As filed with the Securities and Exchange Commission on September 30, 1998
Registration File No. ______________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE COMMERCIAL BANCORP, INC.
(Name of small business issuer in its charter)
Florida 6712 59-3396236
- ------------------------- ---------------------------- ----------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
258 N. Nova Road
Ormond Beach, Florida 32174
(904) 672-3003
-----------------------------
(Address and telephone number
of principal executive offices)
Gary G. Campbell
President and Chief Executive Officer
258 N. Nova Road
Ormond Beach, Florida 32174
(904) 672-3003
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(Name, address and telephone number of agent for service)
Copies Requested to:
Herbert D. Haughton, Esq. Neil E. Grayson, Esq.
or A. George Igler, Esq Nelson Mullins Riley & Scarborough, L.L.P.
Igler & Dougherty, P.A. First Union Plaza, Suite 1400
1501 Park Avenue East 999 Peachtree Street, N.E.
Tallahassee, Florida 32301 Atlanta, Georgia 30309
(850) 878-2411 Telephone (404) 817-6000 Telephone
(850) 878-1230 Facsimile (404) 817-6225 Facsimile
Approximate date of proposed sale to the public: As soon as practicable after
this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an Offering pursuant
to rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Title of Proposed Proposed
each class Amount maximum maximum
of securities to be offering aggregate Amount of
to be registered registered price offering price registration fee
- --------------------------------------------------------------------------------
Common Stock 1,200,000 $12.00 $14,400,000 $4,248.00
$. 01 par value
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(1) Maximum purchase price of stock to be issued.
(2) Estimated solely for the purpose of calculating the registration fee on
the basis of the proposed maximum offering price per share.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
PROSPECTUS Subject to completion, September ____, 1998
Common Stock
Minimum 800,000 shares -- Maximum 1,200,000 shares
The Commercial Bancorp, Inc., a bank holding company headquartered in Ormond
Beach, Florida is offering through its sales agent, Banc Stock Financial
Services, Inc., up to 1,200,000 shares of common stock for up to 90 days
following the date of this Prospectus, unless extended by our board of directors
for up to 90 additional days. We currently believe that the offering price will
be between $10.00 and $12.00 per share. This offering will be terminated and all
subscription funds, together with any interest earned thereon, will be promptly
returned to subscribers if a minimum of 800,000 shares are not sold within the
offering period.
The Commercial Bancorp reserves the right to reject any subscription
received in whole or in part. Once accepted a subscription cannot be withdrawn.
We may terminate the offering at any time without prior notice.
This investment involves a high degree of risk. See "Risk Factors" beginning
on page 6 for a discussion of certain risks that should be carefully considered
by prospective purchasers of the common stock offered hereby.
The securities offered hereby are not savings accounts or savings deposits
and are not insured by the Federal Deposit Insurance Corporation or any other
governmental agency. These securities have not been approved or disapproved by
the Securities and Exchange Commission or any state securities commission nor
has the Commission or any state securities commission passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
Estimated
Subscription Underwriting Proceeds to the
Price discounts Company(1)
Per Share $______ $______ $______
Minimum offering (2) $______ $______ $______
Maximum offering (3) $______ $______ $______
- --------------------------
(1) Before deducting offering expenses estimated to be approximately
$150,000, including registration fees, legal and accounting fees,
printing and other miscellaneous expenses.
(2) Amount based on the sale of 800,000 shares at $_____ per share.
(3) Amount based on the sale of 1,200,000 shares at $_____ per share.
October ____, 1998.
<PAGE>
[inside front cover]
Florida map with TCB-Volusia location in Ormond Beach,
and
TCB-Highlands location in Sebring, Florida highlighted
<PAGE>
AVAILABLE INFORMATION
The Commercial Bancorp, Inc. ("TCB") is subject to the informational
requirements of the Securities Exchange Act of 1934. We file reports
electronically with the Securities and Exchange Commission through the
Commission's EDGAR system. These reports may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. , and 3475 Lennox Road, N.E., Suite 1000, Atlanta, GA.
Copies of such material may also be reviewed on the Commission's Web Site at
http://www.sec.gov.
We have filed electronically with the Commission through EDGAR a
registration statement on Form SB-2 in accordance with the requirements of the
Securities Act of 1933 ("Securities Act") registering the common stock offered
herein. This Prospectus does not contain all of the information set forth in the
registration statement and in the exhibits attached. Certain items were omitted
in accordance with the rules and regulations of the Commission. Anyone may
inspect the registration statement without charge at the public reference
facilities of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and
may obtain copies of all or any part of it from the Commission upon payment of
the required fees. Statements contained in this Prospectus which refer to a
document filed as an exhibit to the registration statement are qualified in
their entirety by reference to the copy of that document. The registration
statement may also be reviewed on the Commission's Web Site.
SALES OF TCB's COMMON STOCK
Our common stock is not listed on any exchange and there currently is not
an active market for the shares. There can be no assurance that an active and
liquid trading market for the common stock will develop or, if developed, will
be maintained. It is our intent to apply to Nasdaq to have our securities listed
on the Nasdaq SmallCap Market as soon as we are able to meet the qualification
requirements. At the completion of the offering, we believe we will meet all of
the requirements for listing, but no assurance can be given that such will be
the case, or that the listing requirements for the Nasdaq SmallCap Market will
not have changed by that time.
1
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. This Prospectus contains certain
forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from the results discussed in these statements.
Factors which might cause such differences include, but are not limited to,
those discussed in "Risk Factors" beginning on Page6.
The Company
General. TCB, which commenced banking operations on October 14, 1997, is a
one-bank holding company organized under the laws of the State of Florida and is
headquartered in Ormond Beach, Florida. We operate primarily through our
wholly-owned banking subsidiary, The Commercial Bank of Volusia County, a
Florida-chartered commercial bank ("TCB-Volusia"). We have filed with the
Florida Department of Banking and Finance (the"Department") an application to
organize and operate a commercial bank in Sebring, Highlands County, Florida
("TCB-Highlands"). TCB, TCB-Volusia and TCB-Highlands, in organization, are
collectively referred to as the "Company". The Company currently operates from
one full-service banking office, in Ormond Beach, Florida. The Company's primary
business is attracting deposits from the general public and using those
deposits, together with borrowings and other funds, to originate loans and
purchase investments.
As of June 30, 1998, the end of 8 months of operation, we had total assets
of $17.9 million, total deposits of $13.5 million and total stockholders' equity
of $4.1 million. We reported a consolidated net loss of ($220,932) or ($0.48)
per basic share for the six-month period ended June 30, 1998. As of June 30,
1998, our loan portfolio totaled $8.8 million, of which 13.5% consisted of
residential mortgage loans, 26.3% consisted of commercial real estate loans,
54.1% consisted of commercial loans, and 6.1% consisted of consumer loans.
TCB-Volusia's primary service area is Ormond Beach and Volusia County,
Florida, which have populations of approximately 31,000 people and 413,000
people, respectively. The proposed primary service area for TCB-Highlands is
Sebring and Highlands County, Florida, which have populations of 8,000 people
and 80,000 people, respectively. The major industries in TCB-Volusia's primary
service area are tourism, retail trade, insurance, agriculture, medical, light
industry, and real estate. The major industries in TCB-Highlands' primary
service area is retail trade, education, medical, citrus, cattle, and real
estate. See "BUSINESS - Primary Service Area".
We intend to use the first $4.2 million in proceeds from this offering to
provide the initial capitalization of TCB-Highlands, which we expect to open in
the last quarter of 1998. The chief executive officer of TCB-Highlands will be
Steven P. Toomey, and the initial board of directors of TCB-Highlands will
include the following organizers as well as Larry A. Kent, the Company's
Chairman of the Board and Gary G. Campbell, the Company's President and Chief
Executive Officer:
Richard R. Farmer James F. McCollum
John T. Griffin Douglas A. McLean
John G. Kasmer James M. Rimer
H. Frederick Keiber Norbert A. Walz
Deborah K. Kendrick
Business Strategy. We intend to operate a traditional community banking business
through strategically located, decentralized banking facilities run by local
boards of directors. Our goal is to maintain a friendly, professional staff that
is committed to developing long-term relationships with customers by offering
personalized, quality service. We currently offer a broad range of retail and
commercial banking services through our Ormond Beach office, including various
types of deposit accounts and loans for consumers and businesses and intend to
do so in each of our market areas. As part of our community banking approach, we
encourage our officers and directors to actively participate in community
organizations. Our goal is to establish ourselves as the leading community bank
in each of our primary service areas and to expand our presence in Florida
through consistent growth with a prudent operating strategy. As part of these
strategies, we will focus on:
2
<PAGE>
Growing by establishing new commercial banks or acquiring existing
commercial banks in targeted Florida communities with populations of less
than 300,000 people.
Growing by expansion of our existing banks.
Developing commercial lending relationships in each of our market areas.
Maintaining high credit quality.
We believe that there is a demand for strong community banks in Florida
primarily because of the recent number of takeovers of several Florida banks by
large regional bank holding companies. In many cases when these consolidations
occur, local boards of directors are dissolved and local management relocated or
terminated. In our view, this situation creates favorable opportunities for new
community banks with local boards of directors and local management. We also
believe that our subsidiary banks can be successful in attracting individuals
and small- to medium-sized businesses as customers who wish to conduct business
with a locally owned and managed institution; one that takes an active interest
in their banking needs and financial affairs.
Risk Factors
Prospective investors should consider the information discussed under "RISK
FACTORS" beginning on page 6 herein before making a decision to purchase the
shares offered.
Use of Proceeds
The first $4.2 million of proceeds of this offering will be used to capitalize
TCB-Highlands. The balance will be used to support the growth of our banks and
for expansion in the Central Florida market through the acquisition of existing
small financial institutions or the establishment of additional de novo banks.
See "USE OF PROCEEDS".
Dividends
We have not paid a dividend (cash or stock) since our inception. Since we expect
that our earnings will be retained to support growth and expansion into new
business opportunities, we do not expect to pay a cash dividend in the
foreseeable future. See "DIVIDENDS ON COMMON STOCK".
The Offering
Common Stock Offered by the Company. We are offering, through our sales agent, a
minimum of 800,000 shares of common stock the (the "minimum offering") and a
maximum of 1,200,000 shares of common stock the (the "maximum offering").
Subscribers, together with their related parties, will be permitted to purchase
up to 50,000 shares. The minimum purchase is 100 shares. See "THE OFFERING".
Common Stock Outstanding Immediately After the Offering. As of June 30, 1998,
there were 464,791 shares of common stock outstanding. Had the offering closed
on that date, at the minimum offering and the maximum offering, there would be
1,264,791 shares and 1,664,791 shares of common stock outstanding, respectively,
excluding the 450,000 shares issuable pursuant to our outstanding warrants, none
of which as of the date of the Prospectus had been exercised.
See "DESCRIPTION OF CAPITAL STOCK - Outstanding Warrants".
Sales Agent and Fees to Participating Broker-Dealers. We have entered into a
Sales Agency Agreement with Banc Stock Financial Services, Inc. ("BSFS" or the
"sales agent") and have agreed to pay certain fees and expenses of BSFS for its
services in the offering. BSFS may allow a concession (out of the sales
commission) to selected broker-dealers who participate in the offering. See
"SALES AGENT".
Conditions of the Offering. The offering is being made on a best efforts basis
by the sales agent and will expire 90 days from the date of the Prospectus,
unless extended for up to 90 days or terminated beforehand in the sole
discretion of our board of directors, after consultation with the sales agent.
Funds received by us during the offering will be deposited with the escrow
agent. Funds so deposited may be released to us only in accordance with the
terms of the Escrow Agreement between the Company and the escrow agent. The
offering will be terminated by us if, by 5:00 p.m., local time, on January ____,
1999, if subscriptions for a minimum of 800,000 shares have not been received
and forwarded to the escrow agent, or we have previously extended or canceled
the offering prior to withdrawing funds from the escrow account.
3
<PAGE>
Offering Price. The offering price is $______ per share. The common stock is not
publicly traded. The board of directors, after consulting with the sales agent,
determined the offering price after considering, among other criteria, the
Company's assets, book value and other investment criteria.
Procedure for Subscribing for Common Stock. Persons who desire to participate in
the offering must properly complete the order form which accompanies this
Prospectus. The order form must be forwarded, with full payment of the aggregate
subscription price, to the escrow agent on or prior to the respective expiration
dates. If the mail is used to forward order forms, we recommend that insured,
registered mail, return receipt requested, be used. See "THE OFFERING - Issuance
of Common Stock".
Subscriptions for the common stock which are accepted by us may not be revoked.
Accepted subscription funds will be forwarded to an escrow account established
with SunTrust Bank, Central Florida, N.A., 200 S. Orange Avenue, Orlando,
Florida 32801 (the "escrow agent"). See "THE OFFERING - Procedure for
Subscribing for Common Stock".
Issuance of Common Stock. Provided that all conditions necessary to consummate
the offering are satisfied, including the sale in the offering of the minimum
number of shares, certificates representing shares of common stock purchased in
this offering will be delivered to purchasers as soon as practical after the
expiration date of the minimum offering.
See "THE OFFERING - Issuance of Common Stock".
Purchase Limitation. We reserve the right to reject any subscriptions, in whole
or in part. The minimum number of shares of common stock any person may purchase
in the offering is 100 and the maximum number any person may purchase
individually or in the aggregate with related persons is 50,000. See "RISK
FACTORS - Voting Control."
Transfer Agent and Registrar. Prior to the offering we served as our own
transfer agent for our common stock. We have recently engaged Continental Stock
Transfer and Trust Company, 2 Broadway, 19th Floor, New York, New York 10004 to
handle stock transfers, stock record keeping, and mailing of all proxy
materials. See "THE OFFERING Transfer Agent and Registrar".
Intentions of Executive Officers and Directors. Our executive officers and
directors, including the proposed directors of TCB-Highlands, have preliminarily
indicated that collectively they intend to purchase approximately 141,500 shares
in the offering. Our executive officers and directors, together with the
organizers of TCB-Highlands or affiliates of the sales agent, may purchase up to
100% of the shares in the offering if necessary to help the Company achieve the
minimum subscription level necessary to release subscription proceeds from
escrow. Any shares purchased by these individuals in excess of their original
commitment will be purchased for investment and not with a view to the resale of
such shares. Because purchases by these persons may be substantial, investors
should not place any reliance on the sale of a specified minimum offering amount
as an indication of the merits of this offering or that such a person's
investment decision is shared by unaffiliated investors. See - "BENEFICIAL
OWNERSHIP OF COMMON STOCK".
Information on the Offering. If you have questions concerning the offering,
contact the Stock Sales Center at 1-800-733-2265.
4
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF FINANCIAL DATA
(Dollars in thousands, except per share figures)
At or For the Period Ended(1)
-----------------------------
June 30, December 31,
-------- ------------
1998 1997
---- ----
At Period End:
<S> <C> <C>
Assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,873 $ 7,078
Loans, net . . . . . . . . . . . . . . . . . . . . . . . 8,739 3,746
Deposits . . . . . . . . . . . . . . . . . . . . . . . . 13,533 2,678
Stockholders' equity . . . . . . . . . . . . . . . . . . 4,105 4,334
Book value per share . . . . . . . . . . . . . . . . . . 8.83 9.32
Shares outstanding . . . . . . . . . . . . . . . . . . . 464,791 464,791
Warrants to purchase one share of common stock outstanding(2) 450,000 450,000
Equity-to-assets ratio . . . . . . . . . . . . . . . . . 22.97% 61.23%
Nonperforming assets-to-total assets ratio . . . . . . . - -
Six Months Year Ended
Ended June 30, December 31,
-------------- ------------
1998 1997
---- ----
For The Period(3):
Interest income. . . . . . . . . . . . . . . . . . . . . $ 426 $ 112
Net income (loss). . . . . . . . . . . . . . . . . . . . (221) (262)
Return on average assets . . . . . . . . . . . . . . . . (3.15)% (9.18)%
Return on average equity . . . . . . . . . . . . . . . . (10.49) (11.91)
Average equity-to-average assets . . . . . . . . . . . . 30.05 77.02
Noninterest expenses to average assets . . . . . . . . . 6.81 16.85
Average Yield or
Rate During the
--------------------------
Six Months Year Ended
Ended June 30, December 31,
-------------- ------------
1998 1997
---- ----
Yields and Rates(4):
Loan portfolio . . . . . . . . . . . . . . . . . . . . . 8.60% 8.88%
Securities . . . . . . . . . . . . . . . . . . . . . . . 4.73 N/A
Other interest-earnings assets . . . . . . . . . . . . . 5.51 4.88
All interest-earnings assets . . . . . . . . . . . . . . 7.15 5.38
Deposits . . . . . . . . . . . . . . . . . . . . . . . . 5.08 3.95
Other borrowed funds . . . . . . . . . . . . . . . . . . 9.30 9.47
Net interest margin(3) . . . . . . . . . . . . . . . . . 3.17 3.28
</TABLE>
- -----------------
(1) Information for 1996 and six months ended June 30, 1997 is not presented
because the Company was in its organizational stage and it is not
meaningful in relation to the June 1998 and December 1997 information.
(2) Warrants exercisable at $10.00 per share were issued in the TCB's initial
stock offering and expire on April 28, 2000.
(3) Percentages annualized for the six months ended June 30, 1998.
(4) Net interest income divided by average interest-earning assets.
5
<PAGE>
RISK FACTORS
An investment in the common stock involves certain risks. In addition to
the other information contained in the Prospectus, prospective investors should
consider the following factors in evaluating an investment in the shares of
common stock. This Prospectus contains "forward-looking statements" relating to,
without limitation, future economic performance, plans and objectives of
management for future operations, and projections of revenues and other
financial items that are based on the beliefs of the Company's management, as
well as assumptions made by and information currently available to the Company's
management. The words "expect," "estimate," "anticipate," and "believe," as well
as similar expressions, are intended to identify forward-looking statements. The
cautionary statements set forth in this "Risk Factors" section and elsewhere in
this Prospectus identify important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-looking statements.
Risks Associated With Opening a New Bank
The proceeds of the offering will be used to support TCB's proposed growth
and expansion, including the establishment of TCB-Highlands. There can be no
assurance that the Company will actually experience any further asset or deposit
growth, or that the Company will experience any favorable results if such growth
occurs. TCB-Highlands is currently in the organizational stage and has no
operating history. Although TCB-Volusia has been operating since October 1997,
because of the impact of the formation of TCB-Highlands and the Company's short
operating history, the Company's historical results of operations are not
necessarily indicative of the Company's future operations.
As a bank holding company, the Company's profitability will depend entirely
upon the operations of its subsidiary banks. The operations of TCB-Highlands
will be subject to the risks inherent in the establishment of a new business
and, specifically, of a new bank. The likelihood of the success of TCB-Highlands
must be considered in light of the problems, expenses, complications, and delays
frequently encountered in connection with the development of a new bank and the
competitive environment in which TCB-Highlands will operate. Typically, new
banks incur substantial initial expenses and are not profitable for several
years after commencing business. There can be no assurance that either
TCB-Volusia or TCB-Highlands will ever operate profitably or that the impact of
either bank's operations will not have a material adverse effect on the results
of operations and financial condition of the Company.
No Assurance of Regulatory Approvals for TCB-Highlands
Before TCB-Highlands may open, it must obtain approval of its charter
application from the Department and its application for deposit insurance from
the Federal Deposit Insurance Corporation. Although the Company anticipates that
the Department and the FDIC will preliminarily approve these applications prior
to October 30, 1998, there is a risk that TCB-Highlands will fail to obtain
either one or both of these approvals, or that the approvals may not be granted
by this date. The Company anticipates that the Department will require the
Company to capitalize TCB-Highlands with $4 million, and the Company intends to
use a portion of the proceeds of this offering for this purpose. The Company has
not sought any other source from which to obtain this capital, and there can be
no assurances the Company would be able to do so.
Before the Company may acquire the common stock of TCB-Highlands, the
Company must obtain the approval of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). The Company intends to file an
application to request this approval in October 1998, and the Company
anticipates receiving this approval prior to December 1998. However, there is a
risk that the Company will fail to obtain this approval, or that the approval
may not be granted by this date.
Any significant delay in obtaining any of the approvals described above
will result in an increase in pre-opening expenses for TCB-Highlands and may
reduce the amount of the Company's capital, potential revenues, and income.
Interest-Rate Risk
TCB's earnings depend, to a large extent, upon its net interest income,
which is primarily influenced by the relationship between its cost of funds
(deposits and borrowings) and the yield on its interest-earning assets (loans
and investments). This relationship, known as the net interest margin, is
subject to fluctuation and is affected by regulatory,
economic, and competitive factors which influence the level of interest rates
and the volume, rate, and mix on interest-earning assets and interest-bearing
liabilities. As part of its interest-rate risk management strategy, management
seeks to reduce its exposure to interest-rate changes by matching the maturity
and repricing horizons of interest-earning assets and interest-bearing
liabilities.
6
<PAGE>
As of December 31, 1997, total interest-earning assets maturing or
repricing within one year were more than total interest-bearing liabilities
maturing or repricing in the same period by $3.2 million, representing a
cumulative one-year interest rate sensitivity gap as a percentage of total
interest-earning assets of 45.5%. As a result, the yield on the Company's
interest-earning assets should adjust to changes in market interest rates at a
faster rate than the cost of the Company's interest-bearing liabilities.
Consequently, the Company's net interest income could be materially and
adversely affected by a period of falling interest rates. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Asset/Liability Structure".
Credit Risk
In originating loans, there is a substantial likelihood that credit losses
will occur. This risk of loss varies with, among other things, general economic
conditions, the type of loan made, the creditworthiness and debt servicing
capacity of the borrower over the term of the loan, and in the case of a
collateralized loan, the value and marketability of the collateral securing the
loan. Management maintains an allowance for loan losses based on, among other
things, any known inherent risks in the loan portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and an evaluation of current economic conditions.
Additional provision for loan losses may be required should economic or other
conditions change substantially in the future.
As of June 30, 1998, the Company's allowance for loan losses was $90,000,
which represented 1.03% of total loans. Approximately 13.5% of the loan
portfolio was comprised of permanent and construction-permanent mortgage loans
secured by residential properties, 80.4% of commercial loans, and 6.1% of
consumer loans. The Company has not yet experienced any loan losses. As of June
30, 1998, there were no nonperforming loans in the portfolio. The Company
actively monitors its asset quality to maintain an adequate allowance for loan
losses. Although management believes that its allowance for loan losses is
adequate, there can be no assurance that the allowance will prove sufficient to
cover future loan losses. Significant additions to the Company's allowance for
loan losses would have a material adverse effect on the Company's results of
operations and financial condition. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Allowance for Loan Losses".
Growth by Expansion and Acquisitions
The Company's strategy to expand by establishing additional de novo bank
subsidiaries is dependent on its ability to identify and open such subsidiaries
in advantageous locations and to generate new deposits and loans from those
locations that will create an acceptable level of net income for the Company. At
the same time, the Company's strategy to grow through selective acquisitions of
financial institutions or branches of such institutions is dependent on
successfully identifying, acquiring, and integrating such institutions or
branches. There can be no assurance that the Company will be successful in
implementing its growth strategy or in identifying attractive acquisition
candidates, acquiring such candidates on favorable terms, or successfully
integrating any acquired institutions or branches into the Company. See
"BUSINESS - Competition".
Competition
The banking and financial services industry is highly competitive. In its
primary service areas, the Company competes with other commercial banks, savings
and loan associations, credit unions, finance companies, mutual funds, insurance
companies, and brokerage and investment banking firms operating locally and
elsewhere. Many of these competitors have substantially greater resources and
lending limits than the Company and may offer certain services that the Company
does not or cannot provide. The profitability of the Company depends upon its
continued ability to successfully compete in its market areas. See "BUSINESS -
Competition".
Local Economic Conditions
The success of the Company is dependent, to a certain extent, upon the
general economic conditions in the geographic markets served by the Company.
Although the Company expects that economic conditions will continue to be
favorable in Volusia and Highlands Counties, no assurance can be given that
these favorable economic conditions will continue. Adverse changes in economic
conditions in the Company's geographic market would likely impair its ability to
collect loans and could otherwise have a material adverse effect on the results
of operations and financial condition of the Company. An example of potential
unfavorable changes in economic conditions which could affect the Company's
geographic market includes adverse weather conditions resulting from natural
causes, such as a hurricane.
7
<PAGE>
Supervision and Regulation
Bank holding companies and banks operate in a highly regulated environment
and are subject to supervision and examination by several federal and state
regulatory agencies. TCB is subject to the Bank Holding Company Act of 1956 (the
"BHCA") and to regulation and supervision by the Board of Governors of the
Federal Reserve System. TCB-Volusia is and TCB-Highland will be also subject to
the regulation and supervision of the FDIC and the Florida Department of Banking
and Finance. Federal and state laws and regulations govern matters ranging from
deposit insurance premiums to the regulation of certain debt obligations, and
changes in control of bank holding companies. These loans and regulations also
govern the maintenance of adequate capital for the general business operations
and financial condition of TCB bank subsidiaries, including permissible types,
amounts, and terms of loans and investments, the amount of reserves against
deposits, restrictions on dividends, establishment of branch offices, and the
maximum rate of interest that may be charged by law. The Federal Reserve also
possesses cease and desist powers over bank holding companies to prevent or
remedy unsafe or unsound practices or violations of law. These and other
restrictions limit the manner in which the Company may conduct its business and
obtain financing. Furthermore, the commercial banking business is affected not
only by general economic conditions, but also by the monetary policies of the
Federal Reserve. These monetary policies have had, and are expected to continue
to have, significant effects on the operating results of commercial banks.
Changes in monetary or legislative policies may affect the ability of TCB bank
subsidiaries to attract deposits and make loans, and changes in applicable
statutes and regulations could, under certain circumstances, adversely affect
the Company.
Anti-Takeover Provisions
The Company's Articles of Incorporation ("Articles") require super-majority
shareholder approval to effect certain extraordinary corporate transactions
which have not been approved by the board of directors. The effect of these
provisions is to make it more difficult to effect a merger, sale of control, or
similar transaction involving the Company even though a majority of the
Company's shareholders may vote in favor of such a transaction. In addition, the
Company's Articles provide for classes of directors, whereby one-third of the
members of the board of directors shall be elected each year and each director
of the Company will serve for a term of three years. Finally, the Company's
Articles provide that Florida's Control-Share Acquisition Statute shall apply to
acquisitions of control shares, as defined therein, of the Company's common
stock. The effect of these provisions is to make it more difficult to effect a
hostile change in control of the Company through the acquisition of a large
block of the Company's common stock. See "DESCRIPTION OF COMMON STOCK".
Absence of Shareholder Preemptive Rights
No holders of the common stock of the Company have preemptive rights with
respect to the issuance of shares of any class of stock. The total number of
shares of all classes of capital stock which the Company has the authority to
issue is 10,000,000 shares, consisting of 10,000,000 shares of common stock, par
value $0.01 per share. The board of directors of the Company could from time to
time determine to issue additional shares of the authorized common stock of the
Company, in addition to the shares offered hereby, and in such event the
ownership interest of the subscribers in this offering may be diluted.
Voting Control
As of June 30, 1998, the board of directors of the Company, as a group, own
21.5% of TCB's outstanding shares, and after this offering it is anticipated
that they will continue to have a significant influence on the election of
members of the board of directors and other shareholder matters. See "BENEFICIAL
OWNERSHIP OF COMMON STOCK."
Dilutive Effect of Purchase Warrants and Stock Options
In connection with the company's initial public offering, the Company
issued purchase warrants which when fully exercised would result in an
additional 450,000 shares being issued at $10.00 per share (each warrant
entitles the holder to purchase one share of common stock). As of June 30, 1998,
there were 450,000 purchase warrants (representing 450,000 shares authorized to
be issued at $10.00 per share) that had not been exercised.
The Company has granted stock options to the Company's President at an
exercise price of $10 per share which was equal to fair market value on the date
of grant. As of June 30, 1998, there were stock options to purchase 10,000
shares of common stock outstanding. The exercise of such stock options and
warrants would have a dilutive effect on the Company's book value per share,
only if the Company's book value per share exceeded the option exercise price at
the time of exercise. See "SELECTED CONSOLIDATED FINANCIAL DATA".
8
<PAGE>
Dilution
Purchasers of common stock in the offering will experience immediate
dilution in the net tangible book value per share of the common stock from the
public offering price. Moreover, in the near-term, the Company expects that the
expenses associated with the offering and the establishment of TCB-Highlands
will result in dilution of the Company's return on equity and earnings per
share. See "DILUTION".
Impact on Earnings Per Share
The issuance of up to 1,200,000 shares offered hereby may adversely affect
the Company's earnings per share until such time as the net proceeds of this
offering are fully utilized to generate additional assets and deposits. See
"RISK FACTORS Growth by Expansion and Acquisition" and "USE OF PROCEEDS".
No Dividends
The Company has never paid cash dividends on its common stock and in the
near-term intends to retain any future earnings to finance its growth. As the
Company's business operations are conducted almost exclusively through
TCB-Volusia and, when it opens, TCB-Highlands, the Company's ability to pay
dividends on the common stock will be directly dependent on the dividends paid
by these banks to the Company. The ability of these banks to pay dividends to
the Company is subject to their profitability and to government regulations that
limit the aggregate amount of cash dividends paid to shareholders based on
then-current income levels. There can be no assurance that either bank's future
earnings will support dividend payments to the Company.
Lack of Any Trading Market
Prior to this offering, there has been no trading activity in the
Company's shares. Although the Company expects that an active trading market
will develop, there can be no assurance that an active trading market will
develop at the completion of this offering or that such a market, if developed,
will continue. The Company intends to list the common stock on the Nasdaq -
SmallCap Market sometime during the first or second quarter of 1999, depending
on market conditions and assuming the Company meets the Nasdaq SmallCap listing
requirements. See "THE OFFERING - Limited Trading Market".
There is a risk that the Company will never qualify for such a listing or
will elect not to list even if it does qualify. As a result, an investment in
the common stock may continue to be relatively illiquid for the foreseeable
future, and investors may not be able to dispose of any of their shares except
in private, directly negotiated sales. In addition, sales of substantial amounts
of common stock after the offering could adversely affect prevailing market
prices. See "Description of COMMON STOCK" and" Shares Eligible for Future Sale".
Dependence on Senior Management
The Company's growth and development to date have been largely the result
of the contributions of certain of the senior executive officers of the Company,
including Gary G. Campbell, President and Chief Executive Officer of the Company
and President of TCB-Volusia, and Harvey E. Buckmaster, the Company's and
TCB-Volusia's Chief Financial Officer. Future growth and development of the
Company will also be largely dependent on Steven P. Toomey who will become the
Chief Executive Officer of TCB-Highlands upon its opening. The loss of the
services of one or more of these individuals could have a material adverse
effect on the Company's business and development. No assurance can be given that
replacements for any of these officers could be employed if these officers'
services were no longer available. In addition, continued growth of the Company
will require that the Company attract and retain additional personnel with a
variety of skills and experience. Significant competition exists for such
personnel with the skills and experience needed successfully to manage the
Company's business and operations. See "MANAGEMENT."
Shares Eligible for Future Sale
Sales of common stock in the public market following this offering could
adversely affect the market price of the common stock. Following this offering,
approximately 338,176 shares of common stock held by current shareholders, as
well as the 1,200,000 maximum shares offered hereby, will be eligible for
immediate sale without restriction in the public market. The executive officers
and directors of TCB, and certain officers of TCB-Volusia, own the remaining
126,615 shares of common stock in the aggregate. Shares held by officers and
directors are subject to the volume and other limitations of Rule 144 adopted
under the Securities Act. See "SHARES ELIGIBLE FOR FUTURE SALE".
9
<PAGE>
Year 2000
Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for information systems processing. There is
concern among industry experts that on January 1, 2000 computers will be unable
to "read" the new year and there may be widespread computer malfunctions. While
the Company believes that it has available resources and the Company has adopted
a plan to address Year 2000 compliance, it is largely dependent on third party
vendors. The Company has been informed by these vendors that such software is
Year 2000 compliant or if not that such vendors have adopted plans to ensure
compliance. The Company believes that its internal systems and software and the
network connections it maintains will be adequately programmed to address the
Year 2000 issue. The Company has also begun testing these systems to confirm
that they will be Year 2000 compliant. Based on information currently available,
management does not believe that the Company will incur more than $50,000 in
direct costs in connection with the Year 2000 issue. Nevertheless, there is a
risk that some of the hardware or software that the Company uses will not be
Year 2000 compliant, and the Company cannot predict with any certainty the costs
the Company will incur to respond to any Year 2000 issues.
Further, the business of many of the Company's customers may be negatively
affected by the Year 2000 issue, and any financial difficulties incurred by the
Company's customers in solving Year 2000 issues could negatively affect these
customers' ability to repay any loans which the Company may have extended.
Therefore, even if the Company does not incur significant direct costs in
connection with responding to the Year 2000 issue, there is a risk that the
failure or delay of the Company's customers or other third parties in addressing
the Year 2000 issue or the costs involved in such process could have a material
adverse effect on the Company's business, financial condition, or results of
operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Year 2000."
USE OF PROCEEDS
The Company estimates that the net proceeds it will receive from the sale
of the common stock in this offering, assuming a public offering price of $11.00
per share, will be approximately $8,190,000 based on the minimum offering of
800,000 shares and $12,325,000 based on the maximum offering of 1,200,000
shares. Offering expenses and sales agent commissions are estimated to be
approximately $610,000 and $875,000 for the minimum and maximum offerings,
respectively. The net proceeds to be raised in the offering will depend upon the
number of shares of common stock sold in the offering and the actual amount of
expenses incurred in the offering, which may differ from the estimates herein.
The Company intends to use the net proceeds to support future growth,
including $4.2 million for the establishment of TCB-Highlands, up to $7,675,000
for the expansion of the Company's geographic locations and up to $500,000 for
general corporate purposes. The Company expects future growth to occur both by
establishing new subsidiary banks, and new branch offices and through selective
acquisitions of other financial institutions or branch offices from such other
institutions, primarily in the central Florida market. Except for TCB-Highlands,
the Company currently has no specific plans for, and has not entered into any
agreement or understanding concerning the establishment of any other new
subsidiary banks or acquisitions of other banks or branches. Management will
have significant discretion regarding how and when the balance of such proceeds
will be applied toward the expansion of the Company's business. Pending the
application of proceeds in the manner set forth above, the net proceeds will
initially be invested by the Company in short-term, interest-bearing securities.
The following table illustrates the use of proceeds based upon a minimum
and a maximum offering:
Use of Proceeds 800,000 shares 1,200,000 shares
--------------- -------------- ----------------
Capital TCB-Highlands $4,200,000 $4,200,000
Expansion activities 3,540,000 7,675,000
General corporate purpose 450,000 450,000
---------- -----------
Estimated Net Proceeds $8,190,000 $12,325,000
---------- -----------
10
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1998, and as adjusted to give effect to the assumed
proceeds from sale of a minimum of 800,000 shares and a maximum of 1,200,000
shares of common stock. The calculations assume a public offering price of
$11.00 per share, the midpoint of the estimated range, and the application of
the net estimated proceeds as described under use of proceeds.
As As
Adjusted Adjusted
for for
Actual Minimum Maximum
June 30, 1998 Offering Offering
------------- -------- --------
(In thousands)
Deposits $ 13,533 $ 13,533 $ 13,533
-------- -------- --------
Stockholders' equity:
Common stock, $0.01 par value,
10,000,000 shares authorized, 464,791
issued and outstanding (1,264,791 shares
at the minimum offering and 1,664,791
shares at the maximum offering) $ 5 $ 13 $ 17
Additional paid-in capital 4,628 12,810 16,936
Accumulated other comprehensive income (loss) (7) (7) (7)
Accumulated deficit (520) (520) (520)
-------- -------- --------
Total capitalization $ 17,639 $ 25,829 $ 29,964
-------- -------- --------
- ---------------------
(1) Excludes 10,000 shares of common stock issuable pursuant to outstanding
stock options and 450,000 shares issuable pursuant to outstanding warrants
at an exercise price of $10.00 per share.
DETERMINATION OF THE OFFERING PRICE
The Company determined the offering price of the common stock based on a
number of factors, including the Company's assessment of the value of the common
stock based on the financial and operating history and trends of the Company,
the experience of its management, the position of the Company in its industry,
and the Company's prospective financial results. The Company issued 464,791
shares (100%) of its currently issued and outstanding common stock in its
initial public offering, which closed on January 15, 1998. The price per share
in the initial public offering was $10.00. However, the purchasers of the first
450,000 shares sold in the initial offering also received, for no additional
consideration, warrants to purchase an aggregate of another 450,000 shares of
common stock at $10.00 per share at any time within the next three years. There
is a risk that investors in this offering will not be able to resell their
shares of common stock at a price equal to or greater than the offering price.
See "RISK FACTORS - Lack of Any Trading Market".
MARKET FOR COMMON STOCK
There is currently no established public trading market in the common
stock. The Company issued 464,791 shares (100%) of its currently issued and
outstanding common stock in its initial public offering, which closed on January
15, 1998. The price per share in the initial public offering was $10.00.
However, the purchasers of the first 450,000 shares sold in the initial offering
also received, for no additional consideration, warrants to purchase an
aggregate of another 450,000 shares of common stock at $10.00 per share at any
time until April 27, 2000, at which time any warrants not exercised will expire.
The Company is not aware of any common stock which has been publicly traded
since the initial offering.
Although the Company has filed a registration statement with the SEC to
register the issuance of the common stock in the offering under the Securities
Act of 1933 and intends to make arrangements with one or more market makers to
trade the common stock on the OTC Bulletin Board, the Company does not
anticipate that a market for the common stock will exist or develop in the near
term following the offering, and there is a risk that no market will develop for
the common stock at all. The development of a public trading market depends on
the existence of willing buyers and sellers, the presence of which is not within
the control of the Company or any market maker.
11
<PAGE>
The Company intends to list the common stock on the Nasdaq SmallCap Market
as soon as it meets the requirements to do so. The Company believes it will meet
these listing requirements following the offering. The decision whether to apply
for listing remains in the discretion of the Company. There is no assurance that
the Company will apply for or be accepted for listing within any particular
period of time, if at all. See "RISK FACTORS - Lack of Any Trading Market".
As of the date of this Prospectus, the Company's shares of common stock are
held by approximately 325 shareholders of record.
DILUTION
At June 30, 1998, the Company had a net tangible book value of
approximately $4.1 million, or $8.83 per share. Net tangible book value per
share represents the amount of the Company's shareholders' equity, less
intangible assets, divided by the number of shares of common stock outstanding.
Dilution per share to new investors represents the difference between the amount
per share paid by purchasers of shares of common stock in this offering and the
pro forma net tangible book value per share of common stock immediately after
completion of the offering. The following table illustrates the per share
dilution to new investors based on the minimum offering of 800,000 shares and
the maximum offering of 1,200,000 shares, after (a) giving effect to the sale by
the Company of such shares of common stock in this offering, (b) deducting
estimated offering expenses, and (c) giving effect to the application of the
estimated net proceeds as set forth under "USE OF PROCEEDS":
<TABLE>
<CAPTION>
Minimum Maximum
Offering Offering
-------- --------
<S> <C> <C>
Assumed public offering price per share. . . . . . . . . . . . . $ 11.00 $ 11.00
Net tangible book value per share at June 30, 1998 . . . . . . . 8.83 8.83
Increase per share attributable to new investors . . . . . . . . 0.89 1.04
Pro forma net tangible book value per share after the offering . 9.72 9.87
--------- -----------
Dilution per share to new investors. . . . . . . . . . . . . . . $ 1.28 $ 1.13
--------- -----------
</TABLE>
The following tables set forth on a pro forma basis, as of June 30, 1998,
(a) the number of shares of common stock purchased from the Company prior to the
offering and the number of shares purchased in the offering, and (b) the total
consideration and average price per share paid to the Company with respect to
common stock held by the existing shareholders of the Company and to be paid by
new investors in the offering.
<TABLE>
<CAPTION>
Based on the maximum offering:
Shares Purchased Total Consideration Average Price
---------------- ------------------- -------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1) . . . . . . . . . . . . . . . . . . . . 464,791 27.9% $ 4,647,910 26.0% $ 10.00
New investors. . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000 72.1 13,200,000 74.0 11.00
--------- ----- ----------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,664,791 100.0% $17,847,910 100.0%
--------- ----- ----------- -----
Based on the minimum offering:
Shares Purchased Total Consideration Average Price
---------------- ------------------- -------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Existing shareholders(1) . . . . . . . . . . . . . . . . . . . . 464,791 36.8% $ 4,647,910 34.6% $10.00
New investors. . . . . . . . . . . . . . . . . . . . . . . . . . 800,000 63.2 8,800,000 65.4 11.00
--------- ----- ----------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,264,791 100.0% $13,447,910 100.0%
--------- ----- ----------- -----
</TABLE>
(1) The purchasers of the first 450,000 shares sold in the initial offering
also received, for no additional consideration, warrants to purchase an
aggregate of another 450,000 shares of common stock at $10.00 per share at
any time until April 27, 2000, at which time any warrants not exercised
will expire. The foregoing tables assume no exercise of these warrants or
outstanding stock options. As of the date of this Prospectus, there are
outstanding options to purchase 10,000 shares of common stock and
outstanding warrants to purchase 450,000 shares of common stock, all at an
exercise price of $10.00 per share. To the extent outstanding options and
warrants are exercised, there may be further dilution to new investors.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for the
Company for the year ended December 31, 1997 and the six-month period ended June
30, 1998. The data should be read in conjunction with the Company's consolidated
financial statements, including the related notes, included elsewhere herein,
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
At Period End:(Dollars in thousands, except per share figures)
<S> <C> <C>
Cash and cash equivalents ............................................ $ 2,782 $ 2,466
Loans, net ........................................................... 8,739 3,746
All other assets ..................................................... 6,352 866
Total assets ....................................................... $ 17,873 $ 7,078
Deposit accounts ..................................................... 13,533 2,678
All other liabilities ................................................ 235 66
Stockholders' equity ................................................. 4,105 4,334
Total liabilities and stockholders' equity ......................... $ 17,873 $ 7,078
For the Period:
Total interest income ................................................ 426 113
Total interest expense ............................................... 237 44
Net interest income .................................................. 189 69
Provision for loan losses ............................................ 55 35
Net interest income after provision for loan losses .................. 134 34
Noninterest income ................................................... 19 2
Noninterest expenses ................................................. 477 481
Loss before income tax credit ........................................ (324) (445)
Income tax credit .................................................... (103) (183)
Net loss ............................................................. $ (221) $ (262)
Basic loss per share (1) ............................................. $ (0.48) $ (2.00)
Weighted-average number of shares outstanding for basic .............. 464,791 130,682
Ratios and Other Data:
Return on average assets ............................................. (3.15)% (9.18)%
Return on average equity ............................................. (10.49) (11.91)
Average equity to average assets ..................................... 30.05 77.02
Net interest margin .................................................. 3.17 3.28
Noninterest expenses to average assets ............................... 6.81 16.85
Ratio of average interest-earning assets to average
interest-bearing liabilities ....................................... 1.28 3.43
Nonperforming loans and foreclosed real estate as a percentage of
total assets at end of period ...................................... -- --
Allowance for loan losses as a percentage
of total loans at end of period .................................... 1.03% .93%
Total number of banking offices ...................................... 1 1
Total shares outstanding at end of period ............................ 464,791 464,791
Book value per share at end of period ................................ $ 8.83 $ 9.32
Dividend pay-out ratio ............................................... -- --
</TABLE>
- ---------------------------
(1) Based on weighted-average number of shares outstanding during the period.
(2) Information for 1996 and six months ended June 30, 1997 is not presented
because the Company was in its organizational stage and it is not
meaningful in relation to the June 1998 and December 1997 information.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At June 30, 1998 and December 31, 1997 and For the Periods Then Ended
General
The Commercial Bancorp, Inc. was incorporated on August 15, 1996. TCB owns
100% of the outstanding common stock of TCB-Volusia. TCB was organized
simultaneously with TCB-Volusia and its only business is the ownership and
operation of TCB-Volusia, which is a Florida state-chartered commercial bank and
which is insured by the Federal Deposit Insurance Corporation. The Bank opened
for business on October 14, 1997, and provides community banking services to
businesses and individuals in Volusia County, Florida.
New Bank Charter
Management intends to organize and open a new state-chartered commercial
bank in Sebring, Highlands County, Florida, to be known as The Commercial Bank
of Highlands County. TCB-Highlands will become a wholly-owned subsidiary of the
Company. The capital for this bank will be provided from the proceeds from the
sale of the Company's common stock in this offering.
Regulation and Legislation
As a state-chartered commercial bank, TCB-Volusia is and TCB-Highlands will
be subject to extensive regulation by the Florida Department of Banking and
Finance and the Federal Deposit Insurance Corporation. TCB-Volusia files reports
with the Department and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with or acquisitions of other financial
institutions. Periodic examinations are performed by the Department and the FDIC
to monitor TCB-Volusia's compliance with the various regulatory requirements.
TCB and TCB-Volusia are also subject to regulation and examination by the
Federal Reserve.
Year 2000 Compliance
Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for information systems processing. There is
concern among industry experts that on January 1, 2000 computers will be unable
to "read" the new year and there may be widespread computer malfunctions. While
the Company believes that it has available resources and the Company has adopted
a plan to address Year 2000 compliance, it is largely dependent on third party
vendors. The Company has been informed by these vendors that such software is
Year 2000 compliant or if not that such vendors have adopted plans to ensure
compliance. The Company believes that its internal systems and software and the
network connections it maintains will be adequately programmed to address the
Year 2000 issue. The Company has also begun testing these systems to confirm
that they will be Year 2000 compliant. Based on information currently available,
management does not believe that the Company will incur more than $50,000 in
direct costs in connection with the Year 2000 issue. Nevertheless, there is a
risk that some of the hardware or software that the Company uses will not be
Year 2000 compliant, and the Company cannot predict with any certainty the costs
the Company will incur to respond to any Year 2000 issues. The Company is in the
process of developing a contingency plan in the event one or more of the
Company's systems is not compliant on January 1, 2000.
Further, the business of many of the Company's customers may be negatively
affected by the Year 2000 issue, and any financial difficulties incurred by the
Company's customers in solving Year 2000 issues could negatively affect these
customers' ability to repay any loans which the Company may have extended.
Therefore, even if the Company does not incur significant direct costs in
connection with responding to the Year 2000 issue, there is a risk that the
failure or delay of the Company's customers or other third parties in addressing
the Year 2000 issue or the costs involved in such process could have a material
adverse effect on the Company's business, financial condition, or results of
operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Year 2000."
14
<PAGE>
Liquidity and Capital Resources
A state-chartered commercial bank is required under Florida law and FDIC
regulations to maintain a liquidity reserve of at least 15% of its total
transaction accounts and 8% of its total non-transaction accounts subject to
certain restrictions. The reserve may consist of cash-on-hand, demand deposits
due from correspondent banks, and other investments and short-term marketable
securities. At June 30, 1998 and December 31, 1997, TCB-Volusia exceeded its
regulatory liquidity requirements.
The Company's primary source of cash and cash equivalents during the six
months ended June 30, 1998 was net deposit inflows of $10.9 million. During this
same period, cash and cash equivalents were used to originate loans of $5.0
million and purchase securities available for sale of $5.2 million resulting in
a net increase in cash and cash equivalents of approximately $316,000. The
Company's primary source of cash during the year ended December 31, 1997 was the
proceeds from the sale of common stock of $4.6 million and net deposit inflows
of $2.7 million. Cash was used primarily to originate loans and to purchase
premises and equipment.
Credit Risk
The Company's primary business is making commercial, business, consumer,
and real estate loans. That activity entails potential loan losses, the
magnitude of which depend on a variety of economic factors affecting borrowers
which are beyond the control of the Company. While the Company has instituted
underwriting guidelines and credit review procedures to protect the Company from
avoidable credit losses, some losses will inevitably occur. The Company had no
nonperforming assets at June 30, 1998 or at December 31, 1997, and has no
charge-off experience.
The following table presents information regarding the Company's total
allowance for loan losses as well as the allocation of such amounts to the
various categories of loans (dollars in thousands):
<TABLE>
<CAPTION>
At June 30, 1998 At December 31, 1997
---------------- --------------------
Loans Loans
to to
Total Total
Amount Loans Amount Loans
------ ----- ------ -----
<S> <C> <C> <C> <C>
Commercial. . . . . . . . . . . . . $ 48 54.1% $ 27 75.1%
Commercial real estate. . . . . . . 24 26.3 2 6.4
Residential real estate . . . . . . 12 13.5 4 11.4
Consumer. . . . . . . . . . . . . . 6 6.1 2 7.1
---- ----- ---- -----
Total allowance for loan losses . . . . . $ 90 100.0% $ 35 100.0%
---- ----- ---- -----
</TABLE>
The allowance for loan losses represented 1.03% and 0.93% of the total loans
outstanding at June 30, 1998 and December 31, 1997, respectively.
Loan Portfolio Composition
Commercial and commercial real estate loans comprise the largest groups of
loans in the Company's portfolio. As of June 30, 1998 and December 31, 1997,
commercial loans amounted to $4.8 million, or 54.1%, and $2.8 million, or 75.1%,
of the total loan portfolio, respectively. Commercial real estate loans amounted
to $2.3 million, or 26.3%, and $241,000, or 6.4% as of June 30, 1998 and
December 31, 1997, respectively.
Residential real estate loans comprise the next largest group of loans in
the Company's loan portfolio, amounting to $1.2 million, or 13.5%, and $429,000,
or 11.4%, of the total loan portfolio as of June 30, 1998 and December 31, 1997,
respectively of which approximately 95.4% and 86.9% are first mortgage loans. As
of June 30, 1998 and December 31, 1997, consumer loans amounted to $539,000, or
6.1%, and $268,000, or 7.1%, respectively, of the total loan portfolio.
15
<PAGE>
The following table sets forth the composition of the Company's loan
portfolio (dollars in thousands):
<TABLE>
<CAPTION>
At June 30, 1998 At December 31,
---------------- ---------------
% of % of
Amount Total Amount Total
------ ----- ------ -----
<S> <C> <C> <C> <C>
Commercial. . . . . . . . . . . . . $ 4,771 54.1% $ 2,832 75.1%
Commercial real estate. . . . . . . 2,323 26.3 241 6.4
Residential real estate . . . . . . 1,195 13.5 429 11.4
Consumer. . . . . . . . . . . . . . 539 6.1 268 7.1
----- ----- ----- -----
Total Loans . . . . . . 8,828 100.0% 3,770 100.0%
----- -----
(Subtract) add:
Allowance for loan losses . . . . (90) (35)
Net loan deferred costs . . . . . 1 11
======= =======
Loans, net. . . . . . . . . . . . . $ 8,739 $ 3,746
======= =======
</TABLE>
Securities
The securities portfolio is comprised of mortgage-backed securities.
According to Financial Accounting Standards No. 115, the securities portfolio
must be categorized as either "held to maturity", "available for sale" or
"trading". Securities held to maturity represent those securities which the
Company has the positive intent and ability to hold to maturity. Securities
available for sale represent those investments which may be sold for various
reasons, including changes in interest rates and liquidity considerations. These
securities are reported at fair market value with unrealized gains and losses
being reported as a separate component of stockholders equity, net of income
taxes. Trading securities are held primarily for resale and are recorded at
their fair values. Unrealized gains or losses on trading securities are included
immediately in earnings. At June 30, 1998, the Company had no securities
categorized as held to maturity or trading. At December 31, 1997, the Company
did not have any securities.
The following table sets forth the carrying value of the Company's
securities portfolio, maturities of which all exceed ten years (dollars in
thousands):
At June 30, Average
1998 Yield
---- -----
Securities available for sale:
Mortgage-backed securities .............. $ 4,957 6.4%
------- ---
Regulatory Capital Requirements
TCB and TCB-Volusia are subject to various regulatory capital requirements
administered by various regulatory 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,
TCB-Volusia must meet specific capital guidelines that involve quantitative
measures of the TCB-Volusia's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. TCB-Volusia's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
16
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require TCB-Volusia to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of June 30, 1998 and December 31,
1997, that TCB-Volusia meets all capital adequacy requirements to which it is
subject.
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions
------ ------------------ -----------------
Amount % Amount % Amount %
------ - ------ - ------ -
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total capital (to Risk
Weighted Assets) . . . . . . . $ 3,387 35.5% $ 764 8.0% $ 955 10.0%
Tier 1 Capital (to Risk
Weighted Assets) . . . . . . . 3,530 37.0 382 4.0 573 6.0
Tier 1 Capital
(to Average Assets). . . . . . 3,530 21.9 645 4.0 806 5.0
As of December 31, 1997:
Total capital (to Risk
Weighted Assets) . . . . . . . 3,950 92.7% 341 8.0% 426 10.0%
Tier 1 Capital (to Risk
Weighted Assets) . . . . . . . 3,767 88.4 171 4.0 256 6.0
Tier 1 Capital
(to Average Assets). . . . . . 3,767 69.2 218 4.0 272 5.0
</TABLE>
Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest-rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its interest-rate risk exposure. The measurement
of market risk associated with financial instruments is meaningful only when all
related and offsetting on- and off-balance-sheet transactions are aggregated,
and the resulting net positions are identified. Disclosures about the fair value
of financial instruments, which reflect changes in market prices and rates, can
be found in Note 6 of Notes to Consolidated Financial Statements.
The Company's primary objective in managing interest-rate risk is to
minimize the adverse impact of changes in interest rates on the Bank's net
interest income and capital, while adjusting the Company's asset-liability
structure to obtain the maximum yield-cost spread on that structure. The Company
relies primarily on its asset-liability structure to control interest-rate risk.
However, a sudden and substantial increase in interest rates may adversely
impact the Company's earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.
Asset - Liability Structure
As part of its asset and liability management, the Company has emphasized
establishing and implementing internal asset-liability decision processes, as
well as communications and control procedures to aid in managing the Company's
earnings. Management believes that these processes and procedures provide the
Company with better capital planning, asset mix and volume controls,
loan-pricing guidelines, and deposit interest-rate guidelines which should
result in tighter controls and less exposure to interest-rate risk.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest-rate sensitivity
gap is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period.
The gap ratio is computed as rate sensitive assets/rate sensitive liabilities. A
gap ratio of 1.0% represents perfect matching. A gap is considered positive when
the amount of interest-rate sensitive assets exceeds interest-rate sensitive
liabilities. A gap is considered negative when the amount of interest-rate
sensitive liabilities exceeds interest-rate sensitive assets. During a period of
rising interest rates, a negative gap would adversely affect net interest
income, while a positive gap would result in an increase in net interest income.
During a period of falling interest rates, a negative gap would result in an
increase in net interest income, while a positive gap would adversely affect net
interest income.
17
<PAGE>
In order to minimize the potential for adverse effects of material and
prolonged increases in interest rates on the results of operations, the
Company's management continues to monitor asset and liability management
policies to better match the maturities and repricing terms of its
interest-earning assets and interest-bearing liabilities. Such policies have
consisted primarily of: (i) emphasizing the origination of adjustable-rate
loans; (ii) maintaining a stable core deposit base; and (iii) maintaining a
significant portion of liquid assets (cash and short-term securities).
The following table sets forth certain information relating to the Company's
interest-earning assets and interest-bearing liabilities at December 31, 1997
that are estimated to mature or are scheduled to reprice within the period shown
(dollars in thousands):
<TABLE>
<CAPTION>
More More
Three Three Six than One than Five
Months Months Months Year and Years and Over
or to Six to One Less than Less than Ten
Less Months Year Five Years Ten Years Years Total
---- ------ ---- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Loans(1):
Commercial ................................... $ 2,793 -- $ 19 $ 20 -- -- $ 2,832
Commercial real estate ....................... 241 -- -- -- -- -- 241
Residential real estate ...................... 25 2 318 24 19 41 429
Consumer ..................................... 36 2 5 225 -- -- 268
------- ------- ------- ------- ------- ------- -------
Total loans ................................ 3,095 4 342 269 19 41 3,770
Federal funds sold ............................. 1,400 -- -- -- -- -- 1,400
------- ------- ------- ------- ------- ------- -------
Total rate-sensitive assets ................ 4,495 4 342 269 19 41 5,170
------- ------- ------- ------- ------- ------- -------
Deposit accounts(2):
Money-market deposits ........................ 66 -- -- -- -- -- 66
NOW deposits ................................. 948 -- -- -- -- -- 948
Savings deposits ............................. 93 -- -- -- -- -- 93
Certificates of deposit ...................... -- 252 262 225 -- -- 739
------- ------- ------- ------- ------- ------- -------
Total rate-sensitive
liabilities ........................... 1,107 252 262 225 -- -- 1,846
------- ------- ------- ------- ------- ------- -------
GAP (repricing differences) ................... $ 3,388 $ (248) $ 80 $ 44 $ 19 $ 41 $ 3,324
======= ======= ======= ======= ======= ======= =======
Cumulative GAP ................................. $ 3,388 $ 3,140 $ 3,220 $ 3,264 $ 3,283 $ 3,324
======= ======= ======= ======= ======= =======
Cumulative GAP/total assets .................... 47.9% 44.4% 45.5% 46.1% 46.4% 47.0%
======= ======= ======= ======= ======= =======
</TABLE>
- ----------------------
(1) In preparing the table above, adjustable-rate loans are included in the
period in which the interest rates are next scheduled to adjust rather than
in the period in which the loans mature. Fixed-rate loans are scheduled,
including repayment, according to their maturities.
(2) Money-market, NOW, and savings deposits are regarded as readily accessible
withdrawable accounts. All other time deposits are scheduled through the
maturity dates.
18
<PAGE>
The following table reflects the contractual principal repayments by period
of the Company's loan portfolio at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Commercial Residential
Real Real
Years Ending Commercial Estate Estate Consumer
December 31, Loans Loans Loans Loans Total
------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
1998 . . . . . . . . . . . . . $2,095 $241 $ 29 $ 36 $2,401
1999 . . . . . . . . . . . . . 43 -- 5 34 82
2000-2001. . . . . . . . . . . 288 -- 11 54 353
2002-2003. . . . . . . . . . . 406 -- 12 39 457
2004 and beyond. . . . . . . . -- -- 372 105 477
------ ---- ---- ---- ------
Total. . . . . . . . . . . . . $2,832 $241 $429 $268 $3,770
====== ==== ==== ==== ======
</TABLE>
Of the $1.4 million of loans at December 31, 1997 due after one year, 20.1% of
such loans have fixed interest rates and 79.9% have adjustable interest rates.
Scheduled contractual principal repayments of loans do not reflect the actual
life of such assets. The average life of loans is substantially less than their
average contractual terms due to prepayments. In addition, due-on-sale clauses
on loans generally give the Company the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan rates are substantially higher than rates on existing mortgage loans and,
conversely, decrease when rates on existing mortgages are substantially higher
than current mortgage loan rates.
Origination and Repayment of Loans. The primary focus of the Company's new
loan originations are to commercial borrowers. These loans are attributable to
the Company's relationship with their depositors and other existing customers as
well as its local advertising. The Company generally originates loans on real
estate located in its primary geographical lending area in Volusia County,
Florida.
The following table sets forth total loans originated and repaid (in
thousands):
Six Months Year Ended
Ended June 30, December 31,
-------------- ------------
1998 1997
---- ----
Originations:
Commercial ......................................... $ 1,949 $ 3,049
Commercial real estate ............................. 2,464 241
Residential real estate ............................ 743 430
Consumer ........................................... 295 271
Total loans originated ........................ 5,451 3,991
Principal reductions ............................... (393) (221)
------- -------
Increase in total loans ............................ $ 5,058 $ 3,770
======= =======
19
<PAGE>
Deposits and Other Sources of Funds
General. In addition to deposits, the sources of funds available for lending
and other business purposes include loan repayments and principal repayments on
securities. Loan repayments are a relatively stable source of funds, while
deposit inflows and outflows are influenced significantly by general interest
rates and money-market conditions. Borrowings may be used on a short-term basis
to compensate for reductions in other sources, such as deposits at less than
projected levels.
Deposits. Deposits are attracted principally from the Company's primary
geographic market areas in Volusia County, Florida. The Company offers a broad
selection of deposit instruments including demand deposit accounts, NOW
accounts, money- market accounts, regular savings accounts, term certificate
accounts, and retirement savings plans (such as IRA accounts). Certificate of
deposit rates are set to encourage longer maturities as cost and market
conditions will allow. Deposit account terms vary, with the primary differences
being the minimum balance required, the time period the funds must remain on
deposit, and the interest rate. The Company has emphasized commercial banking
relationships in an effort to increase demand deposits as a percentage of total
deposits.
Management sets the deposit interest rates weekly based on a review of
deposit flows for the previous week and a survey of rates among competitors and
other financial institutions in Florida.
The following table shows the distribution of, and certain other information
relating to, the Company's deposit accounts by type (dollars in thousands):
<TABLE>
<CAPTION>
At
-------------------------------------------------------------
June 30, 1998 December 31, 1997
------------- -----------------
% of % of
Amount Deposits Amount Deposits
------ -------- ------ --------
<S> <C> <C> <C> <C>
Demand deposits. . . . . . . . . . . . . . $ 416 3.1% $ 832 31.0%
NOW deposits . . . . . . . . . . . . . . . 3,267 24.1 948 35.4
Money-market deposits. . . . . . . . . . . 137 1.0 66 2.5
Savings deposits . . . . . . . . . . . . . 89 0.7 93 3.5
----- ---- ----- ----
Subtotal . . . . . . . . . . . . . . . . 3,909 28.9 1,939 72.4
Certificate of deposits:
3.00% - 3.99%. . . . . . . . . . . . . . $ 4 0.1% $ -- --
4.00% - 4.99%. . . . . . . . . . . . . . 74 0.5 -- --
5.00% - 5.99%. . . . . . . . . . . . . . 5,893 43.5 $ 514 19.2%
6.00% - 6.99%. . . . . . . . . . . . . . 3,653 27.0 225 8.4
----- ---- --- ---
Total certificates of deposit. . . . . . . 9,624 71.1 739 27.6
----- ---- --- ----
Total deposits . . . . . . . . . . . . . . $ 13,533 100.0% $2,678 100.0%
======== ===== ====== =====
</TABLE>
20
<PAGE>
The following table presents by various interest rate categories the amounts
of certificates of deposit at June 30, 1998 and December 31, 1997 which mature
during the periods indicated (in thousands):
<TABLE>
<CAPTION>
Twelve Months Ending June 30, Year Ending December 31,
------ ---------------------- ------------------------
1999 2000 2001 Total 1998 1999 2000 Total
---- ---- ---- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3.00% - 3.99% ............................. $ 4 -- -- 4 -- -- -- --
4.00% - 4.99% ............................. 74 -- -- 74 -- -- -- --
5.00% - 5.99% ............................. 4,788 1,070 35 5,893 514 -- -- 514
6.00% - 6.99% ............................. 282 1,771 1,600 3,653 -- -- 225 225
Total certificates of deposit .............. $5,148 2,841 1,635 9,624 514 -- 225 739
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows (in thousands):
At
----------------------
June 30, December 31,
-------- ------------
1998 1997
Due over three months to six months .............. $ 200 100
Due over six months to one year .................. 400 --
Due over one year ................................ 814 200
------ ---
$1,414 300
====== ===
Results of Operations
The operating results of the Company depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities,
consisting primarily of deposits. Net interest income is determined by the
difference between yields earned on interest-earning assets and rates paid on
interest-bearing liabilities ("interest-rate spread") and the relative amounts
of interest-earning assets and interest-bearing liabilities. The Company's
interest-rate spread is affected by regulatory, economic, and competitive
factors that influence interest rates, loan demand, and deposit flows. In
addition, the Company's net earnings are also affected by the level of
nonperforming loans and foreclosed real estate, as well as the level of its
noninterest income, and its noninterest expenses, such as salaries and employee
benefits, occupancy and equipment costs and income taxes.
21
<PAGE>
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest and dividend income of the
Company from interest-earning assets and the resultant average yield; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average costs; (iii) net interest/dividend income; (iv) interest rate
spread; (v) net interest margin. Average balances are based on average daily
balances.
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 Year Ended December 31, 1997
------------------------------ ----------------------------
Average Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(dollars in thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans ............................................ $ 6,676 $ 287 8.60% $ 259 $ 23 8.88%
Securities ....................................... 1,352 32 4.73 -- -- --
Other interest-earning assets (1) ............... 3,887 107 5.51 1,842 90 4.88
------- ------- ------- ------
Total interest-earning assets .................. 11,915 426 7.15 2,101 113 5.38
Noninterest-earning assets ......................... 2,100 754
----- ---
Total assets ................................... $14,015 $ 2,855
======= =======
Interest-bearing liabilities:
Demand, money-market, savings
and NOW deposits ............................... $ 2,815 $ 50 3.55% $ 179 $ 6 3.35%
Certificates of deposit .......................... 6,432 185 5.75 74 4 5.41
Other ............................................ 43 2 9.30 359 34 9.47
------- ------- ------- ------
Total interest-bearing liabilities ............ 9,290 237 5.10 612 44 7.19
Noninterest-bearing liabilities .................... 513 44
Stockholders' equity ............................... 4,212 2,199
----- -----
Total liabilities and
stockholders' equity ...................... $14,015 $ 2,855
======= =======
Net interest/dividend income ....................... $ 189 $ 69
======= ======
Interest-rate spread ............................... 2.05% (1.81%)
==== =====
Net interest margin ................................ 3.17% 3.28%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities .............................. 1.28 3.43
==== ====
</TABLE>
- ---------------------------
(1) Other interest-earning assets include federal funds sold.
(2) Annualized for the six months ended June 30, 1998.
Comparison of the Six-Month Periods Ended June 30, 1998 and 1997
General. Net loss for the six months ended June 30, 1998 was $220,932, or $.48
per basic share, compared to a net loss for the six months ended June 30,
1997 of $97,608. At June 30, 1997, the Bank had not commenced operations and
at June 30, 1998, the Bank had not achieved the asset size to operate
profitably.
22
<PAGE>
Interest Income and Expense. Interest income totaled $425,918 for the six
months ended June 30, 1998. Interest income earned on loans was $287,439.
The average loan portfolio balance for the six months ended June 30, 1998
was $6.7 million, with a weighted-average yield of 8.60%. Interest on
securities was $31,480 for the six months ended June 30, 1998. The average
balance of securities was $1.4 million and the yield was 4.73% for the six
months ended June 30, 1998. Interest on other interest-earning assets
totaled $106,999. The average balance of these assets for the six months
ended June 30, 1998 was $3.9 million, with a weighted-average yield of
5.51%.
Interest expense on deposits amounted to $235,130 for the six months ended
June 30, 1998. The average balance for interest-bearing deposits for the six
months ended June 30, 1998 was $9.2 million and the weighted-average rate
was 5.08%.
Provision for Loan Losses. The provision for loan losses is charged to
earnings to increase the total allowance to a level deemed appropriate by
management and is based upon the volume and type of lending conducted by the
Company, industry standards, the amount of nonperforming loans, and general
economic conditions, particularly as they relate to the Company's market
areas, and other factors related to the collectibility of the Company's loan
portfolio. The provision for loan losses for the six months ended June 30,
1998 was $55,000 and the allowance for loan losses was $90,000 at June 30,
1998. Management believes the allowance is adequate at June 30, 1998.
Noninterest Expense. Noninterest expense totaled $476,899 for the six months
ended June 30, 1998 compared to $142,894 for the six months ended June 30,
1997. Salaries and employee and benefits was the largest noninterest expense
during 1998, amounting to $213,046. The Bank had not commenced operations
during the six months ended June 30, 1997.
Income Tax Benefit. The income tax benefit for the six months ended June 30,
1998 was $103,200 (an effective rate of 31.8%) compared to $59,900 (an
effective rate of 38.0%) for the six months ended June 30, 1997.
Year Ended December 31, 1997
General. Net loss for the year ended December 31, 1997 was $261,698, or $2.00
per basic share. During the year ended December 31, 1997 the Bank had not
achieved the asset size necessary to operate profitably.
Interest Income and Expense. Interest income totaled $112,458 for the year
ended December 31, 1997. Interest income earned on loans was $22,789. The
average loan portfolio balance for the year ended December 31, 1997 was
$259,000 and the weighted average yield was 8.88%.
Interest on federal funds sold and deposits in banks totaled $89,669. The
average balance of these assets was $1.8 million with a weighted average
yield of 4.88%.
Interest expense on deposit accounts amounted to $10,007 for the year ended
December 31, 1997. The weighted-average cost of deposits was 3.95%. Interest
expense on other borrowed funds used primarily during the organization phase
of TCB-Volusia amounted to $33,515 for the year ended December 31, 1997. The
weighted-average balance outstanding and cost of other borrowed funds was
$359,000 and 9.47%, respectively.
Noninterest Expense. Other expense totaled $480,681 for the year ended
December 31, 1997. Salaries and employee benefits was the largest, amounting
to $245,302.
Income Taxes. The Company recognized a credit for income taxes as well as a
deferred tax asset because management believes it is likely the Company will
be able to generate taxable income in the future to offset these amounts.
23
<PAGE>
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with GAAP, which requires the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, substantially all of the assets and
liabilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Bank's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services, since
such prices are affected by inflation to a larger extent than interest rates.
Impact of New Accounting Issues
Financial Accounting Standards 130 - Reporting Comprehensive Income
establishes standards for reporting comprehensive income. The standard defines
comprehensive income as the change in equity of an enterprise except those
resulting from shareholder transactions. All components of comprehensive income
are required to be reported in a new financial statement that is displayed with
equal prominence as existing financial statements. The Company adopted this
standard effective January 1, 1998. As the statement addresses reporting and
presentation issues only, there was no impact on operating results from the
adoption of this Standard.
Statement of Financial Accounting Standards No. 133 - Accounting for
Derivative Investments and Hedging Activities requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivatives and whether they
qualify for hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting changes in
fair value or cash flows. The Company will be required to adopt this statement
by July 1, 2000. Management does not anticipate that this statement will have a
material impact on the Company.
BUSINESS
The Company
TCB, which commenced banking operations on October 14, 1997, is a one-bank
holding company organized under the laws of the State of Florida and is
headquartered in Ormond Beach, Florida. We operate primarily through our
wholly-owned banking subsidiary, TCB-Volusia. We have filed with the Department
an application to organize and operate TCB - Highlands, which will be a
commercial bank in Sebring, Highlands County, Florida
The Company currently operates from
one full-service banking office, in Ormond Beach, Florida. The Company's primary
business is attracting deposits from the general public and using those
deposits, together with borrowings and other funds, to originate loans and
purchase investments.
As of June 30, 1998, the end of 8 months of operation, we had total assets
of $17.9 million, total deposits of $13.5 million and total stockholders' equity
of $4.1 million. We reported a consolidated net loss of ($220,932) or ($0.48)
per basic share for the six-month period ended June 30, 1998. As of June 30,
1998, our loan portfolio totaled $8.8 million, of which 13.5% consisted of
residential mortgage loans, 26.3% consisted of commercial real estate loans,
54.1% consisted of commercial loans, and 6.1% consisted of consumer loans.
TCB-Volusia
TCB-Volusia, a Florida-chartered commercial bank, commenced operations on
October 14, 1997. TCB-Volusia has its main office in Ormond Beach, Florida.
TCB-Volusia's deposits are federally insured up to applicable limits by the FDIC
under the Bank Insurance Fund.
24
<PAGE>
The principal sources of funds for TCB-Volusia's loan and investment
activities have been deposits and repayment of loans. TCB-Volusia's primary
sources of income are interest and fees on loans, fees on transaction accounts
and other activities, and interest and dividends on mortgage-backed securities
and investments. TCB-Volusia's principal costs are interest paid on deposit
accounts and operating expenses.
TCB-Volusia operates a traditional community banking business through its
retail banking facilities with a friendly and professional staff that is
committed to developing long-term relationships with customers by offering
personalized, quality service. TCB-Volusia offers a broad range of retail and
commercial banking services, including various types of deposit accounts and
loan products for small businesses and consumers. As part of its "community
banking" approach, TCB-Volusia encourages its officers to actively participate
in community organizations. TCB-Volusia is considered a "well-capitalized"
financial institution under regulations adopted by the FDIC. See "REGULATION AND
SUPERVISION - Prompt and Corrective Action."
TCB-Highlands
On June 10, 1998, the Company filed an application with the Florida
Department of Banking and Finance for permission to organize a bank in Sebring,
Florida. On June 27, 1998, the Company filed its application for Deposit
Insurance for TCB-Highlands with the Federal Deposit Insurance Corporation. The
Company anticipates that these applications will be approved by October 31,
1998, and that TCB-Highlands will open during the first quarter of 1999.
Business Strategy
We intend to operate a traditional community banking business through
strategically located, decentralized banking facilities run by local boards of
directors. Our goal is to maintain a friendly, professional staff that is
committed to developing long-term relationships with customers by offering
personalized, quality service. We currently offer a broad range of retail and
commercial banking services through our Ormond Beach office, including various
types of deposit accounts and loans for consumers and businesses and intend to
do so in each of our market areas. As part of our community banking approach, we
encourage our officers and directors to actively participate in community
organizations. Our goal is to establish ourselves as the leading community bank
in each of our primary service areas and to expand our presence in Florida
through consistent growth with a prudent operating strategy. As part of these
strategies, we will focus on:
Growing by establishing new commercial banks or acquiring existing
commercial banks in targeted Florida communities with populations of less
than 300,000 people.
Growing by expansion of our existing banks.
Developing commercial lending relationships in each of our market areas.
Maintaining high credit quality.
We believe that there is a demand for strong community banks in Florida
primarily because of the recent number of takeovers of several Florida banks by
large regional bank holding companies. In many cases when these consolidations
occur, local boards of directors are dissolved and local management relocated or
terminated. In our view, this situation creates favorable opportunities for new
community banks with local boards of directors and local
management. We also believe that our subsidiary banks can be successful in
attracting individuals and small- to medium-sized businesses as customers who
wish to conduct business with a locally owned and managed institution; one that
takes an active interest in their banking needs and financial affairs.
Primary Service Area
The Company is headquartered in Ormond Beach, Florida, which has a
population of approximately 31,000 residents. The Greater Ormond Beach area is
approximately 28 square miles and is located in Volusia County, Florida. Ormond
Beach was originally developed as a retirement community, but the demographics
are changing as younger families move into the area. Volusia County supports a
steady tourist, agriculture, and industrial lease with several manufacturing
firms located there. Ormond Beach is approximately nine miles north of Daytona
Beach, Florida.
TCB-Highlands will be located in Sebring, Florida. Sebring has a population
of approximately 8,000 residents and is the county seat for Highlands County.
The seasonal population of Highlands County, based upon statistical information
provided by the Highlands County Chamber of Commerce, is approximately 80,000
residents. Highlands County is one of the fastest growing areas in the State of
Florida. The primary business sectors in greater Highlands County include the
service industry, retail trade industry, finance industry, insurance industry,
real estate development and sales, and the agriculture industry. Based upon the
latest statistical data, the median family income for Highlands County is
approximately $24,600.
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The Company views its primary service area and primary geographic market to
be dynamic growing markets.
Market Expansion
TCB intends to expand its operations by establishing new commercial banks or
by acquiring banks in targeted Florida communities with populations of less than
300,000 people. In addition to Volusia County, TCB intends to expand in Flagler
and Brevard counties as soon as practicable. Certain demographic information
with respect to these counties is discussed below. This information has been
obtained from the University of Florida, Bureau of Economics and Business
Research, and from the FDIC.
Flagler County. This market includes the cities of Palm Coast, Bunnell and
Flagler Beach. The population of Flagler County increased from 28,700 in 1990 to
an estimated 41,190 in 1997 representing a 43.5% increase over this period.
Flagler County is the fastest growing county in Florida based upon the rate of
population change from 1990 to 1997. The population is expected to increase to
approximately 54,300 by the year 2005. In 1997, the estimated median age in
Flagler County was 46.5 years and in 1994 the per capita income was
approximately $16,800. As of June 30, 1997, there were 11 depository
institutions located in Flagler County with aggregate deposits of approximately
$462,000. This represents an increase of approximately $46 million from June 30,
1994, or a 3.7% average annual increase for the three year period.
Brevard County. Brevard County includes among others, the cities of Melbourne,
Palm Bay, Cocoa, Cocoa Beach, Rockledge, Merritt Island, and Titusville as well
as Patrick Air Force Base and the Kennedy Space Center. The population of
Brevard County increased from 398,978 in 1990 to an estimated 458,035 in 1997
representing a 14.8% increase over this period. The population is expected to
increase to approximately 539,500 by the year 2005. In 1997, the estimated
median age in Brevard County was 39.6 years and in 1994 the per capita income
was approximately $19,900. As of June 30, 1997, there were 116 depository
institutions located in Brevard County with aggregate deposits of approximately
$3,818 million. This represents an increase of $470 million from June 30, 1994,
or a 4.7% average annual increase for the five year period.
TCB's ability to expand into these markets will be dependent upon, among
other things, its success in assembling a local management team and local board
of directors for each proposed market. The number of additional markets TCB will
be able to expand into will depend upon the number of shares it sells in the
offering.
Competition
The Company experiences competition for attracting deposits and making loans
from other financial institutions, including larger regional bank holding
companies, commercial banks, savings banks, and credit unions. Additional
competition for deposits comes from government securities, money market funds,
mutual fund, and securities brokerage firms. The primary factors in competing
for deposits are interest rates, the range of financial services offered,
convenience of office locations, and the flexibility of office hours. The
primary factors in competing for loans include interest rates, loan fees,
flexible terms, and timely loan decisions.
The Company competes for deposits by offering a variety of deposit programs
geared to its potential customers. The Company responds to its competition by
developing strong ties in the local community and providing a high quality of
personal banking services to families, professionals, retirees, and
owner-operated businesses with an emphasis on flexibility and timely responses
to customer demands.
With respect to loans, since opening for business in October 1997, the
Company has placed an emphasis on originating commercial and consumer loans. The
Company has targeted small-to medium-sized businesses as its potential customer
base, as management believes that large out-of-state financial institutions
which have acquired several local banks have shifted the focus of the acquired
banks away from these business opportunities. The Company also originates
residential loans by offering various adjustable-rate and fixed-rate mortgage
loan products.
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Geographic deregulation has also had a material impact on the financial
industry. Federally-chartered savings institutions have interstate banking
authority. As for commercial banks, to date, all but three states have enacted
some form of interstate banking legislation. The most common form of interstate
banking statutes have either regional limitations or reciprocity requirements. A
growing number of states, however, now provide for unrestricted entry. A bank
holding company is now permitted to acquire existing banks across state lines
and may consolidate its interstate subsidiary banks into branches and merge with
a bank in another state, depending upon state laws. Recent legislation in
Florida has removed most of the final barriers to interstate banking in Florida.
Loan Activities
General. The Company's primary business is making commercial business, real
estate, and consumer loans. As of June 30, 1998, the loan portfolio totaled $8.7
million, or 49.4% of total assets. See "MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Loan Portfolio Composition."
Loan Production Office. On August 1, 1998, TCB-Volusia approved the opening
of a loan production office in Sebring, with the intent to provide loan
opportunities to Highlands County businesses and residents. The loan production
office operates from TCB-Highlands temporary office at 1241 US 27 South,
Sebring, Florida. Once TCB-Highlands commences operations, this loan production
office will be closed and any loans made through the office will be sold by
TCB-Volusia to TCB-Highlands.
Loan Underwriting. Loan activities are subject to underwriting standards and
loan origination procedures prescribed by the board of directors and management.
Loan applications are obtained to determine the borrower's ability to repay, and
the more significant items on these applications are verified through the use of
credit reports, financial statements, and confirmations. The Company's loan
policy for real estate loans generally requires that collateral be appraised by
an independent, outside appraiser approved by the board of directors.
Loans are approved at various management levels up to and including the
board of directors, depending on the amount of the loan. Generally, loans less
than $150,000 are approve by authorized officers or loan underwriters. Loans
over $150,000 usually require approval by the loan committee or board of
directors.
General Loan Policies. For real estate loans the Company requires a valid
mortgage lien on real estate securing a loan and a title insurance policy which
insures the validity and priority of the lien. Borrowers must also obtain hazard
insurance policies prior to closing, and when the property is in a flood-prone
area, flood insurance is required.
The Company is permitted to lend up to 100% of the appraised value of the
real property securing a mortgage loan. However, if the amount of a
conventional, residential loan (including a construction loan or a combination
construction and permanent loan) originated or refinanced exceeds 80% of the
appraised value or of the purchase price, whichever is less, the Company is
required by federal regulations to obtain private mortgage insurance on that
portion of the principal amount of the loan that exceeds 80% of the value of the
property. The Company will originate single-family residential mortgage loans
with up to a 90% loan-to-value ratio if the required private mortgage insurance
is obtained. The loan-to-value ratio on a home secured by a junior lien
generally does not exceed 80%, including the amount of the first mortgage on the
collateral. With respect to home loans granted for construction or combination
construction/permanent financing, the bank will lend up to 80% of the appraised
value of the property on an "as completed" basis. The Company generally limits
the loan-to-value ratio on multi-family residential and commercial real estate
loans to 75% of value. Consumer loans are considered to be loans to natural
persons for personal, family or household purposes, and these loans may be
unsecured, secured by personal property or secured by liens on real estate
which, when aggregated with prior liens, equals or exceeds the appraised value
of the collateral property.
The maximum amount which the Company could have loaned to one borrower and
the borrower's related entities as of June 30, 1998, was approximately $1.0
million. See "REGULATION AND SUPERVISION - Regulation of the Bank."
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Interest rates charged on loans are affected principally by competitive
factors, the demand for such loans and the supply of funds available for lending
purposes. These factors are, in turn, affected by general economic conditions,
monetary policies of the federal government, including the Federal Reserve
Board, legislative tax policies and government budgetary matters.
Residential Loans. The Company currently originates ARM loans for terms of
up to 30 years. As of June 30, 1998, $1.2 million or 13.5% of the Company's
total loan portfolio consisted of one-to-four family residential real estate
loans.
The residential ARM loans currently being offered have interest rates that
are fixed for a period of one year and then after the initial period the
interest rate is adjusted annually based upon an index such as the yield on
treasury securities adjusted to a one-year maturity, plus a margin. Most of the
Company's ARM programs limit the amount of any increase or decrease in the
interest rate at each adjustment and over the life of the loan. Typical
limitations are 2% for each adjustment with a limit of 6% over the life of the
loan. While the Company usually offers an initial rate on ARM loans below a
fully indexed rate, the loan is typically underwritten based on the borrower's
ability to pay at the interest rate which would be in effect after adjustment of
the loan. ARM loans reduce the risks to the Company concerning changes in
interest rates, but involve other risk because as interest rates increase, the
borrower's required payments increase, thus increasing the potential for
default. Marketability of real estate loans is also affected by the level of
interest rates.
Construction Loans. The Company offers adjustable residential construction
loans to owners wishing to construct their primary residence and to selected
builders/developers to build one- to four-family dwellings in the Company's
primary geographic market. As of June 30, 1998, construction loans amounted to
$230,000, or 2.6% of the total loan portfolio. Construction loans to individuals
usually are originated in connection with the permanent loan on the property.
Construction-permanent loans typically provide for a construction term of six
months to one year followed by the permanent loan term of up to 30 years. Loans
to builders/developers are restricted to homes that are pre-sold or are
constructed on a speculative basis. Loans to builders for the construction of a
home for which there is no immediate buyer at the time of construction are
considered Spec Loans. Spec Loans are typically for one year and provide for
interest only payments during the loan term. The financial capacity of the
builder, the builder's experience, and the credit history of the builder, as
well as present market conditions, are reviewed when considering Spec Loans. As
of June 30, 1998, the Company had no Spec Loans outstanding.
Loan advances during construction are made on a percentage of completion
basis, and funds are typically disbursed in four to six draws, each after an
inspection is made by Company personnel and/or authorized independent
inspectors. Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, owner-occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of construction cost and of the initial
estimate of the property's value upon completion. During construction, a number
of factors could result in delays and cost overruns. If the estimate of
construction costs proves to be inaccurate, funds may be required to be advanced
beyond the amount originally committed to complete construction. If the estimate
of value proves to be high, the Company may be confronted with collateral having
a value which is insufficient to assure full payment. Repayment of Spec Loans
usually depends upon the builder successfully negotiating a sale for the
property. Sales of homes are affected by market conditions, interest rates, and
the supply and demand for such products.
Consumer Loans. The Company makes various types of consumer loans, including
automobile, boat loans, and home equity loans. Consumer loans are originated in
order to provide a range of financial services to customers and to create
stronger ties to its customers and because the shorter term and normally higher
interest rates on such loans help maintain a profitable spread between the
Company's average loan yield and its cost of funds. The terms of consumer loans
generally range from one to five years. Underwriting standards for consumer
loans include an assessment of the applicant's repayment history on other debts
and ability to meet existing obligations and payments on the proposed loans.
Although the applicant's creditworthiness is a primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, to the proposed loan amount. Consumer loans generally involve more credit
risks than mortgage loans because of the type and nature of the collateral or
absence of collateral. Consumer loan repayments are dependent on the borrower's
continuing financial stability and are likely to be adversely affected by job
loss, divorce and illness. Furthermore, the application of various federal and
state laws, including federal and state bankruptcy and insolvency laws, may
limit the amount which can be recovered on such loans. In most cases, any
repossessed collateral will not provide an adequate source of repayment of the
outstanding loan balance. Management believes that the yields earned on consumer
loans are commensurate with the credit risk associated with such loans. The
Company intends to continue to increase its investment in these types of loans.
As of June 30, 1998, consumer loans amounted to $538,700 million, or 6.1% of the
total loan portfolio.
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Commercial Real Estate Loans. Commercial real estate loans are secured
primarily by office and retail business properties located in TCB's primary
geographic market. These types of loans amounted to $2.3 million, or 26.3% of
the total loan portfolio, as of June 30, 1998. Commercial real estate loans may
be for an amortization term of up to 25 years, but frequently include a maturity
in three to six years. The Company generally does not offer fixed-rate
commercial real estate or multi-family loans.
Commercial and multi-family real estate loans are originated with a
loan-to-value ratio not exceeding 80%. Loans secured by this type of collateral
will continue to be a part of the Company's future loan program. Commercial and
multi-family real estate loans are generally larger and involve a greater degree
of risk than residential mortgage loans. Because payments on loans secured by
commercial property depend to a large degree on results of operations and
management of the properties, repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
At June 30, 1998, the largest commercial real estate loan was $646,000, secured
by property located in Ormond Beach, Florida, and was current.
Commercial Loans. The Company's commercial loans are business loans that are
not secured by real estate. At June 30, 1998, the largest commercial loan was
$473,500 secured by inventory and accounts receivable. The Company has made no
Small Business Administration ("SBA") loans. The Company is not a designated SBA
underwriter. The Company would consider making SBA loans if the demand for such
loans arises in its primary geographic market. SBA loans, which are guaranteed
in part by the SBA, typically include a higher loan balance relative to the
value of the collateral, as opposed to loans originated without a government
guarantee.
Income from Loan Activities. Fees are earned in connection with loan
commitments and originations, loan modifications, late payments, changes of
property ownership, and miscellaneous services related to loans. Income from
these activities varies from period to period with the volume and type of loans
originated, sold, and purchased, which in turn is dependent upon prevailing
mortgage interest rates and their effect on the demand for loans in the
Company's primary geographic market.
Loan fees typically are charged at the time of loan origination and may be a
flat fee or a percentage of the amount of the loan. Under current accounting
standards the total amount of such fees cannot typically be recognized as income
and a portion of the fees are deferred and taken into income over the
contractual life of the loan, using a level yield method. If a loan is prepaid
or refinanced, all remaining deferred fees with respect to such loan are taken
into income at that time.
Nonperforming Loans and Real Estate Owned. When a borrower fails to make a
required payment on a loan, the Company attempts to collect the payment by
contacting the borrower. If a payment on a loan has not been received by the end
of a grace period (usually 10 days from the payment due date), notices are sent
at that time, with follow-up contacts made thereafter. In most cases,
delinquencies are cured promptly. If the delinquency exceeds 29 days and is not
cured through normal collection procedures, the Company will institute more
formal measures to remedy the default, including the commencement of foreclosure
proceedings. The Company will then attempt to negotiate with the delinquent
borrower to establish a satisfactory payment schedule.
If foreclosure is required, when completed, the property would be sold at a
public auction in which the Company may participate as a bidder. If the Company
is the successful bidder, the acquired real estate property is then included in
the other real estate owned "OREO" account until it is sold. The Company is
permitted under federal regulations to finance sales of real estate owned by
"loans to facilitate," which may involve more favorable interest rates and terms
than generally would be granted under normal underwriting guidelines. As of June
30, 1998, the Company had no OREO properties, had no loans past due 90 days or
more, and had not been required to institute foreclosure on any of its loans.
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Asset Classification
Commercial banks are required to review and when appropriate classify their
assets on a regular basis. FDIC and state banking examiners have authority to
identify problem assets and, if appropriate, require them to be classified.
There are three classifications for problem assets: substandard, doubtful, and
loss. Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions, and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowance for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
warrant classification in one of the aforementioned categories, but possess
weaknesses, are classified as special mention and are monitored by the Company.
At June 30, 1998, the Company had no loans classified as substandard, doubtful,
or loss.
Provision for Losses on Loans
The provision for loan losses is established through a provision for loan
losses charged against income. Loans are charged against the provision when
management believes that the collectibility of the principal is unlikely. The
provision is an estimated amount that management believes will be adequate to
absorb losses inherent in the loan portfolio based on evaluations of its
collectibility. The evaluations take into consideration such factors as changes
in the nature and volume of the portfolio, overall portfolio quality, specific
problem loans and commitments, and current anticipated economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to recognize losses on loans, future additions to the
provision may be necessary based on changes in economic conditions. At June 30,
1998, the Company had a total provision for loan losses of $90,000, representing
1.03% of total loans. See "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Credit Risk" for the table showing the
Company's provision for loan losses.
Personnel
As of June 30, 1998, the Company had 11 full-time employees. The employees
are not represented by any collective bargaining group. The Company believes its
relations with its employees to be good.
The Company currently maintains a comprehensive employee benefit program
providing, among other benefits, hospitalization and major medical insurance,
long-term disability insurance, life insurance, and education assistance. Such
employee benefits are considered by management to be generally competitive with
employee benefits provided by other major employers in the Company's geographic
market area.
Legal Proceedings
There are no pending legal proceedings to which TCB or TCB-Volusia is a
party or to which any of their property is subject.
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Properties
The following table sets forth information with respect to the Company's
offices as of June 30, 1998.
Year Facility Facility Net Book
Location Opened Status Value
-------- ------ ------ -----
Main Office 1997 Leased --
Proposed TCB-Highlands
Main Office (1) N/A Owned $255,000
- -------------------------
(1) This property is a 200' x 335' vacant lot owned by TCB.
REGULATION AND SUPERVISION
General
As a one-bank holding company registered under the BHC Act, TCB is
subject to regulation and supervision by the Federal Reserve. Under the BHC Act,
TCB's activities and those of TCB-Volusia and those of TCB-Highlands will be
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. As a Florida
corporation, TCB is also subject to Chapter 607, Florida Business Corporation
Act ("FBC Act") and the regulations promulgated thereunder by the Florida
Department of State. As a state-chartered commercial bank, TCB-Volusia is and
TCB-Highlands will be subject to extensive regulation by the Department and the
FDIC.
TCB and TCB-Volusia are required to and TCB-Highlands will be required
to file reports with the Federal Reserve, the Florida Department and the FDIC
concerning their activities and financial condition, in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with or acquisitions of other financial institutions. Periodic examinations are
performed by the Federal Reserve, the Florida Department and the FDIC to monitor
TCB's compliance with the various regulatory requirements. TCB-Volusia's
deposits are and TCB-Highlands' deposits will be insured up to the applicable
limits by the FDIC under the Bank Insurance Fund ("BIF"). TCB-Volusia is and
TCB-Highlands will be subject to regulation by the Federal Reserve and the
Florida Department with respect to reserves required to be maintained against
transaction deposit accounts and certain other matters.
Regulation of TCB
General. The BHC Act prohibits TCB from acquiring direct or indirect
control of more than 5% of any class of outstanding voting stock or acquiring
substantially all of the assets of any bank or merging or consolidating with
another bank holding company without prior approval of the Federal Reserve. The
BHC Act also prohibits TCB from acquiring control of any bank operating outside
the State of Florida, unless such action is specifically authorized by the
statutes of the state where the bank to be acquired is located. Additionally,
the BHC Act prohibits TCB from engaging in or from acquiring ownership or
control of more than 5% of the outstanding voting stock of any company engaged
in a non-banking business, unless such business is determined by the Federal
Reserve to be so closely related to banking or managing or controlling banks as
to be properly incident thereto. The BHC Act generally does not place
territorial restrictions on the activities of such non-banking related
activities.
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Transactions between TCB and its Affiliates. TCB's authority to engage
in transactions with related parties or "affiliates," or to make loans to
certain insiders, is limited by Sections 23A and 23B of the Federal Reserve Act
which apply to all transactions by an insured-state non-member bank or a holding
company with any affiliate. Sections 23A and 23B generally define an "affiliate"
as any company that controls or is under common control with an institution.
Subsidiaries of a financial institution, however, are generally exempted from
the definition of "affiliate." Section 23A limits the aggregate amount of
transactions with any individual affiliate to 10% of the capital and surplus of
TCB and also limits the aggregate amount of transactions with all affiliates to
24.1% of TCB's capital and surplus. Certain transactions with affiliates, such
as loans to affiliates or guarantees, acceptances and letters of credit issued
on behalf of affiliates, are required to be collateralized by collateral in an
amount and of a type described in the statute. The purchase of low quality
assets from affiliates is generally prohibited. Section 23B provides that
certain transactions with affiliates, including loans and asset purchases, must
be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution 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.
Support of Subsidiary Depository Institutions. In accordance with
Federal Reserve policy, TCB is expected to act as a source of financial strength
and to commit resources to support Volusia County. This support may be required
at times when TCB might not be inclined to provide such support. Such support
would include the infusion of additional capital into an undercapitalized bank
subsidiary in situations where an additional investment in a troubled bank might
not ordinarily be made by a prudent investor. In addition, any capital loans by
a bank holding company to any of its subsidiary banks must be subordinate in
right of payment to depositors and to certain other indebtedness of such
subsidiary banks. In the event of bankruptcy, any commitment by a bank holding
company to a federal bank regulatory agency to maintain the capital of its
subsidiary bank will be assumed by the bankruptcy trustee and will be entitled
to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA") a subsidiary bank of a
bank holding company, can be held liable for any loss incurred by, or reasonably
expected to be incurred by the FDIC in connection with: (i) the default of a
commonly controlled FDIC-insured depository institution, or (ii) any assistance
provided by the FDIC to any commonly controlled FDIC insured depository
institution "in danger of default". "Default" is defined generally as the
appointment of a conservator or a receiver and "in danger of default" is defined
generally as the existence of certain conditions indicating that a default is
likely to occur in the absence of regulatory assistance.
Control of a Bank Holding Company. FRB Regulation Y, adopted pursuant
to Section 225.41 of 12 U.S.C. Section 1817(j), requires persons acting directly
or indirectly or in concert with one or more persons to give the Board of
Governors of the Federal Reserve 60 days advanced written notice before
acquiring control of a bank holding company. Under the Regulation, control is
defined as the ownership or control with the power to vote 25 % or more of any
class of voting securities of the bank holding company. The Regulation also
provides for a presumption of control if a person owns, controls, or holds with
the power to vote 10 % or more (but less than 25 %) of any class of voting
securities, and if: (i) the bank holding company's securities are registered
securities under Section 12 of the Securities and Exchange Act of 1934; or (ii)
no other person owns a greater percentage of that class of voting securities.
This offering is subject to a purchase limitation which precludes a person
(individually, or together with associates of, or persons acting in concert
with, such person) from purchasing shares which when aggregated with current
holdings would exceed 9.9% of the total number of shares outstanding at the
conclusion of the offering.
Legislation and Regulation of TCB-Volusia and TCB-Highlands
General. From time to time, various bills are introduced in the United
States Congress with respect to the regulation of financial institutions. Recent
banking legislation, particularly the FIRREA and the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), has broadened the regulatory
powers of the federal bank regulatory agencies and restructured the nation's
banking system. The following is a brief discussion of certain portions of these
laws and how they affect TCB or TCB-Volusia and how they will affect
TCB-Highlands.
The FDICIA revised sections of the FDIA affecting bank regulation,
deposit insurance and provisions for funding of the BIF administered by the
FDIC. The FDICIA also revised bank regulatory structures embodied in several
other federal banking statutes, strengthened the bank regulators' authority to
intervene in cases of deterioration of a bank's capital level, placed limits on
real estate lending and imposes detailed audit requirements.
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Prompt and Corrective Action. The FDICIA required the federal banking
regulatory agencies to set certain capital and other criteria which would define
the category under which a particular financial institution would be classified.
The FDICIA imposes progressively more restrictive constraints on operations,
management, and capital distributions depending on the category in which an
institution is classified. Pursuant to the FDICIA, undercapitalized institutions
must submit recapitalization plans to their respective federal banking
regulatory agencies, and a company controlling a failing institution must
guarantee such institution's compliance with its plan in order for the plan to
be accepted.
The FDIC's prompt and corrective action regulations define, among other
things, the relevant capital measures for the five capital categories. For
example, a bank is deemed to be "well-capitalized" if it has a total risk-based
capital ratio (total capital to risk-weighted assets) of 10% or greater, a Tier
1 risk-based capital ratio (Tier 1 capital to risk-weighted assets) of 6% or
greater, and a Tier 1 leverage capital ratio (Tier 1 capital to adjusted total
assets) of 5% or greater, and is not subject to a regulatory order, agreement or
directive to meet and maintain a specific capital level for any capital measure.
A bank is deemed to be "adequately capitalized" if it has a total risk-based
capital ratio of 8% or greater, and (generally) a Tier 1 leverage capital ratio
of 4% or greater, and the bank does not meet the definition of a
"well-capitalized" institution. A bank is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%. In addition, the
FDIC is authorized effectively to downgrade a bank to a lower capital category
than the bank's capital ratios would otherwise indicate, based upon safety and
soundness considerations (such as when the bank has received a less than
satisfactory examination rating for any of the CAMELS rating categories other
than capital: i.e., Asset Quality, Management, Earnings or Liquidity). As a bank
drops to lower capital levels, the extent of action to be taken by the
appropriate regulator increases, restricting the types of transactions in which
the bank may engage. The regulatory capital standards are designed to bolster
and protect the deposit insurance fund. TCB-Volusia is considered to be
"well-capitalized" based upon its current capital.
Insurance on Deposit Accounts. In response to the requirements of the
FDICIA, the FDIC established a risk-based assessment system for insured
depository institutions that takes into account the risks attributable to
different categories and concentrations of assets and liabilities. The FDIC
assigns a financial institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period. These categories consist of
well-capitalized, adequately capitalized or undercapitalized, and one of three
supervisory subcategories within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the financial institution's primary regulator, in TCB-Volusia's
case the Florida Department, and information which the FDIC determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance funds. A financial institution's assessment rate depends on
the capital category and supervisory category to which it is assigned. There are
nine assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied. BIF
assessment rates currently range from 0 basis points on deposits for a financial
institution in the highest category (i.e., well-capitalized and financially
sound with only a few minor weaknesses) to 27 basis points (but may be as high
as 31 basis points) on deposits for an institution in the lowest category (i.e.,
undercapitalized and posing a substantial probability of loss to the BIF, unless
effective corrective action is taken). In addition, the FDIC must collect a FICO
deposit assessment, which for the June 30, 1998, assessment was 1.22 basis
points for BIF insured banks. TCB-Volusia has not been assessed a deposit
insurance premium since it began its operations in October 1997.
Standards for Safety and Soundness. The FDICIA requires each federal
banking agency to prescribe for all insured depository institutions and their
holding companies standards relating to internal controls, information systems
and audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. In
addition, the federal banking regulatory agencies are required to prescribe by
regulation standards specifying: (i) maximum classified assets to capital
ratios; (ii) minimum earnings sufficient to absorb losses without impairing
capital; (iii) to the extent feasible, a minimum ratio of market value to book
value for publicly traded shares of depository institutions or the depository
institution holding companies; and (iv) such other standards relating to asset
quality, earnings and valuation as the agency deems appropriate. Finally, each
federal banking agency is required to prescribe standards for employment
contracts and other compensation arrangements of executive officers, employees,
directors and principal shareholders of insured depository institutions that
would prohibit compensation and benefits and other arrangements that are
excessive or that could lead to a material financial loss for the institution.
If an insured depository institution or its holding company fails to meet any of
its standards described above, it will be required to submit to the appropriate
federal banking agency a plan specifying the steps that will be taken to cure
the deficiency. If an institution fails to submit an acceptable plan or fails to
implement the plan, the appropriate federal banking agency will require the
institution or holding company to correct the deficiency and, until corrected
may impose restrictions on the institution or the holding company including any
of the restrictions applicable under the prompt corrective action provisions of
the FDICIA.
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<PAGE>
Loans to One Borrower. Florida law generally allows a state bank such
as TCB-Volusia to extend credit to any one borrower in an amount up to 25% of
its capital accounts, which are defined as unimpaired capital, surplus and
undivided profits, provided that the unsecured portion may not exceed 15% of the
capital accounts of the bank. The law permits exemptions for loans
collateralized by accounts maintained with TCB-Volusia and for loans guaranteed
by the Small Business Administration, the Federal Housing Administration and the
Veterans Administration. TCB-Highlands will be subject to these same
limitations.
Payment of Dividends. While not the only source of income, a major
source of income to TCB in the future will be dividends from its bank
subsidiaries. Since commencing operations in August, 1996, TCB has not received
any dividends from TCB-Volusia. A Florida chartered commercial bank may not pay
cash dividends that would cause the bank's capital to fall below the minimum
amount required by federal or Florida law. Otherwise, a commercial bank may pay
a dividend out of the total of current net profits plus retained net profits of
the preceding two years to the extent it deems expedient, except as described
below. Twenty percent of the net profits in the preceding two year period may
not be paid in dividends, but must be retained to increase capital surplus until
such surplus equals the amount of common and preferred stock issued and
outstanding. In addition, no bank may pay a dividend at any time that net income
in the current year when combined with retained net income from the preceding
two years produces a loss. The ability of its subsidiaries to pay dividends to
TCB depends in part on the FDIC capital requirements in effect at such time and
the ability of its subsidiaries to comply with such requirements.
Brokered Deposits. In accordance with the FDICIA, the FDIC has
implemented restrictions on the acceptance of brokered deposits. In general, an
"undercapitalized" institution may not accept, renew or roll over any brokered
deposits. "Adequately capitalized" institutions may request a waiver from the
FDIC to do so, while "well-capitalized" institutions may accept, renew or roll
over such deposits without restriction. The rule requires registration of
deposit brokers and imposes certain record keeping requirements. Institutions
that are not "well-capitalized" (even if meeting minimum capital requirements)
are subject to limits on rates of interest they may pay on brokered and other
deposits. The Company does not have any brokered deposits.
Deposit Insurance Funds Act of 1996. On September 30, 1996, Congress
passed and the President signed into law the Deposit Insurance Funds Act of 1996
("DIFA"). Among other things, the DIFA, and rules promulgated thereunder by the
FDIC, provide for banks and thrifts to share the annual interest expense for the
Finance Corp. Bonds which were issued in the late 1980s to help pay the costs of
the savings and loan industry restructuring. The approximate annual interest
expense is $780 million of which BIF insured banks are expected to pay
approximately $322 million or 41%, while SAIF insured thrifts will pay
approximately $458 million or 59% of the interest expense. It is estimated that
the annual assessment for BIF insured institutions will be approximately 1.2
cents per $100 of deposits, while SAIF insured institutions will pay 6.5 cents
per $100 of deposits. These payments begin in 1997 and run through 1999.
Beginning in the year 2000 and continuing through the year 2017, banks and
thrifts will each pay 2.43 cents per $100 of deposits. These assessments will be
in addition to any regular deposit insurance assessments imposed by the FDIC
under FDICIA. See REGULATION AND SUPERVISION - Insurance on Deposit Accounts.
Interstate Banking. Under the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, restrictions on interstate acquisitions of
banks by bank holding companies were repealed on September 29, 1995, such that
any out-of-state bank holding company would be able to acquire and consolidate
any Florida-based bank, subject to certain deposit percentage and other
restrictions on or after the effective date of the Act. The legislation also
provided that, unless an individual state elected beforehand either: (i) to
accelerate the effective date, or (ii) to prohibit out-of-state banks from
operating interstate branches within its territory, on or after June 1, 1997,
adequately capitalized and managed bank holding companies will be able to
consolidate multiple interstate banks. De novo branching by an out-of-state bank
would be permitted only if it is expressly permitted by the laws of the host
state. The authority of a bank to establish and operate branches within a state
will continue to be subject to applicable state branching laws. Florida has
adopted legislation which permits interstate acquisitions and interstate
branching effective June 1, 1997. Florida law prohibits de novo branching by out
of state banks.
State Assessment. State-chartered commercial banks are required by the
Florida Department regulation to pay assessments to the Florida Department to
fund the operations of the Florida Department. The general assessment, to be
paid semiannually, is computed upon a bank's total assets, including
consolidated subsidiaries, as reported in the bank's latest quarterly call
report. TCB-Volusia's assessment for 1997 was approximately $1,850, and for the
first six months of 1998 was approximately $3,100.
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The Federal Reserve System
Federal Reserve regulations require banks to maintain
non-interest-earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The Federal Reserve regulations generally
require that reserves of 3% must be maintained against aggregate transaction
accounts of $49.3 million or less (subject to adjustment by the Federal Reserve)
plus 10% (subject to adjustment by the Federal Reserve between 8% and 14%)
against that portion of total transaction accounts in excess of $49.3 million.
The first $4.4 million of otherwise reservable balances (subject to adjustments
by the Federal Reserve) are exempted from the reserve requirements. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve may
be used to satisfy liquidity requirements. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal
Reserve, interest-earning assets of TCB-Volusia are reduced.
Federal Securities Laws
TCB, in connection with this offering, filed with the Commission a
registration statement under the Securities Act for the registration of TCB's
common stock. The registration under the Securities Act of shares of the common
stock issued in this offering does not cover the resale of such shares. Shares
of the common stock purchased in the offering by persons who are not affiliates
of TCB may be resold without further registration. Shares purchased by an
affiliate of TCB will be subject to resale restrictions. If TCB meets the
current public information requirements of Rule 144 under the Securities Act,
each affiliate of TCB who complies with the other conditions of Rule 144
(including the holding period and those that require the affiliate's sale to be
aggregated with those of certain other persons) may be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of: (i) 1% of the outstanding shares of TCB, or
(ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by TCB to permit
affiliates to have their shares registered for sale under the Securities Act
under certain circumstances.
The scope of regulation, supervision and permissible activities of TCB
is subject to change by future federal and state legislation.
MANAGEMENT
Directors and Executive Officers
The board of directors of TCB currently consist of seven directors and
two executive officers. The board of directors of TCB is currently divided into
three classes, with the members of each class serving three-year terms.
The following sets forth information regarding the directors and
executive officers of TCB:
Harvey E. Buckmaster, age 51, serves as TCB-Volusia's Senior Vice
President and Cashier and as Chief Financial Officer of the Company. Mr.
Buckmaster is a Florida native with a degree in accounting from the University
of South Florida, Tampa. In 1975, he began his career in operations and
accounting in the financial industry working for Southeast Banking Corporation
in Sarasota and Naples. He subsequently spent eight years in the savings and
loan industry. He then moved to Deltona, Florida to join First State Bank of
Florida where he served as Senior Vice President of Operations and Cashier until
October 1996. At First State Bank, Mr. Buckmaster was responsible for all
accounting functions, purchasing, accounts payable, payroll, data processing,
and regulatory reporting. As part of the management team at First State Bank, he
also participated in Asset/Liability management and management of the bank's
investment portfolio.
35
<PAGE>
Gary G. Campbell, age 45, has over 20 years of banking experience. His
work experience began with Compass Bank (then Central Bank) in Birmingham,
Alabama, in 1976. After working with Compass as a commercial lender for five
years, he joined the Bank of New Orleans in New Orleans, Louisiana, and served
there for two years from 1981 to 1983. In 1983, he returned to Alabama to work
for First State Bank of Decatur where he was employed as a Vice President,
Commercial Loans. In 1986 he moved to DeLand, Florida to join Florida National
Bank and remained with that company until 1991. During his employment with
Florida National he worked as a Vice President, Commercial Loans in DeLand and
was promoted to President of FNB's $100 million bank in Sebring, Florida. Mr.
Campbell served as President of that bank for four years from 1987 until 1991.
In 1992 he returned to Volusia County to work with First State Bank of Florida
and open their Ormond Beach office. He worked with First State Bank of Florida,
first as a Senior Vice President and then as Executive Vice President and Senior
Loan Officer, until 1996 when the bank was sold to SouthTrust Bank of Volusia
County. Mr. Campbell is a graduate of the University of Alabama (1976). Mr.
Campbell and his family have lived in Ormond Beach since 1992 were he is active
in the community. His civic and social activities include the Lions Club (Past
President), member of the Halifax Club, the Florida Cracker Trail Association
(Past President), and American Heart Association (serving as local chairman and
on the Statewide Finance committee). Mr. Campbell serves as a Class I Director
and as President and CEO of TCB, as a Director of TCB-Volusia and is a proposed
Director of TCB-Highlands.
Richard Dwyer, age 44, was born in the Bronx, New York and raised in
New Jersey. He worked for Union Carbide Corporation after graduating from high
school from 1973 until 1981. In 1981 he joined M.J. Meehan & Company which has
been a specialist trading firm on the New York Stock Exchange since 1925. Mr.
Dwyer worked as a trader's assistant until 1985 when he became a member of the
NYSE and a partner in the M.J. Meehan & Company. In June of 1996, Mr. Dwyer
retired from M.J. Meehan and moved from New Jersey to DeBary, Florida where he
now lives. Mr. Dwyer is a licensed financial advisor and a private investor. He
serves as a Class I Director of TCB.
H. Frederick Keiber, age 52, graduated from the University of Florida
in Gainesville, Florida, with a Bachelor of Science Degree in 1968 and from the
University of Miami, Miami, FL, with a Doctor of Medicine Degree in 1972. Dr.
Keiber opened Keiber Eye Center in 1975. Dr. Keiber served as Chief of Staff at
Highlands General Hospital from 1981 to 1982. Dr. Keiber has been the medical
director of the Surgical Center of Central Florida since its inception in 1989
and is still a majority shareholder of this business. Dr. Keiber serves as a
Class III Director of TCB and is expected to serve as TCB-Highlands' first
Chairman of the Board.
Larry A. Kent, age 47, graduated from the University of Florida,
Gainesville in 1974 and moved to Deltona, Florida to begin business known as
Larry Kent Homes, Inc. Mr. Kent is currently the owner/operator of Burger King
franchises located in Deltona and Edgewater, Florida. In 1993, he "retired" from
the building business. Mr. Kent and a partner, Charles Ruttenberg, were the
majority shareholders and organizing directors of Southland Bank, which
subsequently became First State Bank. Mr. Kent served as Chairman of the Board
for that bank for four years and served as a member of the board until the
bank's sale to SouthTrust. In addition to his Burger King franchises, Mr. Kent
owns and manages four parcels of commercial real estate (including the Deltona
SouthTrust bank building and a shopping center in Deltona). Mr. Kent currently
serves as Chairman of and a Class III Director of TCB, as a Director of
TCB-Volusia, and as a proposed Director of TCB-Highlands.
James F. McCollum, age 52, a licensed attorney in Sebring, Florida for
25 years, is President of his firm James F. McCollum P.A. and is the managing
partner of McCollum, Oberhausen & Tuck, L.L.P. He received his B.S. Degree in
Business Administration in 1968 from Florida Atlantic University and his Juris
Doctorate in 1972 from Florida State University. Mr. McCollum's professional
associations include: the Florida Bar; the United States Court of Appeals
Eleventh Circuit; Highlands County Bar Association (Chairman Legal Aid Committee
from 1975 to 1977); Florida School Board Attorneys Association (board of
directors from 1989 to 1997, President from 1995 to 1996); American Bar
Association; American Trial Lawyers Association; Commercial Law League of
America; American Arbitration Association (Commercial Arbitration Panel); and
the National Association of Retail Credit Attorneys. He serves as a Class II
Director of TCB and is a proposed Director of TCB-Highlands
James R. Peacock, age 47, is a Chrysler Plymouth dealer in New Smyrna
Beach, Florida. Mr. Peacock has lived in the east Volusia County area for the
last 20 years. He started his first car dealership, Jim Peacock Dodge, Inc., in
1980 and has successfully owned and operated numerous auto dealerships since
that time. Mr. Peacock is seeking to reduce his involvement in the day-to-day
management of the dealerships and has sold all but a minority interest in the
Daytona Dodge dealership and the Chrysler/Plymouth dealership. He owns numerous
parcels of undeveloped properties throughout the county. Mr. Peacock serves as a
Class II Director of TCB and is TCB-Volusia's Chairman of the Board.
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<PAGE>
Norbert A. Walz, age 56, is a former Wendy's franchisee and a builder
in Highlands County. Mr. Walz has two undergraduate degrees in Education from
the University of Cincinnati. He has a masters degree in Education and a minor
in Communication Arts from Xavier University. Mr. Walz began his career in
education in 1964. From 1972 to 1974 he worked with an Engineering and Design
Firm and then joined Ohio Food Systems as their Director of Operations. In 1979
he moved to Sebring to open Walz Management, Inc. which is a Wendy's franchise
operating in Sebring, Avon Park and Okeechobee, Florida. The franchise was sold
in 1985. In 1985-1986 he built a shopping center, and managed this operation
through Walz Management, Inc. which he established in 1986 and which is still in
operation today. He is President of Walz and Company of Sebring, Inc., which is
engaged in the development of residential home sites and the construction of
homes. Mr. Walz served on the Sebring board of directors for Florida National
Bank from 1989 until the bank was sold to First Union, and he remained on First
Union's advisory board until present; Mr. Walz currently is a Class I Director
of TCB and will be resigning his position on the Advisory Board of First Union
to serve as a director of TCB-Highlands.
Employment Contracts
The Company has an employment agreement with its President and Chief
Executive Officer, Gary G. Campbell. The agreement, which became effective
January 1, 1998, is for a two-year term and is renewed annually for a successive
one-year term, unless either party notifies the other of their desire to
terminate the agreement. Such notice must be given at least 30 days prior to the
expiration of the current term.
The agreement provides Mr. Campbell with a $105,000 base salary, plus
reimbursement of reasonable business expenses. In addition, Mr. Campbell may be
granted an annual performance bonus, which is solely at the discretion of the
board of directors. Under the agreement, Mr. Campbell was granted incentive
stock options for 10,000 shares of common stock at a grant price of $10.00 per
share which vest 20% per year and expire 10 years from the date of grant. Mr.
Campbell also receives an automobile allowance and three-months disability
coverage.
Mr. Campbell may participate in all employee benefits, stock option
plans, pension plans, insurance plans and other fringe benefits that are
commensurate with his position. The agreement provides for termination by the
Company for "good cause" as defined in the agreement. In the event the Company
chooses to terminate Mr. Campbell's employment for reasons other than for good
cause, he (or in the event of death, his beneficiaries) would be entitled to a
severance payment equal to the total annual compensation for the remainder of
the term of the agreement or three months whichever is longer.
If Mr. Campbell voluntarily terminates his employment other than for
the reasons mentioned above, all rights and benefits under the agreements shall
immediately terminate upon the effective date of termination.
Proposed Directors of TCB-Highlands
The proposed board of directors of TCB-Highlands consists of twelve
persons, five of whom currently serve on TCB's board of directors. The following
sets forth information regarding the remaining proposed directors of
TCB-Highlands:
Richard R. Farmer, age 56, is the Superintendent of Schools in
Highlands County, Florida. A graduate of Huntington College, Huntington,
Indiana, in 1963 with a B.S. Degree in Education and a M.S. Degree in Education
from St. Francis College in Ft. Wayne, Indiana, in 1967. Mr. Farmer taught
Mathematics from 1969 to 1970 in Bradenton, Florida. He moved to Sebring 1970
and has been in the education field in Sebring since that time. His is currently
serving his second term as the Superintendent of Highlands County School Board.
John T. Griffin, age 55, is the President and owner of Griffin's Carpet
Mart, Inc. Mr. Griffin began his working career as a production manager of a Ft.
Lauderdale Newspaper. He moved his family from Ft. Lauderdale to Sebring where
he purchased the Carpet Mart in 1978.
John G. Kasmer, age 48, is a Pharmacist who owns and operates Gilbert's
Drug Store, Inc. in downtown Sebring, Florida. Mr. Kasmer has an A.A. Degree
from Palm Beach Junior College in Lakeworth, Florida in 1973 and a B.S. Degree
in Pharmacy from the University of Florida in Gainesville, Florida in 1977. He
completed one year of Internship at Highlands General Hospital before going to
work in 1978 at Gilbert's Drug Store, Inc. where he remained until he bought the
drug store in 1990.
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<PAGE>
Deborah K. Kendrick, age 46, is the manager of her husband's
orthodontics office. Ms. Kendrick graduated from the Immaculate Academy in
Miami, Florida in 1969. She is extremely active in the community and has been in
charge of raising thousands of dollars for charitable organizations within the
community.
Douglas A. McLean, age 56, a Certified Public Accountant, with the firm
of Lybarger, Keith and McLean since 1985. Mr. McLean has a B.A. Degree in
Economics from Grinnell College in Grinnell, Iowa. He served in the U.S. Navy as
a commissioned officer with a tour in Vietnam.
James M. Rimer, age 68, is retired. He served as an electronic
technician in the U.S. Air Force for three years. A lifelong resident of
Highlands County, Mr. Rimer has owned and operated seven different cemeteries
located throughout Florida during the last 20 years. The last of these
cemeteries was sold in 1997.
Steven P. Toomey, age 40, has 19 years experience in banking. He will
serve as a Director and as the President and CEO of TCB-Highlands. Mr. Toomey's
work experience began with Bank One in Lexington, Kentucky in 1978. In 1982, he
was promoted to a Loan Officer and was responsible for the making of all
commercial, mortgage, and retail loans. In 1985 Mr. Toomey was promoted to
Regional Branch Manager and was responsible for the largest branch, with eight
other branch managers reporting to him. In 1986 he joined Kentucky National Bank
as the Executive Vice President. In 1990, Mr. Toomey became President and CEO
and a Director of Kentucky National Bank in Carrollton, Kentucky. In 1993 the
Kentucky National Bank group was sold to Star Bank from Cincinnati, Ohio. In
1993 Mr. Toomey moved to Venice, Florida and went to work for First State Bank
of Florida as a Senior Vice President and Commercial Lender until the bank was
sold to SouthTrust in 1996. He is a graduate of the University of Wisconsin
School of Banking. Mr. Toomey resides in Sebring, Florida.
Directors of TCB-Volusia
The board of directors of TCB-Volusia currently consists of eight
directors. The following sets forth certain information regarding the four
current directors of TCB-Volusia who do not also serve on TCB's board of
directors:
Name Age Position
---- --- --------
Kirk T. Bauer 38 Director
Stanley S. Bronski 76 Director
Thomas R. Horton 72 Director
Susan A. Nicholson 48 Director
Clarence W. Singletary 64 Director
The board of directors of TCB-Volusia and the proposed board of
directors of TCB-Highlands will serve one-year terms.
Organizers' Warrants
The Company's board of directors has adopted a warrant plan to
compensate the organizing directors of TCB-Highlands for their efforts in and
funding of the organization costs of TCB-Highlands. The Company intends to issue
warrants to purchase one share of common stock for each share of common stock
purchased by such organizers prior to commencement by TCB-Highlands of its
banking business. The exercise price will be equal to the offering price of the
common stock being offered herein. The warrants may not be exercised before one
year from the date of issue and will have a term of three years from the
issuance date at which time they will expire if not exercised. The warrant
agreement further provides for a call provision in the event one of the
Company's subsidiary banks is determined to require additional capitalization
under supervisory order, and if not honored when called, the warrants will
terminate at that time. The Company has reserved 135,500 shares of its common
stock for issuance thereunder.
38
<PAGE>
Stock Option Plans
The Company's 1997 Incentive Stock Option and Limited Rights Plan for
officers and employees of the Company and its wholly owned subsidiaries was
approved by the Company's shareholders at the 1998 Annual Meeting. The stock
option plan provides for the issuance of up to ten percent of the Company's
common stock outstanding at any time during the life of the plan. At June 30,
1998, incentive stock options for 10,000 shares were outstanding, and 36,479
unallocated shares were available for grant. The exercise price of the 10,000
shares granted in 1998 was $10.00 per share. In the event the minimum number of
shares is sold in the offering, an additional 80,000 shares will be available
for grant for a total available of 116,479 shares. In the event the maximum
number of shares is sold, an additional 120,000 shares would be available for
grant for a total of 166,479 shares. The stock options granted to date have ten
year terms from the date of the grant and vest at a rate of 20% per year. No
options issued under the Plan can have an exercise price of less than 100% of
the fair market value of the underlying shares at the time the option is
granted.
The following table sets forth information concerning the options that
have been granted to the executive officers of the Company.
Shares Shares Effective Price
Name Granted Vested Date of Grant per Share
---- ------- ------ ------------- ---------
Gary G. Campbell 10,000 0 January 1, 1998 $10.00
Director Compensation
Neither TCB nor TCB-Volusia presently compensate directors for Board or
committee meetings. The Company anticipates it will pay directors fees to
subsidary banks directors only when such banks become profitable.
CERTAIN TRANSACTIONS
Certain of the Company's directors and executive officers and their
immediate family members are also customers of TCB-Volusia and it is anticipated
that such individuals will continue to be customers of TCB-Volusia and
TCB-Highlands in the future. All transactions between TCB-Volusia and TCB's
directors, executive officers and their immediate family members, and any
principal shareholders (persons owning more than 5% of TCB's outstanding common
stock) were made in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with non-affiliated persons and, in the opinion of
management, did not involve more than the normal risk of collectibility or
present other unfavorable features. As of June 30, 1998, loans to directors,
executive officers and their immediate family members represented approximately
$2.3 million, or 25.8% of the total loan portfolio.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table indicates certain information regarding the current
beneficial ownership of common stock by each of the Company's directors and
executive officers, all of the directors and executive officers as a group, and
all persons who own beneficially more than 5% of the common stock of TCB. It is
anticipated that 141,500 shares of the offering will be purchased by the
Company's directors, and the proposed directors of TCB-Highlands, but there has
been no formal commitment to purchase shares as of the date of this Prospectus.
Ultimate purchases by these persons may be more or less than indicated depending
upon individual circumstances.
[Table Follows This Page]
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<PAGE>
<TABLE>
<CAPTION>
Amount % of Ownership % of Ownership
Beneficially Owned Based on the Based on the
Name at June 30, 1998(1) % of Ownership(2) Total Minimum Total Maxium
------- ---------------- ----------------- ------------- ------------
<S> <C> <C> <C> <C>
Harvey E. Buckmaster(3) 2,000 0.43 0.16 0.12
Gary G. Campbell(4) 3,000 0.64 0.24 0.18
Richard Dwyer(5) 20,000 4.21 1.57 1.19
H. Frederick Kieber(6) 2,000 0.43 0.16 0.12
Larry A. Kent(7) 69,282 13.87 5.33 4.08
James F. McCollum(8) 500 0.11 0.04 0.03
James R. Peacock(9) 104,518 20.21 7.94 6.09
Norbert A. Walz(10) 500 0.11 0.04 0.03
------- ---- --- ---
All Directors and
Executive Officers
as a Group
(8 persons)(11) 181,800 32.72% 13.41% 10.35%%
</TABLE>
- -------------------
(1) Includes right to purchase shares under warrants owned.
(2) Percentage based on current beneficial ownership assuming shares under
warrants have been exercised but not including shares which may be
purchased in this offering.
(3) Includes 1,000 shares currently exercisable pursuant to warrants owned.
(4) Includes 1,500 shares currently exercisable pursuant to warrants owned.
(5) Includes 10,000 shares currently exercisable pursuant to warrants owned.
(6) Includes 1,000 shares currently exercisable pursuant to warrants owned.
(7) Includes 34,641 shares currently exercisable pursuant to warrants owned.
(8) Includes 250 shares currently exercisable pursuant to warrants owned.
(9) Includes 52,259 shares currently exercisable pursuant to warrants owned.
(10) Includes 250 shares currently exercisable pursuant to warrants owned.
(11) Includes 90,900 shares currently exercisable pursuant to warrants owned.
DESCRIPTION OF CAPITAL STOCK
TCB has 10,000,000 shares of authorized capital stock, consisting of
10,000,000 shares of common stock, par value $0.01 per share. As of June 30,
1998, 464,791 shares of common stock were issued and outstanding, 10,000 shares
were reserved for issuance upon exercise of outstanding stock options and
450,000 shares were subject to issuance pursuant to outstanding warrants.
Common Stock
Each share of TCB common stock has the same relative rights and is
identical in all respects with every other share of common stock. The holders of
common stock are entitled to elect the members of the board of directors of the
Company and such holders are entitled to vote as a class on all matters required
or permitted to be submitted to the shareholders of the Company. No holder of
any class of stock of the Company has preemptive rights with respect to the
issuance of shares of that or any other class of stock and the common stock is
not entitled to cumulative voting rights with respect to the election of
directors.
The holders of common stock are entitled to dividends and other
distributions if, as, and when declared by the board of directors out of assets
legally available therefor. Upon the liquidation, dissolution or winding up of
the Company, the holder of each share of common stock is entitled to share
equally in the distribution of the Company's assets. The holders of common stock
are not entitled to the benefit of any sinking fund provision. The shares of
common stock are not subject to any redemption provisions, nor are they
convertible into any other security or property of the Company. All shares of
common stock outstanding are fully paid and non-assessable.
40
<PAGE>
Outstanding Warrants
Each investor who purchased shares during the initial offering prior to
the end of the initial offering period received a warrant, which was immediately
exercisable, entitling the investor to purchase one share of common stock for
each unit purchased. These warrants expire April 28, 2000. Unexpired warrants
may be exchanged for shares upon the payment of $10.00 per share to the Company,
subject to the requirement that the minimum number of shares which will be
issued upon any single presentment will be 100 shares unless the warrant
presented is for less than 100 shares, at which time all shares must be
purchased. Certificated warrants may be transferred by a holder in accordance
with the Warrant Plan adopted by the Company.
SUMMARY OF ARTICLES OF INCORPORATION OF TCB
The following is a summary of the material provisions of the Articles
of Incorporation of TCB. The full text of the Articles of Incorporation were
included as an Exhibit to the Company's initial registration statement filed
with the Commission on January 3, 1997, No. 333-19201. See "AVAILABLE
INFORMATION".
The power to issue additional shares of common stock rests with the
board of directors of TCB, which may help delay or deter a change in control by
increasing the number of shares needed to gain control. The following provisions
of TCB's Articles of Incorporation may also have the effect of preventing,
discouraging, or delaying any change in control of TCB.
Requirements for Super Majority Approval of Transactions
The Articles of Incorporation of TCB contain provisions requiring super
majority shareholder approval to effect certain extraordinary corporate
transactions which are not approved by the board of directors. The Articles of
Incorporation require the affirmative vote or consent of the holders of at least
two-thirds (66 %) of the shares of each class of common stock entitled to vote
in elections of directors to approve any merger, consolidation, disposition of
all or a substantial part of the assets of TCB or a subsidiary of TCB, exchange
of securities requiring shareholder approval or liquidation of the Company
("Affiliated Transaction"), if any person who together with his affiliates and
associates owns beneficially 5% or more of any voting stock of TCB ("interested
shareholder") is a party to the transaction; provided that a majority of the
Disinterested Directors of the Company has not approved the transaction. In
addition, the Articles of Incorporation require the separate approval by the
holders of a majority of the shares of each class of stock entitled to vote in
elections of directors which are not beneficially owned, directly or indirectly,
by an interested shareholder, of any merger, consolidation, disposition of all
or a substantial part of the assets of TCB or a subsidiary of TCB, or exchange
of securities requiring shareholder approval ("Business Combination"), if an
interested shareholder is a party to such transaction; provided, that such
approval is not required if: (i) the consideration to be received by the holders
of the stock of the Company meets certain minimal levels determined by a formula
under the TCB Articles (generally the highest price paid by the interested
shareholder for any shares acquired); (ii) there has been no reduction in the
average dividend rate from that which was obtained prior to the time the
interested shareholder became such; and (iii) the consideration to be received
by the shareholders who are not interested shareholders shall be paid in cash or
in the same form as the interested shareholder previously paid for shares of
such class of stock. This Article, as well as the Article establishing a
classified board of directors, may be amended, altered, or repealed only by the
affirmative vote or consent of the holders of at least 66 % of the shares of
each class of stock entitled to vote in elections of directors.
Acquisition Offers
The board of directors, when evaluating any offer of another person to:
(i) make a tender or exchange offer for any equity security of TCB; (ii) merge
or consolidate the Company with another corporation or entity; or (iii) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Company shall, in connection with the exercise of its judgment in
determining what is in the best interest of the Company and its shareholders,
give due consideration to all relevant factors, including, without limitation:
(i) the social and economic effect of acceptance of such offer on the Company's
present and future customers and employees and those of its subsidiaries; (ii)
on the communities in which the Company and its subsidiaries operate or are
located; (iii) on the ability of the Company to fulfill its corporate objectives
as a financial institution holding company; and (iv) on the ability of its
subsidiary financial institutions to fulfill the objectives of such institutions
under applicable statutes and regulations.
41
<PAGE>
Control Share Acquisitions
The Company is subject to the Florida Control Share Statute which
provides that any person who acquires 20% or more of the Company's shares must
comply with the Florida Statutes governing control-share acquisitions.
Generally, a person intending to acquire such shares must give the Company
notice of such intent and request a meeting of the shareholders at which
shareholders will be given an opportunity to vote on whether such shares will be
accorded full voting rights. Refusal by the shareholders to accord full voting
rights would result in the proposed acquiror obtaining shares which could not be
voted on any matters to come before the shareholders. Certain acquisitions are
exempt from the effects of the Article, such as mergers or business combinations
which have been approved by the board of directors, as well as acquisitions of
shares issued by TCB in its original offering or in subsequent offerings
approved by the Board.
The effect of all of the above provisions is to make it more difficult
for a person, entity or group to effect a change in control of the Company
through the acquisition of a large block of TCB's voting stock.
Indemnification
The FBC Act authorizes Florida corporations to indemnify any person who
was or is a party to any proceeding (other than an action by, or in the right
of, the corporation) by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation or other entity, against liability incurred in connection with such
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action by or on behalf of a corporation, indemnification may
not be made if the person seeking indemnification is adjudged liable, unless the
court in which such action was brought determines such person is fairly and
reasonably entitled to indemnification. The indemnification provisions of the
FBC Act require indemnification if a director or officer has been successful on
the merits or otherwise in defense of any action, suit or proceeding to which he
or she was a party by reason of the fact that he or she is or was a director or
officer of the corporation. The indemnification authorized under Florida law is
not exclusive and is in addition to any other rights granted to officers and
directors under the articles of incorporation or bylaws of the corporation or
any agreement between officers and directors and the corporation. A corporation
may purchase and maintain insurance or furnish similar protection on behalf of
any officer or director against any liability asserted against the director or
officer and incurred by the director or officer in such capacity, or arising out
of the status, as an officer or director, whether or not the corporation would
have the power to indemnify him or her against such liability under the FBC Act.
TCB's Articles of Incorporation provide for the indemnification of
directors and executive officers to the maximum extent permitted by Florida law
as authorized by the board of directors and for the advancement of expenses
incurred in connection with the defense of any action, suit or proceeding that
the director or executive officer was a party to by reason of the fact that he
or she is or was a director of TCB upon the receipt of an undertaking to repay
such amount, unless it is ultimately determined that such director is not
entitled to indemnification.
SALES AGENT
The Company has entered into a Sales Agency Agreement with Banc Stock
Financial Services, Inc. to serve as the sales agent, subject to the terms of
the Sales Agency Agreement, to offer and sell to the public as the Company's
agent a minimum of 800,000 shares of common stock on a "best efforts, all or
none" basis, and an additional 400,000 shares of common stock on a "best
efforts" basis. The sales agent is required to use its best efforts through the
expiration date to sell the shares. The sales agent and the Company have agreed
that with respect to shares purchased by current directors of the Company and
the proposed directors of TCB-Highlands (expected to aggregate 141,500 shares),
no commission will be payable by the Company to the sales agent. The sales
agent's commission will be 6.5% on all other shares it sells in the offering.
The sales agent may select other dealers who are members of the National
Association of Securities Dealers, Inc. to sell shares and who will receive a
selling concession not to exceed 6.5% of the gross offering proceeds. The
Company will also pay the sales agent a financial advisory fee of $25,000 in
connection with its efforts in structuring the terms of the offering and will
reimburse the sales agent for certain expenses, including (i) the filing and
legal fees associated with securing the review of the NASD of the terms of the
offering; and (ii) reasonable out-of-pocket expenses incurred in connection with
the sales agent's engagement, including legal fees, advertising, promotion,
syndication, and travel expenses. Unless approved in writing by the Company
(which approval shall not be unreasonably withheld), reimbursable sales agent's
legal fees and disbursements related solely to the underwriting process will not
exceed $30,000 and the sales agent's out-of-pocket expenses will not exceed
$30,000.
42
<PAGE>
The sales agent has the right to terminate the Sales Agency Agreement
under certain circumstances (for example, if conditions exist in the
over-the-counter market which cause the sales agent to believe that no favorable
public market exists for the sale of the shares). In such event, offers and
sales may be made on behalf of the Company by certain of its officers and
directors, or the Company may engage one or more other broker/dealers to make
sales on its behalf. The Company does not currently have any other arrangements
in place. As described herein, until the minimum number of shares have been
sold, all funds received by the sales agent or the Company in connection with
the sale of shares will be promptly transmitted to the escrow agent.
The Sales Agency Agreement provides for reciprocal indemnification
between the Company and the sales agent against liabilities under the Securities
Act of 1933 (the "Securities Act'). Insofar as indemnification for liabilities
arising under the Securities Act may be permitted pursuant to the Sales Agency
Agreement, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed by the Securities Act and is, therefore, unenforceable. The Company
has also agreed to provide the sales agent with a right of first refusal to
serve as a managing underwriter on any financing or to act as an adviser on any
merger or similar transaction occurring within 24 months of this offering, in
each case for compensation that is reasonable and customary within the industry.
Prior to the date of this Prospectus, there has been no public market
for the shares. The offering price of the shares offered hereby has been
established by the Company based upon its assessment of the capital needs of
TCB-Highlands and the commercial potential of the Company. The Company has had
discussions with the sales agent regarding the establishment and maintenance of
a market for the shares after the offering. Based upon such discussions, the
Company expects that a secondary market may eventually develop for the shares,
although the Company can make no assurances in this regard. In general, if a
secondary market develops, the shares will be freely transferable and assignable
by the holder thereof (except shares held by affiliates), and nonaffiliate
shareholders may sell any number of shares in such secondary market. In
addition, factors such as the degree to which the secondary market is active
will determine the willingness of the market makers, once a secondary market is
established, to continue to maintain the secondary market. The Company and its
officers and directors have agreed with the sales agent not to sell any shares
for a period of six months after the date of this Prospectus without the prior
written consent of the sales agent. It is anticipated that affiliates of the
sales agent will purchase ___ shares at the public offering price for their own
accounts.
THE OFFERING
Offering
TCB is offering through its sales agent a minimum of 800,000 shares and
a maximum of 1,200,000 shares of common stock. The minimum number of shares
which may be purchased is 100 and the maximum number of shares a person or his
related party may purchase is 50,000. To properly subscribe for shares of common
stock in the offering, the appropriate sections of the order form must be
completed, and payment in full must accompany the order form. See "Purchase
Limitation" and "Procedures for Subscribing for Common Stock".
Expiration Dates of the Offering
The offering will expire at 5:00 p.m., local time, on January __, 1999,
or extended for an additional 90 days unless the offering is terminated
beforehand at the sole discretion of the board of directors.
43
<PAGE>
Conditions to Consummation of the Offering
The offering will not be consummated and all funds received by the
Company's escrow agent will be promptly returned with interest if the minimum
offering (800,000 shares) is not sold by 5:00 p.m., local time, on January __,
1999.
Procedures for Subscribing for Common Stock
Persons who wish to participate in the offering must deliver to the
escrow agent, a properly completed and executed order form, together with
payment of the aggregate subscription price for the shares of common stock
subscribed for in the offering. Payment must be by: check or money order payable
to "SunTrust as Escrow Agent for TCB". Payment may also be made by wire transfer
of funds to the escrow agent. Payment should be made sufficiently in advance of
the expiration of any offering period to ensure that payment is received and
clears by such date. All funds received by the Company shall be forwarded to the
escrow agent.
The address to which the order form and payment of the subscription
price should be delivered is:
SunTrust Bank, N.A.
Attention: Trust Department
225 East Robinson Street, Suite 250
Orlando, Florida 32801
Holders who hold shares of common stock for the account of others, such
as brokers, trustees or depositories for securities, should notify the
respective beneficial owners of this offering as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
subscription rights. If such a beneficial owner so instructs, the record holder
of such subscription right should submit payment to the Company with the proper
documentation. In addition, beneficial owners of common stock held through such
a nominee holder should contact the holder and request the holder to effect
transactions in accordance with the beneficial owner's instructions.
The instructions accompanying the order form should be read carefully
and followed in detail.
Subscriptions for the common stock which are received by the Company
from persons in the offering may not be revoked once accepted by the Company.
Plan of Distribution
The securities being offered in the offering will be sold on a
best-efforts basis by the sales agent and a commission will be paid by the
Company on such sales. See "SALES AGENT".
Purchase Limitations
The minimum number of shares of common stock any person may purchase in
the offering is 100. No fractional shares will be issued in the offering. The
maximum any person together with their related party may purchase in the
offering is 50,000 shares. No person shall be allowed to purchase, individually
or together with their related party, shares of common stock in the offering
which, when aggregated, would exceed 9.9% of the total number of shares
outstanding at the conclusion of the offering.
Under FRB regulations a rebuttable presumption of concerted action will
occur, but is not limited to these situations: (1) a person will be presumed to
be acting in concert with the members of the person's immediate family (which
includes a person's spouse, father, mother, step-parent, children,
step-children, brothers, step-brothers, sisters, step-sisters and grandchildren;
the father, mother, brother and sisters of the person's spouse; and the spouse
of the foregoing); (2) in addition, the following persons will be presumed to be
acting in concert: (i) a company and any controlling shareholder, partner,
trustee, or management official of the company, if both the company and the
person own voting securities of the state member bank or bank holding company;
(ii) companies under common control; (iii) persons that are parties to any
agreement, contract, understanding, relationship, or other arrangement, whether
written or otherwise, regarding the acquisition, voting, or transfer of control
of voting securities of a state member bank or bank holding company, other than
through a revocable proxy as described in section 225.42(a)(5); (iii) persons
that have made, or propose to make, a joint filing under sections 13 or 14 of
the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78n), and the rules
promulgated thereunder by the Securities and Exchange Commission; and (iv) a
person and any trust for which the person serves as trustee.
44
<PAGE>
Issuance of Common Stock
Provided that all conditions necessary to consummate the offering are
satisfied, including the sale of a minimum of 800,000 shares of common stock in
the minimum offering, certificates representing shares of common stock purchased
pursuant to the offering will be delivered to purchasers as soon as practical
after the expiration date of the minimum offering and periodically thereafter
until the offering expires or is terminated by the Company. No fractional shares
will be issued in the offering.
Intention of Directors and Executive Officers
None of the Company's directors, officers, or proposed directors or
officers, has entered into any agreement or arrangement that obligates them to
purchase any shares of common stock. However, the directors and executive
officers of the Company and the proposed directors of TCB-Highlands as a group
(23 persons) have indicated to the Company that they intend to subscribe for, in
the aggregate, 141,500 shares in the offering. These intentions are not
commitments and could change based upon individual circumstances. Assuming the
acquisition by the directors and executive officers of the Company of all
141,500 shares, such persons would be deemed to beneficially own 25.56% and
19.42% of the common stock assumed to be outstanding on a pro forma basis
following the minimum offering and the maximum offering, respectively. Our
executive officers and directors , together with the organizers of TCB-Highlands
or affiliates of the sales agent, may purchase up to 100% of the shares in the
offering if necessary to help the Company achieve the minimum subscription level
necessary to release subscription proceeds from escrow. Any shares purchased by
these individuals in excess of their original commitment will be purchased for
investment and not with a view to the resale of such shares. Because purchases
by these persons may be substantial, investors should not place any reliance on
the sale of a specified minimum offering amount as an indication of the merits
of this offering or that such a person's investment decision is shared by
unaffiliated investors.
Transfer Agent and Registrar
Prior to the offering, the Company served as transfer agent for the
common stock. The Company has engaged Continental Stock Transfer and Trust
Company, 2 Broadway, 19th Floor, New York, New York, 10004 to handle stock
transfers, stock record keeping, and mailing of all proxy materials.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, TCB will have 1,264,791 shares of
common stock outstanding assuming the sale of the minimum offering and 1,664,791
assuming the sale of the maximum offering. These shares will be freely tradeable
without restriction or further registration under the Act, except for shares
held or purchased by "affiliates" of the Company, defined in Rule 144
promulgated under the Act to mean a person who directly or indirectly controls,
is controlled by, or is under common control with the Company.
The Company's executive officers and directors, and the proposed
officers and directors of TCB-Highlands holding, in the aggregate, 251,400
shares of common stock (assuming full exercise of their warrants and intended
purchases in this offering) as affiliates of the Company will be permitted to
sell their shares of common stock in the public market, subject to the volume
and other limitations on sale imposed by Rule 144, or unless the sale of the
shares is registered under the Securities Act or is pursuant to an exemption
from the registration requirements.
45
<PAGE>
In general, under Rule 144, an affiliate (or affiliates whose shares
are aggregated) would be entitled to sell within any three month period that
number of shares that does not exceed the greater of: (i) 1% of the number of
shares of common stock then outstanding (12,648 shares based on the minimum
offering and 16,648 shares based on the maximum offering); or (ii) the average
weekly trading volume of the common stock during the four calendar weeks
preceding such sale. Sales pursuant to Rule 144 are subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days preceding a sale, and, would be entitled to sell such shares under
Rule 144(k) without regard to the requirements described above.
LEGAL MATTERS
Certain legal matters, including, among other things, the validity of
the shares of common stock offered hereby, have been passed upon by Igler &
Dougherty, P.A., Tallahassee, Florida, counsel to the Company. In addition,
certain legal matters in connection with the offering will be passed upon for
the sales agent by Nelson Mullins Riley & Scarborough, L.L.P., Atlanta, Georgia.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996, and for the year ended December 31, 1997, and for the period from
August 15, 1996 (date of incorporation), to December 31, 1996, have been
included herein and in the registration statement in reliance upon the report of
Hacker, Johnson, Cohen & Grieb, P.A. appearing elsewhere herein, and upon the
authority of this firm as experts in accounting and auditing.
<PAGE>
Index to Financial Statements
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Page
Financial Statements
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . .F-2
Consolidated Balance Sheets, At June 30, 1998 (unaudited) and
At December 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . .F-3
Consolidated Statements of Operations for the Six Months Ended
June 30, 1998 and 1997 (unaudited) and for the Year Ended
December 31, 1997 and for the period from August 15, 1996
(incorporation) to December 31, 1996 . . . . . . . . . . . . . . . .F-4
Consolidated Statements of Comprehensive Income for the Six
Months Ended June 30, 1998 and 1997 (unaudited) and for the
Year Ended December 31, 1997 and for the period from August
15, 1996 (incorporation) to December 31, 1996. . . . . . . . . . . .F-5
Consolidated Statements of Stockholders' Equity for the Six Months
Ended June 30, 1998 (unaudited) and for the Year Ended December 31,
1997 and for the period from August 15, 1996 (incorporation)
to December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . .F-6
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1997 (unaudited) and for the Year Ended December 31,
1997 and for the period from August 15, 1996 (incorporation)
to December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . .F-7
Notes to Consolidated Financial Statements for the Six Months Ended
June 30, 1998 and 1997 (unaudited) and for the Year Ended December 31,
1997 and for the period from August 15, 1996 (incorporation)
to December 31, 1996 . . . . . . . . . . . . . . . . . . . . F-8 - F-18
All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
financial statements and related notes.
F-1
<PAGE>
Independent Auditors' Report
Board of Directors
The Commercial Bancorp, Inc.
Ormond Beach, Florida:
We have audited the accompanying consolidated balance sheets of The Commercial
Bancorp, Inc. and Subsidiary (the "Company") at December 31, 1997 and 1996, and
the related statements of operations, comprehensive income, stockholders'
equity, and cash flows for the year ended December 31, 1997 and for the period
from August 15, 1996 (incorporation) to December 31, 1996. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the year ended December 31, 1997 and for the period from August 15, 1996
(incorporation) to December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ HACKER, JOHNSON, COHEN & GRIEB PA
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
February 13, 1998
F-2
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At June 30, At December 31,
----------- -------------------
1998 1997 1996
---- ---- ----
(Unaudited)
Assets
<S> <C> <C> <C>
Cash and due from banks ........................................ $ 924,208 1,065,817 11,959
Federal funds sold ............................................. 1,857,707 1,400,000 --
---------- --------- -------
Total cash and cash equivalents ....................... 2,781,915 2,465,817 11,959
Securities available for sale .................................. 4,956,698 -- --
Loans, net of allowance for loan losses
of $90,000 (unaudited)
in 1998 and $35,000 in 1997, respectively .................... 8,738,514 3,745,577 --
Premises and equipment, net .................................... 769,431 462,784 --
Accrued interest receivable and other assets ................... 335,726 220,588 149,538
Deferred income taxes .......................................... 290,821 183,161 --
---------- --------- -------
Total assets .......................................... $17,873,105 7,077,927 161,497
=========== ========= =======
Liabilities and Stockholders' Equity
Liabilities:
Demand deposits .............................................. 415,687 832,396 --
Savings and NOW deposits ..................................... 3,357,012 1,040,454 --
Money-market deposits ........................................ 136,565 65,777 --
Time deposits ................................................ 9,624,088 739,433 --
---------- --------- -------
Total deposits ........................................ 13,533,352 2,678,060 --
Official checks .............................................. 63,475 54,138 --
Due to organizers ............................................ -- -- 134,204
Accrued interest payable and other liabilities ............... 170,702 11,944 --
---------- --------- -------
Total liabilities ..................................... 13,767,529 2,744,142 134,204
---------- --------- -------
Commitments (Note 6)
Stockholders' Equity:
Common stock, $.01 par value 10,000,000
shares authorized, 464,791
(unaudited), 464,791 and 6,500 shares issued
and outstanding. . . . . . . . . . . . . . . 4,648 4,648 65
Additional paid-in capital . . . . . . . . . . 4,628,542 4,628,542 64,935
Accumulated deficit. . . . . . . . . . . . . . (520,337) (299,405) (37,707)
Accumulated other comprehensive income,
unrealized loss
on securities available for sale,
net of tax of $4,460
(unaudited). . . . . . . . . . . . . . . . . (7,277) - -
---------- --------- -------
Total stockholders' equity. . . . . . . 4,105,576 4,333,785 27,293
---------- --------- -------
Total liabilities and stockholders' equity. . . . . . . $ 17,873,105 7,077,927 161,497
============ ========= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Period From
August 15, 1996
(Incorporation)
Six Months Ended Year Ended to
June 30, December 31, December 31,
----------------- ------------ ------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans .............................................. $ 287,439 -- 22,789 --
Securities available for sale ...................... 31,480 -- -- --
Other interest-earning assets ...................... 106,999 -- 89,669 --
--------- ------- -------- -------
Total interest income ............................ 425,918 -- 112,458 --
--------- ------- -------- -------
Interest expense:
Deposits ........................................... 235,130 -- 10,007 --
Other .............................................. 1,792 14,614 33,515 2,123
--------- ------- -------- -------
Total interest expense ........................... 236,922 14,614 43,522 2,123
--------- ------- -------- -------
Net interest income (expense) ................... 188,996 (14,614) 68,936 (2,123)
Provision for loan losses ............................ 55,000 -- 35,000 --
--------- ------- -------- -------
Net interest income (expense) after
provision for loan losses ................... 133,996 (14,614) 33,936 (2,123)
--------- ------- -------- -------
Noninterest income-
Service charges and fees ........................... 18,771 -- 1,886 --
--------- ------- -------- -------
Noninterest expense:
Salaries and employee benefits ..................... 213,046 87,878 245,302 --
Occupancy expense .................................. 88,431 13,287 91,720 --
Advertising ........................................ 49,200 -- 15,842 --
Professional fees .................................. 26,619 -- 11,269 --
Office supplies .................................... 5,617 1,205 40,610 --
Telephone .......................................... 12,497 6,128 20,557 --
Data processing .................................... 11,824 -- 2,631 --
Other .............................................. 69,665 34,396 52,750 35,584
--------- ------- -------- -------
Total noninterest expense ........................ 476,899 142,894 480,681 35,584
--------- ------- -------- -------
Loss before income tax benefit ....................... (324,132) (157,508) (444,859) (37,707)
Income tax benefit ............................... (103,200) (59,900) (183,161) --
--------- ------- -------- -------
Net loss ............................................. $(220,932) (97,608) (261,698) (37,707)
========= ======= ======== =======
Loss per share-
Basic .............................................. $ (.48) (15.02) (2.00) (5.80)
========= ======= ======== =======
Weighted-average shares outstanding for basic......... 464,791 6,500* 130,682 6,500*
========= ======= ======== =======
</TABLE>
* Represents shares issued to organizers during development stage.
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Period From
August 15, 1996
(Incorporation)
Six Months Ended Year Ended to
June 30, December 31, December 31,
----------------------- ------------ ------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Net loss . . . . . . . . . . . . . . . . $(220,932) (97,608) (261,698) (37,707)
Other comprehensive income - Change in
unrealized loss on securities
available for sale arising
during period, net of tax
benefit of $4,460 for the six
months ended June 30, 1998
(unaudited). . . . . . . . . . . . . . (7,277) - - -
--------- ------- -------- -------
Comprehensive income . . . . . . . . . . $(228,209) (97,608) (261,698) (37,707)
========= ======= ======== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income,
Unrealized
Loss on
Additional Securities Total
Common Paid-In Accumulated Available Stockholders'
Stock Capital Deficit for Sale Equity
----- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at August 15, 1996 ......... $ -- -- -- -- --
Issuance of 6,500 shares of common
stock ............................ 65 64,935 -- -- 65,000
Net loss ......................... -- -- (37,707) -- (37,707)
---------- --------- -------- ------ ---------
Balance at December 31, 1996 ....... 65 64,935 (37,707) -- 27,293
Retire 6,500 shares of common stock (65) (64,935) -- -- (65,000)
Issuance of 464,791 shares of common
stock net of $14,720 of offering
costs ............................ 4,648 4,628,542 -- -- 4,633,190
Net loss ......................... -- -- (261,698) -- (261,698)
---------- --------- -------- ------ ---------
Balance at December 31, 1997 ....... 4,648 4,628,542 (299,405) -- 4,333,785
Net loss (unaudited) ............... -- -- (220,932) -- (220,932)
Other comprehensive income, net
(unaudited) ...................... -- -- -- (7,277) (7,277)
---------- --------- -------- ------ ---------
Balance at June 30, 1998 (unaudited) $ 4,648 4,628,542 (520,337) (7,277) 4,105,576
========== ========= ======== ====== =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Period From
August 15, 1996
(Incorporation)
Six Months Ended Year Ended to
June 30, December 31, December 31,
-------------------- ------------ ------------
1998 1997 1997 1996
---- ---- ---- ----
(Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net loss ..................................................... $ (220,932) (97,608) (261,698) (37,707)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation ............................................... 38,418 -- 16,579 --
Provision for loan losses .................................. 55,000 -- 35,000 --
Credit for deferred income taxes ........................... (103,200) (59,900) (183,161) --
Increase in accrued interest receivable
and other assets ...................................... (115,138) (110,248) (71,050) (149,538)
Increase in accrued interest payable
and other liabilities ................................. 158,758 -- 11,944 --
---------- ------- --------- -------
Net cash used in operating activities ................. (187,094) (267,756) (452,386) (187,245)
---------- ------- --------- -------
Cash flows from investing activities:
Net increase in loans ........................................ (5,047,937) -- (3,780,577) --
Purchases of securities available for sale ................... (5,162,377) -- -- --
Principal repayments on securities available
for sale ................................................... 193,942 -- -- --
Purchases of premises and equipment .......................... (345,065) -- (479,363) --
---------- ------- --------- -------
Net cash used in investing activities ................. (10,361,437) -- (4,259,940) --
---------- ------- --------- -------
Cash flows from financing activities:
Net increase in noninterest-bearing demand,
savings, money-market and
NOW deposits ............................................... 1,970,637 -- 1,938,627 --
Net increase in time deposits ................................ 8,884,655 -- 739,433 --
Net increase in official checks .............................. 9,337 -- 54,138 --
Net advances (repayment) of advances
from organizers ............................................ -- 365,678 (134,204) 134,204
Retire common stock .......................................... -- -- (65,000) --
Sale of common stock ......................................... -- -- 4,633,190 65,000
---------- ------- --------- -------
Net cash provided by financing
activities .......................................... 10,864,629 365,678 7,166,184 199,204
---------- ------- --------- -------
Net increase in cash and cash equivalents ...................... 316,098 97,922 2,453,858 11,959
Cash and cash equivalents at beginning of period ............... 2,465,817 11,959 11,959 --
---------- ------- --------- -------
Cash and cash equivalents at end of period ..................... $ 2,781,915 109,881 2,465,817 11,959
============ ======= ========= ======
Supplemental disclosure of cash flow
information: Cash paid during the year for:
Interest ................................................... $ 212,571 -- 43,229 --
============ ======= ========= ======
Income taxes ............................................... $ -- -- -- --
============ ======= ========= ======
Noncash transactions-
Accumulated other comprehensive income,
change in unrealized loss on securities
available for sale, net ............................... $ (7,277) -- -- --
============ ======= ========= ======
</TABLE>
F-7
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Six Months Ended June 30, 1998 and 1997 (unaudited) and For the
Year Ended December 31, 1997 and the Period
from August 15, 1996 (incorporation) to December 31, 1996
(1) Summary of Significant Accounting Policies
Organization. The Commercial Bancorp, Inc. (the "Holding Company") was
incorporated on August 15, 1996. TCB owns 100% of the outstanding common
stock of The Commercial Bank of Volusia County (the "Bank") (collectively
the "Company"). The Holding Company was organized simultaneously with the
Bank and its only business is the ownership and operation of the Bank. The
Bank is a Florida state-chartered commercial bank and is insured by the
Federal Deposit Insurance Corporation. The Bank opened for business on
October 14, 1997 and provides community banking services to businesses and
individuals in Volusia County, Florida.
Basis of Presentation. The accompanying consolidated financial statements of
the Company include the accounts of the Holding Company and the Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accounting and reporting practices of the Company conform
to generally accepted accounting principles and to general practices within
the banking industry.
Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Securities. The Company must classify its securities as either trading, held
to maturity or available for sale. Trading securities are held principally
for resale and recorded at their fair values. Unrealized gains and losses on
trading securities are included immediately in earnings. Held-to-maturity
securities are those which the Company has the positive intent and ability
to hold to maturity and are reported at amortized cost. Available-for-sale
securities consist of securities not classified as trading securities nor as
held-to-maturity securities. Unrealized holding gains and losses, net of
tax, on available-for-sale securities are reported as a net amount in a
separate component of stockholders' equity until realized. Gains and losses
on the sale of available-for-sale securities are determined using the
specific-identification method. Premiums and discounts on securities
available for sale and held to maturity are recognized in interest income
using the interest method over the period to maturity.
Loans Receivable. Loans receivable that management has the intent and ability
to hold for the foreseeable future or until maturity or pay-off are reported
at their outstanding principal adjusted for any charge-offs, the allowance
for loan losses, and any deferred fees or costs on originated loans.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Company's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
(continued)
F-8
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
(1) Summary of Significant Accounting Policies, Continued
Income Taxes. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
Premises and Equipment. Premises and equipment are stated at cost less
accumulated depreciation. Depreciation expense is computed on the
straight-line basis over the estimated useful life of each type of asset.
Advances from Organizers. Certain of the Company's organizers made
interest-bearing advances totaling $738,882 during 1996 and 1997 to the
Company. These amounts were used to fund organizational and other costs
incurred by the Holding Company and the Bank. The advances were repaid to
the organizers on September 15, 1997 from the proceeds of the Company's
common stock offering.
Off-Balance-Sheet Instruments. In the ordinary course of business the Company
has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit. Such financial instruments are recorded in the
financial statements when they are funded.
Advertising. The Company expenses all media advertising as incurred.
Fair Values of Financial Instruments. The following methods and assumptions
were used by the Company in estimating fair values of financial instruments
disclosed herein:
Cash and Cash Equivalents. The carrying amounts of cash and cash equivalents
approximate their fair value.
Securities. Fair values for securities are based on quoted market prices. If
quoted market prices are not available, fair value is based on quoted market
prices for similar securities.
Loans. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
Fair values for certain fixed-rate mortgage (e.g. one-to-four family
residential), commercial real estate and commercial loans are estimated
using discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
Deposits. The fair values disclosed for demand, NOW, money-market and
savings deposits are, by definition, equal to the amount payable on demand
at the reporting date (that is, their carrying amounts). Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on time
deposits.
Accrued Interest. The carrying amounts of accrued interest approximate their
fair values.
Off-Balance-Sheet Instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standing.
Loss Per Share. Loss per share ("LPS") of common stock has been computed on
the basis of the weighted-average number of shares of common stock
outstanding. Dilutive LPS has not been computed due to the net losses
incurred during all periods presented in the consolidated statements of
operation.
(continued)
F-9
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
(1) Summary of Significant Accounting Policies, Continued
Impact of New Accounting Issues. Financial Accounting Standards 130 -
Reporting Comprehensive Income establishes standards for reporting
comprehensive income. The Standard defines comprehensive income as the
change in equity of an enterprise except those resulting from stockholder
transactions. All components of comprehensive income are required to be
reported in a new financial statement that is displayed with equal
prominence as existing financial statements. The Company adopted this
Standard effective January 1, 1998. As the Statement addresses reporting and
presentation issues only, there was no impact on operating results from the
adoption of this Standard.
Statement of Financial Accounting Standards No. 133 - Accounting for
Derivative Investments and Hedging Activities requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivatives
and whether they qualify for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. The Company will
be required to adopt this Statement July 1, 2000. Management does not
anticipate that this Statement will have a material impact on the Company.
(2) Securities
Securities have been classified according to management's intent. The Company
did not have any securities at December 31, 1997. The carrying amounts of
securities and their approximate fair values at June 30, 1998, were as
follows (unaudited):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Available for Sale-
<S> <C> <C> <C> <C>
Mortgage-backed securities. . . . . . . . . . $ 4,968,435 8,442 (20,179) 4,956,698
=========== ===== ======= =========
</TABLE>
There were no sales of securities during the six months ended June 30, 1998
(unaudited), the year ended December 31, 1997 or the period ended December
31, 1996.
<TABLE>
<CAPTION>
(3) Loans
The components of loans are as follows:
At
-------------------------------
June 30, December 31,
-------- ------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Commercial. . . . . . . . . . . . . . . . . . . . $ 4,771,443 2,832,020
Commercial real estate. . . . . . . . . . . . . . 2,322,732 240,643
Residential real estate . . . . . . . . . . . . . 1,195,048 429,364
Consumer. . . . . . . . . . . . . . . . . . . . . 538,719 268,297
----------- ---------
8,827,942 3,770,324
(Subtract) add:
Allowance for loan losses . . . . . . . . . . . (90,000) (35,000)
Net deferred costs. . . . . . . . . . . . . . . 572 10,253
----------- ---------
Loans, net. . . . . . . . . . . . . . . . . . . . $ 8,738,514 3,745,577
=========== =========
</TABLE>
F-10
(continued)
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
<TABLE>
<CAPTION>
(3) Loans, Continued
An analysis of the change in the allowance for loan losses follows:
Six Months Ended Year Ended
June 30, December 31,
---------------- -------------
1998 1997 1997
---- ---- ----
(unaudited)
<S> <C> <C>
Beginning balance . . . . . . . . . . . . . $ 35,000 - -
Provision for loan losses . . . . . . . . . 55,000 - 35,000
-------- ------
Ending balance. . . . . . . . . . . . . . . $ 90,000 - 35,000
======== ======
</TABLE>
The Company had no impaired loans in 1998 or 1997.
<TABLE>
<CAPTION>
(4) Premises and Equipment
A summary of premises and equipment follows:
At
----------------------------------
June 30, December 31,
-------- ------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Leasehold improvements. . . . . . . . . . . . . $ 357,973 96,080
Furniture, fixtures and equipment . . . . . . . 466,455 383,283
--------- -------
Total, at cost . . . . . . . . . . . . . . . 824,428 479,363
Less accumulated depreciation. . . . . . . . (54,997) (16,579)
--------- -------
Premises and equipment, net. . . . . . . . . $ 769,431 462,784
========= =======
</TABLE>
The Company leases its office facilities under an operating lease. The leases
contain an escalation clause and provides for annual adjustments for the
Company's prorata share of operating expenses. Rent expense under operating
leases during the six months ended June 30, 1998 and the year ended December
31, 1997 was $26,682 and $38,858, respectively. Estimated future rentals
over the remaining noncancellable lease terms are as follows:
Operating Operating
Year Ending Lease Year Ending Lease
June 30, Amount December 31, Amount
-------- ------ ------------ ------
(Unaudited)
1999 . . . . . . $ 61,230 1998 . . . . . $ 47,798
2000 . . . . . . 51,340 1999 . . . . . 49,249
2001 . . . . . . 51,541 2000 . . . . . 50,757
2002 . . . . . . 26,163 2001 . . . . . 52,325
--------- ---------
Total minimum
lease payments $ 190,274 $ 200,129
========= =========
(continued)
F-11
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
<TABLE>
<CAPTION>
(5) Deposits
Time deposits included the following amounts:
At
----------------------------------
June 30, December 31,
-------- ------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Certificates of Deposit $100,000 and over . . . . . . . $ 1,414,125 300,452
Certificates of Deposit under $100,000. . . . . . . . . 8,209,963 438,981
----------- -------
$ 9,624,088 739,433
=========== =======
</TABLE>
A schedule of maturities of certificates of deposit follows:
Year Ending Year Ending
June 30, Amount December 31, Amount
-------- ------ ------------ ------
(Unaudited)
1999 . . . . . . $ 5,148,478 1998 . . . . . $ 514,431
2000 . . . . . . 2,841,072 2000 . . . . . 225,002
2001 . . . . . . 1,634,538 ---------
-----------
$ 9,624,088 $ 739,433
=========== =========
<TABLE>
<CAPTION>
(6) Financial Instruments
The estimated fair values of the Company's financial instruments were as
follows (in thousands):
At
-------------------------------------------------------
June 30, 1998 December 31, 1997
------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(unaudited)
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents . . . . . $ 2,782 2,782 2,466 2,466
Securities. . . . . . . . . . . . . 4,957 4,957 - -
Loans receivable. . . . . . . . . . 8,739 8,799 3,746 3,703
Accrued interest receivable . . . . . . . 79 79 16 16
Financial liabilities:
Deposits. . . . . . . . . . . . . . 13,533 13,576 2,678 2,692
====== ====== ===== =====
</TABLE>
(continued)
F-12
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
(6) Financial Instruments, Continued
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments are unused lines of credit and may involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the balance sheet. The contract amounts of these
instruments reflect the extent of involvement the Company has in these
financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments as it does for
on-balance-sheet instruments.
A summary of the notional amounts of the Company's financial instruments which
approximates fair value, with off balance sheet risk was as follows (in
thousands):
At
-----------------------
June 30, December 31,
-------- ------------
1998 1997
---- ----
(unaudited)
Unused lines of credit. . . . . . . . . . . . . . $ 494 639
===== ===
(7) Related Party Transactions
Inthe ordinary course of business, the Company has made loans at terms and
rates prevailing at the time to officers and directors of the Company. The
aggregate dollar amount of these loans totaled approximately $2.3 million
(unaudited) and $727,225 at June 30, 1998 and December 31, 1997,
respectively. As of the same dates, these individuals and entities had
approximately $852,576 (unaudited) and $71,773 of funds on deposit in the
Company.
(8) Credit Risk
The Company grants the majority of its loans to borrowers throughout Volusia
County, Florida. Although the Company has a diversified loan portfolio, a
significant portion of its borrowers' ability to honor their contracts is
dependent upon the economy in Volusia County, Florida.
(9) Income Taxes
The income tax benefit consisted of the following:
Six Months Ended Year Ended
June 30, December 31,
-------- ------------
1998 1997 1997
---- ---- ----
(unaudited)
Deferred:
Federal .................... $ (88,500) (51,100) (156,000)
State ...................... (14,700) (8,800) (27,161)
--------- ------- --------
Total deferred benefit $(103,200) (59,900) (183,161)
========= ======= ========
(continued)
F-13
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
(9) Income Taxes, Continued
The income tax benefit is different than that computed by applying the Federal
statutory rate of 34%, as indicated in the following analysis:
<TABLE>
<CAPTION>
Year Ended
Six Months Ended June 30, December 31,
------------------------- ------------
1998 1997 1997
---- ---- ----
(unaudited)
% of % of % of
Pretax Pretax Pretax
Amount Loss Amount Loss Amount Loss
------ ---- ------ ---- ------ ----
Income tax benefit at statutory Federal
<S> <C> <C> <C> <C> <C> <C>
income tax rate ................................... $(110,200) (34.0)% $ (53,500) (34.0)% $(151,000) (34.0)%
(Increases) decreases resulting from
State taxes, net of federal tax benefit ........... (9,700) (3.0) (5,800) (3.7) (18,000) (4.0)
Other ............................................. 16,700 5.2 (600) (.3) (14,161) (3.2)
---------- ------- ---------- ------ -------- -------
$(103,200) (31.8)% $ (59,900) (38.0)% $(183,161) (41.2)%
========= ===== ========= ===== ========= =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below.
<TABLE>
<CAPTION>
At
----------------------
June 30, December 31,
-------- ------------
1998 1997
---- ----
(unaudited)
Deferred tax assets:
<S> <C> <C>
Organization and startup costs .............................. $ 88,000 114,000
Net operating loss carryforwards ............................ 249,000 88,000
Unrealized loss on securities available for sale ............ 4,460
Other ....................................................... -- 161
-------- -------
Gross deferred tax assets ................................. 341,460 202,161
-------- -------
Deferred tax liabilities:
Accrued income net of accrued expenses ...................... 28,000 16,000
Premises and equipment ...................................... 21,000 3,000
Other ....................................................... . .1,639 --
-------- -------
Gross deferred tax liabilities ............................ 50,639 19,000
-------- -------
Net deferred tax asset .................................... $290,821 183,161
======== =======
</TABLE>
(continued)
F-14
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
(9) Income Taxes, Continued
The Company had net operating loss carryforwards for federal and state income
tax purposes as follows:
At
-------------------------
June 30, December 31,
-------- ------------
Year Expires 1998 1997
------------ ---- ----
(unaudited)
2011 . . . . . . $ 4,000 4,000
2012 . . . . . . 229,000 229,000
2018 . . . . . . 428,000 -
--------- -------
$ 661,000 233,000
========= =======
(10) Stock Option Plan
The Company adopted an employee stock option plan which was approved by the
stockholders on April 21, 1998. Under the plan, the total number of shares
which may be issued shall not exceed 10%, (currently 46,479) of the
Company's total outstanding shares. At June 30, 1998, an option to purchase
10,000 shares at $10 per share had been granted. This option expires ten
years from the date of grant and the options vest 20% on December 31, 1998
and on each of the succeeding December 31 for four years.
Inorder to calculate the fair value of the options, it was assumed that the
risk-free interest rate was 6.0%, there would be no dividends paid by the
Company over the exercise period, the expected life of the options would be
the entire exercise period and stock volatility would be zero due to the
lack of an active market for the stock. The fair value of options issued
during 1998 was $45,100.
(11) Regulatory Matters
The Holding Company and the Bank are subject to various regulatory capital
requirements administered by various regulatory 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 Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of Total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of June 30, 1998 and
December 31, 1997, that the Company exceeded all capital adequacy
requirements to which it is subject.
(continued)
F-15
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
(11) Regulatory Matters, Continued
Asof June 30, 1998 and December 31, 1997, the most recent notification from
the regulatory authorities categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Bank 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 Bank's category. The Bank's actual capital amounts and
ratios are also presented in the table (dollars in thousands).
<TABLE>
<CAPTION>
To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provision:
------ ------------------ -----------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998 (unaudited):
Total capital (to Risk
Weighted Assets) ............... $3,387 35.5% $ 764 8.0% $ 955 10.0%
Tier I Capital (to Risk
Weighted Assets) ............... 3,530 37.0 382 4.0 573 6.0
Tier I Capital
(to Average Assets) ........... 3,530 21.9 645 4.0 806 5.0
As of December 31, 1997:
Total capital (to Risk
Weighted Assets) ............... $3,950 92.7% $ 341 8.0% $ 426 10.0%
Tier I Capital (to Risk
Weighted Assets) ............... 3,767 88.4 171 4.0 256 6.0
Tier I Capital
(to Average Assets) ........... 3,767 69.2 218 4.0 272 5.0
</TABLE>
(12) Stockholders' Equity
The Bank is subject to certain restrictions on the amount of dividends that it
may declare without prior regulatory approval. At June 30, 1998 (unaudited)
and December 31, 1997, the Bank had no amounts available for dividends.
During 1997, the Company sold 464,791 shares of common stock for an aggregate
of $4,647,910. The Company incurred $14,720 in offering expenses relating to
their public offering of the Company's common stock and warrants. Offering
expenses were deducted from the proceeds received from the sale of common
stock and warrants.
During the Company's initial offering shares were offered in units with a unit
consisting of one share of common stock and one warrant. Each warrant
entitles the holder thereof to purchase one additional share of common stock
for $10 per share during the 36 month period ending April 27, 2000. There
were 450,000 warrants issued and as of June 30, 1998 (unaudited) and
December 31, 1997 they were all outstanding.
(continued)
F-16
<PAGE>
<TABLE>
<CAPTION>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
(13) Parent Company Only Financial Information
The Holding Company's financial information is as follows at June 30, 1998
(unaudited) and December 31, 1997 and 1996 and for the six months ended June
30, 1998 and 1997 (unaudited), year ended December 31, 1997 and for the
period from August 15, 1996 (incorporation) to December 31, 1996:
Condensed Balance Sheets
At June 30, At December 31,
----------- ---------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Assets (unaudited)
Cash ...................................................... $ 92,685 371,769 11,959
Investment in subsidiary .................................. 3,798,977 3,950,016 --
Other assets .............................................. 343,914 12,000 149,538
---------- --------- -------
Total assets ............................................ $4,235,576 4,333,785 161,497
========== ========= =======
Liabilities and Stockholders' Equity
Advances from organizers .................................. -- -- 134,204
Other liabilities ......................................... 130,000 -- --
Stockholders' equity ...................................... 4,105,576 4,333,785 27,293
---------- --------- -------
Total liabilities and stockholders' equity .............. $4,235,576 4,333,785 161,497
========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Operations
Six Months Ended Period Ended
June 30, December 31,
-------- ------------
1998 1997 1997 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Revenues .................................................. $ 4,361 -- 43,702 --
Expenses .................................................. 81,531 2,708 5,416 37,707
--------- ------- -------- -------
(Loss) earnings before loss of subsidiary ............... (77,170) (2,708) 38,286 (37,707)
Loss of subsidiary ...................................... (143,762) (94,900) (299,984) --
--------- ------- -------- -------
Net loss ................................................ $(220,932) (97,608) (261,698) (37,707)
========= ======= ======== =======
</TABLE>
(continued)
F-17
<PAGE>
THE COMMERCIAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
June 30, 1998 and 1997 are Unaudited
(13) Parent Company Only Financial Information, Continued
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Six Months Ended Period Ended
June 30, December 31,
---------------- ------------
1998 1997 1997 1996
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $ (220,932) (97,608) (261,698) (37,707)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Equity in undistributed loss of subsidiaries ............ 143,762 94,900 299,984 --
Net (increase) decrease in other assets ................. (331,914) (265,048) 137,538 (149,538)
Increase in other liabilities ........................... 130,000 -- -- --
---------- ------- ------- ------
Net cash (used in) provided by operating
activities ................... (279,084) (267,756) 175,824 (187,245)
---------- ------- ------- ------
Cash flows from financing activities:
Net proceeds from issuance of common stock ................ -- -- 4,633,190 65,000
Retire common shares ...................................... -- -- (65,000) --
Net advances (repayment) of advances
from organizers ......................................... -- 365,678 (134,204) 134,204
Investment in subsidiary .................................. -- -- (4,250,000) --
---------- ------- ------- ------
Net cash provided by financing activities ............... -- 365,678 183,986 199,204
---------- ------- ------- ------
Net (decrease) increase in cash and cash equivalents ........... (279,084) 97,922 359,810 11,959
Cash and cash equivalents at beginning of the period ........... 371,769 11,959 11,959 --
---------- ------- ------- ------
Cash and cash equivalents at end of period ..................... $ 92,685 109,881 371,769 11,959
========== ======= ======= ======
</TABLE>
F-18
<PAGE>
================================================================================
You should rely only on the information contained in this Prospectus or
information that we have referred to you. We have not authorized anyone to
provide you with other or different information. Information contained in this
Prospectus was, to the best of our knowledge, correct when it was printed. Some
of the information will change after the printing date because the Company
continues to engage in its usual and customary business activities. The
accidental or improper delivery of this Prospectus to persons to whom it is
unlawful to make an offer, because of state securities laws, shall not
constitute an offer to buy the securities.
TABLE OF CONTENTS:
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Financial Data . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . .
Determination of the Offering Price. . . . . . . . . . . . . . . .
Market for Common Stock . . . . . . . . . . . . . . . . . . . . .
Dilution .. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial Data
Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulation and Supervision . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . .
Beneficial Ownership of Common Stock . . . . . . . . . . . . . . .
Description of Capital Stock . . . . . . . . . . . . . . . . . . .
Summary of the
Articles of Incorporation of TCB. . . . . . . . . . . . . . .
Sales Agent . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Offering . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Consolidated Financial Statements . . . . . . . . . . . . F-1
================================================================================
<PAGE>
================================================================================
Minimum 800,000 shares
Maximum 1,200,000 shares
----------
PROSPECTUS
----------
October ___, 1998
================================================================================
<PAGE>
PART-II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24: Indemnification of Directors and Officers
As provided under Florida law, the Company's directors shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of duty of care or any other duty owed to the Company as a director,
unless the breach of or failure to perform those duties constitutes: (i) a
violation of criminal law, unless the director had reasonable cause to believe
his conduct was lawful, or had no reasonable cause to believe his conduct was
unlawful; (ii) a transaction from which the director received an improper
personal benefit; (iii) for unlawful corporate distributions; or (iv) an act or
omission which involves a conscious disregard for the best interests of the
Corporation or which involves willful misconduct; or (v) an act of recklessness
or an act or omission which was committed in bad faith or with malicious purpose
or in a manner exhibiting wanton and willful disregard of human rights, safety,
or property.
Article XII of the Company's Articles of Incorporation provides that the
Company shall indemnify a director who has been successful in the defense of any
proceeding to which he was a party or in defense of any claim, issue or matter
therein because he is or was a director of the Company, against reasonable
expenses incurred by him in connection with such defense.
The Company's Articles of Incorporation also provide that the Company is
required to indemnify any director, officer, employee or agent made a party to a
proceeding because he is or was a director, employee or agent against liability
incurred in the proceeding if he acted in a manner he believed in good faith or
to be in or not opposed to the best interests of the Company and, in the case of
any criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. Determination concerning whether or not the applicable standard of
conduct has been met can be made by: (i) a disinterested majority of the Board
of Directors; (ii) a majority of a committee of disinterested directors; (iii)
independent legal counsel; or (iv) an affirmative vote of a majority of shares
held by disinterested stockholders. No indemnification may be made to or on
behalf of a director, officer, disinterested stockholder, employee or agent in
connection with a proceeding by or in the right of the Company in which such
person was adjudged liable to the Company or in connection with any other
proceeding in which such person was adjudged liable on the basis that personal
benefit was improperly received by him.
<PAGE>
Item 25: Other Expenses of Issuance and Distribution
The following table sets forth all expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered, other than the sales agent's commissions. All of the amounts shown
are estimated except for the registration fees of the Commission.
SEC Registration Fees . . . . . . . . . . . . . . . . . $ 4,248
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . 1,300
Blue Sky Registration Fees & Expenses . . . . . . . . . 5,000
Financial Advisory Fee. . . . . . . . . . . . . . . . . 25,000
Legal fees and expenses . . . . . . . . . . . . . . . . 75,000
Accounting Fees . . . . . . . . . . . . . . . . . . . . 15,000
Printing and Engraving expenses . . . . . . . . . . . . 15,000
Transfer Agent and Registration Fees and Expenses . . . 4,000
Escrow Fees . . . . . . . . . . . . . . . . . . . . . . 2,500
Advertising . . . . . . . . . . . . . . . . . . . . . . 2,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 5,000
Total. . . . . . . . . . . . . . . . . . . . . . . $154,048
Item 26: Recent Sales of Unregistered Securities.
During the organizational phase of the Company, and in order to meet
the net worth requirements of a Florida issuer, the Company issued 6,500 shares
of common stock in a private offering to its directors for $10.00 per share. In
reliance upon the exemption contained in Section 4(2) of the Securities Act, the
were repurchased by the Company following the sale fo the minimum shares. The
Company granted its President, Gary G. Campbell, an option to purchase 10,000
shares of the Company's common stock. The grant was effective on January 1,
1998.
<PAGE>
<TABLE>
<CAPTION>
Item 27: Exhibits and Financial Statement Schedules
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C> <C>
*1.1 Form of Sales Agency Agreement with Banc Stock Financial Services, Inc.
**3.1 Articles of Incorporation of the Company
*3.2 By-Laws of the Company
**4.1 Specimen Common Stock Certificate
**4.2 Specimen Warrant Certificate
4.3 Escrow Agreement with SunTrust
*4.4 Warrant Plan adopted by the Company on January 9, 1998.
*4.5 Warrant Plan to be adopted for TCB-Highlands Organizers
5.1 Opinion of Igler & Dougherty, P.A.
10.1 Employment Agreement between the Company and Gary G. Campbell
***10.2 The Company's 1997 Stock Option and Limited Rights Plan
21.1 Subsidiaries of the Company
23.1 Consent of Igler & Dougherty, P.A., included in the Opinion Letter
23.2 Consent of Hacker, Johnson, Cohen & Grieb
24.1 Power of Attorney (included in signature page to this Registration Statement).
27.1 Financial Data Schedule
</TABLE>
* To be filed by amendment.
** Denotes previously EDGAR filed as part of the Company's Registration
Statement, File No. 333-19201.
*** Denotes previously EDGAR filed as part of the Company's 10KSB for the
fiscal year ended December 31, 1997
<PAGE>
Item 28. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (Section 230.424[b] of this
chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the 33 Act, the registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form SB-2 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Sebring, State of Florida, on the 28th day of September 1998.
THE COMMERCIAL BANCORP, INC.
By: /s/ Gary G. Campbell
-------------------------------------------------
Gary G. Campbell
President and Chief Executive Officer
By: /s/ Harvey E. Buckmaster
-------------------------------------------------
Harvey E. Buckmaster
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary G. Campbell and Harvey E. Buckmaster their
true and lawful attorneys-in-fact and agent, with full power of substitution and
resubstitution for him in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post effective amendments) to this
Registration Statement, and to file same, with all exhibits thereto, and other
documents in connection therewith, with the SEC, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the premises
as fully and to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the 33 Act, this Registration Statement has
been signed by the following persons in the capacities and as of the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary G. Campbell Director September 28, 1998
-----------------------------
Gary G. Campbell
Director September __, 1998
-----------------------------
Richard Dwyer
/s/ H. Frederick Kieber Director September 28, 1998
-----------------------------
H. Frederick Keiber
/s/ Larry A. Kent Chairman of the Board September 28, 1998
-----------------------------
Larry A. Kent
/s/ James F. McCollum Director September 22, 1998
-----------------------------
James F. McCollum
/s/ James R. Peacock Director September 25, 1998
-----------------------------
James R. Peacock
/s/ Norbert A. Walz Director September 28, 1998
-----------------------------
Norbert A. Walz
</TABLE>
SunTrust Bank, Central Florida, National Association
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is entered into and effective this ___day
of, _________, 1998, by and between The Commercial Bancorp, Inc., a Florida
corporation ( the "Company") and the SunTrust Bank, Central Florida, National
Association, as escrow agent (" Escrow Agent").
WITNESSETH:
WHEREAS, the Company, proposes to offer for sale up to 1,200,000 shares of its
$0.01 par value common stock (the "Common Stock"), which shares shall be
registered under the Securities Act of 1933, as amended, at a per share price to
be determined in minimum subscriptions of 100 shares ("Offering"); and
WHEREAS, the Company has requested the Escrow Agent to serve as the depository
for the payment of subscription proceeds ("Payments") received by the Company
from investor(s) who are subscribing to purchase shares of Common Stock in the
Company pursuant to, and in accordance with, the terms and conditions contained
in the Company's Prospectus and Stock Order Forms ("Order Form") thereto; and
WHEREAS, the Offering will terminate as provided for in the Prospectus
("Offering Period").
NOW THEREFORE, in consideration of the premises and understandings contained
herein, the parties agree as follows:
(1) The Company hereby appoints and designates the Escrow Agent for the
Purposes set forth herein. The Escrow Agent acknowledges and accepts said
appointment and designation. The Company understands that the Escrow Agent, by
accepting said appointment and designation, in no way endorses the merits of the
Offering of the shares described herein. The Company agrees to notify any person
acting on its behalf that the position of Escrow Agent does not constitute such
an endorsement, and to prohibit said persons from the use of the Escrow Agent's
name as an endorser of such offering. The Company further agrees that it will
not use the Escrow Agent's name, in any sales literature or otherwise, in
connection with such offering without receiving the prior consent of the Escrow
Agent. The parties hereto agree that the Escrow Agent has made no investigation
with respect to the Company, the investment decision of the subscribers to
purchase the Common Stock, or any other aspect of the transaction or
transactions taking place between the Company and the subscribers. Without
limiting the foregoing, the Escrow Agent shall have no duty to ascertain whether
the Company or the subscribers are in compliance with any applicable statute,
regulation or law, or agreement between the Company and the subscribers.
(2) The Escrow Agent shall accept all Order Forms and payments (the
"Subscription Funds") delivered to the Escrow Agent (SunTrust Bank, Central
Florida, National Association, Attn. Corporate Trust Division) in the form in
which they are received. The Escrow Agent shall immediately deposit all
Subscription Funds received and shall deliver all Order Forms to the Company
within two days of receipt thereof. The Company shall deliver to the Escrow
Agent within five(5) calendar days of receipt of the Order Forms, copies of
written acceptances by the Company for shares in the Company for which the
Subscription Funds represent payment.
(3) Subscription Funds shall be held and disbursed by the Escrow Agent in
accordance with the terms of this Agreement.
(4) In the event any Subscription Funds are dishonored for payment for any
reason, the Escrow Agent agrees to orally notify the Company thereof as soon as
practicable and to confirm same in writing and to return dishonored Subscription
Funds to the Company in the form in which they were delivered.
Page 1 of 5
<PAGE>
(5) Should the Company elect to accept a subscription for less than the number
of shares shown in the purchaser's Order Form, it shall indicate such lesser
number of shares on the written acceptance of the Company transmitted to the
Escrow Agent. Upon notice from the Company of such election, the Escrow Agent
shall remit within ten (10) days to such subscriber at the address shown in his
Order Form that amount of his Subscription Funds in excess of the amount which
constitutes full payment for the number of subscribed shares accepted by the
Company as shown in the Company's written acceptance, without interest or
diminution. Said address shall be provided by the Company to the Escrow Agent as
requested.
(6) Definitions as used herein:
(a) "Total Receipts" shall mean the sum of all Subscription Funds
delivered to the Escrow Agent pursuant to Paragraph (2) hereof, less (i) all
Subscription Funds returned pursuant to Paragraph (5) herein and (ii) all
Subscription Funds which have not been paid by the financial institution upon
which they are drawn.
(b) "Expiration Date" shall mean 5:00 P.M., on the date defined in the
Prospectus provided, however, in the event that the Escrow Agent is given oral
notification followed in writing, by the Company that it has elected to cancel
the offering, then the Expiration Date shall mean 5:00 P.M., Eastern Time, on
the date the offering has been canceled.
(c) "Closing Date" shall mean the business day on which the Company, in
its sole discretion, has determined that all of the Offering conditions have
been met. The Closing Date shall be confirmed to the Escrow Agent in writing by
the Company.
(d) "Escrow Release Conditions" shall mean that (i) the Company has not
canceled the Offering, and (ii) Subscriptions totaling 800,000 shares shall have
been received by the Company.
(7) If, on or before the Expiration Date, (i) the Total Receipts held by the
Escrow Agent equal or exceed the product of multiplying 800,000 shares times the
final offering price and (ii) the Company has certified, in writing, to the
Agent that the Escrow Release Conditions have been consummated, the Escrow Agent
shall:
(a) No later than 10:00 A.M., Eastern Time, one day prior to Closing Date
(as that term is defined herein), deliver to the Company all Order Forms
provided to the Escrow Agent; and
(b) On the Closing Date, no later than 10:00 A.M., Eastern Time, upon
receipt of 24-hour written instructions from the Company, remit all amounts
representing Subscription Funds, plus any profits or earnings, held by the
Escrow Agent pursuant hereto to the Company in accordance with such
instructions.
(8) If (i) the Escrow Release Conditions are not met by the Expiration Date,
or (ii) the Offering is canceled by the Company at any time prior to the
Expiration Date, then the Escrow Agent shall promptly remit to each subscriber
at the address set forth in his Order Form an amount equal to the amount of his
Subscription Funds held by the Escrow Agent, if any, plus any interest thereon.
The interest accruing to any individual subscriber under this paragraph shall be
a prorated share of the gross earnings on all funds under escrow, weighted by
the amount and the duration of the funds tendered for the individual
subscription. Under no circumstances will interest accrue to any subscription
canceled for any reason other than those provided for in this Paragraph.
(9) Pending disposition of the Subscription Funds under this Agreement, the
Escrow Agent will invest collected Subscription Funds in overnight repurchase
agreements collateralized at 100% with obligations of the United States Treasury
or United States Government Agencies. These repurchase agreement transactions
will earn interest at a rate determined by a master repurchase agreement between
the Escrow Agent and the Company.
(10) The obligations of the Escrow Agent hereunder shall terminate upon the
Escrow Agent's transfer of all funds held hereunder pursuant to the terms of
Paragraph (7) herein, as applicable.
Page 2 of 5
<PAGE>
(11) The Escrow Agent shall be protected in acting upon any written notice,
request, waiver, consent, certificate, receipt, authorization, or other paper or
document which the Agent believes to be genuine and what it purports to be.
(12) The Company hereby assumes liability for, and hereby agrees (whether or
not any of the transactions contemplated hereby are consummated) to indemnify,
protect, save and hold harmless the Escrow Agent and its respective successors,
assigns, agents and servants from and against any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, costs, expenses
and disbursements (including legal fees and disbursements whether incurred
absent any adversarial proceedings, or prior to trial, at trial, or on appeal or
in any bankruptcy or arbitration proceedings) of whatsoever kind and nature
which may be imposed on, incurred by, or asserted against, at any time, the
Escrow Agent (whether or not also indemnified against by the Company or any
other person under any other agreement or instrument) and in any way relating to
or arising out of the execution and delivery of this Agreement, the performance
by the Escrow Agent of its duties hereunder, the retention of the Subscription
Funds hereunder and any payment, transfer or other application of monies or
securities by the Escrow Agent in accordance with the provisions of this
Agreement, or as may arise by reason of any act, omission or error of the Escrow
Agent made in good faith in the conduct of its duties; provided, however, that
the Company shall not be required to indemnify the Escrow Agent against its own
gross negligence or willful misconduct. The indemnification provided herein
shall survive the termination of this Agreement.
(13) The Escrow Agent may confer with legal counsel in the event of any
dispute or questions as to the construction of any of the provisions hereof, or
the Escrow Agent's duties hereunder, and shall incur no liability and shall be
fully protected in acting in accordance with the opinions and instructions of
such counsel. Any and all expenses and legal fees in this regard will be paid by
the Company.
(14) In the event of any disagreement between the Company and any other person
resulting in adverse claims and demands being made in connection with any
Subscription Funds involved herein or affected hereby, the Escrow Agent shall be
entitled to refuse to comply with any such claims or demands as long as such
disagreement may continue, and in so refusing, shall make no delivery or other
disposition of any Subscription Funds then held under this Agreement, and in so
doing shall be entitled to continue to refrain from acting until (a) the right
of adverse claimants shall have been finally settled by binding arbitration or
finally adjudicated in a court in Orange County, Florida assuming and having
jurisdiction of the Subscription Funds involved herein or affected hereby or (b)
all differences shall have been adjusted by agreement and the Escrow Agent shall
have been notified in writing of such agreement signed by the parties hereto. In
the event of such disagreement, the Escrow Agent may, but need not, tender into
the registry or custody of any court of competent jurisdiction in Orange County,
Florida all money or property in the Escrow Agent's hands under the terms of
this Agreement, together with such legal proceedings as the Escrow Agent deems
appropriate, and thereupon be discharged from all further duties under this
Agreement. The filing of any such legal proceeding shall not deprive the Escrow
Agent of compensation or expenses payable hereunder. The Escrow Agent shall have
no obligation to take any legal action in connection with this Agreement or
towards its enforcement, or to appear in, prosecute or defend any action or
legal proceeding which would or might involve the Escrow Agent in any cost,
expense, loss or liability unless indemnification, satisfactory to the Escrow
Agent in its sole discretion, shall be furnished. The Escrow Agent shall be
indemnified for all costs and reasonable attorneys fees in connection with any
such action. The indemnification provided for herein shall survive termination
of this Agreement.
(15) The Escrow Agent may resign for any reason upon thirty (30) days written
notice to the Company. Upon the expiration of such thirty (30) day notice
period, the Escrow Agent may deliver all Subscription Funds and Order Forms in
possession under this Agreement to any successor Escrow Agent appointed by the
Company, or if no successor Escrow Agent has been appointed, to any court of
competent jurisdiction. Upon either such delivery, the Escrow Agent shall be
released from any and all liability under this Agreement. A termination under
this paragraph shall in no way change the terms of Paragraphs (12), (14) and
(16) affecting reimbursement of expenses, indemnity and fees.
Page 3 of 5
<PAGE>
(16) The Escrow Agent will charge the Company for services hereunder a fee of
$1,500.00 for the first 150 subscriptions received, plus $10.00 for each
additional subscription received, plus an additional fee of $10.00 for each
check issued, $10.00 for each wire and $.10 for each photo copy necessitated in
the performance of duties shall be charged to the Company. All actual expenses
and costs (including any attorneys' fees and expenses incurred by the Escrow
Agent) incurred by the Escrow Agent in performing obligations under this
Agreement including all attorney's fees and expenses will be paid by the
Company. All fees and expenses shall be paid on the Closing Date by the Company.
Any subsequent fees and expenses will be paid by the Company upon receipt of
invoice. The Escrow Agent shall have no obligation whatsoever to expend its own
funds hereunder.
(17) All notices and communications hereunder shall be in writing and shall be
deemed to be duly given if sent by registered or certified mail, return receipt
requested, to the respective addresses set forth herein. The Escrow Agent shall
not be charged with knowledge of any fact, including but not limited to
performance or non-performance of any condition, unless the Escrow Agent has
actually received written notice thereof from the Company or its authorized
representative clearly referring to this Agreement.
(18) The rights created by this Agreement shall inure to the benefit of, and
the obligations created hereby shall be binding upon the successors and assigns
of the Escrow Agent and the parties hereto.
(19) This Agreement shall be construed and enforced according to the laws of
the State of Florida.
(20) This Agreement shall terminate and the Escrow Agent shall be discharged
of all responsibility hereunder at such time as the Escrow Agent shall have
completed all duties hereunder.
(21) This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
(22) This Agreement constitutes the entire understanding and agreement of the
parties hereto with respect to the transactions described herein and supersedes
all prior agreements or understandings, written or oral, between the parties
with respect thereto. The Escrow Agent shall not be bound by any amendment to
this Agreement except by such amendment as shall have been executed by the
Escrow Agent.
(23) This Agreement expressly sets forth all the duties of Escrow Agent with
respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into the Agreement against Escrow Agent. Escrow Agent,
in its capacity as such, shall not be bound by any provisions of any agreement
between the Company and any other party other than this Agreement and shall have
no duty to inquire into or to take into account its knowledge of, the terms and
conditions of any agreement made or entered into in connection with this
Agreement.
(24) If any provision of this Agreement is declared by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
shall nevertheless continue in full force and effect without being impaired or
invalidated in any way.
(25) The Company shall provide the Escrow Agent with its Employer
Identification Number as assigned by the Internal Revenue Service. Additionally,
the Company shall complete and return to the Escrow Agent any and all tax forms
or reports required to be maintained or obtained by the Escrow Agent.
(26) The authorized signature of the Escrow Agent hereto is consent that a
signed copy hereof may be filed with the various regulatory authorities of the
State of Florida and with any Federal Government agencies or regulatory
authorities. In entering into this Agreement, however, the Escrow Agent
undertakes no responsibility whatsoever to any such regulatory authorities of
the State of Florida or Federal Government agencies or regulatory authorities.
Page 4 of 5
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Executed by the Parties hereto on the day first written above:
THE COMMERCIAL BANCORP, INC.
Attest:_________________ By: _________________________
________________________ Authorized Signature
Title: _________________________
Type Name and Title
Date: __________________
(CORPORATE SEAL)
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION
Attest:_________________ By: _________________________
________________________ Authorized Signature
Title: _________________________
Type Name and Title
Date: __________________
By: ______________________
Title: ______________________
(CORPORATE SEAL)
Page 5 of 5
<PAGE>
Exhibit 5.1
<PAGE>
IGLER & DOUGHERTY, P.A.
Attorneys at Law
1501 PARK AVENUE EAST
TALLAHASSEE, FLORIDA 32301
--------
Winter Park Office Tampa Office
------- ------
Federal Trust Bank Building (850) 878-2411 TELEPHONE Park Tower - Suite 2625
1211 Orange Avenue (850) 878-1230 FACSIMILE 400 North Tampa Street
Winter Park, Florida 32789 Tampa, Florida 33602
REPLY TO: TALLAHASSEE OFFICE (813) 307-0510 - Telephone
(407) 647-0822 - Telephone
(407) 647-8089 - Facsimile (813) 307-0415 - Facsimile
September 30, 1998
Board of Directors
The Commercial Bancorp, Inc.
258 North Nova Road
Ormond Beach, FL 32174
Gentlemen:
You have requested our opinion in connection with the proposed stock
offering of up to 1,200,000 shares of Common Stock, par value $.01 per share
(the "Common Stock") by The Commercial Bancorp, Inc., ("Company") through a
public offering.
In preparation of this opinion, we have reviewed the Company's Articles of
Incorporation, its Bylaws, Registration Statement on Form SB-2 filed on behalf
of the Company with the Securities and Exchange Commission ("SEC") on September
30, 1998, and all exhibits thereto (the "Registration Statement"). We have also
examined the originals or copies, certified or otherwise identified to our
satisfaction, of such documents and corporate and other records, have obtained
such certificates, letters, representations, and information from the officers
and directors of the Company and from others, and made such examinations of law
as we have deemed necessary. In connection with rendering the opinions set forth
below, we have assumed that the Company will conduct business primarily in
Florida.
Based upon the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of Florida, with corporate power and
authority to own its property and conduct its business as now conducted as
described in the Registration Statement;
2. The shares of Common Stock of the Company to be issued in accordance
with the terms set forth in the Prospectus constituting a part of the
Registration Statement are validly authorized and, when (a) the pertinent
provisions of the Securities Act of 1933 and such "blue-sky" and securities law
as may be applicable have been complied with, (b) the subscription agreements
for such shares have been properly accepted, and (c) such shares have been duly
delivered against payment therefore as contemplated by the Prospectus, such
shares will be validly issued, fully paid, and nonassessable.
<PAGE>
We understand that you may wish to include this Opinion as an exhibit to
the Registration Statement, and we consent to such inclusion. Furthermore, we
consent to the references to this firm's name in the Company's Prospectus and
any and all amendments thereto.
Sincerely, /s/ IGLER & DOUGHERTY, P.A.
EMPLOYMENT AGREEMENT
BY AND BETWEEN
THE COMMERCIAL BANCORP, INC.,
THE COMMERCIAL BANK OF VOLUSIA COUNTY
AND
GARY G. CAMPBELL
THIS EMPLOYMENT AGREEMENT ("Agreement") is made, effective this 1st day of
July, 1998, by and between The Commercial Bancorp, Inc., The Commercial Bank of
Volusia County, a state-chartered commercial bank with its principal office in
Ormond Beach, Florida ("Company", "Bank", "Employer", "we" or "us") and Gary G.
Campbell ("Employee" or "you") (collectively, the Employer and the Employee are
sometimes referred to as the "Parties").
RECITAL
We wish to retain you as our President and Chief Executive Officer of the
Company and the Bank to perform the duties and responsibilities as are described
in this Agreement and as our Board of Directors ("Board") may assign to you from
time to time. You wish to become employed by us and act as our President and
Chief Executive Officer in accordance with the terms and provisions of this
Agreement. This Agreement contains all of the terms and provisions of the
employment relationship.
OPERATIVE TERMS:
NOW, THEREFORE, in consideration of the mutual agreements contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties hereto represent, warrant, undertake,
covenant and agree as follows:
1. Employment and Term. We shall employ you and you shall be employed by us
pursuant to the terms of this Agreement to perform the services specified in
Section 2 of this Agreement on our behalf. This Agreement shall be effective on
July 1, 1998, (the "Commencement Date") and terminate on the day immediately
preceding two (2) years from the Commencement Date (the "Term"), unless
terminated earlier pursuant to the provisions of Sections 8, 9 or 10 of this
Agreement. The Board shall review this Agreement and the Employee's performance
hereunder on or before March 31, 1999, and annually thereafter, in order to
determine whether to extend the Agreement for an additional 12 month period. The
decision to extend the term of this Agreement for an additional year is within
the sole discretion of the Board. Any such renewal shall be on the same terms
and provisions set forth herein. For purposes of this Agreement, the word "Term"
shall include any renewal or extension of the initial two-year term of this
Agreement.
2. Position, Responsibilities and Duties. During the Term, you shall serve
in the following capacities and shall fulfill the following responsibilities and
duties:
(a) President and Chief Executive Officer: You shall serve in the
position of President and Chief Executive Officer of the Company and the
Bank, through election by our Board. In such capacity, you shall have the
same powers, duties and responsibilities of supervision and management
usually accorded to the President and Chief Executive Officer of similar
financial institutions. In addition, you shall use your best efforts to
perform the duties and responsibilities enumerated in this Agreement and
any other duties assigned to you by our Board and to utilize and develop
contacts and customers to enhance the business of the Company.
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Specifically, you shall devote your full business time and attention and
use your best efforts to accomplish and fulfill the following duties and
responsibilities as well as other duties assigned to you from time to time
by the Board:
(i) manage all personnel;
(ii) serve as a member of the Board of Directors, if and when
elected to such a position;
(iii) serve on such committees of the Board as you are
appointed from time to time;
(iv) keep the Board informed of important developments
concerning the Company, industry developments and
regulatory initiatives affecting the Company;
(v) maintain adequate expense records relating to your
activities on our behalf;
(vi) establish and implement expansion efforts to increase
the business of the Company;
(vii) coordinate with our attorneys and accountants and other
service providers to the extent necessary to further the
business of the Company, keeping in compliance with
government laws and regulations and otherwise keeping
the Company in as good a financial and legal posture as
possible; and
(viii) conduct and undertake all other activities,
responsibilities, and duties normally expected to be
undertaken and accomplished by the President and Chief
Executive Officer of a financial institution similar in
scope and operation to our business.
(b) General Duties: During the Term, and except for illness, vacation
periods and leaves of absences, you shall devote all of your working time,
attention, skill and best efforts to accomplish and faithfully perform all
of the duties assigned to you on a full-time basis. You shall, at all
times, conduct yourself in a manner that will reflect positively upon us.
You shall obtain such licenses, certificates, accreditations and
professional memberships and designations as we may reasonably require from
time to time. You shall join and maintain membership in such social and
civic organizations as you or we deem appropriate to foster your contacts
and business network in the community.
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<PAGE>
(c) Policies and Manual: You agree to comply with the policies and
procedures that we adopt and implement from time to time as described in
our Employee Manual, including any policies relating to a "drug fee work
place". In that regard you agree to submit to the same testing procedures,
if any, which apply to all Bank employees. You have read and understand the
contents of the Employee Manual and acknowledge that we may modify, amend,
supplement and update the Employee Manual from time to time as we determine
appropriate.
3. Compensation. During the Term, we shall compensate you by paying you in
accordance with the following provisions:
(a) Base Salary: We will pay you a monthly salary of Eight Thousand
Seven Hundred Fifty Dollars ($8,750) (the "Base Salary") in accordance with
our regular payroll practices reduced appropriately by deductions for
federal income withholding taxes, social security taxes and other
deductions required by applicable laws. We may adjust the Base Salary from
time to time based upon our evaluation of your performance, but not below a
monthly salary of Eight Thousand Seven Hundred Fifty Dollars ($8,750)
without your written concurrence.
(b) Incentive Stock Options: We will designate you as a key employee
eligible for the grant of incentive stock options under the Commercial
Bancorp, Inc., 1997 Stock Option and Limited Rights Plan (the "Stock Option
Plan") which was adopted by the Company on December 18, 1997, and approved
by the shareholders on April 21, 1998. In that connection, we will grant to
you under the terms of the Stock Option Plan, options to acquire 10,000
shares of the Company's common stock, over a ten-year period. The option
will vest 20 percent each year beginning at the conclusion of one year from
the date of grant until fully vested. The grant of the stock options shall
be made strictly in accordance with the terms of the Stock Option Plan and
in accordance with the Company's standard form of Stock Option Agreement.
(c) Bonus: We may pay you a bonus when, in our sole discretion, we
determine that your performance merits special compensation. We will
consider a bonus at the conclusion of each calendar year for which you are
employed based on achievement of goals pre-established by the Board,
payable on such terms and conditions as we determine.
4. Payment of Business Expenses. You are authorized to incur reasonable
expenses in performing your duties hereunder. We will reimburse you for
authorized expenses promptly after your presentation to us of an itemized
account of such expenditures.
5. Vacation. You are entitled to take up to three (3) weeks paid vacation
time each year following the effective date of this Agreement.
6. Fringe Benefits.
(a) Medical Benefits: You are entitled to participate in all medical
and health care benefit plans through health insurance, medical
reimbursement plans or other plans, if any, provided, or to be provided, by
us for our employees on the same basis as is typically provided by us to
our other employees.
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(b) Other Benefit Plans: You are entitled to participate in all of our
employee benefit programs, if any, including without limitation, pension
plans, profit-sharing plans, 401(k) plans, medical insurance plans, group
life insurance plans, thrift plans, disability plans, deferred compensation
plans, stock option plans, education programs and general bonus payments as
may be in effect from time to time or at any time, if any, provided, or to
be provided, by us for our employees on the same basis as is typically
provided by us to our employees. Nothing contained herein shall be deemed
to, or have an effect that would, exclude you from (i) any supplemental
compensation or other benefits you might become entitled to as our
employee, and (ii) special incentive compensation programs designed solely
for you.
(c) Automobile : We will provide you with an automobile and the costs
associated with the use thereof will be borne by the Bank.
(d) Country Club Membership: Employer will pay for approved
memberships for Employee at a country club and/or social club mutually
acceptable to both parties.
7. Disability/Illness.
(a) Illness: We shall pay you the full portion of the Base Salary for
any period of your illness or incapacity: provided that such illness or
incapacity does not render you unable to perform your duties under this
Agreement for a period longer than three (3) consecutive months or for
lesser consecutive periods which in the aggregate total three months in any
one calendar year. At the end of such three-month period, or at such time
that your periods of illness or incapacity total in the aggregate more than
three months in any one calendar year, we may terminate your employment and
this Agreement.
(b) Disability: If we terminate your employment pursuant to your
disability as determined under subsection 7(a) above, then we shall pay to
you, as a disability payment, an amount equal to your monthly Base Salary,
payable in accordance with our standard payroll practices, commencing on
the effective date of your termination and ending on the earlier of:
(i) the date you return to full time employment with us in
the same capacity as you were employed prior to your
termination for disability:
(ii) your full time employment by another employer;
(iii) three (3) months after the date of such termination,
after which you will be entitled to receive benefits
under any disability insurance plan provided by the
Bank; or
(iv) the date of your death.
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We may satisfy our obligations to you in this Section of this Agreement, at
our option, through the purchase of disability insurance; and, if we decide to
do so, the provisions of the policy will control the amounts paid to you. Such
disability payments will be coordinated with any disability plans made available
to you pursuant to Section 6 of this Agreement.
(c) Continuation of Coverages: During any period of illness or
disability, we will continue any other life, health and disability
coverages for you substantially identical to the coverage maintained by us
for you prior to your termination for disability or the onset of your
illness. However, such coverages shall cease upon the earlier of:
(i) your full time employment by another employer;
(ii) one (1) year after the date of such termination (with
the exception of disability insurance coverage); or
(iii) the date of your death.
(d) No Reduction in Base Salary: During the period in which you are
disabled or subject to illness or incapacity, there shall be no reduction
in your Base Salary, other than as described in this Agreement.
8. Death During Employment. If you die during the Term, this Agreement
shall terminate and we will pay your estate the portion of your compensation
which would be payable to you up to the first working day of the first month
after your death occurs. After such payment, we shall have no further financial
obligation to you or to your estate under this Agreement; except that any
compensation payable to you under any benefit plan maintained by us will be paid
pursuant to its terms.
9. Termination.
(a) Death, Illness or Incapacity: This Agreement and your employment
shall terminate upon your death, illness or incapacity in accordance with
the provisions of Sections 7 and 8 of this Agreement.
(b) Termination Without Cause: We may terminate this Agreement and
your employment at any time for any reason without prior notice. However,
if we terminate your employment for any reason other than for "good cause"
(as defined under Subsection 9(c) below), we will pay to you as severance
the full portion of the Base Salary we then pay to you for the remaining
term of the Agreement or 3 months, whichever is greater.
(c) Termination for Good Cause: We may, at any time, terminate this
Agreement and your employment without notice for "good cause". If we
terminate your employment for good cause, we shall not be obligated to pay
to you any severance. The term "good cause" shall mean any of the following
acts committed by you:
(i) Personal dishonesty;
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(ii) Incompetence;
(iii) A pattern of socially unacceptable behavior
(iv) Willful misconduct:
(v) Breach of fiduciary duty involving personal profit;
(vi) Intentional failure to perform stated duties;
(vii) Willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or any
final cease-and-desist order; or
(viii) Material breach of any provision of this Agreement.
(d) Effective Date of Termination: The termination of this Agreement
and your employment shall be effective upon our delivery to you of written
notice or at such later time as may be specified in such notice, and you
shall immediately vacate our premises on or before such effective date.
(e) Post-Termination Obligations: We shall pay to you such
compensation as is otherwise required by us to pay to you after the
termination of your employment pursuant to this Agreement. However, any
such payment to you shall be subject to your providing us with
post-termination cooperation. Such cooperation shall include the following:
(i) you shall furnish such information and assistance to us
as may be reasonably required by us in connection with
any litigation or settlement of any dispute between us,
a borrower and/or any other third parties (including
without limitation serving as a witness in court or
other proceedings);
(ii) you shall provide such information or assistance to us
in connection with any regulatory examination by any
state or federal regulatory agency;
(iii) you shall keep our trade secrets and other proprietary
or confidential information secret to the fullest extent
practicable, subject to compliance with all applicable
laws.
10. Required Provisions by Regulation. The Parties mutually acknowledge
that the laws and regulations governing us require that certain provisions be
provided in each employment agreement with officers and employees of the Bank.
The Parties agree to be bound by all of the following provisions:
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(a) Suspension/Temporary Prohibition: If you are suspended and/or
temporarily prohibited from participating in the conduct of our affairs by
a notice served under section 655.037 Florida Statutes or under section
8(e) or (g)(1) of the Federal Deposit Insurance Act [12 U.S.C. Section
1818(e)(3) and (g)(1)] our obligations under this Agreement shall be
suspended as of the date of such service unless stayed by appropriate
proceedings. If the charges and the notice are dismissed, we may in our
discretion:
(i) pay you all or part of your compensation withheld while
the obligations under this Agreement are suspended; and
(ii) reinstate (in whole or part) any of our obligations
which were suspended.
(b) Permanent Prohibition: If you are removed and/or permanently
prohibited from participating in the conduct of our affairs by an order
issued under section 655.037 Florida Statutes or Section 8(e)(4) or (g)(1)
of the Federal Deposit Insurance Act [12 U.S.C. Section 1818(e)(4) or
(g)(1)], all of our obligations under this Agreement shall terminate as of
the effective date of the order, but your vested rights, if any shall not
be affected.
(c) Default Under FDIA: If we are in default [as defined in section
3(x)(1) of the Federal Deposit Insurance Act], all obligations under this
Agreement shall terminate as of the date of default, but this subsection of
this Agreement shall not affect your vested rights if any.
(d) Regulatory Termination: All obligations under this Agreement shall
be terminated, except to the extent that a determination has been made that
continuation of this Agreement is necessary for continued operation of the
Bank:
(i) by the Director or his or her designee, at the time the
Federal Deposit Insurance Corporation ("FDIC") enters
into an agreement to provide assistance to or on behalf
of the Bank under the authority contained in Section
13(c) of the Federal Deposit Insurance Act; or
(ii) by the Department or the Director or his or her
designee, at the time the Department or the Director or
his or her designee approves a supervisory merger to
resolve problems related to operation of the Bank or
when the Bank's determined by the Director to be in
unsafe or unsound condition.
Any of your rights that have already vested, however,
shall not be affected by such action. For purposes of
this subsection of this Agreement, the term "Director"
shall mean the Director of the FDIC.
(e) Golden Parachute: Any payments made to the Employee pursuant to
this Agreement, or otherwise, are subject to and conditioned upon their
compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated
thereunder.
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11. Fees and Kickbacks. It shall be considered a material breach of this
Agreement if you receive: (i) either directly or indirectly any fee, kickback,
or thing of value in connection with any loan made by us; or (ii) any portion,
split or percentage of any charge, either directly or indirectly, given to or
accepted by us or any subsidiary or affiliate, in connection with any loan made
by us or our affiliates; or (iii) any fee, kickback or compensation of any kind
in connection with the participation by us in any loan from any other source.
12. Indebtedness. If during the Term you become indebted to us for any
reason, we may, at our election, set off and collect any sums due us from you,
out of any amounts which we may owe to you from your Base Salary or other
compensation.
13. Maintenance of Trade Secrets and Confidential Information. You shall
use your best efforts and utmost diligence to guard and protect all of our trade
secrets and confidential information. You shall not, either during the Term or
after termination of this Agreement, for whatever reason, use for yourself or
for any other Person, in any capacity, or divulge or disclose in any manner to
any Person, the identity of our customers, or our customer lists, methods of
operation, marketing and promotional methods, processes, techniques, systems,
formulas, programs or other trade secrets or confidential information relating
to our business. Upon termination of this Agreement or your employment, for any
reason, you shall immediately return and deliver to us all records and papers
and all matters of whatever nature which bear trade secrets or confidential
information.
14. Competitive Activities.
(a) You agree that during the term of your employment hereunder,
except with the express consent of the Board of Directors, you will not,
directly or indirectly, engage or participate in, become a director of, or
render advisory or other services for, or in connection with, or become
interested in, or make any financial investment in any firm, corporation,
business entity or business enterprise competitive with or to any business
of the Bank; provided, however, that you shall not hereby be precluded or
prohibited from owning passive investments, including investments in the
securities of other financial institutions, so long as such ownership does
not require you to devote substantial time to management or control of the
business or activities in which you have invested.
(b) You agree and acknowledge that by virtue of your employment
hereunder, you will acquire an intimate knowledge of the activities and
affairs of the Bank, including trade secrets and other confidential
matters. Because of the special, unique, and extraordinary services that
you are capable of performing for the Bank or one of its competitors, you
recognize that the services to be rendered by you hereunder are of a
character giving them a peculiar value, the loss of which cannot be
adequately or reasonably compensated for by damages. You, therefore, agree
that during the term of this Agreement, and for a period of three (3)
months after termination of this Agreement, you shall not become employed,
directly or indirectly, whether as an employee, independent contractor,
consultant, or otherwise, in the financial services industry with any
business enterprise or business entity currently then operating, or by a
Person whose intent is to organize another financial institution within the
Bank's Primary Service Areas ("PSA's") in which it is currently then
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operating, as such PSA's are defined in the Bank's applications to either
organize or branch as filed with the appropriate regulatory agencies.
You hereby agree that the duration of the anti-competitive covenant
set forth herein is reasonable, and its geographic scope is not unduly
restrictive.
15. Discoveries, Inventions and Improvements.
(a) Our Rights: You shall report to us all of your discoveries,
inventions, improvements, programs or ideas of whatever nature, conceived
or made by you relating to our business during the Term. All such
discoveries, inventions, improvements, programs or ideas of whatever nature
which are applicable in any way to our business shall be our sole and
exclusive property. You shall deliver to us all of the original copies of
such discoveries, inventions, improvements, programs or ideas upon the
termination of your employment. In addition, at our request you will sign
and deliver to us whatever documents, assignments, bills of sale, or
conveyances that we consider necessary in order to perfect our property
rights described in this Section 15.
(b) Copyrights and Patents: We have the absolute right to obtain
copyrights, trademarks or patents with respect to any of the discoveries,
inventions, improvements, programs or ideas you develop during the Term or
any derivative products from the foregoing, and that all such copyrights,
trademarks, or patents shall be our sole and exclusive property. At our
request, you will sign and deliver to us any documents that we consider
necessary for the protection of our interests in discoveries, inventions,
improvements, trade secrets and confidential information, or to further our
business.
(c) Licenses: We have the sole and exclusive right to license other
Persons to use the products, ideas, improvements, discoveries or inventions
produced by you pursuant to your employment under this Agreement, and all
monies derived therefrom shall be our sole and exclusive property.
(d) Development Rights: We have the exclusive right to develop,
refine, enhance, modify and/or implement any ideas concepts, programs,
strategies or improvements, developed by you during the Term.
(e) Property of Employer: All programs, documentation, customer lists,
manuals, products, reports and any other information, whatsoever,
pertaining to our business are our sole property. You shall refrain from
use, disclosure or sale, directly or indirectly, of such programs, product,
documentation, customer lists, manuals, reports and other information.
16. Remedies for Breach.
(a) Arbitration: The Parties Agree that, except for the specific
remedies for Injunctive Relief and other equitable relief contained in
Subsection 16(b) and (c) below, any controversy or claim arising out of or
relating to this Agreement or any breach thereof, including, without
limitation, any claim that this Agreement or any portion thereof is
invalid, illegal or otherwise voidable, shall be submitted to binding
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arbitration before and in accordance with the rules of the American
Arbitration Association and judgment upon the determination and/or award of
such arbitrator may be entered in any court having jurisdiction thereof.
Provided, however, that this clause shall not be construed to permit the
award of punitive damages to either party. The prevailing party to said
arbitration shall be entitled to an award of reasonable attorney's fees.
The situs of arbitration shall be in Volusia County, Florida.
(b) Injunctive Relief: The Parties acknowledge and agree that the
services to be performed by you are special and unique and that money
damages cannot fully compensate us in the event of your violation of the
provisions of Sections 13, 14 and 15 of this Agreement. Thus, in the event
of a breach of any of the provisions of such Sections, you agree that we,
upon application to a court of competent jurisdiction, shall be entitled to
an injunction restraining you from any breach of the terms and provision of
such Sections of this Agreement. If we prevail in an action seeking an
injunction restraining you, you shall pay all costs and reasonable
attorneys fees incurred by us in and relating to obtaining such injunction.
Such injunctive relief may be obtained without bond and your sole remedy,
in the event of the entry of such injunction, shall be the dissolution of
such injunction, if warranted, upon hearing duly had. You hereby waive any
and all claims for damages by reason of the wrongful issuance of any such
injunction.
(c) Cumulative Remedies: Notwithstanding any other provision of this
Agreement, the injunctive relief described in subsection 16(a) above and
all other remedies provided for in this Agreement which are available to us
as a result of your breach of this Agreement, are in addition to and shall
not limit any and all remedies existing at or in equity which are also
available to us.
17. Assignment. We may assign this Agreement to any other Person at any
time upon such terms and conditions as we consider appropriate, if such
assignment is made in conjunction with an acquisition of control of the Bank.
Upon such assignment, all of our rights herein shall inure to the benefit of the
assignee. Your rights and obligations herein are personal to you and therefore
none of your rights or obligations hereunder are assignable to anyone else.
18. Miscellaneous.
(a) Amendment of Agreement: Unless as otherwise provided herein, this
Agreement may not be modified or amended except in writing signed by both
Parties.
(b) Certain Definitions: For purposes of this Agreement, the following
terms whenever capitalized herein shall have the following meanings:
(i) "Person" shall mean any natural person, corporation,
partnership (general or limited), trust, bank or any
other business entity.
(ii) "Affiliate" shall mean a Person that, directly or
indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control
10
<PAGE>
with, such Person. With respect to the Employee, the
term includes his spouse, parents, lineal descendants,
brothers and sister.
(iii) "Attorneys Fees" shall include the legal fees and
disbursements charged by attorneys and their related
travel and lodging expenses, court costs, paralegal
fees, etc. incurred in settlement, trial, appeal or in
bankruptcy proceedings.
(iv) "Term" shall include the time period specified in
Section 1 of this Agreement and include any renewals or
extensions thereof.
(c) Headings for Reference Only: The headings of paragraphs, sections
and subsections herein are included solely for convenient reference and
shall not control the meaning of the interpretation of any of the
provisions of this Agreement.
(d) Governing Law/Jurisdiction: This Agreement shall be construed in
accordance with and governed by the laws of the State of Florida. Any and
all litigation involving the Parties and their rights and obligations
herein shall be brought in the appropriate federal or state courts in
Volusia County, Florida, and the Parties hereby consent to the jurisdiction
of such courts. The Parties hereto expressly waive their right to a jury
trial.
(e) Severability: If any of the provisions of this Agreement shall be
held invalid for any reason, the remainder of this Agreement shall not be
affected thereby and shall remain in full force and effect in accordance
with the remainder of its terms.
(f) Entire Agreement: Waiver: This Agreement and all other documents
incorporated or referred to herein, contain the entire agreement of the
Parties and there are no representations, inducements or other provisions
other than those expressed in writing herein. No modification, waiver or
discharge of any provision or any breach of this Agreement shall be
effective unless it is in writing signed by both Parties. Our waiver of
your breach of any provision of this Agreement, shall not operate, or be
construed, as a waiver of any subsequent breach by you of that provision or
of any other provision of this Agreement.
(g) Pronouns: As used herein, words in the singular include the
plural, and the masculine include the feminine and neuter gender, as
appropriate.
(h) Successors and Assigns: Except as otherwise provided herein, the
rights and obligations of the Parties under this Agreement shall inure to
the benefit of and shall be binding upon their successors and assigns.
(i) Prior Agreements: This Agreement amends, supplants and supersedes
any and all prior agreements between the Parties whether verbal or written.
11
<PAGE>
(k) Notices: Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and hand delivered or if sent
by regular mail or reputable commercial next-day air carrier (e.g. Federal
Express) to the Employee at the address for him in our records or, to us at
our principal office, Attn: Secretary to the Board of Directors. Such
notices shall be deemed received on the next business day following mailing
or depositing with the carrier.
(l) Recital: The Recital set forth at the beginning of this Agreement
shall be deemed to be incorporated into this Agreement by this reference as
if fully set forth herein, and this Agreement shall be interpreted with
reference to and in light of such Recital.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first above written.
THE COMMERCIAL BANCORP, INC.
/s/ Yvonne N. Tordeur By: /s/ Larry A. Kent
- ------------------------------- -------------------
Witness Larry A. Kent
Chairman of the Board
THE COMMERCIAL BANK OF
VOLUSIA COUNTY
/s/ Yvonne N. Tordeur By: /s/ James R. Peacock
- ------------------------------- -------------------
Witness James R. Peacock
Chairman of the Board
EMPLOYEE
/s/ Yvonne N. Tordeur /s/ Gary G. Campbell
- ------------------------------- -------------------
Witness Gary G. Campbell
12
<PAGE>
Exhibit 21.1
Subsidiaries of the Company
The Commercial Bank of Volusia County,
a state chartered commercial bank
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 924
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,858
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,957
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,829
<ALLOWANCE> 90
<TOTAL-ASSETS> 17,873
<DEPOSITS> 13,533
<SHORT-TERM> 0
<LIABILITIES-OTHER> 234
<LONG-TERM> 0
0
0
<COMMON> 5
<OTHER-SE> 4,101
<TOTAL-LIABILITIES-AND-EQUITY> 17,873
<INTEREST-LOAN> 287
<INTEREST-INVEST> 32
<INTEREST-OTHER> 107
<INTEREST-TOTAL> 426
<INTEREST-DEPOSIT> 235
<INTEREST-EXPENSE> 237
<INTEREST-INCOME-NET> 189
<LOAN-LOSSES> 55
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 477<F1>
<INCOME-PRETAX> (324)
<INCOME-PRE-EXTRAORDINARY> (324)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (221)
<EPS-PRIMARY> (.48)
<EPS-DILUTED> (.48)
<YIELD-ACTUAL> 3.17
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 35
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 90
<ALLOWANCE-DOMESTIC> 90
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Other expense includes: salaries and employee benefits of $213, occupancy of
$88, advertising of $49 and other expenses which totaled $127.
</FN>
</TABLE>
