The following items were the subject of a Form 12b-25 and are included herein:
Item 6; Item 7; and Financial Data Schedule.
FORM 12b-25/A
NOTIFICATION OF LATE FILING
SEC FILE NUMBER
0-22911
CUSIP NUMBER
843803 10 7
(Check One):
[X] Form 10-K and Form 10-KSB [ ] Form 20-F [ ] Form 11-K [ ] Form 10-Q and Form
10-QSB [ ] Form N-SAR
For Period Ended: December 31, 1999
-----------------
Nothing in this form shall be construed to imply that the Commission has
verified any information contained herein.
If the notification relates to a portion of the filing check above,
identify the Item(s) to which the notification relates: This filing relates to a
Form 10-KSB previously filed on March 30, 2000 and presents, as and amendment to
the Form 10-KSB, those portions of that Form which were not included in the
prior filing, namely, (i) Item 6; (ii) Item 7; and (iii) the financial
information in the Financial Data Schedule.
Part I--Registrant Information
Full Name of Registrant: Southern Security Bank Corporation
Former Name if Applicable:
1000 Brickell Avenue, Suite 900
-------------------------------
Address of Principal Executive Office (Street and Number)
Miami, Florida 33131
-------------------------------
City, State and Zip Code
<PAGE>
Part II--Rules 12b-25(b) and (c)
If the subject report could not be filed without unreasonable effort or expense
and the registrant seeks relief pursuant to Rule 12b-25(b), the following should
be completed. (Check box if appropriate)
[X] (a) The reasons described in reasonable detail in Part III of this form
could not be eliminated without unreasonable effort or expense;
[X] (b) The subject annual report, semi-annual report, transition report on
Form 10-K, Form 10-KSB, Form 20-F, 11-K or Form N-SAR, or portion thereof will
be filed on or before the fifteenth calendar day following the prescribed due
date; or the subject quarterly report or transition report on Form 10-Q, or
portion thereof will be filed on or before the fifth calendar day following the
prescribed due date; and
[X] (c) The accountant's statement or other exhibit required by Rule
12b-25(c) has been attached if applicable.
Part III--Narrative
All of the Form 10-KSB except portions containing financial statement
information were previously filed. The Form 10-KSB financial statement
information is filed herewith.
Part IV--Other Information
(1) Name and telephone number of person to contact in regard to this
notification:
Ward B. Hinkle (716) 856-4000
- --------------------------------------------------------------------------------
(Name) (Area Code) (Telephone Number)
(2) Have all other periodic reports required under section 13 or 15(d) of
the Securities Exchange Act of 1934 or section 30 of the Investment Company Act
of 1940 during the preceding 12 months or for such shorter period that the
registrant was required to file such report(s) been filed? If the answer is no,
identify report(s).
[X] Yes [ ] No
(3)ab Is it anticipated that any significant change in results of
operations from the corresponding period for the last fiscal year will be
reflected by the earnings statements to be included in the subject report or
portion thereof?
[ ] Yes [X] No
Southern Security Bank Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as specified in charter)
has caused this notification to be signed on its behalf by the undersigned
thereunto duly authorized.
SOUTHERN SECURITY BANK CORPORATION
Date: April 14, 2000 By: /s/FLOYD D. HARPER
-----------------------------
Name: Floyd D. Harper
Title: Vice President
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[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
(State or other jurisdiction of incorporation)
65-0325364
(IRS Employer 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
--- ---
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 2.58%. 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:
After the change of control of the Bank in December 1993, management sought to
restore and renovate the asset quality of the Bank, the policies and procedures
by which the Bank was operated, and the safety and soundness of the enterprise.
Since these plans and programs have taken effect, the operation of the
institution was stabilized, and its asset quality was raised from a
classification of poor to good.
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.
<PAGE>
<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 $977,000
for 1998, reflecting an increase of approximately $29,000. 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 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 $7,996,000 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.
Adjustment rate loans which reprice after December 31, 1999 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 $ 50,536 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 6.57 196,557 6.57
U.S. government corporations
and agencies:
Held to Maturity -- -- -- -- -- -- -- -- -- --
Available for sale -- -- -- -- -- -- -- -- -- --
Total $ 50,536 5.30% $320,908 5.67% $-- -- % $196,557 6.57% $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 to businesses: 20% 15%
Consumer & Installment Loans: 35% 41%
Residential Mortgage Loans: 25% 19%
Commercial Mortgage Loans: 15% 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 $408,000; 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
=== ===
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 20,756 24,712
Average total equity 924 889
Return on average assets (3.1%) (2.5)%
Return on average equity (70.5%) (65.7)%
Equity to 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 4.5% 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.
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.
/s/McGladrey & Pullen, LLP
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.
<PAGE>
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
===========================
<PAGE>
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
April 14, 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 April 14, 2000
s/ Harold L. Connell
- -----------------------
Harold L. Connell
(ii) Principal Accounting and Vice President April 14, 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 April 14, 2000
- -----------------------
Harold L. Connell
s/Philip C. Modder Director April 14, 2000
- -----------------------
Philip C. Modder
s/Timothy S. Butler Director April 14, 2000
- -----------------------
Timothy S. Butler
s/Harold C. Friend Director April 14, 2000
- -----------------------
Harold C. Friend
s/Robert D. Butler Director April 14, 2000
- -----------------------
Robert D. Butler
s/Eugene J. Strasser Director April 14, 2000
- -----------------------
Eugene J. Strasser
s/G. Carleton Marlowe Director April 14, 2000
- -----------------------
G. Carleton Marlowe
<PAGE>
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
10.8 Amendment to Employment Agreement of Philip C. Modder, dated March 31, 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.
<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>
March 31, 2000
Southern Security Bank Corporation
Attention: Mr. Harold L. Connell, President and CEO
P.O. Box 6699
Hollywood, Florida 33081-6699
Dear Mr. Connell:
Please be advised that effective April 1, 2000, I voluntarily waive certain
elements expressed in my Executive Employment Agreement of June 11, 1992, and
all amendments thereto as cited below. I further understand that based upon the
profitability of the Bank and upon approval of the Board of Directors some
additional benefits will be considered in the future. Those items as outlined in
previous documents as numbered below are waived or modified as follows:
1. Paragraph 4 (b) "Additional Compensation". In addition subparagraph (a) shall
establish an incentive bonus program which Executive shall participate in.
2. Future grants under Paragraph 5 "Stock Options" under which subparagraphs (a)
removes provisions of previous options granted (b) which provides for loans to
exercise options, and (d) removes any obligation to the company to reimburse for
taxes assessed on future stock options. Subparagraph (c) which allows the
executive ten (10) years from date of termination to exercise stock options
previously granted. It is understood that the exercise term of all options
previously granted shall remain in effect.
3. Paragraph 6,"Executive Benefits" except the subparagraphs (a), (f), and (h).
Paragraph 6(b) shall read as follows: "Executive shall participate in the
disability plan provided to all executives of the company". Paragraph 6(c) shall
be modified to providing the Executive with a Term Life Insurance Policy of $1
million.
4. Refers to Paragraph 5(b) Stock Options and those provisions to provide a loan
to exercise future stock options. This provision is removed in #2 above.
5. This provision refers to paragraph 5(d) which is removed under #2 above.
6. This provision refers to Paragraph 6(b) "Executive Benefits" which is
addressed in #3 above under which the Executive shall participate in the normal
disability group plan offered to all executive officers. Reference to any
separate disability insurance is waived.
7. This provision refers to paragraph 6 "Executive Benefits" subparagraph (c)
Term Life 7. Continued:
Insurance which is modified under #3 above where by the company agrees to
provide a $1 million Term Life Insurance Policy to the Executive and the
Executive has the right to name the beneficiary of his choice.
8. This provision refers to paragraph 6 "Executive Benefits" subparagraph (f)
referring to the automobile allowance which shall remain in effect.
9. This provision refers to paragraph 6 "Executive Benefits" subparagraph (a)
which refers to provision of comprehensive medical and dental insurance for the
Executive and his family. This provision remains in effect.
In addition under the heading "Termination Payment" it is understood that the
lump sum shall be modified from 200% to 100% or one years salary plus benefits.
If you have any questions on the above, please advise.
Sincerely yours,
Philip C. Modder
Executive
ACCEPTED BY:
- -------------------------------------/--------------------
Harold L. Connell, President and CEO Date
PCM/sp
