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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-70231
SUNCOAST BANCORP, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0827141
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8592 POTTER PARK DRIVE, SUITE 200, SARASOTA, FLORIDA 34238
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 923-0500
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
Check whether the issuer has (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $203,118.
The aggregate market value of the Common Stock of the issuer held by
non-affiliates of the issuer (483,105 shares) on March 3, 2000, was
approximately $4,831,050. As of such date, no organized trading market existed
for the Common Stock of the issuer. The aggregate market value was computed by
reference the last sale of the Common Stock of the issuer at $10.00 per share on
March 3, 2000. For the purposes of this response, directors, officers and
holders of 5% or more of the issuer's Common Stock are considered the affiliates
of the issuer at that date.
As of March 3, 2000, there were issued and outstanding 700,000 shares
of the issuer's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held on May 15, 2000 to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days of the issuer's fiscal
year end are incorporated into Part III, Items 10 through 13 of this Annual
Report on Form 10-KSB.
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TABLE OF CONTENTS
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . 1
General. . . . . . . . . . . . . . . . . . . . . . . . . 1
Lending Activities . . . . . . . . . . . . . . . . . . . 2
Deposit Activities . . . . . . . . . . . . . . . . . . . 3
Investments. . . . . . . . . . . . . . . . . . . . . . . 3
Correspondent Banking. . . . . . . . . . . . . . . . . . 4
Data Processing. . . . . . . . . . . . . . . . . . . . . 4
Effect of Governmental Policies. . . . . . . . . . . . . 4
Interest and Usury . . . . . . . . . . . . . . . . . . . 5
Supervision and Regulation . . . . . . . . . . . . . . . 5
Competition. . . . . . . . . . . . . . . . . . . . . . . 12
Employees. . . . . . . . . . . . . . . . . . . . . . . . 13
Statistical Profile and Other Financial Data . . . . . . 13
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders. . . 14
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . 15
Dividends. . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 16
General. . . . . . . . . . . . . . . . . . . . . . . . . 18
Liquidity and Capital Resources. . . . . . . . . . . . . 18
Results of Operations. . . . . . . . . . . . . . . . . . 19
Discussion of Year Ended December 31, 1999 . . . . . . . 21
Asset/Liability Management . . . . . . . . . . . . . . . 22
Financial Condition. . . . . . . . . . . . . . . . . . . 25
Impact of Inflation and Changing Prices. . . . . . . . . 33
Future Accounting Requirements . . . . . . . . . . . . . 34
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Item 7. Financial Statements . . . . . . . . . . . . . . . . . . 34
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . 34
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with
Section 16(a) of the Exchange Act . . . . . . . 35
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . 35
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . 35
Item 12. Certain Relationships and Related Transactions . . . . . 35
Item 13. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . 36
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
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PART I
ITEM 1. BUSINESS
GENERAL
Suncoast Bancorp, Inc. ("Suncoast") was incorporated under the laws of
the State of Florida on April 1, 1998. Suncoast is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHC Act")
and owns all of the voting shares of Suncoast National Bank. The Bank commenced
operations on September 7, 1999.
Suncoast provides a range of consumer and commercial banking services
to individuals, businesses and industries. The basic services offered by
Suncoast include: demand interest-bearing and noninterest-bearing accounts,
money market deposit accounts, NOW accounts, time deposits, safe deposit
services, credit cards, cash management, direct deposits, notary services,
money orders, night depository, travelers' checks, cashier's checks, domestic
collections, savings bonds, bank drafts, automated teller services, drive-in
tellers, and banking by mail. In addition, Suncoast makes secured and unsecured
commercial and real estate loans and issues stand-by letters of credit.
Suncoast provides automated teller machine (ATM) cards, as a part of the HONOR
ATM Network, thereby permitting customers to utilize the convenience of larger
ATM networks. In addition to the HONOR ATM Network, the Bank also provides the
Presto system for ATM use. In addition to the foregoing services, the offices
of Suncoast provide customers with extended banking hours. Suncoast does not
have trust powers and, accordingly, no trust services are provided.
The revenues of Suncoast are primarily derived from interest on, and
fees received in connection with, real estate and other loans, and from
interest and dividends from investment securities and short-term investments.
The principal sources of funds for Suncoast's lending activities are its
deposits, repayment of loans, and the sale and maturity of investment
securities. The principal expenses of Suncoast are the interest paid on
deposits, and operating and general administrative expenses.
As is the case with banking institutions generally, Suncoast's
operations are materially and significantly influenced by general economic
conditions and by related monetary and fiscal policies of financial institution
regulatory agencies, including the Board of Governors of the Federal Reserve
System (the "Federal Reserve") and the Office of the Comptroller of the
Currency ("OCC"). Deposit flows and costs of funds are influenced by interest
rates on competing investments and general market rates of interest. Lending
activities are affected by the demand for financing of real estate and other
types of loans, which in turn is affected by the interest rates at which such
financing may be offered and other factors affecting local demand and
availability of funds. Suncoast faces strong competition in the attraction of
deposits (its primary source of lendable funds) and in the origination of
loans. See "Competition."
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LENDING ACTIVITIES
Suncoast offers a range of lending services, including real estate,
consumer and commercial loans, to individuals and small businesses and other
organizations that are located in or conduct a substantial portion of their
business in Suncoast's market area. Suncoast's consolidated net loans at
December 31, 1999 were $.9 million, or 5.3% of total Suncoast consolidated
assets. The interest rates charged on loans vary with the degree of risk,
maturity, and amount of the loan, and are further subject to competitive
pressures, money market rates, availability of funds, and government
regulations. Suncoast has no foreign loans or loans for highly leveraged
transactions.
Suncoast's loans are concentrated in three major areas: commercial
loans, real estate loans, and consumer loans. A majority of Suncoast's loans
are made on a secured basis. As of December 31, 1999, approximately 56.3% of
Suncoast's consolidated loan portfolio consisted of loans secured by 1-4 family
residential properties.
Suncoast's commercial loan portfolio includes loans to individuals and
small-to-medium sized businesses located primarily in Sarasota County for
working capital, equipment purchases, and various other business purposes. A
majority of commercial loans are secured by equipment or similar assets, but
these loans may also be made on an unsecured basis. Commercial loans may be
made at variable or fixed rates of interest. Commercial lines of credit are
typically granted on a one- year basis, with loan covenants and monetary
thresholds. Other commercial loans with terms or amortization schedules of
longer than one year will normally carry interest rates which vary with the
prime lending rate and will become payable in full and are generally refinanced
in three to five years. Commercial and agricultural loans not secured by real
estate amounted to approximately 17.4% of Suncoast's total loan portfolio as of
December 31, 1999.
Suncoast's real estate loans are secured by mortgages and consist
primarily of loans to individuals and businesses for the purchase, improvement
of or investment in real estate and for the construction of single-family
residential units or the development of single-family residential building
lots. These real estate loans may be made at fixed or variable interest rates.
Suncoast generally does not make fixed-rate commercial real estate loans for
terms exceeding three years. Loans in excess of three years are generally
adjustable. Suncoast's residential real estate loans generally are repayable in
monthly installments based on up to a 30-year amortization schedule with
variable interest rates.
Suncoast's consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes, but includes some business purpose
loans which are payable on an installment basis. The majority of these loans
are for terms of less than five years and are secured by liens on various
personal assets of the borrowers, but consumer loans may also be made on an
unsecured basis. Consumer loans are made at fixed and variable interest rates,
and are often based on up to a five-year amortization schedule.
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For additional information regarding Suncoast's loan portfolio, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition."
Loan originations are derived from a number of sources. Loan
originations can be attributed to direct solicitation by Suncoast's loan
officers, existing customers and borrowers, advertising, walk-in customers and,
in some instances, referrals from brokers.
Certain credit risks are inherent in making loans. These include
prepayment risks, risks resulting from uncertainties in the future value of
collateral, risks resulting from changes in economic and industry conditions,
and risks inherent in dealing with individual borrowers. In particular, longer
maturities increase the risk that economic conditions will change and adversely
affect collectibility. Suncoast attempts to minimize credit losses through
various means. In particular, on larger credits, Suncoast generally relies on
the cash flow of a debtor as the source of repayment and secondarily on the
value of the underlying collateral. In addition, Suncoast attempts to utilize
shorter loan terms in order to reduce the risk of a decline in the value of
such collateral.
DEPOSIT ACTIVITIES
Deposits are the major source of Suncoast's funds for lending and
other investment activities. Suncoast considers the majority of its regular
savings, demand, NOW and money market deposit accounts to be core deposits.
These accounts comprised approximately 72.0% of Suncoast's consolidated total
deposits at December 31, 1999. Approximately 28.0% of Suncoast's consolidated
deposits at December 31, 1999 were certificates of deposit. Generally, Suncoast
attempts to maintain the rates paid on its deposits at a competitive level.
Time deposits of $100,000 and over made up approximately 15.7% of Suncoast's
consolidated total deposits at December 31, 1999. The majority of the deposits
of Suncoast are generated from Sarasota County. Suncoast does not currently
accept brokered deposits. For additional information regarding Suncoast's
deposit accounts, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition."
INVESTMENTS
Suncoast invests a portion of its assets in U.S. Government agency
obligations and federal funds sold. Suncoast's investments are managed in
relation to loan demand and deposit growth, and are generally used to provide
for the investment of excess funds at minimal risks while providing liquidity
to fund increases in loan demand or to offset fluctuations in deposits.
With respect to Suncoast's investment portfolio, Suncoast's total
portfolio may be invested in U.S. Treasury and general obligations of its
agencies because such securities generally represent a minimal investment risk.
Occasionally, Suncoast may purchase certificates of deposits of national and
state banks. These investments may exceed $100,000 in any one institution (the
limit of FDIC insurance for deposit accounts). Federal funds sold is the excess
cash Suncoast has available over
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and above daily cash needs. This money is invested on an overnight basis with
approved correspondent banks.
Suncoast monitors changes in financial markets. In addition to
investments for its portfolio, Suncoast monitors its daily cash position to
ensure that all available funds earn interest at the earliest possible date. A
portion of the investment account is designated as secondary reserves and
invested in liquid securities that can be readily converted to cash with
minimum risk of market loss. These investments usually consist of U.S. Treasury
obligations, U.S. government agencies and federal funds. The remainder of the
investment account may be placed in investment securities of different type and
longer maturity. Daily surplus funds are sold in the federal funds market for
one business day. Suncoast attempts to stagger the maturities of its securities
so as to produce a steady cash-flow in the event Suncoast needs cash, or
economic conditions change to a more favorable rate environment.
CORRESPONDENT BANKING
Correspondent banking involves one bank providing services to another
bank which cannot provide that service for itself from an economic or practical
standpoint. Suncoast is required to purchase correspondent services offered by
larger banks, including check collections, purchase of federal funds, security
safekeeping, investment services, coin and currency supplies, overline and
liquidity loan participations and sales of loans to or participation with
correspondent banks.
Suncoast will sell loan participations to correspondent banks with
respect to loans which exceed Suncoast's lending limit. Management of Suncoast
has established correspondent relationships with Independent Bankers' Bank of
Florida and SunTrust. Suncoast pays for such services.
DATA PROCESSING
Suncoast outsources its data processing to a large bank data processor
which provides a full range of data processing services, including an automated
general ledger, deposit accounting, and commercial, mortgage and installment
lending data processing.
EFFECT OF GOVERNMENTAL POLICIES
The earnings and business of Suncoast are and will be affected by the
policies of various regulatory authorities of the United States, especially the
Federal Reserve. The Federal Reserve, among other things, regulates the supply
of credit and deals with general economic conditions within the United States.
The instruments of monetary policy employed by the Federal Reserve for these
purposes influence in various ways the overall level of investments, loans,
other extensions of credit and deposits, and the interest rates paid on
liabilities and received on assets.
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INTEREST AND USURY
Suncoast is subject to numerous state and federal statutes that affect
the interest rates that may be charged on loans. These laws do not, under
present market conditions, deter Suncoast from continuing the process of
originating loans.
SUPERVISION AND REGULATION
Banks and their holding companies, and many of their affiliates, are
extensively regulated under both federal and state law. The following is a
brief summary of certain statutes, rules, and regulations affecting Suncoast
and Suncoast National Bank. This summary is qualified in its entirety by
reference to the particular statutory and regulatory provisions referred to
below and is not intended to be an exhaustive description of the statutes or
regulations applicable to the business of Suncoast and Suncoast National Bank.
Supervision, regulation, and examination of banks by regulatory agencies are
intended primarily for the protection of depositors, rather than shareholders.
Bank Holding Company Regulation. Suncoast is a bank holding company,
registered with the Federal Reserve under the BHC Act. As such, Suncoast is
subject to the supervision, examination and reporting requirements of the BHC
Act and the regulations of the Federal Reserve. The BHC Act requires that a
bank holding company obtain the prior approval of the Federal Reserve before
(i) acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any bank, (ii) taking any action that causes a bank to become
a subsidiary of the bank holding company, or (iii) merging or consolidating
with any other bank holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint
of trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience, and needs of the community
to be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA"),
both of which are discussed below.
Banks are subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is required, in connection
with its examination of a bank, to assess such bank's record in meeting the
credit needs of the community served by that bank, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the bank's
record is
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made available to the public. Further, such assessment is required of any bank
which has applied to:
o charter a national bank,
o obtain deposit insurance coverage for a newly chartered
institution,
o establish a new branch office that will accept deposits,
o relocate an office, or
o merge or consolidate with, or acquire the assets or assume
the liabilities of, a federally regulated financial
institution
In the case of a bank holding company applying for approval to acquire
a bank or other bank holding company, the Federal Reserve will assess the
record of each subsidiary bank of the applicant bank holding company, and such
records may be the basis for denying the application.
The BHC Act generally prohibits a bank holding company from engaging
in activities other than banking, or managing or controlling banks or other
permissible subsidiaries, and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In
determining whether a particular activity is permissible, the Federal Reserve
must consider whether the performance of such an activity can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. For example,
factoring accounts receivable, acquiring or servicing loans, leasing personal
property, conducting securities brokerage activities, performing certain data
processing services, acting as agent or broker in selling credit life insurance
and certain other types of insurance in connection with credit transactions,
and certain insurance underwriting activities have all been determined by
regulations of the Federal Reserve to be permissible activities of bank holding
companies. Despite prior approval, the Federal Reserve has the power to order a
holding company or its subsidiaries to terminate any activity or terminate its
ownership or control of any subsidiary, when it has reasonable cause to believe
that continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness, or stability of any bank
subsidiary of that bank holding company.
Gramm-Leach-Bliley Act. On November 12, 1999, President Clinton signed
into law the Gramm-Leach-Bliley Act which reforms and modernizes certain areas
of financial services regulation. The law permits the creation of new financial
services holding companies that can offer a full range of financial products
under a regulatory structure based on the principle of functional regulation.
The legislation eliminates the legal barriers to affiliations among banks and
securities firms, insurance companies, and other financial services companies.
The law also provides financial organizations with the opportunity to structure
these new financial affiliations through a holding company structure or a
financial subsidiary. The new law reserves the role of the Federal Reserve
Board as the supervisor for bank holding companies. At the same time, the law
also provides a
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system of functional regulation which is designed to utilize the various
existing federal and state regulatory bodies. The law also sets up a process
for coordination between the Federal Reserve Board and the Secretary of the
Treasury regarding the approval of new financial activities for both bank
holding companies and national bank financial subsidiaries.
The law also includes a minimum federal standard of financial privacy.
Financial institutions are required to have written privacy policies that must
be disclosed to customers. The disclosure of a financial institution's privacy
policy must take place at the time a customer relationship is established and
not less than annually during the continuation of the relationship. The act
also provides for the functional regulation of bank securities activities. The
law repeals the exemption that banks were afforded from the definition of
"broker," and replaces it with a set of limited exemptions that allow the
continuation of some historical activities performed by banks. In addition, the
act amends the securities laws to include banks within the general definition
of dealer. Regarding new bank products, the law provides a procedure for
handling products sold by banks that have securities elements. In the area of
Community Reinvestment Act activities, the law generally requires that
financial institutions address the credit needs of low-to-moderate income
individuals and neighborhoods in the communities in which they operate. Bank
regulators are required to take the Community Reinvestment Act ratings of a
bank or of the bank subsidiaries of a holding company into account when acting
upon certain branch and bank merger and acquisition applications filed by the
institution. Under the law, financial holding companies and banks that desire
to engage in new financial activities are required to have satisfactory or
better Community Reinvestment Act ratings when they commence the new activity.
Most of the provisions of the law take effect on November 12, 1999,
with other provisions being phased in over a one to two year period thereafter.
It is anticipated that the effects of the law, while providing additional
flexibility to bank holding companies and banks, may result in additional
affiliation of different financial services providers, as well as increased
competition, resulting in lower prices, more convenience, and greater financial
products and services available to consumers.
Bank Regulation. Suncoast National Bank is chartered under the
national banking laws and their deposits are insured by the FDIC to the extent
provided by law. Suncoast National Bank is subject to comprehensive regulation,
examination and supervision by the OCC and to other laws and regulations
applicable to banks. Such regulations include limitations on loans to a single
borrower and to its directors, officers and employees; restrictions on the
opening and closing of branch offices; the maintenance of required capital and
liquidity ratios; the granting of credit under equal and fair conditions; and
the disclosure of the costs and terms of such credit. Suncoast National Bank is
examined periodically by the OCC, to whom it submits periodic reports regarding
its financial condition and other matters. The OCC has a broad range of powers
to enforce regulations under its jurisdiction, and to take discretionary
actions determined to be for the protection and safety and soundness of banks,
including the institution of cease and desist orders and the removal of
directors and officers. The OCC also has the authority to approve or disapprove
mergers, consolidations, and similar corporate actions.
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There are various statutory limitations on the ability of Suncoast to
pay dividends. The OCC also has the general authority to limit the dividend
payment by banks if such payment may be deemed to constitute an unsafe and
unsound practice. For information on the restrictions on the right of Suncoast
National Bank to pay dividends to Suncoast, see Part II - Item 5 "Market for
the Registrant's Common Equity and Related Stockholder Matters."
Under federal law, federally insured banks are subject, with certain
exceptions, to certain restrictions on any extension of credit to their parent
holding companies or other affiliates, on investment in the stock or other
securities of affiliates, and on the taking of such stock or securities as
collateral from any borrower. In addition, banks are prohibited from engaging
in certain tie-in arrangements in connection with any extension of credit or
the providing of any property or service.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") imposed major regulatory reforms, stronger capital standards
for savings and loan associations and stronger civil and criminal enforcement
provisions. FIRREA also provides that a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with:
o the default of a commonly controlled FDIC insured depository
institution; or
o any assistance provided by the FDIC to a commonly controlled
FDIC insured institution in danger of default.
The FDIC Improvement Act of 1993 ("FDICIA") made a number of reforms
addressing the safety and soundness of deposit insurance funds, supervision,
accounting, and prompt regulatory action, and also implemented other regulatory
improvements. Annual full-scope, on-site examinations are required of all
insured depository institutions. The cost for conducting an examination of an
institution may be assessed to that institution, with special consideration
given to affiliates and any penalties imposed for failure to provide
information requested. Insured state banks also are precluded from engaging as
principal in any type of activity that is impermissible for a national bank,
including activities relating to insurance and equity investments. The Act also
recodified current law restricting extensions of credit to insiders under the
Federal Reserve Act.
Also important in terms of its effect on banks has been the
deregulation of interest rates paid by banks on deposits and the types of
deposit accounts that may be offered by banks. Most regulatory limits on
permissible deposit interest rates and minimum deposit amounts expired several
years ago. The effect of the deregulation of deposit interest rates generally
has been to increase the costs of funds to banks and to make their costs of
funds more sensitive to fluctuations in money market rates. A result of the
pressure on banks interest margins due to deregulation has been a trend toward
expansion of services offered by banks and an increase in the emphasis placed
on fee or noninterest income.
The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and
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off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%.
Under the risk-based standard, capital is classified into two tiers. Tier 1
capital consists of common shareholders' equity, excluding the unrealized gain
(loss) on available-for-sale securities, minus certain intangible assets. Tier
2 capital consists of the general allowance for credit losses except for
certain limitations. An institution's qualifying capital base for purposes of
its risk-based capital ratio consists of the sum of its Tier 1 and Tier 2
capital. The regulatory minimum requirements are 4% for Tier 1 and 8% for total
risk-based capital. At December 31, 1999, Suncoast National Bank's Tier 1 and
total risk-based capital ratios were 113.53% and 113.77%, respectively, and
Suncoast's Tier 1 and total risk-based capital ratios were 121.06% and 121.29%,
respectively.
Bank holding companies and banks are also required to maintain capital
at a minimum level based on total assets, which is known as the leverage ratio.
The minimum requirement for the leverage ratio is 3%, but all but the highest
rated institutions are required to maintain ratios 100 to 200 basis points
above the minimum. At December 31, 1999, Suncoast's and Suncoast National
Bank's leverage ratios were 46.99% and 44.77%, respectively.
FDICIA contains "prompt corrective action" provisions pursuant to
which banks are to be classified into one of five categories based upon capital
adequacy, ranging from "well capitalized" to "critically undercapitalized" and
which require (subject to certain exceptions) the appropriate federal banking
agency to take prompt corrective action with respect to an institution which
becomes "significantly undercapitalized" or "critically undercapitalized."
The OCC has issued regulations to implement the "prompt corrective
action" provisions of FDICIA. In general, the regulations define the five
capital categories as follows:
o an institution is "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, has a Tier 1
risk-based capital ratio of 6% or greater, has a leverage
ratio of 5% or greater and is not subject to any written
capital order or directive to meet and maintain a specific
capital level for any capital measures;
o an institution is "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, has a Tier 1
risk-based capital ratio of 4% or greater, and has a leverage
ratio of 4% or greater;
o an institution is "undercapitalized" if it has a total
risk-based capital ratio of less than 8%, has a Tier 1
risk-based capital ratio that is less than 4% or has a
leverage ratio that is less than 4%;
o an institution is "significantly undercapitalized" if it has
a total risk-based capital ratio that is less than 6%, a Tier
1 risk-based capital ratio that is less than 3% or a leverage
ratio that is less than 3%; and
o an institution is "critically undercapitalized" if its
"tangible equity" is equal to or less than 2% of its total
assets.
The OCC also, after an opportunity for a hearing, has authority to
downgrade an institution from "well capitalized" to "adequately capitalized" or
to subject an "adequately capitalized" or
9
<PAGE> 13
"undercapitalized" institution to the supervisory actions applicable to the
next lower category, for supervisory concerns.
Generally, FDICIA requires that an "undercapitalized" institution must
submit an acceptable capital restoration plan to the appropriate federal
banking agency within 45 days after the institution becomes "undercapitalized"
and the agency must take action on the plan within 60 days. The appropriate
federal banking agency may not accept a capital restoration plan unless, among
other requirements, each company having control of the institution has
guaranteed that the institution will comply with the plan until the institution
has been adequately capitalized on average during each of the three consecutive
calendar quarters and has provided adequate assurances of performance. The
aggregate liability under this provision of all companies having control of an
institution is limited to the lesser of:
o 5% of the institution's total assets at the time the
institution becomes "undercapitalized" or
o the amount which is necessary, or would have been necessary,
to bring the institution into compliance with all capital
standards applicable to the institution as of the time the
institution fails to comply with the plan filed pursuant to
FDICIA.
An "undercapitalized" institution may not acquire an interest in any
company or any other insured depository institution, establish or acquire
additional branch offices or engage in any new business unless the appropriate
federal banking agency has accepted its capital restoration plan, the
institution is implementing the plan, and the agency determines that the
proposed action is consistent with and will further the achievement of the
plan, or the appropriate Federal banking agency determines the proposed action
will further the purpose of the "prompt corrective action" sections of FDICIA.
If an institution is "critically undercapitalized," it must comply
with the restrictions described above. In addition, the appropriate Federal
banking agency is authorized to restrict the activities of any "critically
undercapitalized" institution and to prohibit such an institution, without the
appropriate Federal banking agency's prior written approval, from:
o entering into any material transaction other than in the
usual course of business;
o engaging in any covered transaction with affiliates (as
defined in Section 23A(b) of the Federal Reserve Act);
o paying excessive compensation or bonuses; and
o paying interest on new or renewed liabilities at a rate that
would increase the institution's weighted average costs of
funds to a level significantly exceeding the prevailing rates
of interest on insured deposits in the institution's normal
market areas.
The "prompt corrective action" provisions of FDICIA also provide that
in general no institution may make a capital distribution if it would cause the
institution to become
10
<PAGE> 14
"undercapitalized." Capital distributions include cash (but not stock)
dividends, stock purchases, redemptions, and other distributions of capital to
the owners of an institution.
Additionally, FDICIA requires, among other things, that:
o only a "well capitalized" depository institution may accept
brokered deposits without prior regulatory approval and
o the appropriate federal banking agency annually examine all
insured depository institutions, with some exceptions for
small, "well capitalized" institutions and state- chartered
institutions examined by state regulators.
FDICIA also contains a number of consumer banking provisions,
including disclosure requirements and substantive contractual limitations with
respect to deposit accounts.
As of December 31, 1999, Suncoast and Suncoast National Bank met the
capital requirements of a "well capitalized" institution.
The OCC has proposed revising its risk-based capital requirements to
ensure that such requirements provide for explicit consideration by commercial
banks of interest rate risk. Under the proposed rule, a bank's interest rate
risk exposure would be quantified using either the measurement system set forth
in the proposal or the bank's internal model for measuring such exposure, if
such model is determined to be adequate by the bank's examiner. If the dollar
amount of a bank's interest rate risk exposure, as measured by either
measurement system, exceeds 1% of the bank's total assets, the bank would be
required under the proposed rule to hold additional capital equal to the dollar
amount of the excess. It is anticipated that the regulatory agencies will issue
a revised proposed rule for further public comment. Pending issuance of such
revised proposal, Suncoast's management cannot determine what effect, if any,
an interest rate risk component would have on the capital of its subsidiary
bank.
Enforcement Powers. Congress has provided the federal bank regulatory
agencies with an array of powers to enforce laws, rules, regulations and
orders. Among other things, the agencies may require that institutions cease
and desist from certain activities, may preclude persons from participating in
the affairs of insured depository institutions, may suspend or remove deposit
insurance, and may impose civil money penalties against institution-affiliated
parties for certain violations.
Maximum Legal Interest Rates. Like the laws of many states, Florida
law contains provisions on interest rates that may be charged by banks and
other lenders on certain types of loans. Numerous exceptions exist to the
general interest limitations imposed by Florida law. The relative importance of
these interest limitation laws to the financial operations of Suncoast National
Bank will vary from time to time, depending on a number of factors, including
conditions in the money markets, the costs and availability of funds, and
prevailing interest rates.
11
<PAGE> 15
Bank Branching. Banks in Florida are permitted to branch state wide.
Such branch banking, however, is subject to prior approval by the OCC. Any such
approval would take into consideration several factors, including the bank's
level of capital, the prospects and economics of the proposed branch office,
and other conditions deemed relevant by the OCC for purposes of determining
whether approval should be granted to open a branch office.
Change of Control. Federal law restricts the amount of voting stock of
a bank holding company and a bank that a person may acquire without the prior
approval of banking regulators. The overall effect of such laws is to make it
more difficult to acquire a bank holding company and a bank by tender offer or
similar means than it might be to acquire control of another type of
corporation. Consequently, shareholders of Suncoast may be less likely to
benefit from the rapid increases in stock prices that may result from tender
offers or similar efforts to acquire control of other companies. Federal law
also imposes restrictions on acquisitions of stock in a bank holding company
and a state bank. Under the federal Change in Bank Control Act and the
regulations thereunder, a person or group must give advance notice to the
Federal Reserve before acquiring control of any bank holding company and the
OCC before acquiring control of any national bank (such as Suncoast National
Bank). Upon receipt of such notice, the OCC may approve or disapprove the
acquisition. The Change in Bank Control Act creates a rebuttable presumption of
control if a member or group acquires a certain percentage or more of a bank
holding company's or state bank's voting stock, or if one or more other control
factors set forth in the Act are present.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1996, provides for nationwide interstate banking and
branching. Under the law, interstate acquisitions of banks or bank holding
companies in any state by bank holding companies in any other state will be
permissible one year after enactment. Interstate branching and consolidation of
existing bank subsidiaries in different states is permissible. Florida has a
law that allows out-of-state bank holding companies (located in states that
allow Florida bank holding companies to acquire banks and bank holding
companies in that state) to acquire Florida banks and Florida bank holding
companies. The law essentially provides for out-of-state entry by acquisition
only (and not by interstate branching) and requires the acquired Florida bank
to have been in existence for at least two years.
Effect of Governmental Policies. The earnings and businesses of
Suncoast and Suncoast National Bank are affected by the policies of various
regulatory authorities of the United States, especially the Federal Reserve.
The Federal Reserve, among other things, regulates the supply of credit and
deals with general economic conditions within the United States. The
instruments of monetary policy employed by the Federal Reserve for those
purposes influence in various ways the overall level of investments, loans,
other extensions of credit, and deposits, and the interest rates paid on
liabilities and received on assets.
COMPETITION
Suncoast encounters strong competition both in making loans and in
attracting deposits. The deregulation of the banking industry and the
widespread enactment of state laws which permit multi-
12
<PAGE> 16
bank holding companies as well as an increasing level of interstate banking
have created a highly competitive environment for commercial banking. In one or
more aspects of its business, Suncoast competes with other commercial banks,
savings and loan associations, credit unions, finance companies, mutual funds,
insurance companies, brokerage and investment banking companies, and other
financial intermediaries. Most of these competitors, some of which are
affiliated with bank holding companies, have substantially greater resources
and lending limits, and may offer certain services that Suncoast does not
currently provide. In addition, many of Suncoast's non-bank competitors are not
subject to the same extensive federal regulations that govern bank holding
companies and federally insured banks. Recent federal and state legislation has
heightened the competitive environment in which financial institutions must
conduct their business, and the potential for competition among financial
institutions of all types has increased significantly.
To compete, Suncoast relies upon specialized services, responsive
handling of customer needs, and personal contacts by its officers, directors,
and staff. Large multi-branch banking competitors tend to compete primarily by
rate and the number and location of branches while smaller, independent
financial institutions tend to compete primarily by rate and personal service.
EMPLOYEES
As of December 31, 1999, Suncoast and Suncoast National Bank
collectively had 11 full- time employees (including executive officers) and two
part-time employees. The employees are not represented by a collective
bargaining unit. Suncoast and Suncoast National Bank consider relations with
employees to be good.
STATISTICAL PROFILE AND OTHER FINANCIAL DATA
Reference is hereby made to the statistical and financial data
contained in the section captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations," for statistical and financial
data providing a review of Suncoast's business activities.
ITEM 2. PROPERTIES
The main office of Suncoast and Suncoast National Bank is located at
8592 Potter Park Drive, Suite 200, Sarasota, Florida 34238, in a one-story
building of approximately 4,000 square feet, which is leased by the Bank for a
term which, with renewal options, expires in 2014.
ITEM 3. LEGAL PROCEEDINGS
Suncoast and Suncoast National Bank are periodically parties to or
otherwise involved in legal proceedings arising in the normal course of
business, such as claims to enforce liens, claims involving the making and
servicing of real property loans, and other issues incident to their respective
businesses. Management does not believe that there is any pending or threatened
13
<PAGE> 17
proceeding against Suncoast or Suncoast National Bank which, if determined
adversely, would have a material adverse effect on Suncoast's consolidated
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Suncoast security holders
during the fourth quarter of the year ended December 31, 1999.
14
<PAGE> 18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The shares of Suncoast Common Stock are not actively traded, and such
trading activity, as it occurs, takes place in privately negotiated
transactions. There is no established public trading market for the shares of
Suncoast Common Stock. Management of Suncoast is aware of certain transactions
in its shares that have occurred since July 8, 1999 (the day that the shares of
Suncoast Common Stock commenced trading), although the trading prices of all
stock transactions are not known. The following sets forth the high and low
trading prices for certain trades of Suncoast Common Stock that occurred in
transactions known to Suncoast management in during 1999:
<TABLE>
<CAPTION>
1999
----------------------------------
HIGH LOW SHARES
---- --- ------
<S> <C> <C> <C>
1st Quarter -- -- --
2nd Quarter -- -- --
3rd Quarter 10.50 9.75 19,100
4th Quarter 25.00 11.50 4,000
</TABLE>
Suncoast had approximately 262 shareholders of record as of December
31, 1999.
DIVIDENDS
Suncoast has not paid any cash dividends in the past. Suncoast intends
that, for the foreseeable future, it will retain earnings to finance continued
growth rather than pay cash dividends on Suncoast Common Stock. If at any time
Suncoast's Board determines to pay dividends on the Suncoast Common Stock, the
timing and the extent to which dividends are paid by Suncoast will be
determined by such Board in light of then-existing circumstances, including
Suncoast's rate of growth, profitability, financial condition, existing and
anticipated capital requirements, the amount of funds legally available for the
payment of cash dividends, regulatory constraints and such other factors as the
Board determines relevant. The source of funds for payment of dividends by
Suncoast will be dividends received from Suncoast National Bank. Payments by
Suncoast National Bank to Suncoast are limited by law and regulations of the
bank regulatory authorities. There are various statutory and contractual
limitations on the ability of Suncoast National Bank to pay dividends to
Suncoast. The OCC also has the general authority to limit the dividends paid by
national banks if such payment may be deemed to constitute an unsafe and
unsound practice. As a national bank, Suncoast National Bank may not pay
dividends from their paid-in surplus. All dividends must be paid out of
undivided profits then on hand, after deducting expenses, including reserves
for losses and bad debts. In addition, a national bank is prohibited from
declaring a dividend on its shares of common stock until its surplus equals its
stated capital, unless there has been transferred to surplus no less than
one/tenth of the bank's net profits of the preceding two consecutive half-year
periods (in the case of an annual dividend). The approval of the OCC is
required if the total of all dividends declared by a national bank in any
calendar year exceeds the total of its net profits for that year
15
<PAGE> 19
combined with its retained net profits for the preceding two years, less any
required transfers to surplus.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of earnings and related financial
data are presented herein to assist investors in understanding the financial
condition of Suncoast at, and results of operations of Suncoast for the years
ended, December 31, 1999 and 1998. This discussion should be read in
conjunction with the consolidated financial statements and related footnotes of
Suncoast presented elsewhere herein.
16
<PAGE> 20
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
AT OR FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
AT OR FOR
THE YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Interest income $ 194
Interest expense 53
----------
Net interest income before provision for loan losses 141
Provision for loan losses 11
----------
Net interest income after provision for loan losses 130
Noninterest income 8
Noninterest expenses 684
----------
Loss before income taxes (546)
Credit for income taxes 237
----------
Net loss $ (309)
==========
Per share data:
Basic and diluted loss per share $ (.94)
Cash dividends declared $ -0-
Book value at end of period $ 8.54
Common shares outstanding at end of period 700,000
Weighted average common shares outstanding
during period 329,863
Total assets at end of period $ 16,681
Cash and cash equivalents $ 9,211
Investment securities $ 5,355
Loans, net $ 878
Deposits $ 5,241
Other borrowings $ 5,453
Stockholders' equity $ 5,980
Total loans before allowance for loan losses $ 889
Allowance for loan losses $ 11
Nonperforming loans $ -0-
Allowance for loan losses as a percentage
of period-end total loans 1.25%
Allowance for loan losses as a percentage
of nonperforming loans -0-%
Total nonperforming loans as a percentage
of total loans -0-%
Total nonperforming loans as a percentage
of total assets -0-%
Total nonperforming loans and real estate
owned as a percentage of total assets -0-%
</TABLE>
17
<PAGE> 21
GENERAL
Suncoast's principal asset is its ownership of Suncoast National Bank.
Accordingly, Suncoast's results of operations are primarily dependent upon the
results of operations of Suncoast National Bank. Suncoast conducts commercial
banking business consisting of attracting deposits from the general public and
applying those funds to the origination of commercial, consumer and real estate
loans (including commercial loans collateralized by real estate). Suncoast's
profitability depends primarily on net interest income, which is the difference
between interest income generated from interest-earning assets (i.e., loans and
investments) less the interest expense incurred on interest-bearing liabilities
(i.e., customer deposits and borrowed funds). Net interest income is affected
by the relative amounts of interest-earning assets and interest-bearing
liabilities, and the interest rate earned and paid on these balances. Net
interest income is dependent upon Suncoast's interest-rate spread which is the
difference between the average yield earned on its interest-earning assets and
the average rate paid on its interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The interest
rate spread is impacted by interest rates, deposit flows, and loan demand.
Additionally, and to a lesser extent, Suncoast's profitability is affected by
such factors as the level of noninterest income and expenses, the provision for
credit losses, and the effective tax rate. Noninterest income consists
primarily of service fees on deposit accounts. Noninterest expense consists of
compensation and employee benefits, occupancy and equipment expenses, deposit
insurance premiums paid to the FDIC, and other operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
A national bank is required to maintain a liquidity reserve of at
least 3% of its net transaction deposit accounts under $44.3 million. Where net
transaction deposit accounts exceed $44.3 million, the reserve requirements are
$1,329,000 plus 10% of the amount over $44.3 million. The liquidity reserve may
consist of cash on hand, cash on demand deposit with other correspondent banks,
and other investments and short-term marketable securities as determined by the
rules of the OCC, such as federal funds sold and United States securities or
securities guaranteed by the United States. As of December 31, 1999, Suncoast
National Bank had a liquidity ratio of 170%.
Suncoast's principal sources of funds are those generated by Suncoast
National Bank, including net increases in deposits, principal and interest
payments on loans, and proceeds from sales and maturities of investment
securities.
Suncoast uses its capital resources principally to fund existing and
continuing loan commitments and to purchase investment securities. At December
31, 1999, Suncoast had commitments to originate loans totaling $1.3 million,
unused lines of credit totaling $.8 million and had issued but unused letters
of credit of $20,000. In addition, scheduled maturities of certificates of
deposit during the 12 months following December 31, 1999 totaled $1.2 million.
Management believes that Suncoast has adequate resources to fund all its
commitments, that substantially all of its existing commitments will be funded
within 12 months and, if so desired, that Suncoast can
18
<PAGE> 22
adjust the rates and terms on certificates of deposit and other deposit
accounts to retain deposits in a changing interest rate environment.
In accordance with risk capital guidelines issued by the OCC and
Federal Reserve, Suncoast National Bank and Suncoast are required to maintain a
minimum standard of total capital to risk- weighted assets of 8.0%.
Additionally, regulatory agencies require banks and holding companies to
maintain a minimum leverage-capital ratio of Tier 1 capital (as defined) to
average assets. The leverage-capital ratio ranges from 3.0% to 5.0% based on
the bank's and bank holding company's rating under the regulatory rating
system.
The following table summarizes the regulatory capital levels and
ratios for Suncoast National Bank and Suncoast:
<TABLE>
<CAPTION>
ACTUAL RATIOS
------------------------------------
SUNCOAST
NATIONAL REGULATORY
BANK SUNCOAST REQUIREMENT
---- -------- -----------
<S> <C> <C> <C>
At December 31, 1999
Total capital to risk-weighted assets 113.77% 121.29% 8.00%
Tier I capital to risk-weighted assets 113.53% 121.06% 4.00%
Tier I capital to average assets - leverage assets 44.77% 46.99% 4.00%
</TABLE>
RESULTS OF OPERATIONS
Net interest income before provision for credit losses, which
constitutes the principal source of income for Suncoast, represents the
difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. The principal interest-earning assets
are investment securities and loans made to businesses and individuals.
Interest-bearing liabilities primarily consist of time deposits,
interest-bearing checking accounts ("NOW accounts"), retail savings deposits
and money market accounts. Funds attracted by these interest-bearing
liabilities are invested in interest-earning assets. Accordingly, net interest
income depends upon the volume of average interest-earning assets and average
interest-bearing liabilities and the interest rates earned or paid on them.
Net interest income before provision for loan losses was $141,317 for
Suncoast for the year ended December 31, 1999.
19
<PAGE> 23
The following table shows selected ratios for the period ended or at
the date indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1999
------------------
<S> <C>
Average equity as a percentage of average assets 67.92 %
Equity to total assets at end of period 35.85 %
Return on average assets ( 7.10)%
Return on average equity (10.45)%
Noninterest expense to average assets 15.72 %
</TABLE>
The rates and yields at the dates indicated were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YIELD OR RATE AT
DECEMBER 31, 1999
---------------------------------
<S> <C>
Loans 8.75%
Investment securities 5.86%
Other interest-earning assets 5.92%
All interest-earning assets 6.01%
Money market deposits 4.50%
NOW accounts 1.29%
Savings deposits 1.40%
Certificates of deposit 5.76%
All interest-bearing liabilities 4.89%
Interest-rate spread 1.12%
</TABLE>
The following table sets forth, for the period indicated, information
regarding (i) the total dollar amount of interest and dividend income of
Suncoast from interest-earning assets and the resultant average yield; (ii) the
total dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost; (iii) net interest/dividend income; (iv) interest-rate
spread; (v) net interest margin. Average balances were based on average daily
balances.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------
INTEREST AVERAGE
AVERAGE AND YIELD/
BALANCE DIVIDENDS RATE
------- --------- -------
(dollars in thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans $ 113 $ 10 8.85%
Investment securities 2,048 121 5.91%
Other interest-earning assets(1) 1,399 63 4.50%
------ ----- -----
Total interest-earning assets $3,560 194 5.45%
-----
Noninterest-earning assets 792
------
Total assets $4,352
======
Interest-bearing liabilities:
Money market deposits 743 33 4.44%
Savings and NOW deposits 126 2 1.59%
Certificates of deposit 212 12 5.66%
</TABLE>
20
<PAGE> 24
<TABLE>
<S> <C> <C> <C>
Other 153 6 3.92%
----- -----
Total interest-bearing liabilities 1,234 53 4.29%
-----
Noninterest-bearing liabilities 162
Stockholders' equity 2,956
------
Total liabilities and
stockholders' equity $4,352
======
Net interest income before provision
for loan losses $ 141
=====
Interest-rate spread(2) 1.16%
=====
Net interest margin(3) 3.96%
=====
Ratio of average interest-earning assets
to average interest-bearing liabilities 288.49%
======
</TABLE>
- ---------------
(1) Includes interest-bearing deposits due from other banks, Federal Home Loan
Bank stock, Federal Reserve bank stock and federal funds sold.
(2) Interest-rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest- bearing
liabilities.
(3) Net interest margin is net interest income divided by average
interest-earning assets.
DISCUSSION OF YEAR ENDED DECEMBER 31, 1999
General
Net loss for the year ended December 31, 1999, was ($308,911), or
($.94) per basic and diluted share.
Interest Income and Expense
Interest income was $194,877 for the year ended December 31, 1999.
Interest expense was $53,560 for the year ended December 31, 1999.
Interest on investment securities was $121,497. Interest on other
interest-earning assets was $63,465.
Interest expense on deposits was $47,302 for the year ended December
31, 1999.
Provision for Loan losses
The provision for loan losses is charged to earnings to bring the
total allowance to a level deemed appropriate by management and is based upon
historical experience, the volume and type of lending conducted by Suncoast,
the amounts of nonperforming loans, general economic conditions, particularly
as they relate to Suncoast's market area, and other factors related to the
21
<PAGE> 25
collectibility of Suncoast's loan portfolio. For 1999, Suncoast recorded
provisions for loan losses totaling $11,111.
Other Income
Total noninterest income was $8,241 in 1999 comprised primarily of
service charges and fees.
Other Expense
Total noninterest expense was $684,196 in 1999 reflecting $276,437 for
organizational and pre-opening costs, $217,123 for compensation and benefits,
occupancy expenses of $78,193 and other operating expenses of $112,443.
ASSET/LIABILITY MANAGEMENT
A principal objective of Suncoast's asset/liability management
strategy is to minimize its exposure to changes in interest rates by matching
the maturity and repricing horizons of interest- earning assets and
interest-bearing liabilities. This strategy is overseen in part through the
direction of an Asset and Liability Committee (the "ALCO Committee") which
establishes policies and monitors results to control interest rate sensitivity.
Management evaluates interest rate risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to maintain interest rate risk within
target levels for the appropriate level of risk which are determined by the
ALCO Committee. The ALCO Committee uses internally generated reports to measure
the Bank's interest rate sensitivity. From these reports, the ALCO Committee
can estimate the net income effect of various interest rate scenarios.
As a part of Suncoast's interest rate risk management policy, the ALCO
Committee examines the extent to which its assets and liabilities are "interest
rate sensitive" and monitors the bank's interest rate sensitivity "gap." An
asset or liability is considered to be interest rate sensitive if it will
reprice or mature within the time period analyzed, usually one year or less.
The interest rate sensitivity gap is the difference between interest-earning
assets and interest-bearing liabilities scheduled to mature or reprice within
such time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds interest rate sensitive assets. During a period of rising
interest rates, a negative gap would tend to adversely affect net interest
income, while a positive gap would tend to result in an increase in net
interest income. During a period of falling interest rates, a negative gap
would tend to result in an increase in net interest income, while a positive
gap would tend to adversely affect net interest income. If the repricing of
each bank's assets and liabilities were equally flexible and moved
concurrently, the impact of any increase or decrease in interest rates on net
interest income would be minimal.
22
<PAGE> 26
A simple interest rate "gap" analysis by itself may not be an accurate
indicator of how net interest income will be affected by changes in interest
rates. Accordingly, the ALCO Committee also evaluates how the repayment of
particular assets and liabilities is impacted by changes in interest rates.
Income associated with interest-earning assets and costs associated with
interest- bearing liabilities may not be affected uniformly by changes in
interest rates. In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or period
of repricing, they may react in different degrees to changes in market interest
rates. Interest rates on certain types of assets and liabilities fluctuate in
advance of changes in general market interest rates, while interest rates on
other types may lag behind changes in general market rates. In addition,
certain assets, such as adjustable rate mortgage loans, have features
(generally referred to as "interest rate caps") which limit changes in interest
rates on a short-term basis and over the life of the asset. In the event of a
change in interest rates, prepayment (on loans) and early withdrawal (of
deposit accounts) levels also could deviate significantly from those assumed in
calculating the interest rate gap. The ability of many borrowers to service
their debts also may decrease in the event of an interest rate increase.
Management's strategy is to maintain a balanced interest rate risk
position to protect its net interest margin from market fluctuations. To this
end, the ALCO Committee reviews, on a monthly basis, the maturity and repricing
of assets and liabilities. Suncoast's cumulative one-year gap at December 31,
1999, was a negative 2.45% of assets.
Management generally attempts to maintain a one-year gap range of
negative 20% to positive 20%.
Principal among Suncoast's asset/liability management strategies has
been the emphasis on managing its interest rate sensitive liabilities in a
manner designed to attempt to reduce Suncoast's exposure during periods of
fluctuating interest rates. Management believes that the type and amount of
Suncoast's interest rate sensitive liabilities may reduce the potential impact
that a rise in interest rates might have on Suncoast's net interest income.
Suncoast seeks to maintain a core deposit base by providing quality services to
its customers without significantly increasing its cost of funds or operating
expenses. Suncoast's demand, money market, and NOW deposit accounts
approximated 72.0% of total deposits at December 31, 1999. These accounts bore
a weighted average cost of deposits of 4.03% during the year ended December 31,
1999. Management anticipates that these accounts will continue to comprise a
significant portion of Suncoast's total deposit base. Suncoast also maintains a
portfolio of liquid assets in order to reduce its overall exposure to changes
in market interest rates. At December 31, 1999 approximately 55.22% of
Suncoast's total assets consisted of cash and due from banks, interest bearing
deposits with banks and federal funds sold. In addition, at December 31, 1999
Suncoast National Bank's liquidity ratio was approximately 170%. Suncoast also
maintains a "floor," or minimum rate, on certain of its floating or prime based
loans. These floors allow Suncoast to continue to earn a higher rate when the
floating rate falls below the established floor rate.
23
<PAGE> 27
The following table sets forth certain information relating to
Suncoast's interest-earning assets and interest-bearing liabilities at December
31, 1999 that are estimated to mature or are scheduled to reprice within the
period shown:
<TABLE>
<CAPTION>
UNDER 3 TO 12 OVER
3 MONTHS MONTHS 1-5 YEARS 5 YEARS TOTALS
-------- ------- --------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest bearing deposits with banks $ 8,454 $ -0- $ -0- $ -0- $ 8,454
-------- ------- ------- ------- --------
Federal funds sold 245 -0- -0- -0- 245
Loans(1) 250 12 453 174 889
Securities (2) -0- 731 4,624 202 5,557
-------- ------- ------- ------- --------
Total rate-sensitive assets
(earning assets) $ 8,949 $ 743 $ 5,077 $ 376 $ 15,145
======== ======= ======= ======= ========
Money market and NOW deposits (2) $ 3,402 $ -0- $ -0- $ -0- $ 3,402
Savings deposits (2) 31 -0- -0- -0- 31
Certificates of deposit (2) -0- 1,214 251 -0- 1,465
Other borrowings 5,453 -0- -0- -0- 5,453
-------- ------- ------- ------- --------
Total rate-sensitive liabilities $ 8,886 $ 1,214 $ 251 $ -0- $ 10,351
======== ======= ======= ======= ========
Gap (repricing differences) $ 63 $ (471) $ 4,826 $ 376 $ 4,794
======== ======= ======= ======= ========
Cumulative Gap $ 63 $ (408) $ 4,418 $ 4,794 $ 4,794
======== ======= ======= ======= ========
Cumulative GAP/total assets .38% (2.45)% 26.49% 28.74%
======== ======= ======= =======
Cumulative GAP/total earning assets .42% (2.69)% 29.17% 31.65%
======== ======= ======= =======
Total Assets $ 16,681
========
</TABLE>
- ----------------------
(1) In preparing the table above, adjustable-rate loans were included in the
period in which the interest rates are next scheduled to adjust rather
than in the period in which the loans mature. Fixed-rate loans were
scheduled according to their contractual maturities.
(2) Excludes noninterest-bearing deposit accounts. Money market, NOW, and
savings deposits were regarded as maturing immediately. All other time
deposits were scheduled through the maturity dates. Securities were
scheduled based on their remaining maturity or repricing frequency.
Securities include Federal Home Loan Bank and Federal Reserve Bank stock.
24
<PAGE> 28
FINANCIAL CONDITION
Lending Activities
A significant source of income for Suncoast is the interest earned on
loans. At December 31, 1999, Suncoast's total assets were $16.7 million and its
net loans were $.9 million or 5.3% of total assets.
Suncoast National Bank's primary market area consists of the Southern
part of Sarasota, Florida. The community of Sarasota is located in Sarasota
County on the Southwest coast of Florida. Sarasota County offers recreational
facilities, cultural events, resorts, commercial office parks, residential
developments, major transportation routes, shopping centers, and entertainment
areas. Access to the area is by Interstate 75 and U.S. 41. Air service is
through the Sarasota/Bradenton International Airport and the Tampa
International Airport, both less than an hour's drive from the area. Business
and entertainment service industries, retail trade, government, construction,
real estate, finance/insurance, health care and
transportation/communication/utility form the basis for the area's business
economy. Although not important as it once was, agricultural remains a part of
the area's industry, with citrus crops, nurseries and vegetables making up the
bulk of the agriculture business.
There is no assurance that the Bank's market area will continue to
experience economic growth. Adverse conditions in any one or more of the
industries operating in such markets or slow-down in general economic
conditions could have an adverse effect on Suncoast.
Lending activities are conducted pursuant to a written policy which
has been adopted by Suncoast. Each loan officer has defined lending authority
beyond which loans, depending upon their type and size, must be reviewed and
approved by a loan committee comprised of certain directors of Suncoast
National Bank.
The following table sets forth information concerning Suncoast's loan
portfolio by type of loan at the date indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------
% OF
AMOUNT TOTAL
------ -----
(dollars in thousands)
<S> <C> <C>
Residential real estate loans $ 500 56.3%
Consumer and other loans 234 26.3%
Commercial loans 155 17.4%
----- -----
Total loans 889 100.0%
----- =====
Less:
Allowance for loan losses 11
-----
Loans, net $ 878
=====
</TABLE>
25
<PAGE> 29
The following table reflects the contractual principal repayments by
period of Suncoast's loan portfolio at December 31, 1999 (excluding nonaccrual
loans):
<TABLE>
<CAPTION>
1 YEAR 1 THROUGH AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
------- ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Residential real estate loans $ -0- $ -0- $ 500 $ 500
Consumer and other loans 89 127 18 234
Commercial loans 155 -0- -0- 155
----- ----- ----- -----
Total loans $ 244 $ 127 $ 518 $ 889
===== ===== ===== =====
Loans with maturities over one year:
Fixed rate $ 241
Variable rate 404
-----
Total maturities greater than one year $ 645
=====
</TABLE>
The following table sets forth total loans originated and repaid
during the period indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
----------------------
(Dollars in thousands)
<S> <C>
Originations:
Residential mortgage loans $ 500
Consumer and other loans 280
Commercial loans 164
-----
Total loans originated 944
Less principal reductions (55)
-----
Increase in total loans $ 889
=====
</TABLE>
Asset Quality
Management seeks to maintain a high quality of assets through
conservative underwriting and sound lending practices. The majority of the
loans in Suncoast's loan portfolio are collateralized by residential real
estate mortgages. As of December 31, 1999, approximately 56.3% of the total
loan portfolio was collateralized by residential real estate. The level of
delinquent loans and real estate owned also is relevant to the credit quality
of a loan portfolio. As of December 31, 1999, the Bank had no nonperforming
assets.
In an effort to maintain the quality of the loan portfolio, management
seeks to minimize higher risk types of lending. In view of the relative
significance of real estate related loans, a downturn in the value of the real
estate could have an adverse impact on Suncoast's profitability. However, as
part of its loan portfolio management strategy, Suncoast generally limits its
loans to a maximum of 80% of the value of the underlying real estate as
determined by appraisal. In addition, knowledgeable members of management make
physical inspections of properties being considered for mortgage loans.
26
<PAGE> 30
Commercial loans also entail risks since repayment is usually
dependent upon the successful operation of the commercial enterprise. They also
are subject to adverse conditions in the economy. Commercial loans are
generally riskier than mortgage loans because they are typically underwritten
on the basis of the ability to repay from the cash flow of a business rather
than on the ability of the borrower or guarantor to repay. Further, the
collateral underlying a commercial loan may depreciate over time, cannot be
appraised with as much precision as real estate, and may fluctuate in value
based on the success of the business.
The repayment of consumer installment loans and other loans to
individuals is closely linked to the economic conditions of the communities in
which Suncoast operates (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Lending
Activities"). For the most part, these local economies enjoy diverse labor
forces. The majority of these consumer installment loans are secured by
collateral which limits, to a degree, any loss Suncoast would suffer upon
default.
Loan concentrations are defined as amounts loaned to a number of
borrowers engaged in similar activities which would cause them to be similarly
impacted by economic or other conditions. Suncoast, on a routine basis,
monitors these concentrations in order to consider adjustments in its lending
practices to reflect economic conditions, loan to deposit ratios, and industry
trends. Concentrations of loans in the following categories constituted the
total loan portfolio as of December 31, 1999:
Residential real estate loans 56.3%
Consumer and other loans 26.3%
Commercial loans 17.4%
-------
100.0%
The Loan Committee of the Board of Directors of Suncoast National Bank
concentrates its efforts and resources, and that of its senior management and
lending officers, on loan review and underwriting procedures. Internal controls
include ongoing reviews of loans made to monitor documentation and the
existence and valuations of collateral. In addition, management of Suncoast has
established a review process with the objective of identifying, evaluating, and
initiating necessary corrective action for marginal loans. The goal of the loan
review process is to address classified and nonperforming loans as early as
possible.
Classification of Assets
Generally, interest on loans accrues and is credited to income based
upon the principal balance outstanding. It is management's policy to
discontinue the accrual of interest income and classify a loan as nonaccrual
when principal or interest is past due 90 days or more and the loan is not
adequately collateralized, or when in the opinion of management, principal or
interest is not likely to be paid in accordance with the terms of the
obligation. Consumer installment loans are generally charged-off after 90 days
of delinquency unless adequately collateralized and in the process
27
<PAGE> 31
of collection. Loans are not returned to accrual status until principal and
interest payments are brought current and future payments appear reasonably
certain. Interest accrued and unpaid at the time a loan is placed on nonaccrual
status is charged against interest income. Subsequent payments received are
applied to the outstanding principal balance.
Real estate acquired by Suncoast as a result of foreclosure or by deed
in lieu of foreclosure is classified as other real estate owned ("OREO"). OREO
properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any, is charged to the allowance for
credit losses at the time it is transferred to OREO. Further allowances for
losses in OREO are recorded at the time management believes additional
deterioration in value has occurred.
Management has adopted SFAS No. 114, which considers a loan to be
impaired if it is probable that Suncoast will be unable to collect all amounts
due under the contractual terms of the loan agreement. If a loan is considered
impaired, its value generally should be measured based on the present value of
expected cash flows discounted at the loan's effective interest rate. As a
practical expedient, however, the loan's value may be based on:
o the loan's market price; or
o the fair value of the loan's collateral, less discounted
estimated costs to sell, if the collateral is expected to be
the sole source of repayment.
If the value of the loan is less than the recorded investment in the
loan, a loss should be recognized by recording a valuation allowance and a
corresponding increase to the provision for credit losses charged to operating
expenses.
Situations may occur where:
o Suncoast receives physical possession of a debtor's assets
regardless of whether formal foreclosure proceedings have
been initiated or completed; or
o the debtor has effectively surrendered control of the
underlying collateral in contemplation of foreclosure.
These situations are referred to as "in-substance foreclosures." SFAS
No. 114 recognizes the practical problems of accounting for the operation of an
asset the creditor does not possess, and states that a loan for which
foreclosure is probable should continue to be accounted for as a loan.
At December 31, 1999, no loans were considered by management to be
impaired or in- substance foreclosed.
Allowance for Credit Losses
In originating loans, Suncoast recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of
28
<PAGE> 32
the borrower over the term of the loan and, in the case of a collateralized
loan, the quality of the collateral for the loan as well as general economic
conditions. It is management's policy to attempt to maintain an adequate
allowance for credit losses based on, among other things, Suncoast's historical
loan loss experience, evaluation of economic conditions and regular reviews of
any delinquencies and loan portfolio quality. Specific allowances are provided
for individual loans when ultimate collection is considered questionable by
management after reviewing the current status of loans which are contractually
past due and considering the net realizable value of the collateral for the
loan. Management recognizes the greater inherent risks in connection with
commercial and consumer lending. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Provision for Credit Losses."
Management continues to actively monitor Suncoast's asset quality and
to charge-off loans against the allowance for credit losses when appropriate or
to provide specific loss allowances when necessary. Although management
believes it uses the best information available to make determinations with
respect to the allowance for loan losses, future adjustments may be necessary
if economic conditions differ from the economic conditions in the assumptions
used in making the initial determinations. Suncoast's allowance for loan losses
at December 31, 1999 was $11,111. Management considers several factors in
determining the reserves, including the favorable charge off history, the
relatively low level of nonperforming assets, and the value of the underlying
collateral. Management believes that the allowance for loan losses was adequate
at December 31, 1999.
The following table sets forth information with respect to activity in
Suncoast's allowance for credit losses during the period indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
----------------------
(Dollars in thousands)
<S> <C>
Allowance at beginning of period $ -0-
--------
Charge-offs:
Real estate loans -0-
Installment loans -0-
Commercial and all other loans -0-
Total charge-offs -0-
Recoveries:
Real estate loans -0-
Installment loans -0-
Commercial and all other loans -0-
--------
Total recoveries -0-
Provision for loan losses charged to operations 11,111
--------
Allowance at end of period $ 11,111
========
</TABLE>
29
<PAGE> 33
<TABLE>
<S> <C>
Ratio of net charge-offs during the period
to average loans outstanding during the period -0-%
====
Allowance for loan losses as a percentage
of total period-end loans 1.25%
====
Allowance for loan losses as a percentage
of nonperforming loans -0-%
====
</TABLE>
Suncoast classifies its loan portfolio for internal purposes as
mortgage loans, installment loans and commercial loans. Suncoast prepares its
quarterly computation of allowance for losses in this manner. The following
table presents information regarding the Suncoast's total allowance for losses
as well as the allocation of such amounts to the various categories of loans
(dollars in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------- ----
% OF
LOANS TO
TOTAL
AMOUNT LOANS
------ -----
<S> <C> <C>
Residential real estate loans $ 6 56.3%
Consumer and other loans 3 26.3%
Commercial loans 2 17.4%
------ -----
Total allowance for loan losses $ 11 100.0%
====== =====
</TABLE>
The allowance for credit losses represented 1.25% of the total loans
outstanding as of December 31, 1999.
Investment Securities
Suncoast's investment securities portfolio at December 31, 1999,
consisted of United States Government agency obligations. The following table
sets forth the current value of Suncoast's investment portfolio at the date
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Investment securities:
Available-for-sale - U.S. Government and agency obligations $ 5,355
=======
</TABLE>
The following table sets forth, by maturity distribution, certain
information pertaining to the investment securities portfolio as follows:
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS AFTER TEN YEARS TOTAL
----------------- ----------------- ------------------ ----------------- ------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999:
U.S. Government and
agency securities $731 5.60% $4,624 6.17% $ -0- -0-% $ -0- -0-% $5,355 5.86%
==== ==== ====== ==== ===== ==== ===== ==== ====== =====
</TABLE>
30
<PAGE> 34
Deposit Activities
Deposits are the major source of Suncoast's funds for lending and
other investment purposes. Deposits are attracted principally from within
Suncoast's primary market area through the offering of a broad variety of
deposit instruments including checking accounts, money market accounts, regular
savings accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more) and retirement savings plans.
Maturity terms, service fees and withdrawal penalties are established
by Suncoast on a periodic basis. The determination of rates and terms is
predicated on funds acquisition and liquidity requirements, rates paid by
competitors, growth goals and federal regulations.
FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest
on deposits offered by other insured depository institutions having the same
type of charter in such depository institutions' normal market area. Under
these regulations, "well capitalized" depository institutions may accept,
renew, or rollover deposits at such rates without restriction, "adequately
capitalized" depository institutions may accept, renew or rollover deposits at
such rates with a waiver from the FDIC (subject to certain restrictions on
payments of rates), and "undercapitalized" depository institutions may not
accept, renew or rollover deposits at such rates. The regulations contemplate
that the definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definitions adopted by the agencies
to implement the prompt corrective action provisions of applicable law. See
"Business - Supervision, Regulation -- Capital Requirements." As of December
31, 1999, Suncoast National Bank met the definition of a "well capitalized"
depository institution.
The following table shows the distribution of, and certain other
information relating to, Suncoast's deposit accounts by type:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
---------------------
% OF
AMOUNT DEPOSIT
------ -------
(Dollars in thousands)
<S> <C> <C>
Demand deposits $ 343 6.5%
NOW deposits 581 11.1%
Money market deposits 2,820 53.8%
Savings deposits 32 .6%
------ -----
Subtotal $3,776 72.0%
------ -----
</TABLE>
31
<PAGE> 35
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Certificates of deposit:
Under 3.99% -0- -0-%
4.00% - 4.99% -0- -0-%
5.00% - 5.99% 1,465 28.0%
6.00% - 6.99% -0- -0-%
Over 7.00% -0- -0-%
------ ------
Total certificates of deposit (1) 1,465 28.0%
------ ------
Total deposits $5,241 100.0%
====== ======
</TABLE>
(1) There are no individual retirement accounts ("IRAs") at December 31, 1999.
The following tables show the average amount outstanding and the
average rate paid on each of the following deposit account categories during
the period indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------
AVERAGE AVERAGE
BALANCE RATE
------- ------
(Dollars in thousands)
<S> <C> <C>
Demand and money market deposits $ 743 4.44%
Savings and NOW deposits 126 1.59%
Certificates of deposit 212 5.66%
-------
Total deposits $ 1,081 4.35%
======= =====
</TABLE>
Suncoast does not have a concentration of deposits from any one
source, the loss of which would have a material adverse effect on Suncoast.
Management believes that substantially all of Suncoast's depositors are
residents in its primary market area. Suncoast currently does not accept
brokered deposits. As shown in the tables below, a significant amount of
Suncoast's certificates of deposit will mature during the year ending December
31, 2000. The high volume of maturities during this period is primarily due to
customer demand for certificates of deposit having original maturities of 12
months or less. Based upon current and anticipated levels of interest rates and
past practice, Suncoast management anticipates that substantially all of
Suncoast's certificates of deposit maturing during this time period will be
renewed or replaced by certificates of deposit issued to other customers at
competitive market rates, which may be higher or lower than the rates currently
being paid. Consequently, Suncoast management does not believe that the
maturity of Suncoast's certificates of deposit during the year ending December
31, 2000, will have a material adverse effect on Suncoast's liquidity. However,
if Suncoast is required to pay substantially higher rates to obtain the renewal
of these or other certificates of deposit or alternative sources of funds, the
higher net interest expense could have a material adverse effect on Suncoast's
net income.
The following tables present by various interest rate categories the
amounts of certificates of deposit at December 31, 1999 which mature during the
period indicated:
32
<PAGE> 36
<TABLE>
<CAPTION>
DUE DUE DUE DUE
UNDER THREE 3 MONTHS TO 1 YEAR TO OVER
MONTHS 12 MONTHS 3 YEARS 3 YEARS TOTAL
----- ----------- --------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
At December 31, 1999:
Under 3.99% $ -0- $ -0- $ -0- $ -0- $ -0-
4.00% - 4.99% -0- -0- -0- -0- -0-
5.00% - 5.99% -0- 1,214 251 -0- 1,465
6.00% - 6.99% -0- -0- -0- -0- -0-
Over 7.00% -0- -0- -0- -0- -0-
----- ------- ----- ----- -------
Total certificates of deposit $ -0- $ 1,214 $ 251 $ -0- $ 1,465
===== ======= ===== ===== =======
</TABLE>
Jumbo certificates ($100,000 and over) mature as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------
(Dollars in thousands)
<S> <C>
Due in three months or less $ -0-
Due from three months to one year .7
Due from twelve months to three years .1
Due over three years -0-
-----
$ .8
=====
</TABLE>
The following table sets forth the net deposit flows of Suncoast
during the period indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------
(Dollars in thousands)
<S> <C>
Net increase before interest credited $5,283
Net interest credited (42)
======
Net deposit increase $5,241
======
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data concerning
Suncoast presented in this Proxy Statement 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 changes in the relative purchasing power of money over time due to
inflation. The primary impact of inflation on the operations of Suncoast is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant impact on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.
33
<PAGE> 37
FUTURE ACCOUNTING REQUIREMENTS
SFAS No. 125 and its amendment SFAS No. 127 apply to certain transfers
and servicing of financial assets and extinguishments of liabilities effective
January 1, 1997 (except as deferred by SFAS No. 127). Suncoast has not
transferred and serviced significant financial assets nor does it anticipate
that these Statements will have any material impact on the financial statements
of Suncoast.
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which addresses the
accounting for derivative instruments and provides for matching the timing of
gain or loss recognition on the hedging instrument. Guidance on identifying
derivative instruments is also provided as well as additional disclosures. SFAS
133 becomes effective for all fiscal quarters of all fiscal years beginning
after January 1, 2001. Earlier application is permitted with certain
exceptions. Management does not anticipate that adoption of SFAS 133 will have
a material impact on the financial condition or results of operations of
Suncoast.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of Suncoast as of and for the years ended
December 31, 1999 and 1998 are set forth in this Form 10-KSB as Exhibit 13.1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
34
<PAGE> 38
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information contained under the sections captioned "Directors" and
"Executive Officers" under "Election of Directors" in the registrant's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
May 15,2000, to be filed with the SEC pursuant to Regulation 14A within 120
days of their registrant's fiscal year end (the "Proxy Statement"), as
incorporated herein by reference.
SECTION 16(a) REPORTING REQUIREMENTS
Under Section 16(a) of the Securities Exchange Act of 1934, directors
and executive officers of Suncoast, and persons who beneficially own more than
10% of Suncoast Common Stock, are required to make certain filings on a timely
basis with the Securities and Exchange Commission. Reporting persons are
required by SEC regulations to furnish the Suncoast with copies of all Section
16(a) forms filed by them. Based on its review of the copies of Section 16(a)
forms received by it, and on written representations from reporting persons
concerning the necessity of filing a Form 5 - Annual Statement of Changes in
Beneficial Ownership, Suncoast believes that, during 1999, all filing
requirements applicable to reporting persons were met.
ITEM 10. EXECUTIVE COMPENSATION
The information contained in the sections captioned "Information About
the Board of Directors and Its Committees," "Executive Compensation and
Benefits" and "Information on Benefit Plans and Policies" under "Election of
Directors" in the Proxy Statement, is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in the sections captioned "Directors" and
"Management and Principal Stock Ownership" under "Election of Directors," in
the Proxy Statement, is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the section entitled "Certain
Transactions" under "Election of Directors" in the Proxy Statement is
incorporated herein by reference.
35
<PAGE> 39
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1999
Consolidated Statement of Operations and Comprehensive Income
for the year ended December 31, 1999
Consolidated Statement of Cash Flows for the year ended
December 31, 1999
Consolidated Statement of Changes in Stockholders' Equity for
the year ended December 31, 1999
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as the required information
is either inapplicable or included in the Notes to
Consolidated Financial Statements.
3. EXHIBITS
3.1 - Restated Articles of Incorporation of Suncoast
Bancorp, Inc. (Incorporated by reference to
Exhibit 3.1 to Suncoast's Registration Statement
No. 333-70231 (the "Registration Statement"))
3.2 - Bylaws of Suncoast Bancorp, Inc. (Incorporated
by reference to Exhibit 3.2 to the Registration
Statement)
4.1 - Specimen Stock Certificate of Suncoast Bancorp,
Inc. (Incorporated by reference to Exhibit 4.2
to the Registration Statement)
10.1 - Form of Employment Agreement entered into
between the Company and John T. Stafford
(Incorporated by reference to Exhibit 10.1 to
the Registration Statement)*
10.2 - Form of Employment Agreement entered into
between the Bank and William F. Gnerre
(Incorporated by reference to Exhibit 10.2 to
the Registration Statement)*
10.3 - Suncoast Bancorp, Inc. Director Stock Option
Plan (Incorporated by reference to Exhibit 10.3
to the Registration Statement)*
36
<PAGE> 40
10.4 - Suncoast Bancorp, Inc. Employee Stock Option
Plan (Incorporated by reference to Exhibit 10.4
to the Registration Statement) *
10.5 - Lease Agreement dated August 28, 1998 between
Suncoast Bancorp, Inc. and Palmer Medical Center
Ltd. (Incorporated by reference to Exhibit 10.5
to the Registration Statement)
21.1 - List of Subsidiaries of Suncoast Bancorp, Inc.
27 - Financial Data Schedule
- ------------------------------
* Represents a management contract or compensatory plan or arrangement required
to be filed as an exhibit.
(b) REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed by Suncoast during
the last fiscal quarter covered by this report.
37
<PAGE> 41
SUNCOAST BANCORP, INC. AND SUBSIDIARY
Sarasota, Florida
Audited Consolidated Financial Statements
At December 31, 1999 and 1998 and for the Year Ended
December 31, 1999 and the Period from April 1,
1998 (Date of Incorporation) to December 31,
1998
(Together with Independent Auditors' Report)
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
Board of Directors
SunCoast Bancorp, Inc.
Sarasota, Florida:
We have audited the accompanying consolidated balance sheets of
SunCoast Bancorp, Inc. and Subsidiary (the "Company") at December 31, 1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for the year ended December 31,
1999 and the period from April 1, 1998 (Date of Incorporation) to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
at December 31, 1999 and 1998, and the results of its operations and its cash
flows for the year ended December 31, 1999 and the period from April 1, 1998
(Date of Incorporation) to December 31, 1998, in conformity with generally
accepted accounting principles.
HACKER, JOHNSON, COHEN & GRIEB PA
Tampa, Florida
February 18, 2000
<PAGE> 43
SUNCOAST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1999 1998
------------ --------
ASSETS
<S> <C> <C>
Cash and due from banks .......................................... $ 511,525 4,774
Interest-bearing deposits with banks ............................. 8,454,133 --
Federal funds sold ............................................... 245,000 --
------------ --------
Total cash and cash equivalents .................... 9,210,658 4,774
Securities available for sale .................................... 5,355,242 --
Loans, net of allowance for loan losses of $11,111 ............... 877,756 --
Premises and equipment, net ...................................... 588,483 1,410
Federal Reserve Bank stock, at cost .............................. 180,000 --
Federal Home Loan Bank stock, at cost ............................ 22,200 --
Accrued interest receivable ...................................... 106,047 --
Deferred tax assets .............................................. 252,662 --
Other assets ..................................................... 87,977 64,536
------------ --------
Total assets ....................................... $ 16,681,025 70,720
============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Noninterest-bearing demand deposits .......................... 342,868 --
Savings and NOW deposits ..................................... 612,683 --
Money-market deposits ........................................ 2,820,308 --
Time deposits ................................................ 1,464,853 --
------------ --------
Total deposits ..................................... 5,240,712 --
Accrued interest payable and other liabilities ............... 7,294 55,352
Other borrowings ............................................. 5,453,234 101,188
------------ --------
Total liabilities .................................. 10,701,240 156,540
------------ --------
Commitments and contingencies (Notes 4, 7, 10 and 16)
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 3,000,000 shares authorized,
no shares issued or outstanding ......................... -- --
Common stock, $.01 par value 10,000,000 shares authorized,
700,000 shares and 1 share issued and outstanding
in 1999 and 1998 ........................................ 7,000 --
Additional paid-in capital ................................... 6,393,888 1
Accumulated deficit .......................................... (394,732) (85,821)
Accumulated other comprehensive income (loss) ................ (26,371) --
------------ --------
Total stockholders' equity (deficit) ............... 5,979,785 (85,820)
------------ --------
Total liabilities and stockholders' equity (deficit) $ 16,681,025 70,720
============ ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 44
SUNCOAST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL 1, 1998
(DATE OF
YEAR ENDED INCORPORATION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -----------------
<S> <C> <C>
Interest income:
Loans receivable ..................................... $ 9,915 --
Securities ........................................... 121,497 --
Other interest-earning assets ........................ 63,465 --
--------- -------
Total interest income ........................... 194,877 --
--------- -------
Interest expense:
Deposits ............................................. 47,302 --
Other borrowings ..................................... 6,258 3,367
--------- -------
Total interest expense .......................... 53,560 3,367
--------- -------
Net interest income (expense) ................... 141,317 (3,367)
Provision for loan losses ................................ 11,111 --
--------- -------
Net interest income (expense) after provision for
loan losses ................................... 130,206 (3,367)
--------- -------
Noninterest income, service charges and fees ............. 8,241 --
--------- -------
Noninterest expense:
Salaries and employee benefits ....................... 217,123 --
Occupancy expense .................................... 78,193 --
Advertising .......................................... 21,585 --
Stationery and supplies .............................. 26,031 --
Professional fees .................................... 17,528 --
Data processing ...................................... 23,574 --
Organizational and preopening costs .................. 276,437 82,454
Other ................................................ 23,725 --
--------- -------
Total noninterest expense ....................... 684,196 82,454
--------- -------
Loss before income tax benefit .................. (545,749) (85,821)
Income tax benefit ....................................... (236,838) --
--------- -------
Net loss ........................................ $(308,911) (85,821)
========= =======
Loss per share, basic and diluted ........................ $ (.94) *
========= =======
Weighted-average number of common shares outstanding ..... $ 329,863 *
========= =======
</TABLE>
* Not meaningful
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 45
SUNCOAST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPRE-
ADDITIONAL HENSIVE TOTAL
COMMON PAID-IN ACCUMULATED INCOME STOCKHOLDERS'
STOCK CAPITAL DEFICIT (LOSS) EQUITY
------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1998................... $ -- -- -- -- --
Proceeds from issuance of one share
of common stock................... -- 1 -- -- 1
Comprehensive income (loss) -
Net loss.......................... -- -- (85,821) -- (85,821)
------- ---------- --------- ------- ---------
Balance at December 31, 1998............... -- 1 (85,821) -- (85,820)
---------
Comprehensive income (loss):
Net loss.......................... -- -- (308,911) -- (308,911)
Net change in unrealized
loss on available-for-sale
securities, net of taxes........ -- -- -- (26,371) (26,371)
---------
Comprehensive income
(loss).......................... (335,282)
---------
Proceeds from issuance of 699,999
shares of common stock,
net of stock issuance
costs of $599,112................. 7,000 6,393,887 -- -- 6,400,887
------- --------- -------- ------- ---------
Balance at December 31, 1999............... $ 7,000 6,393,888 (394,732) (26,371) 5,979,785
======= ========= ======== ======= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 46
SUNCOAST BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL 1, 1998
(DATE OF
YEAR ENDED INCORPORATION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $ (308,911) (85,821)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation ......................................... 29,974 866
Provision for loan losses ............................ 11,111 --
Credit for deferred income taxes ..................... (236,838) --
Loss on sale of securities available for sale ........ 390 --
Increase in accrued interest receivable .............. (106,047) --
Increase in other assets ............................. (23,441) (65,328)
(Decrease) increase in accrued interest payable and
other liabilities ............................... (48,058) 55,352
------------ --------
Net cash used in operating activities ........... (681,820) (94,931)
------------ --------
Cash flows from investing activities:
Purchase of securities available for sale ................. (11,658,590) --
Sale of securities available for sale ..................... 5,465,889 --
Maturities of securities available for sale ............... 794,874 --
Net increase in loans ..................................... (888,867) --
Purchase of premises and equipment ........................ (617,047) (1,484)
Purchase of Federal Home Loan Bank stock .................. (22,200) --
Purchase of Federal Reserve Bank stock .................... (180,000) --
------------ --------
Net cash used in investing activities ........... (7,105,941) (1,484)
------------ --------
Cash flows from financing activities:
Net increase in deposits .................................. 5,240,712 --
Net proceeds from issuance of common stock ................ 6,400,887 1
Net increase in other borrowings .......................... 5,352,046 101,188
------------ --------
Net cash provided by financing activities ....... 16,993,645 101,189
------------ --------
Net increase in cash and cash equivalents ..................... 9,205,884 4,774
Cash and cash equivalents at beginning of period .............. 4,774 --
------------ --------
Cash and cash equivalents at end of period .................... $ 9,210,658 4,774
============ ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................. $ 50,737 1,926
============ ========
Income taxes ......................................... $ -- --
============ ========
Noncash transaction-
Accumulated other comprehensive income (loss),
unrealized loss on securities available for sale,
net of tax ...................................... $ (26,371) --
============ ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 47
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AT DECEMBER 31, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. SunCoast Bancorp, Inc. (the "Holding Company") was
incorporated on April 1, 1998. The Holding Company owns 100% of the
outstanding common stock of SunCoast National Bank (the "Bank")
(collectively the "Company"). The Holding Company was organized
simultaneously with the Bank and its only business is the ownership and
operation of the Bank. The Bank was incorporated under the laws of the
United States and received its charter from the Comptroller of the
Currency. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation. The Bank opened for business on September 7,
1999 and provides a variety of community banking services to businesses
and individuals through its banking office located in Sarasota County,
Florida.
BASIS OF PRESENTATION. The accompanying consolidated financial statements
include the accounts of the Holding Company and the Bank. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
The accounting and reporting policies of the Company conform to
generally accepted accounting principles and to general practices
within the banking industry. The following summarizes the more
significant of these policies and practices.
USE OF ESTIMATES. In preparing consolidated financial statements in
conformity with generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance sheet
and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan
losses and deferred tax assets.
CASH AND CASH EQUIVALENTS. For purposes of the consolidated statements of
cash flows, cash and cash equivalents include cash and balances due
from banks, interest-bearing deposits with banks and federal funds
sold.
SECURITIES. The Company may classify its securities as either trading, held
to maturity or available for sale. Trading securities are held
principally for resale and recorded at their fair values. Unrealized
gains and losses on trading securities are included immediately in
earnings. Held-to-maturity securities are those which the Company has
the positive intent and ability to hold to maturity and are reported at
amortized cost. Available-for-sale securities consist of securities not
classified as trading securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are excluded from earnings and reported in other
comprehensive income. Gains and losses on the sale of
available-for-sale securities are recorded on the trade date and are
determined using the specific-identification method. Premiums and
discounts on securities available for sale are recognized in interest
income using the interest method over the period to maturity.
(continued)
6
<PAGE> 48
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOANS RECEIVABLE. Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off
are reported at their outstanding principal adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or
costs on originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
The accrual of interest on loans is discontinued at the time the loan
is ninety days delinquent unless the credit is well-secured and in
process of collection. In all cases, loans are placed on nonaccrual or
charged-off at an earlier date if collection of principal or interest
is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged-off is reversed against interest income. The
interest on these loans is accounted for on the cash-basis or
cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are
reasonably assured.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan
losses charged to earnings. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan
balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by
management and is based upon management's periodic review of the
collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any
underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available.
A loan is considered impaired when, based on current information and
events, it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral
value, and the probability of collecting scheduled principal and
interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower's prior
payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan
basis for commercial loans by either the present value of expected
future cash flows discounted at the loan's effective interest rate, the
loan's obtainable market price, or the fair value of the collateral if
the loan is collateral dependent.
(continued)
7
<PAGE> 49
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ALLOWANCE FOR LOAN LOSSES, CONTINUED. Large groups of smaller balance
homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures.
FORECLOSED ASSETS. Real estate properties acquired through, or in lieu of,
loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in the consolidated
statements of operations.
PREMISES AND EQUIPMENT. Furniture, fixtures, equipment and leasehold
improvements are carried at cost, less accumulated depreciation and
amortization computed by the straight-line method.
TRANSFER OF FINANCIAL ASSETS. Transfers of financial assets are accounted
for as sales, when control over the assets has been surrendered.
Control over transferred assets is deemed to be surrendered when (1)
the assets have been isolated from the Company, (2) the transferee
obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets,
and (3) the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their
maturity.
INCOME TAXES. Deferred tax assets and liabilities are determined using the
liability (or balance sheet) method. Under this method, the net
deferred tax asset or liability is determined based on the tax effects
of the temporary differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
STOCK COMPENSATION PLANS. Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation, encourages all
entities to adopt a fair value based method of accounting for employee
stock compensation plans, whereby compensation cost is measured at the
grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. However, it also
allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method of accounting prescribed
by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, whereby compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date (or other
measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the Company's stock option plan have
no intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them. The Company has elected to
continue with the accounting methodology in Opinion No. 25 and, as a
result, has provided proforma disclosures of net loss and other
disclosures, as if the fair value based method of accounting had been
applied. (See Note 12).
LOSS PER SHARE. Basic loss per share is computed on the basis of the
weighted-average number of common shares outstanding. Outstanding stock
options are not dilutive due to the net loss incurred by the Company.
(continued)
8
<PAGE> 50
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
ORGANIZATION AND PREOPENING COSTS. The Holding Company obtained lines of
credit from two financial institutions to fund organizational and
preopening expenses. This debt was paid-off with proceeds from the
common stock offering. Net organizational and preopening costs totaled
$220,034 and were charged to expense as incurred.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. In the ordinary course of business
the Company has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, unused lines of credit and
stand-by-letters of credit. Such financial instruments are recorded in
the consolidated financial statements when they are funded.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The fair value of a financial
instrument is the current amount that would be exchanged between
willing parties, other than in a forced liquidation. Fair value is best
determined based upon quoted market prices. However, in many instances,
there are no quoted market prices for the Company's various financial
instruments. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of
future cash flows. Accordingly, the fair value estimates may not be
realized in an immediate settlement of the instrument. SFAS 107
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Accordingly, the aggregate fair value
amounts presented may not necessarily represent the underlying fair
value of the Company. The following methods and assumptions were used
by the Company in estimating fair values of financial instruments:
CASH AND CASH EQUIVALENTS. The carrying amounts of cash and cash
equivalents approximate their fair value.
SECURITIES. Fair values for securities available for sale are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. The carrying value of Federal Reserve Bank stock and
Federal Home Loan Bank stock approximates fair value.
LOANS. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for fixed-rate mortgage (e.g. one-to-four family
residential), commercial real estate and commercial loans are estimated
using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar
credit quality. Fair values for nonperforming loans are estimated using
discounted cash flow analysis or underlying collateral values, where
applicable.
ACCRUED INTEREST RECEIVABLE. Book value approximates fair value.
DEPOSIT LIABILITIES. The fair values disclosed for demand, NOW,
money-market and savings deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities of time deposits.
(continued)
9
<PAGE> 51
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED.
OTHER BORROWINGS. The carrying amounts of other borrowings approximate
their fair values.
OFF-BALANCE-SHEET INSTRUMENTS. Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
ADVERTISING. The Company expenses all advertising as incurred.
FUTURE ACCOUNTING REQUIREMENTS. Financial Accounting Standards 133 -
Accounting for Derivative Investments and Hedging Activities requires
companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for
depending on the use of the derivatives and whether they qualify for
hedge accounting. The key criterion for hedge accounting is that the
hedging relationship must be highly effective in achieving offsetting
changes in fair value or cash flows. The Company will be required to
adopt this Statement January 1, 2001. Management does not anticipate
that this Statement will have a material impact on the Company.
(2) SECURITIES AVAILABLE FOR SALE
Securities have been classified according to management's intent. The
carrying amount of securities and their approximate fair values at
December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Government agency securities............... $ 5,397,436 -- (42,194) 5,355,242
=========== ========= ======= =========
</TABLE>
The Company sold securities available for sale for gross proceeds of
$5,465,889. Gross losses of $390 were recognized on these sales.
The scheduled maturities of securities at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
------------ ---------
<S> <C> <C>
Due in less than one year..................................... $ 743,286 731,313
Due from one to five years.................................... 4,654,150 4,623,929
------------ ---------
$ 5,397,436 5,355,242
============ =========
</TABLE>
(continued)
10
<PAGE> 52
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS RECEIVABLE
The components of loans are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1999
---------------
<S> <C>
Commercial ............................. $ 154,682
Residential real estate ................ 500,000
Consumer ............................... 138,680
Lines of credit ........................ 95,505
---------
888,867
Subtract-
Allowance for loan losses ....... (11,111)
---------
Loans, net ........................ $ 877,756
=========
</TABLE>
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Beginning balance.......................................... $ --
Provision for loan losses ................................. 11,111
-------
Ending balance ............................................ $11,111
=======
</TABLE>
The Company had no impaired loans in 1999.
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1999 1998
--------- ------
<S> <C> <C>
Leasehold improvements ........................... $ 240,682 --
Furniture, fixtures and equipment ................ 377,849 1,485
--------- ------
Total, at cost ............................... 618,531 1,485
Less accumulated depreciation and amortization (30,048) (75)
--------- ------
Premises and equipment, net .................. $ 588,483 1,410
========= ======
</TABLE>
(continued)
11
<PAGE> 53
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) PREMISES AND EQUIPMENT, CONTINUED
The Company leases its office facility under an operating lease. The term
of the lease is for five years with two-five year renewable options.
Rent expense under operating leases during the year ended December 31,
1999 was $27,908. There was no rent expense for the period ended
December 31, 1998. Future rentals over the remaining noncancellable
lease terms are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------- ---------
<S> <C>
2000 ........................................ $ 85,398
2001 ........................................ 88,813
2002 ........................................ 92,366
2003 ........................................ 96,061
2004 ........................................ 48,972
--------
Total minimum lease payments................. $411,610
========
</TABLE>
(5) DEPOSITS
The aggregate amount of time deposits with a minimum denomination of
$100,000, was approximately $800,000 at December 31, 1999.
A schedule of maturities of time deposits follows:
<TABLE>
<CAPTION>
AT
YEAR ENDING DECEMBER 31,
DECEMBER 31, 1999
------------ ------------
<S> <C>
2000........................................................ $ 1,213,907
2001........................................................ 220,831
2002........................................................ 25,115
2003........................................................ 5,000
-----------
$ 1,464,853
===========
</TABLE>
(6) OTHER BORROWINGS
In 1999, the Company was appointed as agent for a customer and acted on
behalf of the customer in investing the customer's funds in a tri-party
repurchase agreement program administered by another financial
institution. At December 31, 1999, the balance in the account was
$5,453,234 and is included in interest-bearing deposits with banks and
other borrowings on the consolidated balance sheet at December 31,
1999.
(continued)
12
<PAGE> 54
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) FINANCIAL INSTRUMENTS
The Company 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 are unused lines of credit,
commitments to extend credit and standby letters of credit and may
involve, to varying degrees, elements of credit and interest-rate risk
in excess of the amount recognized in the balance sheet. The contract
amounts of these instruments reflect the extent of involvement the
Company has in these financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend
credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments as it
does for on-balance-sheet instruments.
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 some of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the
Company upon extension of credit is based on management's credit
evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1999 1998
------------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- -------- -------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents ... $9,210,658 9,210,658 4,774 4,774
Securities available for sale 5,355,242 5,355,242 -- --
Loans receivable, net ....... 877,756 877,756 -- --
Accrued interest receivable . 106,047 106,047 -- --
Federal Reserve Bank stock .. 180,000 180,000 -- --
Federal Home Loan Bank stock 22,200 22,200 -- --
Financial liabilities:
Deposit liabilities ......... 5,240,712 5,240,712 -- --
Other borrowings ............ 5,453,234 5,453,234 101,188 101,188
</TABLE>
(continued)
13
<PAGE> 55
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) FINANCIAL INSTRUMENTS, CONTINUED
A summary of the amounts of the Company's financial instruments, which
approximate fair value, with off balance sheet risk at December 31,
1999 follows:
<TABLE>
<CAPTION>
<S> <C>
Unused lines of credit ................. $ 834,000
==========
Commitments to extend credit ........... $1,300,000
==========
Standby letters of credit .............. $ 20,000
==========
</TABLE>
(8) INCOME TAXES
The income tax benefit consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred:
Federal....................................................... $(202,222) --
State......................................................... (34,616) --
--------- -------
Total deferred................................................ $(236,838) --
========= =======
</TABLE>
The reasons for the differences between the statutory Federal income tax
rate and the effective tax rate are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------- ---------------------
AMOUNT % AMOUNT %
--------- ----- -------- ------
<S> <C> <C> <C> <C>
Income tax benefit at statutory rate ...... $(185,555) (34.0)% $(29,179) (34.0)%
(Increase) decrease resulting from:
State income taxes, net of Federal tax
benefit .......................... (19,949) (3.6) (3,115) (3.6)
Valuation allowance (reversal) ....... (30,037) (5.5) 30,037 35.0
Other ................................ (1,297) (.3) 2,257 2.6
--------- ----- -------- ------
Income tax benefit ........................ $(236,838) (43.4)% $ -- --%
========= ===== ======== ======
</TABLE>
(continued)
14
<PAGE> 56
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1999 1998
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward .................... $179,783 --
Unrealized loss on securities available for sale ... 15,823 --
Organizational and start-up costs .................. 120,750 30,037
Depreciation ....................................... 3,213 --
Other .............................................. 38 --
-------- -------
Gross deferred tax assets .......................... 319,607 30,037
Less: Valuation allowance .............................. -- (30,037)
-------- -------
Net deferred tax assets ............................ 319,607 --
-------- -------
Deferred tax liabilities:
Accrual to cash conversion ......................... 53,084 --
Allowance for loan losses .......................... 13,861 --
-------- -------
Gross deferred tax liabilities ..................... 66,945 --
-------- -------
Net deferred tax asset ............................. $252,662 --
======== =======
</TABLE>
In 1998, a valuation allowance had been established to reduce the deferred
tax assets to an amount that management believed would ultimately be
realized. Realization of deferred tax assets is dependent upon
sufficient future taxable income during the period that temporary
differences and carryforwards are expected to be available to reduce
taxable income. Management believed sufficient uncertainty existed
regarding realizability of these items that a valuation allowance was
required at December 31, 1998. The reversal of the valuation allowance
during 1999 was due in part to management's reassessment of the
Company's ability to realize its net deferred tax asset in the future.
At December 31, 1999, the Company had a net operating loss carryforward of
approximately $478,000 available to offset future Federal and state
taxable income. The carryforward is due to expire in 2019.
(9) RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company may make loans at terms
and rates prevailing at the time to officers, directors and their
affiliates. At December 31, 1999, the total balance of loans to such
related parties was $48,286. As of the same date, these individuals and
entities had approximately $7,250 of funds on deposit with the Company.
(continued)
15
<PAGE> 57
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) COMMITMENT AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements.
(11) CREDIT RISK
The Company grants the majority of its loans to borrowers throughout
Sarasota County, Florida. Although the Company has a diversified loan
portfolio, a significant portion of its borrowers' ability to honor
their contracts is dependent upon the economy in Sarasota County,
Florida.
(12) STOCK OPTIONS
In 1999, the Company adopted both an Employee and a Director Stock Option
Plan. Under the Employee Stock Option Plan, the exercise price of the
stock options must at least equal the fair market value of the common
stock at the date of grant. Options granted under this plan are
exercisable for 10 years from date of grant and vest in increments of
20% per year commencing one year from grant date. A total of 28,000
shares of common stock have been reserved under this Plan. In 1999,
28,000 options were granted at $10 per share.
Under the Director Stock Option Plan, the exercise price of the stock
options is the fair market value of the common stock at the date of
grant. The options have a ten year term. These options vest in
increments of 20% per year commencing one year from grant date. A total
of 42,000 shares of common stock have been reserved under this Plan.
42,000 options were granted in 1999 at $10.00 per share.
<TABLE>
<CAPTION>
RANGE
OF PER WEIGHTED-
SHARE AVERAGE AGGREGATE
NUMBER OF OPTION PER SHARE OPTION
SHARES PRICE PRICE PRICE
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
Issued and outstanding at December 31, 1999....... 70,000 $ 10.00 10.00 700,000
====== ====== ===== =======
</TABLE>
The weighted-average remaining contractual life of the outstanding stock
options at December 31, 1999 was 116 months.
These options are exercisable as follows:
<TABLE>
<CAPTION>
NUMBER WEIGHTED-AVERAGE
YEAR ENDING OF SHARES EXERCISE PRICE
----------- --------- ----------------
<S> <C> <C>
2000 ......................................... 14,000 $ 10.00
2001 ......................................... 14,000 10.00
2002 ......................................... 14,000 10.00
2003 ......................................... 14,000 10.00
2004 ......................................... 14,000 10.00
------ -------
70,000 $ 10.00
====== =======
</TABLE>
(continued)
16
<PAGE> 58
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) STOCK OPTIONS, CONTINUED
The Statement requires pro forma fair value disclosures if the intrinsic
value method is being utilized. In order to calculate the fair value of
the options, it was assumed that the risk-free interest rate was 6.0%,
there would be no dividends paid by the Company over the exercise period,
the expected life of the options would be the entire exercise period and
stock volatility would be zero due to the lack of an active trading
market in the stock. For purposes of pro forma disclosures, the estimated
fair value is included in expense in the period vesting occurs:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
<S> <C>
Weighted-average grant-date fair value of options issued
during the year.................................................... $ 5.49
===========
Proforma net loss........................................................ $ (356,900)
===========
Per share, basic and diluted............................................. $ (1.08)
===========
</TABLE>
(13) REGULATORY MATTERS
Banking regulations place certain restrictions on dividends and loans or
advances made by the Bank to the Holding Company.
The Bank is subject to various regulatory capital requirements administered
by the regulatory banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and 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 their assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The capital amounts and classification
are also subject to qualitative judgements 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 percentages (set forth
in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier 1 capital
(as defined) to average assets (as defined). Management believes, as of
December 31, 1999, the Bank met all capital adequacy requirements to
which they are subject.
(continued)
17
<PAGE> 59
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) REGULATORY MATTERS, CONTINUED
As of December 31, 1999, the most recent notification from the regulatory
authorities categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, an institution must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage percentages as set
forth in the following table. There are no conditions or events since
that notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and percentages as of
December 31, 1999 are also presented in the table (dollars in
thousands).
<TABLE>
<CAPTION>
MINIMUM
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES: ACTION PROVISIONS:
----------------------- -------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
------- ------ ------ ---- ------ -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1999:
Total capital to Risk-
Weighted Assets ......... $ 5,314 113.77% $ 374 8.00% $ 467 10.00%
Tier I Capital to Risk-
Weighted Assets.......... 5,303 113.53 187 4.00 280 6.00%
Tier I Capital
to Average Assets........ 5,303 44.77 474 4.00 592 5.00%
</TABLE>
(14) COMPREHENSIVE INCOME
The Company has adopted SFAS 130, Reporting Comprehensive Income.
Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in net earnings (loss). Although
certain changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, are reported as a separate
component of the equity section of the balance sheet, such items along
with net earnings (loss), are components of comprehensive income. The
adoption of SFAS 130 had no effect on the Company's net loss or
stockholders' equity. The Company had no sales of securities in 1998.
The components of other comprehensive income and related tax effects in
1999 are as follows:
<TABLE>
<CAPTION>
BEFORE TAX AFTER
TAX EFFECT TAX
--------- ------ --------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1999:
Unrealized holding losses................................. $(42,584) 15,969 (26,615)
Reclassification adjustment for losses included
in net loss............................................. 390 (146) 244
--------- ------ -------
$(42,194) 15,823 (26,371)
======== ====== =======
</TABLE>
(continued)
18
<PAGE> 60
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) PARENT COMPANY ONLY FINANCIAL INFORMATION
The Holding Company's unconsolidated financial information is as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1999 1998
---------- --------
<S> <C> <C>
ASSETS
Cash ................................................... $ 56,609 4,774
Securities available for sale .......................... 365,028 --
Investment in subsidiary ............................... 5,564,185 --
Other assets ........................................... 8,418 65,946
---------- --------
Total assets ....................................... $5,994,240 70,720
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Other liabilities ...................................... 14,455 55,352
Other borrowings ....................................... -- 101,188
Stockholders' equity (deficit) ......................... 5,979,785 (85,820)
---------- --------
Total liabilities and stockholders' equity (deficit) $5,994,240 70,720
========== ========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL 1, 1998
(DATE OF
YEAR ENDED INCORPORATION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
------------ -----------------
<S> <C> <C>
Revenues ........................................... $ 31,551 --
Expenses ........................................... (15,592) (85,821)
--------- -------
Earnings (loss) before loss of subsidiary ...... 15,959 (85,821)
Loss of subsidiary ............................. (324,870) --
--------- -------
Net loss ....................................... $(308,911) (85,821)
========= =======
</TABLE>
(continued)
19
<PAGE> 61
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) PARENT COMPANY ONLY FINANCIAL INFORMATION, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL 1, 1998
(DATE OF
YEAR ENDED INCORPORATION) TO
DECEMBER 31, DECEMBER 31,
1999 1998
----------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $ (308,911) (85,821)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation .......................................... -- 866
Loss on sale of securities available for sale ......... 390 --
Equity in undistributed loss of subsidiary ............ 324,870 --
Net decrease (increase) in other assets ............... 57,528 (65,328)
Net (decrease) increase in other liabilities .......... (40,897) 55,352
----------- --------
Net cash provided by (used in) operating activities ... 32,980 (94,931)
----------- --------
Cash flows from investing activities:
Purchase of securities available for sale ................. (5,877,428) --
Sales and maturities of securities available for sale ..... 5,510,763 --
Purchase of premises and equipment ........................ -- (1,484)
Purchase of common stock of subsidiary .................... (5,914,179) --
----------- --------
Net cash used in investing activities ................. (6,280,844) (1,484)
----------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock .................... 6,400,887 1
Net (repayment) proceeds of other borrowings .............. (101,188) 101,188
----------- --------
Net cash provided by financing activities ............. 6,299,699 101,189
----------- --------
Net increase in cash and cash equivalents ...................... 51,835 4,774
Cash and cash equivalents at beginning of the period ........... 4,774 --
----------- --------
Cash and cash equivalents at end of period ..................... $ 56,609 4,774
=========== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest .................... $ -- 1,926
=========== ========
Noncash transactions:
Change in investment in subsidiary due to
change in accumulated other comprehensive
income (loss) ....................................... $ (25,124) --
=========== ========
Accumulated other comprehensive income
(loss), change in unrealized loss on securities
available for sale .................................. $ (1,247) --
=========== ========
</TABLE>
(continued)
20
<PAGE> 62
SUNCOAST BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) YEAR 2000 ISSUES
The Company's operating and financial systems have been found to be
compliant; the "Y2K Problem" has not adversely affected the Company's
operations nor does management expect that it will.
(17) SELECTED QUARTERLY RESULTS (UNAUDITED)
Selected quarterly results of operations for the four quarters ended
December 31, 1999 are as follows (in thousands, except share amounts):
<TABLE>
<CAPTION>
1999
---------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income ................................. $ 142 53 -- --
Interest expense ................................ 34 5 11 3
----- ---- --- ---
Net interest income (expense) ................... 108 48 (11) (3)
Provision for loan losses ....................... 10 1 -- --
----- ---- --- ---
Net interest income (expense) after provision for
loan losses ................................ 98 47 (11) (3)
Noninterest income .............................. 8 -- -- --
Noninterest expense ............................. 334 241 69 40
----- ---- --- ---
Losses before income benefit .................... (228) (194) (80) (43)
Income tax benefit .............................. (85) (151) -- --
----- ---- --- ---
Net losses ...................................... $(143) (43) (80) (43)
===== ==== === ===
Basic and diluted losses per common share ....... $(.20) (.07) * *
===== ==== === ===
</TABLE>
* Stock not sold until July 13, 1999
21
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be duly signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Sarasota, State of Florida, on the 8th day of March, 2000.
SUNCOAST BANCORP, INC.
/s/ John T. Stafford
------------------------------------------
President and Chief Executive Officer
/s/ John S. Wilks
------------------------------------------
Chief Financial Officer
(Principal financing officer and principal
accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on March 8, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Larry Berberich Director
- -----------------------------------------
Larry Berberich
/s/ Henry E. Black, M.D. Director
- -----------------------------------------
Henry E. Black, M.D.
/s/ H. R. Foxworthy Chairman of the Board; Director
- -----------------------------------------
H. R. Foxworthy
/s/ William F. Gnerre Executive Vice President, Secretary and Director
- -----------------------------------------
William F. Gnerre
/s/ James C. Rutledge Director
- -----------------------------------------
James C. Rutledge
/s/ John T. Stafford President and Chief Executive Officer and Director
- -----------------------------------------
John T. Stafford
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
<S> <C>
/s/ Stanley A. Williams Director
- -----------------------------------------
Stanley A. Williams
/s/ Roy A. Yahraus Director
- -----------------------------------------
Roy A. Yahraus
</TABLE>
<PAGE> 65
Suncoast Bancorp, Inc.
Form 10-KSB
For Fiscal Year Ending December 31, 1999
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
No. Exhibit No.
- ------- ------- ----
<S> <C> <C>
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 21.1
Suncoast Bancorp, Inc.
Form 10-KSB
For Fiscal Year Ended December 31, 1999
Subsidiaries of Registrant
Suncoast National Bank, incorporated under the laws
of the United States
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-KSB
for the year ended December 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 512
<INT-BEARING-DEPOSITS> 8,454
<FED-FUNDS-SOLD> 245
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,355
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 889
<ALLOWANCE> 11
<TOTAL-ASSETS> 16,681
<DEPOSITS> 5,241
<SHORT-TERM> 5,453
<LIABILITIES-OTHER> 7
<LONG-TERM> 0
0
0
<COMMON> 7
<OTHER-SE> 5,973
<TOTAL-LIABILITIES-AND-EQUITY> 16,681
<INTEREST-LOAN> 10
<INTEREST-INVEST> 121
<INTEREST-OTHER> 64
<INTEREST-TOTAL> 195
<INTEREST-DEPOSIT> 47
<INTEREST-EXPENSE> 54
<INTEREST-INCOME-NET> 141
<LOAN-LOSSES> 11
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 684
<INCOME-PRETAX> (546)
<INCOME-PRE-EXTRAORDINARY> (546)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (309)
<EPS-BASIC> (.94)
<EPS-DILUTED> (.94)
<YIELD-ACTUAL> 3.96
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 11
<ALLOWANCE-DOMESTIC> 11
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
