<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION REPORT FROM _______ TO _______
Commission file number 0-23619
TARPON COAST BANCORP, INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
Florida 65-0772718
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1490 Tamiami Trail
Port Charlotte, FL 33948
------------------------
(Address of principal executive offices)
941-629-8111
------------
(Issuer's telephone number)
Securities registered pursuant to section 12(b) of the Exchange Act: None
Securities registered pursuant to section 12(g) of the Exchange Act:
Common Stock, $.10 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the common stock of the registrant held by
non-affiliates of the registrant on March 1, 1999 was $9,289,000. As of such
date no organized trading market existed for the common stock of the registrant.
The aggregate market value is based upon the book value of the common stock of
the registrant at December 31, 1998. Solely for the purposes of this response,
executive officers, directors and beneficial owners of more than five percent of
the Company's common stock are considered the affiliates of the Company at that
date.
The number of shares outstanding of the issuer's common stock, as of March 1,
1999: 1,182,151 shares of $.10 par value common stock.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 Annual Report to Shareholders are incorporated
by reference in answer to Items 6, 7, and 8 of Part II of this report. The
Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders
to be held in 1999 is incorporated by reference in answer to Part III of this
report.
<PAGE> 3
PART I
ITEM 1. BUSINESS
Tarpon Coast Bancorp, Inc. (the "Company") is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"),
and owns 100% of the outstanding capital stock of the Tarpon Coast National Bank
("Bank"). The Company was incorporated under the laws of the State of Florida in
August 1997 as a mechanism to enhance the Bank's ability to serve its customers'
requirements for financial services. The holding company structure provides
flexibility for expansion of the Company's banking business through acquisition
of other financial institutions and provision of additional banking-related
services which the traditional commercial bank may not provide under present
laws.
The Bank is full service commercial bank, without trust powers. The
Bank offers a full range of interest bearing and non-interest bearing accounts,
including commercial and retail checking accounts, negotiable order of
withdrawal ("NOW") accounts, public funds accounts, money market accounts,
individual retirement accounts, regular interest bearing statement savings
accounts, certificates of deposit, daily repurchase agreements, business
accounts (offering account analysis on all commercial relationships), commercial
loans, real estate loans and consumer loans. In addition, the Bank provides such
consumer services as notary services, photocopying, signature guarantees,
incoming and outgoing collections, travelers checks, U.S. Bonds, cashiers
checks, wire transfer services, coupon collection, foreign exchange, utility
bill payments and credit references. Moreover, safe deposit boxes, custodial
services, ACH processing and account reconciliation, overdraft checking,
commercial account analysis, night depository service, courier service and
automatic teller services are available.
MARKET AREA AND COMPETITION
According to the U.S. Census Bureau, the Southwest Florida area has
been one of the fastest growing areas in the country over the past decade.
Competition among financial institutions in the Bank's market areas is intense,
with other financial institutions having far greater financial resources than
those available to the Company.
The primary service area for the Bank encompasses the Punta Gorda
Municipal Statistical Area, including the community of Port Charlotte, Charlotte
County, as well as the City of North Port in Sarasota County. There are 28
banking offices within the primary service areas of the Bank. Most of these
offices are branches of or are affiliated with major holding companies in North
Carolina, Georgia, Alabama and other areas of Florida and the nation.
The Bank competes with existing area financial institutions other than
commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and other
business entities which have recently been invading the traditional banking
markets. Due to the rapid growth of Southwest Florida, it is anticipated that
additional competition will continue from new entrants to the market.
1
<PAGE> 4
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL
The following is a presentation of the average consolidated balance
sheet of the Company for the period from June 1, 1998 (the date the Company
commenced its banking operations) through December 31, 1998. This presentation
includes all major categories of interest-earning assets and interest bearing
liabilities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
ASSETS 1998
- ------ -----------------------
<S> <C>
Cash and Due from Banks $ 866,293
-----------
Federal Funds Sold 4,313,893
Taxable Securities 6,710,512
Net Loans 2,533,323
-----------
Total Earning Assets 13,557,728
-----------
Other Assets 1,704,254
-----------
Total Assets $16,128,275
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-Interest Bearing Deposits $ 1,322,931
Savings Deposits 518,707
Time Deposits 3,064,775
Other Interest Bearing Deposits 939,134
Other Borrowings 227,551
Other Liabilities 32,824
-----------
Total Liabilities 6,105,922
Stockholders' Equity 10,022,353
-----------
Total Liabilities and Stockholders' Equity $16,128,275
===========
</TABLE>
The following is an analysis of the net interest earnings of the
Company since June 1, 1998 (the date the Company commenced its banking
operations) to December 31, 1998 with respect to each major category of
interest-earning asset and each major category of interest-bearing liabilities.
Yield calculations have been annualized to portray results of a full fiscal
year.
<TABLE>
<CAPTION>
ASSETS AVERAGE AMOUNT INTEREST EARNED AVERAGE YIELD NET YIELD
- ------ -------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
Investment Securities $ 6,710,512 $233,963 5.98%
Federal Funds Sold 4,313,893 142,785 5.67%
Net Loans 2,581,579 148,513 9.86%
----------- --------
Total Earning Assets $13,605,984 $525,261 6.62% 4.96%
=========== ========
<CAPTION>
LIABILITIES AVERAGE AMOUNT INTEREST PAID AVERAGE YIELD
- ----------- -------------- ------------- -------------
<S> <C> <C> <C>
Savings Deposits $ 518,707 $ 8,340 2.76%
Time Deposits 3,064,775 97,275 5.44%
Other Interest Bearing Deposits 939,134 21,976 4.01%
Other Borrowings 227,551 4,314 4.55%
----------- --------
Total Interest Bearing Liabilities $ 4,750,167 $131,905 4.76%
=========== ========
</TABLE>
2
<PAGE> 5
For purposes of these analyses, non-accruing loans, if any, are
included in the average balances and tax exempt income, to the extent included
in the amounts above, is not reflected on a tax equivalent basis. Loan fees
included in interest earned are not material to the presentation.
LOAN PORTFOLIO
The Company engages, through the Bank, in a full complement of lending
activities, including commercial, consumer/installment and real estate loans.
The Company's commercial lending is directed principally towards
businesses whose demands for funds fall within the Bank's legal lending limit
and are potential deposit customers. This category of loans includes loans made
to individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. Particular emphasis is placed on loans to small and
medium-sized businesses. A majority of the commercial loans are secured by real
estate mortgages. The Company's real estate loans consist of residential and
commercial first mortgage loans, second mortgage financing and construction
loans.
The Company's consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including automobile
loans to individuals and pre-approved lines of credit. This category of loans
also includes loans secured by second mortgages on the residences of borrowers
for a variety of purposes including home improvements, education and other
personal expenditures.
The Company has a correspondent relationship with the Independent
Bankers Bank of Florida ("IBBF"), whereby the Company solicits the sale and
purchase of loan participations. Participations purchased from IBBF, if any, are
entered into using the same underwriting criteria that would be applied if the
Company had originated the loan. This would include credit and collateral
analyses and maintenance of a complete credit file on each purchased
participation that is consistent to the credit files maintained by the Company
on its own customers.
The following is an analysis of maturities of loans as of December 31, 1998:
<TABLE>
<CAPTION>
DUE IN DUE IN DUE AFTER
TYPE OF LOAN 1 YEAR OR LESS 1 TO 5 YEARS 5 YEARS TOTAL
- ------------ -------------- ------------ ------- -----
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $1,099,385 $3,411,117 $1,234,350 $5,744,852
Residential real estate 3,466 440,692 107,955 552,113
Consumer loans 323,568 689,995 3,441 1,017,004
Lines of credit 53,413 -- -- 53,413
---------- ---------- ---------- ----------
Total $1,479,832 $4,541,804 $1,345,746 $7,367,382
========== ========== ========== ==========
</TABLE>
The following table presents various categories of loans contained in
the Company's loan portfolio and the total amount of all loans at December 31,
1998.
<TABLE>
<CAPTION>
TYPE OF LOAN
<S> <C>
Commercial, financial and agricultural... $5,744,852
Residential real estate ................. 552,113
Installment loans ....................... 1,017,004
Lines of credit ......................... 53,413
----------
Subtotal ................................ 7,367,382
Allowance for
possible loan losses .................... 154,000
----------
Net loans ............................... $7,213,382
==========
</TABLE>
3
<PAGE> 6
The Company does not presently have, nor intends to implement, a
rollover policy with respect to its loan portfolio. All loans are recorded
according to original terms, and demand loans, overdrafts and loans having no
stated repayment terms or maturity are reported as due in one year or less.
At December 31, 1998, the amount of loans due after one year with
predetermined interest rates totaled approximately $1,306,984 while the amount
of loans due after one year with floating interest rates totaled approximately
$3,855,023.
Accrual of interest is discontinued on a loan when management of the
Bank determines, after consideration of economic and business factors affecting
collection efforts, that collection of interest is doubtful.
At December 31, 1998, there were no loans which were accounted for on a
non-accrual basis, and no loans which were contractually past due 90 days or
more as to principal or interest payments, and no loans which would be defined
as troubled debt restructurings.
SUMMARY OF LOAN LOSS EXPERIENCE
An analysis of the Company's allowance for possible loan losses and
loan loss experience (charge-offs) is furnished in the following table for the
year ended December 31, 1998.
<TABLE>
<CAPTION>
TYPE OF LOAN 1998
--------
<S> <C>
Balance at beginning of period ................................. $ 0
Charge-offs:
Installment ................................................... 0
Commercial .................................................... 0
Mortgage ...................................................... 0
Recoveries:
Installment ................................................... 0
Commercial .................................................... 0
Mortgage ...................................................... 0
Net Charge-offs ................................................. 0
Provision for losses charged to operations ...................... 154,000
--------
Balance at end of period ........................................ $154,000
========
Asset Quality Ratios:
Net charge-offs during the period to average loans
outstanding during the period ................................ 0%
Allowance for loan losses to total loans ........................ 2.09%
Allowance for loan losses to
non-performing assets ...................................... Not Applicable
Non-performing loans to total loans ............................. 0%
Non-performing assets to total assets ........................... 0%
</TABLE>
4
<PAGE> 7
At December 31, 1998 the allowance for possible loan losses was generally
allocated as follows:
<TABLE>
<CAPTION>
1998
-----------------------------------
PERCENT OF
LOANS IN EACH
CATEGORY TO
TOTAL LOANS
AMOUNT TOTAL LOANS
------ -------------
<S> <C> <C>
Commercial and
financial $137,060 78.0%
Real estate 5,520 7.5%
Installment 10,170 13.8%
Lines of credit 1,250 0.7%
-------- -----
Total $154,000 100.0%
======== =====
</TABLE>
Although the allowance for loan losses was determined by category of
loans, the entire allowance is available to absorb losses from any category.
The allowance for loan losses is established based upon management's
evaluation of the potential losses in its loan portfolio. In analyzing the
adequacy of the allowance, management considers its review as well as the
results of independent internal and external credit reviews, changes in the
composition and volume of the loan portfolio, levels of non-performing and
charged-off loans, local and national economic conditions, and other factors.
INVESTMENTS
The Company invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United States and
other taxable securities. The Bank enters into Federal Funds transactions with
its principal correspondent banks, and primarily acts as a net seller of such
funds. The sale of Federal Funds amounts to a short-term loan from the Bank to
other banks.
The following table presents, at December 31, 1998, the value of the
Company's investments:
<TABLE>
<CAPTION>
DECEMBER 31,
INVESTMENT CATEGORY 1998
- ------------------- ----
<S> <C>
Obligations of U.S. Treasury and other U.S. Government Agencies $8,370,787
State and political subdivisions 0
Other securities 281,700
----------
Total $8,652,487
==========
</TABLE>
5
<PAGE> 8
The following table indicates the respective maturities and weighted
average yields of securities available for sale as of December 31, 1998:
<TABLE>
<CAPTION>
AMOUNT WEIGHTED AVERAGE YIELD
------ ----------------------
<S> <C> <C>
Obligations of U.S. Treasury
and other U.S. Government Agencies:
0 - 1 Yr $3,873,433 5.66%
1 - 5 Yrs 3,496,403 5.86%
5 - 10 Yrs 1,000,951 6.01%
Other securities:
No stated maturity 281,700 5.90%
----------
Total $8,652,487 5.53%
==========
</TABLE>
The weighted average yields for tax exempt securities, if applicable,
are computed on a tax equivalent basis.
DEPOSITS
The Banks offer a full range of interest bearing and non-interest
bearing accounts, including commercial and retail checking accounts, negotiable
order of withdrawal ("NOW") accounts, public funds accounts, money market
accounts with limited transactions, individual retirement accounts, including
Keogh plans with stated maturities, regular interest bearing statement savings
accounts and certificates of deposit with fixed and variable rates and a range
of maturity date options. The sources of deposits are residents, businesses and
employees of businesses within the Bank's market areas, obtained through the
personal solicitation of the Bank's officers and directors, direct mail
solicitation and advertisements published in the local media. The Bank pays
competitive interest rates on time and savings deposits. In addition, the Bank
has implemented a service charge fee schedule competitive with other financial
institutions in the Bank's market areas, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking accounts,
returned check charges and the like.
The following table presents, for the for the period from June 1, 1998
(the date the Company commenced its banking operations) through December 31,
1998 the average amount of and average rate paid on each of the following
deposit categories. Average rates paid calculations have been annualized to
portray results of a full fiscal year.
<TABLE>
<CAPTION>
DEPOSIT CATEGORY AVERAGE AMOUNT AVERAGE RATE PAID
- ---------------- -------------- -----------------
<S> <C> <C>
Non interest-bearing
demand deposits $1,322,931 N/A
Savings deposits $ 518,707 2.76%
Time deposits $3,064,775 5.44%
Other interest bearing deposits $ 939,134 4.01%
</TABLE>
6
<PAGE> 9
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and their respective maturities as of December
31, 1998:
<TABLE>
<CAPTION>
TIME CERTIFICATES
OF DEPOSITS
-----------------
<S> <C>
3 months of less $ 0
4 - 6 months 301,434
7 - 12 months 963,075
Over 12 months 101,935
----------
Total $1,366,444
==========
</TABLE>
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity
for the year ended December 31, 1998 were as follows:
<TABLE>
<S> <C>
Return on Average Assets ...................................... (4.95)%
Return on Average Equity ...................................... (6.45)%
Average Equity to Average Assets Ratio ........................ 76.84%
</TABLE>
SHORT-TERM BORROWINGS
The Banks enter into various arrangements with customers to sell
securities under agreements to repurchase ("Repurchase Agreements"). The
Repurchase Agreements have been accounted for as short-term borrowings with the
obligation to repurchase the securities reflected as a non-deposit
interest-bearing liability. For the year ended December 31, 1998, the Company
had no category of borrowings, for which the average balances outstanding during
the year amounted to 30 % or more of stockholders' equity.
ASSET/LIABILITY MANAGEMENT
It is the objective of the Company to manage assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies. Certain
of the officers of the Banks are responsible for monitoring policies and
procedures that are designed to ensure acceptable composition of the
asset/liability mix, stability and leverage of all sources of funds while
adhering to prudent banking practices. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Company seeks to invest the largest portion of
its assets in commercial, consumer and real estate loans.
The Bank's asset/liability mix is monitored on a monthly basis and a
quarterly report reflecting interest-sensitive assets and interest-sensitive
liabilities is prepared and presented to the Bank's Boards of Directors. The
objective of this policy is to control interest-sensitive assets and liabilities
so as to minimize the impact of substantial movements in interest rates on the
Bank's earnings.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Interest Sensitivity," in the Company's 1998 Annual
Report for an analysis of rate sensitive assets and liabilities.
CORRESPONDENT BANKING
Correspondent banking involves the provision of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. The Bank is required to purchase correspondent services
offered by larger banks, including check collections, purchase of Federal Funds,
security safekeeping, investment services, coin and currency supplies, overline,
and liquidity loan participations and sales of loans to or participations with
correspondent banks.
The Bank sells loan participations to correspondent banks with respect
to loans which exceed the Bank's lending limits. Management of the Bank has
established a correspondent relationship with the Independent Bankers Bank of
Florida, Orlando, Florida and SunTrust Bank, Central Florida N.A.
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<PAGE> 10
EMPLOYEES
The Company presently employs 14 persons full-time and 2 persons
part-time, including 8 officers. The Company will hire additional persons as
needed on a full-time and part-time basis, including additional tellers and
customer service representatives to support its growth objectives.
MONETARY POLICIES
The results of operations of the Company are affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. Government securities, changes in the discount
rate on member bank borrowings, changes in reserve requirements against member
bank deposits and limitations on interest rates which member banks may pay on
time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of the Company.
SUPERVISION AND REGULATION
Banks and their holding companies, and many of their affiliates, are
extensively regulated under both federal and state law. The following is a brief
summary of certain statutes, rules, and regulations affecting the Company and
the Bank. This summary is qualified in its entirety by reference to the
particular statutory and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank. Any change in the
applicable law or regulation may have a material effect on the business and
prospects of the Company and the Bank. Supervision, regulation, and examination
of banks by regulatory agencies are intended primarily for the protection of
depositors, rather than shareholders.
Bank Holding Company Regulation. The Company is a bank holding company
registered with the Federal Reserve under the BHC Act. As such, the Company is
subject to the supervision, examination and reporting requirements of the BHC
Act and the regulations of the Federal Reserve. The Company is required to
furnish to the Federal Reserve an annual report of its operations at the end of
each fiscal year, and such additional information as the Federal Reserve may
require pursuant to the BHC Act. The BHC Act requires that a bank holding
company obtain the prior approval of the Federal Reserve before (i) acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank, (ii) taking any action that causes a bank to become a subsidiary of
the bank holding company, or (iii) merging or consolidating with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues includes the parties'
performance under the Community Reinvestment Act of 1977 (the "CRA"), both of
which are discussed below.
The BHC Act generally prohibits a bank holding company from engaging in
activities other than banking, or managing or controlling banks or other
permissible subsidiaries, and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In determining
whether a particular activity is permissible, the Federal Reserve must consider
whether the performance of such an activity can reasonably be expected to
produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency that outweigh possible adverse effects, such
as undue concentration of resources, decreased or unfair competition, conflicts
of interest, or unsound banking practices. For example, factoring accounts
receivable, acquiring or servicing loans, leasing personal property, conducting
securities brokerage activities, performing certain data processing services,
acting as agent or broker in selling credit life insurance and certain other
types of insurance in connection with credit transactions, and certain insurance
underwriting activities have all been determined by regulations of the Federal
Reserve to be permissible activities of bank holding companies. Despite prior
approval, the Federal Reserve has the power to order a holding company or its
subsidiaries to terminate any activity or terminate its ownership or control of
any subsidiary, when it has reasonable
8
<PAGE> 11
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
Banks are subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is required, in connection
with its examination of a bank, to assess such bank's record in meeting the
credit needs of the community served by that bank, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such assessment is required of
any bank which has applied to (i) charter a national bank, (ii) obtain deposit
insurance coverage for a newly chartered institution, (iii) establish a new
branch office that will accept deposits, (iv) relocate an office, or (v) merge
or consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution. In the case of a bank holding company
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve will assess the record of each subsidiary bank of the applicant
bank holding company, and such records may be the basis for denying the
application.
Bank Regulation. The Bank is chartered under the National Banking Act.
The Bank's deposits are insured by the FDIC to the extent provided by law. The
Bank is subject to comprehensive regulation, examination and supervision by the
OCC. The Bank is also subject to other laws and regulations applicable to banks.
Such regulations include limitations on loans to a single borrower and to its
directors, officers and employees; restrictions on the opening and closing of
branch offices; the maintenance of required capital and liquidity ratios; the
granting of credit under equal and fair conditions; and the disclosure of the
costs and terms of such credit. The Bank is examined periodically by the OCC, to
whom the Bank submits periodic reports regarding its financial condition and
other matters. The OCC has a broad range of powers to enforce regulations under
its jurisdiction, and to take discretionary actions determined to be for the
protection and safety and soundness of banks, including the institution of cease
and desist orders and the removal of directors and officers. The OCC also has
the authority to approve or disapprove mergers, consolidations, and similar
corporate actions.
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in the stock or other
securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. In addition, banks are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or the
providing of any property or service.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(AFIRREA@) contains capital standards for bank holding companies and banks civil
and criminal enforcement provisions. FIRREA also provides that a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (i) the
default of a commonly controlled FDIC insured depository institution, or (ii)
any assistance provided by the FDIC to a commonly controlled FDIC insured
institution in danger of default.
The FDIC Improvement Act of 1991 ("FDICIA") enacted a number of
provisions addressing the safety and soundness of deposit insurance funds,
supervision, accounting, and prompt regulatory action, and also implemented
other regulatory improvements. Annual full-scope, on-site examinations are
required of all insured depository institutions. The cost for conducting an
examination of an institution may be assessed to that institution, with special
consideration given to affiliates and any penalties imposed for failure to
provide information requested. Insured state banks also are precluded from
engaging as principal in any type of activity that is impermissible for a
national bank, including activities relating to insurance and equity
investments. FDICIA also recodified current law restricting extensions of credit
to insiders under the Federal Reserve Act.
Transactions with Affiliates. There are various legal restrictions on
the extent to which the Company and any future nonbank subsidiaries can borrow
or otherwise obtain credit from the Bank. There also are legal restrictions on
the Bank's purchase of or investments in the securities of and purchases of
assets from the Company and any of its future nonbank subsidiaries, the Bank's
loans or extensions of credit to third parties collateralized by the securities
or obligations of the Company and any of its future nonbank subsidiaries, the
issuance of guarantees, acceptances, and letters of credit on behalf of the
Company and any of its future nonbank subsidiaries, and certain bank
transactions with the Company and any of its future nonbank subsidiaries, or
with respect to which the Company and nonbank subsidiaries act as agent,
participate or have a financial interest. Subject to certain limited exceptions,
the Bank may not extend credit to the Company or to any other affiliate in an
amount which exceeds 10% of the Bank's capital stock and surplus and may not
extend credit in the aggregate to such affiliates in an amount which exceeds 20%
of its capital stock and surplus. Further, there are legal requirements as to
the type, amount and quality of collateral which must secure such extensions of
credit transactions between the Bank and the Company or such other affiliates,
and such transactions must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the Bank
as those prevailing at the time for comparable transactions with non-affiliated
companies. Also, the Company and its subsidiaries are prohibited from engaging
in certain tie-in arrangements in connection with any extension of credit, lease
or sale of property or furnishing of services.
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<PAGE> 12
Dividends. Dividends from the Bank constitute the primary source of
funds for dividends to be paid by the Company. There also are various statutory
and contractual limitations on the ability of the Bank to pay dividends, extend
credit, or otherwise supply funds to the Company. As a national bank, the Bank
may not pay dividends from its paid-in surplus. All dividends must be paid out
of undivided profits then on hand, after deducting expenses, including reserves
for losses and bad debts. In addition, a national bank is prohibited from
declaring a dividend on its shares of common stock until its surplus equals its
stated capital, unless there has been transferred to surplus no less than
one-tenth of the bank's net profits of the preceding two consecutive half-year
periods (in the case of an annual dividend). The approval of the OCC is required
if the total of all dividends declared by a national bank in any calendar year
exceeds the total of its net profits for that year combined with its retained
net profits for the preceding two years, less any required transfers to surplus.
Florida law applicable to companies (including the Company) provides that
dividends may be declared and paid only if, after giving it effect, (i) the
company is able to pay its debts as they become due in the usual course of
business, and (ii) the company's total assets would be greater than the sum of
its total liabilities plus the amount that would be needed if the company were
to be dissolved at the time of the dividend to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the dividend.
Capital Requirements. The federal bank regulatory authorities have
adopted risk-based capital guidelines for banks and bank holding companies that
are designed to make regulatory capital requirements more sensitive to
differences in risk profile among banks and bank holding companies. The
resulting capital ratios represent qualifying capital as a percentage of total
risk-weighted assets and off-balance sheet items. The guidelines are minimums,
and the federal regulators have noted that banks and bank holding companies
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain all ratios well in excess of
the minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio
equal to 8%, of which at least 4% must be Tier 1 capital. Tier 1 capital
includes common stockholders' equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles and excludes the allowance for loan and
lease losses. Tier 2 capital includes the excess of any preferred stock not
included in Tier 1 capital, mandatory convertible securities, hybrid capital
instruments, subordinated debt and intermediate term-preferred stock, and
general reserves for loan and lease losses up to 1.25% of risk-weighted assets.
FDICIA contains "prompt corrective action" provisions pursuant to which
banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized" or "critically undercapitalized".
The OCC has issued regulations to implement the "prompt corrective
action" provisions of FDICIA. In general, the regulations define the five
capital categories as follows: (i) an institution is "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not
subject to any written capital order or directive to meet and maintain a
specific capital level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based
capital ratio that is less than 4% or has a leverage ratio that is less than 4%;
(iv) an institution is "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio
that is less than 3% or a leverage ratio that is less than 3%; and (v) an
institution is "critically undercapitalized" if its "tangible equity" is equal
to or less than 2% of its total assets. The OCC also, after an opportunity for a
hearing, has authority to downgrade an institution from "well capitalized" to
"adequately capitalized" or to subject an "adequately capitalized" or
"undercapitalized" institution to the supervisory actions applicable to the next
lower category, for supervisory concerns. The degree of regulatory scrutiny of a
financial institution will increase, and the permissible activities of the
institution will decrease, as it moves downward through the capital categories.
Institutions that fall into one of the three undercapitalized categories may be
required to (i) submit a capital restoration plan; (ii) raise additional
capital; (iii) restrict their growth, deposit interest rates, and other
activities; (iv) improve their management; (v) eliminate management fees; or
(vi) divest themselves of all or part of their operations. Bank holding
companies controlling financial institutions can be called upon to boost the
institutions' capital and to partially guarantee the institutions' performance
under their capital restoration plans. These capital guidelines can affect the
Company in several ways. After completion of this offering, the Company's
capital levels will be in excess of those required to be maintained by a "well
capitalized" financial institution. However, rapid growth, poor loan portfolio
performance, or poor earnings performance, or a combination of these factors,
could change the Company's capital position in a relatively short period of
time, making an additional capital infusion necessary.
Additionally, FDICIA requires, among other things, that (i) only a
"well capitalized" depository institution may accept brokered deposits without
prior regulatory approval and (ii) the appropriate federal banking agency
annually examine all insured
10
<PAGE> 13
depository institutions, with some exceptions for small, "well capitalized"
institutions and state-chartered institutions examined by state regulators.
FDICIA also contains a number of consumer banking provisions, including
disclosure requirements and substantiative contractual limitations with respect
to deposit accounts.
Enforcement Powers. Congress has provided the federal bank regulatory
agencies with an array of powers to enforce laws, rules, regulations and orders.
Among other things, the agencies may require that institutions cease and desist
from certain activities, may preclude persons from participating in the affairs
of insured depository institutions, may suspend or remove deposit insurance, and
may impose civil money penalties against institution-affiliated parties for
certain violations.
Maximum Legal Interest Rates. Like the laws of many states, Florida law
contains provisions on interest rates that may be charged by banks and other
lenders on certain types of loans. Numerous exceptions exist to the general
interest limitations imposed by Florida law. The relative importance of these
interest limitation laws to the financial operations of the Bank will vary from
time to time, depending on a number of factors, including conditions in the
money markets, the costs and availability of funds, and prevailing interest
rates.
Bank Branching. Banks in Florida are permitted to branch state wide.
Such branch banking by national banks, however, is subject to prior approval by
the OCC. Any such approval would take into consideration several factors,
including the bank's level of capital, the prospects and economics of the
proposed branch office, and other conditions deemed relevant by the OCC for
purposes of determining whether approval should be granted to open a branch
office. For information regarding legislation on interstate branching in
Florida, see "--Interstate Banking" below.
Change of Control. Federal law restricts the amount of voting stock of
a bank holding company and a bank that a person may acquire without the prior
approval of banking regulators. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or
similar means than it might be to acquire control of another type of
corporation. Consequently, shareholders of the Company may be less likely to
benefit from the rapid increases in stock prices that may result from tender
offers or similar efforts to acquire control of other companies. Federal law
also imposes restrictions on acquisitions of stock in a bank holding company and
a state bank. Under the federal Change in Bank Control Act and the regulations
thereunder, a person or group must give advance notice to the Federal Reserve
before acquiring control of any bank holding company and the OCC before
acquiring control of any national bank (such as the Bank). Upon receipt of such
notice, the Federal Reserve or the OCC, as the case may be, may approve or
disapprove the acquisition. The Change in Bank Control Act creates a rebuttable
presumption of control if a member or group acquires a certain percentage or
more of a bank holding company's or state bank's voting stock, or if one or more
other control factors set forth in the Act are present.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, provides for nationwide interstate banking and
branching. Under the law, interstate acquisitions of banks or bank holding
companies in any state by bank holding companies in any other state are
permissible subject to certain limitations. Florida also has a law that allows
out-of-state bank holding companies (located in states that allow Florida bank
holding companies to acquire banks and bank holding companies in that state) to
acquire Florida banks and Florida bank holding companies. The law essentially
provides for out-of-state entry by acquisition only (and not by interstate
branching) and requires the acquired Florida bank to have been in existence for
at least three years. Interstate branching and consolidation of existing bank
subsidiaries in different states is permissible. A Florida bank also may
establish, maintain, and operate one or more branches in a state other than
Florida pursuant to an interstate merger transaction in which the Florida bank
is the resulting bank. An interstate merger transaction resulting in the
acquisition by an out-of-state bank of a Florida bank is not permitted unless
the Florida bank has been in existence and continuously operating, on the date
of the acquisition, for more than three years.
Effect of Governmental Policies. The earnings and businesses of the
Company and the Bank are affected by the policies of various regulatory
authorities of the United States, especially the Federal Reserve. The Federal
Reserve, among other things, regulates the supply of credit and deals with
general economic conditions within the United States. The instruments of
monetary policy employed by the Federal Reserve for those purposes influence in
various ways the overall level of investments, loans, other extensions of
credit, and deposits, and the interest rates paid on liabilities and received on
assets.
11
<PAGE> 14
INDUSTRY RESTRUCTURING
For well over a decade, the banking industry has been undergoing a
restructuring process which is anticipated to continue. The restructuring has
been caused by product and technological innovations in the financial services
industry, deregulation of interest rates, and increased competition from foreign
and nontraditional banking competitors, and has been characterized principally
by the gradual erosion of geographic barriers to intrastate and interstate
banking and the gradual expansion of investment and lending authorities for bank
institutions.
Members of Congress and the administration have indicated their
intention to consider additional legislation designed to institute reforms to
promote the viability of the industry. Certain of the proposals would revise the
federal regulatory structure for insured depository institutions; others would
affect the nature of products, services, and activities that bank holding
companies and their subsidiaries may offer or engage in, and the types of
entities that may control depository institutions. There can be no assurance as
to whether or in what form any such proposed legislation might be enacted, or
what impact such legislation might have upon the Company.
ITEM 2. PROPERTIES
The Company currently conducts all of its banking operations through
its main banking office located in the community of Port Charlotte, Charlotte
County, Florida. The Company owns the land and premises, which is comprised of
approximately 7,850 square feet of banking office space on the 1.1 acre site.
The Company also owns a 0.82 acre site in the City of North Port,
Sarasota County, Florida on which it intends to contruct a branch office
scheduled for development during the second half of 1999.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
either of the Banks is a party or of which any of their properties are subject;
nor are there material proceedings known to the Company to be contemplated by
any governmental authority; nor are there material proceedings known to the
Company, pending or contemplated, in which any director, officer or affiliate or
any principal security holder of the Company, or any associate of any of the
foregoing, is a party or has an interest adverse to the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter ended December 31,
1998 to a vote of security holders of the Company.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is hereby incorporated by reference
from the Company's 1998 Annual Report to Shareholders, page 7. The Annual Report
is filed as an exhibit to this report on Form 10-KSB.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 6 is hereby incorporated by reference
from the Company's 1998 Annual Report to Shareholders, pages 2-6. The Annual
Report is filed as an exhibit to this report on Form 10-KSB.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 7 is hereby incorporated by reference
from the Company's 1998 Annual Report to Shareholders, pages 8-31. The Annual
Report is filed as an exhibit to this report on Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
13
<PAGE> 16
PART III
The information required by Part III of Form 10-K is, pursuant to
General Instruction (G) of Form 10-KSB, is incorporated by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
relating to the Company's annual meeting of shareholders to be held in April
1999. The Company, will within 120 days of the end of its fiscal year, file with
the Securities and Exchange Commission a definitive proxy statement pursuant to
Regulation 14A.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Incorporated by reference.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 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, are hereby incorporated by reference from, a
Registration Statement on Form SB-2 under the Securities Act of 1933 for the
Registrant, Registration No. 333-39609, including amendments thereto.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
* 3.1 Articles of Incorporation
* 3.2 Bylaws
* 10.1 1997 Stock Option Plan and Form of Certificate**
* 10.2 Form of Employment Agreement between the Company and Lewis S. Albert**
* 10.3 Form of Employment Agreement between the Company and Todd H. Katz**
* 10.4 Form of Stock Purchase Warrant
13.1 1998 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth
quarter of 1998.
- --------------
** Represents a management contract of compensatory plan or arrangement required
to be filed as an exhibit.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Section 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.
TARPON COAST BANCORP, INC.
Date: March 8, 1999 By: /s/ Lewis S. Albert
-------------------------------------------------
Lewis S. Albert,
Chairman of the Board and Chief Executive Officer
Date: March 8, 1999 By: /s/ George E. Cline
-------------------------------------------------
George E. Cline, Senior Vice President and Chief
Financial Officer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities 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/ Lewis S. Albert Chairman of the Board and March 8, 1999
- --------------------------- Chief Executive Officer
Lewis S. Albert
/s/ Todd H. Katz Vice-Chairman March 8, 1999
- --------------------------- and President
Todd H. Katz
/s/ Mark O. Asperilla, M.D. Director March 8, 1999
- ---------------------------
Mark O. Asperilla, M.D.
/s/ James R. Baker Director March 8, 1999
- ---------------------------
James R. Baker
/s/ Billie A. Barger Director March 8, 1999
- ---------------------------
Billie A. Barger
/s/ James C. Brown Director March 8, 1999
- ---------------------------
James C. Brown
/s/ Gerald P. Flagel Director March 8, 1999
- ---------------------------
Gerald P. Flagel
/s/ Gina D. Hahn Director March 8, 1999
- ---------------------------
Gina D. Hahn
/s/ Larry A. Tenbusch Director March 8, 1999
- ---------------------------
Larry A. Tenbusch
</TABLE>
15
<PAGE> 1
EXHIBIT 13.1
1998 Annual Report to Shareholders
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
LETTER TO SHAREHOLDERS AND FRIENDS 1
SELECTED FINANCIAL DATA 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3
MARKET FOR COMMON STOCK 7
CONSOLIDATED BALANCE SHEETS 8
CONSOLIDATED STATEMENTS OF OPERATIONS 9
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 10
CONSOLIDATED STATEMENTS OF CASH FLOWS 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13
INDEPENDENT AUDITORS' REPORT 31
CORPORATE INFORMATION 32
</TABLE>
ANNUAL MEETING
The Annual Meeting of Shareholders will
be held on Monday, April 26, 1999 at
5:00 P.M. at the Best Western Waterfront
Hotel in Punta Gorda, Florida
<PAGE> 2
TO OUR SHAREHOLDERS AND FRIENDS:
It is with great pleasure and excitement that we present you with our first
annual report. Since January 28, 1998, when we closed on our initial public
offering of common stock, we have been working at a feverish pitch to open our
banking subsidiary, Tarpon Coast National Bank, and generate deposit and loan
relationships. To list all we accomplished during 1998 would prove exhaustive;
however, there are certain key events, and achievements, which we wish to convey
to you.
First and foremost, we obtained the Bank's charter, together with F.D.I.C.
deposit insurance, on June 1st and opened our doors that very day in a modest,
yet effective, modular banking facility. As featured on the cover of this Annual
Report, we completed our permanent banking facility and opened the doors this
past February. Expansion of our banking presence is already underway with the
acquisition and planned construction of our first branch office to be located in
the City of North Port, Sarasota County, Florida, which is scheduled to open in
temporary facilities this coming June. The Branch's permanent facility is
expected to be ready before year-end.
Founded in the tradition of a community bank, we are dedicated to friendly,
personal service and to building relationships with our clients. From greeting
each customer by name to providing you with innovative products and services, we
take those extra steps necessary to provide the finest possible banking
experience. In only the seven months during 1998 in which we were open, the
Company has achieved total assets of $22.8 million, attracted over $12 million
in customer deposits, and generated in excess of $10 million in loan demand of
which $7.4 million had been funded by year-end. We believe this is a strong
indicator of how our concept of commitment to customer service and community has
been accepted in our target markets.
While we lost $653,000 during the year, it is important to note that $130,000 of
these losses were incurred during the organizational period to June 1, 1998. In
addition, $154,000 has been set aside to build the Allowance for Possible Loan
Losses ("Allowance") against which we have not had any losses to date. Further,
the Allowance, which represents 2.09% of total loans, is substantially in excess
of the peer-group average and reflects our conservative approach to managing the
financial affairs of the Bank. This is borne out by the credit quality of our
loan portfolio. At December 31, 1998, the Bank did not have any past-due or
non-performing loans. We encourage you to read the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of this
report for more details on the overall financial performance of the Company.
We would be remiss if we failed to acknowledge our dedicated banking
professionals and their enormous contribution to our successful beginnings. The
management and staff of the Company and the Bank have performed at the highest
level of commitment and excelled at implementing and executing our business plan
and strategies. Without their dedication, the Bank would not have achieved its
vision or its prospects for the future.
We must also recognize our Board of Directors who have invested countless hours
to ensure that real shareholder value would be created. Through their experience
and advice, together with their leadership roles in the community, this group
has provided the impetus for our origins and our continued successes.
We encourage you to attend our first Annual Shareholders' Meeting, which will be
held on Monday April 26, 1999 at 5:00 P.M. at the Best Western Waterfront Hotel,
Punta Gorda, Florida. This is an opportunity for us to showcase the Company and
the Bank, answer any questions you may have, to celebrate our accomplishments,
and rededicate ourselves to similar efforts for the ensuing year. We intend to
make the meeting as meaningful and lively as possible.
In closing, each of our directors, management and staff extends our heartfelt
thanks to you for the tremendous support and assistance you have provided in
turning a dream into the reality that is Tarpon Coast National Bank.
Sincerely,
/s/ Lewis S. Albert /s/ Todd H. Katz
Lewis S. Albert Todd H. Katz
Chairman & Vice Chairman
Chief Executive Officer & President
1
<PAGE> 3
SELECTED FINANCIAL DATA
The selected financial data of the Company presented below as of and for the
years ended December 31, 1998 and 1997 have been derived from consolidated
financial statements of the Company. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto.
<TABLE>
<CAPTION>
As of and for the
Years Ended December 31,
------------------------
(Dollars In Thousands)
1998 1997
------- ------
<S> <C> <C>
SUMMARY OF FINANCIAL CONDITION:
Total assets $22,837 $ 245
Total cash and cash equivalents 4,691 75
Securities available for sale 8,652 --
Loans receivable, net of allowance for loan losses 7,213 --
Total deposits 12,202 --
Total shareholders' equity 10,141 (170)
Average shareholders' equity 10,128 --
Average total assets 13,181 --
SUMMARY OF OPERATING RESULTS:
Total interest and dividend income 691 --
Total interest expense 132 --
Net interest income 559 --
Provision for loan losses 154 --
Total non-interest income 18 --
Total non-interest expense 1,076 171
Income (loss) before income taxes (653) (171)
Income tax expense -- --
Net loss (653) (171)
SUPPLEMENTAL DATA:
Return on average total assets (4.95)% --
Return on average shareholders' equity (6.45)% --
Net interest rate spread (1) 4.23% --
Net yield on average interest-earning assets (2) 4.96% --
Net interest income to operating expenses (3) 55.69% --
Average shareholders' equity to average total assets 76.84% --
Average interest-earning assets to average interest-bearing liabilities 4.1:1 --
Non-performing assets to total assets -- --
Non-performing loans to total loan receivable -- --
Allowance for loan losses to total loans receivable 2.09% --
Allowance for loan losses to non-performing loans receivable -- --
Basic and diluted loss per common share $(.60) --
Dividends declared per share -- --
Book value per share -- --
Number of offices 1 --
</TABLE>
(1) Interest rate spread is calculated by subtracting average interest rate
cost from average interest rate earned.
(2) Net interest income divided by average interest earning assets.
(3) Operating expenses consist of other expenses, less income taxes.
2
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Details regarding the Company's financial performance are presented in the
following discussion, which should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Report.
INTRODUCTION
Tarpon Coast Bancorp, Inc. (the "Company") was formed in August 1997. However
its primary operating subsidiary, Tarpon Coast National Bank (the "Bank") did
not commence operations until June 1, 1998. Until that time, the Company's
operations were limited to the organization of the Bank, and raising of its
initial capital through the offering of $11,500,000 of its common stock.
As the Company did not commence its banking operations until June 1, 1998,
financial condition and results of operations as of and for the year ended
December 31, 1998 are not comparable to those as of and for the period ended
December 31, 1997.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
FINANCIAL CONDITION
For the year ended December 31, 1998, the Company experienced growth in assets,
loans and deposits. Total assets were $22,837,514, compared to $244,773 at year
end 1997. This increase was due principally to the completion of the Company's
common stock offering (the "Offering") which generated approximately $10.7
million in net proceeds together with an increase in customer deposits
aggregating approximately $12.2 million. These funds were used to generate net
loan demand of $7.4 million, while investment securities increased to $8.6
million. The remaining funds have been invested in overnight Federal Funds sold
of $3.7 million and to fund the Bank's $2.1 million investment in premises and
equipment and for other operating purposes. Total earning assets increased to
$19.7 million at December 31, 1998.
RESULTS OF OPERATIONS
Interest income increased to $691,000 for 1998 compared to $0 for 1997. Interest
income for 1998 included $165,000 of interest earned on escrowed Offering
proceeds during its organizational period to June 1, 1998. Average yields on
average earning assets were 6.62% for 1998. Interest and fees on loans were
$149,000 for the year for an average yield of 9.86%; interest on investment
securities for the period was $234,000 for an average yield of 5.98%; and
interest on Federal Funds sold was $143,000 for an average yield of 5.67%.
Interest expense increased to $132,000 for 1998 as compared to $0 for 1997 of
which $128,000 pertained to interest-bearing deposits and $4,000 to customer
repurchase agreements. The average rate paid on interest-bearing liabilities was
3.21% in 1998.
Net interest income increased to $559,000 for 1998 as compared to $0 for 1997.
The net interest margin for 1998 was 4.92%.
Non-interest income for 1998 increased to $18,000 as compared to $0 for 1997.
The increase resulted primarily from commencement of its banking operations,
deposit activity and the expansion of fee generating services.
Total non-interest expense increased to $1,076,000 for 1998 compared to $171,000
for 1997. Salaries and benefits expense represented the area of greatest change,
increasing from $0 in 1997 to $571,000 in 1998. Full-time equivalent employees
increased from 0 at December 31, 1997 to 13 at December 31, 1998 in response to
the commencement of the Company's banking operations. Total assets per full-time
equivalent employee were $1,757,000 at December 31, 1998. The remaining increase
in non-interest expenses was represented principally by occupancy and equipment
expenses of $228,000 for 1998 as compared to $0 for 1997.
The provision for possible loan losses for 1998 increased to $154,000 and
initially has been established at a rate of 1.5% of outstanding loans and
unfunded loan commitments. While management believes that the credit quality of
the portfolio has not been diminished, because of the lack of historical loss
rates, a general reserve of 1% together with a 0.5% reserve for potential Year
2000 credit risk has been established.
LOAN PORTFOLIO
Management believes that general economic conditions in the Company's operating
area, including the real estate market, continue to be healthy due to the growth
in the area's population and demand for property and services. Accordingly,
there was substantial demand for consumer and commercial loans during 1998 as
loans increased to $7.4 million at December 31, 1998. At December 31, 1998,
commercial loans represented 77.9% of total loans; residential real estate loans
represented 7.4% loans; lines of credit 0.9%; and consumer loans were 13.8%.
Commercial seasonal lending activity is focused on short-term working capital
loans and commercial real estate term loans. The Company
3
<PAGE> 5
generally does not seek to purchase or participate in loans of other
institutions due to the adequacy of demand in its operating area. The Company
did not have any non-performing or non-accruing loans during the course of 1998.
There were no loans that would represent troubled debt restructurings at
December 31, 1998.
DEPOSITS
Total deposits increased to $12.2 million at December 31, 1998. The change was
realized primarily in interest bearing deposits, which increased to $10 million
while non-interest bearing deposits increased to $2.2 million. At December 31,
1998, time deposits represented 59% of total deposits. Other interest bearing
deposits represented 23% of total deposits.
CAPITAL RESOURCES AND LIQUIDITY
Management of the Company has developed a strategic initiative that provides for
the expansion of its banking operations into new primary service areas, as well
as continued expansion of its market share in its existing market. In this
regard, certain initial outlays are required to fund the opening of branch
facilities, including investment in premises and equipment, staffing and
promotional activities. While it is anticipated that interest income will
increase commensurate with interest expense upon the attraction of deposits,
non-interest expenses will generally be disproportionately higher until such
time as the volume of deposits and earning assets generate net interest income
and service fees sufficient to cover these costs. Management's philosophy in
each instance of expansion is to attract deposit relationships through the
offering of competitive rates, terms and service convenience, including the
promotion of higher than market rate time deposits. As it is the Company's
philosophy to consider the investment portfolio principally as a source of
liquidity, deposit growth, except to the extent necessary to maintain such
liquidity, is generally utilized to fund the higher yielding loan portfolio,
particularly commercial and consumer lending. In addition, it is management's
practice to maintain the Company's "well capitalized" status under regulatory
guidelines when planning its expansion activities.
Consistent with the objective of operating a sound financial organization, the
Company maintains high capital ratios. Regulatory agencies including the Office
of the Comptroller of the Currency and the Federal Reserve Bank have approved
guidelines for a risk-based capital framework that makes capital requirements
more sensitive to the risks germane to each individual institution. The
guidelines require that total capital of 8% be held against total risk-adjusted
assets. At December 31, 1998, the Company's Tier I capital ratio was 83.06%,
total risk-based capital ratio was 84.26% and the leverage ratio was 76.83%.
The Company's ability to satisfy demands for credit, deposit withdrawals and
other corporate needs depends on its level of liquidity. The Company utilizes
several means to manage its liquidity. Traditionally, increases in deposits are
sufficient to provide adequate levels of liquidity; however, if needed, the
Company has approved extensions of credit available from correspondent banks,
sources for loan sales and primarily short-term investments that could be
liquidated if necessary. While the Company has not had a need to utilize these
sources of liquidity, it continues to maintain their availability on a
contingent basis.
4
<PAGE> 6
INTEREST SENSITIVITY
The following is a combined maturity and repricing analysis of rate-sensitive
assets and liabilities as of December 31, 1998.
<TABLE>
<CAPTION>
0-90 91-180 181-365 OVER
DAYS DAYS DAYS 1 YEAR TOTAL
------ ------ ------ -------- -------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal Funds Sold $3,700 $ -- $ -- $ -- $ 3,700
Investment Securities -- -- 3,873 4,779 8,652
Loans 208 485 739 5,935 7,367
------ ------ ------ ------- -------
Total Interest Earning Assets 3,908 485 4,612 10,714 19,719
------ ------ ------ ------- -------
Interest Bearing Liabilities 3,596 931 5,029 893 10,449
------ ------ ------ ------- -------
Excess (Deficiency) of Rate
Sensitive Assets Less Rate
Sensitive Liabilities $ 312 $ (446) $ (417) $ 9,821 $ 9,270
====== ====== ====== ======= =======
Excess (Deficiency) as a
Percentage of Earning Assets 1.58% -2.26% -2.11% 49.80% 47.01%
Cumulative Excess (Deficiency) $ 312 $ (134) $ (551) $ 9,270
====== ====== ====== =======
Cumulative Excess (Deficiency)
As a Percentage of
Earning Assets 1.58% -0.68% -2.79% 47.01%
</TABLE>
The objective of interest-sensitivity management is to minimize the risk
associated with the effect of interest rate changes on net interest margins
while maintaining net interest income at acceptable levels. Managing this risk
involves monthly monitoring of the interest-sensitive assets relative to
interest-sensitive liabilities over specific time intervals. All assets and
liabilities are evaluated as maturing at the earlier of repricing date or
contractual maturity date. While liabilities without specific terms such as
money market, NOW and savings accounts are generally considered core deposits
for liquidity purposes, they are deemed to reprice immediately for purposes of
interest rate sensitivity analysis. Except for the Company's "Treasure Checking"
which is tied to the 13 week U.S. Treasury auction rate, management subjectively
sets rates on each of these accounts.
At December 31, 1998, the Company had $6.1 million in interest-sensitive assets
compared to $9.6 million in interest-sensitive liabilities (of which $2.9
million were considered core deposits) that will mature or reprice within a
year.
A negative gap position is indicative of a bank which has a greater amount of
interest-sensitive liabilities repricing (or maturing) than it does
interest-sensitive assets, in a given time interval. In this instance, the
impact on net interest income would be positive in a declining rate environment
and negative if rates were rising. Conversely, a positive gap position
represents a greater amount of interest-sensitive assets repricing (or
maturing). Thus, an increase in rates would positively impact net interest
income, as the yield on earning assets would increase prior to the increase in
the cost of interest-bearing liabilities. The impact on net interest income
described above is general, as other factors would additionally maximize or
minimize the effect. For example, a change in the prime interest rate could
effect an immediate change to rates on prime related assets, whereas a liability
which reprices according to changes in Treasury rates might (1) lag in the
timing of the change and (2) change rates in an amount less than the change in
the prime interest rate.
Management believes that the current balance sheet structure of
interest-sensitive assets and liabilities does not represent a material risk to
earnings or liquidity in the event of a change in market rates.
PROPOSED EXPENDITURES
At December 31, 1998, the Company was in the final stages of completion of its
main banking facility. Expenditures required to complete and equip the facility
are estimated at approximately $604,000 at December 31, 1998. The Company took
occupancy in February 1999. The Company holds .82 acres of land to serve as a
branch site in the City of North Port, Sarasota County Florida. The Company has
not as yet determined the amount of expenditures necessary to convert the site
to a branch bank, which is scheduled for completion in the forth quarter of
1999.
IMPACT OF YEAR 2000 MATTERS
The year 2000 issue arises from the historical practice of utilizing a two-digit
field rather than a four-digit field to define the applicable year. As a result,
date-sensitive software and/or hardware may result in systems failures or other
disruptions in operations and impede normal business activities. Regulatory
agencies to the financial institutions industry have established policies and
procedures which commercial banks are to follow in the identification,
modification, and validation of systems deemed mission critical.
In accordance with these guidelines, the Company has developed a comprehensive
plan which management believes will result in the timely identification and,
where applicable, modification and validation of affected systems and hardware
in advance of December 1999. The Company has completed a top-down assessment of
its mission critical and other systems and is currently in the validation phase
for all Year 2000 critical dates
5
<PAGE> 7
through March 2000. Designated critical dates subsequent to March 2000 will be
verified for compliance before July 1999.
Recognizing the potential for credit and liquidity risks that the Year 2000
issue may impose on the Company's significant borrowers and depositors, the
Company has implemented an assessment process utilizing a checklist system to
identify potential exposures to the Company should there be a failure by its key
customers to identify and remediate their own Year 2000 issues. There is also a
process to provide for regular reassessments of such risks in those
circumstances where a high potential for exposure is deemed to exist. The
Company has set aside $51,000 as additional reserves to contemplate possible
losses stemming from customer failures.
Vendors which provide services key to the continuing operations of the Bank have
been asked to provide status reports as to their status of their readiness. For
those vendors who have indicated that they are Year 2000 compliant and do not
represent mission critical suppliers, no further action is being contemplated.
For those with mission critical implications, the Company is performing
independent testing to verify the validity of their assertions. All vendors
significant to the continuing operations of the Bank have advised that they
expect to be Year 2000 compliant prior to December 1999. Should these vendors
not demonstrate their ability to achieve compliance prior July 1999, the Company
will seek alternatives in accordance with its contingency plan, which may
include replacement vendors who are Year 2000 compliant.
As the Company commenced its banking operations on June 1, 1998, the initial
investment in systems and programs contemplated Year 2000 issues and compliance.
Accordingly, it is not anticipated that the Company will require the outlay of
any significant expenditures to ensure Year 2000 compliance for that which is
processed on premises. As the Bank utilizes a third-party service center to
process its core banking applications, the costs of compliance are being borne
by the vendor, compliance with which are being monitored by the Company as
discussed above.
The Company has developed a contingency plan which would be implemented should
there be a failure to achieve Year 2000 compliance for its systems and
programming. For each mission critical system, the Company has identified
alternative procedures to achieve a successful resumption of its banking
operations in case its systems, or those of its mission critical vendors, fail,
including developing a manual process for implementing the system and
identifying alternative vendors.
Ultimately, the potential impact of the Year 2000 issue will depend not only on
the remedial efforts the Company undertakes, but also on the way in which this
issue is addressed by governmental agencies, other business, and other entities
who provide date to the Company, receive data from the Company, or whose
financial condition of operational capability is important to the Company, such
as vendors or customers. At worst, customers and vendors may face severe
interruption in their operations, which may cause borrowers to become unable to
service their loans with the Bank. The Company may also find that it must
replace non-compliant vendors together with the associated costs of conversion
and price considerations. Management cannot currently determine the financial
effect on the Company if significant customer and/or vendor remediation efforts
are not resolved in a timely manner.
6
<PAGE> 8
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock was held by approximately 1,014 registered holders of
record as of February 25, 1999, and is quoted on the OTC Bulletin Board under
the symbol "TCBA." To date there has been no regular and liquid market for the
common stock, and there can be no assurance that a regular and liquid trading
market will develop in the foreseeable future.
The following table shows, for the periods indicated, the high and low bid
quotations per share of transactions in the Company's common stock as quoted on
the OTC Bulletin Board since January 28,1998 (the date the Company's common
stock began trading). Certain other private transactions may have occurred
during the periods indicated of which the Company has no knowledge. The
following prices represent inter-dealer prices without retail markups, markdowns
or commissions.
<TABLE>
<CAPTION>
Per Share
Bid Prices
-----------------------
1998 High Low
- ---- ------ ------
<S> <C> <C>
1st Quarter $15.00 $10.25
2nd Quarter $17.00 $15.12
3rd Quarter $15.75 $13.00
4th Quarter $15.00 $10.00
</TABLE>
No cash or other dividends were declared or paid during the fiscal years ended
December 31, 1998 or 1997. The Company expects that all Company and Bank
earnings, if any, will be retained to finance the growth of the Company and the
Bank and that no cash dividends will be paid for the foreseeable future.
7
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
------------ ------------
<S> <C> <C>
Cash and due from banks $ 990,881 $ 74,580
Federal funds sold 3,700,000 0
------------ ------------
TOTAL CASH AND CASH EQUIVALENTS 4,690,881 74,580
------------ ------------
Securities available for sale - NOTE B 8,652,487 0
Loans - NOTE C 7,367,382 0
Less:
Allowance for loan losses - NOTE C (154,000) 0
------------ ------------
NET LOANS 7,213,382 0
------------ ------------
Premises and equipment - NOTE D 2,149,409 96,040
Accrued interest receivable 98,552 0
Other assets 32,803 74,153
------------ ------------
$ 22,837,514 $ 244,773
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Deposits - NOTE E $ 12,202,388 $ 0
Federal funds purchased and securities
sold under agreements to repurchase - NOTE F 446,583 0
Other borrowings 0 365,835
Accrued interest payable 22,845 0
Accrued expenses and other liabilities 24,244 48,763
------------ ------------
TOTAL LIABILITIES 12,696,060 414,598
------------ ------------
Commitments and contingencies - NOTE H
Stockholders' Equity (Deficit) - NOTE K:
Preferred stock, no par value, 2,000,000 shares
authorized, no shares issued and outstanding 0 0
Common stock, par value $.01 per share,
10,000,000 shares authorized, 1,182,151 and 100
shares issued and outstanding, respectively 11,821 1
Additional paid-in capital 10,940,915 999
Accumulated deficit (824,268) (170,825)
Accumulated other comprehensive income 12,986 0
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 10,141,454 (169,825)
------------ ------------
$ 22,837,514 $ 244,773
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
8
<PAGE> 10
CONSOLIDATED STATEMENTS OF OPERATIONS
TARPON COAST BANCORP, INC. AND SUBSIDIARY
Year ended December 31, 1998 and the period from May 1, 1997
(date of inception) to December 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 148,513 $ 0
Interest on securities and other 399,355 0
Interest on federal funds sold 142,785 0
------------ ------------
TOTAL INTEREST INCOME 690,653 0
------------ ------------
INTEREST EXPENSE
Interest on deposits 127,591 0
Interest on other borrowings 4,314 0
------------ ------------
TOTAL INTEREST EXPENSE 131,905 0
NET INTEREST INCOME ------------ ------------
558,748 0
Provision for loan losses (154,000) 0
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 404,748 0
NON-INTEREST INCOME
Service charges, commissions and fees 18,287 0
------------ ------------
423,035 0
------------ ------------
NON-INTEREST EXPENSES
Salaries and employee benefits - NOTE J 571,397 0
Occupancy expenses 170,630 0
Equipment rental, depreciation and
maintenance 57,854 0
General operating - NOTES I AND N 276,597 170,825
------------ ------------
TOTAL OTHER EXPENSES 1,076,478 170,825
LOSS BEFORE INCOME TAXES ------------ ------------
(653,443) (170,825)
INCOME TAXES - NOTE G 0 0
------------ ------------
NET LOSS $ (653,443) $ (170,825)
============ ============
LOSS PER SHARE $ (.60)
============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,091,473
============
</TABLE>
See accompanying notes to consolidated financial statements
9
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
TARPON COAST BANCORP, INC. AND SUBSIDIARY
Year ended December 31, 1998 and the period from May 1, 1997
(date of inception) to December 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (653,443) $ (170,825)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 148,473 962
Provision for loan losses 154,000 0
Increase in accrued interest
receivable (98,552) 0
(Increase) decrease in other assets 34,660 (74,153)
Increase in accrued interest
payable 22,845 0
Increase (decrease) in accrued expenses
and other liabilities (24,519) 48,763
NET CASH USED IN OPERATING ACTIVITIES ------------ ------------
(416,536) (195,253)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (7,367,382) 0
Purchases of securities available for sale (9,580,357) 0
Proceeds from maturities of securities
available for sale and principal collections 947,545 0
Purchases of premises and equipment (2,201,842) (97,002)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (18,202,036) (97,002)
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
10
<PAGE> 12
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
Year ended December 31, 1998 and the period from May 1, 1997
(date of inception) to December 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 12,202,388 $ 0
Proceeds from (repayment of) organizer advances (44,350) 365,835
Net increase in securities sold under
agreement to repurchase 446,583 0
Net proceeds from issuance of common stock 10,630,252 1,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 23,234,873 366,835
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,616,301 74,580
CASH AND CASH EQUIVALENTS
Beginning of period 74,580 0
------------ ------------
End of period $ 4,690,881 $ 74,580
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 109,060 $ 0
============ ============
Noncash Transactions:
Settlement of organizer advances in exchange
for issuance of common stock $ 321,485 $ 0
============ ============
Unrealized increase in fair value
on securities available for sale $ 19,676 $ 0
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
11
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation:
Tarpon Coast Bancorp, Inc. (the Company) was incorporated under the
laws of the state of Florida on August 7, 1997. The Company is the successor
entity to Gulf Coast Community Partners, organized on May 1, 1997 as a general
partnership. The Company's activities prior to June 1, 1998 were limited to the
organization of Tarpon Coast National Bank, (the Bank), as well as preparation
for a $10,000,000 common stock offering (the Offering). On June 1, 1998, 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, Tarpon Coast 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 within the Port Charlotte and Punta Gorda, Florida area at one
banking facility. 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 and federal funds sold are
considered cash and cash equivalents for cash flow reporting purposes.
Generally, 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. Securities not classified as 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.
12
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
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 income.
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,
1998, 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 1999.
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, past loss experience, 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.
13
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
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 or 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 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:
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS
130 establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. SFAS 130 does not
require a specific format for the financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in the financial statement. Additionally, SFAS 130 requires that an
enterprise (a) classify items of other comprehensive income by their nature in
a financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. Other
comprehensive income was comprised solely of the change in unrealized gain
(loss) on available for sale investment securities.
14
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share:
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share" (SFAS No. 128). SFAS No. 128 establishes standards for computing and
presenting earnings per share (EPS) and applies to all entities with publicly
held common stock or potential common stock. Basic EPS excludes dilution and is
computed by dividing earnings available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilutive securities that could share in the
earnings. The Company adopted the requirements of SFAS No. 128 in the year
ended December 31, 1998.
Stock Options:
The Company adopted Statement of Financial Accounting Standards No.
123 (SFAS 123), "Accounting for Stock-Based Compensation." As permitted under
this standard, the Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting For Stock Issued to Employees" in accounting for
its stock options and other stock-based employee awards. Pro forma information
regarding net income and earnings per share, as calculated under the provisions
of SFAS 123, are disclosed in Note K.
NOTE B - SECURITIES
The amortized cost, unrealized gains and losses and estimated fair
value of available for sale investment securities shown in the consolidated
balance sheets of the Company at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
AMORTIZED ---------------- FAIR
COST GAINS LOSSES VALUE
---------- ------ ------ ----------
<S> <C> <C> <C>
Mortgage-backed securities
of U.S. Government Agencies $3,847,502 $ 7,978 $ 130 $3,855,350
U.S. Treasury securities and
other U.S. agency obligations 4,503,609 11,828 0 4,515,437
Federal Home Loan Bank Stock 41,700 0 0 41,700
Federal Reserve Bank Stock 240,000 0 0 240,000
Totals ---------- ------- ------ ----------
$8,632,811 $19,806 $ 130 $8,652,487
========== ======= ====== ==========
</TABLE>
15
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE B - SECURITIES (CONTINUED)
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, 1998, 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 $ 3,870,010 $ 3,873,433
Due after one through
five years 3,481,101 3,496,403
Due after five through
ten years 1,000,000 1,000,951
------------ ------------
8,351,111 8,370,787
Federal Home Loan Bank 41,700 41,700
Federal Reserve Bank 240,000 240,000
------------ ------------
Totals $ 8,632,811 $ 8,652,487
============ ============
</TABLE>
Investment securities with an amortized cost and fair value of
$4,368,395 and $4,372,632, respectively, at December 31, 1998, were pledged to
secure public deposits.
NOTE C - LOANS
<TABLE>
<CAPTION>
The composition of loans at December 31, 1998 is as follows:
<S> <C>
Commercial $ 5,744,852
Real estate 552,113
Lines of credit 53,413
Consumer 1,017,004
------------
Total $ 7,367,382
============
</TABLE>
The majority of the Company's lending activities are conducted
principally with customers located in the Port Charlotte and Punta Gorda,
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, a significant portion of its loans
are collateralized by real estate. Therefore, the Bank could be susceptible to
economic downturns and natural disasters.
16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE C - LOANS (CONTINUED)
The Bank had no loans on nonaccrual as of December 31, 1998 and 1997.
The activity in the allowance for loan losses for the year ended
December 31, 1998 is as follows:
<TABLE>
<S> <C>
Balance at beginning
of year $ 0
Provision charged to
operations 154,000
Charge-offs 0
Recoveries 0
---------
Balance at end of year $ 154,000
=========
</TABLE>
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
----------- --------
<S> <C> <C>
Land and land improvements $ 1,274,391 $ 0
Motor vehicles 20,844 0
Leasehold improvements 106,492 0
Furniture, fixtures and equipment 109,075 0
EDP equipment and software 176,273 13,151
Construction in progress 611,769 83,851
----------- --------
2,298,844 97,002
Less accumulated depreciation 149,435 962
----------- --------
Totals $ 2,149,409 $ 96,040
=========== ========
</TABLE>
Depreciation expense was $148,473 and $962 for the year ended December
31, 1998 and the period from May 1, 1997 (date of inception) to December 31,
1997, respectively.
NOTE E - DEPOSITS
Deposits at December 31, 1998 are comprised of the following:
<TABLE>
<S> <C>
Interest-bearing:
Money market $ 208,569
Negotiable order of withdrawal accounts 1,550,698
Savings 1,105,241
Certificates of deposit:
Less than $100,000 5,772,239
$100,000 or more 1,366,445
------------
10,003,192
Demand (non-interest-bearing) 2,199,196
------------
Total $ 12,202,388
============
</TABLE>
17
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE E - DEPOSITS (CONTINUED)
The maturities on certificates of deposit of $100,000 or more as of
December 31, 1998 are as follows:
<TABLE>
<S> <C>
Three months or less $ 0
Over three months to six months 301,434
Over six months to twelve months 963,076
Over twelve months 101,935
-----------
Total $ 1,366,445
===========
</TABLE>
The maturities on certificates of deposits as of December 31, 1998 are
as follows:
<TABLE>
<S> <C>
1999 $ 6,213,043
2000 925,641
-----------
Total $ 7,138,684
===========
</TABLE>
Included in interest expense is $19,328 which relates to interest on
certificates of deposit greater than $100,000.
NOTE F - SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE AND OTHER BORROWINGS
The securities sold under agreements to repurchase (the repurchase
agreement) have been accounted for as a financing and the obligation to
repurchase the securities sold is reflected as a liability in the consolidated
balance sheets. The repurchase agreements were transacted with various Bank
customers and interest is payable monthly at varying rates (average rate of
4.17% at December 31, 1998) tied to the daily Federal Funds or the 13-week U.S.
Treasury Bill rates. These agreements immediately terminate upon written notice
by either party. Securities sold under agreement to repurchase averaged
$1,475,932 during 1998 and the weighted average interest was 4.11% during 1998.
The maximum amount outstanding at any month end under such agreement during
1998 was $3,540,755.
NOTE G - INCOME TAXES
At December 31, 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, 1998.
18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE G - INCOME TAXES (CONTINUED)
The components of deferred tax assets and deferred tax liabilities at
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 50,510 $ 0
Allowance for loan losses 52,360 0
Organizational and startup costs 138,536 57,660
Depreciation on premises and equipment 33,198 0
Other deductions deferred for income taxes 8,374 2,140
--------- --------
282,978 59,800
--------- --------
Deferred tax liabilities:
Unrealized gain in investment securities 6,690 0
--------- --------
Valuation allowance 276,288 59,800
--------- --------
Deferred tax assets, net $ 0 $ 0
========= ========
</TABLE>
At December 31, 1998, the Bank had a tax net operating loss
carryforward of approximately $150,000 which expires in 2018.
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company has entered into an operating lease agreement for a
temporary facility to house its main office location which expires in April
1999. Rent expense was $30,923 for 1998 related to this lease.
Additionally, at December 31, 1998, the Company was in the final
stages of completion of its main banking facility. Expenditures required to
complete the facility are estimated at approximately $604,000 at December 31,
1998. The Company also holds .82 acres of land to serve as a branch site. The
Company has not as yet determined the amount of expenditures necessary to
convert the site to a branch bank.
The Company and the Bank have entered into employment agreements
expiring in 2000 with four senior officers providing for annual compensation
aggregating approximately $331,500.
19
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE I - 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 6%
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 are generally eligible to participate who have
completed at least one year of service and have attained age 21. Employee
contributions are 100% vested as amounts are credited to the employee's
account. Company contributions become 20% vested when an employee has completed
1 year of service, and vest at a rate of 20% per year thereafter, fully vesting
when an employee has completed 5 years of service. The Company made
contributions to the Plan of $8,525 in 1998.
NOTE J - 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 1998 is as follows:
<TABLE>
<S> <C>
Loan balances at December 31, 1997 $ 0
New loans 1,221,309
Repayments 68,264
-----------
Loan balances at December 31, 1998 $ 1,153,045
===========
</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 $1,037,885 at
December 31, 1998.
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE K - STOCKHOLDERS' EQUITY
The Company has adopted an incentive stock option plan for certain of
its employees and has authorized and reserved 125,000 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. Had compensation cost for the Company's stock option plan
been determined under SFAS 123, based on the fair market value at the grant
dates, the Company's proforma net loss and net loss per share would have been
reflected as follows:
<TABLE>
1998
-----------
<S> <C>
Net loss as reported $ (653,443)
Proforma net loss $ (689,307)
Net loss per share as reported $ (.60)
Proforma net loss per share $ (.63)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model. Assumptions used in 1998 include:
dividend yield of 0.00%, expected volatility of 35.34%, risk-free interest rate
of 5.00% and expected lives of 10 years. At December 31, 1998, options for
6,350 shares were exercisable at an average price per share of $10.00. Options
granted expire after 10 years and are exercisable in 10% increments annually.
Transactions related to this stock option plan are as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
OUTSTANDING PER SHARE
----------- ------------
<S> <C> <C>
Balance December 31, 1997 0
Granted 63,500 $ 10.00
Exercised 0
Forfeited 0
----------- ------------
Balance December 31, 1998 63,500 $ 10.00
=========== ============
</TABLE>
In connection with its initial offering of common stock, the Company
granted to certain organizers of the Company warrants to purchase .34 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 25% commencing on the date of grant 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 warrant agreement further provides for a call provision in
the event the Bank is determined to require additional capitalization under
supervisory order, and if not honored when called, will terminate at that time.
21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
The Company has reserved 96,443 shares of its Common Stock for
issuance thereunder.
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,
1998, 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, 1998.
Management is not aware of any events or circumstances that have
occurred since year-end that would change the Company's capital category.
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE K - STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1998, 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 $ 10,282 84.26% $ 976 8.00% $ 1,220 10.00%
Bank $ 7,119 60.28% $ 945 8.00% $ 1,181 10.00%
Tier 1 capital (to risk
weighted assets)
Consolidated $ 10,128 83.06% $ 488 4.00% $ 732 6.00%
Bank $ 6,965 58.98% $ 472 4.00% $ 709 6.00%
Tier 1 capital (to
average assets)
Consolidated $ 10,128 76.83% $ 527 4.00% $ 659 5.00%
Bank $ 6,965 69.43% $ 401 4.00% $ 502 5.00%
</TABLE>
NOTE L - 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.
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE L - OFF-BALANCE SHEET RISK (CONTINUED)
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.
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, 1998, the Bank
had commitments of approximately $4,329,000 for undisbursed portions of loans
in process and unused portions of lines of credit. Commitments under standby
letters of credit aggregated approximately $28,190 at December 31, 1998.
NOTE M - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table presents the estimates of fair value of financial
instruments as of December 31, 1998:
<TABLE>
<CAPTION>
1998
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 4,690,881 $ 4,690,881
Securities available for sale 8,370,787 8,370,787
Net loans 7,213,382 7,213,382
Accrued interest receivable 98,552 98,552
Financial liabilities:
Deposits 12,202,389 11,922,028
Short-term borrowings 3,218,000 3,212,964
Accrued interest payable 22,845 22,845
Off-Balance Sheet Credit Risk:
Commitments to extend credit 4,329,000 4,329,000
Standby letters of credit 28,190 28,190
</TABLE>
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE M - 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:
Cash 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 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.
Short-term borrowings: The carrying amounts for short-term borrowings
approximate fair value for amounts that mature in 90 days or less. The
fair value is estimated by discounting future cash flows using rates
currently offered.
Accrued interest: The carrying amounts of accrued interest receivable
and accrued interest payable approximate their fair values.
Off-balance sheet credit risk: The fair value of commitments is
estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the customer. For fixed-rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE M - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
NOTE N - GENERAL OPERATING EXPENSES
The following amounts comprise general operating expenses for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Stationery and supplies $ 42,817
Telephone 18,294
Professional and outside service fees 94,446
Advertising, marketing and public
relations 34,908
Professional dues 13,561
Insurance 32,854
Automobile 2,728
Other 36,989
---------
Totals $ 276,597
=========
</TABLE>
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE O - CONDENSED FINANCIAL INFORMATION
The condensed financial information of Tarpon Coast Bancorp, Inc.
(parent company only) as of December 31, 1998 and 1997 and for the year ended
December 31, 1998 and the period from May 1, 1997 (date of inception) to
December 31, 1997, is as follows:
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------ ---------
<S> <C> <C>
Assets:
Investment in and indebtedness of
subsidiary, at equity $ 6,978,489 $ 0
Cash and due from banks 2,771,417 74,580
Premises and equipment 392,920 96,040
Other assets 0 74,153
------------ ---------
$ 10,142,826 $ 244,773
============ =========
Liabilities:
Accrued expenses and other liabilities $ 1,372 $ 48,763
Advances from organizers 0 365,835
Stockholders' equity (deficit):
Preferred stock 0 0
Common stock 11,821 1
Additional paid-in capital 10,940,915 999
Accumulated deficit (824,268) (170,825)
Accumulated other comprehensive income 12,986 0
------------ ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 10,141,454 (169,825)
------------ ---------
$ 10,142,826 $ 244,773
============ =========
</TABLE>
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE O - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Income:
Interest on indebtedness of Tarpon
Coast National Bank $ 56,361 $ 0
Interest on investment securities
and other 165,393 0
--------- ---------
TOTAL INCOME 221,754 0
--------- ---------
Expenses:
Salaries and employee benefits 0 98,000
General operating 11,492 72,825
--------- ---------
TOTAL EXPENSES 11,492 170,825
--------- ---------
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME
TAX AND EQUITY IN UNDISTRIBUTED
NET LOSS OF SUBSIDIARY 210,262 (170,825)
Income taxes 0 0
--------- ---------
LOSS BEFORE EQUITY IN UNDISTRIBUTED
NET LOSS OF SUDSIDIARY 210,262 (170,825)
Equity in undistributed net loss
of subsidiary (863,705) 0
--------- ---------
NET LOSS (653,443) (170,825)
Accumulated deficit:
Beginning of period (170,825) 0
--------- ---------
End of period $(824,268) $(170,825)
========= =========
</TABLE>
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TARPON COAST BANCORP, INC. AND SUBSIDIARY
December 31, 1998 and 1997
NOTE O - CONDENSED FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (653,443) $(170,825)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Equity in undistributed net
loss of subsidiary 863,705 0
Depreciation of premises and
equipment 0 962
(Increase) decrease in other
assets 74,120 (74,153)
Increase (decrease) in accrued
expenses and other liabilities (47,391) 48,763
----------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 236,991 (195,253)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary banks (7,733,135) 0
Purchases of premises and equipment (392,920) (97,002)
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (8,126,055) (97,002)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 10,630,251 1,000
Proceeds from (payments on) organizer advances (44,350) 365,835
----------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 10,585,901 366,835
----------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 2,696,837 74,580
Cash and cash equivalents:
Beginning of period 74,580 0
----------- ---------
End of period $ 2,771,417 $ 74,580
=========== =========
</TABLE>
29
<PAGE> 31
Board of Directors and Stockholders
of Tarpon Coast Bancorp, Inc.
Naples, Florida
Independent Auditors' Report
We have audited the accompanying consolidated balance sheets of Tarpon
Coast Bancorp, Inc., and its subsidiary Tarpon Coast National Bank
(collectively, the Company) as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year ended December 31, 1998 and the period from May 1, 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 Tarpon Coast Bancorp, Inc. and subsidiary as of December 31, 1998
and 1997 and the consolidated results of their operations and their
consolidated cash flows for the year ended December 31, 1998 and the period
from May 1, 1997 (date of inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
HILL, BARTH & KING, INC.
Certified Public Accountants
January 22, 1999
Naples, Florida
30
<PAGE> 32
CORPORATE INFORMATION
DIRECTORS
FOR THE COMPANY AND THE BANK:
<TABLE>
<S> <C> <C>
LEWIS S. ALBERT MARK O. ASPERILLA, M.D. JAMES R. BAKER
Chairman & Chief Executive Officer Practicing Physician President
Tarpon Coast Bancorp, Inc. & J&J Baker Enterprises, Inc.
Tarpon Coast National Bank
BILLIE A. BARGER JAMES C. BROWN GERALD P. FLAGEL
President President Certified Public Accountant
Bar-Ton of Pinellas, Inc. Miami-Valley Concrete, Inc. Gerald P. Flagel, P.A.
GINA D. HAHN TODD H. KATZ LARRY A. TENBUSCH
Vice-President Vice-Chairman & President President
Jewel Equities, Inc. Tarpon Coast Bancorp, Inc. & Tenbusch Construction, Inc.
Tarpon Coast National Bank
FOR THE BANK:
JAMES W. HERSTON WILLIAM A. HOLT, D.O.
President & CEO Practicing Physician & President
Herston Engineering Services, Inc. Inter-Medic Health Center
</TABLE>
OFFICERS FOR THE COMPANY AND THE BANK
<TABLE>
<S> <C> <C>
LEWIS S. ALBERT TODD H. KATZ GEORGE E.CLINE
Chairman & Vice-Chairman Senior Vice-President
Chief Executive Officer & President & Chief Financial Officer
for the Company and the Bank for the Company and the Bank for the Company and the Bank
MICHAEL T. EZZELL TERRY L. MILLER JOHN J. PAPPA
Senior Vice-President & Senior Vice-President Assistant Vice-President
Senior Lending Officer & Branch Executive & Lending Officer
for the Bank for the Bank for the Bank
SIMON L. DENOVA KATRINA A. TOWNS
Community Lending Officer Personal Banking Officer
for the Bank for the Bank
CORPORATE COUNSEL EXECUTIVE OFFICE TRANSFER AGENT
John P. Greeley, Esq. 1490 Tamiami Trail & REGISTRAR
Smith, Mackinnon, Greeley, Port Charlotte, Florida 33948 American Stock Transfer & Trust Co.
Bowdoin & Edwards Phone 941-629-8111 6201 15th Avenue
255 South Orange Avenue Brooklyn, New York 11219
Suite 800 INDEPENDENT ACCOUNTANTS
Orlando, Florida 32801 Hill, Barth & King, Inc.
3777 Tamiami Trail North
Naples, Florida 34103
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Tarpon Coast National Bank, Port Charlotte, Charlotte County, Florida
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TARPON COAST NATIONAL BANK FOR THE YEAR ENDED DECEMBER
31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 990,881
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,652,487
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 7,367,382
<ALLOWANCE> 154,000
<TOTAL-ASSETS> 22,837,514
<DEPOSITS> 12,202,388
<SHORT-TERM> 446,583
<LIABILITIES-OTHER> 47,089
<LONG-TERM> 0
0
0
<COMMON> 11,821
<OTHER-SE> 10,129,633
<TOTAL-LIABILITIES-AND-EQUITY> 22,837,514
<INTEREST-LOAN> 148,513
<INTEREST-INVEST> 399,355
<INTEREST-OTHER> 142,785
<INTEREST-TOTAL> 690,653
<INTEREST-DEPOSIT> 127,591
<INTEREST-EXPENSE> 131,905
<INTEREST-INCOME-NET> 558,748
<LOAN-LOSSES> 154,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,076,478
<INCOME-PRETAX> (653,443)
<INCOME-PRE-EXTRAORDINARY> (653,443)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (653,443)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
<YIELD-ACTUAL> 4.96
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 154,000
<ALLOWANCE-DOMESTIC> 154,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
