PROSPECTUS
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ADMIRALTY BANCORP, INC.
1,100,000 SHARES
OF
CLASS B COMMON STOCK
Admiralty Bancorp, Inc. a Delaware corporation and registered Bank Holding
Company (the "Company" or "Admiralty") is hereby offering (the "Offering") for
sale 1,100,000 shares of Class B common stock, no par value per share (the
"Class B Stock"). Prior to the Offering, there has been no public market for the
Class B Stock or any of the other Company's securities. Although the Company has
received approval to have the Class B Stock quoted on the NASDAQ National Market
under the symbol "AAABB", no assurance can be given that an active or liquid
trading market will develop for the Class B Stock. The offering price of the
Class B Stock offered by this Prospectus was determined by negotiations between
the Company and First Colonial Securities Group, Inc. (the "Underwriter"), and
does not necessarily relate to the Company's book value or other established
criteria of value. See "Underwriting" for a description of factors considered in
determining the initial Price to the Public of the Class B Stock and "Risk
Factors -- Absence of a Public Market; Arbitrary Pricing of Securities."
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THE PURCHASE OF THE CLASS B STOCK INVOLVES VARIOUS INVESTMENT RISKS WHICH
SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS. SEE "RISK FACTORS" ON
PAGE 7 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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| | DISCOUNTS AND | TO
| PRICE TO PUBLIC | COMMISSIONS (1) | COMPANY (2)
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Per Share ................. | $ 10.50 | $ 0.84 | $ 9.66
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Total (3) ................. | $11,550,000 | $924,000 | $10,626,000
================================================================================
(1) For information regarding indemnification of the Underwriter, see
"Underwriting."
(2) Before deduction of expenses of the Offering payable by the Company
estimated at $400,000.
(3) The Company has granted the Underwriters an option, exercisable within 45
days of the date hereof, to purchase up to an additional 165,000 shares of
Class B Stock solely to cover over-allotments, if any, on the same terms
and conditions as the shares of Class B Stock offered hereby (the
"Over-Allotment Option"). If such option is exercised in full, the total
"Price to Public," "Underwriting Discounts and Commissions" and "Proceeds
to Company" will be $13,282,500, $1,062,600, and $12,219,900, respectively.
See "Underwriting."
----------------------
The shares are offered by the Underwriter, when, as and if delivered to and
accepted by the Underwriter, subject to prior sale, withdrawals or cancellation
of the offer without notice. It is expected that delivery of certificates
representing the shares of the Class B Stock will be made at the offices of
First Colonial Securities Group, Inc., Boca Raton, Florida on or about September
30, 1998.
----------------------
FIRST COLONIAL SECURITIES GROUP, INC.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 25, 1998
<PAGE>
THE SECURITIES OFFERED HEREBY ARE NOT BANK ACCOUNTS, SAVINGS ACCOUNTS, OR
CERTIFICATES OF DEPOSIT, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC").
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE MAY AFFECT THE PRICE OF THE COMPANY'S
CLASS B STOCK INCLUDING BY OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES SEE "UNDERWRITING."
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND QUARTERLY REPORTS
CONTAINING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE>
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PROSPECTUS SUMMARY
The following summary does not contain or summarize all of the information
in this Prospectus and is qualified in its entirety by the more detailed
information found elsewhere in this Prospectus. Prospective investors should
read this Prospectus in its entirety. For a discussion of certain risks
associated with the purchase of the securities offered hereby, see "RISK
FACTORS." Unless otherwise indicated, the information in this Prospectus assumes
that the Over-Allotment Option is not exercised.
ADMIRALTY BANCORP, INC.
Admiralty Bancorp, Inc. is a holding company for Admiralty Bank, a Florida
state chartered commercial bank and member of the Federal Reserve System (the
"Bank"). Ownership of the Bank currently constitutes the only activity of the
Company.
The current management and shareholders of Admiralty acquired control of
the Company on January 22, 1998 (the "Change In Control"). Prior to the Change
In Control, the Company, then known as White Eagle Financial Group, Inc. ("WEFG"
or "Predecessor Company"), was a closely held corporation. Pursuant to the terms
of an Agreement and Plan of Merger, all then existing shareholders of WEFG had
their interests in WEFG canceled in exchange for a cash payment equal to 1.85
times the shareholders' equity of WEFG, calculated in accordance with generally
accepted accounting principles. The consideration paid to WEFG shareholders upon
consummation of the acquisition was $7,007,725. Since the transaction was
consummated on January 22, 1998, the WEFG book value was calculated as of
December 31, 1997, using unaudited financial statements. In order to ensure that
the WEFG shareholders' equity was calculated in accordance with generally
accepted accounting principles, certain adjustments which increased the WEFG
shareholders' equity were required. Under the terms of the Merger, Admiralty is
required to pay the former WEFG shareholders additional consideration of
$483,602, subject to certain adjustments for post closing fees owed to WEFG's
counsel, which will be paid out of the proceeds of the Offering (the "Additional
WEFG Payment"). In addition, the organizers of Admiralty recapitalized the
Company through $8,000,000 in new capital raised through a private placement of
the Company's Class A Units, consisting of one share of Class A Common Stock, no
par value (the "Class A Stock") and one Class B Common Stock Purchase Warrant
(the "Warrants"). Each Warrant entitles the holder to purchase one share of the
Class B Stock, at a purchase price of $11.00 per share, for a period of four (4)
years. Each Class A Unit had a purchase price of $10.00. The Class A Stock can
be converted into Class B Stock on a share for share basis at the option of the
holder, and in certain circumstances at the option of the Company. The Bank
formerly had a number of minority shareholders who combined owned approximately
4% of the Bank's capital stock. Effective September 14, 1998, these minority
shareholders were bought out for an aggregate purchase price of $358,165.
Certain members of the Board of Directors of the Company have extensive
backgrounds in the banking industry. Messrs. Bruce A. Mahon, Thomas L. Gray,
Jr., Michael E. Golden and Mark A. Wolters were all members of the Board of
Directors of Carnegie Bancorp, a New Jersey based bank holding company which was
recently acquired by Sovereign Bancorp. In addition, Mr. Richard P. Rosa, a
Director and the Chief Financial Officer of the Company, was the Chief Financial
Officer of Carnegie Bancorp. Mr. Leslie E. Goodman was a Senior Executive
Officer with First Union National Bank, First Fidelity Bank and its predecessor
organizations and previously served as President and Chief Executive Officer of
several financial institutions. He has over 20 years experience in the banking
industry. Mr. George R. Zoffinger was formerly the President, Chief Executive
Officer and Chairman of the Board of Directors of Constellation Bancorp and
CoreStates, N.J. National Bank. Mr. Sidney Hofing is a director of Yardville
National Bank, Yardville, New Jersey. The other members of the Board of
Directors of the Company have extensive business experience which the Company
believes will assist the Company in developing new business and expandingits
operations.
MANAGEMENT STRATEGY
The Company has traditionally sought to serve as a source of credit and
other banking products for small to mid-size businesses located in its Palm
Beach County, Florida trade area. The Company has not, and has not sought to,
engage in high volume retail banking, although the Company has traditionally
offered retail type products, such as home mortgages, to meet the needs of its
business customer base. The Company intends to continue its focus on small to
mid-size businesses, and to expand its target customer base to include high net
worth individuals and professionals. Admiralty will seek to serve the needs of
this target customer base by providing superior, personalized service. While
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management believes that the Company's emphasis on personalized service may
cause the Company to recognize higher non-interest expense, through personnel
and other administrative expenses, than its peers, management also believes the
Company's business strategy will appeal to less cost sensitive customers,
allowing the Company to compete for loans and deposits on factors other than
price. Further, it is management's intention to increase the Company's tangible
capital through the Offering and invest the additional capital in the short term
in investment securities and mortgage backed securities. Going forward,
Admiralty will seek to develop new loan demand to more profitably deploy this
additional capital. Although the Company intends to remain an active participant
in the SBA's Guaranteed Loan Program, management intends to de-emphasize the
origination of these loans through third-party brokers and focus on originating
more traditional commercial loans. Admiralty has established business
development boards for each of its offices, composed of local business leaders.
In addition, its officers will review and pursue new branch locations in areas
where management believes the local business community is being underserved by
existing larger institutions.
During the past several years, the Bank's operations have been restricted
due to the Bank's need to bolster its capital base and because the Bank was
subject to a Cease and Desist Order imposed by the Florida Department of Banking
and Finance and the Federal Reserve Bank of Atlanta (the "C&D"). The Florida
Department of Banking and Finance (the "Department") and the Federal Reserve
Bank of Atlanta ("FRBA") had jointly imposed the cease and desist order (the
"C&D") on January 14, 1992. The C&D cited the Bank for maintaining
unsatisfactory asset quality and excessive past due loans, operating with
inadequate capital, funding operations with unstable deposits and other
liabilities and maintaining an inadequate loan loss reserve. In connection with
the Change in Control of the Company, the Department and the FRBA jointly lifted
the C&D. The C&D had required the Bank to maintain a designated level of
allowance for loan losses, and to expense provisions necessary to maintain the
allowance at the required levels. There are no remaining restrictions or
regulatory burdens applicable to the Bank due to the C&D. Commencing with the
first quarter of 1998, management began to set the Company's expense for
provision for loan losses at a level management believed appropriate based upon
management's view of the risks inherent in the Company's lending functions.
Although the actual dollar value of provisions in future periods may vary based
upon, among other things, the increase in size of the Bank's loan portfolio,
economic conditions and management's view of the creditworthiness of individual
borrowers, management believes that the provision, as a percentage of income,
will remain lower than it was while the C&D was in effect.
The Bank is a full service commercial bank, providing a wide range of
business and consumer financial services through its main office in Palm Beach
Gardens, Florida and its two branch offices located in Juno Beach and Jupiter,
Florida. In addition, the Bank has received regulatory approval to open a fourth
office in Boca Raton, and has applied for regulatory approval to relocate its
Jupiter office to more spacious quarters. The Bank is an active participant in
the Small Business Administration's Guaranteed Loan Program, and provides other
commercial, consumer and personal banking products similar to those offered by
other financial institutions of comparable size.
The Bank was founded in 1987 as a Florida chartered commercial bank and
member of the Federal Reserve System. The deposits of the Bank are insured up to
applicable amounts under the Bank Insurance Fund (the "BIF") of the Federal
Deposit Insurance Corporation (the "FDIC"). At June 30, 1998, the Company had
total assets of $50.5 million, net loans (including loans held for sale) of
$24.1 million and total deposits of $40.8 million. For the year ended December
31, 1997, the Predecessor Company had net income of $1.3 million.
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk. Risk factors include substantial book value dilution, the Company's
dependence on key personnel, the absence of a public market for the Class B
Stock, the Company's historic dependence on non-interest income, the Company's
potential future need to issue additional securities and other risks associated
with the business of banking.
Recipients of this Prospectus are urged to read the "RISK FACTORS" section
herein for certain considerations and risk factors associated with investment in
the Class B Stock.
THE OFFERING
Securities Offered .......................... 1,100,000 shares of Class B Stock
Common Stock Outstanding Prior to
the Offering of shares .................... 1,116,640 shares (1), including
888,881 shares of Class A
Stock and 227,759 shares of
Class B Stock.
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4
<PAGE>
Common Stock Outstanding
After the Offering ........................ 2,216,640 shares (1),
including 888,881 shares of Class
A Stock and 1,327,759 shares of
Class B Stock.
Use of Proceeds ............................. Approximately $485,000 will be
used to satisfy the Additional
WEFG Payment owed to the former
WEFG shareholders. The
remaining net proceeds of this
Offering will be used to
provide working capital to
Admiralty and to permit the
Bank to diversify its product
lines and grow its assets. In
addition, proceeds may be used
by Admiralty to acquire other
financial institutions or
otherwise expand its business.
Other than in connection with
its new Boca Raton office,
Admiralty has not entered into
any agreements with any
parties for acquisitions of
financial institutions or
other businesses.
Market For Securities ....................... Prior to this Offering, there has
been no public market for any
securities of Admiralty.
Although the Company has
received approval to have the
Class B Stock included for
quotation on the NASDAQ
National Market under the
symbol "AAABB ", no assurance
can be given that a public
market will ever develop for
any of Admiralty's securities.
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(1) Does not include 965,000 Shares of Class B Stock reserved for issuance upon
the exercise of Warrants or 330,000 Shares of Class B Stock reserved for
issuance pursuant to the Company's 1998 Management Stock Option Plan.
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The selected consolidated financial and other data of the Company and the
Predecessor Company set forth below is derived in part from, and should be read
in conjunction with, the consolidated financial statements of the Company and
the Predecessor Company and notes thereto and the Proforma Condensed
Consolidated Income Statements presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. | PREDECESSOR COMPANY
--------------------------------------- |---------------------------------------------------
AS OF |
DECEMBER 31, 1997 | AS OF AND FOR
AND FOR THE PERIOD | THE
AS OF AND FOR THE AUGUST 11, 1997 | SIX MONTHS AS OF AND FOR THE
SIX MONTHS ENDED (DATE OF INCEPTION) | ENDED YEARS ENDED
JUNE 30, THROUGH | JUNE 30, DECEMBER 31,
1998 (PRO FORMA)(1) DECEMBER 31, 1997 | 1997(1) 1997(1) 1996(1)
------------------ --------------------|--------------- -------------- -------------
(UNAUDITED) | (UNAUDITED)
(DOLLARS IN THOUSANDS) | (DOLLARS IN THOUSANDS)
<S> <C> <C> | <C> <C> <C>
Net Income ...................... $ 147 $ 59 | $ 528 $ 1,264 $ 673
Net Income per share--Basic |
and Diluted .................... 0.13(2) 0.20 | 1.63 3.91 2.08
Total Assets .................... 50,495 8,045 | 43,578 48,206 43,435
Total Loans, Net ................ 23,735 -- | 20,960 22,854 18,228
Investment Securities ........... 13,398 -- | 17,730 20,181 17,461
Goodwill, Net ................... 3,642 -- | -- -- --
Deposits ........................ 40,811 -- | 39,639 42,776 39,820
Stockholders' Equity ............ 8,267 8,045 | 3,505 4,245 2,977
Return on Average Assets (3) .... 0.60% -- | 2.42% 2.85% 1.67%
Return on Average Stockholders' |
Equity (3) ..................... 3.63% -- | 33.61% 35.56% 25.62%
Net Interest Margin (3) ......... 5.51% -- | 4.91% 4.92% 4.93%
</TABLE>
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(1) Summary consolidated financial information as of and for the six months
ended June 30, 1997 and as of and for the years ended December 31, 1997 and
1996 were prepared from historical financial data of WEFG, without giving
effect to the Change In Control. Summary pro forma financial information as
of and for the six months
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ended June 30, 1998 were prepared from historical and pro forma financial
data of Admiralty Bancorp, Inc. See Pro forma Condensed Consolidated Income
Statements for the Six Months Ended June 30, 1998, and Selected
Consolidated and Other Financial Data.
(2) Per share amounts for the six months ended June 30, 1998 have been adjusted
to retroactively reflect the semi-annual Class A dividend, paid in stock,
declared on June 26, 1998 and payable on July 21, 1998. Per share amounts
for WEFG have not been adjusted for this stock dividend.
(3) Ratios for the Period August 11, 1997 (date of inception) through December
31, 1997 for Admiralty Bancorp, Inc. have not been presented because
presentation is not meaningful.
RECENT DEVELOPMENTS
Effective July 1, 1998, Mr. Ward Kellogg was hired as President and Chief
Executive Officer of Admiralty Bank. Mr. Kellogg was formerly Executive Vice
President of 1st United Bank of Boca Raton, Florida. Mr. Kellogg also served as
Chief Credit Officer of 1st United Bank, and oversaw the administration of a
$550 million loan portfolio. Mr. Kellogg has also substantially reassembled at
Admiralty Bank his 1st United Bank lending, administration and business
development team. This team includes Mr. William Burke, who will serve as
Executive Vice President and Chief Operating Officer of the Bank, Mr. Dennis
Gavin, who will serve as Senior Vice President and Senior Lending Officer for
the Bank, Ms. Anne Paddock, who will serve as Senior Vice President-Loan
Administration, Mr. John Kapsis, who will serve as Senior Vice President of
Finance, and Messrs. John Oliver and Dave Englert, who will serve as Regional
Managers for the Bank. 1st United Bank was acquired in 1997 by Wachovia
Corporation. Mr. James Semrad, formerly President of Admiralty Bank, has
resigned to pursue other business opportunities. Mr. Semrad, however, will
continue to serve as a consultant to the Company and the Bank until December 31,
2001.
For the period ended June 30, 1998, the Company experienced a significant
increase in non-accrual loans to $707,000 at June 30, 1998 from $96,000 at
December 31, 1997. This increase is substantially attributable to placement of a
single loan with a balance of $516,000 on non-accrual status. This loan is
currently the subject of a workout agreement. The borrower is performing under
the workout agreement, and management believes that the loan is adequately
secured and does not anticipate that the Company will incur a material loss on
this credit.
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RISK FACTORS
The following risk factors should be considered by a prospective investor
in deciding whether to purchase the Class B Stock offered hereby. The
information should be considered together with and in addition to the
information discussed elsewhere herein.
SUBSTANTIAL BOOK VALUE DILUTION
Purchasers of the Class B Stock offered hereby will suffer immediate and
substantial dilution in the net tangible book value per share of the Class B
Stock from the Price to Public provided for herein. Upon consummation of this
Offering, it is anticipated that the book value per share of Class B Stock will
be $6.70 per share (assuming $10,226,000 in net proceeds are raised in this
Offering), representing dilution of $3.80 per share, or 36.19%.
DEPENDENCE UPON KEY PERSONNEL
The future performance of the Company is highly dependent upon the services
of Mr. Ward Kellogg, President and Chief Executive Officer of the Bank, and the
Bank's new management team. If the services of this management team, and in
particular Mr. Kellogg, were to become unavailable for any reason, the
operations and future performance of the Company would likely be adversely
affected in a material manner. Although the Bank has entered into to an
employment agreement with Mr. Kellogg, none of the other members of the new
management team have contracts with the Bank or the Company. The Company has
purchased a key-man insurance policy on Mr. Kellogg's life in the amount of
$3,000,000 payable to the Company. The future successful development of the
Company's business will depend, in large measure, upon its ability to retain
this management team.
ABSENCE OF A PUBLIC MARKET
There is currently no public market for any of Admiralty's securities. None
of the Company's Class A Stock, the Class B Stock or the Class B Common Stock
Warrants are traded on any recognized exchange or trading market. Although the
Company has received approval for quotation of the Class B Stock on the NASDAQ
National Market under the symbol "AAABB" there can be no assurance that an
active trading market for the Class B Stock will develop or, if one develops, be
sustained. Although under no obligation to do so, First Colonial Securities
Group, Inc. has stated its intention to make a market in the Class B Stock.
DEPENDENCE OF NON-INTEREST INCOME
Over the past two years, the Company has been highly dependent upon
non-interest income, some of which may be non-recurring income. For the year
ended December 31, 1996, the Company recognized $437,000 in income from gains on
the sale of securities, out of total net income of $673,000. In addition, during
1996, the Company recognized income of $572,000 from the gain on sale of loans
through its participation in the Small Business Administration's ("SBA")
guaranteed loan program. For the year ended December 31, 1997, the Company
recognized income of $975,000 from the gain on sale of SBA loans. The Company
had total net income of $1,264,000 for the year ended December 31, 1997. No
assurances can be given that the Company will continue to recognize a high level
of income from the gain on sale of SBA loans, and the Company does not
anticipate recognizing material amounts of income from the gain on sale of
securities in future periods. Although the Company intends to continue
originating SBA guaranteed loans, management intends to de-emphasize SBA lending
in favor of more traditional commercial lending. In addition, SBA lending is a
highly competitive business, which is dependent upon Congressional
appropriations to the United States Small Business Administration. No assurances
can be given regarding the level of future appropriations by Congress to the SBA
for the guaranteed loan program. Reductions in appropriations to the SBA program
could reduce both participation in the program and the amount of loans eligible
to be originated under the program. A reduction in future SBA guaranteed loans
originated by the Company, whether due to the management strategy of
de-emphasizing this product or because of increased competition or because of
other causes, could adversely affect the Company's results of operations in
future periods.
FUTURE ISSUANCE OF SECURITIES
In order to have sufficient capital to facilitate future growth, Admiralty
may be required to raise additional capital. In the event Admiralty is unable to
raise such capital, it may not be able to undertake its future expansion and
management will be required to reorient its long term strategy for the Company
and the Bank. There can be no assurance that Admiralty will be able to generate
or attract additional capital in the future on favorable terms. In
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addition, the issuance of additional securities to raise additional capital will
result in dilution to the then current stockholders of Admiralty.
In connection with the recapitalization of the Company, the Company issued
800,000 Class A Units. Each Class A Unit contained a share of Class A Stock and
one Warrant, entitling the holder thereof to purchase one share of Class B Stock
at a purchase price of $11.00 per share, for a period of 4 years. In addition,
each share of Class A Stock may be converted into Class B Stock, either at the
option of the holder of the Class A Stock or, in certain circumstances, at the
option of the Company. Finally, to compensate Directors of the Company for their
time and efforts in organizing the Company and consummating the Change in
Control, the Board of Directors of the Company awarded warrants to purchase
150,000 shares of Class B Stock in the aggregate to members of the Board of
Directors of the Company and, as part of the consideration for the Change in
Control, the Company issued warrants to purchase 15,000 shares of Class B Stock
to the former majority shareholder of WEFG. All of these warrants also have a
four-year term, and are also exercisable at $11.00 per share. Finally, the
Company has also adopted the 1998 Management Stock Option Plan pursuant to which
options to purchase 330,000 Shares of Class B Stock may be issued to members of
management of the Company. The exercise price for these options will be at least
the fair market value of the date of grant. Exercise of these Warrants and
options at a time when the Company's book value per share is in excess of the
respective exercise prices for the Warrants and Options would cause book value
dilution to holders of the Company's Class B Stock, and exercise of these
Warrants and options will dilute the ownership percentage of owners of the Class
B Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and certain provisions of Federal law are designed to assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, super-majority voting on certain
matters, classified terms for the Board of Directors and a provision which
permits the Board of Directors to consider the interest of constituencies other
than the stockholders of the Corporation in evaluating whether to undertake any
corporate transaction. Certain of these provisions, such as the super-majority
voting provision, may not apply to transactions approved by the Board of
Directors. These provisions of the Company's governing instruments, as well as
certain provisions of Delaware law and Federal banking law, may discourage
potential proxy contests and other potential takeover attempts, particularly
those which have not been negotiated with the Board of Directors in advance and
thus, may generally serve to perpetuate current management.
YEAR 2000
The Company's operations and financial results are highly dependent upon
the Company's ability to rapidly and accurately process data through its
internal and external computer systems and processors. The Company's future
performance may be adversely affected by the ability of computer systems owned
and used by the Company to read entries for the Year 2000. Many computer systems
currently in use are unable to distinguish between the year 2000 and the year
1900, causing a variety of processing difficulties. Although the Company is in
the process of remediating these computer processing issues, both internally and
those affecting its service bureau, no assurances can be given that the Company
will be fully successful in remediating all Year 2000 issues affecting the
Company. Failure to fully remediate Year 2000 issues could adversely affect the
Company's future results of operations, impeding the Company's ability to
calculate payments, interest due, service loans and perform other necessary
functions.
ARBITRARY PRICING OF SECURITIES
There is no established market for the Class B Stock and there can be no
assurance that a liquid trading market for Admiralty's securities will develop
after the Offering. The price per share of the Class B Stock is entirely
arbitrary, unrelated to any intrinsic or market value and bears no relationship
to established criteria of value such as assets, earnings or book value.
COMPETITION
The banking and financial services field in which the Bank is engaged is
highly competitive and most competitors have substantially greater financial
resources than that of the Bank. The Bank's principal market area is served by
branch offices of large commercial banks and thrift institutions. Such
institutions have substantially greater resources than the Bank to expend upon
advertising and marketing, and their substantially greater capitalization
enables those competitors to make much larger loans. The Bank's success depends
a great deal upon its judgment that large and mid-size financial institutions do
not adequately serve small businesses and consumers in its principal market area
and the Bank's ability to compete favorably for such customers.
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LENDING RISKS
The risk of non-payment (or deferred or delayed payment) of loans is
inherent in commercial banking. Such non-payment, or delayed or deferred payment
of loans to the Bank, if they occur, may have a material adverse effect on the
Bank's earnings and overall financial condition. Additionally, in compliance
with applicable banking laws and regulations and in light of sound judgment, the
Bank maintains an allowance for credit losses created through charges against
earnings. As of June 30, 1998, the Bank's allowance for loan losses was
$431,000, or 1.78% of total loans and 59% of non-performing assets. The Bank's
marketing focus on small to medium-size businesses may result in the assumption
by the Bank of certain lending risks that are different from or greater than
those which would apply to loans made to larger companies. Management of the
Bank seeks to minimize the Bank's credit risk exposure through credit controls
which include evaluation of potential borrowers, collateral available, liquidity
and cash flow. However, there can be no assurance that such procedures will
actually reduce loan losses.
DIVIDEND LIMITATIONS
The ability of the Company to pay dividends on the Class B Stock in future
periods may be restricted. Under the terms of the Company's outstanding Class A
Stock, dividends may not be paid on the Class B Stock unless the Company has
made its most recently required dividend payment on the shares of Class A Stock.
Therefore, if the Company fails to make a dividend payment on the Class A Stock,
dividends may not be paid for that period on the Class B Stock. Management has
not yet established a dividend policy, but the Company's strategic plan focuses
on growth. Therefore, to the extent additional capital is required to support
the Company's growth, the Board could elect to retain all available earnings as
capital rather than to use the earnings to pay dividends on the Class B Stock.
Finally, the only current source of income to the Company is earnings from the
Bank. The Bank's ability to pay dividends is subject to various regulatory
restrictions imposed by Florida and Federal law. See "Regulation and
Supervision--Bank Regulation--Dividends Rights."
POTENTIAL IMPACT OF CHANGES IN MONETARY POLICY AND INTEREST RATES
The operating results of Admiralty may be significantly affected (favorably
or unfavorably) by market rates of interest which, in turn, are affected by
prevailing economic conditions, by the fiscal and monetary policies of the
United States Government and by the policies of various regulatory agencies. The
earnings of Admiralty will depend primarily upon its interest rate spread (i.e.,
the difference between income earned on its loans and investments and the
interest paid on its deposits). Like many financial institutions, Admiralty may
be subject to the risk of fluctuations in interest rates, which, if significant,
may have a material adverse affect on its operations.
USE OF PROCEEDS
The net proceeds of this Offering will be approximately $10,226,000
($11,820,000 if the Underwriters' over-allotment option is exercised in full)
after deducting underwriting discounts and offering expenses. Of these proceeds,
approximately $485,000 will be used to satisfy the contingent payment owed to
the former WEFG shareholders and the remainder will be used to support the
continuing expansion of the Bank's business through increased lending and
investment activities and the opening or purchasing of additional branches. The
proceeds will also increase the Bank's legal lending limit, permitting the Bank
to make larger loans. In addition, proceeds may be used by Admiralty to acquire
other financial institutions or lines of business. Admiralty has recently
received regulatory approval to open a new office in Boca Raton, Florida. This
facility is being leased from a limited liability company consisting of certain
members of the Company's Board of Directors, and provides for a 20 year term
with a base rent of $143,000 per year. Approximately $750,000 in proceeds will
be used for the fit out of this location and to acquire furniture, fixtures and
equipment for the branch. Other than this Boca Raton branch, Admiralty has not
entered into any agreements with parties for the opening or purchasing of
additional branches, and Admiralty has not entered into any agreements calling
for the acquisitions of any other institutions. Although, other than for use in
lending operations the Company does not have a specific current use for the
proceeds of the Offering, management believes the Company's potential future
growth would be negatively impacted if the Offering were not undertaken at this
time. With the new management team hired for the Bank, the Company anticipates
substantial new lending opportunities. Under regulatory requirements, the Bank's
lending authority per borrower is limited by the Bank's capital. This capital is
measured as of each financial quarter end. Management therefor believes that the
Bank may lose lending opportunities, and related income, potentially available
through business relationships of the Bank's new management if the Bank does not
currently increase its capital. In addition, as the Florida banking market
continues to consolidate, management believes opportunities to acquire new
branch locations, and possibly entire institutions, will arise. If the Bank does
not have sufficient capital, it will not be able to take advantage of these
opportunities.
9
<PAGE>
DILUTION
The difference between the public offering price per share of Class B Stock
and the Company's net tangible book value per share after the Offering
constitutes the dilution to new investors in the Offering. Net tangible book
value per share is determined by dividing the net tangible book value of the
Company (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock, both Class A and Class B.
At June 30, 1998, the net tangible book value of the Company was $4.14 per
share. After giving effect to the sale of the 1,100,000 shares of Class B Stock
being offered hereby and the receipt of the estimated net proceeds therefrom
(less underwriting discounts and commissions and estimated expenses of the
Offering), the pro forma net tangible book value of the Company at June 30, 1998
would be approximately $6.70 per share, representing an immediate increase in
net tangible book value of $2.56 per share to existing shareholders and an
immediate dilution of $3.80 per share to new investors. The following table
illustrates the foregoing information with respect to dilution to new investors
on a per share basis.
Initial public offering price ................................... $10.50
Net tangible book value before the Offering ................... $4.14
Increase attributable to new investors in the Offering ........ $2.56
-----
Adjusted pro forma net tangible book value after the Offering ... $ 6.70
------
Dilution to new investors in the Offering ....................... $ 3.80
======
The following table sets forth, with respect to existing shareholders and
new investors in the Offering, a comparison of the number of shares of Common
Stock acquired from the Company, the percentage of ownership of such shares, the
total cash consideration paid, the percentage of total cash consideration paid
and the average priceper share.
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION
------------------------------- ---------------------------- AVERAGE
PRICE
PER
NUMBER PERCENT AMOUNT PERCENT SHARES
-------- ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1) ....... 1,116,640 50.38 $ 8,160,000 41.40 $ 7.31
New Investors .................. 1,100,000 49.62 $11,550,000 58.60 $10.50
--------- ------ ----------- ------ ------
Total ........................ 2,216,640 100.00% $19,710,000 100.00% $ 8.89
========= ====== =========== ====== ======
</TABLE>
- ----------------
(1) Includes 888,881 shares of Class A and 227,759 shares of Class B Common
Stock.
The above table assumes no exercise of the Over-Allotment Option, no
exercise of outstanding stock options and no purchase by existing shareholders
of shares offered hereby. The table excludes 330,000 shares of Class B Stock
reserved for issuance under the Company's 1998 Management Stock Option Plan and
965,000 Shares of Class B Stock reserved for issuance upon the exercise of
Warrants.
10
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and the regulatory capital ratios of the Bank at June 30, 1998, and as
adjusted, at such date, to give effect to the issuance and sale of the shares of
Class B Stock offered hereby. The table should be read in conjunction with the
Company's Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Stockholders' equity
Common Stock, Class A, no par value, 1,000,000 shares authorized actual and
as adjusted, 888,881 shares issued and outstanding
at June 30, 1998, actual and as adjusted ..................................... $7,556 $ 7,556
Common stock, Class B, no par value, 4,000,000 shares authorized
actual and as adjusted, 227,759 shares issued and outstanding
at June 30, 1998 actual and 1,327,759 issued and outstanding,
as adjusted(1)(2)(3) ......................................................... 1,034 11,260
Accumulated Deficit ........................................................... (275) (275)
Net unrealized loss on securities available for sale .......................... (48) (48)
------ -------
Total Capitalization ....................................................... $8,267 $18,493
====== =======
</TABLE>
JUNE 30, 1998
-------------------------------------------
MINIMUM
REGULATORY
ACTUAL AS ADJUSTED REQUIREMENT
------ ----------- ------------
(UNAUDITED)
Bank Capital Ratios(1):
Total Capital .................. 16.11% 46.92% 8%
Tier 1 Capital ................. 14.86% 45.75% 4%
Leverage Capital ............... 9.74% 26.19% 4%
- --------------
(1) Assumes the Company will contribute the net proceeds from the sale of the
shares of Common Stock offered hereby to the Bank. Also assumes that the
Over-Allotment Option is not exercised. The Bank's capital ratios, as
adjusted, are computed in a manner consistent with regulatory guidelines
and assume that the net proceeds from the Offering that are contributed to
the Bank are invested in assets that carry a 20% risk-weighting.
(2) Excludes 330,000 shares of Common Stock reserved for issuance under the
Company's 1998 Management Stock Option Plan. See "Management--Remuneration
of Executive Officers--Management Stock Option Plan."
(3) Adjusted retroactively to reflect a 5% Class B Common Stock dividend,
payable July 21, 1998.
11
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial data present a pro
forma condensed consolidated statement of income for the Company for the year
ended December 31, 1997 reflecting the Change In Control as if such event had
occurred as of the beginning of each of the periods presented. The unaudited
financial statements at and for the six-months ended June 30, 1998 presented
elsewhere herein reflect the historical consolidated financial data of the
Company and the 21 days of operation of the Predecessor Company. The unaudited
pro forma information for the year ended December 31, 1997 is based upon the
historical financial statements of the Company after giving effect to the Change
In Control.
This unaudited pro forma information has been prepared by the Company's
management based upon historical financial statements. The unaudited pro forma
information should be read in conjunction with the Company's historical
consolidated financial statements and notes. The pro forma of financial data is
not necessarily indicative of the operating results which would have been
achieved had these transactions been consummated as of the beginning of such
periods for which such data are presented and should not be construed as being
representative offuture performance.
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
PREDECESSOR
ADMIRALTY COMPANY
BANCORP, INC. PERIOD
SIX MONTHS JANUARY 1, 1998
ENDED THROUGH
JUNE 30, 1998 JANUARY 21, 1998 ADJUSTMENTS(1) PRO FORMA
------------- ----------------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income .............................................. $ 1,759 $234 $ -- $ 1,993
Interest expense ............................................. 484 76 -- 560
---------- ---- ---- ---------
Net interest income .......................................... 1,275 158 -- 1,433
Provision for loan losses .................................... 55 -- -- 55
---------- ---- ---- ---------
Net interest income after provision for
loan losses ................................................. 1,220 158 -- 1,378
Non-interest income .......................................... 305 22 -- 327
Non-interest expense ......................................... 1,317 131 9(2) 1,457
---------- ---- ---- ---------
Income before income tax expense and
minority interest ........................................... 208 49 (9) 248
Income tax expense ........................................... 93 -- -- 93
---------- ---- ---- ---------
Income before minority interest .............................. 115 49 (9) 155
Minority interest ............................................ (6) (2) -- (8)
---------- ---- ---- ---------
Net income ................................................... $ 109 $ 47 $ (9) $ 147
========== ==== ==== =========
Per share data:
Net income per common share-basic
and diluted ................................................. $0.10 $0.13
===== =====
Average number of common shares-basic
and diluted ................................................. 1,110,839 1,110,839
========== =========
</TABLE>
- --------------
(1) No pro forma adjustment was made for estimated merger expense. Additionally
other pro forma purchase accounting adjustments are not significant.
(2) Represents amortization of goodwill for the period January 1, 1998 through
January 21, 1998. Goodwill is being amortized over a 25 year life.
12
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Interest income ............................................... $ 3,630 $ -- $ 3,630
Interest expense .............................................. 1,197 -- 1,197
-------- ------ --------
Net interest income .......................................... 2,433 -- 2,433
Provision for loan losses .................................... 435 -- 435
-------- ------ -------
Net interest income after provision for loan losses .......... 1,998 -- 1,998
Non-interest income .......................................... 1,728 -- 1,728
Non-interest expense ......................................... 2,697 148 (2) 2,845
-------- ------ -------
Income before income tax benefit and minority interest ....... 1,029 (148) 881
Income tax benefit ........................................... (288) -- (288)
-------- ------ -------
Income before minority interest .............................. 1,317 (148) 1,169
Minority interest ............................................ (53) -- (53)
======== ====== =======
Net income ................................................... $ 1,264 $(148) $ 1,116
======== ====== =======
Per share data:
Net income per common share-basic and diluted ................ $ 3.91 3.45
======== =======
Average number of common shares-basic and diluted ............ 323,533 323,533
======== =======
</TABLE>
- -----------------
(1) No pro forma adjustment was made for estimated merger expense. Additionally
other pro forma purchase accounting adjustments are not significant.
(2) Amortization of goodwill over a 25 year life.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected information regarding the Company and the
Predecessor Company should be read in conjunction with the Company's
Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. Consolidated historical financial and other data
regarding the Company and the Predecessor Company at or for the six months ended
June 30, 1998 and 1997 have been prepared by the Company without audit and may
not be indicative of results on an annualized basis or any other period. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) that are necessary for a fair presentation for such periods or dates
have been made. Selected consolidated financial and other data as of and for the
six months ended June 30, 1998 were prepared from historical and pro forma
financial data of Admiralty Bancorp, Inc. See "Pro forma Condensed Consolidated
Income Statement for the Six Months Ended June 30, 1998." The audited financial
statements for the year ended December 31, 1997 and 1996 do not give effect to
the Change In Control and recapitalization of the Company described under the
heading "Offering Summary -- Admiralty Bancorp, Inc.", which were consummated on
January 22, 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. PREDECESSOR COMPANY
------------------------------------ | --------------------------------------
AS OF DECEMBER 31,|
1997 AND |
AS OF FOR THE PERIOD | AS OF
AND FOR THE AUGUST 11, 1997 | AND FOR THE AS OF AND FOR THE
SIX MONTHS (DATE OF INCEPTION)| SIX MONTHS YEARS ENDED
ENDED THROUGH | ENDED DECEMBER 31,
JUNE 30, DECEMBER 31, | JUNE 30, --------------------
1998 (PRO FORMA)(1 1997 | 1997 1997 1996
------------------- -----------------| ------------ -------- -------
(UNAUDITED) | (UNAUDITED)
(IN THOUSANDS, EXCEPT | (IN THOUSANDS,
PER SHARE DATA) | EXCEPT PER SHARE
| DATA)
<S> <C> <C> | <C> <C> <C>
INCOME STATEMENT DATA: |
Interest income ........................................ $ 1,993 $ 84 | $ 1,783 $ 3,630 $ 3,297
Interest expense ....................................... 560 8 | 591 1,197 1,134
------- ------ | ------- ------- -------
Net interest income .................................... 1,433 76 | 1,192 2,433 2,163
Provision for loan losses .............................. 55 -- | 287 435 297
------- ------ | ------- ------- -------
Net interest income after provision for loan losses .... 1,378 76 | 905 1,998 1,866
------- ------ | ------- ------- -------
Non-interest income .................................... 327 -- | 940 1,729 1,790
Non-interest expense ................................... 1,457 2 | 1,362 2,698 2,940
Income before income taxes ............................. 248 74 | 483 1,029 716
------- ------ | ------- ------- -------
Income tax (benefit) expense ........................... 93 15 | (67) (288) 15
Income before minority interest ........................ 155 59 | 550 1,317 701
------- ------ | ------- ------- -------
Minority interest in net income of subsidiaries ........ (8) -- | (22) (53) (28)
------- ------ | ------- ------- -------
Net income ............................................. $ 147 $ 59 | $ 528 $ 1,264 $ 673
======= ====== | ======= ======= =======
PER COMMON SHARE DATA: |
Net income--basic and diluted(2) ....................... $ 0.13 $ 0.20 | $ 1.63 $ 3.91 $ 2.08
Book value(2) .......................................... $ 7.40 $ 7.50 | $ 9.99 $ 13.12 $ 9.20
BALANCE SHEET DATA: |
Total assets ........................................... $50,495 $8,045 | $43,578 $48,206 $43,435
Total loans ............................................ 24,166 -- | 21,320 23,232 18,593
Allowance for loan losses .............................. (431) -- | (360) (378) (365)
Investment Securities .................................... 13,398 -- | 17,730 20,181 17,461
Goodwill, net .......................................... 3,642 -- | -- -- --
Deposits ............................................... 40,811 -- | 39,639 42,776 39,820
Minority interest ...................................... 384 -- | 398 376 323
Shareholders' equity ................................... 8,267 8,045 | 3,505 4,245 2,977
SELECTED OPERATING RATIOS:(3)(4) |
Return on average assets ............................... 0.60% -- | 2.42% 2.85% 1.67%
Return on average common equity ........................ 3.63% -- | 33.61% 35.56% 25.62%
Net interest margin .................................... 5.51% -- | 4.91% 4.92% 4.93%
SELECTED CAPITAL AND ASSET QUALITY RATIOS: |
Equity/assets .......................................... 15.88% -- | 7.19% 8.01% 6.51%
Non-accrual loans/total loans .......................... 2.93% -- | 1.30% 0.41% 1.33%
Non-performing assets/total loans and other |
real estate owned .................................... 3.02% -- | 1.30% 0.52% 1.33%
Allowance for loan losses/total loans .................. 1.78% -- | 1.69% 1.63% 1.96%
Allowance for loan losses/non-performing assets ........ 58.96% -- | 129.50% 315.00% 147.18%
Net charge-offs/average loans .......................... 0.01% -- | 1.43% 2.02% 1.41%
</TABLE>
- -----------
(1) Financial Information for the six months ended June 30, 1998 is based upon
the Pro forma Consolidated Income Statement for that time period. See "Pro
forma Consolidated Financial Information."
(2) Per share amounts for the six months ended June 30, 1998 have been adjusted
to retroactively reflect the Semi-annual Class A dividend, paid in stock,
declared on June 26, 1998 and payable on July 21, 1998. Per share amounts
for WEFG have not been adjusted for the stock dividend.
(3) Ratios for interim periods have been annualized.
(4) Ratios for the period August 11, 1997 (date of inception) through December
31, 1997 for Admiralty Bancorp, Inc. have not been presented because
presentation is not meaningful.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's financial statements
and the notes relating thereto included herein. When necessary,
reclassifications have been made to prior years' data throughout the following
discussion and analysis for purposes of comparability with prior periods. All
income statement data for the six months ended June 30, 1998 were prepared from
historical and proforma financial data of Admiralty Bancorp, Inc. See "Pro forma
Condensed Consolidated Income Statement for the six months ended June 30, 1998."
OVERVIEW AND STRATEGY
The Company has traditionally sought to serve as a source of credit and
other banking products for small to mid-size businesses located in its Palm
Beach County, Florida trade area. The Company has not, and has not sought to,
engage in high volume retail banking, although the Company has traditionally
offered retail type products, such as home mortgages, to meet the needs of its
business customer base. The Company intends to continue its focus on small to
mid-size businesses, and to expand its target customer base to include high net
worth individuals and professionals. Admiralty will seek to serve the needs of
this target customer base by providing superior, personalized service. While
management believes that the Company's emphasis on personalized service may
cause the Company to recognize higher non-interest expense, through personnel
and other administrative expenses, than its peers, management also believes the
Company's business strategy will appeal to less cost sensitive customers,
allowing the Company to compete for loans and deposits on factors other than
price. Further, it is management's intention to increase the Company's tangible
capital through the Offering and invest the additional capital in the short term
in investment securities and mortgage-backed securities. Going forward,
Admiralty will seek to develop new loan demand to more profitably deploy this
additional capital. Although the Company intends to remain an active participant
in the SBA's Guaranteed Loan Program, management intends to de-emphasize the
origination of these loans through third-party brokers and focus on originating
more traditional commercial loans. Admiralty has established business
development boards for each of its offices, composed of local business leaders.
In addition, its officers will review and pursue new branch locations in areas
where management believes the local business community is being undeserved by
existing larger institutions.
During the past several years, the Bank's operations have been restricted
due to the Bank's need to bolster its capital base and because the Bank was
subject to the C&D. The C&D was lifted in early 1998. The C&D required the Bank
to maintain a designated level of allowance for loan losses, and to expense
provisions necessary to maintain the allowance at the required levels.
Commencing with the first quarter of 1998, management began to set the Company's
expense for provision to loan losses at a level management believed appropriate
based upon management's view of the risks inherent in the Company's lending
functions. Although the actual dollar value of provisions in future periods may
vary based upon, among other things, the increase in size of the Bank's loan
portfolio, economic conditions and management's view of the creditworthiness of
individual borrowers, management believes that the provision, as a percentage of
income, will remain lower than it was while the C&D was in effect.
RESULTS OF OPERATIONS
The Company's results of operations depend primarily on its net interest
income, which is the difference between the interest earned on its
interest-earning assets and fees earned servicing loans which the Bank has sold
and the interest paid on funds borrowed to support those assets, such as
deposits. In addition, the Company earns commission income in connection with
sales of the guaranteed portion of loans originated under the SBA loan program.
Net interest margin is a function of the difference between the weighted average
rate received on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities, as well as the average level of interest-bearing
assets as compared with that of interest-bearing liabilities. Net income is also
affected by the amount of non-interest income and operating expenses.
15
<PAGE>
NET INCOME
For the six months ended June 30, 1998, the Company had pro forma net
income of $147,000, a decrease of $381,000, or 72.2%, from net income of
$528,000 for the first half of 1997. The period to period decrease in reported
net income is attributable to the extinguishment of net operating losses
available during 1997 to reduce the Company's tax expense, and a decrease in the
gain on sale of loans, partially offset by a reduction in expense for the
provision for loan losses. In addition, 1998 net income was affected by a
reduction in gains on sales of securities. During the first half of 1998,
interest income increased to $1,993,000 from $1,783,000, while non-interest
income declined to $327,000 from $940,000. Interest expense declined to $560,000
from $591,000 for the comparable period of 1997, while non-interest expense
increased to $1,457,000 from $1,362,000.
For the year ended December 31, 1997, net income increased by $591,000, or
87.8%, to $1,264,000 from $673,000 for 1996. This increase is attributable to
increased net interest income from loans, investments and Federal funds sold,
reflecting higher average balances and, with regard to the loan portfolio,
higher average rates. The Company's net interest income for the year ended
December 31, 1997 was $2,433,000, an increase of $270,000, or 12.5%, over the
comparable period of 1996. The increase in net interest income for 1997 over
1996 was partially offset by an increase of $138,000 in the provision for loan
losses and a decrease of $61,000 in non-interest income. In addition, the
Company's total non-interest expense for the year ended December 31, 1997
decreased by $242,000 over the comparable period of 1996, reflecting, among
other things, management's decision during 1996 to charge-off certain
non-earning assets.
16
<PAGE>
COMPARATIVE AVERAGE BALANCE SHEETS
The following table reflects the components of the Company's net
interest income, setting forth for the periods presented herein, (1) average
assets, liabilities and stockholders' equity, (2) interest income earned on
interest-earning assets and interest expenses paid on interest-bearing
liabilities, (3) average yields earned on interest-earning assets and average
rates paid on interest-bearing liabilities, (4) the Company's net interest
spread (i.e., the average yield on interest-earnings assets less the average
rate on interest-bearing liabilities) and (5) the Company's net yield on
interest-earning assets. Rates are computed on a taxable equivalent basis.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------------------------------- ----------------------------------
1998(1) 1997 1997
------------------------------- ------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE
INTEREST RATES INTEREST RATES INTEREST RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID(2) BALANCE EXPENSE PAID(2) BALANCE EXPENSE PAID
------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning assets:
Taxable loans
(net of unearned
income) ................ $25,055 $1,409 11.24% $20,378 $1,136 11.15% $20,907 $2,329 11.14%
Taxable investment
securities ............. 16,813 541 6.44% 17,227 569 6.61% 17,899 1,179 6.59%
Federal funds sold ...... 1,600 43 5.40% 2,833 78 5.40% 2,234 122 5.45%
------- ------ ------- ------ ------- ------
Total interest-earning
assets ................. 43,468 1,993 9.17% 40,488 1,783 8.81% 41,040 3,630 8.85%
Non-interest earning
assets ................. 7,929 3,615 3,687
Allowance for
possible loan losses ... (417) (371) (372)
------- ------- -------
Total Assets .......... $50,980 $43,732 $44,355
======= ======= =======
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Borrowings .............. $ 483 $ 14 5.79% $ -- $ -- -- $ 72 $ 5 6.60%
NOW deposits ............ 5,912 36 1.23% 5,267 39 1.50% 5,149 74 1.43%
Savings deposits ........ 2,493 22 1.77% 2,318 22 1.89% 2,271 42 1.88%
Money market deposits ... 7,660 114 2.97% 5,782 77 2.68% 6,082 166 2.73%
Time deposits ........... 13,987 374 5.33% 16,934 453 5.34% 16,859 910 5.40%
------- ------ ------- ------ ------- ------ -----
Total interest-bearing
liabilities ............ 30,535 560 3.66% 30,301 591 3.90% 30,433 1,197 3.93%
------- ------ ------- ------ ------- ------ -----
Non-interest bearing
liabilities:
Demand deposits ......... 10,998 9,544 10,091
Other liabilities ....... 1,351 745 275
------- ------- -------
Total non-interest bearing
liabilities ............ 12,349 10,289 10,366
------- ------- -------
Shareholders' equity .... 8,096 3,142 3,554
------- ------- -------
Total liabilities and
shareholders'
equity ............... $50,980 $43,732 $44,353
======= ======= =======
Net interest differential 5.51% 4.91% 4.92%
Net yield on interest
bearing assets ......... $1,433 6.60% $1,192 5.89% $2,433 5.93%
====== ====== ======
</TABLE>
YEAR ENDED DECEMBER 31,
-------------------------------
1996
-------------------------------
AVERAGE
INTEREST RATES
AVERAGE INCOME EARNED
BALANCE EXPENSE PAID
------- -------- --------
(DOLLARS IN THOUSANDS)
ASSETS
Interest-Earning assets:
Taxable loans
(net of unearned
income) ................ $19,568 $2,040 10.42%
Taxable investment
securities ............. 16,632 1,226 7.37%
Federal funds sold ...... 531 31 5.81%
------- ------
Total interest-earning
assets ................. 36,731 3,297 8.98%
Non-interest earning
assets ................. 4,000
Allowance for
possible loan losses ... (362)
-------
Total Assets .......... $40,369
=======
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Borrowings .............. $ 437 $ 29 6.60%
NOW deposits ............ 4,126 61 1.47%
Savings deposits ........ 2,243 42 1.89%
Money market deposits ... 5,951 152 2.56%
Time deposits ........... 15,652 850 5.43%
------ ------
Total interest-bearing
liabilities ............ 28,409 1,134 4.05%
------ ------
Non-interest bearing
liabilities:
Demand deposits ......... 8,807
Other liabilities ....... 963
------
Total non-interest bearing
liabilities ............ 9,770
------
Shareholders' equity .... 2,627
------
Total liabilities and
shareholders'
equity ............... $40,806
=======
Net interest differential 4.93%
====
Net yield on interest
bearing assets ......... $2,163 5.89%
====== ====
- ----------------
(1) Financial information for the six months ended June 30, 1998 is based upon
the Pro forma Consolidated Income Statement for that time period. See
"Proforma Consolidated Financial Information."
(2) Ratios for interim periods have been annualized.
17
<PAGE>
The following table presents by category the major factors that contributed
to the changes in net interest income for each of the periods presented as
compared to each respective previous period. Amounts have been computed on a
fully tax-equivalent basis.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
VERSUS 1997(1) VERSUS 1996
--------------------------------------- ---------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGE IN: DUE TO CHANGE IN:
--------------------------------------- ---------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
VOLUME RATE NET VOLUME RATE NET
-------- --------- ------ --------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Taxable loans (net of
unearned income) ................... $263 $ 10 $273 $144 $145 $289
Taxable investment securities ....... (21) (7) (28) 89 (135) (46)
Federal funds sold .................. (35) -- (35) 92 (2) 90
---- ---- ---- ---- ---- ----
Total interest income ............. 207 3 210 325 8 333
---- ---- ---- ---- ---- ----
Interest expense:
Federal funds purchased ............. 14 -- 14 (24) -- (24)
NOW deposits ........................ 4 (7) (3) 15 (2) 13
Savings deposits .................... 2 (2) -- -- -- --
Time deposits ....................... (79) -- (79) 65 (5) 60
Money Market ........................ 27 10 37 4 10 14
---- ---- ---- ---- ---- ----
Total interest expense ............ (32) 1 (31) 60 3 63
---- ---- ---- ---- ---- ----
Net interest income ............... $239 $ 2 $241 $265 $ 5 $270
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) Financial Information for the six months ended June 30, 1998 is based upon
the Proforma Consolidated Income Statement for that time period. See
"Proforma Consolidated Financial Information."
PROVISION FOR LOAN LOSSES
For the six months ended June 30, 1998, the Company recognized a provision
for loan losses of $55,000, a decline of $232,000, or 80.8%, over the provision
of $287,000 recognized for the first half of 1997. The loan loss reserve, as a
percentage of non-performing assets, decreased to 59% from 130% for the six
months ended June 30, 1997. During the first half of 1997, the Bank was subject
to the C&D requiring a certain allowance for loan losses and quarterly
provisions to maintain the allowance. The C&D was lifted in the first quarter of
1998, and the Company established a provision based upon management's view of
the risks inherent in the Company's loan portfolio. For the year ended December
31, 1997, the Company's provision for loan losses was $435,000, an increase of
$138,000, or 46.5%, over the provision of $297,000 for the year ended December
31, 1996. This increase in the provision for loan losses reflects management's
view of the potential losses inherent in the Bank's remaining problem loans as
well as the reserve necessary in light of the Bank's ongoing and increasing
lending activities.
18
<PAGE>
NON-INTEREST EXPENSES
Total non-interest expense for the six months ended June 30, 1998, was
$1,457,000, an increase of $95,000 from total non-interest expense of $1,362,000
incurred for the six months ended June 30, 1997. The primary reason for the
increase was expense of $73,000 in amortization of the goodwill recognized in
the Change of Control. In connection with the Change In Control, the Company
recognized $3,706,000 in goodwill, which will be amortized over 25 years.
Non-interest expenses for the year ended December 31, 1997 amounted to
$2,698,000, a decrease of $242,000, or 8.2% from the comparable period of 1996.
The decline in non-interest expenses for the year ended December 31, 1997 over
the comparable period of 1996 reflects, among other things, the Company's
decision during 1996 to write off certain non-performing assets, including
$119,000 in real estate owned, as management sought to restructure the Company's
balance sheet. There were no similar real estate owned write downs in 1997. In
addition, the Company's legal expenses declined by $50,000 during 1997 compared
to 1996, as the Company settled certain litigation during 1996. In addition,
salaries and employee benefits expense declined by $16,000 in 1997 from 1996.
NON-INTEREST INCOME
Non-interest income for the six months ended June 30, 1998 totaled
$327,000, a reduction of $613,000, or 65.2%, from total non-interest income of
$940,000 recognized for the first half of 1997. This reduction in non-interest
income is primarily attributable to a reduction in the gain on sale of loans of
$287,000, losses on sales of securities and decreases in service charges and
fees. Services charges and fees assessed during the first half of 1998 declined
by $177,000 over the comparable period of 1997. This decline is attributable to
a reduction in overdraft fees on deposit accounts as the Company's deposit
customers overdrew their accounts less frequently. In addition, during the first
half of 1997, the Company recognized $87,000 in net gain on the sale of
securities, while the Company recognized a net loss on the sale of securities
during the first half of 1998 of $39,000. This loss was incurred as the Company
began to restructure its securities portfolio by selling certain private label
CMO's. The decline in non-interest income during the first half of 1998 also
reflects a reduction of $287,000 in gains sales of loans as the Company began to
implement its strategy of deemphasizing SBA lending in favor of more traditional
commercial lending.
Non-interest income amounted to $1,728,000 for the year ended December 31,
1997, a decrease of $62,000, or 3.5%, from the comparable period of 1996. The
Company's non-interest income consists primarily of service charges and fees on
deposit accounts, gain on the sale of loans through the Company's participation
in the SBA Guaranteed Loan program and gain on the sale of securities. For the
years of 1997 and 1996, the decrease in non-interest income reflects a decrease
of $350,000 in the gain on sale of securities during 1997. This gain on sale of
securities during 1996 represents management's decision to recognize gains in
the securities portfolio by selling higher rate mortgage backed securities into
a lower rate market. In addition, service charges and fees declined $12,000 and
other income declined $102,000. These declines were partially off-set by an
increase of $403,000, in the gain on sale of loans as the Company continued to
increase its SBA lending.
INCOME TAX EXPENSES
For the six months ended June 30, 1998, the Company recognized income tax
expense of $93,000, compared to a tax benefit of $67,000 for the six months
ended June 30, 1997. This $160,000 change is attributable to the Company's use
of unrestricted net operating loss carry forwards during 1997 to offset income
tax expense. These net operating loss carry forwards were exhausted in 1997 and
for the first quarter of 1998 the Company was required to pay taxes on its
income. The Company continues to have available restricted net operating loss
carry forwards available to offset a portion of its taxable income in future
periods. The amount of this restricted net operating loss which may be applied
annually is $117,000.
The income tax provision, which includes both federal and state taxes, was
$15,000 for the year ended December 31, 1996 reflecting amounts due under the
alternative minimum tax provisions of the Internal Revenue Code of 1986.
Although the Company earned taxable income during 1996, the Company's tax
liability was substantially reduced by the use of net operating loss carry
forwards. Due to the Company's use of net operating loss carry forwards during
1997, the Company recognized a tax benefit of $288,000 for Federal or State
taxes for 1997.
19
<PAGE>
FINANCIAL CONDITION
At June 30, 1998, the Company's total assets were $50.5 million, compared
to $48.2 million and $43.4 million at December 31, 1997 and 1996, respectively.
Total loans, net increased to $23.7 million at June 30, 1998 from $22.9 million
at December 31, 1997. Total deposits were $40.8 million at June 30, 1998
compared to $42.8 million at December 31, 1997.
LOAN PORTFOLIO
At June 30, 1998, the Company's total loans, net were $23.7 million, an
increase of $880,000 over total loans, net of $22.9 million at December 31,
1997. The increase in loans was primarily in loans secured by real estate and
commercial loans, and reflects the Company's continued efforts to achieve
greater penetration in its market areas and new customer activity following the
Change In Control in January, 1998. The Company's loans held for sale declined
to $349,000 at June 30, 1998 from $994,000 at December 31, 1997.
At December 31, 1997, the Company's total loans, net were $22.9 million, an
increase of $4.6 million, or 25.4%, over total loans, net at December 31, 1996.
These increases in the loan portfolio reflect increased commercial and SBA
lending. As a participant in the SBA Guaranteed Loan Program, the Company
originates loans for resale, while retaining both the servicing rights for the
loans and the non-guaranteed portion of the loan. The Company then receives a
fee for servicing the loan. As a result of the increases in SBA lending, the
Company's loans held for sale increased to $994,000 at December 31, 1997 from
$826,000 at December 31, 1996.
The Company's loan portfolio consists primarily of loans secured by real
estate, and, to a lesser extent, commercial and consumer loans. Real estate
loans consist of loans secured by commercial or residential real property and
loans for the construction of commercial or residential property. Consumer loans
are made for the purpose of financing the purchase of consumer goods, home
improvements, and other personal needs, and are generally secured by the
personal property being purchased.
The Company's loans are primarily to businesses and individuals located in
northern Palm Beach and Broward Counties, Florida. The Company has not made
loans to borrowers outside of the United States. Commercial lending activities
are focused primarily on lending to small business borrowers. The Company
believes that its strategy of customer service, competitive rate structures and
selective marketing have enabled the Company to gain market entry to local
loans. Bank mergers by larger banks competing with the Company have also
contributed to the Company's efforts to attract borrowers.
The following table sets forth the classification of the Company's loans by
major category for the periods presented.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
JUNE 30, 1998 1997 1996
----------------------- ------------------------- ---------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- --------- ------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and Industrial ....... $ 6,002 25% $ 6,074 26% $ 5,419 29%
Real Estate
Non-Residential Properties ..... 16,516 68% 14,301 61% 11,291 60%
Residential Properties .......... 684 3% 1,613 7% 1,357 8%
Construction .................... 101 -- 375 2% 31 --
Consumer ........................ 900 4% 910 4% 575 3%
------- --- ------- --- ------- ---
Total Loans ..................... $24,203 100% $23,273 100% $18,673 100%
======= === ======= === ======= ===
</TABLE>
20
<PAGE>
The following table sets forth fixed and adjustable rate loans as of June
30, 1998 in terms of interest rate sensitivity.
WITHIN 1 AFTER 5
YEAR 1 TO 5 YEARS YEARS TOTAL
-------- ------------ ------- -------
(IN THOUSANDS)
Loans with fixed rate ........... $ 868 $2,236 $390 $ 3,494
Loans with adjustable rate ...... 19,385 1,324 0 20,709
------- ------ ---- -------
$20,253 $3,560 $390 $24,203
======= ====== ==== =======
ASSET QUALITY
The Company's principal earning assets are its loans. Inherent in the
lending function is the risk of the borrower's inability to repay their loan
under its existing terms. Risk elements include non-accrual loans, past due and
restructured loans, potential problem loans, loan concentrations and other real
estate.
Non-performing assets include loans that are not accruing interest
(non-accrual loans) as a result of principal or interest being in default for a
period of 90 days or more. When a loan is classified as non-accrual, interest
accruals discontinue and all past due interest, including interest applicable to
prior years, is reversed and charged against current income. Until the loan
becomes current, any payments received from the borrower are applied to
outstanding principal until such time as management determines that the
financial condition of the borrower and other factors merit recognition of such
payments as interest.
The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. The Company's due diligence
begins at the time a borrower and the Company begin to discuss the origination
of a loan. Documentation, including a borrower's credit history, materials
establishing the value and liquidity of potential collateral, the purpose of the
loan, the source and timing of the repayment of the loan, and other factors are
analyzed before a loan is submitted for approval. Loans made are also subject to
periodic review.
During the period ended June 30, 1998, the Company's non-accrual loans
increased by $611,000 to $707,000 at June 30, 1998 from $96,000 at December 31,
1997. This increase is substantially attributable to the placement of a single
loan with a balance of $516,000 on non-accrual status. This loan is subject to a
workout agreement, and management believes that the loan is adequately secured
and does not anticipate that the Company will incur a material loss on this
credit.
The following table sets forth information concerning The Company's
non-performing assets as of the dates indicated:
NON-PERFORMING LOANS
JUNE 30 DECEMBER 31
--------------- -----------------
1998 1997 1997 1996
------ ------- ------- --------
(IN THOUSANDS)
Non-accrual loans ........................ $ 707 $ 278 $ 96 $ 248
Other real estate owned .................. 24 -- 24 --
------ ------- ------- -------
Total non-performing assets(1) ........... $ 731 $ 278 $ 120 $ 248
====== ======= ======= =======
Non-accrual loans to total loans ......... 2.93% 1.30% 0.41% 1.33%
Non-performing assets to total assets .... 1.45% 0.64% 0.25% 0.57%
Allowance for possible loan losses as a
percentage of non-performing assets ..... 58.96% 129.50% 315.00% 147.18%
- ----------
(1) Excludes loans past due 90 days or more and still accruing interest of
approximately $290,000, $50,000, $213,000, and $48,000 at June 30, 1998,
and 1997 and December 31, 1997 and 1996, respectively.
If the above-described non-accruing loans had been current, the Company's
interest income would have increased by $4,000, and $5,000 for the six month
periods ended June 30, 1998 and 1997, respectively, and $11,000 and $5,000, for
the years ended December 31, 1997 and 1996, respectively.
21
<PAGE>
At the dates indicated in the above table, there were no concentration of
loans exceeding 10% of the Company's total loans and the Company had no foreign
loans.
ALLOWANCE FOR LOAN LOSSES
The Company attempts to maintain an allowance for loan losses at a
sufficient level to provide for potential losses in the loan portfolio. Loan
losses are charged directly to the allowance when they occur and any recovery is
credited to the allowance. Risks within the loan portfolio are analyzed on a
continuous basis by the Company's officers, by outside, independent loan review
auditors and by the Company's Loan Committee. A risk system, consisting of
multiple grading categories, is utilized as an analytical tool to assess risk
and appropriate reserves. Along with the risk system, management further
evaluates risk characteristics of the loan portfolio under current and
anticipated economic conditions and considers such factors as the financial
condition of the borrower, past and expected loss experience, and other factors
management feels deserve recognition in establishing an appropriate reserve.
These estimates are reviewed at least quarterly, and, as adjustments become
necessary, they are realized in the periods in which they become known.
Additions to the allowance are made by provisions charged to expense and the
allowance is reduced by net charge-offs (i.e.--loans judged to be uncollectible
and charged against the reserve, less any recoveries on such loans). Although
management attempts to maintain the allowance at a level deemed adequate, future
additions to the allowance may be necessary based upon changes in market
conditions. In addition, various regulatory agencies periodically review the
Company's allowance for loan losses. These agencies may require the Company to
take additional provisions based on their judgments about information available
to them at the time of their examination. See "Prospectus Summary--Admiralty
Bancorp, Inc.--Management Strategy" for a description of the effect of lifting
the C & D in the first half of 1998 on the Company's provision of its allowance
for loan losses.
The Company's allowance for possible loan losses totaled $431,000,
$360,000, $378,000 and $365,000 at June 30, 1998 and 1997, December 31, 1997 and
1996, respectively.
The following is a summary of the reconciliation of the allowance for loan
losses for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31
----------------------------- --------------------------
1998 1997 1997 1996
------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at Beginning of Period ...................... $ 378 $ 365 $ 365 $ 344
Charge-Offs:
Commercial and industrial .......................... 5 221 340 283
Real estate ......................................... -- 74 104 3
Consumer ............................................ -- -- 3 --
----- ----- ----- -----
5 295 447 286
Recoveries .......................................... 3 3 25 10
----- ----- ----- -----
Net Charge Offs: .................................... 2 292 422 276
Provision Charged to Expense ........................ 55 287 435 297
----- ----- ----- -----
Balance of Allowance at End of Period ............... $ 431 $ 360 $ 378 $ 365
===== ===== ===== =====
Ratio of Net Charge-Offs to Average Loans
Outstanding ........................................ 0.01% 1.43% 2.02% 1.41%
Balance of Allowance at Period-End as a % of
Loans at Period End ................................ 1.78% 1.69% 1.63% 1.96%
</TABLE>
22
<PAGE>
The following table sets forth, for each of the Company's major lending
areas, the amount and percentage of the Company's allowance for loan losses
attributable to such category, and the percentage of total loans represented by
such category, as of the periods indicated:
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES BY CATEGORY
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
JUNE 30, 1998 1997 1996
----------------------- ----------------------- -------------------
% OF ALL % OF ALL % OF ALL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- --------- --------- --------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Applicable to:
Commercial and Industrial ......................... $166 25% $105 26% $118 29%
Real Estate:
Non-Residential Properties ........................ 235 68% 175 61% 140 60%
Residential Properties ............................ 18 3% 35 7% 35 8%
Construction ...................................... 1 -- 4 2% 5 --%
Consumer ........................................... 4 4% 5 4% 4 3.0%
---- --- ---- --- ---- ---
Subtotal ........................................... 424 100% 324 100% 302 100%
Unallocated Reserves ............................... 7 -- 54 -- 63 --
---- --- ---- --- ---- ---
Total ........................................... $431 100% $378 100% $365 100%
==== === ==== === ==== ===
</TABLE>
INVESTMENT SECURITIES
The Company maintains an investment portfolio to fund increased loan demand
or decreased deposits and other liquidity needs and to provide an additional
source of interest income. The portfolio is composed primarily of U.S. Treasury
Securities and obligations of U.S. Government agencies and government sponsored
entities, including collateralized mortgage obligations issued by such agencies
and entities, and to a lesser extent collateralized mortgage obligations issued
by non-public entities. As a Federal Reserve Member Bank, the Bank also holds
stock in the Federal Reserve Bank of Atlanta.
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115),
effective January 1, 1994. Under SFAS 115, securities are classified as
securities held to maturity based on management's intent and the Company's
ability to hold them to maturity. Such securities are stated at cost, adjusted
for unamortized purchase premiums and discounts. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities, which are carried at market value. Realized gains and
losses and gains and losses from marking the portfolio to market value are
included in trading revenue. Securities not classified as securities held to
maturity or trading securities are classified as securities available for sale,
and are stated at fair value. Unrealized gains and losses on securities
available for sale are excluded from results of operations, and are reported as
a separate component of stockholders' equity, net of taxes. Securities
classified as available for sale include securities that may be sold in response
to changes in interest rates, changes in prepayment risks, the need to increase
regulatory capital or other similar requirement.
Management determines the appropriate classification of securities at the
time of purchase. At June 30, 1998, the Company's entire investment securities
portfolio of $13.4 million was classified as available for sale.
Investment securities at June 30, 1998 represent a decrease of $6.8
million, or 33.6%, over total investment securities of $20.2 million at December
31, 1997. This decrease in investment securities represents proceeds of maturing
and called securities being invested in new loan originations and used to fund a
reduction in deposits.
At December 31, 1997, the majority of the Company's investment securities
were held to maturity. Pursuant to the Change In Control, and as part of the
purchase accounting adjustments made in connection with the transaction,
securities were reclassified as available for sale.
23
<PAGE>
The following table sets forth the carrying value of the Company's
securities portfolio as of the dates indicated.
A comparative summary of securities available for sale for the periods
presented is as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ----------- -------
<S> <C> <C> <C> <C>
June 30, 1998:
U.S. Government and Agency Obligations ...................................... $ 3,500 $-- $ (8) $ 3,492
Mortgage Backed Securities ..................................................... 9,961 -- (69) 9,892
Other .......................................................................... 14 -- -- 14
------- --- ---- -------
$13,475 $-- $(77) $13,398
======= === ==== =======
December 31, 1997:
U.S. Government and Agency Obligations ...................................... $ 3,608 $16 $ (4) $ 3,620
======= === ==== =======
December 31, 1996:
U.S. Government and Agency Obligations ...................................... $ 8,979 $57 $(53) $ 8,983
======= === ==== =======
</TABLE>
A comparative summary of investment securities held to maturity for the
periods presented is as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
December 31, 1997:
U.S. Government and Agency Obligations ....................................... $16,561 $73 $ (28) $16,606
======= === ===== =======
December 31, 1996:
U.S. Government and Agency Obligations ...................................... $ 8,478 $55 $ (61) $ 8,472
======= === ===== =======
</TABLE>
The following table sets forth as of June 30, 1998 the maturity
distribution of the Company's investment portfolio.
<TABLE>
<CAPTION>
MATURITY SCHEDULE OF INVESTMENT SECURITIES
ONE YEAR ONE TO FIVE TO MORE THAN
OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
------------------ ---------------- ----------------- ---------------- -------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- ------- -------- ------- -------- ------- ---------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government and Agency
Obligations ..................... -- -- $3,492 5.83% -- -- -- -- $3,492 5.83%
Mortgaged Backed
Securities ...................... $6,243 6.27% 2,512 6.45% $659 6.73% $478 6.73% $9,892 6.54%
Other ............................. -- -- -- -- -- -- 14 -- 14 6.00%
</TABLE>
Gains from the sales of investment securities available for sale during the
years ended December 31, 1997 and 1996 were $87,000 and $437,000, respectively.
Gross gains of $87,000 and gross losses of $0 were realized on those sales in
1997. Securities with a carrying value of $3.1 million, $5.3 million and $5.0
million at June 30, 1998, December 31, 1997 and 1996 were pledged to secure
public funds on deposit.
24
<PAGE>
DEPOSITS
Deposits are the Company's primary source of funds. During the first half
of 1998, the Company's deposits declined by $1,965,000, or 4.6%, to $40,811,000
at June 30, 1998 from $42,776,000 at December 31, 1997. During the first half of
1998, the Company allowed higher rate certificates of deposit to run off since
the funds were not needed to fund loan demand. Time deposits declined from $16.2
million at December 31, 1997 to $13.2 million at June 30, 1998, and the average
rate paid on these deposits declined from 5.40% for the year ended December 31,
1997 to 5.33% for the six months ended June 30, 1998. The Company's cost of
funds for the six months ended June 30, 1998 was 2.78%, compared to 2.95% for
the year ended December 31, 1997. The Company experienced an increase in average
deposit balances of $3,673,000, or 10.0%, to $40,452,000 for the year ended
December 31, 1997 from average deposits or $36,779,000 for the year ended
December 31, 1996. The year-to-year growth was accomplished through increased
marketing of the Bank and its products. Among the increase in deposits, average
savings, N.O.W. and money market accounts grew to $13,502,000, an increase of
$1,182,000, or 9.6%, over the average for the year ended December 31, 1996. The
aggregate amount of average non-interest-bearing deposits was 25% and 24% during
1997 and 1996, respectively, of average total deposits. The Company has no
foreign deposits, nor are there any material concentrations of deposits.
The following table sets forth the average amounts of various types of
deposits for each of the periods indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------------------------------
1998 1997 1996
------------------------- ------------------------ ------------------------
AVERAGE AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing
Demand ............................ $10,998 -- $10,091 -- $ 8,807 --
Interest-Bearing Demand ........... 5,912 1.23% 5,149 1.43% 4,126 1.47%
Savings Deposit ................... 10,153 2.68% 8,353 2.49% 8,194 2.37%
Time Deposits ..................... 13,987 5.33% 16,859 5.40% 15,652 5.43%
------- ------- -------
Total .......................... $41,050 $40,452 $36,779
======= ======= =======
</TABLE>
The Company does not actively solicit short-term deposits of $100,000 or
more because of the liquidity risks posed by such deposits. The following table
summarizes the maturity distribution of certificates of deposits of
denominations of $100,000 or more as of June 30, 1998.
TIME DEPOSITS ($100,000 AND OVER) (IN THOUSANDS)
- --------------------------------- --------------
Three months or less ............................................. $ 225
Over three months through nine months ............................ 308
Over nine months through twelve months ........................... 332
Over twelve months ............................................... 683
------
Total ................................................ $1,548
======
INTEREST RATE RISK MANAGEMENT
Interest rate risk management involves managing the extent to which
interest-sensitive assets and interest-sensitive liabilities are matched.
Interest rate sensitivity is the relationship between market interest rates and
earnings volatility due to the repricing characteristics of assets and
liabilities. The Company's net interest income is affected by changes in the
level of market interest rates. In order to maintain consistent earnings
performance, the Company seeks to manage, to the extent possible, the repricing
characteristics of its assets and liabilities.
The ratio between assets and liabilities repricing in specific time
intervals is referred to as an interest rate sensitivity gap. Interest rate
sensitivity gaps can be managed to take advantage of the slope of the yield
curve as well as forecasted changes in the level of interest rate changes.
One major objective of the Company when managing the rate sensitivity of
its assets and liabilities is to stabilize net interest income. The management
of and authority to assume interest rate risk is the responsibility of the
Company's Asset/Liability Committee ("ALCO"), which is comprised of senior
management and Board members. The process to review interest rate risk
management is a regular part of management of the Company. Consistent
25
<PAGE>
policies and practices of measuring and reporting interest rate risk exposure,
particularly regarding the treatment of noncontractual assets and liabilities,
are in effect. In addition, there is an annual process to review the interest
rate risk policy with the Board of Directors which includes limits on the impact
to earnings from shifts in interest rates.
To manage the interest sensitivity position, an asset/liability model
called "gap analysis" is used to monitor the difference in the volume of the
Company's interest sensitive assets and liabilities that mature or reprice
within given periods. A positive gap (asset sensitive) indicates that more
assets reprice during a given period compared to liabilities, while a negative
gap (liability sensitive) has the opposite effect. The Company employs
computerized net interest income simulation modeling to assist in quantifying
interest rate risk exposure. This process measures and quantifies the impact on
net interest income through varying interest rate changes and balance sheet
compositions. The use of this model assists the ALCO to gauge the effects of the
interest rate changes on interest sensitive assets and liabilities in order to
determine what impact these rates changes will have upon the net interest
spread.
At June 30, 1998, the Company maintained a one year negative cumulative gap
of $1,398,000 million or 2.8% of total assets.
<TABLE>
<CAPTION>
INTEREST SENSITIVITY GAP AT JUNE 30, 1998
--------------------------------------------------------------------
3 MONTHS 3 THROUGH 1 THROUGH OVER
OR LESS 12 MONTHS 3 YEARS 3 YEARS TOTAL
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ..................... $ 6,503 $ -- $ -- $ -- $ 6,503
Investment securities(1)(2) ................... 1,663 4,579 7,142 296 13,680
Loans(2) ...................................... 20,373 446 3,384 -- 24,203
Fixed and other assets ........................ -- -- -- 6,109 6,109
------- ------- ------- ------- -------
Total assets .............................. 28,539 5,025 10,526 6,405 $50,495
=======
Non interest-bearing transaction deposits ..... 11,807 -- -- -- 11,807
Interest-bearing transaction deposits ......... 15,764 -- -- -- 15,764
Time .......................................... 1,663 5,728 5,849 -- 13,240
Other liabilities ............................. -- -- -- 1,417 1,417
------- ------- ------- ------- -------
Total ..................................... 29,234 5,728 5,849 1,417 42,228
------- ------- ------- ------- =======
Interest sensitivity gap ...................... (695) $ (703) 4,677 4,988
------- ------- ------- -------
Cumulative gap ................................ $ (695) $(1,398) $ 3,279 $ 8,267
======= ======= ======= =======
Cumulative gap to total assets ................ (1.38%) (2.77%) 6.49% 16.37%
======= ======= ======= =======
</TABLE>
- ------------
(1) Gross of unrealized gains/losses on available for sale securities.
(2) Investments and loans are included in the earlier of the period in which
interest rates were next scheduled to adjust or the period in which they
are due. In addition, loans were included in the periods in which they are
scheduled to be repaid based on scheduled amortization. For amortizing
loans and mortgage-backed securities, annual prepayment rates are assumed
reflecting historical experience as well as management's knowledge and
experience of its loan products.
LIQUIDITY
The Company's liquidity is a measure of its ability to fund loans,
withdrawals or maturities of deposits and other cash outflows in a
cost-effective manner. The Company's principal sources of funds are deposits,
scheduled amortization and prepayments of loan principal, sales and maturities
of investment securities and funds provided by operations. While scheduled loan
payments and maturing investments are relatively predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditionsand competition.
The Company's total deposits equaled $40.8 million, $42.8 million and $39.8
million as of June 30, 1998 and December 31, 1997 and 1996, respectively. The
funds provided by deposits during these years have been more than sufficient to
provide for the Company's lending demand.
26
<PAGE>
Through the Company's investment portfolio the Company has generally sought
to obtain a safe yet slightly higher yield than would have been available to the
Company as a net seller of overnight Federal Funds while still maintaining
liquidity. Through its investment portfolio, the Company also attempts to manage
its maturity gap by seeking maturities of investments which coincide as closely
as possible with maturities of deposits. The Company's investment portfolio also
includes securities held for sale to provide liquidity for anticipated loan
demand and other liquidity needs.
Management believes that the Company's current sources of funds provide
adequate liquidity for the current cash flow needs of the Company.
CAPITAL
A significant measure of the strength of a financial institution is its
capital base. The Bank's federal regulators have classified and defined capital
into the following components: (1) Tier I capital, which includes tangible
shareholders' equity for common stock and qualifying preferred stock, and (2)
Tier II capital, which includes a portion of the allowance for possible loan
losses, certain qualifying long-term debt and preferred stock which does not
qualify for Tier I capital. Minimum capital levels are regulated by risk-based
capital adequacy guidelines which require a financial institution to maintain
certain capital as a percent of its assets and certain off-balance sheet items
adjusted for predefined credit risk factors (risk-adjusted assets.) A financial
institution is required to maintain, at a minimum, Tier I capital as a
percentage of risk-adjusted assets of 4.0% and combined Tier I and Tier II
capital as a percentage of risk-adjusted assets of 8.0%.
In addition to the risk-based guidelines, the federal regulators require
that a financial institution which meets the regulators' highest performance and
operation standards maintain a minimum leverage ratio (Tier I capital as a
percentage of tangible assets) of 3%. For those institutions with higher levels
of risk or that are experiencing or anticipating significant growth, the minimum
leverage ratio will be proportionately increased. Minimum leverage ratios for
each bank are evaluated through the ongoing regulatory examination process.
The Company's federal regulators impose capital standards on bank holding
companies which are substantially similar to those imposed upon the Bank.
However, provided the Company's total assets are less than $150 million, these
standards are applied on a bank only basis.
The following table summarizes the Bank's risk-based and leverage
capital ratios at June 30, 1998, as well as the required minimum regulatory
capital ratios:
<TABLE>
<CAPTION>
CAPITAL ADEQUACY
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk-weighted assets) ............ $4,845 16.11% $2,405 8.00% $3,007 10.0%
Tier I Capital
(to risk-weighted assets) ............ 4,468 14.86% 1,203 4.00% 1,804 6.00%
Tier I Capital
(to average assets) .................. 4,468 9.74% 1,830 4.00% 2,288 5.00%
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Company are monetary. As a result, interest rates
have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
27
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting For Earnings Per Share. In February 1997, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 establishes
standards for computing and presenting Earnings Per Share (EPS) and applies to
entities with publicly held common stock or potential common stock. This
statement simplifies the standards for computing earnings per share previously
found in APB Opinion No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures. It also requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the diluted EPS
computation.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. This statement requires restatement of all prior-period EPS data
presented. The Company adopted the statement effective period end December 31,
1997.
Reporting of Comprehensive Income. In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130, "Reporting of Comprehensive Income"
("SFAS 130"), which establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of financial statements. This statement also 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.
This statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. The Adoption
of SFAS 130 did not have material effect on the Presentation of the Company's
financial statements.
Disclosure About Segments and Related Information. In June 1997, the FASB
issued Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"), which
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that such enterprises report selected information about operating segments in
interim financial reports issued to shareholders.
This statement also establishes standards for related disclosures about
products and services, geographical areas, and major customers. This statement
requires the reporting of financial and descriptive information about an
enterprise's reportable operating segments. This statement is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated. The Company does not anticipate that the preparation of disclosure to
comply with SFAS 131 will have a material effect on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative (gains and
losses) depends on the intended use of the derivative and resulting designation.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Earlier application is permitted only as of the beginning
of any fiscal quarter. The Company is currently reviewing the provisions of SFAS
No. 133. But does not anticipate the new provisions will have material effect on
the Company's financial statements.
YEAR 2000 COMPLIANCE
Rapid and accurate data processing is essential to the Company's
operations. Many computer programs that can only distinguish the final two
digits of the year entered (a common programming practice in prior years) are
expected to read entries for the Year 2000 as the year 1900 or as zero and
incorrectly attempt to compute payment, interest, delinquency and other data.
The Company has been evaluating both information technology (computer systems)
and non-information technology systems (e.g., vault timer, electronic door lock
and heating, ventilation and air
28
<PAGE>
conditioning control). The Company has examined all of its non-information
technology systems and has either received certifications of Year 2000
compliance for systems controlled by third party providers or determined that
the systems should not be impacted by the Year 2000. The Company expects to
further test the systems it controls and receive third party certifications,
when appropriate, that these systems will continue to function. The Company does
not expect any material costs to address its non-information technology systems
and has not had any material costs to date. The Company has determined that the
information technology systems it currently uses have substantially more Year
2000 risk than the non-information technology systems the Company uses. The
Company has evaluated its information technology systems risk in three areas:
(1) its own computers, (2) computers of others used by its borrowers, and (3)
computers of others who provide the Company with data processing.
The Company's Computers. The Company expects to spend approximately
$300,000 through November 30, 1998 to upgrade its computer systems, primarily
through the purchase of new hardware. This upgrade was necessary to accommodate
the planned expansion of the Bank, and is not necessitated as part of the
Company's Year 2000 remediation efforts. However, these new systems will be Year
2000 compliant. The Company does not expect to have material costs to address
this risk area after November 30, 1998. At June 30, 1998, none of the estimated
$300,000 had been expensed.
Computers of Others Used by Borrowers. The Company has evaluated most of
its borrowers and does not believe that the Year 2000 problem should, on an
aggregate basis, impact their ability to make payments to the Bank. The Company
believes that most of its individual borrowers are not dependent on their home
computers for income and none of the Bank's commercial borrowers are so large
that a Year 2000 problem would render them unable to collect revenue or rent
and, in turn, continue to make loan payments to the Bank. The Company does not
expect any material costs to address this risk area.
Computers of Others Who Provide the Company With Data Processing. This risk
is primarily focused on one third party service bureau that provides virtually
all of the Bank's data processing. This service bureau is not Year 2000
compliant but has advised the Company that it expects to be compliant before the
year 2000. If this problem is not solved before the year 2000, the Company would
likely experience significant delays, mistakes or failures. These delays,
mistakes or failures could have a significant impact on the Company's financial
condition and resultsof operations.
Contingency Plan. The Company is monitoring its service bureau to evaluate
whether the Company's data processing system will fail. The Company is being
provided with periodic updates on the status of testing and upgrades being made
by the service bureau. If the Company's service bureau fails, the Company will
attempt to locate an alternative service bureau that is Year 2000 compliant or
the Company will contract with the same vendor of its software system (which is
Year 2000 compliant) to utilize this software on the Company's own in-house
hardware system. If the Company is unsuccessful, the Company will enter deposit
and loan transactions by hand in its general ledger and computer loan payments
and deposit balances and interests with its existing computer system. The
Company can do this because of its relatively small number of loan and deposit
accounts and would expand its internal bookkeeping system. The Company's
computer systems are independently able to generate labels and mailings for all
of the Company's customers. If this labor intensive approach becomes necessary,
management and the Company's employees will become much less efficient. However,
the Company believes that it would be able to operate in this manner
indefinitely, until the Company's existing service bureau, or their replacement,
is able to again provide data processing services. If very few financial
institution services bureaus were operating in the Year 2000, the Company's
replacement costs, assuming it could negotiate an agreement, could be material.
29
<PAGE>
THE BANK
GENERAL
The Bank is a Florida state chartered bank which opened for business in
1987. The Bank operates through its main office located in Palm Beach Gardens
and three branch offices located in Juno Beach, Boca Raton and Jupiter, Florida.
Recently, the Bank applied for regulatory approval to open its fourth office in
Boca Raton.
The Bank is a community-oriented, full service commercial bank providing
commercial and consumer financial services to businesses and individuals in its
northern Palm Beach County trade area. See "Primary Trade Area" below.
Due to losses incurred on the Bank's loan portfolio and investment
securities portfolio, as well as certain other regulatory concerns, the Bank
entered into the C&D with the Florida Department of Banking and Finance and the
Federal Reserve Bank of Atlanta in January, 1992.
DEPOSITS
The Bank offers a full range of depository products and is competitive in
structuring the terms (e.g., interest rates, minimum balances, etc.) of the
deposit accounts as part of its strategy to gain deposits in its primary trade
area. In spite of this effort, the Bank believes that its cost of funds is lower
than the average costs experienced by its competitors.
LOANS
The Bank lends funds to individuals and businesses for personal and
commercial purposes. Most of the Bank's commercial loans, i.e., those for
business purposes, have floating rates tied to the Bank's prime rate. Typically,
the Bank's commercial loans are secured by business assets, personal guarantees
of the principals of closely-held businesses and often by the personal assets of
such principals. The loans are primarily made to small and mid-sized businesses
in the Bank's trade area. The Bank believes that it can attract commercial
borrowers by providing competitive rates, superior service, local
decision-making and flexibility in loan structure. The Bank's Board of Directors
believes that small and mid-sized businesses are not always of primary
importance to larger banking institutions for commercial lending purposes,
whereas such businesses represent the main portion of the commercial loan
business for the Bank.
The Bank has and will continue to emphasize adjustable rate loans. As of
June 30, 1998, total loans were $24.2 million of which 24.8% were commercial and
industrial, 68.2% were real estate, non-residential, 2.8% were loans secured by
residential properties, 0.4% were construction loans, and 3.7% were consumer
loans.
Fixed rate loans as of June 30, 1998 totaled $3.5 million, of which 25.0%
were commercial and industrial, 29.4% were real estate, non-residential, 20.8%
were loans secured by residential properties, 2.6% were construction loans, and
22.3% were consumer loans.
Commercial and Industrial Loans: As of June 30, 1998, the Bank had $6.0
million in commercial and industrial loans with risks generally associated with
economic conditions in the Bank's Florida trade area and a potential rise in
interest rates. The Bank underwrites these loans based on the credit history of
the borrowers, a demonstrated ability to repay the loan, favorable collateral
and personal guarantees. Lines of credit are reviewed at least annually and term
loans depend on the purpose and identified source of repayment.
Real Estate, Non-Residential Loans: As of June 30, 1998 the Bank had $16.5
million in Real Estate Non-Residential loans. The risks involved with these
loans are associated with economic conditions in the Bank's Florida trade area,
a potential rise in interest rates and potential dramatic decreases in real
estate values. The Bank underwrites these loans based on loan to value ratios
generally not exceeding 80%, a favorable debt coverage ratio based on current or
projected cash flow and generally requires personal guarantees of principals.
Residential Property: As of June 30, 1998, the Bank had $684,000 in loans
secured by residential properties. The risks involved with these loans are
associated with the personal financial condition of the borrowers and potential
dramatic decreases in real estate values. The Bank underwrites these loans
generally not exceeding 90% of the property value to borrowers based on the
borrowers' credit history and a demonstrated sufficient repayment ability.
Construction Loans: As of June 30, 1998, the Bank had $101,000 in
construction loans. The risks associated with these loans involve cost of
completion, economic conditions in Florida, repayment ability, a potential rise
in
30
<PAGE>
interest rates and potential dramatic decreases in property values. The Bank
underwrites these loans based on loan to values generally not exceeding 80%,
projected debt coverage ratios, and personal guarantees of principals.
Consumer Loans: As of June 30, 1998, these loans totaled $900,000. The
risks associated with these loans involve potential decreases in the borrowers'
income and loss or damage of the collateral. The Bank underwrites these loans
based upon the credit history of the borrower and a demonstrated ability to
repay the loan.
In addition, the Bank has been very active in providing loans to small
businesses through the United States Small Business Administration ("SBA")
guaranteed loan program. Under the SBA program, loans are available to small
businesses which meet certain criteria. Generally, 75% of the principal of the
loan to a qualified business may be guaranteed by the United States government.
The Bank sells the guaranteed portion of its SBA loans into the secondary market
and derives premium income from such sales. The Bank's ability to offer SBA
loans on an ongoing basis is dependent upon, among other factors, appropriation
of funds by the Federal government to the SBA program. Historically, the Bank
has originated SBA guaranteed loans through a network of third-party brokers.
Under its arrangements with these brokers, the Bank would pay a commission fee
on closed loans. Management of the Company intends to deemphasize the
origination of SBA guaranteed loans, and particularly the use of third-party
brokers, and focus the Bank's lending activities on more traditional commercial
loans.
The Bank grants both secured and unsecured consumer loans to finance the
purchase of automobiles, durable goods or for any worthwhile purpose. The Board
of Directors believes that the Bank's competitive interest rates and superior
service (which includes, among other things, convenience, personal attention and
prompt local decision-making) are important competitive factors in attracting
personal loans from credit-worthy consumers.
The Bank also makes residential and commercial mortgage loans. Commercial
real estate transactions have generally been limited to owner-occupied
commercial properties.
OTHER ACTIVITIES
The Bank also derives income from investments in securities, typically
obligations of the United States Government and government agencies. The Bank
also provides a variety of financial services to its customers including wire
transfers, issuing money orders and travelers checks, accepting direct deposit
of payroll and of federal recurring payments, and issuing both standby and
commercial letters of credit.
LEGAL PROCEEDINGS
From time to time, the Bank may be a plaintiff or defendant in various
legal proceedings in the normal course of its business. The Bank is not
presently a defendant in any legal proceeding and, to the knowledge of the Board
of Directors, there are no threatened actions or proceedings which would have a
material adverse effect on the financial position or results of operations of
the Bank.
PRIMARY TRADE AREA
The Bank's primary trade area at present encompasses northern Palm Beach
County, Florida. Through the mid-1990s, Palm Beach County has experienced rapid
growth, showing a rate of population growth of nearly 50% from 1980 through
1990, with the population growing from 576,863 to an estimated 1996 population
of 980,000. The County's primary employers include service providers and retail
trade companies along with some light manufacturing. Major employers within Palm
Beach County include Pratt & Whitney, Marquette Medical Systems, Philips
Components, Siemens, Motorola, Sony USA and W.R. Grace & Co. Palm Beach County's
unemployment rate has declined since the early 1990s, and average annual
earnings in the West Palm Beach--Boca Raton area have grown at an annual rate of
8.4% from 1984 through 1994.
COMPETITION
The Bank is located in an extremely competitive environment. The Bank's
trade area is already serviced by major regional banks, large thrift
institutions and by a variety of credit unions. Most of the Bank's competitors
have substantially more capital and therefore greater lending limits than the
Bank. The Bank's competitors generally have established positions in the trade
area and have greater resources than the Bank with which to pay for advertising,
physical facilities, personnel and interest on deposited funds.
31
<PAGE>
PHYSICAL FACILITIES
The Bank leases its main office in Palm Beach Gardens and its two branch
offices in Juno Beach and Jupiter, Florida. The following table sets forth
certain information regarding these leases:
LOCATION SQUARE FEET MONTHLY RENTAL TERM
-------- ----------- -------------- ----
Palm Beach Gardens ........... 7,930 $13,204 October 31, 2003
Juno Beach ................... 2,508 4,719 December 31, 2000
Jupiter ...................... 1,500 2,054 June 15, 1999
In addition, the Bank has received regulatory approval to open a new office
in Boca Raton, Florida, and is currently finalizing the terms of the lease
agreement for this facility. As proposed, the lease will be for a term of 20
years, with four renewal options of five years each. The base rent will be
$143,000 per year. See "Management--Transactions with Management."
PERSONNEL
The Bank currently employs 34 full time employees, and anticipates hiring
approximately seven additional employees as it continues to implement its
business strategy. Other than the employment agreement with Mr. Kellogg, the
Bank has no written employment agreements with its officers and employees.
Obtaining and retaining well-trained and qualified personnel may require the
Bank to pay salaries at or above those currently paid by competitors.
MANAGEMENT
BOARD OF DIRECTORS
The direction and control of Admiralty is vested in its Board of Directors,
which pursuant to its bylaws must consist of not less than 3 nor more than 25
persons with the exact number to be determined by the Board from time to time.
Admiralty currently has ten (10) Directors. The term of each director is three
years, and the Board is divided into three classes, with one class standing for
election at each Annual Meeting. See, "Anti-Takeover Provisions--Classified
Board of Directors."
The following sets forth certain information regarding Admiralty's
Directors:
BRUCE A. MAHON, 67, Chairman of the Board and Chief Executive Officer. Mr.
Mahon was formerly the Chairman of the Board of Carnegie Bancorp and had been
Chairman of the Board of Carnegie Bank, NA since its inception in 1988. Carnegie
Bank, NA is a commercial bank headquartered in Princeton, New Jersey. In July,
1998, Carnegie Bancorp was acquired by Sovereign Bancorp of Wyomissing,
Pennsylvania. Mr. Mahon is also the past President of the McCay Corporation as
well as the past President of Trenton Wine & Spirits. He has an extensive
background in public service, including service as the former Director of
Finance for Burlington County, New Jersey, former Burlington County Freeholder,
and a former Member of the Delaware Valley Regional Planning Board.
MICHAEL E. GOLDEN, 54, Vice Chairman of the Board. Mr. Golden is the
Chairman of the Board and CEO of First Colonial Securities Group, Inc., a full
service investment brokerage and the managing Underwriter. Mr. Golden was also
the Vice Chairman of the Board of Carnegie Bancorp since its inception in 1988.
Prior to 1990, Mr. Golden was Senior Vice President of Smith Barney Harris Upham
& Company, Inc. Mr. Golden is a Director of the Cooper Hospital of Camden, New
Jersey, a Director of the Palm Beach Jewish Federation, Director of the Donna
Klein Jewish Academy of Boca Raton, Florida and Chairman of KidAcademy Learning
Centers.
LESLIE E. GOODMAN, 55, Director. Mr. Goodman is currently an executive
officer with the Eagle Group, Inc., a New Jersey based real estate development
firm. Prior to his retirement, Mr. Goodman was a senior executive officer with
First Union National Bank, and, prior to its acquisition by First Union, First
Fidelity Bank and its predecessors, for more than 30 years. Mr. Goodman has
served for over 20 years as President and Chief Executive Officer of various
financial institutions in New Jersey, including the First National State Bank of
Central New Jersey, Fidelcor, Inc., Fidelity Bank, N.A., New Jersey, and First
Fidelity Bank, N.A., New Jersey. In addition, after the acquisition of First
Fidelity Bank by First Union National Bank, Mr. Goodman served as the President
for First Union National Bank's
32
<PAGE>
North Jersey area. Mr. Goodman is also a licensed attorney in the State of New
Jersey and the Commonwealth of Pennsylvania.
THOMAS L. GRAY, JR., 53, Director. Mr. Gray was formerly the President,
Chief Executive Officer and member of the Board of Carnegie Bancorp. Prior to
forming Carnegie in 1988, Mr. Gray served for five years as President and CEO of
Peoples National Bank of Denville, New Jersey. He served in that same capacity
at Lafayette Bank & Trust Company of Bridgeport Connecticut for ten years, and
was a National Bank Examiner for the OCC for six years. Mr. Gray has over 30
years of experience in the banking industry.
SIDNEY L. HOFING, 63, Director. Mr. Hofing has been the President of the
Eagle Group, a New Jersey based real estate development company for over five
(5) years and is also the Chairman of the Board of New General Packaging
Service, Inc., a pharmaceutical packaging company. Mr. Hofing also serves on the
Board of Yardville National Bank, a national bank headquartered in Yardville,
New Jersey. Mr. Hofing is a licensed attorney in both Pennsylvania and New
Jersey.
PETER L.A. PANTAGES, 43, Director. Mr. Pantages has been the President of
McCay Real Estate Group, a real estate sales, management and development company
for over five (5) years. Mr. Pantages is a licensed real estate broker and
financial consultant, and has extensive experience in real estate financing. He
is also an active investor in banks.
RICHARD P. ROSA, 46, Director and Chief Financial Officer. Mr. Rosa was
formerly the Chief Financial Officer of Carnegie Bancorp since April, 1995.
Prior joining Carnegie Bancorp, Mr. Rosa was the Chief Financial Officer of
Lakeland First Financial Group, Inc., the parent company of Lakeland Savings
Bank, Succasunna, New Jersey, for four years. Prior to his service at Lakeland,
Mr. Rosa served for seven years as Senior Vice President and Treasurer of United
Jersey Bank/Northwest, Randolph, New Jersey and also has seven years of bank
auditing experience, and is a Certified Bank Auditor. Mr. Rosa has an MBA from
Rutgers University Graduate School of Business Administration in accounting.
CRAIG A. SPENCER, 37, Director. Mr. Spencer has been the President and
Chief Executive Officer of The Arden Group, Inc., a real estate development
company for over five (5) years. Mr. Spencer is also a licensed attorney and
real estate broker in the Commonwealth of Pennsylvania. Mr. Spencer has
extensive experience in the real estate industry, having previously served as a
Vice President for Acquisitions for National Property Analysts of Philadelphia,
Pennsylvania. Mr. Spencer also serves on the advisory board of XNDO, Inc.
MARK A. WOLTERS, 37, Director. Mr. Wolters was formerly a Director and the
Executive Vice President of Carnegie Bancorp and served as an Executive Vice
President of Carnegie Bank, NA since 1988. Mr. Wolters has been involved in the
banking industry since 1978. Prior to joining Carnegie, Mr. Wolters served as
the Senior Lending Officer of the Yardville National Bank where he was employed
for six years. Prior to his service, Mr. Wolters was affiliated with the Central
Jersey Bank and Trust.
GEORGE R. ZOFFINGER, 50, Director. Mr. Zoffinger is President and Chief
Executive Officer of Constellation Capital Corp. Previously, Mr. Zoffinger was
President and Chief Executive Officer of Value Property Trust, a New Jersey
based real estate investment trust. Value Property Trust was merged with
Wellford Properties, Inc. in February 1998. Previously, Mr. Zoffinger was
Chairman of CoreStates New Jersey National Bank and President and Chief
Executive Officer of Constellation Bancorp. Mr. Zoffinger has over 25 years
experience in the banking industry and also served as Commissioner of the New
Jersey State Department of Commerce and Chairman of the New Jersey Economic
Development Authority.
No Director of Admiralty is also a director of any company registered as an
investment company under the Investment Company Act of 1940.
The following sets forth certain information regarding members of the
Bank's management who are not Directors of Admiralty:
WARD KELLOGG, 39. Mr. Kellogg is the President and Chief Executive Officer
of the Bank. Prior to joining the Bank, Mr. Kellogg served as Executive Vice
President and Chief Credit Officer for 1st United Bank of Boca Raton, Florida
from 1987 through 1998, when 1st United Bank was acquired by Wachovia
Corporation. Mr. Kellogg received degrees in business administration and
marketing from Florida International University. Mr. Kellogg has over 16 years
of experience in the banking industry in the South Florida market.
33
<PAGE>
WILLIAM J. BURKE, 38. Mr. Burke is the Executive Vice President and Chief
Operating Officer of the Bank. From 1994 through 1998, Mr. Burke was the Senior
Vice President and Regional Senior Lending Officer of 1st United Bank of Boca
Raton, Florida, until it was acquired by Wachovia Corporation. Previously, from
1989 through 1994, Mr. Burke was the Vice President for Commercial Lending for
SouthEast Bank, which was acquired by First Union Corporation. Mr. Burke is a
graduate of Florida International University. Mr. Burke has over 16 years of
banking experience in the South Florida market.
DENNIS GAVIN, 33. Mr. Gavin is the Senior Vice President and the Senior
Lending Officer of the Bank. From 1994 through 1998, Mr. Gavin served as a Vice
President of Commercial Lending for 1st United Bank of Boca Raton, Florida,
until it was acquired by Wachovia Corporation. Prior to 1994, Mr. Gavin served
as a Credit Administration Officer for Barnett Bank of Palm Beach County. Mr.
Gavin has over 10 years of banking experience in the South Florida market.
ANNE PADDOCK, 37. Ms. Paddock is the Senior Vice President--Loan
Administration of the Bank. From 1994 to 1998, Ms. Paddock was the Vice
President of Commercial Lending for 1st United Bank, which was acquired by
Wachovia Corporation. Previously, Ms. Paddock was a commercial loan officer with
another Palm Beach County, Florida based financial institution. Ms. Paddock
received an MBA from Duke University.
JOHN KAPSIS, 50. Mr. Kapsis is the Senior Vice President--Finance of the
Bank. From 1991 through 1997, Mr. Kapsis was the Senior Vice
President--Accounting at 1st United Bank, which was acquired by Wachovia
Corporation. He previously served as Chief Financial Officer and Vice
President--Corporate Accounting, respectively, at two other financial
institutions. Mr. Kapsis is a graduate of the University of Illinois.
SYLVIA R. WEBER, 36. Ms. Weber is the Senior Vice President in charge of
operations of the Bank, and joined the Bank in November, 1993. Ms. Weber, an MBA
from Southern Methodist University, Dallas, Texas, has an extensive background
in operations and management in a variety of bank and bank related positions
over 13 years.
STOCK OWNERSHIP OF DIRECTORS
The following table sets forth certain information regarding beneficial
ownership of the Admiralty's Class A Stock and Class B Stock as of August 1,
1998 and, after giving effect to the Offering (assuming 1,100,000 shares of
Class B Stock are sold), by (i) each person who is known to the Admiralty to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director, and (iii) all officers and directors as a group. All persons listed
have sole voting and investment power with respective to their shares unless
otherwise indicated. As of June 30, 1998, the Company had 888,881 shares of its
Class A Stock outstanding and 227,759 shares of its Class B Stock outstanding
after giving effect to the recent 5% dividend declared on the Class A Stock paid
in shares of Class B Stock, paid on July 21, 1998. Since the Class A Stock and
the Class B Stock vote together as a single class, the following table does not
present the classes separately.
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
PERCENTAGE
PERCENTAGE AFTER
NAME(1) NUMBER OWNERSHIP OFFERING
------- ------ ---------- -----------
<S> <C> <C> <C>
Bruce A. Mahon ............................... 108,784(2)(3) 9.5% 4.7%
Michael E. Golden ............................ 88,216(2)(4) 7.7% 3.9%
Leslie E. Goodman ............................ 40,125(2)(5) 3.6% 1.8%
Thomas L. Gray, Jr. .......................... 80,191(2)(5) 7.1% 3.6%
Sidney L. Hofing ............................. 66,375(2)(5)(6) 5.9% 2.9%
Peter L.A. Pantages .......................... 28,968(2)(5)(7) 2.6% 1.3%
Richard P. Rosa .............................. 25,207(2)(5) 2.3% 1.1%
Craig A. Spencer ............................. 50,625(2)(5) 4.5% 2.2%
Mark A. Wolters .............................. 25,207(2)(5) 2.3% 1.1%
George R. Zoffinger .......................... 19,625(2)(5)(8) 1.7% 0.9%
Ward Kellogg ................................. -- -- --
All Directors and Executive Officers
as a group (16 persons) ..................... 532,853 47.7% 24.0%
</TABLE>
- -------------
(1) The address of all persons is c/o Admiralty Bancorp, Inc., Inc., 2275
Highway 33, Suite 305, Hamilton Square, New Jersey 08690.
(2) Does not include 15,000 shares of Class B Stock purchasable upon the
exercise of Warrants. These Warrants are not exercisable until January,
1999.
(3) Includes 30,000 shares of Class B Stock purchasable upon the exercise of
stock options.
(4) Includes 24,000 shares of Class B Stock purchasable upon the exercise of
stock options.
(5) Includes 13,875 shares of Class B Stock purchasable upon the exercise of
stock options.
(6) Includes 20,000 shares hereby held by a limited partnership of which Mr.
Hofing is a member.
(7) Includes 2,000 shares held in trust.
(8) These shares are held by a limited partnership of which Mr. Zoffinger is a
member.
COMPENSATION OF THE BOARD OF DIRECTORS
Members of the Board of Directors of the Company do not currently receive
board fees for their services. However, members of the Board of Directors of the
Bank who are not also employees of the Bank do receive $500 per board of
director meeting. See "--Certain Transaction with Management."
COMPENSATION OF EXECUTIVE OFFICERS
Mr. Bruce A. Mahon, Chairman of the Board of the Company, began receiving
an annual salary of $50,000 in August, 1998.
Effective July 1, 1998, Mr. Ward Kellogg was retained as President and
Chief Executive Officer of the Bank. Pursuant to his employment agreement, Mr.
Kellogg is to receive an annual salary of $125,000, subject to annual increases.
In addition, Mr. Kellogg may receive a cash bonus based upon the Company's
return on average assets. Mr. Kellogg's employment agreement has a term of three
and one-half years. If Mr. Kellogg is terminated other than for cause he is to
receive his then current base compensation for the remaining term of the
agreement, or twenty-four months, which is longer. If Mr. Kellogg's employment
is terminated following a change in control (as defined in the agreement) or if
he voluntarily terminates his employment following a change in control under
certain circumstances, Mr. Kellogg will be entitled to receive his then current
base compensation for a period of twenty-four (24) months. Mr. Kellogg is also
to receive options to purchase 25,000 shares of Class B Stock.
In addition, Mr. William Burke has been retained to serve as a Vice
President and the Chief Operating Officer of the Bank at an annual salary of
$100,000. Mr. Burke is also to receive options to purchase 10,000 shares of
Class B Stock.
Effective July 1, 1998, Mr. James A. Semrad resigned as President of the
Bank to pursue other professional opportunities. Mr. Semrad will remain as a
consultant to the Bank and the Company, and he will continue to receive a
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consulting fee of $8,333 per month for the next thirty (30) months, or an
aggregate payment of $250,000. As a consultant, Mr. Semrad will assist the Bank
in developing business plans, branch locations and strategic planning.
MANAGEMENT STOCK OPTION PLAN
The Board of Directors of the Company has adopted the 1998 Management Stock
Option Plan (the "Management Plan"), which provides for options to purchase up
to 330,000 shares of Class B Stock to be issued to employees and members of the
Board of Directors of the Company, the Bank and any other subsidiaries which the
Company may acquire or incorporate in the future. The purpose of the Management
Plan is to assist both the Company and its subsidiaries in attracting and
retaining highly qualified persons to serve both as employees and members of the
Board of Directors of the Company and its subsidiaries and to help ensure that
management of the Company and its subsidiaries have shared economic interests
with the shareholders of the Company. The Management Plan will be administered
by the Board of Directors of the Company. The Board will have the authority to
determine the terms and conditions of options granted under the Management Plan,
the exercise price for such options, subject to the terms of the Plan, and
whether the Options are incentive or non-statutory options, subject to the terms
of the Internal Revenue Code of 1986, as amended (the "Code"). Options granted
under the Management Plan may not be exercised more than 10 years after the date
such Option is granted.
The Management Plan provides for the granting of both incentive options
under Section 422 of the Code and non-statutory options. Incentive stock options
may be granted at an exercise price of not less than 100% of the fair market
value of the Class B Stock on the date of grant. The Option price for
non-statutory options may not be less than 100% of the fair market value of the
Class B Stock on the date of grant. The Board of Directors has discretion to set
the actual exercise price of any option within the foregoing parameters.
The grant of a non-statutory option, which has no readily ascertainable
fair market value at the time it is granted, is not taxable to the recipient of
the option for federal income tax purposes at the time the option is granted.
The recipient of a non-statutory option realizes compensation taxable as
ordinary income at the time the option is exercised. The amount of such
compensation is equal to the amount by which the fair market value of the stock
acquired upon exercise of the option exceeds the amount required to be paid for
such stock.
Incentive stock options may, in many instances, be more beneficial for
employees than non-statutory options. The exercise of an incentive stock option
generally will have not federal income tax consequences and, if certain
conditions are met, any excess of fair market value over the option price will
be reportable as capital gain in the year the common stock purchased upon
exercise of the option is sold.
The Board has approved the following stock option grants under the
Management Plan:
NAME SHARES UNDER OPTION
---- -------------------
Bruce A. Mahon ...................................... 30,000
Michael E. Golden ................................... 24,000
Leslie E. Goodman ................................... 13,875
Thomas L. Gray, Jr. ................................. 13,875
Sydney L. Hofing .................................... 13,875
Peter L.A. Pantages ................................. 13,875
Richard P. Rosa ..................................... 13,875
Craig A. Spencer .................................... 13,875
Mark A. Wolters ..................................... 13,875
George R. Zoffinger ................................. 13,875
Ward Kellogg ........................................ 25,000(1)
William Burke ....................................... 10,000(1)
Dennis Gavin ........................................ 8,000(1)
Anne Paddock ........................................ 6,000(1)
Others .............................................. 3,000(1)
-------
Total Grants ...................................... 217,000
=======
- --------
(1) Subject to a four-year vesting schedule.
Exercise price for these options will be the purchase price for the Class B
Stock sold in this Offering.
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<PAGE>
CERTAIN TRANSACTIONS WITH MANAGEMENT
The Bank has made in the past and, assuming continued satisfaction of
generally applicable credit standards, expects to continue to make loans to
directors, executive officers and their associates (i.e., corporations or
organizations for which they serve as officers or directors or in which they
have beneficial ownership interests of ten percent or more). These loans have
all been made in the ordinary course of the Bank's business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and do not involve more than
the normal risk of collectibility or present other unfavorable features. In
addition, Bank Directors and Officers keep depository balances with the Bank.
The Bank has received regulatory approval to open a new branch in Boca
Raton, Florida. This branch will be leased from an entity owned by certain
members of the Company's Board of Directors. In addition, the Bank has applied
for regulatory approval to relocate its Jupiter branch to more spacious
quarters. This facility will also be leased from an entity owned by members of
the Company's Board of Directors. The aggregate rental payment due under these
two leases will be $238,000 per year. The Company believes that these leases
represent fair market value, and are comparable to terms which the Bank could
have obtained from unaffiliated parties.
Mr. Michael E. Golden, member of the Board of Directors of the Company, is
a principal of First Colonial Securities Group, Inc., the managing Underwriter
of this Offering. As a founder of the Company, Mr. Golden received 25,183 shares
of Class A Stock and 37,774 shares of Class B Stock for a purchase price of
$0.68 per share. In addition, First Colonial Securities Group, Inc. acted as
placement agent in connection with the Company's private placement of $8 million
of its Class A Units. First Colonial Securities Group, Inc. received a placement
agent fee of $400,000 for its efforts in the private placement. As the managing
Underwriter of this Offering, First Colonial Securities Group, Inc. will receive
certain compensation. See "Underwriting".
DESCRIPTION OF THE COMPANY'S SECURITIES
CAPITAL STOCK
General. Admiralty is incorporated under the laws of the State of Delaware.
Therefore, the rights of holders of Admiralty's stock will be governed by the
Delaware General Corporation Law and the Company's Certificate of Incorporation.
Admiralty's Certificate of Incorporation provides for an authorized
capitalization of 7,000,000 shares of capital stock, consisting of 5,000,000
shares of Common Stock, in two classes, and 2,000,000 shares of preferred stock,
to be issued in series as determined by the Board of Directors.
CLASS B STOCK
As of June 30, 1998, there were 227,759 shares of Class B Stock
outstanding, after giving effect to the recent dividend declared on the Class A
Stock paid in shares of Class B Stock.
Dividend Rights. The holders of Admiralty's Class B Stock will be entitled
to dividends, when, as, and if declared by the Company's Board of Directors,
subject to any restrictions imposed by Delaware law, and subject to the
restriction that holders of the Class B Stock may not receive dividends if
Admiralty has not made the most recently required dividend payment on its Class
A Stock. The only statutory limitation applicable to Admiralty under Delaware
law is that dividends must be paid out of surplus or, if there is no surplus,
out of net profits for the fiscal year in which the dividend is declared or out
of the preceding year's net profit. However, as a practical matter, unless
Admiralty expands its activities, its only source of income will be the Bank.
Therefore, the dividend restrictions applicable to the Bank described under the
heading "Supervision and Regulation" will continue to impact Admiralty's ability
to pay dividends.
Voting Rights. Except as discussed under "Anti-Takeover Provisions", each
share of Admiralty's Class B Stock is entitled to one vote per share. Cumulative
voting is not permitted. The Class B Stock will vote with the Class A Stock as a
single class on all matters on which a vote is required or permitted. Under the
Company's Certificate of Incorporation, certain matters require an 80%
stockholder vote. See "Anti-Takeover Provisions".
Preemptive Rights. Under Delaware law, shareholders may have preemptive
rights if these rights are provided in the certificate of incorporation.
Admiralty's Certificate of Incorporation does not provide for preemptive rights.
Appraisal Rights. Under Delaware law, dissenting shareholders of Admiralty
have appraisal rights (subject to the broad exception set forth in the next
sentence) upon certain mergers or consolidations. Appraisal rights are not
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<PAGE>
available in any such transaction if shares of the corporation are listed for
trading on a national securities exchange or designated as a national market
system security on the NASDAQ system or held of record by more than 2,000
holders.
Directors. Under Delaware law and Admiralty's Certificate of Incorporation,
Admiralty is to have a minimum of 3 directors and a maximum of 25, with the
number of directors at any given time to be fixed by the Board of Directors.
Admiralty has ten (10) members of its Board of Directors.
CLASS A STOCK
Admiralty's Class A Stock has the same basic rights as the Class B Stock,
with the exceptions listed below. Therefore, the voting rights, preemptive
rights, and appraisal rights of the Class A Stock are the same as for the Class
B Stock. As of June 30, 1998, there were 888,881 shares of the Company's Class A
Stock outstanding. The following is a discussion of the additional rights of the
Class A Stock:
Dividends
The holders of the Class A Stock are entitled to receive annual Class A
Stock dividends equal to 10% of the stated value of a share of Class A Stock,
$10.00 per share. The dividend may be paid either in cash or in market value of
Class B Stock, at the discretion of Admiralty's Board of Directors. Dividends
may be paid semi-annually or otherwise as the Board may determine, and the form
of the dividend will be determined before each payment period. No dividends may
be paid on the Class B Stock if Admiralty has failed to pay the most recently
required dividend payment on the Class A Stock, in cash or in shares of Class B
Stock. After receipt of the required 10% dividend, the Class A Stock is not
legally entitled to share in any dividends paid upon the Class B Stock, although
the Board of Directors may permit such participation.
Conversion Rights
Each share of Class A Stock is convertible, at the option of the holder,
into one share of Admiralty Class B Stock.
The conversion rate is subject to adjustment in the manner provided in
Admiralty's Certificate of Incorporation in the event of payment of certain
stock dividends, stock split-ups or combinations or other similar
recapitalizations. No adjustment in the conversion rate is required unless it
would result in at least a 1% increase or decrease in that rate; however, any
adjustment not made is carried forward.
In addition to the foregoing voluntary conversion rights, Admiralty will
have the right to require a holder of Class A Stock to convert the Class A Stock
into Class B Stock, at the rate of one share of Class B Stock for each share of
Class A Stock held, in the event that Admiralty Class B Stock trades at $15.00
or higher and does not trade below $15.00 for the next 20 consecutive trading
days. Upon the end of such 20 consecutive trading day period, Admiralty may
issue a notice of mandatory conversion requiring the conversion of shares of the
Class A Stock to Class B Stock within 20 days.
Voting Rights
The holders of Class A Stock have the same voting rights as the Class B
Stock. Both the Class A Stock and the Class B Stock will vote together as a
single class on all matters.
Liquidation Rights
The holders of Class A Stock are entitled to share rateably with the
holders of the Class B Stock in the available proceeds of any liquidation or
dissolution of Admiralty. The Class A Stock has no preference upon a liquidation
of the Company.
PREFERRED STOCK
Admiralty is authorized to issue up to 2,000,000 shares of preferred stock,
in one or more series, with such designations and such relative voting,
dividend, liquidation, conversion and other rights, preferences and limitations
as shall be set forth in resolutions providing for the issuance thereof adopted
by the Board of Directors.
WARRANTS
In connection with the recapitalization of the Company described under the
heading "Offering Summary--Admiralty Bancorp, Inc.", the Company has issued
stock purchase warrants entitling the holders thereof
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<PAGE>
to purchase 800,000 shares of Class B Stock. In addition, to compensate
directors of the Company for their time and efforts in organizing the Company
and consummating the Change in Control, the Board of Directors of the Company
awarded warrants to purchase 150,000 shares of Class B Common Stock in the
aggregate to members of the Board of Directors of the Company and, as part of
the consideration in the Change in Control, the Company issued warrants to
purchase 15,000 shares of Class B stock to the former majority shareholder of
WEFG. Therefore, there are currently outstanding warrants to purchase 965,000
shares of Class B Common Stock. Each warrant entitles the holder thereof to
purchase one share of Admiralty Class B Stock at a purchase price of $11.00 for
a period commencing on January 22, 1999 and ending on January 21, 2002 (the
"Expiration Date"), although the Expiration Date of the warrants is subject to
acceleration as provided below. Any warrant not exercised on or before the
Expiration Date shall expire and will not thereafter be exercisable. Warrant
holders do not have the rights and privileges of holders of Common Stock.
The Company has the right to accelerate the Expiration Date in the event
that (i) the Class B Stock is traded on a nationally recognized securities
exchange or the NASDAQ National or SmallCap Market, and (ii) the Class B Stock
has traded at $15.00 per share or above and has not traded below $15.00 per
share for 20 consecutive trading days. In the event these conditions are met,
the Company may, but is not obligated, to issue a notice of acceleration to each
warrant holder. Upon issuance of the notice, the warrants will expire 30 days
after the date of the notice. To the extent the Company issues the Notice of
Acceleration, it will be required to redeem each outstanding but unexercised
warrant for a price of $0.10 per warrant upon the expiration of the warrants.
TRANSFER AGENT AND WARRANT AGENT
Admiralty's transfer agent for its Common Stock and the Warrant Agent for
the warrants is Stocktrans, Inc. with offices at 7 East Lancaster Avenue,
Ardmore, Pennsylvania.
ANTI-TAKEOVER PROVISIONS
BANK REGULATORY REQUIREMENTS
Under the Federal Change in Bank Control Act (the "Control Act"), a 60 day
prior written notice must be submitted to the FRB if any person, or any group
acting in concert, seeks to acquire 10% or more of any class of outstanding
voting securities of a bank holding company, unless the FRB determines that the
acquisition will not result in a change of control. Under the Control Act, the
FRB has 60 days within which to act on such notice taking into consideration
certain factors, including the financial and managerial resources of the
acquirer, the convenience and needs of the community served by the bank holding
company and its subsidiary banks and the antitrust effects of the acquisition.
Under the BHCA, a company is generally required to obtain prior approval of the
FRB before it may obtain control of a bank holding company. Under the BHCA,
control is generally described to mean the beneficial ownership of 25% or more
of the outstanding voting securities of a company, although a presumption of
control may exist if a party beneficially owns 10% or more of the outstanding
voting securities of a company and certain other circumstances are present.
DELAWARE LAW
Certain provisions of Delaware law are designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquirer to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder;
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<PAGE>
(ii) any business combination involving a person who acquired at least 85% of
the outstanding voting stock in the transaction in which he became an Interested
Stockholder, with the number of shares outstanding for this purpose calculated
without regard to those shares owned by the corporation's directors who are also
officers and by certain employee stock plans; (iii) any business combination
with an Interested Stockholder that is approved by the Board of Directors and by
a two-thirds vote of the outstanding voting stock not owned by the Interested
Stockholder; and (iv) certain business combinations that are proposed after the
corporation had received other acquisition proposals and which are approved or
not opposed by a majority of certain continuing members of the Board of
Directors. A corporation may exempt itself from the requirements of the statute
by adopting an amendment to its Certificate of Incorporation or Bylaws electing
not to be governed by Section 203. At the present time, the Board of Directors
does not intend to propose any such amendment.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors of the Company is divided into three classes, each of which shall
contain approximately one-third of the whole number of the members of the board.
Each class shall serve a staggered term, with approximately one-third of the
total number of directors being elected each year. The Company's Certificate of
Incorporation and Bylaws provide that the size of the board shall be determined
by a majority of the directors. The Certificate of Incorporation and the Bylaws
provide that any vacancy occurring in the Board, including a vacancy created by
an increase in the number of directors or resulting from death, resignation,
retirement, disqualification, removal from office or other cause, shall be
filled for the remainder of the unexpired term exclusively by a majority vote of
the directors then in office. The classified Board is intended to provide for
continuity of the Board of Directors and to make it more difficult and time
consuming for a stockholder group to use its voting power to gain control of the
Board of Directors without the consent of the incumbent Board of Directors of
the Company.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS
The Certificate of Incorporation requires the approval of the holders of at
least 80% of the Company's outstanding shares of voting stock to approve certain
"Business Combinations," as defined therein, and related transactions. Under
Delaware law, absent this provision, Business Combinations, including mergers,
consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of Common Stock of the
Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of stockholders is required in connection
with any Business Combination except in cases where the proposed transaction has
been approved in advance by a majority of the Company's Board of Directors. This
provisions of the Certificate of Incorporation applies to any "Business
Combination," which is defined to include (i) any merger or consolidation of the
Company or any of its subsidiaries with or into any other person; (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
other person of substantially all of the assets of the Company or combined
assets of the Company and its subsidiary, or (iii) any offer for the exchange of
securities of another entry for the securities of the Company.
EVALUATION OF OFFERS
The Certificate of Incorporation of the Company further provides that the
Board of Directors of the Company, when evaluating any offer of another "Person"
(as defined therein), to (i) make a tender or exchange offer for any equity
security of the Company, (ii) merge or consolidate the Company with another
corporation or entity, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of the Company, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Company, the Bank and the stockholders of the Company, give due
consideration (to the extent permitted by law) to all relevant factors,
including, without limitation, the social and economic effects of acceptance of
such offer on the Company's customers and the Bank's present and future account
holders, borrowers and employees; on the communities in which the Company and
the Bank operate or are located; and on the ability of the Company to fulfill
its corporate objectives as a bank holding company and on the ability of the
Bank to fulfill the objectives of a state chartered stock bank under applicable
statutes and regulations. By having these standards in the Certificate of
Incorporation of the Company, the Board of Directors may be in a stronger
position to oppose such a transaction if the board concludes that the
transaction would not be in the best interest of the Company, even if the price
offered is significantly greater than the then market price of any equity
security of the Company.
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AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
Amendments to the Company's Certificate of Incorporation must be approved
by a majority vote of its Board of Directors and also by a majority of the
outstanding shares of its voting stock, provided, however, that an affirmative
vote of at least 80% of the outstanding voting stock entitled to vote (after
giving effect to the provision limiting voting rights) is required to amend or
repeal certain provisions of the Certificate of Incorporation, including the
provision limiting voting rights and the provisions relating to approval of
certain Business Combinations.
CERTAIN BYLAW PROVISIONS
The Bylaws of the Company also require a stockholder who intends to
nominate a candidate for election to the Board of Directors to give at least 90
days advance notice in writing to the Secretary of the Company. The notice
provision requires a stockholder wishing to nominate any person or election as a
director provide the Company with certain information concerning the nominee and
the proposing stockholder.
REGULATION AND SUPERVISION
GENERAL
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended to protect
depositors, not stockholders. To the extent that the following information
describes statutory and regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any change
in the applicable law or regulation may have a material effect on the business
and prospects of Admiralty and the Bank. See "Risk Factors--Supervision and
Regulation."
BANK HOLDING COMPANY REGULATION
General. As a bank holding company registered under the BHCA, Admiralty is
subject to the regulation and supervision of the FRB. Admiralty is required to
file with the FRB annual reports and other information regarding its business
operations and those of its subsidiaries. Under the BHCA, Admiralty's activities
and those of its subsidiaries are limited to banking, managing or controlling
banks, furnishing services to or performing services for its subsidiaries or
engaging in any other activity which the FRB determines to be so closely related
to banking or managing or controlling banks as to be properly incident thereto.
The BHCA requires, among other things, the prior approval of the FRB in any
case where a bank holding company proposes to (i) acquire all or substantially
all of the assets of any other bank, (ii) acquire direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any bank (unless
it owns a majority of such bank's voting shares) or (iii) merge or consolidate
with any other bank holding company. The FRB will not approve any acquisition,
merger, or consolidation that would have a substantially anti-competitive
effect, unless the competitiveitive competitive impact of the proposed
transaction is clearly outweighed by a greater public interest in meeting the
convenience and needs of the community to be served. The FRB also considers
capital adequacy and other financial and managerial resources and future
prospects of the companies and the banks concerned, together with the
convenience and needs of the community to be served, when reviewing acquisitions
or mergers.
Additionally, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries, unless such non-banking business is
determined by the FRB to be so closely related to banking or managing or
controlling banks as to be properly incident thereto. In making such
determinations, the FRB is required to weigh the expected benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default. Under a policy of the FRB with respect
to bank holding company operations, a bank holding company is
41
<PAGE>
required to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. The FRB also has the
authority under the BHCA to require a bank holding company to terminate any
activity or to relinquish control of a non-bank subsidiary upon the FRB's
determination that such activity or control constitutes a serious risk to the
financial soundness and stability of any bank subsidiary of the bank holding
company.
Capital Adequacy Guidelines for Bank Holding Companies. In January 1989,
the FRB adopted risk-based capital guidelines for bank holding companies. The
risk-based capital guidelines are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Under these guidelines, assets and
off-balance sheet items are assigned to broad risk categories each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance sheet items.
The risk-based guidelines apply on a consolidated basis to bank holding
companies with consolidated assets of $150 million or more. For bank holding
companies with less than $150 million in consolidated assets, the guidelines
will be applied on a bank-only basis unless: (a) the parent bank holding company
is engaged in nonbank activity involving significant leverage; or (b) the parent
company has a significant amount of outstanding debt that is held by the general
public.
The minimum ratio of total capital to risk-weighted assets (including
certain off-balance sheet activities, such as standby letters of credit) is 8%.
At least 4% of the total capital is required to be "Tier I Capital," consisting
of common stockholders' equity and qualifying preferred stock, less certain
goodwill items and other intangible assets. The remainder ("Tier II Capital")
may consist of (a) the allowance for loan losses of up to 1.25% of risk-weighted
assets, (b) non-qualifying preferred stock, (c) hybrid capital instruments, (d)
perpetual debt, (e) mandatory convertible securities, and (f) qualifying
subordinated debt and intermediate-term preferred stock up to 50% of Tier I
capital. Total capital is the sum of Tier I and Tier II capital less reciprocal
holdings of other banking organizations' capital instruments, investments in
unconsolidated subsidiaries and any other deductions as determined by the FRB
(determined on a case by case basis or as a matter of policy after formal
rule-making).
Bank holding company assets are given risk-weights of 0%, 20%, 50% and
100%. In addition, certain off-balance sheet items are given similar credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except
for performing first mortgage loans fully secured by residential property which
carry a 50% risk-weighing. Most investment securities (including, primarily,
general obligation claims of states or other political subdivisions of the
United States) are assigned to the 20% category, except for municipal or state
revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S.
Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In converting off-balance sheet items,
direct credit substitutes including general guarantees and standby letters of
credit backing financial obligations are given a 100% risk-weighing. Transaction
related contingencies such as bid bonds, standby letters of credit backing
nonfinancial obligations, and undrawn commitments (including commercial credit
lines with an initial maturity or more than one year) have a 50% risk-weighing.
Short term commercial letters of credit have a 20% risk-weighing and certain
short-term unconditionally cancelable commitments have a 0% risk-weighing.
In addition to the risk-based capital guidelines, the FRB has adopted a
minimum Tier I capital (leverage) ratio, under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated assets
of at least 3% in the case of a bank holding company that has the highest
regulatory examination rating and is not contemplating significant growth or
expansion. All other bank holding companies are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the stated minimum.
BANK REGULATION
As a Florida chartered commercial bank, the Bank is subject to the
regulation, supervision, and control of the Department. As a member of the
Federal Reserve System, the Bank is subject to regulation, supervision and
control of the Board of Governors of the Federal Reserve System. As an
FDIC-insured institution, the Bank is subject to regulation, supervision and
control of the FDIC, an agency of the federal government. The regulations of the
Federal Reserve, the FDIC and the Department impact virtually all activities of
the Bank, including the minimum level of capital the Bank must maintain, the
ability of the Bank to pay dividends, the ability of the Bank to expand through
new branches or acquisitions and various other matters.
42
<PAGE>
Insurance of Deposits. The deposits of the Bank are insured up to
applicable limits by the Bank Insurance Fund ("BIF") of the FDIC. Accordingly,
the Bank is subject to deposit insurance assessments to maintain the BIF. Under
the FDIC's insurance premium assessment system, each institution is assigned to
one of nine assessment risk classifications based on its capital ratios and
supervisory evaluations. The lowest risk institutions do not pay any insurance
premium, while the highest risk institutions pay a premium assessed at the rate
of .27% of domestic deposits. Each institution's classification under the system
is re-examined semiannually. In addition, the FDIC is authorized to increase or
decrease such rates on a semiannual basis. In addition to insurance premium
assessments, under the Deposit Insurance Funds Act of 1996 (the "Deposit Act"),
commercial banks like the Bank are required for the first time to pay a portion
of the interest and principal owed on bonds issued by the Federal Financing
Corporation ("FICO") to assist the thrift bailout in the mid-1980's. BIF insured
commercial banks like the Bank are assessed 1.3 basis points of their assessed
deposits in satisfaction of this FICO payment, in addition to deposit insurance
premiums. The Deposit Act also calls for the federal banking agencies to study
the various financial institution charters and propose a single standard federal
charter, thereby doing away with the separate bank and thrift charters. If a
single charter is adopted, the BIF and the Savings Association Insurance Fund
("SAIF") will be merged on January 1, 1999, and both BIF and SAIF insured
institutions will share the FICO payment obligations on a pro rata basis.
Management of the Bank is not able to predict at this time whether the federal
regulators will adopt a unified charter nor to predict the impact of any
proposed change upon the Bank.
Dividend Rights. Pursuant to the provisions of the Florida Banking Code, a
Florida state chartered bank may quarterly, semi-annually or annually declare a
dividend out of the bank's net profits for the dividend period and retained net
profits from the preceding two years. In addition, with the approval of the
Florida Department of Banking and Finance, a bank may declare a dividend from
retained profits which have accrued in periods prior to the preceding two years,
provided that in this circumstance the bank must make an addition to its surplus
fund equal to at least 20% of its net profits from the preceding period. No
Florida state chartered bank may declare a dividend if it has incurred a loss
for its current period plus the two preceding years, or which would cause the
capital account of the bank to fall below the minimum amount required by law or
regulation.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") between the Company and the Underwriter, the
Company has agreed to sell to the Underwriter named below (the "Underwriter")
and the Underwriter has agreed to purchase from the Company, the number of
shares of Class B Stock set forth below opposite their respective names. The
Underwriter is committed to purchase all of such shares if any are purchased.
Under certain circumstances, the Underwriting Agreement provides that the
purchase commitments of a non-defaulting Underwriter may be increased to include
the purchase commitment of a defaulting Underwriter.
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
First Colonial Securities Group, Inc. ............. 620,000
Legg Mason Wood Walker, Inc. ...................... 90,000
Janney Montgomery Scott, Inc. ..................... 90,000
JWGenesis Capital Markets, LLC .................... 90,000
Auerbach, Pollak & Richardson, Inc. ............... 70,000
W.J. Nolan & Company, Inc. ........................ 70,000
Paulson Investment Company Inc. ................... 70,000
---------
Total ........................................... 1,100,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Class B Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriter has advised the Company that it proposed to initially offer
the shares of Class B Stock to the public at the Price to Public set forth on
the cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $0.35 per share of Class B Stock. The Underwriter
may allow, and such dealers may
43
<PAGE>
re-allow, a discount not in excess of $0.15 per share of Class B Stock on sales
to certain other dealers. After the initial public offering, the Price to
Public, concession and discount may be changed.
The Company has granted the Underwriter an option, exercisable for 45 days
after the effective date of the Registration Statement of which the Prospectus
forms a part, to purchase up to an additional 165,000 shares of Class B Stock to
cover over-allotments, if any, at the initial Price to Public, less the
underwriting discount, shown on the cover page of this Prospectus. To the extent
the Underwriter exercises such option, the Underwriter will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof as the number of shares of Class B Stock to be purchased by
it as shown in the foregoing table bears to 1,100,000 shares of Class B Stock.
The Company and the Underwriter have agreed in the Underwriting Agreement
to indemnify each other against certain liabilities, including certain
liabilities under the Securities Act, and to contribute to payments that each
may be required to make in respect thereof.
Prior to this Offering, there has been no public market for any securities
of the Company. Consequently, the Price to Public set forth on the cover page of
this Prospectus have been determined by negotiations between the Company and the
Underwriter. The factors considered in such negotiations included prevailing
market conditions, the future prospects of the Company, the banking industry in
general, the Bank's recent financial performance and its position in the banking
industry, the market valuation of publicly traded companies believed to be
comparable to the Company, the demand for similar securities and other factors
deemed relevant.
In connection with the Offering and in compliance with applicable law, the
Underwriter may over-allot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participants which appear above) and may
effect transactions which stabilize, maintain or otherwise affect the market
price of the Class B Stock at levels above those which might otherwise prevail
in the open market. Such transactions may include placing bids for the Class B
Stock or effecting purchases of Class B Stock for the purpose of pegging, fixing
or maintaining the price of Class B Stock for the purpose of reducing a short
position created in connection with the Offering. A short position may be
covered by exercise of the option described above in lieu of or in addition to
open market purchases. In addition, if the Underwriter purchases Class B Stock
in the open market for the account of the Underwriter and the securities
purchased can be traced to a member of the selling group, the Underwriter may
require the selling group member in question to purchase the Class B Stock in
question at the cost price to the Underwriter or may recover from (or decline to
pay to) the selling group member in question the selling concession applicable
to the securities in question. The Underwriter is not required to engage in any
of these activities, and any such activities, if commenced, may be discontinued
at any time.
Michael E. Golden, a Director of the Company, is the principal stockholder
and Chief Executive Officer of First Colonial Securities Group, Inc. First
Colonial Securities Group, Inc., is acting as the Underwriter.
LEGAL MATTERS
The validity of the shares of Class B Stock offered hereby will be passed
upon for the Company by Jamieson, Moore, Peskin & Spicer, P.C., Morristown, New
Jersey. Certain legal matters will be passed upon the Underwriter by Greenberg
Traurig, P.A., West Palm Beach, Florida.
EXPERTS
The financial statements for Admiralty Bancorp, Inc. as of December 31,
1997 and for the period August 11, 1997 (the date of inception) through December
31, 1997 have been included herein in reliance upon the report of Grant Thornton
LLP, Philadelphia, Pennsylvania, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of White Eagle Financial Group, Inc.
(predecessor company) as of and for the years ended December 31, 1997 and 1996,
have been included herein in reliance upon the report of Grant Thornton LLP,
West Palm Beach, Florida, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
44
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the shares of Class B Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, omits certain of the information contained in the Registration
Statement and the exhibits and schedules thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
promulgated thereunder. For further information with respect to the Company and
the shares of Class B Stock, reference is made to the Registration Statement and
the exhibits and schedules attached thereto. The Registration Statement,
including exhibits thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies may be
obtained at prescribed rates from the Public Reference Section of the Commission
at its principal office in Washington, D.C. The Commission also maintains a
Website that contains copies of such material. The address of the Commission's
Website is (http://www.sec.gov). Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in its entirety by such reference.
In connection with the Offering, the Company will become subject to the
informational requirements of Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and in accordance therewith, will file
reports and other information with the Commission. Such reports and other
information can be inspected without charge and copied at prescribed rates at
the public reference facilities maintained by the SEC at Room 1024 Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and at its regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and 7 World Trade Center, Suite 1300 New York, NY 10048. Copies of such
material can also be obtained at prescribed rates from the SEC's Public
Reference Section, 450 Fifth Street, N.W., Washington, DC 20549 and its public
reference facilities in Chicago, Illinois and New York, New York.
45
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
CONTENTS
PAGE
----
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........................ F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS--ADMIRALTY BANCORP, INC.
AND SUBSIDIARY AND PREDECESSOR COMPANY................................ F-4
CONSOLIDATED STATEMENTS OF INCOME--ADMIRALTY BANCORP, INC.
AND SUBSIDIARY AND PREDECESSOR COMPANY................................ F-5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY--
ADMIRALTY BANCORP, INC. AND SUBSIDIARY................................ F-6
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY--
PREDECESSOR COMPANY................................................... F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS--ADMIRALTY BANCORP, INC.
AND SUBSIDIARY AND PREDECESSOR COMPANY................................ F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--ADMIRALTY BANCORP, INC.
AND SUBSIDIARY AND PREDECESSOR COMPANY................................ F-9
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Admiralty Bancorp, Inc.
We have audited the accompanying balance sheet of Admiralty Bancorp, Inc.
and Subsidiary as of December 31, 1997, and the related statements of income,
changes in stockholders' equity and cash flows for the period August 11, 1997
(date of inception), through December 31, 1997. These financial statements are
the responsibility of 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 audit 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 financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of Admiralty
Bancorp, Inc. and Subsidiary as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for the period
August 11, 1997 (date of inception), through December 31, 1997, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Philadelphia, Pennsylvania
July 21, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
White Eagle Financial Group, Inc.
We have audited the accompanying consolidated balance sheet of White Eagle
Financial Group, Inc. and Subsidiary (Predecessor Company) as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of 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 audit 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 financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of White Eagle
Financial Group, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
West Palm Beach, Florida
March 13, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEETS
ADMIRALTY BANCORP, INC. | PREDECESSOR COMPANY
AND SUBSIDIARY | --------------------------
------------------------------- | DECEMBER 31,
JUNE 30, DECEMBER 31, | --------------------------
1998 1997 | 1997 1996
----------- ------------ | ---------- ----------
<S> <C> <C> | <C> <C>
ASSETS (UNAUDITED) |
Cash and cash equivalents |
Cash and due from banks ...................................... $ 3,595,250 $7,845,550 | $ 1,974,169 $ 3,490,056
Federal funds sold .......................................... 2,908,000 -- | 100,000 1,187,000
----------- ---------- | ----------- -----------
Total cash and cash equivalents ........................... 6,503,250 7,845,550 | 2,074,169 4,677,056
Investment securities available for sale, |
at fair market value ........................................ 13,398,326 -- | 3,619,550 8,983,268
Investment securities held to maturity, |
at cost (fair market value of $16,606,373 and |
$8,471,798 at December 31, 1997 |
and 1996, respectively) ..................................... -- -- | 16,560,956 8,477,912
Loans held for sale .......................................... 349,461 -- | 994,182 825,998
Loans, net ................................................... 23,734,616 -- | 22,853,777 18,228,498
Accrued interest receivable .................................. 230,827 36,781 | 308,210 252,119
Federal Reserve Bank and FHLB stock .......................... 282,300 -- | 127,300 100,850
Premises and equipment, net .................................. 561,764 -- | 631,208 801,804
Deferred tax asset ........................................... 438,600 -- | 438,600 --
Goodwill ..................................................... 3,641,614 -- | -- --
Other assets ................................................. 1,134,469 162,526 | 597,829 1,087,769
----------- ---------- | ----------- -----------
Total assets ............................................. $50,495,227 $8,044,857 | $48,205,781 $43,435,274
=========== ========== | =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY |
LIABILITIES |
Deposits ..................................................... $40,811,408 $ -- | $42,776,197 $39,820,158
Accrued interest payable ..................................... 44,811 -- | 57,405 55,358
Due under purchase contract .................................. 630,848 -- | -- --
Other liabilities ............................................ 357,027 40,356 | 750,646 259,868
----------- ---------- | ----------- -----------
Total liabilities ........................................ 41,844,094 40,356 | 43,584,248 40,135,384
----------- ---------- | ----------- -----------
Minority interest ............................................ 384,182 -- | 376,049 323,385
----------- ---------- | ----------- -----------
STOCKHOLDERS' EQUITY |
Preferred stock, no par value, 2,000,000 shares |
authorized, no shares issued or outstanding ................. -- -- | -- --
Common stock, $0.01 par value, 325,000 shares |
authorized, 323,533 shares issued |
and outstanding in 1997 and 1996 ............................ -- -- | 3,235 3,235
Common stock, Class A, no par value, 1,000,000 shares |
authorized, 888,881 shares issued and outstanding at |
December 31, 1997 and June 30, 1998 ......................... 7,556,014 8,060,440 | -- --
Common stock, Class B, no par value, 4,000,000 shares |
authorized, 227,759 and 177,759 shares issued and |
outstanding at June 30, 1998 and December 31, 1997 |
respectively ................................................ 1,033,950 89,560 | -- --
Subscriptions receivable ..................................... -- (205,000) |
Additional paid-in capital ................................... -- -- | 3,138,345 3,138,345
Retained earnings (accumulated deficit) ...................... (275,455) 59,501 | 1,096,280 (167,649)
Net unrealized (loss) gain on securities available for sale .. (47,558) -- | 7,624 2,574
----------- ---------- | ----------- -----------
Total stockholders' equity ................................... 8,266,951 8,004,501 | 4,245,484 2,976,505
----------- ---------- | ----------- -----------
Total liabilities and stockholders' equity ................... $50,495,227 $8,044,857 | $48,205,781 $43,435,274
=========== ========== | =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF INCOME
ADMIRALTY BANCORP, INC. |
AND SUBSIDIARY |
----------------------------------- | PREDECESSOR COMPANY
FOR THE PERIOD | ----------------------------------------
AUGUST 11, | FOR THE
1997 | PERIOD
(DATE OF | JANUARY 1,
SIX MONTHS INCEPTION) | 1998 SIX MONTHS
ENDED THROUGH | THROUGH ENDED
JUNE 30, DECEMBER 31, | JANUARY 21, JUNE 30,
1998 1997 | 1998 1997
-------------- -------------- | ------------ -----------
(UNAUDITED) | (UNAUDITED) (UNAUDITED)
<S> <C> <C> | <C> <C>
Interest income |
Loans ........................................... $1,242,813 $ -- | $165,733 $1,135,988
Securities ...................................... 473,288 84,445 | 68,133 569,138
Federal funds sold .............................. 42,829 -- | 388 77,801
Other ........................................... -- -- | -- --
---------- ------- -------- ----------
Total interest income .......................... 1,758,930 84,445 | 234,254 1,782,927
---------- ------- -------- ----------
Interest expense |
Deposits ........................................ 473,964 -- | 71,006 590,761
Borrowings ...................................... 10,268 7,938 | 5,034 --
---------- ------- -------- ----------
Total interest expense ......................... 484,232 7,938 | 76,040 590,761
---------- ------- -------- ----------
Net interest income ............................ 1,274,698 76,507 | 158,214 1,192,166
Provision for loan losses ........................ 55,000 -- | -- 287,260
---------- ------- -------- ----------
Net interest income after |
Provision for loan losses ...................... 1,219,698 76,507 | 158,214 904,906
---------- ------- -------- ----------
Non-interest income |
Service charges and fees ........................ 134,883 -- | 13,169 324,651
Net gain (loss) on sale of |
securities ..................................... (39,349) -- | -- 86,712
Gain on sale of loans ........................... 201,581 -- | -- 489,341
Other income .................................... 8,050 -- | 8,906 39,329
---------- ------- -------- ----------
Total non-interest income ...................... 305,165 -- | 22,075 940,033
---------- ------- -------- ----------
Non-interest expense |
Salaries and employee benefits .................. 435,326 -- | 38,792 444,544
Occupancy ....................................... 174,877 -- | 29,699 204,129
Furniture and equipment ......................... 98,996 -- | 10,828 121,255
Amortization of goodwill ........................ 64,167 -- | -- --
Other expense ................................... 543,491 1,650 | 51,784 591,837
---------- ------- -------- ----------
Total non-interest expense ..................... 1,316,857 1,650 | 131,103 1,361,765
---------- ------- -------- ----------
Income before income tax |
(benefit) expense and |
minority interest ............................. 208,006 74,857 | 49,186 483,174
Income tax (benefit) expense ..................... 92,500 15,356 | -- (67,000)
---------- ------- -------- ----------
Income before minority |
interest ...................................... 115,506 59,501 | 49,186 550,174
Minority interest ................................ (6,072) -- | (2,020) (22,477)
---------- ------- -------- ----------
Net income ....................................... $ 109,434 $59,501 | $ 47,166 $ 527,697
========== ======= ======== ==========
Per share data |
Net income per share--basic |
and diluted .................................... $0.10 $0.20 |
========== =======
</TABLE>
PREDECESSOR COMPANY
----------------------------
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996
------------ ----------
Interest income
Loans ........................................... $2,328,764 $2,039,918
Securities ...................................... 1,179,503 1,226,398
Federal funds sold .............................. 121,800 30,830
Other ........................................... -- --
---------- ----------
Total interest income .......................... 3,630,067 3,297,146
---------- ----------
Interest expense
Deposits ........................................ 1,191,951 1,105,375
Borrowings ...................................... 4,783 28,818
---------- ----------
Total interest expense ......................... 1,196,734 1,134,193
---------- ----------
Net interest income ............................ 2,433,333 2,162,953
Provision for loan losses ........................ 435,000 297,000
---------- ----------
Net interest income after
Provision for loan losses ...................... 1,998,333 1,865,953
---------- ----------
Non-interest income
Service charges and fees ........................ 621,579 633,747
Net gain (loss) on sale of
securities ..................................... 86,712 437,138
Gain on sale of loans ........................... 974,571 572,276
Other income .................................... 45,247 146,759
---------- ----------
Total non-interest income ...................... 1,728,109 1,789,920
---------- ----------
Non-interest expense
Salaries and employee benefits .................. 903,625 920,172
Occupancy ....................................... 403,260 381,953
Furniture and equipment ......................... 215,228 218,719
Amortization of goodwill ........................ -- --
Other expense ................................... 1,175,736 1,419,092
---------- ----------
Total non-interest expense ..................... 2,697,849 2,939,936
---------- ----------
Income before income tax
(benefit) expense and
minority interest ............................. 1,028,593 715,937
Income tax (benefit) expense ..................... (288,000) 15,000
---------- ----------
Income before minority
interest ...................................... 1,316,593 700,937
Minority interest ................................ (52,664) (28,037)
---------- ----------
Net income ....................................... $1,263,929 $ 672,900
========== ==========
Per share data
Net income per share--basic
and diluted ....................................
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN
STOCK COMMON STOCK ON SECURITIES
PREFERRED SUBSCRIPTION ---------------------------- RETAINED AVAILABLE
STOCK RECEIVABLE CLASS A CLASS B EARNINGS FOR SALE
--------- ------------ ----------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 11, 1997 ............. $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock ............. -- (205,000) 8,060,440 89,560 -- --
Net income for the period ............ -- -- -- -- 59,501 --
Comprehensive Income,
December 31, 1997 ................... -- -- -- -- -- --
----- --------- ---------- ---------- --------- --------
Balance, December 31, 1997 ........... -- (205,000) 8,060,440 89,560 59,501 --
Issuance of common stock ............. -- -- -- 500,000 -- --
Cost of issuance of common
stock ............................... -- -- (504,426) -- -- --
Collection of subscription
receivable .......................... -- 205,000 -- -- -- --
Net income for the six months
ended June 30, 1998 ................. -- -- -- -- 109,434 --
Change in net unrealized
gain on securities
available for sale .................. -- -- -- -- -- (47,558)
Comprehensive Income,
June 30, 1998 ....................... -- -- -- -- -- --
----- --------- ---------- ---------- --------- --------
Class A common stock
dividend ............................ -- -- -- 444,390 (444,390) --
----- --------- ---------- ---------- --------- --------
Balance, June 30, 1998
(unaudited) ......................... $ -- $ -- $7,556,014 $1,033,950 $(275,455) $(47,558)
===== ========= ========== ========== ========= ========
</TABLE>
TOTAL OTHER
STOCKHOLDERS' COMPREHENSIVE
EQUITY INCOME
------------- -------------
Balance, August 11, 1997 ............. $ -- $ --
Issuance of common stock ............. 7,945,000 --
Net income for the period ............ 59,501 59,501
--------
Comprehensive Income,
December 31, 1997 ................... -- $ 59,501
---------- ========
Balance, December 31, 1997 ........... 8,004,501 --
Issuance of common stock ............. 500,000 --
Cost of issuance of common
stock ............................... (504,426) --
Collection of subscription
receivable .......................... 205,000 --
Net income for the six months
ended June 30, 1998 ................. 109,434 109,434
Change in net unrealized
gain on securities
available for sale .................. (47,558) (47,558)
--------
Comprehensive Income,
June 30, 1998 ....................... -- $ 61,876
---------- ========
Class A common stock
dividend ............................ --
----------
Balance, June 30, 1998
(unaudited) ......................... $8,266,951
==========
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
RETAINED NET
ADDITIONAL EARNINGS UNREALIZED GAIN TOTAL OTHER
COMMON PAID-IN (ACCUMULATED ON SECURITIES STOCKHOLDERS COMPREHENSIVE
STOCK CAPITAL DEFICIT) AVAILABLE FOR SALE EQUITY INCOME
------ ---------- ------------ ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 .................. $3,235 $3,138,345 $ (840,549) $ 38,908 $2,339,939 $ --
Net income ................................ -- -- 672,900 -- 672,900 672,900
Change in net unrealized loss on
securities available for sale ............ -- -- -- (36,334) (36,334) 20,895
----------
Comprehensive income,
December 31, 1996 ........................ -- -- -- -- -- $ 693,795
------ ---------- ---------- ------- ---------- ==========
Balance, December 31, 1996 ................ 3,235 3,138,345 (167,649) 2,574 2,976,505 --
Net income ................................ -- -- 1,263,929 -- 1,263,929 1,263,929
Change in net unrealized gain on
securities available for sale ............ -- -- -- 5,050 5,050 293,561
----------
Comprehensive income,
December 31, 1997 ........................ -- -- -- -- -- $1,557,490
------ ---------- ---------- ------- ---------- ==========
Balance, December 31, 1997 ................ $3,235 $3,138,345 $1,096,280 $ 7,624 $4,245,484
====== ========== ========== ======= ==========
</TABLE>
Disclosure of reclassification amount:
DECEMBER DECEMBER
31, 1997 31, 1996
-------- ---------
Unrealized holding gain/arising during period ........ $293,561 $ 20,895
Reclassification adjustment for gain, net of tax ..... (288,511) (57,229)
-------- --------
$ 5,050 $(36,334)
======== ========
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
<TABLE>
<CAPTION>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY
AND PREDECESSOR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
ADMIRALTY BANCORP, INC. |
AND SUBSIDIARY | PREDECESSOR COMPANY
---------------------------------- | -------------------
FOR THE PERIOD |
AUGUST 11, 1997 |
(DATE OF |
SIX MONTHS INCEPTION) | SIX MONTHS
ENDED THROUGH | ENDED
JUNE 30, DECEMBER 31, | JUNE 30,
1998 1997 | 1997
----------- --------------- | -----------
(UNAUDITED) | (UNAUDITED)
<S> <C> <C> | <C>
Operating activities |
Net income ........................................................ $ 109,434 $ 59,501 | $ 527,697
Adjustments to reconcile net income to net cash |
provided by (used in) operating activities |
Minority interest in net income ................................ 6,072 -- | 22,477
Provision for loan losses ...................................... 55,000 -- | 287,260
Depreciation and amortization .................................. 166,415 -- | 100,693
Gain (Loss) on sale of securities .............................. 39,349 -- | (86,712)
Gains on sales of mortgage loans ............................... (201,581) -- | (489,341)
Decrease (increase) in other assets ............................ (479,469) (199,307) | 605,852
Increase in deferred tax asset ................................. -- -- | (67,000)
Increase in other liabilities .................................. (618,216) 40,356 | 54,353
----------- ----------- | -----------
Net cash provided by (used in) |
operating activities .......................................... (922,996) (99,450) | 955,279
----------- ----------- | -----------
Investing activities |
Proceeds from maturities of investment |
securities available for sale .................................... 3,123,770 -- | --
Purchases of investment securities available for sale ............. -- -- | (4,901,851)
Proceeds from sales of investment securities |
available for sale ............................................... 2,929,000 -- | 1,800,000
Purchase of Federal Reserve Bank stock ............................ (155,000) -- | (10,950)
Net loan originations and principal collections on loans .......... (12,684,310) -- | (5,024,886)
Proceeds from mortgage loan sales ................................. 12,875,657 -- | 6,728,662
Proceeds from sale of other real estate owned ..................... -- -- | --
Purchase of premises and equipment ................................ (44,511) -- | --
Payment for purchase of Company, net of |
cash acquired .................................................... (2,881,831) -- | --
----------- --------- | -----------
Net cash (used in) provided by |
investing activities ......................................... 3,162,775 -- | (1,409,025)
----------- --------- | -----------
Financing activities |
Net increase in deposits .......................................... 1,299,347 -- | (181,506)
Net decrease in securities sold under agreements to repurchase |
and other borrowings ............................................. (4,582,000) -- | --
Collection of subscription receivable ............................. 205,000 -- | --
Proceeds from issuance of common stock, |
Net of costs ................................................... (504,420) 7,945,000 | --
----------- ----------- | -----------
Net cash (used in) provided by financing activities .......... (3,582,079) 7,945,000 | (181,506)
----------- ----------- | -----------
Net (decrease) increase in cash and cash equivalents ............... (1,342,300) 7,845,550 | (635,252)
Cash and cash equivalents, beginning of period ..................... 7,845,550 -- | 4,677,056
----------- ----------- | -----------
Cash and cash equivalents, end of period ........................... $ 6,503,250 $ 7,845,550 | $ 4,041,804
=========== =========== | ===========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Operating activities
Net income ........................................................ $ 1,285,329 $ 672,900
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Minority interest in net income ................................ 54,488 28,037
Provision for loan losses ...................................... 435,000 297,000
Depreciation and amortization .................................. 243,806 202,105
Gain (Loss) on sale of securities .............................. (86,712) (437,138)
Gains on sales of mortgage loans ............................... (1,011,795) (572,276)
Decrease (increase) in other assets ............................ 368,047 (593,588)
Increase in deferred tax asset ................................. (438,600) --
Increase in other liabilities .................................. 506,825 12,645
----------- -----------
Net cash provided by (used in)
operating activities .......................................... 1,356,388 (390,315)
----------- -----------
Investing activities
Proceeds from maturities of investment
securities available for sale -- --
Purchases of investment securities available for sale ............. (12,159,399) (15,577,737)
Proceeds from sales of investment securities
available for sale ............................................... 9,531,835 9,474,406
Purchase of Federal Reserve Bank stock ............................ (26,450) (6,700)
Net loan originations and principal collections on loans .......... (10,945,330) (15,276)
Proceeds from mortgage loan sales ................................. 6,728,662 6,026,196
Proceeds from sale of other real estate owned -- 232,432
Purchase of premises and equipment ................................ (44,632) (60,431)
Payment for purchase of Company, net of
cash acquired .................................................... -- --
----------- -----------
Net cash (used in) provided by
investing activities .......................................... (6,915,314) 72,890
----------- -----------
Financing activities
Net increase in deposits .......................................... 2,956,039 3,648,363
Net decrease in securities sold under agreements to repurchase
and other borrowings ............................................. -- (570,000)
Collection of subscription receivable ............................. -- --
Proceeds from issuance of common stock,
Net of costs ................................................... -- --
----------- -----------
Net cash (used in) provided by financing activities .......... 2,956,039 3,078,363
----------- -----------
Net (decrease) increase in cash and cash equivalents ............... (2,602,887) 2,760,938
Cash and cash equivalents, beginning of period ..................... 4,677,056 1,916,118
----------- -----------
Cash and cash equivalents, end of period ........................... $ 2,074,169 $ 4,677,056
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
NOTE A--SUMMARY OF ACCOUNTING POLICIES
Admiralty Bancorp, Inc. (formerly White Eagle Financial Group, Inc.), is a
bank holding company incorporated in the state of Delaware. The consolidated
financial statements include the accounts of Admiralty Bancorp, Inc. "the
Parent", and its 96% owned subsidiary, Admiralty Bank "the Bank", collectively
referred to as "the Company". The Bank is a state-chartered independent
community bank with its main office in Palm Beach Gardens, Florida, and branches
in Juno Beach and Jupiter.
The Bank operates as a commercial bank offering a wide variety of
commercial loans and, to a lesser degree, consumer credits. The Bank originates
small business loans which are partially guaranteed by the Small Business
Administration. The Bank sells the guaranteed portion to unrelated third parties
at a premium. The Bank continues to service these loans. Its primary future
strategic aim is to establish a reputation and market presence as the "small and
middle market business bank" in its principal market. The Bank funds its loans
primarily by offering time, savings and money market, and demand deposit
accounts to both commercial enterprises and individuals. Additionally, the Bank
originates residential mortgage loans. Principal markets include South Florida.
The Bank competes with other banking and financial institutions in its
primary markets. Commercial banks, savings banks, savings and loan associations,
mortgage bankers and brokers, credit unions and money market funds actively
compete for deposits and loans. Such institutions, as well as consumer finance,
mutual funds, insurance companies, and brokerage and investment banking firms,
may be considered competitors of the Bank with respect to one or more of the
services it renders.
The Bank is subject to regulations of certain state and federal agencies
and, accordingly, it is periodically examined by those regulatory authorities.
As a consequence of the extensive regulation of commercial banking activities,
the Bank's business is particularly susceptible to being affected by state and
federal legislation and regulations.
Basis of financial statement presentation
The accounting policies of the Parent and the Bank conform with generally
accepted accounting principles and predominant practices within the banking
industry. All significant intercompany balances and transactions have been
eliminated in consolidation.
The preparation of financial statements 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. These estimates and assumptions also affect reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates implicit in these
financial statements are as follows.
The consolidated financial statements as of June 30, 1998, and for the six
months ended June 30, 1998 and 1997, are unaudited. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations have been included. The results of operations for the six months
ended June 30, 1998 and 1997, are not necessarily indicative of the results that
may be attained for an entire year.
The principal estimate that is particularly susceptible to significant
change in the near term relates to the allowance for loan losses. The evaluation
of the adequacy of the allowance for loan losses includes, among other factors,
an analysis of historical loss rates, by category, applied to current loan
totals. However, actual losses may be higher or lower than historical trends,
which vary. Actual losses on specified problem loans, which also are provided
for in the evaluation, may vary from estimated loss percentages, which are
established based upon a limited number of potential loss classifications.
The Company adopted the Financial Accounting Standards Board's (FASB)
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which is effective for periods beginning after
F-9
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
December 15, 1997. This new standard requires entities presenting a complete set
of financial statements to include details of comprehensive income.
Comprehensive income consists of net income or loss for the current period and
income, expenses, gains and losses that bypass the income statement and are
reported directly in a separate component of equity. The adoption of SFAS No.
130 did not have a material effect on the presentation of the Bank's financial
position or results of operations.
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which is effective for all periods beginning after
December 15, 1997. SFAS No. 131 requires that public business enterprises report
certain information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements of interim
periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate, and their major customers. The adoption
of SFAS No. 131 will not have a material effect on the presentation of the
Bank's financial position or results of operations.
Investment securities
The Bank accounts for its investment securities in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities." This
standard requires investments in securities to be classified in one of three
categories: held to maturity, trading or available for sale. Investments in debt
securities, for which management has both the ability and intent to hold to
maturity, are carried at cost, adjusted for the amortization of premiums and
accretion of discounts computed by the interest method. Investments in debt
securities, which management believes may be sold prior to maturity due to
changes in interest rates, prepayment risk and equity, liquidity requirements or
other factors, are classified as available for sale. Net unrealized gains and
losses for such securities, net of tax effect, are required to be recognized as
a separate component of shareholders' equity and excluded from the determination
of net income. The Bank does not engage in security trading. Security
transactions are accounted for on a trade date basis. Gains or losses on
disposition of investment securities are based on the net proceeds and the
adjusted carrying amount of the securities sold using the specific
identification method.
Loans and allowance for loan losses
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at the amount of
unpaid principal and are net of unearned discount, unearned loan fees and an
allowance for loan losses. The allowance for loan losses is established through
a provision for loan losses charged to expense. Loan principal considered to be
uncollectible by management is charged against the allowance for loan losses.
The allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible based upon an
evaluation of known and inherent risks in the loan portfolio. The evaluation
takes into consideration such factors as changes in the nature and size of the
loan portfolio, overall portfolio quality, specific problem loans, and current
and future economic conditions which may affect the borrowers' ability to pay.
The evaluation details historical losses by loan category, the resulting loss
rates for which are projected at current loan total amounts. Loss estimates for
specified problem loans are also detailed.
Interest income is accrued as earned on a simple interest basis. Accrual of
interest is discontinued on a loan when management believes, after considering
economic and business conditions and collection efforts, that the borrower's
financial condition is such that collection of interest is doubtful. When a loan
is placed on such non-accrual status, all accumulated accrued interest
receivable, applicable to periods prior to the current year, is charged off to
the allowance for loan losses. Interest which had accrued in the current year is
reversed out of current period income. Loans 90 days or more past due and still
accruing interest must have both principal and accruing interest adequately
secured and must be in the process of collection.
The Bank accounts for its impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures." This standard requires that a creditor measure impairment based on
the present value
F-10
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
of expected future cash flows discounted at the loan's effective interest rate,
except that as a practical expedient, a creditor may measure impairment based on
a loan's observable market price, or the fair value of the collateral if the
loan is collateral-dependent. Regardless of the measurement method, a creditor
must measure impairment based on the fair value of the collateral when the
creditor determines that foreclosure is probable.
Bank premises and equipment
Bank premises and equipment, including leasehold improvements, are stated
at cost less accumulated depreciation. Depreciation expense is computed on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are depreciated over the shorter of the estimated useful lives of
the improvements or the terms of the related leases.
Other real estate owned
Other real estate owned, included in other assets, representing property
acquired through foreclosure, is carried at the lower of the principal balance
of the secured loan or fair value less estimated disposal costs of the acquired
property. Costs relating to holding the assets are charged to expense.
Mortgage servicing
The Bank performs various servicing functions on loans owned by others. A
fee, usually based on a percentage of the outstanding principal balance of the
loan, is received for these services. At June 30, 1998, December 31, 1997 and
1996, the Bank was servicing approximately $17,416,000, $17,900,000 and
$12,500,000, respectively, of loans for others.
The FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by SFAS No.
127, "Deferral of the Effective Date of Certain Provision of SFAS No. 125,"
which provides accounting guidance on transfers of financial assets, servicing
of financial assets and extinguishments of liabilities. This statement is
effective for transfers of financial assets, servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The Bank
originates mortgages under a definitive plan to sell or securitize those loans
and allocates the cost of the loans to originated mortgage servicing rights and
the loans based on relative fair values at the date of origination. Adoption of
this new statement did not have a material impact on the Bank's financial
position or results of operations.
Long-lived assets
The Bank adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," for the year ended December
31, 1996, which provides guidance on when to recognize and how to measure
impairment losses of long-lived assets and certain identifiable intangibles and
how to value long-lived assets to be disposed of. The adoption of this new
statement did not have a material impact on the Bank's financial position or
results of operations.
Mortgages held for sale
Mortgages held for sale are recorded at cost, which approximates market.
These mortgages are typically sold within three months of origination without
recourse to the Bank. Gain on the sales of residential mortgages is recognized
at the time of sale, and substantially all such gains result from the
recognition of previously deferred fees collected upon the origination of such
loans.
Restrictions on cash and due from banks
The Bank is required to maintain reserves against customer demand deposits
by keeping cash on hand or balances with the Federal Reserve Bank in a
non-interest bearing account. The amounts of those reserves and cash balances at
December 31, 1997 and 1996, were approximately $291,000 and $192,000,
respectively.
F-11
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
Earnings per common share
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share,"
which eliminates primary and fully diluted earnings per share (EPS) and requires
presentation of basic and diluted EPS in conjunction with the disclosure of the
methodology used in computing such EPS. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by the weighted
average common shares outstanding during the period. Diluted EPS takes into
account the potential dilution that could occur if securities or other contracts
to issue common stock were exercised and converted into common stock. Prior
period EPS calculations for the three months ended June 30, 1998, and the period
August 11, 1997 (date of inception), through December 31, 1997, have been
restated to reflect the adoption of SFAS No. 128. EPS for the predecessor
company has not been presented because the presentation is not meaningful.
Advertising costs
The Bank expenses advertising costs as incurred.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Statement of cash flows
Cash and cash equivalents are defined as cash on hand, cash items in the
process of collection, amounts due from banks and federal funds sold with an
original maturity of three months or less. Cash paid for income taxes for the
six months ended June 30, 1998 and 1997, was approximately $160,000 and $25,000,
respectively. No cash was paid for income taxes for the years ended December 31,
1997 and 1996. Cash paid for interest was approximately $545,000 and $591,000
for the six months ended June 30, 1998 and 1997, respectively, and $1,195,000
and $1,176,000 for the years ended December 31, 1997 and 1996, respectively.
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
NOTE B--INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair
value of the Bank's available for sale and held to maturity securities are
summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------------------------------
(UNAUDITED)
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Government securities ............ $ 3,500,000 $ -- $ (7,500) $ 3,492,500
Mortgage-backed securities ............ 9,960,829 309 (69,062) 9,892,076
Other ................................. 13,750 -- -- 13,750
----------- ---- -------- -----------
Total available for sale securities.. $13,474,579 $309 $(76,562) $13,398,326
=========== ==== ======== ===========
</TABLE>
F-12
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale
Mortgage-backed securities .......... $ 3,607,351 $16,394 $ (4,195) $ 3,619,550
=========== ======= ======== ===========
Held to maturity
Mortgage-backed securities .......... $16,059,516 $73,285 $(27,834) $16,104,967
U.S. Government securities .......... 501,440 -- (34) 501,406
----------- ------- -------- -----------
Total held to maturity securities.. $16,560,956 $73,285 $(27,868) $16,606,373
=========== ======= ======== ===========
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available for sale
Mortgage-backed securities .......... $8,979,148 $57,274 $(53,154) $ 8,983,268
=========== ======= ======== ===========
Held to maturity
Mortgage-backed securities .......... $ 7,977,912 $54,476 $(40,590) $ 7,991,798
U.S. Government securities .......... 500,000 -- (20,000) 480,000
Total held to maturity securities.. $ 8,477,912 $54,476 $(60,590) $ 8,471,798
=========== ======= ======== ===========
</TABLE>
The following table lists maturities of investment securities at June 30,
1998 classified as available for sale:
AVAILABLE FOR SALE
-----------------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------ -----------
(UNAUDITED)
Due from one year to five years ...... $ 3,500,000 $ 3,492,500
Due after ten years .................. 13,750 13,750
Mortgage-backed securities ........... 9,960,829 9,892,076
----------- -----------
$13,474,579 $13,398,326
=========== ===========
Proceeds on sales of securities classified as available for sale were
approximately $2,929,000 and $1,800,000 for the six months ended June 30, 1998
and 1997, respectively, and $9,500,000 for the years ended December 31, 1997 and
1996. The Bank had gross realized gains of approximately $2,000 and $87,000 for
the six months ended June 30, 1998 and 1997, respectively, and $87,000 and
$444,000 for the years ended December 31, 1997 and 1996, respectively. The Bank
had gross realized losses of approximately $41,000 and $-0- for the six months
ended June 30, 1998 and 1997, respectively, and $-0- and $7,000 of gross losses
on sales of available for sale securities for the years ended December 31, 1997
and 1996, respectively.
The carrying value of securities pledged to secure deposits and for other
purposes required or permitted by law amounted to approximately $3,053,000,
$5,395,000 and $5,003,000 at June 30, 1998, December 31, 1997 and 1996,
respectively.
F-13
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
NOTE C--LOANS
Major classification of loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------------
1998 1997 1996
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Commercial ....................................... $ 6,002,307 $ 6,074,099 $ 5,418,589
Real estate ...................................... 17,259,227 16,288,446 12,679,300
Installment ...................................... 682,051 688,652 504,297
Home equity ...................................... 218,294 195,759 --
Overdrafts ....................................... 41,228 25,912 70,339
----------- ----------- -----------
24,203,107 23,272,868 18,672,525
Less
Allowance for loan losses ....................... (431,204) (377,807) (364,745)
Unearned discount ............................... -- -- (36,832)
Deferred loan origination fees .................. (37,287) (41,284) (42,450)
----------- ----------- -----------
Loans, net ..................................... $23,734,616 $22,853,777 $18,228,498
=========== =========== ===========
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------------- -----------------------------
1998 1997 1997 1996
--------- -------- -------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of year ................... $ 377,807 $ 364,745 $ 364,745 $ 343,548
Loans charged off .............................. (5,000) (294,942) (447,356) (286,186)
Recoveries ..................................... 3,397 2,657 25,418 10,383
Provision for loan losses ...................... 55,000 287,260 435,000 297,000
--------- --------- --------- ---------
Balance at end of year ......................... $ 431,204 $ 359,720 $ 377,807 $ 364,745
========= ========= ========= =========
</TABLE>
The balance of impaired loans was approximately $72,000, $95,000 and
$221,000 at June 30, 1998, December 31, 1997 and 1996, respectively. The Bank
has identified a loan as impaired when it is probable that interest and
principal will not be collected according to the contractual terms of the loan
agreements. The allowance for loan loss associated with impaired loans was
approximately $11,000, $11,000 and $94,000 at June 30, 1998, December 31, 1997
and 1996, respectively. The average recorded investment on impaired loans was
approximately $12,000 and $14,000, and $12,000 and $35,000 for the six months
ended June 30, 1998 and 1997, and for the years ended December 31, 1997 and
1996, respectively. The income recognized on impaired loans for the six months
ended June 30, 1998 and 1997, and for the years ended December 31, 1997 and
1996, was approximately $-0- and $-0-, and $14,000 and $-0-, respectively. Total
cash collected on impaired loans for the three months ended June 30, 1998 and
1997, and for the years ended December 31, 1997 and 1996, was approximately
$7,000 and $149,000, and $30,000 and $45,000, respectively, all of which was
credited to the principal balance outstanding on such loans. Interest which
would have been accrued on impaired loans for the six months ended June 30, 1998
and 1997, and for the years ended December 31, 1997 and 1996, was approximately
$4,000, $5,000, $11,000 and $5,000, respectively. The Bank recognizes income on
non-accrual loans under the cash basis when the loans are both current and the
collateral on the loan is sufficient to cover the outstanding obligation to the
Bank; if these factors do not exist, the Bank will not recognize income.
As of June 30, 1998, the Bank had approximately $290,000 of loans past due
90 days or more still accruing interest. As of December 31, 1997 and 1996, the
Bank had no loans past due 90 days or more as to interest or principal
F-14
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
payments that were still accruing interest. At June 30, 1998, December 31, 1997
and 1996, there were no commitments to lend additional funds to borrowers whose
loans are classified as non-accrual.
NOTE D--PREMISES AND EQUIPMENT
Premises and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED JUNE 30 -----------------------------
USEFUL LIVES 1998 1997 1996
------------ ------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and equipment .................................. 5 to 7 years $ 1,219,891 $ 1,195,471 $1,381,059
Leasehold improvements ................................... 15 to 17 years 600,910 580,819 567,181
----------- ----------- ----------
1,820,801 1,776,290 1,948,240
Accumulated depreciation and amortization ................ (1,259,037) (1,145,082) (1,146,436)
----------- ----------- ----------
$ 561,764 $ 631,208 $ 801,804
=========== =========== ==========
</TABLE>
NOTE E--DEPOSITS
Deposits are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30 --------------------------------
1998 1997 1996
------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Non-interest bearing demand ................................ $11,807,373 $11,686,556 $ 9,227,762
Savings, NOW and money market .............................. 15,764,105 14,933,464 14,249,652
Time deposits, under $100,000 .............................. 11,691,595 11,888,066 11,489,390
Time deposits, $100,000 and over ........................... 1,548,335 4,268,111 4,853,354
----------- ----------- -----------
$40,811,408 $42,776,197 $39,820,158
=========== =========== ===========
</TABLE>
At June 30, 1998, the scheduled maturities of time deposits are as follows
(unaudited):
1999 ................... $10,658,515
2000 ................... 1,918,283
2001 ................... 397,326
2002 ................... 146,357
2003 ................... 119,449
-----------
$13,239,930
===========
Interest expense on deposits is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
------------------------------ --------------------------------
1998 1997 1997 1996
-------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NOW and money market ......................... $132,162 $ 116,845 $ 255,341 $ 229,334
Savings ...................................... 19,179 22,195 26,537 25,527
Time deposits ................................ 322,623 451,721 910,073 850,514
-------- --------- ---------- ----------
$473,964 $ 590,761 $1,191,951 $1,105,375
======== ========= ========== ==========
</TABLE>
F-15
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
NOTE F--INCOME TAXES
Income tax (benefit) expense is comprised of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------------------- -------------------------------
1998 1997 1997 1996
-------- --------- --------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal
Current .............................. $ 80,000 $ 34,000 $ 139,028 $15,000
Deferred ............................. -- (96,000) (400,482) --
-------- --------- --------- -------
80,000 (62,000) (261,454) 15,000
-------- --------- --------- -------
State
Current .............................. 12,500 5,000 16,211 --
Deferred ............................. -- (10,000) (42,757) --
-------- --------- --------- -------
12,500 (5,000) (26,546) --
-------- --------- --------- -------
$ 92,500 $ (67,000) $(288,000) $15,000
======== ========= ========= =======
</TABLE>
The income tax provision reconciled to the tax computed at the statutory
federal rate was as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
-------------------------------- -------------------------------
1998 1997 1997 1996
-------- --------- --------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax at statutory rate ............................. $71,000 $ 59,000 $ 365,642 $ 243,419
Adjustment of deferred tax valuation allowance .... -- (126,000) (677,197) (251,065)
Amortization of goodwill .......................... 10,000 -- -- --
Other, net ........................................ 11,500 -- 23,555 22,646
------- --------- --------- ---------
Applicable income tax (benefit) expense ......... $92,500 $ (67,000) $(288,000) $ 15,000
======= ========= ========= =========
</TABLE>
The net deferred tax asset consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------
1998 1997 1996
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets (liabilities)
Net operating loss ....................................... $ 474,000 $ 484,800 $ 804,500
Fixed assets ............................................. (17,300) (17,300) 19,000
Alternative minimum tax credit ........................... -- -- 15,000
Other .................................................... 1,400 (2,800) 7,500
SBA loans ................................................ (34,500) (20,500) --
Allowance for loan losses ................................ 15,000 (5,600) (114,500)
--------- --------- ---------
438,600 438,600 731,500
Valuation allowance ........................................ -- -- (731,500)
--------- --------- ---------
Net deferred tax asset ................................... $ 438,600 $ 438,600 $ --
========= ========= =========
</TABLE>
At June 30, 1998, the Bank had unused net operating loss carryforwards of
approximately $1,200,000 for federal and Florida income tax purposes expiring in
various amounts from 2006 to 2008. Although larger tax losses have occurred over
the past five years, the loss carryforward reflects the maximum benefit that
could be obtained from these net operating losses. Future sales of common stock,
if any, may result in a second ownership change which could further limit the
utilization of net operating loss carryforwards of losses incurred since
November 1993.
F-16
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
NOTE G--EARNINGS PER SHARE
The earnings per share computation assumes the conversion of Class A common
stock into shares of Class B common stock. There were warrants outstanding to
purchase 965,000 shares of Class B common stock at $11.00 per share which were
not included in the computation of diluted earnings per share because to do so
would have been antidilutive for the periods presented.
The following table illustrates the reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations:
SIX MONTHS ENDED JUNE 30, 1998
------------------------------
WEIGHTED
AVERAGE PER SHARE
INCOME SHARES AMOUNT
-------- -------- ---------
(UNAUDITED)
Net income per share--basic and diluted .... $109,434 1,110,839 $0.10
======== ========= =====
PERIOD FROM AUGUST 11, 1997 (DATE OF
INCEPTION) THROUGH DECEMBER 31, 1997
------------------------------------
WEIGHTED
AVERAGE PER SHARE
INCOME SHARES AMOUNT
-------- -------- ---------
Net income per share--basic and diluted .... $59,501 295,440 $0.20
======= ======= =====
NOTE H--COMMITMENTS AND CONTINGENCIES
Operating leases
The Bank utilizes certain office space and equipment under operating leases
expiring through 1999. Total rent expense under such operating leases, included
in occupancy expense, was approximately $108,000 and $140,000 and $282,000 and
$274,000 for the six months ended June 30, 1998 and 1997, and for the years
ended December 31, 1997 and 1996, respectively.
Approximate minimum payments under non-cancellable operating leases for the
period ending June 30 are as follows (unaudited):
1999 .................................... $236,000
2000 .................................... 238,000
2001 .................................... 222,000
2002 .................................... 208,000
2003 .................................... 70,000
--------
$974,000
========
Other
The Bank is involved in certain litigation arising in the ordinary course
of business. In the opinion of management, the outcome of this litigation will
not have a significant effect on the accompanying financial statements.
F-17
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
NOTE I--FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATION OF
CREDIT RISKS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit and financial guarantees. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheets. The contract or notional amounts of
those instruments reflect the extent of the Bank's involvement in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit and financial guarantees written is represented by the
contractual notional amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
The Bank does not require collateral or other security to support financial
instruments with credit risk. The approximate contract amounts are as follows:
DECEMBER 31,
JUNE 30, -------------------------
1998 1997 1996
---------- ---------- ----------
UNAUDITED)
Unfunded line of credit ........... $1,062,000 $ 986,000 $ 607,000
Standby letters of credit ......... 149,000 161,000 173,000
Unfunded construction loans ....... 25,000 599,000 3,867,000
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 Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
it is deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable; inventory, property, plant, and equipment; and
income-producing commercial properties.
Standby letters of credit and financial guarantees written 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.
The Bank has not been required to perform on any financial guarantees
during the past year. The Bank has not incurred any losses on its commitments in
1997 or 1996.
The Bank is an independent community commercial bank, with its main office
in Palm Beach Gardens, Florida, and branches in Juno Beach, Boca Raton and
Jupiter. The Bank principally extends credit for commercial business and
commercial real estate loans, substantially all of which are located in South
Florida. Although the Bank maintains a diversified loan portfolio, a substantial
portion of its borrowers' abilities to repay loans is dependent upon the
economic condition of the South Florida region.
NOTE J--REGULATORY MATTERS
Based upon the results of the joint examination conducted by the State of
Florida Department of Banking and Finance (the Department) and the Federal
Reserve Bank of Atlanta (FRB) that concluded in September 1991, the Bank entered
into a Cease and Desist Order (C&D) in January 1992. Provisions of this C&D
required the Bank to, among other things, cease and desist from the following:
(1) operating the Bank with inadequate capital; (2) maintaining unsatisfactory
asset quality and excess past-due loans; (3) funding operations with unstable
deposits or other liabilities; and (4) maintaining inadequate loss reserves.
F-18
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
Based upon the improvements in the Bank's condition as reflected in the
Report of Examination as of October 1997 by the FRB and based on the Bank's
overall compliance with the C&D, the FRB terminated its C&D on January 30, 1998,
and the Department terminated its C&D on February 6, 1998.
The Bank, as a state-chartered Federal Reserve member bank, is subject to
regulatory dividend restrictions. Under such restrictions, the Bank may not,
without prior regulatory approval, declare dividends.
The Bank is subject to various regulatory and capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by the regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of June 30, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
As of October 1997, the most recent notification of the FRB categorized the
Bank as adequately capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based and Tier I leverage as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the institution's category.
F-19
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------- ------------------ --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998 (unaudited)
Total capital (to risk-weighted
assets) ...................... $4,845,000 16.11% $2,405,000 >8.00% $3,007,000 >10.00%
Tier I capital (to risk- - -
weighted assets) ............. 4,468,000 14.86 1,203,000 >4.00 1,804,000 >6.00
Tier I capital (to - -
average assets) .............. 4,468,000 9.74 1,830,000 >4.00 2,288,000 >5.00
- -
As of December 31, 1997
Total capital (to risk-
weighted assets) ............. $4,414,328 13.98% $3,525,578 >8.00% $3,156,973 >10.00%
Tier I capital (to risk- - -
weighted assets) ............. 4,036,521 12.79 1,262,789 >4.00 1,894,184 >6.00
Tier I capital (to - -
average assets) .............. 4,036,521 8.59 1,879,624 >4.00 2,819,436 >5.00
- -
As of December 31, 1996
Total capital (to risk-
weighted assets) ............. $3,574,384 14.57% $1,962,056 >8.00% $2,452,570 >10.00%
Tier I capital (to risk- - -
weighted assets) ............. 3,267,812 13.32 981,028 >4.00 1,471,542 >6.00
Tier I capital (to average - -
assets) ...................... 3,267,812 8.18 1,597,554 >4.00 2,396,331 >5.00
- -
</TABLE>
NOTE K--PLAN OF MERGER AND RECAPITALIZATION
During September 1997, Admiralty Bancorp, Inc. (Admiralty), entered into an
Agreement and Plan of Merger (the Agreement) with White Eagle Financial Group,
Inc. (WEFG). Pursuant to the terms of the Agreement, all then existing
shareholders of WEFG had their interests in WEFG cancelled in exchange for a
cash payment equal to 1.85 times the shareholders' equity of WEFG. The
consideration paid to WEFG shareholders upon consummation of the acquisition
will be approximately $7,500,000. Additionally, Admiralty paid a finder fee of
$500,000, payable in 50,000 shares of Class B common stock and issued warrants
to purchase 15,000 shares of Class B Stock, to the former Chairman of the Board
of WEFG in conjunction with the sale of WEFG to Admiralty. This fee was
considered additional consideration in the purchase WEFG. In connection with
this transaction, Admiralty was merged into WEFG and WEFG then changed its name
to Admiralty Bancorp, Inc. This transaction was accounted for under the purchase
method of accounting and accordingly, the results of operation for the six
months ended June 30, 1998, include only the results of operations from the date
of acquisition, January 22, 1998. Goodwill resulting from this acquisition will
be amortized on a straight-line basis over 25 years.
F-20
<PAGE>
ADMIRALTY BANCORP, INC. AND SUBSIDIARY AND PREDECESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1998, DECEMBER 31, 1997 AND 1996
The following represents pro forma financial information of Admiralty as if
the acquisition occurred on the first date of the periods indicated (unaudited).
FOR THE FOR THE
SIX MONTHS YEAR ENDED
JUNE 30, DECEMBER 31,
----------------- ------------
1998 1997 1997
------ ------ ------
Interest income ............................ $1,993 $1,783 $3,630
Interest expense ........................... 560 591 1,197
------ ------ ------
Net interest income ........................ $1,433 $1,192 $2,433
====== ====== ======
Net income ................................. $ 147 $ 484 $1,116
====== ====== ======
Net income per share--basic and diluted .... $ 0.13 $ 1.50 $ 3.45
====== ====== ======
The organizers of Admiralty recapitalized the Company through $8,000,000 in
new capital raised through a private placement of the Company's Class A Units,
consisting of one share of Class A Common Stock, no par value (the Class A
Stock) and one Class B Common Stock Purchase Warrant (the Class B Stock).
Holders of the warrants are entitled to purchase 800,000 shares of the Class B
Stock. Each of these warrants entitles the holder to purchase one share of the
Class B Stock, at a purchase price of $11.00 per share, for a period commencing
January 22, 1999, and ending January 21, 2002. Each Class A Unit had a purchase
price of $10.00. The Class A common stock can also be convertible into shares of
Class B common stock at the option of the holders of the Class A common stock.
Additionally, in connection with the formation of Admiralty, the organizers
received 88,881 shares of Class A common stock and 133,320 shares of Class B
common stock for $160,000 of consideration and were awarded warrants to purchase
150,000 shares of Class B stock exercisable at $11.00 per share.
NOTE L--SUBSEQUENT EVENTS
Proposed Public Offering (Unaudited)
The Company anticipates a public offering in September 1998 of 1,100,000
shares (the Shares) of Class B common stock at a price per share of between
$10.00-$11.00. The Shares may be purchased separately and will be separately
tradable immediately upon issuance. The Company anticipates granting to the
underwriters of such offering a 30-day option to purchase up to an additional
165,000 shares of common stock on the same terms and conditions as set forth
above solely to cover overallotments.
Management Stock Option Plan
In May 1998, the Board of Directors of the Company approved the 1998
Management Stock Option Plan (the Management Plan), which provides for options
to purchase up to 330,000 shares of Class B stock to be issued to members of the
Board of Directors of the Company, the Bank and any other subsidiaries which the
Company acquire or incorporate in the future.
The Management Plan provides for the granting of both incentive options and
non-statutory options. Incentive stock options may be granted at an exercise
price of not less than 100% of the fair market value of the Class B stock on the
date of grant. The Option price for non-statutory options may not be less than
100% of the fair market value of the Class B stock on the date of grant. The
Board of Directors has discretion to set the actual exercise price of any option
within the foregoing parameters.
Class A Stock Dividend
On June 26, 1998, the Company declared a 5% Class B common stock dividend,
payable July 21, 1998. Total Class B common shares issued was 44,390. Per share
amounts for the months ended June 30, 1998, have been adjusted to retroactively
reflect this dividend. Per share amounts for the predecessor company have not
been adjusted for this stock dividend.
F-21
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
INFORMATION CONTAINED HEREIN IS CURRENT AS OF ANY TIME SUBSEQUENT TO SUCH DATE.
---------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ........................................................ 3
Admiralty Bancorp, Inc .................................................... 3
Summary Consolidated Financial and Other Data ............................. 5
Risk Factors .............................................................. 7
Use of Proceeds ........................................................... 9
Dilution .................................................................. 10
Capitalization ............................................................ 11
Pro Forma Financial Information ........................................... 12
Selected Consolidated Financial and
Other Data .............................................................. 14
Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................... 15
Overview of Strategy ...................................................... 15
Results of Operations ..................................................... 15
Net Income ................................................................ 16
Comparative Average Balance Sheets ........................................ 17
Financial Condition ....................................................... 20
Maturity Schedule of Investment Securities ................................ 24
The Bank .................................................................. 30
Management ................................................................ 32
Description of the Company's Securities ................................... 37
Anti-takeover Provisions .................................................. 39
Regulation and Supervision ................................................ 41
Underwriting .............................................................. 43
Legal Matters ............................................................. 44
Experts ................................................................... 44
Available Information ..................................................... 45
UNTIL OCTOBER 20, 1998 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
1,100,000 SHARES
ADMIRALTY
BANCORP, INC.
---------------------------------
P R O S P E C T U S
---------------------------------
FIRST COLONIAL
SECURITIES GROUP, INC.
SEPTEMBER 25, 1998
================================================================================
