaries.............................................. 3,525 1,790 824
Equity in undistributed earnings of subsidiaries............ 4,494 2,292 4,401
------- ------- -------
Income before income taxes.................................. 8,019 4,082 5,225
Income tax benefit.......................................... 1,706 144
------- ------- -------
Net income........................................ $ 9,725 $ 4,226 $ 5,225
======= ======= =======
1996 1995 1994
------- ------- -------
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 9,725 $ 4,226 $ 5,225
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of investment in consolidated subsidiaries in
excess of net assets acquired and core deposits........ 287 119 118
Equity in undistributed earnings of subsidiaries.......... (4,494) (2,292) (4,401)
Deferred tax benefit...................................... (282)
Other..................................................... 280
Increase (decrease) in other assets and liabilities....... (135) 41 20
------- ------- -------
Net cash provided by operating activities......... 5,381 2,094 962
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired....................... 2,133
-------
Net cash provided by investing activities......... 2,133
-------
F-26
74
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 1995 1994
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on common stock................................... (1,747)
Dividends of preferred stock................................ (4) (854) (721)
Change in other liabilities................................. (5,023)
Exercise of stock options................................... 100
Net increase (decrease) in borrowings....................... 1,223 8,027 (305)
Redemption of preferred stock............................... (53) (10,711)
------- ------- -------
Net cash used in financing activities............. (5,504) (3,538) (1,026)
------- ------- -------
Net (decrease) increase in cash................... (123) 689 (64)
Cash, beginning of year..................................... 697 8 72
------- ------- -------
Cash, end of year........................................... $ 574 $ 697 $ 8
======= ======= =======
18. REGULATORY
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 maintain minimum amounts and ratios (set forth in the table
below) of total qualifying capital 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 December 31,
1996, that the Company meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the Federal
Reserve Bank 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.
F-27
75
ALABAMA NATIONAL BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actual capital amounts and ratios of the Company are presented in the
table below:
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- -------- ------
As of December 31, 1996:
Total qualifying capital (to risk
weighted assets)............... $67,783 10.61% $51,091 8.00% $63,864 10.00%
Tier I Capital (to risk weighted
assets)........................ 59,800 9.36 25,546 4.00 50,622 6.00
Tier I Capital (to average
assets)........................ 59,800 7.09 33,748 4.00 42,185 5.00
As of December 31, 1995:
Total qualifying capital (to risk
weighted assets)............... 58,603 10.26 47,716 8.00 57,145 10.00
Tier I Capital (to risk weighted
assets)........................ 51,460 9.01 22,858 4.00 29,173 6.00
Tier I Capital (to average
assets)........................ 51,460 10.58 19,449 4.00 24,311 5.00
The actual capital amounts and ratios of National Bank of Commerce, the
Company's most significant subsidiary, are presented in the table below:
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- -------- ------
As of December 31, 1996:
Total qualifying capital (to risk
weighted assets)............... $52,182 11.72% $35,609 8.00% $44,514 10.00%
Tier I Capital (to risk weighted
assets)........................ 46,618 10.47 17,805 4.00 24,518 6.00
Tier I Capital (to average
assets)........................ 46,618 8.10 23,012 4.00 28,765 5.00
As of December 31, 1995:
Total qualifying capital (to risk
weighted assets)............... 42,276 12.60 26,837 8.00 33,546 10.00
Tier I Capital (to risk weighted
assets)........................ 38,083 11.35 13,418 4.00 27,285 6.00
Tier I Capital (to average
assets)........................ 38,083 8.37 18,190 4.00 22,738 5.00
19. RELATED PARTY TRANSACTIONS
In addition to the previously disclosed related party transactions, the
Company received trust fees of approximately $488,000 in 1996 and $440,000 in
1995 from related parties.
F-28