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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
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Commission File Number 0-25343
MARINE BANCSHARES, INC.
A Florida Corporation
IRS Employer Identification No. 65-0729764
2325 Vanderbilt Beach Road
Naples, Florida 34109
(941) 593-6300
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934: NONE
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934: COMMON STOCK, $.01 PAR VALUE PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Revenue for the fiscal year ended December 31, 1999: $582,900
The aggregate market value of the common stock of the Registrant held by
nonaffiliates of the Registrant (894,232 shares) on March 1, 2000, was
$6,036,066. For the purposes of this response, directors, officers and holders
of 5% or more of the Registrant's common stock are considered the affiliates of
the Registrant at that date.
The number of shares outstanding of the Registrant's common stock, as of March
1, 2000: 1,150,000 shares of $.01 par value common stock.
Documents Incorporated by Reference: PORTIONS OF THE REGISTRANT'S DEFINITIVE
PROXY STATEMENT FOR ITS 2000 ANNUAL MEETING OF SHAREHOLDERS ARE INCORPORATED BY
REFERENCE INTO PART III OF THIS REPORT.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Certain statements in this Annual Report on Form 10-KSB constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, such as statements relating to the financial
condition and prospects, lending risks, plans for future business development
and marketing activities, capital spending and financing sources, capital
structure, the effects of regulation and competition, and the prospective
business of both the Company and the Bank. Where used in this Annual Report, the
words "anticipate," "believe," "estimate," "expect," "intend," and similar words
and expressions, as they relate to the Company or the Bank or their respective
managements, identify forward-looking statements. Such forward-looking
statements reflect the current views of the Company and are based on information
currently available to the management of the Company and the Bank and upon
current expectations, estimates, and projections about the Company and its
industry, management's beliefs with respect thereto, and certain assumptions
made by management. These forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties, and other factors
which could cause actual results to differ materially from those expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to: (i) significant increases in competitive
pressure in the banking and financial services industries; (ii) changes in the
interest rate environment which could reduce anticipated or actual margins;
(iii) changes in political conditions or the legislative or regulatory
environment; (iv) general economic conditions, either nationally or regionally
(especially in southwest Florida), becoming less favorable than expected
resulting in, among other things, a deterioration in credit quality; (v) changes
occurring in business conditions and inflation; (vi) changes in technology;
(vii) changes in monetary and tax policies; (viii) changes in the securities
markets; and (ix) other risks and uncertainties detailed from time to time in
the filings of the Company with the Commission.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Marine Bancshares, Inc. (the "Company") was incorporated in January
1997 primarily to serve as a bank holding company for Marine National Bank of
Naples, a national banking association then in organization (the "Bank"). For
approximately the first 33 months following its incorporation, the main
activities of the Company centered on applying for a national bank charter,
applying to become a bank holding company, hiring and training bank employees,
preparing the banking facilities and premises for opening, and conducting an
initial public offering of 1,150,000 shares of its common stock at an offering
price of $10.00 per share to raise capital to fund the startup of the Bank. The
Company completed its initial public offering in February 1999, and on October
12, 1999, the Bank commenced banking operations.
The Bank is a full service commercial bank. The business of the Bank
consists of attracting deposits from the general public in the Bank's primary
service area and using those deposits, together with funds derived from other
sources, to originate a variety of commercial, consumer, and residential real
estate loans. Although the Bank's lending activities include residential real
estate and consumer loans, its efforts are focused on lending relationships with
small to medium-sized businesses. The Bank focuses on the smaller commercial
customer because management believes that this segment offers the greatest
concentration of potential business. Also, the small to mid-size commercial
market segment has
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historically shown a willingness to borrow and carry larger balances. Finally,
the Company believes that this market segment tends to be more loyal in its
banking relationships.
The Bank offers a full range of deposit services, including personal
and business checking accounts, senior checking accounts, interest-bearing
checking accounts, savings accounts, and other time deposits of various types,
ranging from daily money market accounts to longer-term certificates of deposit.
The transaction accounts and time certificates are tailored to the principal
market area at rates competitive to those offered in the area. In addition,
retirement accounts such as Individual Retirement Accounts are available. The
Bank's deposits are insured up to applicable limits by the Federal Deposit
Insurance Corporation ("FDIC"). The Bank also offers commercial loans, consumer
installment loans, real estate loans, construction loans, second mortgage loans
(including home equity loans), and lines of credit. Commercial loans include
both secured and unsecured loans for working capital (including inventory and
receivables), business expansion (including acquisition of real estate and
improvements), and purchase of machinery and equipment. Consumer loans include
secured and unsecured loans for financing automobiles, boats, home improvements
and personal investments. Other services the Bank offers include ATM and debit
cards with access to local and state networks, official bank checks and money
orders, travelers checks, bank by mail, safe deposit boxes, wire transfers,
direct deposit of payroll and social security checks, automatic drafts for
various accounts, VISA and MasterCard credit cards issued through a
correspondent bank, and U.S. Savings Bonds.
The revenues of the Bank are primarily derived from interest on, and
fees received in connection with, commercial, real estate, and other loans, from
the sales of loans, and from interest on and dividends from investment
securities and short-term investments. The principal sources of funds for the
Bank's lending activities are deposits, amortization and repayment of loans,
sales of loans, and the sale of investment securities. The principal expenses of
the Bank are the interest paid on deposits and operating and general
administrative expenses.
The Company has been organized to facilitate the Bank's ability to
serve its future customers' requirements for financial services. The holding
company structure provides flexibility for expansion of the Company's banking
business through the possible acquisition of other financial institutions and
the provision of additional banking and non-banking related services, which the
traditional commercial bank cannot provide under present laws. Further, the
Company may borrow funds, subject to capital adequacy guidelines of the Federal
Reserve Board, invest in capital instruments of the Bank and otherwise raise
capital in a manner which is unavailable to the Bank under existing banking
regulations.
As is the case with banking institutions generally, the Bank's
operations are materially and significantly influenced by general economic
conditions and by related monetary and fiscal policies of financial institution
regulatory agencies, including the Federal Reserve Board and the FDIC. Deposit
flows and cost of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds.
The Company believes that its personal service strategy enhances the
Bank's ability to compete favorably by attracting individuals and local
businesses. The Bank competes for loans principally through the type of loans
offered, interest rates, loan fees, and the quality of the service it provides.
The Bank actively solicits deposit-related customers and competes for deposits
by offering customers personal attention, professional services and competitive
interest rates.
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PRIMARY SERVICE AREA
The Bank's primary service area is the western portion of Collier
County, Florida, which is located on the southwest coast of Florida. Included in
this area are the cities of Naples and Marco Island. Naples is the county seat
of Collier County and is located 35 miles south of Ft. Myers, Florida and about
120 miles west of Miami, Florida.
Collier County had an estimated year-round population in 1998 of
203,000 residents, the vast majority of whom live in the western portion of the
county. According to Enterprise Florida, Inc., Department of Research, the
county's population rises each year by approximately one-third during the winter
season (November through April). Based upon a study conducted by the University
of Florida Bureau of Economic and Business Research, the Southwest Florida
region has been, and is expected to continue to be, one of the fastest growing
regions in the United States.
Collier County has a diverse commercial and residential environment
with upscale resort areas, commercial office parks, residential developments,
shopping centers and entertainment areas. Collier County is located south of Lee
County and 30 minutes from the Southwest Florida International Airport, which
has a large number of daily domestic and international flights. The City of
Naples is easily accessible from the major cities of Florida through a modern,
well-maintained federal and state superhighway system. Tourism is a contributing
factor to the growth of Collier County. Located at the gateway to the
Everglades, Naples is a popular eco-travel destination. Young professionals and
wealthy retirees are among the many residents attracted to this area by its
quality of life and mild climate.
COMPETITION
Competition in the Bank's market area is intense, and market share is
fragmented among a number of financial institutions. According to statistics
compiled by the FDIC, as of June 30, 1999 approximately 24 financial
institutions with a total of 94 branches were located in Collier County. The
Bank also competes with finance companies, insurance companies, mortgage
companies, securities brokerage firms, money market and mutual funds, loan
production offices, and other providers of financial services. Most of the
Bank's competitors have been in business for many years, have established
customer bases, are substantially larger, have substantially larger lending
limits than the Bank and can offer certain services, including multiple branches
and international banking services, that the Bank will be able to offer only
through correspondent banks, if at all. In addition, most of these entities have
greater capital resources than the Bank that, among other things, may allow them
to price their services at levels more favorable to clients and to provide
larger credit facilities than the Bank.
BANK LOCATION AND FACILITIES
The main office of the Bank and the Company is located in the northern
sector of Naples at 2325 Vanderbilt Beach Road, Naples, Florida, at the
northwest corner of the intersection of Airport Pulling Road and Vanderbilt
Beach Road.
The Company is party to a lease with Gulf Coast Commercial Corporation
("GCCC"), an unaffiliated third party real estate development company, pursuant
to which the Company leases approximately 7,500 square feet of space on two
floors of a multi-story office building to serve as the Bank's and the Company's
main office space. The leased office space contains a lobby, executive and
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customer service offices, teller stations and vault operations. The property
also contains a drive-through facility of four lanes and paved parking for
customers and employees. The term of the lease is ten years beginning in August
1999. Under the lease, the Company has two options to renew the lease term, each
for a five year period. The annual base rental amounts for the first and second
years of the lease term is $159,000 and $189,000, respectively, with automatic
increases for each year of the term thereafter of between 3% and 6%, based upon
increases in the Consumer Price Index. Additional rental amounts will be due for
the use of certain common areas and other items.
The Bank has entered into a contract with GCCC to purchase the
approximately 16,000 square foot building the Bank presently occupies and the
approximately 1.25-acre parcel of land on which the building is located, for an
aggregate purchase price of approximately $3.4 million. Management expects the
purchase to close in April 2000. The Bank plans to lease approximately 5,000
square feet of the building which the Bank does not intend to occupy. No
agreements with any such lessees have been entered into as of the date of this
Annual Report.
PRODUCTS AND SERVICES
The Bank was established to meet the local consumer and commercial
financing needs of the residents and businesses of the Bank's primary service
area. The Bank aggressively seeks creditworthy loans in this limited geographic
area. The Bank makes commercial loans to small- to medium-sized businesses and
professional concerns, consumer loans to individuals, primary and secondary
mortgage loans for the acquisition or improvement of personal residences, and
real estate related loans, including construction loans for residential and
commercial properties.
Although the Bank takes a progressive and competitive approach to
lending, it stresses high quality in its loans. To promote such quality lending,
the Board of Directors of the Bank has adopted appropriate lending policies and
procedures. Under these policies, a maximum lending authority has been
established for each loan officer. Each loan request exceeding a loan officer's
authority must be approved by one or more senior officers. On a monthly basis,
the entire Board of Directors reviews all loans made in the preceding month. In
addition, a loan committee of the Board of Directors of the Bank will review
larger loans for prior approval when the loan request exceeds the established
limits for the senior officers. Because of the Bank's local focus, management
believes it achieves quality control while still providing prompt and personal
service.
The Bank maintains a continuous loan review process designed to promote
early identification of credit quality problems. The Bank's credit review
administrator is responsible for conducting a continuous internal review which
tests compliance with loan policy and documentation of all loans. Any past due
loans and identified problem loans are reviewed with the Board of Directors on a
monthly basis.
Under the regulations of the Office of the Comptroller of the Currency
(the "OCC"), a national bank's total outstanding loans and extensions of credit,
both secured and unsecured, to one borrower may not exceed 15% of the bank's
capital and surplus, plus an additional 10% of the bank's capital and surplus if
the amount that exceeds the 15% general limit is fully secured by readily
marketable collateral, as defined in the regulations. Under these regulations,
at December 31, 1999, the Bank's general lending limit to one borrower is
approximately $1,200,000, plus an additional $800,000 for loans secured by
readily marketable collateral. While the Bank generally employs more
conservative lending limits, the Board of Directors has discretion to lend up to
these legal limits.
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Commercial Loans. Commercial lending is directed principally toward
small to mid-sized businesses, including commercial real estate developers,
whose demands for funds either fall within the legal lending limits of the Bank
or can be satisfied through loan participations arranged by the Bank. The Bank
offers a variety of commercial loan services including term loans, lines of
credit, and equipment receivables financing. A broad range of short-to-medium
term commercial loans, both collateralized and uncollateralized, are made
available to businesses for working capital (including inventory and
receivables), business expansion (including acquisitions of real estate and
improvements), and the purchase of machinery and equipment.
The Bank's commercial loans are underwritten primarily on the basis of
the borrower's ability to service such debt from income. As a general practice,
the Bank takes as collateral a security interest in any available real estate,
equipment, or other chattel, although such loans may be made on an
uncollateralized basis. Secured working capital loans is primarily
collateralized by short term assets, whereas term loans are collateralized
primarily by long term assets.
Unlike residential mortgage loans, which are generally made on the
basis of the borrower's ability to make repayment from his employment and other
income and which are collateralized by real property whose value tends to be
easily ascertainable, commercial loans are typically made on the basis of the
borrower's ability to make repayment from the cash flow of its business and are
generally collateralized by business assets, such as accounts receivable,
equipment and inventory. As a result, the availability of funds for the
repayment of commercial loans may be substantially dependent on the success of
the business itself. Further, the collateral securing the loans, which may
depreciate over time, occasionally cannot be appraised with as much precision as
residential real estate, and may fluctuate in value based on the success of the
business. Risks associated with these loans can be significant and include, but
are not limited to, fraud, bankruptcy, economic downturns, deteriorated or
non-existing collateral, customer financial problems, and changes in interest
rates.
Residential Real Estate Loans. The Bank makes real estate loans,
consisting primarily of one- to four-unit family structures. The loans, which
generally are long-term, will have either fixed or variable interest rates. It
is the Bank's general policy to retain all variable interest rate mortgage loans
in the Bank's loan portfolio and to sell all fixed rate loans in the secondary
market. This policy is subject to review by management and the Bank's Board of
Directors as a result of changing market and economic conditions and other
relevant factors.
Retention of variable interest rate loans in the Bank's loan portfolio
has reduced the Bank's exposure to fluctuations in interest rates. However, such
loans generally pose credit risks different from the risks inherent in fixed
rate loans, primarily because as interest rates rise the underlying payments
from the borrowers rise, thereby increasing potential for default.
Additionally, the Bank makes residential construction loans for one- to
four-unit family structures. The Bank requires a first lien position on the land
associated with the construction project and offers these loans to homeowners
and qualified builders. Loan disbursements require on-site inspections to assure
the project is on budget and that the loan proceeds are being used for the
construction project and not diverted to another project. The loan-to-value
ratio for such loans is generally 80% of the lower of as-built appraised value
or project cost, and a maximum of 90% if the loan is amortized. To be eligible
for a residential construction loan, a borrower must be pre-qualified for
permanent financing.
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Consumer Loans. The Bank makes consumer loans, consisting primarily of
installment loans to individuals for personal, family and household purposes,
including loans for automobiles, home improvements, second mortgages, home
equity lines of credit, and investments. Consumer loans are attractive to the
Bank because they typically have a shorter term and carry higher interest rates
than that charged on other types of loans. Consumer loans, however, do pose
additional risks of collectibility when compared to traditional types of loans
granted by commercial banks such as residential mortgage loans. In many
instances, the Bank is required to rely on the borrower's ability to repay since
the collateral may be of reduced value at the time of collection. Accordingly,
the initial determination of the borrower's ability to repay is of primary
importance in the underwriting of consumer loans. Additional risks associated
with consumer loans include, but are not limited to, fraud, deteriorated or
non-existent collateral, general economic downturn, customer financial problems,
and changes in interest rates.
Deposits. The Bank attracts deposits by offering a broad array of
competitively priced deposit services, including personal and business checking
accounts, senior checking accounts, interest-bearing checking accounts, regular
savings accounts, money market deposits (transaction and investment),
certificates of deposit, retirement accounts, and other deposit or fund transfer
services as permitted by law or regulation and required to remain competitive in
the Bank's market. The Bank seeks deposits through an aggressive marketing plan
in its overall service area, a broad product line, and competitive services. The
primary sources of deposits are residents and businesses located in the Bank's
primary service area, attracted through personal solicitation by the Bank's
officers and directors, direct mail solicitations, and advertisements published
in the local media.
Other Bank Services. Management of the Bank may also be able to provide
other bank services, such as loans in excess of the Bank's lending limits,
through relationships with correspondent banks and other third party service
providers. There can be no assurance, however, that the Bank will be able to
establish such relationships.
INVESTMENTS
Funds generated by the Bank as a result of increases in deposits,
decreases in loans, or otherwise which are not immediately used by the Bank are
invested in securities to be held in the investment portfolio. Such investments
consist primarily of obligations of the United States agencies (or obligations
guaranteed as to principal and interest by United States agencies) and other
investment grade securities, in compliance with the laws and regulations
applicable to national banks. The investment portfolio is structured so that it
provides for an ongoing source of funds for meeting loan and deposit demands and
for reinvestment opportunities to take advantage of changes in the interest rate
environment.
ASSET/LIABILITY MANAGEMENT
It is the objective of the Bank's management to manage the Bank's
assets and liabilities to provide a stable net interest margin, a profitable
after-tax return on assets and return on equity, and adequate liquidity. These
management functions are conducted within the framework of written loan and
investment policies, which the Bank has adopted. The Bank monitors its rate
sensitive assets and rate sensitive liabilities.
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DATA PROCESSING
The Bank has entered into a five-year data processing servicing
agreement with Intercept Group, Inc., which provides for the Bank to receive a
full range of data processing services, including an automated general ledger,
deposit accounting, commercial, real estate and installment lending data
processing, central information file and ATM processing. Investment portfolio
accounting is provided by SunTrust Bank, and payroll processing is provided by
Prime Pay.
EMPLOYEES
At March 15, 2000, the Bank employed 16 persons on a full-time basis,
including six officers, and two persons on a part-time basis. The Bank will hire
additional persons as needed, including additional tellers and financial
service representatives. All employees of the Company are also employed by the
Bank, and all of the compensation paid to such employees is paid by the Bank.
SUPERVISION AND REGULATION
The Company and the Bank operate in a highly regulated environment, and
their business activities are governed by statute, regulation and administrative
policies. The business activities of the Company and the Bank are closely
supervised by a number of regulatory agencies, including the Federal Reserve
Board, the OCC, the FDIC and, to a limited extent, the Florida Department of
Banking and Finance (the "Florida Banking Department").
The Company is regulated by the Federal Reserve Board under the federal
Bank Holding Company Act, which requires every bank holding company to obtain
the prior approval of the Federal Reserve Board before acquiring more than 5% of
the voting shares of any bank or all or substantially all of the assets of a
bank, and before merging or consolidating with another bank holding company. The
Federal Reserve Board (pursuant to regulation and published policy statements)
has maintained that a bank holding company must serve as a source of financial
strength to its subsidiary banks. In adhering to the Federal Reserve Board
policy, the Company may be required to provide financial support to a subsidiary
bank at a time when, absent such Federal Reserve Board policy, the Company may
not deem it advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, the Company, or any other bank holding company located in Florida, may
acquire a bank located in any other state, and a bank holding company located
outside Florida may acquire any Florida-based bank, in either case subject to
certain deposit percentage and other restrictions. The legislation also provides
that, unless an individual state has elected to prohibit out-of-state banks from
operating interstate branches within its territory, adequately capitalized and
managed bank holding companies will be able to consolidate their multistate bank
operations into a single bank subsidiary and to branch interstate through
acquisitions.
De novo branching by an out-of-state bank is lawful only if it is
expressly permitted by the laws of the host state. The authority of a bank to
establish and operate branches within a state remains subject to applicable
state branching laws.
On November 12, 1999, the Gramm-Leach-Bliley Financial Services
Modernization Act was signed into law. The Financial Services Modernization Act
eliminates the barriers erected by the 1933 Glass-Steagall Act and amends the
Bank Holding Company Act of 1956, among other statutes. Further,
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it allows for the affiliation of banking, securities and insurance activities in
new financial services organizations.
A dominant theme of the new legislation is functional regulation of
financial services, with the primary regulator of the company being the agency
which traditionally regulates the activity in which the company wishes to
engage. For example, the Securities and Exchange Commission will regulate bank
securities transactions, and the various banking regulators will oversee banking
activities.
The principal provisions of the Financial Services Modernization Act
will permit the Company, if it meets the standards for a "well-managed" and
"well-capitalized" institution and has at least a "satisfactory" Community
Reinvestment Act performance, to engage in any activity that is "financial in
nature," including security and insurance underwriting, investment banking, and
merchant banking investing in commercial and industrial companies. The Company,
if it satisfies the above criteria, can file a declaration of its status as a
"financial holding company" ("FHC") with the Federal Reserve, and thereafter
engage directly or through nonbank subsidiaries in the expanded range of
activities which the Financial Services Modernization Act identifies as
financial in nature. Further, the Company, if it elects FHC status, will be able
to pursue additional activities which are incidental or complementary in nature
to a financial activity, or which the Federal Reserve subsequently determines to
be financial in nature. The Financial Services Modernization Act will also allow
the Bank, with OCC approval, to control or hold an interest in a "financial
subsidiary" which may engage in, among other things, the activities specified in
the Financial Services Modernization Act as being financial in nature. Such a
subsidiary, though, is not permitted to engage in insurance underwriting or
annuity issuance, real estate development, investment activities, or merchant
banking activities. Further, any financial subsidiary that the Bank created
would generally be treated as an affiliate of the Bank, rather than as a
subsidiary for purposes of affiliate transaction restrictions of Sections 23A
and 23B of the Federal Reserve Act.
It is expected that the Financial Services Modernization Act will
facilitate further consolidation in the financial services industry on both a
national and international basis, and will cause existing bank holding companies
to restructure their existing activities in order to take advantage of the new
powers granted and comply with their attendant requirements and conditions.
A bank holding company which has not elected to become a FHC will
generally be prohibited from acquiring control of any company which is not a
bank and from engaging in any business other than the business of banking or
managing and controlling banks. However, these non-FHC bank holding companies
will still be able to engage in certain activities which have been identified by
the Federal Reserve Board to be so closely related to banking as to be a proper
incident thereto and thus permissible for bank holding companies.
These activities, including those listed below, are left unchanged by
the Financial Services Modernization Act which does not prohibit non-FHC bank
holding companies from engaging in these activities. The list of permissible
nonbanking activities includes the following activities: extending credit and
servicing loans; acting as investment or financial advisor to any person, with
certain limitations; leasing personal and real property or acting as a broker
with respect thereto; providing management and employee benefits consulting
advice and career counseling services to nonaffiliated banks and nonbank
depository institutions; operating certain nonbank depository
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institutions; performing certain trust company functions; providing certain
agency transactional services, including securities brokerage services, riskless
principal transactions, private placement services, and acting as a futures
commission merchant; providing data processing and data transmission services;
acting as an insurance agent or underwriter with respect to limited types of
insurance; performing real estate appraisals; arranging commercial real estate
equity financing; providing check-guaranty, collection agency and credit bureau
services; engaging in asset management, servicing and collection activities;
providing real estate settlement services; acquiring certain debt which is in
default; underwriting and dealing in obligations of the United States, the
states and their political subdivisions; engaging as a principal in foreign
exchange trading and dealing in precious metals; providing other support
services such as courier services and the printing and selling of checks; and
investing in programs designed to promote community welfare.
In determining whether an activity is so closely related to banking as
to be permissible for bank holding companies, the Federal Reserve Board is
required to consider whether the performance of such activities by a bank
holding company or its subsidiaries can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition and
gains in efficiency, that outweigh such possible adverse effects as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, and unsound banking practices. Generally, bank holding companies must
obtain approval of the Federal Reserve Board to engage in any activity not
previously approved by the Federal Reserve Board or to modify in any material
respect as activity for which Federal Reserve Board approval had been obtained.
The Company is also regulated by the Florida Banking Department under
the Florida Banking Code, which requires every bank holding company to obtain
the prior approval of the Florida Commissioner of Banking before acquiring more
than 5% of the voting shares of any Florida bank or all or substantially all of
the assets of a Florida bank, or before merging or consolidating with any
Florida bank holding company. A bank holding company is generally prohibited
from acquiring ownership or control of 5% or more of the voting shares of any
Florida bank or Florida bank holding company unless the Florida bank or all
Florida bank subsidiaries of the bank holding company to be acquired have been
in existence and continuously operating, on the date of the acquisition, for a
period of three years or more. However, approval of the Florida Banking
Department is not required if the bank to be acquired, or all bank subsidiaries
of the Florida bank holding company to be acquired, are national banks.
The Bank is also subject to the Florida banking and usury laws
restricting the amount of interest which it may charge in making loans or other
extensions of credit. In addition, the Bank, as a subsidiary of the Company, is
subject to restrictions under federal law in dealing with the Company and other
affiliates, if any. These restrictions apply to extensions of credit to an
affiliate, investments in the securities of an affiliate and the purchase of
assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
and surplus to any person if the loans and extensions of credit are not fully
secured by collateral having a market value at least equal to their face amount.
In addition, a national bank may grant loans and extensions of credit to such
person up to an additional 10% of its unimpaired capital and surplus, provided
that each loan or extension of credit is fully secured by
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readily marketable collateral having a market value, determined by reliable and
continuously available price quotations, at least equal to the amount of funds
outstanding. Loans and extensions of credit may exceed the general lending limit
if they qualify under one of several exceptions. Such exceptions include certain
loans or extensions of credit arising from the discount of commercial or
business paper, the purchase of bankers' acceptances, loans secured by documents
of title, loans secured by U.S. obligations and loans to or guaranteed by the
federal government, and loans or extensions of credit which have the approval of
the OCC and which are made to a financial institution or to any agent in charge
of the business and property of the financial institution.
Both the Company and the Bank are subject to regulatory capital
requirements imposed by the Federal Reserve Board and the OCC. The Federal
Reserve Board and the OCC have issued risk-based capital guidelines for bank
holding companies and banks which make regulatory capital requirements more
sensitive to differences in risk profiles of various banking organizations. The
capital adequacy guidelines issued by the Federal Reserve Board are applied to
bank holding companies, on a consolidated basis with the banks owned by the
holding company, as well as to state member banks. The OCC's risk capital
guidelines apply directly to national banks regardless of whether they are a
subsidiary of a bank holding company. Both agencies' requirements (which are
substantially similar), provide that banking organizations must have capital
equivalent to at least 8% of risk-weighted assets. The risk weights assigned to
assets are based primarily on credit risks. Depending upon the riskiness of a
particular asset, it is assigned to a risk category.
For example, securities with an unconditional guarantee by the United
States government are assigned to the lowest risk category, while a risk weight
of 50% is assigned to loans secured by owner-occupied one to four family
residential mortgages provided that certain conditions are met. The aggregate
amount of assets assigned to each risk category is multiplied by the risk weight
assigned to that category to determine the weighted values, which are added
together to determine total risk- weighted assets. Both the Federal Reserve
Board and the OCC have also implemented minimum capital leverage ratios to be
used in tandem with the risk-based guidelines in assessing the overall capital
adequacy of banks and bank holding companies. Under these rules, banking
institutions must maintain a ratio of at least 3% "Tier 1" capital to total
weighted risk assets (net of goodwill, certain intangible assets, and certain
deferred tax assets). Tier 1 capital includes common shareholders equity,
noncumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements. They are applicable to all banking institutions unless the
applicable regulating authority determines that different minimum capital ratios
are appropriate for a particular institution based upon its circumstances.
Institutions operating at or near these ratios are expected to have
well-diversified risks, excellent control systems, high asset quality, high
liquidity, good earnings, and in general must be considered strong banking
organizations, rated composite 1 under the CAMELS rating system of banks or the
BOPEC rating system of bank holding companies. The OCC requires that all but the
most highly-rated banks and all banks with high levels of risk or experiencing
or anticipating significant growth will maintain ratios at least 100 to 200
basis points above the stated minimums. The Federal Reserve Board requires bank
holding companies without a BOPEC-1 rating to maintain a ratio of at least 4%
Tier 1 capital to total assets; furthermore, banking organizations with
supervisory, financial, operational, or managerial weaknesses, as well as
organizations that are anticipating or experiencing significant growth, are
expected to maintain capital ratios well above the 3% and 4% minimum levels.
-10-
<PAGE> 12
The FDIC adopted a rule substantially similar to that issued by the
Federal Reserve Board, establishing a minimum leverage ratio of 3% and providing
that FDIC-regulated banks with anything less than a CAMELS-1 rating must
maintain a ratio of at least 4%. In addition, the FDIC rule specifies that a
depository institution operating with less than the applicable minimum leverage
capital requirement will be deemed to be operating in an unsafe and unsound
manner unless the institution is in compliance with a plan, submitted to and
approved by the FDIC, to increase the ratio to an appropriate level. Finally,
the FDIC requires any insured depository institution with a leverage ratio of
less than 2% to enter into and be in compliance with a written agreement between
it and the FDIC (or the primary regulator, with the FDIC as a party to the
agreement). Such an agreement will nearly always contemplate immediate efforts
to acquire the capital required to increase the ratio to an appropriate level.
Institutions that fail to enter into or maintain compliance with such an
agreement will be subject to enforcement action by the FDIC.
The OCC's guidelines provide that intangible assets are generally
deducted from Tier 1 capital in calculating a bank's risk-based capital ratio.
However, certain intangible assets which meet specified criteria ("qualifying
intangibles") are retained as a part of Tier 1 capital. The OCC has modified the
list of qualifying intangibles, currently including only purchased credit card
relationships and mortgage and non-mortgage servicing assets, whether originated
or purchased and excluding any interest-only strips receivable related thereto.
Furthermore, the OCC's guidelines formerly provided that the amount of such
qualifying intangibles that may be included in Tier 1 capital was limited to a
maximum of 50% of total Tier 1 capital. The OCC has amended its guidelines to
increase the limitation on such qualifying intangibles from 50% to 100% of Tier
1 capital, of which no more than 25% may consist of purchased credit card
relationships and non-mortgage servicing assets. Furthermore, banks may now
deduct from Tier 1 capital disallowed servicing assets on a basis that is net of
any associated deferred tax liability. Deferred tax liabilities netted this way
may not also be netted against deferred tax assets when determining the amount
of deferred tax assets that are dependent upon future taxable income.
In addition, the OCC has adopted rules which clarify treatment of asset
sales with recourse not reported on a bank's balance sheet. Among assets
affected are mortgages sold with recourse under Fannie Mae, Freddie Mac and
Farmer Mac programs. The rules clarify that even though those transactions are
treated as asset sales for bank Call Report purposes, those assets will still be
subject to a capital charge under the risk-based capital guidelines.
The risk-based capital guidelines of the OCC, the Federal Reserve Board
and the FDIC explicitly include provisions regarding a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
to ensure that the guidelines take adequate account of interest rate risk.
Interest rate risk is the adverse effect that changes in market interest rates
may have on a bank's financial condition and is inherent to the business of
banking. The exposure of a bank's economic value generally represents the change
in the present value of its assets, less the change in the value of its
liabilities, plus the change in the value of its interest rate off-balance sheet
contracts. Concurrently, the agencies issued a joint policy statement to
bankers, effective June 26, 1996, to provide guidance on sound practices for
managing interest rate risk. In the policy statement, the agencies emphasize the
necessity of adequate oversight by a bank's Board of Directors and senior
management and of a comprehensive risk management process. The policy statement
also describes the critical factors affecting the agencies' evaluations of a
bank's interest rate risk when making a determination of capital adequacy. The
agencies' risk assessment approach used to evaluate a bank's capital adequacy
for interest rate risk relies on a combination of quantitative and qualitative
factors. Banks that are found to have high levels of exposure and/or weak
management practices will be directed by the agencies to take corrective action.
-11-
<PAGE> 13
The OCC, the Federal Reserve Board and the FDIC recently added a
provision to the risk-based capital guidelines that supplements and modifies the
usual risk-based capital calculations to ensure that institutions with
significant exposure to market risk maintain adequate capital to support that
exposure. Market risk is the potential loss to an institution resulting from
changes in market prices. The modifications are intended to address two types of
market risk: general market risk, which includes changes in general interest
rates, equity prices, exchange rates, or commodity prices, and specific market
risk, which includes particular risks faced by the individual institution, such
as event and default risks. The provision defines a new category of capital,
Tier 3, which includes certain types of subordinated debt. The provision
automatically applies only to those institutions whose trading activity, on a
worldwide consolidated basis, equals either (i) 10% or more of total assets or
(ii) $1 billion or more, although the agencies may apply the provision's
requirements to any institution for which application of the new standard is
deemed necessary or appropriate for safe banking practices. For institutions to
which the modifications apply, Tier 3 capital may not be included in the
calculation rendering the 8% credit risk ratio; the sum of Tier 2 and Tier 3
capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in
both the numerator and denominator of the normal risk-based capital ratio
calculation to account for the estimated maximum amount that the value of all
positions in the institution's trading account, as well as all foreign exchange
and commodity positions, could decline within certain parameters set forth in a
model defined by the statute. Furthermore, covered institutions must "backtest,"
comparing the actual net trading profit or loss for each of its most recent 250
days against the corresponding measures generated by the statutory model. Once
per quarter, the institution must identify the number of times the actual net
trading loss exceeded the corresponding measure and must then apply a statutory
multiplication factor based on that number for the next quarter's capital charge
for market risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for the development of a
regulatory monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized institutions.
While the FDICIA does not change any of the minimum capital requirements, it
directs each of the federal banking agencies to issue regulations putting the
monitoring plan into effect. The FDICIA creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are defined in the
FDICIA and which will be used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given level
of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., a holding company) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the institution is limited to the lesser of
five percent of the institution's total assets or the amount which is necessary
to bring the institution into compliance with all capital standards. In
addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business.
As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
-12-
<PAGE> 14
In response to the directive issued under the Act, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the Act. The
following table reflects the capital thresholds:
<TABLE>
<CAPTION>
Total Risk-Based Tier 1 Risk-Based Tier 1
Capital Ratio Capital Ratio Leverage Ratio
------------- ------------- --------------
<S> <C> <C> <C>
Well capitalized(1) (greater than or equal to) 10% (greater than or equal to) 6% (greater than or equal to) 5%
Adequately Capitalized(1) (greater than or equal to) 8% (greater than or equal to) 4% (greater than or equal to) 4%(2)
Undercapitalized(4) < 8% < 4% < 4%(3)
Significantly Undercapitalized(4) < 6% < 3% < 3%
Critically Undercapitalized - - (less than or equal to) 2%(5)
</TABLE>
(1) An institution must meet all three minimums.
(2) (greater than or equal to) 3% for composite 1-rated institutions, subject to
appropriate federal banking agency guidelines.
(3) < 3% for composite 1-rated institutions, subject
to appropriate federal banking agency guidelines.
(4) An institution falls into this category if it is below the specified capital
level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
The FDICIA also provides that each Federal banking agency must
prescribe safety and soundness standards in certain areas of banking practice.
In order to comply with the FDICIA, the Federal Reserve Board, the OCC and the
FDIC have adopted regulations defining operational and managerial standards
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, and compensation, fees and benefits.
Both the capital standards and the safety and soundness standards which
the FDICIA seeks to implement are designed to bolster and protect the deposit
insurance fund.
As a national bank, the Bank is subject to examination and review by
the OCC. This examination is typically completed on-site every eighteen months
and the Bank is subject to off-site review at call. The OCC, at will, can access
quarterly reports of condition, as well as such additional reports as may be
required by the national banking laws.
As a bank holding company, the Company is required to file with the
Federal Reserve Board an annual report of its operations at the end of each
fiscal year and such additional information as the Federal Reserve Board may
require pursuant to the Act. The Federal Reserve Board may also make
examinations of the Company and each of its subsidiaries.
The scope of regulation and permissible activities of the Company and
the Bank is subject to change by future federal and state legislation. In
addition, regulators sometimes require higher capital levels on a case-by-case
basis based on such factors as the risk characteristics or management of a
particular institution. The Company and the Bank are not aware of any attributes
of their operating plan that would cause regulators to impose higher
requirements.
-13-
<PAGE> 15
ITEM 2. DESCRIPTION OF PROPERTY
The main office of the Bank is located in the northern area of Naples
at the northwest corner of the intersection of Airport Pulling Road and
Vanderbilt Beach Road. The Company is party to a lease with Gulf Coast
Commercial Corporation, an unaffiliated third party real estate development
company, pursuant to which the Company leases approximately 7,500 square feet of
space on two floors of a multi-story office building to serve as the Bank's and
the Company's main office space. The leased office space consists of a lobby,
executive and customer service offices, teller stations and vault operations.
The property also contains a drive-through facility of four lanes and paved
parking for customers and employees. The term of the lease is ten years
beginning in August 1999. Under the lease, the Company has two options to renew
the lease term, each for a five year period. The annual base rental amounts for
the first and second years of the lease term is $159,000 and $189,000,
respectively, with automatic increases for each year of the term thereafter of
between 3% and 6%, based upon increases in the Consumer Price Index. Additional
rental amounts will be due for the use of certain common areas and other items.
The Bank has entered into a contract with GCCC to purchase the
approximately 16,000 square foot building the Bank presently occupies and the
approximately 1.25-acre parcel of land on which the building is located, for an
aggregate purchase price of approximately $3.4 million. Management expects the
purchase to close in April 2000. The Bank plans to lease approximately 5,000
square feet of the building which the Bank does not intend to occupy. No
agreements with any such lessees have been entered into as of the date of this
Annual Report.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company or the Bank
is a party or to which any of their properties are subject, nor are there
proceedings known to the Company to be contemplated by any governmental
authority. There are no material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company is a party adverse to the Company or the Bank or
has a material interest adverse to the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1999 Annual Meeting of Shareholders of the Company was held on
December 16, 1999. Richard E. Horne and Earl G. Hodges were each re-elected by
the shareholders to serve as a Class I director, for a term expiring at the
Company's 2002 Annual Meeting of Shareholders. 839,672 votes were cast in favor
and 14,000 votes were withheld for each of the directors.
No other matters were presented or voted on at the 1999 Annual Meeting.
-14-
<PAGE> 16
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock trades on the OTC Bulletin Board under the
symbol "MBSK." The common stock began trading on the OTC Bulletin Board on
February 10, 1999. The following table sets forth for the periods indicated the
quarterly high and low bid quotation per share as reported by the OTC Bulletin
Board. These quotations reflect inter-dealer prices without retail mark-ups,
mark-downs, or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal year ended December 31, 1999
Fourth quarter.................................................. $7.625 $6.000
Third quarter................................................... 8.250 7.000
Second quarter.................................................. 9.750 8.500
</TABLE>
HOLDERS OF COMMON SHARES
As of March 17, 2000, there were 99 holders of record of the Company's
common stock.
DIVIDENDS
To date, the Company has not declared or paid any dividends on its
common stock. As the Company and the Bank are both start-up operations, it is
the policy of the Board of Directors of the Company to reinvest earnings for
such period of time as is necessary to ensure the success of the operations of
the Company and of the Bank. There are no current plans to initiate payment of
cash dividends, and future dividend policy will depend on the Bank's earnings,
capital requirements, financial condition and other factors considered relevant
by the Board of Directors of the Company.
The source of dividends to the Company's shareholders, if any, in the
future will depend primarily upon the earnings of the Bank and its ability to
pay dividends to the Company, as to which there can be no assurance. The payment
of dividends by the Bank is subject to a determination by the Bank's Board of
Directors and will depend upon a number of factors, including capital
requirements, regulatory limitations, the Bank's results of operations and
financial condition, tax considerations, and general economic conditions.
The Bank is restricted in its ability to pay dividends under the
national banking laws and by regulations of the OCC. Pursuant to 12 U.S.C.
Section 56, a national bank may not pay dividends from its capital. In addition,
no dividends may be paid in an amount greater than a national bank's undivided
profits, subject to other applicable provisions of law. Payment of dividends out
of undivided profits is further limited by 12 U.S.C. Section 60(a), which
prohibits a bank from declaring a dividend on its shares of common stock until
its surplus equals its common capital, unless there has been transferred to
surplus not less than 1/10 of the Bank's net income of the preceding two
consecutive half-year periods (in the case of an annual dividend). Pursuant to
12 U.S.C. Section 60(b), the approval of the OCC is required if the total of all
-15-
<PAGE> 17
dividends declared by the Bank in any calendar year exceeds the total of its net
income for that year combined with its retained net income for the preceding two
years, less any required transfers to surplus or a fund for the retirement of
any preferred stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Company's
Consolidated Financial Statements, related notes and statistical information
included elsewhere herein.
ORGANIZATION
The Company was incorporated in January 1997 to serve as a holding
company for the Bank. For approximately the first 33 months of operation, the
Company's main activities centered on applying for a national bank charter,
applying to become a bank holding company, preparing the banking facilities,
hiring and training bank personnel, and raising capital in an initial public
offering to fund the start-up of the Bank. On October 12, 1999, the Bank
commenced operations.
RESULTS OF OPERATIONS
During the development stage, from January 23, 1997 (date of
incorporation) to October 12, 1999 (the date the Bank opened), the Company's net
loss amounted to approximately $1,023,000. Net loss from October 12, 1999 to
December 31, 1999 amounted to approximately $465,000. Losses from January 23,
1997 to December 31, 1999 amounted to $1,488,000.
Net Interest Income
Net interest income is the principal component of a financial
institution's income and represents the difference between interest and certain
fee income generated from earning assets and the interest expense paid on
deposits and other borrowed funds. Fluctuations in interest rates, as well as
volume and mix changes in earning assets and interest-bearing liabilities, can
materially impact net interest income. The Bank had no investments in tax-exempt
securities during 1999 and, accordingly, no adjustment is necessary to
facilitate comparisons on a taxable equivalent basis.
-16-
<PAGE> 18
The following table sets forth, for the period indicated, certain
information related to the Company's average balance sheet, its yields on
average earning assets and its average rates on interest-bearing liabilities.
Such yields and rates are derived by dividing income or expense by the average
balance of the corresponding assets or liabilities. Average balances have been
derived from the Bank's daily balances and from the Company's month-end balances
during the period indicated.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
Interest
Average Income/ Yield/
Balance Expense Rate
------- ------- ----
(dollar amounts in thousands)
<S> <C> <C> <C>
ASSETS
Earning assets:
Loans(1) .................................... $ 414 $ 36 8.69%
Investment securities and other(2) .......... 8,680 446 5.14
Federal funds sold and repurchase agreement . 1,855 98 5.28
-------- --------
Total earning assets ..................... 10,949 580 5.30%
Cash and due from banks ........................ 340
Premises and equipment, net .................... 407
Other assets ................................... 98
Allowance for loan losses ...................... (4)
--------
Total assets ............................. $ 11,790
========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits ............ $ 64 $ 3 4.68%
Savings deposits ............................ 8 -- --
Money market deposits ....................... 91 4 4.40
Certificates of deposit of $100,000 or more . 552 38 6.88
Other time deposits ......................... 1,845 128 6.94
Repurchase agreements ....................... 19 1 5.26
Other borrowed funds ........................ 60 10 16.67
-------- --------
Total interest-bearing liabilities ............. 2,624 184 7.01%
Noninterest-bearing demand deposits ............ 139
Other liabilities .............................. 106
Shareholders' equity ........................... 8,921
Total liabilities and shareholders' equity $ 11,790
========
Net interest income ............................ $ 396
========
Net interest spread ............................ (1.71)%
Net interest margin ............................ 3.62%
</TABLE>
(1) During 1999, all loans were accruing interest.
(2) The yield on investment securities is computed based upon the average
balance of investment securities at amortized cost and does not reflect
the unrealized gains or losses on such investments.
-17-
<PAGE> 19
As reflected above, average yield on earning assets amounted to 5.30%,
while the average cost of funds amounted to 7.01%. Net interest yield is
computed by subtracting interest expense from interest income and dividing the
resulting figure by average interest-earning assets. Net interest yield for the
year ended December 31, 1999 amounted to 3.62%. The high rate on other borrowed
funds reflected the one-time payment of fees in addition to interest.
To counter potential declines in the net interest margin and the
interest rate risk inherent in the balance sheet, the Bank will periodically
adjust the rates and terms of its interest-bearing liabilities in response to
general market rate changes and the competitive environment. Management monitors
Federal funds sold levels throughout the year, investing any funds not necessary
to maintain appropriate liquidity in higher yielding investments such as
short-term U.S. government and agency securities. The Bank will continue to
manage its balance sheet and its interest rate risk based on changing market
interest rate conditions.
Rate/Volume Analysis of Net Interest Income
A rate/volume analysis of net interest income cannot be provided as of
December 31, 1999 because at that date the Bank had been operating for less than
two years.
Non-Interest Income
Non-interest income consists of revenues generated from a broad range
of financial services, products and activities, including fee-based services,
service fees on deposit accounts and other activities. In addition, gains
realized from the sale of other real estate owned, and investments available for
sale are included in non-interest income.
Non-interest income for the year ended December 31, 1999 amounted to
$3,237 and represented 0.03% of average assets. Management expects non-interest
income as a percentage of average assets to increase significantly in 2000.
Non-Interest Expense
Non-interest expense for the year ended December 31, 1999 amounted to
$973,941. As a percent of total average assets, non-interest expense amounted to
8.26%. The components of non-interest expense for 1999 are set forth below.
<TABLE>
<CAPTION>
<S> <C>
Salaries and benefits............................... $505,363
Occupancy........................................... 144,928
Advertising and public relations.................... 25,659
Legal, professional and outside services............ 75,008
Other operating expenses............................ 222,983
--------
Total non-interest expense..................... $973,941
========
</TABLE>
-18-
<PAGE> 20
Provision for Loan Losses
During 1999, $49,500 was provided to the allowance for loan losses.
There were no charge-offs during 1999. As of December 31, 1999, management
considers the allowance for loan losses to be adequate to absorb expected future
losses. However, there can be no assurance that charge-offs in future periods
will not exceed the allowance for loan losses or that additional provisions to
the allowance will not be required.
FINANCIAL CONDITION
Loan Portfolio
The following table presents various categories of loans contained in
the Bank's loan portfolio at December 31, 1999:
<TABLE>
<CAPTION>
AS OF
TYPE OF LOAN DECEMBER 31, 1999
------------ -----------------
<S> <C>
Commercial .......................... $1,674,922
Consumer ............................ 1,185,879
Real Estate ......................... $ 477,077
----------
Subtotal ....................... 3,337,878
Less: Allowance for loan losses 49,500
----------
Total (net of allowance) $3,288,378
==========
</TABLE>
The following is a presentation of an analysis of contractual
maturities of loans at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
DUE IN 1 DUE AFTER 1 TO DUE AFTER
TYPE OF LOAN YEAR OR LESS 5 YEARS 5 YEARS TOTAL
- ------------ ------------ ------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Commercial $ 0 $ 878 $ 754 $1,632
Consumer .. 1,204 25 0 1,229
Real Estate 0 0 477 477
------ ------ ------ ------
Total ..... $1,204 $ 903 $1,231 $3,338
====== ====== ====== ======
</TABLE>
For the above loans, the following is a presentation of an analysis of
sensitivities to changes in interest rates at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
DUE IN 1 DUE AFTER 1 TO DUE AFTER
TYPE OF LOAN YEAR OR LESS 5 YEARS 5 YEARS TOTAL
- ------------ ------------ ------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Predetermined fixed interest rate $1,379 $ 154 $ 0 $1,533
Floating interest rate .......... 1,556 249 0 1,805
------ ------ ------ ------
Total ........................... $2,935 $ 403 $ 0 $3,338
====== ====== ====== ======
</TABLE>
-19-
<PAGE> 21
As of December 31, 1999, all loans were accruing interest, no accruing
loans were contractually past due 90 days or more as to principal and interest
payments and no loans were defined as "troubled debt restructurings."
As of December 31, 1999, no loans were classified for regulatory
purposes as doubtful, substandard or special mention which (i) represent or
result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity, or capital resources, or
(ii) represent material credits about which management is aware of any
information which causes management to have serious doubts as to the ability of
such borrowers to comply with the loan repayment terms. As of December 31, 1999,
there were no loans with respect to which known information about possible
credit problems of borrowers causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
Accrual of interest is discontinued on a loan when management
determines upon consideration of economic and business factors affecting
collection efforts that collection of interest is doubtful. Interest accrual was
not discontinued on any loans during 1999.
Summary of Loan Loss Experience
An analysis of the Bank's loan loss experience for fiscal 1999 is
furnished in the following table, as well as a breakdown of the allowance for
possible loan losses:
ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Balance at beginning of period................................. $ 0
Charge-offs.................................................... 0
Recoveries..................................................... 0
Additions charged to operations................................ 49,500
-------
Balance at end of period....................................... $49,500
=======
Ratio of net charge-offs during the period to
average loans outstanding during the period................ 0%
=======
</TABLE>
At December 31, 1999 the allowance was allocated as follows:
<TABLE>
<CAPTION>
PERCENT OF LOANS
IN EACH CATEGORY
AMOUNT TO TOTAL LOANS
------ --------------
<S> <C> <C>
Commercial.................................................... $10,770 48.9%
Consumer...................................................... 4,950 36.8%
Real estate................................................... 1,430 14.3%
Unallocated................................................... 32,350
Total................................................ $49,500 100.0%
======= =====
</TABLE>
-20-
<PAGE> 22
Loan Loss Reserve
In considering the adequacy of the Bank's allowance for possible loan
losses, management has focused on the fact that as of December 31, 1999, 48.9%
of outstanding loans are in the category of commercial loans. Commercial loans
are generally considered by management as having greater risk than other
categories of loans in the Bank's loan portfolio. However, all of the commercial
loans outstanding at December 31, 1999 were made on a secured basis. Management
believes that the secured condition of its commercial loan portfolio reduces the
risk of loss inherently present in commercial loans.
The Bank's consumer loan portfolio constitutes 36.8% of outstanding
loans at December 31, 1999. At December 31, 1999 the majority of the Bank's
consumer loans were secured by collateral primarily consisting of automobiles,
boats and marketable securities. Management believes that these loans involve
less risk than commercial loans.
Real estate mortgage loans constituted 14.3% of outstanding loans at
December 31, 1999. These loans are considered by management to be well secured
with a low risk of loss.
A review of the loan portfolio by an independent firm is conducted
annually. The purpose of this review is to assess the risk in the loan portfolio
and to determine the adequacy of the allowance for loan losses. The review
includes analyses of historical performance, the level of non-conforming and
rated loans, loan volume and activity, review of loan files and consideration of
economic conditions and other pertinent information. Upon completion, the report
is approved by the Board and management of the Bank. In addition to the above
review, the Bank's primary regulator, the OCC, also conducts an examination of
the loan portfolio. Upon completion, the OCC presents its report of findings to
the Board and management of the Bank. Information provided from the above two
independent sources, together with information provided by the management of the
Bank and other information known to members of the Board, are utilized by the
Board to monitor, on a quarterly basis, the loan portfolio. Specifically, the
Board attempts to identify risks inherent in the loan portfolio (e.g., problem
loans, potential problem loans and loans to be charged off), assess the overall
quality and collectibility of the loan portfolio, and determine amounts of the
allowance for loan losses and the provision for loan losses to be reported based
on the results of their review.
Deposits
The following table presents, for the year ended December 31, 1999, the
average amount of and average rate paid on each of the following deposit
categories (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
DEPOSIT CATEGORY AVERAGE AMOUNT AVERAGE RATE PAID
- ---------------- -------------- -----------------
(in thousands)
<S> <C> <C>
Non-interest bearing demand deposits............... $139 --
NOW and money market deposits....................... 155 4.52%
Savings deposits.................................... 8 3.51%
Time deposits....................................... $2,397 6.93%
</TABLE>
-21-
<PAGE> 23
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities at December 31, 1999:
<TABLE>
<CAPTION>
MATURITIES OF
TIME CERTIFICATES OF DEPOSIT
AT DECEMBER 31, 1999
AMOUNT AVERAGE RATE
------ ------------
(in thousands)
<S> <C> <C>
3 months or less................. $ 100 6.99%
3-6 months....................... 1,525 6.99%
6-12 months...................... 9,225 6.99%
over 12 months................... 0 --
------- ----
Total....................... $10,850 6.99%
======= ====
</TABLE>
Investment Portfolio
As of December 31, 1999, investment securities comprised approximately
71% of the Bank's assets, federal funds sold comprised approximately 15% of the
Bank's assets, and net loans comprised approximately 8% of the Bank's assets.
The Bank invests primarily in obligations guaranteed as to principal and
interest by the Federal National Mortgage Association or the Federal Home Loan
Mortgage Corporation and obligations of agencies of the United States. In
addition, the Bank enters into Federal Funds transactions with its principal
correspondent banks, and acts as a net seller of such funds. The sale of Federal
Funds amounts to a short-term loan from the Bank to another bank.
The following table presents the book value of the Bank's investments
at December 31, 1999. All securities held at December 31, 1999 were categorized
as available for sale.
<TABLE>
<CAPTION>
AT
DECEMBER 31, 1999
-----------------
(in thousands)
<S> <C>
Investments available for sale:
Mortgage backed securities of U.S. agencies.... $ 14,993
Obligations of U.S. agencies................... 14,099
Commercial paper............................... 986
Federal Reserve Bank stock..................... 270
--------
Total....................................... $ 30,348
========
</TABLE>
-22-
<PAGE> 24
The following table indicates, as of December 31, 1999, the amount of
investments due by weighted average life in (i) one year or less, (ii) one to
five years, (iii) five to ten years, and (iv) over ten years (in thousands):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AMOUNT YIELD(1)
------ --------
(in thousands)
<S> <C> <C>
Investments available for sale:
0 - 1 year....................................... $ 6,252 6.13%
Over 1 through 5 years........................... 22,836 6.44%
Over 5 through 10 years.......................... 990 6.89%
Over 10 years.................................... -- --
Federal Reserve Bank Stock, no maturity.......... 270 --
-------- ----
Total................................. $ 30,348 6.39%
======== ====
</TABLE>
---------------
(1) The Bank has not invested in any tax-exempt obligations.
Interest Rate Sensitivity
Net interest income, the Bank's primary source of earnings, fluctuates
with significant interest rate movements. To lessen the impact of these margin
swings, the balance sheet should be structured so that repricing opportunities
exist for both assets and liabilities in roughly equivalent amounts at
approximately the same time intervals. Imbalances in these repricing
opportunities at any point in time constitute interest rate sensitivity.
Interest rate sensitivity refers to the responsiveness of
interest-bearing assets and liabilities to changes in market interest rates. The
rate sensitive position, or gap, is the difference in the volume of rate
sensitive assets and liabilities, at a given time interval. The general
objective of gap management is to actively manage rate sensitive assets and
liabilities so as to reduce the impact of interest rate fluctuations on the net
interest margin. Management generally attempts to maintain a balance between
rate sensitive assets and liabilities as the exposure period is lengthened to
minimize The Bank overall interest rate risks.
-23-
<PAGE> 25
The asset mix of the Bank's balance sheet is continually evaluated in
terms of several variables: yield, credit quality, appropriate funding sources
and liquidity. To effectively manage the liability mix of the balance sheet,
there should be a focus on expanding the various funding sources. The interest
rate sensitivity position at year-end 1999 is presented in the following table.
The difference between rate sensitive assets and rate sensitive liabilities, or
the interest rate sensitivity gap, is shown at the bottom of the table. Since
all interest rates and yields do not adjust at the same velocity, the gap is
only a general indicator of rate sensitivity.
<TABLE>
<CAPTION>
AFTER
THREE AFTER SIX AFTER ONE
WITHIN MONTHS MONTHS YEAR BUT
THREE BUT WITHIN BUT WITHIN WITHIN FIVE AFTER FIVE
MONTHS SIX MONTHS ONE YEAR YEARS YEARS TOTAL
------ ---------- -------- ----- ----- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans .................................. $2,001 $ 312 $ 622 $ 403 $ -- $ 3,338
FHLMC and FNMA guaranteed
securities and Federal Reserve Bank
stock ............................... 1,088 659 6,251 18,689 2,661 29,348
Commercial paper and
U.S. Government agency securities ... 500 500 -- -- -- 1,000
Federal funds sold ..................... 6,093 -- -- -- -- 6,093
------ ------- -------- ------- ------ -------
Total earning assets .............. $9,682 $ 1,471 $ 6,873 $19,092 $2,661 $39,779
====== ======= ======== ======= ====== =======
SUPPORTING SOURCES OF FUNDS
Interest-bearing demand deposits and
savings ............................. $1,020 $ 66 $ 128 $ 812 $-- $ 2,026
Repurchase agreements .................. 1,114 -- -- -- -- 1,114
Certificates, less than $100 M ......... -- 6,153 12,306 145 -- 18,604
Certificates, $100M and over ........... 100 1,525 9,225 -- -- 10,850
------ ------- -------- ------- ------ -------
Total interest-bearing liabilities $2,234 $ 7,744 $ 21,659 $ 957 $ 0 $32,594
====== ======= ======== ======= ====== =======
Interest-sensitivity gap ............... $7,448 $(6,273) $(14,786) $18,135 $2,661
Cumulative interest-sensitivity gap .... $7,448 $(1,175) $(13,611) $ 4,525 $7,186
Ratio of cumulative gap to
total earning assets ................ 18.7% 3.0% (34.2)% 11.4% 18.1%
Ratio of interest-sensitive assets to .. 433.4% 19.0% 31.7% 1995.0% *
interest-sensitive liabilities
</TABLE>
- ------------------------------------
* Not meaningful.
As evidenced by the table above, the Bank is cumulatively liability
sensitive within one year. In a declining interest rate environment, a liability
sensitive position is generally more advantageous since liabilities are repriced
sooner than assets. Conversely, in a rising interest rate environment, an asset
sensitive position is generally more advantageous as earning assets are repriced
sooner than the liabilities. With respect to the Bank, an increase in interest
rates over the next year would result in lower earnings while a decline in
interest rates will increase income. This, however, assumes that all other
factors affecting income remain constant.
-24-
<PAGE> 26
As the Bank continues to grow, management will continuously structure
its rate sensitivity position to reduce the risk of rapidly rising or falling
interest rates. The Bank's Asset/Liability Committee meets on a quarterly basis
and develops management's strategy for the upcoming period. Such strategy
includes anticipations of future interest rate movements.
Liquidity
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to maintain sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. The Bank's liquidity position was initially established with the
net proceeds of the sale of $10.8 million of the common stock of the Company in
its initial public offering. As the Bank grows, liquidity needs can be met
either by converting assets to cash or by attracting new deposits. Bank deposits
grew to $32.1 million at December 31, 1999. Below are the pertinent liquidity
balances and ratios at December 31, 1999.
<TABLE>
<CAPTION>
AT
DECEMBER 31, 1999
-----------------
(in thousands)
<S> <C>
Cash and cash equivalents................................... $ 7,166
Securities available for sale............................... $29,874
CDs over $100,000 to total deposits ratio................... 33.7%
Loan to deposit ratio....................................... 10.4%
</TABLE>
Cash and cash equivalents are the primary source of liquidity. At
December 31, 1999, cash and cash equivalents amounted to $7.2 million,
representing 17.0% of total assets. Securities available for sale provide a
secondary source of liquidity. Approximately $5.9 million of the $29.9 million
in the Bank's securities portfolio is scheduled to mature in 2000.
At December 31, 1999, large denomination certificates accounted for
33.7% of total deposits. Large denomination CDs are generally more volatile than
other deposits. As a result, management continually monitors the competitiveness
of the rates it pays on its large denomination CDs and periodically adjusts its
rates in accordance with market demands. Significant withdrawals of large
denomination CDs may have a material adverse effect on the Bank's liquidity.
Management believes that since a majority of the above certificates were
obtained from Bank customers residing in Collier County, Florida, the volatility
of such deposits is lower than if such deposits were obtained from depositors
residing outside of Collier County, as outside depositors are generally more
likely to be interest rate sensitive.
Brokered deposits are deposit instruments, such as certificates of
deposit, deposit notes, bank investment contracts and certain municipal
investment contracts that are issued through brokers and dealers who then offer
and/or sell these deposit instruments to one or more investors. As of December
31, 1999, the Company had no brokered deposits in its portfolio.
Management knows of no trends, demands, commitments, events or
uncertainties that should result in or are reasonably likely to result in the
Company's liquidity increasing or decreasing in any material way in the
foreseeable future.
-25-
<PAGE> 27
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated
equity for the year ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Return (loss) on average assets........................................ (5.30)%
Return (loss) on average equity........................................ (7.00)%
Average equity to average assets ratio................................. 75.7%
Dividend payout ratio.................................................. 0.0%
</TABLE>
CAPITAL ADEQUACY
There are now two primary measures of capital adequacy for banks and
bank holding companies: (i) risk-based capital guidelines and (ii) the leverage
ratio.
The risk-based capital guidelines measure the amount of a bank's
required capital in relation to the degree of risk perceived in its assets and
its off-balance sheet items. Note that under the risk-based capital guidelines,
capital is divided into two "tiers." Tier 1 capital consists of common
shareholders' equity, non-cumulative and cumulative (bank holding companies
only) perpetual preferred stock and minority interest. Goodwill is subtracted
from the total. Tier 2 capital consists of the allowance for loan losses, hybrid
capital instruments, term subordinated debt and intermediate term preferred
stock. Banks are required to maintain a minimum risk-based capital ratio of
8.0%, with at least 4.0% consisting of Tier 1 capital.
The second measure of capital adequacy relates to the leverage ratio.
The OCC has established a 3.0% minimum leverage ratio requirement. Note that the
leverage ratio is computed by dividing Tier 1 capital into total assets. For
banks that are not rated CAMELS 1 by their primary regulator, (which includes
the subsidiary Bank), the minimum leverage ratio should be 3.0% plus an
additional cushion of at least 1 to 2 percent, depending upon risk profiles and
other factors.
A new rule was recently adopted by the Federal Reserve Board, the OCC
and the FDIC that adds a measure of interest rate risk to the determination of
supervisory capital adequacy. In connection with this new rule, the agencies
have also proposed a measurement process to measure interest rate risk. Under
this proposal, all items reported on the balance sheet, as well as off-balance
sheet items, would be reported according to maturity, repricing dates and cash
flow characteristics. A bank's reporting position would be multiplied by
duration-based risk factors and weighted according to rate sensitivity. The net
risk weighted position would be used in assessing capital adequacy. The
objective of this complex proposal is to determine the sensitivity of a bank to
various rising and declining interest rate scenarios.
-26-
<PAGE> 28
The table below illustrates the Bank's and the Company's regulatory
capital ratios at December 31, 1999:
<TABLE>
<CAPTION>
MINIMUM
DECEMBER 31, REGULATORY
THE BANK 1999 REQUIREMENT
- -------- ---- -----------
<S> <C> <C>
Tier 1 Capital........................................ 63.0% 4.0%
Total risk-based capital ratio......................... 63.4% 8.0%
Leverage ratio......................................... 43.2% 4.0%
THE COMPANY - CONSOLIDATED
Tier 1 Capital......................................... 71.2% 4.0%
Total risk-based capital ratio......................... 71.6% 8.0%
Leverage ratio......................................... 48.4% 4.0%
</TABLE>
The above ratios indicate that the capital positions of the Company
and the Bank are sound and that the Company is well positioned for future
growth.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are filed with this report:
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations - years ended December 31, 1999
and 1998 and period from January 23, 1997 (inception) to
December 31, 1997
Consolidated Statements of Stockholders' Equity -
years ended December 31, 1999 and 1998 and period from January
23, 1997 (inception) to December 31, 1997
Consolidated Statements of Cash Flows - years ended December 31, 1999
and 1998 and period from January 23, 1997 (inception) to
December 31, 1997
-27-
<PAGE> 29
[HILL, BARTH & KING LOGO]
Trianon Centre
3777 Tamiami Trail, North
Suite 200
Naples, Florida 34103
(941) 263-2111 PHONE
(941) 263-0496 FAX
www.hbk.cpa.com
Board of Directors
Marine Bancshares, Inc.
Naples, Florida
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets
of Marine Bancshares, Inc. and its subsidiary Marine National Bank
(collectively, the Company) as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the two years in the period ended
December 31, 1999 and the period from January 23, 1997 (date of
inception) to December 31, 1997. 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 consolidated
financial position of Marine Bancshares, Inc. and subsidiary as of
December 31, 1999 and 1998 and the consolidated results of their
operations and their consolidated cash flows for each of the two years
in the period ended December 31, 1999 and the period from January 23,
1997 (date of inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Hill Barth & King LLC
Certified Public Accountants
January 19, 2000
Naples, Florida
-28-
<PAGE> 30
CONSOLIDATED BALANCE SHEETS
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,013,048 $ 9,104
Federal funds sold and securities purchased
under agreements to resell 6,153,000 0
------------ -----------
TOTAL CASH AND CASH EQUIVALENTS 7,166,048 9,104
------------ -----------
Securities available for sale - NOTE B 29,873,893 0
Loans - NOTE C 3,337,878 0
Less:
Allowance for loan losses - NOTE C (49,500) 0
------------ -----------
NET LOANS 3,288,378 0
------------ -----------
Restricted securities, Federal Reserve Bank
stock, at cost 270,000 0
Premises and equipment - NOTE D 1,038,716 15,234
Accrued interest receivable 270,900 0
Deferred offering costs 0 199,718
Architect fees 0 12,776
Other assets 301,386 43,415
------------ -----------
$ 42,209,321 $ 280,247
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Deposits - NOTE E $ 32,190,169 $ 0
Securities sold under agreements to
repurchase - NOTE F 390,223 0
Loans payable - NOTE G 0 845,000
Advances from organizers - NOTE H 0 50,000
Accrued interest payable 143,928 83,979
Accrued expenses and other liabilities 265,298 164,818
------------ -----------
TOTAL LIABILITIES 32,989,618 1,143,797
------------ -----------
Commitments and contingencies - NOTE J Stockholders' Equity (Deficit) - NOTE M:
Preferred stock, par value $.01, 2,000,000
shares authorized; no shares issued
and outstanding 0 0
Common stock, par value
$.01 per share,
10,000,000 shares authorized; 1,150,000 and
100 shares issued and outstanding in 1999
and 1998, respectively 11,500 1
Additional paid-in capital, 10,831,123 99
Accumulated deficit (1,488,153) (863,650)
Accumulated other comprehensive loss (134,767) 0
------------ -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 9,219,703 (863,550)
------------ -----------
$ 42,209,321 $ 280,247
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
-29-
<PAGE> 31
CONSOLIDATED STATEMENTS OF OPERATIONS
MARINE BANCSHARES, INC. AND SUBSIDIARY
Years ended December 31, 1999 and 1998 and the period
from January 23, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 36,253 $ 0 $ 0
Interest on securities and other 445,223 3,525 9,798
Interest on federal funds sold 98,187 0 0
----------- ----------- -----------
TOTAL INTEREST INCOME 579,663 3,525 9,798
----------- ----------- -----------
INTEREST EXPENSE
Interest and fees on other
borrowings 10,129 100,005 186,115
Interest on deposits 173,833 0 0
----------- ----------- -----------
TOTAL INTEREST EXPENSE 183,962 100,005 186,115
----------- ----------- -----------
NET INTEREST INCOME (LOSS) 395,701 (96,480) (176,317)
Provision for loan losses (49,500) 0 0
----------- ----------- -----------
NET INTEREST INCOME (LOSS) AFTER
PROVISION FOR LOAN LOSSES 346,201 (96,480) (176,317)
NON-INTEREST INCOME
Service charges, commissions and fees 3,237 0 0
----------- ----------- -----------
349,438 (96,480) (176,317)
----------- ----------- -----------
NON-INTEREST EXPENSES
Salaries and employee benefits - NOTE L 505,363 103,648 107,369
Occupancy expenses 112,929 3,542 36,896
Equipment rental, depreciation and
maintenance 31,999 3,927 2,505
General operating - NOTES K AND P 323,650 107,970 224,996
----------- ----------- -----------
TOTAL OTHER EXPENSES 973,941 219,087 371,766
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (624,503) (315,567) (548,083)
INCOME TAXES - NOTE I 0 0 0
----------- ----------- -----------
NET LOSS $ (624,503) $ (315,567) $ (548,083)
=========== =========== ===========
LOSS PER SHARE $ (0.61) $ 0 $ 0
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 1,023,984 0 0
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
-30-
<PAGE> 32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
MARINE BANCSHARES, INC. AND SUBSIDIARY
Years ended December 31, 1999 and 1998 and the period from
January 23, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN ACCUMULATED COMPREHENSIVE
STOCK CAPITAL DEFICIT LOSS TOTAL
--------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance (date of inception)
January 23, 1997 $ 0 $ 0 $ 0 $ 0 $ 0
Common stock issued,
pursuant to company
organization 1 999 0 0 1,000
Comprehensive income:
Net loss for 1997 0 0 (548,083) 0 (548,083)
Unrealized gain on
available for sale
investment securities 0 0 0 0 0
------------
Total comprehensive income (548,083)
--------- ------------ ----------- --------- ------------
Balance (deficit)
December 31, 1997 1 999 (548,083) 0 (547,083)
Payment for the
retirement of common
stock (1) (999) 0 0 (1,000)
Proceeds from issuance
of common stock 1 99 0 0 100
Comprehensive income:
Net loss for 1998 0 0 (315,567) 0 (315,567)
Unrealized loss on
available for sale
investment securities 0 0 0 0 0
------------
Total comprehensive income (315,567)
--------- ------------ ----------- --------- ------------
Balance (deficit)
December 31, 1998 1 99 (863,650) 0 (863,550)
Common stock issued,
net of offering
cost of $657,377 11,500 10,831,123 0 0 10,842,623
Common stock retired
with offering proceeds
(organizational shares) (1) (99) 0 0 (100)
Comprehensive income:
Net loss for 1999 0 0 (624,503) 0 (624,503)
Unrealized loss on
available for sale
investment securities 0 0 0 (134,767) (134,767)
------------
Total comprehensive income (759,270)
--------- ------------ ----------- --------- ------------
Balance (deficit)
December 31, 1999 $ 11,500 $ 10,831,123 $(1,488,153) $(134,767) $ 9,219,703
========= ============ =========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements
-31-
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
MARINE BANCSHARES, INC. AND SUBSIDIARY
Years ended December 31, 1999 and 1998 and the period from
January 23, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (624,503) $ (315,567) $ (548,083)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 35,276 3,927 2,144
Provision for loan losses 49,500 0 0
Net accretion on securities available
for sale (25,058) 0 0
Increase in accrued interest
receivable (270,900) 0 0
(Increase) decrease in other assets 23,949 (120,959) (134,948)
Increase in accrued interest
payable 59,949 51,804 32,175
Increase in accrued expenses
and other liabilities 100,480 98,599 66,217
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (651,307) (282,196) (582,495)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (3,337,878) 0 0
Purchases of securities available
for sale (30,323,028) 0 0
Purchases of premises and equipment (1,058,758) 0 (21,305)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (34,719,664) 0 (21,305)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 32,190,169 0 0
Proceeds from (repayment of)
organizer advances (50,000) 50,000 0
Net increase in securities sold under
agreement to repurchase 390,223 0 0
Net proceeds from issuance of
common stock 10,842,623 100 1,000
Payments on retirement of common stock (100) (1,000) 0
Proceeds from loans 0 320,000 750,000
Payments on loans (845,000) (225,000) 0
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 42,527,915 144,100 751,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,156,944 (138,096) 147,200
CASH AND CASH EQUIVALENTS
Beginning of period 9,104 147,200 0
------------ ------------ ------------
End of period $ 7,166,048 $ 9,104 $ 147,200
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
-32-
<PAGE> 34
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
Years ended December 31, 1999 and 1998 and the period from
January 23, 1997 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 124,013 $ 48,201 $ 153,940
============ ============ ============
Noncash Transactions:
Unrealized decrease in fair value
on securities available for sale $ 204,193 $ 0 $ 0
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
-33-
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation:
Marine Bancshares, Inc. formerly known as Coastal Bank Corporation (the
Company) was incorporated under the laws of the state of Florida on January 23,
1997. The Company's activities prior to October 12, 1999 were limited to the
organization of Marine National Bank, (the Bank), as well as preparation for an
$11,500,000 common stock offering (the Offering). On October 12, 1999, the
Company and the Bank emerged from the development stage and began operations.
The consolidated financial statements of the Company include the
accounts of the Company and its wholly-owned subsidiary, Marine National Bank.
All significant intercompany balances and transactions have been eliminated.
Nature of Operations:
The Bank operates under a national bank charter and provides full
banking services primarily within the Naples, Florida area. As a national bank,
it is subject to regulation of the Office of the Comptroller of the Currency and
the Federal Deposit Insurance Corporation.
Use of Estimates:
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash, demand balances due from banks, reverse repurchase agreements and
federal funds sold which mature within ninety days are considered cash and cash
equivalents for cash flow reporting purposes. Generally, reverse repurchase
agreements and federal funds are sold for one-day periods.
Investment Securities:
Debt securities for which the Bank has the positive intent and ability
to hold to maturity are classified as held to maturity and reported at amortized
cost. Securities are classified as trading securities if bought and held
principally for the purpose of selling them in the near future. No investments
are held for trading purposes or classified as held to maturity. Securities not
classified as trading or held to maturity are classified as available for sale,
and reported at fair value with unrealized gains and losses excluded from
earnings and reported net of tax as a separate component of stockholders' equity
until realized. Other investments, which include Federal Reserve Bank stock and
Federal Home Loan Bank stock, are carried at cost as such investments do not
have readily determinable fair values.
-34-
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Securities (Continued):
Realized gains and losses on sales of investment securities are
determined by specific identification of the security sold. Declines in value of
investment securities judged to be other than temporary are recognized as losses
in the statement of operations.
Loans:
Loans are stated at the principal amount outstanding, net of unearned
income and an allowance for loan losses. Interest income on all loans is accrued
based on the outstanding daily balances.
Management has established a policy to discontinue accruing interest
(non-accrual status) on a loan after it has become 90 days delinquent as to
payment of principal or interest unless the loan is considered to be well
collateralized and the Bank is actively in the process of collection. In
addition, a loan will be placed on non-accrual status before it becomes 90 days
delinquent if management believes that the borrower's financial condition is
such that collection of interest or principal is doubtful. Interest previously
accrued but uncollected on such loans is reversed and charged against current
income when the receivable is estimated to be uncollectible. Interest income on
non-accrual loans is recognized only as received.
Nonrefundable fees and certain direct costs associated with originating
or acquiring loans are recognized over the life of related loans on a method
that approximates the interest method. For the year ended December 31, 1999, the
net amount of fees and direct costs were not deferred to be recognized over the
life of the loan but were expensed in the consolidated statements of operations.
The net amount of direct loan fees and costs expensed is not materially
different from the amounts which normally would have been deferred. The Bank
intends to begin deferring net fees and costs during 2000.
Allowance for Loan Losses:
The determination of the balance in the allowance for loan losses is
based on an analysis of the loan portfolio and reflects an amount which, in
management's judgment, is adequate to provide for probable loan losses after
giving consideration to the growth and composition of the loan portfolio,
current economic conditions and evaluation of potential losses in the current
loan portfolio and such other factors that warrant current recognition in
estimating loan losses.
Loans which are considered to be uncollectible are charged-off against
the allowance. Recoveries on loans previously charged-off are added to the
allowance.
-35-
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for Loan Losses (Continued):
Impaired loans are loans for which it is probable that the Bank will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Impairment losses are included in the allowance for loan losses
through a charge to the provision for loan losses. Impairment losses are
measured by the present value of expected future cash flows discounted at the
loan's effective interest rate, or, as a practical expedient, at either the
loan's observable market price or the fair value of the collateral. Interest
income on impaired loans is recognized only as received.
Premises and Equipment:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the depreciable assets. Leasehold improvements are amortized over the
lives of the respective leases, including renewal option, which management
believes will be exercised or the service lives of the improvements, whichever
is less.
Income Taxes:
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the amount
of taxable income and pretax financial income and between the tax basis of
assets and liabilities and their reported amounts in the consolidated financial
statements. Deferred tax assets and liabilities are included in the consolidated
financial statements at currently enacted income tax rates applicable to the
period in which the deferred tax assets and liabilities are expected to be
realized or settled.
The Company and the Bank file a consolidated tax return.
New Accounting Pronouncements:
In June 1998, the Financing Accounting Standards Board (FASB) issued
Statement No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting standards for
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. In June 1999, the FASB issued SFAS 137 which deferred the
effective date of SFAS 133 to years beginning after June 15, 2000. Management
does not believe the adoption of this statement will have a material impact on
financial condition and results of operations.
Reclassifications:
The financial statements for the years ended December 31, 1998 and 1997
have been reclassified to conform with the presentation for 1999. Such
reclassifications had no effect on net results of operations.
-36-
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE B - SECURITIES
The amortized cost, unrealized gains and losses and estimated fair value
of available for sale investment securities shown in the balance sheets of the
Company at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED ---------------------------- FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed securities
of U.S. Government Agencies $14,993,169 $ 0 $ 113,422 $14,879,747
U.S. Treasury securities and
other U.S. agency obligations 14,098,801 0 104,655 13,994,146
Commercial Paper 986,116 13,884 0 1,000,000
----------- ----------- ----------- -----------
Totals $30,078,086 $ 13,884 $ 218,077 $29,873,893
=========== =========== =========== ===========
</TABLE>
Expected maturities of investment securities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Periodic payments are
received of mortgage-backed securities based on the payment patterns of the
underlying collateral. Maturities of mortgage-based securities are included
below based on their expected average life of similar investments as determined
by the Bank's portfolio and analysis servicer. As of December 31, 1999, the
amortized cost and estimated fair value of investment securities available for
sale, by contractual maturities, are as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due within one year $ 5,863,689 $ 5,867,000
Due after one through
five years 24,214,397 24,006,893
----------- -----------
Totals $30,078,086 $29,873,893
=========== ===========
</TABLE>
Investment securities with an amortized cost and estimated fair value
of $990,393 and $972,400, respectively, at December 31, 1999, were pledged to
secure repurchase agreements.
-37-
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE C - LOANS
The composition of loans at December 31, 1999 is as follows:
<TABLE>
<S> <C>
Commercial $1,674,922
Real estate 477,077
Lines of credit 9,208
Consumer 1,176,671
----------
Total $3,337,878
==========
</TABLE>
The majority of the Company's lending activities are conducted
principally with customers located in the Naples, Florida area. Commercial loans
are primarily extended to small and mid-sized corporate borrowers in service and
manufacturing related industries. Although the Bank's loan portfolio is
diversified, major portions of the portfolio are collateralized by publicly
traded securities and real estate. Therefore, the Bank could be susceptible to
economic downturns and natural disasters.
The Bank had no loans on nonaccrual as of December 31, 1999.
The activity in the allowance for loan losses for the year ended
December 31, 1999 is as follows:
<TABLE>
<S> <C>
Balance at beginning
of year $ 0
Provision charged to
operations 49,500
Charge-offs 0
Recoveries 0
----------
Balance at end of year $ 49,500
==========
</TABLE>
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment at December 31, consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Leasehold improvements $ 465,321 $ 0
Furniture, fixtures and equipment 586,469 7,155
EDP equipment and software 28,273 14,150
---------- ----------
1,080,063 21,305
Less accumulated depreciation 41,347 6,071
---------- ----------
Totals $1,038,716 $ 15,234
========== ==========
</TABLE>
Depreciation expense was $35,276, $3,927 and $2,144 for the years ended
December 31, 1999 and 1998 and the period from January 23, 1997 (date of
inception) to December 31, 1997, respectively.
-38-
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE E - DEPOSITS
Deposits at December 31, 1999 are comprised of the following:
<TABLE>
<S> <C>
Interest-bearing:
Money market $ 954,022
Demand 1,040,201
Savings 38,066
Certificates of deposit:
Less than $100,000 18,603,494
$100,000 or more 10,849,943
-----------
31,485,726
Demand (non-interest-bearing) 704,443
-----------
Total $32,190,169
===========
</TABLE>
The maturities on certificates of deposit of $100,000 or more as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
Three months or less $ 100,000
Over three months to six months 1,525,000
Over six months to twelve months 9,224,943
-----------
Total $10,849,943
===========
</TABLE>
The maturities on certificates of deposits as of December 31, 1999 are
as follows:
<TABLE>
<S> <C>
2000 $29,308,437
2001 145,000
-----------
Total $29,453,437
===========
</TABLE>
Included in interest expense is $36,620 which relates to interest on
certificates of deposit of $100,000 or more.
NOTE F - SECURITIES SOLD UNDER AGREEMENT TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE AND OTHER BORROWINGS
Securities purchased under agreements to resell and securities sold
under agreements to repurchase are generally treated as collateralized financing
transactions and are recorded at the amount of cash paid or received in
connection with the transaction. The bank enters into these agreements to resell
or repurchase substantially the identical securities as were sold or purchased
in the original transaction.
-39-
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE F - SECURITIES SOLD UNDER AGREEMENT TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE AND OTHER BORROWINGS (CONTINUED)
Securities purchased under agreements to resell at December 31, 1999
consist of U.S. Treasury securities. The amounts advanced under these agreements
are reflected as assets in the consolidated balance sheet. The Bank does not
take possession of securities purchased under agreements to resell but is
pledged specific securities as collateral as part of the agreement. Agreements
with third parties specify the Bank's rights to request additional collateral,
based on its monitoring of the fair value of the underlying securities on a
daily basis. The securities are maintained at a third-party custodian's account
under a written custodial agreement that explicitly recognizes the Bank's
interest in the securities.
Securities sold under agreements to repurchase are classified as
secured borrowings in the consolidated balance sheet. The Bank monitors its
exposure with respect to securities borrowed transactions and requests the
return of excess collateral as required. The bank retains possession of the
securities but pledges specific securities against the borrowings as collateral.
Those securities are recognized by a third-party as being held in the interest
of the Bank's customer. Additionally, the Bank may be required to provide
additional collateral based on the fair value of the underlying securities.
Securities sold under agreement to repurchase averaged $549,079 during 1999 and
the weighted average interest was 4.39% during 1999. The maximum amount
outstanding at any month end under such agreement during 1999 was $649,366.
These agreements immediately terminate upon written notice by either party.
NOTE G - LOANS PAYABLE
In order to obtain funding for its start-up and organizational
expenses, during 1997, the Company issued to twenty-nine individuals a series of
promissory notes in an aggregate principal amount of $900,000. The proceeds of
certain of these loans were used to repay prior loans in an aggregate principal
amount of $375,000. In addition, the Company obtained restated note agreements
from all of the individual lenders. Under the restated note agreements, the
remaining balance matured on January 31, 1999.
The company also had two lines of credit for $100,000 and $300,000 with
a bank, guaranteed by the organizers of the company. At December 31, 1998, the
company had borrowed $95,000 and $225,000, respectively, on demand notes under
these agreements. The notes matured on July 15, 1999.
NOTE H - ADVANCES FROM ORGANIZERS
The Company arranged a series of advances from certain individual
organizers in the aggregate amount of $50,000 to pay organizational and
pre-opening expenses for the Bank and the Company. As of December 31, 1999 all
advances were satisfied.
-40-
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE I - INCOME TAXES
At December 31, 1999 and 1998, the Bank assessed its earnings history
and trend over the past year, its estimate of future earnings, and the
expiration date of the net operating loss carryforward and determined that it is
more likely than not that the deferred tax assets will not be realized in the
near term. Accordingly, a valuation allowance is recorded at December 31, 1999
and at December 31, 1998.
At December 31, 1999 and 1998, the Company had no deferred tax
liabilities. The components of deferred tax assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 25,066 $ 2,265
Allowance for loan losses 16,830 0
Organizational and startup costs 369,070 201,626
Depreciation on premises and equipment 2,819 0
Unrealized loss in investment securities 69,426 0
Other deductions for income taxes 14,525 7,534
-------- --------
497,736 211,425
-------- --------
Valuation allowance 428,310 211,425
-------- --------
Deferred tax assets, net $ 69,426 $ 0
======== ========
</TABLE>
At December 31, 1999, the Company had tax net operating loss
carryforwards of approximately $77,000 expiring on various dates through 2019.
NOTE J - COMMITMENTS AND CONTINGENCIES
In 1999, the Company entered into an operating lease for its facility
calling for monthly payments of $13,250 plus applicable sales tax from an
unrelated corporation. Rent expense for this lease totaled approximately $85,000
for 1999.
Future minimum rental commitments as of December 31, 1999 are as
follows:
<TABLE>
<S> <C>
2000 $ 184,440
2001 203,345
2002 209,445
2003 215,729
2004 222,201
Thereafter 1,197,127
==========
</TABLE>
-41-
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE J - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company lease agreement allowed for a build out allowance of $20.00
per square foot of leased space. The Company is currently estimating that the
allowance will be available at $140,000 which is reflected in other assets on
the accompanying consolidated balance sheets at December 31, 1999.
The Company has commenced negotiations to purchase the facility
currently under lease.
NOTE K - RETIREMENT PLAN
The Company maintains a 401(k) Retirement Plan (the Plan) to which
eligible employees may contribute from 1% to 20% of their pay. The Company
contributes to the Plan 50% of an eligible employee's deferral on the first 4%
that the eligible employee defers, and may make discretionary contributions in
excess of that amount based on the Company's profitability and approval of the
board of directors. Employees who have completed at least one year of service
and have attained age 18 are generally eligible to participate. Employee
contributions are 100% vested as amounts are credited to the employee's account.
Company contributions become 25% vested when an employee has completed 1 year of
service, and vest at a rate of 25% per year thereafter, fully vesting when an
employee has completed 4 years of service. The company made contributions to the
plan of $3,284 in 1999.
NOTE L - RELATED PARTY TRANSACTIONS
The Bank has granted loans to executive officers and directors of the
Bank and the Company and to associates of such executive officers and directors.
Such loans were made in the ordinary course of business under normal credit
terms and do not represent more than the normal risk of collection. The activity
for these loans for 1999 is as follows:
<TABLE>
<S> <C>
Loan balances at December 31, 1998 $ 0
New loans 256,300
Repayments 292
----------
Loan balances at December 31, 1999 $ 256,008
==========
</TABLE>
The Bank also has accepted deposits from employees, officers and
directors of the Bank and the Company and from associates of such officers and
directors. The deposits were accepted on substantially the same terms as those
of other depositors. Such deposits amounted to approximately $343,205 at
December 31, 1999.
-42-
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE M - STOCKHOLDERS' EQUITY
The Company has adopted an incentive stock option plan for certain of
its employees and has authorized and reserved 200,000 shares of common stock for
issuance under this plan.
The Company applies APB 25 in accounting for its stock option plan
described above. The option price under the stock option plan equals or exceeds
the fair market value of the common shares on the date of grant and,
accordingly, no compensation cost has been recognized under the provisions of
APB 25 for stock options. Under SFAS 123, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
(or vesting) period. At December 31, 1999 an immaterial amount of compensation
cost would have been recognized had the Company's stock option plan been
determined under SFAS 123, based on the fair market value at the grant dates.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model. Assumptions used in 1999 include:
dividend yield of 0.00%, expected volatility of 15.50%, risk-free interest rate
of 6.00% and expected lives of 4 years. At December 31, 1999, options for 13,000
shares were exercisable at an average price per share of $10. Options granted
expire after 7 years and are exercisable in 20% increments annually.
Transactions related to this stock option plan are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- ------------
<S> <C> <C>
Balance December 31, 1998 0
Granted 85,000 $ 10
Exercised 0
Forfeited 0
------ ------
Balance December 31, 1999 85,000 $ 10
====== ======
</TABLE>
In connection with its initial offering of common stock, the Company
granted to each organizer of the Company warrants to purchase .65 shares of
common stock (at an exercise price of $10.00 per share) for each share purchased
by such organizers in the offering. The Warrants will vest in equal increments
of 33.33% commencing February 10, 1999 and on each anniversary date thereafter
until fully vested. Warrants may be exercised in whole or in part for $10.00 per
share beginning on the date of grant and expiring 10 years after the grant date.
The Company has reserved 126,100 shares of its Common Stock for
issuance thereunder.
-43-
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE M - STOCKHOLDERS' EQUITY (CONTINUED)
The approval of the Comptroller of the Currency is required for
national banks to pay dividends in excess of earnings retained in the current
year plus retained net profits for the preceding two years. As of December 31,
1999, no amount was available for distribution to the Company as dividends
without prior regulatory approval.
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets
----------------------- Tier 1 capital
Total Tier 1 to average assets
---------------------------------------------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
The Company was considered well capitalized as of December 31, 1999.
Management is not aware of any events or circumstances that have
occurred since year-end that would change the Company's capital category.
-44-
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE M - STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1999, actual capital levels and minimum required levels
were as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Required
Minimum To Be Well
Required Capitalized Under
For Capital Prompt Corrective
Adequacy Action
Actual Purposes Regulations
- ------------------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk
weighted assets)
Consolidated $9,404 71.61% $1,051 8.00% $1,313 10.00%
Bank $8,299 63.40% $1,047 8.00% $1,309 10.00%
Tier 1 capital (to risk
weighted assets)
Consolidated $9,354 71.23% $ 525 4.00% $ 788 6.00%
Bank $8,249 63.01% $ 524 4.00% $ 785 6.00%
Tier 1 capital (to
average assets)
Consolidated $9,354 48.36% $ 774 4.00% $ 967 5.00%
Bank $8,249 43.26% $ 765 4.00% $ 957 5.00%
</TABLE>
NOTE N - OFF-BALANCE SHEET RISK
In the normal course of business, the Bank utilizes various financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
through loans approved but not yet funded, lines of credit and standby letters
of credit. The credit risks associated with financial instruments are generally
managed in conjunction with the Banks' balance sheet activities and are subject
to normal credit policies, financial controls and risk limiting and monitoring
procedures.
Commitments to extend credit are agreements 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 Banks evaluate each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Banks upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
compensating balances, accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties.
-45-
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE N - OFF-BALANCE SHEET RISK
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions. Most guarantees expire within one year. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. Collateral supporting these commitments
for which collateral is deemed necessary is maintained by the Banks. There were
no letters of credit issued at December 31, 1999.
Credit losses are incurred when one of the parties fails to perform in
accordance with the terms of the contract. The Banks' exposure to off-balance
sheet credit risk is represented by the contractual amount of the commitments to
extend credit and standby letters of credit. At December 31, 1999, the Bank had
no commitments for undisbursed portions of loans in process, unused portions of
lines of credit or commitments under standby letters of credit.
NOTE O - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table presents the estimates of fair value of financial
instruments as of December 31, 1999:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 7,166,048 $ 7,166,048
Securities available for sale 30,143,893 30,143,893
Net loans 3,288,378 3,288,378
Accrued interest receivable 270,900 270,900
Financial liabilities:
Deposits 32,190,169 35,560,862
Accrued interest payable 143,928 143,928
</TABLE>
-46-
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE O - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Carry and cash equivalents: For these short-term instruments, the
carrying amount is a reasonable estimate of fair value.
Securities: For securities available for sale fair value equals quoted
market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar
securities.
Loans: The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining
maturities.
Deposits: The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity deposits is estimated
by discounting future cash flows using rates currently offered for
deposits future cash flows using rates currently offered for deposits
of similar remaining maturities. The fair value estimates do not
include the benefits that result from low-cost funding provided by the
deposit liabilities compared to the cost of alternate sources of funds.
Accrued interest: The carrying amounts of accrued interest receivable
and accrued interest payable approximate their fair values.
The fair value estimates are presented for on-balance sheet financial
instruments without attempting to estimate the value of the bank's long-term
relationships with depositors and the benefit that results from low-cost funding
provided by deposit liabilities. In addition, significant assets which are not
considered financial instruments and are, therefore, not a part of the fair
value estimates include office properties and equipment.
-47-
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE P - GENERAL OPERATING EXPENSES
The following amounts comprise general operating expenses for the year
ended December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Stationery and supplies $ 58,877 $ 1,784
Telephone 13,643 4,162
Professional and outside service fees 75,008 38,303
Advertising, marketing and public
relations 25,659 0
Travel and entertainment 25,926 16,909
Insurance 32,107 20,783
Professional dues 20,549 18,966
Other 71,881 7,063
-------- --------
Totals $323,650 $107,970
======== ========
</TABLE>
-48-
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE Q - CONDENSED FINANCIAL INFORMATION
The condensed financial information of Marine Bancshares, Inc. (parent
company only) as of December 31, 1999 and 1998 and for the two years ended
December 31, 1999 and the period from January 23, 1997 (date of inception) to
December 31, 1997, is as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1999 1998
---------- --------
<S> <C> <C>
Assets:
Investment in and indebtedness of
subsidiary, at equity $8,114,382 $ 0
Cash and due from banks 993,786 9,104
Federal funds sold 60,000 0
Premises and equipment 0 15,234
Other assets 55,460 255,909
---------- --------
$9,223,628 $280,247
========== ========
Liabilities:
Loans payable $ 0 $845,000
Accrued interest payable 0 83,979
Accrued expenses and other liabilities 3,925 164,818
Advances from organizers 0 50,000
Stockholders' equity (deficit):
Preferred stock 0 0
Common stock 11,500 1
Additional paid-in capital 10,831,123 99
Accumulated deficit (1,488,153) (863,650)
Accumulated other comprehensive loss (134,767) 0
---------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 9,219,703 (863,550)
---------- --------
$9,223,628 $280,247
========== ========
</TABLE>
-49-
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE Q - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Interest on investment securities
and other $ 315,819 $ 3,525 $ 9,798
----------- ----------- -----------
TOTAL INCOME 315,819 3,525 9,798
----------- ----------- -----------
Expenses:
Salaries and employee benefits 0 103,648 119,231
Interest and loan fees 10,129 100,005 186,115
General operating 179,342 115,439 252,535
----------- ----------- -----------
TOTAL EXPENSES 189,471 319,092 557,881
----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAX AND EQUITY IN
UNDISTRIBUTED NET LOSS OF SUBSIDIARY 126,348 (315,567) (548,083)
Income taxes 0 0 0
----------- ----------- -----------
INCOME (LOSS) BEFORE EQUITY IN
UNDISTRIBUTED NET LOSS OF SUBSIDIARY 126,348 (315,567) (548,083)
Equity in undistributed net loss
of subsidiary (750,851) 0 0
----------- ----------- -----------
NET LOSS (624,503) (315,567) (548,083)
Accumulated deficit:
Beginning of period (863,650) (548,083) 0
----------- ----------- -----------
End of period $(1,488,153) $ (863,650) $ (548,083)
=========== =========== ===========
</TABLE>
-50-
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARINE BANCSHARES, INC. AND SUBSIDIARY
December 31, 1999 and 1998
NOTE Q - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (624,503) $ (315,567) $ (548,083)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Equity in undistributed net
loss of subsidiary 750,851 0 0
Depreciation of premises and
equipment 0 3,927 2,144
(Increase) decrease in other
assets 200,449 (120,959) (134,950)
Increase (decrease) in accrued
expenses and other liabilities (244,872) 150,403 98,394
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 81,925 (282,196) (582,495)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary banks (9,000,000) 0 0
Purchases of equipment 0 0 (21,305)
Proceeds from sale of assets 15,234 0 0
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (8,984,766) 0 (21,305)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans 0 320,000 900,000
Payments on loans (845,000) (225,000) (150,000)
Payments on retirement of
common stock (100) (1,000) 0
Proceeds from issuance of
common stock 10,842,623 100 1,000
Proceeds from (payments on)
organizer advances (50,000) 50,000 0
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 9,947,523 144,100 751,000
----------- ----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,044,682 (138,096) 147,200
Cash and cash equivalents:
Beginning of period 9,104 147,200 0
----------- ----------- -----------
End of period $ 1,053,786 $ 9,104 $ 147,200
=========== =========== ===========
</TABLE>
-51-
<PAGE> 53
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no occurrence requiring a response to this Item.
PART III
The information required by Part III of Form 10-KSB is, pursuant to
General Instruction E(3) of Form 10-KSB, incorporated by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A for
the Company's 2000 Annual Meeting of Stockholders (the "Proxy Statement"). The
Company will, within 120 days of the end of its fiscal year, file the Proxy
Statement with the SEC.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors and executive officers of the
Registrant is set forth in the Proxy Statement under the headings "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," which
information is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the
Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial
owners and management is set forth in the Proxy Statement under the heading
"Security Ownership of Certain Beneficial Owners and Management," which
information is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information concerning certain relationships and related
transactions is set forth in the Proxy Statement under the heading "Certain
Transactions," which information is incorporated herein by reference.
-52-
<PAGE> 54
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with or incorporated
by reference into this report. The exhibits which are denominated by an asterisk
(*) were previously filed as a part of, and are hereby incorporated by reference
from, the indicated amendment to the Company's Registration Statement on Form
SB-2 under the Securities Act of 1933, Registration Number 333-39203.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
*3.1 Second Amended and Restated Articles of Incorporation of the Company (from
Amendment No. 2)
*3.2 Amended and Restated Bylaws (from Amendment No. 2)
*4.1 See Exhibits 3.1 and 3.2 for provisions of the Second
Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws of the Company defining
rights of holders of the Company's Common Shares
*4.2 Form of Common Share Certificate of the Company (from Amendment No. 2)
*10.1 Lease, dated July 9, 1998, between the Company and Wridell Development
Corporation, Inc.; Assignment of Leases, dated July 14, 1998, from Wridell
Development Corporation, Inc. to Gulf Coast Commercial Corporation (from
Amendment No. 2)
*10.2 Form of Employment Agreement to be executed by the Company, the Bank, and
Richard E. Horne (from Amendment No. 2)
*10.3 Revised Form of Stock Option Agreement to be executed by the Company and
Richard E. Horne (from Amendment No. 4)
*10.4 Revised Marine Bancshares, Inc. 1998 Stock Option Plan (from Amendment No.
4)
*10.5 Revised Form of Marine Bancshares, Inc. Stock Purchase Warrant (from
Amendment No. 4)
10.6 Real Estate Purchase Contract
* 21 Subsidiaries of the Company (from Amendment No. 1)
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K were required to be
filed for the fourth quarter of 1999.
-53-
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MARINE BANCSHARES, INC.
Dated: March 28, 2000 By: /s/ Richard E. Horne
----------------------------------------------
Richard E. Horne
President and Chief Executive Officer
(principal executive officer)
Dated: March 28, 2000 By: /s/ Thomas V. Ogletree
----------------------------------------------
Thomas V. Ogletree
Chief Financial Officer
(principal financial and accounting 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 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Richard E. Horne Director, President and Chief March 28, 2000
- ------------------------------------------
Richard E. Horne Executive Officer
/s/ William J. Ryan Director March 28, 2000
- ------------------------------------------
William J. Ryan
/s/ Pierce T. Neese Director March 28, 2000
- ------------------------------------------
Pierce T. Neese
/s/ Earl G. Hodges Director March 28, 2000
- ------------------------------------------
Earl G. Hodges
/s/ William L. McDaniel, Jr. Director March 28, 2000
- ------------------------------------------
William L. McDaniel, Jr.
/s/ Donald W. Ketterhagen Director March 28, 2000
- ------------------------------------------
Donald W. Ketterhagen
</TABLE>
-54-
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
*3.1 Second Amended and Restated Articles of Incorporation of the Company (from
Amendment No. 2)
*3.2 Amended and Restated Bylaws (from Amendment No. 2)
*4.1 See Exhibits 3.1 and 3.2 for provisions of the Second
Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws of the Company defining
rights of holders of the Company's Common Shares
*4.2 Form of Common Share Certificate of the Company (from Amendment No. 2)
*10.1 Lease, dated July 9, 1998, between the Company and Wridell Development
Corporation, Inc.; Assignment of Leases, dated July 14, 1998, from Wridell
Development Corporation, Inc. to Gulf Coast Commercial Corporation (from
Amendment No. 2)
*10.2 Form of Employment Agreement to be executed by the Company, the Bank, and
Richard E. Horne (from Amendment No. 2)
*10.3 Revised Form of Stock Option Agreement to be executed by the Company and
Richard E. Horne (from Amendment No. 4)
*10.4 Revised Marine Bancshares, Inc. 1998 Stock Option Plan (from Amendment No.
4)
*10.5 Revised Form of Marine Bancshares, Inc. Stock Purchase Warrant (from
Amendment No. 4)
10.6 Real Estate Purchase Contract
* 21 Subsidiaries of the Company (from Amendment No. 1)
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- -----------------------------------
* Incorporated by reference from the indicated amendment to the Company's
Registration Statement on Form SB-2 under the Securities Act of 1933,
Registration Number 333-39203.
-55-
<PAGE> 1
MARINE BANCSHARES, INC.
EXHIBIT 10.6
<PAGE> 2
CONTRACT FOR SALE AND PURCHASE
OF AN OFFICE BUILDING
THIS CONTRACT is made between:
SELLER: GULF COAST COMMERCIAL CORPORATION, A FLORIDA CORPORATION
BUYER: MARINE NATIONAL BANK OF NAPLES, A NATIONAL BANKING ASSOCIATION
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by the parties hereto, it is mutually agreed that
the Seller shall sell and the Buyer shall purchase the real property and
improvements as described in Paragraph 1, below, upon the terms and conditions
hereinafter set forth:
1. DESCRIPTION OF PROPERTY: The property to be sold and purchased
is as follows:
A. The real property located in Collier County, Florida
described as follows:
Commonly known as the "Marine National Bank Building" located
at 2329 (2325) Vanderbilt Beach Road, Naples, Florida as more
particularly described in the attached Exhibit "A" (the
"Property").
B. All rights, privileges, parking agreements,
cross-easements, and easements appurtenant to the real property and all sewer,
water, and other utility services, and other governmental approvals and
permits, licenses, including but not limited to, any prepaid impact, access,
service, maintenance or other fees of any kind, appurtenant to the real
property.
C. The Property shall also include the bank building (the
"Building"), all other improvements to the Property, and all furniture,
furnishings, trade fixtures, machinery, and equipment pertinent to or used in
connection with the operation of the Building and/or the Property, which is
owned by the Seller.
2. PURCHASE PRICE: The purchase price (hereinafter referred to as the
"Purchase Price") for the Property and Building shall be THREE MILLION THREE
HUNDRED FIFTY THOUSAND AND 00/100 ($3,350,000.00) DOLLARS, payable by Buyer as
follows:
<PAGE> 3
A. Deposit at time of execution by Buyer in the amount
of TWENTY ONE THOUSAND SEVEN HUNDRED AND NO/100 ($21,750.00) DOLLARS composed
of $10,000.00 additional deposit and the $11,750.00 Lease deposit paid on
Buyer's Lease already in the possession of Seller. The $10,000.00 deposit shall
be delivered to Escrow Agent upon execution by Buyer of this Contract and will
be paid to Seller at closing and a credit to Buyer of $11,750.00 presently held
by Seller as a lease security deposit.
B. Additional cash to close in the amount of THREE
MILLION THREE HUNDRED FORTY THOUSAND AND NO/100 ($3,340,000.00) DOLLARS subject
to adjustments on any leasehold deposits, credits, prorations and other matters
as provided herein, to be paid by Buyer by bank wire of funds or local
cashier's check, at the election of the Buyer, on closing and delivery of the
deed and other instruments to Buyer in accordance with the terms and provisions
of this Contract.
C. All deposits shall be held in an interest bearing
account and all interest will accrue or be paid to Buyer, except in the case of
the Buyer's default hereunder.
3. INVESTIGATION PERIOD: For a period of fifteen (15) days from
the date of this Contract (the "Investigation Period") Seller grants to Buyer
and its agents, employees, contractors and representatives, a right to enter
upon the Property and to examine the Property. During such entry and
examination Buyer shall not unreasonably interfere with any tenant's occupancy.
During the Investigation Period the Buyer shall further have the right, but not
be required to or otherwise limited to, review the following items to be
provided by Seller to Buyer:
A. All zoning, land use, environmental, building and
construction laws and regulations restricting or regulating, or any other
requirements or conditions of any governmental or other agency or entity having
jurisdiction over, the Property, which would affect the access to, use,
occupancy, enjoyment or development of the Property; and that the Property will
be fully usable by Buyer for Buyer's intended purposes. By execution of this
Agreement, Seller hereby authorizes and grants to Buyer, its agents, employees,
and contractors, the right to access to all records held by Seller or its
agents, and to interview, appropriate government authorities relative to any
phase of the use, occupancy, construction, development, marketing or future use
or enjoyment of the Property and/or Building;
B. Any soil test, geological studies and surveys and
environmental studies or surveys Buyer may cause to be conducted at its own
expense, on the Property;
C. All soil and subsoil conditions and other physical
characteristics of the Property in connection with Buyer's use of the Property,
and determining whether, in Buyer's sole and absolute discretion, extraordinary
costs for repairs or completion of the Building will be required;
2
<PAGE> 4
D. The nature and location of any easements, covenants,
restrictions, agreements, contracts, or other documents or conditions which
benefit or affect the Property;
E. The size, availability, capacity and cost of all
utility services to the Property and the Building;
F. An inspection of the physical condition of the
Building situated on the Property by a certified engineering firm at Buyer's
sole expense; Seller agrees in addition to the foregoing to provide to Buyer
within three (3) days of the Effective Date of this Contract copies of all of
the following to the extent they exist and are in the Seller's possession or
control (and which have not been previously supplied to Buyer):
i. Soil tests and all prior engineering tests.
ii. "As built" blueprints, shop drawings, plans
and specifications for the Building.
iii. All warranties and reports provided by the
builder/general contractor, its
subcontractors and suppliers.
iv. Surveys or drawings of the Property,
including "as built" surveys including the
Building.
v. Prior title insurance policy(s).
vi. A copy of the Assignment of the Marine
Bancshares, Inc. Lease Agreement, dated
July 9, 1999, by Wridell Development
Corporation to Seller.
vii. Copies of all occupational licenses and
other licenses necessary for the operation
of the business on the Property and the
Building.
viii. 1999 real estate tax bill for the Property.
ix. Any and all maintenance agreements and
warranties for the Building and equipment
such as air conditioning, plumbing,
electricity, etc.
Before the expiration of the Investigation Period, for any
reason, the Buyer may elect to terminate this Contract by delivering written
notice to the Seller or Escrow Agent, and in such event this Contract shall be
null and void. If Buyer does not deliver notice during Investigation Period
then Buyer waives the right to terminate as provided herein.
3
<PAGE> 5
In the event Buyer elects to terminate the Contract as
provided above, the Escrow Agent shall return all deposits to the Buyer.
4. EXPENSES OF SALE: Seller shall pay for documentary stamps on
the deed, for recording any other instruments necessary to clear the title to
the Property, the cost of a completed Abstract of Title certified to date, and
at closing Seller shall credit Buyer an amount equal to outstanding balance of
Pelican Marsh CDD in excess of $42,000.00 by way of example: If the outstanding
balance of the special assessment after the 1999-2000 payment were $77,960.00,
Seller would credit Buyer amount equal to $35,960.00 on the closing statement.
Buyer shall pay for recording the deed, recertification of
the title, and Buyer's title insurance.
5. PRORATIONS: Except as otherwise specifically set forth
elsewhere herein, taxes, rents, operating and maintenance assessments for the
Pelican Marsh CDD (approximately $11,233.10 for 2000), and other expenses and
revenue of the Property shall be prorated as of midnight of the day of closing.
Estimated taxes for the year 2000 shall be prorated based upon the year 1999;
however, as the Building did not obtain a Certificate of Occupancy until
mid-1999, tax proration SHALL BE readjusted upon receipt of the actual tax bill
for the year 2000. The cash to close shall be increased or decreased as may be
required by any such prorations.
6. EVIDENCE OF TITLE: Seller shall deliver to Buyer's attorney or
other authorized representative within ten (10) days from the date of execution
of this Contract by Seller, an abstract of title, certified to date, showing
title to be good and marketable and a copy of Seller's title insurance policy.
Buyer, or its attorney, shall have fifteen (15) days for examination of the
title and if the title to the Property is found to be different than is set
forth or required in this Contract, then Buyer, or its attorney, shall notify
Seller, or its attorney, in writing of the defects and Seller shall have a
reasonable time to cure these defects. Seller agrees to make a diligent effort,
short of litigation, within a reasonable time to cure such defects; failure to
make same shall constitute a default under this Contract. Upon Seller's
inability to cure any defects within a reasonable time not to exceed thirty
(30) days, Buyer may elect to accept the Property in the existing condition or
Buyer may terminate this Contract and have its deposit returned. Buyer and
Seller acknowledge that the Property is subject to a lease wherein Seller is
the lessor, and Buyer is the lessee. The parties agree that at Closing the
Lease will merge with the title conveyed to Buyer, and be of no further force
and effect.
7. SURVEY: Seller shall provide Buyer with copies of all surveys
in its possession. Buyer may have the Property surveyed at its sole expense
which shall show existing road right-of-way, easements, encroachments,
elevations and a legal description of
4
<PAGE> 6
the Property. If the survey, certified by a registered Florida Surveyor, shows
any encroachment on the Property or violates any of the covenants contained in
this Contract, the same shall be deemed a title defect, and the Seller shall
have the same time to remove said encroachment as this Contract allows to cure
defects of title without litigation. If the Seller shall fail to remove said
encroachments within said period of time, then at the option of the Buyer, all
deposits upon demand shall forthwith be refunded to the Buyer whereupon Buyer
and Seller shall be released of all further obligations under this Contract.
8. SELLER'S COVENANTS, REPRESENTATIONS AND WARRANTIES: As a
material inducement to Buyer to enter into this Contract, Seller hereby
covenants and/or represents and/or warrants to Buyer that to the best of
Seller's knowledge, that as of the date of this Contract and as of the closing
date as follows:
A. Seller is the owner of the fee simple title to the
Property.
B. Seller, represents that there are no actions, suits,
special assessments except for the herein referenced Pelican Marsh CDD
assessment, proceedings or investigations existing, pending or, to the best of
its knowledge, threatened affecting the Property in law or in equity before any
governmental department, community development district, board, agency or
instrumentality, or any private individual or entity, which involve the
possibility of any judgment, assessment, liability, or change of zoning against
the Property.
C. Seller warrants that no leases, except the lease to
Buyer, are existent or enforceable on the Property. Seller shall hold Buyer
harmless and indemnify Buyer from all claims by lessees or putative lessees of
any part of the Property of the Building. This covenant shall survive the
closing.
D. Except for ordinary and customary materials used in
construction, Seller has not utilized the Property, or any part thereof, to
treat, generate, deposit, store, dispose of, or place any hazardous substance
(as defined by 42 U.S.C. Section 9601(14) ), any solid or hazardous waste (as
defined by 42 U.S.C. Section 6901) or any petroleum product (as defined by
Section 376.301 (22), F.S.); nor has Seller authorized any other person or
entity to treat, generate, deposit, store, dispose of, or place any hazardous
substance (as defined above) or any petroleum product (as defined above) on the
Property, or any part thereof; and to the best of Seller's knowledge, no other
person or entity has treated, generated, deposited, stored, disposed of, or
placed any hazardous substance (as defined above) or any petroleum product (as
defined above), on the Property, or any part thereof, nor on any real property
adjacent to the Property. To the best of Seller's knowledge and belief, there
are no underground storage tanks of any kind located at the Property.
E. The Property is in full compliance with all
construction and development approvals, permits, and requirements and all
building permits, applicable building codes, health, safety, and fire codes.
5
<PAGE> 7
F. That to the Sellers knowledge and belief, all of the
information, representations and warranties by Seller to Buyer as described in
this Contract and as provided by Seller to Buyer pursuant to the provisions of
this Contract are true, correct and complete, and it shall be a condition
precedent of Buyer's obligations to close that the same remain true, correct
and complete as of the closing.
9. CONDITIONS PRECEDENT TO CLOSING: At Buyer's option, it shall be a
condition precedent to closing that:
A. No material adverse change in the condition of the
Property shall have occurred since the date of this Contract, normal wear and
tear excepted.
B. Seller's representations and warranties contained
herein shall be true and correct in all material respects as of the closing
date.
C. The execution and delivery by Seller to Buyer of each
and every instrument required by this Contract.
10. DOCUMENTS AND OTHER ITEMS TO BE DELIVERED AT CLOSING BY
SELLER: The Seller shall at closing deliver the following to Buyer:
A. A Statutory Warranty Deed from Seller conveying fee
simple title, subject only to those items set forth in this Contract, with
proof of corporate existence.
B. A Bill of Sale with full warranties conveying title
to all personal property included in this sale.
C. Any corrective instruments that may be required in
connection with perfecting the title to the Property.
D. A No-lien affidavit, pursuant to the provisions of
this Contract, in form and substance reasonably acceptable to Buyer's counsel
and so as to provide an insured closing.
E. A Non-foreign affidavit, as required by Internal
Revenue Code Section 1445.
F. [DELETED]
G. An assignment of all existing licenses and permits
which are assignable.
6
<PAGE> 8
H. An assignment all warranties and contract benefits
received by Seller from Boran Craig Barber Engel, the general contractor, its
subcontractors and suppliers.
I. All other material documents as may reasonably be
required by Buyer's counsel to effectuate the consummation of this Contract.
J. A closing statement reflecting the basis upon which
the credits, debits and adjustments to the cash to close were determined.
11. DEFAULT BY SELLER: If Seller should breach any of its
covenants, representations or warranties contained in this Contract, then after
notice to Seller, the full deposit shall, at the option of Buyer, be returned
to Buyer promptly on demand, provided, however, Buyer shall not thereby waive
any rights or remedies it may have because of such default by Seller, including
an action for specific performance or for damages as a result of the breach. If
Buyer elects to bring an action for specific performance the deposit shall
continue to be held by Escrow Agent until a final judgment has been entered.
12. DEFAULT BY BUYER: Provided Seller is not in default under this
Contract, if Buyer should breach any of its covenants, representations or
warranties contained in this contract, then after notice to Buyer the deposit
shall be paid to Seller by the Escrow Agent as liquidated damages. In the event
of any such default, Seller shall have no other remedy against Buyer, and upon
the payment of said deposit to Seller, this Contract shall be terminated,
whereupon Seller and Buyer shall be released of all further obligations under
this Contract.
13. ATTORNEYS' FEES: If any party defaults in the performance of
any of the terms, provisions, covenants or conditions of this Contract, or
breaches any representation or warranty made in this Contract, and by reason
thereof any party employs the services of an attorney to enforce performance or
to perform any service based upon any such default or breach, then, in any of
said events, the prevailing party shall be entitled to recover from the other
party reasonable attorneys' fees and all expenses and costs incurred by the
prevailing party pertaining thereto and in enforcement of any remedy, including
appellate proceedings.
14. SEPARABILITY AND DIVISIBILITY OF PROVISIONS: If any portion of
this Contract is determined to be unlawful or unenforceable, the remaining
portions hereof shall remain in full force and effect as if such unlawful or
unenforceable portion did not appear herein.
15. NOTICES:
A. Method of Giving Notice. All notices or other
communications permitted or required to be given under this Contract shall be
given in writing, and delivered
7
<PAGE> 9
to the parties at their respective addresses (or sent to their fax numbers) as
set forth below, in one of the following ways, at the option of the party
giving the notice: (i) by hand delivery; (ii) by nationally recognized courier
service such as Federal Express; or (iii) by telecopy.
B. Addresses/fax numbers for notices:
SELLER: Philip J. McCabe, President
Gulf Coast Commercial Corporation
8665 Bay Colony Drive
Naples, Florida 34108
With a Copy to: Ronald W. Ritchie, Esq.
5129 Castello Drive
Naples, Florida 34103
Telephone: (941) 435-1989
Facsimile: (941) 435-1995
BUYER: Richard E. Horne, President and CEO
Marine National Bank of Naples
Post Office Box 110699
Naples, Florida 34108-0112
With a Copy to: F. Joseph McMackin, III, Esquire
Quarles & Brady LLP
4501 North Tamiami Trail, Suite 300
Naples, Florida 34103
Telephone: (941) 434-4901
Facsimile: (941) 434-4999
IF TO ESCROW AGENT: F. Joseph McMackin, III, Esquire
Quarles & Brady LLP
4501 North Tamiami Trail, Suite 300
Naples, Florida 34103
Telephone: (941) 434-4901
Facsimile: (941) 434-4999
C. Effective Date of Notices: Notices delivered by hand
delivery shall be effective on the date delivered to the recipient. Notices
delivered by a nationally recognized overnight courier service, such as Federal
Express, shall be effective on the date deposited with the courier. Notices
sent by telecopy shall be effective on the date transmitted and received,
provided that receipt occurs before 5:00 P.M. on a business day. If the last
day for giving any notice or performing any act under this Contract falls on a
Saturday, Sunday or a day in which the United States Post Office is not open,
the time shall be extended to the next day that is not a Saturday, Sunday, or
Post Office holiday.
8
<PAGE> 10
D. Change of Address for Recipient: Any party wishing to
change the person designated to receive notices or addresses for notices may do
so by complying with the provisions of this paragraph. Any notice given before
such change is not invalidated by the change.
16. FURTHER ASSURANCES: Seller and Buyer agree that at any time,
and from time to time, before and after the closing, they will on request of
another party, execute and deliver such further documents and do such further
acts and things as such other party may reasonably request in order to fully
effectuate the intent and purposes of this Contract.
17. ASSIGNABILITY: Buyer shall have the right and authority to
assign this Contract and all of the Buyer's rights hereunder to any other
person, partnership, corporation or other entity. Provided however that such
assignee must be owned or controlled by the shareholders of the Buyer listed at
the beginning of this Contract. Upon any such assignment being accomplished,
such assignee shall succeed to all of the rights, privileges and obligations of
Buyer hereunder and shall for all purposes be substituted for and be deemed to
be the Buyer hereunder, after which the original Buyer identified in this
Contract shall be relieved of all further responsibility and liability
hereunder.
18. TIME IS OF THE ESSENCE: Time is of the essence of this
Contract and each of the covenants and provisions hereof.
19. CLOSING DATE: The sale and purchase of the Property as
described in this Contract shall be closed and the deed and all other closing
papers executed and delivered on, or before by mutual agreement of the parties,
thirty (30) days after the expiration of the Investigation Period, but in no
event before March 31, 2000. Said date and/or the act of closing is herein
sometimes referred to as the "Closing" or "Closing Date".
20. PLACE OF CLOSING: The sale and purchase of the Property shall
be closed at the offices of Quarles & Brady, 4501 Tamiami Trail North, Suite
300, Naples, Florida 34103.
21. REAL ESTATE BROKER'S COMMISSION: Buyer represents that it has
not had any negotiations or relationships with any brokers regarding the Marine
National Bank Building. Seller represents that it has not had any negotiations
or relationships with any brokers regarding this sale of the Marine National
Bank Building to this Buyer. Thus, the parties understand that there is no
broker involved in this sale.
22. ESCROW AGENT:
A. The parties agree the Escrow Agent shall be Quarles
& Brady, 4501 Tamiami Trail North, Naples, Florida 34103. (the "Escrow Agent").
9
<PAGE> 11
B. The Escrow Agent shall hold in escrow the deposit.
If requested by Buyer, all cash received by the Escrow Agent shall be placed in
an interest bearing account, and such account must allow withdrawal of all
funds upon one (1) day notice or less. The interest earned on such funds shall
be paid at such time that the Escrow Agent disburses the principal amount of
the deposit, and the interest shall be paid to the Buyer, except in the case of
Buyer's default. The Buyer shall be responsible for the expenses of such
account.
C. It is agreed the duties of the Escrow Agent are
purely ministerial in nature, and that the Escrow Agent shall incur no
liability whatsoever except for willful misconduct or gross negligence so long
as the Escrow Agent has acted in good faith. The parties release the Escrow
Agent from any act done or omitted to be done by the Escrow Agent in good faith
in the performance of the Escrow Agent's duties hereunder, except for wilful
misconduct or gross negligence.
D. If the parties be in disagreement about the
interpretation of this Contract, or about the rights and obligations, or the
propriety of any action contemplated by the Escrow Agent hereunder, the Escrow
Agent may, at its sole discretion, file an action in interpleader to resolve
the said disagreement. The Escrow Agent shall be indemnified for all costs,
including reasonable attorneys' fees, in connection with the aforesaid
interpleader action, and shall be fully protected in suspending all or a part
of its activities under this Contract until a final judgment in the
interpleader action is received.
E. The Escrow Agent may consult with the counsel of its
own choice and shall have full and complete authorization and protection for
any action taken or suffered by it hereunder, except for wilful misconduct or
gross negligence, so long as the Escrow Agent has acted in good faith and in
accordance with the opinion of such counsel. The Escrow Agent shall otherwise
not be liable for any mistakes of fact or error of judgment, or for any acts of
omissions of any kind unless caused by its willful misconduct or gross
negligence.
F. The Escrow Agent may resign upon ten (10) days'
written notice to the parties in this Contract. Ronald W. Ritchie shall then
become successor Escrow Agent.
G. The Seller acknowledges that the Escrow Agent is the
attorney of the Buyer, but that acting as escrow agent hereunder shall in no
way be deemed or construed a conflict of interest.
23. IRC Section 1031. Seller represents that it intends to qualify
the sale of the Property as a "like-kind exchange" under Internal Revenue Code
Section 1031, and Buyer agrees to cooperate in the execution of such documents
as are required in connection therewith. Seller shall reimburse Buyer for all
additional costs generated as a result of this exchange including attorneys'
fees.
24. PERSONS BOUND: This Contract shall be binding upon and shall
inure to or otherwise accrue to the benefit of the respective heirs, personal
representatives, successors and assigns of the parties hereto. Whenever the
context permits, the singular shall include the plural, the plural shall include
the singular and the use of any gender shall include all other genders.
10
<PAGE> 12
25. ENTIRE AGREEMENT: MODIFICATIONS: This Contract embodies and
constitutes the entire understanding among the parties with respect to the
transaction contemplated herein, and all prior and contemporaneous agreements,
understandings, representations and statements, oral or written are merged into
this Contract. Neither this Contract, nor any provision hereof, may be waived,
modified, amended, discharged or terminated, except by an instrument in writing
signed by the party against which enforcement of such waiver, modification,
amendment, discharge or termination is sought and then only to the extent
specifically set forth in such written instrument.
26. CAPTIONS: The captions and title of the various paragraphs in
this Contract are for convenience and reference only and in no way define,
limit or describe the scope or intent of this Contract, nor in any way affect
this Contract.
27. HANDWRITTEN PROVISIONS: Handwritten provisions inserted herein
or attached hereto that have been initialed by the parties hereto shall control
all typewritten provisions in conflict therewith.
28. COUNTERPARTS: To facilitate the execution of this Contract any
number of counterparts of this Contract maybe executed and delivered.
29. CONSTRUCTION OF CONTRACT: Each party acknowledges that all parties to
this Contract participated equally in the drafting of this Contract and that it
was negotiated at arms length. Accordingly, no Court construing this Contract
shall construe it more strongly against one than another.
30. DISCLOSURES:
A. Radon Gas: Radon is a naturally occurring radioactive
gas that, when it has accumulated in a building in sufficient quantities, may
present health risks to persons who are exposed to it over time. Levels of
radon that exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from the Collier County Public Health Unit.
B. Energy Efficiency: Buyer may have determined the
energy efficiency rating of the Building located on the Property.
31. PERIOD OF OFFER AND EFFECTIVE DATE: This offer (or any counter
offer) is revoked if not accepted and notice of acceptance delivered to offer
or within five (5) days of receipt of the offer. The Effective Date of this
Contract shall be the last time either the Buyer or Seller signs or initials
this Contract. Initialed changes must be dated or the latest date set forth on
this Contract shall be deemed to be the Effective Date. A facsimile shall be
deemed an original and offer or acceptance thereby is binding.
11
<PAGE> 13
IN WITNESS WHEREOF, the parties have entered into this Contract
effective as of the date as defined in this Contract.
WITNESSES: BUYER
(Corporate Seal)
MARINE NATIONAL BANK OF
NAPLES, a national banking association
As to Buyer:
By: /s/ Richard E. Horne
-----------------------------------
- --------------------------- Richard E. Horne, President and CEO
Date signed by Buyer: March_____, 2000
- ---------------------------
WITNESSES: SELLER
(Corporate Seal)
GULF COAST COMMERCIAL
CORPORATION, a Florida corporation
As to Seller: By: /s/ Philip J. McMace
-----------------------------------
Philip J. McCabe, President
- --------------------------- Date signed by Seller: March 3, 2000
- ---------------------------
12
<PAGE> 14
DEPOSIT RECEIPT
Receipt of the initial deposit is acknowledges by direct deposit to trust
account this _____ day of March, 2000, to be held in escrow per terms and
conditions set forth in this Contract.
QUARLES & BRADY LLP
By: /s/ F. Joseph McMackin, III
------------------------------------
F. Joseph McMackin, III, Partner
13
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Marine
Bancshares, Inc. audited consolidated financial statements for the year ended
December 31, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,013,048
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,153,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 29,873,893
<INVESTMENTS-MARKET> 0
<LOANS> 3,337,878
<ALLOWANCE> (49,500)
<TOTAL-ASSETS> 42,209,321
<DEPOSITS> 32,190,169
<SHORT-TERM> 390,223
<LIABILITIES-OTHER> 409,226
<LONG-TERM> 0
0
0
<COMMON> 11,500
<OTHER-SE> 9,208,203
<TOTAL-LIABILITIES-AND-EQUITY> 42,209,321
<INTEREST-LOAN> 36,253
<INTEREST-INVEST> 445,223
<INTEREST-OTHER> 98,187
<INTEREST-TOTAL> 579,663
<INTEREST-DEPOSIT> 173,883
<INTEREST-EXPENSE> 183,962
<INTEREST-INCOME-NET> 395,701
<LOAN-LOSSES> 49,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 973,941
<INCOME-PRETAX> (624,503)
<INCOME-PRE-EXTRAORDINARY> (624,503)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (624,503)
<EPS-BASIC> (.61)
<EPS-DILUTED> (.61)
<YIELD-ACTUAL> (1.71)
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 49,500
<ALLOWANCE-DOMESTIC> 49,500
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
