UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ________
Commission File Number: 0-22911
SOUTHERN SECURITY BANK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0325364
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
1000 Brickell Avenue Suite 900 Miami, Florida 33131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 985-3900
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
Title of each class
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained to the best of registrant's knowledge, in definitive proxy or
information statements, incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for the most recent fiscal year $1,664,979
State the aggregate market value of the voting and non voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity as a
specified date within the past 60 days: - - There is no public market for the
registrant's common equity. Based solely upon the offering price in certain
private sales of the registrant's common equity made within the last 90 days,
the approximate market value of common equity held by non affiliates as of March
24, 2000 would have been $3,315,315. Solely for the purpose of this calculation,
all directors, officers and holders of more than 5% of the registrant's
outstanding common stock have been deemed to be affiliates.
The number of shares outstanding of each of the issuer's classes of common
equity, as of March 24, 2000 is as follows: (i) Class A Voting Common Stock -
9,466,616; (ii) Class B Non-Voting Common Stock None.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes___; No X
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TABLE OF CONTENTS
PART I ..................................................................... 3
ITEM 1. DESCRIPTION OF BUSINESS ........................................... 3
GENERAL .............................................................. 3
HISTORICAL DEVELOPMENT ............................................... 3
THE BANK ............................................................. 4
CORRESPONDENT RELATIONSHIPS .......................................... 4
MARKET AREA .......................................................... 4
EMPLOYEES ............................................................ 4
ENVIRONMENTAL LIABILITIES ............................................ 4
SEASONAL ASPECTS ..................................................... 4
COMPETITION .......................................................... 5
INDUSTRY DEVELOPMENTS ................................................ 5
TRANSACTIONS WITH AFFILIATES ......................................... 5
SUPERVISION AND REGULATION ........................................... 6
BANK HOLDING COMPANY REGULATION. ..................................... 6
BANK REGULATION. ..................................................... 6
LEGISLATIVE IMPACT ................................................... 8
ADOPTION OF GRAMM-LEACH-BLILEY ACT: .................................. 8
INTERSTATE BANKING AND BRANCHING ..................................... 9
COMMUNITY REINVESTMENT ACT AND FAIR LENDING .......................... 10
MONETARY POLICY ...................................................... 10
CAPITAL ADEQUACY ..................................................... 10
LOANS ................................................................ 10
ALLOWANCE FOR LOAN LOSSES ............................................ 11
INVESTMENT ACTIVITIES ................................................ 12
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS ........................ 12
DEPOSIT INSURANCE .................................................... 13
FEDERAL AND STATE TAXATION ........................................... 13
YEAR 2000 CONSIDERATIONS ............................................. 14
ITEM 2. DESCRIPTION OF PROPERTY ........................................... 14
ITEM 3. LEGAL PROCEEDINGS ................................................. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 14
PART II .................................................................... 15
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .......... 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION ......... 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ......................................... 16
ITEM 7. FINANCIAL STATEMENTS .............................................. 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE .............................................. 16
PART III ................................................................... 16
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ................. 16
MANAGEMENT : COMPANY OFFICERS AND DIRECTORS ....................... 16
NOMINATIONS ....................................................... 18
ITEM 10. EXECUTIVE COMPENSATION ............................................ 18
COMPENSATION OF MANAGEMENT ........................................ 18
EMPLOYMENT AGREEMENTS ............................................. 20
TERMINATION PAYMENT ............................................... 20
COMPENSATION OF DIRECTORS ......................................... 21
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .... 21
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................... 22
CERTAIN TRANSACTIONS .............................................. 22
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K .................................. 22
SIGNATURES ................................................................. 24
EXHIBIT INDEX .............................................................. 25
FINANCIAL DATA SCHEDULE .................................................... 28
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Southern Security Bank Corporation (the "Holding Corporation") is a bank holding
company that at December 31, 1999 owned 97.6% of outstanding capital stock of
Southern Security Bank (the "Bank"). The Holding Corporation is organized under
the law of Delaware, while the Bank is a Florida State Chartered Bank that is a
member of the Federal Reserve System whose deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank provides a full range of
commercial banking and consumer banking services to businesses and individuals.
On December 31, 1999, the Holding Corporation and its subsidiary Bank
(collectively, referred to herein as the "Company") had consolidated total
assets of $17,484,563, total deposits of $15,694,091, net loans of $12,788,261,
and stockholders equity of $954,115.
The Holding Corporation is located at 1000 Brickell Avenue Suite 900 Miami,
Florida 33131. Its telephone number is (305) 702-5520. The Bank is located at
3475 Sheridan Street, Hollywood, Florida 33021-3607. Its telephone number is
(954) 985-3900.
HISTORICAL DEVELOPMENT
The predecessor of the Holding Corporation was incorporated under the law of
Florida on April 8, 1992 under the name PCM Acquisition Group, Inc ("PCM"). PCM
was reorganized under Florida law under the name Southern Security Bank
Corporation ("SSB") on June 28, 1993, for the purpose of acquiring control of
the Bank, which was then known as Florida First International Bank. The Holding
Corporation completed the acquisition of the Bank on December 16, 1993 (the
"Acquisition") through the purchase of 96.6% of its outstanding common stock.
Subsequent to the date of Acquisition, the name of the Bank was changed to
Southern Security Bank. During the period since the Acquisition, management has
strived to bring the Bank into compliance with regulatory guidelines and to
position the Company for growth.
On November 10, 1997, SSB was merged (the "Merger") with Southern Security
Financial Corporation, a Delaware corporation ("SSFC"), with the Holding
Corporation being the surviving corporation under the name Southern Security
Bank Corporation. Prior to the Merger, SSFC had 279 shareholders of record, no
substantial assets and no operating history. The Class A Common Stock of SSFC
was registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on September 29, 1997. The Merger was effected for the purpose
of placing the Holding Corporation in a posture to aid in the eventual
development of a trading market in the Company's Class A Common Stock through:
(i) registering the Class A Common Stock under the Exchange Act; (ii) increasing
the number of stockholders from 110 to 389; and (iii) reincorporating the
Holding Corporation under the law of Delaware.
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THE BANK
The Bank, which is the sole subsidiary of the Holding Corporation, is a state
chartered banking association engaging in a general commercial and consumer
banking business. The Bank's services are provided through its full-service
community banking office. The Bank engages in general commercial banking
providing a wide range of loan and deposit services. Retail services offered by
the Bank include installment loans, credit cards, checking accounts, savings
accounts, NOW accounts, and various types of time-deposit instruments. Mortgage
lending activities include commercial, industrial, and residential loans secured
by real estate. Commercial lending activities include originating secured and
unsecured loans and lines of credit, and providing cash management and accounts
receivable financing services to a variety of businesses. The Bank also provides
a merchant credit card program. The Bank's installment loan department makes
direct auto, home equity, home improvement, and personal loans to individuals.
The Bank also offers safe deposit box services.
CORRESPONDENT RELATIONSHIPS
Correspondent banking involves one bank providing services to another bank which
cannot provide that service for itself for economic or organizational reasons.
The Bank purchases correspondent services offered by larger banks, including
check collections, purchase of federal funds, security safekeeping, investment
service, coin and currency supplies, overline and liquidity loan participations,
and sales of loans to or loan participation with correspondent banks. The Bank
also sells loan participations to correspondent banks with respect to loans
which exceed the Bank's lending limit.
The Bank has established correspondent relationships with Independent Bankers
Bank of Orlando, Florida and Compass Bank of Birmingham, Alabama with respect to
the foregoing services. As compensation for services provided by a
correspondent, the Bank maintains certain balances with the correspondent in
non-interest bearing accounts. Such compensating balances are not considered
significant to the Bank's operations.
MARKET AREA
The Bank has one office, which is located in Hollywood, Florida. The Bank
considers its primary market and service area to be the City of Hollywood and
surrounding towns in Broward, Dade and Palm Beach Counties. The population of
Hollywood is approximately 125,000, with 53,000 households, and a civilian labor
force of 60,000. The density of population is approximately 4,463 persons per
square mile. Public school enrollment is at 20,000, with a pupil to teacher
ratio of 19.5 to one. Real estate property assessed valuations are approximately
$5.8 billion.
The Company is proposing to open a new branch office in Miami, Florida. Greater
Miami is an area of more than 2,000 square miles and a population of 2.06
million. Hispanics represent 50 percent of greater Miami's total population.
With more than 340,000 children in kindergarten through 12th grade, the
Miami-Dade County school district ranks as the fourth largest in the country.
Boca Raton, where the Company proposes to open a new branch office, has a
population of approximately 66,000, with 27,000 households, and a total civilian
labor force of 32,000. The density of population is approximately 2,262 persons
per square mile. Public school enrollment is12,800, with a pupil to teacher
ratio of 17.6 to one. Real estate property assessed valuation is approximately
$8.3 billion.
The addition of any branches is subject to approval by the Bank's regulators.
The regulators have indicated that approval would not be unreasonably withheld
after the Bank has increased capital levels.
EMPLOYEES
The Company has 11 full time employees at the Bank level and three employees at
the Holding Corporation level. The bank provides full time employees with group
life, health and major medical insurance. None of the employees of the Holding
Corporation or the Bank are represented by any collective bargaining units. The
Company considers its employee relations to be good.
ENVIRONMENTAL LIABILITIES
Management of The Company is not aware of any environmental liabilities that
would have a material adverse effect on the operations or earnings of the
Company.
SEASONAL ASPECTS
Management does not believe that the deposits or the business of the Bank in
general are seasonal in nature. The deposits may, however, vary with local and
national economic conditions but should not have a material effect on planning
and policy making.
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COMPETITION
The Company operates in a competitive environment, where it must compete with
numerous other financial entities. In one or more aspects of its business, the
Company competes with other commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies, brokerage
and investment banking companies, and other financial intermediaries operating
in the Company's market area. Most of these competitors, some of which are
affiliated with bank holding companies, have substantially greater resources and
lending limits, and may offer certain services that the Bank does not currently
provide. In addition, many of the Bank's non-bank competitors are not subject to
the same extensive federal regulations that govern bank holding companies and
federally insured banks.
The primary factors in the competition for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings associations, credit unions, money market
mutual funds and other investment alternatives. Competition for loans emanates
from other commercial banks, savings associations, mortgage banking firms,
credit unions and other financial intermediaries. Many of the financial
institutions operating in the Company's market area offer certain services, such
as trust, investment and international banking, which the Company does not
offer. To compete, the Bank relies upon specialized services, responsive
handling of customer needs, and personal contacts by its officers, directors and
staff. In those instances where the Company is unable to provide services a
customer needs, it seeks to arrange for those services to be provided by other
banks with which it has a correspondent relationship.
Since September 1995, certain bank holding companies are authorized to acquire
banks throughout the United States. In addition, since June 1, 1997, certain
banks are permitted to merge with banks organized under the law of other states.
These changes, together with economic developments in the United States, have
lead to a period of consolidation in the banking industry, and may be expected
to lead to even greater competition for the Company and for the Company to be
placed in competition in the future with financial institutions with which it
does not currently compete. As a result, the Company may be expected to
encounter intense competition within its market area for the foreseeable future.
INDUSTRY DEVELOPMENTS
Certain recently enacted and proposed legislation could have an effect on both
the costs of doing business and the competitive factors facing the financial
institution's industry. Because of the uncertainty of the final terms and
likelihood of passage of the proposed legislation, the Company is unable to
assess the impact of any proposed legislation on its financial condition or
operations at this time.
TRANSACTIONS WITH AFFILIATES
The Bank's authority to engage in transactions with "affiliates" (e.g., any
company that controls or is under common control with an institution, including
the Company and its non-bank subsidiaries) is limited by federal law. The
aggregate amount of covered transactions with any individual affiliate is
limited to 10% of the capital and surplus of the bank. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the bank's capital
and surplus. Certain transactions with affiliates are required to be secured by
collateral in an amount and of a type described in federal law. The purchase of
low quality assets from affiliates is generally prohibited. The transactions
with affiliates must be on terms and under circumstances, that are at least as
favorable to the institution as those prevailing at the time for comparable
transactions with non-affiliated companies. In addition, banks are prohibited
from lending to any affiliate that is engaged in activities that are not
permissible for bank holding companies and no bank may purchase the securities
of any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and 10%
shareholders ("insiders"), as well as entities such persons control, is also
governed by federal law. Such loans are required to be made on terms
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment. Recent legislation created an
exception for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to insiders over other employees. The law limits both the individual
and aggregate amount of loans the Bank may make to insiders based, in part, on
the Bank's capital position and requires certain board approval procedures to be
followed.
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SUPERVISION AND REGULATION
Upon its initial acquisition (change of control occurred 12/16/93) of a
financial institution, the Company "obtained" a charter from the State of
Florida for a State bank and a member of the Federal Reserve System. As a
Fed-member State Bank, the Bank is subject to the provisions of the Federal
Reserve Bank regulations and administrative practices and the Florida Banking
Code which is administered by the Florida Department of Banking and Finance (the
"FDBF"). The Bank has its deposit obligations insured by the Federal Deposit
Insurance Company ("FDIC") in the maximum individual amounts of $100,000 each,
and is subject to regulation by the FDIC. The FDBF supervises and regulates all
areas of the Bank's operations, including, without limitation, its loans,
mortgages, issuance of securities, annual shareholders meetings, capital
adequacy requirements, payment of dividends and the establishment or termination
of branches. As a state-chartered banking institution in the State of Florida,
the Bank is empowered by statute, subject to limitations expressed therein, to
take savings and time deposits, to accept checking accounts, to pay interest on
such deposits, to make loans on residential and other real estate, to make
consumer and commercial loans, to invest, with certain limitations, in equity
securities and in debt obligations of Companies and to undertake other various
banking services on behalf of its customers.
BANK HOLDING COMPANY REGULATION
The Holding Corporation is a one-bank holding company, registered with the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended
(the "BHC Act"). As such, the Holding Corporation and the Bank are subject to
the supervision, examination, and reporting requirements of the BHC Act and the
regulations of the Board of Governors of the Federal Reserve System (the "FRB").
The Holding Corporation is required to file semi-annual and annual reports with
the FRB and such additional information as the FRB may require pursuant to the
BHC Act. The FRB may conduct examinations of the Holding Corporation and the
Bank. Under FRB regulations, the Holding Corporation is required to serve as a
source of financial and managerial strength to the Bank and may not conduct its
operations in an unsafe or unsound manner. In addition, it is the FRB's policy
that in serving as a source of strength to its subsidiary banks, a bank holding
company should stand ready to use available resources to provide adequate
capital funds to its subsidiary banks during periods of financial stress or
adversity and should maintain the financial flexibility and capital-raising
capacity to obtain additional resources for assisting its subsidiary banks. A
bank holding company's failure to meet its obligations to serve as a source of
strength to its subsidiary banks will generally be considered by the FRB to be
an unsafe and unsound banking practice or a violation of the FRB's regulations
or both. The BHC Act requires every bank holding company to obtain the prior
approval of the FRB before (i) it may acquire direct or indirect ownership or
control of any voting shares of any bank if, after such acquisition, the bank
holding company will directly or indirectly own or control more than 5% of the
total voting shares of the bank, (ii) it or any of its subsidiaries, other than
a bank, may acquire all or substantially all of the assets of the bank, or (iii)
it may merge or consolidate with any other bank holding company. The BHC Act
further provides that the Federal Reserve may not approve any transaction that
would result in a monopoly or would be in furtherance of any combination or
conspiracy to monopolize or attempt to monopolize the business of banking in any
section of the United States, or the effect of which may be substantially to
lessen competition or to tend to create a monopoly in any section of the
country, or that in any other manner would be in restraint of trade, unless the
anti-competitive effects of the proposed transaction are clearly outweighed by
the public interest in meeting the convenience and needs of the community to be
served. The Federal Reserve is also required to consider the financial and
managerial resources and future prospects of the bank holding companies and
banks concerned and the convenience and needs of the community to be served.
The BHC Act generally prohibits the Holding Corporation from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In determining whether a
particular activity is permissible, the FRB must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interests, or
unsound banking practices. For example, factoring accounts receivable, acquiring
or servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the FRB to be
permissible activities of bank holding companies. Despite prior approval, the
FRB has the power to order a bank holding company or its subsidiaries to
terminate any activity or to terminate its ownership or control of any
subsidiary when it has reasonable cause to believe that continuation of such
activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
BANK REGULATION
The Bank is chartered under the laws of the State of Florida and its deposits
are insured by the FDIC to the extent provided by law. The Bank is subject to
comprehensive regulation, examination and supervision by the FDBF and the FRB
and to other laws and regulations applicable to banks. Such regulations
including limitations on loans to a single borrower and to its directors,
officers and employees; restrictions on the opening and closing of branch
offices; the maintenance of required capital and liquidity ratios; the granting
of credit under equal and fair conditions; and the disclosure of the costs and
terms of such credit. The Bank is examined periodically by both the FDBF and the
FRB, to each of whom it submits periodic reports regarding its financial
condition and other matters. Both the FDBF and the FRB have a broad range of
powers to enforce regulations under their respective protection of the safety
and soundness of the Bank, including the institution of cease and desist orders
and the removal of directors and officers. These regulatory agencies also have
the authority to approve or disapprove mergers, consolidations, and similar
corporate actions. There are various statutory and contractual limitations on
the ability of the Bank to pay dividends, extend credit, or otherwise supply
funds to the Holding Corporation.
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The FDIC and the FDBF also have the general authority to limit the dividends
paid by insured banks and bank holding companies if such payment may be deemed
to constitute an unsafe and unsound practice. Dividends and management fees from
the Bank constitute the sole source of funds for dividends to be paid by the
Holding Corporation. Under Florida law applicable to banks and subject to
certain limitations, after charging off bad debts, depreciation and other
worthless assets, if any, and making provisions for reasonably anticipated
future losses on loans and other assets, the board of directors of a bank may
declare a dividend of so much of the bank's aggregate net profits for the
current year combined with its retained earnings (if any) for the preceding two
years as the board shall deem to be appropriate and, with the approval of the
FDBF, may declare a dividend from retained earnings for prior years. Before
declaring a dividend, a bank must carry 20% of its net profits for any preceding
period as is covered by the dividend to its surplus fund, until the surplus fund
is at least equal to the amount of its common stock then issued and outstanding.
No dividends may be paid at any time when a bank's net income from the preceding
two years is a loss or which would cause the capital accounts of the bank to
fall below the minimum amount required by law, regulation, order or any written
agreement with the FDBF or a federal regulatory agency. Florida law applicable
to companies (including the Holding Corporation) provides that dividends may be
declared and paid only if, after giving it effect, (i) the company is able to
pay its debts as they become due in the usual course of business, and (ii) the
company's total assets would be greater than the sum of its total liabilities
plus the amount that would be needed if the company were to be dissolved at the
time of the dividend to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
dividend.
The Bank is subject to agreements with the FRB and with the State Comptroller
and Banking Commissioner of Florida pursuant to which the Bank is prohibited
from declaring or paying any dividends without their prior written consent.
Under federal law, federally insured banks are subject, with certain exceptions,
to certain restrictions on any extension of credit to their parent holding
companies or other affiliates, on investment in the stock or other securities of
affiliates, and on the taking of such stock or securities as collateral from any
borrower. In addition, such banks are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit or the providing of any
property or service.
The FDIC Improvement Act of 1991 ("FDICIA") made a number of reforms addressing
the safety and soundness of deposit insurance funds, supervision, accounting,
and prompt regulatory action, and implemented other regulatory improvements.
FDICIA also recapitalized the Bank Insurance Fund ("BIF"), under which the Bank
pays a statutory assessment. Under FDICIA, annual full-scope, on-site
examinations are required of all insured depository institutions. The cost for
conducting an examination of an institution may be assessed to that institution,
with special consideration given to affiliates and any penalties imposed for
failure to provide information requested. Insured state banks also are precluded
from engaging as principal in any type of activity that is impermissible for a
national bank, including activities relating to insurance and equity
investments. FDICIA also restricts extensions of credit to insiders under the
Federal Reserve Act. The policies of regulatory authorities have had a
significant effect on the operating results of commercial banks in the past, and
may be expected to do so in the future. An important function of the FRB System
is to regulate aggregate national credit and money supply through such means as
open market dealings in securities, establishment of the discount rate on bank
borrowing, changes in reserve requirements against bank deposits, and
limitations on the deposits on which a bank may pay interest. Policies of these
agencies may be influenced by many factors including inflation, unemployment,
short-term and long-term changes in the international trade balance, and fiscal
policies of the United States Government. Loans made by the Bank are also
subject to numerous other federal and state laws and regulations, including the
Truth in Lending Act, the Community Reinvestment Act, the Equal Credit
Opportunity Act, the Real Estate Settlement Procedures Act, and the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989. The federal bank
regulatory agencies have an array of powers to enforce laws, rules, regulations
and orders. Among other things, the agencies may require that institutions cease
and desist from certain activities, may preclude persons from participating in
the affairs of insured depository institutions, may suspend or remove deposit
insurance, and may impose civil money penalties against institution-affiliated
parties for certain violations. The foregoing is a brief summary of certain
statutes, rules, and regulations affecting the Company and the Bank. Numerous
other statutes and regulations have an impact on the operations of the Company
and the Bank. Supervision, regulation, and examination of banks by the bank
regulatory agencies are intended primarily for the protection of depositors, not
shareholders.
Commitments to Florida Department of Banking and Finance. The Company entered
into specific agreements with the FRB and the FDBF when it initially offered
securities prior to the acquisition of the Bank, including the following: (1)
The Bank may not pay dividends or management fees for the purpose of paying the
salaries or employment contracts of James L. Wilson or Philip C. Modder without
prior approval from the FDBF; (2) the Bank may not pay dividends to its
shareholders without the approval of the FDBF; (3) the Company confirmed that
the employment contracts between Messrs. Modder and Wilson are with the Holding
Company and are not obligations of the Bank; (4) Messrs. Wilson and Modder could
not become officers of the Bank without prior approval of the FDBF; and (5) the
FDBF did not and will not approve or disapprove the disclosure materials for any
offering of securities or any aspects of the employment agreements between
Messrs. Modder, Wilson, and the Company.
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LEGISLATIVE IMPACT
The operations of the Company and its subsidiary banks are affected by state and
federal legislative changes and by policies of various regulatory authorities.
Management is not aware of any current specific recommendations by regulatory
authorities or proposed legislation which, if they were implemented, would have
a material adverse effect upon the liquidity, capital resources, or results of
operations, although the general cost of compliance with numerous and multiple
federal and state laws and regulations does have, and in the future may have, a
negative impact on the corporation's results of operations.
Proposals to change the laws and regulations governing the banking industry are
frequently introduced in Congress, in the states' legislatures, and before the
various bank regulatory agencies. Some of these proposals could have significant
effects on the way in which the Company and its subsidiaries, and financial
institutions in general, conduct their business, and could have significant
effects on the Company's operating results. The Company cannot however,
accurately predict what those effects would be.
ADOPTION OF GRAMM-LEACH-BLILEY ACT:
On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act
of 1999 which is known as the Financial Services Modernization Act ("FSM Act"),
The FSM Act significantly changed the regulatory structure and oversight of the
financial services industry. Effective March 12, 2000, the FSM Act repealed the
provisions of the Depression-era Glass-Steagall Act that restricted banks and
securities firms from affiliating. It also revised the Bank Holding Company Act
to permit a qualifying bank holding company, called a financial holding company,
to engage in a full range of financial activities, including banking, insurance,
securities, and merchant banking activities. It also permits qualifying bank
holding companies to acquire many types of financial firms without the prior
approval of the Federal Reserve Board. The act grants to community banks the
power to enter new financial markets as a matter of right that larger
institutions have managed to do on an ad hoc basis. At this time, management has
no plans to pursue these additional possibilities.
Management does not believe that the FSM Act will have an immediate positive or
negative material effect on operations. However, the act may have the result of
increasing the amount of competition that our company faces from larger
financial service companies, many of whom have substantially more financial
resources than our company, which may now offer banking services in addition to
insurance and brokerage services.
The FSM Act thus provides expanded financial affiliation opportunities for
existing bank holding companies and permits other financial services providers
to acquire banks and become bank holding companies without ceasing any existing
financial activities. Previously, a bank holding company could only engage in
activities that were "closely related to banking." This limitation no longer
applies to bank holding companies that qualify to be treated as financial
holding companies. To qualify as a financial holding company, a bank holding
company's subsidiary depository institutions must be well-capitalized and have
at least satisfactory general, managerial and Community Reinvestment Act
examination ratings. Effective March 11, 2000, a nonqualifying bank holding
company becomes limited to activities that were permissible under the BHCA as of
November 11, 1999.
Also effective on March 12, 2000, the FSM Act changed the powers of national
banks and their subsidiaries, and made similar changes in the powers of state
bank subsidiaries. It permits a national bank to underwrite, deal in and
purchase state and local revenue bonds. It also allows a subsidiary of a
national bank to engage in financial activities that the bank cannot, except for
general insurance underwriting and real estate development and investment. In
order for a subsidiary to engage in new financial activities, the national bank
and its depository institution affiliates must be well capitalized, have at
least satisfactory general, managerial and Community Reinvestment Act
examination ratings and meet other qualification requirements relating to total
assets, subordinated debt, capital, risk management, and affiliate transactions.
Subsidiaries of state banks can exercise the same powers as national bank
subsidiaries if they satisfy the same qualifying rules that apply to national
banks. Although Southern Security Bank may take advantage of these expanded
powers at some point in the future, it does not currently qualify nor intend to
do so.
The FSM Act also reformed the overall regulatory framework of the financial
services industry. In order to implement its underlying purposes, the FSM Act
preempted state laws that would restrict the types of financial affiliations
that are authorized or permitted under the FSM Act, subject to specified
exceptions for state insurance laws and regulations. With regard to securities
laws, effective May 12, 2001, the FSM Act will remove the current blanket
exemption for banks from being considered brokers or dealers under the
Securities Exchange Act of 1934 and replaces it with a number of more limited
exemptions. Thus, previously exempted banks, such as Southern Security Bank, may
become subject to the broker-dealer registration and supervision requirements of
the Securities Exchange Act of 1934. The exemption that prevented bank holding
companies and banks that advise mutual funds from being considered investment
advisers under the Investment Advisers Act of 1940 will also be eliminated.
Separately, effective November 12, 2000, or such later date as adopted in
implementing standards required to be enacted by May 12, 2000, the FSM Act
imposes customer privacy requirements on any company engaged in financial
activities. Under these requirements, a financial company is required to protect
the security and confidentiality of customer nonpublic personal information.
Also, for customers that obtain a financial product such as a loan for personal,
family or household purposes, a financial company is required to disclose its
privacy policy to the customer at the time the relationship is established and
annually thereafter including its policies concerning the sharing of the
customer's nonpublic personal information with affiliates and third parties. If
an exemption is not available, a financial company must provide consumers with a
notice of its information sharing practices that allows the consumer to reject
the disclosure of its nonpublic personal information to third parties. Third
parties that receive such information are subject to the same restrictions as
the financial company on the reuse of the information. Finally, a financial
company is prohibited from disclosing an account number or similar item to a
third party for use in telemarketing, direct mail marketing or other marketing
through electronic mail.
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INTERSTATE BANKING AND BRANCHING
Florida banks are permitted by statute to branch statewide. Such branch banking,
however, is subject to prior approval by the FDBF and the FDIC. Any approval by
the FDBF and the FDIC of branching by the Bank would take into consideration
several factors, including the Bank's level of capital, the prospects and
economics of the proposed branch office, and other considerations deemed
relevant by the FDBF and the FDIC for purposes of determining whether approval
should be granted to open a branch office.
Bank holding companies from any state may generally acquire banks and bank
holding companies located in any other state, subject in some cases to
nationwide and state-imposed deposit concentration limits and limits on the
acquisition of recently established banks. Banks also have the ability, subject
to specific restrictions, to acquire by acquisition or merger branches located
outside their home state. The establishment of new interstate branches is also
possible in those states with laws that expressly permit it. Interstate branches
are subject to many of the laws of the states in which they are located. The
legislation resulted in a number of the Bank's competitor banks being purchased
by large, out-of-state bank holding companies. Size gives the larger banks
certain advantages in competing for business from larger corporations. These
advantages include higher lending limits and the ability to offer services in
other areas of Florida and the region. As a result, the Bank does not generally
attempt to compete for the banking relationships of larger corporations, but
concentrates its efforts on small and medium-size businesses and individuals.
The Bank believes it has competed effectively in this market segment by offering
quality, personalized service. It is management's intention to remain a locally
based, independent, Florida Bank.
In September 1994, the Riegle-Neal Interstate Banking and Branching Act of 1994
(the "Banking and Branching Act") became law. The Banking and Branching Act
provides that, as of September 29, 1995, adequately capitalized and managed bank
holding companies may acquire banks in any state. State laws prohibiting
interstate banking or discriminating against out-of-state banks are preempted,
although states are permitted to require that target banks located within the
state be in existence for a period of up to five years before they become
subject to the Banking and Branching Act. Additionally, the Banking and
Branching Act establishes deposit caps that prohibit acquisitions if the
acquirer would thereafter control 30% or more of the deposits of insured banks
and thrifts held in the state in which the acquisition or merger is occurring or
in any state in which the target maintains a branch or 10% or more of the
deposits nationwide. State-level deposit caps are not preempted as long as they
do not discriminate against out-of-state acquirers, and the federal deposit caps
apply only to initial entry acquisitions.
In addition, the Banking and Branching Act provides that, as of June 1, 1997,
adequately capitalized and managed banks may engage in interstate branching by
merging banks in different states and by opening and maintaining de novo, or
new, branches in states other than the states in which the banks maintain their
principal place of business. With respect to interstate merger, each state had
the opportunity to "opt out" of the interstate merger provisions and, thus,
prohibit such activity. With respect to de novo branching, the Banking and
Branching Act permits such activity only if a state has "opted in" and
specifically allowed such activity. The State of Florida permits interstate
branching, both by mergers and by establishing new branches.
Under regulatory guidelines, The Company is "adequately-capitalized" and,
therefore, meets the "adequately-capitalized" standard required to participate
in interstate affiliations with out-of-state banks and bank holding companies.
9
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COMMUNITY REINVESTMENT ACT AND FAIR LENDING
Southern Security Bank is subject to a variety of fair lending laws and
reporting obligations involving home mortgage lending operations and Community
Reinvestment Act, or CRA, activities. The CRA generally requires the federal
banking agencies to evaluate the record of a bank in meeting the credit needs of
its local communities, including low-and moderate-income neighborhoods. Each
financial institution's efforts in meeting community credit needs are evaluated
as part of the examination process pursuant to twelve assessment factors. A bank
can also become subject to substantial penalties and corrective measures for a
violation of certain fair lending laws. The federal banking agencies may take
compliance with such laws and CRA obligations into account when regulating and
supervising other activities or assessing whether to approve certain
applications such as mergers, acquisitions and applications to open a branch or
facility. At the Banks most recent evaluation during 1999, the Federal Reserve
Board rated Southern Security Bank "Satisfactory" in complying with its CRA
obligations.
MONETARY POLICY
The earnings and growth of the Company and the Bank are affected by general
economic conditions as well as by monetary policies of regulatory authorities,
including the Federal Reserve Board, which regulates the national money supply
in order to mitigate recessionary and inflationary pressures. Among the
techniques available to the Board are engaging in open market transactions in
U.S. Government securities, changing the discount rate on bank borrowings, and
changing reserve requirements against bank deposits. These techniques are used
in varying combinations to influence the overall growth and distribution of bank
loans, investments and deposits. Their use may also affect interest rates
charged on loans or paid on deposits. The effect of governmental monetary
policies on the earnings of the Company cannot be predicted.
CAPITAL ADEQUACY
The Bank: As a state-chartered member of the Federal Reserve System, the Bank is
subject to capital requirements imposed by the FRB. The FRB requires
state-chartered member banks to comply with risk-based capital standards and to
maintain a minimum leverage ratio. Under the FRB's leverage capital requirement,
state member banks that (a) receive the highest rating during the examination
process and (b) are not anticipating or experiencing any significant growth are
required to maintain a minimum leverage ratio of 3% of Tier 1 capital to total
assets; all other banks are required to maintain a minimum leverage ratio of not
less than 4%. As of December 31, 1999, the Bank was in compliance with both the
risk-based capital guidelines and the minimum leverage capital ratio.
LOANS
Scheduled contractual principal repayments of loans do not reflect the actual
life of such assets. The average life of a loan is substantially less than its
contractual terms because of prepayments. In addition, due-on-sale clauses on
mortgage loans generally give the Company the right to declare loans 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 loans tends to increase, however, when current loan market rates are
substantially higher than rates on existing loans and, conversely, decrease when
rates on existing loans are substantially higher than current loan market rates.
Loan Solicitation and Processing. Loan applicants come primarily through
existing customers, referrals by Realtors, previous and present customers of the
Company and business acquaintances, and walk-ins. Upon receipt of a loan
application from a prospective borrower, a credit report and other data are
obtained to verify specific information relating to the loan applicant's
employment, income and credit standing. On mortgage loans, an appraisal of the
real estate offered as collateral generally is undertaken by an independent fee
appraiser certified by the State of Florida.
Nonperforming Assets and Delinquencies. When a mortgage loan borrower fails to
make a required payment when due, the Company institutes collection procedures.
The first notice is mailed to the borrower approximately ten days after the
payment is due in order to permit the borrower to make the payment before the
imposition of a late fee. A second notice is generated when a payment becomes 30
days past due. Attempts to contact the borrower by telephone or letter generally
begin soon after the first notice is mailed to the borrower. If a satisfactory
response is not obtained, continuous follow-up contacts are attempted until the
loan has been brought current. Before the 90th day of delinquency, attempts to
interview the borrower, preferably in person, are made to establish (i) the
cause of the delinquency, (ii) whether the cause is temporary, (iii) the
attitude of the borrower toward the debt, and (iv) a mutually satisfactory
arrangement for curing the default.
In most cases, delinquencies are cured promptly; however, if by the 91st day of
delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
initiated. Interest income on loans is reduced by the full amount of accrued and
uncollected interest.
The Board of Directors is informed on a monthly basis as to the status of all
loans that are delinquent more than 30 days, the status on all loans currently
in foreclosure, and the status of all foreclosed and repossessed property owned
by the Company.
Other Real Estate Owned. Real estate acquired by the Company as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as other real estate
owned ("OREO") until it is sold. When property is acquired it is recorded at the
lower of its cost, which is the unpaid principal balance of the related loan
plus foreclosure costs, or fair value. Subsequent to foreclosure, OREO held for
sale is carried at the lower of the carrying amount or fair value, less
estimated selling costs.
Asset Classification. The regulatory authorities have adopted various
regulations regarding problem assets of banks. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, 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 allowances 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
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are placed on a "watch list" and monitored by the Company.
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ALLOWANCE FOR LOAN LOSSES
The Company has established a systematic methodology for the determination of
provisions for loan losses. The methodology is set forth in a formal policy and
takes into consideration the need for an overall general valuation allowance as
well as specific allowances that are tied to individual loans.
In originating loans, the Company recognizes that losses will be experienced and
that the risk of loss will vary with, among other things, the type of loan being
made, the creditworthiness of the borrower over the term of the loan, general
economic conditions and, in the case of a secured loan, the quality of the
security for the loan. The Company increases its allowance for loan losses by
charging provisions for loan losses against the Company's income.
The general valuation allowance is maintained to cover losses inherent in the
portfolio of performing loans. 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. Specific valuation allowances are established
to absorb losses on loans for which full collectability may not be reasonably
assured. The amount of the allowance is based on the estimated value of the
collateral securing the loan and other analyses pertinent to each situation.
Generally, a provision for losses is charged against income on a quarterly basis
to maintain the allowances.
While the Company believes it has established its existing allowance for loan
losses in accordance with generally accepted accounting principles, there can be
no assurance that regulators, in reviewing the Company's loan portfolio, will
not request the Company to increase significantly its allowance for loan losses.
In addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect the Company's financial condition and results of operations.
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INVESTMENT ACTIVITIES
The Bank is permitted under federal and state law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the FHLB,
certificates of deposit of federally insured institutions, certain bankers'
acceptances and federal funds. Subject to various restrictions, the Bank may
also invest a portion of its assets in commercial paper and corporate debt
securities. As a FRB member bank, the Bank is required to maintain an investment
in FRB stock. The Bank is required under federal regulations to maintain a
minimum amount of liquid assets.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires the investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
Debt and equity securities not classified as either "held to maturity" or
"trading securities" are classified as "available for sale." Such securities are
reported at fair value, and unrealized gains and losses on such securities are
excluded from earnings and reported as a net amount in a separate component of
equity.
A committee consisting of Bank officers and Directors determines appropriate
investments in accordance with the Board of Directors' approved investment
policies and procedures. The Company's investment policies generally limit
investments to U.S. Government and agency securities, municipal bonds,
certificates of deposits, marketable corporate debt obligations, mortgage-backed
securities and certain types of mutual funds. The Company's investment policy
does not permit engaging directly in hedging activities or purchasing high risk
mortgage derivative products. Investments are made based on certain
considerations, which include the interest rate, yield, settlement date and
maturity of the investment, the Company's liquidity position, and anticipated
cash needs and sources (which in turn include outstanding commitments, upcoming
maturities, estimated deposits and anticipated loan amortization and
repayments). The effect that the proposed investment would have on the Company's
credit and interest rate risk, and risk-based capital is also given
consideration during the evaluation.
Mortgage-backed securities (which also are known as mortgage participation
certificates or pass-through certificates) typically represent a participation
interest in a pool of single-family or multi-family mortgages. The principal and
interest payments on these mortgages are passed from the mortgage originators,
through intermediaries (generally U.S. Government agencies and government
sponsored enterprises) that pool and resell the participation interests in the
form of securities, to investors such as the Company. Such U.S. Government
agencies and government sponsored enterprises, which guarantee the payment of
principal and interest to investors, primarily include Freddie Mac, Fannie Mae
and the Government National Mortgage Association. Mortgage-backed securities
typically are issued with stated principal amounts, and the securities are
backed by pools of mortgages that have loans with interest rates that fall
within a specific range and have varying maturities. Mortgage-backed securities
generally yield less than the loans that underlie such securities because of the
cost of payment guarantees and credit enhancements. In addition, mortgage-backed
securities are usually more liquid than individual mortgage loans and may be
used to collateralize certain liabilities and obligations of the Company. These
types of securities also permit the Company to optimize its regulatory capital
because they have low risk weighting.
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
General. Deposits and loan repayments are the major sources of the Company's
funds for lending and other investment purposes. Scheduled loan repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are influenced significantly by general interest rates and money
market conditions. The Company may use borrowings through correspondent banks on
a short-term basis to compensate for reductions in the availability of funds
from other sources.
Deposit Accounts. Substantially all of the Bank's depositors are residents of
the State of Florida. Deposits are attracted from within the Bank's market area
through the offering of a broad selection of deposit instruments, including
negotiable order of withdrawal ("NOW") accounts, money market deposit accounts,
regular savings accounts, certificates of deposit and retirement savings plans.
Deposit account terms vary, according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. In determining the terms of its deposit accounts, the Bank considers
current market interest rates, profitability to the Bank, matching deposit and
loan products and its customer preferences and concerns. The Bank reviews its
deposit mix and pricing weekly. The Bank does not accept brokered deposits, nor
has it aggressively sought jumbo certificates of deposit.
The Company currently offers certificates of deposit for terms not exceeding 60
months. As a result, the Company believes that it is better able to match the
repricing of its liabilities to the repricing of its loan portfolio.
Borrowings. The Company has the ability to borrow from correspondent banks to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. Advances are made pursuant to limitations on the amount of
advances and are based on the financial condition of the member institution as
well as the value and acceptability of collateral pledged.
Liquidity. The Bank is required by Florida law to maintain an average daily
balance of specified liquid assets equal to a daily amount of not less than a
specified percentage of its net withdrawable deposit accounts. Monetary
penalties may be imposed for failure to meet these liquidity requirements. The
Bank's liquidity ratio at December 31, 1999 exceeded the applicable
requirements. The Bank has never been subject to monetary penalties for failure
to meet its liquidity requirements.
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DEPOSIT INSURANCE
The Bank's deposit accounts are insured by the FDIC up to a maximum of $100,000
per insured depositor. The FDIC issues regulations, conducts periodic
examinations, requires the filing of reports and generally supervises the
operation of its insured banks. Any insured bank which is not operated in
accordance with or does not conform to FDIC regulations, policies and directives
may be sanctioned for non-compliance. Proceedings may be instituted against any
insured bank or any director, officer, or employee of such bank engaging in
unsafe and unsound practices, including the violation of applicable laws and
regulations. The FDIC has the authority to terminate insurance of accounts
pursuant to procedures established for that purpose.
As a FDIC-insured institution, the Bank is subject to insurance assessments
imposed by the FDIC. Under current law, the insurance assessment to be paid by
insured institutions shall be as specified in a schedule required to be issued
by the FDIC that specifies, at semiannual intervals, target reserve ratios
designed to increase the FDIC insurance fund's reserve ratio as it relates to
estimated insured deposits (a ratio as the FDIC may determine in accordance with
the statute). Further, the FDIC is authorized to impose one or more special
assessments in any amount deemed necessary to enable repayment of amounts
borrowed by the FDIC from the United States Department of the Treasury (the
"Treasury Department").
Effective January 1, 1993, the FDIC implemented a risk-based assessment schedule
based on an institution's average assessment base. The actual assessment to be
paid by each FDIC-insured institution is based on the institution's assessment
risk classification, which is determined based on whether the institution is
considered "well capitalized," "adequately capitalized" or "undercapitalized,"
as such terms have been defined in applicable federal regulations adopted to
implement the prompt corrective action provisions of the Federal Deposit
Insurance Corporation Insurance Act ("FDICIA"), and whether such institution is
considered by its supervisory agency to be financially sound or to have
supervisory concerns. The Bank is considered "adequately capitalized".
FEDERAL AND STATE TAXATION
Federal Taxation: The Company and the Bank report their income on a fiscal year,
consolidated basis and the accrual method of accounting, and are subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below.
The following discussion of state tax matters is intended only as a summary and
does not purport to be a comprehensive description of the state tax rules
applicable to the Bank or the Company. Neither the Holding Corporation or the
Bank have been audited by the IRS in the last five years.
State Taxation Florida. Florida-based corporations are subject to a state
corporation and emergency excise tax which is based on income. There is also a
tangible tax based on the value of personal property owned including investments
and loans.
State Taxation Delaware. As a Delaware corporation not earning income in
Delaware, the Company is exempted from Delaware corporate income tax, but is
required to file an annual report with, and pay an annual franchise tax to, the
State of Delaware.
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YEAR 2000 CONSIDERATIONS
The Year 2000 Issue is the result of computer programs using two-digits instead
of four-digits to represent the year. These computer systems, if not renovated,
would be unable to interpret dates past 1999, which could cause a system failure
or other computer errors, leading to a disruption in operations. The Company
developed a five-phase program for year 2000 compliance, as outlined by the
Federal Financial Institutions Examination Council (FFIEC) in a supervisory
letter. The Company completed the Year 2000 Action Plan which management used to
identify and correct Year 2000 compliance issues.
Subsequent to December 31, 1999, the transition into the year 2000 occurred and
no problems were experienced. The Company continues to monitor its computer
systems to ensure they are operating properly. The Company has not experienced
any operational or financial problems related to the Year 2000 date change. The
Company will continue to monitor all processing to ensure that no Year 2000
issues arise in the future. The Company has taken the necessary steps to
validate and test its contingency plan in order to minimize the impact should
there be a system failure in the future. Management believes that the Year 2000
issue will not pose any future operational problems.
The Year 2000 Issue also has a potential impact on the Company's borrowing
customers and their ability to repay. Loan officers have been in constant
communication with key bank borrowing customers to evaluate any problems related
to computer and other system malfunction as a result of the Year 2000 Issue. To
date, we have not been advised of any material year 2000 related problems by our
customers.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters is located at 1000 Brickell Avenue Suite 900 Miami,
Florida 33131 while its mailing address is P.O. Box 6699 Hollywood, Florida
33081-6699. At this location, the Company is provided by it's Chairman and
President, Mr. Connell, 300 square feet of office space on a monthly basis at no
expense.
The Company's full service community banking office is located at Southern
Security Bank Building 3475 Sheridan Street, Hollywood, Florida 33021-3607. At
that location, the Company leases 5,212 square feet of space for its banking and
office requirements under a lease which runs until December 31, 2013. Management
believes that its leased facilities are adequate and well suited to its current
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are periodically parties to or otherwise involved in
legal proceedings arising in the normal course of business, such as claims to
enforce liens, claims involving the making and servicing of real property loans,
and other issues incident to the Bank's business. Management does not believe
that there is any pending proceeding against the Company or the Bank which, if
determined adversely, would have a material effect on the business or financial
position of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of Southern Security held on December 21,
1999 the shareholders voted affirmatively to approve an amendment to Southern
Security's Certificate of Incorporation to divide the Directors into three
classes and providing that Directors will serve three-year terms rather than
one-year terms. The amendment was deemed to be in the best interest of the
Southern Security and its shareholders because it should enhance the continuity
and stability of Southern Security's management and the policies formulated by
the Board. At any given time, at least two-thirds of the Directors will have at
least one year of experience as Directors of the Southern Security and with its
business affairs and operations. With respect to the vote on the amendment, the
shareholders voted as follows: for 4,080,335; against 0; abstentions and broker
non-votes 0. At the Annual Meeting the shareholders also voted to elect a slate
of directors consisting of R. David Butler and Harold C. Friend, M.D. to serve
as Group I Directors until the Annual Meeting of Shareholders in 2000; Philip C.
Modder and Eugene J. Strasser to serve as Group II Directors until the Annual
Meeting of Shareholders in 2001; James L. Wilson and Timothy S. Butler to serve
as Group III Directors until the Annual Meeting of Shareholders in 2002.
The following table shows the results of the vote for directors.
Name For Abstained
R. David Butler 4,080,335 0
Harold C. Friend 4,080,335 0
Philip C. Modder 4,080,335 0
Eugene J. Strasser 4,080,335 0
James L. Wilson 4,080,335 0
Timothy S. Butler 4,080,335 0
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) There is no public trading market for the Company's common equity.
(b) On March 24, 2000, there were 473 holders of record of the Company's Class
A Voting Common Stock, and no shares of the Company's Class B Non-Voting
Common Stock were issued or outstanding.
c) Dividends. The Company has not paid any dividends on its Common Stock since
its inception and has no present intention of paying dividends to its
shareholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its
business. The determination of the Board of Directors of the Holding
Company to declare dividends in the future will depend upon the earnings,
capital requirements, and financial position of the Company, and upon other
factors they may deem relevant. The ability of the Holding Corporation to
pay dividends is subject to statutory restrictions on cash dividends
applicable to Florida corporations. Further, the Holding Corporation's only
current source of income on which to pay dividends is through the payment
of dividends or management fees by the Bank. The Bank may not declare or
pay dividends on its common stock if such payment would cause it to be in
violation of restrictions in the Florida Banking Code on the payment of
dividends by Florida state banking corporations, such as the Bank. The
Company is also subject to certain regulatory restrictions imposed by the
Federal Reserve Board on the payment of dividends by member banks to their
stockholders, and by the terms of agreements with the FRB and the State
Comptroller and Banking Commissioner of Florida.
(d) Sales of unregistered securities. During the fiscal year ended December 31,
1999, the Company sold the following securities without registration under
the Securities Act of 1933:
(1) During 1998, the Company sold 251,303 Units under a private offering at a
price of $5.00 per Unit. Each Unit consisted of one share of Class A Common
Stock and a warrant to purchase one additional share of Class A Common
Stock at a price of $7.50 at any time prior to September 30, 2001. During
the period from February 8, 1999 through March 25, 1999, the Company
offered to permit the holders of the warrants to purchase ten shares of
Class A Common stock for $5.00 in exchange for each of the warrants. A
total of 84,500 warrants were tendered under that offer, resulting in the
issuance of 845,000 shares and total proceeds of $422,500. All of the
warrant holders were "accredited investors" within the meaning of Rule 501
of the SEC. The Company made the offering in reliance upon the exemptions
from registration provided by sections 4(2) and4(6) of the securities Act
of 19334 and Rule 506 of the SEC for sales by an issuer solely to
accredited investors and not involving any public offering. No underwriters
were used, and no underwriting discounts or commissions were paid in
connection with this offering. In June of 1999, the Company offered to
permit the remaining warrant holders to exchange each of their 166,803
warrants for three shares of Class A Common stock. All of the remaining
warrants were exchanged under this offer resulting in the issuance of
500,409 shares of Class A Common stock. This exchange was exempt under
Section 3(a)(9) of the Securities Act which exempts any security exchanged
by the issuer with its existing security holders exclusively where no
commission or remuneration is paid or given directly or indirectly for
soliciting the exchange. This exchange was also exempt from registration
under sections 4(2) and 4(6) of the Securities Act of 1933, and Rule 506 of
the SEC for sales by an issuer solely to accredited investors and not
involving any public offering.
(2) Commencing on August 6, 1999, the Company made a private offering of
7,285,714 Units at a price of $0.35 per Share of the Company's Class A
Common Stock (the "1999 Offering"). The 1999 Offering resulted in the sale
through March 24, 2000 of 3,553,566 Shares to 18 individuals, all of whom
were "accredited investors" within the meaning of Rule 501 of the SEC, at
aggregate price of $1,243,750. No underwriters were used, and no
underwriting discounts or commissions were paid. The Company made the
offering in reliance upon the exemptions from registration provided by
Sections 4(2) and 4(6) of the Securities Act of 1933 and Rule 506 of the
SEC for sales by an issuer solely to accredited investors and not involving
any public offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Statements included in this document, or incorporated herein by reference, that
do not relate to present or historical conditions are "forward looking
statements" within the meaning of that term in Section 27A of the Securities Act
of 1933, as amended, and Section 21F of the Securities Exchange Act of 1934, as
amended. Additional oral or written forward looking statements may be made by
the Company from time to time, and such statements may be included in documents
that are filed with the Securities and Exchange Commission. Such forward looking
statements involve risks and uncertainties that could cause results or outcomes
to differ materially from those expressed in the forward looking statements.
Forward looking statements may include, without limitation, statements relating
to the Company's plans, strategies, objectives, expectations and intentions and
are intended to be made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Words such as "believes," "forecasts,"
"intends," "possible," "estimates," "anticipates," and "plans" and similar
expressions are intended to identify forward looking statements. Among the
important factors on which such statements are based are assumptions concerning
the business environment in Broward, Dade and Palm Beach Counties of Florida
where the Bank operates, the availability of additional capital to help the Bank
achieve the size necessary to achieve and sustain profitability, changes in
interest rates, changes in the banking industry in general and particularly in
the competitive environment in which the Bank operates, and changes in
inflation.
OVERVIEW
The Company's principal asset is its ownership of a controlling interest in the
Bank, which is a State of Florida chartered commercial banking company domiciled
in Hollywood, Florida. The Bank, Southern Security Bank, which may be referred
to as SSB, is a state chartered commercial bank regulated by the Florida
Division of Banking and Finance, as its primary regulator. Since the Bank is a
member of the Federal Reserve system, the Bank's secondary regulator is the
Federal Reserve Bank of Atlanta.
The Company's results of operations are primarily dependent upon the results of
operations of the Bank. The Bank conducts a commercial banking business which
consists of, in very general terms, attracting deposits from the general public
and applying a majority of these funds (typically 60% to 75%) to the origination
of commercial loans to small businesses, consumer loans, and secured real estate
loans in its local trade area of South Florida. The balance (approximately 25%
to 40%) is generally held in cash and invested in government guaranteed -
investment grade securities. As of December 31, 1999, the Bank had approximately
1,050 deposit accounts and 490 loans outstanding.
The Bank's profitability depends primarily on generating sufficient net interest
income (the difference between interest income received from loans and
investments and the interest expense incurred on deposits) to offset the Bank's
operating expenses. Any excess thereof is pre-tax profit earned by the Bank. The
careful balance sought between the interest rate earned and frequency of rate
changes, as that balance relates to that interest rate paid to the Bank's
deposit base, determines the nature and extent to which the Bank may be
profitable. For example, if the income generated by the Bank's net interest
income plus non-interest income is in excess of the Bank's other non-interest
expenses, operating expenses and loan loss reserves, the Bank should be
operating profitably. Non-interest expenses consist primarily of personnel
compensation and benefits, occupancy and related expenses, deposit insurance
premiums paid the FDIC, as well as other operating expenses. Non-Interest income
consists primarily of loan origination fees, discounts on accounts receivable
purchases, service charges and gains on securities transactions.
OPERATING HISTORY
Since the acquisition of its affiliate Bank on December 16, 1993, through the
acquisition of 96.6% of the Bank's outstanding common stock, the Company has
focused its attention on maximizing asset quality and minimizing expenses. For
the three-year period prior to the Company's control of the Bank, cumulative
loan losses and charge-offs were in excess of more than $1,200,000. For the last
three years, cumulative net losses in this category were less than $183,000.
Total classified assets as a percentage of total loans at December 16, 1993
exceeded 48% and as of December 31, 1999 were at 2.68%. The Bank's loan
portfolio since the acquisition date has grown to approximately $13.0 million
and total assets have grown from $13 million to $17.5 million. Management
believes that the Bank has addressed many of those historic problem areas that
impeded the Bank from obtaining normalized operating profits. In the case of the
Bank, the predominant impediments at acquisition were the Bank's dangerous
under-capitalization and the poor asset quality of its loan portfolio.
Management believes the Bank currently has high asset quality, and that the
Bank's capital exceeds statutory guidelines. However, management believes that
the Bank currently has a low level of earning assets as they relate to operating
expenses. Management is seeking to correct this problem by increasing the level
of earning assets (predominantly by increasing the loan portfolio) and
increasing the level of capital in support of this growth.
Although the Company has implemented a program of increasing net loans, which
have increased to nearly $12.8 million as of December 31, 1999 from less than $7
million at December 31, 1993, this earning asset category requires an additional
$8 million in growth to bring the Bank to profitability. The loan growth
experienced was financed by a corresponding growth in the deposit base of the
Bank, and by an infusion of new capital at the Bank level. Generally, banks
maintain an average loan to deposit ratio of 75%, and for the Bank to increase
its loan portfolio by $8 million, its deposit base will require growth of $11
million. To support this level of balance sheet growth, the Bank's capital will
need to grow by approximately $800,000. Thus, management believes that a
relatively small amount of additional capital should bring the Bank to marginal
profitability. Additional capitalization should provide a foundation for future
growth and profitability, including the opening of additional branches to be
located in Boca Raton, Florida and Miami, Florida.
RESULTS OF OPERATIONS
Average Balance Sheet. An analysis of the Company's average balance sheet levels
for the last two years is presented in the following table. The Company's net
interest income increased 3.0% percent over 1998. This increase was the result
of the reduction of higher rate deposits. The average yield/rate for
interest-earning assets increased 1.65% from 1998 to 1999 while the average
yield/rate of interest-bearing liabilities decreased 19.08% from 1998 to 1999.
<TABLE>
<CAPTION>
Southern Security Bank Corporation
Average Balance Sheet Analysis
December
31, 1999 1999 1998
Average Average Average Average Average
Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
---------- ------- -------- ---------- ------- -------- ----------
Assets: (Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investments (1) 871 54 6.20% 1,596 120 7.52%
Federal funds sold n/a 3,222 161 5.00% 5,038 274 5.44%
Loans receivable (2) 13,797 1,329 9.63% 15,347 1,473 9.60%
------- ----- -------- ------- ------ --------
Total interest earning assets 17,890 1,544 8.63% 21,981 1,867 8.49%
Noninterest-earning assets 2,516 2,731
----- -----
Total 20,406 24,712
====== ======
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
NOW and money market accounts 1.85% 4,944 95 1.92% 5,066 116 2.29%
Savings accounts 1.64% 511 10 1.64% 407 8 1.97%
Certificates of deposit 5.49% 8,298 425 5.12% 13,036 755 5.79%
Other 6.00% 100 8 6.00% 137 10 7.30%
------- ----- -------- ------- ------ --------
Total interest-bearing liabilities 13,953 538 3.86% 18,646 889 4.77%
------ --- ----- ------ --- -----
Noninterest bearing liabilities 5,245 5,177
Stockholders' equity 1,208 889
----- ----
Total 20,406 24,712
====== ======
Net Interest income and net yield
on interest-earning assets 1,006 5.62% 978 4.45%
=== ===== === =====
</TABLE>
(1) Includes investment securities and Federal Reserve Bank stock.
(2) Includes loans for which the accrual of interest has been suspended.
Net Income (loss) for the respective periods of 1999 and 1998 was ($652,000) and
($584,000) which represents an increase in the net loss by $68,000 due to a
combination of factors as described below.
Analysis of Changes in Interest Income and Interest Expense. Interest income
during 1999 was $1,544,000 as compared to $1,867,000 for 1998 due to a reduction
of $4.0 million in total average assets from 1998 to 1999. Interest expense for
this period was $538,000 for 1999, and $889,000 for 1998, representing a
decrease of $351,000, which was largely due to a decrease in the amount of
interest bearing deposits held by the Bank and a related decrease in rates for
deposits. The resultant net interest income was $1,006,000 in 1999 and $978,000
for 1998, reflecting an increase of approximately $28,000. Management believes
that this increase, although not indicative of future performance, does
demonstrate stabilization.
The impact of the bank's strategies can be seen in the table titled Analysis of
Changes in Interest Income and Interest Expense. The table indicates changes in
net interest income resulting either from changes in average balances or to
changes in average rates for earning assets and interest-bearing liabilities.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to: (i) change in volume (change
in volume multiplied by prior year rate); (ii) change in rate (change in rate
multiplied by prior year volume); (iii) change in rate/volume (change in rate
multiplied by change in volume); and (iv) total change in rate and volume.
<TABLE>
<CAPTION>
Southern Security Bank Corporation
Analysis of Changes in Interest Income and Interest Expense
- -----------------------------------------------------------------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
Increase (Decrease) Attributable to Increase (Decrease) Attributable to
Volume Rate Rate/Volume Net Volume Rate Rate/Volume Net
------ ---- ----------- --- ------ ---- ----------- --
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income on:
Investments (55) (21) 10 (66) (128) 23 (12) (117)
Federal funds sold (99) (22) 8 (113) 197 (3) (7) 187
Loans receivable (149) 5 0 (144) 489 (89) (40) 360
------ ---- -------- ----- --------- -- ------- ---
Total interest income on
interest-earning assets (303) (38) 18 (323) 558 (69) (59) 430
Interest expense on:
NOW and money market accounts (3) (19) 1 (21) 1 (11) 0 (10)
Savings accounts 4 (1) (1) 2 0 0 0 0
Certificates of deposit (274) (67) 31 (330) 320 10 9 339
Other (3) 1 0 (2) 0 1 1 2
Total interest expense on
interest-bearing liabilities (276) (106) 31 (351) 321 0 10 331
Increase (decrease) in net
interest income (27) 68 (13) 28 237 (69) (69) 99
======== ===== ========= ========= ============= ====== ======= =======
</TABLE>
Other Income and Expenses. Total other income was $121,000 during 1999 compared
with $176,000 for 1998, which represents a decrease of $55,000 in this category
due to a reduction of $25,000 in amortization of negative goodwill and a smaller
reduction in miscellaneous bank service charge income. Salaries and employee
benefits totaled $877,000 and $743,000 for 1999 and 1998 respectively, which
represents an increase of $134,000. During the year ended December 31, 1998, one
officer voluntarily agreed to permanently forgive $125,000 of compensation due
and the related liability was decreased accordingly. Total other expenses were
$906,000 and $956,000 for 1999 and 1998, respectively, which represents a
reduction of $50,000 (5.2%).
Federal Income Taxes. At December 31, 1999, the Company had net operating loss
carry-forwards for federal income tax purposes available to offset future
federal taxable income, in the amount of $8,694,000 with specific amounts
expiring each year from 2002 through the year 2019. No deferred tax asset has
been recognized because the Company's past results of operations do not indicate
that it is more likely than not such net operating losses will be used in the
future.
FINANCIAL CONDITION
Asset/Liability Management. A principal objective of the Bank's asset/liability
management strategy is to minimize the Bank's exposure to changes in interest
rates by matching the maturity and repricing horizons of interest-earning assets
and interest-bearing liabilities. This strategy is overseen in part through the
direction of the Asset and Liability Committee (ALCO) of the Bank which
establishes policies and monitors results to control interest rate sensitivity.
ALCO examines the extent to which its assets and liabilities are interest rate
sensitive and monitors the Bank's interest rate sensitivity GAP. An asset or
liability is considered to be interest rate-sensitive if it will be repriced or
mature within the time period analyzed, usually one year or less. The interest
rate sensitivity GAP is the difference between interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within such time
periods. A GAP is considered positive when the amount of interest rate-sensitive
assets is greater than the amount of interest rate-sensitive liabilities. The
GAP is considered negative when the amount of interest rate-sensitive assets is
less than the amount of interest rate-sensitive liabilities. During a period of
rising interest rates, a positive GAP would tend to result in an increase in net
interest income; and a negative GAP would tend to adversely affect net interest
income. Conversely, during a period of falling interest rates, a negative GAP
would tend to result in an increase in net interest rates, while a positive GAP
would tend to adversely affect net interest income.
If the repricing of the Bank's assets and liabilities were equally flexible and
moved concurrently, the impact of any increases or decreases in interest rates
on net interest income would be minimal. However, as commercial banking
companies generally have a significant quantity of their earning assets in
Rate-Over-Prime, rate-adjusted-day-of-change earning assets, GAP management is
critical, as very few, if any, rate-sensitive liabilities (deposit accounts)
adjust at such a rapid frequency.
The ALCO committee evaluates the Bank's GAP position, and stratifies these
results according to how often the repayment of particular assets and
liabilities are impacted by changes in interest rates. Additionally, income
associated with interest-earning assets and costs associated with
interest-bearing liabilities may not be affected uniformly by changes in
interest rates; thus, the magnitude and duration of changes in interest rates
may have a significant impact on net interest income. For example, although
certain assets and liabilities may have similar maturities or periods of
repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types of assets and liabilities may lag behind changes in general market
rates. Additionally, certain types of earning assets (variable rate mortgage
loans, for example) may have interest caps which may limit the level of rate-
increases, even though general market interest rates increase. The management of
GAP is further complicated by asset (loan) prepayment and/or early withdrawal of
liabilities (deposits). In volatile interest rate markets the level of assets
and liabilities assumed by bank managers may not have accounted for the
deviation that has occurred in the unpredictable interest rate environment.
Therefore, Bank management and the ALCO committee's strategy are to maintain a
balanced interest rate risk position to protect its net interest margin from
market fluctuations. They review, on at least a monthly basis, the maturity and
repricing of assets and liabilities for the various time period traunches
considered. The Bank's ALCO policy limits for GAP and the Bank's position with
respect to various time traunches at December 31, 1999 are:
Total Rate-Sensitive Assets, RSA/Total Rate Sensitive Liabilities, RSL =
0.80 to 1.20; the Bank is at 1.24.
RSA/RSL (0 to 365 days) = 0.80 to 1.20; the Bank is at .89.
RSA/RSL (0 to 90 days) = 0.80 to 1.20; the Bank is at 1.22.
RSA/RSL (91-365 days)= 0.80 to 1.20; the Bank is at 0.45.
0 to 365 day GAP/Total Assets = +/- 10%; the Bank is at -6.41%.
0 to 90 day GAP/Total Assets = +/- 10%; the Bank is at +7.35%.
91 to 365 day GAP/Total Assets = +/- 10%; the Bank is at -13.76%.
The Bank's view of these GAP positions is as follows:
1. Total RSA/Total RSL Ratio: Out of "Target" of .80 to 1.20 at 1.24. Rate
sensitive assets currently outweigh rate sensitive liabilities. Management
is pursuing a program to obtain additional rate sensitive liabilities at an
accelerated pace to that of assets. This is accomplished through repricing
opportunities as well as occasions to amend maturities.
2. RSA/RSL - 0 to 365 Day: Within "Target" tolerance of .80 - 1.20 at .89.
3. RSA/RSL - 0 to 90 Day: Out of "Target" of .80 - 1.20 at 1.22. The most
applicable and currently achievable strategy is to further decrease the
core deposit base within this time horizon.
4. RSA/RSL - 91 - 365 Day: Out of "Target" of .80 - 1.20 at 0.45. The most
applicable and currently achievable strategy is to further increase the
core deposit base within this time horizon.
5. 0 - 365 Day GAP/Total Assets Month End: Within "Guideline" of -10% through
+10% at -6.41%.
6. 0 - 90 Day GAP/Total Assets Month End: Within "Target" of -10% through +10%
at +7.35%.
7. 91-365 Day GAP/Total Assets Month End: Out of "Target" of -10% through +10%
at -13.76%. This category is a component of numeral 5 above and is
interrelated with numeral 6 above, however, are inverted. The most
applicable and currently achievable strategy is to increase investments in
higher yielding loans which will reprice from within 4 to 12 months or to
reduce CD's.
Interest Rate Risk: The Company does not currently engage in trading activities
or use derivative instruments to control interest rate risk. Even though such
activities may be permitted with the approval of the Board of Directors, the
Company does not intend to engage in such activities in the immediate future.
Loan Maturity Schedule: The following schedule sets forth the time to
contractual maturity of the Bank's loan portfolio at December 31, 1999. Loans
which have adjustable rates and fixed rates are all shown in the period of
contractual maturity. Demand loans, loans having no contractual maturity and
overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
One Year One to Over Home
Total or Less Five Years Five Years Nonaccrual Equity
----- ------- ---------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Residential Real Estate
Fixed Rate 1,739,198 $ - $ 253,766 $ 1,485,432 $ - $ -
Adjustable Rate 1,115,034 - 20,742 918,756 - 175,536
Consumer
Fixed rate 3,493,057 79,244 3,412,314 - - 1,499
Adjustable rate 575,141 139,904 435,237 - - -
Commercial
Fixed rate 1,033,545 765,944 267,601 - - -
Adjustable rate 1,744,625 979,188 566,987 198,450 - -
Commercial Real Estate
Fixed rate 403,864 - 382,751 21,113 - -
Adjustable rate 2,595,131 510,584 278,305 867,546 - 938,696
Other 254,676 254,676 - - - -
------------- ----------- ------------ ------------ --------- ---------
$ 12,954,271 $ 2,729,540 $ 5,617,703 $ 3,491,296 $ - $ 1,115,731
========== =========== =========== ======== =========
Add deferred loan costs 17,666
------------
12,971,937
============
</TABLE>
Fixed rate loans due after one year total approximately $5.8 million and
adjustable rate loans due after one year total approximately $4.4 million.
Adjustable rate loans which reprice after December 31, 2000 total approximately
$940,000 at December 31, 1999.
The Bank extends credit with terms, rates and fees commensurate with those in
its market place for like types of credit. Loan maturities may positively or
negatively impact the Bank's GAP position and, ultimately, its profitability.
Securities Portfolio. The Company's investment securities portfolio consists of
high quality securities. The maturity distribution of the securities portfolio
is reflected in the following Table of Maturities of Investment Securities. The
average yield/rate for the Company's investment portfolio increased from 6.37%
in 1998 to 6.56% at December 31, 1999.
<TABLE>
<CAPTION>
Southern Security Bank Corporation
Maturities of Investment Securities
December 31, 1999
One Year or Less Through Five Years Through Ten Years After Ten Years Total
------------------- ------------------ ------------------ ---------------- -----------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
Held to maturity $ -- -- % $249,763 6.51 % $ -- --% $ -- --% $ 249,763 6.51%
Available for Sale $ 50,538 5.30% -- -- -- -- -- -- 50,538 5.30
Mortgage-backed securities:
Held to maturity -- -- 71,145 7.21 -- -- -- -- 71,145 7.21
Available for Sale -- -- -- -- -- -- 196,557 6.71 196,557 6.71
U.S. government corporations
and agencies:
Held to Maturity -- -- -- -- -- -- -- -- -- --
Available for sale -- -- -- -- -- -- -- -- -- --
Total $ 50,538 5.30% $320,908 6.67% $-- -- % $196,557 6.67% $568,003 6.56%
======= ===== ======== ===== ===== ===== ======== ===== ======== =====
</TABLE>
Asset Quality. The Bank's management seeks to maintain a high quality of assets
through conservative underwriting and sound lending practices. The earning asset
portfolio (exclusive of investment securities) is generally split into five
categories, four of which are types of loans, and the fifth is accounts
receivable purchase financing. Loan concentrations are defined as loans
outstanding that are segregated into similar collateral types and/or nature of
cash-flow income generation, which may cause a correspondingly similar impact
with a particular economic or other condition. The Company routinely monitors
these concentrations in order to make necessary adjustments in its lending
practices that most clearly reflect the economic conditions and trends, loan
ratios, loan covenants, asset valuations, and industry trends.
Displayed below are the percentages of the total loan portfolio as of December
31, 1999 and December 31, 1998:
1999 1998
Commercial Loans: 19% 15%
Consumer & Installment Loans: 31% 41%
Residential Mortgage Loans: 22% 19%
Commercial Mortgage Loans: 23% 21%
Accounts Receivable: 5% 4%
The trends illustrated in the above chart reflect managements continuing efforts
to shorten maturities and to increase floating rate earnings assets as
opportunities are presented.
In an effort to maintain the quality of the loan portfolio, management seeks to
minimize higher risk loans. In view of the relative significance of real estate
related loans, a downturn in the value of the value of real estate property
could have an adverse impact on the Company's profitability. As part of the
Bank's loan policy and loan management strategy, the Bank typically limits its
loan-to-value ratio to a maximum of 50%-80% depending on the type of real
property secured thereby. The use of qualified third party certified appraisers
for property valuations, and property inspections by knowledgeable bank
officials helps mitigate real property loan risks.
The Directors Loan and Discount Committee for the Bank concentrates its efforts
and resources and that of its senior management and lending officers on loan
review and underwriting procedures and standards. Internal controls include
ongoing reviews of loans made to monitor documentation and ensure the existence
and valuations of collateral, early detection of loan degradation, and regional
economic conditions.
Classification of Assets. Generally, interest on loans is accrued and credited
to income based on the outstanding balance of the contract obligations of each
loan/receivable contract. It is the Bank's policy to discontinue the accrual of
interest income and classify loan(s)/asset(s) as non-accrual when principal or
interest is past-due 90 days or more and/or the loan is not properly/adequately
collateralized, or if in the belief of Bank management principal and/or interest
is not likely to be paid accordance with the terms of the
obligation/documentation. As of December 31, 1999 delinquent loans greater than
30 and less than 90 days totaled $414,000; Classified loans totaled $63,000; and
Other Real Estate Owned (consisting of 3 condominium units and one unimproved
lot) totaled $268,000.
Non-performing Assets. Non-performing assets consist of loans that are past due
90 days or more which are still accruing interest, loans on nonaccrual status
and OREO and other foreclosed assets. The following table sets forth information
with respect to nonperforming assets identified by the Bank, including
nonaccrual loans, loans past due 90 days or more and still accruing and real
estate owned at December 31, 1999 and 1998.
1999 1998
----------------------
(Dollars in Thousands)
Nonaccrual loans
Real estate 0 0
Commercial 0 50
Accrual loans - Past Due 90 days or more
Real estate 0 109
Installment 80 54
Restructured loans -- --
Real estate owned 268 414
--- ---
Total nonperforming assets 348 627
=== ===
In addition to the assets disclosed above, the Bank has one loan with a balance
of $45,000 at December 31, 1999 which has been classified as doubtful. Total
nonperforming assets have decreased in 1999 from 1998 by $279,000 (44%).
Nonaccrual loans decreased by $50,000 and real estate owned decreased by
$146,000 (35%) due to the sale of two properties during 1999. Accrual loans over
90 days decreased by $83,000 (51%).
Allowances for Loan Losses, the reserve, is established though a provision for
loan losses charged to operations. Loans are charged against the allowance for
loan losses when management believes that the collection of the principal is
unlikely. Subsequent recoveries are added to the allowance. The allowance is an
amount that management believes will be adequate to absorb possible losses
inherent in existing loans and loan commitments, based on evaluations of
collection and prior loss experience. Management evaluates the adequacy of the
allowance monthly, or more frequently as necessary. The evaluation takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, loan concentrations, specific identified
problem assets/loans, and current anticipated economic conditions that may
effect the borrower's ability to fulfill its contractual commitment(s). As of
December 31, 1999, the Bank has set a conservative loan loss percentage at no
less than 1.44% of total loan portfolio balance.
The following table sets forth the composition of the allowance for loan losses
by type of loan at the dates indicated. The allowance is allocated to specific
categories of loans for statistical purposes only, and may be applied to loan
losses incurred in any loan category.
<TABLE>
<CAPTION>
1999 1998
---- ----
Amount of Amount of
Amount of Loans to Amount of Loans to
Allowance Gross Loans Allowance Gross Loans
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Commercial $ 42,245 23% $ 37,450 19%
Commercial Real Estate 27,551 15% 65,905 21%
Residential Real Estate 45,919 25% 48,889 19%
Consumer 64,286 35% 118,527 40%
Other 3,675 2% 728 1%
----------- ---------- --------- ----------
Total allowance for loan losses $ 183,676 100% $ 271,499 100%
=========== ========== ========= ==========
</TABLE>
Liabilities and Stockholders' Equity: The Liability side of the balance sheet
has great significance to the profitable operation of a banking company.
Deposits are the major source of the Bank's funds for lending and other
investment activities. Deposits are attracted principally from within the Bank's
primary market area through the offering of a broad variety of deposit
instruments including checking accounts, money market accounts, regular savings
accounts and certificates of deposits (known as CD's). Maturity terms, service
fees and withdrawal penalties are established by the Bank on a periodic basis.
The determination of rates and terms is predicated on funds acquisition and
liquidity requirements, rates paid by competitors, growth goals and Federal
regulations.
Federal Regulations promulgated by the FDIC pursuant to the Federal Deposit
Insurance Company Improvement Act of 1991, place limitations on the ability of
certain insured depository institutions to accept, renew, or rollover deposits
by offering rates of interest which are significantly higher than the prevailing
rates of interest on deposits offered by other insured depository institutions
having the same type of Charter in the institution's market area.
The following table sets forth the Deposit base of the Bank at the close of
business on December 31, 1999 and December 31, 1998. The Company views the
deposit base as a good core deposit base that is stable and improving.
Non-interest bearing transaction accounts are on a demand basis, and as such,
balances continually fluctuate.
<TABLE>
<CAPTION>
Southern Security Bank
Deposit Accounts
December 31, 1999
1999 1998
------------------------------- ----------------------------------
Weighted Weighted
Average % of Average % of
Amount Rate Deposits Amount Rate Deposits
------ ---- -------- ------ ---- --------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing accounts: 3,525,043 0.00% 22.46% 5,138,392 0.00% 25.38%
Interest bearing accounts:
NOW accounts 1,893,708 1.70% 12.07% 1,601,587 1.91% 7.91%
Money market deposit accounts 2,674,489 1.95% 17.04% 2,745,687 2.25% 13.56%
Savings accounts 655,206 1.64% 4.17% 725,038 2.05% 3.58%
Time deposits 6,945,645 5.49% 44.26% 10,033,342 5.52% 49.56%
---------- ---------
Total deposits 15,694,091 20,244,046
========== ==========
</TABLE>
The following table sets forth information with respect to the Company's return
on assets and the return on equity for the years ending December 31, 1999 and
1998, and the ratio of average equity to average assets for those years.
1999 1998
(Dollars in Thousands)
--------------------
Net loss $ (652) $ (584)
Average total assets 20,406 24,712
Average total equity 1,208 889
Return on average assets (3.2%) (2.4%)
Return on average equity (54.1%) (65.7%)
Average Equity to average assets ratio 4.5% 3.6%
Average total assets decreased in 1999 by $4.0 million from 1998 due to
managements decision to pursue lower cost deposits and to attract liabilities
only to the extent of funding needs for asset deployment. The combination of
these two factors negatively impacted both the return on average assets and the
return on average equity, however, permit the bank to continue its balance sheet
for future liquidity, GAP, and relationship strategies. Through the increase of
equity through stock sales and the reduction of the average assets, the equity
to assets ratio increased from 3.6% in 1998 to 5.9% in 1999.
There were no dividends declared in the years ended December 31, 1999 and 1998.
Equity and Capital Resources. The Bank is subject to various regulatory capital
requirements administered by Federal and State banking authorities. Failure to
meet minimum capital requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if not undertaken, could
have a direct material effect on the Bank's financial statements and operation.
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 policies.
The Bank's capital accounts and classifications are also subject to qualitative
judgements by the regulators about components, risk weighting, and other
factors. Quantitative and qualitative measures established by regulation to
ensure capital adequacy require the Bank to maintain minimum amounts and ratios,
set forth in the table as of December 31, 1999 below, of total and Tier-1
capital, as defined by regulation, to risk weighted assets, and of Tier-1
capital to average assets. Management believes that as of December 31, 1999 it
has met the capital adequacy requirements as defined by these definitions.
The Bank in its written agreement with the regulators agreed to maintain a 7.00%
ratio of capital to total assets, which was at 7.22% at December 31, 1999. The
second column below with the indication "Adequately" is that regulatory
definition for an Adequately Capitalized banking institution. The right column
below with the indication "Well" is that regulatory definition for a Well
Capitalized banking institution.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Regulator Definition for each Capital Tier Category SSB Adequately Well
Tier-2 Capital = Tier-2 Cap/Risk Weighted Assets 12.86% 8.00% 10.0%
Tier-1 Risk = Tier-1 Cap/Risk Weighted Assets 11.61% 4.00% 6.0%
Tier-1 Leverage = Tier-1 Cap/Avg Quarterly Assets 8.38% 4.00% 5.0%
</TABLE>
EFFECT OF GOVERNMENT POLICY, FUTURE LEGISLATION AND CHANGING FINANCIAL MARKETS
One of the primary determinants of the Company's future success and
profitability is the interest rate differentials obtained by its affiliate
banking institution. The Bank's earning capacity will be largely controlled by
the difference between the interest rate paid on its deposits and other
borrowing and the interest rates received on loans to customers and securities
held in its investment portfolio. The value and yields of its assets and the
rate paid on its liabilities are sensitive to changes in prevailing rates of
interest. Consequently, the earnings and growth of the Company will be
influenced by general economic conditions, the monetary and fiscal policies of
the federal government and policies of regulatory agencies which implement
national monetary policy. The nature and impact of any future changes in
monetary policies cannot be predicted. The entire regulatory environment which
controls the banking industry in the United States is undergoing significant
change, both as to the banking industry itself and the permissible competition
between banks and non-banking financial institutions. There have been
significant regulatory changes in the areas of bank mergers and acquisitions,
the products and services offered by banks and the non-banking activities in
which bank holding companies may engage. Partly as a result of such changes,
banks are now actively competing with other types of depository institutions and
with non-bank financial institutions such as money market funds, brokerage
firms, insurance companies and other financial services organizations. It is not
possible at this time to assess what impact these changes will ultimately have
on the Company and its operations. Certain legislative and regulatory proposals
that could affect the Company are pending, or may be introduced, in the United
States Congress, the Florida legislature and various other governmental
agencies. These proposals could further alter the structure, regulation and
competitive relationship of financial institutions and may subject the Company
to increased regulation, disclosure and reporting requirements. In addition, the
various banking regulatory agencies frequently propose rules and regulations to
implement and enforce already existing legislation. It cannot be predicted
whether or in what form any future legislation or regulations will be enacted or
to the extent to which the business of the Company will be affected by such
matters.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and accompanying footnotes have been prepared in
accordance with generally accepted accounting principles ("GAAP"), which require
the measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The assets and liabilities of the
Company are primarily monetary in nature and changes in market interest rates
have a greater impact on its performance than do the effects of inflation.
REGULATORY MATTERS
See Note 15 in independent auditors financial report for December 31, 1999
regarding "Regulatory Matters and Going Concern Considerations".
ITEM 7. FINANCIAL STATEMENTS
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
Consolidated Financial Report
December 31, 1999
Independent Auditor's Report
To the Board of Directors and Stockholders
Southern Security Bank Corporation and Subsidiary
Hollywood, Florida
We have audited the accompanying consolidated balance sheets of Southern
Security Bank Corporation and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. 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 Southern Security
Bank Corporation and subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Fort Lauderdale, Florida
March 28, 2000
<PAGE>
Southern Security Bank Corporation and Subsidiary
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks (Note 2) $ 1,430,387 $1,012,269
Federal funds sold 1,744,933 4,845,000
---------------------------------
Total cash and cash equivalents 3,175,320 5,857,269
Securities held to maturity (fair value 1999 $321,527;
1998 $359,033) (Note 3) 320,908 350,883
Securities available for sale (amortized cost 1999
$251,621; 1998 $274,458) (Note 3) 247,095 277,970
Federal Reserve Bank stock, at cost 88,600 84,300
Loans, net (Notes 4, 12 and 16) 12,788,261 14,612,998
Premises and equipment (Note 5) 339,707 344,592
Other real estate owned 267,634 414,298
Accrued interest receivable 107,017 136,854
Other assets 150,021 181,677
--------------------------------
$ 17,484,563 $22,260,841
=======================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Southern Security Bank Corporation and Subsidiary
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Noninterest-bearing deposits $ 3,525,043 $5,138,392
Interest-bearing deposits (Note 6) 12,169,048 15,105,654
----------------------------------
Total deposits 15,694,091 20,244,046
Notes payable (Note 8) 100,000 100,000
Other liabilities 704,665 661,184
---------------------------------
Total liabilities 16,498,756 21,005,230
---------------------------------
Commitments and contingencies (Notes 13, 15 and 16)
Minority interest in subsidiary 31,692 39,491
Stockholders' equity (Notes 9, 10, and 14): ---------------------------------
Preferred stock, 3,800,000 authorized, none issued and
outstanding, terms determined upon issuance
Series A voting convertible preferred stock, $.01 par
value; $1.50 liquidation value; 1,200,000 shares
authorized; none issued and outstanding
Class A voting common stock, $.01 par value; 30,000,000 1,644,988
shares authorized; issued and outstanding 1999
5,913,050 shares; 1998 4,567,641 shares 59,130 45,676
Class B nonvoting convertible common stock,
$.01 par value; 5,000,000 shares authorized;
none issued and outstanding
Capital surplus 5,921,300 5,537,269
Accumulated deficit (5,021,898) (4,370,251)
---------------------------------
958,532 1,212,694
---------------------------------
Accumulated other comprehensive income (loss) (4,417) 3,426
---------------------------------
Total stockholders' equity 954,115 1,216,120
---------------------------------
$ 17,484,563 $22,260,841
=================================
</TABLE>
<PAGE>
Southern Security Bank Corporation and Subsidiary
Consolidated Statements Of Operations
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans, including fees $131,328,510 $1,472,713
Securities 54,449 120,146
Federal funds sold 160,579 273,926
--------------------------------
1,543,538 1,866,785
Interest expense 537,568 889,292
--------------------------------
Net interest income 1,005,970 977,493
Provision for loan losses (Note 4) 40,000
--------------------------------
Net interest income after provision for loan losses 1,005,970 937,493
--------------------------------
Other income:
Service charges on deposit accounts 121,441 136,298
Securities gains (losses), net (Note 3) 543
Other 39,635
--------------------------------
Total other income 121,441 176,476
--------------------------------
Other expenses:
Salaries and employee benefits 877,348 743,373
Occupancy and equipment 345,568 321,349
Data and item processing 85,831 72,505
Professional fees 174,468 140,383
Insurance 93,725 91,886
Other 206,132 330,181
-------------------------------
Total other expenses 1,783,072 1,699,677
-------------------------------
Net loss before minority interest in
net loss of subsidiary (655,661) (585,708)
Minority interest in net loss of subsidiary 4,014 1,687
-------------------------------
Net loss $ (651,647) $(584,021)
===============================
Basic and diluted earnings (loss) per share (Note 11) $ (0.12) $(0.13)
===============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Southern Security Bank corporation and Subsidiary
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Comprehensive Preferred Stock
-------------------------------------
Income Shares Amount
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1997
Comprehensive income (loss): - - $ -
Net loss $ (584,021) - -
Other comprehensive income, net of tax:
Change in unrealized gain (loss) on
securities available for sale (Note 3) 2,734 - -
--------------------
Comprehensive (loss) $ (581,287)
====================
Issuance of stock
-------------------------------------
Balance, December 31, 1998
Comprehensive income (loss):
Net loss $ (651,647) - -
Other comprehensive income (loss), net of tax:
Change in unrealized gain (loss) on
securities available for sale (Note 3) (7,843) - -
--------------------
Comprehensive income (loss) $ (659,490) - -
====================
Issuance of stock (Note 9)
-------------------------------------
Balance, December 31, 1999 - $ -
=====================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Common Stock Paid - In Accumulated Comprehensive
Shares Amount Capital (Deficit) Income Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4,299,673 $ 42,997 $ 4,215,371 $ (3,786,230) $692 $472,830
(584,021) (584,021)
2,734 2,734
267,968 2,679 1,321,898 1,324,577
- ---------------------------------------------------------------------------------------------------
4,567,641 45,676 5,537,269 (4,370,251) 3,426 1,216,120
(651,647) (651,647)
(7,843) (7,843)
1,345,409 13,454 384,031 397,485
- ---------------------------------------------------------------------------------------------------
5,913,050 $ 59,130 $ 5,921,300 $ (5,021,898) $(4,417) $954,115
===================================================================================================
</TABLE>
<PAGE>
SOUTHERN SECURITY BANK CORPORATION AND SUBSIDIARY
CONSOLIDATED Statements of Cash Flows (Note 17) Years Ended December 31, 1999
and 1998
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (651,647) $(584,021)
Adjustments to reconcile net loss to net cash used in
operating activities:
Net accretion on securities (3,495) (22,133)
Provision for loan losses 40,000
Provision for losses on other real estate owned 7,000
Depreciation and amortization 92,416 79,485
Loss on sale of other real estate owned 12,268
Securities (gains) losses, net (543)
Minority interest in net loss of subsidiary (4,014) (1,687)
Issuance of common stock as compensation
for services 89,325
(Increase) decrease in:
Accrued interest receivable 29,837 (10,984)
Other assets 28,067 (7,471)
Increase in other liabilities 43,481 208,634
------------------------------
Net cash used in operating activities (453,087) (202,395)
------------------------------
Cash Flows From Investing Activities
Net cash flows from securities 52,007 1,583,006
Loan originations and principal collections on loans, net 1,890,429 3,519,073
Purchases of loans (5,723,793)
Purchase of premises and equipment (87,531) (24,278)
Proceeds from sale of other real estate owned 68,704
------------------------------
Net cash provided by (used in) investing activities 1,923,609 (645,992)
------------------------------
Cash Flows From Financing Activities
Net decrease in federal funds purchased
and securities sold under repurchase agreements (206,000)
Net increase (decrease) in deposits (4,549,956) 4,568,735
Proceeds from issuance of stock 397,485 1,235,252
------------------------------
Net cash provided by (used in) financing activities (4,152,471) 5,597,987
------------------------------
Net increase (decrease) in cash and cash equivalents (2,681,949) 4,749,600
Cash and cash equivalents:
Beginning 5,857,269 1,107,669
------------------------------
Ending $ 3,175,320 $5,857,269
==============================
</TABLE>
See Notes to Consolidated Financial Statements.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business: Southern Security Bank Corporation (the "Company")
provides a full range of banking services to individual and corporate customers
in Southeast Florida through its subsidiary bank.
Principles of consolidation: The accompanying consolidated financial statements
include the accounts of Southern Security Bank Corporation and its
majority-owned subsidiary, Southern Security Bank (the "Bank"). All significant
intercompany balances and transactions have been eliminated in consolidation.
Basis of presentation: The financial statements of Southern Security Bank
Corporation and its subsidiary have been prepared in conformity with generally
accepted accounting principles and conform to predominate practice within the
banking industry. In preparing the financial statements, the Company's
management is required to make estimates and assumptions which significantly
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.
Significant estimates which are particularly susceptible to change in a short
period of time include the determination of the allowance for loan losses and
the fair value of securities. Actual results could differ from those estimates.
Cash and cash flows: Cash and cash equivalents includes cash and due from banks,
and federal funds sold. For purposes of reporting cash flows, loans, deposits,
federal funds purchased and securities sold under repurchase agreements are
reported net. The Bank maintains deposits with financial institutions which are
in excess of federally-insured amounts.
Investment securities: Debt securities that the Bank has the positive intent and
ability to hold until maturity are classified as "held to maturity" and recorded
at amortized cost. Securities not classified as held to maturity or trading are
classified as "available for sale" and recorded at fair value, with unrealized
gains or losses, net of the related deferred tax effect, reported as a separate
component of other comprehensive income. Management determines the appropriate
classification of securities as each individual security is acquired. In
addition, the appropriateness of such classification is reassessed at each
balance sheet date.
Purchase premiums and discounts on debt securities are amortized using the
interest method over their expected terms and recognized in interest income.
Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings on the trade date.
Declines in the fair value of individual securities classified as either held to
maturity or available for sale below their amortized cost that are determined to
be other than temporary result in write-downs of the individual securities to
their fair value with the resulting write-downs included in current earnings as
realized losses.
Loans: Loans receivable that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are stated at the amount of
unpaid principal, adjusted for unamortized premiums, net loan origination fees
and costs, and an allowance for loan losses.
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and recognized over the expected life of the related loan as
an adjustment of yield. The Bank is generally amortizing these amounts over the
contractual life using the interest method. Commitment fees based upon a
percentage of a customer's unused line of credit and fees related to standby
letters of credit are recognized over the commitment period.
Interest on loans is calculated by using the simple interest method on daily
balances of the principal amount outstanding. For impaired loans, accrual of
interest is discontinued on a loan when management believes, after considering
collection efforts and other factors, that the borrower's financial condition is
such that collection of interest is doubtful. Interest income is recognized on
those loans only upon receipt. Accrual of interest is generally resumed when the
customer is current on all principal and interest payments.
A loan is impaired when it is probable the Bank will be unable to collect all
contractual principal and interest payments due in accordance with the terms of
the loan agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are included in the allowance for
loan losses.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that collectibility of the principal is unlikely. The
allowance is an amount that management believes will be adequate to absorb
estimated losses on existing loans, based on an evaluation of the collectibility
of loans and prior loss experience. This evaluation also takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay. While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions.
Transfers of financial assets: Transfers of financial assets are accounted for
as sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Company, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge or
exchange the transferred assets, and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them
before their maturity.
Premises and equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed principally by the
straight-line method over the following estimated useful lives:
Years
-----------------
Leasehold improvements 5 - 10
Furniture and equipment 3 - 12
Other real estate owned: Real estate acquired through foreclosure or deed in
lieu of foreclosure represents specific assets to which the Company has acquired
legal title in satisfaction of indebtedness. Such real estate is recorded at the
property's fair value at the date of foreclosure (cost). Initial valuation
adjustments, if any, are charged against the allowance for loan losses. Property
is evaluated regularly to ensure the recorded amount is supported by its current
fair value and valuation allowances to reduce the carrying amount to fair value
less estimated cost to dispose are recorded as necessary. Revenues and expenses
related to holding and operating these properties are included in operations.
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences, and operating
loss or tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Stock-based compensation: The Bank has elected to use the intrinsic valuation
method prescribed under Accounting Principles Board ("APB") Opinion 25,
"Accounting for Stock Issued to Employees" to account for stock-based
compensation. Under this method, compensation is measured as the difference
between the estimated fair value of the stock at the date of the award less the
amount required to be paid. The difference, if any, is charged to expense over
the periods of required service.
Credit related financial instruments: In the ordinary course of business, the
Bank has entered into commitments to extend credit, including standby letters of
credit. Such financial instruments are recorded when they are funded.
Earnings per share: Basic earnings per-share amounts are computed by dividing
net income (the numerator) by the weighted-average number of common shares
outstanding (the denominator). Diluted earnings per-share amounts assume the
conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce the loss or increase the income per common share
from continuing operations.
Fair value of financial instruments: SFAS No. 107, Disclosures about Fair Value
of Financial Instruments requires disclosure of fair value information about
financial instruments, whether or not recognized in the balance sheet, for which
it is practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all nonfinancial assets and liabilities from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Bank.
The fair value estimates presented are based on pertinent information available
to management as of December 31, 1999 and 1998. Although management is not aware
of any factors that would significantly affect the estimated fair value amount,
such amounts have not been comprehensively revalued for purposes of these
financial statements since these dates and therefore, current estimates of fair
value may differ significantly from the amounts presented in these financial
statements.
Emerging accounting standards: In June 1999, the Financial Accounting Standards
Board issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, which is required to be adopted in years beginning after
June 15, 2000. Because of the Bank has not used derivatives in the past,
management does not anticipate that the adoption of the new Statement will have
a significant effect on the Bank's earnings or financial position.
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required by the Federal Reserve Bank to maintain reserve balances in
cash or on deposit, based on a percentage of deposits. Required reserve balances
were completely satisfied by cash on hand at December 31, 1999 and 1998.
NOTE 3. INVESTMENT SECURITIES
Securities held to maturity: The amortized cost and fair values of securities
held to maturity as of December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
-----------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 249,763 $ 355 $ $ 250,118
Mortgage-backed securities 71,145 413 (149) 71,409
-----------------------------------------------------------
$ 320,908 $ 768 $ (149) $ 321,527
===========================================================
1998
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
-----------------------------------------------------------
U. S. Treasury securities $ 248,280 $ 4,962 $ $ 253,242
Mortgage-backed securities 102,603 3,188 105,791
-----------------------------------------------------------
$ 350,883 $ 8,150 $ $ 359,033
===========================================================
</TABLE>
The amortized cost and fair values of securities held to maturity at December
31, 1999, by contractual maturity, are shown below.
Amortized Fair
Cost Values
----------------------------
Due in one year or less $ 249,763 $250,118
Mortgage-backed securities 71,145 71,409
----------------------------
$ 320,908 $321,527
============================
Gross gains of $543 were recognized on securities held to maturity in 1998 as a
result of the disposition of a security that was called by the maker. No
securities held to maturity were called in 1999.
Securities held to maturity with a carrying amount of approximately $250,000 at
December 31, 1998 were pledged as collateral on trustee deposits and repurchase
agreements. There were no securities held to maturity pledged at December 31,
1999.
Securities available for sale: The amortized cost and fair values of securities
available for sale as of December 31, 1999 and 1998 are summarized as follows.
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
---------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 50,881 $ $ (343) $50,538
Mortgage-backed securities 200,740 (4,183) 196,557
---------------------------------------------------------
$ 251,621 $ $ (4,526) $247,095
=========================================================
1998
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Values
---------------------------------------------------------
Mortgage-backed securities $ 274,458 $3,512 $ $ 277,970
==========================================================
</TABLE>
The U.S. Treasury securities are all due in one year or less. Contractual
maturities of mortgage-backed securities available for sale are not disclosed
because they are not due at a single maturity date. In addition, mortgage-backed
securities may mature earlier than their contractual maturities because of
principal prepayments.
There were no sales of securities available for sale in 1998 or 1999.
Securities available for sale with a carrying amount of approximately $53,000 at
December 31, 1999 were pledged as collateral on trustee deposits. No securities
available for sale were pledged at December 31, 1998.
Changes in the unrealized gain (loss) on securities available for sale are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Unrealized holding (losses) gains arising during the period $ (8,038) $ 2,795
Less reclassification adjustment for gains (losses) realized
in net income
--------------------------------
Net unrealized gains (losses), before tax (expense) benefit (8,038) 2,795
Tax (expense) benefit
--------------------------------
Other comprehensive income (loss) before minority interest (8,038) 2,795
Minority interest in other comprehensive (income) loss of subsidiary 195 (61)
--------------------------------
Other comprehensive income (loss) $ (7,843) $2,734
================================
</TABLE>
NOTE 4. LOANS
The composition of net loans as of December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------
<S> <C> <C>
Commercial $ 2,778,170 $ 2,855,186
Commercial real estate 2,998,995 3,067,294
Residential real estate 2,854,232 2,857,026
Consumer 4,068,198 6,009,996
Other 254,676 69,263
---------------------------------------
12,954,271 14,858,765
Allowance for loan losses (183,676) (271,499)
Deferred loan fees and unamortized premiums, net 17,666 25,732
Loans, net
---------------------------------------
$ 12,788,261 $ 14,612,998
=======================================
</TABLE>
Activity in the allowance for loan losses for the years ended December 31, 1999
and 1998 was as follows:
1999 1998
-----------------------------
Balance, beginning $ 271,499 $288,802
Amounts charged off:
Consumer loans (108,284) (65,097)
Provision for loan losses 40,000
Recoveries of amounts charged off
Consumer loans 20,461 7,794
Balance, ending ----------------------------
$ 183,676 $271,499
============================
The Bank's recorded investment in impaired loans was approximately $45,000 and
$50,000 at December 31, 1999 and 1998, respectively. The specific allowance
associated with impaired loans, and included in the allowance for loan losses at
December 31, 1999 and 1998, was approximately $22,000 and $7,400, respectively.
The average recorded investment in impaired loans during 1999 and 1998 was
approximately $30,000 and $17,000, respectively. Interest income on impaired
loans, recognized for cash payments received in 1999 and 1998, was not
significant.
NOTE 5. PREMISES AND EQUIPMENT
The major classes of premises and equipment and the total accumulated
depreciation as of December 31, 1999 and 1998 are as follows:
1999 1998
---------------------------
Leasehold improvements $ 716,429 $712,022
Furniture and equipment
635,541 552,803
-----------------------------
1,351,970 1,264,825
Less accumulated depreciation
and amortization 1,012,263 920,233
-----------------------------
$ 339,707 $344,592
=============================
NOTE 6. DEPOSITS
The composition of interest-bearing deposits at December 31, 1999 and 1998 is as
follows:
1999 1998
-----------------------------
Now accounts $ 1,893,708 $1,601,587
Money market accounts 2,674,489 2,745,687
Savings accounts 655,206 725,038
Certificates of deposit less
than $100,000 4,824,914 6,749,358
Certificates of deposit of
$100,000 or more 2,120,731 3,283,984
Total -------------------------------
$ 12,169,048 $15,105,654
===============================
At December 31, 1999, the scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
Less than $100,000
$100,000 and over Total
---------------------------------------------------
<S> <C> <C> <C>
Three months or less $ 1,772,454 $ 1,510,731 $ 3,283,185
Over three through six months 1,157,208 1,157,208
Over six through twelve months 1,499,584 400,000 1,899,584
Over one through two years 261,000 210,000 471,000
Over two through three years 134,668 134,668
--------------------------------------------------
$ 4,824,914 $2,120,731 $ 6,945,645
==================================================
</TABLE>
NOTE 7. INCOME TAXES
The net cumulative tax effects of the primary temporary differences as of
December 31, 1999 and 1998 are shown in the following table:
1999 1998
-----------------------------
Deferred tax assets:
Allowance for loan losses $ 55,200 $ 57,200
Other real estate owned 28,300 28,300
Premises and equipment 76,700 69,500
Net operating loss carryforward 3,262,500 3,010,400
Accrual to cash conversion for income taxes 135,000 126,900
Total deferred tax assets -----------------------------
3,557,700 3,292,300
Deferred tax liabilities, deferred loan costs -----------------------------
(2,800) (2,700)
-----------------------------
3,554,900 3,289,600
Valuation allowance for deferred tax assets (3,554,900) (3,289,600)
-----------------------------
Net deferred tax assets $ $
=============================
The Company has recorded a valuation allowance on the deferred tax assets to
reduce the total to an amount that management believes is more likely than not
to be realized. The valuation allowance increased by $265,300 and $257,200
during the years ended December 31, 1999 and 1998, respectively. Realization of
deferred tax assets is dependent upon sufficient future taxable income during
the period that deductible temporary differences and carryforwards are expected
to be available to reduce taxable income. No income tax benefits have been
provided for the years ended December 31, 1999 and 1998, because the results of
operations do not provide evidence that the net operating losses available for
carryforward will be utilized in the future.
The Company has available federal net operating loss carryforwards approximating
the following at December 31, 1999:
Expiring December 31, Amount
- --------------------------------------------------------------------------------
2002 $ 143,000
2003 998,000
2004 500,000
2005 759,000
2006 526,000
2007 935,000
2008 905,000
2009 872,000
2010 898,000
2011 288,000
2012 844,000
2018 328,000
2019 698,000
------------
$ 8,694,000
============
NOTE 8. NOTES PAYABLE
The Company has an unsecured note payable to a trust affiliated with a
stockholder in the amount of $100,000 at December 31, 1999 and 1998. The note is
due June 30, 2000 and interest is payable quarterly at 8.0%. The due date of the
note is automatically extended for additional periods of six months at each due
date unless the lender provides 30 days notice of its intent not to permit
additional extensions.
NOTE 9. CAPITAL STOCK
During 1998, the Company sold 251,303 units under a private offering at a price
of $5 per share. Each unit sold consisted of one share of Class A Common Stock
and a warrant to purchase one additional share of Class A Common Stock at a
price of $7.50, which expires September 30, 2001.
Effective February 8, 1999 through March 25, 1999, the Company offered to permit
the holders of the warrants discussed above to purchase 10 shares of Class A
Common Stock for $5.00 through the early exercise of such warrants. A total of
84,500 warrants were tendered under the offer, resulting in the issuance of
845,000 shares and net proceeds of $397,485. In June 1999, the Company offered
to permit the remaining warrant holders to exchange those warrants for 3 shares
of Class A Common Stock. All remaining warrants were tendered under this offer
resulting in the issuance of 500,409 shares.
The Board of Directors has the authority to issue up to 5,000,000 preferred
shares in one or more classes, to fix the number of shares constituting any
class and the stated value thereof, and to fix the terms of any such class,
including dividend rights, dividend rates, conversion or exchange rights, voting
rights, rights and terms of redemption and the liquidation preference of such
class. The Certificate of Incorporation created Series A Preferred Stock and
authorized the issuance of 1,200,000 shares from the total authorized shares.
The Series A Preferred Stock is convertible into common stock on a
share-for-share basis upon the occurrence of certain events. Dividends are
payable quarterly, when declared by the Board of Directors, on the Series A
Preferred Stock at an annual rate of $.06 per share. Accumulated but unpaid
dividends for any past quarterly dividend periods will be cumulative and accrue
without interest. No dividends may be declared or paid on common stock of the
Company and no common stock shall be redeemed until all dividends in arrears on
the Series A Preferred Stock have been paid. In addition, holders of Series A
Preferred Stock shall also receive a dividend any time a dividend is declared on
the Class A Common Stock generally on a share-for-share basis.
NOTE 10. OFFICER AND STOCK-BASED COMPENSATION
The Company has recognized liabilities totaling approximately $277,000 and
$278,000 at December 31, 1999 and 1998, respectively for additional amounts due
to two officers for services performed in connection with their employment
agreements. During the year ended December 31, 1998, one officer voluntarily
agreed to permanently forgive $125,000 of compensation due and the related
liability was decreased accordingly.
Options for the purchase of stock in Southern Security Bank
- -----------------------------------------------------------
Under the Incentive Stock Option Plan (the "Plan") adopted by the Bank in 1988,
the Bank is authorized to grant options for the purchase of up to 20% of the
outstanding common shares of the Bank (590,570 shares at December 31, 1999). All
directors, officers and employees of the Bank are eligible to receive options to
purchase shares of common stock at the fair value of the stock at the date of
grant, but in no event may the price be less than the par value of such stock.
Options granted under the plan expire no more than 8 years from the date of
issue, or upon 90 days after termination of employment. The Plan expires July 1,
2000, and no additional options may be granted after that date under the Plan.
The weighted-average remaining life of options outstanding at December 31, 1999
and 1998 is 4 and 5 years, respectively.
A summary of the options for the purchase of common stock of the Bank
outstanding as of December 31, 1999 and 1998, and changes during the years then
ended is presented in the following table. The fair value of each option grant
is estimated on the date of grant using the present value with the following
weighted-average assumptions used for grants in 1998: risk-free interest rate of
6.0%, expected lives of 6 years and no dividends.
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 527,060 $ 1.00 414,870 $ 1.00
Granted 114,830 1.00
Exercised
Forfeited (2,640) 1.00
Outstanding at end of year --------- ---------
527,060 1.00 527,060 1.00
Options exercisable at year-end ========= =========
527,060 1.00 527,060 1.00
Weighted-average fair value of ========= ==========
options granted during the year $ $ 0.08
</TABLE>
Options for the purchase of stock in Southern Security Bank Corporation
- -----------------------------------------------------------------------
The Company has granted stock options for the purchase of shares of Class A
common stock of the Company to directors of the Company under various
compensation agreements and actions of the Board of Directors, representing a
majority of the stockholders. All options for the purchase of common stock of
the Company expire 10 years from the date of issue.
A summary of the options for the purchase of common stock of the Company
outstanding as of December 31, 1999 and 1998, and changes during the years then
ended is presented below. The fair value of each option grant is estimated on
the date of grant using the present value with the following weighted-average
assumptions used for grants in 1999 and 1998: risk-free interest rate of 6.0%
and 5.5% for 1999 and 1998, respectively, expected lives of 9 years for both
years, and no dividends. Volatility was assumed to be zero because there is
currently no market for the Company's stock.
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 916,048 $ 0 788,550 $ 0.75
Granted 256,908 4.30 127,498 5.00
Exercised
Forfeited
Outstanding at end of year --------- ---------
1,172,956 1.86 916,048 1.18
Options exercisable at year-end ========= =========
1,172,956 1.86 916,048 1.18
Weighted-average fair value of ========= =========
options granted during the year $ 1.79 $ 1.95
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------
Range of Weighted-Average
Exercise Number Remaining Weighted-Average Number Weighted-Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.00 to 0.50 632,800 5.6 years $ 0.26 632,800 $ 0.26
1.25 to 1.80 203,480 7.9 1.67 203,480 1.67
5.00 336,676 9.1 5.00 336,676 5.00
</TABLE>
The Company and its subsidiary apply APB Opinion 25 and related Interpretations
in accounting for their plans. Accordingly, no compensation cost has been
recognized for the stock options discussed above. Had compensation cost for the
Company's stock options been determined based on the fair value at the grant
dates for awards under those plans, the Company's net loss and loss per common
share and common equivalent share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss As reported $ (676,662) $ (584,021)
Pro forma (1,137,000) (818,000)
Basic earnings (loss) per share As reported (0.12) (0.13)
Pro forma (0.21) (0.18)
</TABLE>
NOTE 11. EARNINGS PER SHARE
Following is information about the computation of the earnings per share data
for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Numerator Denominator Per-Share
(Net Loss) (Shares) Amounts
------------------------------------------------
<S> <C> <C> <C>
1999:
Net loss $ (676,662)
Less preferred stock dividends accrued
Basic and diluted earnings (loss)
per share, income ------------
available to common stockholders $ (676,662) 5,544,289 $ (0.12)
================================================
1998:
Net loss
$ (584,021)
Less preferred stock dividends accrued
Basic and diluted earnings (loss) per share, income ----------
available to common stockholders $ (584,021) 4,425,148 $ (0.13)
===============================================
</TABLE>
Options for the purchase of 1,172,956 and 916,048 shares at December 31, 1999
and 1998, respectively, have not been included in the computation of diluted
earnings per share for 1999 and 1998 because their inclusion would have been
antidilutive as a result of losses being reported for these years.
NOTE 12. RELATED-PARTY TRANSACTIONS
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, significant
stockholders, principal officers, their immediate families and affiliated
companies in which they are principal stockholders (commonly referred to as
related parties). Aggregate loans to, or guaranteed by, these related parties at
December 31, 1999 and 1998 and the activity therein for the years then ended was
as follows:
1999 1998
-----------------------------
Balance, beginning $ 427,096 $255,057
New loans 59,605 248,401
Repayments (194,768) (76,362)
Balance, ending -----------------------------
$ 291,933 $427,096
=============================
NOTE 13. LEASES
The Bank leases its facilities under a noncancelable agreement which expires
December 31, 2013. The approximate future minimum lease payments under this
lease as of December 31, 1999, are as follows:
Year Ending
December 31 Amount
- -------------------------------------------------------------
2000 $ 194,947
2001 200,796
2002 206,819
2003 213,024
2004 219,415
Thereafter 2,295,928
Total minimum lease payments --------------
$ 3,330,929
==============
Total lease expense for the years ended December 31, 1999 and 1998 approximated
$180,000 and $183,000, respectively, and is included in occupancy and equipment
expense in the accompanying consolidated statements of operations.
NOTE 14. RESTRICTIONS ON RETAINED EARNINGS AND REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to certain restrictions on the amount of dividends that may
be declared without prior regulatory approval. At December 31, 1999, no retained
earnings were available for dividend declaration without regulatory approval.
The Bank is subject to various capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory - and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Bank'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
judgments 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 to risk-weighted assets, and of Tier I
capital to average assets (all defined in the regulations). Management believes
the Bank meets all capital adequacy requirements required by law as of December
31, 1999.
As of December 31, 1999, the most recent notification from the Federal Reserve
categorized the Bank as adequately capitalized under the regulatory framework
for prompt corrective action. To be categorized as adequately capitalized the
Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table below. 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
below:
<TABLE>
<CAPTION>
To Be Adequately Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to
Risk-Weighted Assets) $ 1,678,766 12.9% $ 1,043,930 8.0% $ 1,043,930 8.0%
Tier I Capital (to
Risk-Weighted Assets) $ 1,515,398 11.6% $ 521,965 4.0% $ 521,965 4.0%
Tier I Capital (to
Average Assets) $ 1,515,398 8.4% $ 722,920 4.0% $ 722,920 4.0%
As of December 31, 1998:
Total Capital (to
Risk-Weighted Assets) $ 1,800,324 11.8% $ 1,222,234 8.0% $ 1,222,234 8.0%
Tier I Capital (to
Risk-Weighted Assets) $ 1,608,356 10.5% $ 611,117 4.0% $ 611,117 4.0%
Tier I Capital (to
Average Assets) $ 1,608,356 6.3% 919,600 4.0% $ 919,600 4.0%
</TABLE>
Under the framework, the Bank's capital levels do not allow the Bank to accept
brokered deposits without prior approval from regulators.
NOTE 15. REGULATORY MATTERS AND GOING CONCERN CONSIDERATIONS
On April 13, 1995, the Company entered into a written agreement (the
"Agreement") with the Federal Reserve Bank of Atlanta (the "FRB"). Among other
items, the written agreement:
a. Prohibits the declaration or payment of dividends by the Company without
the prior written approval of the FRB;
b. Requires the Company to submit a written plan to maintain an adequate
capital position which, at a minimum, addresses and considers (i) current
and future capital requirements of the Bank, including the maintenance of
adequate capital ratios, (ii) the volume of the Bank's adversely classified
assets, (iii) the Bank's anticipated level of earnings, and (iv) the source
and timing of additional funds that may be necessary to fulfill future
capital requirements;
c. Prohibits any additional borrowings by the Company, or any payments on
existing debt of the Company, without the prior written approval of the
FRB;
d. Prohibits the Company from entering into new financial transactions, or
amending the terms of existing agreements, with related parties, without
the prior written approval of the FRB; and,
e. Prohibits the Company from entering into any transaction with the Bank
without the prior written approval of the FRB.
On November 13, 1998, the Bank entered into a written agreement (the
"Agreement") with the Federal Reserve Bank of Atlanta (the "FRB") and the State
of Florida Department of Banking and Finance (the "Department"). In addition to
requiring the Bank to implement certain operating administrative policy and
procedure changes, the written agreement:
a. Prohibits the declaration or payment of dividends by the Bank without the
prior written approval of the FRB and the Department;
b. Requires the Bank to submit a written plan to maintain an adequate capital
position which, at a minimum, addresses and considers (a) current and
future capital requirements including the maintenance of minimum capital
ratios, (b) any planned growth in the Bank's assets, (c) the volume of the
Bank's adversely classified assets, (d) the Bank's anticipated level of
retained earnings, and (e) the source and timing of additional funds to
fulfill future capital requirements; and,
c. Requires the Bank to maintain its tier one leverage ratio at a level of no
less than 7.0%.
As shown in the financial statements, the Company incurred net losses of
$651,647 and $584,021 during the years ended December 31, 1999 and 1998,
respectively. Despite these losses, the Bank continued to meet the minimum
regulatory capital requirements prescribed under prompt corrective action
provisions at December 31, 1999. Failure to meet these capital requirements may
result in one or more regulatory sanctions, including restrictions as to the
source of deposits and the appointment of a conservator. It is the opinion of
management that the ability to meet the prescribed capital requirements in the
future is dependent on the ability to raise additional capital, as well as the
ability to improve operating results. On August 6, 1999, the Company commenced a
private offering of up to 10,000,000 shares of common stock at an offering price
of $1.25 per share. In February 2000, the offering was amended to offer up to
7,285,714 shares of common stock at an offering price of $0.35 per share. The
Company has sold 3,553,570 shares resulting in additional capital of $1,243,750
through March 24, 2000, under the amended offering.
NOTE 16. COMMITMENTS AND CONTINGENCIES
Financial instruments with off-balance-sheet risk: The Bank is a party to
financial instruments with off-balance-sheet risk in the normal course of
business, to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amounts recognized on the consolidated balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instruments for commitments to extend credit and
letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
These commitments were as follows at December 31, 1999 and 1998:
1999 1998
-------------------------------
Commitments to extend credit (unfunded) $ 1,458,212 $1,923,741
Standby letters of credit 43,300 107,932
-------------------------------
$ 1,501,512 $2,031,673
===============================
Commitments to extend credit are commitments to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
any, is based on management's credit evaluation of the counterparty. Collateral
held varies, but may include cash, accounts receivable, inventory, property,
plant and equipment, and residential and commercial real estate.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, construction bonding, and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. The collateral varies but may include
accounts receivable, inventory, property, plant and equipment, and residential
and commercial real estate.
Contingencies: In the normal course of business, the bank is involved in various
legal proceedings. In the opinion of management, any liability resulting from
such proceedings would not have a material adverse effect on the Bank's
financial statements.
In addition, the Company has executed employment agreements with two individuals
who are both officers and directors of the Company. Under the terms of the
agreements, the Company has agreed to pay base salaries of $175,000 per year,
adjusted for inflation, to grant semiannual options for the purchase of 0.6% of
the outstanding Class A Common Stock at an exercise price equal to 110% of the
per share book value of such shares at the date of grant, and to provide certain
other benefits and compensation to the two officers. The officers voluntarily
agreed to an exercise price equal to the estimated fair value at date of grant
for options granted in 1998 and 1999. The employment agreements expire June 10,
2002, except that if the Company does not deliver written notice of its intent
to terminate to the officers at least six months prior to that date, the
agreements shall automatically renew for an additional five-year period.
The employment agreements also include provisions requiring the payment of up to
200% of an officer's total annual compensation upon the occurrence of certain
events leading to the termination of employment such as a change in control of
the Company, death or disability.
Subsequent to December 31, 1999, one of the individuals referred to above
voluntarily terminated his employment with the Company. Under the terms of the
agreement reached at termination, the Company agreed to pay such individual, in
addition to amounts accrued for services rendered through the date of
termination, a) $43,168 in exchange for all of the individual's options to
purchase shares of the Company or the Bank, and b) $10,000 per month for a
period of eighteen months commencing January 2, 2001, subject to regulatory
approval. The Company recognized a liability equal to the present value of the
above payments at the date of such termination. In addition, the individual
granted the Company an option to acquire any or all of the 671,845 shares of
common stock owned by the individual at an exercise price of $0.47 per share
through December 31, 2000.
Financial instruments with concentration of credit risk: The Bank makes
commercial, residential and consumer loans to customers primarily in Southeast
Florida. A substantial portion of its debtors' abilities to honor their
contracts is dependent upon the local economy. The economy of the Bank's primary
market area is not heavily dependent on any individual economic sector.
Interest rate risk: The Bank assumes interest rate risk as a result of its
normal operations. As a result, the fair values of the Bank's financial
instruments will change when interest rate levels change, and that change may be
either favorable or unfavorable to the Bank. Management attempts to match
maturities of assets and liabilities to the extent believed necessary to manage
interest rate risk. However, borrowers with fixed-rate obligations are more
likely to prepay in a falling rate environment and less likely to prepay in a
rising rate environment. Conversely, depositors who are receiving fixed rates
are more likely to withdraw funds before maturity in a rising rate environment
and less likely to do so in a falling rate environment. Management monitors
rates and maturities of assets and liabilities and attempts to manage interest
rate risk by adjusting terms of new loans and deposits and by investing in
securities with terms that mitigate the Bank's overall interest rate risk.
NOTE 17. ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998
-----------------------------
<S> <C> <C>
Cash flows from securities:
Securities available for sale:
Sales $ $
Maturities, calls, and paydowns 324,816 106,139
Purchases (299,970)
Securities held to maturity:
Maturities and paydowns 31,461 1,498,067
Purchases
Purchases of Federal Reserve Bank stock (4,300) (21,200)
-----------------------------
$ 52,007 $1,583,006
Supplemental disclosures of cash flow =============================
information:
Cash payments for interest $ 603,031 $683,957
Supplemental Schedule of Noncash
Investing and Financing Activities
Issuance of 500,409 shares of Class A Common Stock
in exchange for warrants 5,004
Issuance of 16,665 shares of Class A Common Stock
in exchange for services 89,325
Acquisition of other real estate upon foreclosure of loans 15,000
</TABLE>
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximated their fair values.
Investment securities (including mortgage-backed securities): Fair values for
investment securities are based on quoted market prices, where available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, values are based on carrying values. Fair
values for other loans are estimated on discounted cash flows, using interest
rates currently being offered for loans with similar terms to borrowers with
similar credit quality. Management believes that the allowance for loan
losses is an appropriate indication of the applicable credit risk associated
with determining the fair value of its loan portfolio and the allowance has
been deducted from the estimated fair value of loans.
Accrued interest receivable: The carrying amount of accrued interest receivable
approximates its fair value.
Off-balance-sheet instruments: Fair values for the Bank's off-balance-sheet
instruments, primarily lending commitments, are based on fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements. The fair value for such commitments are nominal.
Deposit liabilities: The fair values of demand deposits and statement savings
equal their carrying amounts which represents the amount payable on demand.
The carrying amounts for variable-rate, fixed-term money market accounts and
certificates of deposit approximate their fair value at the reporting date.
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.
Other liabilities: The carrying amount of other liabilities approximates their
fair value.
Following is a summary of the carrying amounts and approximate fair values of
the Company's financial instruments at December 31, 1999 and 1998:
1999
------------------------------
Carrying Fair
Amount Value
------------------------------
Cash and cash equivalents $ 1,430,387 $ 1,430,387
Investment securities
(including Federal Reserve Bank stock) 656,603 657,236
Loans receivable 12,788,261 12,690,000
Accrued interest receivable 107,017 107,017
Deposits 15,694,091 15,624,521
Other liabilities 804,665 804,665
Commitments to extend credit
1998
------------------------------
Carrying Fair
Amount Value
------------------------------
Cash and cash equivalents $ 1,012,269 $ 1,012,269
Investment securities
(including Federal Reserve Bank stock) 713,153 721,303
Loans receivable 14,612,998 14,716,432
Accrued interest receivable 136,854 136,854
Deposits 20,244,046 20,256,510
Other liabilities 761,184 761,184
Commitments to extend credit
NOTE 19. PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements for Southern Security Bank Corporation only are
presented below:
Southern Security Bank Corporation
Parent Company Only Balance Sheets
December 31, 1999 and 1998
ASSETS 1999 1998
------------------------------
Cash $ 455 $ 68,108
Investment in Southern Security Bank 1,484,810 1,580,675
Other assets 4,519
------------------------------
$ 1,485,265 $ 1,653,302
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes payable $ 100,000 $ 100,000
Other liabilities 431,151 337,182
-----------------------------
Total liabilities 531,151 437,182
Stockholders' equity 954,114 1,216,120
-----------------------------
$ 1,485,265 $1,653,302
=============================
Southern Security Bank Corporation
Parent Company Only Statements of Operations
Years Ended December 31, 1999 and 1998
1999 1998
-----------------------------
Equity in net loss of Southern Security Bank $ (163,944) $ (37,349)
Expenses: -----------------------------
Salaries and benefits 319,493 249,526
Interest expense 8,248 10,366
Other expenses 159,962 286,780
-----------------------------
Total expenses 487,703 546,672
Net loss -----------------------------
$ (651,647) $ (584,021)
=============================
Southern Security Bank Corporation
Parent Company Only Statements of Cash Flows
Years Ended December 31, 1999 and 1998
1999 1998
----------------------------
Net loss $ (651,647) $ (584,021)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in net loss of Southern Security Bank 163,944 37,349
Issuance of common stock as compensation for services 89,325
Other 97,565 65,382
Net cash used in operating activities ---------------------------
(390,138) (391,965)
Net cash used in investing activities
(Investment in Southern Security Bank) (75,000) (775,900)
Net cash provided by financing activities 397,485 1,235,252
Increase (decrease) in cash and cash equivalents ---------------------------
(67,653) 67,387
Cash and cash equivalents:
Beginning 68,108 721
---------------------------
Ending $ 455 $ 68,108
===========================
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
MANAGEMENT: COMPANY OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
Name Term Age Position Position Since
---- ---- --- -------- --------------
<S> <C> <C> <C> <C>
Harold L. Connell 1 yr. 56 Chairman, President February, 2000
And CEO
Philip C. Modder 1 yr. 59 Director & Treasurer June, 1992
Timothy S. Butler * 2 yr. 50 Director December, 1992
Eugene J. Strasser 1 yr. 53 Director December, 1992
Harold C. Friend 3 yr. 53 Director December, 1994
Robert D. Butler, Jr. * 3 yr. 51 Director December, 1994
G. Carleton Marlowe 1 yr. 51 Director February, 2000
Floyd D. Harper - - 50 Vice President April, 1997
and Secretary
</TABLE>
* Timothy S. Butler and Robert D. Butler, Jr. are cousins.
16
<PAGE>
Each director is elected for a period of three years. The term of directorships
are staggered as to expiration date, such that for the present board of
directors, each year one-third of the directorship is subject to re-election,
providing for additional stability and continuity. Vacancies and newly created
directorships resulting from any increase in the number of authorized directors
may be filled by a majority vote of the directors then remaining in office;
However, any additional Directors or vacancies filled may not take office nor
serve, until proper applications and disclosures are filed with the FRB, for
prior approval therefrom. Once approval is obtained from the FRB, director(s)
may thereafter take office and serve in that capacity. Certain information with
respect to the background of each director and the three executive officers of
the Company is set forth below.
Harold L. Connell: Mr. Connell, Chairman, President & CEO of Southern Security
is currently a partner with Connell Perrone Capital Group in Miami, Fl, a
consulting group formed by Connell in 1997. Connell's banking career spans two
decades with such organizations as First Financial in Tampa, Atlantic Bank in
Jacksonville, The European American Bank in New York City and Meritor Savings
Bank in Philadelphia. In Miami, Connell was Chief Financial Officer of Pan
American Banks, a New York Stock Exchange firm that was acquired by NCNB, now
Bank America, in 1986. From 1989 to 1992 Connell was president and CEO of
Sendero Corporation, a wholly owned subsidiary of Fiserv, a consulting and
software development firm specializing in assisting bank management in managing
interest-rate risk or asset liability for financial institutions. During his
three years with Sendero, the company's client base exceeded 1,000 banks
worldwide.
Philip C. Modder: Mr. Modder, President of the Company, has been involved in the
banking industry in Palm Beach County for over 25 years. Modder was educated at
the University of Wisconsin, Racine, Wisconsin, Evangel College, Springfield,
Mo., Palm Beach Junior College, Lake Worth, Fl., and Florida Atlantic
University, which granted him a B.S. Degree in 1969, in the academic areas of
Finance and Accounting. Prior to organizing the subject Company, Mr. Modder was
President and Chief Executive Officer and organizing director of Mizner Bank
located in Boca Raton, Florida, from March 1987 to May 1992. Prior thereto, Mr.
Modder served as Senior Vice President of Caribank of Palm Beach County. In
1988, Caribank of Palm Beach County was merged into its parent, Caribank of
Dania. Prior to that time, Modder previously served as Senior Vice President and
Area Manager of Atlantic National Bank for five years and Vice President and
Branch Manager for eight years at Sun Bank. Mr. Modder serves as a Director and
was a past Chairman of the Boca Raton Chamber of Commerce, and also serves as
Chairman of the Boca Raton Airport Authority. Mr. Modder has also served as an
instructor for the American Institute of Banking.
Timothy S. Butler: Mr. Butler was born in Fort Lauderdale and graduated from
Pompano Beach High School in 1967. He attended Broward Community College and
Florida State University. He has served as President of Butler Properties Ltd.
since 1971. That Company manages the family assets consisting of farm land and
various other real estate holdings. From January 1989 to June 1992, he served as
an Associate Director of Mizner Bank in Boca Raton.
Eugene J. Strasser, M.D.: Dr. Strasser did his undergraduate and Pre-Med work at
Loyola College and the University of Maryland where he graduated in 1968. He
attended the University of Maryland Medical School in Baltimore, Maryland where
he graduated in 1972. He is licensed by the American Medical Board as a Board
Certified General Surgeon and a Board Certified Plastic and Reconstructive
Surgeon. He has established his own small, private hospital, CosmoPlast Center,
in Coral Springs, Florida, where he has practiced medicine since 1981.
Harold C. Friend, M.D.: Dr. Friend has been a resident of South Florida for 21
years. He received his B.A. from the University of Texas, and his MD. degree
from the University of Texas Southwestern Medical School in 1972. Friend is a
board-certified Neurologist, practicing in Boca Raton. He has been active in
numerous business activities, including past membership of the Mizner Bank's
Advisory Board, President of Puget Sound Yellow Taxi, Inc. a transportation
company located in Seattle, Washington from June of 1993 to October, 1996, and
President of the Neuroscience Center in Boca Raton, Florida from June 1985 to
the present. As to civic involvement, Dr. Friend has held past and present
positions with the Southern Region of the Boy Scouts, Executive Board of United
Way, and the Local and International Rotary. Dr. Friend's biography is published
in multiple editions of Who's Who of the South and South West, and the World.
Robert David Butler, Jr.: Mr. Butler was born in Boca Raton, Florida and was
reared in Deerfield Beach, Florida. He attended Carson-Newman College and the
University of Tennessee and was graduated with degrees in Business
Administration, English, and Music. After retiring from Eastern Airlines after
fifteen years of service as a flight services representative, in June of 1991 he
established Pegasus Travel Management, a division of Regit Enterprises, Inc., of
which he is President and Chief Executive Officer. Mr. Butler resides in Coconut
Grove, Florida, this city also being the location of the corporation
headquarters of Regit Enterprises.
G. Carlton Marlow: Mr. Marlowe, has served as director of Southern Security Bank
since 1999 and was elected by the Board of Directors to serve as a Director of
the Company on February 25, 2000. Mr. Marlowe has been a partner of the law firm
of G. Carlton Marlowe, P.A. since 1994. Mr. Marlowe is Vice President of The
Marlowe Corporation and a Partner of The Marlowe Family Limited Partnership, two
family related entities that have their beginnings with the family banks in
Kentucky dating to 1929.
Floyd D. Harper: Mr. Harper, who has been Vice President of the Company (and
Senior Vice President and Cashier of the Bank) since 1994, graduated with honors
from Northwood University, West Palm Beach, Florida with a Business
Administration Degree, received a Degree from University of Virginia Graduate
School of Retail Bank Management, and has been designated a Certified Consumer
Credit Executive thereby. From January 1993 to October 1994, Harper was engaged
by the Resolution Trust Corporation in the disposition of failed banking
institutions of over $12 Billion, as Regional Vice President, Branch
Administration, and dealt with deposit acquisition and operational efficiency.
Prior to 1993, Harper was Executive Vice President, Chief Operating Officer for
Southern National Bank, was Vice President & District Manager for Chase
Manhattan Bank (Florida) handling upscale lending, and served with Atlantic
National Bank and Barnett Bank in South Florida.
Peter P. Stec: Mr. Stec, who has been the Senior Vice President and Senior
Lending Officer of the Bank since 1994, has been involved in community banking
since 1980 and is experienced in rehabilitating loan portfolios and in
originating new borrowing relationships. Stec was educated at the University of
Dayton, Ohio, where he received a degree in Business Administration granted in
1975. He has attended the Stonier Graduate School of Banking and is a Certified
Lender-Business Banking, recognized by the American Bankers Association. From
June 1987 to October 1989, Stec managed a 75 employee lending unit consisting of
Commercial Lending, Loan Operations, Credit Administration, as Senior Vice
President of First American Bank, a $1.5 Billion Florida banking company. From
November 1989 to March 1993, Stec served as Vice President and Commercial
Lending Manager for Boca Bank, Boca Raton, Florida, and from June 1985 to May
1987 served as a Loan Officer for Southeast Bank and Florida Coast Bank in South
Florida.
RESIGNATION
James L. Wilson, the Chief Executive Officer and a director of Southern Security
Bank Corporation and additionally a director of Southern Security Bank,
voluntarily resigned effective February 1, 2000. Mr. Wilson resigned to pursue
other interests.
17
<PAGE>
NOMINATIONS
The Holding Corporation: At the board of directors meeting held on March 28,
2000, Mr. James F. Partridge was nominated Chairman of the Board, subject to
regulatory approval. Upon the approval of Mr. Partridge and his election to the
Board, Mr. Connell will continue to serve as President and Chief Executive
Officer.
Mr. Partridge retired as President of Visa International, Latin America and
Caribbean Region, on June 30, 1999 after serving since 1978. At present he
serves as a Strategic Director on the Regional Board of Directors and is
Chairman of its Executive and Planning Committee. He joined the management of
Visa International, as Vice President in charge of the Development Division for
the Western United States, Latin America and Asia-Pacific in 1978.
The Bank: At the Bank's board of directors meeting held on March 28, 2000, Mr.
Leonard Marinello was nominated as Chairman of the Board and Mr. Hugo A. Castro
was nominated as President, Chief Executive Officer, and as director, the
nominations of both subject to regulatory approval.
Until 1999, Mr. Castro served as President and Chief Executive Officer of
Eastern National Bank in Miami, Florida. Mr. Castro was an Executive Vice
President with TotalBank in Miami, Florida from 1996 through 1998. From 1994 to
1996, he was Executive Vice President with Intercontinental Bank, Miami,
Florida, having joined Intercontinental upon the acquisition of Commercial Trust
Bank, Miami, Florida in 1993. Mr. Castro was the President and a founding
shareholder of Commercial Trust Bank, Miami, Florida from 1988 to 1993.
Mr. Marinello has been President and Chief Executive Officer of Chromadyne
Corporation, a metal finishing company, from 1976 to the present, active in all
phases of this business including domestic sales, international sales,
manufacturing and finance. Mr. Marinello was a director of Commercial Trust Bank
from 1988 to 1993, when it was sold. During this time he was an active member of
the bank's loan and audit committees. Mr. Marinello has also served as a
director of several privately held companies, including Allied Plating Supplies,
Inc. (Chairman), Arch Drain Block, Co. (Chairman), Brick Oven Pizzaria and Royal
Sport, Inc. Mr. Marinello is a graduate of the University of Miami, where he
received a Bachelor's Degree in Finance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission reports of ownership and changes in ownership of common
stock of the Company. Officers, directors and greater than 10% shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on review of the copies of Section 16(a) reports furnished to the
Company, the Company believes that none of the foregoing persons failed to file
during 1999 on a timely basis, as disclosed in those forms, reports required to
be filed by Section 16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF MANAGEMENT
The following Table shows information concerning annual and long-term
compensation to certain Executive Officers for services to the Company for the
years ended December 31, 1999, 1998 and 1997. The table includes information on
the Company's Treasurer, Philip C. Modder, and its former Chief Executive
Officer, James L. Wilson, (collectively, the "Named Executive Officers"). No
other current executive officer earned more than $100,000 in salary and bonus in
1999.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Securities
Name and Other Annual Underlying LTIP Other
Principal Position Year Salary Compensation Options/ Layouts Compensation
SARs (#)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Philip C. Modder, Chairman 1999 $125,000 $17,000(1) 128,454 -0- $ -0-
and President 1998 $175,000 $17,000(1) 63,749 -0- $ -0-
1997 $175,000 $17,000(1) 63,777 -0- $ -0-
- -------------------------------------------------------------------------------------------------------
James L. Wilson, Chief 1999 $125,000 $17,000(1) 128,454 -0- $ -0-
Executive Officer 1998 $175,000 $17,000(1) 63,749 -0- $ -0-
1997 $175,000 $17,000(1) 57,641 -0- $ -0-
</TABLE>
(1) Includes Term Life Insurance premiums and automobile allowances of $10,800
to Messrs. Modder and Wilson.
The following table shows information concerning options granted to Named
Executive Officers during the fiscal year ended December 31, 1998.
18
<PAGE>
<TABLE>
<CAPTION>
Option / SAR Grants in Last Fiscal Year
Number of Securities % of Total Options/SAR's Exercise or Expiration
Underlying Options/ Granted to Employees in Base Price Date
Name SAR's Granted Fiscal Year ($/Share)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philip Modder 128,454 50% $4.30 6/30/2009
James Wilson 128,454 (1) 50% $4.30 6/30/2009
</TABLE>
(1) Mr. Wilson has as of March 31, 2000 relinquished all options in exchange
for payment by the Company of $43,168.
The following table shows information concerning option exercises and year- end
option values for options held by the Named Executive Officers.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option SAR Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SAR's Options/SAR's
at FY-End at FY-End
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Philip Modder -0- -0- 490,000 / 0 $-0-(1)
James Wilson -0- -0- 416,191 / 0 (2) $-0-(1)
</TABLE>
(1) Average option exercise price was $.52 per share. There is no market for
the Company's Common Stock, and any shares issued upon exercise of the
options would have been restricted under the Securities Act.
(2) Mr. Wilson has as of March 31, 2000 relinquished all options in exchange
for payment by the Company of $43,168.
19
<PAGE>
EMPLOYMENT AGREEMENTS
Philip C. Modder has an Employment Agreement with Southern Security dated June
11, 1992 as amended June 30, 1997 (as so amended, the "Employment Agreement").
The Employment Agreement provided that Modder would serve as Southern
Security's Chief Executive Officer and Chairman of the Board. By order of the
Board of Directors of Southern Security on February 14, 2000 and subsequently
approved by bank regulators, Mr. Modder's position was changed to Treasurer.
The Employment Agreement provides that Mr. Modder shall serve for a five year
term from June 11, 1997, except if Southern Security does not deliver written
notice to the respective executive at least six months prior to the end of the
term it shall automatically renew for an additional five year term. As currently
in effect, the Employment Agreement provides for the following compensation to
the executive: Southern Security will pay each a base salary of $125,000 per
year, will pay an automobile allowance of $900 per month, and Southern Security
will pay for comprehensive medical and dental insurance for the executive.
The Employment Agreement contains provisions for additional compensation to the
executive in the event of termination, including the equivalent of one year
salary. Mr. Modder and other executive officers of the Company and the Bank will
be considered for inclusion in a management incentive bonus plan and the
executive stock option plan which will be presented for board consideration in
the near future.
Mr. James L. Wilson voluntarily resigned as a Director of Southern Security
Bank, as a Director and Officer of Southern Security Bank Corporation on
February 11, 2000. Subject to regulatory approval Mr. Wilson will receive: (a)
the amount of $151,508 in full payment of all accrued and unpaid salary and
benefits (including business expenses, etc.) through January 31, 2000 within 10
days after receipt by the Corporation of the proceeds of a private placement for
additional equity of $2,550,000 that is being raised through a private
placement. It is anticipated that such funding shall be completed by March 31,
2000, (b) an additional $180,000 as full and final settlement of all obligations
under his Employment Agreement dated June 11, 1992, as amended. Such amount will
be payable at the rate of $10,000 per month for 18 months beginning on January
2, 2001, and (c) the Company will pay him the amount of $43,168 at the same time
as (a) above for a waiver of all rights to existing and future stock options.
20
<PAGE>
COMPENSATION OF DIRECTORS
At present the Company does not compensate any of its directors for their
services to the Company as directors, although they may do so in the future,
subject to applicable regulatory approval. The Company may reimburse its
directors for their costs incurred for attending meetings of the Board of
Directors. The Board has created a Compensation Committee which will be
responsible for negotiating any future Employment agreements, their amendments,
and stock option plans. This committee will present for review and approval to
the full board of directors a proposed employment agreement for Mr. Connell and
Mr. Castro. It is not anticipated that nether Mr. Partridge Or Mr. Marinello
will receive an employment agreement and would be subject to compensation in the
future on the same basis as other Company directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 24, 2000, by each person
known by the Company to be the beneficial owner of more than five percent of all
Classes of the Company's voting securities.
Name and Address of Number of % of Outstanding
Beneficial Owner Shares Shares
- ---------------- ------ ------
Philip C. Modder
3475 Sheridan Street
Hollywood, FL 33021 1,202,847 (2) 12.7%
James L. Wilson
3475 Sheridan Street
Hollywood, FL 33021 1,088,036 (3) 11.5%
(4) Based on information supplied by the persons indicated.
(5) Includes options to purchase 489,957 shares that are exercisable within 60
days, and 67,511 shares owned by Mr. Modder's wife.
(6) Includes options to purchase 416,191 shares that are exercisable within 60
days, 40,844 shares owned by Mr. Wilson's wife, 13,334 shares owned by Mrs.
Wilson as custodian for her children. Mr. Wilson has agreed as part of his
Termination to sell his options to the Company (See EMPLOYMENT AGREEMENTS)
The following table sets forth information concerning the beneficial ownership
of the Company's Common Stock beneficially owned by each director of the
Company, by each executive officer of the Company named in the compensation
table, and by all directors and executive officers of the Company as a group, as
of March 24, 2000.
Shares of Class A Percent (%) of
Name (1) Common Stock Class
- -------- ------------ ------
Harold L. Connell 0 0.0%
Philip C. Modder 1,202,847 (2) 12.7%
James L. Wilson 1,088,036 (2) 11.5%
Eugene J. Strasser 383,060 (3) 4.0%
Harold C. Friend 287,708 (6) 3.0%
Robert D. Butler, Jr. 41,891 (4) 0.4%
Timothy S. Butler 449,675 (7) 4.7%
G. Carlton Marlowe 355,598 (5) 3.8%
All directors & executive
officers as a group (8 persons) 3,808,815 40.2%
(1) The business address of each of the persons identified above is at Southern
Security Bank Corporation, P.O. Box 6699, Hollywood, Florida 33081-6699.
(2) See footnotes to preceding table.
(3) Includes 272,620 shares owned by Eugene Strasser's wife and options to
purchase 100,841 shares that are exercisable within 60 days.
(4) Includes options to purchase 11,841 shares that are exercisable within 60
days.
(5) Includes 353,934 shares owned by The Marlow Family Ltd. Partnership
(6) Includes options to purchase 19,953 shares that are exercisable within 60
days, 40,998 shares owned by Mr. Friends' wife, and 94,258 shares owned by
Mr. Friend as custodian for his children.
(7) Includes 83,334 shares owned by a trust to which Mr. Butler has sole voting
and investment power and options to purchase 134,174 shares that are
exercisable within 60 days.
21
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
The Company currently owes $100,000 to a trust affiliated with Jack E. Butler,
who is the father of Timothy S. Butler and the uncle of Robert D. Butler, Jr.
who are directors of the Company, pursuant to the terms of a note that bears
interest at the rate of 8% per annum payable quarterly (the "Butler Note"). The
Butler Note was issued on December 29, 1993 and matures every six months, when
it is automatically renewed unless the trust notifies the Company of its
intention to call the note 60 days prior to such maturity date. The next
maturity date of the Butler Note is on June 30, 2000.
As of December 31, 1999, the Company owed $134,000 to Philip C. Modder and
$139,000 to James L. Wilson for unpaid back wages and benefits. Mr. Wilson has
no accrued and unpaid wages due him as of March 31, 2000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits. The following exhibits are filed as part of this report.
2.1 Agreement and Plan of Merger by and between Southern Security Financial
Corporation and Southern Security Bank Corporation, dated October 31, 1997 (1)
2.2 Certificate of Merger of Southern Security Bank Corporation into Southern
Security Financial Corporation, under Florida law, dated November 10, 1997 (1)
2.3 Articles of Merger of Southern Security Bank Corporation into Southern
Security Financial Corporation, under Florida law, dated November 12, 1997 (1)
3.(i) Articles of Incorporation
(a) Certificate of Incorporation of Southern Security Bank Corporation,
dated October 3, 1996 (2)
(b) Certificate of Amendment of Certificate of Incorporation of Southern
Security Bank Corporation, dated January 17, 1998 (2)
(c) Certificate of Amendment of Certificate of Incorporation of Southern
Security Financial Corporation, dated November 12, 1997 (changing name
to Southern Security Bank Corporation (1)
(d) Certificate of Amendment of Incorporation of Southern Security Bank
Corporation dated December 21, 1999 - filed herewith
(ii) By-laws of the registrant (3)
4.1 Stock Certificate for Class A Common Stock (3)
9.0 Voting Trust Agreement - N/A
10.1 Executive Employment Agreement of Philip C. Modder, dated June 11, 1992,
together with Amendment No.1 thereto (3) *
10.2 Executive Employment Agreement of James L. Wilson, dated June 11, 1992,
together with Amendment No. 1 thereto (3) *
10.3 Minutes of Meeting of June 6, 1997, of the Board of Directors of the
registrant relating to modification of the compensation arrangements for Philip
C. Modder and James L. Wilson (3) *
10.4 Agreements between Southern Security Bank Corporation and the Federal
Reserve Bank of Atlanta, dated February 13, 1995 (4)
22
<PAGE>
10.5 Agreements, dated June 30, 1999, between Philip C. Modder and Southern
Security Bank Corporation, concerning compensation under his Employment
Agreement (5)
10.6 Agreements, dated June 30, 1999, between James L. Wilson and Southern
Security Bank Corporation, concerning compensation under his Employment
Agreement (5)
10.7 Termination Agreement with James L. Wilson, dated February 11, 2000 - filed
herewith
11.0 Statement of Computation of Per Share Earnings - N/A
13.0 Annual Report to security holders for the last fiscal year - N/A
15.0 Letter on Unaudited Interim Financial Information - N/A
16.0 Letter re change of Certifying Accountant - N/A
17.0 Letter re change in accounting principles - N/A
18.0 Letter re change in accounting principles - N/A
19.0 Reports furnished to security holders - N/A
21.0 Subsidiaries of the Registrant - filed herewith (3)
22.0 Published report re matters submitted to vote - N/A
23.0 Consent of experts and counsel - N/A
24.0 Power of attorney - N/A
27.0 Financial Data Schedule - filed herewith.
99.0 Additional Exhibits - N/A
(1) Filed as an exhibit to Form 8-K of the registrant on November 25, 1997.
(2) Filed as an exhibit to Form 10-SB of the registrant filed on July 1997.
(3) Filed as an exhibit to Form 10-SB of the registrant filed on April 2, 1998.
(4) Filed as an exhibit to Form 10-SB/A of the registrant filed on June 10,
1998.
(5) Filed as an exhibit to Form 10-QSB of the registrant filed on August
16,1999.
* Management compensation plan or arrangement.
(b) Reports on Form 8-K. The following reports on Form 8-K were filed during the
period covered by this report:
None
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOUTHERN SECURITY BANK CORPORATION
March 28, 2000 By: s/ Harold L. Connell
Name: Harold L. Connell
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated;
Signature Title Date
(i) Principal Executive Officer: Chief Executive Officer March 28, 2000
s/ Harold L. Connell
- --------------------------
Harold L. Connell
(ii) Principal Accounting and Vice President March 28, 2000
Financial Officer: And Secretary
(chief financial officer)
s/ Floyd D. Harper
Floyd D. Harper
(iii) Directors:
s/Harold L. Connell Chairman of the Board March 28, 2000
- ---------------------------
Harold L. Connell
s/Philip C. Modder Director March 28, 2000
- ---------------------------
Philip C. Modder
s/Timothy S. Butler Director March 28, 2000
- ---------------------------
Timothy S. Butler
s/Harold C. Friend Director March 28, 2000
- ---------------------------
Harold C. Friend
s/Robert D. Butler Director March 28, 2000
- ---------------------------
Robert D. Butler
s/Eugene J. Strasser Director March 28, 2000
- ---------------------------
Eugene J. Strasser
s/G. Carlton Marlowe Director March 28, 2000
- ---------------------------
G. Carlton Marlowe
25
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger by and between Southern Security Financial
Corporation and Southern Security Bank Corporation, dated October 31, 1997 (1)
2.2 Certificate of Merger of Southern Security Bank Corporation into Southern
Security Financial Corporation, under Florida law, dated November 10, 1997 (1)
2.3 Articles of Merger of Southern Security Bank Corporation into Southern
Security Financial Corporation, under Florida law, dated November 12, 1997 (1)
3.(i) Articles of Incorporation
(a) Certificate of Incorporation of Southern Security Bank Corporation,
dated October 3, 1996 (2)
(b) Certificate of Amendment of Certificate of Incorporation of Southern
Security Bank Corporation, dated January 17, 1998 (2)
(c) Certificate of Amendment of Certificate of Incorporation of Southern
Security Financial Corporation, dated November 12, 1997 (changing name to
Southern Security Bank Corporation (1)
(d) Certificate of Amendment of Incorporation of Southern Security Bank
Corporation dated December 21, 1999 - filed herewith
(ii) By-laws of the registrant (3)
4.1 Stock Certificate for Class A Common Stock (3)
9.0 Voting Trust Agreement - N/A
10.1 Executive Employment Agreement of Philip C. Modder, dated June 11, 1992,
together with Amendment No.1 thereto (3) *
10.2 Executive Employment Agreement of James L. Wilson, dated June 11, 1992,
together with Amendment No. 1 thereto (3) *
10.3 Minutes of Meeting of June 6, 1997, of the Board of Directors of the
registrant relating to modification of the compensation arrangements for Philip
C. Modder and James L. Wilson (3) *
10.4 Agreements between Southern Security Bank Corporation and the Federal
Reserve Bank of Atlanta, dated February 13, 1995 (4)
10.5 Agreements, dated June 30, 1999, between Philip C. Modder and Southern
Security Bank Corporation, concerning compensation under his Employment
Agreement (5)
10.6 Agreements, dated June 30, 1999, between James L. Wilson and Southern
Security Bank Corporation, concerning compensation under his Employment
Agreement (5)
10.7 Termination Agreement with James L. Wilson, dated February 11, 2000 - filed
herewith
11.0 Statement of Computation of Per Share Earnings - N/A
13.0 Annual Report to security holders for the last fiscal year - N/A
15.0 Letter on Unaudited Interim Financial Information - N/A
16.0 Letter re change of Certifying Accountant - N/A
17.0 Letter re change in accounting principles - N/A
19.0 Reports furnished to security holders - N/A
21.0 Subsidiaries of the Registrant - filed herewith (3)
22.0 Published report re matters submitted to vote - N/A
23.0 Consent of experts and counsel - N/A
24.0 Power of attorney - N/A
27.0 Financial Data Schedule - filed herewith.
99.0 Additional Exhibits - N/A
(1) Filed as an exhibit to Form 8-K of the registrant on November 25, 1997.
(2) Filed as an exhibit to Form 10-SB of the registrant filed on July 1997.
(3) Filed as an exhibit to Form 10-SB of the registrant filed on April 2, 1998.
(4) Filed as an exhibit to Form 10-SB/A of the registrant filed on June 10,
1998.
(5) Filed as an exhibit to Form 10-QSB of the registrant filed on August 16,
1999.
* Management compensation plan or arrangement.
EXHIBIT 3(i)(d)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SOUTHERN SECURITY BANK CORPORATION
Under Section 242 of the General
Corporation Law of the State of Delaware
Southern Security Bank Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. The Certificate of Incorporation of the Corporation shall be amended as
follows:
An Article TWELFTH shall be added to the Corporation's Certificate of
Incorporation which shall read in its entirety as follows:
TWELFTH. (1) The number of directors constituting the entire Board of
Directors shall be fixed from time to time exclusively by resolution passed by a
majority of the whole Board of Directors, which shall in no event cause the term
of any incumbent director to be shortened or cause a decrease in the number of
classes of directors except as required by law. The Board of Directors shall be
divided into three classes, designated Classes I, II and III, which shall be as
nearly equal in number as possible. Initially, directors of Class I shall be
elected to hold office for a term expiring at the annual meeting of stockholders
in 2000, directors of Class II shall be elected to hold office for a term
expiring at the annual meeting of stockholders in 2001, and directors of Class
III shall be elected to hold office for a term expiring at the annual meeting of
stockholders in 2002. At each annual meeting of stockholders following the
initial classification and election, the respective successors of each class
shall be elected for three-year terms.
(2) Newly created directorships resulting from any increase in the number
of directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other cause shall be filled by the
vote of the Board of Directors; and if the number of directors then in office is
less than a quorum, then newly-created directorships and vacancies shall be
filled by the vote of a majority of the remaining directors then in office. When
the Board of Directors fills a vacancy, the director chosen to fill the vacancy
shall be of the same class as the director he or she succeeds and shall hold
office for the term of a director or that class and until his or her successor
shall have been elected and qualified.
(3) In addition to any requirements of law and any other provisions of this
Certificate or Incorporation (and not withstanding the fact that a lesser
percentage may be specified by law or this Certificate of Incorporation), the
affirmative vote of the holders of 66 2/3% or more of the combined voting power
of the then outstanding shares of all classes and series of stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend, alter or repeal, or
adopt any provision inconsistent with, this Article TWELFTH of the this
Certificate of Incorporation. Subject to the foregoing provisions of this
Article TWELFTH, the Corporation reserves the right to amend, alter or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are subject to this reservation.
2. The Board of Directors of the Corporation duly adopted a resolution
setting forth the amendment set forth above, declaring its advisability and
directing that the amendment be considered at the next annual meeting of the
stockholders of the Corporation entitled to vote in respect thereof. The
amendment has been duly adopted by vote of the holders of a majority of the
outstanding stock entitled to vote thereon and a majority of outstanding stock
of each class entitled to vote thereon as class, in accordance with Section
242(b) of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by James L. Wilson, its Chief Executive Officer, and Floyd D. Harper, its
Secretary, this 21st day of December, 1999.
SOUTHERN SECURITY BANK CORPORATION
By: s/James L. Wilson
EXHIBIT 10.7
James L. Wilson February 11, 2000
Post Office Box 520
Boca Raton, FL 33429
Subject: Resignation of James L. Wilson as a Director of Southern Security Bank
("Bank"), as a Director and Officer of Southern Security Bank Corporation
("Corporation") and termination of Employment Agreement.
Dear Mr. Wilson:
This letter sets forth certain terms and conditions relating to James L.
Wilson's (Wilson) resignation as a Director of Southern Security Bank ("Bank"),
as a Director and Officer of Southern Security Bank Corporation ("Corporation"),
and termination of Wilson's Employment Agreement.
h. Wilson will receive the amount of $151,508 in full payment of all
accrued and unpaid salary and benefits (including business expenses,
etc.) through January 31, 2000 within 10 days after receipt by the
Corporation of the private placement for additional equity of
$2,550,000 that is being raised through a private placement. It is
anticipated that such funding shall be completed by March 31, 2000.
i. Wilson will receive an additional $180,000 as full and final
settlement of all obligations under Wilson's Employment Agreement
dated June 11, 1992, as amended, copies of which are attached. Such
amount shall be payable at the rate of $10,000 per month for 18 months
beginning on January 2, 2001.
j. The Corporation shall pay Wilson the amount of $43,168 at the same
time as (1.) above for a waiver of all rights to existing and future
options attached hereto as Schedule A. It is agreed that these are all
the options Wilson have and/or are entitled to, for Wilson's
participation as a Director, Officer and a shareholder of the
Corporation and/or the Bank.
The Corporation shall present this document to its Board of Directors at
its meeting on February 14, 2000 for its approval; submit it to its Counsel for
legal review; and submit it to the proper Regulatory Authority for their review
and approval, if necessary. The attached resignation shall be effective
immediately. The Board will immediately notify Wilson of such action and shall
proceed to obtain such approvals as soon as possible.
s/Philip C. Modder
Southern Security Bank Corporation
3475 Sheridan Street
Hollywood, FL 33021
Accepted by James L. Wilson
s/James L. Wilson
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the audited
consolidated financial statements related notes and management discussion and
analysis contained in the report on Form 10-K filed by Southern Security Bank
Corporation for the twelve months ended December 31, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,430,387
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,744,933
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 247,095
<INVESTMENTS-CARRYING> 320,908
<INVESTMENTS-MARKET> 321,527
<LOANS> 12,971,937
<ALLOWANCE> 183,676
<TOTAL-ASSETS> 17,484,563
<DEPOSITS> 15,694,091
<SHORT-TERM> 100,000
<LIABILITIES-OTHER> 704,665
<LONG-TERM> 0
0
0
<COMMON> 59,130
<OTHER-SE> 894,985
<TOTAL-LIABILITIES-AND-EQUITY> 17,484,563
<INTEREST-LOAN> 1,328,510
<INTEREST-INVEST> 54,449
<INTEREST-OTHER> 160,579
<INTEREST-TOTAL> 1,543,538
<INTEREST-DEPOSIT> 529,568
<INTEREST-EXPENSE> 8,000
<INTEREST-INCOME-NET> 1,005,970
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,783,072
<INCOME-PRETAX> (651,647)
<INCOME-PRE-EXTRAORDINARY> (651,647)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (651,647)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
<YIELD-ACTUAL> 8.20
<LOANS-NON> 0
<LOANS-PAST> 414,818
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 271,499
<CHARGE-OFFS> 108,284
<RECOVERIES> 20,461
<ALLOWANCE-CLOSE> 183,676
<ALLOWANCE-DOMESTIC> 183,676
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
